TIDMCAML
RNS Number : 5104R
Central Asia Metals PLC
22 September 2017
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AND THE
INFORMATION CONTAINED IN IT IS NOT FOR RELEASE, PUBLICATION OR
DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR
INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR
ANY OTHER JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO DO SO.
PLEASE SEE THE FURTHER INFORMATION SECTION WITHIN THIS
ANNOUNCEMENT.
This announcement does not constitute an offer of securities for
sale or subscription in any jurisdiction.
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014
22 September 2017
CENTRAL ASIA METALS PLC
("CAML" or the "Company")
Proposed acquisition of Lynx Resources Limited for $402.5
million
Creation of a new, diversified, low-cost base metals
producer
Central Asia Metals plc (AIM: CAML), is pleased to announce that
it has conditionally agreed to purchase a 100 per cent. interest in
Lynx Resources Limited ("Lynx"), the owner of the SASA zinc-lead
mine in Macedonia, from Orion Co-Investments III L.P. ("Orion") and
Fusion Capital AG for $402.5 million (the "Consideration").
Highlights
-- Transformational transaction for CAML, creating an AIM
listed, diversified, low cost base metals producer
-- Lynx operates the SASA underground zinc-lead mine, in northeast Macedonia
-- SASA is a low cost operation with strong operating track
record and a reserve base supporting production until at least
2032
-- In 2016, SASA produced 783,000 tonnes of ore which generated
22,515 tonnes of zinc in concentrate and 28,955 tonnes of lead in
concentrate
-- SASA's H1 2017 C1 zinc equivalent cash cost of $0.39 per
pound is at the lower end of the second quartile of the Wood
MacKenzie 2017E zinc industry cost curve
-- In the first six months of 2017, Lynx achieved an EBITDA
margin of 61 per cent. (unaudited)
Rationale
-- The Transaction represents a compelling opportunity for CAML
to expand and diversify with the addition of another cash
generative asset in a highly prospective jurisdiction
-- The combination of CAML and Lynx is expected to provide
commodity, geographic and operational diversification, which should
enable the Group to remain well positioned throughout the commodity
cycle
-- The Transaction is expected to be both earnings and cash flow
per share accretive in the first full year, underpinning CAML's
dividend profile
Funding
-- Total Consideration of $402.5 million to be funded as follows:
-- Debt financing:
o $120 million senior debt facility with Traxys (4.75% + LIBOR, 5 year term)
o Roll over of estimated $67 million of existing Lynx net debt
(5% + LIBOR, 5 years remaining)
-- Equity financing:
o $153.5 million in CAML ordinary shares via an Accelerated Book Build ("ABB") expected to be launched shortly
o $50 million in CAML ordinary shares to Orion via an equity subscription
-- $12 million of deferred consideration
The Transaction
-- The Transaction will be a reverse takeover under the AIM
Rules and so will be subject to shareholder approval at a General
Meeting scheduled for 11 October 2017, following the publication of
an AIM Admission Document for the Enlarged Group
-- The Independent CAML Directors unanimously recommend that
shareholders vote in favour of the Transaction at an Extraordinary
General Meeting
-- The Company has received irrevocable undertakings from the
Directors that they will vote in favour of the Resolutions at an
Extraordinary General Meeting representing approximately 23.5 per
cent. of the existing ordinary shares
-- It is currently anticipated that the AIM admission document
will be posted to shareholders, and trading of CAML shares will
recommence, on 25 September 2017
Commenting on the transaction, Nick Clarke, Executive Chairman
said: "We believe that this Transaction is an exceptional
opportunity for CAML to acquire a high quality asset which
complements our existing business. The combination of CAML and Lynx
creates an AIM listed, diversified, base metals producer with low
cost, long life operations which are expected to generate positive
cash flows throughout the commodity cycle. The Transaction is
projected to be both earnings and cash flow per share accretive in
the first full year, which is in line with our business development
strategy of pursuing value accretive acquisitions in the base
metals sector that enable CAML to continue paying one of the
leading dividends in the sector."
Oskar Lewnowski, Chief Investment Officer of Orion Mine Finance
said: "Orion is impressed with CAML's track record of returning
capital to shareholders and I am confident that this transaction
will add another chapter to that story, as we combine low-cost,
long-life mines. We feel strongly that the combined entity will be
well placed to benefit from strong fundamentals in the copper and
zinc markets. We look forward to becoming a long-term, supportive
shareholder in CAML."
Chris James, CEO of Lynx Resources Limited, commented: "Lynx has
been proud of SASA's outstanding performance since we acquired it
in 2015. We commend our employees on their commitment to safety and
the environment, and their contribution to the local communities.
We are confident CAML has the expertise to take SASA to the next
level, and look forward to SASA making an important contribution to
the business going forward."
The person responsible for arranging the release of this
announcement on behalf of CAML is Louise Wrathall, Investor
Relations.
Enquiries:
Central Asia Metals plc Tel: +44 20 7898 9001
Nick Clarke, Executive Chairman
Nigel Robinson, Chief Financial Officer
Gavin Ferrar, Business Development Director
Louise Wrathall, Investor Relations
louise.wrathall@centralasiametals.com
J.P. Morgan Cazenove Tel: +44 20 7742 4000
(Financial Adviser to CAML)
Barry Weir
Edward Jack
Nicholas Hall
Peel Hunt Tel: +44 20 7418 8900
(Nominated Adviser and Joint Broker to CAML)
Matthew Armitt
Ross Allister
Chris Burrows
Blytheweigh Tel: +44 20 7138 3204
(PR Adviser to CAML)
Tim Blythe
Camilla Horsfall
Megan Ray
Further Information
This announcement is for information purposes only and is not
intended to and does not constitute, or form part of, any offer or
invitation to purchase, subscribe for or otherwise acquire or
dispose of, or any solicitation to purchase or subscribe for or
otherwise acquire or dispose of, any securities in the United
States, Republic of South Africa, Australia, Canada or Japan or any
other jurisdiction in which such an offer or solicitation may lead
to a breach of any applicable legal or regulatory requirements.
Persons needing advice should consult with an independent financial
adviser authorised under the Financial Services and Markets Act
2000, as amended ("FSMA"), who specialises in advising on the
acquisition of shares and other securities, if that person is in
the United Kingdom, or any appropriately authorised person under
applicable laws, if that person is located in any other
jurisdiction. The information contained in this announcement is not
for release, publication or distribution to persons in any
jurisdiction where to do so might constitute a violation of local
securities laws or regulations.
This announcement has been issued by and is the sole
responsibility of the Company. The information contained in this
announcement is for background purposes only and does not purport
to be full or complete. The information in this announcement is
subject to change without notice.
This announcement is directed only at: (a) persons in member
states of the European Economic Area (the EEA) who are "qualified
investors" within the meaning of Article 2(1)(e) of the Prospectus
Directive (Directive 2003/71/EC, as amended by the 2010 PD Amending
Directive (Directive 2010/73/EU) and including any relevant
implementing directive measure in any member state of the EEA to
the extent implemented in the relevant member state (the Prospectus
Directive) (Qualified Investors); (b) persons in the United Kingdom
who are Qualified Investors and who (i) have professional
experience in matters relating to investments and who fall within
the definition of "investment professionals" in Article 19(5) of
the Financial Services and Markets Act 2000 (Financial Promotion)
Order 2005 (the Order); (ii) who are high net worth companies,
unincorporated associations and other persons to whom it may
lawfully be communicated in accordance with Article 49(2)(a) to (d)
of the Order; or (iii) other persons to whom it may lawfully be
communicated (all such persons together being referred to as
"Relevant Persons"). Any investment activity in connection with
this announcement and the Placing is only available to, and will
only be engaged with, Relevant Persons. Any person who is not a
Relevant Person should not act or rely on this announcement or any
of its contents. This "Further Information" section does not itself
constitute an offer for sale or subscription of any securities in
the Company.
In Australia, this announcement is directed only at persons to
whom an offer of securities can be made without disclosure under
Part 6D.2 of the Australian Corporations Act 2001(Cth) ("Australian
Corporations Act") because they are either a 'Sophisticated
Investor' or 'Professional Investor' for the purposes of sections
708(8) or 708(11) (as applicable) of the Act. Accordingly: (i) this
offer is made solely to the recipient in their capacity as a
Sophisticated or Professional Investor; (ii) this offer can only be
accepted by the recipient if they are a Sophisticated or
Professional Investor; (iii) this announcement does not and is not
intended to constitute a disclosure document for the purposes of
the Australian Corporations Act; and (iv) neither this announcement
nor the offer contained herein can be partially or wholly
distributed, published, reproduced, transmitted or otherwise made
available or disclosed by recipients to any other person in
Australia.
In South Africa, only persons who fall within any of the
categories envisaged in section 96(1)(a) of the Companies Act, 2008
(the "SA Companies Act") and/or selected persons who subscribe for
Placing Shares at a total contemplated acquisition cost equal to or
greater than R1 000 000 per single addressee acting as principal
(as contemplated in section 96(1)(b) of the SA Companies Act) and
to whom the offer of Placing Shares is specifically addressed, are
entitled to participate in the Placing and this announcement should
not be distributed, published, reproduced, transmitted or otherwise
made available in whole or in part or disclosed by recipients to
any person in South Africa who does not fall within the
aforementioned categories. Accordingly, (i) the Placing is not an
offer to the public as contemplated in the SA Companies Act; and
(ii) no prospectus has been filed with the Companies and
Intellectual Property Commission in respect of the offer of the
Placing Shares. Any acquisition by a South African resident of
Shares shall be subject the Exchange Control Regulations, 1961, as
amended, issued in terms of section 9 of the South African Currency
and Exchanges Act, 1933 (the Regulations), and South African
residents who wish to acquire shares shall be responsible for
compliance with the Regulations and for obtaining any approvals
that may be required in terms of the Regulations.
The Placing Shares have not been and will not be registered
under the US Securities Act of 1933, as amended (the "Securities
Act") or under any securities laws of any state or other
jurisdiction of the United States and may not be offered, sold,
taken up, exercised, resold, transferred or delivered, directly or
indirectly to or within the United States or to any US Person,
except pursuant to an applicable exemption from, or a transaction
not subject to, the registration requirements of the Securities Act
and in compliance with any applicable securities laws of any state
or other jurisdiction of the United States. There will be no public
offer in the United States. Any offering of the Placing Shares to
be made outside the United States will be made in offshore
transactions in accordance with Regulation S. There will be no
public offering of the Placing Shares in the United States. The
Placing Shares have not been approved or disapproved by the US
Securities and Exchange Commission (the "SEC"), any state
securities commission or any other regulatory authority in the
United States, nor have any such authorities passed upon or
endorsed the merits of the Placing or the accuracy or adequacy of
this announcement. Any representation to the contrary is a criminal
offence in the United States.
The distribution of this announcement in certain jurisdictions
may be restricted by law. No action has been taken by the Company,
the Selling Shareholder, Peel Hunt, Mirabaud or J.P. Morgan
Cazenove that would permit an offering of such shares or possession
or distribution of this announcement or any other offering or
publicity material relating to such shares in any jurisdiction
where action for that purpose is required, other than the United
Kingdom. Persons into whose possession this announcement comes are
required by the Company, the Selling Shareholder, Peel Hunt,
Mirabaud and J.P. Morgan Cazenove to inform themselves about, and
to observe, such restrictions. The information contained in this
announcement may not be distributed, published, reproduced,
transmitted or otherwise made available in whole or in part or
disclosed by recipients to any other person and may not be
reproduced in any manner whatsoever. Any forwarding, distribution,
reproduction, or disclosure of any information contained in this
announcement in whole or in part is unauthorised. Failure to comply
with these restrictions may constitute a violation of the
Securities Act or the applicable laws of other jurisdictions.
Subject to certain exemptions, the securities referred to in this
announcement may not be offered or sold in the United States,
Australia, Canada, Japan, South Africa or certain other
jurisdictions or for the account or benefit of any national
resident or citizen of certain jurisdictions. No prospectus will be
made available in connection with the matters contained in this
announcement and no such prospectus is required (in accordance with
the Prospectus Directive) to be published. Persons needing advice
should consult an independent financial adviser.
No undertaking, representation or warranty or other assurance
express or implied, is or will be made as to, or in relation to,
and, aside from the responsibilities and liabilities, if any, which
may be imposed by FSMA or the regulatory regime established
thereunder or any other applicable regulatory regime, no
responsibility or liability is or will be accepted by the Company,
the Selling Shareholder Peel Hunt, Mirabaud or J.P. Morgan or any
of their respective parent or subsidiary undertakings or the
subsidiary undertakings of any such parent undertakings or any of
their respective directors, proposed directors, officers, partners
or employees or any other person as to or in relation to, the
accuracy, completeness, sufficiency or fairness of the information
or opinions contained in this announcement or any other written or
oral information made available to or publicly available to any
interested party or its advisers in connection with the
Transaction, and any responsibility or liability therefore is
expressly disclaimed. In addition, no duty of care or otherwise is
owed by any such person to recipients of this announcement or any
other person in relation to this announcement.
J.P. Morgan Securities plc, which conducts its UK investment
banking business as J.P. Morgan Cazenove ("J.P. Morgan Cazenove"),
is authorised by the Prudential Regulatory Authority and regulated
by the Financial Conduct Authority and the Prudential Regulatory
Authority in the United Kingdom. J.P. Morgan Cazenove is acting as
financial adviser exclusively for CAML and no one else in
connection with the matters set out in this announcement and will
not regard any other person as its client in relation to the
matters in this announcement and will not be responsible to anyone
other than CAML for providing the protections afforded to clients
of J.P. Morgan Cazenove or its affiliates, or for providing advice
in relation to any matter referred to herein.
Peel Hunt LLP ("Peel Hunt"), is authorised and regulated in the
United Kingdom by the Financial Conduct Authority. Peel Hunt is
acting as nominated adviser and broker exclusively for CAML and no
one else in connection with the matters set out in this
announcement and will not regard any other person as its client in
relation to the matters in this announcement and will not be
responsible to anyone other than CAML for providing the protections
afforded to clients of Peel Hunt or its affiliates, or for
providing advice in relation to any matter referred to herein.
Mirabaud Securities Limited ("Mirabaud"), is authorised and
regulated in the United Kingdom by the Financial Conduct Authority.
Mirabuad is acting as lead manager exclusively for CAML and no one
else in connection with the matters set out in this announcement
and will not regard any other person as its client in relation to
the matters in this announcement and will not be responsible to
anyone other than CAML for providing the protections afforded to
clients of Mirabaud or its affiliates, or for providing advice in
relation to any matter referred to herein.
Certain statements contained in this announcement or
incorporated by reference into it constitute, or may be deemed to
constitute, "forward-looking statements" with respect to the
financial condition, results of operations, business achievements
and/or investment strategy of the Group and, upon completion of the
Acquisition, the Enlarged Group and certain plans and objectives of
the directors of the Company with respect thereto. These
forward-looking statements can be identified by the fact that they
do not relate only to historical or current facts. Forward-looking
statements often use forward-looking terminology including words
such as "anticipate", "target", "expect", "estimate", "intend",
"aim", "plan", "predict", "projects", "continue", "assume", "goal",
"believe", "will", "may", "should", "would", "could" or, in each
case, their negative, or other variations thereon or words of
similar meaning, which identify certain of these forward-looking
statements. Other forward-looking statements can be identified in
the context in which the statements are made. In particular, any
statements regarding the Company's strategy, plans, objectives,
goals and other future events or prospects are forward-looking
statements.
An investor should not place undue reliance on forward-looking
statements because they involve known and unknown risks,
uncertainties and other factors that are in many cases beyond the
Company's control. Such forward looking statements are based on
assumptions and estimates and involve risks, uncertainties and
other factors that may cause the actual results, financial
condition, performance or achievements of the Group, or industry
results, to be materially different from any future results,
performance or achievements expressed or implied by such forward
looking statements. By their nature, forward-looking statements
involve risk and uncertainty, and any forward-looking statements
relating to the Acquisition reflect the Company's view with respect
to future events as of the date of the relevant statement and are
subject to risks relating to future events and other risks,
uncertainties and assumptions relating to the condition of the
Acquisition being satisfied, management's maintenance of the
business and the process of integrating the Acquisition following
completion of the Acquisition including the retention of certain
key Lynx Group management, foreign exchange risks related to the
price of the Acquisition, the successful realisation of the
Enlarged Group's growth strategy, the successful realisation of the
anticipated synergies and strategic benefits, an adequate return on
its investment from the Acquisition and foreign exchange rate
fluctuation between the US dollar and pound sterling, as well as
the principal risks and uncertainties facing the business as
described in the risk factors highlighted in the Company's 2016
annual report and in its announcement of the proposed Acquisition.
The factors described in the context of such forward-looking
statements in this announcement could cause the actual results,
financial condition, performance or achievements of the Company,
the Target and the enlarged group following the Acquisition or the
success of their investment strategies to be materially different
from any future results, performance or achievements expressed or
implied by such statements.
New factors may emerge from time to time that could cause the
Group's business not to develop as it expects, and it is not
possible for the Company to predict all such factors. Given these
uncertainties, the Company cautions investors that forward-looking
statements are not guarantees of future performance and that its
actual results of operations and financial condition, and the
development of the industry in which it operates, may differ
materially from those made in or suggested by the forward-looking
statements contained in this announcement and/or information
incorporated by reference into it.
Each forward-looking statement speaks only as of the date it was
made and is not intended to give any assurances as to future
results. Furthermore, forward-looking statements contained in this
announcement that are based on past trends or activities should not
be taken as a representation that such trends or activities will
continue in the future. Except as required by FSMA, the AIM Rules
and/or the Disclosure Guidance and Transparency Rules of the FCA
(the Disclosure Guidance and Transparency Rules), none of the
Company, the Selling Shareholder, J.P. Morgan Cazenove, Mirabaud or
Peel Hunt undertakes any obligation to update or revise these
forward-looking statements, and will not publicly release any
revisions it may make to these forward- looking statements that may
result from new information, events or circumstances arising after
the date of this announcement. The Company will comply with its
obligations to publish updated information as required by FSMA, the
AIM Rules and/or the Disclosure Guidance and Transparency Rules or
otherwise by law and/or by any regulatory authority, but assumes no
further obligation to publish additional information.
Any indication in this announcement of the price at which
Ordinary Shares have been bought or sold in the past cannot be
relied upon as a guide to future performance. No statement in this
announcement is intended to be a profit forecast and no statement
in this announcement should be interpreted to mean that earnings
per share of the Company for the current or future financial years
would necessarily match or exceed the historical published earnings
per share of the Company.
The Enlarged Group's Competent Person in respect of the Kounrad
asset in Kazakhstan, Phil Newell of Wardell Armstrong, has reviewed
the Company's Kazakh Mineral Resources in accordance with the JORC
Code (2012), which is an internationally recognised standard. The
Enlarged Group's Competent Persons in respect of its Macedonian
assets, Guy Dishaw and Chris Bray, both full-time employees of SRK
Consulting (UK) Ltd., have reviewed the Enlarged Group's Macedonian
Mineral Resources and Ore Reserves in accordance with the JORC Code
(2012). The JORC Code (2012) sets out minimum standards,
recommendations and guidelines for Public Reporting in Australasia
of Exploration Results, Mineral Resources and Ore Reserves. The
JORC Code (2012) has been drawn up by the Joint Ore Reserves
Committee of The Australasian Institute of Mining and Metallurgy,
the Australian Institute of Geoscientists and the Minerals Council
of Australia.
The data, statistics and information and other statements in
this announcement regarding the markets in which the Enlarged Group
is expected to operate are based on the Company's and the Lynx
Group's records or are taken or derived from statistical data and
information derived from the other sources described in this
announcement. In relation to these sources, such information has
been accurately reproduced from the published information and, so
far as the Directors are aware and are able to ascertain from the
information provided by the suppliers of these sources, no facts
have been omitted which would render such information inaccurate or
misleading. Various figures and percentages in tables in this
announcement have been rounded and accordingly may not total
exactly. Certain financial data has also been rounded. As a result
of this rounding, the totals of data presented in this announcement
may vary slightly from the actual arithmetical totals of such data.
All times referred to in this announcement are, unless otherwise
stated, references to time in London, England.
Unless otherwise stated, financial information relating to the
Group has been extracted from the audited financial statements for
the years as at and for the years ended 31 December 2014, 2015 and
2016 and the unaudited interim condensed financial statements for
the six months ended 30 June 2017. Unless otherwise stated,
financial information relating to the Lynx Group has been extracted
from the unaudited financial information as at and for the years
ended 31 December 2014, 2015 and 2016 and the unaudited condensed
financial information for the six months ended 30 June 2017 set out
in this announcement. Unless otherwise stated, financial
information in this announcement relating to the Group has been
prepared in accordance with IFRS.
In this announcement, any reference to "pro forma" financial
information is to information which has been extracted without
material adjustment from the unaudited pro forma financial
information contained in this announcement. The unaudited
consolidated pro forma statement of net assets set out in this
announcement has been prepared for illustrative purposes only and
on the basis of the notes set out herein. The unaudited pro forma
statement of net assets has been prepared to illustrate the effect
of the Acquisition, the Debt Financing and the Company Placing on
the net assets of the Company as if they had occurred on 30 June
2017. Due to its nature, the unaudited consolidated pro forma
statement of net assets addresses a hypothetical situation and,
therefore, does not represent the Company's actual financial
position or results following the Acquisition, the Debt Financing
and the Company Placing. The unaudited consolidated pro forma
statement of net assets is compiled from the unaudited interim
balance sheet of: (i) the Company at 30 June 2017; and (ii) the
unaudited interim balance sheet of Lynx at 30 June 2017, as set out
in the historical financial information on Lynx. The unaudited
consolidated pro forma statement of net assets takes no account of
trading activity or other transactions since the respective
dates.
No statement in this announcement is intended as a profit
forecast.
The document includes non-IFRS measures and ratios, including
EBITDA, which are not measures of financial performance under IFRS.
The Company defines EBITDA as profit or loss for the period before
net finance costs, income taxes, depreciation and amortisation,
gains/(losses) from discontinuing operations, foreign exchange
differences, impairment losses and gains/(losses) on disposal of
financial instruments and other non-recurring (exceptional)
costs/income. EBITDA-based measures and the related ratios are used
by management as indicators of our operating performance. The
Company is not presenting EBITDA-based measures as measures of the
Group's or the Lynx Group's results of operations. EBITDA-based
measures have important limitations as an analytical tool, and
should not be considered in isolation or as substitutes for
analysis of the Group's or the Lynx Group's results of operations.
Some of these limitations are:
- EBITDA-based measures do not reflect the impact of significant
interest expense or the cash requirements necessary to service
interest or principal payments in respect of any borrowings, which
could further increase if the Enlarged Group incurs more debt.
- EBITDA-based measures do not reflect the impact of income tax
expense on the Group's or the Lynx Group's operating
performance.
- EBITDA-based measures do not reflect the impact of
depreciation of assets on the Group's or the Lynx Group's
performance.
- EBITDA-based measures remove the impact of non-recurring items
from the Group's or the Lynx Group's performance.
The assets of the Group's and the Lynx Group's business that are
being depreciated will have to be replaced in the future and such
depreciation expense may approximate the cost to replace these
assets in the future. By excluding this expense from EBITDA-based
measures, these measures do not reflect the Enlarged Group's future
cash requirements for these replacements. EBITDA and other non-IFRS
measures should not be considered in isolation or as an alternative
to profit from operations, cash flow from operating activities or
other financial measures of the Lynx Group's results of operations
or liquidity derived in accordance with IFRS. They have not been
prepared in accordance with SEC requirements, IFRS or the
accounting standard of any other jurisdiction. The Company has
included EBITDA and other non-IFRS measures in this announcement,
because it believes that they are useful measures of the Group's or
the Lynx Group's performance and liquidity. Other companies,
including those in the Group's and the Lynx Group's industry, may
calculate similarly titled financial measures in a manner different
to that of the Group or the Lynx Group. Because all companies do
not calculate these financial measures in the same manner, the
Group's and the Lynx Group's presentation of such financial
measures may not be comparable to other similarly titled measures
of other companies. EBITDA is not audited.
Unless otherwise indicated, all references in this announcement
to "GBP", "pounds sterling", "pounds", "sterling", "pence", or "p",
are to the lawful currency of the United Kingdom, all references to
"Euros", "euros" or "EUR" are to the single currency of the
Eurozone, all references to " ", "Macedonian Denar", "MKD" or
"denar" are to the lawful currency of Macedonia, all references to
"Tenge", "Kazakhstan Tenge" or "KZT" are to the lawful currency of
Kazakhstan and all references to "US dollars", "US$", "$" or
"dollars" are to the lawful currency of the United States. Unless
otherwise stated, the rate of exchange of GBP1.00:US$1.3580 has
been used in this announcement.
The information that a prospective investor provides in
documents in relation to a purchase of Placing Shares or
subsequently by whatever means which relates to the prospective
investor (if it is an individual) or a third party individual
("personal data") will be held and processed by the Company (and
any third party to whom it may delegate certain administrative
functions in relation to the Company) in compliance with the
relevant data protection legislation and regulatory requirements of
the UK. Such information will be held and processed by the Company
(or any third party, functionary or agent appointed by the Company)
for the following purposes:
- verifying the identity of the prospective investor to comply
with statutory and regulatory requirements in relation to
anti-money laundering procedures;
- contacting the prospective investor with information about
products and services, or its affiliates, which may be of interest
to the prospective investor;
- carrying out the business of the Enlarged Group and the
administering of interests in the Company;
- meeting the legal, regulatory, reporting and/or financial
obligations of the Enlarged Group in England and Wales, Kazakhstan,
Macedonia, Bermuda or elsewhere; and
- disclosing personal data to other functionaries of, or
advisers to, the Enlarged Group to operate and/or administer the
Enlarged Group.
Where appropriate it may be necessary for a member of the
Enlarged Group (or any third party, functionary or agent appointed
by a member of the Enlarged Group) to:
- disclose personal data to third party service providers,
agents or functionaries appointed by a member of the Enlarged Group
to provide services to prospective investors; and
- transfer personal data outside of the UK to countries or
territories which do not offer the same level of protection for the
rights and freedoms of prospective investors as the UK.
If a member of the Enlarged Group (or any third party,
functionary or agent appointed by a member of the Group) discloses
personal data to such a third party, agent or functionary and/or
makes such a transfer of personal data it will use reasonable
endeavours to ensure that any third party, agent or functionary to
whom the relevant personal data are disclosed or transferred is
contractually bound to provide an adequate level of protection in
respect of such personal data. In providing such personal data,
investors will be deemed to have agreed to the processing of such
personal data in the manner described above. Prospective investors
are responsible for informing any third party individual to whom
the personal data relates of the disclosure and use of such data in
accordance with these provisions.
In making an investment decision, prospective investors must
rely on their own examination of the Group and of the Enlarged
Group, this announcement and the terms of the Acquisition and
Placing, including the merits and risks involved, and should inform
themselves as to:
- the legal requirements within their own countries for the
purchase, holding, transfer or other disposal of Ordinary
Shares;
- any foreign exchange restrictions applicable to the purchase,
holding, transfer or other disposal of Ordinary Shares which they
might encounter; and
- the income and other tax consequences which may apply in their
own countries as a result of the purchase, holding, transfer or
other disposal of Ordinary Shares.
Prospective investors must rely upon their own representatives,
including their own legal and financial advisers and accountants,
as to legal, tax, financial, investment or any other related
matters concerning the contents of this announcement and an
investment in Ordinary Shares. An investment in the Company should
be regarded as a long-term investment. All Shareholders are
entitled to the benefit of, are bound by, and are deemed to have
notice of, the provisions of the Articles, which prospective
investors should review.
Save to the extent explicitly indicated, neither the content of
the Company's website nor any website accessible by hyperlinks on
the Company's website is incorporated in, or forms part of, this
announcement.
Timetable
Latest time and date for receipt of 11.00 a.m.
form of proxy on 9 October
2017
Extraordinary General Meeting 11.00 a.m.
on 11 October
2017
Expected time and date of Admission 8.00 a.m.
and issue of the Placing Shares on 12 October
2017
CREST accounts credited (where applicable) 8.00 a.m.
in respect of the Placing Shares on 12 October
2017
Despatch of definitive share certificates on or around
(where applicable) in respect of the 20 October
Placing Shares 2017
Expected completion of the Acquisition, Q4 2017
issue of the Consideration Shares and
Readmission and commencement of dealings
in the Enlarged Share Capital on AIM
All references to times in this timetable are to London
times.
Completion of the Acquisition, issue of the Consideration Shares
and Readmission is expected to occur 6 business days after the
satisfaction or waiver (if applicable) of the conditions set out in
the Acquisition Agreement. The long stop date for satisfaction of
such conditions is 15 December 2017.
Each of the times and dates set out above and mentioned
elsewhere in this announcement may be subject to change at the
absolute discretion of the Company and the Joint Bookrunners
without further notice. If any of the above times and/or dates
change, the revised times and/or dates will be notified by an
announcement through a regulatory information service.
1. Introduction
The Company has today announced that it has entered into an
agreement to acquire, subject to certain conditions being
satisfied, the entire issued share capital of Lynx Resources
Limited, a holding company for a group of companies that owns the
SASA Mine. As the Acquisition constitutes a "reverse takeover"
under the AIM Rules, it is conditional upon, among other things,
the approval of Shareholders at an extraordinary general meeting. A
reverse takeover also involves the cancellation of Existing
Ordinary Shares from trading on AIM and a new application for the
Enlarged Share Capital to be admitted to trading on AIM.
Under the terms of the Acquisition Agreement, the Company has
agreed to acquire the entire issued share capital of Lynx Resources
Limited for a total consideration of US$402.5 million on a
debt-free cash-free basis. The consideration payable for the
Acquisition will be satisfied by the payment of US$340.5 million in
cash on Completion (subject to a net debt and net working capital
adjustment) and US$50 million to be applied by Orion in subscribing
for the Consideration Shares. The Company will also pay the Sellers
US$12 million of deferred consideration, payable in six equal
monthly installments commencing on the first anniversary of
Completion.
The Company will also announce shortly its intention to
undertake the Company Placing and the intention of the Selling
Shareholder to undertake the Selling Shareholder Placing. The
proceeds of the Company Placing will be used to part-finance the
Acquisition and satisfy certain related costs and expenses. The
Placing is, amongst other things, conditional upon Shareholders
approving the Acquisition and the issue of the Placing Shares in
respect of the Company Placing but it is not conditional on
Completion or Readmission.
In addition to the proceeds of the Company Placing, the cash
consideration payable for the Acquisition will also be financed by
US$120 million in new debt facilities provided by Traxys, details
of which are summarised below. Approximately US$67 million of
existing Lynx Group net debt is expected to remain in place on
Completion.
Accordingly, an extraordinary general meeting of Shareholders is
being convened at which the Resolutions will be proposed, inter
alia, to approve the Company Placing and the Acquisition. The
Independent Board unanimously considers that the Resolutions are in
the best interests of the Company and its shareholders as a whole.
Accordingly, the Independent Board unanimously recommends that the
Shareholders vote in favour of the Resolutions at the Extraordinary
General Meeting. The Directors, whose shareholdings in aggregate
represent 23.5 per cent. of the issued ordinary share capital of
the Company (excluding treasury shares) as at 21 September 2017,
have given irrevocable undertakings to vote in favour of the
Resolutions.
2. Reasons for the Acquisition
Background
The Board has a stated intention of expanding and diversifying
CAML's business through value accretive acquisitions that would
enable it to continue to manage profitable mineral projects with
low cost operations and provide a significant dividend to its
shareholders.
The Directors believe that the Acquisition is in line with this
strategy and represents a compelling opportunity for the Group to
expand and diversify with the addition of another cash generative
asset with low production costs, a resource base supporting a long
mine life and a proven operational track record.
The SASA Mine
The SASA Mine is located in northeastern Macedonia,
approximately 150km east of the capital city, Skopje, and 10km
north of the local town, Makedonska Kamenica. The SASA Mine
comprises an operating underground zinc and lead mine and a
processing facility that produces both zinc and lead concentrate.
These concentrates are currently trucked to smelters in the
surrounding region.
The Directors believe that the SASA Mine is an attractive asset,
which has the following benefits:
-- Proven operational track record: The deposit was originally
discovered in the 1950s and commercial mining commenced over fifty
years ago. In 2016, the mine produced approximately 23,000 tonnes
of zinc in concentrate and approximately 29,000 tonnes of lead in
concentrate. These production levels are broadly consistent with
production during the previous eight years.
-- Low cost of production: At an estimated C1 cash cost of
US$0.39 per pound for zinc and US$0.29 per pound for lead in 2017E,
the SASA Mine's costs are expected to be at the lower end of the
second quartile of the zinc industry cost curve and in the lowest
quartile of the lead industry cost curve (source: Wood
Mackenzie).
-- Long production life: Based on the SASA mine's current
Probable Ore Reserves, production can be maintained until at least
2032. The mine has additional Inferred Mineral Resources within the
existing mining licence at both Svinja Reka and Golema Reka, which
the Directors believe offer the potential to increase the life of
the operation to 2038. There is also additional resource potential
in the Kozja Reka deposit area, which was previously mined between
1966 and 1989.
Strategic benefits for the Group
The Directors believe that the Acquisition has a number of
strategic benefits, which include:
-- Geographical, operational and commodity diversification: The
acquisition of the Macedonian SASA Mine, when added to the Group's
existing principal operations at Kounrad, Kazakhstan, should
provide the Enlarged Group with two low operating cost, long life
and cash generative base metal mines in two highly prospective
jurisdictions. The Directors believe that this diversification will
offer investors exposure to a range of base metals with attractive
fundamentals, and that the low cost nature of these combined
operations should ensure the Group remains well positioned
throughout the commodity cycle.
-- Cash generative asset to support dividend policy: The
Enlarged Group's operations at Kounrad and the SASA Mine are
expected to be highly cash generative and should enable the Company
to remain one of the leading dividend payers in the sector.
-- Operational growth opportunities: The SASA Mine has
significant Inferred Mineral Resources and other brownfield
exploration targets that offer potential for growth in terms of
production levels and the life of the mine. This compliments the
Group's Kounrad operation, which is highly cash generative but
which does not offer growth potential.
-- The creation of an attractive AIM quoted mid-tier base metals
producer: The Directors believe that the Enlarged Group will be a
larger, diversified producer that is likely to be attractive to
investors seeking to invest in a range of base metals, including
zinc where there is a limited number of alternative listed
investment opportunities.
The Directors also believe that the significant increase in the
size of the Group as a result of the Acquisition will enable it to
source lower cost capital to fund the organic growth of the
Enlarged Group or to pursue further accretive acquisitions.
3. Information on the Group
CAML is an AIM quoted copper producer which wholly owns the
Kounrad operations in central Kazakhstan and has begun exploration
of the 80 per cent. owned Shuak property in the Akmola region of
northern Kazakhstan.
CAML's senior management team has a proven track record of
developing and commercialising mining opportunities, with over 100
years of combined mining experience. The team is supported by
non-executive directors who, together, have extensive experience in
the natural resources and financial sectors.
Further information on the Group is set out below.
4. Information on the Lynx Group
Lynx Resources Limited is a private company registered in
Bermuda established by Fusion Capital and Orion Co-Investments III
L.P. in June 2015 for the purpose of acquiring the SASA zinc-lead
mine in Macedonia from the Solway Sellers.
Orion Mine Finance Group (which manages Orion Co-Investments III
L.P.) is a leading mining focussed private equity business with an
active presence in Europe and with approximately US$3 billion in
assets under management. Fusion Capital is a Swiss-based mining
management team with extensive experience in significant zinc and
lead mining operations.
Lynx Resources Limited owns an effective 100 per cent. interest
in the SASA Mine. Lynx Resources Limited currently has offices in
Macedonia, Switzerland and Bermuda.
Further information on the Lynx Group is set out below.
5. Summary Financial Information
Set out below is a summary of the audited consolidated results
of the Group as at and for the years ended 31 December 2014, 31
December 2015 and 31 December 2016, which has been extracted from
the Company's published audited historical financial information.
Investors should read the whole of the Company's published audited
historical financial information and should not rely solely on the
summarised information set out below.
31 December 31 December 31 December
(US$ million) 2014 2015 2016
--------------------------------------------------------------- ------------ ------------ ------------
Revenue ..................................................... 73.1 64.4 66.7
Operating profit .......................................... 37.5 33.0 33.0
Profit for the year.......................................
. 59.5 22.2 26.1
Cash and cash equivalents............................ 46.3 42.0 40.4
Net assets .................................................. 187.9 114.2 121.5
6. Principal Terms of the Acquisition
Pursuant to the Acquisition Agreement, the terms of which are
summarised in this announcement, the Company has conditionally
agreed to acquire the entire issued share capital of Lynx Resources
Limited. The Acquisition values the Lynx Group at US$402.5 million
on a debt-free, cash free basis. Approximately US$67 million of
existing Lynx Group net debt is expected to remain in place
following Completion. The total equity value of Lynx Resources
Limited is estimated to be approximately US$335.5 million, subject
to certain adjustments, which include customary net debt and net
working capital adjustments. The net debt and net working capital
adjustments will be determined by reference to an effective date of
30 September 2017 and, subject to certain exceptions, the Sellers
have agreed to indemnify the Company for any distributions to them
from 1 October 2017. As a result, the Group will have the benefit
of Lynx Group's trading from 1 October 2017. Interest from 1
October 2017 to Completion is payable at a rate of 9 per cent. of
the equity value.
Details of the financing of the Acquisition are set out in
paragraph 7 below.
The Sellers have given certain warranties and indemnities in
respect of their period of ownership of the SASA Mine, subject to
customary limitations and disclosure.
Completion of the Acquisition is conditional, inter alia,
on:
-- certain regulatory approvals, including from the Macedonian Competition Commission;
-- if required, the Republic of Macedonia granting an
unqualified approval for the transfer of the Sale Shares and the
amount of the related transfer fee being agreed (the Minerals Law
establishes a fee for the direct transfer of a concession or a
change in owner of a concession. The Company has received legal
advice that this fee should not apply in the context of the
Acquisition);
-- the Placing Agreement and Debt Financing Agreement having
become unconditional in all respects (save for any condition
relating to Completion);
-- the passing of the Resolutions at the Extraordinary General Meeting; and
-- no authority having jurisdiction over the Company or the
Acquisition having commenced any proceedings for the purpose of
prohibiting the Acquisition on the terms contemplated.
The Group shall be entitled to take any action relating to the
transfer approval referred to above (if any) including but not
limited to responding to any assertion that such an approval is
required, and agreeing or disputing the terms of any approval or
fee. Based on legal advice received to date, the Directors do not
currently believe this transfer approval (and payment of the
related fee) is required. However, any fee payable would be borne
by the Enlarged Group, and as such, the Company has included,
within the aggregate costs of the transaction, its reasonable
estimate of the amount of the fee that would be payable if it were
to be required. Any such fee has been taken into account in the
Independent Directors' recommendation that Shareholders vote in
favour of the Resolutions, and their belief that the Company
Placing and Acquisition promote the success of the Company for the
benefit of its Existing Shareholders as a whole.
Orion's undertakings in relation to the Consideration Shares and
the Company
Orion has also entered into the Shareholder Participation
Agreement with the Company pursuant to which it has undertaken, for
a period of 12 months from Completion, not to:
-- acquire shares in the Company, such that their shareholding
amounts to 30% or more of the Company;
-- influence the voting of the Consideration Shares;
-- seek to control or influence the Company's management or
obtain representation on the Board; or
-- engage in any discussions which may result in Orion gaining control over CAML.
Orion has also undertaken until the earlier of (i) 18 months
from Readmission, or (ii) the date on which it holds in aggregate
less than 4 per cent. of the issued Ordinary Shares to vote, or
cause to be voted at all meetings of the Company's shareholders, in
a manner consistent with the recommendation made by management of
the Company or the Board in relation to a number of matters,
including the election or re-election of directors and auditors,
the renewal of, or adoption of certain new, share incentive plans,
executive remuneration and certain acquisitions.
In addition, subject to certain exceptions, the Shareholder
Participation Agreement requires Orion not to sell any
Consideration Shares for the first six months following Completion,
and not to sell more than 50 per cent. of the Consideration Shares
between six months from Completion and the first anniversary of
Completion (without the prior consent of the Company). Any
Consideration Shares forming part of the 50 per cent. referred to
above that are sold in the second six months must be sold via the
Joint Bookrunners in order to maintain orderly markets.
Transitional Services Agreement
In connection with the Acquisition and conditional on
Completion, the Company has entered into a Transitional Services
Agreement with Fusion Capital pursuant to which it will have
limited access to Chris James, Stefan Peschke, Florian Dax and
Patrick Henze for the provision of transitional consultancy
services for a period of three months following Completion.
7. Financing the Acquisition
The Company proposes to finance the acquisition via a
combination of the following sources:
Placing
The Company will shortly announce its intention to undertake the
Company Placing to raise approximately US$153.5 million before
expenses. The Company Placing has been underwritten by the Joint
Bookrunners.
Consideration Shares
Orion will subscribe for the Consideration Shares for an
aggregate value of US$50 million. The issue of the Consideration
Shares is conditional on Completion taking place.
Debt Financing
Traxys will provide US$120 million of secured debt financing to
the Company. In addition, approximately US$67 million of existing
Lynx Group net debt is expected to remain in place following
Completion. The existing lenders have agreed to waive their rights
to accelerate on a change of control and to waive certain technical
defaults, in each case subject to certain customary conditions
precedent and with effect from Completion.
The Debt Financing Agreement forms part of a pre-payment
arrangement between the Group and Traxys under which Traxys is
advancing funds in expectation of acquiring production from the
Group's business in Kazakhstan.
Traxys will be funding the advances made under the pre-payment
arrangement from its own lenders and the availability of the
facility is subject to the availability of such funding to Traxys.
The agreement contains other conditions precedent to drawdown which
are typical for this type of facility.
Deferred Consideration
The Company will also make a deferred cash payment of US$12
million to the Sellers as part of the consideration for the
Acquisition. The cash payment of US$12 million shall be payable in
six equal monthly installments commencing on the first anniversary
of the completion of the Acquisition.
8. Details of Readmission
The Acquisition constitutes a reverse takeover for the Company
pursuant to the AIM Rules for Companies. As such, it is subject to
shareholder approval and upon Completion, the Company proposes to
delist the Company's shares from trading and subsequently to relist
the Enlarged Share Capital to trading on AIM. The Acquisition and
Readmission are subject to the satisfaction of certain conditions
which include (among other things) the passing of the Resolutions
by Shareholders at the Extraordinary General Meeting. Should
Shareholder approval of the Resolutions not be obtained at the
Extraordinary General Meeting, neither the Placing nor Acquisition
will proceed.
If the Acquisition completes, application will be made to the
London Stock Exchange for the Enlarged Share Capital to be admitted
to trading on AIM. The Consideration Shares will be issued to Orion
upon Readmission.
9. Financial Effects of the Acquisition
The Acquisition is expected to be earnings and cash flow per
share accretive for the Company in the first full financial year
following Completion.
As at 30 June 2017, the Company had net assets of
US$126,404,000. An unaudited pro forma statement of net assets of
the Enlarged Group is set out later in this announcement and has
been included to provide an overview of the financial effects of
the Company Placing and Acquisition.
The total costs and expenses (including certain possible
contingent costs) payable by the Enlarged Group in connection with
or incidental to the Acquisition, Placing, Admission and
Readmission are set out in section 28.9 below.
10. Current Trading and Prospects of the Enlarged Group
Kounrad has produced copper cathode since 2012 and output has
increased annually to a level that the Directors believe is broadly
sustainable for the medium term. The Company's production
performance has been reliable and, in 2016, it met the top end of
its copper production guidance, producing 14,020 tonnes of copper.
The production guidance for 2017 is 13,000 to 14,000 tonnes of
copper cathode. In H1 2017 copper production increased by 2 per
cent. year on year to 7,027 tonnes (H1 2016: 6,908 tonnes), and
therefore the Directors believe that the Company is on track to
meet its production guidance for 2017.
While copper production has been robust, the copper price has
weakened since production commenced at Kounrad with the average
sales price of copper received decreasing from US$7,995 per tonne
in 2012 to US$4,994 per tonne in 2016. There has been a subsequent
recovery in copper prices since Q4 2016 with spot prices, as at 1
September 2017, approximately US$6,775 per tonne. The average sales
price of copper received by the Company in H1 2017 was US$5,659 per
tonne. Gross revenue for the year ended 31 December 2016 was
US$69.3 million and Group EBITDA was US$39.1 million, resulting in
an EBITDA margin of 56 per cent. This EBITDA margin was achieved
due to Kounrad's low operating costs.
Kounrad's 2016 C1 cash cost, defined as the industry standard by
Wood MacKenzie, was US$0.43 per pound, which was in the lowest 10
per cent. of global copper producers and Kounrad's H1 2017 C1 cash
cost was US$0.45 per pound. During 2016, CAML spent US$12.3 million
on capital expenditure, the majority of which was related to the
Kounrad Stage 2 Expansion project that has enabled the extension
the operation into the Western Dumps area and the life of Kounrad
to beyond 2030. The Directors believe that this should be the last
major capital programme required at Kounrad, with only sustaining
capex required going forward.
In 2016, the SASA Mine produced 783,000 tonnes of ore which
generated 22,515 tonnes of zinc in concentrate and 28,955 tonnes of
lead in concentrate with approximately 85 per cent. and 95 per
cent. payability respectively. Zinc and lead head grades have been
relatively stable at approximately 3.5 per cent. and 4.0 per cent.
respectively over the past three years ended 31 December 2016 and
are expected to remain at these levels for the medium term. On
average over the three years ended 31 December 2016, the SASA
Mine's mining costs have been US$17 per tonne. At an estimated C1
cash cost of US$0.39 per pound for zinc and US$0.29 per pound for
lead in 2017E, the SASA Mine's costs are expected to be at the
lower end of the second quartile of the zinc industry cost curve
and the lowest quartile of the lead industry cost curve (source:
Wood Mackenzie). The SASA Mine's production guidance for 2017 is
21,500 tonnes of zinc and 29,000 tonnes of lead. In H1 2017, zinc
production was 10,700 tonnes and lead production was 14,900 tonnes,
and therefore the Directors believe that the Company is on track to
meet its production guidance for 2017.
Global zinc consumption is forecast to grow at a compound
average annual rate of 1.7 per cent. over the period from 2017 to
2035. This consumption growth creates a requirement for extra raw
material supply to smelters. Whilst some of the extra mine capacity
will come from expansions and mine life extensions of existing
producers, the majority will be from new mines. Given that it takes
18 months to five years to commission a mine, this is a significant
challenge for the zinc industry. Refined market tightness and
falling inventories are expected to provide fundamental support to
prices and the price is forecast to reach a cyclical high of
US$3,875 per tonne in 2018 (source: Wood Mackenzie).
Mine production cuts in 2015 and 2016 caused the rapid draw-down
of global lead concentrate inventories last year, leading stocks to
fall to the 29 days of consumption last year, from which they are
projected to fall further to the critically low level of 25 days in
2017. Undersupply of mined lead is expected to continue to
constrain primary output for the next couple of years, thereby
maintaining the supply-demand balance in deficit until 2018. The
increased mine output encouraged by higher prices is not expected
to restore the market fully to balance, or a small surplus, until
2019. Prices are expected to average around US$2,350 per tonne for
2017 and slightly over US$2,400 per tonne in 2018 (source: Wood
Mackenzie).
The Directors believe that the Enlarged Group should have
combined recoverable copper equivalent mineral resources of 499,000
tonnes[1] and be able to produce in the order of 34,800 tonnes[2]
(based upon commodity prices) of copper equivalent metal annually,
representing an increase in metal equivalent production of 148 per
cent. to 2016 Kounrad production.
11. Strategy of the Enlarged Group
The Directors believe that the Enlarged Group would be an
attractive AIM quoted company as a mid-tier low-cost base metals
producer with geographical, operational and commodity diversity.
