TIDMAAZ
RNS Number : 0987P
Anglo Asian Mining PLC
24 May 2018
Anglo Asian Mining plc / Ticker: AAZ / Index: AIM / Sector:
Mining
24 May 2018
Anglo Asian Mining PLC
Full year results - 2017
Anglo Asian Mining PLC ("Anglo Asian" or the "Company"), the AIM
listed gold, copper and silver producer focused in Azerbaijan, is
pleased to announce its final audited results for the year ended 31
December 2017 ("FY 2017"). Note that all references to "$" are to
United States Dollars.
Highlights
-- Achieved FY 2017 production in the top quartile of the
Company forecast - 71,461 gold equivalent ounces ("GEOs") produced
compared to forecast of 64,000 to 72,000 GEOs:
o Total production for FY 2017 was 71,461 GEOs (FY 2016: 72,304
GEOs)
o Gold production for FY 2017 of 59,617 ounces (FY 2016: 65,394
ounces)
o Copper production for FY 2017 of 1,991 tonnes (FY 2016: 1,941
tonnes)
o Silver production for FY 2017 of 172,853 ounces (FY 2016:
165,131 ounces)
-- Solid production despite significant exploration and
optimisation initiatives during the year which impacted operations
- foundations laid for increased production in FY 2018 with total
production target of between 78,000 and 84,000 GEOs
-- Gold bullion sales in FY 2017 of 43,496 ounces (FY 2016:
53,281 ounces) completed at an average of $1,265 per ounce (FY
2016: $1,253 per ounce)
-- All in sustaining cost of gold production further decreased
in the lowest quartile to $604 per ounce (2016: $616 per ounce)
-- Directors are planning for the payment of a maiden dividend
Financials
-- Total revenues in 2017 of $71.8 million (2016: $79.2 million)
-- Profit before taxation in 2017 of $5.7 million (2016: $6.8 million)
-- Operating cash flow before movements in working capital of
$32.2 million (2016: $33.9 million)
-- Net debt reduced to $18.1 million at 31 December 2017 (31
December 2016: $34.6 million) calculated as aggregate of loans and
borrowings less cash and cash equivalents
-- Cash position of $2.5 million as at 31 December 2017 (31 December 2016: $1.4 million)
Chairman's statement
2017 has been another profitable year for Anglo Asian during
which time your Company has also been transitioning into a
sustainable mining business. Our strategic review in early 2017 set
down clear objectives for the year to ensure long-term production
at Gedabek. These included commencing production from a new open
pit at Ugur in late 2017 together with other production and
optimisation initiatives. These objectives were successfully
executed during the year. I am especially pleased to report the
publication of the JORC resource for the Ugur deposit in August
2017 and the commencement of gold doré production from its open pit
mine the following month, less than a year after the deposit's
discovery.
I am pleased to report that total production in 2017 was broadly
in line with 2016. The reduction in mining and resulting lower
production, due to the strategic review, was offset by better than
anticipated production from Ugur. The Company is now benefitting
from those optimisation initiatives and we have set a production
target for 2018 significantly higher than 2017. The financial
position of Anglo Asian has also improved materially with net debt
almost halving in the year which significantly lowered interest
costs. The progress achieved by the Company during the year,
together with the recently started three-year programme of
geological exploration, will all further advance the delivery of
long-term value to shareholders and provide a sound basis for our
short-term objective of paying a maiden dividend.
Review of 2017 and 2018 to date
Anglo Asian produced a total of 71,461 gold equivalent ounces
("GEOs") of metal in 2017, marginally less than 72,304 GEOs ounces
in 2016. Total gold production was 59,617 ounces in 2017 compared
to 65,394 ounces in 2016. However, this was offset by a combination
of higher production and selling prices for copper and also higher
silver production. Copper production in 2017 was 1,991 tonnes, a
2.6 per cent. increase over 2016 of 1,941 tonnes and silver
production in 2017 was 172,853 ounces compared to 165,131 ounces in
2016. Gold bullion production in 2017 at 52,534 ounces was lower by
8,398 ounces compared to 60,932 ounces in 2016. This was a result
of lower output in the first nine months of the year following
implementation of the production optimisation strategy, which was
then partially offset by strong production in the last quarter, due
to the commencement of mining at the Ugur deposit.
Revenues in 2017 at $71.8 million were $7.4 million lower than
2016. The lower revenues in 2017 were due to an increase in gold
doré inventory at the end of 2017 compared to 2016 of just over two
thousand ounces and because a higher proportion of our gold was
sold as concentrate which achieves a lower sales value. The average
gold price in 2017 was marginally higher at $1,258 per ounce
compared to $1,253 per ounce in 2016 and the Company also
benefitted from higher copper prices with an average price of
$6,200 per metric tonne in 2017, being 27 per cent. higher than
2016. The Company continued to be subject to an effective royalty
on its revenues in 2017 of 12.75 per cent. of the value of its
production under the terms of its Production Sharing Agreement. The
basis of this royalty is explained in the financial review below.
The Company will continue to be subject to this effective royalty
of 12.75 per cent. until all its unrecovered costs for Gedabek are
utilised in accordance with the Production Sharing Agreement.
Unrecovered costs for Gedabek at the end of 2017 totalled $95
million (2016: $100 million) and our current business plans
indicate that these costs will not be fully recovered until at
least 2023 and the effective royalty of 12.75 per cent. will
therefore continue until then.
The Company's all in sustaining cost ("AISC") per ounce of gold
produced marginally reduced to $604 in 2017 compared to $616 in
2016. This partially offset the reduction in revenue and the
operating profit in 2017 was $9.2 million compared to $11.7 million
in 2016.
Cash from operations, despite the impact of the optimisation
initiatives in the year, increased marginally to $29.8 million from
$29.6 million in 2016. We continued to service our debt on time and
net debt reduced from $34.6 million at the end of 2016 to $18.1
million at the end of 2017. The Company also refinanced $13.5
million of its debt in early 2018 with a two-year syndicated loan
from banks primarily in Azerbaijan. This is a sign of the
confidence that Azeri banks have in our business and the new loan
substantially reduced our borrowing costs. It also resulted in the
release of $8.4 million in 2018 by extending the repayment of debt
principal into 2019. The new loan has no financial covenants and is
unsecured. We were pleased to repay in full the loan from our chief
executive, Reza Vaziri in March 2018 and I would like to thank Reza
for his confidence and commitment to the Company which has proved
to be amply justified.
The start of production from the new Ugur open pit mine in
September 2017 was a very significant milestone for the Company.
The discovery of the deposit, which is located three kilometres
north-west from our processing facilities at Gedabek, was announced
in October 2016. That we were able to bring the mine into
production in around one year was a tremendous success and
demonstrates our ability to rapidly exploit any future
opportunities which may arise. The start of production from Ugur
required the construction of a 4.6 kilometre access road through
very hilly terrain. The JORC (2012) resource estimation for the
Ugur gold deposit released in August 2017 shows a mineral resource
of 199,000 ounces of gold which is a valuable addition to our
resources and further advances the sustainability of the
Company.
The versatility of our processing facilities also proved
valuable in 2017 in helping to maintain production whilst the
strategic review was implemented. Initially in 2017, we used both
crushed ore as feedstock for the agitation leaching plant, with the
tailings treated by flotation and the reverse configuration with
crushed ore feedstock initially treated by flotation followed by
leaching. Following the start of mining from Ugur, the flotation
plant was temporarily placed on care and maintenance, as the Ugur
oxide-rich ores do not contain copper and only require treatment by
agitation leaching. To increase the overall utilisation of the
Company's processing facilities, a dedicated independent crusher
line for the flotation plant is being commissioned in the current
quarter of 2018. This will enable the two main plants to operate
independently of each other and will increase both the flexibility
and capacity of our processing facilities.
The Company continues to invest in infrastructure and plant to
reduce costs and improve both the productivity and sustainability
of its operations especially given the scarce water resources of
the region. During 2017, the construction and commissioning of a
water treatment plant at a cost of $3 million was completed which
uses the latest reverse osmosis technology. In the last few years,
Gedabek village has experienced water shortages in the summer and
this plant reduces to the absolute minimum the consumption of fresh
water required by the Company. The plant is now producing around
200,000 litres of purified water per day which is being used in
Gedabek's processing facilities. Additionally, the tailings dam
wall was raised by six metres, which gives the tailings dam
sufficient capacity for the next two to three years. We also
completed a second pipeline between our processing facilities and
the tailings dam to increase the volume of tailings which can be
discharged.
The Company's main operation is located at the village of
Gedabek in north-west Azerbaijan. The economy of the village and
the surrounding area has benefitted enormously over the years from
our operations. Gedabek village has been transformed with the
construction of much new infrastructure and many new buildings
including a new civic centre. New shops and restaurants are opening
in the village. The Company takes its corporate and social
responsibilities very seriously and in our 2017 annual report we
describe some of our initiatives to help the local community. These
include improving local water supplies, agricultural initiatives,
sporting enterprises and education with the construction of a
kindergarten. Including contractors, our operation now employs over
one thousand people in the local area.
The Gedabek site is now connected to the national electricity
power grid, and together with good road access, this provides
Gedabek with excellent infrastructure. The financial benefits of
our investments in infrastructure were evident in 2017 with fuel
and electricity costs $2 million lower in total than 2016 due to
the connection to the power grid. The Company's health and safety
record continues to improve with a reduction in the lost time
injury rate in 2017. We also expanded the health, safety and
environmental ("HSE") department in 2017.
We undertook significant geological exploration in 2017 as
described in the Strategic Report below and in March 2018 we
announced a significant three-year geological exploration
programme. This will build upon previous geological work and
includes near mine, brownfield and greenfield exploration. In 2018,
it is anticipated that 12,000 metres of reverse circulation, 17,500
metres of surface core and 14,000 metres of underground core
drilling will be carried out. A heli-borne electromagnetic survey
is also planned covering the entire Gedabek contract area and the
further potential of Gosha and Ordubad will be investigated. The
expected cost of the programme in 2018 is around $6 million, which
will be funded from internal resources. Gedabek has numerous known
mineral occurrences and our existing mines have further development
potential. We have also previously made significant finds of
commercially exploitable minerals. We therefore believe this
programme has the potential to significantly add value to your
Company.
Dividend
In order to reward shareholders following the significant
reduction in debt and anticipated surplus cash generation, the
Company is currently preparing a plan for the payment of dividends.
There are some legal and financial issues requiring consideration
before payment of a maiden dividend and the board is currently
working on these. The board will announce a dividend policy as soon
as practical and, in any event, an announcement is expected to be
made no later than the end of quarter three 2018.
Outlook
It is with continued optimism that I look forward to 2018 and
beyond. During the course of 2017 and early 2018 we have opened a
new mine and added to the Company's resources. We have also carried
out several initiatives to maintain and increase production from
our existing mines and have embarked on a three-year exploration
programme to further explore and develop the potential of Gedabek.
This progress has enabled us to target significantly higher
production for 2018 compared to the previous two years and we are
on track to achieve this target. It is also building on our strong
platform for sustained growth in production and development.
The Group has a production target for 2018 of between 78,000
ounces and 84,000 GEOs, an increase of over 13 per cent. compared
to total production of 71,461 GEOs in 2017. This includes between
64,000 ounces and 70,000 ounces of gold and between 2,100 tonnes
and 2,300 tonnes of copper. I look forward to updating shareholders
on our progress over the remainder of 2018.
Appreciation
I would like to take this opportunity to thank our Anglo Asian
employees, our partners, the Government of Azerbaijan, advisers and
fellow directors for their continued support as we continue to
build the Company into a leading and sustainable gold, copper and
silver producer in Azerbaijan and Caucasia. I would also like to
especially thank our shareholders for their invaluable support as
we look forward to a successful 2018.
Khosrow Zamani
Non-executive chairman
Market Abuse (MAR) Disclosure
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this
announcement.
For further information please visit www.angloasianmining.com or
contact:
Anglo Asian Mining Tel: +994 12 596
Reza Vaziri plc 3350
----------------- ------------------- ------------------
Anglo Asian Mining Tel: +994 502 910
Bill Morgan plc 400
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Anglo Asian Mining Tel: +994 502 916
Stephen Westhead plc 894
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Ewan Leggat SP Angel Corporate Tel: +44 (0) 20
Finance LLP 3470 0470
Nominated Adviser
and Broker
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Soltan Tagiev SP Angel Corporate Tel + 44 (0) 20
Finance LLP 3470 0470
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Susie Geliher St Brides Partners Tel: +44 (0) 20
Ltd 7236 1177
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Lottie Wadham St Brides Partners Tel: +44 (0) 20
Ltd 7236 1177
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Competent Person Statement
The information in the announcement that relates to exploration
results, minerals resources and ore reserves is based on
information compiled by Dr Stephen Westhead, who is a full time
employee of Anglo Asian Mining with the position of Director of
Geology & Mining, who is a Fellow of The Geological Society of
London, a Chartered Geologist, Fellow of the Society of Economic
Geologists, Member of The Institute of Materials, Minerals and
Mining and a Member of the Institute of Directors.
Stephen Westhead has sufficient experience that is relevant to
the style of mineralisation and type of deposit under consideration
and to the activity being undertaken to qualify as a Competent
Person as defined in the 2012 Edition of the 'Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore
Reserves'. Stephen Westhead consents to the inclusion in the
announcement of the matters based on his information in the form
and context in which it appears.
Stephen Westhead has sufficient experience, relevant to the
style of mineralisation and type of deposit under consideration and
to the activity that he is undertaking, to qualify as a "competent
person" as defined by the AIM rules. Stephen Westhead has reviewed
the resources and reserves included in this announcement.
The information in this announcement that relates to Exploration
Targets, Exploration Results, Mineral Resources or Ore Reserves is
based on information compiled by Dr Stephen Westhead, a Competent
Person who is a Member or Fellow of a 'Recognised Professional
Organisation' (RPO) included in a list that is posted on the
ASXwebsite from time to time (Chartered Geologist and Fellow of the
Geological Society and Member of the Institute of Material,
Minerals and Mining). Dr. Stephen Westhead is a full-time employee
of the Company.
Strategic report
Principal activities
The principal activity of Anglo Asian Mining PLC (the "Company")
is that of a holding company and a provider of support and
management services to its main operating subsidiary R.V.
Investment Group Services LLC. The Company, together with its
subsidiaries (the "Group"), owns and operates gold, silver and
copper producing properties in the Republic of Azerbaijan
("Azerbaijan"). It also explores for and develops other potential
gold and copper deposits in Azerbaijan.
The Group has a 1,962 square kilometre portfolio of gold, silver
and copper properties in western Azerbaijan, at various stages of
the development cycle. The Group's primary operating site is
Gedabek, which is the location of the Group's main gold, silver and
copper open pit mine, the Ugur open pit mine and Gadir, an
underground mine. The Group's processing facilities to produce gold
doré and copper, silver and gold concentrates are also located at
Gedabek. Gosha, the Group's second underground gold and silver
mine, is located 50 kilometres away from Gedabek. Ordubad, the
Group's early stage gold and copper exploration project is located
in Nakhchivan, South West Azerbaijan.
Overview of 2017 and 2018 production target
In early 2017, a wide-ranging strategic review of Gedabek was
completed in response to the discovery of the Ugur gold deposit and
the decreasing gold grade of ore mined in the main open pit. As a
result of this strategic review, several initiatives to ensure
sustainable long-term production at Gedabek were undertaken in
2017:
- A temporary reduction of ore production from both the Gedabek
main open pit and the Gadir underground mine, in order to carry out
exploration, ore zone definition and production optimisation. Any
ancillary ore mined during this time was stockpiled for later
processing.
- Development of the Ugur deposit so that mining could commence
from an open pit before the end of the year.
- Processing of the Company's extensive stockpiles of ore whilst
mining was suspended, with the flotation and agitation leaching
plants reconfigured to treat the high copper content of the
stockpiled ore to maintain production.
The Group has a production target for the year to 31 December
2018 of 64,000 ounces to 70,000 ounces of gold and 2,100 tonnes to
2,300 tonnes of copper. The total production target for the year to
31 December 2018 expressed as gold equivalent ounces ("GEOs") is
between 78,000 GEOs and 84,000 GEOs, compared to total production
for the year to 31 December 2017 of 71,461 GEOs.
Gedabek
Introduction
The Gedabek mining operation is located in a 300 square
kilometre contract area in the Lower Caucasus mountains in western
Azerbaijan on the Tethyan Tectonic Belt, one of the world's most
significant copper and gold-bearing geological structures. Gedabek
is the location of the Group's open pits and underground mines and
its processing facilities.
Gold was first poured from ore mined from the main open pit mine
and processed by heap leaching in May 2009. Copper and precious
metal concentrate production began in 2010 when the Sulphidisation,
Acidification, Recycling and Thickening (SART) plant was
commissioned. The Group's agitation leaching plant commenced
production in 2013 and its flotation plant in 2015. Underground
extraction of ore started in June 2015 when the Gadir mine was
opened. During 2017, the Group brought Ugur, a newly discovered
gold deposit three kilometres north-west of its processing
facilities, into production as an open pit mine.
Mineral resources
Key to the future development of the Gedabek site is our
knowledge of the mineral resources and ore reserves within the
contract area. The Group's most recent ore reserve estimate for its
main open pit was carried out as of 1 September 2014. This ore
reserve estimate showed an increase of approximately 3.9 million
tonnes of ore, after allowing for depletion due to mining, since
the previous estimate. It also showed a significantly higher copper
content than the previous estimate. Table 1 shows the main open pit
ore reserve estimate as at 1 September 2014.
Table 1 - Main open pit ore reserve estimate at 1 September
2014
Ore reserve
---------- -------------------------------------------------------------------------------------------------------------
In situ In situ grades Contained metal Recoverable metal
---------------------------- -------------------------------- --------------------------------
Reserve (tonnes) Au Cu (per Ag Au Cu Ag Au Cu Ag
category (g/t) cent.) (g/t) (ounces) (tonnes) (ounces) (ounces) (tonnes) (ounces)
---------- ----------- ------ ----------- ------- --------- --------- ---------- --------- --------- ----------
Proven 16,733,000 1.12 0.61 7.63 603,000 87,000 4,105,000 447,000 65,000 1,346,000
---------- ----------- ------ ----------- ------- --------- --------- ---------- --------- --------- ----------
Probable 3,761,000 0.68 0.40 6.12 82,000 15,000 740,000 58,000 11,000 268,000
---------- ----------- ------ ----------- ------- --------- --------- ---------- --------- --------- ----------
Total 20,494,000 1.03 0.50 7.35 685,000 102,000 4,845,000 505,000 76,000 1,614,000
---------- ----------- ------ ----------- ------- --------- --------- ---------- --------- --------- ----------
During 2017, the Group completed the JORC (2012) mineral
resource and ore reserve statements for the Ugur deposit. Table 2
shows the mineral resource estimate for the Ugur deposit and Table
3 shows the ore reserve estimate for the Ugur deposit.