With two, low operating cost, long life assets, the Enlarged
Group's strategy would be to remain a highly cash generative
business that is focused on maximising shareholder returns,
primarily in the form of dividend distributions.
The Directors believe that the Enlarged Group will provide an
enhanced platform for growth through both its organic growth
potential, including further exploration at the Shuak project and
brownfields exploration programmes at the SASA Mine, as well as
strategic acquisitions.
12. Dividend Policy
The Company's dividend policy is currently to return a minimum
of 20 per cent. of the attributable revenues generated from the
Kounrad Project to shareholders subject to maintaining three times
cash cover. The final dividend for the year ended 31 December 2016
of 10 pence per Ordinary Share was paid to Shareholders on 7 June
2017 and brought total dividends paid in respect of 2016 to 15.5
pence (2015: 12.5 pence). On 22 September 2017 the Company
announced an interim dividend for the period from 1 January 2017 to
30 June 2017 of 6.5 pence per Ordinary Share. It is expected that
this interim dividend will be paid to Shareholders on 27 October
2017.
For the avoidance of doubt, the Placing Shares and Consideration
Shares will not be entitled to the interim dividend for the period
ended 30 June 2017, declared on 22 September 2017 and expected to
be paid on 27 October 2017. Subscribers for new Ordinary Shares and
purchasers of the Selling Shareholder Placing Shares will however
be entitled to any final dividend in respect of the period ended 31
December 2017, which will be announced in Q2 2018.
In respect of periods commencing on 1 January 2018, the
Company's dividend policy is intended to be to return to
Shareholders a target range of between 30 per cent. and 50 per
cent. of free cash flow (defined as net cash generated from
operating activities less capital expenditure). The dividends will
only be paid provided there is sufficient cash remaining in the
Group to meet the ongoing contractual debt repayments and that
banking covenants are not breached.
13. Extraordinary General Meeting and Summary of the Resolutions
The Acquisition and the Company Placing require Shareholders'
approval of the Resolutions.
Both Resolutions are special resolutions. The purpose of the
Resolutions is to, inter alia:
-- approve the Acquisition;
-- provide all of the authorities necessary to issue the Company
Placing Shares and the Consideration Shares; and
-- provide the Company with certain general authorities,
conditional upon Completion, calculated by reference to the
Enlarged Share Capital.
14. Irrevocable Undertakings
The Company has received irrevocable undertakings from the
Directors that they will, or will use reasonable endeavours to
procure that the legal Shareholders will (where the Directors are
not the registered holders of such Ordinary Shares) vote in favour
of the Resolutions at the Extraordinary General Meeting in respect
of Ordinary Shares, representing, in aggregate, approximately 23.5
per cent. of the Existing Ordinary Shares.
Shareholders should note that if the Resolutions are not passed,
the Acquisition and the Placing will not be completed, in which
event the Company will continue to pursue its strategy of
identifying acquisition targets.
15. Admission, Readmission, Settlement and Dealings
Application will be made for the Company Placing Shares to be
admitted to trading on AIM and, if the Resolutions are passed at
the Extraordinary General Meeting, it is expected that Admission
will become effective and dealings in the Placing Shares will
commence at 8.00 a.m. on 12 October 2017. Admission is not
conditional on the Acquisition having completed.
As the Acquisition is classified as a reverse takeover under the
AIM Rules for Companies, upon Completion occurring, the admission
of the Existing Ordinary Shares (including the Placing Shares) will
be cancelled and application will be made for the Enlarged Share
Capital to be admitted to trading on AIM. Completion is subject to
certain conditions being satisfied (or, if permitted, waived).
If the Acquisition completes, application will be made for
Readmission and it is expected that Readmission will become
effective and dealings in the Ordinary Shares will commence in Q4
2017.
If the Resolutions are not passed at the Extraordinary General
Meeting, the Acquisition will not proceed and the Directors will
consider alternative options for the Company.
16. Risk Factors
YOUR ATTENTION IS DRAWN TO THE RISK FACTORS REFERRED TO
BELOW.
17. Directors' Recommendation
The Directors believe that the proposed Company Placing and the
Acquisition promote the success of the Company for the benefit of
its Existing Shareholders as a whole. Accordingly, the Independent
Board unanimously recommend that Existing Shareholders vote in
favour of the Resolutions to be proposed at the Extraordinary
General Meeting.
By virtue of Kenges Rakishev's interest in the Selling
Shareholder Placing as the beneficial owner of the Selling
Shareholder Placing Shares, he has not participated in the
Directors' recommendation to the Existing Shareholders.
The Directors, whose shareholdings in aggregate represent 23.5
per cent. of the issued ordinary share capital of the Company
(excluding treasury shares) as at 21 September 2017, have given
irrevocable undertakings to vote (or procure that the relevant
registered holders vote) in favour of the Resolutions.
18. RISK FACTORS
Shareholders should carefully consider the following risk
factors in addition to the rest of the information contained or
incorporated by reference in this announcement prior to making any
decision as to whether or not to vote in favour of the
Resolutions.
The Directors consider the following to be the material risk
factors relating to the Placing and the Acquisition and to which
the Group and, following Completion, the Enlarged Group will be
exposed as a result of the Acquisition. If any of the risks
described below were to occur, it could have a material adverse
effect on the business, results of operations, financial condition
and/or growth prospects of the Group and, if Completion takes
place, the Enlarged Group, and the value of Shares could decline
and Shareholders could lose all or part of the value of their
investment in Shares. The risks described below should not be
considered to be an exhaustive statement of all the potential risks
and uncertainties that the Group and the Lynx Group face and that
the Enlarged Group may face if the Acquisition is completed. There
may be additional risks, or risks that are considered to be
immaterial at the time of publication of this announcement that may
become material and adversely affect the Group and, if Completion
takes place, the Enlarged Group.
Unless otherwise indicated or the context otherwise requires,
references in this section 18 to 'the Group' should be taken as
referring to the Enlarged Group if the Acquisition is successfully
completed, and the risks summarised below should be considered as
applying to the Enlarged Group.
Shareholders should read this announcement as a whole and not
rely solely on the information set out in this section.
RISKS RELATING TO THE ACQUISITION NOT PROCEEDING
The conditions of the Acquisition may not be satisfied and the
Acquisition may not be completed
Completion of the Acquisition is subject to certain conditions,
including but not limited to, the approval of Shareholders at the
Extraordinary General Meeting, the Placing Agreement becoming
unconditional, the Debt Financing Agreement becoming unconditional
(including in respect of the availability of funds to Traxys from
its lenders), the consent of the existing Lynx Group lenders to the
existing debt facilities becoming unconditional, applicable
regulatory approvals being obtained (and associated costs being
paid) and Readmission.
There can be no assurance that the conditions to completion of
the Acquisition will be satisfied or waived, if applicable) by 15
December 2017 (which is the long stop date specified in the
Acquisition Agreement), or that the parties would agree to extend
this long stop date, if necessary. If any applicable conditions are
not satisfied (or waived) by the agreed long stop date, the
Acquisition will not complete. If the Acquisition does not
complete, the Company would nonetheless be obliged to pay certain
costs (including due diligence and advisory fees) incurred in
connection with the Acquisition, Placing, Admission and
Readmission.
The Placing is not conditional upon completion of the
Acquisition and an investment in Placing Shares may represent only
an investment in the existing Group and could give rise to a
significant dilution for Existing Shareholders without the benefit
of the Acquisition
As the Placing is not conditional upon completion of the
Acquisition, the purchase of Placing Shares may simply be an
investment in the Company and the Group, and not the Enlarged
Group. In particular, the Acquisition may not complete if any of
the Acquisition Conditions are not satisfied. Accordingly, in the
event the Acquisition is not completed, purchasers of Placing
Shares are investing in the Company and the Group on a stand-alone
basis, without the business of the Lynx Group, and existing
Shareholders would experience significant dilution.
In the event that the Acquisition does not complete following
completion of the Placing, the Directors intend to use the funds
raised to satisfy the costs of the transaction and to seek other
suitable acquisition opportunities. In the event that the Placing
proceeds, but the Acquisition does not take place, the Directors
intend to use the funds raised by the Company to satisfy the costs
of the transaction and to seek other suitable acquisition
opportunities. The Company may apply the Placing Proceeds for
another acquisition of a company or mineral licence by the Enlarged
Group, provided that where such transaction would constitute a
Class 1 transaction within the meaning of and applying the
requirements of Chapter 10 of the Listing Rules (as if Chapter 10
of the Listing Rules applied to the Company), it will only do so
where it has sought and received shareholder approval and complied
with the provisions of Listing Rule 10.5.1 as if they applied to
the Company. If no other acquisition opportunity can be found on
acceptable terms by the time of the Company's 2018 annual general
meeting, and unless the Shareholders resolve otherwise it will take
steps to return such sums to Shareholders as a whole and not just
Placees. In the event that the Placing proceeds, but the
Acquisition does not take place, it will not affect the Selling
Shareholder Placing and the Selling Shareholder will be entitled to
retain all sums paid to it. Such a return could carry financial
costs for certain Shareholders such as taxes, withholdings,
transaction or advisor costs, will incur costs on the part of the
Company and would be subject to applicable securities laws.
RISKS RELATING TO THE PLACING AND ACQUISITION
The Placing and Acquisition are subject to a number of
conditions that may not be satisfied or, where applicable,
waived
The implementation of the Placing and Admission is subject to
the satisfaction (or waiver, where applicable) of a number of
conditions, including the passing of the Resolutions, approval by
the Kazakh government for the issue of the Company Placing Shares
and the Consideration Shares, each of the new debt facility
agreements not being terminated prior to Admission, no event having
arisen at any time prior to Admission which gives any party a right
to terminate the Acquisition Agreement and there not having
occurred any material adverse change in relation to the Group or
the Lynx Group.
There is no guarantee that these (or any other) conditions of
the Placing Agreement will be satisfied (or waived, if applicable),
in which case the Placing and the Admission will not be
completed.
The implementation of the Acquisition and the Readmission is
subject to the satisfaction (or waiver, where applicable) of a
number of conditions, including receipt of applicable regulatory
approvals, the Placing Agreement having become unconditional and
the passing of the Resolutions at the Extraordinary General
Meeting.
There is no guarantee that these (or any other) conditions of
the Acquisition Agreement will be satisfied (or waived, if
applicable), in which case the Acquisition and the Readmission will
not be completed. The conditions are summarised in more detail in
section 19 of this announcement.
If completion of the Company Placing and/or the Acquisition does
not occur, the Company would nonetheless be obliged to pay certain
costs (including due diligence and advisory fees) incurred in
connection with the Proposals. In anticipation of the Company
Placing and Completion, the Company will also have invested
significant time and resources (including that of the Directors)
and may have, in the meantime, not been able to capitalise on other
transaction opportunities.
The Republic of Macedonia may assert that certain provisions of
the Minerals Law apply to the Acquisition
The Minerals Law establishes regulatory formalities which have
to be obtained when selling and purchasing an exploitation
concession and/or selling shares in companies owning exploitation
concessions in Macedonia. One such formality includes obtaining the
approval of the Ministry of the Economy and paying a fee of 7% of
the value of the exploitation concession on the direct transfer of
the concession or a change of control of the holder of the
exploitation concession. The Sellers and the Company have
separately received legal advice that these provisions do not
apply, and any such fee would not be payable, in respect of
indirect changes of control in companies owning exploitation
concessions, such as is the case in the context of the proposed
Acquisition. However, the Company is not aware of any prior
comparable transactions that involved an indirect change of control
of an exploitation concession holder since the Minerals Law was
enacted in 2012, and no contractual protections have been provided
by the Sellers in this regard. While the Company's position is that
this approval (and related fee) is not applicable in the context of
the Acquisition, there is a risk that the Republic Of Macedonia may
take a different position. If the approval of the Republic of
Macedonia were to be required for the Acquisition pursuant to the
Minerals Law, there can be no guarantee that such approval would be
obtained in a timely fashion, on acceptable terms or at all. While
the basis for determining the value of the exploitation concession
required to calculate such fee is not prescribed in detail in the
Minerals Law, the Directors believe it would be material in the
context of the Transaction and have provided within the aggregate
costs of the transaction for what the Company believes is a
reasonable estimate of the fee would be borne by the Enlarged
Group, if it were to be payable. Further, there can be no assurance
that any approval would be obtained before 15 December 2017, being
the long stop date under the Acquisition Agreement or that any fee
borne by the Enlarged Group would be within the estimate provided
for by the Company. The Company would not have a contractual right
to terminate the Acquisition Agreement by reason of any fee payable
exceeding its current estimate.
Existing Shareholders could experience significant dilution as a
result of the Proposals
Following completion of the Company Placing and Acquisition, the
Existing Shareholders will experience significant dilution as a
result of the issue of the Company Placing Shares and (if relevant)
the Consideration Shares. As a consequence, voting power which can
be exercised and the influence which may be exerted by the Existing
Shareholders in respect of the Group or of the Enlarged Group
(provided Completion occurs) will be significantly reduced.
There can be no assurance that the Group will realise the
anticipated benefits of the Acquisition
If Completion occurs, the Group may not realise the anticipated
benefits from the Acquisition or may encounter difficulties in
achieving the anticipated benefits. The Group is subject to all of
the risks set forth in this "Risk Factors" section which may impact
the Group's ability to realise the benefits its Directors believe
will result from the Acquisition. In addition, if the future
financial performance and cash flows generated by the Group are not
in line with the Directors' expectations, it may significantly
affect the financial performance of the Group. This could reduce
the potential benefits arising from the Acquisition, adversely
affect the market price of the Ordinary Shares, or have a material
adverse effect on the Group's business, financial condition,
operating results and prospects including its ability to pay a
dividend.
The due diligence carried out in respect of the Lynx Group may
not have revealed all relevant facts or uncovered significant
liabilities
While the Company conducted certain due diligence in respect of
the Acquisition with the objective of identifying any material
issues that may affect its decision to proceed with the
Acquisition, there can be no assurance that all such issues have
been identified. The Company also used information revealed during
the due diligence process to formulate its business and operational
planning. During the due diligence process, the Company is only
able to rely on the information that was made available to it. Any
information that was provided or obtained from available sources
may not have been accurate at the time of delivery and/or remained
accurate during the due diligence process and in the run-up to the
Acquisition. More broadly, there can be no assurance that the due
diligence undertaken was adequate or accurate or revealed all
relevant facts or uncovered all significant liabilities. If the due
diligence investigation failed to identify key information in
respect of the Lynx Group, or if the Company considered certain
material risks to be commercially acceptable, the Company may be
forced to write-down or write-off assets in respect of the Lynx
Group, which may have a material adverse effect on the Enlarged
Group's business, financial condition or results of operations. In
addition, following the Acquisition, the Company may be subject to
significant, previously undisclosed liabilities in respect of the
Lynx Group that were not known or identified during due diligence
and which could have a material adverse effect on the Group's
business, financial condition and results of operations including
its ability to pay a dividend.
Foreign exchange risk arises as a result of the proceeds of the
Company Placing being in pounds sterling and the consideration
payable under the Acquisition Agreement being in US dollars.
The proceeds raised by the Group pursuant to the Company Placing
will be in pounds sterling, but the payment to the Sellers pursuant
to the Acquisition will be made in US dollars. There could be a
period of several weeks between Admission and the payment to the
Sellers pursuant to the Acquisition, during which time the Group
will therefore be exposed to the risk of a significant appreciation
in the US dollar against the pound sterling. The Group has entered
into currency hedge arrangements in respect of the majority of the
anticipated net proceeds of the Company Placing in order to limit
its total exposure to adverse currency movements in respect of the
Acquisition, although there is no guarantee that such measures will
be implemented or be fully effective. The Group will incur
additional costs if hedging is secured for this exchange rate risk.
Should the US dollar appreciate against the pound sterling and such
hedging measures are not implemented or fully effective, the cost
of the Acquisition for the Group will increase which could have a
material adverse effect on the returns the Group is able to make to
its Shareholders and the Group's financial condition.
Acquisition and integration costs may be greater than
anticipated
The Company expects to incur a number of costs in relation to
the Acquisition, including integration and post-completion costs in
order to successfully combine the operations of the Group and the
Lynx Group, assuming the Acquisition completes. The actual costs of
the acquisition and integration process may exceed those estimated
and there may be further additional and unforeseen expenses
incurred in connection with the Acquisition. In addition, the Group
will incur legal, accounting, financial adviser and transaction
fees and other costs relating to the Acquisition, some of which are
payable whether or not the Acquisition reaches Completion. Although
the Directors believe that the integration and Acquisition costs
will be more than offset by the realisation of the benefits
resulting from the Acquisition, this net benefit may not be
achieved in the short-term or at all, particularly if the
Acquisition is delayed or does not complete. These factors could
materially adversely affect the business, financial conditions,
results of operations and prospects of the Group including its
ability to pay a dividend.
The Group will not have full recourse to the Sellers against all
potential liabilities in connection with the Acquisition, whether
identified or unidentified
Under the terms of the Acquisition Agreement, the Sellers will
provide the Group with certain limited indemnities, covenants and
warranties in relation to the Lynx Group. However, these
indemnities, covenants and warranties may not cover all potential
liabilities associated with the Lynx Group, whether identified or
unidentified, and they are in certain circumstances limited in
scope, duration and/or amount. In particular, the warranties and
indemnities are largely limited to matters arising after the
Sellers acquired the SASA Mine in November 2015, and therefore the
Group will have minimal protection in relation to matters arising
prior to this. The Group may not have full recourse against, or
otherwise recover in full from, the Sellers in respect of all
losses which it may suffer in respect of a breach of those
covenants and warranties, or in respect of the subject matter of
any of the indemnities, or otherwise in respect of the Acquisition.
In addition, the Group will be dependent on the ongoing solvency of
the Sellers to the extent it seeks to recover amounts in respect of
claims brought under such indemnities, covenants and warranties.
The warranties, covenants and indemnities provided by the Sellers
do not cover all issues identified by the Group, nor do they cover
all fees and costs that may be payable by the Lynx Group in
connection with the Acquisition, which may be material. To the
extent the Group suffers any losses and is unable to recover such
losses from the Sellers it could have a material adverse effect on
the Group's business, results of operation, financial condition and
ability to pay a dividend.
The Sellers are special purpose vehicles
The Sellers are special purpose vehicles. Although the
Acquisition Agreement provides for certain remedies and contractual
protections in favour of the Group, and a guarantee from an
affiliate of one of the Sellers, in practice the Group may not have
successful recourse against the Sellers or their guarantor under
the Acquisition Agreement as the entities may not own any other
assets and may be wound up in due course following Completion prior
to the expiry of the period in which such claims can be made by the
Group.
The integration process may result in disruption
Until Completion, the Group and the Lynx Group will continue to
operate as two separate and independent businesses. The integration
process for these two businesses will only begin following
Completion and the success of the Enlarged Group will depend, in
part, on the effectiveness of this integration process. The Company
does not plan to hire separate integration specialists to manage
this process and it will be a time consuming process that will
demand a significant amount of involvement on the part of the
Directors and senior management of the Company, which may divert
focus and resources from the day-to-day management of the Group's
business.
In particular, while the Company will enter into the
Transitional Services Agreement to ensure certain transitional
arrangements are in place following Completion, there can be no
assurance that the mining operations at the SASA Mine will continue
without disruption. A large number of operational responsibilities
and knowledge are concentrated in the Lynx Group management team,
all of whom will not be retained on Completion, and the Company
will only be provided limited access to certain key individuals for
a period of three months following Completion pursuant to the terms
of the Transitional Services Agreement. Whilst there is significant
mining experience among the Company's senior management team, there
is limited underground mining experience. Moreover, whilst the SASA
Mine is a standalone asset and it is assumed that it will largely
continue to operate as it has done prior to Completion, there are a
number of key SASA operational activities that are controlled
directly by Orion and the Lynx Group and the change of control on
Completion may lead to business disruptions.
There is also limited capability and experience at Lynx for the
preparation of financial information in accordance with IFRS and
the information required to support public company processes and
disclosures. This, coupled with the fact that the existing Lynx
Group monthly financial reporting timetable is not aligned with the
Company's reporting requirements, could cause delays during the
half year and year end financial reporting process of the Enlarged
Group. Additionally, many aspects of the Lynx Group and the SASA
Mine internal controls and processes are not formally documented
and improvements will need to be made in order to align these with
the practices generally observed by listed companies in the UK.
These include (but are not limited to) the implementation of formal
risk management procedures, IT policies, formal KPI reporting and
re- forecasting processes.
As a result, the integration process may result in the
disruption of ongoing business that may adversely affect the
Enlarged Group's ability to achieve the anticipated advantages of
the Acquisition. Moreover, some of the potential challenges in
combining the businesses may not become known until after
Completion.
Management's attention may be diverted from the business of the
Enlarged Group by the Acquisition
The Acquisition has required, and will continue to require,
substantial amounts of time from the Group's and the Lynx Group's
management teams, which could adversely affect their ability to
operate the respective businesses. The Enlarged Group's management
team will also be required, following Completion, to devote
significant attention and resources to integrating the businesses.
There is a risk that the challenges associated with managing the
Acquisition will result in management distraction and that
consequently the underlying businesses will not perform in line
with expectations.
The loss of one or more members of the Enlarged Group's key
employees following the Acquisition could adversely affect the
Enlarged Group's business, prospects, financial condition and
results of operation
The performance of the Enlarged Group's management and other key
employees, taken together, is critical to the success of the
Enlarged Group and, while plans are, or will be put in place, for
the retention of management and other key employees, there can be
no assurance that the Acquisition will not result in the departure
of management and/or other key employees from the Enlarged Group.
Such departures may take place either before Completion or during
the Enlarged Group's integration process following Completion.
Failure of the Enlarged Group to maintain or put in place plans or
arrangements or otherwise to incentivise employees appropriately
could result in the departure of management and/or other key
employees. The departure of a significant number of management or
other key employees could adversely affect both the Enlarged
Group's ability to conduct its businesses (through an inability to
execute business operations and strategies effectively) and the
value of those businesses, which could have a material adverse
effect on the Enlarged Group's business, financial condition,
results of operations and prospects.
Borrowing and interest rate risk
The Acquisition will result in the raising of debt finance,
which will significantly increase the overall levels of borrowing
in the Enlarged Group. The Enlarged Group's borrowing costs are
likely to increase as a result of this additional debt and may also
increase further due to increases in interest rates as set by the
lending institutions. The Enlarged Group's indebtedness will impose
financial and other restrictive covenants that limit the ability of
the Enlarged Group to, among other things, borrow additional funds
and dispose of assets, and the failure, in the longer term, to
comply with such restrictions may result in an event of default,
which, if not cured or waived, could have a material adverse effect
on the Enlarged Group. The Enlarged Group's leverage may hinder the
Enlarged Group's ability to adjust rapidly, if required, to
changing market conditions and could make the Enlarged Group more
vulnerable in the event of a downturn in economic conditions or its
business.
Taxation
Any change in the Company's tax status, the tax consequences of
the Acquisition, or in taxation legislation in the UK or in any
jurisdiction in which the Enlarged Group operates (as described
more fully in the "Risks generally relating to the countries in
which the Group operates" section) could affect the Group's
profitability and ability to maintain returns to shareholders.
RISKS SPECIFIC TO THE GROUP IN MACEDONIA
The following risk factors will be relevant to the Group if
Completion occurs.
Political Instability
Macedonia has been involved in political turmoil in recent
years, cumulating in anti-government protests in 2015, 2016 and
2017. An early election was held in December 2016, as part of an
EU-mediated multiparty agreement, in order to break a year-long
parliamentary deadlock and maintain the country on a path towards
formal EU accession talks. However, the election produced an
indecisive election result and on 2 March 2017 President Gjorge
Ivanov's decided to block the opposition Social Democratic Union
(SDSM) leader, Mr Zoran Zaev, from forming a government. On 31 May
2017 Mr Zoran Zaev (with the President's consent) formed a
coalition between his own party, the Democratic Union for
Integration and the "Alliance for the Albanians" coalition in order
to serve as the official government. There may be ongoing political
uncertainty during the new coalition government's tenure which
could lead to material adverse consequences for the Group's
operations in Macedonia.
Construction of a new tailings' storage facility may be
delayed
A new tailings' storage facility is currently being built at the
SASA Mine ("TSF 4") which will be required for the operation of the
SASA Mine once the existing tailings facility reaches its maximum
storage capacity, which is expected to occur around October 2018.
Construction of TSF 4 could be delayed for a number of reasons,
including delays in obtaining the necessary permits and consents.
Any such delay could have a material impact on the operations and
profits of the Lynx Group and, following Completion, the Enlarged
Group.
River Diversion Tunnel
The SASA Mine is undertaking a structural integrity assessment
for the two kilometre long tunnel that diverts the Kamenica river
around and underneath the existing tailings facility, to advise on
any potential requirements for additional support or remediation.
The findings of this study could result in additional costs for the
remediation of this infrastructure and consequently could have a
material impact on the operations and profits of the Lynx Group
and, following Completion, the Enlarged Group.
Environmental Permits
The Macedonian environmental inspectorate has found that Rudnik
SASA DOOEL's discharge waters have occasionally exceeded the limits
prescribed in its A-integrated Permit. Rudnik SASA DOOEL has
submitted an application to amend the permitted limits for
discharge waters under the A-integrated Permit as the permitted
limits are stricter than those permitted under Macedonian
environmental law. This application is currently pending before the
Macedonian Ministry of Environment and Physical Planning ("MOEPP").
If MOEPP refuses to grant the amendment to the A-integrated Permit
requested by Rudnik SASA DOOEL, it would continue to be bound by
the current limits in the A-integrated Permit. If that is the case
and there are further instances of the discharge waters exceeding
the prescribed limits, such breach could have a negative effect on
the ongoing operations of Rudnik SASA DOOEL and the Enlarged Group
following Completion.
During a recent control environmental inspection, the
Environmental Inspectorate determined that Rudnik SASA DOOEL needs
to construct certain settlement ponds on Horizon 830 within 90 days
of obtaining the construction permits. If the discharge limits are
not met following construction of the settlement ponds, the company
may need to treat chemically the waters to achieve compliance, or
pump the water back to the tailings storage facility. Either of
these options would impose additional costs on the Lynx Group and,
following acquisition, the Enlarged Group.
Taxation
Rudnik SASA DOOEL is currently the subject of a routine annual
tax inspection by the Macedonian tax authorities. Any negative
findings in this inspection could have a material adverse effect on
the profits and operations of the Lynx Group and, following
Completion, the Enlarged Group.
Rudnik SASA DOOEL has also filed a request to obtain a
withholding tax exemption in line with existing double taxation
treaties in respect of all payments to its existing lenders (being
Investec and Société Générale) executed in 2016. In addition,
Rudnik SASA DOOEL has requested the authority's opinion in respect
of the tax treatment of the silver stream arrangements in order to
confirm whether the relevant transactions are tax- neutral. If an
adverse ruling is made in relation to either of these requests it
could have a material adverse effect on the Lynx Group and,
following Completion, the Enlarged Group.
The Lynx Group is currently appealing a tax ruling alleging
improper tax practices with respect to historic shareholder loans.
Although the Company has been advised that this would be unlikely,
there can be no guarantee that the authorities will not initiate a
criminal investigation with respect to these allegations, which (if
sustained) could have material adverse consequences for the Group's
business. Further information on this dispute is set out in
paragraph 28.5 of this announcement.
Privatisation Procedure
Rudnik SASA DOOEL has applied for privatisation of certain plots
of land which, if successful, would enable it to acquire full
ownership over the land concerned. The application is still
pending. If the application is refused, Rudnik SASA DOOEL could
continue to use the land but it would need to enter into a lease
agreement or purchase the land from the Macedonian government. This
could lead to the Lynx Group incurring material costs and
consequently could have a material impact on the operations and
profits of the Lynx Group and, following Completion, the Enlarged
Group.
Legalisation Procedure
Due to recent changes in Macedonian law, Rudnik SASA DOOEL was
required to retrospectively apply for the legalisation of certain
constructions, ranging from sewage networks to various electrical
cables. The procedure is ongoing. While the Directors believe that
all relevant documentation has been submitted and that the
procedure will be completed during 2018, there can be no assurance
this will be the case. If the legalisation procedure is not
successful, the relevant constructions may be required to be
dismantled or removed. This could result in significant costs for
Lynx Group and consequently could have a material impact on the
operations and profits of the Lynx Group and, following Completion,
the Enlarged Group.
Liability for Historic Pollution
There are certain historic events of pollution arising from acid
rock drainage and waste rock dumps that occurred prior to Rudnik
SASA DOOEL's acquisition of the SASA Mine in 2005. Whilst the
Company has been advised that Rudnik SASA DOOEL should not legally
be held liable for these historic events of environmental
pollution, there is a risk that it could be held liable to the
extent that the environmental damage is enhanced, maintained or
continued by the activities undertaken pursuant to the current
operation of the SASA Mine. In addition, there is a remote risk
that, upon expiry of the concession, Rudnik SASA DOOEL could be
required to rehabilitate areas affected by historic pollution to
the extent that they are located within the concession exploration
area or other land used for the operation of the SASA Mine. If
Rudnik SASA DOOEL is held liable for the aggravation or
continuation of historic pollution or is required to rehabilitate
land affected by such pollution in the future, this could have a
material adverse effect on the prospects of the Enlarged Group.
RISKS SPECIFIC TO THE GROUP IN KAZAKHSTAN
Liability for Kazakhstan subsidiaries
Under Kazakh law, the Group may be severally liable for the
obligations of its Kazakh subsidiaries, if the Group has the
ability to make decisions for such Kazakh subsidiaries or as a
result of its ownership interest or the terms of a binding
contract: (i) the Kazakh subsidiaries concluded the transaction
giving rise to the obligations pursuant to the Group's mandatory
instructions; and (ii) the Kazakh subsidiaries become bankrupt due
to the Group's fault. The Directors do not believe that members of
the Group should be liable for the liabilities of their
subsidiaries but it is a risk that applies to Kazakh companies,
which if a Group member were to become bankrupt could result in the
Group being liable for the liabilities of such insolvent company.
As a result, there could be a material adverse effect on the
Group's business, results of operations and financial condition and
the price of the Shares.
Leaching Operations
The nature of in-situ leaching means that there are varying
grades and flows of copper bearing solution from the dumps. Should
the flow and/or grade drop, this could lead to a reduction in
copper cathode produced. During 2017, operations have begun on the
Western Dumps where the Company did not previously have operational
leaching experience. An interruption to the project's water supply
could have an adverse impact on leaching operations. Any
interruptions or disruptions of leaching operations could have a
material adverse effect on the Group's operations in
Kazakhstan.
Kounrad SX-EW Operations
The Kounrad SX-EW operations have a number of critical supplies,
particularly reagents and electricity, and the loss of any one may
have a significant adverse impact on the production of copper
cathode, which could have a material adverse effect on the Group's
operations in Kazakhstan.
The SX operations of the Kounrad facility in particular have a
significant risk of fire due to the materials used in the
extraction of copper, and there can be no assurance that any fire
detection or prevention systems will be effective. Any such fire
could severely disrupt the Group's operations and therefore
materially and adversely affect its financial position and
prospects.
The Subsoil Law
The Subsoil Law establishes regulatory formalities which have to
be obtained when selling and purchasing the subsoil use rights
and/or selling shares in companies owning or directly or indirectly
controlling subsoil use companies in Kazakhstan. One of such
formalities includes the state waiver of the statutory pre-emptive
right, which before January 2015 was applicable to any subsoil use
contract, however, today applies only to subsoil use contracts
concluded in respect of deposits or subsoil use plots of strategic
importance. There is a possibility that transactions which the
Group has entered into in the past, and for which waivers have not
been obtained, may be deemed to have required such a waiver. Whilst
the Directors are of the view that the risk to the Group from the
waiver under the Previous Subsoil Law being triggered is low given
the stage of development of the assets at that time, and the
subsequent granting of such waiver in respect of the Placing and
Admission, any breach may have a material adverse impact on the
Group's interest.
Since adoption in 2010, the Subsoil Law has undergone a number
of amendments. In 2015, the concept of new subsoil use code was
introduced (the "Subsoil Code") to supersede the Subsoil Law and
related regulations. The draft Subsoil Code has been developed by
the Ministry for Investments and Development of the Republic of
Kazakhstan, involving experts from the KazEnergy Association,
Kazakhstan Petroleum Lawyers' Association (KPLA), Association of
Mining and Mining-and-Metallurgical Enterprises (AMME) and
employees of the profile ministries and is expected to be enacted
in early 2018. The latest draft of the Subsoil Code contains a
number of substantial regulatory changes including the introduction
of a licensing regime which would entail that new subsoil use
rights in respect of minerals will be granted on the basis of
licences rather than subsoil use contracts. At the same time, the
transitional provisions of the draft Subsoil Code provide that
contracts and licences executed before the introduction of the
Subsoil Code would remain valid. If, by the time of enactment of
the Subsoil Code, this part of the transitional provisions is
excluded, the future status of the Company's existing subsoil
contract and licence in respect of Kounrad and Shuak will be
unknown. A change in subsoil use legislation affecting the
Company's current subsoil use right may have a material adverse
impact on the Group's finances and results of operations.
The Kazakhstan government has the right to initiate reviews of
subsoil use contract terms and to unilaterally terminate subsoil
use contracts in respect of deposits of "strategic importance". A
list of 361 deposits of strategic importance and criteria for
designation of deposits as strategic were approved by Kazakhstan
Government decree in October 2011, replacing the previously
effective list comprised of 231 deposits. Although the Kounrad mine
in Kazakhstan was not included on this list, the Kazakhstan
Government is entitled to amend this list and the criteria at any
time.
Shuak Subsoil Use Agreement
In November 2016, the Company entered a framework agreement to
acquire an 80 per cent. effective interest in the subsoil use
contract for the Shuak gold and copper exploration property, with
20 per cent. being held by local partners. The transfer of this
subsoil use contract to an entity wholly held by Shuak BV was
completed in August 2017. The consideration for this acquisition is
an investment in exploration activities of US$2 million over five
years, subject to continued positive results from exploration
activities and the general economic outlook for commodity
prices.
The previous holder of the Shuak subsoil use contract could not
achieve full compliance with its contractual and regulatory
obligations. Pursuant to Kazakhstan subsoil use legislation, after
transfer of the subsoil use right in respect of the Shuak gold and
copper exploration property to Shuak BV's subsidiary, the
Kazakhstan authorities will retain full discretion to terminate the
Shuak subsoil use contract for breaches committed by the previous
holder of the contract. Should this occur, this may adversely
affect the Enlarged Group in Kazakhstan.
Fluctuations in the Kazakhstan Tenge
In 2015 there was an 85 per cent. devaluation of the Kazakhstan
Tenge against the US Dollar. The immediate impact for the Company
was positive as the Group's income in Kazakhstan through the export
of copper cathode is generated in US Dollars. The Group manages its
exposure to foreign currency exchange risk associated with material
commercial transactions and working capital requirements by
maintaining controlled amounts of cash in the required currencies.
The Group does not hedge foreign exchange risk. Further
fluctuations in the Tenge may result in foreign exchange losses
that have a material adverse impact on the Group's operations in
Kazakhstan.
Tax Law
Having adopted the current Tax Code in 2008, the Kazakhstan
Government has been developing the new Tax Code to supersede the
current one (the "New Tax Code"). Upon a statement made by the
President of the Republic of Kazakhstan, the new Tax Code must be
developed by the end of 2017. The New Tax Code is being developed
under time constraints without extensive discussion with
businesses, including subsoil users. Given that the Company's
business in Kazakhstan does not enjoy tax stability exemptions,
there is no assurance that the New Tax Code will not introduce a
tax burden adversely affecting the Group's business, financial
condition and results of operations in Kazakhstan.
The President of Kazakhstan, Nursultan Nazarbayev, has been in
office since 1991 and should he leave office without a smooth
transfer to his successor, the political and macroeconomic
situation in Kazakhstan could become unstable
Kazakhstan's President, Nursultan Nazarbayev, has been in office
since Kazakhstan became an independent sovereign state in 1991.
Under President Nazarbayev's leadership, the foundations of a
market economy have taken hold, including privatisation of state
assets, liberalisation of capital controls, tax reforms and pension
system development. Should President Nazarbayev fail to complete
his current term of office for whatever reason or should a new
president be elected, Kazakhstan's political situation and economy
could become unstable and the investment climate in Kazakhstan
could deteriorate. For example, a new government could adopt
taxation or subsoil use regimes that would be less favourable to
mining companies. Changes to Kazakhstan's property, tax or mining
regulatory regimes, or other changes that affect the investment
climate in Kazakhstan, could negatively affect the Group's
business, financial condition and results of operations.
The Group's export sales in Kazakhstan are subject to domestic
transfer pricing regulations
Generally, all cross-border and certain other transactions in
Kazakhstan are subject to the domestic transfer pricing
regulations, which state that transaction prices for tax purposes
are to be determined based on market prices. There are special
procedures in Kazakh tax regulations to determine the applicable
market price for a given transaction. Where the prices of the
Group's exports in Kazakhstan deviate from the applicable market
prices, the Kazakh tax authorities are entitled to make tax
adjustments and assessments to corporate income tax and any other
taxes affected, as well as assess fines and late payment interest
if such adjustments lead to an increase in tax payments by an
entity. Audits of transfer pricing issues are routinely carried out
by the tax authorities in respect of exporters of oil, gas and
minerals. Kazakhstan's tax laws are not always clearly expressed,
have not always been applied in a consistent manner and continue to
evolve. The uncertainty of application and evolution of tax laws
creates a risk of additional and substantial payments of tax by the
Group, which could have a material adverse effect on the Group's
business, results of operations and financial condition and the
price of the Shares.
In certain circumstances, the Kazakh tax authorities have
conducted tax audits and raised additional tax assessments within
the statute of limitation for five years after the end of the
relevant tax period.
RISKS SPECIFIC TO THE GROUP IN CHILE
Status of the Copper Bay Project
Although the definitive feasibility study undertaken in 2016 in
respect of Copper Bay illustrated that the project would have
potentially significant value, the Company is unlikely to progress
a development of Copper Bay and the Board has now decided to seek
to sell the Group's interest in the project. Ultimately, there can
be no certainty that the Group will be able to sell its interests
in the project on acceptable terms or at all or that significant
value will otherwise be realised in relation to the Group's
investment in Copper Bay.
RISKS RELATING TO THE OPERATIONS OF THE GROUP
Exploration, development and operating risks
The exploration for and development of mineral deposits is
speculative and involves significant risks which even a combination
of careful evaluation, experience and knowledge may not eliminate.
While the discovery of an ore body may result in substantial
rewards, few properties that are explored are ultimately developed
into producing mines. Once a mineral deposit is discovered it can
take several years to determine whether Mineral Resources or Ore
Reserves exist. During this time the economic viability of
production may change.
Substantial expenditure may be required to locate and establish
mineral resources or ore reserves through drilling, metallurgical
and other testing techniques, to develop metallurgical processes to
extract metal from the ore and to construct mining and processing
facilities at a particular site. It is impossible to ensure that
the exploration or development programmes planned by the Group will
result in a profitable commercial mining operation. Whether a
mineral deposit will be commercially viable depends on a number of
factors, some of which are: (i) the particular attributes of the
deposit, such as size, grade and proximity to infrastructure; (ii)
metal prices, which are highly cyclical; and (iii) government
regulations, including regulations relating to prices, taxes,
royalties, land use, importing and exporting of minerals and
environmental protection. The exact effect of these factors cannot
be accurately predicted, but the combination of these factors may
result in the Company not receiving an adequate return on invested
capital.
Mineral Resource and Ore Reserve estimates
The Group's reported Mineral Resources are only estimates, which
are based on a range of assumptions. In addition, Mineral Resource
estimates are based on limited sampling and consequently are
uncertain because the samples may not be representative. There are
numerous uncertainties inherent in estimating Mineral Resources and
Ore Reserves, including factors beyond the control of the Group
and, following the Acquisition, the Enlarged Group. The estimation
of Mineral Resources and Ore Reserves is a subjective process and
the accuracy of any such estimates is a function of the quality of
available data and of engineering and geological interpretation and
judgment. Results of drilling, metallurgical testing, production,
evaluation of mine plans and exploration activities subsequent to
the date of any estimate may justify revision (up or down) of such
estimates. There is no assurance that Mineral Resources can be
economically mined. Those portions of the Mineral Resources that
have not been converted to Ore Reserves do not have demonstrated
economic viability. A Mineral Resource is not the equivalent of a
commercially mineable ore body or an Ore Reserve. Lower market
prices, increased production costs, reduced recovery rates and
other factors may render the Group's (and following the
Acquisition, the Enlarged Group) Ore Reserves uneconomic to exploit
and may result in revision of its Ore Reserve estimates from time
to time. Ore Reserve data are not indicative of future results of
operations. If in the future, the Group's actual Mineral Resources
and Ore Reserves prove to be less than the current estimates, other
than as a result of depletion through production, or if the Group
fails to develop its resource base through the upgrading of
Inferred Mineral Resources to Indicated or Measured Resources, or
by realisation of identified new mineralised potential, the Group's
results of operations and financial condition may be materially and
adversely affected. The Company and the Directors cannot give any
assurance that the estimated Ore Reserves will be recovered as the
Group proceeds through production or that they will be recovered at
the volume, grade and rates estimated.
Dependence on key personnel
The success of the Enlarged Group, in common with other
businesses of a similar size, will be highly dependent on the
expertise and experience of its Directors and senior management.
The loss of any key personnel could harm the business or cause
delay in the plans of the Enlarged Group whilst management time is
directed at finding suitable replacements. The future success of
the Enlarged Group is in part dependent upon its ability to
identify, attract, motivate and retain staff with the requisite
expertise and experience. Although the Group and the Lynx Group
enter into employment arrangements with its key personnel to secure
their services, the Group nor the Lynx Group cannot guarantee the
retention of such key personnel. Should key personnel leave, the
Group's business, prospects, financial condition or results of
operations may be materially adversely affected.
Reliance on third parties
The Enlarged Group will be reliant on third party service
providers, including Fusion management pursuant to the Transitional
Services Agreement and the Sellers pursuant to the terms of a
transitional services agreement, and suppliers to provide
equipment, infrastructure and raw materials required for the
Enlarged Group's business and operations and there can be no
assurance that such parties will be able to provide such services
in the time scale and at the cost anticipated by the Company.
Mining Risks
The business of mining and mineral processing involves a number
of risks and hazards, including industrial accidents, labour
disputes, community conflicts, activist campaigns, unusual or
unexpected geological conditions, equipment failure, changes in the
regulatory environment, environmental hazards, and weather and
other natural phenomena such as earthquakes and floods. The
Enlarged Group may experience material mine or plant shutdowns or
periods of reduced production as a result of any of the above
factors. Such occurrences could result in material damage to, or
the destruction of, mineral properties or production facilities,
human exposure to pollution, personal injury or death,
environmental and natural resource damage, delays in mining,
monetary losses and possible legal liability, and may result in
actual production differing, potentially materially, from estimates
of production, including those contained in this announcement,
whether expressly or by implication. There can be no assurance that
the realisation of operating risks and the costs associated with
them will not materially adversely affect the results of operations
or financial conditions of the Enlarged Group.
Commodity pricing
The profitability of the Enlarged Group's operations will be
dependent upon the market price of copper, zinc and lead. Metal
prices fluctuate widely and are affected by numerous factors beyond
the control of the Company. The level of interest rates, the rate
of inflation, the world supply of mineral commodities and the
stability of exchange rates can all cause significant fluctuations
in prices. Such external economic factors are in turn influenced by
changes in international investment patterns, monetary systems and
political developments. The price of mineral commodities has
fluctuated widely in recent years, and future price declines could
cause commercial production to be impracticable, thereby having a
material adverse effect on the Company's business, financial
condition and results of operations. A significant or sustained
downturn in copper, zinc and lead prices would adversely affect the
Enlarged Group's available cash and liquidity and could have a
material adverse effect on its business, results of operations and
financial condition of the Enlarged Group in the longer term.
Furthermore, reserve estimates and feasibility studies using
significant lower commodity prices could result in material
write-downs of the Enlarged Group's investment in its assets and
increased amortisation, reclamation and closure charges. In
addition to adversely affecting the Enlarged Group's reserve
estimates and its financial condition, declining commodity prices
can impact operations by requiring a reassessment of the
feasibility of a particular project. Such a reassessment may be the
result of a management decision or may be required under financing
arrangements related to a particular project. Even if the project
is ultimately determined to be economically viable, the need to
conduct such a reassessment may cause substantial delays or may
interrupt operations until the reassessment can be completed.
Competition
Mines have finite lives and, as a result, one of the ways the
Group seeks to replace and expand its reserves is through the
acquisition of new mining concessions and properties. There is a
limited supply of desirable mining concessions and properties with
potential mineralisation available in Kazakhstan and Macedonia,
which is where the Group would consider conducting further
exploration and/or production activities. Because: (i) the Group
faces competition for new mining concessions and properties from
other mining companies, some of which may have greater financial
resources than the Group; and (ii) the current owners of desirable
properties may be unwilling to sell the property to the Group, the
Group may be unable to acquire attractive new mining concessions
and/or properties on terms that it considers acceptable or at all.
As a result, the Group's revenues may decline over time, thereby
materially and adversely affecting its results of operations and
financial condition.
Future financing and commercial viability of future projects
The capital expenditure plans of the Group and the further
development and exploration of mineral properties in which the
Group holds interests or which the Group may acquire may depend
upon the Group's ability to obtain financing through joint
ventures, debt financing, equity financing or other means. The
turmoil caused by the global financial crisis has resulted in major
financial institutions consolidating or going out of business, the
tightening of credit market, significantly lower liquidity in most
financial markets and extreme volatility in fixed income, credit,
currency and equity markets. No assurance can be given that the
Group will be successful in obtaining any required financing as and
when needed on acceptable terms or at all, which could prevent the
Group from further development and exploration or additional
acquisitions.
The Enlarged Group's operations will be located in Kazakhstan
and Macedonia, areas that have experienced economic and political
difficulties in the past and which may be perceived as unstable.
This may make it more difficult for the Group to obtain debt
financing from projects or other lenders if it should determine
that debt financing is the appropriate method of funding in the
future. Failure to obtain additional financing on a commercial and
timely basis may cause the Group to postpone its capital
expenditure plans, forfeit its rights in properties or reduce or
terminate operations. Reduced liquidity or difficulty in obtaining
future financing could have a material adverse effect on the
Group's business, financial condition, results of operations and
prospects.
The Group's growth projects may require greater investment than
currently expected or suffer delays or interruptions, which could
cause cost overruns. Any such delay, interruption or cost overruns
in implementing the Group's planned capital investments could
result in the Group failing to complete the projects and a
reduction in future production volumes, which could have a material
adverse effect on the Group's business, financial condition,
results of operations and prospects. In addition, projects may not
prove to be commercially viable upon completion.
Infrastructure
Mining, processing, development and exploration activities
depend, to a significant degree, on adequate infrastructure. In the
course of developing future mines the Group, may need to construct
and support the construction of infrastructure, which includes
permanent water supplies, tailings storage facilities, power, rail
and maintenance facilities and logistics services and access roads.
Reliable rail facilities, roads, bridges, power sources and water
supply are important determinants, which affect capital and
operating costs. Unusual or infrequent weather phenomena, sabotage,
government or other interference in the maintenance or provision of
such infrastructure could materially adversely affect the Group's
operations, financial condition and results of operations. Any such
issues arising in respect of the supporting infrastructure or on
the Group's sites could materially adversely affect the Group's
results of operations or financial condition. Furthermore, any
failure or unavailability of the Group's operational infrastructure
(for example, through equipment failure or disruption to its
transportation arrangements) could materially adversely affect the
production output from its mines or impact its exploration
activities or development of a mine or project.
Uninsured hazards
The Group may be subject to substantial liability claims due to
the inherently hazardous nature of its business or for acts and
omissions of contractors, sub-contractors or operators. Any
indemnities the Group may receive from such parties may be limited
or may be difficult to enforce if such contractors, sub-contractors
or operators lack adequate resources. The Company believes that the
level of the Group's insurance cover (and that of the operators of
assets it does not itself operate) is reasonable based on the costs
of cover, the risks associated with its business and industry
practice. The Company can give no assurance that the proceeds of
insurance applicable to covered risks will be adequate to cover
expenses relating to losses or liabilities. Accordingly, the Group
may suffer material losses from uninsurable or uninsured risks or
insufficient insurance coverage. The Group will also be subject to
the risk of unavailability, increased premiums or deductibles,
reduced cover and additional or expanded exclusions in connection
with its insurance policies and those of operators of assets it
does not itself operate.
Decline in reserves, resources and production over time
To realise future production growth, extend the lives of its
mines and ensure the continued operation of the business, the Group
must continue to produce from its existing identified reserves,
convert resources into reserves, develop its resource base through
the realisation of identified mineral potential, undertake
successful exploration and/or acquire new reserves and resources.
The Group's reserves and resources decline as copper, zinc, lead
and silver are produced by the Group. Mineral Resources may be
increased when the Group discovers or acquires rights to new
deposits or operations or increases reserves of operating mines via
additional exploration. Once mineral deposits are discovered or
acquired, it may take a number of years to complete geological
surveys to assess whether these deposits are in such form, grade
and quantity that there are reasonable prospects for eventual
economic extraction and therefore qualify as Mineral Resources.
Following technical studies to assess whether production is
technically feasible, the economic viability of production may
change during that time, which will determine whether or not the
Mineral Resources can be converted to Ore Reserves.
Substantial capital expenditure is required to identify and
delineate Mineral Resources and Ore Reserves through geological
surveying, drilling and sampling to determine the appropriate
metallurgical processes to extract the metals from the ore and, in
the case of new properties, to construct mining and processing
facilities.
Any acquisition that the Group may choose to complete may change
the scale of the Group's business and operations and may expose the
Group to geographical, political, operating, financial and
geological risks. The Group's success in its acquisition activities
depends on its ability to identify suitable acquisition candidates,
negotiate acceptable terms and integrate the acquired entity
successfully into the Group's operations. The volume of production
from properties generally declines as reserves are depleted. The
Group's future production growth is dependent upon its success in
finding or acquiring and developing additional reserves. There can
be no assurance that the Group will be able to identify future
reserves or continue to extend the mine life of its existing
operations. If the Group is unsuccessful in locating and/or
securing new reserves, the Group's total reserves and production
will decline, which would materially adversely affect the Group's
business and the results of its operations.
Processes and chemicals
Mining activities are generally subject to environmental and
safety hazards as a result of the processes and chemicals used in
extraction and production. In particular, the Group transports,
uses and disposes of cyanide and other hazardous substances at its
mines, which gives rise to the risk of spillage or seepage in areas
where there could be damage or harm caused to the environment
and/or to the public. The Group's operations also involve the
discharge of materials and contaminates into the environment, the
disturbance of land and other potential harm to the environment.
Furthermore, the storage of tailings may present a risk to the
environment, property and persons. There remains a risk of leakage
from, or failure of, the Group's tailings dams during the operating
life of the mines or after their closure.
The Group may be liable for losses associated with environmental
hazards and rehabilitation, have its licences and permits withdrawn
or suspended, face negative reputational consequences or be forced
to undertake extensive remedial clean-up action or to pay for
government-ordered remedial clean-up actions, even in cases where
such hazards have been caused by any previous or subsequent owners
or operators of the property, by any past or present owners of
adjacent properties or by acts of vandalism by trespassers. Any
such losses, withdrawals, suspensions, reputational consequences,
actions or payments may have a material adverse effect on the
Group's business, results of operations and financial condition and
the price of its shares.
Appropriation of land
The Group's operations depend on obtaining rights to access and
develop mineral resources, which may require that land be
appropriated from land owners and/or users, potentially resulting
in their displacement. This may result in opposition to the Group's
future plans or pressure from governmental bodies, regional
authorities, local community groups or other parties for the Group
to amend or cease its land appropriation projects or
activities.
The Group may also face negative publicity or law suits as a
result of its land appropriation activities, projects or plans.
There can be no guarantee that the Group will be able to adequately
meet the demands of, or come to a suitable agreement with, these
third parties.
Furthermore, the Group cannot rule out the possibility that such
opposition may result in the Group being unable to carry out future
exploration and/or development projects, or that future
applications by the Group for exploration, development or mining
permits and licences may be refused as a result of such opposition.
If any of these events were to occur, they could have a material
adverse effect on the Group's business, results of operations and
financial condition and the price of its shares.
Employees
Although the Company believes that the Group's relations with
its employees are good, there can be no assurance that a work
slowdown or stoppage will not occur at any of the Group's operating
units or exploration prospects. Any future work slowdowns,
stoppages, disputes with employee unions or other
employment-related developments or disputes, including the entry
into or renegotiation of collective bargaining agreements, could
result in a decrease in the Group's production levels and adverse
publicity and/or increase costs, which could have a material
adverse effect on the Group's business, results of operations and
financial condition and the price of its shares.
Financial, accounting, marketing and other data processing
information systems
The Group's operations are dependent on information systems and
technology. The cost of maintaining the Group's information systems
may increase from its current level. The Group has taken
precautions through disaster recovery sites to limit the impact
that a disruption to these key offices could cause. Although
precautions have been taken and plans are in place, a disaster or a
disruption in the infrastructure at a main site and its disaster
recovery site that supports the Group's business, including a
disruption involving electronic communications or other services
used by it or third parties with whom it conducts business, or
directly affecting its headquarters or other key offices, could
have a material adverse impact on its ability to continue to
operate its business without interruption.
In addition, insurance and other safeguards might only partially
reimburse the Group for its losses, if at all. Although the Group
performs and backs up all key functions of its business internally,
it relies on third party products and services providers widely
used in the industry for certain aspects of its business, including
for certain information systems and technology. Severe
interruptions or deteriorations in the performance of these third
parties or failures of their information systems and technology
could impair the Group's operations.
Limited Diversification
The Group's revenues will be derived from the sale of copper
cathode and lead and zinc concentrate produced by the Enlarged
Group's facilities in Kazakhstan and Macedonia. Consequently, if
there were any change in law or policy or other circumstances
arising in Kazakhstan or Macedonia which materially reduced or
interrupted or halted mining or processing operations at Kounrad or
the SASA Mine then the Enlarged Group's results of operations and
financial condition could be materially and adversely affected.
RISKS RELATING TO THE GROUP'S BUSINESS
The Group's mining licences and contracts
No assurance can be given that the governments of Kazakhstan,
Macedonia (if the Acquisition is completed) or Chile will not
revoke, refuse to transfer, or significantly alter, the conditions
of the exploration and development authorisations held by the
Group. There can be no assurances that claims by third parties
against the Group's title to its mining rights in those
jurisdictions or other rights will not be asserted at a future
date.
The operations of the Group will in some cases also require
renewals of existing concessions, licences and permits from the
relevant governmental authority or authorities. The Group's ability
to obtain, sustain or renew such concessions, licences and permits
or to obtain, sustain or renew such concessions, licences or
permits on acceptable terms, including the amount of any associated
costs and fees, may be subject to changes in laws, regulations and
policies or the interpretation of them, and to the discretion of
the applicable government authorities. Licensing authorities in
these countries have a high degree of discretion in determining the
validity of a licence or whether or not licence holders are in
compliance with their legal obligations. The Group's subsoil use
rights and licences will also be subject to termination if the
Group does not comply with its contractual obligations or legal
requirements. There can be no assurance that the Group will be able
to achieve compliance with all applicable regulations at all times.
If, in any year the Group is unable to meet the minimum required
expenditure, it may lose its right to apply for a mining licence,
or have an exploration licence revoked. If the Group was unable to
obtain a mining licence, or an exploration licence was revoked,
this could materially adversely affect the financial performance of
the Group.
Termination of Subsoil Use Contract and Concession Agreement
The mining sector and activities in Kazakhstan are principally
regulated by the Subsoil Law, a summary of which is set out in
section 22.2 of this announcement. The rights to operate the
Kounrad mine are contained in the Kounrad Contract. Sary Kazna's
subsoil use right shall terminate in case of termination of the
Kounrad Contract, adoption by the Kazakhstan Government of a
decision to prohibit use of a subsoil use plot on which the
operations are carried out or upon liquidation of Sary Kazna. The
Kounrad Contract shall terminate upon expiry of its term or may be
prematurely terminated by mutual agreement of the parties. In
addition, the Kazakh government has the right to unilaterally
terminate the Kounrad Contract following the occurrence of certain
events, including, inter alia, where: (i) Sary Kazna fails to
rectify more than two violations of the obligations under the
Kounrad Contract within the time specified by the government; (ii)
there is a transfer of a subsoil use right and/or of any Objects
without the government's prior consent, where such consent is
required; or (iii) Sary Kazna performs less than 30 per cent. of
its financial obligations under the Kounrad Contract for a period
of two consecutive years. Any termination of the Kounrad Contract,
or a material variation of it, may have a material adverse effect
on the Enlarged Group's business, financial condition and results
of operations.
The mining sector and activities in the Republic of Macedonia
are principally regulated by the Law on Mineral Resources, a
summary of which is set out in section 23 of this announcement. The
rights to operate the SASA Mine are contained in the SASA
Concession Agreement. This concession agreement is terminable by
the Republic of Macedonia following the occurrence of certain
events, including, inter alia, where: (i) prior approval from the
Government of Macedonia is not granted, or the payment of the
related applicable fee is not made, upon a transfer of the
exploitation concession granted to Rudnik SASA DOOEL or a change of
ownership in Rudnik SASA DOOEL's shares; (ii) Rudnik SASA DOOEL
loses the economical, technical or operative capacities necessary
to operation the concession in accordance with law; (iii)
applicable environmental permits are withdrawn or terminated; or
(iv) there has been an interruption of mining activities for a
period exceeding one year. Any termination of the SASA Concession
Agreement, or material variation of it, may have a material adverse
effect on the Enlarged Group's business, financial condition and
results of operations.
Environmental compliance
All phases of the Group's operations in Kazakhstan, Macedonia
(if the Acquisition completes) and Chile are subject to
environmental regulation in these jurisdictions. Environmental
legislation is evolving in a manner that may have a greater impact
on the Group's operations. Compliance with environmental laws will
require ongoing expenditure and considerable capital commitments
from the Group, and non-compliance may subject the Group to
significant penalties, including the suspension or revocation of
its rights in respect of its licences, concession agreements or
assets. The Directors are aware of a number of instances of
environmental non- compliance at the SASA Mine. There can be no
assurance that the Group will be able to implement the necessary
remedial actions without material cost or other adverse
consequences. There is no assurance that existing or future
environmental regulation will not materially adversely affect the
Group's business, results of operations and financial condition and
the price of its shares.
Environmental hazards may also exist on the properties on which
the Enlarged Group hold interests that are unknown to the Group at
present and that have been caused by previous or existing licence
holders or operators. The Directors are aware of certain areas of
historic contamination at the SASA Mine prior to the Sellers period
of ownership. While the Company has been advised that the Group
will not inherit liability under applicable law for these historic
issues, there can be no assurance that the Group will not suffer
losses, liabilities or penalties as a result of this, whether
because of a different interpretation of the law, because of
difficulties in identifying when the issues arose, or
otherwise.
Environmental approvals and permits are currently, or may in the
future be, required in connection with the Group's operations. To
the extent such approvals are required and not obtained, the Group
may be curtailed or prohibited from proceeding with planned
exploration or development of mineral properties. Failure to comply
with applicable environmental laws, regulations and permitting
requirements may result in enforcement actions thereunder,
including orders issued by regulatory or judicial authorities
causing operations to cease or be curtailed, and may include
corrective measures requiring capital expenditures, installation of
additional equipment, or remedial actions. Parties engaged in
mining operations, including the Company, may be required to
compensate those suffering loss or damage by reason of the mining
activities and may have civil, administrative or criminal fines or
penalties imposed for violations of applicable environmental laws
or regulations.
Amendments to current laws, regulations and permits governing
operations and activities of mining companies, or more stringent
implementations thereof could have a material adverse impact on the
Group and cause increases in exploration expenses, capital
expenditures or production costs, reduction in levels of production
at producing properties, or abandonment or delays in development of
new mining properties.
Health and safety
Certain of the operations of the Group are carried out under
potentially hazardous conditions. While the Directors intend to
continue to operate in accordance with relevant health and safety
regulations and requirements, the Group remains susceptible to the
possibility that liabilities might arise as a result of the
breaches of these requirements, accidents, fatalities or other
workforce-related misfortunes, some of which may be beyond the
Group's control. The occurrence of any accidents or any of these
situations could delay production, increase production costs and/or
result in material liability for the Group.
Internal Controls
The financial reporting processes, audit processes, internal
controls and risk management systems that the Group will employ may
not be as robust as those that a company of a similar size would
employ in a more developed economy. This could harm the Group's
operating results and cause investors to lose confidence in
reported financial information, which could have a negative effect
on the value of the shares. Notwithstanding anything in this
paragraph, the risk described should not be taken as implying that
the Company will be unable to comply with its obligations as a
company with securities admitted to AIM.
Social programmes for, and relations with, local communities
As a condition of certain of its subsoil use licences and
contracts, the Group is obliged to maintain certain social
programmes for the benefit of local communities. Furthermore, the
Group has an obligation under its Kazakhstan subsoil use licences
and contracts to invest in training the local workforce. These
obligations may increase or become more burdensome in the future
and may have a negative impact on the Group's profitability. While
the Directors believe that the Group enjoys good relations with
local communities, there can be no assurance that these relations
will not deteriorate, which could have adverse consequences for the
Group.
Taxation and Fee Regulations
The taxation and fee regulations in Kazakhstan and Macedonia are
constantly developing. The interpretation and application of tax
laws, fee laws and regulations are evolving, which significantly
increases the risks with respect to mining and subsoil use
operations, and investments in Kazakhstan and Macedonia in
comparison with more developed tax systems.
Tax and fee legislation is subject to different and changing
interpretations, as well as inconsistent enforcement. Tax and fee
regulation and compliance is subject to review and investigation by
the authorities who may impose extremely severe fines, penalties
and interest charges.
The fact that the tax authorities have conducted an audit of a
particular period does not prevent them from revisiting that period
and raising an additional assessment. In addition, both Kazakhstan
and Macedonia's tax and fee systems do not recognise the concept of
tax and fee authorities giving legally binding rulings on tax and
fee issues that are put before them.
Moreover, the new Macedonian government's electoral programme
provides for many reforms, including changes in the tax system and
minimum salary. Macedonia currently has a flat tax system with a 10
per cent. personal income tax rate and a 10 per cent. corporate
income tax rate. The new government plans to introduce a reform of
the tax system by introducing a progressive tax rate for personal
income tax. The new rates would amount 10 per cent. and 18 per
cent. The idea is to keep the existing rate of 10 per cent. for the
majority of the population, while the 18 per cent. rate will be
imposed only on people with a monthly income of over EUR 1,000.
Additionally the new government plans remove the maximum upper
limit for the payment of salary contributions. The regulations
currently in place limit the payment of salary contributions to 12
average monthly salaries (roughly EUR 6,250), whereas all salaries
beyond such amount are only taxed in line with the personal income
tax rate. By the end of its four year term the new Macedonian
government also plans to raise the monthly minimum salary from the
currently applicable approximately EUR 160 to approximately EUR
260.
The inconsistent enforcement and the evolution of Kazakh and
Macedonian tax and fee laws create a risk of excessive payment of
tax or penalties by the subsoil users if they fail to comply with
tax and fee legislation. Failure to comply with tax and fee
legislation may also result in criminal penalties and/or a
termination of the Group's licences and/or concession
agreements.
The Lynx Group is currently appealing a tax ruling alleging
improper tax practices with respect to historic shareholder loans.
Although the Company has been advised that this would be unlikely,
there can be no guarantee that the authorities will not initiate a
criminal investigation with respect to these allegations, which (if
sustained) could have material adverse consequences for the Group's
business. Further information on this dispute is set out below.
Further, tax stability arrangements for subsoil users in
Kazakhstan have been eliminated. In addition, there can be no
assurance that the tax planning implemented by the Lynx Group will
not be challenged, and any successful challenge could have adverse
consequences for the Group. While the Group has received certain
limited tax warranties and indemnities, there is no assurance that
the Group would be able to recover the losses incurred by it in
such circumstances in full, or at all.
Political and Economic Climate in Kazakhstan and Macedonia
The political and economic environments in Kazakhstan and
Macedonia present a number of risks, including:
-- invalidation or rescission of governmental orders, permits or agreements;
-- the effects of local political, labour and economic developments, instability and unrest;
-- (in Kazakhstan) currency fluctuations;
-- significant or abrupt changes in the applicable regulatory or
legal climate, limitations on mineral exports, exchange controls
and export or sale restrictions, currency fluctuations and
repatriation restrictions; and
-- new regulations on taxation, mining, environmental and social issues.
The Group's Kazakh and Macedonian subsidiaries will have entered
into contracts with the governments of Kazakhstan and Macedonia or
obtained permits or concessions from these governments that enable
them to conduct operations or development and exploration
activities. Notwithstanding these arrangements, the Group's ability
to conduct operations or development and exploration activities is
subject to changes in government regulations or shifts in political
attitudes over which the Group has no control. Macedonia has
experienced political instability in recent years as detailed above
which could continue in the future. Future political instability in
the region could affect the political or economic stability of
Kazakhstan and Macedonia, and could have a material adverse effect
on the Group's business, financial condition, results of operations
or prospects.
Legal Systems and Legislation Risks
The legal systems in Kazakhstan and Macedonia are not fully
developed and have inherent uncertainties that could limit the
legal protections available to the Group. The following risks
relating to the Kazakh and the Macedonian legal systems create
uncertainties, many of which do not exist in countries with more
developed market economies:
-- inconsistencies among, and ambiguities in: (a) laws
(including mining laws in Kazakhstan and Macedonia); (b) decrees,
orders and regulations issued by the Government and ministries; and
(c) local rules and regulations;
-- substantial gaps in the regulatory structure due to delay or
absence of implementing regulations;
-- the relative inexperience of judges and courts in
interpreting new principles of legislation, particularly those
relating to business, corporate and securities laws;
-- some lack of judicial independence from political, social and commercial forces;
-- a high degree of discretion on the part of governmental authorities; and
-- bankruptcy procedures that are not well developed and are subject to abuse.
In both Kazakhstan and Macedonia, although the judicial systems
can be described as independent, judges have little experience in
dealing with complex commercial law issues, which leads to
unpredictability as to the outcome of any litigation. Further, it
may be difficult to obtain swift and equitable enforcement.
Another risk is that the introduction of new laws and
regulations, or changes in legislation and the interpretation or
application of legislation, in particular changes having
retrospective effect, may have an adverse effect on the Group's
business, financial condition, results of operations and future
prospects. Policy changes reflecting domestic political or social
changes may be reflected in changing legislation and regulation, or
their application or interpretation, including with respect to the
regulation of mining in Kazakhstan and Macedonia.
As the legal systems develop, there can be no assurance that
changes in legislation or interpretation thereof will not have a
material adverse effect on the Group's business, financial
condition, results of operations and future prospects.
Corruption
In Kazakhstan and Macedonia, the bribery of officials remains at
a high level relative to more economically developed markets. The
Group's business, results of operations and financial condition
could be adversely affected by corruption or by claims, even if
groundless, implicating the Group in illegal activities. Social
instability caused by corruption could increase support for renewed
centralised authority, nationalism or violence and thus materially
adversely affect the Group's ability to conduct its business
effectively, including as a result of restrictions on foreign
involvement in the economy of the countries in which the Group
operates. Any of these could restrict the Group's operations and
lead to a loss of revenue, which could have a materially adverse
effect on the Group's business, result of operations and financial
condition.
Governmental approvals, permits and licences
The Group's operations in Kazakhstan and Macedonia require
various governmental approvals, licences and permits, and delays or
a failure to obtain, maintain or comply with the terms of any such
property rights, permits and licenses could result in substantial
fines and penalties, interruption or closure of operations,
exploration or development on the mines, or revocation of
concessions.
Many of the mineral rights, concessions, interests and
agreements of the Group are subject to government approvals,
licences and permits. In particular the Group's mining operations
in Kazakhstan and Macedonia are dependent on the continuing grant
of rights to explore and mine the relevant locations, and such
continuing grant is dependent on continuing compliance with the
terms of the applicable licences, concessions and permits. Such
licences and permits are subject to change in various
circumstances. In addition, the granting, renewal and continued
effectiveness of such approvals, licences and permits are, as a
practical matter, subject to the discretion of the applicable
government and government officials and may require the payment of
fees. No assurance can be given that the Group will be successful
in maintaining any or all of the various approvals, agreements,
licences and permits in full force and effect without modification
or revocation. Any such modification or revocation may have an
adverse effect on the Group's business, prospects, results of
operations and financial condition. To the extent such approvals
are required and not obtained, the Group may incur fines,
penalties, be curtailed or prohibited from continuing or proceeding
with planned exploration or development of mineral properties,
which could have a material adverse effect on the Group's related
income, business, result of operations, financial condition and
ability to pay a dividend.
The Lynx Group is in the process of constructing a tailings
storage facility, and is in the process of applying for the
necessary construction permits. There can be no assurance that such
permits will be obtained on schedule, or at all, and any resulting
delay in construction could have adverse consequences for the
Group.
Adverse sovereign action
The Group is exposed to the risk of adverse sovereign action by
the Kazakh and Macedonian governments. The mining industry is
important to the economies of both Kazakhstan and Macedonia and
thus can be expected to be the focus of continuing attention and
debate. In similar circumstances in other developing countries,
mining companies have faced the risks of expropriation and/or
renationalisation, breach or abrogation of project agreements,
application to such companies of laws and regulations from which
they were intended to be exempt, denials of required permits and
approvals, increases in royalty rates and taxes that were intended
to be stable, application of exchange or capital controls, and
other risks.
Deposits of strategic importance
There can be no assurance that industries deemed of national or
strategic importance to Kazakhstan such as mineral production will
not be nationalised. Government policy may change to discourage
foreign investment, re-nationalisation of mining industries may
occur and other government limitations, restrictions or
requirements not currently foreseen may be implemented. There can
be no assurance that the Group's assets in Kazakhstan will not be
subject to nationalisation, requisition or confiscation, whether
legitimate or not, by any authority or body. Similarly the Group's
operations may be affected in varying degrees by government
regulations with respect to restrictions on production, price
controls, export controls, income taxes, expropriation of property,
environmental legislation, mine safety and annual payments to
maintain mineral properties in good standing. There can be no
assurance that the laws of Kazakhstan or Macedonia protecting
foreign investments will not be amended or abolished or that these
existing laws will be enforced or interpreted to provide adequate
protection against any or all of the risks detailed above. There
can be no assurance that any agreements with the governments of
Kazakhstan or Macedonia will prove to be enforceable or provide
adequate protection against any or all of the risks described
above.
Currency fluctuations
Currency fluctuations may affect the costs that the Group incurs
in its operations. A proportion of the Group's capital and
operating expenditure is incurred in currencies other than the US
Dollar. The Group does not currently hedge its foreign exchange
risk and, in future, the opportunities to hedge any foreign
exchange exposure in these currencies may be limited and currency
fluctuations may result in unrealised foreign exchange gains or
losses that materially adversely affect the financial results of
the Group. See also "Fluctuations in the Kazakhstan Tenge".
Exchange control risks
The Group will operate in countries that may impose foreign
exchange controls, which may prevent local companies from paying
dividends or repatriating profits to their foreign shareholders.
Additional administrative procedures and requirements, such as the
retention of a portion of foreign currency holdings in local banks,
may also be imposed on local companies.
GENERAL RISKS RELATING TO THE ORDINARY SHARES
Suitability
An investment in the Company is only suitable for investors
capable of evaluating the risks and merits of such investment and
who have sufficient resources to bear any loss which may result. A
prospective investor should consider with care whether an
investment in the Company is suitable for him in the light of his
personal circumstances and the financial resources available to
him. Readers are accordingly advised to consult a person authorised
under FSMA who specialises in investments of this nature before
making any investment decisions.
Emerging markets risk
Investors in emerging markets, such as Kazakhstan and Macedonia,
should be aware that these markets are subject to greater risk than
more developed markets, including, in some cases, significant
legal, fiscal, economic and political risks. Accordingly, investors
should exercise particular care in evaluating the risks involved in
an investment in the Company and must decide for themselves
whether, in the light of those risks, their investment is
appropriate. Generally, investment in emerging and developing
markets is suitable only for sophisticated investors who fully
appreciate the significance of the risks involved.
Readmission may not occur when expected
As the Acquisition is classified as a reverse takeover under the
AIM Rules, it will result in the cancellation of Existing Ordinary
Shares from trading on AIM (the "Cancellation") and a new
application will be made for the Enlarged Share Capital to be
admitted to trading on AIM, which is intended to take effect
simultaneously with the cancellation becoming effective. There is
no assurance that such admission will take place when
anticipated.
Share price volatility and liquidity
The share price of quoted companies can be highly volatile and
shareholdings can be illiquid. There can be no assurance that an
active or liquid trading market for the Ordinary Shares will
develop or, if developed, that it will be maintained. The Placing
Price may not be indicative of prices that will prevail in the
trading market, and investors may not be able to resell the Placing
Shares at or above the price they paid for them. The price of the
Ordinary Shares may fall in response to market appraisal of the
Group's, or, if the Acquisition completes, the Enlarged Group's
business, financial condition, operating results and prospects, or
in response to regulatory changes affecting its operations. The
price at which the Ordinary Shares are quoted and the price which
investors may realise for their Ordinary Shares will be influenced
by a large number of factors, some specific to the Group, or, if
the Acquisition completes, the Enlarged Group and its operations
and others which may affect quoted companies generally. These
factors could include the performance of the Group, or, if the
Acquisition completes, the Enlarged Group, large purchases or sales
of the Ordinary Shares, currency fluctuations, legislative changes
and general economic, political, regulatory or social conditions
including, for example, interest rates, rates of inflation,
industry conditions, competition, political and diplomatic events
and trends and tax laws. Shareholders should therefore be aware
that the value of the Ordinary Shares can go down as well as up.
Past performance is not necessarily a guide to the future. The
market value of the Ordinary Shares can fluctuate and may not
always reflect the underlying net asset value or the prospects of
the Group, or, if the Acquisition completes, the Enlarged Group.
Investment in the Company should not be regarded as short-term in
nature. There can be no guarantee that any appreciation in the
value of the Company's investments will occur or that the
investment objectives of the Company will be achieved. Investors
may not get back the full or any amount initially invested.
Dilution
On the completion of the Acquisition and the Company Placing,
the holders of the Existing Ordinary Shares will experience
significant dilution in their proportionate ownership and voting
interests in the Group, or, if the Acquisition completes, the
Enlarged Group. The Company will need to raise further capital in
the future to be able to achieve its stated goals which could
potentially be through public or private equity financings or by
raising debt securities convertible into Ordinary Shares, or rights
to acquire these securities. Any such issues may exclude
pre-emption rights pertaining to the then outstanding shares. If
the Company raises significant amounts of capital by these or other
means, it will likely cause dilution for the Company's existing
Shareholders. Moreover, the further issue of Ordinary Shares could
have a negative impact on the trading price and increase the
volatility of the market price of the Ordinary Shares. The Company
may also issue further Ordinary Shares, or issue options over
Ordinary Shares under the share option plan or any other scheme put
in place by the Company, as part of its employee remuneration
policy, or issue further Ordinary Shares or warrants over Ordinary
Shares to third parties in respect of services provided to the
Company, which could in aggregate create a substantial dilution in
the value of the Ordinary Shares and the proportion of the
Company's share capital in which investors are interested.
Dividends
There can be no assurance as to the level of future dividends,
if any. Subject to compliance with the Act and the Articles, the
declaration, payment and amount of any future dividends are subject
to the discretion of the Directors, and will depend on, inter alia,
the Company's earnings, financial position, cash requirements,
availability of profits and the Company's ability to access, and
repatriate within the Group, or, if the Acquisition completes, the
Enlarged Group, cash flow and profits generated outside of the UK.
In addition, the Company is reliant on receiving dividends from its
subsidiaries in order to generate future distributable reserves and
to enable it to pay dividends. In forming their dividend policy,
the Directors have taken into account, inter alia, the trading
outlook for the foreseeable future, recent operating results,
budgets for the following financial year, financial gearing,
banking covenants and current capital requirements of the Group,
or, if the Acquisition completes, the Enlarged Group. Any material
change or combination of changes to these factors may require a
revision of this policy, including curtailing or cessation of
dividends. The Company can give no assurance that it will be able
to pay a dividend on its Ordinary Shares in the future.
Expiry of lock-in arrangements
Subject to or following the expiry of any undertakings given
pursuant to lock-in agreements or similar arrangements with
significant shareholders, such shareholders could sell a
substantial number of Ordinary Shares in the public market
following Admission. Such sales, or the perception that such sales
could occur, may materially adversely affect the market price of
the Ordinary Shares. This may make it more difficult for
Shareholders to sell the Ordinary Shares at a time and price that
they deem appropriate and could also impede the Company's ability
to issue equity securities in the future.
19. Summary of the Terms of the Acquisition
Under the terms of the Acquisition Agreement, CAML MK Limited, a
wholly owned subsidiary of CAML, (the "Purchaser") will purchase
100 per cent. of the issued share capital of Lynx Resources from
the Sellers. Lynx Resources owns 100 per cent. of Lynx Mining,
which in turn owns 100 per cent. of Lynx Europe, which in turn owns
100 per cent. of Rudnik SASA DOOEL. Rudnik SASA DOOEL is the
concessionaire under the SASA Concession Agreement. CAML
incorporated CAML MK Limited on 5 September 2017 to act as the
purchaser under the Acquisition Agreement. The Company will
guarantee the Purchaser's obligations under the Acquisition
Agreement and Orion Fund JV Limited shall guarantee the Sellers'
obligations under the Acquisition Agreement.
The value attributed to the Lynx Group under the Acquisition
Agreement is a total of US$402.5 million on a debt-free cash-free
basis. This is comprised of a cash sum of US$340.5 million payable
on Completion which is subject to a net debt and net working
capital adjustment and US$50 million to be applied by Orion in
subscribing for the Consideration Shares on Completion. The
Purchaser is also required to pay deferred consideration of US$12
million plus a debt prepayment adjustment (the "Deferred
Consideration"). The Deferred Consideration is payable by the
Purchaser in six equal monthly installments beginning on the first
anniversary of Completion. The net debt and net working capital
adjustments will be determined by reference to an effective date of
30 September 2017 and, subject to certain exceptions, the Sellers
have agreed to indemnify the Company for any distributions to them
from 1 October 2017. As a result, the Group will have the benefit
of Lynx Group's trading from 1 October 2017. Interest from 1
October 2017 to Completion is payable at a rate of 9 per cent. of
the equity value, estimated to be approximately US$335.5 million,
as approximately US$67 million of existing Lynx Group net debt is
expected to remain in place following Completion.
Completion of the Acquisition is conditional on satisfaction of
the following conditions, among others:
(a) certain regulatory approvals, including from the Macedonian
Competition Commission;
(b) unless (in the opinion of the Purchaser) no approval is
required under the Minerals Law for the Acquisition (and
accordingly, no associated fee is payable), the Republic of
Macedonia granting an unqualified approval for the transfer of the
Sale Shares and the amount of the related transfer fee being
agreed;
(c) the Placing Agreement and Debt Financing Agreement having
become unconditional in all respects (save for any condition
relating to Completion);
(d) the passing of the Resolutions at the Extraordinary General
Meeting; and
(e) no authority having jurisdiction over the Company or the
Acquisition having commenced any proceedings for the purpose of
prohibiting the Acquisition on the terms contemplated.
The Group shall be entitled to take any action relating to the
transfer approval referred to above (if any) including but not
limited to responding to any assertion that such an approval is
required, and agreeing or disputing the terms of any approval or
fee.
The Purchaser has agreed to use all reasonable endeavours to
procure the satisfaction of conditions (a) to (e). If the
conditions to Completion are not satisfied by 15 December 2017 (or
such later date as the parties may agree) then the Acquisition
Agreement will lapse.
The Sellers have provided certain warranties and indemnities in
relation to, inter alia, the SASA Mine and the transfer of the
shares being sold under the Acquisition Agreement, subject to
customary limitations and disclosure. The Acquisition Agreement
contains customary warranties relating to the Sellers' ownership
and title to their shares, as well as limited business and
commercial warranties as well as a tax covenant given by the
Sellers in respect of certain tax liabilities, principally in
relation to their period of ownership only, and certain specific
indemnities from the Sellers. The Acquisition Agreement also
contains customary limitations on the Sellers' liability under the
Acquisition Agreement, including time and financial limitations.
Claims for breach of warranty must be brought within 12 months of
Completion, save in respect of tax claims which must be brought
within five years of Completion and claims relating to certain
fundamental warranties which must be brought prior to expiry of the
applicable statute of limitations. The aggregate maximum cap on the
Sellers' liability is the final amount of the consideration that
they receive under the Acquisition Agreement. Within this overall
cap, the Sellers' liability is limited to 10 per cent. for warranty
claims, a separate 10 per cent. for tax claims and a separate 10
per cent. for claims for breach of certain operational, interim
period covenants.
Pursuant to the Acquisition Agreement, the Sellers have also
agreed to enter into certain documents on Completion including,
amongst others, deeds of novation in respect of the Third Party
Offtake Agreements pursuant to which Lynx Metals will transfer its
rights and obligations to Lynx Mining. In the event that such deeds
of novation are unlikely to be executed prior to Completion, Lynx
Metals will continue to be the counterparty but all payments
received by Lynx Metals pursuant to the Third Party Offtake
Agreements will be held on trust for the Purchaser and such payment
shall be transferred to the Purchaser.
The Acquisition Agreement is governed by the laws of England and
Wales.
Orion has also entered into the Shareholder Participation
Agreement with the Company pursuant to which it has undertaken, for
a period of 12 months from Completion, not to:
-- acquire shares in the Company, such that their shareholding
amounts to 30 per cent. or more of the Company;
-- influence the voting of the Ordinary Shares;
-- seek to control or influence the Company's management or
obtain representation on the Board; or
-- engage in any discussions which may result in Orion gaining control over CAML
Orion has also undertaken until the earlier of (i) 18 months
from Readmission, or (ii) the date on which they hold in aggregate
less than 4 per cent. of the issued Ordinary Shares to vote, or
cause to be voted at all meetings of the Company's shareholders, in
a manner consistent with the recommendation made by management of
the Company or the Board in relation to a number of matters,
including the election or re-election of directors and auditors,
the renewal of, or adoption of certain new, share incentive plans,
executive remuneration and certain acquisitions.
In addition, subject to certain exceptions, the Shareholder
Participation Agreement requires Orion not to sell any
Consideration Shares for the first six months following Completion,
and not to sell more than 50 per cent. of the Consideration Shares
between six months from Completion and the first anniversary of
Completion (without the prior consent of the Company). Any
Consideration Shares forming part of the 50 per cent. referred to
above that are sold in the second six months must be sold via the
Joint Bookrunners in order to maintain orderly markets.
In connection with the Acquisition and conditional on
Completion, the Company has also entered into a Transitional
Services Agreement with Fusion Capital pursuant to which it will
have limited access to Chris James, Stefan Peschke, Florian Dax and
Patrick Henze for the provision of transitional consultancy
services for a period of three months following Completion.
20. Information on CAML
20.1 Introduction
CAML is an AIM quoted copper producer which wholly owns the
Kounrad copper operation in central Kazakhstan and, together with
partners, Aksu-Esil, and has begun to explore the 80 per cent.
owned Shuak property in the Akmola region of northern Kazakhstan.
The Company also owns a 75 per cent. interest in a private company,
Copper Bay Limited, which has a definitive feasibility study stage
project in Chañaral Bay, Chile. The Company's remaining Mongolian
asset, Ereen, is fully written off and is currently held for
sale.
CAML was incorporated in England and Wales on 9 September 2005
and is the UK parent company of the Group.
CAML's senior management team has over 100 years of combined
mining experience. The team is supported by non-executive directors
who, together, have extensive experience in the natural resources
and financial sectors. A detailed resource and reserve statement
and related compliance information on CAML is set out in section
20.3.2 below.
20.2 History and Background on CAML
CAML acquired a 60 per cent. interest in the Kounrad Project in
2007 and in May 2014, the Company completed the acquisition of the
remaining 40 per cent. of the project for a total consideration of
20 per cent. of the Company's shares in issue at the time of the
acquisition.
The Group employs approximately 356 people on site in
Kazakhstan, almost all of whom have been recruited locally. This
operational team is supported by the London based headquarters.
In 2010, CAML raised US$60 million at its initial public
offering. The proceeds were used to construct a nominal 10,000
tonne per annum SX-EW plant at Kounrad in order to leach copper and
produce cathode from the dumps on the eastern and western sides of
the historic Kounrad copper mine located near Balkhash, central
Kazakhstan. This construction process was completed ahead of
schedule and US$8 million below budget, and LME quality copper
cathode was first produced in Q2 2012.
The Company has been producing copper from Kounrad for over five
years and, to 30 June 2017, has produced over 61,000 tonnes of
copper cathode, and paid US$96 million in dividends and share
buybacks to shareholders. It has also self-funded two expansions at
Kounrad totalling US$26 million, paid US$90 million in taxes in
Kazakhstan and funded a number of social causes in the local
community.
When the Company's shares were admitted to trading on AIM in
2010, the Company was active in both Kazakhstan and Mongolia.
However, in 2013 a strategic decision was taken to exit Mongolia
and, to that end, all assets in that jurisdiction have been, or are
in the process of being, divested.
In November 2013, CAML invested US$3.2 million to acquire a 50
per cent. interest in private company, Copper Bay Ltd. CAML
subsequently invested a further US$3 million to increase its
interest in Copper Bay to 75 per cent. in June 2015. The Company
worked with the Copper Bay management team to complete a definitive
feasibility study on its Chañaral Bay tailings retreatment project
in northern Chile in December 2016. While the definitive
feasibility study results illustrated a valuable project (with a
net present value of US$34 million at a copper price of US$3.00 per
pound), the Board has now decided to seek to sell the Group's
interest in the Copper Bay project.
In November 2016, CAML announced that it had signed a framework
agreement to acquire an 80 per cent. interest in the Shuak copper
exploration property in northern Kazakhstan, which completed in
August 2017.
20.3 Overview of CAML
20.3.1 Background information on Kounrad
CAML is the sole owner and operator of the SX-EW copper recovery
plant at the Kounrad mine site, near the city of Balkhash in
central Kazakhstan. The Kounrad SX-EW plant and associated
infrastructure was commissioned in April 2012. More detailed
information on Kounrad can be found in the Kazakh Competent
Person's Report available on the Company's website.
CAML also owns the subsoil use contract in respect of the waste
rock dumps surrounding the Kazakhmys- owned Kounrad open pit, which
is now closed. These waste rock dumps were generated through over
70 years of mining activity, predominantly during Soviet times.
Over time, waste dumps containing copper oxides and sulphide
minerals formed a significant tonnage deposited at the mine site.
Technology has advanced, as has the use of SX-EW chemistry in
treating copper ores, and CAML no longer views these dumps as
waste.
CAML has two operating subsidiaries in Kazakhstan, Sary Kazna,
which is responsible for leaching activities and Kounrad Copper
Company, which operates the SX-EW facility and produces copper
cathode.
Based on the Company's 2017 Wardell Armstrong JORC resource
estimate, CAML now estimates that there remain approximately
194,000 tonnes of copper that should be extracted and produced from
Kounrad, which should ensure a life of operation past 2030.
Producing Kounrad's copper
Kounrad's production of copper is far less cost intensive than
traditional mining, as there is no need to drill, blast or
transport ore - the waste dump rocks can be leached in-situ. This
allows the company to produce copper cheaply.
The leaching process consists of delivering the weak sulphuric
acid solution (termed "raffinate") to the top of the waste dumps
and irrigating the surface of the dump, through a pump and pipeline
system. The solution is distributed evenly and at a controlled rate
via an extensive network of dripper pipes, which are similar to
those used by market gardeners for irrigation purposes.
Copper contained in the rock is dissolved by the raffinate that
slowly percolates through the dump until it reaches the natural
ground level, and then flows out from under the dump, following the
natural bedrock gradient, into a plastic lined collector trench
which runs along the edge of the dump.
From the collector trench, the solution (termed "pregnant leach
solution" or "PLS") is pumped into storage ponds within the plant's
perimeter. These ponds not only act as a large buffer store but
also assist with settling out any fine clay or rock particles,
which can adversely affect the solvent extraction phase ("SX")
process if not removed.
From the ponds, the copper-bearing PLS is pumped through the SX
stage of the process, where it is mixed with an organic reagent to
strip the copper from solution, into a copper-rich organic phase
and a low-grade acidic aqueous phase. The aqueous solution, or
raffinate is then recycled back to the dumps to dissolve more
copper, whilst the organic reagent is treated further to increase
the copper content in a high-strength acid solution.
This copper-rich organic phase, known as rich electrolyte, is
then pumped to the nearby electro winning (EW) building where it is
plated by electrolysis in cells that are similar in appearance to a
large car battery. Placed inside these cells are lead anode plates
and stainless steel cathode sheets.
As the electric current runs through the electrolyte the copper
molecules attach themselves to the cathodes and sheets of at least
99.99 per cent. purity copper are formed. Every three days on a
planned schedule a third of the stainless steel cathodes are lifted
from the cells and the copper is removed (stripped) from them. Once
the copper is removed, the cathodes are returned to the cells and
the cycle is repeated.
The leaching, SX and EW processes run simultaneously and
continuously and the copper cathode plates that are harvested are
stored in a secure area, prior to being delivered from the Kounrad
site by rail and sea to end consumers, predominantly in Turkey. The
Company has an offtake agreement with metal trader, Traxys, which
will purchase a minimum of 90 per cent. of the copper cathode from
Kounrad through an agreement with CAML that is in place until the
end of 2018. This has been extended to 2022 pursuant to the Debt
Financing Agreement.
Operations commenced on the Eastern Dumps in 2012 and, to date,
CAML has produced over 60,000 tonnes of copper cathode from that
area.
Year 2012 2013 2014 2015 2016 H1 2017
Copper Production 6,586 10,509 11,136 12,071 14,020 7,027
Stage 1 and Stage 2 Expansion
Since the initial construction of the copper production
facilities on site, CAML has undertaken two self-funded expansions.
The Stage 1 Expansion was completed on schedule and under budget in
Q2 2015, and involved enhancing the throughput and copper plating
capacity of the processing plant so as to be able to increase
copper output to 50 tonnes of copper cathode per day.
In 2016, the Company undertook the Stage 2 Expansion, which has
extended the site infrastructure to the Western Dumps so as to
enable the leaching of copper from this larger resource area and,
in doing so, has extended the life of the operation to beyond 2030.
CAML commenced irrigation of the Western Dumps in April 2017 and
PLS has subsequently flowed out of the dumps and into the collector
trenches, and copper cathode has been produced from this area of
the site.
Kounrad C1 cash costs
Kounrad's copper is produced at industry leading costs. The
global copper industry measures 'C1 costs' graphically on a cash
cost of operations curve and, at US$0.45 per pound for H1 2017,
Kounrad's costs are firmly within the lowest cost quartile as
indicated by the C1 cost curve for Q2 2017 below. This enhances
Kounrad's ability to remain in production even at depressed copper
prices. Costs are aided by the particular geological
characteristics of the Kounrad dumps, as the largely impermeable
bedrock has meant that rock does not have to be moved in order to
extract the copper and that the material itself is amenable to
being irrigated and leached.
Costs have also been aided in the last 18 months by a marked
devaluation of the local currency, the Kazakh Tenge (KZT). In H2
2015, the KZT was allowed to float and devalued against the US
Dollar by 85 per cent. Approximately 60 per cent. of CAML's local
costs are KZT denominated, so this devaluation had a marked
reduction in the Company's in-country cost base. The average C1
cash cost of production since production commenced in 2012 is
US$0.57 per pound which is in the lowest quartile of industry costs
(source: Wood Mackenzie).
20.3.2 Kounrad Mineral Resource
Kounrad's JORC (2012) compliant resources, as estimated by
Wardell Armstrong in 2017, and derived from the Kazakh Competent
Person's Report available on the Company's website:
Kounrad Dump Mineral Resource (Global Estimate), (WAI, 30 June
2017)
In accordance with the Guidelines of the JORC Code (2012)
Cu Production
Tonnage Cu(total) Cu(acid) CU(total) 2012-2017 RemainingCU
Classification Dump (kt) (%) (%) (t) (t) (t)
------------------------ ------------ -------- ---------- --------- ---------- -------------- ------------
Eastern Dumps
2 21,470 0.07 0.04 15,641 -
3 - - - -
5 33,896 0.08 0.04 27,246
Indicated 6 12,328 0.10 0.04 10,086
7 12,328 0.10 0.04 11,938
9 and
10 10,555 0.20 0.07 20,890
Total 89,653 0.10 0.04 85,799
2 13,775 0.07 0.04 9,659
3 1,033 0.22 - 2,285
5 35,058 0.1 0.05 33,528
Inferred 6 3,442 0.11 0.04 3,641
7 22,989 0.11 0.04 25,501
9 and
10 3,350 0.21 0.09 7,126
Total 79,646 0.1 0.05 81,740
Indicated
Inferred........... Total 169,299 0.10 0.04 167,539 60,048 107,491
Western Dumps
1 36,942 0.18 0.1 65,193
1a - - - -
15
and
16 189,953 0.08 0.04 152,687
21 10,398 0.2 0.1 20,788
Indicated 21a 858 0.17 - 1,433
22 37,276 0.1 0.05 36,057
13 6,472 0.03 0.01 1,750
20 14,452 0.03 0.01 4,478
Total 296,351 0.10 0.05 282,386
1 19,751 0.14 0.07 26,958
1a 1,467 0.04 0.02 651
15
and
16 114,701 0.08 0.04 94,670
21 6,870 0.18 0.08 12,321
Indicated 21a 4,452 0.17 - 7,559
22 22,167 0.08 0.04 18,108
13 4,705 0.03 0.01 1,534
20 7,408 0.03 0.02 2,488
Total 181,521 0.09 0.04 164,289
Indicated
+ Inferred........... Total 477,872 0.09 0.04 446,675 1,300 445,375
Northern Dumps
Indicated......... Northern 2,973 0.04 0.01 1,277
Inferred............ Northern 2,856 0.05 0.02 1,455
Indicated
+ Inferred........... Total 5,829 0.05 0.01 2,732 0 2,732
20.3.3 Future Development Strategy of Kounrad
Almost US$74 million has been invested at Kounrad in initial
capital, expansionary capital (for the Stage 1 and Stage 2
Expansions) and sustaining capital. Aside from an estimated US$2
million sustaining capital annually, CAML is now fully invested at
Kounrad. The result of this is that the future annual production is
not expected to increase. 2017 copper production guidance is for
between 13,000 tonnes and 14,000 tonnes production.
20.3.4 Copper Bay
The Copper Bay project is a site of historic tailings disposal
on the beach at Chañaral Bay. This resulted from the Potrerillos
and El Salvador copper mines releasing tailings residues from their
respective mineral processing operations into the Rio Salado, which
outflows into Chañaral Bay. Between 1938 and 1975, it is believed
that some 250 million tonnes of tailings were discharged and now
sit in the beach, surf and bay zones.
The Group holds eight exploitation licences in relation to the
Copper Bay Project, all of which run indefinitely and together
cover a total area of 15.25 square kilometres.
Following the completion of the pre-feasibility study in 2015,
CAML undertook a definitive feasibility study on its 75 per cent.
owned Copper Bay tailings project in the Atacama Region of northern
Chile.