Table 2 - Ugur mineral resource estimate at 1 August 2017
Mineral resource
---------------- -----------------------------------------------------
In situ grades Contained metal
---------- ----------------- ----------------------
Resource In situ Au Ag Au Ag*
category (tonnes) (g/t) (g/t) (ounces) (ounces)
---------------- ---------- -------- ------- ---------- ----------
Measured 4,120,000 1.2 6.3 164,000 841,000
---------------- ---------- -------- ------- ---------- ----------
Indicated 340,000 0.8 3.9 8,000 44,000
---------------- ---------- -------- ------- ---------- ----------
Measured
and indicated 4,460,000 1.2 6.2 172,000 884,000
---------------- ---------- -------- ------- ---------- ----------
Inferred 2,500,000 0.3 2.1 27,000 165,000
---------------- ---------- -------- ------- ---------- ----------
Total 6,960,000 0.9 4.7 199,000 1,049,000
---------------- ---------- -------- ------- ---------- ----------
* does not add due to rounding
Table 3 - Ugur ore reserves estimate at 1 August 2017
Ore reserves
------------ -----------------------------------------------------
In situ grades Contained metal
---------- ----------------- ----------------------
Reserve In situ Au Ag Au Ag
category (tonnes) (g/t) (g/t) (ounces) (ounces)
------------ ---------- -------- ------- ---------- ----------
Proved 3,370,000 1.3 7.2 142,000 779,000
------------ ---------- -------- ------- ---------- ----------
Probable 220,000 0.8 4.1 5,000 29,000
------------ ---------- -------- ------- ---------- ----------
Proved and
probable 3,590,000 1.3 7.0 147,000 808,000
------------ ---------- -------- ------- ---------- ----------
Mining operations
The principal mining operation at Gedabek is conventional open
cast mining from the main open pit (which comprises several
contiguous smaller open pits) and the new Ugur open pit. Ore is
first drilled and blasted and then transported either to a
processing facility or to a stockpile for storage. The major mining
activities of blast-hole drilling and haulage of ore and waste rock
are carried out by contractors, while blasting and mining
activities are carried out by the Company.
Production commenced from the new Ugur open pit mine in
September 2017. To enable production, a 4.6 kilometre road was
constructed between the mine and the Company's processing
facilities. All necessary surface infrastructure, including geology
and medical and HSE offices, hygiene facilities, mechanical
workshop, lubricants and spares stores, a weighbridge and diesel
store was also constructed at the minesite. Due to the composition
of the Ugur ore, initial mining of ore in the first few months of
operation, was by free digging with drill and blast not
required.
Ore is also mined from the Gadir underground mine which is
situated approximately one kilometre from the main open pit at the
Gedabek site. Table 4 shows the total amount of ore mined in 2017
from all the Company's mines at Gedabek (including Gosha).
Table 4 - Ore mined at Gedabek from all mines (including Gosha)
for the year ended 31 December 2017
Total ore mined
12 months to
31 December
2017
--------------------
Average
gold
Ore mined grade
Mine (tonnes) (g/t)
--------------------- ---------- --------
Main open pit 712,444 1.18
Ugur - open
pit 238,818 3.20
Gadir - underground 80,614 3.56
Gosha - underground 28,284 3.99
--------------------- ---------- --------
Total 1,060,160 1.89
===================== ========== ========
Mining activities were reduced in 2017 in the main open pit from
April and suspended from August to December. During this time, the
mining fleet was redeployed to develop and start production in the
Ugur open pit mine, where exploration, ore zone definition and
production optimisation was carried out. Mining was also
significantly reduced in 2017 in the Gadir underground mine to
allow further mine development, exploration and ore zone definition
to be carried out.
Processing operations
Ore is processed at Gedabek to produce either gold doré (an
alloy of gold and silver with small amounts of impurities) or a
copper and precious metal concentrate.
Gold doré is produced by cyanide leaching. Initial processing is
to leach (i.e. dissolve) the precious metal (and some copper) in a
cyanide solution. This is done by various methods:
1 Heap leaching of crushed ore. Crushed ore is heaped into
permeable "pads" onto which is sprayed a solution of cyanide. The
solution dissolves the metals as it percolates through the ore by
gravity and it is then collected.
2 Heap leaching of run of mine ("ROM") ore. The process is similar to heap leaching for
crushed ore, except the ore is not crushed, instead it is heaped
into pads as received from the mine (ROM) without further treatment
or crushing.
3 Agitation leaching. Prior to the construction of the flotation
plant, ore was crushed and then processed through a grinding
circuit. The finely ground ore is then placed in stirred
(agitation) tanks containing a cyanide solution and the contained
metal is dissolved in the solution. Subsequent to the construction
of the flotation plant, a further option is available to treat ore
in the agitation leaching plant. This is to process the finely
ground ore through the flotation plant prior to, or after treatment
by the agitation leaching plant.
Slurries produced by the above processes with dissolved metal in
solution are then transferred to a resin in pulp ("RIP") plant. A
synthetic ion exchange resin, in the form of small spherical
plastic beads designed to absorb gold selectively over copper and
silver, is placed in contact with the leach slurry or "pulp". After
separation from the pulp, the gold-loaded resin is treated with a
second solution, which "strips" (i.e. desorbs) the gold, plus the
small amounts of absorbed copper and silver, transferring the
metals from the resin back into solution. The gold and silver
dissolved in this final solution are recovered by electrolysis and
are then smelted to produce the doré metal, comprising an alloy of
gold and silver.
Copper and precious metal concentrates are produced by two
processes, SART processing and flotation.
1 Sulphidisation, Acidification, Recycling and Thickening
("SART"). The cyanide solution after metal absorption by resin in
pulp processing is transferred to the SART plant. The pH of the
solution is then changed by the addition of reagents. This
precipitates the copper from the solution in the form of a finely
divided copper sulphide concentrate containing silver and minor
amounts of gold. The process also recovers cyanide from the
solution, which is recycled back to leaching.
2 Flotation. Flotation is carried out in a separate flotation
plant. Feedstock, which can be either tailings from the agitation
leaching plant or freshly crushed and milled ore, is mixed with
water to produce a slurry called "pulp" and other reagents are then
added. This pulp is processed in flotation cells (tanks). The
flotation cells are agitated and air introduced as small bubbles.
The sulphide mineral particles attach to the air bubbles and float
to the surface where they form a froth which is collected. This
froth is dewatered to form a mineral concentrate containing copper,
gold and silver.
Initially, gold doré was produced at Gedabek only by heap
leaching crushed and agglomerated ore. Heap leaching is a low
capital cost method of production commonly used by mines when they
first move into production. Ore at Gedabek is being crushed to less
than 25mm in size and the resultant gold recovery is approximately
60 per cent. to 70 per cent of the contained gold over leaching
cycles which extend typically beyond one year.
To increase gold recoveries and production, in 2013 the Group
constructed an agitation leaching plant. Compared to heap leaching,
agitation leaching can deliver higher recoveries of gold without
long leaching cycles. Heap leach pads also require considerable
space for their construction and due to the topology of the Gedabek
site, this was a constraint. The capacity of the agitation leaching
plant was increased in 2016 by the installation of a second
semi-autogenous grinding ("SAG") mill.
The ore at Gedabek is polymetallic containing significant
amounts of copper. Initially, the SART processing plant was
constructed to recover some of the copper as a copper and precious
metal chemical concentrate. However, to further exploit the high
copper content of the Group's ore reserves, the Group constructed a
flotation plant whose function is primarily to produce a
copper-rich mineral concentrate, containing gold and silver as
by-products. The flotation plant commenced production in November
2015.
The flotation plant has the flexibility to be configured for
various methods of operation. Initially in 2017, gold doré and
copper concentrate was produced by using ground ore as feedstock
for the agitation leaching plant, with the leached tailings being
treated by flotation. This configuration was reversed from early
February with ground ore feedstock initially treated by flotation,
prior to agitation leaching. This was to treat the high
copper-content ore stockpiles whilst production optimisation was
carried out. With commencement of mining from the Ugur open pit in
September 2017, the Ugur ore, which is copper free, was treated by
agitation leaching only and the flotation plant was temporarily put
on care and maintenance. To improve the total processing capacity
of the plants and enable their independent operation, a second,
dedicated crusher line for the flotation plant was procured for
$3.0 million, including site works, and which is being commissioned
in the current quarter of 2018.
Production and sales
For the year ended 31 December 2017, total gold production as
doré bars and as a constituent of the copper and precious metal
concentrate totalled 59,617 ounces, which was a decrease of 5,777
ounces in comparison to the production of 65,394 ounces for the
year ended 31 December 2016.
Table 5 summarises the amount of ore and its gold grade
processed by heap and agitation leaching for the year ended 31
December 2017.
Table 5 - Amount of ore and its grade processed at Gedabek for
the year ended 31 December 2017
Amount of ore processed Gold grade of ore
Quarter ended (tonnes) processed (g/t)
-------------------------------- ------------------------------
Heap Heap Agitation Heap Heap Agitation
leach leach leach leach
pad pad pad pad
(Crushed (ROM leaching (Crushed (ROM leaching
ore) ore) plant ore) ore) plant
--------------- --------- -------- ----------- --------- ------- ----------
31 March
2017 110,348 102,622 184,074 1.00 0.87 1.52
30 June 2017 162,147 115,559 179,454 1.05 0.89 1.77
30 September
2017 173,616 87,979 176,997 1.02 0.95 2.04
31 December
2017 201,097 99,046 211,421 0.86 0.68 2.92
--------------- --------- -------- ----------- --------- ------- ----------
Total for
the year 647,208 405,206 751,946 0.97 0.85 2.10
--------------- ========= ======== =========== ========= ======= ==========
Table 6 summarises the gold and silver bullion produced as doré
bars and sales of gold bullion for the year ended 31 December
2017.
Table 6 - Gold and silver bullion produced from doré bars and
sales of gold bullion for the year ended 31 December 2017
Quarter ended Gold produced* Silver Gold Gold sales
(ounces) produced* Sales** price
(ounces) (ounces) ($/ounce)
-------------- -------------- ----------- ---------- ----------
31 March
2017 9,258 2,447 8,283 1,220
30 June 2017 9,131 3,266 7,406 1,258
30 September
2017 12,221 4,381 9,287 1,286
31 December
2017 21,924 12,634 18,520 1,278
-------------- -------------- ----------- ---------- ----------
Total for
the year 52,534 22,728 43,496 1,265
-------------- -------------- ----------- ---------- ----------
*including Government of Azerbaijan's share.
** excludes Government of Azerbaijan's share.
Table 7 summarises the total copper, gold and silver produced as
concentrate by both SART processing and flotation processing for
the year ended 31 December 2017.
Table 7 - Total copper and precious metal produced as
concentrate for the year ended 31 December 2017
Copper (tonnes) Gold (ounces) Silver (ounces)
------------------------- ------------------------- -----------------------------
Quarter ended SART Flotation Total SART Flotation Total SART Flotation Total
--------------- ----- ---------- ------ ----- ---------- ------ ------- ---------- --------
31 March
2017 210 396 606 5 1,815 1,820 5,523 31,399 36,922
30 June 2017 187 529 716 4 3,005 3,009 4,717 37,735 42,452
30 September
2017 165 385 550 4 2,243 2,247 9,097 26,810 35,907
31 December
2017 119 - 119 7 - 7 34,844 - 34,844
--------------- ----- ---------- ------ ----- ---------- ------ ------- ---------- --------
Total for
the year 681 1,310 1,991 20 7,063 7,083 54,181 95,944 150,125
=============== ===== ========== ====== ===== ========== ====== ======= ========== ========
Table 8 summarises the total copper and precious metal
concentrate production and sales from both SART processing and
flotation processing for the year ended 31 December 2017.
Table 8 - Total copper concentrate production and sales during
the year ended 31 December 2017
Concentrate Copper Gold Silver Concentrate Concentrate
Production* Content* Content* Content* Sales Sales
Quarter ended (dmt) (tonnes) (ounces) (ounces) (dmt) ($000)
--------------- ------------- ---------- ---------- ---------- ------------ ------------
31 March
2017 2,740 606 1,820 36,922 2,230 4,220
30 June 2017 3,622 716 3,009 42,452 3,166 6,104
30 September
2017 2,712 550 2,247 35,907 2,905 5,480
31 December
2017 256 119 7 34,844 196 977
--------------- ------------- ---------- ---------- ---------- ------------ ------------
Total for
the year 9,330 1,991 7,083 150,125 8,497 16,781
=============== ============= ========== ========== ========== ============ ============
*including Government of Azerbaijan share
Infrastructure
The Gedabek contract area is served by excellent infrastructure.
The main site is located at the village of Gedabek which is
connected by a good tarmacadam road to the regional capital of
Ganja. Baku, the capital of Azerbaijan to the south and the
country's border with Georgia to the north, are both approximately
a four to five-hour drive over excellent roads. The site is
connected to the Azeri national power grid and there is a dedicated
sub-station located at the main Gedabek processing facilities.
Water management
During 2017, the construction and commissioning of a water
treatment plant at a cost of $3 million was completed which uses
the latest reverse osmosis technology. In the last few years,
Gedabek village has experienced water shortages in the summer and
this plant reduces to the absolute minimum the consumption of fresh
water required by the Company. The plant is now producing around
200,000 litres of pure water per day which is being used in
Gedabek's processing facilities.
The wastewater evaporation equipment is now also deployed in the
tailings dam. This is mobile, skid mounted equipment into which
water is pumped without treatment direct from the tailings dam. The
equipment then evaporates the water by jetting it into the
atmosphere as a fine spray. It can evaporate approximately 25
litres per second of water depending upon climatic conditions.
Tailings (waste) storage
The Company is very mindful of the importance of proper storage
of tailings both for efficient operation of its processing plants
and to fulfil its environmental responsibilities. The Company
stores its tailings in a purpose-built dam approximately seven
kilometres from its processing facilities, topographically at a
lower level than the processing plant, thus allowing gravity
assistance of tailings in the slurry pipeline. Immediately
downstream of the tailings dam is a reed bed biological treatment
system to purify any seepage from the dam before discharge into the
nearby Shamkir river.
During 2017, the wall of the tailings dam was raised by six
metres. This has increased the capacity of the tailings dam from
3.2 million cubic metres to 4.3 million cubic metres. A second
pipeline from the Company's processing facilities to the tailings
dam was also completed.
Health, safety and environmental
The health and safety of our employees and the protection of the
environment in and around our mine properties are prime concerns
for the Company's board and senior management team. The health,
safety and environmental ("HSE") department at Gedabek has a
qualified HSE manager, who is assisted by HSE officers. Overall
strategy for HSE matters in the Company is overseen by the HSE and
technical committee, which is chaired by a board director,
Professor John Monhemius. The HSE and technical committee meets
twice a year at the Gedabek site.
During 2017, there were 45 (2016: 58) reportable safety
incidents, of which two (2016: five) were lost time incidents
("LTI"), where the casualty had to take time off work. Both staff
injured in 2017 made a full recovery.
During 2017, the Health and Safety department was expanded to
cover the Company's growing operations. Three new HSE officers were
recruited and the number of staff in the department totalled 11 at
the end of 2017. The Company's growing experience of mining is
resulting in increased safety with fewer incidents occurring.
Exploration at Gedabek site
A significant exploration programme was carried out in 2017.
Gedabek open pit
During the temporary reduction and suspension of mining in 2017,
ore zone definition activity to define the gold and the copper-gold
distribution was carried out. 48 surface core drill holes with a
total length of 4,219 metres and 75 reverse circulation drill holes
with a total length of 4,170 metres were completed. All the core
and reverse circulation cuttings were geologically logged, sampled
and assayed. In addition, production and grade control drilling was
carried out, which included 61 reverse circulation drill holes with
a total length of 2,135 metres and 7,480 bench drill holes with a
total length of 20,903 metres. Database development continued and
the results confirm the presence of copper mineralisation.
Areas adjacent to the Gedabek open pit
A mineral occurrence adjacent to the main open pit is located at
a south-west corner of the prospecting area at a distance of 2.8
kilometres. Structural mapping has defined one quartz vein with
pyrite phenocrysts at a north-east strike with a dip to the
north-west at an angle of 70 degrees. Based on the geology of the
area, 30 trench and grab samples were taken and analysed. The
results show the presence of gold at around 0.15 to 0.8 grammes per
tonne and silver at 1.0 to 10.0 grammes per tonne. Although these
grades are not high, they do indicate the presence of gold on the
surface which warrants further exploratory work and possible
follow-up drilling.
Gedabek open pit - underground
As part of investigating the future potential of the Gedabek
mine, exploration activity commenced to ascertain whether
sufficient mineralisation exists under the pit to consider
underground mining beneath the pit. This will allow for planning
simultaneous open pit and underground mining or estimating the
timing of an open pit to underground mining transition. To access
the area beneath the pit, a tunnel was constructed from the
existing Gadir underground mine to a point at the northern end of
the Gedabek main open pit ("Pit Four").
Some 606 metres of tunnelling was completed to access the target
area. The tunnelling intersected mineralisation between the target
and Gadir, as well as at the target destination. At the end of the
tunnel at the Pit Four location, initial drilling was carried out
using BQ underground core drilling to assess mineralisation
adjacent to the main drive. Over 271 metres of drilling was
completed which showed significant mineralisation. The tunnelling
will provide access for further drill chambers to assess the
mineralisation between Gadir and the main open pit. The
intersections have been modelled independently and show continuous
zones that can be considered for mining.
Gadir underground mine
During 2017, ten surface core drill holes with a total length of
4,407 metres and 63 underground core drill holes (HQ/NQ diameter)
with a total length of 5,043 metres were completed. 3,340 metres of
underground sidewall and tunnel roof mapping was also completed.
This work resulted in defining zones for the continuation of mining
and extended the down dip footprint of the mineralisation.
In addition, underground mine work continued in 2017 for both
exploration and development and for production activities as
follows:
Metres
------------------------------------------ -------
Development Spiral ramp development 386
------------- --------------------------- -------
Tunnelling to access
"Pit 4" Gedabek 606
----------------------------------------- -------
Tunnelling to exploration
drill sites 441
----------------------------------------- -------
Production Tunnelling 1,554
------------- --------------------------- -------
Raise work 150
----------------------------------------- -------
As part of the mining activity, the following geological work
was also conducted:
-- 64 drill holes of BQ size core with a total length of 1,816
metres were drilled for ore definition;
-- 3,340 metres of sidewall and roof geological mapping was completed; and
-- 2,761 metres of channel sampling for zone definition was completed.
Ugur
Exploration activity in 2017 continued that of 2016 with the
purpose of completing the JORC (2012) resource and reserve
statements for the deposit and to bring the deposit into
production. The exploration activity in 2017 included the
following;
-- 48 core drill holes with a total length of 5,054 metres;
-- 40 reverse circulation drill holes with a total length of 3,700 metres;
-- 435 outcrop samples; and
-- 100,000 square-metres of detailed
lithological-alteration-structural mapping was completed (over the
central part of the deposit).
Soyudlu
The Soyudlu mineralisation area is located about two kilometres
to the south from the village of Soyudlu at the confluence of the
Missu and Parakendsu rivers. 150 outcrop and 8 stream samples were
collected. All samples were prepared and assayed, and the results
imported to the geological database. The samples showed sufficient
mineralisation to indicate that the area warrants follow-up
exploration work.
Gosha
The Group's second mining project, the 300 square kilometre
Gosha contract area, is located in western Azerbaijan, 50
kilometres north-west of Gedabek. Gosha is being operated as a
small, high grade, underground gold mine.
A total of 28,284 tonnes of ore of average gold grade 3.99
grammes per tonne were mined at Gosha in the year ended 31 December
2017.
Ordubad
Our 462 square kilometre Ordubad contract area is located in
Nakhchivan, South West Azerbaijan and contains numerous targets
including Shakardara, Piyazbashi, Misdag, Agyurt, Shalala and
Diakchay, all of which are located within a five kilometre radius
of each other. The Group's efforts in 2017 were focused on
Shakardara which is located in the central area of the Ordubad
contract area.