However, the Board has now decided to seek to sell the Group's
interest in the Copper Bay project.
20.3.5 Shuak
In November 2016, CAML signed a framework agreement to acquire
an 80 per cent. effective interest in an early stage exploration
project called Shuak in the Akmola Oblast region of northern
Kazakhstan. The acquisition completed in August 2017. The
consideration for the Shuak acquisition was an investment in
exploration activities of US$2 million over five years, subject to
continued positive results from exploration activities and the
general economic outlook for commodity prices. The project is
approximately 300 kilometres north of the capital city, Astana, and
40 kilometres north east of the regional centre, Stepnogorsk.
The licence area is 197km(2) and the area hosts two
mineralisation styles that are of particular interest to CAML.
These are:
-- saprolite hosted oxide and enriched copper, gold and
molybdenum mineralisation that may be amenable to copper production
by SX-EW processing; and
-- copper, molybdenum and gold bearing dissemination and
stockwork mineralisation of a porphyry nature. In addition, there
are widespread copper, gold, silver and molybdenum geochemical
anomalies within the licence area.
The Shuak property was explored between 1973 and 1991, with
historic work including geochemistry, geophysics, trenching and
drilling at the site. During this time, over 45,000 metres were
drilled and resource estimation to historic Soviet standards was
undertaken.
Around 8km(2) of metalliferous saprolite has been identified
within the licence area, with thicknesses varying from minimal to
potentially in excess of 60 metres in depth. Most recently, former
owners of the property undertook small scale mining at Mongol V and
sampling of the stockpile generated from these mining activities
demonstrated copper oxide grades in excess of 2 per cent. in
several cases. Column leach testing of this saprolitic material at
CAML's Kounrad facility has shown it to be amenable to processing
by leaching with dilute sulphuric acid, with copper recoveries of
over 90 per cent.
Together with partners, Aksu-Esil, CAML has been undertaking
geological mapping and is nearing completion of a TEM-FAST
geophysics programme, which has been designed primarily to
ascertain the depth and extent of the saprolite weathering horizon.
The 2017 diamond drilling programme of approximately 4,700 metres
has recently commenced, together with an initial 7,000 metre core
hydrotransport (CHT) drilling campaign. In total, 22,000 metres of
drilling are planned for 2017 and the total exploration budget for
Shuak is approximately US$1.8 million which the Company intends to
fund from existing cash resources.
20.4 CAML Competent Person's Report
The Mineral Resource estimate for Kounrad was prepared by Mr.
Phil Newell of WAI. Mr. Newell is a managing director of WAI with
30 years' experience in the mining industry and sufficient
experience that is relevant to the style of mineralisation and type
of deposit under consideration and to the activity which he is
undertaking to quality as "Competent Person" as defined by the JORC
Code (2012). The Kazakh Competent Person's Report is available on
the Company's website.
20.5 Kazakh Licence Table
Licence Licence Status (Exploration
Holder Expiry Area or Development
Company Asset Interest% Date Sq. Km & Comment)
------------ --------- --------------- ---------- -------- --------------------
Sary Kazna 20 August Exploration
LLP Kounrad 100 2034 22.5 and processing
Ken Shuak Shuak 80 (effective) 8 May 197 Exploration
LLP 2019
21. Information on the Lynx Group
21.1 Introduction
Lynx Resources Limited holds, via its wholly owned subsidiary
Lynx Mining, 100 per cent. of Lynx Europe, which in turn holds 100
per cent. of Rudnik SASA DOOEL, through which the relevant mining
licences in respect of the SASA Project are held. Pursuant to the
Acquisition Agreement, the Company is proposing to acquire the
entire issued share capital of Lynx Resources Limited, and thereby
the SASA Project, from the Sellers for a total consideration of
US$402.5 million. Rudnik SASA DOOEL has Ore Reserves and Mineral
Resources established in accordance with the guidelines as embodied
in the JORC Code (2012).
Further information on the Acquisition Agreement is disclosed in
section 19 above and further information on the SASA Mine is set
out in section 21.3 below. Please refer to the Macedonian Competent
Person's Report available on the Company's website for a detailed
resource and reserve statement and related compliance information
for the Lynx Group.
21.2 History and Background to the Lynx Group
Lynx Resources is a Bermudan holding company that was formed on
19 June 2015. In November 2015, Lynx Europe acquired the entire
share capital of Rudnik SASA DOOEL from Solway Industries Ltd and
Solway Industries Eesti AS.
Rudnik SASA DOOEL was incorporated for the purpose of taking
over the business activities of mining and processing of lead and
zinc exploited from the SASA Mine. This mine was operated by the
state-owned company SASA JSC, incorporated in Macedonia, until 2005
when it was declared bankrupt and the assets of the bankrupt JSC
were sold pursuant to a tender. Following completion of the tender
procedure, all assets of "SASA JSC in bankruptcy" were transferred
to Rudnik SASA DOOEL.
21.3 Overview of the SASA Mine
21.3.1 Background information on the SASA Mine
The SASA deposit was discovered during a period of exploration
between 1954 and 1960. Trial mining commenced in 1965 and, in 1966,
the mine commenced commercial production as a state-owned entity.
The mine closed in 2002 and was subsequently placed into bankruptcy
due to lack of operating capital from the Macedonian government
which owned the mine. The Solway Sellers subsequently purchased the
mine, invested in new equipment and operations resumed in 2006. The
Solway Sellers later sold the mine to Fusion Capital and Orion in
2015.
The SASA Mine is located in north eastern Macedonia,
approximately 150km east of the capital city, Skopje, and 10km
north of local town, Makedonska Kamenica. Geographically, the mine
is located within the Osogovo Mountains, at an altitude of between
975 metres and 1,600 metres above sea level, experiencing average
annual precipitation of approximately 600mm, some of which is in
the form of snow.
The assets comprise an operating underground lead, zinc and
silver mine. The current underground mine is a sub-level caving
operation, which utilises the geotechnical characteristics of the
weak hanging wall to allow the rock to cave naturally into the void
remaining after ore has been blasted. Mined ore is either
transported to ore passes and hoisted out of the Golema Reka
mineshaft or loaded directly onto underground trucks, where it is
driven up the decline.
The mine produces approximately 780,000 tonnes of ore each year,
feeding a processing plant with crushing capacity of 1 million
tonnes of ore each year. The processing plant uses froth flotation
technology to produce a zinc concentrate and a lead concentrate,
which can be trucked to smelters in the surrounding region.
Year Units 2008 2009 2010 2011 2012 2013 2014 2015 2016
Plant Feed
Feed
tonnes..............
.............. dmt 854,319 864,592 811,383 758,252 754,153 774,007 780,285 777,121 779,231
Ore
moisture............
.............. % 3.34 3.36 3.39 3.66 3.98 3.71 3.56 3.26 3.00
Pb - mill
head
grade...............
. % 4.68 4.43 4.05 3.83 3.93 4.13 4.16 4.04 3.95
Zn - mill
head
grade............... % 4.08 4.14 3.81 3.43 3.35 3.47 3.48 3.52 3.41
Tonnes Pb
in
feed................ t
.. Pb 39,983 38,276 32,878 29,036 29,658 31,982 32,475 31,375 30,761
Tonnes Zn
in
feed................ t
.. Zn 34,896 35,820 30,905 26,009 25,280 26,858 27,192 27,370 26,599
--------------------- ----- -------- -------- -------- -------- -------- -------- -------- -------- --------
Lead Concentrate
Pb concentrate
- Production.. dmt 49,146 47,634 41,298 37,148 38,025 40,996 41,631 40,162 39,507
Pb recovery
to Pb conc.......... % 91.60 94.20 94.39 95.07 94.42 94.37 94.51 94.10 94.13
Zn recovery
to Pb conc......... % 4.15 3.81 3.77 3.79 3.65 3.95 3.96 4.20 4.02
Pb concentrate
- Pb grade % 74.53 75.70 75.15 74.31 73.64 73.62 73.73 73.51 73.29
Pb concentrate
- Zn grade...... % 2.94 2.86 2.82 2.66 2.43 2.59 2.59 2.86 2.70
Pb in Pb
conc................
......... t 36,627 36,058 31,034 27,604 28,003 30,181 30,693 29,524 28,955
Pb concentrate
- Moisture.... % 6.09 5.46 5.47 5.77 6.01 5.94 5.77 5.50 5.80
Zinc Concentrate
Zn concentrate
- Production. dmt 57,950 61,030 52,783 44,550 43,140 46,228 46,920 47,159 45,548
Pb recovery
to Zn conc......... % 1.99 2.04 1.82 1.61 1.57 1.53 1.92 2.47 1.97
Zn recovery
to Zn conc......... % 82.25 85.45 86.01 86.60 86.20 86.31 86.50 85.77 84.64
Zn concentrate
- Pb grade...... % 1.37 1.28 1.13 1.05 1.08 1.06 1.33 1.64 1.33
Zn concentrate
- Zn grade...... % 49.53 50.16 50.36 50.56 50.51 50.15 50.13 49.78 49.43
Zn in Zn
conc................
........ t 28,706 30,610 26,583 22,524 21,789 23,182 23,522 23,476 22,515
Zn concentrate
- Moisture.... % 9.24 8.77 8.89 8.69 8.74 8.51 8.37 8.51 8.43
For 2016, the mining cost was US$17.1/t of ore and processing
cost was US$10.5/t of ore. Recoveries of 84.6 per cent. for zinc
and 94.1 per cent. for lead were achieved. The C1 cash cost at the
SASA Mine is estimated to be US$0.39 per pound for zinc and US$0.29
per pound for lead. This is in the lower end of the second quartile
of global producers for zinc and the lowest quartile of global
producers for lead (Source: Wood Mackenzie).
The SASA Mine run of mine production guidance for 2017 is over
770,000t. The lead grade range is between 3.37 per cent. and 4.03
per cent. whilst the zinc grade range is between 2.65 per cent. and
3.27 per cent.
21.3.2 Regional and Local Geology
The SASA Mine lies within the Serbo-Macedonian Massif, which
hosts a large number of lead and zinc deposits and extends through
Serbia, Macedonia, Bulgaria, eastern Greece and into Turkey.
The SASA Mine Svinja Reka and Golema Reka deposits are located
on the eastern flank of a copper molybdenum porphyry deposit at
Osogovo.
The SASA Mine lead zinc silver mineralisation occurs as
stratiform deposits hosted predominantly by quartz-graphite schist
and marbles of Lower Palaeozoic age at Svinja Reka and by gneisses
at Golema Reka. Hydrothermal and bedding parallel faulting are
responsible for the metasomatism of the host sediments that produce
skarn and base metal mineralisation of the Svinja Reka and Golema
Reka deposits.
The deposits are well defined lenses of lead zinc silver
mineralisation, which dip at about 35 degrees to the south west and
range in true thickness from 2 metres to 30 metres.
21.3.3 The SASA Mine Mineral Resource
SRK has estimated the Mineral Resource as at 1 July 2017 in line
with the JORC Code (2012) and included it in the Macedonian
Competent Person's report available on the Company's website. The
Mineral Resource is shown below inclusive of reserves.
Mineral Tonnage Metal Grade Metal Content
resource
classification
-------- ------------------- -------------------
Mt % % g/t kt kt t Ag
Pb Zn Ag Pb Zn
-------- ----- ----- ----- ---- ---- -------
Indicated.......................................................
... 13.3 4.59 3.68 22.0 611 490 9,403
Inferred........................................................
..... 10.1 3.55 1.67 18.1 357 168 5,849
-------- ----- ----- ----- ---- ---- -------
Total...........................................................
....... 23.4 4.14 2.81 20.3 968 658 15,252
======== ===== ===== ===== ==== ==== =======
Ore Reserves are as stated on 1 July 2017, in line with the JORC
Code (2012). Ore Reserves have been classified as Probable Ore
Reserves, on the basis that the relevant Mineral Resources are in
the Indicated Mineral Resource category.
Ore reserve classification Tonnage Metal Grade Metal Content
-------- ------------------- ------------------
Mt % % g/t kt kt t Ag
Pb Zn Ag Pb Zn
-------- ----- ----- ----- ---- ---- ------
Probable.........................................................
.. 10.9 3.85 3.08 18.4 421 337 6,447
-------- ----- ----- ----- ---- ---- ------
Total............................................................
..... 10.9 3.85 3.08 18.4 421 337 6,447
======== ===== ===== ===== ==== ==== ======
21.3.4 Future Development Strategy of the SASA Project
Future mine development
On the basis of the mine's current Probable Reserves, production
can be sustained at the SASA Mine until at least 2032. However, the
mine has additional Inferred Mineral Resources at both Svinja Reka
and Golema Reka which are expected to increase the life of the
operation to 2038.
There is additional resource potential in the mine and licence
area, and particularly in the Kozja Reka deposit area, which was
previously mined from between 1966-1989. There are no current
mineral resources for this deposit, which is located between Svinja
Reka and Golema Reka, but a diamond drilling programme is currently
underway there.
A new chief geologist has recently been hired with more than 15
years' experience, who is responsible for growing the resource base
and increasing the confidence category of Inferred Mineral
Resources into Indicated Mineral Resource around the SASA Mine. In
particular, areas of geological prospectivity are Svinja Reka North
from level 990, Svinja Reka from level 830-750, Kozja Reka and the
upper section of Golema Reka.
Tailings Storage
The Company is currently obtaining the necessary permits and is
constructing TSF 4 which is expected to be completed in Q2 2018 and
which will be required for mining activities once the existing
tailings facility reaches the maximum storage capacity, which is
expected to occur in Q4 2018.
Water Quality
Further to a recent inspection, the permitting is in process for
construction of a settlement pond to improve water quality for
Horizon 830. The Company is also seeking an amendment to its
A-Permit. Further details are set out in the Macedonian Competent
Person's Report available on the Company website.
21.4 Lynx Group Competent Person's Report
The Mineral Resource estimate for the SASA Mine was prepared by
Mr Guy Dishaw of SRK. Mr Dishaw has sufficient experience which is
relevant to the style of mineralisation and the type of deposit
under consideration and to the activity which he is undertaking to
qualify as a "Competent Person" as defined by the JORC Code
2012.
The Competent Person who has reviewed the Ore Reserves and the
Life of Mine Plan ("LoMp") as reported by Lynx Resources is Mr
Chris Bray of SRK. Mr Bray is a Mining Engineer with 20 years'
experience in the mining and metals industry, including operational
experience in underground lead-zinc mines, and as such qualifies as
a Competent Person as defined in the JORC Code (2012).
21.5 Licence Table
Status
Licence Licence (Exploration
Holder Expiry AreaSq. or Development
Company Asset Interest% Date Km & Comment)
------------ ---------- ----------- --------------- -------------------- -------------------
Rudnik SASA Mine 100 28 September 4.22 (exploitation) Current
SASA DOOEL 2030 (for annual
exploitation) run of
mine production
is 780
kt, producing
lead and
zinc concentrates
Rudnik SASA Mine 100 13 December 1.42 (exploration) Application
SASA DOOEL 2017 for renewal
of the
licence
is already
in progress
22. INFORMATION ON KAZAKHSTAN AND KAZAKH MINERAL POLICY & LAW
22.1 Overview of Kazakhstan
22.1.1 Geography and Population
Kazakhstan is the ninth largest country in the world by land
area. It is located in Central Asia and is bordered by Russia to
the north and west, China's Xinjiang-Uigur Autonomous Region to the
east, Kyrgyzstan, Uzbekistan and Turkmenistan to the south and the
Caspian Sea to the west. The country covers an area of
approximately 2.7 million square kilometres (approximately the same
size as Western Europe) and spans two time zones from the Caspian
Sea in the west to the Altai Mountains in the east. In December
1997, the capital moved from Almaty to Astana, which is located in
central Kazakhstan, and most of the state bodies have relocated to
Astana. However, Almaty remains the financial capital and the
largest city in Kazakhstan. As at 8 January 2017, the population of
Kazakhstan was approximately 18 million people, which makes it a
very sparsely populated country with an average population density
of 6.49 people per square kilometre.
22.1.2 Government
Kazakhstan is a constitutional republic with a presidential form
of governance. The president is both the head of state and
commander-in-chief of the armed forces. President Nursultan
Nazarbayev, who has been in office since Kazakhstan became
independent in December 1991, was re-elected in April 2015 with an
overall voting majority of almost 98 per cent. The Kazakhstan
constitution provides for separation of powers, but the president
wields considerable control over all three branches of government
and determines national policy priorities. He may also veto
legislation that has been passed by the Parliament. In March 2017,
the constitution of Kazakhstan (the "Constitution") was amended to
pass certain authorities from the president to the government and
the Parliament and restrict the power of the president with respect
to certain issues, but, in practice, the amendments did not
significantly reduce the president's power.
Bakhytzhan Sagintayev, who has been prime minister since 8
September 2016, was appointed by the president and approved by the
Parliament and is Kazakhstan's head of government. There are two
deputy prime ministers and 16 ministers in the government.
Kazakhstan has had two different parliamentary structures since
the end of the Soviet era. The current structure has a bicameral
Parliament, with the Mazhilis (the lower house) comprised of 107
members and the Senate comprised of 47 members. In the Mazhilis, 98
members are elected by direct party-list vote and nine members are
appointed by the Assembly of Nations of Kazakhstan. Two senators
are selected by each of the elected assemblies (maslikhats) of
Kazakhstan's sixteen principal administrative divisions (fourteen
regions plus the cities of Astana and Almaty). Half of the senators
are re-elected every three years. Mazhilis deputies and the
government both have the right to initiate legislation, though the
government proposes most legislation considered by the
Parliament.
22.1.3 Economic overview
Kazakhstan is an industrial country, with mining and oil and gas
operations as its main prospects for economic growth. Over the past
two years, Kazakhstan has faced a decline in trade due to a fall in
oil prices, a recession in neighbouring Russia and a slowdown in
Chinese growth. In order to address the worsening economic
situation, the government of Kazakhstan has responded with a number
of initiatives to try to stimulate the economy.
These range from a widespread planned privatisation programme to
some fundamental proposals for changes in the law aimed at
attracting increased foreign investment into the country.
Currently, it is estimated that the Kazakhstan state owns
approximately 70 per cent. of businesses and the country targets
reducing this to 15 per cent. by 2021 through the privatisation
programme. One such proposal to increase foreign direct investment
in Kazakhstan is to introduce a new mining code that looks set to
replace the existing subsoil use law. It is anticipated that the
new mining code expected to be enacted in 2018 will be based on the
existing regulatory approach in the mining sectors in Western
Australia and will simplify regulation and improve the investment
climate.
Following an 85 per cent. devaluation of Kazakhstan's currency,
the Tenge, against the US Dollar in 2015, the Tenge remained
broadly stable throughout 2016, showing a slight appreciation to
333 KZT/USD (31 December 2015: 340 KZT/USD) towards the end of the
year. This appears to have been largely related to the recovery in
oil prices to US$55 per barrel following OPEC's agreement in
November 2016 to cut output to 32.5 million barrels a day in order
to improve supply-demand fundamentals.
The 2016 official rate of inflation in Kazakhstan was 8.5 per
cent. (2015: 13.6 per cent.) which, although at the top end of the
forecast range for the year, appears to be a solid achievement in
monetary control given such a marked devaluation in the currency in
the previous year. During 2017, the Directors' believe that the
stability of Kazakhstan's economy and the local currency is likely
to continue to be dependent on the strength of oil prices.
Looking to the medium term, the Directors' believe that
Kazakhstan is well placed to benefit from China's initiative to
revive the ancient "Silk Road" with economic corridors to Europe.
Kazakhstan expects China to invest US$26 billion between 2016 and
2021 in the country, both in infrastructure and industry, in
conjunction with liberalising bilateral trade. In addition, during
2016, Exxon Mobil, Chevron and Lukoil agreed to a US$37 billion
investment in the Tengiz oil field to increase output by almost 50
per cent. by 2022 and the Kashagan oil fields, the largest in
Kazakhstan, commenced production of oil in November 2016.
The legacy of the Soviet Union resulted in the model of a highly
state regulated economy in Kazakhstan including price control for
many state-owned monopolies. In 2017, the government has committed
to reviewing some of these price controls. While the removal of
these controls may result in near term higher prices for consumers,
the proposed changes are expected to improve competition and
increase the interest of foreign investors in those industries.
The eventual replacement of long serving president, Nursultan
Nazarbayev, is arguably one of the biggest uncertainties facing the
Kazakhstan economy in the longer term. In order to plan for this,
Nazarbayev launched his "100 concrete steps" initiative in May
2015, listing 100 measures aimed at making improvements to the
legal system, improving the civil service, ensuring economic
growth, boosting national unity and making the state more
accountable.
22.2 Mineral Policy and Law in Kazakhstan
General
Regulation of the mining sector can be divided into three broad
areas:
-- regulation in relation to subsoil use rights and operations, including local content;
-- regulation in relation to environmental matters; and
-- anti-monopoly regulation
22.2.1 Subsoil use regulation
In Kazakhstan, the subsoil and minerals contained in the country
are owned by the state in accordance with the Constitution. The
state ensures access to the subsoil mostly by entering into subsoil
use contracts for exploration or mining (or a combination of the
two) on terms and conditions and within the limits provided for by
Kazakhstan law. Unless otherwise stipulated by Kazakhstan laws and
subsoil use contracts, mineral raw materials must be owned by a
subsoil user. Most types of subsoil use operations must be carried
out on a temporary and payable basis. Subsoil use rights are
normally granted as a result of competitive procedures in the form
of a tender or auction or, by way of exception, as a result of
direct negotiations between a proponent and the competent body.
The Ministry for Investments and Development of the Republic of
Kazakhstan has been assigned by the government of Kazakhstan to
exercise the function of the competent body (the "Competent Body")
in the mining sector and grants exploration and mining contracts
for all minerals except for uranium and coal on behalf of the
state. Subsoil use contracts are granted for a specific period but
may be extended before the date of expiration subject to certain
limitations and conditions. Subsoil use contracts may be
unilaterally terminated by the Competent Body if, amongst other
things, subsoil users do not satisfy their contractual obligations,
which may include operational obligations (exploration drilling,
mining and/or processing of certain amount of minerals), minimal
expenditure obligations set out in a contract, payment of taxes and
satisfaction of other exploration and mining, environmental, and
health and safety requirements.
The Kounrad Contract was concluded pursuant to the Law No. 2828
"On Subsoil and Subsoil Use" of 27 January 1996 (the "Previous
Subsoil Law") that was superseded by the new Law No. 291-IV "On
Subsoil and Subsoil Use" dated 24 June 2010 (the "Subsoil
Law").
The following important provisions were retained in the Subsoil
Law from the Previous Subsoil Law:
Issuance of New Shares
Under the Subsoil Law, the consent of the Competent Body is
required for the issuance of new shares by a subsoil user or its
parent company.
Priority Right to Acquire Minerals
The state shall have a priority right to acquire a subsoil
user's minerals, at prices not exceeding those applied by the
subsoil user to third parties that prevail on the date of the
relevant transaction, minus transportation and selling costs.
Right to Requisition Minerals
In the event of martial law or a state of emergency, the
Kazakhstan government may requisition some or all of the minerals
owned by a subsoil user. Requisition may be in any amount necessary
to cover the needs of the state during the entire period of martial
law or the state of emergency. Minerals may be requisitioned from
any subsoil user regardless of the form of ownership. The state
shall guarantee compensation for requisitioned minerals either by
payment in kind, or by paying their monetary value to a foreign
subsoil user in freely convertible currency and to a domestic
subsoil user in the national currency at prices not exceeding those
applied by subsoil users in transactions related to the relevant
minerals that prevail on the date of requisition, minus
transportation and selling costs.
The State's Pre-Emptive Right
The Subsoil Law differentiates between subsoil use rights and
the objects related to the subsoil use rights (the "Objects").
Objects are participatory interests (shares, securities confirming
title to shares and securities convertible into shares) in a legal
entity holding the subsoil use right, as well as a legal entity
which may directly and/or indirectly determine and/or influence
decisions adopted by a subsoil user, if the principal activity of
such entity is related to subsoil use in the Republic of Kazakhstan
(the "Controlling Legal Entity").
The concept of the state's pre-emptive right, being the right of
the Republic of Kazakhstan to acquire any subsoil use right (or its
part) or shares in a subsoil user company or its Controlling Legal
Entity which are being alienated (the "State's Pre-Emptive Right"),
was first introduced in the Previous Subsoil Law in 2004 and was
transferred to the Subsoil Law in respect of both the subsoil use
rights and the Objects. Although the State's Pre-Emptive Right does
not currently apply to the Company, this right gives the state a
right of first refusal in respect of any such transfers on terms
"no worse than those offered by other prospective purchasers" and
the Company may become subject to it in the future.
Prior to the amendments to the Subsoil Law introduced on 29
December 2014 (enacted 11 January 2015), the State's Pre-Emptive
Right applied retroactively to all existing contracts, as well as
prospectively to future contracts. Following the above-mentioned
amendments, the State's Pre-Emptive Right now applies to those
contracts (whether existing or future) related to the deposits and
subsoil use plots of strategic importance. With certain limited
exemptions, the State's waiver of its pre-emptive rights would need
to be obtained for any transfer of the subsoil use rights or the
Objects related to those deposits and subsoil use plots, including
any initial and secondary public offerings of shares on organised
securities markets. The deposits and subsoil use plots of strategic
importance are designated by the Kazakhstan government and the
current list includes 361 hydrocarbon, minerals and underground
water deposits categorised as strategic. While the Kounrad mine in
Kazakhstan is not currently included on the list, the Kazakhstan
government is entitled to amend this list at their discretion.
For a copper deposit to be designated as a strategic deposit,
one of the following criteria must be satisfied:
A. the deposit is part of a group of deposits which are
developed by one person or a group of affiliated persons under one
or several subsoil use contracts, the aggregate amount of
recoverable resources of which exceed 5 million tonnes; or
B. the deposit is important from the state's national security
and defence perspective and development of which:
i) could pose or poses a threat to the economic interest of Kazakhstan;
ii) leads to decrease of the defence capacity of the state or a
threat of state borders a inviolability; or
iii) leads to sharp deterioration of ecological situation,
including the quality of potable water, natural disasters and other
force-majeure circumstances of natural and technogeneous nature
and/or epidemic.
The Consent for Transfers of Subsoil Use Rights and Objects
Subsoil use rights (or a share therein) and the related Objects
can only be transferred, including in cases of foreclosure
(including a pledge), with the consent of the Competent Body in
accordance with the procedure established by Article 37 of the
Subsoil Law.
A credit facility secured by a pledge of the subsoil use right
shall only be allowed for the purposes of furthering is subsoil
use, or for further processing, provided that such processing is
stipulated in the relevant subsoil use contract and is carried out
within the territory of Kazakhstan by the subsoil user itself or by
a wholly-owned subsidiary.
The admission to trading of any Objects which are shares or
other securities confirming title to shares or convertible
securities on an organised securities market, including through an
initial public offering or an additional placement of such Objects,
requires prior consent of the Competent Body.
The Subsoil Law, however, provides that the Competent Body's
consent shall not be required in the following instances:
A. transactions for alienation of shares or other securities
confirming title to shares, or securities convertible into shares
which are traded on an organised securities market and are issued
by a subsoil user legal entity or a Controlling Legal Entity;
B. the transfer, in full or in part, of the subsoil use right and/or an Object:
i) to a subsidiary in which at least a 99 per cent.
participatory interest (shareholding) is held directly or
indirectly by the subsoil user, provided that such subsidiary is
not registered in a jurisdiction with a preferential tax treatment
(the so-called "black listed offshore jurisdictions"); and
ii) between legal entities in each of which at least a 99 per cent. participatory interest (shareholding) is held directly or indirectly by one and the same person, provided that the acquirer of all or part of the subsoil use right and/or the Objects is not registered in a jurisdiction with a preferential tax treatment; or
iii) the transfer of shares in a subsoil user legal entity if,
as the result of such a transfer, an entity acquires the right to
directly or indirectly dispose less than 0.1 per cent. of the
participatory interests in the charter capital of the subsoil user
or the Controlling Legal Entity.
C. transfer of shares in a subsoil user legal entity if, as the
result of such a transfer, an entity acquires the right to directly
or indirectly dispose less than 0.1 per cent. of the participatory
interests in the charter capital of the subsoil user or the
Controlling Legal Entity.
In these instances, the state's waiver of its pre-emptive rights
(if applicable) shall not be required either.
Any transactions or other related actions effected without the
required consent of the Competent Body are null and void.
Termination of Subsoil Use Contracts
According to Article 72.3 of the Subsoil Law, the Competent Body
may prematurely and unilaterally terminate a subsoil use
contract:
A. if the subsoil user fails to eliminate more than two
violations of obligations under its subsoil use contract within the
time set in the Competent Body's notice;
B. in the event of a transfer of a subsoil use right and/or of
an Object by the subsoil user without the Competent Body's prior
consent when such consent is required; and
C. if the subsoil user performs less than 30 per cent. of its
financial obligations under the contract during two consecutive
years.
Treatment of Subsoil Use Contracts in Relation to Deposits and
Subsoil Use Plots of Strategic Importance
The Competent Body has the right to initiate reviews of the
terms a subsoil use contract related to deposits and subsoil use
plots of strategic importance and to require amendments and/or
additions to such contracts in circumstances where the activities
of the subsoil user in the contract area lead to material changes
in the economic interests of the state which create a threat to
national security. In this regard the Subsoil Law entitles the
Competent Body to unilaterally terminate the subsoil use contract
related to a strategic deposit if: (i) within two months from the
date of the Competent Body notification, the subsoil user does not
provide its written consent, or refuses, to negotiate the
amendments and/or additions to the subsoil use contract; (ii)
within four months from the date when the subsoil user provided its
consent to start negotiations, the parties fails to reach an
agreement on the subsoil use contract amendment; or (iii) the
parties fail to execute the respective amendments and/or additions
to the subsoil use contract within six months from the date when an
agreement was reached with the Competent Body to restore the
state's economic interests. Since the enactment of the Subsoil Law,
according to publicly available information, the Kazakhstan
government has never officially invoked this provision with respect
to any of the strategic deposits. In any event, Kounrad is
currently not listed as a strategic deposit.
Procurement Rules
The Subsoil Law generally requires subsoil users to comply with
certain local content requirements to procure Kazakhstan produced
goods, works and services from local suppliers, as well as employ
Kazakhstan citizens. The share of local content is detailed in
subsoil use contracts, including those executed prior to the
enactment of the Subsoil Law.
In connection with Kazakhstan's accession to the World Trade
Organization a number of amendments to Kazakhstan legislation,
including the Subsoil Law, were introduced modifying, inter alia,
the procurement and local content regulation regime. For instance,
according to the said amendments, subsoil users party to contracts
executed prior to 1 January 2015, are obliged to procure Kazakhstan
produced goods until the earlier of:
A. 1 January 2021; or
B. expiration of the subsoil use contract,
provided, however, that if the subsoil use contract's duration
term is modified, the local content obligations in respect of
procurement of locally produced goods shall be excluded from the
contract.
22.2.2 Environmental regulation
The mining sector is heavily regulated from an environmental
perspective and the conduct of mining operations requires a number
of permits and approvals. An environmental permit ("EP") is a
special permit that grants a subsoil user a temporary right to emit
or disburse emissions into the atmosphere and discharge waste
substances into surface and underground waters. EPs contain the
conditions governing the subsoil user's impact on the environment.
Companies which have an impact on the environment (through
pollution, discharging waste, etc.) are required to obtain an EP.
An EP is normally issued for up to ten years or until there is a
change in either the technology used by the EP holder or the terms
and conditions set forth in the EP. Environmental compliance is
monitored either by regional executive authorities or by the
Ministry of Energy of the Republic of Kazakhstan, whose Committee
of Environmental Regulation and Control is in charge of enforcing
environmental legislation. Fees for pollution of the environment
are established by the tax code and may be increased (within
certain limits) by local representative bodies (maslikhat). The
holding of an EP does not exempt a subsoil user from liability to
pay compensation for damage to the environment caused by its
activities, or from any administrative or criminal liability.
Annual renewal is subject to compliance with the permit's terms and
conditions, and applicable environmental laws.
In February 2009, Kazakhstan ratified the Kyoto Protocol to the
United Nations Framework Convention on Climate Change. Ratification
of the Kyoto Protocol, which is intended to limit or discourage
emissions of greenhouse gases such as carbon dioxide, had an impact
on environmental regulations in Kazakhstan.
Following the ratification, the Kazakhstan Environmental Code
(dated 9 January 2007, as amended) (the "Environmental Code") was
amended to set out a framework for climate change control in
Kazakhstan, which came into force on 1 January 2013, including in
relation to obtaining quotas for greenhouse gas emissions by legal
entities emitting more than 20,000 tonnes of carbon dioxide in a
year, quota trading and development of the national quota
allocation plan. However, in response to industry complaints on the
imperfections of the legal mechanism put in place for the
allocation of quotas and trading, and difficulties with adherence
to the same, in April 2016 Kazakhstan suspended the application of
a number of provisions of the Environmental Code related to
greenhouse gas emissions until 1 January 2018. The application of
the national allocation plan for 2016 to 2020 and the quotas
distributed among the companies were also suspended until 1 January
2018. The Ministry of Energy is currently reconsidering the
mechanisms in place under the greenhouse gas emissions
regulation.
In November 2016 Kazakhstan ratified the Paris Agreement under
the United Nations Framework Convention on Climate Change. The
impact of the ratification remains to be seen.
Water use permits
The Water Code, dated 9 July 2003, No. 481 (the "Water Code")
aims at implementing governmental policy in relation to the
utilisation and protection of water resources. The Water Code sets
out obligations for the use of water and discharge of certain
materials into the water, on the basis of water use permits
("WUP"). A WUP can be suspended if the terms specified in the
relevant WUP are breached, and may be withdrawn if the violations
are not cured. Such terms include monitoring the quality of
underground water, submitting statistical reports and monitoring
reports, complying with requirements relating to water protection
during mining operations and regular checking of equipment.
Enforcement
Enforcement of environmental requirements is effected by various
officials of the Ministry of Energy and its territorial divisions
who have the authority to supervise environmental compliance and
initiate judicial proceedings. Pursuant to the Environmental Code,
state officials, in their enforcement of environmental protection
measures, are entitled to, inter alia:
-- inspect facilities and take measurements and/or samples for analysis;
-- request and receive documentation, results of analysis and other materials;
-- initiate procedures relating to the: (i) recalling of
licences; (ii) termination of contracts for the use and taking of
natural resources; and (iii) suspension and annulment of
environmental and other permits in the event of violation of the
terms of such permits;
-- issue orders to individuals and legal entities on elimination
of violations of environmental laws;
-- file claims to courts with respect to violations of Kazakhstan laws; and
-- propose to the Competent Body to suspend or terminate a
subsoil use contract in certain circumstances.
22.2.3 Anti-monopoly regulation
Anti-monopoly regulation in Kazakhstan is evolving and has
undergone significant changes in the recent years shifting from
strict and heavy pricing and tariffs regulation to being more
focused on the supervision and monitoring of fair competition.
Certain transactions that qualify as economic concentration are
subject to the prior notification to or approval by the Committee
for Regulation of Natural Monopolies, Competition Protection and
Consumers' Rights Protection of the Ministry of National Economy
(the "Anti-Monopoly Committee"). The following transactions qualify
as economic concentration:
A. company reorganisation through merger or consolidation;
B. acquisition by a person of voting shares (or participation
interests in charter capital or participatory shares) of a company
where such person gains the right to dispose of more than 50 per
cent. of such shares if prior to the acquisition such person did
not possess shares in the company or possessed 50 per cent. of the
voting shares or less. This, however, does not apply to the
formation of a new company;
C. acquisition by a person of another company's fixed production
assets and/or intangible assets into ownership, possession and use,
including in payment of charter capital, if the book value of the
property in question exceeds 10 per cent. of the book value of the
fixed production assets and intangible assets of the company
alienating or transferring the property;
D. acquisition by a person (including on the basis of a trust
management agreement, joint operation agreement or agency
agreement) of rights which allow such person to issue binding
instructions to the other person for the conduct of its business
activities or to perform the functions of its executive body;
or
E. participation of the same individuals in the executive
bodies, boards of directors, supervisory boards or other management
bodies of two or more companies, provided that such individuals
determine the terms of business activities conducted by such
companies.
Approval or the notification of the Anti-Monopoly Committee is
required when the aggregate book value of assets or goods turnover
for the previous year of companies involved in the transaction
exceed ten times the monthly calculation index (which is currently
approximately US $70 million). Either of the above transactions
being effected within one group of entities does not require
approval or notification to the Anti-Monopoly Committee.
Transactions conducted in the absence of the Anti-Monopoly
Committee's consent, where such was required, and which result in
the creation or enhancement of a dominant or monopolistic position
of a market participant and/or the restriction of competition may
be invalidated by the court on the basis of an action brought by
the Anti-Monopoly Committee.
A company is deemed to occupy a dominant position if its market
share is equal to or exceeds a threshold of 35 per cent., provided
that all of the following circumstances are true in respect of such
entity: (i) possibility of unilaterally determining the prices and
having a decisive influence on the general conditions of a
product's sale in the market; (ii) the lasting duration of the
entity's ability to have a decisive influence on the general
conditions of a product's sale in the market; and (iii) if there
are economic, technological, administrative or any other
restrictions to access the market. Notwithstanding the
above-mentioned circumstances, an entity would be considered to
occupy a dominant position if its market share is 50 per cent. or
more.
In addition, if three or fewer entities in a relevant market
hold an aggregate market share of 50 per cent. or more, or if four
or fewer entities in a relevant market hold an aggregate market
share of 70 per cent. or more, each is deemed to hold a dominant
market position, provided that such entities meet all of the
following criteria: (i) the market share remains the same for a
year or longer (or for the term of a certain market's existence);
(ii) the product sold or purchased by such entity cannot be
replaced with another product; and (iii) the pricing information
for such product or the conditions of its sale are available to the
general public. If an entity holds a market share not exceeding 15
per cent. of the relevant market, such entity shall not be deemed
to hold a dominant market position.
22.3 Summary of Key Agreements
22.3.1 The Kounrad Contract
The Kounrad Contract was entered into by and between MEMR and
Saryarka on 20 August 2007 and governs the subsoil use terms in
respect of the Kounrad asset. The Kounrad Contract was duly
approved by the necessary competent authorities and registered with
MEMR under registration number 2447.
On 6 September 2007, Sary Kazna Limited Liability Partnership
("Sary Kazna") and Saryarka entered into: (i) a joint operating
agreement, which was replaced by a joint operating agreement dated
16 August 2010 (the "Kounrad JOA") and (ii) the agreement for
transfer of the subsoil use rights. Those two agreements provided
for the transfer of 60 per cent. of the subsoil use rights under
the Kounrad Contract to Sary Kazna.
On 23 May 2014, another agreement for transfer of the subsoil
use rights was entered into between Sary Kazna and Saryarka whereby
Sary Kazna acquired the remaining 40 per cent. of the subsoil use
rights under the Kounrad Contract.
The initial term of the Kounrad Contract is 27 years from the
date of its registration, i.e. until 20 August 2034. This term
comprised two years of exploration and 25 years of production.
22.3.2 Amendments to the Kounrad Contract
As at the date of this announcement the Kounrad Contract
includes nine amendments. Amendment No. 1 dated 15 November 2007
formalised the transfer of 60 per cent. of the subsoil use right
under the Kounrad Contract from Saryarka to Sary Kazna.
Amendment No. 2 dated 14 April 2009 was concluded in connection
with the adoption of the new Tax Code on 10 December 2008 which
introduced a new tax regime and taxes applicable to subsoil users,
including Sary Kazna and Saryarka under the Kounrad Contract.
Amendment No. 3, executed on 2 September 2010, extended the
exploration period for a further two years to expire on 20 August
2011 while reducing the production period from 25 to 23 years. In
addition, amendments in respect of new reporting procedures in
relation to local content in goods, works and services and
Kazakhstan personnel were introduced. Amendment No. 3 also
formalised that the Ministry of Industry and New Technologies
became the successor of MEMR in respect of the mineral sector.
On 08 November 2013 Amendments No. 4, No. 5 and No. 6 were
concluded relating to: (i) commercial discovery; (ii) extension of
the exploration period; and (ii) partial assignment of the Kounrad
Contract in connection with transfer of 40 per cent. stake in the
project from Saryarka to Central Asia Investment Consulting Company
LLP, respectively. In accordance with these amendments, it was
agreed to:
1) subject the Kounrad Contract to the effect of, at that time,
the newly introduced Subsoil Law;
2) approve a new work programme for the first five years of the production period;
3) extend the exploration period for two years to 20 August 2013
and approve a new work program for the extended exploration period;
and
4) introduce a new requirement to finance research and
development works by Kazakhstan producers in the amount of not less
than 1 per cent. of the aggregate annual income derived from
operations under the Kounrad Contract.
Amendment No. 7 made on 20 March 2014 reflected the partial
assignment of the Kounrad Contract in connection with the transfer
of 40 per cent. in the Kounrad Contract from Central Asia
Investment Consulting Company LLP to Mr Kenges Rakishev.
Amendment No. 8 dated 6 May 2014 reflected further sale of the
40 per cent. stake in the Kounrad Contract from Mr Rakishev to Sary
Kazna, thus Sary Kazna became the sole holder of the Kounrad
Contract.
Amendment No. 9 executed on 28 November 2015 reflected the
approval of full reserves of the Kounrad mine and full transition
to the production stage with the new work program. In addition,
amendments were made to reflect that the Ministry for Investments
and Development became the successor of the Ministry of Industry
and New Technologies.
22.3.3 Financial obligations
The main financial obligations under the Kounrad Contract are as
follows:
A. Sary Kazna is required to invest not less than approximately
US$195,576,220 during the production period, starting from
2015;
B. Sary Kazna is required to allocate not less than 1 per cent.
of the total expenditures during the production period to
professional training of local personnel involved in the works
under the Kounrad Contract. In the event the amounts to be spent
exceed the actual demands for the professional training of local
personnel, Sary Kazna is required to use the remaining amount to
finance the priority objectives of the secondary education system
of Kazakhstan;
C. Sary Kazna is required to participate in the Karaganda
region's social infrastructure development by contributing
US$30,000 each year during the exploration period and US$40,000
each year during the production period;
D. Sary Kazna is required to finance research and development
works by Kazakhstan producers in the amount of no less than 1 per
cent. of the aggregate annual income derived from operations under
the Kounrad Contract; and
E. Sary Kazna is required to form, and make deductions to, a
relinquishment fund the aim of which is to finance the restoration
of the land which is the subject of subsoil use operations under
the Kounrad Contract. The relinquishment fund is formed by means of
opening a deposit account in a commercial bank, and the annual
deductions shall be equal to 1 per cent. of the amount of
investments during the exploration period and 1 per cent. of
operational costs during the production period.
22.3.4 Tax Obligations
Pursuant to the Kounrad Contract (as amended), Sary Kazna is
required to pay taxes and other obligatory payments to the budget
in accordance with the laws in force as at the time the tax
obligations arise. The current tax laws provide for, inter alia,
the following specific taxes related to subsoil use:
A. a commercial discovery bonus at the rate of 0.1 per cent. is
required to be paid on the value of the recoverable reserves
determined by the Competent Body. Such value will be determined on
the world prices in the Metal Bulletin published by Metal Bulletin
Journals Limited, or the Metal-pages published by Metal-pages
Limited;
B. an excess profits tax is payable on a scale ranging from 10
per cent. to 60 per cent. depending on the ratio between net income
and applicable deductions during a tax year. Excess profit tax is
payable if the net profit exceeds 25 per cent. of applicable
deductions in a reporting period;
C. a mineral extraction tax will be payable at the rate of 5.7
per cent. of the market value of copper existing in the mined
minerals. Such value will be based on the world prices in the Metal
Bulletin published by Metal Bulletin Journals Limited, or the
Metal-pages published by Metal-pages Limited; and
D. historical expenses are payable in accordance with the tax
laws of Kazakhstan. In accordance with the Agreement on Acquisition
of Information concluded between the Geological and Subsoil Use
Committee of MEMR and Saryarka on 18 June 2007, no historical costs
will be charged for the state geological information
22.3.5 Other material provisions of the Kounrad Contract
The Kounrad Contract relates to the exploration and production
of the mineral copper. Sary Kazna is obliged to use new
technologies in exploration and mining in accordance with best
international mining practice. After completion of the exploration,
the contract area was required to be returned to the state except
for the areas where commercial discovery has been made. Following
completion of the exploration period, Sary Kazna was required to
arrange for the explored copper resources to be approved by the
State Committee for Reserves, GKZ (Republic of Kazakhstan) and this
approval was obtained.
The state has a pre-emption right to acquire copper from Sary
Kazna. The terms, volume and price of the acquired copper will be
determined by a separate agreement between the parties. Sary Kazna
may not assign its rights and obligations under the Kounrad
Contract to a third party without the prior approval of the
Competent Body.
Sary Kazna is required to comply with certain local content
requirements in respect of the purchase of goods and engagement of
personal.
Sary Kazna must evaluate the long term ecological effect of its
subsoil use activity.
22.3.6 Land lease under the Kounrad Contract
Pursuant to the Decision of the Karaganda Region Akimat No.
08/05 of 6 April 2009 (as amended on 11 July 2011), Sary Kazna was
granted a temporary land use right for a land plot of 1,865.58
hectares for a fee until 20 August 2034. The purpose of this land
lease is to explore and produce copper at the Kounrad mine. On 27
April 2009, Sary Kazna entered into Land Plot Lease Agreement No.
82-08/05 (as amended on 20 July 2011) with the Land Relations
Department of Karaganda Region. The agreement has been registered
with the relevant justice authorities.
22.3.7 Shuak Framework Agreement
On 22 November 2016, CAML signed a framework agreement to
acquire an 80 per cent. effective interest in the subsoil use
contract for the Shuak exploration property in northern Kazakhstan.
Under the terms of the framework agreement, on 22 February 2017,
CAML reduced its interest in Shuak BV to 80 per cent., with 20 per
cent. effectively being held by local partners. The transfer of the
subsoil use contract to an entity wholly held by Shuak BV completed
in August 2017. The consideration for this acquisition is an
investment in exploration activities of US$2 million over five
years, subject to continued positive results from exploration
activities and the general economic outlook for commodity
prices.
22.3.8 Traxys Offtake Agreement
On 21 October 2016 KCC LLP (as seller) entered into an offtake
agreement with Traxys (as buyer). Pursuant to this agreement, the
seller gave the buyer the right to buy copper cathode from its
Kazakh plant. The buyer is entitled to a minimum of 90 per cent. of
production from 1 November 2016 to 31 December 2018.
The price payable for the offtake is calculated by reference to
market prices or three month seller quotations, less a discount. A
quality discount may also be applicable depending on the copper
content in the cathode.
Pursuant to, and as a condition of, the Debt Financing, with
effect from Completion, the term of this agreement will be extended
to five years from Completion and the buyer will be entitled to
approximately 95 per cent. of annual production.
23. Information On Macedonia And Macedonian Mineral Policy & Law
23.1 Overview of Macedonia
23.1.1 Geography and Population
Macedonia is located in the central part of the Balkan Peninsula
and shares common borders with Albania to the west, Bulgaria to the
East, Greece to the South and Serbia and Kosovo to the North. The
country's total area is 25,713 square kilometres and, in January
2017, it had a population of approximately 2.08 million people. The
capital, Skopje, is the largest urban centre with over 500,000
inhabitants.
23.1.2 Government
Macedonia is a republic and its current constitution was adopted
on 17 November 1991. The president is the head of state and
commander-in-chief of the army. The President is directly-elected,
by secret ballot, for a maximum of two five-year terms. The current
President, Mr Gjorge Ivanov, is within his second term, which began
in May 2014. The national legislative body is the Parliament of
Macedonia and is comprised of up to 123 members elected by popular
vote who serve a four-year term. The most recent parliamentary
elections were held in December 2016.