The presence of gold was first discovered at Shakardara around
1956 to 1958. Soviet geologists estimated resources for the main
vein zone of 2.6 million tonnes of ore containing 3.7 tonnes of
gold, 8.8 tonnes of silver and 4.01 tonnes of copper, but these
estimates have never been substantiated. Based on recent
understanding of porphyry style mineralisations, a reassessment of
the deposit is currently being carried out.
Exploration in 2017 included resampling from existing adits and
surface trenching. Table 9 summarises the exploration work
completed in 2017 at Ordubad.
Table 9 - Exploration work at Ordubad in 2017
Activity Unit of measurement Result
---------------------------- --------------------------- -------
Geological outcrop
sampling Number of samples 140
---------------------------- --------------------------- -------
Surface geochemical
sampling Area in square kilometres 91
---------------------------- --------------------------- -------
Trenching Linear in metres 1,797
---------------------------- --------------------------- -------
Volume in cubic
metres 449
-------------------------------------------------------- -------
Trench samples Number of samples 1,160
---------------------------- --------------------------- -------
Underground mapping Linear in metres 1,374
---------------------------- --------------------------- -------
Channel sampling Linear in metres 470
---------------------------- --------------------------- -------
Number of samples 458
-------------------------------------------------------- -------
Road cleaning Linear in metres 11,750
---------------------------- --------------------------- -------
Underground rehabilitation Linear in metres 1,130
---------------------------- --------------------------- -------
Sale of the Group's products
Important to the Group's success is the ability to transport its
products to market and sell them without disruption.
The Group ships all of its gold doré to MKS Finance SA in
Switzerland. The logistics of transport and sale are well
established and gold doré shipped from Gedabek arrives in
Switzerland within three to five days. The proceeds of the
estimated 90 per cent. of the gold content of the doré is settled
within one to two days of receipt of the doré. The Group has not
experienced any disruptions to its sale of metal due to logistics
or delays in customs clearance. MKS Finance SA both refines and
then purchases our precious metal; all assays and a full accounting
of all metal are agreed with them.
The Gedabek mine site has good road transportation links and our
copper and precious metal concentrate is collected from the Gedabek
site by the purchaser. The Group was pleased to announce in May
2014 that it had signed an exclusive three-year contract with
Industrial Minerals SA, a Swiss-based integrated trading, mining
and logistics group, for the sale of its SART copper concentrate.
The Group has again experienced no delays in the sale of its copper
concentrate in the period under review. In March 2016, the Group
signed an additional contract with Industrial Minerals SA for the
sale of the concentrate produced by its flotation plant, which had
improved terms. The second contract is valid for the period to 31
December 2018. Prior to March 2016, sales of concentrate produced
by the flotation plant were made under the original contract.
Principal risks and uncertainties
Country risk in Azerbaijan
The Group currently operates solely in Azerbaijan and is
therefore naturally at risk of adverse changes to the regulatory or
fiscal regime within the country. However, Azerbaijan is outward
looking and desirous of attracting direct foreign investment and
the Company believes the country will be sensitive to the adverse
effect of any proposed changes in the future. In addition,
Azerbaijan has historically had a stable operating environment and
the Company maintains very close links with all relevant
authorities.
Operational risk
The Company currently produces all its products for sale at
Gedabek. Planned production may not be achieved as a result of
unforeseen operational problems, machinery malfunction or other
disruptions. Operating costs and profits for commercial production
therefore remain subject to variation. The Group monitors
production on a daily basis and has robust procedures in place to
effectively manage these risks.
Commodity price risk
The Group's revenues are exposed to fluctuations in the price of
gold, silver and copper and all fluctuations have a direct impact
on the operating profit and cash flow of the Group. Whilst the
Group has no control over the selling price of its commodities, it
has very robust cost controls to minimise costs to ensure it can
withstand any prolonged period of commodity price weakness.
The Group actively monitors all changes in commodity prices to
understand the impact on the business. The Group hedges future
sales of gold bullion when the directors believe it is beneficial
to the Company. The directors periodically review the requirement
for hedging.
Foreign currency risk
The Group reports in United States Dollars and a large
proportion of its costs are incurred in United States Dollars. It
also conducts business in Australian Dollars, Azerbaijan Manats and
United Kingdom Sterling. The Group does not currently hedge its
exposure to other currencies, although it will review this
periodically if the volume of non-United States Dollar transactions
increases significantly. Also, the fact that both revenue of the
Group and the Group's interest bearing debt are settled in United
States Dollars is a key mitigating factor that helps to avoid
significant exposure to foreign currency risk. Information on the
carrying value of monetary assets and liabilities denominated in
foreign currency and the sensitivity analysis of foreign currency
is disclosed in note 24 to the financial statements below.
Liquidity and interest rate risk
During 2017, interest rates on loans payable were fixed except
for the three month LIBOR embedded in the terms of the Amsterdam
Trade Bank ("ATB") and Gazprombank (Switzerland) Ltd ("GPBS")
loans. The loans from ATB and GPBS were repaid in March 2018 and
since then the interest rates on all loans have been fixed. The
Group has not used any interest rate swaps or other instruments to
manage its interest rate profile during 2017, but this requirement
is reviewed on a periodic basis. Information on the exposure to
changing interest rates is disclosed in note 24 to the financial
statements below. The approval of the board of directors is
required for all new borrowing facilities.
The levels of deposits held by the Group have also been low;
therefore, any impact of changing rates on interest receivable is
minimal.
Key performance indicators
The Group has adopted certain key performance indicators
("KPIs") which enable it to measure its financial performance.
These KPIs are as follows:
1. Profit before taxation. This is the key performance indicator
used by the Group. It gives insight into cost management,
production growth and performance efficiency.
2. Net cash provided by operating activities. This is a
complementary measure to profit before taxation and demonstrates
conversion of underlying earnings into cash. It provides additional
insight into how we are managing costs and increasing efficiency
and productivity across the business in order to deliver increasing
returns.
3. All in sustaining cost ("AISC") per ounce. AISC is a widely
used, standardised industry metric and is a measure of how our
operation compares to other producers in the industry. AISC is
calculated in accordance with the World Gold Council's Guidance
Note on Non-GAAP Metrics dated 27 June 2013. The AISC calculation
includes a credit for the revenue generated from the sale of copper
and silver which are classified by the Group as by-products. There
are no royalty costs included in the Company's AISC calculation as
the Production Sharing Agreement with the Government of Azerbaijan
is structured as a production sharing arrangement. Therefore, the
Company's AISC is calculated using a cost of sales which is the
cost of producing 100 per cent. of the gold and such costs are
allocated to total gold production including the Government of
Azerbaijan's share.
Financial review
Group statement of income
The Group generated revenues in 2017 of $71.8m (2016: $79.2m)
from the sales of gold and silver bullion and copper and precious
metal concentrate.
The revenues in 2017 included $55.4m (2016: $66.9m) generated
from the sales of gold and silver bullion from the Group's share of
the production of doré bars. Bullion sales in 2017 were 43,496
ounces of gold and 18,442 ounces of silver (2016: 53,281 ounces of
gold and 9,512 ounces of silver) at an average price of $1,265 per
ounce and $17 per ounce respectively (2016: $1,253 per ounce and
$17 per ounce respectively). In addition, the Group generated
revenue of $16.4m (2016: $12.3m) from the sale of 8,497 (2016:
6,830) dry metric tonnes of copper and precious metal
concentrate.
The Group did not hedge any metal sales during 2017.
The Group incurred cost of sales in 2017 of $56.8m (2016:
$62.8m). The cash cost of mining and processing in 2017 decreased
by $7.5m from $46.6m in 2016 to $39.1m in 2017. Reagents cost
decreased by $4.4m due to improving operational efficiency and the
processing of Ugur ores which do not contain copper. Fuel costs
were lower by $3.9m as the Gedabek site did not generate its own
electrical power in 2017. The lower fuel cost was partially offset
by electricity and other utility costs which increased by $1.8m as
the Group purchased electricity for Gedabek.
Depreciation and amortisation in 2017 was higher at $22.8m
compared to $22.0m in 2016. Accumulated mine development costs
within producing mines are depreciated and amortised on a
unit-of-production basis over the economically recoverable reserves
of the mine concerned, except in the case of assets whose useful
life is shorter than the life of the mine, in which case the
straight line method is applied. The unit of account for run of
mine ("ROM") costs and for post-ROM costs is recoverable ounces of
gold.
The Group had other income in 2017 of $0.6m (2016: $1.4m) which
was interest receivable on a loan to a former employee and other
miscellaneous income. The Group incurred administration expenses in
2017 of $4.7m (2016: $4.9m). The Group's administration expenses
comprise the cost of the administrative staff and associated costs
at the Gedabek mine site, the Baku office and maintaining the
Group's listing on AIM. The majority of the administration costs
are incurred in either Azerbaijan New Manats or UK Sterling, both
of which were weaker against the United States dollar in 2017
compared to 2016. This resulted in lower administration costs when
the costs were translated into United States dollars. Finance costs
in 2017 were $3.5m (2016: $4.9m) and comprise interest on the
credit facilities and loans, interest on letters of credit and
accretion expenses on the rehabilitation provision. The costs
reduced in the year due to both a reduction in the average debt in
2017 and a reduction in the average interest rate on the debt.
The Group recorded a profit before taxation in 2017 of $5.7m
compared to $6.8m in 2016. This was due to lower revenues and
higher depreciation in 2017 partially offset by a lower all in
sustaining cost of gold production and finance costs.
The Group had a taxation charge in 2017 of $3.2m (2016: $2.8m).
This comprised a current income tax charge of $nil (2016: $nil) and
a deferred tax charge of $3.2m (2016: $2.8m). The Group had no
current taxation charge in 2017 or 2016 as the taxable profits
incurred by its operating company in Azerbaijan were offset against
taxable losses brought forward from previous years. Tax losses
carried forward at end 2017 were $4.7m (2016: $19.2m). The taxable
profits of the operating company in Azerbaijan are taxed at 32 per
cent. However, the Group's overall tax rate in 2017 was 56 per cent
(2016: 41 per cent). The overall tax rate is higher than 32 per
cent. because the UK administrative costs and depreciation of
mining rights in Azerbaijan cannot be offset against the taxable
profits arising in Azerbaijan. These costs in 2017 totalled $3.1m
(2016: $2.9m).
All in sustaining cost of gold production
The Group produced gold at an all in sustaining cost ("AISC")
per ounce of $604 in 2017 compared to $616 in 2016. The Group
reports its cash cost as an AISC calculated in accordance with the
World Gold Council's guidance which is a standardised metric in the
industry. The reason for the marginal decrease in 2017 compared to
2016 was due to the decrease in cash operating costs partially
offset by a higher sustaining capital charge, lower by-product
credits and lower gold production.
Group statement of financial position
Non-current assets decreased from $116.4m at the end of 2016 to
$104.4m at the end of 2017. The main reasons for the decrease were
intangible assets lower by $0.7m and property, plant and equipment
lower by $11.1m. These decreases were due to depreciation and
amortisation in the year.
There were net current assets of $12.6m at the end of 2017
compared to $3.6m at the end of 2016. The main reason for the
increase in current assets was a decrease in trade and other
payables of $6.7m and current portion of loans payable of $6.1m.
The Group's cash balances at 31 December 2017 were $2.5m (2016:
$1.4m).
Net assets of the Group at the end of 2017 were $85.4m (2016:
$82.6m). The increase was due to the profit earned in 2017 and the
issue of shares during the year. During 2017, 1,100,000 ordinary
shares were issued at 12 pence per share. This increased the net
assets of the Group by $0.2m.
The Group is financed by a mixture of equity and debt. The
Group's total debt at 31 December 2017 was $20.7m, a significant
reduction from $35.9m in 2016. The significant reduction of debt in
2017 was mainly due to cash generation resulting in the repayment
of loans made for the construction of the agitation leaching plant
from the International Bank of Azerbaijan, the Amsterdam Trade Bank
and Gazprombank (Switzerland) ("ATB/GPBS"). Principal repayments
were made totalling $13.7m. The only material new borrowing in 2017
was a $3.0m loan from Pasha Bank OJSC.
The Group continues to reduce the weighted average interest rate
payable on its borrowings through either refinancing debt at lower
interest rates or negotiating lower interest rates with banks in
respect of existing loans. The weighted average interest rate on
its debt at end 2017 was 8 per cent (2016: 10 per cent.).
As set out in note 28 to the financial statements below - "Post
Balance Sheet Event", the Group refinanced a significant portion of
its debt and repaid the loan from the chief executive in February
and March 2018. The only covenant contained within the Group's loan
facilities at end 2017 was the debt service coverage ratio covenant
in the loan from ATB/GPBS. This loan was repaid in 2018 from the
refinancing and the Group does not currently have any borrowings
which are subject to financial covenants or that are secured.
Group cash flow statement
Operating cash inflow before movements in working capital was
$32.2m (2016: $33.9m). The main source of operating cash flow was
the profit before taxation before the non-cash charges of
depreciation and amortisation in 2017 of $28.4m (2016: $28.7m)
after adding back the finance costs of $3.5m (2016: $4.9m).
Working capital movements absorbed cash of $2.4m (2016: $4.3m)
largely due to a decrease in trade and other payables of $4.6m
(2016: increase of $3.8m).
Income tax paid was $nil (2016: $nil). The Group generated
taxable profits in 2017 due to its profitability but these were
relieved by taxable losses brought forward from previous years.
Cash from operations in 2017 was $29.8m compared to $29.6m in
2016. The lower operating cash inflow before movements in working
capital was offset by a lower absorption by working capital.
Expenditure on property, plant and equipment and mine
development was $9.4m (2016: $10.7m). The main items of expenditure
in 2017 were capitalisation of deferred stripping and development
costs of the main open pit of $3.7m, the raise of the tailings dam
wall and second tailings pipeline of $1.7m, Ugur and Gadir
development of $1.4m and the water treatment plant of $1.2m.
Exploration and evaluation expenditure in 2017 of $1.0m (2016:
$0.4m) was incurred and capitalised. This arose on exploration at
the Gedabek and Ordubad mining properties.
Production Sharing Agreement
Under the terms of the Production Sharing Agreement ("PSA") with
the Government of Azerbaijan ("Government"), the Group and the
Government share the commercial products of each mine. The
Government's share is 51 per cent. of "Profit Production". Profit
Production is defined as the value of production, less all capital
and operating cash costs incurred during the period when the
production took place. Profit Production for any period is subject
to a minimum of 25 per cent. of the value of the production. This
is to ensure the Government always receives a share of production.
The minimum Profit Production is applied when the total capital and
operating cash costs (including any unrecovered costs from previous
periods) are greater than 75 per cent. of the value of production.
All operating and capital cash costs in excess of 75 per cent. of
the value of production can be carried forward indefinitely, and
set off against the value of future production.
Profit Production for the Group has been subject to the minimum
25 per cent. for all years since commencement of production
including 2017. The Government's share of production in 2017 (as in
all previous years) was therefore 12.75 per cent. being 51 per
cent. of 25 per cent. with the Group entitled to the remaining
87.25 per cent. The Group was therefore subject to an effective
royalty on its revenues in 2017 of 12.75 per cent. of the value of
its production.
The Group can recover the following costs in accordance with the
PSA:
-- all direct operating expenses of the Gedabek mine;
-- all exploration expenses incurred on the Gedabek contract area;
-- all capital expenditure incurred on the Gedabek mine;
-- an allocation of corporate overheads - currently, overheads
are apportioned to Gedabek according to the ratio of direct capital
and operating expenditure at the Gedabek contract area compared
with direct capital and operational expenditure at the Gosha and
Ordubad contract areas; and
-- an imputed interest rate of United States Dollar LIBOR + 4
per cent. per annum on any unrecovered costs.
Unrecovered costs are calculated separately for the three
contract areas of Gedabek, Gosha and Ordubad and can only be
recovered against production from their respective contract areas.
The total unrecovered costs for the Gedabek and Gosha contract
areas at end 2017 were $94.6m and $21.8m respectively (2016: $99.8m
and $21.8m respectively).
Going concern
The directors have prepared the Group financial statements on a
going concern basis after reviewing the Group's forecast cash
position for the period to 30 June 2019 and satisfying themselves
that the Group will have sufficient funds on hand to realise its
assets and meet its obligations as and when they fall due.
In making this assessment, the directors have acknowledged the
uncertain market conditions in which the Group is operating. In
2017, the price of gold averaged $1,258 per ounce with a high of
$1,346 per ounce and a low of $1,151 per ounce and the price of
copper averaged $6,200 per tonne with a high of $7,289 per tonne
and a low of $5,486 per tonne. The Group has substantially, though,
reduced its net debt during 2017 from $34.6 million at 1 January to
$18.1 million at 31 December and is also forecasting higher
production in 2018 compared to 2017.
In early 2018, the Group refinanced a significant amount of its
existing debt with a syndicated loan from Pasha Bank and other
banks (the "Refinancing Loan"). The Refinancing Loan has a lower
interest rate and a later maturity date than the loans repaid. The
Group also renegotiated a lower rate of interest on certain of its
loans which were not refinanced.
The Group has made all payments of interest and principal of its
debt in line with agreement of its lenders.
Key to achieving the Group's forecast cash position, and
therefore its going concern assumption are the following:
- achieving the forecast production of gold doré from its heap
and agitation leaching facilities.
- achieving its forecast production of copper and precious metal
concentrates from its SART and flotation processing facilities
- its metal (principally gold and copper) price assumptions being met or bettered.
The Group repaid its loans from Amsterdam Trade Bank and
Gazprombank (Switzerland) Ltd. in February 2018 from the proceeds
of the Refinancing Loan. The Refinancing Loan does not contain any
financial covenants. The Group no longer has any borrowings which
are subject to financial covenants.
Should there be a sustained decrease in either the production or
metal price assumptions, there would be an impact on the Group's
short-term cash position, although the Group is forecasting to
maintain reasonable cash headroom during the period of the cash
forecast. Under this circumstance, the Group could also look to
defer all non-essential capital expenditure and administrative
costs in order to further preserve cash. The Group also has access
to local sources of short term finance should this be required. The
Group's assumptions are neither overly aggressive or overly
conservative and appropriate rigour and diligence has been
performed by the directors in approving the assumptions. The
directors believe all assumptions are prepared on a realistic basis
using the best available information.
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
can be found within the chairman's statement and the strategic
report above. The financial position of the Group, its cash flow,
liquidity position and borrowing facilities are discussed in the
financial review. In addition, note 24 to the Group financial
statements includes the Group's objectives, details of its
financial instrument exposures to credit risk and liquidity
risk.
After making due enquiry, the directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future.
Accordingly, the Group continues to adopt the going concern basis
in preparing the annual report and financial statements.