Executive power rests with the government. The government is
headed by a Prime Minister, who is appointed by the parliamentary
majority. The current prime minister is Mr Zoran Zaev who has
served since May 2017.
Macedonia has 80 municipalities headed by mayors elected every
four years, 10 of which constitute the city of Skopje, a distinct
unit of local self-government. Municipal councils, the local
legislative bodies, determine the mayors' executive functions.
Macedonia has been in political turmoil in recent years, fuelled
by tension between the two major political parties, the
conservative, Christian democratic VRMO-DPMNE party (the major
party in the coalition government from 2006-2016), and the Social
Democratic Union of Macedonia (SDSM). Following a snap election in
December 2016 and a protracted period of political uncertainty, on
31 May 2017, the leader of the Social Democrat party, Mr Zoran
Zaev, formed a coalition between his own party, the Democratic
Union for Integration and the "Alliance for the Albanians"
coalition in order to serve as the official government. The
election of the new government has brought stability to the
political situation in the country, and the policy focus of the new
coalition government includes progressing Macedonia's EU and NATO
accession processes, encouraging economic development, and raising
living standards.
23.1.3 Economic Overview
The real GDP growth in 2015 was 3.8 per cent. compared to 3.5
per cent. in 2014. The real GDP growth for 2016 and 2017 is
estimated to be 3.2 per cent. per year, putting the country in the
top five in Europe in terms of economic growth. In 2016, the
average inflation rate was -0.2 per cent. The current account
deficit in 2016 was 3.1 per cent. of the GDP, compared to 2 per
cent. in 2014, caused by the widening primary income deficit.
The historically high official unemployment rate has slightly
decreased to 22.9 per cent. in 2017 from 24 per cent. in 2016, 26.8
per cent. in 2015 and 28 per cent. in 2014 (although it is widely
assumed that the actual unemployment is lower due to the importance
of the informal economy).
Despite a series of political challenges during the past two
years, the economy grew and benefitted from accommodative policies,
low commodity prices, sustained foreign investment and improving
labour market conditions. An extended period of accommodative
fiscal policy has helped support domestic demand, but has also
depleted policy space to counter further shocks.
23.2 Mineral Policy and Law in Macedonia
23.2.1 General
The mining sector and activities in the Republic of Macedonia
are mainly regulated by the Minerals Law. The Minerals Law serves
as the overriding law with respect to mining related legal
issues.
Apart from the Minerals Law and its bylaws, the following laws
and their corresponding bylaws amongst others also regulate certain
aspects of the mining sector in Macedonia:
(A) the Law on Concessions and Public Private Partnerships ("Concessions Law");
(B) the Law on Trade Companies;
(C) the Law on General Administrative Procedure;
(D) the Law on Safety and Health at Work; and
(E) the Law on the Environment.
23.2.2 Minerals Law
The Minerals Law differentiates three general phases for the
purposes of mining regulation:
(A) the surveying geological explorations phase;
(B) the exploration phase;
(C) the exploitation phase.
The first two phases have been completed at the SASA Mine and
the operations have been in the exploitation phase for some time
now. Any company that intends to perform exploitation of mineral
resources within the Republic of Macedonia must first obtain an
exploitation concession. The term as well as the surface area of
such exploitation concessions vary depending on the type of mineral
resource in question. Exploitation concessions for metal minerals
can be given for a period of up to 30 years, with a possible
extension period of another 30 years. The surface area covered by
exploitation concessions for metal minerals may be up to 30 square
kilometres.
The exploitation concession allows the entity that has been
awarded such concession and has concluded an exploitation
concession agreement with the Ministry of Economy ("MoE") to
exploit the mineral resources (that are otherwise owned by the
government of the Republic of Macedonia) within a certain surface
area for a specified period of time at the expense and risk of the
concessionaire. The MoE can award exploitation concessions at the
request of an interested party (i.e. the owner of the results
contained in an exploration report from a completed exploration) or
after publishing a public call and holding an electronic
auction.
The concessionaire needs to initiate the procedure and obtain
the following property rights, depending on the owner of the land
for which the concession was awarded:
(A) for land owned by legal entities and individuals, the concessionaire needs to initiate an expropriation procedure and obtain ownership of such land; and
(B) for land that is owned by the Republic of Macedonia, the
concessionaire must request and obtain a right of use.
Concessionaires also have various obligations with respect to
labour and health and safety at work matters as well as
environmental issues.
Once an entity obtains a concession, it must also obtain an
exploitation licence from the MoE before commencing any
exploitation activities. The concessionaire must apply for an
exploitation licence within four years after the conclusion of the
exploitation concession agreement. The concessionaire is obliged to
begin the exploitation activities within three years as of the
issuance of the exploitation licence. If a concessionaire intends
to further explore a certain surface area in order to broaden the
concession area with an area neighbouring the original concession
area, it can request that the MoE issues a license for geological
exploration.
Lastly, a concessionaire can perform the following activities
only after obtaining an additional mining project licence issued by
the MoE:
(A) mining activities on new horizons or ponds;
(B) construction of new export, ventilation and researching shafts;
(C) significantly changing the method of excavation;
(D) reconstruction of mines and new dumpsites;
(E) reconstruction of large landslides; or
(F) changes in terms of land reclamation.
An annual fee is payable for use of the location or the surface
amounting MKD 180,000 per square kilometre (approximately EUR 3,000
per square kilometre) for surface and/or underground exploitation
of metallic minerals. Furthermore, a royalty amounting 2 per cent.
of the market value of the metal per tonne for each tonne of metal
concentrate exploited must also be paid.
The Minerals Law prescribes an obligation to obtain a prior
approval and payment of a fee in the case of a transfer of an
exploitation concession or a change of ownership in the
exploitation concessionaire's shares. The fee payable in connection
with obtaining approval for the concession transfer fee and/or the
share transfer is equal to 7 per cent. of the value of the
exploitation concession. The basis on which the value of the
exploitation concession is determined is not prescribed in detail
in the Minerals Law.
23.2.3 Environmental regulation
Given the environmental impact of mining activities, they are
subject to strict regulation and inspection in Macedonia. The basic
law which applies to environmental issues is the Macedonian Law on
the Environment ("Environment Law"). It regulates the rights and
duties of the Republic of Macedonia ("RoM"), the municipalities,
the City of Skopje and the municipalities in the city of Skopje, as
well as the rights and duties of the legal entities and natural
persons in providing conditions for protection and improvement of
the environment. The Environment Law prescribes that if a proposed
project might have a significant impact on the environment, then an
Environmental Impact Assessment Study ("EIAS") must be prepared and
submitted it to the Ministry of Environment and Physical Planning
("Ministry of Environment"). The Ministry of Environment ultimately
needs to approve any such project after a report and public hearing
in relation to the relevant EIAS.
Certain activities can be performed only if the installation
obtains an integrated environmental permit. This permit can be
either (i) an A-Integrated Environmental Permit ("A-Permit"); or
(ii) B-Integrated Environmental Permit ("B-Permit"). The A-Permit
is issued by the Ministry of Environment and the B-Permit is issued
by the relevant municipality, the city of Skopje or the Ministry of
Environment. Mining activities can be performed only after an
A-Permit has been obtained for the operation of an installation
performing one or more activities stated in the Environmental
Permit Decree and only up to the level approved in the A-Permit.
The A-Permit contains data for the operator and the installation,
as well as mandatory conditions related to emission levels,
protection measures of individual media and areas of the
environment, and the manner of performing monitoring by the
operator of the installation.
The emissions of the installation specified in the A-Permit must
not exceed the prescribed emission levels. During the validity of
the A-Permit and for five years after its expiration, the operator
must keep all documents and data related to the request, issuance
and monitoring provided by the mandatory conditions in the A-Permit
and make them available at the request of the Ministry of
Environment and the State Environmental Inspectorate. Also, the
operator must regularly notify and report to the Ministry of
Environment. An A-Permit may be modified ex officio or at the
request of the operator or may be transferred fully or in part
under certain conditions. The A-Permit can be revoked if the
operator (i) breaches more than three times the mandatory
requirements contained in the A-Permit, as determined by the State
Environmental Inspectorate; (ii) has made changes to the
installation without obtaining permission from the competent body;
or (iii) it does not perform the activity to the extent and at the
time specified in the A-Permit. The holder of the permit must pay
yearly fees in respect of the permit.
Moreover, if certain activities are performed in a system in
which hazardous substances are present in quantities greater than
or equal to the prescribed levels, the operator must take all
measures necessary to prevent accidents and to limit their
consequences on the environment and on human life and health, and
prepare a Plan for the prevention of major accidents.
In 2004 RoM ratified the Kyoto Protocol to the United Nations
Framework Convention on Climate Change which sets internationally
binding emission reduction targets. In order to implement the
National Climate Change Mitigation Plan ("National Plan"), and
involve RoM in global efforts to reduce climate change and
implement the commitments under the Kyoto Protocol, the Ministry of
Environment evaluates and approves projects under the clean
development mechanism established in the KP.
Water use permits
The Macedonian Law on Waters ("Waters Law") regulates the issues
pertaining to surface waters, lakes, accumulations and springs,
groundwaters, waterside land and water habitats and their
management, water resources management facilities and services;
organisational set up and financing of water resources management,
as well as the conditions and the procedures under which the waters
can be used and discharged.
For the purpose of achieving the public interest in water use,
as well as for the purpose of exercising the rights and obligations
of the legal entities and natural persons to use or discharge
waters, the right of water use from bodies of waters and the right
to discharge into the bodies of waters, a water right is granted to
the legal entities and natural persons. The holder of water right
shall have the right to freely and fully use and dispose with the
water over which it has acquired the water right. This water right
is acquired on the basis of a water use permit and water discharge
permit which is issued for a period not longer than 10 years,
unless provided otherwise. The water right that derives from and is
exercised under the conditions and in the manner determined in the
permit can be temporarily restricted if it (i) endangers human
health; (ii) endangers the natural balance of the aquatic
ecosystems and the water dependent ecosystems; (iii) restricts the
general water use; and (iv) has a harmful impact on the protected
areas determined by the regulations on protection of nature.
The operators who discharge wastewater are obliged to install
instruments for measuring the discharged quantities of water and
analysing their quality and to maintain the instruments in proper
condition, to keep records of the performed measurements and to
submit these data to the Ministry of Environment.
Water consents are issued for construction of new, or
reconstruction or extension of existing, facilities that are
located in or beside the surface waters, facilities that cross
above or under the surface waters or facilities that are located in
vicinity of surface waters or waterside lands and which may affect
the water regime. They determine the water management conditions
that must be realised during the construction. Only after obtaining
this consent, the competent authorities may issue a construction
permit for the concerned facility.
Supervision
The competent environmental supervision authority in RoM is the
Ministry of Environment, while the inspection supervision is
conducted by the State Environmental Inspectorate. Among other
matters, the state inspector has the following
responsibilities:
(A) to determine whether installations that meet the prescribed
norms and standards from the environmental protection system are
being constructed or reconstructed;
(B) to determine whether pollutants and substances in the
environment that exceed the prescribed norms are produced and
released, as well as whether they are handled in the prescribed
manner and order their withdrawal from the market;
(C) to determine whether monitoring of the sources of emission
and the technological process that pollutes one or more
environmental media, emissions, or the utilisation of natural
resources;
(D) to determine whether monitoring is carried out in accordance with the A-Permit;
(E) to determine whether the emissions of the substances
specified in the A-Permit are discharged according to the specified
limit values; etc.
If the environmental inspector finds that an operator has
breached its environmental obligations, it can issue a decision
prescribing measures to eliminate the causes of such environmental
pollution and establishing certain obligations for the operator.
For some misdemeanours, an applicable misdemeanour procedure is
conducted and a misdemeanour fine and/or sanction is issued by the
Ministry of Environment. If an operator's actions cause ecological
damage, the operator may face claims in civil proceedings. Finally,
if there is significant environmental damage, the operator could
face criminal charges.
23.3 SUMMARY OF KEY AGREEMENTS-THE SASA MINE
23.3.1 Concession Agreement
A concession agreement was entered into between Rudnik SASA
DOOEL and the Republic of Macedonia on 12 December 2014 (the "SASA
Concession Agreement"). The SASA Concession Agreement regulates the
rights and obligations of Rudnik SASA DOOEL and the Macedonian
government arising from the award of the concession to exploit lead
and zinc ore mineral resources at the SASA Mine near the town of
Makedonska Kamenica. The concession is valid until 28 September
2030, with a possibility to be extended for a further 30 years.
Pursuant to the terms of the SASA Concession Agreement, Rudnik
SASA DOOEL was obliged to resolve certain issues pertaining to the
use of the land on which the mineral resources were located, such
obligations now having been fulfilled. The SASA Concession
Agreement also imposes a number of ongoing environmental and health
and safety obligations on Rudnik SASA DOOEL.Rudnik SASA DOOEL is
required to pay MKD 758,800 in fees per annum (payable on a
quarterly basis) for the use and exploitation of the concession
area, plus an additional exploitation fee of 2 per cent. of the
market value of lead/zinc per tonne of metal concentrate
produced.
The Republic of Macedonia performs continuous and regular
supervision of Rudnik SASA DOOEL's concession activity and its
compliance with its legal and contractual obligation. The Rudnik
SASA Concession Agreement automatically becomes invalid upon expiry
of the concession term, bankruptcy or liquidation of Rudnik SASA
DOOEL, unilateral termination by either party or otherwise in
accordance with the law.
A concession agreement is terminable by the Republic of
Macedonia following the occurrence of certain events, including
where: (i) prior approval from the Government of Macedonia is not
granted, or the payment of the related applicable fee is not made,
upon a transfer of the exploitation concession granted to the
concessionaire or a change of ownership in the concessionaire's
shares; (ii) the concessionaire loses the economical, technical or
operative capacities necessary to operation the concession in
accordance with law; (iii) the applicable environmental permits are
withdrawn or terminated; or (iv) there has been an interruption of
mining activities for a period exceeding one year.
The concession agreement is also terminable by the Republic of
Macedonia following the occurrence of the following events: (i) the
activity is carried out in an inappropriate or low quality manner;
(ii) the concessionaire has committed a material violation of the
provisions of the contract or of the laws and regulations
applicable to the contract; (iii) the concessionaire has terminated
or has caused the termination of the performance of the activity;
(iv) the concessionaire undergoes a merger, acquisition and
division without a written consent of the Government of Macedonia;
(v) the concessionaire gives the subject of the concession under
lease; (vi) the concessionaire starts the exploitation of minerals
before a permit for exploitation is granted; (vii) the
concessionaire does not act upon the measures imposed in the
procedure for supervision under the law; (viii) the concessionaire
does not submit a request for issuance of an exploitation permit
within the period prescribed by law; (ix) the concessionaire does
not start the exploitation of minerals within the period set out in
the law (unless due to force majeure event); (x) the concessionaire
has not made a geodetic survey and has not prepared a geodetic
survey report with calculation of the dug quantities of minerals or
has not submitted the geodetic survey report to the relevant state
administrative body for two consecutive years; (xi) the
concessionaire does not submit a report on the conducted testing of
the exploitation facilities for exploitation of the minerals for
two consecutive years; (xii) the concessionaire does not deliver
authentic data on the contents of the minerals in the concentrates,
i.e. the metals that are received in the processing process; or
(xiii) the concessionaire does not comply with the decision and the
measures in relation to environmental protection set out in the
environmental regulations.
23.3.2 Offtake Agreements
Lead and Silver Offtake Agreement
Lynx Metals entered into a lead concentrate sales agreement
executed on 19 December 2016 in its capacity as seller of lead
concentrates at the SASA Mine. This agreement provides for the sale
of an approximate total quantity of 44,000 wet metric tons (plus or
minus 10 per cent. at Lynx Metals' option) of lead concentrate.
This amount equates to approximately 3,666 wet metric tons per
month, plus or minus Lynx Metals' option.
Under the agreement, the buyer has an obligation to make a 90
per cent. provisional payment against Lynx Metals' provisional
invoice value on a bi-monthly basis, with final settlement within
three business days of presentation of the final invoice by Lynx
Metals.
Under the agreement, the buyer pays for a percentage of the
payable metals (being lead and silver) minus the charge for the
treatment of the lead and a charge for refining the Silver.
Pursuant to the Acquisition Agreement, the Sellers have also
agreed to enter into certain agreed form documents on Completion
including, amongst others, a deed of novation in respect of this
agreement pursuant to which Lynx Metals will transfer its rights
and obligations to Lynx Mining. In the event that such deed of
novation is unlikely to be executed prior to Completion, Lynx
Metals will continue to be the counterparty but all payments
received by Lynx Metals pursuant to this agreement will be held on
trust for the Purchaser and such payment shall be transferred to
the Purchaser.
First Zinc Offtake Agreement
Lynx Metals entered into a zinc concentrate sales agreement
executed on 19 December 2016 in its capacity as seller of zinc
concentrate at the SASA Mine. This agreement provides for the sale
of an approximate total quantity of 33,000 wet metric tons (plus or
minus 10 per cent. at Lynx Metals' option) of zinc concentrate.
This amount equates to approximately 2,750 wet metric tons per
month, plus or minus Lynx Metal's option.
Under the agreement, the buyer has an obligation to make a 90
per cent. provisional payment against Lynx Metals' provisional
invoice value on a bi-monthly basis, with final settlement within
three business days of presentation of the final invoice by Lynx
Metals to the buyer.
Under the agreement the buyer pays for a percentage of the
payable metal (being zinc) minus the charge for the treatment of
the zinc.
Pursuant to the Acquisition Agreement, the Sellers have also
agreed to enter into certain agreed form documents on Completion
including, amongst others, a deed of novation in respect of this
agreement pursuant to which Lynx Metals will transfer its rights
and obligations to Lynx Mining. In the event that such deed of
novation is unlikely to be executed prior to Completion, Lynx
Metals will continue to be the counterparty but all payments
received by Lynx Metals pursuant to this agreement will be held on
trust for the Purchaser and such payment shall be transferred to
the Purchaser.
Second Zinc Offtake Agreement
Lynx Metals entered into a second zinc concentrate sales
agreement executed on 19 December 2016 in its capacity as seller of
zinc concentrate at The SASA Mine. This agreement provides for the
sale of approximately 12,000 wet metric tons (plus or minus 5 per
cent. at Lynx Metals' option) of zinc concentrate.
Under the agreement, the buyer has an obligation to make a
provisional payment of 100 per cent of Lynx Metals' provisional
invoice at the later of 14 days after the load date or Lynx Metals'
presentation of the provisional invoice, certificate of analysis
and certificate of weight and moisture. Final payment settlement
must be made within three working days of receipt of the final
invoice and written notice of final weights, assays and prices. The
agreement also provides for an adjustment mechanism following the
determination of a benchmark price.
Under the agreement the buyer pays for a percentage of the
payable metal (being zinc) minus the charge for the treatment of
the zinc.
Pursuant to the Acquisition Agreement, the Sellers have also
agreed to enter into certain agreed form documents on Completion
including, amongst others, a deed of novation in respect of this
agreement pursuant to which Lynx Metals will transfer its rights
and obligations to Lynx Mining. In the event that such deed of
novation is unlikely to be executed prior to Completion, Lynx
Metals will continue to be the counterparty but all payments
received by Lynx Metals pursuant to this agreement will be held on
trust for the Purchaser and such payment shall be transferred to
the Purchaser.
Silver Purchase Agreement
On 1 September 2016, SASA DOOEL (as seller) entered into a
silver purchase agreement with Lynx Metals (as buyer). Lynx Metals'
rights and obligations under this agreement were novated to a third
party on 31 July 2017. The agreement governs the sale of refined
silver from SASA DOOEL to the third party and such refined silver
need not be physically produced at the SASA Mine and may be
purchased on the open market.
The agreement has a term of 40 years with automatic ten year
extensions thereafter. In consideration for the refined silver to
be delivered under the agreement, Lynx Metals paid US$22,064,374.42
to SASA DOOEL in advance. Deliveries of silver by SASA Mine to Lynx
Metals (and following novation, the third party) are offset against
the prepayment.
24. EXECUTIVE SUMMARY ON THE KOUNRAD MINE
A Competent Person's Report in respect of the Company's Kounrad
mine has been prepared by Wardell Armstrong International and is
available on the Company's website,
https://www.centralasiametals.com/investors/proposed-acquisition/.
The executive summary of the Competent Person's Report is set out
below.
Historically, copper ore was mined from the porphyry deposit at
Kounrad from 1936, originally by Balkhashtsvetmed and more recently
by Kazakhmys, which still owns the open pit mine and the
liabilities associated with restoration of the site. Importantly,
over the decades of production, detailed mining and processing
records have been maintained relating to the classification and
grades of the various waste dumps.
The sulphide ores were treated by conventional flotation, whilst
oxide ores and low--grade sulphide ores were stockpiled around the
site, to the eastern and western margins of the pit, namely the
Eastern and Western Dumps.
Currently, CAML operate an in situ dump leach operation from the
Eastern and Western Dumps that were left by the Soviet mining
operations, and CAML irrigate these dumps with acidic solutions "in
situ" and transport the copper pregnant leach solution to the
SX--EW plant for copper mineral processing and metal recovery.
In--situ acid leaching, is where acidic solutions are irrigated
on top of the dumps in order to recover soluble copper as a
pregnant solution. The copper pregnant solution flowing from the
base of the dumps is collected and pumped to a solvent extraction
and electro--winning (SX--EW) plant which is located at the Eastern
Dumps.
The higher--grade oxide ores which are restricted to the Eastern
Dumps provided the focus for initial production during 2012--2016.
Testwork on the potential methods for the extraction and recovery
of copper from the various waste dumps and leaching of the dumps
has been undertaken since the 1970s.
In 2006 CAML, through its Kazakhstan wholly owned subsidiary
Sary Kazna LLP, acquired 60% ownership of the sub--soil use
contract (contract number 2447) covering the Kounrad waste dumps
from the State Entrepreneurial Corporation Saryarka (SEC
Saryarka).
Having raised US$60 million at IPO in September 2010, CAML
completed construction of the Kounrad SX--EW copper plant in 2012,
on schedule and US$9m below budget. The plant began producing
copper in late April 2012.
CAML completed the acquisition of the remaining 40% of the
project in 2014.
Summary of Assets
Asset Holder Interest Status Licence Licence
(%) Expiry Date Area
--------- -------- --------- ---------------- ------------- -----------
Exploration 20th August
Kounrad CAML 100% and Processing 2034 22.5 Km(2)
========= ======== ========= ================ ============= ===========
Since operations on the Eastern Dumps commenced, CAML has
increased annual production each year and has now produced
approximately 61,000 tonnes of copper cathode.
Year 2012 2013 2014 2015 2016 H1 2017
CU (t) 6,586 10,509 11,136 12,071 14,020 7,027
====== ======= ======= ======= ======= ========
In May 2015, CAML successfully completed the Kounrad Stage 1
Expansion, on schedule, and under budget, which involved increasing
the PLS handling facilities, boiler capacity and copper plating
capacity.
The Stage 2 Expansion project (covering the Western Dumps) was
materially completed in Q4 2016 and copper production from this
area commenced in Q2 2017.
In terms of the Mineral Resource model, WAI prepared a Mineral
Resource Estimate in accordance with the JORC Code (2004) in 2013
based on work carried out using CAE Studio 3(R) (Datamine)
software. The base data for this work included the large volume of
historical data from open pit mine records, and the more recent
reverse circulation drilling works carried out in 2011 and
2012.
Subsequently the JORC Code has been updated to the JORC Code
(2012) which took full effect as of 01 December 2013, and the
Mineral Resources reported within this CPR have therefore been
amended to meet the guidelines of the JORC Code (2012).
Summary of Eastern, Western and Northern Mineral Resources
Category Gross Net attributable Operator
============================ ============================
Kounrad Mineral Tonnes Grade Contained Tonnes Grade Contained
Resources (kt) (%) metal (kt) (%) metal
----------------- -------- ------ ---------- -------- ------ ---------- ---------
Indicated 388,977 0.10 372,546 388,977 0.10 372,546 CAML
----------------- -------- ------ ---------- -------- ------ ---------- ---------
Inferred 264,023 0.09 237,175 264,023 0.09 237,175 CAML
----------------- -------- ------ ---------- -------- ------ ---------- ---------
Sub-total 653,000 0.09 609,722 653,000 0.09 609,722
----------------- -------- ------ ---------- -------- ------ ---------- ---------
Total 653,000 0.09 609,722 653,000 0.09 609,722
================= ======== ====== ========== ======== ====== ========== =========
Between the commencement of production at Kounrad and the end of
H1 2017, circa 61,000t of copper cathode have been produced. Due to
the leaching method, it is not possible to specifically define
where within the dumps copper mineralisation has been leached, with
leached solutions potentially propagating through several
contiguous irrigation blocks before being sent to the process
plant.
To account for the depletion of the Mineral Resource as of end
of H1 2017, the updated Mineral Resource statement includes columns
for the recovered copper "Cu Production 2012--2017 (t)" and the
remaining copper "Remaining Cu (t)".
The results of this work are summarised in the table below, and
demonstrate a close correlation with previous historical Mineral
Resource Estimates.
An important factor that has been noted during the 2011--2012
exploration as well as production is that many of the assumptions
pertaining to the makeup of the material identified as "mixed" (10
to 20% acid soluble copper) and "sulphides" (less than 10% acid
soluble species) are no longer correct. Assay results show that
acid soluble assays in "mixed" dump 15--16 were higher than
expected and averaged around 45% and with similar values being
determined in the "sulphide" dumps such as 1, 1a, 21.
It is highly likely that these higher than anticipated levels of
soluble copper are due to the historic and ongoing (continuously
active) natural oxidation conditions occurring within the dumps,
over a 70--80 year time frame.
Such changes can be accelerated by near surface oxidation,
species conversion related with ferric iron leaching; and both
being accelerated by the presence of naturally occurring bacteria.
Visually, it is very clear to see such natural activity having
occurred, with extensive plumes of copper oxide colouration seen on
large areas of the dump side walls.
Consequently, and in particular for the Western Dump Mineral
Resources, this has implications for potential enhanced
recoveries.
24.1 Processing
In terms of processing, a considerable amount of testwork, pilot
scale testing together with the last five years operational data,
has been compiled for the leaching of the Eastern and Western Dumps
at Kounrad. The quantity of material remaining in the dumps (most
notably the Western Dumps), the copper content, and its amenability
to leaching, all confirm the continued viability of the CAML
Kounrad project.
The oxide waste was dumped entirely on the eastern margin of the
open pit and has been the initial operational focus of the project.
The sulphide, and the bulk of the mixed waste, are located in the
Western Dumps area and have been subjected to metallurgical testing
in the period 2009--2012 to verify copper recoveries and acid
consumptions.
24.2 Summary of Testwork
In addition to a pilot scale trial undertaken at the Eastern
Dump, a pilot scale trial was also performed at the Western Dumps
in 2011--2012. The pilot plant trial had demonstrated the
feasibility of producing saleable copper cathode from the Eastern
Dumps.
From the Western Dumps, the pilot plant ran from June 2011 to
the end of September 2012, but was stopped during the severe winter
of 2011--2012. Two cells of Western Dump material were subject to
leaching during this period, with the second test cell being
curtailed early due to some operational issues regarding solutions
return connected with unknown ground topography.
Although the trial did not deliver the same quantity of specific
metallurgical data as generated when running at the Eastern Dump,
it had however shown that the copper was recoverable via acid
leaching with a recovery approaching 50% being obtained from
Western Dump material.
The required FS design data was subsequently enhanced from
undertaking large diameter column tests at site, this was also used
to develop a realistic kinetic model for leaching. It is known, and
expected, that this can only be a best approximation, based upon
the data presently available. Two leach recovery curves were
produced, one for lower grade material (<0.05% TCu) with a final
recovery of 35%, and a higher grade (>0.5% TCu) terminating at
42% total Cu recovery, both at 20 months.
In 2012, the SX--EW Plant was commissioned and later expanded in
2015. In 2013, BGRIMM completed a Feasibility Study as part of the
expansion. BGRIMM detailed the leaching schedule and designed a
plant capable of treating a range of flow rates and solution grades
to produce up to 50 tonnes of copper cathode per day at 99.99%
quality. The plant design has taken the extremes of climate into
consideration, especially the operability through the winter
period.
For the Eastern Dumps, CAML has adopted recovery levels of 51%
for Dumps 6,7,9 and 10, while a leach recovery level of 42% was
adopted for Dumps 2 and 5.
The Eastern Dumps are expected to recover a further 25,136t
(from 79,843t originally available) of leached copper during its
remaining operational life. Leaching of the Western Dumps has only
recently commenced (Q2 2017) following the installation of solution
ponds, pumps, 3 boilers and two overland pipelines, which transport
the PLS and raffinate between the western facility and the SX--EW
Plant at the Eastern Dump. The site is now supplied with technical
water from the nearby Lake Balkhash via an overland pipeline at a
flow rate of up to 200m3/hr.
Over the life of operation for the Western Dumps, it is expected
that some 173,173t of copper will be recovered to the PLS. This is
significantly higher than the copper to be recovered from the
Eastern Dump because the Western Dumps contain significantly more
material.
In summary, production from the Eastern Dumps has demonstrated
that CAML has successfully leached copper from the low--grade
copper waste dumps, and early indications suggest that the Western
Dumps will continue this process for the long--term.
WAI has reviewed the environmental and social performance of the
Kounrad operations based on a review of documentation provided by
CAML.
The operation is compliant with local Kazakh legislation, and a
considerable amount of work has been undertaken to bring it in line
with International Best Practice. A document register is maintained
for all Environment and Social, and Health and safety policies,
plans and procedures; and
WAI considers the Environmental and Social performance is well
managed, and to a high standard.
Studies show that there is potential for Acid Mine Drainage
("AMD") and Pregnant Leach Solution ("PLS") migration down gradient
of the Dumps due to "historic" contamination. CAML has instigated a
number of studies to develop a detailed understanding of these
issues, and continues to monitor closely to manage the risk. WAI is
satisfied that historical liability is not the responsibility of
CAML, and furthermore, WAI believes this aspect of the operations
is given sufficient consideration, and the risks associated with
potential contamination are well managed.
24.3 Financial Analysis
WAI has performed a technical valuation of the Kounrad copper
dump leach project using a Discounted Cash Flow (DCF) analysis. The
operating costs and sustaining capital requirements were estimated
by CAML based on the actual operation results and approved Company
budgets. WAI finds these costs to be reasonable for the scale and
the location of the operation.
Based on the financial analysis performed by WAI, the Kounrad
Project generates a strongly positive Net Present Value (NPV) of
US$355M at a 10% discount rate (Base Case). As a part of a
sensitivity analysis, NPVs based on various discount rates ranging
between 8% and 20% were also calculated. A summary of the Project
NPVs at various discount rates is shown in the table below:
Project NPV Summary
NPV @ Discount Rate of
8% US$ M 401
------------------------ ------- ----
NPV @ Discount Rate of
10% US$ M 355
------------------------ ------- ----
NPV @ Discount Rate of
15% US$ M 271
------------------------ ------- ----
NPV @ Discount Rate of
20% US$ M 215
======================== ======= ====
Total average life of mine C1 project cash costs were estimated
at US$0.54 per pound.
A Base Case metal price forecast used for the financial analysis
is presented below:
Selected Project Copper Price Forecast*
Cu Price Units 2017E 2018E 2019E 2020E 2021E LT
========== -------- ------ ------ ------ ------ ------ ------
US$/t 5,401 5,512 5,908 6,393 6,415 6,283
------------------- ------ ------ ------ ------ ------ ------
US$/lb 2.45 2.50 2.68 2.90 2.91 2.85
=================== ====== ====== ====== ====== ====== ======
*Broker consensus copper price forecasts, supplied CAML
Based on the sensitivity analysis performed, the project is
mostly sensitive to the change in copper price. None of the
assessed sensitivity analysis parameters were observed to bring the
project to negative results.
25. EXECUTIVE SUMMARY ON THE SASA MINE
A Competent Person's Report in respect of the SASA Mine has been
prepared by SRK and is available on the Company's website,
https://www.centralasiametals.com/investors/proposed-acquisition/.
The executive summary of the Competent Person's Report is set out
below.
25.1 Background
For the 12-month period ended 31 December 2016, Lynx Resources
reported the following key operating statistics for the Mineral
Assets: saleable products comprising: 39,507 dmt Pb concentrate and
45,548 dmt Zn concentrate from 782,823 dmt mined and 779,231 dmt
processed. For the first 6 months of 2017 ("H1 2017") these
statistics are: 20,301 dmt Pb concentrate and 21,719 dmt Zn
concentrate from 391,043 dmt mined and 392,257 dmt processed.
The current Life of Mine Plan ("LoMp") (starting H2 2017,
limited to end-2037) assumes ore production of 15.98 Mt ore to the
process plant, with saleable products comprising 357.2 kt Zn in
concentrate, 559.8 kt Pb in concentrate and 6,949 koz Ag in
concentrate.
25.2 The Mineral Assets
The SASA Mine is located in northeastern Macedonia,
approximately 150 km from the capital city of Skopje and 10 km to
the north of the small village of Makedonska Kamenica.
SASA Mine comprises an operating underground lead-zinc mine and
flotation plant, which allows for the production of separate zinc
and lead concentrates. Concentrates are currently transported by
truck for treatment in smelters in the surrounding region.
The mine is located in the Osogovo Mountains of eastern
Macedonia at the head of the deeply incised Kamenica River valley,
with an elevation range of approximately 975 to 1,600 m above sea
level. The mine site is subject to continental and Mediterranean
climatic influences, with hot dry summers and cold winters.
Underground mine infrastructure is extensive, with many historic
worked out areas. A number of restored and operational tailings
storage facilities ("TSF") are located in the valley below the
processing plant. A new TSF, TSF 4, is currently under
construction, immediately downstream of the active TSF 3.2. Active
and legacy waste rock dumps are located around the property. Waste
rock from the active mine is transported to the surface for capping
of the TSFs as part of the rehabilitation plan or is stored for
future use in TSF construction.
A summary of all licences related to the SASA Mine is included
in Table ES 1. Whilst the current exploration licence expires on 13
December 2017, the application for renewal is already in progress.
SRK has every reason to expect that the licence will be renewed as
a matter of course within the allowable 12-month period following
the expiry of the licence.
Table ES 1: Summary Table of Mineral Assets
Asset Holder Interest Status Licence Licence Comments
expiry area
date
----------- ------- --------- ------------ ------------- -------- --------------------
SASA Rudnik 100% Production 28 September 4.22 Current annual
Mine, SASA 2030 km(2) run of mine
Macedonia DOOEL production
is 780 kt,
producing
lead and
zinc concentrates.
----------- ------- --------- ------------ ------------- -------- --------------------
SASA Rudnik 100% Exploration Expires 1.42
Mine, SASA on 13 km(2)
Macedonia DOOEL December
2017
----------- ------- --------- ------------ ------------- -------- --------------------
25.3 Historical Mining
The initial mining and geological surveys of the Osogovo
Mountains' ore-bearing massif and the SASA Mine locality date from
1954. The period between 1954 and 1960 was a period of exploration
and the mine construction took place between 1960 and 1965. In
November 1965, the mine was opened for trial processing with a
projected production capacity of 0.3 Mtpa of lead-zinc ore.
The SASA Mine commenced operation from 1966 as a state-owned
entity. During the 1990s, ore production levels at SASA Mine were
roughly 0.5 Mtpa and, in 2002, the mining and milling operation was
shut down due to lack of operating capital on the part of the
Macedonian government, which owned the mine. Subsequently, the mine
was put into bankruptcy and closed. The Solway Group subsequently
purchased the mine and operations were restarted in 2006.
Table ES 3 provides a summary of the recent annual mine and
processing production at the SASA Mine.
Table ES 3: Historical Production at the SASA Mine
Description Units 2010 2011 2012 2013 2014 2015 2016 H1 2017
------------------ ---------- ------ ------ ------ ------ ------ ------ ------ --------
Mine Performance
Total Ore Mined (kt wet) 838 788 784 807 809 806 807 402
(kt dry) 809 759 753 777 780 780 783 391
Lead grade (% Pb) 4.05 3.83 3.93 4.13 4.16 4.04 3.95 4.01
Zinc grade (% Zn) 3.81 3.43 3.35 3.47 3.48 3.52 3.41 3.20
------------------ ---------- ------ ------ ------ ------ ------ ------ ------ --------
Process Plant Performance
Ore Processed (kt wet) 840 787 785 804 809 803 803 404
(kt dry) 811 758 754 774 780 777 779 392
Lead grade (% Pb) 4.05 3.83 3.93 4.13 4.16 4.04 3.95 4.01
Zinc grade (% Zn) 3.81 3.43 3.35 3.47 3.48 3.52 3.41 3.20
------------------ ---------- ------ ------ ------ ------ ------ ------ ------ --------
Lead Concentrate
Lead Concentrate (kt dry) 41.3 37.1 38.0 41.0 41.6 40.2 39.5 20.3
Lead Recovery (%) 94.4 95.1 94.4 94.4 94.5 94.1 94.1 94.6
Lead Grade (% Pb) 75.15 74.32 73.64 73.62 73.73 73.51 73.29 73.29
Zinc Grade (% Zn) 2.82 2.66 2.43 2.59 2.59 2.86 2.71 2.56
Lead Contained (kt) 31.0 27.6 28.0 30.2 30.7 29.5 29.0 14.9
------------------ ---------- ------ ------ ------ ------ ------ ------ ------ --------
Zinc Concentrate
Zinc Concentrate (kt dry) 52.8 44.6 43.1 46.2 46.9 47.2 45.5 21.7
Zinc Recovery (%) 86.0 86.6 86.2 86.3 86.5 85.8 84.6 85.6
Lead Grade (% Pb) 1.13 1.05 1.08 1.06 1.33 1.64 1.33 1.10
Zinc Grade (% Zn) 50.36 50.56 50.51 50.14 50.13 49.78 49.43 49.45
Zinc Contained (kt) 26.6 22.5 21.8 23.2 23.5 23.5 22.5 10.7
------------------ ---------- ------ ------ ------ ------ ------ ------ ------ --------
25.4 Mineral Tenement and Land Tenure States
The exploitation concession (24-5550/1) covers an area of 4.22
km(2) and comprises sub-areas labelled by year, which relate to
expansions of previous licence boundaries. The current exploitation
concession was most recently issued to Lynx Resources on 13
November 2014 and is valid until 28 September 2030, with the
possibility of extending for another 30 years.
The exploration concession (24-4971/1) covers an area of 1.42
km(2) , was issued to Lynx Resources on 13 December 2013 and
expires on 13 December 2017. Lynx Resources is currently in the
process of applying to renew the exploration concession. A study
detailing the results of exploration between 2013 and 2017 is going
to be submitted by October 2017, and following revision of the
study by the Geological Department of the Ministry of Economy, Lynx
Resources will apply for an extension of the mining concession to
include the current exploration concession area. Once this extended
mining concession is approved, a new application for an exploration
concession area will be submitted. Lynx Resources has 12 months
from the date of expiration in which to complete the applications
for both the extension of the mining concession and the new
exploration concession.
12% of the Inferred Mineral Resources of the Svinja Reka deposit
fall outside the current exploitation licence, but within the
exploration licence. A total of 2.1 Mt of material is to be mined
at Svinja Reka from the Inferred category from 2029 to 2034, 12% of
which corresponds to only 0.25 Mt of material outside the
exploitation licence area. There is potential to extend the mine
life by further defining and potentially extending the Svinja Reka
and Golema Reka resources at depth, and by delineating and
quantifying extents of the Kozja Reka deposit, combined with
further licence extensions, and that such studies are ongoing or
planned.
25.5 Mineral Resources Statement
25.5.1 Regional and Local Geology, Deposit Type and Mineralisation
SASA Mine comprises the Svinja Reka, Golema Reka and Kozja Reka
lead-zinc-silver deposits, which lie within the Serbo-Macedonian
Massif, a belt which extends through Serbia, Macedonia, Bulgaria,
and eastern Greece into Turkey and hosts a large number of
lead-zinc deposits. The mineral deposits are located on the eastern
flank of a Tertiary intermediate intrusive complex and related
porphyry Cu-Mo system, within which a northwest striking stockwork
alteration zone is developed. Lead-zinc-silver mineralisation
occurs as stratiform deposits hosted predominantly by
quartz-graphite schist and marbles of Lower Palaeozoic age at
Svinja Reka and by gneisses at Golema Reka. The mineralisation is
considered to relate to the intrusion of Tertiary volcanics.
High-temperature hydrothermal fluids and bedding-parallel faulting
are responsible for metasomatism of the host sediments, producing
skarn and base metal mineralisation.
The well-defined, partially exploited, lenses of
lead-zinc-silver mineralisation dip at approximately 35deg to the
south-west and typically range in true thickness from between 2 and
30 m. The mineralised lenses are present in parallel sheets
(typically two or three bodies, namely the hanging wall, central
and footwall orebodies), separated by an interburden with
thicknesses of 1 to 10 m. The lenses pinch and swell along strike
and down-dip. The mineral deposits are considered to be metasomatic
skarn-hydrothermal deposits with replacement and bedding-parallel
fault controlled mineralisation. The skarns occur in the form of
replacement of marble, whereas the hydrothermal lead-zinc-silver
mineralisation appears as replacements and as open-space fillings.
The hydrothermal association, which is superimposed onto the skarn
assemblages, contains argentiferous galena, sphalerite, pyrite and
minor chalcopyrite.
Only Svinja Reka and Golema Reka form part of the Mineral
Resources as described in this report. Kozja Reka was mined
previously but has not been further evaluated at this stage.
25.5.2 Mineral Resource Estimation
The SASA Mine has been explored since 1954 including geophysics,
mapping, trenching, and drilling from both surface and underground
excavations. The Mineral Resource models at the SASA Mine consider
1,442 underground and surface diamond drillholes and 15 underground
channels conducted between the years of 1974 and 2016 for the
Svinja Reka deposit and 104 underground and surface diamond
drillholes and 51 underground channels conducted between the years
of 1974 to 2010 for the Golema Reka deposit. The resource database
was reviewed and verified by SRK before use in the Mineral Resource
Estimates.
Whilst no routine external assay Quality Assurance/Quality
Control ("QAQC") procedures are currently implemented, SRK has
previously completed an independent check by selecting 400
duplicate pulp samples, from SASA Mine drilling intercepts, which
were submitted to the Eurotest Control Sofia laboratory. Analysis
of the results indicates in general the reasonable quality of
results, albeit with a slight bias toward lower grade. The SASA
Mine laboratory is annually audited by the Macedonian Accreditation
Institute and also acts as control for the plant concentrate
shipment. The SASA Mine laboratory also regularly submits check
samples to a laboratory in Sofia, Bulgaria as part of its own
internal QAQC programme.
A number of historical Mineral Resource Estimates, in accordance
with the JORC guidelines, have been completed by international
consulting groups (SRK in 2006, Wardell Armstrong in 2011 and MRA
in 2015).
In addition, SASA Mine is required to undertake reporting of
Reserves in accordance with the Macedonian State Reporting System
every four years. The State Reporting for the SASA Mine is prepared
by a local design institute and was last completed as at 01 April
2015. Classification and categorisation of State Reserves is
defined by the Macedonian Law for mineral raw materials and is
prescriptive, with many similarities to other resource and reserve
reporting systems developed in Eastern Europe and the Former USSR.
Silver grade estimates are not provided in the State Resources and
Reserves.
Block model tonnages and grade estimates for the Svinja Reka and
Golema Reka deposits have been classified in accordance with the
guidelines of the JORC Code (2012). In addition to the quality and
quantity of exploration data supporting the estimates, the
confidence in the geological continuity of the mineralised
structures and the confidence in the tonnage and grade estimates is
considered in assigning the Resource classification. Depletion due
to mining has been accounted for in the models.
The geological interpretation used to generate the Mineral
Resource is generally considered to be robust; however, there are
areas of lower geological confidence which may be subject to
further revision in the future.
At Svinja Reka, SRK considers that the quality and spatial
distribution of the data used, the geological continuity of the
mineralisation and the quality of the estimated block model is
sufficient for the reporting of Indicated and Inferred Mineral
Resources. At Golema Reka, Mineral Resources have been limited to
the Inferred category due to the lower confidence in the geological
model and absence of any historical core or accessible
mineralisation exposures. Areas of mineralisation in Golema Reka
that contain less than 2% Pb+Zn over a 3.5 m width, remain
unclassified and are excluded from the Mineral Resource.
To determine that the Mineral Resources have reasonable
prospects for economic extraction by underground mining methods,
they have been evaluated based on a minimum Net Smelter Return
("NSR") cut off value based on Pb, Zn, and Ag credits, using a Pb
price of USD2,550/t, a Zn price of USD2,800/t and a silver price of
USD25/oz. These prices are based on typical long-term consensus
forecasts with a 30% premium (to reflect the requirement for
"reasonable prospects" for eventual extraction) and a set of
assumed technical and economic parameters, which were selected
based on the current mining operations. The Mineral Resources
comprise volumes that are generally considered to be wider than the
minimum mining width (3.5 m).
SRK considers that the blocks with a NSR value greater than
USD30/t at Svinja Reka and USD35/t at Golema Reka have "reasonable
prospects for eventual economic extraction" and can be reported as
a Mineral Resource according to the definitions of the JORC Code
(2012).
Table ES 4: SRK Mineral Resource Statement for Combined Svinja
Reka and Golema Reka Deposits, SASA Mine, as at 01 July 2017
reported at USD30/t and USD35/t NSR cut-off, respectively
Classification/ Density Tonnage Pb Zn Ag NSR Pb + Zn
Deposit
-----------------
(t/m(3) (Mt) Grade Metal Grade Metal Grade Metal (USD/t) Grade
) (%) (kt) (%) (kt) (g/t) (koz) (%)
----------------- -------- -------- ------- ------- ------- ------- ------- ------- -------- ---------
Indicated Mineral Resources
Svinja Reka 3.4 13.30 4.59 611 3.68 490 22.0 9,403 126 8.28
Golema Reka 0 - 0 0 0 0 0 0 0 0
Total Indicated 3.4 13.30 4.59 611 3.68 490 22.0 9,403 126 8.28
----------------- -------- -------- ------- ------- ------- ------- ------- ------- -------- ---------
Inferred Mineral Resources
Svinja Reka 3.2 2.67 3.16 84 2.08 56 16.6 1,426 82 5.24
Golema Reka 2.9 7.4 3.69 273 1.52 112 18.6 4,424 94 5.21
Total Inferred 3.0 10.07 3.55 357 1.67 168 18.1 5,849 91 5.22
----------------- -------- -------- ------- ------- ------- ------- ------- ------- -------- -------
Total Indicated
and Inferred
Mineral
Resources 3.2 23.37 4.14 968 2.81 658 20.3 15,252 111 6.96
----------------- -------- -------- ------- ------- ------- ------- ------- ------- -------- -------
In reporting the Mineral Resource Statements, SRK notes the
following:
-- Mineral Resources have an effective date of 1 July 2017. The
Competent Person for the declaration of Mineral Resources is Guy
Dishaw, P.Geo., of SRK Consulting (UK) Ltd. The Mineral Resource
estimate was prepared by a team of consultants from SRK considering
drilling data up to 01 October 2016 and has been depleted by
excavation by volumes representing mining to 1 July 2017;
-- Mineral Resources are reported within the Exploitation and Exploration Licences only;
-- Mineral Resources are reported as undiluted. No mining
recovery has been applied in the Statement; and
The Indicated Mineral Resources are inclusive of those Mineral
Resources modified to produce Ore Reserves, i.e. they are reported
on an 'inclusive basis'.
SRK has made a number of recommendations to improve the quality
of the Mineral Resource Estimates going forwards, including:
-- Routinely assay for Ag in future drilling programmes to
improve confidence in the local-scale variability of the Ag grades
in block model which may, in places, be independent from Pb grade.
There may be locally secondary controls on silver mineralisation
that are not currently realised due to the limitations of
sampling.