Reza Vaziri
President and chief executive
Group statement of income
year ended 31 December 2017
2017 2016
Notes $000 $000
Revenue 6 71,806 79,184
Cost of sales 8 (56,825) (62,770)
-------------------------------------- ------ --------- ---------
Gross profit 14,981 16,414
Other income 7 584 1,375
Administrative expenses (4,745) (4,931)
Other operating expense 7 (1,598) (1,144)
-------------------------------------- ------ --------- ---------
Operating profit 8 9,222 11,714
Finance costs 11 (3,538) (4,935)
-------------------------------------- ------ --------- ---------
Profit before tax 5,684 6,779
Income tax 12 (3,164) (2,795)
-------------------------------------- ------ --------- ---------
Profit attributable to the equity
holders of the parent 2,520 3,984
-------------------------------------- ------ --------- ---------
Profit per share attributable
to the equity holders of the parent
Basic (US cents per share) 13 2.23 3.55
Diluted (US cents per share) 13 2.22 3.55
-------------------------------------- ------ --------- ---------
Group statement of comprehensive income
year ended 31 December 2017
2017 2016
$000 $000
Profit for the year 2,520 3,984
------------------------------------ ------ ------
Total comprehensive profit 2,520 3,984
------------------------------------ ------ ------
Attributable to the equity holders
of the parent 2,520 3,984
------------------------------------ ------ ------
Group statement of financial position
31 December 2017
2017 2016
Notes $000 $000
------------------------------- ------ --------- ---------
Non-current assets
Intangible assets 14 16,145 16,848
Property, plant and equipment 15 87,387 98,476
Other receivables 17 875 1,084
------------------------------- ------ --------- ---------
104,407 116,408
------------------------------- ------ --------- ---------
Current assets
Inventory 18 33,980 34,018
Trade and other receivables 17 11,276 16,250
Cash and cash equivalents 19 2,534 1,379
------------------------------- ------ --------- ---------
47,790 51,647
------------------------------- ------ --------- ---------
Total assets 152,197 168,055
------------------------------- ------ --------- ---------
Current liabilities
Trade and other payables 20 (15,170) (21,833)
Interest-bearing loans and
borrowings 21 (20,051) (26,165)
------------------------------- ------ --------- ---------
(35,221) (47,998)
------------------------------- ------ --------- ---------
Net current assets 12,569 3,649
------------------------------- ------ --------- ---------
Non-current liabilities
Provision for rehabilitation 23 (9,629) (9,416)
Interest-bearing loans and
borrowings 21 (600) (9,765)
Deferred tax liability 12 (21,394) (18,230)
------------------------------- ------ --------- ---------
(31,623) (37,411)
------------------------------- ------ --------- ---------
Total liabilities (66,844) (85,409)
------------------------------- ------ --------- ---------
Net assets 85,353 82,646
------------------------------- ------ --------- ---------
Equity
Share capital 25 2,008 1,993
Share premium account 32,484 32,325
Share-based payment reserve 74 154
Merger reserve 25 46,206 46,206
Retained earnings 4,581 1,968
------------------------------- ------ --------- ---------
Total equity 85,353 82,646
------------------------------- ------ --------- ---------
Group statement of cash flows
year ended 31 December 2017
2017 2016
Notes $000 $000
------------------------------------- ------ ------------------- -------------------
Cash flows from operating
activities
Profit before tax 5,684 6,779
Adjustments to reconcile profit
before tax to net cash flows:
Finance costs 11 3,538 4,935
Depreciation of property,
plant and equipment 15 21,008 20,080
Amortisation of mining rights
and other intangible assets 14 1,778 1,884
Share-based payment expense 26 13 18
Foreign exchange gain, net 7 - (138)
Write down of advances paid 7 - 353
Write down of irrecoverable 179 -
inventory
------------------------------------- ------ ------------------- -------------------
Operating cash flow before
movement in working capital 32,200 33,911
Decrease / (increase) in trade
and other receivables 2,342 (2,805)
Increase in inventories (142) (5,278)
(Decrease ) / increase in
trade and other payables (4,565) 3,751
------------------------------------- ------ ------------------- -------------------
Cash from operations 29,835 29,579
Income taxes paid - -
------------------------------------- ------ ------------------- -------------------
Net cash flow from operating
activities 29,835 29,579
------------------------------------- ------ ------------------- -------------------
Cash flows from investing
activities
Expenditure on property, plant
and equipment and mine development (9,397) (10,679)
Investment in exploration
and evaluation assets including
other intangible assets (1,075) (359)
Net cash used in investing
activities (10,472) (11,038)
------------------------------------- ------ ------------------- -------------------
Cash flows from financing
activities
Proceeds from issue of shares 25 174 -
Proceeds from borrowings 22 8,796 14,083
Repayments of borrowings 22 (24,116) (27,544)
Interest paid (3,062) (3,950)
------------------------------------- ------ ------------------- -------------------
Net cash used in financing
activities (18,208) (17,411)
------------------------------------- ------ ------------------- -------------------
Net increase in cash and cash
equivalents 1,155 1,130
Cash and cash equivalents
at the beginning of the year 19 1,379 249
------------------------------------- ------ ------------------- -------------------
Cash and cash equivalents
at the end of the year 19 2,534 1,379
------------------------------------- ------ ------------------- -------------------
Group statement of changes in equity
year ended 31 December 2017
Share-based Retained
Share Share payment Merger earnings Total
capital premium reserve reserve /(loss) equity
Notes $000 $000 $000 $000 $000 $000
--------------- ------ --------- --------- ------------ --------- ----------- --------
1 January
2016 1,993 32,325 283 46,206 (2,163) 78,644
Profit for
the year - - - - 3,984 3,984
Fair value
of expired
options - - (147) - 147 -
Share-based
payment 26 - - 18 - - 18
--------------- ------ --------- --------- ------------ --------- ----------- --------
31 December
2016 1,993 32,325 154 46,206 1,968 82,646
Profit for
the year - - - - 2,520 2,520
Shares issued 25 15 159 - - - 174
Share options
exercised 26 - - (82) - 82 -
Fair value
of expired
options - - (11) - 11 -
Share-based
payment 26 - - 13 - - 13
--------------- ------ --------- --------- ------------ --------- ----------- --------
31 December
2017 2,008 32,484 74 46,206 4,581 85,353
--------------- ------ --------- --------- ------------ --------- ----------- --------
Notes
1 General information
Anglo Asian Mining PLC (the "Company") is a company incorporated
in England and Wales under the Companies Act 2006. The Company's
ordinary shares are traded on the AIM market of the London Stock
Exchange. The Company is a holding company. The principal
activities and place of business of the Company and its
subsidiaries (the "Group") are set out in note 16, and the
chairman's statement and strategic report above.
2 Basis of preparation
The financial information set out above, which was approved by
the board of directors on 23 May 2018, has been prepared in
accordance with International Financial Reporting Standards
("IFRS") adopted by the European Union and therefore the Group
financial statements comply with Article 4 of the EU IAS
Regulation.
The financial information set out above has been prepared using
accounting policies set out in note 4 which are consistent with all
applicable IFRSs and with those parts of the Companies Act 2006
applicable to companies reporting under IFRSs. For these purposes,
IFRSs comprises the standards issued by the International
Accounting Standards Board and interpretations issued by the
International Financial Reporting Interpretations Committee that
have been endorsed by the European Union.
The financial information set out above has been prepared under
the historical cost convention except for the treatment of
share-based payments. The Group financial statements are presented
in United States Dollars ("$") and all values are rounded to the
nearest thousand except where otherwise stated. In the Group
financial statements "GBP" and "pence" are references to the United
Kingdom pound sterling.
The board of directors assessed the ability of the Group to
continue as a going concern and these financial statements have
been prepared on a going concern basis. The directors have prepared
the Group financial statements on a going concern basis after
reviewing the Group's forecast cash position for the period to 30
June 2019 and satisfying themselves that the Group will have
sufficient funds on hand to realise its assets and meet its
obligations as and when they fall due.
In making this assessment, the directors have acknowledged the
uncertain market conditions in which the Group is operating. In
2017, the price of gold averaged $1,258 per ounce with a high of
$1,346 per ounce and a low of $1,151 per ounce and the price of
copper averaged $6,200 per tonne with a high of $7,289 per tonne
and a low of $5,486 per tonne. The Group has substantially, though,
reduced its net debt during 2017 from $34.6 million at 1 January to
$18.1 million at 31 December and is also forecasting higher
production in 2018 compared to 2017.
In early 2018, the Group refinanced a significant amount of its
existing debt with a syndicated loan from Pasha Bank and other
banks (the "Refinancing Loan"). The Refinancing Loan has a lower
interest rate and a later maturity date than the loans repaid. The
Group also renegotiated a lower rate of interest on certain of its
loans which were not refinanced. The Group has made all payments of
interest and principal of its debt in line with agreement of its
lenders.
Key to achieving the Group's forecast cash position, and
therefore its going concern assumption are the following:
- achieving the forecast production of gold doré from its heap
and agitation leaching facilities.
- achieving its forecast production of copper and precious metal
concentrates from its SART and flotation processing facilities
- its metal (principally gold and copper) price assumptions being met or bettered.
The Group repaid its loans from Amsterdam Trade Bank and
Gazprombank (Switzerland) Ltd. in February 2018 from the proceeds
of the Refinancing Loan. The Refinancing Loan does not contain any
financial covenants. The Group no longer has any borrowings which
are subject to financial covenants.
Should there be a sustained decrease in either the production or
metal price assumptions, there would be an impact on the Group's
short term cash position, although the Group is forecasting to
maintain reasonable cash headroom during the period of the cash
forecast. Under this circumstance, the Group could also look to
defer all non-essential capital expenditure and administrative
costs in order to further preserve cash. The Group also has access
to local sources of short term finance should this be required. The
Group's assumptions are neither overly aggressive or overly
conservative and appropriate rigour and diligence has been
performed by the directors in approving the assumptions. The
directors believe all assumptions are prepared on a realistic basis
using the best available information.
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
can be found within the chairman's statement and strategic report
above. The financial position of the Group, its cash flow,
liquidity position and borrowing facilities are discussed in the
financial review. In addition, note 24 to the Group financial
statements includes the Group's objectives, details of its
financial instrument exposures to credit risk and liquidity
risk.
After making due enquiry, the directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future.
Accordingly, the Group continues to adopt the going concern basis
in preparing the annual report and financial statements.
3 Adoption of new and revised standards
a) New and amended standards and interpretations
The Group applied, for the first time, certain amendments to the
standards, which are effective for annual periods beginning on or
after 1 January 2017. The Group has not early adopted any
standards, interpretations or amendments that have been issued but
are not yet effective.
Several other amendments apply for the first time in 2017.
However, they do not impact the annual consolidated financial
statements of the Group or the interim condensed consolidated
financial statements of the Group and, hence, have not been
disclosed.
The nature and the effect of these changes are disclosed below.
Although these new standards and amendments applied for the first
time in 2017, they did not have a material impact on the annual
consolidated financial statements of the Group. Other than the
changes described below, the accounting policies are consistent
with those of the previous financial year.
Amendments to IAS 7 'Statement of Cash Flows'
The amendment require entities to provide disclosure of changes
in their liabilities arising from financing activities, including
both changes arising from cash flows and non-cash changes (such as
foreign exchange gains or losses). The Group has provided the
information for both the current and the comparative period in note
22 below.
b) Standards issued but not yet effective
The standards and interpretations that are issued, but not yet
effective, up to the date of issuance of the financial statements
that the Group reasonably expects will have an impact on its
disclosures, financial position or performance when applied at a
future date, are disclosed below. The Group intends to adopt these
standards when they become effective. The standards and
interpretations that are issued, but not yet effective, up to the
date of issuance of the financial statements that are not expected
to impact the Group have not been listed below.
IFRS 9 'Financial Instruments'
In July 2014, the IASB issued the final version of IFRS 9
'Financial Instruments' that replaces IAS 39 and all previous
versions of IFRS 9. IFRS 9 brings together all three aspects of the
accounting for the financial instruments project; classification
and measurement, impairment and hedge accounting. IFRS 9 is
effective for annual periods beginning on or after 1 January 2018,
with early adoption permitted. Except for hedge accounting,
retrospective application is required, but the provision of
comparative information is not compulsory. For hedge accounting,
the requirements are generally applied prospectively, with some
limited exceptions.
The Group plans to adopt the new standard on the required
effective date. The Group has assessed the impacts of implementing
IFRS 9 but these are not expected to be significant. The Group's
only significant financial instruments are cash and cash
equivalents, trade and other debtors, interest bearing loans
payable and trade creditors. The Group does not have any long term
loans, equity instruments or "non-vanilla" financial assets or
liabilities or currently carry out any hedging activity. All
financial instruments are included in the Group's statement of
financial position at values which approximate to their fair value.
It is not expected that IFRS 9 will have any effect on the
classification, initial recognition or subsequent measurement of
the Group's financial instruments.
IFRS 9 requires the Group to use an expected credit loss model
for its trade receivables measured at amortised cost. The Group
will apply the simplified approach and record lifetime expected
losses on all trade receivables measured at amortised cost, however
considering the short term nature of these receivables, the Group
does not expect these changes will have a significant impact.
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 was issued in May 2014 and amended in April 2016, and
establishes a five-step model to account for revenue arising from
contracts with customers. Under IFRS 15, revenue is recognised at
an amount that reflects the consideration to which an entity
expects to be entitled in exchange for transferring goods or
services to a customer. The new revenue standard will supersede all
current revenue recognition requirements under IFRS. Either a full
retrospective application or a modified retrospective application
is required for annual periods beginning on or after 1 January
2018. Early adoption is permitted.
The Group plans to adopt the new standard on the required
effective date using the modified retrospective method. The Group
is currently assessing the impact of the changes of IFRS 15, but
these are not expected to be materially significant. The only
significant revenues of the Group are sales of gold and silver
bullion to its gold refiner and sales of copper concentrate to its
off-taker. In both cases, sales are only recognised when the buyer
takes physical possession of the goods and priced at the current
market price as follows:
-- Sales of gold and silver bullion are only made when the
precious metals are physically at the refinery and at the spot
metal price on date of sale.
-- Sales of each shipment of copper concentrate are invoiced
when the off-taker takes physical delivery of each shipment at the
Group's factory gate and provisionally priced using a recent prior
period average metal price. A final invoice for each shipment is
issued within the next one to two months and is again priced using
a recent prior period average metal price. The Group does not
separately account for the embedded derivate in each transaction as
the short one to two month transaction cycle would result in any
change to the Group's financial statements being immaterial.
IFRS 16 'Leases'
IFRS 16 was issued in January 2016 and it replaces IAS 17
'Leases', IFRIC 4 'Determining whether an Arrangement contains a
lease', SIC - 15 'Operating Leases - Incentives' and SIC -27
'Evaluation the Substance of Transactions Involving the Legal Form
of a lease', IFRS 16 sets out the principles for the recognition
measurement, presentation and disclosure of leases and requires
lessees to account for all leases under a single on balance sheet
model similar to the accounting for finance leases under IAS 17.
The standard includes two recognition exemptions for lessees -
leases of 'low-value' assets (e.g. personal computers) and
short-term leases (i.e. Ieases with a lease term of 12 months or
less). At the commencement date of a lease, a lessee will recognise
a liability to make lease payments (i.e. the lease liability) and
an asset representing the right to use the underlying asset during
the lease term (i.e. the right-of-use asset). Lessees will be
required to separately recognise the interest expense on the lease
liability and the depreciation expense on the right-of-use
asset.
Lessees will be also required to remeasure the lease liability
upon the occurrence of certain events (e.g. a change in the lease
term or a change in future lease payments resulting from a change
in an index or rate used to determine those payments). The lessee
will generally recognise the amount of the remeasurement of the
lease liability as an adjustment to the right-of-use asset.
Lessor accounting under IFRS 16 is substantially unchanged from
today's accounting under IAS 17. Lessors will continue to classify
all leases using the same classification principle as in IAS 17 and
distinguish between two types of leases: operating and finance
leases.
IFRS 16 also requires lessees and lessors to make more extensive
disclosures than under IAS 17.
IFRS 16 is effective for annual periods beginning on or after 1
January 2019. Early application is permitted, but not before an
entity applies IFRS 15. A lessee can choose to apply the standard
using either a full retrospective or a modified retrospective
approach. The standard's transition provisions permit certain
reliefs.
As disclosed in note 27 below, the Group has no significant
leases and therefore IFRS 16 is not expected to have any materially
significant effect on its financial statements.
4 Significant accounting policies
4.1) Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Group and its subsidiaries as at 31 December
2017. Control is achieved when the Group is exposed, or has rights,
to variable returns from its involvement with the investee and has
the ability to affect those returns through its power over the
investee. Specifically, the Group controls an investee if, and only
if, the Group has:
-- power over the investee (i.e. existing rights that give it
the current ability to direct the relevant
activities of the investee);
-- exposure, or rights, to variable returns from its involvement with the investee; and
-- the ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting
rights result in control. To support this presumption and when the
Group has less than a majority of the voting or similar rights of
an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee,
including:
-- the contractual arrangement with the other vote holders of the investee;
-- rights arising from other contractual arrangements; and
-- the Group's voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a
subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the
subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in
the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the
subsidiary.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
The financial statements of the subsidiaries are prepared for
the same reporting period as the parent company, using consistent
accounting policies.
4.2) Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be
reliably measured.
Revenue from the sale of goods is recognised when the
significant risks and rewards of ownership have been transferred,
which is considered to occur when title passes to the customer.
This generally occurs when product is physically transferred to the
buyer.
The following criteria are also met in specific revenue
transactions:
(i) Gold bullion and copper concentrate sales
Revenue from gold bullion sales is recognised when the
significant risks and rewards of ownership have transferred to the
buyer and selling prices and assay results are known or can be
reasonably estimated. Assay results determine the content of gold
and silver in doré, the price of which is determined based on
market quotations of each metal. Silver in doré which is produced
together with gold, is treated as a by-product and recognised in
sales revenue.
Contractual terms for the Group's sale of gold, silver and
copper in concentrate (metal in concentrate) allow for a price
adjustment based on final assay results of the metal in concentrate
to determine the final content. Recognition of sales revenue for
these commodities is based on the most recently determined estimate
of metal in concentrate (based on initial assay results) and the
spot price at the date of shipment, with a subsequent adjustment
made upon final determination.
Contractual terms with third parties for the sale of metal in
concentrate specify a provisional selling price based on the
average prevailing spot prices at date of shipment to the customer.
Final selling price is based on average prevailing spot prices
during a specified future period after shipment to the customer
(the "quotation period"). Sales revenue for the sale of metal in
concentrate is recognised at final selling price.
(ii) Interest revenue
Interest revenue is recognised as it accrues, using the
effective interest rate method.
4.3) Leases
The determination of whether an arrangement is, or contains, a
lease is based on the substance of the arrangement at inception
date and whether fulfilment of the arrangement is dependent on the
use of a specific asset or assets or the arrangement conveys a
right to use the asset.
Operating lease payments are recognised as an expense in the
Group income statement on a straight line basis over the lease
term.
The Group had no finance leases during 2017 and 2016.
4.4) Taxation
i) Current and deferred income taxes
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the Group financial statements and the corresponding tax bases
used in the computation of taxable profit and is accounted for
using the balance sheet liability method. Deferred tax liabilities
are generally recognised for all taxable temporary differences and
deferred tax assets are recognised for all deductible temporary
differences, carry forward of unused tax assets and unused tax
losses. Deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences and the carry forward of unused
tax credits and unused tax losses can be utilised.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised, based on tax rates (and tax laws) that have been enacted
or substantively enacted at the reporting date. Deferred tax is
charged or credited in the Group income statement, except when it
relates to items charged or credited directly to equity, in which
case the deferred tax is also dealt with in equity.
Deferred tax assets are not recognised in respect of temporary
differences relating to tax losses where there is insufficient
evidence that the asset will be recovered. Unrecognised deferred
tax assets are reassessed at each reporting date and are recognised
to the extent that it has become probable that future taxable
profits will allow the deferred tax asset to be recovered. Deferred
tax assets and liabilities are classified as non-current assets ans
liabilities.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
Group income statement because it excludes items of income or
expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted at the reporting
date.
The tax expense represents the sum of the tax currently payable
and deferred tax.
ii) Value-added taxes ("VAT")
The Group pays VAT on purchases made in both the Republic of
Azerbaijan and the United Kingdom. Under both jurisdictions, VAT
paid is refundable. Azerbaijani jurisdiction permits offset of an
Azerbaijani VAT credit against other taxes payable to the state
budget.