-- Regularly collecting additional density samples and
increasing the size of the database to add confidence to the
modelled density values.
-- Implementation of full assay QAQC procedures for sampling and
assay (including blanks, duplicates and standards) for all future
drilling campaigns.
-- An underground mapping programme by a structural geologist to
investigate the potential for additional controls on
mineralisation, to better understand the distribution and
exploration implications for the high grade lead-zinc-silver
mineralisation.
SRK is aware that SASA Mine has planned a campaign of surface,
and possibly underground drillholes at the Golema Reka deposit to
confirm the current model, and add additional intersections to
improve the confidence in the geological model. The drilling
programme has been submitted for permitting and is expected to
commence in late H2 2017 or early H1 2018.
25.6 Geotechnical
SRK has undertaken a geotechnical assessment of the SASA mine
using empirical and preliminary two dimensional finite element
numerical modelling. The analysis has confirmed the appropriateness
of the current mine design parameters being used.
The assessment has also shown that the rock mass lies at the
boundary of a caving and marginally caveable material and SRK
recommends that horizontal mining front is maintained across all
orebodies in order to reduces the magnitude of mining induced
stresses down dip of the mining front.
In order to improve the geotechnical model, actual mine
performance will need to be compared to results of the 2D modelling
and the input parameters and/or the mining sequence modified to
better reflect the actual mine performance.
SRK has undertaken a review of rock support and geotechnical
practices at SASA Mine. Whilst generally the support of permanent
development is being carried out to a satisfactory level, the
stability of temporary ore drives could be further improved. SRK
has made a number of suggestions for improvement to ore drive
stability. Improvements to the support methods and materials used
can be made to assist the mine to work towards international best
practice standards and some progress has already been made.
25.7 Mining
From a mining method perspective, the approach used at the SASA
Mine has been successful in achieving in excess of the planned
production rate in the current LoM plan. Due to the low level
spacing there are reasonable opportunities to achieve the mining
dilution and loss parameters used in the mine plan.
The defined stope shapes extend from the 1,054 mRL to a lowest
elevation of 797 mRL on a level spacing of 7 m, over a strike
length of 835 m. The main lower access of the existing mine
development is an exploration decline ramp some 24 m below the 830
mRL (approximately 837 mRL in the vicinity of the orebody) which is
only 20 m above the lower elevation of the stope shapes considered
in the mine design.
The mine benefits significantly from having access development
to upper and lower levels of the planned stoping areas as well as
established materials handling systems. This existing development
also allows for easy management of water ingress into the mine,
although water ingresses were not observed to be significant during
the March 2017 site visit.
The sub-level caving method currently in use at the SASA Mine,
utilises a top-down approach without the use of backfill with
development and production drilling being undertaken using single
boom.
Whilst this method is one of the few underground mining methods
that can be applied to this type of shallow dipping, stacked,
variable thickness lead-zinc-silver lens system, the cut and fill
method (which was historically used on the Golema Reka deposit)
should be re-assessed in selected future mining areas to determine
whether this is a more suitable method for the mine from a
dilution, recovery, safety, production rate, and economic
perspective.
The mine development and production physicals have been reported
on 3.5 m levels from the design and block model, with the modifying
factors applied prior to scheduling with the Deswik software. The
LoMp relies predominantly on the Indicated Resources at the Svinja
Reka deposit (to support the declaration of Ore Reserves), but also
includes Inferred Resources from Svinja Reka and Golema Reka
deposits. The LoMp schedule extends over a period of just under 22
years (H2 2017 to Q1 2038), commencing at an ore production rate of
770 ktpa (dry) in 2017, followed by 20 years (2018 to 2037) at 780
ktpa (dry) and a small amount of production in 2038 (approximately
one month). The historical production indicates that there is
typically an average moisture content of 3.6%.
The underground waste development (including rehabilitation) has
been categorised and is scheduled annually over the mine life.
Development waste generated from mining activities is estimated to
total 1,395 kt over the LoMp with maximum annual tonnage of 83 kt
(in 2017) and average annual tonnage of 65 kt (or 8.7% of total
material mined annually). All development waste generated
underground is transported to the surface.
Since reopening in 2006, the SASA Mine has used a similar mining
method approach as that proposed for the LoMp going forward and the
planned production rate of 780 ktpa (dry) is conservative, given
that the mine production has averaged 797 ktpa over the last 8
years, with a peak of 860 ktpa in 2009. SRK notes that in the last
8 years the mine achieved less than 780 ktpa in two of those years
(759 kt in 2009 and 753 kt in 2010); however, this is not
considered a material difference (less than 3%).
The sub-level cave mining method has been utilised for many
years at the SASA Mine and, given the low level spacing (7 m),
there are reasonable opportunities to achieve the mining dilution
and loss parameters used in the mine plan.
SRK recognises that the LoMp includes material from the Inferred
category of Mineral Resources, both in the lower levels of the
Svinja Reka deposit and also the Golema Reka deposit, and that
achievement of the LoMp is based on the conversion of Inferred
Resources to Indicated or Measured Resources. At Svinja Reka, given
the continuation of the sub-level caving method and the similar
development profile, there do not appear to be any technical
impediments to mining this material, assuming that additional
drilling and sampling and geological analysis improves the Resource
category to at least Indicated.
At the Golema Reka deposit, a cut and fill method will be
adopted. This historically used method is geotechnically acceptable
and the existing backfill plant can be recommissioned. In addition,
the cost of backfill has been considered in the operating costs and
subsequent NSR cut-off estimate for Golema Reka, therefore
exploitation of the final years of the LoMp at Golema Reka are
considered to be technically feasible, again assuming that the
Inferred Resources in this deposit are converted to either
Indicated or Measured category through additional geological
investigations and analysis.
SRK considers it likely that the additional Inferred portions of
the Svinja Reka and Golema Reka deposits will be converted to
Indicated during the LoM operations and that the full LoMp will be
delivered, on the understanding that the appropriate technical
investigations and studies are undertaken in advance of proposed
mining of these areas.
25.8 Mineral Processing
The process plant is conventional and the metallurgy for both
lead and zinc, based on historical performance, is straightforward
and well understood.
Ore from Golema Reka has been processed historically and the
metallurgy is known. As with any mine, if new ore zones are to be
mined and processed, metallurgical testwork should be performed to
establish circuit operating parameters and to ascertain specific
metallurgical performance.
The forecast plant throughput of 780 ktpa is conservative and is
not a limiting factor in terms of mine output. The plant has proved
that it can process up to 850 ktpa.
The lead metallurgy recovery of 94% is close to the historical
performance of the plant and considered by SRK to be above the
average typically achieved by similar operations.
The new zinc regrind mill should alleviate the issues with some
overloading of the pumping systems in the zinc cleaner circuit and
should increase the overall zinc recovery to the projected
87.5%.
A silver recovery to lead concentrate of 80% is used in the
assessment. This is in line with recent historical performance. The
calculated silver content of the lead concentrate is 287 to 320 g/t
Ag and payable as part of the NSR. The silver grade in lead
concentrate is below that historically achieved and is dependent on
the tonnage of lead concentrate produced.
The zinc concentrate grade has been set at 49.3% in the model.
SRK considers this to be conservative as it is lower than
historical performance. A lower zinc grade in concentrate is likely
to be beneficial for zinc recovery to zinc concentrate, as would be
expected with a typical grade-recovery relationship. The zinc
recovery included in the model assumes the installation of the new
zinc regrind circuit during 2017 and includes an increased zinc
recovery to zinc concentrate of 2% from 85.5% up to 87.5%,
supported by recent lock-cycle testwork. Based on the predicted
head grade and typical losses of zinc to the lead concentrate this
zinc recovery would result in a final concentrator tailings of 0.3%
Zn. This is lower than historically achieved, average 0.4% Zn since
2010, but reflects the tailings that would have been achieved if an
additional recovery of 2% had been achieved. SRK considers that the
higher recovery is reasonable, based on the testwork performed. The
zinc feed grade is predicted to fall from 2028 and SRK recommends a
reduction in zinc recovery based on a fixed tail calculation from
this year to the end of the LoMp.
Historical performance would suggest that the lead grade in the
zinc concentrate will not be an issue and should be less than 2%
Pb.
A silver recovery to zinc concentrate of 10% included.
Historically, this has been around 11%. The silver content of the
zinc concentrate is typically around 40 g/t Ag and is not
payable.
The operating costs included in the model for the process plant
are based on actuals and are split in to fixed and variable costs,
for electricity, reagents and consumables, labour, maintenance
materials and miscellaneous costs, and are considered
reasonable.
The new zinc SMD mill package has been included in the 2017
budget, with SMD mill capital of EUR597k out of the total 2017
plant budget of EUR1.4m (with EUR0.5m spent during H1 2017). It is
estimated the SMD mill will be commissioned in Q4 2017.
From 2018 onwards, only sustaining capital has been provided
for. This totals EUR12.9m over the remaining life of the mine for
the processing plant alone, of which EUR150,000 per year from 2019
onwards has been allocated as a contingency. SRK considers the
capital expenditure provided in the model to be appropriate.
25.9 Tailings Storage Facilities
The TSF complex has been operational since the 1960s, with the
successive development of TSF 1, TSF 2, TSF 3.1 and TSF 3.2. All
the TSFs are located within the steep sided valley of the Kamenica
River. The Kamenica River is carried below the TSF within an
engineered river diversion structure.
TSF 1, TSF 2, and TSF 3.1 are inactive and have been
rehabilitated with soil cover and vegetation. TSF 3.2 is currently
active. Progressive development of the dam comprises downstream
raising using cyclones, with coarse underflow to the dam shell and
finer grain-size slimes to the impoundment void. Waste rock is
transported via the mine access road and deposited at the
downstream toe to form a buttress. Seepage water from TSF 3.1 and
from the toe area of TSF 3.2 is captured in a sedimentation pond
located at the toe of the downstream dam slope. Surplus water in
the TSF 3.1 overflows via an overflow concrete collector pipe,
which is used to manage the water level in the pond. An emergency
spillway will be constructed when the dam reaches its design height
at closure. A specific slope stability assessment has been
completed for the active facility and in general terms, the
methodologies, parameters and scenarios modelled are reasonable in
the context of the stated report requirements. Also, recent work
undertaken by Golder Associates indicates there to be no credible
risk of overtopping in the critical storm-flow condition.
TSF 4 was designed to international standards by the Faculty of
Engineering, Skopje, in March 2015. As with TSF 3.2 a specific
slope stability assessment has been completed for the proposed
facility and the methodologies, parameters and scenarios modelled
are considered reasonable and thorough in the context of the stated
report requirements. TSF 4 is currently under construction and is
designed to provide sufficient containment for requirements between
October 2018 and 2026 (predicted lifetime at current processing
rate), and will be located directly downstream of TSF 3.2.
Construction of the entire facility is planned to be completed by
May 2018. TSF 4 will be developed adopting similar waste delivery,
placement and operational management methodologies to those that
have been adopted for the active TSF 3.2; however, the downstream
slope will include a granular rock fill toe buttress that is
progressively raised in line with tailings progression.
TSF 4 requires an extension to the Kamenica River diversion
structure as a tunnel in the western rock abutment of the dam,
which is partiality constructed as well as an open channel
diversion of the Petrova stream along the eastern side of the
valley. A contractor (Strabag) is currently installing the concrete
lining of the tunnel, which is on schedule for completion in Q4
2017. Construction permits have been received for the diversion
tunnel and the channel works, and construction is in progress. The
approval for the construction of the dam is in progress, including
modifications to the design for the lining.
As part of the EIA approval process, the Ministry of Environment
and Physical Planning ("MEPP") recommended that the Minister for
Environment approve the EIA, subject to SASA modifying the design
to include a liner. SASA Mine management will install a liner to
address this request.
The river diversion structure entrance portal is located at the
northern end of TSF 1 at the plant site and the exit is located
immediately downstream of the TSF 3.2 dam slope toe. The tunnel has
been extended progressively in advance of tailings deposition
development and comprises a concrete structure for about 40% of its
length constructed under the tailings (culvert section) and 60%
constructed in the in situ rock (tunnel section). A new section of
tunnel has been constructed beyond the toe of TSF 3.2 to further
divert the river around TSF 4. SRK considers that the TSF 4
extension tunnel in its existing condition and the outlet portal
area and have been constructed with appropriate support for a
long-term structure. Once concrete lined, the tunnel is expected to
be very secure.
In 2003, whilst the mine was under State ownership and was not
operational, failure of an ancillary structure that diverted
captured TSF 3.1 drainage water into the river diversion tunnel
resulted in flow of tailings from TSF 3.1 into the water-course and
on into the downstream environment. The physical effects of the
failure were successfully remediated; the downstream environment
was cleared; the culvert was cleared, the ancillary structure for
drainage was remediated, and flow of water re-established.
Subsequently, a programme of regular visual inspection and
maintenance of the diversion tunnel and associated infrastructure
has been followed and there have been no further issues since mine
re-commissioning in 2006.
In March 2017, SASA Mine commissioned the Faculty of
Engineering, Skopje to undertake a Tunnel Integrity Assessment for
the entire length of the diversion tunnel, to assess the current
state of the tunnel, especially in its older sections and to
comment on any potential requirements for additional
support/remediation. The study will include visual inspections, in
situ testing and sampling for laboratory material testing. Work is
currently ongoing and results will be delivered in Q4 2017.
The SASA Mine LoMp extends to Q1 2038, with a planned constant
throughput of ore at a rate of 780 ktpa until end-2037. This
results in a steady state production of tailings of around 175,000
m3 per year tailings for dam construction and 230,000 m3 per year
fine tailings (plus sludge) for deposition in the impoundment
(total 405,000 m3 per annum). TSF 4 has capacity for 8 years of
deposition, which means that additional TSFs will be required to
provide storage for the entire LoMp. SASA Mine intends to construct
two further TSFs downstream of TSF 4 to accommodate this additional
material (TSF 5 and TSF 6). TSF 5 is planned to be constructed
during 2025 and 2026 and is intended to be of a similar size to TSF
4 to provide an additional 8 years' storage. TSF 6 is planned to be
constructed during 2033 and 2034 and is intended to be smaller than
TSF 4 to provide an additional four years' storage up to 2038.
Whilst detailed designs have not yet been prepared for either TSF 5
or TSF 6, SASA Mine has provided capital in the Financial Model in
the relevant years. The capital quantum for TSF 5 (EUR7.5m,
USD8.2m, which includes EUR2m allowance for the liner) is the same
as that for TSF 4, and for TSF 6 the allowance is 50% of TSF 5
given the smaller storage requirement. There is also yearly
sustaining capital of USD109k provided. Further preliminary and
detailed design work for TSF 5 and TSF 6 will need to be completed,
but these TSFs will require similar elements to TSF 4, including
extension of the Kamenica River diversion tunnel through the
bedrock of the western dam abutment and extension of the Petrova
River surface diversion channel along the eastern side of the
Kamenica River valley.
SRK notes, however, that to support the Ore Reserves, there is
only a requirement for TSF 5.
Lynx Resources intends to commence pre-feasibility study level
designs for TSF 5 immediately upon completion of TSF 4, to provide
ample time for technical evaluations and permitting
preparation.
The closure design for the active TSF 3.2 is detailed within the
Waste Management Plan document which covers proposals for both
tailings and waste rock. This document is required in accordance
with applicable Regulations and the site Permit. The tailings
closure design proposed in the Waste Management Plan is similar to
that adopted for TSF 1 and comprises a layered cover system
including (from the bottom up): waste rock cover; restoration soil
layer; and vegetation. A similar arrangement is proposed for TSF
4.
One issue for the SASA Mine closure is the management of
long-term water flows in the Kamenica River valley, currently and
in the future, via the river diversion tunnel/culvert and surface
water diversion channels. For the diversion tunnel, potential
closure options are currently being evaluated by SASA Mine, in
combination with the Faculty of Engineering, Skopje and SRK. The
potential options being evaluated include:
-- long-term maintenance of the existing diversion tunnel/culvert;
-- maintaining the existing diversion tunnel but engineering
bypass sections to replace culverts and ensure long-term flows are
within the in-situ rock abutments; and
-- relocating flow to surface, necessitating decommissioning
(sealing) of the tunnel/culvert and engineering of an open
diversion channel at surface.
25.10 Water Management
The SASA Mine operations are situated within the Kamenica River
watershed. The Kamenica River runs from northwest to southeast. Two
smaller drainages connect to the Kamenica River upstream of the
current mine operations, the Svinja River and the Kozje River. Both
drainages contain legacy mine workings (and surface waste rock
dumps), with adit discharges partially captured in pipelines and
partially discharged to the rivers. Seepage from the old dumps also
enters the rivers.
The process water intake structure is situated upstream of the
confluence with the Kozje River. Downstream of the confluences of
the Kozje and Svinja rivers, the Kamenica River is captured in a
concrete diversion tunnel, which was historically constructed
beneath TSF 1, TSF 2 and TSF 3.1, and then extended through the
western abutment of TSF 3.2. The University of Skopje prepared a
hydrologic and hydraulic analysis, the hydraulic model, prepared as
part of the study, states that the existing diversion tunnel for
the Saska River is equipped to convey the 10,000-year flood.
Additional consideration may be required for the Probable Maximum
Flood ("PMF") event, specifically during closure.
The hydrogeology of the area has not been characterised by means
of site specific hydrogeological testwork. Groundwater, other than
the alluvial aquifer immediately below TSF 3.2, is not monitored.
The existing water collection and pumping infrastructure is
considered sufficient for management of groundwater entering the
underground workings. While maintenance of existing infrastructure
is required to effectively manage groundwater within the mine,
SRK's opinion is that no significant additional investment will be
required.
A high-level water balance has been performed by Strength GEC in
March 2017, evaluating potential for recycling of mine water in the
process plant. The purpose of the water balance was to assess the
potential for water recycling across the site. SRK understands,
based on discussions while on site, that this balance is an initial
step as part of an on-going flow monitoring programme to develop a
more seasonally sensitive and refined understanding of water
volumes across the site.
The balance suggests the TSF supernatant pond, as well as
seepage collected at the TSF 3.2 dam toe and discharges from the
Adit 830, be utilized in the plant and for dust suppression on
tailings and dams. Improvements to the water balance should include
a more detailed depiction of flows in the active and proposed TSF
supernatant ponds, specifically examining freeboard limits and the
capacity of the decant structure during extreme flood events.
SRK observed opportunities for improvement in the sample
collection, handling, analytical suite and data processing aspects
of the water quality monitoring. As part of the hydrogeological
study outlined in the ESAP, SASA Mine is reviewing its sampling
protocols.
25.11 Environmental, Social and Permitting
Lynx Resources maintains a permit register and this indicates
the mine is fully permitted for continuing its current operations.
Following completion of the requirements stipulated in its Permit
for Alignment with the Operational Plan (an interim step in the
Integrated Pollution Prevention and Control (IPPC) permit process),
SASA Mine received its IPPC permit in October 2016. An Application
for Changes to the IPPC permit was submitted in April 2017
(discussions currently in progress) requesting amendments to the
permit for minor changes to the operation since March 2014. This
application also included a formal request to amend the discharge
limits in line with the Macedonian legislation for wastewater
discharges, highlighting that the existing limits were created with
reference to the Decree for Classification of Waters No 18/1999,
which was applicable to in-stream surface water guidelines, and not
for discharges of industrial wastewaters.
The mine has an environmental management system certified
against ISO 14001:2015. There is also an environmental and social
action plan ("ESAP") developed with the aim of bringing the project
into line with good international industry practice over the next
three years. A review of the cyanide management practices was
undertaken in March 2017 to evaluate current practices with the
requirements laid out in the International Cyanide Management Code;
procedural opportunities for improvement were identified and are
being considered by SASA Mine.
The project reportedly enjoys good relations with the community
of Kamenica, which owes its existence to the presence of the mine.
It also appears that relationships with employees are good.
Therefore, no material risks arising from the current informal
management of social issues have been identified. Following on from
community complaints regarding dust from the TSFs, additional
sprinkler investments were made in 2016. Further plans are underway
to increase the amount of sprinklers, evaluate other dust
suppression techniques and increase dust monitoring in 2017. The
ESAP includes a commitment to develop an air quality management
plan to improve dust control at the site.
There is historical contamination arising from the historical
mine workings and the associated mine residues (waste rock and
tailings), in addition to historical contamination arising from the
tailings emission in 2003, generated when the mine was under state
ownership. According to the legal review, the current operators are
not liable for any historical contamination. SRK notes that
separating the effects of contamination from the historical mine
workings above the mine site, and any new contamination generated
by current operations, can be challenging. The ESAP recognises a
potential opportunity to work with the State to find rehabilitation
solutions to address the historical mine workings and associated
mine residues upstream of the current mine as part of closure
planning.
Improvements in water monitoring (both flow and quality) are
currently being implemented as part of the ESAP. Options for
further recycling of various water streams are being investigated
as part of this. The available monitoring of water quality
indicates:
-- upstream of the mine, discharges from adits and seepage from
waste rock dumps associated with the historical workings (not SASA
Mine's responsibility) are contributing to exceedances of the
Macedonian Category III environmental water quality standards;
-- available data show the quality improves downstream
indicating dilution and potentially natural buffering from the
surrounding catchments; however, zinc and manganese exceed the
Macedonian Category III environmental water quality standards as
far as 5 km downstream of the site;
-- there are occasional exceedances of the permitted discharge
limit, though SRK notes these limits are currently subject to
discussion with the regulator; these non-compliances are dealt with
via a minor annual permit fee to the MEPP, which incorporates an
annualised calculation for exceedances (fee has historically been
approximately EUR5,000 per annum, and is expected to be of the same
magnitude for calendar 2017); and
-- groundwater in the alluvial aquifer downgradient of the TSFs
indicates that the water is generally in compliance with drinking
water quality standards and the Macedonian Category III
environmental quality standards except for zinc.
With no pre-disturbance baseline water quality monitoring
(because the mine is 50 years old) and no monitoring of reference
sites in unimpacted catchments, the natural background contribution
of the deposit on water quality cannot be confirmed and thus the
impact of the mine over and above this natural contribution can
also not be confirmed. SRK considers that the outcomes of the
currently planned hydrology and biodiversity studies, as well as
the improved water quality monitoring programme, are needed to
confirm potential impacts. SRK also recognises this cannot be done
in isolation, as significant contributions are arising from the
historical workings that are not the responsibility of SASA Mine.
There is, however, significant time in the LoMp before closure to
improve the quality, type and quantity of input data, assess this
with respect to downstream water user requirements and use this in
further evaluating the need for long term water treatment.
In June 2017, SRK prepared a conceptual closure plan ("CCP"),
which included a closure cost estimate for the operations with a
+/-50% level of accuracy. For the purposes of closure design, the
CCP considered two potential methods for diversion of surface water
flows upstream and in the catchment of the TSFs. These are
summarised below as follows:
-- Option 1 - Use of the existing river diversion channel to
pass a portion of the storm water flows from the upstream catchment
area only. In conjunction, a surface channel diversion will be
constructed adjacent to the TSFs to divert calculated flows from
the adjacent catchments.
-- Option 2 - Construction of an entirely new network of surface
water channels designed to pass the cumulative flow from all
catchments. All surface water diversions, will be constructed on
the surface and the river diversion channel will be decommissioned
at closure.
Option 1 requires additional engineering work to prove that use
of the existing underground river diversion is feasible. Option 2
represents the lowest risk option to the project at closure and
relies upon a series of surface diversion channels to convey flows
at closure. The conceptual costs estimated for both options is
presented in Table ES 5.
Table ES 5: SASA Mine Closure Cost Summary
Closure Item Option 1 Cost Option 2 Cost
(EURm) (EURm)
--------------------------------- ------------- -------------
Plant and Surface Infrastructure
Demolition 1.71 1.71
Tailings Cover Installation 2.03 2.03
Surface Water Diversion
Features 6.92 19.84
Closure of Mine Portal 0.26 0.26
Adit and Tunnel Plugging
and Grouting 0.19 0.29
WRD XVIa Removal and
Rehabilitation 0.52 0.52
Passive Water Treatment
Pond System 0.98 0.98
Post Closure Monitoring 1.15 1.15
Total Base Case Closure
Cost 13.77 26.79
--------------------------------- ------------- -------------
25.12 Occupational Health & Safety
Since Lynx Resources took management of the SASA Mine, they
committed to continually reduce the number and severity of injuries
and harm to health. The historical safety performance was poor
under the previous management however, in 2014 they commissioned a
safety management initiative and the safety performance has
improved significantly. The mine continues to implement the safety
initiative programme under the new management with a goal to
further improve the safety performance and culture at the
operations.
An integrated health, safety and environment system at the mine,
based on OHSAS 18001:2007, ISO 9001:2015, ISO 14001:2015, is
audited annually by external parties; accreditation is maintained.
Table ES 6 lists the number of Fatal and Lost Time Injuries
incurred at SASA Mine since 2013.
Table ES 6: SASA Mine Fatal and Lost Time Injuries per year
Year Fatal Injuries Lost Time Injuries
--------- --------------- -------------------
2013 2 27
2014 0 11
2015 0 3
2016 0 6
H1 2017 0 0
--------- --------------- -------------------
25.13 Capital and Operating Costs
The Capital and Operating cost estimates for the SASA Mine have
been determined by Lynx Resources based on recent historical
performance and the current 2017 budget for the mine, a summary of
which is presented in Table ES 7.
Whilst capital expenditures are relatively stable, the cost of
TSFs are more project based as new TSFs and associated
infrastructure are constructed, notably historically during 2016
and H1 2017, and going forward during H2 2017 and 2018 (TSF 4),
then assumed in 2025/2026 (TSF 5) and finally in 2033/2034 (TSF
6).
SRK has reviewed the operating and capital cost forecasts, and
finds that these are sufficient to support the LoMp. No
contingencies have been added to either forecast due to the nature
of steady state production. Option 1 for site closure has been
incorporated in the financial assessment.
Table ES 7: LoMp Forecast Capital and Operating Costs
H2 2018 2019 2020 2021 2022 2023-2027 2028-2037 2038 LoMp
2017
-------------- ------ ----- ----- ----- ----- ----- ---------- ---------- ----- ------
Capital Expenditure (EURm)
Capitalised
Development 1.5 2.6 2.6 2.6 2.6 2.6 12.8 19.0 46.0
Mining
Equipment 1.3 2.7 2.1 3.2 2.0 1.7 11.3 21.6 45.8
Flotation 0.9 1.0 0.7 0.8 0.8 0.7 3.3 5.5 13.9
Tailings 1.0 2.1 0.1 0.1 0.1 0.1 7.8 4.5 15.8
Other 0.6 0.7 0.7 0.7 0.7 0.7 3.5 6.6 14.2
Total 5.3 9.1 6.1 7.3 6.2 5.8 38.7 57.2 135.7
-------------- ------ ----- ----- ----- ----- ----- ---------- ---------- ----- ------
Operating Costs (EURm)
Mining 5.9 11.9 11.9 11.9 11.9 11.9 59.4 134.3 - 258.9
Milling 3.5 7.2 7.2 7.2 7.2 7.2 36.0 70.7 - 144.8
G&A 1.8 3.6 3.6 3.6 3.6 3.6 17.9 36.9 - 75.7
Mine Closure - - - - - - - - 13.8 13.8
Total 11.2 22.6 22.6 22.6 22.6 22.6 113.2 241.9 13.8 493.2
-------------- ------ ----- ----- ----- ----- ----- ---------- ---------- ----- ------
Unit Operating Costs (EUR/t RoM)
Mining 15.5 15.2 15.2 15.2 15.2 15.2 15.2 17.2 - 16.2
Milling 9.1 9.2 9.2 9.2 9.2 9.2 9.2 9.1 - 9.1
G&A 4.9 4.6 4.6 4.6 4.6 4.6 4.6 4.7 - 4.7
Mine Closure - - - - - - - - - 0.9
Total 29.5 29.0 29.0 29.0 29.0 29.0 29.0 31.0 - 30.9
-------------- ------ ----- ----- ----- ----- ----- ---------- ---------- ----- ------
25.14 Project Economics
25.14.1 Overview
SRK has prepared a financial model to evaluate the economics
of:
-- the Ore Reserves and
-- the LoMp (including Inferred material).
Reporting at the mine is in EUR; however, the economic
assessment has been carried out in USD. A constant exchange rate of
1.09 USD/EUR has been applied over the LoM. The financial model has
been prepared in Microsoft Excel, in USD, in nominal money terms
assuming a 2% annual inflation for both the Euro ("EUR") and USD
denominated costs.
A discounted cash flow has been prepared, on a post-tax basis.
No financing terms are modelled except for the silver streaming
agreement, which forms the basis of the reduced silver price
included in the financial model. Lynx Resources' payment terms have
been taken into account in the model.
SRK has applied consensus market forecast prices for lead and
zinc, sourced from Bloomberg as at 19 July 2017. The prices applied
are the median of the forecasts of a range of analysts as compiled
by Bloomberg. The silver price actually used in the financial model
is as per the long-term streaming agreement, for the LoM. The
streaming agreement included a price of USD5.0/oz of refined silver
for the period up to 31 December 2016. In respect of each
subsequent calendar year of the agreement, the fixed silver price
in respect of the immediately preceding calendar year increased by
a percentage equal to the lesser of inflation over the previous
calendar year measured by the CPI Index and 3%. The financial model
assumes a slightly more conservative approach, with the silver
price only increasing after 2021 by the flat inflation of 2% per
annum. The consensus market forecast silver price is only used to
calculate the concession fee. The commodity prices are presented in
Table ES 8.
Table ES 8: Bloomberg Consensus Commodity Prices (nominal)
Units Spot 2017 2018 2019 2020 2021
(19 July
2017)
Zinc (USD/t) 2,747 2,665 2,622 2,450 2,398 2,508
Lead (USD/t) 2,217 2,205 2,150 2,200 2,250 2,300
Silver (CMF) (USD/oz) 16.3 17.4 18.2 19.3 20.0 20.0
Silver (streaming
agreement) (USD/oz) 5.00 5.00 5.00 5.00 5.00
------------------- ---------- ---------- ------ ------ ------ ------ ------
25.14.2 Cash Flow Model
The economic assessment presents a solid economic case, with a
low risk of any production being cash flow negative. Net present
values ("NPVs") are presented for different discount rates. The
NPVs are a measure of economic viability of the operations. They do
not constitute a project valuation. SRK notes that the LoMp case
includes a proportion of Inferred Mineral Resources, to be mined
from 2028 onwards. Table ES 9 presents the overall inputs and
outputs of the financial model for the two cases modelled. At the
base discount rate of 10%, the LoMp case reports an NPV of USD461m
and the Ore Reserve reports an NPV of USD413m.
Table ES 9: Summary of the Cash Flow Model Assessment
Unit LoMp Ore Reserve
----------------------------- -------- ------- ------------
Economic Output
Revenue (USDm) 2,056 1,467
Operating Costs (USDm) 724 466
EBITDA (USDm) 1,333 1,001
Capital Costs (USDm) 180 127
Non-cash items (due
to Ag streaming) (USDm) 20 20
Working Capital (USDm) 5 5
Corporate Income Tax (USDm) 114 85
Net Free Cash (undiscounted) (USDm) 1,024 773
NPV, discount rate:
6.0% (USDm) 610 518
8.0% (USDm) 527 461
10.0% (USDm) 461 413
12.0% (USDm) 408 372
14.0% (USDm) 364 337
16.0% (USDm) 327 308
----------------------------- -------- ------- ------------
Net Smelter Return (Revenue)
Pb Concentrate (USDm) 1,418 937
Zn Concentrate (USDm) 748 596
Treatment Charges
Pb Concentrate (USDm) 95 63
Zn Concentrate (USDm) 87 69
----------------------------- -------- ------- ------------
Mining
Tonnage (kt) 15,979 10,927
Pb Grade (%) 2.65% 3.08%
Zn Grade (%) 3.73% 3.85%
Processing
Tonnage (kt) 15,979 10,927
Pb Grade (%) 2.65% 3.08%
Zn Grade (%) 3.73% 3.85%
Recovery
Pb (%) 94.0% 94.0%
Zn (%) 84.5% 87.4%
Concentrate
(kt
Pb Concentrate conc) 767 542
(kt
Pb Content metal) 560 395
(kt
Zn Concentrate conc) 725 598
(kt
Zn Content metal) 357 295
----------------------------- -------- ------- ------------
Operating Costs
Mining (USDm) 352 214
Processing (USDm) 195 126
G&A (USDm) 102 68
Mine Closure (USDm) 23 21
Concession (USDm) 53 38
Total (USDm) 724 466
----------------------------- -------- ------- ------------
Capital Costs
Capitalised Development (USDm) 61 46
Mining Equipment (USDm) 61 42
Flotation (USDm) 18 13
Tailings (USDm) 21 12
Other (USDm) 19 13
Total (USDm) 180 127
----------------------------- -------- ------- ------------
25.14.3 Sensitivity Analysis
SRK has considered the potential areas of risk to the project
and has accordingly run sensitivities on the NPV. For this purpose,
SRK has assumed a discount rate of 10% for the runs. SRK has tested
the NPV sensitivity to operating, capital costs, and commodity
prices. This is illustrated in Table ES 10 for the Ore Reserve
case, and in Table ES 11 for the LoMp case.
Table ES 10: Sensitivity Tables, Ore Reserve Case (NPV 10% discount rate, nominal)
Capital Cost
---------------------------------------------------------
Sensitivity -5% 0% 5% 10% 15% 20% 25%
------------- ----- ----- ---- ---- ---- ---- ----
NPV (USDm) 416 413 410 407 403 400 397
------------- ----- ----- ---- ---- ---- ---- ----
Operating Cost
---------------------------------------------------------
Sensitivity -5% 0% 5% 10% 15% 20% 25%
------------- ----- ----- ---- ---- ---- ---- ----
NPV (USDm) 422 413 403 394 385 376 367
------------- ----- ----- ---- ---- ---- ---- ----
Commodity Prices
---------------------------------------------------------
Sensitivity -15% -10% -5% 0% 5% 10% 15%
------------- ----- ----- ---- ---- ---- ---- ----
NPV (USDm) 305 341 377 413 449 485 521
------------- ----- ----- ---- ---- ---- ---- ----
Table ES 11: Sensitivity Tables, LoMp Case (NPV 10% discount rate, nominal)
Capital Cost
---------------------------------------------------------
Sensitivity -5% 0% 5% 10% 15% 20% 25%
------------- ----- ----- ---- ---- ---- ---- ----
NPV (USDm) 465 461 458 454 451 447 444
------------- ----- ----- ---- ---- ---- ---- ----
Operating Cost
---------------------------------------------------------
Sensitivity -5% 0% 5% 10% 15% 20% 25%
------------- ----- ----- ---- ---- ---- ---- ----
NPV (USDm) 472 461 450 439 428 417 405
------------- ----- ----- ---- ---- ---- ---- ----
Commodity Prices
---------------------------------------------------------
Sensitivity -15% -10% -5% 0% 5% 10% 15%
------------- ----- ----- ---- ---- ---- ---- ----
NPV (USDm) 338 379 420 461 503 544 585
------------- ----- ----- ---- ---- ---- ---- ----
25.14.4 Mineral Resource and Ore Reserve Statement
The Ore Reserve estimate for the SASA Mine has been undertaken
in accordance with the JORC Code (2012) guidelines and is stated in
Table ES 12 as at 01 July 2017. The Ore Reserves are classified as
Probable based on the current Mineral Resource classification of
Indicated.
In line with reporting an Ore Reserve under the JORC Code
(2012), SRK has prepared a financial model to test the economic
viability of the Ore Reserve case, taking into account the various
technical, operating cost, capital expenditure and corporate income
tax parameters (excluding any debt of financing structures). The
assessment demonstrates that the Ore Reserve is economically
viable, with robust economics that remain positive when tested
against appropriate increases in operating and capital costs, and
changes in commodity prices.
Table ES 12: Statement of Mineral Resources and Ore Reserves for the SASA Mine at 01 July 2017
Category Gross Net Attributable Operator
Tonnage Grade Content Tonnage Grade Content
(Mt) Pb Zn Ag Pb Zn Ag (Mt) Pb Zn Ag Pb Zn Ag
(%) (%) (g/t) (kt) (kt) (koz) (%) (%) (g/t) (kt) (kt) (koz)
----------- -------- ----- ----- ------ ----- ----- ------- -------- ----- ----- ------ ----- ----- ------- ---------
Ore Reserves
Proved
Svinja - - - - - - - - - - - - - -
Reka
Golema - - - - - - - - - - - - - -
Reka
Subtotal - - - - - - - - - - - - - -
Proved
----------- -------- ----- ----- ------ ----- ----- ------- -------- ----- ----- ------ ----- ----- ------- ---------
Probable
Svinja
Reka 10.9 3.85 3.08 18.4 421 337 6,447 10.9 3.85 3.08 18.4 421 337 6,447
Golema - - - - - - - - - - - - - -
Reka
Subtotal
Probable 10.9 3.85 3.08 18.4 421 337 6,447 10.9 3.85 3.08 18.4 421 337 6,447
----------- -------- ----- ----- ------ ----- ----- ------- -------- ----- ----- ------ ----- ----- ------- ---------
Rudnik
Total "SASA"
Reserves 10.9 3.85 3.08 18.4 421 337 6,447 10.9 3.85 3.08 18.4 421 337 6,447 DOOEL
----------- -------- ----- ----- ------ ----- ----- ------- -------- ----- ----- ------ ----- ----- ------- ---------
Mineral Resources
Measured
Svinja - - - - - - - - - - - - - -
Reka
Golema - - - - - - - - - - - - - -
Reka
Subtotal - - - - - - - - - - - - - -
Measured
----------- -------- ----- ----- ------ ----- ----- ------- -------- ----- ----- ------ ----- ----- ------- ---------
Indicated
Svinja
Reka 13.3 4.59 3.68 22.0 611 490 9,403 13.3 4.59 3.68 22.0 611 490 9,403
Golema - - - - - - - - - - - - - -
Reka
Subtotal
Indicated 13.3 4.59 3.68 22.0 611 490 9,403 13.3 4.59 3.68 22.0 611 490 9,403
----------- -------- ----- ----- ------ ----- ----- ------- -------- ----- ----- ------ ----- ----- ------- ---------
Inferred
Svinja
Reka 2.7 3.16 2.08 16.6 84 56 1,426 2.7 3.16 2.08 16.6 84 56 1,426
Golema
Reka 7.4 3.69 1.52 18.6 273 112 4,424 7.4 3.69 1.52 18.6 273 112 4,424
Subtotal
Inferred 10.1 3.55 1.67 18.1 357 168 5,849 10.1 3.55 1.67 18.1 357 168 5,849
----------- -------- ----- ----- ------ ----- ----- ------- -------- ----- ----- ------ ----- ----- ------- ---------
Rudnik
Total "SASA"
Resources 23.4 4.14 2.81 20.3 968 658 15,252 23.4 4.14 2.81 20.3 968 658 15,252 DOOEL
----------- -------- ----- ----- ------ ----- ----- ------- -------- ----- ----- ------ ----- ----- ------- ---------
Source: CP Mineral Resources - Guy Dishaw, CP Ore Reserves
- Chris Bray
26. Lynx Group Historical Financial Information
This section 26 contains the historical financial information on
the Lynx Group.
The historical financial information of the Lynx Group presented
in this announcement reflects the historic ownership of the SASA
Mine.
For the period from 1 January 2014 to 3 November 2015, SASA was
owned and controlled by Solway Industries Ltd and Solway Industries
Eesti AS.
On 3 November 2015, Lynx Europe acquired the entire issued share
capital of SASA. Lynx Europe is a wholly owned subsidiary of Lynx
Resources, the entity that is being acquired by CAML in connection
the Acquisition. Lynx Resources was incorporated on 19 June
2015.
The financial information has been prepared under IFRS as
adopted by the European Union. The financial information of SASA
for 2015 and 2014 has been translated from SASA's functional
currency of MKD into USD for comparability.
The financial information of the Lynx Group has been impacted by
related party transactions with entities that do not form part of
the Lynx Group. In particular, the Lynx Group had contractual
arrangements with Lynx Metals, a related party that is not part of
the Lynx Group, including with respect to marketing services and
silver streaming that have impacted on the Lynx Group financial
information. Certain of these arrangements, including the marketing
services provided by Lynx Metals, will not continue following
completion of the Acquisition. Therefore the historic financial
performance of the Lynx Group may not be wholly consistent with its
financial performance as part of the Enlarged Group.
The following historical financial information of the Lynx Group
is presented in this announcement:
-- Section A: Unaudited Historical financial information of
Rudnik SASA DOOEL for the financial years ended 31 December 2014
and 31 December 2015
-- Section B: Unaudited Historical financial information of Lynx
Resources for the financial period from 19 June 2015 to 31 December
2015 and the financial year ended 31 December 2016
-- Section C: Unaudited Interim financial information of Lynx
Resources for the six months ended 30 June 2017
SECTION A: UNAUDITED HISTORICAL FINANCIAL INFORMATION OF RUDNIK
SASA DOOEL FOR THE FINANCIAL YEARSED 31 DECEMBER 2014 AND 31
DECEMBER 2015
Rudnik SASA dooel-Makedonska Kamenica
IFRS Financial information for the two years ended 31 December
2015
(all amounts are in USD unless otherwise stated)
Statement of comprehensive income
Year ended 31 December
Note 2015 2014
Gross revenue ...................................................... 5 70,491,829 82,837,582
Transportation expenses..................................... (35,930) (10,830)
------------- --------------
Revenue ................................................................. 70,455,899 82,826,752
Inventory movement
........................................... (2,577) 54,777
Consumed raw materials
..................................... 7 (13,110,079) (15,520,032)
Salaries/payroll expenses
................................... 8 (7,614,271) (8,678,947)
Cost value of tools
and consumable goods
.... (43,444) (38,370)
Concession expenses
.......................................... 9 (2,175,835) (2,558,767)
Write off/disposals
.............................................. 13 (59,193) (345)
Depreciation expenses
........................................ 13 (5,471,987) (5,299,455)
Other operating expenses
................................... 10 (3,579,879) (4,242,290)
Other operating income
...................................... 6 77,067 51,482
------------- --------------
Total operating profit
......................................... 38,475,701 46,594,805
Finance income .................................................... 11 14,862,593 24,102,409
Finance costs ....................................................... 11 (7,456,370) (6,561,409)
------------- --------------
Finance (costs)/income-net
............................... 7,406,223 17,541,000
------------- --------------
Profit before income
tax ..................................... 45,881,924 64,135,805
Income tax expense
.............................................. 12 (5,670,052) (14,351,957)
------------- --------------
Profit for the year
............................................... 40,211,872 49,783,848
============= ==============
Other comprehensive
income ........................... (5,389,552) (15,355,838)
------------- --------------
Total other comprehensive
income for the year
........................................................................ 34,822,320 34,428,010
------------- --------------
Profit attributable
to the owners ........................ 34,822,320 34,428,010
------------- --------------
Total comprehensive
income attributable
to the owners: ........................................................... 34,822,320 34,428,010
------------- --------------
Rudnik SASA dooel-Makedonska Kamenica
IFRS Financial information for the two years ended 31 December
2015
(all amounts are in USD unless otherwise stated)
Statement of financial position
As at As at As at
Note 31 December 31 December 1 January
2015 2014 2014
ASSETS
Non-current assets
Property, plant
and equipment ............... 13 46,123,471 49,053,587 49,710,928
Total non-current
assets......................... 46,123,471 49,053,587 49,710,928
Current assets
Inventories................................................. 14 1,538,766 2,032,084 2,287,103
Trade receivables...................................... 15 6,022,610 45,415,543 48,720,568
Other receivables...................................... 15 1,374,647 2,351,664 2,078,910
Income tax receivable............................... 169,882 - 86,887
Loans.......................................................
... 16 - 55,500,372 152,853,968
Cash and cash equivalents...................... 17 216,641 962,947 1,487,671
Total current assets................................. 9,322,546 106,262,610 207,515,107
TOTAL ASSETS 55,446,017 155,316,197 257,226,035
EQUITY AND LIABILITIES
Equity
Own capital................................................ 4,672,933 4,672,933 4,672,933
Statutory reserves..................................... 934,596 934,596 934,596
Other reserves........................................... (20,656,718) (15,267,166) 137,866,133
Retained earnings
.................................... 53,362,909 78,759,564 91,592,049
Total equity................................................ 18 38,313,720 69,099,927 235,065,711
Non-current liabilities
Borrowings................................................. 20 - 5,019,047 9,234,874
Provisions for
liabilities and
charges..... 19 2,449,711 2,335,326 2,124,472
Total non-current
liabilities................... 2,449,711 7,354,373 11,359,346
Current liabilities
Borrowings................................................. 20 11,208,226 4,209,520 4,536,423
Trade and other
payables ....................... 21 2,097,672 1,882,145 3,491,756
Other current liabilities............................. 21 1,240,687 63,815,239 2,635,236
Provisions for
liabilities and
charges..... 19 136,001 55,716 90,834
Income tax payable................................... - 8,899,277 46,729
Total current liabilities 14,682,586 78,861,897 10,800,978
Total liabilities . 17,132,297 86,216,270 22,160,324
TOTAL LIABILITIES
AND EQUITY...... 55,446,017 155,316,197 257,226,035
Rudnik SASA dooel-Makedonska Kamenica
IFRS Financial information for the two years ended 31 December
2015
(all amounts are in USD unless otherwise stated)
Statement of changes in equity
Own Statutory Other Retained
Capital reserves reserves Earnings Total
---------- ---------- -------------- ------------- --------------
Balance at 1 January
2014........................ 4,672,933 934,596 137,866,132 91,592,049 235,065,710
Transactions with
owners
Other reserves
distribution......................... - - (137,777,460) - (137,777,460)
Dividends
distribution................................. - - - (62,616,333) (62,616,333)
---------- ---------- -------------- ------------- --------------
4,672,933 934,596 88,672 28,975,716 34,671,917
---------- ---------- -------------- ------------- --------------
Net profit for
2014......................................... - - - 49,783,848 49,783,848
Other comprehensive
income..................... - - (15,355,838) - (15,355,838)
---------- ---------- -------------- ------------- --------------
Total comprehensive
income..................... - - (15,355,838) 49,783,848 34,428,010
---------- ---------- -------------- ------------- --------------
Balance at 31 December
2014.................. 4,672,933 934,596 (15,267,166) 78,759,564 69,099,927
========== ========== ============== ============= ==============
Balance at 1 January
2015........................ 4,672,933 934,596 (15,267,166) 78,759,564 69,099,927
---------- ---------- -------------- ------------- --------------
Transactions with
owners
Dividends
distribution................................. - - - (65,608,527) (65,608,527)
---------- ---------- -------------- ------------- --------------
4,672,933 934,596 (15,267,166) 13,151,037 3,491,400
Net profit for
2015......................................... - - - 40,211,872 40,211,872
Other comprehensive
income..................... - - (5,389,552) - (5,389,552)
---------- ---------- -------------- ------------- --------------
Total comprehensive
income..................... - - (5,389,552) 40,211,872 34,822,320
---------- ---------- -------------- ------------- --------------
Balance at 31 December
2015.................. 4,672,933 934,596 (20,656,718) 53,362,909 38,313,720
========== ========== ============== ============= ==============
Rudnik SASA dooel-Makedonska Kamenica
IFRS Financial information for the two years ended 31 December
2015
(all amounts are in USD unless otherwise stated)
Statement of cash flows
Year ended
31 December
--------------------------------------
2015 2014
---------------- --------------------
Operating activities
Profit/(Loss) before
tax....................................................................
....................................... 45,881,924 64,135,805
Adjustments for:
Depreciation (Note
13)....................................................................
........................................ 5,471,987 5,299,455
Interest expense (Note
11)....................................................................
................................. 676,975 1,195,528
Interest income (Note
11)....................................................................
.................................. (265,366) (1,448,526)
Accretion expense (Note
11)....................................................................
............................. 185,848 182,589
Unrealized foreign exchange (gain)
loss (Note
13)........................................................... (185,092) (237,129)
---------------- ------------------
Cash generated from operations before
changes in working capital......................... 51,766,276 69,127,722
Cash flow from operating activities
(Increase)/ decrease in
inventories............................................................
.......................... 288,252 (16,020)
(Increase)/ decrease in trade
receivables............................................................
................ 35,257,987 (2,656,865)
(Increase)/ decrease in other
receivables............................................................
............... 746,078 (563,808)
Increase/ (decrease) in trade
payables...............................................................
................. 416,114 (1,304,457)
Increase/ (decrease) in other current
liabilities............................................................
...... (59,319) (953,662)
---------------- ------------------
Cash generated from operations 88,415,388 63,632,910
Interest and bank charges
paid...................................................................
......................... (676,975) (1,195,528)
Income taxes
paid...................................................................
................................................. (13,950,631) (4,625,167)
---------------- ------------------
Net cash generated from operating
activities.............................................................
..... 73,787,782 57,812,215
Cash flow from investing activities
Acquisition of property, plant and
equipment..............................................................
.... (8,059,612) (9,713,590)
Proceeds from
loans..................................................................
.............................................. 50,563,614 85,638,365
Interest
received...............................................................
........................................................ 265,366 1,448,526
---------------- ------------------
Net cash used in investing
activities.............................................................
.................... 42,769,368 77,373,301
Cash flow from financing activities
Repayment of
borrowing..............................................................
.......................................... (8,407,685) (3,177,460)
Proceeds from
borrowings.............................................................
........................................ 12,258,355 -
Dividends
paid...................................................................
....................................................... (121,065,047) (132,388,737)
---------------- ------------------
Net cash used in financing
activities.............................................................
.................... (117,214,377) (135,566,197)
Net decrease in cash and cash
equivalents............................................................
.......... (657,227) (380,681)
Effects of exchange rate changes
on cash and cash equivalents............................... (89,079) (144,043)
Cash and cash equivalents at 1
January................................................................
........... 962,947 1,487,671
Cash and cash equivalents at 31 December
(Note 17).................................................. 216,641 962,947
================ ==================
Rudnik SASA dooel-Makedonska Kamenica
Notes to the Financial information for the two years ended 31
December 2015 (all amounts are in USD unless otherwise stated)
1. General information
Sasa-dooel Makedonska Kamenica ("SASA") is a base metals company
which operates the Sasa zinc and lead mine registered in:
Rudarska No28 Makedonska Kamenica.
The company was founded on 28 June 2005. The registration in the
Central Register is done with the Decision no 4047/2005 in the
Primary Court Skopje. The initial capital amounts to USD
4,672,933.
From 4 November 2015 SASA's new owner was Lynx Europe dooel
Skopje with 100% ownership from Solway Industries Limited and
Solway Industries EESTI AS. The ultimate parent is Lynx resources
resident in Hamilton, Bermuda. As of 31 December 2015, SASA had 680
employees (2014: 689 employees). The General Manager of SASA
serving during the financial year was:
Aleksandr Rakov
The primary activity of SASA is the extraction of mineralized
ores and the production of zinc and lead concentrates under the
code 7.29-Extraction of other ores of coloured metals.
The activity of SASA is organized through the following
organizational activities:
-- Mine
-- Flotation
-- Laboratory
-- Machine workshop
-- General administration
2. Summary of significant accounting policies
The principal accounting policies adopted in the preparation of
this financial information is out below. These policies have been
consistently applied to all the years presented, unless otherwise
stated.
2.1 Basis of preparation and statement of compliance with IFRS
This financial information has been prepared for the purposes of
the re-admission of CAML to AIM. This special purpose financial
information has been prepared in accordance with the requirements
of the AIM Rules for Companies and in accordance with International
Financial Reporting Standards as adopted by the European Union
("IFRS").
The financial information relating to "SASA" has been prepared
in a form that is consistent with the accounting policies adopted
in CAML's latest annual accounts.
Prior to the adoption of IFRS, for all periods up to and
including the year ended 31 December 2014, SASA prepared its
financial statements in accordance with Macedonian generally
accepted accounting principles ("Macedonian GAAP"). This financial
information for the year ended 31 December 2015 represents the
first time SASA has prepared its financial information in
accordance with IFRS. Accordingly, SASA has prepared financial
information which comply with IFRS applicable for periods ending on
or after 31 December 2015, together with the comparative period
data as at and for the year ended 31 December 2014, as described in
the accounting policies. In preparing this financial information,
SASA's opening statement of financial position was prepared as at 1
January 2014 in accordance with IFRS.
The main changes to the presentation of the financial
information as a result of adopting IFRS are due to the following
accounting policies:
-- Asset Retirement Obligation (Note 19),
-- Employee Benefits (Note 19), and
-- Jubilee Awards (Note 19).
Disclosure of our elected transition exemptions and
reconciliation and explanation of account policy differences
compared to Macedonian GAAP have been provided in Note 24 to this
financial information.
The financial information is presented in USD, unless otherwise
stated.
The historical consolidated financial information has been
prepared on a going concern basis.
2.2 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial information are measured using
the currency of the primary economic environment in which the
entity operates ('the functional currency') which is MKD and which,
for the purposes of the re-admission of CAML to AIM, are translated
to the presentation currency which is USD.
The results and financial position of foreign operations (none
of which has the currency of a hyperinflationary economy) that have
a functional currency different from the presentation currency are
translated into the presentation currency as follows:
-- assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance
sheet
-- income and expenses for each statement of profit or loss and
statement of comprehensive income are translated at average
exchange rates (unless this is not a reasonable approximation of
the cumulative effect of the rates prevailing on the transaction
dates, in which case income and expenses are translated at the
dates of the transactions), and
-- all resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the
translation of any net investment in foreign entities, and of
borrowings and other financial instruments designated as hedges of
such investments, are recognised in other comprehensive income.
When a foreign operation is sold or any borrowings forming part of
the net investment are repaid, the associated exchange differences
are reclassified to profit or loss, as part of the gain or loss on
sale.
Goodwill and fair value adjustments arising on the acquisition
of a foreign operation are treated as assets and liabilities of the
foreign operation and translated at the closing rate.
(b) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates at the dates of the transactions
or valuation where items are re-measured. Foreign exchange gains
and losses resulting from the settlement of such transactions and
from the translation of monetary assets and liabilities denominated
in foreign currencies at year end exchange rates are generally
recognized in profit or loss. Foreign exchange gains and losses
that relate to borrowings are presented in the consolidated
statement of comprehensive income, within finance income and costs.
All other foreign exchange gains and losses are presented in the
consolidated statement of comprehensive income on a net basis
within finance income and costs.
Non-monetary items that are measured at fair value in a foreign
currency are translated using the exchange rates at the date when
the fair value was determined. Translation differences on assets
and liabilities carried at fair value are reported as part of the
fair value gain or loss.
2.3 Property, plant and equipment
Property acquisition costs are capitalized. Property, plant and
equipment is stated at cost, as defined in IAS 16, less accumulated
depreciation and accumulated impairment losses.
2.4 Mining properties and mine development costs
Development costs relating to specific properties are
capitalized once management determines a property will be
developed. A development decision is made based upon consideration
of project economics, including future metal prices, reserves and
resources, and estimated operating and capital costs.
Capitalization of costs incurred and proceeds received during the
development phase ceases when the property is capable of operating
at levels intended by management and is considered commercially
viable. Costs incurred during the production phase to increase
future output by providing access to additional reserves, are
deferred and depreciated on a units-of-production basis over the
component of the reserves to which they relate. Ore reserves may be
declared for an undeveloped mining project before its commercial
viability has been fully determined.
Development costs incurred after the commencement of production
are capitalised to the extent they are expected to give rise to a
future economic benefit. The cost of mineral properties also
includes the estimated close-down and restoration costs associated
with the asset.
Interest on borrowings related to qualifying assets for
construction or development projects is capitalised, at the rate
payable on project-specific debt if applicable or at SASA's cost of
borrowing, until the project becomes commercially viable.
2.5 Depreciation
Property, plant and equipment is depreciated over their useful
life, or over the remaining life of the operation if shorter, to
residual value. No depreciation is recorded until the assets are
substantially complete and ready for productive use. The major
asset categories are depreciated as follows:
Mining Properties, including capitalised financing costs, are
depreciated on a Unit of Production basis (UoP), in proportion to
the volume of ore extracted in the year compared with total proven
and probable reserves at the beginning of the year. Assets within
operations for which production is not expected to fluctuate
significantly from one year to another or which have a physical
life shorter than the related mine are depreciated on a
Straight-Line basis. This pertains to all asset classes,
including:
-- Buildings and mining infrastructure (which includes mining properties)
-- Machinery, Plant and other equipment
Depreciation calculated on a straight-line basis is as follows
for major asset categories:
Office
equipment............................................................................................
20%-37.5%
Furniture and
fittings.......................................................................................
20%-37.5%
Other Mining Infrastructure and
buildings.........................................................
2.5%-10%
Motor
vehicles................................................................................................
25%-37.5%
Land is not depreciated.
Development costs are not depreciated. Depreciation on equipment
utilized in the development of assets, including underground mine
development, is depreciated and recapitalized as development costs
attributable to the related asset.
The depreciation of property, plant and equipment shall start
after expiration of the month of the start-up in the year in which
the utilisation of the property, plant and equipment started.
2.6 Exploration and evaluation expenditure
Exploration and evaluation expenditure comprises costs that are
directly attributable to:
-- researching and analysing existing exploration data;
-- conducting geological studies, exploratory drilling and sampling;
-- examining and testing extraction and treatment methods; and/or
-- compiling pre-feasibility and feasibility studies.
Evaluation expenditure relates to a detailed assessment of
deposits or other projects that have been identified as having
economic potential. Exploration and evaluation costs are expensed
in the period incurred.
2.7 Impairment of property plant and equipment
At each reporting date, under IAS 36 SASA reviews the carrying
amounts of its mineral properties, and property, plant and
equipment to determine whether there is any indication that those
assets are impaired. If such an indication exists, the recoverable
amount of the asset is estimated in order to determine the extent
of any impairment. Where the asset does not generate cash flows
that are independent from other assets, SASA estimates the
recoverable amount of the CGU to which the asset belongs.
Internal and external factors are considered in assessing
whether indicators of impairment are present. Significant
assumptions regarding commodity prices, operating costs, capital
expenditures and discount rates are used in determining whether
there are any indicators of impairment. These assumptions are
reviewed regularly by senior management and compared, where
applicable, to observable market data.
Recoverable amount is the higher of fair value less costs of
disposal and value in use (VIU). Fair value less costs of disposal
is determined as the amount that would be obtained from the sale of
the asset in an arm's length transaction between knowledgeable and
willing parties. For mining assets this would generally be
determined based on the present value of the estimated future cash
flows arising from the continued development, use or eventual
disposal of the asset. In assessing these cash flows and
discounting them to present value, assumptions used are those that
an independent market participant would consider appropriate. In
assessing VIU, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks
specific to the asset for which estimates of future cash flows have
not been adjusted. If the recoverable amount of an asset or CGU is
estimated to be less than its carrying amount, the carrying amount
of the asset or CGU is reduced to its recoverable amount. An
impairment loss is recognised in the income statement.
Where an impairment loss subsequently reverses, the carrying
amount of the asset or CGU is increased to the revised estimate of
its recoverable amount, but so that the increased carrying amount
does not exceed the carrying amount that would have been determined
had no impairment been recognised for the asset or CGU. A reversal
of an impairment loss is recognised in the income statement.
2.8 Inventories
Inventories comprise raw materials (mined ore and other),
work-in-progress (crushed ore), finished products (concentrate),
spare parts and other materials and are carried at lower of cost
and net realisable value.
The cost of inventories comprises all costs of purchase,
production and other production overheads attributable to the
production of finished goods (such as electricity, salaries,
transport costs, fuel costs, food, beverages, and other) and other
costs incurred in bringing the inventories to their present
location and condition as follows:
Raw
materials.....................................................
Mining costs incurred
Spare parts and other materials.............................
Purchase cost on a weighted average basis
Finished goods, work in progress.......................... Cost
of direct materials and labour and a proportion of production
overheads, based on normal operating capacity
Obsolete, redundant and slow-moving inventories are identified
and written down to their net realisable value as required.
Stockpiles comprise coarse ore that has been extracted from the
mine and is available for further processing. Stockpiles are
measured by estimating the number of tonnes added and removed from
the stockpile. Stockpile tonnages are verified by periodic surveys,
and valued based on procurement or mining costs incurred up to the
point of stockpiling the ore.
Net realisable value is the estimated selling price in the
ordinary course of business, less estimated cost of completion and
the estimated costs necessary to make the sale.
2.9 Trade and other receivables
Trade and other receivables are recognised initially at fair
value and subsequently measured at amortised cost using the
effective interest method, less provision for impairment.
A provision for impairment of trade receivables is established
when there is objective evidence that SASA will not be able to
collect all amounts due according to the original terms of the
receivables. Significant financial difficulties of the debtor,
probability that the debtor will enter bankruptcy or financial
reorganisation, and default or delinquency in payments are
considered indicators that the trade receivable is impaired. The
amount of the provision is the difference between the asset's
carrying amount and the present value of the estimated future cash
flows discounted at the financial asset's original effective
interest rate. The carrying amount of the asset is reduced through
the use of an allowance account, and the amount of the loss is
recognised in Profit or loss. When a trade receivable is
uncollectible, it is written off against the allowance account for
trade receivables.
2.10 Cash and cash equivalents
Cash and cash equivalents comprise bank balances in local and
foreign currency, cash in hand and deposits in banks with original
maturity with less than 3 months. The carrying amount of cash and
cash equivalents is stated at cost, which approximates fair
value.
2.11 Impairment of financial assets
SASA assesses at each reporting date whether a financial asset
or group of financial assets is impaired. A financial asset is
deemed to be impaired if there is objective evidence of impairment
as a result of one or more events that has occurred after the
initial recognition of the asset. Evidence of impairment may
include indications that the debtor is experiencing significant
financial difficulty, default or delinquency in interest or
principal payments, bankruptcy or other such events.
Assets carried at amortised cost
If there is objective evidence that an impairment loss on assets
carried at amortised cost has been 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 been incurred)
discounted at the financial asset's original effective interest
rate (i.e the effective interest rate computed at initial
recognition). The carrying amount of the asset is reduced through
use of an allowance account. The amount of the loss shall be
recognised in the consolidated statement of comprehensive
income.
If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised, the previously
recognised impairment loss is reversed, to the extent that the
carrying value of the asset does not exceed its amortised cost at
the reversal date. Any subsequent reversal of an impairment loss is
recognised in the consolidated statement of comprehensive
income.
In relation to trade receivables, a provision for impairment is
made when there is objective evidence (such as the probability of
insolvency or significant financial difficulties of the debtor)
that SASA will not be able to collect all of the amounts due under
the original terms of the invoice. The carrying amount of the
receivable is reduced through use of an allowance account. Impaired
debts are derecognised when they are assessed as uncollectible.
2.12 Own capital
( ) Own capital consists of paid in monetary considerations contributed by the shareholders.
(b) Statutory and other Reserves
Legal reserves are created during the periods by transfer from
retained earnings based on the legislation and decisions of the
Management of SASA.
(c) Retained earnings
Retained earnings comprise of non-distributed earnings from the
current and past periods.
(d) Dividends
Dividend distribution to SASA's owners is recognised as a
liability in SASA's financial information in the period in which
the dividends are approved (declared) by SASA's shareholders.
2.13 Trade and other payables
Trade payables are obligations to pay for goods or services that
have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities
if payment is due within one year or less. If not, they are
presented as non-current liabilities.
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method.
2.14 Provisions and contingent liabilities
Provisions are recognized when SASA has a present legal or
constructive obligation as a result of past events and it is
probable that an outflow of resources embodying economic benefits
will be required to settle the obligation, and a reliable estimate
of the amount of the obligation can be made.
Provisions are measured and recorded as the best estimate of the
expenditure required to settle the present obligation at the
balance sheet date. The provision charge is recognized in the
statement of comprehensive income within the expense corresponding
to the nature of the provision.
Provision for rehabilitation and environment
Management estimate, and provide for, obligations to incur
restoration, rehabilitation and environment costs when
environmental disturbance is caused by the initial or ongoing
development of a mining property. Costs arising from establishing
infrastructure at the start of a project are discounted to their
net present value, provided for and capitalised when obligation
arises. These costs are charged against profits over the useful
life of the related asset through the unwinding of the discount and
depreciation charge.
The estimated future costs of decommissioning are reviewed
annually and adjusted as appropriate. Changes in the estimated
future costs or in the discount rate applied are added to or
deducted from the costs of the asset. No provision is recognized
for contingent liabilities. A contingent liability is a possible
obligation that arises from past events and whose existence will be
confirmed only by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of the
entity; or a present obligation that arises from past events but is
not recognized because it is not probable that an outflow of
resources embodying economic benefits will be required to settle
the obligation or the amount of the obligation cannot be measured
with sufficient reliability.
2.15 Income taxes
The tax expense for the period comprises current and deferred
tax. Tax is recognized in profit or loss, except to the extent that
it relates to items recognized in other comprehensive income or
directly in equity. In this case, the tax is also recognized in
other comprehensive income or directly in equity, respectively.
Current tax assets and liabilities for the current and prior
periods are measured at the amounts expected to be recovered or
paid to the taxation authorities. The tax rates and tax laws used
to compute the amounts are those that are enacted or substantively
enacted by the reporting date.
Current income tax
Companies did not have to pay income tax on their profit before
tax (earned since 1 January 2009) until that profit was distributed
in a form of dividend or other forms of profit distributions. If
dividend was paid, 10% income tax was payable at the moment of the
dividend payment, regardless of whether in monetary or non-monetary
form, to the foreign non-resident legal entities and, foreign and
domestic individuals. The dividends paid out to the resident legal
entities were tax exempt. Apart from distribution of dividends, the
tax was still payable on the non-deductible expenses incurred in
that fiscal year, decreased by the amount of tax credits and other
tax reliefs.
In January 2014 the profit tax law was amended whereby the
income tax is payable at the moment of dividend distribution
regardless of the ownership structure. In accordance with these
changes applicable as of January 2014, the income tax in Macedonia
ceased to have the characteristics of withholding taxes.
Consequently, as per IAS 12, the income tax arising from the
payment of dividends was accounted for as a liability and profit
and loss in the period in which dividends were declared, regardless
of the actual payment date or the period for which the dividends
were paid.
As of 1 August 2014, new profit tax law came into force being
applicable from 1 January 2015 for the net income for 2014, with
which the base for income tax computation had been shifted from
income "distribution" concept to the profit before taxes. According
to the provisions of the new law, the tax base is the profit
generated during the fiscal year increased for non-deductible
expenses and reduced for deductible revenue (i.e. dividends already
taxed at the payer) and the income tax rate is 10%. In line with
these changes income tax for the year was calculated and recorded
in the Statement of comprehensive income.
Deferred income tax
Deferred tax is recognized applying the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial
information. However, deferred tax is not accounted for if it
arises from initial recognition of an asset or liability in a
transaction other than a business combination that at the time of
the transaction affects neither accounting nor taxable profit.
Deferred tax is determined using income tax rates that have been
enacted or substantially enacted by the financial statement date
and are expected to apply when the related deferred tax asset is
realized or the deferred tax liability is settled.
Deferred tax assets are recognized to the extent that it is
probable that future taxable profit (or reversing deferred tax
liabilities) will be available against which the temporary
differences can be utilized. Deferred income tax assets and
liabilities are offset when there is a legally enforceable right to
offset current tax assets against current tax liabilities and when
the deferred income taxes assets and liabilities relate to income
taxes levied by the same taxation authority on either the same
taxable entity or different taxable entities where there is an
intention to settle the balances on a net basis.
2.16 Employees Benefits
a) Pension
SASA, in the normal course of business, makes payments on behalf
of its employees for pensions, health care, employment and
personnel tax which are calculated on the basis on gross salaries
and wages according to the legislation. SASA makes these
contributions to the Governmental health and retirement funds as
well to private retirement funds. The cost of these payments is
charged to the income statement in the same period as the related
salary cost.
SASA does not operate any other pension scheme or
post-retirement benefits plan and consequently, has no obligation
in respect of pensions.
b) Termination benefits
Termination benefits are payable whenever an employee's
employment is terminated before the normal retirement date or
whenever an employee accepts voluntary redundancy in exchange for
these benefits. SASA recognises termination benefits when it is
demonstrably committed to either terminate the employment of
current employees according to a detailed formal plan without
possibility of withdrawal or to provide termination benefits as a
result of an offer made to encourage voluntary redundancy.
c) Retirement benefits and jubilee awards
Pursuant to the Labour law prevailing in the Republic of
Macedonia, SASA is obliged to pay retirement benefits in an amount
equal to two average monthly salaries, at their retirement date.
According to the Collective agreement, SASA is also obliged to pay
jubilee anniversary awards that correspond to the total number of
years of service of the employee. Due to the long-term nature of
these plans, such estimates are subject to significant uncertainty.
In addition, SASA is not obligated to provide further benefits to
current and former employees.
Retirement benefit obligations arising on severance pay are
stated at the present value of expected future cash payments
towards the qualifying employees. These benefits have been accrued
by an independent actuary in accordance with the prevailing rules
of actuarial mathematics. Actuarial gains and losses arising from
experience adjustments and changes in actuarial assumptions are
charged or credited to income over the employees' expected average
remaining working lives.
2.17 Borrowings
Borrowings are recognised initially at fair value. Borrowings
are subsequently carried at amortised cost; any difference between
the proceeds and the redemption value is recognised in the income
statement over the period of the borrowings using the effective
interest method.
Fees paid on the establishment of loan facilities are recognised
as transaction costs of the loan to the extent that it is probable
that some or all of the facility will be drawn down. In this case,
the fee is deferred until the draw-down occurs. To the extent there
is no evidence that it is probable that some or all of the facility
will be drawn down, the fee is capitalised as a pre-payment for
liquidity services and amortised over the period of the facility to
which it relates.
2.18 Leases
Leases where the lessor retains substantially all the risks and
rewards of ownership are classified as operating leases. Payments
made under operating leases (net of any incentives received from
the lessor) are charged to the statement of comprehensive income on
a straight-line basis over the period of the lease.
2.19 Revenue
Revenue is derived principally from the sale of metal
concentrate and is measured at the fair value of consideration
received or receivable, after deducting discounts, volume rebates,
value added tax and other sales taxes. A sale is recognised when
the significant risks and rewards of ownership have passed. This is
when title and insurance risk have passed to the customer and the
goods have been delivered to a contractually agreed location.
Sales of metal concentrate are stated at their invoiced amount
which is net of treatment and refining charges. Sales of metal
concentrate are determined based on the market price from the LME
at the date of sale. Sales are not provisionally priced.
Revenues from the sale of material by-products are included
within revenue. Where a by-product is not regarded as significant,
revenue will be credited against the cost of sales. Revenue from
services is recognised as services are rendered and accepted by the
customer. Amounts billed to customers in respect of shipping and
handling activities are classified as revenue where SASA is
responsible for freight. In situations where SASA is acting as an
agent, amounts billed to customers are offset against the relevant
costs.
3. Financial risk management
3.1 Financial risk factors
SASA does not apply hedge accounting for its financial
instruments, all gains and losses are recognized in the income
statement. SASA is exposed in particular to risks from movements in
exchange rates and market prices that affect its assets and
liabilities, credit risk and liquidity risk. Financial risk
management aims to limit these market risks through ongoing
operational and finance activities.
(i) Market risk
Market risk is defined as the 'risk that the fair value or
future cash flows of a financial instrument will fluctuate because
of changes in market prices' and includes interest rate risk,
currency risk and other price risk. The majority of the revenues of
SASA are generated in USD and the remaining part mainly in MKD.
Expenses incurred by SASA are primarily in MKD, followed by EUR
and USD and the residual amounts in Swedish Krona ("SEK"). As a
result, SASA's objective is to minimize the level of its financial
risk in MKD terms. For the presentation of market risks in
accordance with IFRS 7 a sensitivity analyses is prepared below to
show the effects of hypothetical changes of the relevant risk
variables on profit or loss and owner's equity. The periodic
effects are determined by relating the hypothetical changes in the
risk variables to the balance of financial instruments at the
balance sheet date. The balance at the balance sheet date is
representative for the year as a whole.
Commodity prices, primarily lead and zinc, are key revenue
drivers for SASA. The prices for lead and zinc can fluctuate widely
and are affected by various factors beyond SASA's control. The main
driver for metal price fluctuations is the supply and demand
balance but other factors such as exchange rates, interest rates or
speculative activities and the change in global economies can
impact price levels and volatility too. To anticipate the full
extent of the impact of any driver for commodity prices market
developments is impossible management believes that is taking all
the necessary measures to support the sustainability and growth of
SASA's business in the current circumstances. Nevertheless, future
market fluctuations cannot be predicted with accuracy. SASA does
not currently hedge interest commodity price exposure. Any hedging
activity requires approval of SASA's Board of Directors. SASA will
not hold or issue derivative instruments for speculation.
Commodity price sensitivity
SASA is affected by the volatility of certain commodities. Its
operating activities require the ongoing sales of Pb and Zn and
processing of ore. The following table shows the effect of metal
prices on SASA's financial results:
Change Effect Effect
in on on profit
metal financial before
prices position tax
-------- ------------ ------------
USD USD
2015................................................................................... 100 USD 3,921,567 3,147,221
(100)
USD (4,083,591) (3,147,332)
100
2014................................................................................... USD 4,372,513 3,760,884
(100)
USD (4,553,168) (3,760,884)
Foreign exchange risk
SASA's functional currency is the MKD. The foreign exchange risk
exposure of SASA is related to holding foreign currency cash
balances, and operating activities through revenues from and
payments to international companies as well as capital expenditure
contracted with vendors in foreign currency.
The currency giving rise to this risk is primarily USD. SASA
manages the foreign exchange risk exposure by striving to manage
sales contracts in USD and thus most of the trade receivables are
in USD. SASA has small cash reserves in USD currency. SASA uses
cash deposits in MKD or cash deposits in MKD indexed to EUR, to
economically manage its foreign currency risk as well as local
currency risk in accordance with the available banks offers.
However, the purchase of spare parts and raw materials are
mostly denominated in MKD or EUR and connected to the price
movement on the global movement, which is denominated in the both
currencies. Therefore there is associated inherent business risk
with such transactions. SASA's exposure to foreign currency risk
was as follows:
MKD EUR USD SEK Other
Assets
Cash and cash
equivalents
. . . . . . . . . . .
. . . . . 62,262 154,379 - - -
Trade and other
receivables
. . . . . . . . . . .
. . . . 72,411 97,810 6,014,982 - -
--------------- -------------- ------------- ----------- ------
Total assets . . . .
. . . . . . . . . . .
. . . . . . . . . . 134,673 252,189 6,014,982 - -
Liabilities
Trade payables . . .
. . . . . . . . . . .
. . . . . . . . . 1,473,914 442,470 45,641 135,647 -
Other current
financial
liabilities . . . . .
. . . . . . . 1,240,687 - - - -
Borrowings . . . . .
. . . . . . . . . . .
. . . . . . . . . . 11,208,226 - - - -
--------------- -------------- ------------- ----------- ------
Total liabilities . .
. . . . . . . . . . .
. . . . . . . . . . 13,922,827 442,470 45,641 135,647 -
--------------- -------------- ------------- ----------- ------
Net balance sheet
exposure
. . . . . . . . . . .
. . . (13,788,154) (190,281) 5,969,341 (135,647) -
--------------- -------------- ------------- ----------- ------
2014 MKD EUR USD SEK Other
Assets
Cash and cash
equivalents
. . . . . . . . . .
. . . . 24,308 15,506 923,134 - -
Trade and other
receivables
. . . . . . . . . .
. . . . 2,137,028 223,732 45,406,425 - -
Short-term loans . .
. . . . . . . . . .
. . . . . . . . . 12,688,013 24,559,636 18,252,723 - -
---------------- -------------- ------------- ----------- ------
Total assets . . . .
. . . . . . . . . .
. . . . . . . . . . 14,849,349 24,798,874 64,582,282 - -
Liabilities
Trade payables . . .
. . . . . . . . . .
. . . . . . . . . 1,412,350 380,871 - 88,923 -
Other current
financial
liabilities . . . .
. . . . . . . 63,815,239 - - - -
Borrowings . . . . . - - 9,228,567 - -
. . . . . . . . . .
. . . . . . . . .
---------------- -------------- ------------- ----------- ------
Total liabilities .
. . . . . . . . . .
. . . . . . . . . . 65,227,589 380,871 9,228,567 88,923 -
---------------- -------------- ------------- ----------- ------
Net balance sheet
exposure
. . . . . . . . . .
. . . (50,378,240) 24,418,003 55,353,715 (88,923) -
---------------- -------------- ------------- ----------- ------
At 31 December 2015, if the MKD had weakened/strengthened by
0.5%, 2% i.e. 0.5% against the EUR/USD/SEK respectively with all
other variables held constant, the recalculated post-tax profit for
the year would have been for USD 958 lower/higher (2014: USD
122,092 lower/higher) for EUR; USD 119,380 lower/ higher (2014: USD
1,107,072 lower/higher) for USD; and USD 674 lower/higher (2014:
USD 435 lower/ higher) for SEK.
Interest rate risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates. Change in the interest rates and
interest margins may influence financing costs and returns on
financial investments. Changes in market interest rates affect the
interest income on time deposits with banks.
SASA has borrowings in amounts of USD 11,208,226 as of 31
December 2015 (2014: USD 9,228,566), therefore 1 percentage point
rise in market interest rate would have caused (ceteris paribus)
the interest paid to increase by approximately USD 112,072 annually
before tax (2014: USD 92,305), while a similar decrease would have
caused the same decrease in interest paid.
SASA has nil loans receivables as of 31 December 2015 (2014: USD
55,500,372 ), therefore 1 percentage point rise in market interest
rate would have caused (ceteris paribus) the interest received to
increase by D nil (2014: USD 555,000) annually before tax, while a
similar decrease would have caused the same decrease in interest
received.
SASA has cash and cash equivalents in amounts of USD 216,641 as
of 31 December 2015 (2014: USD 923,391), therefore 1 percentage
point rise in market interest rate would have caused (ceteris
paribus) the interest received to increase by approximately USD
2,164 annually before tax (2014: USD 9,632), while a similar
decrease would have caused the same decrease in interest paid.
(ii) Credit risk
Credit risk is defined as the risk that one party to a financial
instrument will cause a financial loss for the other party by
failing to discharge an obligation. SASA is exposed to credit risk
from its operating activities and certain financing activities, as
it carries similar credit risk borne by its Ultimate parent, which
exposes it to all financial consequences of default from the parent
company's customers failing to make required payments. The process
of managing the credit risk from operating activities includes
preventive measures such as creditability checking and prevention
barring, corrective measures during legal relationship for example
reminding and disconnection activities. The overdue payments are
followed through a debt escalation procedure based on customer's
type, credit class and amount of debt. The credit risk is
controlled through credibility checking - which determines that the
customer is not indebted and the customer's credit worthiness.
SASA's procedures ensure on a permanent basis that sales are
made to one customer who is a related party with an appropriate
credit history and not exceed acceptable credit exposure.
SASA does not guarantee obligations of other parties. The
maximum exposure to credit risk is represented by the carrying
amount of each financial asset in the balance sheet. Consequently,
SASA considers that its maximum exposure is reflected by the amount
of debtors net of provisions for impairment recognized and the
amount of cash deposits in banks at the Balance Sheet date.
Management is focused on dealing with most reputable banks in
foreign and domestic ownership on the domestic market.
The following table represents SASA's exposure to credit risk as
at 31 December 2015 and 31 December 2014:
2015 2014
Cash and cash equivalents . . .
. . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . 216,641 962,947
Trade receivables . . . . . . .
. . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
. . 6,022,610 45,415,543
Other receivables . . . . . . .
. . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
. . 1,374,647 2,351,664
Loans . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
. . . - 55,500,372
---------- -----------
7,613,898 104,230,526
---------- -----------
The receivables are summarized as follows:
31 December 2015 31 December 2014
---------------------------- ----------------------------
Trade Trade Trade Trade
receivables receivables receivables receivables
- domestic - foreign - domestic - foreign
------------- ------------- ------------- -------------
Neither past due
nor impaired.............. 905 6,021,705 1,622 45,413,921
Past due but not - - - -
impaired.....................
Impaired
.................................................. 6,723 - 7,496
------------- ------------- ------------- -------------
Gross.............................................
.......... 7,628 6,021,705 9,118 45,413,921
Less: allowance
for impairment............ (6,723) - (7,496) -
------------- ------------- ------------- -------------
Net...............................................
............. 905 6,021,705 1,622 45,413,921
============= ============= ============= =============
Trade receivables of USD 6,022,610 (2014: USD 45,415,543) were
neither past due nor impaired. Main part of these receivables is
matured up to 120 days, with no recent history of default. SASA
analyzes the credit quality of neither past due nor impaired
dividing between related parties and third parties. The amount
presented as neither past due nor impaired is from related parties.
Impaired receivables of USD 6,723 (2014: USD 7,496) relates to
third party receivables which are due over 360 days. Further
details are presented in Note 15.
SASA's maximum exposure to credit risk for trade receivables at
the reporting date by geographic regions is as follows:
2015 2014
---------- -----------
Domestic.................................................................................
................................... 905 1,622
Other Foreign
countries................................................................................
.......... 6,021,705 45,413,921
---------- -----------
6,022,610 45,415,543
---------- -----------
(v) Liquidity risk
Liquidity risk is defined as the risk that SASA could not be
able to settle or meet its obligations on time. SASA's policy is to
maintain sufficient cash and cash equivalents to meet its
commitments in the foreseeable future. Any excess cash is mostly
deposited in commercial banks. SASA's liquidity management process
includes projecting cash flows by major currencies and considering
the level of necessary liquid assets, considering business plan,
historical collection and outflow data. Regular cash projections
are prepared and updated by Management.
The table below analyses SASA's financial liabilities into
relevant maturity groupings based on the remaining period at the
balance sheet date to the contractual maturity date. The amounts
disclosed are the contractual undiscounted cash flows.
Carrying 1 to
As at December amount 6 6 to 5 Over
2015 years months 12 months years 5 years
----------- ----------- ---------- ------ --------
Financial assets
Cash and cash
equivalents............... 216,641 216,641 - - -
Trade receivables............................. 6,022,610 6,022,610 - - -
Other receivables............................. 1,374,647 1,374,647 - - -
----------- ----------- ---------- ------ --------
7,613,898 7,613,898 - - -
=========== =========== ========== ====== ========
Financial liabilities
Trade payables................................ 2,097,672 2,097,672 - - -
Other current
financial liabilities...... 11,208,226 11,208,225 - - -
----------- ----------- ---------- ------ --------
Borrowings...................................... 14,546,585 14,546,585 - - -
=========== =========== ========== ====== ========
Net exposure.................................. (6,932,687) (6,932,687) - - -
=========== =========== ========== ====== ========
Carrying 1 to
As at December amount 6 6 to 5 Over
2014 years months 12 months years 5 years
----------- ----------- ----------- ------ --------
Financial assets
Cash and cash
equivalents............... 962,947 962,947 - - -
Trade receivables............................. 45,415,543 45,415,543 - - -
Other receivables............................. 2,351,664 2,351,664 - - -
Short Term loans............................. 55,500,372 55,500,372 - - -
----------- ----------- ----------- ------ --------
104,230,526 104,230,526 - - -
=========== =========== =========== ====== ========
Financial liabilities
Trade payables................................ 1,882,145 1,882,145 - - -
Other current
financial liabilities...... 1,448,466 1,448,466 - - -
Loans and borrowings...................... 9,228,566 2,483,900 6,744,666 - -
Dividend liability............................. 62,366,773 62,366,773 - - -
----------- ----------- ----------- ------ --------
74,925,950 68,181,284 6,744,666 - -
=========== =========== =========== ====== ========
Net exposure.................................. 29,304,576 36,049,242 (6,744,666) - -
=========== =========== =========== ====== ========
3.2 Capital risk management
SASA's objectives when managing capital are to safeguard the
SASA's ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to
maintain an optimal capital structure to reduce the cost of
capital.
3.3 Fair value estimation
Cash and cash equivalents, trade receivables and other current
financial assets mainly have short term maturity. For this reason,
their carrying amounts at the reporting date approximate their fair
values.
31 December 2015
Assets as per the Statement Loans Carrying Fair
of financial position and Receivables amount value
---------------- ---------- ----------
Trade and other
receivables.................................................... 7,397,257 7,397,257 7,397,257
Cash and cash
equivalents..................................................... 216,641 216,641 216,641
---------------- ---------- ----------
7,613,898 7,613,898 7,613,898
================ ========== ==========
Other
Liabilities as per the Statement financial Carrying Fair
of financial position liabilities amount value
------------ ----------- -----------
Trade payables and other
current liabilities......................... 3,338,359 3,338,359 3,338,359
Interest bearing
borrowings.................................................... 11,208,226 11,208,226 11,208,226
------------ ----------- -----------
14,546,585 14,546,585 14,546,585
============ =========== ===========
31 December 2014
Assets as per the Statement Loans Carrying Fair
of financial position and Receivables amount value
---------------- ------------ ------------
Trade and other
receivables................................................. 47,767,207 47,767,207 47,767,207
Cash and cash
equivalents................................................... 962,947 962,947 962,947
Short-term
loans...........................................................
.......... 55,500,372 55,500,372 55,500,372
---------------- ------------ ------------
104,230,526 104,230,526 104,230,526
================ ============ ============
Other
Liabilities as per the Statement financial Carrying Fair
of financial position liabilities amount value
------------ ----------- -----------
Interest bearing
borrowings.................................................... 9,228,566 9,228,566 9,228,566
Trade payables and other
current financial liabilities......... 65,697,384 65,697,384 65,697,384
------------ ----------- -----------
74,925,950 74,925,950 74,925,950
============ =========== ===========
The fair value of borrowings has been calculated by discounting
the expected future cash flows at contracted interest rates. The
fair value of loan notes and other financial assets has been
calculated using market interest rates. As at 31 December 2015 and
31 December 2014, SASA measured the fair value using techniques for
which all inputs which have a significant effect on the recorded
fair value are observable, either directly or indirectly (Level
2).
4. Critical accounting estimates and judgments
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
4.1 Critical accounting estimates and assumptions
SASA makes estimates and assumptions concerning the future.
Estimates and judgments are continually evaluated and are based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances. The most critical estimates and assumptions are
discussed below.
(i) Useful lives of assets
Units of production basis
For mining properties and leases and certain mining equipment,
consumption of the economic benefits of the asset is linked to
production. Except as noted below, these assets are depreciated on
a unit of production basis.
In applying the units of production method, depreciation is
normally calculated based on production in the period as a
percentage of total expected production in current and future
periods based on ore reserves and, for some mines, other mineral
resources and therefore the annual depreciation expense could be
materially affected by changes in the underlying estimates which
are driven by the life of mine plans. Changes in estimates can be
the result of actual future production differing from current
forecasts of future production, expansion of mineral reserves
through exploration activities, differences between estimated and
actual costs of mining and differences in the commodity prices used
in the estimation of mineral reserves.
The required level of confidence is unlikely to exist for
minerals that are typically found in low-grade ore. Specific areas
of mineralisation have to be evaluated in considerable detail
before their economic status can be predicted with confidence. In
calculating the units of production ratio, management made
significant estimates. Changes in the proven and probable reserves
estimates may impact the carrying value of property, plant and
equipment.
Straight-line basis
Assets within operations for which production is not expected to
fluctuate significantly from one year to another or which have a
physical life shorter than the related mine are depreciated on a
straight-line basis.
Further, due to the significant weight of depreciable assets in
SASA's total assets, the impact of any changes in these assumptions
could be material to SASA's financial position, and results of
operations. If depreciation cost is decreased/increased by 10%,
this would result in additional annual depreciation of
approximately USD 547,199 (2014: USD 529,946).
(ii) Potential impairment of property, plant and equipment and intangibles
SASA is assessing the impairment of identifiable property,
plant, equipment and intangibles whenever there is a reason to
believe that the carrying value may materially exceed the
recoverable amount and where impairment in value is anticipated.
The recoverable amounts are determined by value in use
calculations, which use a broad range of estimates and factors
affecting those. Among others, SASA typically considers future
revenues and expenses, macroeconomic indicators, technological
obsolescence, discontinuance of operations and other changes in
circumstances that may indicate impairment. If impairment is
identified using the value in use calculations, SASA also
determines the fair value less cost to sell (if determinable), to
calculate the exact amount of impairment to be charged (if any). As
this exercise is highly judgmental, the amount of potential
impairment may be significantly different from that of the result
of these calculations.
(iii) Impairment of trade and other receivables
SASA calculates impairment for doubtful accounts based on
estimated losses resulting from the inability of its customers to
make required payments. For customers in bankruptcy and
liquidation, impairment is calculated on an individual basis, while
for other customers it is estimated on a portfolio basis, for which
SASA bases its estimate on the aging of its account receivables
balance and its historical write-off experience, customer
credit-worthiness and changes in its customer payment terms. These
factors are reviewed periodically, and changes are made to
calculations when necessary. The estimates involve assumptions
about future customer behaviour and the resulting future cash
collections. If the financial condition of its customers were to
deteriorate, actual write-offs of currently existing receivables
may be higher than expected and may exceed the level of the
impairment losses recognized so far.
(iv) Ore reserves & Resources
Mineral Reserves and Resources may be used to calculate useful
economic lives of assets and depreciation on SASA's mining
properties and are defined as SASA's best estimate of Mineral Ore
that can be mined in an economically viable fashion from the
relevant property. Feasibility is determined based on operational
assumptions that include, but are not limited to, production costs,
mining and processing recoveries, cut-off grades, long term
commodity prices as well as, possibly, exchange rates, inflation
rates and capital costs. SASA's estimates are supported by
geological studies conducted by appropriately qualified persons.
However, SASA maintains that estimates ultimately depend upon
interpretation and statistical inferences drawn from drilling and
sampling analysis, and may therefore be subject to upward or
downward restatements over time.
Mineral Reserves and Resources are determined based on
assumptions that were valid at the time of estimation may change
when new information becomes available. In addition, the
calculation of the unit of production rate of amortisation could be
impacted to the extent that actual production in the future is
different from current forecast production. Any changes in estimate
could affect prospective depreciation rates and asset carrying
values and, as a result, the determination of Ore Reserves is
considered a key source of estimation uncertainty.
(v) Provisions for rehabilitation and environmental provision
Management estimates and recognizes provisions for
rehabilitation and environmental disturbances at the moment when
disruption of the environment is caused by the initial and current
development of the mine. Expenses for withdrawal are calculated at
the present value of the estimated future expenses for settlement
of liabilities based on projected cash flows. Consequently, a
rehabilitation asset is recognized within property, plant or
equipment. Cash flows are discounted using a risk free rate and
changes are recognized as financial expenses. Estimated future
expenses for withdrawal are estimated each year. Changes in the
estimated future expenses or discount rates are added or deduct
from the expense of the asset.
(vi) Income taxes
SASA is subject to income taxes in the Country of operation.
Significant estimates are required in determining the provision for
income taxes. There are some transactions and calculations for
which the ultimate tax determination is uncertain. SASA recognises
liabilities for anticipated tax based on estimates of whether
additional taxes will be due. Where the final tax outcome of these
matters is different from the amounts that were initially recorded,
such differences will impact the income tax and deferred tax
provisions in the period in which such determination is made.
5. Gross Revenue
2015 2014
----------- -----------
Revenue on foreign markets-lead
and zinc concentrate.................................. 70,424,600 82,725,595
Revenue on domestic
market.................................................................................. 67,229 111,987
----------- -----------
70,491,829 82,837,582
----------- -----------
6. Other Operating income
2015 2014
------- -------
Income from insurance
claims................................................................................ 40,417 10,378
Other operating
income..........................................................................................
. 36,650 41,104
------- -------
77,067 51,482
------- -------
7. Consumed raw materials
2015 2014
---------- -----------
Consumed
materials................................................................................
................. 5,418,344 5,729,401
Consumed spare parts and
tools........................................................................... 4,381,150 5,343,789
Consumed
electricity..............................................................................
................. 2,312,402 2,784,462
Consumed
petrol...................................................................................
................... 998,183 1,662,380
---------- -----------
3,110,079 15,520,032
---------- -----------
8. Salaries/payroll expenses
2015 2014
---------- ----------
Net
salaries..................................................................................
.............................. 3,918,367 4,677,210
Compulsory social security
contributions........................................................... 1,910,235 2,042,802
Other staff
costs.....................................................................................
.................. 1,458,515 1,573,841
Employee related
expenses..................................................................................
... 275,818 329,090
Termination benefits (Note
19)............................................................................... 51,336 56,004
---------- ----------
7,614,271 8,678,947
---------- ----------
9. Concession expenses
2015 2014
---------- ----------
Concession for water
use.......................................................................................
. 35,173 40,867
Concession for space
use....................................................................................... 13,586 13,737
Concession for the use of mineral
resources....................................................... 2,127,076 2,504,163
---------- ----------
2,175,835 2,558,767
---------- ----------
10. Other operating expenses
2015 2014
---------- ----------
Maintenance
expenses..................................................................................
.......... 1,948,273 2,120,122
Marketing and representation
expenses............................................................... 573,132 681,501
Consultancy and audit
expenses........................................................................... 71,788 79,237
Security
expenses..................................................................................
................... 136,350 155,115
Bank
charges...................................................................................
.......................... 53,661 78,376
Telecommunication
expenses................................................................................. 103,465 121,417
Insurance
expenses..................................................................................
................ 170,424 210,666
Rental
expenses..................................................................................
...................... 53,444 45,324
Other
expenses..................................................................................
....................... 469,342 750,532
---------- ----------
3,579,879 4,242,290
---------- ----------
11. Finance income and costs
2015 2014
------------ ------------
Foreign exchange
gain..................................................................................
........... 14,597,227 22,653,883
Interest
income................................................................................
......................... 265,366 1,448,526
------------ ------------
Finance
income................................................................................
........................ 14,862,593 24,102,409
Foreign exchange
loss..................................................................................
........... (6,593,547) (5,183,292)
Interest
expenses..............................................................................
........................ (676,975) (1,195,528)
Accretion expense (Note
19).................................................................................. (185,848) (182,589)
Finance
costs.................................................................................
........................... (7,456,370) (6,561,409)
------------ ------------
Net finance
income................................................................................
.................. 7,406,223 17,541,000
------------ ------------
12. Income tax expenses
Recognised in the statement of comprehensive income:
2015 2014
------------ ---------------
Current tax expense
Current
year...............................................................................
................................ (4,693,270) (6,807,990)
Tax of dividend
paid...............................................................................
................. (1,076,782) (7,543,967)
Deferred tax income/(expenses)
(Decrease)/increase in deferred - -
tax assets...........................................................
------------ ---------------
Total income tax in the statement
of comprehensive income........................... (5,670,052) (14,351,957)
------------ -------------
2015 2014
------------ -----------
Profit before
tax................................................................................
.............................. 45,881,925 63,933,751
------------ -----------
Tax
rate...............................................................................
............................................. 10% 10%
------------ -----------
Tax expense at SASA tax
rate...............................................................................
....... 4,588,193 6,393,375
------------ -----------
Items which are not deductible
(taxable) in calculating taxable
income:
Other non-deductible
expenses...........................................................................
....... 1,376,889 8,780,671
Tax
credit.............................................................................
........................................... (1,611,875) (353,551)
Unwinding of
discount...........................................................................
...................... 152,801 222,057
Depreciation for provision for
rehabilitation and environment.............................. 81,572 87,419
Provision for retirement and other
employment benefit obligation....................... 51,336 409,551
------------ -----------
Subtotal...........................................................................
................................................ 50,723 4,146,147
------------ -----------
Current tax
rate...............................................................................