4.5) Transactions with related parties
For the purposes of these Group financial statements, parties
are considered to be related:
-- where one party has the ability to control the other party or
exercise significant influence over the other party in making
financial or operational decisions;
-- entities under common control; and
-- key management personnel
In considering each possible related party relationship,
attention is directed to the substance of the relationship, not
merely the legal form.
Related parties may enter into transactions which unrelated
parties might not and transactions between related parties may not
be effected on the same terms, conditions and amounts as
transactions between unrelated parties.
It is the nature of transactions with related parties that they
cannot be presumed to be carried out on an arm's length basis.
4.6) Borrowing costs
Borrowing costs directly relating to the acquisition,
construction or production of a qualifying capital project under
construction are capitalised and added to the project cost during
construction until such time the assets are considered
substantially ready for their intended use i.e. when they are
capable of commercial production. Where funds are borrowed
specifically to finance a project, the amount capitalised
represents the actual borrowing costs incurred. Where surplus funds
are available for a short term out of money borrowed specifically
to finance a project, the income generated from the temporary
investment of such amounts is also capitalised and deducted from
the total capitalised borrowing cost. Where the funds used to
finance a project form part of general borrowings, the amount
capitalised is calculated using a weighted average of rates
applicable to relevant general borrowings of the Group during the
period. All other borrowing costs are recognised in the Group
income statement in the period in which they are incurred.
Even though exploration and evaluation assets can be qualifying
assets, they generally do not meet the 'probable economic benefits'
test. Any related borrowing costs are therefore generally
recognised in the Group income statement in the period they are
incurred.
4.7) Intangible assets
i) Exploration and evaluation assets
The costs of exploration properties and leases, which include
the cost of acquiring prospective properties and exploration rights
and costs incurred in exploration and evaluation activities, are
capitalised as intangible assets as part of exploration and
evaluation assets.
Exploration and evaluation assets are carried forward during the
exploration and evaluation stage and are assessed for impairment in
accordance with the indicators of impairment as set out in IFRS 6
'Exploration for and Evaluation of Mineral Resources'.
In circumstances where a property is abandoned, the cumulative
capitalised costs relating to the property are written off in the
period. No amortisation is charged prior to the commencement of
production.
Once commercially viable reserves are established and
development is sanctioned, exploration and evaluation assets are
tested for impairment and transferred to assets under
construction.
Upon transfer of Exploration and evaluation costs into Assets
under construction, all subsequent expenditure on the construction,
installation or completion of infrastructure facilities is
capitalised within Assets under construction.
When commercial production commences, exploration, evaluation
and development costs previously capitalised are amortised over the
commercial reserves of the mining property on a units-of-production
basis.
Exploration and evaluation costs incurred after commercial
production start date in relation to evaluation of potential
mineral reserves and resources that are expected to result in
increase of reserves are capitalised as Evaluation and exploration
assets within intangible assets. Once there is evidence that
reserves are increased, such costs are tested for impairment and
transferred to Producing mines.
ii) Mining rights
Mining rights are carried at cost to the Group less any
provisions for impairments which result from evaluations and
assessments of potential mineral recoveries and accumulated
depletion. Mining rights are depleted on the units-of-production
basis over the total reserves of the relevant area.
iii) Other intangible assets
Other intangible assets mainly represent the cost paid to
landowners for the use of land ancillary to our mining operations.
They are depreciated over the respective terms of right to use the
land.
Intangible assets with finite lives are amortised over the
useful economic life and assessed for impairment whenever there is
an indication that the intangible asset may be impaired. The
amortisation period and the amortisation method for an intangible
asset with a finite useful life is reviewed at least at each
reporting date. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the
asset are accounted for by changing the amortisation period or
method, as appropriate, and are treated as changes in accounting
estimates. The amortisation expense on intangible assets with
finite lives is recognised in the Group income statement in the
expense category consistent with the function of the intangible
asset.
Gains or losses arising from derecognition of an intangible
asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognised in
the Group income statement when the asset is derecognised.
4.8) Property, plant and equipment and mine properties
Development expenditure is net of proceeds from all but the
incidental sale of ore extracted during the development phase.
Upon completion of mine construction, the assets initially
charged to assets in the course of construction are transferred
into 'Plant and equipment, motor vehicles and leasehold
improvements' or 'Producing mines'. Items of 'Plant and equipment,
motor vehicles and leasehold improvements' and 'Producing mines'
are stated at cost, less accumulated depreciation and accumulated
impairment losses.
During the production period expenditures directly attributable
to the construction of each individual asset are capitalised as
'Assets' in the course of construction up to the period when asset
is ready to be put into operation. When an asset is put into
operation it is transferred to 'Plant and equipment, motor vehicles
and leasehold improvements' or 'Producing mines'. Additional
capitalised costs performed subsequent to the date of commencement
of operation of the asset are charged directly to 'Plant and
equipment, motor vehicles and leasehold improvements' or 'Producing
mines', i.e. where the asset itself was transferred.
The initial cost of an asset comprises its purchase price or
construction cost, any costs directly attributable to bringing the
asset into operation, the initial estimate of the rehabilitation
obligation and, for qualifying assets, borrowing costs. The
purchase price or construction cost is the aggregate amount paid
and the fair value of any other consideration given to acquire the
asset.
When a mine construction project moves into the production
stage, the capitalisation of certain mine construction costs ceases
and costs are either regarded as inventory or expensed, except for
costs which qualify for capitalisation relating to mining asset
additions or improvements, underground mine development or mineable
reserve development.
i) Depreciation and amortisation
Accumulated mine development costs within producing mines are
depreciated and amortised on a units-of-production basis over the
economically recoverable reserves of the mine concerned, except in
the case of assets whose useful life is shorter than the life of
the mine, in which case the straight line method is applied. The
unit of account for run of mine ("ROM") costs and for post-ROM
costs is recoverable ounces of gold. The units-of-production rate
for the depreciation and amortisation of mine development costs
takes into account expenditures incurred to date.
The premium paid in excess of the intrinsic value of land to
gain access is amortised over the life of the mine on a
units-of-production basis.
Other plant and equipment such as mobile mine equipment is
generally depreciated on a straight line basis over their estimated
useful lives as follows:
-- Temporary buildings - eight years (2016: eight years)
-- Plant and equipment - eight years (2016: eight years)
-- Motor vehicles - four years (2016: four years)
-- Office equipment - four years (2016: four years)
-- Leasehold improvements - eight years (2016: eight years)
An item of property, plant and equipment, and any significant
part initially recognised, is derecognised upon disposal or when no
future economic benefits are expected from its use or disposal. Any
gain or loss arising on derecognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the Group income statement when
the asset is derecognised.
The asset's residual values, useful lives and methods of
depreciation and amortisation are reviewed at each reporting date
and adjusted prospectively if appropriate.
ii) Major maintenance and repairs
Expenditure on major maintenance refits or repairs comprises the
cost of replacement assets or parts of assets and overhaul costs.
Where an asset or part of an asset that was separately depreciated
and is now written off is replaced, and it is probable that future
economic benefits associated with the item will flow to the Group
through an extended life, the expenditure is capitalised.
Where part of the asset was not separately considered as a
component, the replacement value is used to estimate the carrying
amount of the replaced assets which is immediately written off. All
other day-to-day maintenance costs are expensed as incurred.
4.9) Impairment of tangible and intangible assets
The Group conducts annual internal assessments of the carrying
values of tangible and intangible assets. The carrying values of
capitalised exploration and evaluation expenditure, mine properties
and property, plant and equipment are assessed for impairment when
indicators of such impairment exist or at least annually. In such
cases an estimate of the asset's recoverable amount is calculated.
The recoverable amount is determined as the higher of the fair
value less costs to sell for the asset and the asset's value in
use. This is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of
those from other assets or groups of assets. If this is the case,
the individual assets are grouped together into cash-generating
units ("CGUs") for impairment purposes. Such CGUs represent the
lowest level for which there are separately identifiable cash
inflows that are largely independent of the cash flows from other
assets or other groups of assets. This generally results in the
Group evaluating its non--financial assets on a geographical or
licence basis.
If the carrying amount of the asset exceeds its recoverable
amount, the asset is impaired and an impairment loss is charged to
the Group income statement so as to reduce the carrying amount to
its recoverable amount (i.e. the higher of fair value less cost to
sell and value in use).
Impairment losses related to continuing operations are
recognised in the Group income statement in those expense
categories consistent with the function of the impaired asset.
For assets excluding the intangibles referred to above, an
assessment is made at each reporting date as to whether there is
any indication that previously recognised impairment losses may no
longer exist or may have decreased. If such indication exists, the
Group makes an estimate of the recoverable amount.
A previously recognised impairment loss is reversed only if
there has been a change in the estimates used to determine the
asset's recoverable amount since the last impairment loss was
recognised. If this is the case, the carrying amount of the asset
is increased to its recoverable amount. The increased amount cannot
exceed the carrying amount that would have been determined, net of
depreciation or amortisation, had no impairment loss been
recognised for the asset in prior years. Such reversal is
recognised in the consolidated statement of other comprehensive
income. Impairment losses recognised in relation to indefinite life
intangibles are not reversed for subsequent increases in its
recoverable amount.
4.10) Fair value measurement
The Group measures financial instruments such as bank borrowings
at fair value at each balance sheet date. Fair value disclosures
for financial instruments measured at fair value, or where fair
value is disclosed, are summarised in the following notes:
-- Note 17 - 'Trade and other receivables'
-- Note 19 - 'Cash and cash equivalents'
-- Note 20 - 'Trade and other payables'
-- Note 21 - 'Interest-bearing loans and borrowings'
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either:
-- in the principal market place for the asset or the liability; or
-- in the absence of a principal market, the most advantageous
market for the asset or liability.
The fair value of an asset or liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data is available to measure
fair value, maximising the use of relevant observable inputs and
minimising the unobservable inputs.
All assets and liabilities for which fair value is measured or
disclosed in the financial statements are categorised within the
fair value hierarchy, described as follows, based on the lowest
level input that is significant to the fair value measurement as a
whole.
-- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities.
-- Level 2 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable.
-- Level 3 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
For assets and liabilities that are recognised in the financial
statements on a re-occurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that
is significant to the fair value measurement as a whole) at the end
of each reporting period.
For the purpose of fair value disclosures, the Group has
determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and the
level of the fair value hierarchy as set out above.
4.11) Provisions
i) General
Provisions are recognised when (a) the Group has a present
obligation (legal or constructive) as a result of a past event and
(b) it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. If the effect
of the time value of money is material, provisions are discounted
using a current pre-tax rate that reflects, where appropriate, the
risks specific to the liability. Where discounting is used, the
increase in the provision due to the passage of time is recognised
as a finance cost.
ii) Rehabilitation provision
The Group records the present value of estimated costs of legal
and constructive obligations required to restore operating
locations in the period in which the obligation is incurred. The
nature of these restoration activities includes dismantling and
removing structures, rehabilitating mines and tailings dams,
dismantling operating facilities, closure of plant and waste sites
and restoration, reclamation and revegetation of affected
areas.
The obligation generally arises when the asset is installed or
the ground or environment is disturbed at the production location.
When the liability is initially recognised, the present value of
the estimated cost is capitalised by increasing the carrying amount
of the related mining assets to the extent that it was incurred
prior to the production of related ore. Over time, the discounted
liability is increased for the change in present value based on the
discount rates that reflect current market assessments and the
risks specific to the liability.
The periodic unwinding of the discount is recognised in the
Group income statement as a finance cost. Additional disturbances
or changes in rehabilitation costs will be recognised as additions
or charges to the corresponding assets and rehabilitation liability
when they occur. Any reduction in the rehabilitation liability and
therefore any deduction from the rehabilitation asset may not
exceed the carrying amount of that asset. If it does, any excess
over the carrying value is taken immediately to the Group income
statement.
If the change in estimate results in an increase in the
rehabilitation liability and therefore an addition to the carrying
value of the asset, the Group is required to consider whether this
is an indication of impairment of the asset as a whole and test for
impairment in accordance with IAS 36. If, for mature mines, the
revised mine assets net of rehabilitation provisions exceeds the
recoverable value, that portion of the increase is charged directly
to expense.
For closed sites, changes to estimated costs are recognised
immediately in the Group income statement. Also, rehabilitation
obligations that arose as a result of the production phase of a
mine should be expensed as incurred.
4.12) Financial instruments - initial recognition and subsequent
measurement
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
a) Financial assets
i) Initial recognition and measurement
Financial assets are classified as financial assets at fair
value through profit or loss, loans and receivables,
held-to-maturity investments, available-for-sale financial assets,
or as derivatives designated as hedging instruments in an effective
hedge, as appropriate. The Group determines the classification of
its financial assets at initial recognition. All financial assets
are recognised initially at fair value.
Purchases or sales of financial assets that require delivery of
assets within a time frame established by regulation or convention
in the marketplace (regular way trades) are recognised on the trade
date, i.e. the date that the Group commits to purchase or sell the
asset.
The Group's financial assets include cash and short-term
deposits as well as trade and other receivables.
ii) Subsequent measurement
The subsequent measurement of financial assets depends on their
classification:
-- financial assets at fair value through profit and loss;
-- loans and receivables;
-- held-to-maturity investments; and
-- available for sale financial assets.
The only category of financial assets of the Group is currently
loans and receivables.
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. After initial measurement, such financial assets are
subsequently measured at amortised cost using the effective
interest rate method, less impairment. Amortised cost is calculated
by taking into account any discount or premium on acquisition and
fees or costs that are an integral part of the effective interest
rate method. The effective interest rate method amortisation is
included in finance income in the Group income statement. The
losses arising from impairment are recognised in the Group income
statement.
iii) Derecognition
A financial asset (or, where applicable a part of a financial
asset) is derecognised when:
-- the rights to receive cash flows from the asset have expired; and
-- the Group has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third-party under a
'pass-through' arrangement; and either (a) the Group has
transferred substantially all the risks and rewards of the asset,
or (b) the Group has neither transferred nor retained substantially
all the risks and rewards of the asset, but has transferred control
of the asset.
iv) Impairment of financial assets
The Group assesses at each reporting date whether there is any
objective evidence that a financial asset or a group of financial
assets is impaired. A financial asset or a group of financial
assets is deemed to be impaired if, and only if, there is objective
evidence of impairment as a result of one or more events that have
occurred after the initial recognition of the asset (an incurred
'loss event') and that loss event has an impact on the estimated
future cash flows of the financial asset or the group of financial
assets that can be reliably estimated. Evidence of impairment may
include indications that the debtors or a group of debtors is
experiencing significant financial difficulty, default or
delinquency in interest or principal payments, the probability that
they will enter bankruptcy or other financial re-organisation and
where observable data indicates that there is a measurable decrease
in the estimated future cash flows, such as changes in arrears or
economic conditions that correlate with defaults.
v) Financial assets carried at amortised cost
For financial assets carried at amortised cost, the Group first
assesses individually whether objective evidence of impairment
exists individually for financial assets that are individually
significant, or collectively for financial assets that are not
individually significant. If the Group determines that no objective
evidence of impairment exists for an individually assessed
financial asset, whether significant or not, it includes the asset
in a group of financial assets with similar credit risk
characteristics and collectively assesses them for impairment.
Assets that are individually assessed for impairment and for which
an impairment loss is, or continues to be, recognised are not
included in a collective assessment of impairment.
If there is objective evidence that an impairment loss has
incurred, the amount of the loss is measured as the difference
between the asset's carrying amount and the present value of
estimated future cash flows (excluding future expected credit
losses that have not yet been incurred). The present value of the
estimated future cash flows is discounted at the financial asset's
original effective interest rate.
b) Financial liabilities
i) Initial recognition and measurement
Financial liabilities are classified as financial liabilities at
fair value through profit or loss, loans and borrowings, or as
derivatives designated as hedging instruments in an effective
hedge, as appropriate. The Group determines the classification of
its financial liabilities at initial recognition. All financial
liabilities are recognised initially at fair value and in the case
of loans and borrowings, plus directly attributable transaction
costs. The Group's financial liabilities include trade and other
payables, contractual provisions and loans and borrowings.
ii) Subsequent measurement
The measurement of financial liabilities depends on their
classification as follows:
Trade and other payables and contractual provisions
Trade and other payables are initially measured at fair value
and are subsequently measured at amortised cost using the effective
interest rate method.
Loans and borrowings
Interest-bearing loans and overdrafts are recorded at the
proceeds received, net of direct transaction costs. Finance
charges, including premiums payable on settlement or redemption and
direct issue costs, are accounted for on an accrual basis and
charged to the Group income statement using the effective interest
method. They are added to the carrying amount of the instrument to
the extent that they are not settled in the period in which they
arise.
After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortised cost using the effective
interest rate method. Gains and losses are recognised in the Group
income statement when the liabilities are derecognised as well as
through the effective interest rate method amortisation
process.
Amortised cost is calculated by taking into account any discount
or premium on acquisition and fee or costs that are an integral
part of the effective interest rate method. The effective interest
rate method amortisation is included in finance costs in the Group
income statement.
iii) Derecognition
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original
liability and the recognition of a new liability and the difference
in the respective carrying amounts is recognised in the Group
income statement.
c) Derivative financial instruments
The Group uses derivative financial instruments such as forward
commodity and option contracts to hedge its commodity price risks.
Such contracts are not designated as hedges or accounted for as
such in accordance with IAS 39. Such derivative financial
instruments are initially recognised at fair value on the date on
which the derivative contract is entered into and are subsequently
re-measured at fair value. Derivative financial instruments are
accounted for as financial assets when their fair value is positive
and as financial liabilities when their fair value is negative. Any
gains or losses arising from changes in the fair value of
derivative financial instruments are included in the Group income
statement.
4.13) Trade and other receivables
The Group presents trade and other receivables in the statement
of financial position based on a current or non-current
classification. A trade and other receivable is classified as
current as follows:
-- expected to be realised or intended to be sold or consumed in the normal operating cycle;
-- held primarily for the purpose of trading; and
-- expected to be realised within 12 months after the date of
the statement of financial position.
Gold bullion held on behalf of the Government of Azerbaijan is
classified as a current asset and valued at the current market
price of gold at the statement of financial position date. A
current liability of equal amount representing the liability of the
gold bullion to the Government of Azerbaijan is also
established.
Advances made to suppliers for fixed asset purchases are
recognised as non-current prepayments until the fixed asset is
delivered when they are capitalised as part of the cost of the
fixed asset.
4.14) Inventories
Metal in circuit consists of in-circuit material at properties
with milling or processing operations and doré awaiting refinement,
all valued at the lower of average cost and net realisable value.
In-process inventory costs consist of direct production costs
(including mining, crushing and processing and site administration
costs) and allocated indirect costs (including depreciation,
depletion and amortisation of producing mines and mining
interests).
Ore stockpiles consist of stockpiled ore, ore on surface and
crushed ore, all valued at the lower of average cost and net
realisable value. Ore stockpile costs consist of direct production
costs (including mining, crushing and site administration costs)
and allocated indirect costs (including depreciation, depletion and
amortisation of producing mines and mining interests).
Inventory costs are charged to operations on the basis of ounces
of gold sold. The Group regularly evaluates and refines estimates
used in determining the costs charged to operations and costs
absorbed into inventory carrying values based upon actual gold
recoveries and operating plans.
Finished goods consist of doré bars that have been refined and
assayed and are in a form that allows them to be sold on
international bullion markets and metal in concentrate. Finished
goods are valued at the lower of average cost and net realisable
value. Finished goods costs consist of direct production costs
(including mining, crushing and processing; site administration
costs; and allocated indirect costs, including depreciation,
depletion and amortisation of producing mines and mining
interests).
Spare parts and consumables consist of consumables used in
operations, such as fuel, chemicals, reagents and spare parts,
valued at the lower of average cost and replacement cost and, where
appropriate, less a provision for obsolescence.
4.15) Equity instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs, or value of services
received net of any issue costs.
4.16) Deferred stripping costs
The removal of overburden and other mine waste materials is
often necessary during the initial development of a mine site, in
order to access the mineral ore deposit. The directly attributable
cost of this activity is capitalised in full within mining
properties and leases, until the point at which the mine is
considered to be capable of commercial production. This is
classified as expansionary capital expenditure, within investing
cash flows.
The removal of waste material after the point at which a mine is
capable of commercial production is referred to as production
stripping.
When the waste removal activity improves access to ore extracted
in the current period, the costs of production stripping are
charged to the Group income statement as operating costs in
accordance with the principles of IAS 2 'Inventories'.
Where production stripping activity both produces inventory and
improves access to ore in future periods the associated costs of
waste removal are allocated between the two elements. The portion
which benefits future ore extraction is capitalised within
stripping and development capital expenditure. If the amount to be
capitalised cannot be specifically identified it is determined
based on the volume of waste extracted compared with expected
volume for the identified component of the orebody. Components are
specific volumes of a mine's orebody that are determined by
reference to the life of mine plan.
In certain instances significant levels of waste removal may
occur during the production phase with little or no associated
production.
All amounts capitalised in respect of waste removal are
depreciated using the unit of production method based on the ore
reserves of the component of the orebody to which they relate.
The effects of changes to the life of mine plan on the expected
cost of waste removal or remaining reserves for a component are
accounted for prospectively as a change in estimate.
4.17) Employee leave benefits
Liabilities for wages and salaries, including non-monetary
benefits and accrued but unused annual leave, are recognised in
respect of employees' services up to the reporting date. They are
measured at the amounts expected to be paid when the liabilities
are settled.
4.18) Retirement benefit costs
The Group does not operate a pension scheme for the benefit of
its employees but instead makes contributions to their personal
pension policies. The contributions due for the period are charged
to the Group income statement.
4.19) Share-based payments
The Group has applied the requirements of IFRS 2 'Share-based
Payment'. IFRS 2 has been applied to all grants of equity
instruments.
The Group issues equity-settled share-based payments to certain
employees. Equity-settled share-based payments are measured at fair
value (excluding the effect of non market-based vesting conditions)
at the date of grant. The fair value determined at the grant date
of the equity-settled share-based payments is expensed on a
straight line basis over the vesting period, based on the Group's
estimate of shares that will eventually vest and adjusted for the
effect of non market-based vesting conditions.
Fair value is measured by use of the Black-Scholes model. The
expected life used in the model has been applied based on
management's best-estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations. The vesting
conditions assumptions are reviewed during each reporting period to
ensure they reflect current expectations.
4.20) Significant accounting judgements
The preparation of the Group financial statements in conformity
with IFRS requires management to make judgements that affect the
reported amounts of assets, liabilities and contingent liabilities
at the date of the Group financial statements and reported amounts
of revenues and expenses during the reporting period.
4.20i) Recovery of deferred tax assets (note 12)
Judgement is required in determining whether deferred tax assets
are recognised within the Group statement of financial position.
Deferred tax assets, including those arising from unutilised tax
losses, require management to assess the likelihood that the Group
will generate taxable earnings in future periods, in order to
utilise recognised deferred tax assets. Estimates of future taxable
income are based on forecast cash flows from operations and the
application of existing tax laws in each jurisdiction. To the
extent that future cash flows and taxable income differ
significantly from estimates, the ability of the Group to realise
the net deferred tax assets recorded at the reporting date could be
impacted.
4.20ii) Exploration and evaluation expenditure (note 14)
The application of the Group's accounting policy for exploration
and evaluation expenditure requires judgement in determining
whether it is likely that future economic benefits are likely from
future exploitation. This deferral policy requires management to
make certain judgements about future events or circumstances, in
particular whether an economically viable extraction operation can
be established. Judgements made may change if new information
becomes available. If, after expenditure is capitalised,
information becomes available suggesting that the recovery of
expenditure is unlikely, the amount capitalised is written off in
the consolidated statement of profit or loss in the period when the
new information becomes available.
4.20iii) Impairment of intangible and tangible assets (notes 14
and 15)
The assessment of tangible and intangible assets for any
internal and external indications of impairment involves judgement.
Each reporting period, the Group assesses whether there are
indicators of impairment, if indicated then a formal estimate of
the recoverable amount is performed and an impairment loss
recognised to the extent that the carrying amount exceeds
recoverable amount. Recoverable amount is determined as the higher
of fair value less costs to sell and value in use. Determining
whether the projects are impaired requires an estimation of the
recoverable value of the individual areas to which value has been
ascribed. The value in use calculation requires the entity to
estimate the future cash flows expected to arise from the projects
and a suitable discount rate in order to calculate present
value.
4.20iv) Production start date (note 15)
The Group assesses the stage of each mine under construction to
determine when a mine moves into the production stage. The criteria
used to assess the start date are determined based on the unique
nature of each mine construction project, such as the complexity of
a plant and its location. The Group considers various relevant
criteria to assess when the mine is substantially complete, ready
for its intended use and is reclassified from Assets under
construction to Producing mines and Property, plant and equipment.
Some of the criteria will include, but are not limited to, the
following:
-- the level of capital expenditure compared to the construction cost estimates;
-- completion of a reasonable period of testing of the mine plant and equipment;
-- ability to produce metal in saleable form (within specifications); and
-- ability to sustain ongoing production of metal.
When a mine construction project moves into the production
stage, the capitalisation of certain mine construction costs ceases
and costs are either regarded as inventory or expensed, except for
costs that qualify for capitalisation relating to mining asset
additions or improvements, underground mine development or mineable
reserve development. This is also the point at which the
depreciation/amortisation recognition commences.
4.20v) Renewal of Production Sharing Agreement ("PSA") (note
27)
The Group operates its mines and processing facilities on
contract areas licenced under a PSA with the Government of
Azerbaijan. The majority of the Group's fixed assets, including its
processing facilities and its main producing mines, are located on
the Gedabek contract area which has a mining licence expiring in
March 2022. The Group depreciates each tangible fixed asset over
its estimated useful life regardless of whether or not the end of
its useful life is later than March 2022. There is an option to
extend the Gedabek licence for a further ten years conditional upon
satisfaction of certain requirements stipulated in the PSA. The
directors have judged that the requirements to renew the licence
for a further 10 years will be satisfied and therefore it is valid
to depreciate assets over useful lives which end later than the end
date of the current Gedabek licence.
4.21) Significant accounting estimates
The preparation of the Group financial statements in conformity
with IFRS requires management to make estimates that affect the
reported amounts of assets, liabilities and contingent liabilities
at the date of the Group financial statements and reported amounts
of revenues and expenses during the reporting period. Estimates are
continuously evaluated and are based on management's experience and
other factors, including expectations of future events that are
believed to be reasonable under the circumstances. However, actual
outcomes can differ from these estimates. In particular,
information about significant areas of estimation uncertainty
considered by management in preparing the Group financial
statements is described below.
4.21i) Ore reserves and resources (notes 14 and 15)
Ore reserves are estimates of the amount of ore that can be
economically and legally extracted from the Group's mining
properties. The Group estimates its ore reserves and mineral
resources, based on information compiled by appropriately qualified
persons relating to the geological data on the size, depth and
shape of the ore body and requires complex geological judgements to
interpret the data. The estimation of recoverable reserves is based
upon factors such as estimates of foreign exchange rates, commodity
prices, future capital requirements and production costs along with
geological assumptions and judgements made in estimating the size
and grade of the ore body. Changes in the reserve or resource
estimates may impact upon the carrying value of exploration and
evaluation assets, mine properties, property, plant and equipment,
provision for rehabilitation and depreciation and amortisation
charges.
4.21ii) Inventory (note 18)
Net realisable value tests are performed at least annually and
represent the estimated future sales price of the product based on
prevailing spot metals prices at the reporting date, less estimated
costs to complete production and bring the product to sale.
Stockpiles are measured by estimating the number of tonnes added
and removed from the stockpile, the number of contained gold ounces
based on assay data and the estimated recovery percentage based on
the expected processing method. Stockpile tonnages are verified by
periodic surveys. The ounces of gold sold are compared to the
remaining reserves of gold for the purpose of charging inventory
costs to operations.
4.22ii) Mine rehabilitation provision (note 23)
The Group assesses its mine rehabilitation provision annually.
Significant estimates and assumptions are made in determining the
provision for mine rehabilitation as there are numerous factors
that will affect the ultimate liability payable. These factors
include estimates of the extent and costs of rehabilitation
activities, technological changes, regulatory changes and changes
in discount rates. Those uncertainties may result in future actual
expenditure differing from the amounts currently provided. The
provision at the reporting date represents management's best
estimate of the present value of the future rehabilitation costs
required. Changes to estimated future costs are recognised in the
Group statement of financial position by either increasing or
decreasing the rehabilitation liability and rehabilitation asset if
the initial estimate was originally recognised as part of an asset
measured in accordance with IAS 16 'Property, Plant and Equipment'.
Expenditure on mine rehabilitation is expected to take place
between 2023 and 2025. Given that the expenditure will not occur
until between 6 to 8 years after the balance sheet date, it is not
expected that there is a significant risk that a change in estimate
will result in a material adjustment to the carrying amount of the
mine rehabilitation provision within the financial year ended 31
December 2017.
5 Segment information
The Group determines operating segments based on the information
that is internally provided to the Group's chief operating decision
maker. The chief operating decision maker has been identified as
the board of directors. The board of directors currently considers
consolidated financial information for the entire Group and reviews
the business based on the Group income statement and Group
statement of financial position on this basis. Accordingly, the
Group has only one operating segment, mining operations. The mining
operations comprise the Group's major producing asset, the Gedabek
mine which accounts for all the Group's revenues and the majority
of its cost of sales, depreciation and amortisation. The Group's
mining operations are all located within Azerbaijan and therefore
all within one geographic segment.
All sales of gold and silver bullion are made to one customer,
the Group's gold refinery, MKS Finance SA, based in Switzerland.
Copper concentrate is sold to Industrial Minerals SA.
6 Revenue
The Group's revenue consists of gold and silver bullion and
copper concentrate sold to the third-party customers. Revenue from
sales of gold and silver bullion was $55,099,000 and $311,000
respectively (2016: $66,766,000 and $164,000). Revenue from sales
of precious metal concentrate was $16,396,000 (2016:
$12,254,000).
7 Other operating income and expense
Other income
Other income comprises loan interest receivable in respect of a
loan to a former employee, release of provisions no longer required
and foreign exchange gains for the years ended 31 December 2016 and
2017.
Other operating expense
Other operating expense consist of metal refining costs, foreign
currency exchange losses, write down of advances paid and other
miscellaneous operating expenses for the years ended 31 December
2016 and 2017.
8 Operating profit
2017 2016
Notes $000 $000
--------------------------------------- ------ ---------------------- ----------------------
Operating profit is stated after
charging:
Depreciation on property, plant
and equipment - owned 15 21,008 20,080
Amortisation of mining rights
and other intangible assets 14 1,778 1,884
Employee benefits and expenses 10 7,305 7,471
Foreign currency exchange net
(loss) / gain (28) 138
Inventory expensed during the
year 21,502 28,520
Operating lease expenses 591 730
--------------------------------------- ------ ---------------------- ----------------------
Fees payable to the Company's
auditor for:
The audit of the Group's annual
accounts 135 132
The audit of the Group's subsidiaries
pursuant to legislation 119 114
Audit related assurance services
- half year review 2 2
Total audit services 256 248
--------------------------------------- ------ ---------------------- ----------------------
Amounts paid to auditor for other
services:
Tax compliance services 14 9
Total non-audit services 14 9
--------------------------------------- ------ ---------------------- ----------------------
Total 270 257
--------------------------------------- ------ ---------------------- ----------------------
There were no non-cancellable operating lease and sublease
arrangements during 2017 and 2016.
The audit fees for the parent company were $107,000
(2016:$107,000).
9 Remuneration of the directors
Year ended 31 December Consultancy Fees Benefits Total
2017 $ $ $ $
------------------------ ------------ -------- --------- --------
John Monhemius 13,750 51,970 - 65,720
Richard Round - 51,970 - 51,970
John Sununu - 76,342 - 76,342
Reza Vaziri 578,126 51,970 32,471 662,567
Khosrow Zamani - 127,761 - 127,761
------------------------ ------------ -------- --------- --------
591,876 360,013 32,471 984,360
------------------------ ------------ -------- --------- --------
Year ended 31 December Consultancy Fees Benefits Total
2016 $ $ $ $
------------------------ ------------ -------- --------- --------
John Monhemius 6,422 43,704 - 50,126
Richard Round - 43,704 - 43,704
John Sununu - 64,007 - 64,007
Reza Vaziri 586,392 43,704 40,862 670,958
Khosrow Zamani - 107,801 - 107,801
------------------------ ------------ -------- --------- --------
592,814 302,920 40,862 936,596
------------------------ ------------ -------- --------- --------
Directors' fees and consultancy fees for 2016 and 2017 were paid
in cash.
Exercise of options and sale of shares by directors
On 26 July 2017, Khosrow Zamani and Richard Round exercised
500,000 and 600,000 options respectively over ordinary shares of
the Company at an exercise price of 12 pence per ordinary share.
The closing mid-market price of the Company's ordinary shares on 26
July 2017 was 21.5 pence. On 27 July 2017, Khosrow Zamani and
Richard Round sold 341,238 and 545,079 respectively of the ordinary
shares acquired at 17.72 pence per share.
10 Staff numbers and costs
The average number of staff employed by the Group (including
directors) during the year, analysed by category, was as
follows:
2017 2016
------------------------------- ----- -----
Management and administration 49 51
Exploration 19 20
Mine operations 626 580
------------------------------- ----- -----
694 651
------------------------------- ----- -----
The aggregate payroll costs of these persons were as
follows:
2017 2016
$000 $000
----------------------- ------ ------
Wages and salaries 6,043 6,109
Share-based payments 13 18
Social security costs 1,249 1,343
----------------------- ------ ------
7,305 7,470
----------------------- ------ ------
Remuneration of key management personnel
The remuneration of the key management personnel of the Group,
is set out below in aggregate:
2017 2016
$ $
------------------------------ ---------- ----------
Short-term employee benefits 1,861,343 1,750,094
Share-based payment 13,399 18,705
------------------------------ ---------- ----------
1,874,742 1,768,799
------------------------------ ---------- ----------
The key management personnel of the Group comprise the chief
executive officer, the vice president of government affairs, the
senior vice president, Azerbaijan International Mining Company
Limited, the vice president of technical services, the director of
geology and the chief financial officer. The remuneration of the
directors as required by the Companies Act 2006 is given in note 9
above.
11 Finance costs
2017 2016
$000 $000
-------------------------------------- ------ ------
Interest charged on interest-bearing
loans and borrowings 3,043 4,344
Finance charges on letters of
credit 33 98
Unwinding of discount on provisions 462 493
-------------------------------------- ------ ------
3,538 4,935
-------------------------------------- ------ ------
Interest on interest-bearing loans and borrowings represents
charges on those credit facilities as set out in note 21 below.
Where a portion of the loans has been used to finance the
construction and purchase of assets of the Group ('qualifying
assets'), the interest on that portion of the loans has been
capitalised up until the time the assets were substantially ready
for use. For the year ended 31 December 2017, $nil (2016:$nil)
interest was capitalised.
12 Taxation
Corporation tax is calculated at 32 per cent. (as stipulated in
the production sharing agreement for R.V. Investment Group Services
LLC ("RVIG") in the Republic of Azerbaijan, the entity that
contributes the most significant portion of profit before tax in
the Group financial statements) of the estimated assessable profit
or loss for the year. Taxation for other jurisdictions is
calculated at the rates prevailing in the respective jurisdictions.
Deferred income taxes arising in RVIG are recognised and fully
disclosed in these Group financial statements. RVIG's unutilised
tax losses at 31 December 2017 were $4,467,000 (2016:
$19,162,000).
The major components of the income tax charge for the year ended
31 December are:
2017 2016
$000 $000
-------------------------------------- -------- --------
Current income tax
Current income tax charge - -
Deferred tax
(Charge) to origination and reversal
of temporary differences (3,164) (2,795)
-------------------------------------- -------- --------
Income tax (charge) for the year (3,164) (2,795)
-------------------------------------- -------- --------
Deferred income tax at 31 December relates to the following:
Statement
of financial
position Income statement
-------------------- ----------------------
2017 2016 2017 2016
$000 $000 $000 $000
----------------------------- --------- --------- --- ---------- ----------
Deferred income tax
liability
Property, plant and
equipment - accelerated
depreciation (17,834) (19,453) 1,619 1,338
Non-current prepayments (280) (347) 67 (189)
Trade and other receivables (796) (1,466) 670 (772)
Inventories (9,435) (9,447) 12 (1,688)
----------------------------- --------- --------- ---
Deferred tax liability (28,345) (30,713)
----------------------------- --------- --------- ---
Deferred income tax
asset
Trade and other payables
and provisions * 2,367 3,489 (1,122) 1,191
Asset retirement obligation
* 3,081 3,013 68 276
Interest bearing loans
and borrowings * - (151) 151 (126)
Carry forward losses
** 1,503 6,132 (4,629) (2,825)
----------------------------- --------- --------- --- ---------- ----------
Deferred tax asset 6,951 12,483
----------------------------- --------- --------- ---
Deferred income tax
charge (3,164) (2,795)
----------------------------- --------- --------- --- ---------- ----------
Net deferred tax liability (21,394) (18,230)
----------------------------- --------- --------- --- ---------- ----------
* Deferred income tax assets have been recognised for the trade
and other payables and provisions, asset retirement obligation and
interest-bearing loans and borrowings based on local tax basis
differences expected to be utilised against future taxable
profits.
** Deferred income tax assets have been recognised for the carry
forward of unused tax losses to the extent that it is probable that
taxable profits will be available in the future against which the
unused tax losses can be utilised. The probability that taxable
profits will be available in the future is based on forward looking
budgets and business plans of the Group.
A reconciliation between the accounting profit and the total
taxation charge for the year ended 31 December is as follows:
2017 2016
$000 $000
------------------------------------- ------ ------
Profit before tax 5,684 6,779
------------------------------------- ------ ------
Theoretical tax charge at statutory
rate of 32 per cent. for RVIG* 1,819 2,169
Effects of different tax rates
for certain Group entities (20
per cent.) 164 127
Tax effect of items which are
not deductible or assessable for
taxation purposes:
- losses in jurisdictions that
are exempt from taxation 1 2
- non-deductible expenses 1,231 867
- non-taxable income (51) (370)
------------------------------------- ------ ------
Income tax charge for the year 3,164 2,795
------------------------------------- ------ ------
* This is the local tax rate applicable in accordance with local
legislation
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised.
Deferred tax assets and liabilities have been offset for
deferred taxes recognised for RVIG since there is a legally
enforceable right to set off current tax assets against current tax
liabilities and they relate to income taxes levied by the same
taxation authority. The Group intends to settle its current tax
assets and liabilities on a net basis in the Republic of
Azerbaijan.
At 31 December 2017, the Group had unused tax losses available
for offset against future profits of $22,032,000 (2016:
$34,717,000). Unused tax losses in the Republic of Azerbaijan at 31
December 2017 were $4,697,000 (2016: $19,162,000). No deferred tax
assets have been recognised in respect of jurisdictions other than
the Republic of Azerbaijan due to the uncertainty of future profit
streams.
13 Profit per share
The calculation of basic and diluted profit per share is based
upon the retained profit for the financial year of $2,520,000
(2016: $3,984,000).
The weighted average number of ordinary shares for calculating
the basic profit and diluted profit per share after adjusting for
the effects of all dilutive potential ordinary shares relating to
share options are as follows:
2017 2016
--------- ------------ -----------
Basic 113,134,175 112,117,622
--------- ------------ -----------
Diluted 113,322,046 112,295,664
--------- ------------ -----------
At 31 December 2017 there were 545,000 unexercised share options
that could potentially dilute basic earnings per share (2016:
1,100,000).
14 Intangible assets
Exploration Exploration Other
and evaluation and evaluation Mining intangible
Gedabek Ordubad rights assets Total
$000 $000 $000 $000 $000
------------------ --------------- --------------- --------- ------------ --------
Cost
1 January 2016 - 3,860 41,925 498 46,283
Additions 191 168 - - 359
31 December
2016 191 4,028 41,925 498 46,642
Additions 919 125 - 31 1,075
------------------ --------------- --------------- --------- ------------ --------
31 December
2017 1,110 4,153 41,925 529 47,717
------------------ --------------- --------------- --------- ------------ --------
Amortisation
and impairment*
1 January 2016 - - 27,626 284 27,910
Charge for the
year - - 1,843 41 1,884
------------------ --------------- --------------- --------- ------------ --------
31 December
2016 - - 29,469 325 29,794
Charge for the
year - - 1,738 40 1,778
------------------ --------------- --------------- --------- ------------ --------
31 December
2017 - - 31,207 365 31,572
------------------ --------------- --------------- --------- ------------ --------
Net book value
31 December
2016 191 4,028 12,456 173 16,848
------------------ --------------- --------------- --------- ------------ --------
31 December
2017 1,110 4,153 10,718 164 16,145
------------------ --------------- --------------- --------- ------------ --------
*427,000 ounces of gold at 1 January 2017 were used to determine
depreciation of producing mines, mining rights and other intangible
assets (2016: 507,000 ounces). A 5 per cent. increase or decreased
in the ounces of gold used to compute the amortisation of
intangible assets would result in a decrease in amortisation of
$82,000 and an increase in amortisation of $91,000
respectively.
15 Property, plant and equipment
Plant and
equipment Producing Assets Total
and mines under
motor vehicles construction
$000 $000 $000 $000
------------------ ---------------- ------------ --------------- --------
Cost
1 January 2016 19,666 175,062 477 195,205
Additions 1,799 4,404 3,556 9,759
Transfer to
producing mines - 3,598 (3,598) -
Increase in
provision for
rehabilitation - 369 - 369
------------------ ---------------- ------------ --------------- --------
31 December
2016 21,465 183,433 435 205,333
Additions 434 4,559 5,175 10,168
Transfer to
producing mines - 1,229 (1,229) -
Decrease in
provision for
rehabilitation - (249) - (249)
------------------ ---------------- ------------ --------------- --------
31 December
2017 21,899 188,972 4,381 215,252
------------------ ---------------- ------------ --------------- --------
Depreciation
and impairment*
1 January 2016 12,642 74,135 - 86,777
Charge for
the year 2,014 18,066 - 20,080
------------------ ---------------- ------------ --------------- --------
31 December
2016 14,656 92,201 - 106,857
Charge for
the year 1,765 19,243 - 21,008
------------------ ---------------- ------------ --------------- --------
31 December
2017 16,421 111,444 - 127,865
------------------ ---------------- ------------ --------------- --------
Net book value
31 December
2016 6,809 91,232 435 98,476
------------------ ---------------- ------------ --------------- --------
31 December
2017 5,478 77,528 4,381 87,387
------------------ ---------------- ------------ --------------- --------
*427,000 ounces of gold at 1 January 2017 were used to determine
depreciation of producing mines, mining rights and other intangible
assets (2016: 507,000 ounces). A 5 per cent. increase or decreased
in the ounces of gold used to compute the depreciation of property
plant and equipment would result in a decrease in depreciation of
$628,000 and an increase in depreciation of $694,000
respectively.
The Ugur new open pit commenced production in 2017 with the
development cost transferred to producing mines on 1 September 2017
with depreciation commencing from this date. Initial mining from
the Ugur open pit was by free digging and September 2017 was the
first month in which significant amounts of ore were extracted from
the Ugur open pit. Gold doré from Ugur ore also commenced in
September 2017. The development cost of Ugur was $1.1 million and
the cost will be amortised using the unit of production method with
137,000 ounces of gold as the total resource to determine the
amortisation.
No impairment losses were recognised by the Group at 31 December
2017 or 31 December 2016.
The Group assesses at each balance sheet date whether any
indicators exist of impairment of its fixed assets. Should any
indicators exist, the Group will perform an impairment analysis at
that balance sheet date to ascertain that the carrying value of the
Group's property, plant and equipment is in excess of its fair
value less cost to dispose ("FVLCD").
The determination of FVLCD is most sensitive to the following
key assumptions:
- Production volumes
- Commodity prices
- Discount rates
- Foreign exchange rates
- Capital and operating costs
The management assessed that there were no indicators of
impairment at 31 December 2017. Accordingly, no impairment analysis
was performed for the balance sheet at 31 December 2017. The
management did assess that there were indicators of impairment at
31 December 2016 and performed an impairment analysis at that date.
The assumptions used and the result of that analysis is as
follows:
Production volumes: In calculating the FVLCD, the production
volumes incorporated into the cash flow models were 453,000 ounces
of gold and 58,000 tonnes of copper. Estimated production volumes
are based on detailed life of mine plans. Production volumes are
dependent on a number of variables such as the recoverable
quantities, the cost of the necessary infrastructure to recover the
reserves, the production costs, the contractual duration of the
mining rights and the selling prices of the quantities extracted.
These production volumes are based on the mine being operational
until the end of 2027.
Commodity prices: Forecast precious metal and commodity prices
are based on management estimates. Estimated long-term gold prices
between $1,400 and $1,535 per ounce and estimated long-term copper
prices of between $6,146 and $6,739 per tonne have been used to
estimate future revenues.
Discount rates: In calculating the FVLCD, a post-tax discount
rate of 10.53 per cent. was applied to the post-tax cash flows
expressed in real terms. This discount rate is derived from the
Group's post-tax weighted average cost of capital ("WACC"), which
takes into account both equity and debt, and is then adjusted to
reflect the Group's assessment of a discount rate that other market
participants would consider when evaluating the assets.
Foreign exchange rates: The only significant exchange foreign
exchange rate in the cash flow model is the United States Dollar to
Azerbaijan Manat rate. A rate of $1 equals 1.84 Manat has been used
in the cash flow model.
Capital and operating costs: In calculating the cash flow model,
the significant capital and operating costs are the additional
future capital cost to be incurred over the life of the mine of
$459 million and the cash cost per ounce of producing gold. Cash
costs per ounce of producing gold were used of $650 to $750 per
ounce.
Management believes that, other than the volume of gold
production, there are no changes which are reasonably possible in
any of the other assumptions discussed above, which would lead to
impairment. At 31 December 2016, the recoverable amount of the
Group's assets exceeded its carrying amount by $29 million. It is
estimated that a 10 per cent. reduction in gold production and
copper production in the flotation plant, after incorporating any
consequential effects of changes on the other variables used to
measure the recoverable amount, would cause impairment of
approximately $8 million.
The capital commitments by the Group have been disclosed in note
27.
16 Subsidiary undertakings
Anglo Asian Mining PLC is the parent and ultimate parent of the
Group.
The Company's subsidiaries at 31 December 2017 are as
follows:
Percentage
Primary of holding
Registered place of per
Name address business cent.
----------------------------- ------------ ------------ ------------
Anglo Asian Operations England United
Limited and Wales Kingdom 100
British
Virgin
Holance Holdings Limited Islands Azerbaijan 100
Anglo Asian Cayman Cayman
Limited Islands Azerbaijan 100
R.V. Investment Group Delaware,
Services LLC USA Azerbaijan 100
Azerbaijan International Cayman
Mining Company Limited Islands Azerbaijan 100
----------------------------- ------------ ------------ ------------
There has been no change in subsidiary undertakings since 1
January 2017.
17 Trade and other receivables
2017 2016
Non-current assets $000 $000
------------------------------------ ------- -------
Advances for fixed asset purchases 860 989
Loans 15 95
------------------------------------ ------- -------
875 1,084
------------------------------------ ------- -------
Current assets
------------------------------------ ------- -------
Gold held due to the Government
of Azerbaijan 7,445 10,078
VAT refund due 206 339
Other tax receivable 891 926
Trade receivables 440 639
Prepayments and advances 2,187 4,218
Loans 107 50
------------------------------------ ------- -------
11,276 16,250
------------------------------------ ------- -------
The carrying amount of trade and other receivables approximates
to their fair value.
The VAT refund due at 31 December 2017 and 2016 relates to VAT
paid on purchases.
Gold bullion held and transferable to the Government is bullion
held by the Group due to the Government of Azerbaijan. The Group
holds the Government's share of the product from its mining
activities and from time to time transfers that product to the
Government. A corresponding liability to the Government is included
in trade and other payables shown in note 20.
The Group does not consider any stated trade and other
receivables as past due or impaired.
18 Inventory
2017 2016
Current assets $000 $000
--------------------------------------- ------- -------
Cost
Finished goods - bullion 2,059 903
Finished goods - metal in concentrate 489 240
Metal in circuit 13,476 12,119
Ore stockpiles 6,753 9,784
Spare parts and consumables 11,203 10,972
--------------------------------------- ------- -------
Total current inventories 33,980 34,018
--------------------------------------- ------- -------
Total inventories at the lower
of cost and net realisable value 33,980 34,018
--------------------------------------- ------- -------
The Group has capitalised mining costs related to high grade
sulphide ore stockpiled during the year. Such stockpiles are
expected to be utilised as part of the flotation processing.
Inventory is recognised at lower of cost or net realisable
value.
19 Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and held by
the Group within financial institutions that are available
immediately. The carrying amount of these assets approximates their
fair value.
The Group's cash on hand and cash held within financial
institutions at 31 December 2017 (including short-term cash
deposits) comprised $117,000 and $2,417,000 respectively (2016:
$118,000 and $1,261,000).
The Group's cash and cash equivalents are mostly held in United
States Dollars.
20 Trade and other payables
2017 2016
$000 $000
----------------------------------------- ------- -------
Accruals and other payables 3,979 3,111
Trade creditors 3,431 7,815
Gold held due to the Government
of Azerbaijan 7,445 10,078
Payable to the Government of Azerbaijan
from copper concentrate joint
sale 315 829
15,170 21,833
----------------------------------------- ------- -------
Trade creditors primarily comprise amounts outstanding for trade
purchases and ongoing costs. Trade creditors are non
interest--bearing and the creditor days were 22 (2016: 42).
Accruals and other payables mainly consist of accruals made for
accrued but not paid salaries, bonuses, related payroll taxes and
social contributions, accrued interest on borrowings and services
provided but not billed to the Group by the end of the reporting
period. The directors consider that the carrying amount of trade
and other payables approximates to their fair value.
The amount payable to the Government of Azerbaijan from copper
concentrate joint sale represents the portion of cash received from
the customer for the Government's portion from the joint sale of
copper concentrate.
21 Interest-bearing loans and borrowings
2017 2016
$000 $000
---------------------------------- ------- -------
International Bank of Azerbaijan
- agitation leaching plant loan 1,640 5,385
International Bank of Azerbaijan
- loan facility 481 970
Amsterdam Trade Bank 3,700 17,307
Gazprombank (Switzerland) 3,700 -
Atlas Copco 303 801
Yapi Kredi Bank 2,254 672
Pasha Bank - loans 3,713 5,935
Kapital Bank 1,000 1,000
Director 3,860 3,860
---------------------------------- ------- -------
20,651 35,930
---------------------------------- ------- -------
Loans repayable in less than one
year 20,051 26,165
Loans repayable in more than one
year 600 9,765
---------------------------------- ------- -------
20,651 35,930
---------------------------------- ------- -------
International Bank of Azerbaijan ("IBA")
Agitation leaching plant loan
In 2012 and 2013, the Group borrowed $49.5 million under a
series of loan agreements to finance the construction of its
agitation leaching plant. The annual interest rate for each
agreement was12 per cent. The repayment of principal begins two
years from the withdrawal date for each agreement. The loans were
partially repaid by the proceeds of a refinancing loan from
Amsterdam Trade Bank. The loans are repayable commencing in 31
March 2015 and finishing in 30 June 2018. The interest rate on the
outstanding loan agreements at 6 November 2017 was reduced to 7 per
cent. from that date.
Loan facilities
During 2016, the group entered into three credit facilities with
IBA:
-- AZN1 million at an annual interest rate of 18 per cent. The
interest and principal are repayable on a reducing balance basis in
12 equal monthly instalments of AZN92,000 and the final instalment
is payable in January 2017.
-- $1.5 million at an annual interest rate of 12 per cent. The
interest and principal are repayable on a reducing balance basis in
24 equal monthly instalments of $71,000 and the final instalment
was payable in February 2018.
-- $1.4 million at an annual interest rate of 12 per cent. for
the purchase of the water treatment plant. $1.1 million of the loan
was drawn down in 2017 and the amount of the loan outstanding at 31
December 2017 was $0.4 million. The balance of the loan at 31
December 2017 together with interest is repayable in equal monthly
installments on an annuity basis with the final payment in June
2018. The interest rate was reduced to 10 per cent. in September
2017 and to 7 per cent. on 6 November 2017.
Amsterdam Trade Bank ("ATB") and Gazprombank (Switzerland)
Ltd
During 2013, the Group entered into a loan agreement for $37.0
million to refinance its agitation leaching plant loan from IBA.
The annual interest rate was 8.25 per cent. plus LIBOR. Principal
was repayable in 15 equal quarterly instalments of $2,467,000. The
first payment of principal commenced in February 2015 with the
final instalment payable in August 2018. The Group pledged to ATB
its present and future claims against MKS Finance SA, the Group's
sole buyer of gold doré until termination of the loan agreement. In
February 2017, a transaction was finalised to transfer 50 per cent.
of the balance of the loan with ATB, being $8.6 million, to
Gazprombank (Switzerland) Ltd ("GPBS"). The terms of the loan and
security remained unchanged and ATB acted as agent to administer
the loan on behalf of ATB and GPBS. In February 2018, the loans
from ATB and GPBS were repaid from the proceeds of the Pasha Bank
OJSC refinancing loan (note 29 - Post balance sheet event - Loan
refinancing by Pasha Bank below).
Atlas Copco
The amounts outstanding are in respect of vendor equipment
financing. During 2016, the Group entered into vendor equipment
financing for Euro 1.1 million at annual interest rate of 8.14 per
cent. The principal is repayable quarterly in eight equal
instalments which commenced on 31 August 2016 with the final
instalment payable on 31 May 2018. Interest is payable quarterly
with the principal.
Yapi Credit Bank, Azerbaijan ("YCBA")
In 2016 and 2017, the Group entered into several credit
facilities with YCBA. The annual interest rate for each facility
was 10 to 11 per cent. and each facility is repayable in 12 equal
monthly instalments on a reducing balance basis starting one month
after drawdown. In February 2018, the total outstanding balance of
the loans of $2.2 million was repaid from the proceeds of the Pasha
Bank refinancing loan (note 29 - Post balance sheet event - Loan
refinancing by Pasha Bank below).
Pasha Bank
The Group entered into loans with Pasha Bank in 2016 at annual
interest rates and maturities as in the following table. No
principal repayment had been made in respect of any of these loans
in 2016.
Loan Term Interest Principal repayment
value (months) rate
$000 (per
cent.)
---------- ------------- ------------ --------------------------------
2 equal instalments in March
1,000 18 7 and September 2017
---------- ------------- ------------ --------------------------------
1,500 12 9 November 2017
---------- ------------- ------------ --------------------------------
7 equal instalments, 2017
916 24 7 - $525,000; 2018 - $391,000
---------- ------------- ------------ --------------------------------
2 equal instalments January
2,100 2 14 and February 2017
---------- ------------- ------------ --------------------------------
2 equal instalments January
419 2 18 and February 2017
---------- ------------- ------------ --------------------------------
All of the above loans were repaid in 2017 with the exception of
the loan for $916,000 of which $713,000 was outstanding at 31
December 2017.
In 2017, the Group entered into a $3.0 million loan agreement
with Pasha Bank at an interest rate of 8.5 per cent. The interest
is payable monthly and the principal is repayable in 5 equal
installments of $600,000 payable in in April, July, August and
October 2018 and January 2019.
Kapital Bank
In December 2016, the Group entered into a working capital
credit facility for $1 million with Kapital Bank. The facility is
for one year with an annual interest rate of 7 per cent. Interest
is payable monthly and the principal is repayable by 4 equal
quarterly monthly instalments commencing March 2017. The loan was
fully repaid by 31 December 2017. On 17 May 2017, the Group entered
into a further $1 million loan facility with Kapital Bank. The term
of the loan was for 18 months at an interest rate of 8 per cent.
with the principal repayable at the end of the term.
Director
On 20 May 2015, the chief executive of Anglo Asian Mining PLC
provided a $4 million loan facility to the Group. Any loan from the
facility was repayable on 8 January 2016 at an interest rate of 10
per cent. The loan was extended during 2016 and 2017 on the same
terms till 8 January 2018. On January 2018, the term of the loan
was extended for one year until 8 January 2019. The interest rate
on the loan was reduced to 7 per cent., and all other terms of the
loan remained unchanged. In March 2018, the loan was repaid from
the proceeds of the Pasha Bank OSJC refinancing loan (note 29 -
Post balance sheet event - Loan refinancing by Pasha Bank
below).
Unused credit facilities
The Group had no credit facilities at 31 December 2017 which
were not utilised (2016: $nil).
22 Changes in liabilities arising from financing activities
2017
-------------------------------------------------
1 January Cash Other 31 December
$000 flows $000 $000
$000
---------------------------- ---------- ----------- ---------- ------------
Current interest-bearing
loans and borrowings 26,165 (15,879) 9,765 20,051
Non-current interest-
bearing loans and
borrowings 9,765 600 (9,765) 600
---------------------------- ---------- ----------- ---------- ------------
Total liabilities
from financing activities 35,930 (15,279) - 20,651
---------------------------- ---------- ----------- ---------- ------------
2016
-------------------------------------------------
1 January Cash Other 31 December
$000 flows $000 $000
$000
---------------------------- ---------- ----------- ---------- ------------
Current interest-bearing
loans and borrowings 26,708 881 (1,424) 26,165
Non-current interest-
bearing loans and
borrowings 22,588 (14,247) 1,424 9,765
---------------------------- ---------- ----------- ---------- ------------
Total liabilities
from financing activities 49,296 (13,366) - 35,930
---------------------------- ---------- ----------- ---------- ------------
Other is the effect of reclassification of the non-current
portion of interest bearing loans and borrowings to current at the
end of the year due to the passage of time.
23 Provision for rehabilitation
2017 2016
$000 $000
------------------------------- ------ ------
1 January 9,416 8,554
Additions 557 -
Accretion expense 462 493
Effect of passage of time and
change in discount rate (806) 369
------------------------------- ------ ------
31 December 9,629 9,416
------------------------------- ------ ------
The Group has a liability for restoration, rehabilitation and
environmental costs arising from its mining operations. Estimates
of the cost of this work including reclamation costs, close down
and pollution control are made on an ongoing basis, based on the
estimated life of the mine. This provision represents the net
present value of the best estimate of the expenditure required to
settle the obligation to rehabilitate any environmental
disturbances caused by mining operations. The undiscounted
liability for rehabilitation at 31 December 2017 was $13,736,000
(2016: $15,314,000). The undiscounted liability was discounted
using a risk-free rate of 5.05 per cent. (2016: 4.88 per cent.).
Expenditures on restoration and rehabilitation works are expected
between 2023 and 2025 (2016: between 2023 and 2025).
24 Financial instruments
Financial risk management objectives and policies
The Group's principal financial instruments comprise cash and
cash equivalents, loans and letters of credit. The main purpose of
these financial instruments is to finance the Group operations. The
Group has other financial instruments, such as trade and other
receivables and trade and other payables, which arise directly from
its operations. Surplus cash within the Group is put on deposit,
the objective being to maximise returns on such funds whilst
ensuring that the short-term cash flow requirements of the Group
are met.
The main risks that could adversely affect the Group's financial
assets, liabilities or future cash flows are capital risk, market
risk, interest rate risk, foreign currency risk, liquidity risk and
credit risk. Management reviews and agrees policies for managing
each of these risks which are summarised below.
The following discussion also includes a sensitivity analysis
that is intended to illustrate the sensitivity to changes in market
variables on the Group's financial instruments and show the impact
on profit or loss and shareholders' equity, where applicable.
Financial instruments affected by market risk include bank loans
and overdrafts, accounts receivable, accounts payable and accrued
liabilities.
The sensitivity has been prepared for the years ended 31
December 2017 and 2016 using the amounts of debt and other
financial assets and liabilities held as at those reporting
dates.
Capital risk management
The capital structure of the Group consists of debt, which
includes the borrowings disclosed in note 21, cash and cash
equivalents and equity attributable to equity holders of the
parent, comprising issued share capital, reserves and retained
earnings as disclosed in the consolidated statement of changes in
equity. The Group has sufficient capital to fund ongoing production
and exploration activities, with capital requirements reviewed by
the Board on a regular basis. Capital has been sourced through
share issues on the AIM, part of the London Stock Exchange, and
loans from the International Bank of Azerbaijan, Amsterdam Trade
Bank ("ATB") and other banks in Azerbaijan. In managing its
capital, the Group's primary objective is to ensure its continued
ability to provide a consistent return for its equity shareholders
through capital growth. In order to achieve this objective, the
Group seeks to maintain a gearing ratio that balances risk and
returns at an acceptable level and also to maintain a sufficient
funding base to enable the Group to meet its working capital and
strategic investment needs.
The Group is not subject to externally imposed capital
requirements and monitors capital using a gearing ratio, which is
net debt divided by total capital plus net debt. The Group's policy
is to keep the gearing ratio below 70 per cent. The Group defines
net debt as interest-bearing loans and borrowings less cash and
cash equivalents.
2017 2016
$000 $000
--------------------------------------- -------------- --------
Interest-bearing loans and borrowings
(note 21) 20,651 35,930
Less cash and cash equivalents
(note 19) (2,534) (1,379)
--------------------------------------- -------------- --------
Net debt 18,117 34,551
Equity 85,353 82,646
--------------------------------------- -------------- --------
Capital and net debt 103,470 117,197
--------------------------------------- -------------- --------
Gearing ratio (per cent.) 18 29
--------------------------------------- -------------- ------------
Interest rate risk
The Group's cash deposits, letters of credit, borrowings and
interest-bearing loans subsequent to the loan refinancing by Pasha
Bank in 2018 are at a fixed rate of interest.
The Group manages the risk by maintaining fixed rate
instruments, with approval from the directors required for all new
borrowing facilities.
The Group has not used any interest rate swaps or other
instruments to manage its interest rate profile during 2017 and
2016.
Interest rate sensitivity analysis
The Group had no sensitivity to any movement in LIBOR rates in
2017. Interest rate sensitivity of the Group in 2016 from a
reasonably possible movement in the three month LIBOR rate was
limited to a negative $137,000 or a positive $18,000 impact on the
Group's profit before taxation based on a 0.6 per cent. increase or
a 0.08 per cent. decrease respectively on interest-bearing loans
from ATB.
Ultimate responsibility for liquidity risk management rests with
the board of directors, which has built an appropriate liquidity
risk management framework for the management of the Group's short,
medium and long-term funding and liquidity management requirements.
The Group manages liquidity risk by maintaining adequate reserves,
banking facilities and reserve borrowing facilities by continuously
monitoring forecast and actual cash flows and matching the maturity
profiles of financial liabilities. Included in note 21 is a
description of additional undrawn facilities that the Group has at
its disposal to further reduce liquidity risk.
The table below summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted
payments.
Year ended 31 December 2017
On Less 3 to 1 to Total
demand than 12 5 $000
$000 3 months months years
$000 $000 $000
----------------------- --------- ---------- -------- ------- -------
Interest-bearing
loans and borrowings - 9,962 10,089 600 20,651
Trade and other
payables - 15,170 - - 15,170
----------------------- --------- ---------- -------- ------- -------
- 25,132 10,089 600 35,821
--------------------------------- ---------- -------- ------- -------
Year ended 31 December 2016
On Less 3 to 1 to Total
demand than 12 5 $000
$000 3 months months years
$000 $000 $000
----------------------- --------- ---------- -------- ------- -------
Interest-bearing
loans and borrowings - 7,319 20,575 10,142 38,036
Trade and other
payables - 21,833 - - 21,833
----------------------- --------- ---------- -------- ------- -------
- 29,152 20,575 10,142 59,869
--------------------------------- ---------- -------- ------- -------
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. The maximum credit risk exposure relating to financial
assets is represented by their carrying value as at the
consolidated statement of financial position date.
The Group has adopted a policy of only dealing with creditworthy
banks and has cash deposits held with reputable financial
institutions. These usually have a lower to upper medium grade
credit rating. Trade receivables consist of amounts due to the
Group from sales of gold and silver. All sales of gold and silver
bullion are made to MKS Finance SA, a Switzerland-based gold
refinery, and copper concentrate to Industrial Minerals SA. Due to
the nature of the customers, the board of directors does not
consider that a significant credit risk exists for receipt of
revenues. The board of directors continually reviews the
possibilities of selling gold to alternative customers and also the
requirement for additional measures to mitigate any potential
credit risk.
Foreign currency risk
The presentational currency of the Group is United States
Dollars. The Group is exposed to currency risk due to movements in
foreign currencies relative to the US Dollar affecting foreign
currency transactions and balances.
The carrying amounts of the Group's foreign currency denominated
monetary assets and monetary liabilities at 31 December are as
follows:
Liabilities Assets
-------------- --------------
2017 2016 2017 2016
$000 $000 $000 $000
------------------- ------ ------ --- ------ ------
UK Sterling 1 33 2 2
Azerbaijan Manats 3,909 4,379 1,342 1,390
Other 151 434 4 152
------------------- ------ ------ --- ------ ------
Foreign currency sensitivity analysis
The Group is mainly exposed to the currency of the United
Kingdom (UK Sterling), the currency of the European Union (Euro)
and the currency of the Republic of Azerbaijan (Azerbaijan
Manat).
The following table details the Group's sensitivity to an 11 per
cent., 12.5 per cent. and 11.3 per cent. (2016: 6 per cent., 10 per
cent. and 20 per cent.) increase and a 7 per cent., 7.5 per cent.,
and 11.3 per cent. (2016: 18 per cent., 10 per cent., and 20 per
cent.) decrease in the United States Dollar against United Kingdom
Sterling, Euro and Azerbaijan Manat, respectively. These are the
sensitivity rates used when reporting foreign currency risk
internally to key management personnel and represents management's
assessment of the reasonably possible change in foreign exchange
rates. The sensitivity analysis includes only outstanding foreign
currency denominated monetary items and adjusts their translation
at the period end for respective change in foreign currency rates.
A positive number below indicates an increase in profit and other
equity where the United States Dollar strengthens by the mentioned
rates against the relevant currency. Weakening of the United States
Dollar against the relevant currency, there would be an equal and
opposite impact on the profit and other equity, and the balances
below would be reversed.
UK Sterling Azerbaijan Euro Impact
impact Manat impact
-------------- ---------------- --------------
2017 2016 2017 2016 2017 2016
$000 $000 $000 $000 $000 $000
------------------- ------ ------ ------- ------- ------ ------
Increase - effect
on profit before
tax - 2 290 598 18 28
Decrease - effect
on profit before
tax - (6) (290) (598) (11) (28)
------------------- ------ ------ ------- ------- ------ ------
Market risk
The Group's activities primarily expose it to the financial
risks of changes in gold, silver and copper prices which have a
direct impact on revenues. The management and board of directors
continuously monitor the spot price of these commodities. The
forward prices for these commodities are also regularly monitored.
The majority of the Group's production is sold by reference to the
spot price on the date of sale. However, the board of directors
will enter into forward and option contracts for the purchase and
sale of commodities when it is commercially advantageous.
A 10 per cent. decrease in gold price in the year ended 31
December 2017 would result in a reduction in revenue of $6.1
million and a 10 per cent. increase in gold price would have the
equal and opposite effect. A 10 per cent. decrease in silver price
would result in a reduction in revenue of $0.04 million and a 10
per cent. increase in silver price would have an equal and opposite
effect. A 10 per cent. decrease in copper price would result in a
reduction in revenue of $0.8 million and a 10 per cent. increase in
copper price would have an equal and opposite effect.
25 Equity
2017 2016
---------------------------- ----------------------------
Number GBP Number GBP
------------------------ -------------- ------------ -------------- ------------
Authorised
Ordinary shares of
1 pence each 600,000,000 6,000,000 600,000,000 6,000,000
------------------------ -------------- ------------ -------------- ------------
Shares $000 Shares $000
------------------------ -------------- ------------ -------------- ------------
Ordinary shares issued
and fully paid
I January 112,661,024 1,993 112,661,024 1,993
Exercise of share
options 1,100,000 15 - -
------------------------ -------------- ------------ -------------- ------------
31 December 113,761,024 2,008 112,661,024 1,993
------------------------ -------------- ------------ -------------- ------------
Fully paid ordinary shares carry one vote per share and carry
the right to dividends.
Share options
The Group has share option scheme under which options to
subscribe for the Company's shares have been granted to certain
executives and senior employees (note 26).
Merger reserve
The merger reserve was created in accordance with the merger
relief provisions under Section 612 of the Companies Act 2006 (as
amended) relating to accounting for Group reconstructions involving
the issue of shares at a premium. In preparing Group consolidated
financial statements, the amount by which the base value of the
consideration for the shares allotted exceeded the aggregate
nominal value of those shares was recorded within a merger reserve
on consolidation, rather than in the share premium account.
Retained earnings / (loss)
Retained earnings / (loss) represent the cumulative earnings /
(loss) of the Group attributable to the equity shareholders.
26 Share-based payment
The Group operates a share option scheme for directors and
senior employees of the Group. The vesting periods are up to three
years. Options are exercisable at a price equal to the closing
quoted market price of the Group's shares on the date of the board
of directors approval to grant options. Options are forfeited if
the employee leaves the Group and the options are not exercised
within three months from leaving date.
The number and weighted average exercise prices ("WAEP") of, and
movements in, share options during the year were as follows:
2017 2016
--------------------- --------------------
WAEP WAEP
Number pence Number pence
-------------------- ------------ ------- ---------- --------
I January 1,745,000 14 2,120,859 21
Granted during the
year - - 120,000 10
Exercised during
the year (1,100,000) 12 - -
Expired during the
year (100,00) 16 (495,859) 42
-------------------- ------------ ------- ---------- --------
Outstanding at 31
December 545,000 17 1,745,000 14
-------------------- ------------ ------- ---------- --------
Exercisable at 31
December 545,000 17 1,665,000 14
-------------------- ------------ ------- ---------- --------
The weighted average remaining contractual life of the share
options outstanding at 31 December 2017 was 7 years (2016: 3 years)
and the range of their exercise prices was 10 pence to 35 pence
(2016: 10 pence to 35 pence).
There were no share options issued in 2017.
Share options are valued using the Black-Scholes model. The
assumptions used to value the share options issued in the year
ended 31 December are as follows.
2017* 2016
-------------------------------------- ------ ----
Weighted average share price (pence) n/a 26
Weighted average exercise price
(pence) n/a 9.88
Expected volatility for six months n/a -
vesting period option (per cent.)
Expected volatility for one years'
vesting period option (per cent.) n/a 70
Expected volatility for two years'
vesting period option (per cent.) n/a 70
Expected life for six months'
vesting period option (years) n/a 2
Risk free rate (per cent.) n/a 2.23
-------------------------------------- ------ ----
*not applicable as no share options were issued in 2017.
Expected volatility was determined by calculating the historical
volatility of the Company's share price over the previous one and
two years for share options with one and two year vesting periods,
respectively. The expected life used in the model has been
adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations.
The Group recognised total expense related to equity-settled
share-based payment transactions for the year ended 31 December
2017 of $13,000 (2016: $18,000).
27 Contingencies and commitments
The Group undertakes its mining operations in the Republic of
Azerbaijan pursuant to the provisions of the Agreement on the
Exploration, Development and Production Sharing for the Prospective
Gold Mining Areas: Gedabek, Gosha, Ordubad Group (Piazbashi,
Agyurt, Shakardara, Kiliyaki), Soutely, Kyzilbulag and Vejnali
Deposits dated year ended 20 August 1997 (the "PSA"). The PSA
contains various provisions relating to the obligations of the R.V.
Investment Group Services LLC ("RVIG"), a wholly owned subsidiary
of the Company. The principal provisions are regarding the
exploration and development programme, preparation and timely
submission of reports to the Government, compliance with
environmental and ecological requirements. The Directors believe
that RVIG is in compliance with the requirements of the PSA. The
Group has announced a discovery on Gosha Mining Property in
February 2011 and submitted the development programme to the
Government according to the PSA requirements, which was approved in
2012. In April 2012 the Group announced a discovery on the Ordubad
Group of Mining Properties and submitted the development programme
to the Government for review and approval according to the PSA
requirements. The Group and the Government are still discussing the
formal approval of the development programme.
he mining licence on Gedabek expires in March 2022, with the
option to extend the licence by ten years conditional upon
satisfaction of certain requirements stipulated in the PSA.
RVIG is also required to comply with the clauses contained in
the PSA relating to environmental damage. The Directors believe
RVIG is in compliance with the environmental clauses contained in
the PSA.
In accordance with a pledge agreement signed on 24 July 2013 the
Group is a guarantor for one of its suppliers,
Azerinterpartlayish-X MMC, for a loan taken from the International
Bank of Azerbaijan in the amount of Azerbaijan New Manat ("AZN")
500,000 for an initial 36 months. The pledge agreement was extended
in 2016 till 1 July 2018. The amount of the loan outstanding at 31
December 2017 was AZN 125,750.
There were no significant operating lease or capital lease
commitments at 31 December 2017 (2016: $nil).
28 Related party transactions
Trading transactions
During the years ended 31 December 2016 and 2017, there were no
trading transactions between Group companies.
Other related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note. Transactions between the Group and other
related parties are disclosed below.
a) Shares issued to directors are disclosed in note 9 above.
b) Remuneration paid to directors is disclosed in note 9
above.
c) During the year ended 31 December 2017, total payments of
$1,400,000 (2016: $1,522,000) were made for equipment and spare
parts purchased from Proses Muhendislik Danismanlik Inshaat ve
Tasarim Anonim Shirket, the entity in which the Chief Technical
Officer of Azerbaijan International Mining Company has a direct
ownership interest.
At 31 December 2017 there is a payable in relation to the above
related party transaction of $267,000 (2016: advanced payment of
$34,000)
d) On 20 May 2015, the chief executive made a $4 million loan
facility available to the Group. The interest accrued and unpaid at
31 December 2017 was $655,000 (2016: $385,000). Details of the loan
facility are disclosed in note 21.
All of the above transactions were made on arm's length
terms.
29 Post balance sheet event
Loan refinancing by Pasha Bank
On 8 February 2018 a subsidiary of the Group, Azerbaijan
International Mining Company Limited, entered into a refinancing
agreement with Pasha Bank OJSC, as arranger, for a syndicated loan
facility for up to $15 million to refinance the majority of the
Group's existing loans. The significant terms of the loan were as
follows:
-- Two-year term loan facility for up to $15 million at 7 per
cent. per annum fixed interest rate;
-- The loan facility is unsecured and there are no financial covenants;
-- Total arrangement fee of 0.25 per cent. of the amount borrowed; and
-- Early repayment is permitted.
A total of $13.5 million of the facility was drawn-down on the 9
and 12 of February 2018 and used to repay the following loans:
-- $2.2 million to Yapi Credit Bank;
-- $3.7 million to Amsterdam Trade Bank N. V.;
-- $3.7 million to Gazprombank (Switzerland) Ltd; and
-- $3.9 million to the Chief Executive.
The transaction was completed by the end of March 2018.
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this
announcement.
**ENDS**
Notes:
Anglo Asian Mining plc (AIM:AAZ) is a gold, copper and silver
producer in Central Asia with a broad portfolio of production and
exploration assets in Azerbaijan. The Company has a 1,962 square
kilometre portfolio, assembled from analysis of historic Soviet
geological data and held under a Production Sharing Agreement
modelled on the Azeri oil industry.
The Company's main operating location is the Gedabek contract
area ("Gedabek") which is a 300 square kilometer area in the lower
Caucasus mountains in western Azerbaijan. The Company developed
Azerbaijan's first operating gold/copper/silver mine at Gedabek
which commenced gold production in May 2009. Mining at Gedabek was
initially from its main open pit which is an open cast mine with a
series of interconnected pits. The Company also operates the high
grade Gadir underground mine which is co-located at the Gedabek
site, In September 2017, production commenced at the Ugur open pit
mine, a recently discovered gold ore deposit at Gedabek. The
Company has a second underground mine, Gosha, which is 50
kilometres from Gedabek. Ore mined at Gosha is processed at Anglo
Asian's Gedabek plant.
The Company produced 71,461 gold equivalent ounces ('GEOs') for
the year ended 31 December 2017. Gedabek is a polymetallic project
which demonstrates a high copper content at the main open pit mine,
and an oxide gold-rich zone at Ugur. The Company therefore employs
a series of flexible processing routes through which to optimise
recoveries and efficiencies. The Company produces gold doré through
agitation and heap leaching operations, copper concentrate from its
Sulphidisation, Acidification, Recycling, and Thickening (SART)
plant and also a copper and precious metal concentrate from its
flotation plant, which is processing tailings from the agitation
leach plant. A second dedicated crusher line is also currently
being installed for the flotation plant to enable it to operate
independently of the agitation leaching plant.
The Company has forecast production for FY 2018 of between
78,000 to 84,000 GEOs an increase for the mid-point of this
guidance of over 13 per cent. compared to FY 2017 production of
71,461 GEOs.
Anglo Asian is also actively seeking to exploit its first mover
advantage in Azerbaijan to identify additional projects, as well as
looking for other properties in order to fulfil its expansion
ambitions and become a mid-tier gold and copper metal production
company.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UOABRWOAVUAR
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