................................ 10% 10%
Tax
effect.............................................................................
........................................... 5,072 414,615
------------ -----------
Tax of dividend
paid...............................................................................
...................... 1,076,787 7,543,967
------------ -----------
Income tax
expense............................................................................
........................... 5,670,052 14,351,957
------------ -----------
Effective Tax
rate...............................................................................
........................... 12% 22%
------------ -----------
According to the provisions of the Profit Tax Law the tax base
is the profit generated during the fiscal year increased for
non-deductible expenses and reduced for deductible revenue (i.e.
dividends already taxed at the payer), with profit tax at rate of
10%.
The tax authorities may at any time inspect the books and
records within 5 to 10 years subsequent to the reported tax year,
and may impose additional tax assessments and penalties. SASA's
management is not aware of any circumstances, which may give rise
to a potential material liability in this respect.
13. Property Plant and Equipment
Buildings
and Machinery
mining and Construction
Land infrastructure equipment in progress Total
--------- --------------- ------------- ------------ -------------
Year ended 31
December 2015
Opening net book
amount.............. 670,505 25,358,739 14,636,672 8,387,671 49,053,857
Additions............................
............ - - - 7,508,625 7,508,625
Transfer from
construction
in
progress.............................
............. - 5,121,931 3,123,042 (8,244,973) -
Write-off/Disposal...................
...... - - (59,193) - (59,193)
Depreciation
charge....................... - (1,191,834) (4,280,153) - (5,471,987)
Foreign exchange
gain (loss)........... - 185,098 - - 189,093
Exchange
differences...................... (69,150) (2,679,356) (1,490,574) (853,574) (5,092,654)
--------- --------------- ------------- ------------ -------------
Closing net book
amount.......... 601,355 26,794,573 11,929,794 6,797,749 46,123,471
========= =============== ============= ============ =============
At 31 December
2015
Cost................................
............ 601,355 29,820,858 36,566,207 6,797,749 73,786,169
Accumulated
depreciation........... - (3,026,285) (24,636,413) - (27,662,698)
--------- --------------- ------------- ------------ -------------
Net book amount..................... 601,355 26,794,573 11,929,794 6,797,749 46,123,471
========= =============== ============= ============ =============
Year ended 31
December 2014
Opening net
book amount........... 760,148 26,134,571 15,750,114 7,066,095 49,710,928
Additions...........................
......... - - - 10,729,092 10,729,092
Transfer from
construction
in
progress............................
.......... - 3,279,477 5,103,710 (8,383,187) -
Disposals...........................
.......... - - (345) - (345)
Depreciation
charge.................... - (1,005,984) (4,293,471) - (5,299,455)
Foreign exchange
gain (loss)....... - 237,129 - - 237,129
Exchange
differences.................. (89,643) (3,286,454) (1,923,336) (1,024,329) (6,323,762)
--------- --------------- ------------- ------------ -------------
Closing net
book amount....... 670,505 25,358,739 14,636,672 8,387,671 49,053,587
========= =============== ============= ============ =============
At 31 December
2014
Cost................................
............ 670,505 27,424,822 37,945,902 8,387,671 74,428,900
Accumulated
depreciation........... - (2,066,083) (23,309,230) - (25,375,313)
--------- --------------- ------------- ------------ -------------
Net book amount..................... 670,505 25,358,739 14,636,672 8,387,671 49,053,587
========= =============== ============= ============ =============
SASA has pledged building and equipment with an estimated value
of USD 3,590,974 (2014: USD 5,234,749) as a guarantee for the
Borrowings (See Note 20).
14. Inventories
2015 2014
---------- ----------
Raw
materials.................................................................................
........................... 248,641 202,866
Finished goods and
production............................................................................. 184,800 283,206
Spare parts and other
materials.............................................................................. 1,105,325 1,546,012
---------- ----------
1,538,766 2,032,084
---------- ----------
Finished goods represent lead and zinc concentrate.
15. Trade and other receivables
2015 2014
---------- -----------
Trade receivables
Trade receivables -
domestic................................................................................. 7,628 9,118
Trade receivables -
foreign..................................................................................
.. 6,021,705 45,413,921
Less: Provision for
impairment............................................................................... (6,723) (7,496)
---------- -----------
Trade receivables -
net......................................................................................
..... 6,022,610 45,415,543
---------- -----------
Other receivables
Prepaid
expenses..................................................................................
.................... 19,885 135,719
Advance
payments..................................................................................
................ 734,055 1,023,904
VAT
receivables...............................................................................
........................ 620,317 1,232,091
Other short term
receivables...............................................................................
.... 390 6,251
Less: Provision for
impairment............................................................................... - (46,321)
---------- ----------
Other
receivables...............................................................................
..................... 1,374,647 2,351,644
---------- ----------
Movements on the provision for impairment of trade receivables
are as follows:
2015 2014
------ --------
At 1
January.........................................................................................
..................... 7,496 8,515
Write off of previously impaired - -
receivables.......................................................
Exchange
difference......................................................................................
........... (773) (1,019)
------ --------
At 31
December........................................................................................
............... 6,723 7,496
------ --------
Amounts charged to the allowance account are generally written
off when there is no expectation of recovering additional cash. The
ageing analysis of provision for impairment is as follows:
2015 2014
------ ------
Over 180 - -
days...............................................................................................
............
Over 1
year..............................................................................................
.................. 6,723 7,496
------ ------
6,723 7,496
------ ------
According to SASA's policies the following factors are been
taken into consideration when assessing the impairment of
receivables: receivables above 90 days or more, frequent late
payments, high-risk customers and customer with financial
difficulties.
The carrying amounts of SASA's trade receivables are denominated
in the following currencies:
2015 2014
---------- -----------
USD......................................................................................
...................................... 6,014,982 45,406,425
MKD......................................................................................
..................................... 7,628 9,118
---------- -----------
6,022,610 45,415,543
---------- -----------
The carrying amounts of SASA's other receivables are denominated
in the following currencies:
2015 2014
---------- ----------
MKD.......................................................................................
.................................... 1,276,837 2,127,910
EUR.......................................................................................
...................................... 97,810 223,734
---------- ----------
1,374,647 2,351,644
---------- ----------
The fair value of the trade receivables and the other
receivables at the balance sheet date is the same as their carrying
value.
16. Short term loans
2015 2014
------ -----------
Short term
loans.......................................................................................
................. - 55,500,372
------- -----------
- 55,500,372
------- -----------
Short-term loans was granted on 19 February 2013 to Solway
Finance Limited bearing 3 months Libor interest rate for USD + 1%
p.a. The loan was fully repaid during 2015.
17. Cash and cash equivalents
2015 2014
-------- --------
Bank accounts in domestic
currency.................................................................... 62,262 24,308
Bank accounts in foreign
currency........................................................................ 154,379 938,639
-------- --------
216,641 962,947
-------- --------
The carrying amounts of the cash and cash equivalents are
denominated in the following currencies:
2015 2014
-------- --------
MKD...........................................................................................
................................ 62,262 24,307
EUR...........................................................................................
.................................. 154,379 15,506
USD...........................................................................................
................................. - 923,134
-------- --------
216,641 962,947
-------- --------
18. Capital and reserves
Own Capital
Own Capital
At 31 December 2015, the total of SASA's paid-in capital amounts
to 4,672,933 (2014 and 2013: 4,672,933).
Ownership structure
SASA is wholly owned subsidiary of Lynx Europe dooel Skopje.
Reserves
Statutory reserves
Reserves are initially created based on the local legal
provisions and are subsequently increased during the years due to
allocation of net profit after tax. According to local regulation,
SASA is required to have compulsory general reserves established
through a portion of their net profits. With the changes of the Law
on Trading Companies effective from 1 January 2013, SASA is
required to set aside 5 per cent (15% prior to changes) of its net
statutory profit for the year in a statutory reserve until the
level of the reserve reaches 1/10 (1/5th prior to change) of the
share capital. According to the local legal provisions, reserves
can be used for recovering of the accumulated losses, purchase of
own shares and payment of dividends, as well. SASA has achieved the
required minimum in prior years and consequently no appropriation
in 2015 has been made.
Dividends
During 2015, SASA allocated part of its retained earnings for
dividends in the total amount of USD 65,608,527. This amount
consists of profit arising from 2014 in amount of USD 49,393,043
advance dividend arising for the profit from 2015 in amount of USD
6,392,541 and dividend for the profit arising from 2013 and 2012 in
amount of USD 9,822,943 net of related Income tax of USD
1,076,782.
During 2014, SASA allocated part of its retained earnings from
2013 and 2012 for dividends in the total amount of USD 62,616,333
net of related Income tax of USD 7,543,967. In addition, during the
same period, SASA declared and paid dividends from other reserves
(see "other reserves" subheading above) in the amount USD
137,777,464 including related withholding tax in the amount of USD
13,926,662.
19. Provisions for liabilities and charges
Provisions for employee benefits
Provisions
for
rehabilitation Retirement Other
and benefit employee
environment obligation benefits Total
---------------- ------------ ---------- ----------
As at 1 January 2015 2,014,838 119,739 256,465 2,391,042
Unwinding of discount
(Note 11) 185,092 - - 185,092
Foreign exchange
gain (loss) (Note
11) 211,814 31,353 19,983 263,150
Exchange differences (213,973) (12,838) (26,761) (253,572)
---------------- ------------ ---------- ----------
As at 31 December
2015 2,197,771 138,254 249,687 2,585,712
================ ============ ========== ==========
Current - 19,459 116,542 136,001
Non-current 2,197,771 118,795 133,145 2,449,711
---------------- ------------ ---------- ----------
2,197,771 138,254 249,687 2,585,712
================ ============ ========== ==========
Provisions for employee benefits
Provisions
for
rehabilitation Retirement Other
and benefit employee
environment obligation benefits Total
---------------- ------------ ---------- ----------
As at 1 January 2014 1,847,127 124,221 243,958 2,215,306
Unwinding of discount
(Note 11) 237,129 11,067 44,937 293,133
Foreign exchange
gain (loss) (Note
11) 182,589 - - 182,589
Exchange differences (252,007) (15,549) (32,430) (299,986)
---------------- ------------ ---------- ----------
As at 31 December
2014 2,014,838 119,739 256,465 2,391,042
================ ============ ========== ==========
Current - 12,382 43,334 55,716
Non-current 2,014,838 107,357 213,131 2,335,326
---------------- ------------ ---------- ----------
2,014,838 119,739 256,465 2,391,042
================ ============ ========== ==========
(i) Provisions for rehabilitation and environment
Under current legislation entities operating mining and related
activities in the Republic of Macedonia are required to take
remedial action for the land where such activities have occurred
based on a plan approved by the Ministry of the Environment as well
as in accordance with international best practices. After the
ceasing of mining activities SASA is obliged to restore the mining
area and to return in its initial condition.
SASA has engaged an independent expert to conduct an independent
assessment on the environment of the mining activities of SASA and
to prepare assessment of the restoration and the relevant costs
connected with the mine, tailing site and the mining properties.
The calculation was performed on a basis of this independent
assessment performed by an environmental technical expert.
The expected current cash flows were projected over the useful
life of the mining sites and discounted to 2014 terms using a risk
free discount rate. The cost of the relating assets is depreciated
over the useful life of the assets and is included in property,
plant and equipment. If the estimated discount rate used in the
calculation had been 10% lower than management's estimates, the
carrying amount of the restoration and decommissioning provision
would have been USD 259,161 higher.
(ii) Employee retirement benefit provision
All employers in the Republic of Macedonia are obliged to pay
employees minimum severance pay on retirement equal to two months
of the average monthly salary applicable in the Country at the time
of retirement.
(iii) Other employee benefits
The Lynx Group is also obliged to pay jubilee anniversary awards
that correspond to the total number of years of service of the
employee. Provisions for termination and retirement obligations are
recognized in accordance with actuary calculation in 2016. Basic
actuary assumptions are used as follows:
As at
1 January
2015 2014 2014
----- ----- -----------
Discount
rate.................................................................................
.............. 4.3% 4.8% 5.35%
Exacted rate for increasing
of salary........................................................ 2.5% 1.5% 2.35%
Retirement benefit obligation is stated at the present value of
expected future payments to employees with respect to employment
retirement pay. The present value of expected future payments to
employees is determined by an independent authorised actuary in
accordance with the prevailing rules of actuarial mathematics.
20. Borrowings
2015 2014
Borrowings...............................................................................
................................ 11,208,226 9,228,567
=========== ==========
11,208,226 9,228,557
Current..................................................................................
..................................... 11,208,226 4,209,520
Non-current..............................................................................
................................ - 5,019,047
----------- ----------
11,208,226 9,228,557
=========== ==========
Borrowings are measured at amortized cost. Borrowings relate to
two short-term loans from Ohrid Bank AD Skopje. The first
short-term loan was approved in amount of USD 5,504,271 with
interest rate of 6.2% per annum and maturing on 1 May 2016. The
second short-term loan was issued in amount of USD 6,563,263 with
interest rate of 3.5% p.a. with maturity date on 4 January 2016.
The loans towards Natixis and Solway Commodities were repaid in
2015 with interest rate of one-month Libor +6% p.a.
The carrying amounts and fair value of the current borrowings
are as follows:
Carrying amount Fair value
----------------------- -----------------------
2015 2014 2015 2014
----------- ---------- ----------- ----------
Ohridska Banka
AD Skopje................ 11,208,226 - 11,208,226 -
Nataxis Solway..................................... - 8,904,756 - 8,904,756
Soloway Commodities......................... - 323,811 - 323,811
----------- ---------- ----------- ----------
11,208,226 9,228,567 11,208,226 9,228,567
=========== ========== =========== ==========
The fair value of current borrowings equals their carrying
amount, as the impact of discounting is not significant.
The information in relation to the pledge of collateral is
presented in Note 13. The carrying amounts of the borrowings are
denominated in the following currencies.
2015 2014
----------- ----------
MKD....................................................................................... 11,208,226 -
...................................
USD......................................................................................
...................................... - 9,228,567
----------- ----------
11,208,226 9,228,557
----------- ----------
21. Trade and other payables
2015 2014
Trade payables
Domestic trade
payables.................................................................................
....... 1,473,914 1,412,350
Foreign trade
payables.................................................................................
.......... 623,758 469,795
---------- -----------
Trade payables 2,097,672 1,882,145
========== ===========
Other current liabilities
Dividend
liabilities..............................................................................
..................... - 62,366,773
Employee related
liabilities..............................................................................
....... 637,843 736,169
Concession
liability................................................................................
................. 476,741 570,763
Other current
liabilities..............................................................................
.............. 126,103 141,534
Other current
liabilities..............................................................................
.......... 1,240,687 63,815,239
---------- -----------
Total 3,338,359 65,697,384
---------- -----------
The carrying amounts of the trade payables are denominated in
the following currencies:
2015 2014
MKD.......................................................................................
................................... 1,473,914 1,412,351
USD........................................................................................ 45,641 -
....................................
EUR.......................................................................................
..................................... 442,470 380,871
SEK.......................................................................................
..................................... 135,657 88,923
---------- ----------
2,097,672 1,882,145
========== ==========
The carrying amounts of the other current financial liabilities
are denominated in the following currencies:
2015 2014
MKD......................................................................................
.................................... 1,240,687 63,815,239
---------- -----------
1,240,687 63,815,239
========== ===========
22. Related party transactions
SASA has related party transactions with subsidiaries of its
parent company during its normal course of business activities. All
transactions with related parties are conducted under normal
trading and commercial terms at mutually agreed terms. The tables
bellow provides information for the volume and balances of the
related party transactions as of and for the years ended 31
December 2015 and 2014.
(i) Year-end balances arising from sales of commodities
2015 2014
---------- -----
Receivables from related parties
---------- -----
Subsidiaries of the Ultimate parent 6,021,705 -
company......................................................
---------- -----
At 31 6,021,705 -
December........................................................................................
...............
---------- -----
(ii) Year-end balances arising from short term loan
2015 2014
------
Receivables from related parties
Short-term loans to the parent
company.............................................................. - 55,500,372
------- -----------
At 31
December....................................................................................
................... - 55,500,372
------- -----------
(iii) Sales of commodities and services
2015 2014
----------- -----------
Sales of finished goods
Subsidiaries of the Ultimate parent
company...................................................... 70,424,600 82,725,595
----------- -----------
At 31
December................................................................................
....................... 70,424,600 82,725,595
----------- -----------
(iv) Interest expense/income
2015 2014
-------- ----------
Interest income from related party
loan
Parent
company.....................................................................................
.................. 264,520 1,446,868
(v) Key management compensation
Key management includes all directors within SASA. The
compensation paid or payable to key management for services is
shown below:
2015 2014
-------- --------
Salaries......................................................................................
...................................... 197,038 221,992
Taxes and contributions 99,573 112,180
-------- --------
..............................................................................................
........................................... 296,611 334,172
-------- --------
23. Contingencies
Legal proceedings
From time to time and in the normal course of the business,
claims against SASA may be received. On the basis of its own
estimates and both internal and external professional advice, the
management of SASA is of the opinion that no material losses will
be incurred in respect of claims and accordingly no provision has
been made in this financial information.
24. First time adoption of IFRS
This is company financial information prepared in accordance
with International Financial Reporting Standards (IFRS). The date
of transition to IFRS is 1 January 2014.
SASA's IFRS accounting policies presented in note 2 have been
applied in preparing the financial information for the year ended
31 December 2015, the comparative information and the opening
statement of financial position at the date of transition.
SASA has applied IFRS 1 First-time Adoption of International
Financial Reporting Standards (as revised in 2008) in preparing
these first IFRS financial information. The effects of the
transition to IFRS on equity and total comprehensive income are
presented in this section and are further explained in the notes
that accompany the tables.
24.1 First time adoption exemptions applied
Upon transition, IFRS 1 permits certain exemptions from full
retrospective application. SASA has applied the mandatory
exceptions and certain optional exemptions. The exemptions adopted
by SASA are set out below.
Mandatory exceptions adopted by SASA:
-- Financial assets and liabilities that had been de-recognised
before 1 January under previous GAAP have not been recognised under
IFRS.
-- SASA has used estimates under IFRS that are consistent with
those applied under previous GAAP unless there is objective
evidence those estimates were in error.
Optional exemptions applied by SASA:
-- SASA has elected to use cost value as deemed cost at the date
of transition for some items of property, plant and equipment.
24.2 Reconciliation of equity as reported under Macedonian GAAP to IFRS
The following is a reconciliation of SASA's total equity
reported in accordance with Local GAAP to its total equity under
IFRS at the transition date 1 January 2014 and at 31 December 2014
as follows:
Own Statutory Other Retained Total
capital reserves reserves earnings equity
----------- --------- -------------- ------------ ------------
Balance at 1
January 2014
under Local
GAAP.................................... 4,672,933 934,596 137,866,132 91,960,227 235,433,888
IFRS Policy Impacts
Provisions for
employee benefits
(Note
a).......................................
..... - - - (368,1790 (368,179)
Balance at 1
January 2014
under IFRS 4,672,933 934,596 137,866,132 91,592,048 235,065,709
=========== ========= ============== ============ ============
Balance at 31
December 2014
under Local
GAAP..................... 4,672,933 934,596 (15,267,166) 79,059,027 69,399,390
----------- --------- -------------- ------------ ------------
IFRS Policy
Impacts
Provisions
for employee
benefits
(Note
a)......................................
.. - - - (51,443) (51,443)
Provisions for
rehabilitation
and environment
and depreciation
(Note
b)......................................
.. - - - (248,020) (248,020)
----------- --------- -------------- ------------ ------------
Balance at 31
December 2014
under
IFRS.................................. 4,672,933 934,596 (15,267,166) 78,759,564 69,099,927
=========== ========= ============== ============ ============
a) Provisions for employee benefits
RETIREMENT BENEFITS
The Sasa mine operates a retirement benefit plan, whereas all
employees will receive a one- off payment in the amount of two
average monthly salaries paid in the Republic of Macedonia in the
period coinciding with the event of an employee's retirement. Based
on the provisions of IFRS 19, contributions to the plans by Sasa
take into consideration the results of actuarial assumptions, which
will incorporate estimates about demographic and financial
variables. At the end of the closing period Sasa will review the
ultimate cost of the benefit and discount it to its present value,
to determine the balance of the net benefit liability in its
balance sheet. An increase in the present value of the obligation
("current service cost") will be recognised as an expense in the
Profit and Loss statement.
JUBILEE AWARD
The Sasa mine recognises an award to its employees who have
accrued at least 10 years of service at the company, in the amount
of one average monthly salary paid in the Republic of Macedonia in
the three months prior to the achievement of the 10th working year,
pursuant to the Collective Employment Agreements. IFRS 19 requires
the expected liability (which is subjected to significant
uncertainty, due to the need to estimate average duration of
employment) to be discounted to Present Value, with a charge to the
Profit and Loss statement for any increase of the expected
liability.
b) Asset retirement obligation
Effective 1 January 2014, Sasa adopted IFRS 37.40, ("Provisions,
Contingent Liabilities and Contingent Assets"), which provides
accounting and disclosure requirements for retirement obligations
associated with long-lived assets. Based on the pronouncements of
IFRS 37.40, an Asset Retirement Obligation liability is recorded
for an amount equivalent to the total Present Value of all
remediation and retirement costs, as estimated by a third party
expert based on their most current and reliable expectations at the
reporting period. Present Value is calculated using a pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the liability. IFRS 37
requires that the Present Value of asset retirement costs for which
Sasa has a legal obligation be recorded as liabilities, with an
equivalent amount added to the asset cost. The liability is
accreted (increased) to its present value each period and the
capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, Sasa will settle the
obligation for its recorded amount or record a gain or loss if it
is settled at a different amount.
c) Income tax
Under previous GAAP income tax arising from declared dividends
is presented as part of the Dividends distribution in the Statement
of changes in equity.
Under IAS 12 Income tax, which specifies that the income tax
arising from distribution of retained earnings should be presented
as Income tax expense in the period in which the distribution is
declared. The effect is increase the accumulated profit and
decrease the current year profit for year 2015 in the amount of
USD1,128,945 and for the year ended 31 December 2014 for the amount
of USD 6,957,370.
Furthermore, during 2013, SASA declared distribution from
retained earnings arising from years 2008 to 2011, to other
reserves in the amount of USD 143,987,596 and paid related income
tax in the amount of USD15,896,332. During 2014, SASA declared and
paid dividend in the amount USD 136,876,645 including related
withholding tax in the amount of USD 14,398,768. The effect is
increase the accumulated profit and decrease the current year
profit for year 2013 in the amount of USD15,896,332.
24.3 Reconciliation of Comprehensive income
The following is a reconciliation of SASA's comprehensive income
reported in accordance with Macedonian GAAP to its net income under
IFRS for the period ending 31 December 2014:
Year ended
31 December
Note 2014
Total comprehensive income -
As reported under Local GAAP................... 42,297,989
IFRS Policy Impacts
Income tax
expense....................................................................................
............ 12 (7,543,967)
Provisions for employee
benefits........................................................................ 19 (56,004)
Provisions for rehabilitation
and environment.................................................. 19 (270,008)
-------------
Total comprehensive income -
As reported under IFRS................................ 34,428,010
=============
25. Events after the reporting period
There are no events after the reporting period that would have
an impact on the 2015 statement of comprehensive income, statement
of financial position or statement of cash flows.
SECTION B: UNAUDITED HISTORICAL FINANCIAL INFORMATION OF LYNX
RESOURCES
FOR THE FINANCIAL PERIOD FROM 19 JUNE 2013 TO 31 DECEMBER
2015
AND THE FINANCIAL YEARED 31 DECEMBER 2016
Lynx Resources Limited
Historical Consolidated Financial Information for the periods
ended 31 December 2016
(all amounts are in USD unless otherwise stated)
Consolidated statement of comprehensive income (loss)
For the
period
from 19
June to
31 December
Notes 2016 2015
------ ------------- -------------
Revenue...................................................................
...................... 65,760,476 8,317,549
---------------------------------------------------------------------------- ------ ------------- -------------
Presented as:
Gross
revenue...................................................................
............ 6 78,508,182 8,622,911
Marketing (9,372,696) -
costs......................................................................
.....
Silver purchases for silver (1,598,619) -
stream..............................................
Freight
cost......................................................................
............. (1,776,391) (305,362)
Revenue...................................................................
...................... 65,760,476 8,317,549
---------------------------------------------------------------------------- ------ ------------- -------------
Inventory
movement..................................................................
. 11 211,580 180,854
Consumed raw
materials............................................................. 9 (13,358,222) (1,671,366)
Salaries/payroll
expenses............................................................ 10 (8,086,260) (1,181,70)
Cost value of tools and
consumable goods............................ 11 (3,964) (862)
Concession
expenses.................................................................. (2,225,214) (306,849)
Other operating
expenses........................................................... 12 (9,618,452) (1,740,970)
Write-off of PPE and other 15,
financial assets............................. 19 (2,585,517) (19,568)
Depreciation 15,
expenses................................................................ 16 (14,575,757) (2,327,142)
Other operating
income............................................................... 8 205,058 18,405
------------- -------------
Total operating
profit.................................................................. 15,723,728 1,268,347
Finance
income....................................................................
......... 13 3,793,886 510,060
Finance
costs.....................................................................
........... 13 (6,494,081) (689,565)
------------- -------------
Finance costs -
net...................................................................... (2,700,195) (179,505)
Profit before income
tax............................................................. 13,023,533 1,088,842
Income tax
expense...................................................................
... 14 (2,245,173) (280,561)
------------- -------------
Profit for the
year......................................................................
.. 10,778,360 808,281
------------- -------------
Exchange differences on
translation of foreign
operations... 21 (5,391,277) (771,695)
Total other comprehensive
income (loss) for the year......... (5,391,277) (771,695)
Total comprehensive income
for the year............................... 5,387,083 36,586
============= =============
Lynx Resources Limited
Historical Consolidated Financial Information for the periods
ended 31 December 2016
(all amounts are in USD unless otherwise stated)
Consolidated statement of financial position
As at 31 December
--------------------------
Notes 2016 2015
------ ------------ ------------
ASSETS
Non-current assets
Intangible
assets......................................................................
......... 16 9,891,105 10,838,648
Property, plant and equipment
(PPE)............................................. 15 174,591,239 188,455,146
------------ ------------
Total non-current
assets................................................................ 184,482,344 199,293,794
Current assets
Inventories.................................................................
........................ 18 1,569,050 1,892,664
Trade
receivables.................................................................
............. 19 3,691,173 5,305,224
Income tax
receivable..................................................................
..... 1,825,687 157,742
Other
receivables.................................................................
............. 19 3,213,367 1,765,360
Cash and cash
equivalents............................................................. 20 29,294,201 7,292,004
Deferred tax
assets......................................................................
..... 17 120,920 -
------------ ------------
Total current
assets......................................................................
.. 39,714,398 16,412,994
------------ ------------
TOTAL
ASSETS......................................................................
........ 244,196,742 215,706,788
============ ============
EQUITY AND LIABILITIES
Equity
Capital.....................................................................
............................ 21 97,454,015 173,454,015
Other
reserves....................................................................
............... 21 (6,162,972) (771,695)
Retained
earnings....................................................................
......... 11,586,641 808,281
------------ ------------
Total
equity......................................................................
.................. 102,877,684 173,490,601
Non-current liabilities
Borrowings..................................................................
...................... 25 62,571,429 25,000,000
Deferred revenue received
advances for silver delivery............ 23 19,603,463 -
Provision for liabilities
and charges............................................... 24 2,949,132 2,410,167
------------ ------------
Total non-current
liabilities.......................................................... 85,124,024 27,410,167
Current liabilities
Trade
payables....................................................................
.............. 22 3,409,396 2,087,467
Loans and
borrowings..................................................................
... 25 28,752,611 11,162,321
Deferred revenue received
advances for silver delivery............ 23 1,970,092 -
Provision for liabilities
and charges............................................... 24 66,284 136,703
Other financial
liabilities.................................................................
. 22 1,996,651 1,419,529
------------ ------------
Total current
liabilities.................................................................
. 36,195,034 14,806,020
------------ ------------
TOTAL LIABILITIES AND EQUITY........................................... 224,196,742 215,706,788
============ ============
Lynx Resources Limited
Historical Consolidated Financial Information for the periods
ended 31 December 2016
(all amounts are in USD unless otherwise stated)
Consolidated statement of changes in equity
Retained Other
Capital earnings reserves Total
Balance at 19 June - - - -
2015........................
============= =========== ============ ==============
Net profit (loss)
for the period
from 19 June 2015
to 31 December
2015......... - 808,281 - 808,281
Other comprehensive
income (loss)...... - - (771,695) (771,695)
------------- ----------- ------------ --------------
Total comprehensive
income (loss)....... 808,281 (771,695) 36,586
Paid in
capital........................................... 173,454,015 - - 173,454,015
------------- ----------- ------------ --------------
Balance at 31 December
2015............... 173,454,015 808,281 (771,6950 173,490,601
============= =========== ============ ==============
Balance at 1 January
2016.................... 173,454,015 808,281 (771,695) 173,490,601
============= =========== ============ ==============
Net profit for
the year............................... - 10,778,360 - 10,778,360
Other comprehensive
income (loss)...... - - (5,391,277) (5,391,277)
------------- ----------- ------------ --------------
Total comprehensive
income (loss)....... - 10,778,360 (5,391,277) 5,387,083
------------- ----------- ------------ --------------
Capital Reduction
(Note 21)................... (76,000,000) - - (76,000,000)
------------- ----------- ------------ --------------
Balance at 31 December
2016............... 97,454,015 11,586,641 (6,162,972) (102,877,684)
============= =========== ============ ==============
Lynx Resources Limited
Historical Consolidated Financial Information for the periods
ended 31 December 2016
(all amounts are in USD unless otherwise stated)
Consolidated statement of cash flows
For the
period
from 19
2016 June to
31 December
2015
------------- --------------
Operating activities
Profit before
tax................................................................................
....................... 13,023,533 1,088,842
Adjustments for:
Depreciation and Amortization
(Notes 15 and 16)............................................. 14,575,757 2,327,142
Write-off of other receivables 2,585,517 -
and PPE...............................................................
Amortization of deferred revenue (490,819) -
- received advances for silver
delivery....
Gain from sale of property, plant (3,199) -
and equipment...............................................
Unwind of discount provisions
(Note 24).......................................................... 279,996 37,064
Unrealised foreign exchange
(gain)/loss............................................................. (158,941) (583,776)
Interest
expense............................................................................
.......................... 1,365,292 123,075
Interest
income.............................................................................
........................... (287) (90)
------------- --------------
Cash generated from operations
before changes in working capital........... 31,176,849 2,992,257
Cash flow from operating activities
(Increase)/decrease in
inventories....................................................................... 323,614 (1,892,664)
(Increase)/decrease in trade
receivables............................................................. (1,614,051) (5,305,224)
(Increase)/decrease in other
financial receivables............................................. (1,448,007) (1,923,101)
Increase/(decrease) in trade
payables................................................................. 1,321,929 2,087,467
Increase/(decrease) in other
financial liabilities................................................. 577,122 1,462,680
------------- --------------
Cash generated from/(used in)
operating activities........................................ 30,337,456 (2,578,585)
Interest and bank charges
paid............................................................................ (1,408,443) (79,924)
Income taxes
paid...............................................................................
.................... (983,652) (438,302)
------------- --------------
Net cash flow generated from/(used
in) operating activities.......................... 27,945,361 (3,096,811)
Cash flow from investing activities
Acquisition of
PPE................................................................................
................. (5,331,885) (1,628,516)
Disposal of PPE (Note
15)................................................................................
..... 3,421 19,223
Acquisition of intangible
assets.......................................................................... - (10,959,031)
Acquisition of the subsidiary,
net of cash acquired......................................... - (175,849,867)
Interest
received...........................................................................
.......................... 287 90
------------- --------------
Net cash used in investing
activities.................................................................. (5,328,177) (188,418,101)
Cash flow from financing
activities....................................................................
Proceeds from loans and
borrowings.................................................................. 95,509,318 31,884,234
Repayment of loans and
borrowings...................................................................
...................................................................................
................................................ (20,124,305) (6,531,333)
Paid in
capital............................................................................
.............................. - 173,454,015
Reduction of capital (Note (76,000,000) -
21)..............................................................................
------------- --------------
Net cash generated from financing
activities................................................... (614,987) 198,806,916
Net increase in cash and cash
equivalents........................................................ 22,002,197 7,292,004
Cash and cash equivalents at 7,292,004 -
1 January.............................................................
------------- --------------
Cash and cash equivalents at
31 December (Note 20)..................................... 29,294,201 7,292,004
============= ==============
Non-cash supplemental disclosure:
Deferred revenue exchange for
settlement of intercompany loan 22,064,374 -
for silver stream (Note
23)................................................................................
......................
Lynx Resources Limited
Note to the Consolidated Financial Information for the periods
ended 31 December 2016
(all amounts are in USD unless otherwise stated)
1. General information
Lynx Resources Limited ("Lynx Resources"), was incorporated on
19 June 2015 under the Companies Act 1981 of Bermuda. The initial
paid in capital amounted to $173,454,015. The registered office of
Lynx Resources is located at Canon's Court, 22 Victoria Street,
Hamilton HM12, Bermuda.
On 10 July 2015, Lynx Resources through its wholly owned
subsidiary, Lynx Mining Limited, established Lynx Europe dooel
Skopje. As at 3 November 2015, Lynx Europe dooel Skopje acquired
100% of the shares of the zinc and lead mine Rudnik SASA DOOEL
Makedonska Kamenica (Sasa). The ultimate controlling party of the
Lynx Group is Orion Fund JV Ltd., Hamilton, Bermuda.
The primary activity of Lynx Resources Limited and its
subsidiaries (collectively, the "Lynx Group") includes the
extraction of mineralized ores and the production and sale of zinc
and lead concentrates.
As of 31 December 2016, the Lynx Group had 689 employees (2015:
680 employees).
The Management of the Lynx Group serving during the financial
periods were:
Chris James-Chief Executive Officer
Stefan Peschke-Chief Financial Officer
Florian Dax-Chief Operating Officer
The activity of the Lynx Group is organized through the
following organizational activities:
-- Mine
-- Flotation
-- Laboratory
-- Machine workshop
-- General administration
-- Wholesale and trade of zinc and lead concentrates
2. Summary of significant accounting policies
The principal accounting policies adopted in the preparation of
these consolidated financial information are set out below. These
policies have been consistently applied to all the years presented,
unless otherwise stated.
2.1 Basis of preparation
This historical consolidated financial information presents the
financial track record of Lynx Resources Limited for the year
ending 31 December 2016 and the period from incorporation on 19
June 2015 to 31 December 2015 and is prepared for the purposes of
the re-admission of CAML to AIM. This special purpose financial
information has been prepared in accordance with the requirements
of the AIM Rules for Companies and in accordance with International
Financial Reporting Standards as adopted by the European Union
("IFRS").
The financial information relating to the Lynx Group has been
prepared in a form that is consistent with the accounting policies
adopted in CAML's latest annual accounts.
This historical consolidated financial information is presented
in United States Dollars. This historical consolidated financial
information has been prepared on a going concern basis.
The preparation of the historical consolidated financial
information in conformity with IFRS requires the use of certain
critical accounting estimates. It also requires management to
exercise its judgment in the process of applying the accounting
policies. The areas involving a higher degree of judgment or
complexity, or areas where assumptions and estimates are
significant to the financial information are disclosed in Note 4.
Actual results may differ from those estimated.
In order to maintain consistency with the current year
presentation, where appropriate certain items have been
reclassified for comparative purposes. Such reclassifications,
however, have not resulted in significant changes of the content
and format of the financial information as presented herein.
2.1.1 Standards, amendments and interpretations effective and adopted by the Lynx Group in 2016
No standards, amendments and interpretation have been adopted by
the Lynx Group in 2016 with significant impact on the consolidated
financial information.
2.1.2 Standards, amendments and interpretations that are not yet
effective and have not been early adopted by the Lynx Group
IFRS 9 "Financial Instruments: Classification and Measurement"
(amended in July 2014 and effective for annual periods beginning on
or after 1 January 2018).
Key features of the new standard are:
-- Financial assets are required to be classified into three
measurement categories: those to be measured subsequently at
amortized cost, those to be measured subsequently at fair value
through other comprehensive income (FVOCI) and those to be measured
subsequently at fair value through profit or loss (FVPL).
-- Classification for debt instruments is driven by the entity's
business model for managing the financial assets and whether the
contractual cash flows represent solely payments of principal and
interest (SPPI). If a debt instrument is held to collect, it may be
carried at amortized cost if it also meets the SPPI requirement.
Debt instruments that meet the SPPI requirement that are held in a
portfolio where an entity both holds to collect assets' cash flows
and sells assets may be classified as FVOCI. Financial assets that
do not contain cash flows that are SPPI must be measured at FVPL
(for example, derivatives). Embedded derivatives are no longer
separated from financial assets but will be included in assessing
the SPPI condition.
-- Investments in equity instruments are always measured at fair
value. However, management can make an irrevocable election to
present changes in fair value in other comprehensive income,
provided the instrument is not held for trading. If the equity
instrument is held for trading, changes in fair value are presented
in profit or loss.
-- Most of the requirements in IAS 39 for classification and
measurement of financial liabilities were carried forward unchanged
to IFRS 9. The key change is that an entity will be required to
present the effects of changes in own credit risk of financial
liabilities designated at fair value through profit or loss in
other comprehensive income.
-- IFRS 9 introduces a new model for the recognition of
impairment losses-the expected credit losses (ECL) model. There is
a 'three stage' approach which is based on the change in credit
quality of financial assets since initial recognition. In practice,
the new rules mean that entities will have to record an immediate
loss equal to the 12-month ECL on initial recognition of financial
assets that are not credit impaired (or lifetime ECL for trade
receivables). Where there has been a significant increase in credit
risk, impairment is measured using lifetime ECL rather than
12-month ECL. The model includes operational simplifications for
lease and trade receivables.
-- Hedge accounting requirements were amended to align
accounting more closely with risk management. The standard provides
entities with an accounting policy choice between applying the
hedge accounting requirements of IFRS 9 and continuing to apply IAS
39 to all hedges because the standard currently does not address
accounting for macro hedging.
The application of the new standard and its amendments is
required for annual periods beginning on or after 1 January 2018.
Earlier application is permitted. The adoption of the new standard
and its amendments will likely result in changes in the
consolidated financial information of the Lynx Group, the exact
extent of which management are currently analyzing.
IFRS 15, Revenue from Contracts with Customers (issued on 28 May
2014 and effective for the periods beginning on or after 1 January
2018). The new standard introduces the core principle that revenue
must be recognized when the goods or services are transferred to
the customer, at the transaction price. Any bundled goods or
services that are distinct must be separately recognized, and any
discounts or rebates on the contract price must generally be
allocated to the separate elements. When the consideration varies
for any reason, minimum amounts must be recognized if they are not
at significant risk of reversal. Costs incurred to secure contracts
with customers have to be capitalized and amortized over the period
when the benefits of the contract are consumed. The Lynx Group is
currently assessing the impact of the new standard on its
consolidated financial information.
Amendments to IFRS 15, Revenue from Contracts with Customers
(issued on 12 April 2016 and effective for annual periods beginning
on or after 1 January 2018). The amendments do not change the
underlying principles of the Standard but clarify how those
principles should be applied. The amendments clarify how to
identify a performance obligation (the promise to transfer a good
or a service to a customer) in a contract; how to determine whether
a company is a principal (the provider of a good or service) or an
agent (responsible for arranging for the good or service to be
provided); and how to determine whether the revenue from granting a
licence should be recognised at a point in time or over time. In
addition to the clarifications, the amendments include two
additional reliefs to reduce cost and complexity for a company when
it first applies the new Standard. Management is currently
assessing the impact of the amendment on its consolidated financial
information.
IFRS 16, Leases (issued on 13 January 2016 and effective for
annual periods beginning on or after 1 January 2019). The new
standard sets out the principles for the recognition, measurement,
presentation and disclosure of leases. All leases result in the
lessee obtaining the right to use an asset at the start of the
lease and, if lease payments are made over time, also obtaining
financing. Accordingly, IFRS 16 eliminates the classification of
leases as either operating leases or finance leases as is required
by IAS 17 and, instead, introduces a single lessee accounting
model. Lessees will be required to recognize: (a) assets and
liabilities for all leases with a term of more than 12 months,
unless the underlying asset is of low value; and (b) depreciation
of lease assets separately from interest on lease liabilities in
the income statement. IFRS 16 substantially carries forward the
lessor accounting requirements in IAS 17. Accordingly, a lessor
continues to classify its leases as operating leases or finance
leases, and to account for those two types of leases differently.
Management is currently assessing the impact of the new standard on
its consolidated financial information.
Disclosure Initiative-Amendments to IAS 7 (issued on 29 January
2016 and effective for annual periods beginning on or after 1
January 2017). The amended IAS 7 will require disclosure of a
reconciliation of movements in liabilities arising from financing
activities.
The following other new pronouncements are not expected to have
any material impact on the Lynx Group when adopted:
-- Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture-Amendments to IFRS 10 and IAS 28 (issued
on 11 September 2014 and effective for annual periods beginning on
or after a date to be determined by the IASB).
-- Recognition of Deferred Tax Assets for Unrealised
Losses-Amendments to IAS 12 (issued on 19 January 2016 and
effective for annual periods beginning on or after 1 January
2017).
-- Amendments to IFRS 15, Revenue from Contracts with Customers
(issued on 12 April 2016 and effective for annual periods beginning
on or after 1 January 2018).
-- Amendments to IFRS 2, Share-based Payment (issued on 20 June
2016 and effective for annual periods beginning on or after 1
January 2018).
-- Amendments to IFRS 4, Insurance Contracts (issued on 12
September 2016 and effective for annual periods beginning on or
after 1 January 2018).
Unless otherwise described above, the new standards and
interpretations are not expected to affect significantly the Lynx
Group's consolidated financial information.
2.2 Basis for consolidation
The consolidated financial information comprise the financial
information of Lynx Resources Limited and its subsidiaries as at 31
December 2016. Subsidiaries are all entities over which the Lynx
Group has control. The Lynx Group controls an entity when the Lynx
Group is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully
consolidated from the date of acquisition, being the date on which
the Lynx Group obtains control, and continue to be consolidated
until the date that such control ceases.
The financial information of the subsidiaries are prepared for
the same reporting periods as Lynx Resources, using consistent
accounting policies. All intra-group balances, income and expenses
and unrealised gains and losses resulting from intra-group
transactions are eliminated in full.
2.3 Business combinations
Acquisitions of businesses are accounted for using the
acquisition method. The consideration transferred in a business
combination is measured at fair value, which is calculated as the
sum of the acquisition date fair values of the assets transferred
by the Lynx Group. The results of businesses acquired during the
year are included in the consolidated financial information from
the effective date of acquisition. The identifiable assets,
liabilities and contingent liabilities of the business which can be
measured reliably are recorded at provisional fair values at the
date of acquisition. This includes mineral properties and
exploration, development and production licenses. Provisional fair
values are finalized within twelve months of the acquisition date.
Acquisition-related costs are expensed as incurred.
Goodwill arising in a business combination is measured as the
excess of the sum of the consideration transferred and the amount
of any non-controlling interest over the net identifiable assets
acquired and liabilities assumed.
Intangible assets acquired in a business combination and
recognized separately from goodwill are initially recognized at
their fair value at the acquisition date (which is regarded as
their cost). Subsequent to initial recognition, intangible assets
acquired in a business combination are reported at cost less
accumulated amortization and accumulated impairment losses, on the
same basis as intangible assets that are acquired separately.
The recoverable amount of the cash-generating unit to which
goodwill has been allocated is tested for impairment at the same
time every year. Any impairment loss is recognized in net earnings
immediately. Impairment of goodwill is not subsequently
reversed.
2.4 Foreign currency translation
(a) Functional and presentation currency
Items included in the consolidated financial information of each
of the Lynx Group's entities are measured using the currency of the
primary economic environment in which the entity operates ('the
functional currency'). The consolidated financial information are
presented in US Dollars (USD), which is Lynx Resources Limited's
functional and presentation currency.
(b) Transaction and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates at the dates of the transactions
or valuation where items are re-measured. Foreign exchange gains
and losses resulting from the settlement of such transactions and
from the translation of monetary assets and liabilities denominated
in foreign currencies at year end exchange rates are generally
recognized in profit or loss. Foreign exchange gains and losses
that relate to borrowings are presented in the consolidated
statement of comprehensive income, within finance costs. All other
foreign exchange gains and losses are presented in the consolidated
statement of comprehensive income on a net basis within other
income or other expenses.
Non-monetary items that are measured at fair value in a foreign
currency are translated using the exchange rates at the date when
the fair value was determined. Translation differences on assets
and liabilities carried at fair value are reported as part of the
fair value gain or loss.
(c) Lynx Group companies
The results and financial position of foreign operations that
have a functional currency different from the presentation currency
(such as Macedonian Denar MKD) are translated into the presentation
currency as follows:
-- assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance
sheet
-- income and expenses for each statement of profit or loss and
statement of comprehensive income are translated at average
exchange rates (unless this is not a reasonable approximation of
the cumulative effect of the rates prevailing on the transaction
dates, in which case income and expenses are translated at the
dates of the transactions), and
-- all resulting exchange differences are recognized in other comprehensive income.
On consolidation, exchange differences arising from the
translation of any net investment in foreign entities, and of
borrowings and other financial instruments designated as hedges of
such investments, are recognized in other comprehensive
income/loss. Goodwill and fair value adjustments arising on the
acquisition of a foreign operation are treated as assets and
liabilities of the foreign operation and translated at the closing
rate.
2.5 Property, plant and equipment
Property acquisition costs are capitalized. Property, plant and
equipment is stated at cost, as defined in IAS 16, less accumulated
depreciation and accumulated impairment losses.
2.6 Mineral properties and mine development cost
Development costs relating to specific properties are
capitalized once management determines a property will be
developed. A development decision is made based upon consideration
of project economics, including future metal prices, reserves and
resources, and estimated operating and capital costs.
Capitalization of costs incurred and proceeds received during the
development phase ceases when the property is capable of operating
at levels intended by management and is considered commercially
viable. Costs incurred during the production phase to increase
future output by providing access to additional reserves, are
deferred and depreciated on a units-of-production basis over the
component of the reserves to which they relate. Expenditure other
than that on land, buildings, plant, equipment and capital work in
progress is capitalised under "Mining Properties" together with any
amount transferred from "Exploration and evaluation" expenditures.
Ore reserves may be declared for an undeveloped mining project
before its commercial viability has been fully determined.
Development costs incurred after the commencement of production
are capitalised to the extent they are expected to give rise to a
future economic benefit. The cost of mineral properties also
includes the estimated close-down and restoration costs associated
with the asset.
Interest on borrowings related to qualifying assets for
construction or development projects is capitalised, at the rate
payable on project-specific debt if applicable or at the Lynx
Group's cost of borrowing, until the project becomes commercially
viable.
2.7 Depreciation
Property, plant and equipment is depreciated over their useful
life, or over the remaining life of the operation if shorter, to
residual value. No depreciation is recorded until the assets are
substantially complete and ready for productive use. The major
asset categories are depreciated as follows:
Mineral Properties, including capitalised financing costs, are
depreciated on a Unit of Production basis (UoP), in proportion to
the volume of ore extracted in the year compared with total proven
and probable reserves at the beginning of the year. Assets within
operations for which production is not expected to fluctuate
significantly from one year to another or which have a physical
life shorter than the related mine are depreciated on a
Straight-Line basis. This pertains to all asset classes (as well as
"Mineral Properties"), including:
-- Buildings and mining infrastructure
-- Machinery, Plant and other equipment
Depreciation calculated on a straight-line basis is as follows
for major asset categories:
Office
equipment......................................................................................... 20% - 37.5%
Furniture and
fittings..................................................................................... 20% - 37.5%
2.5% -
Mining Infrastructure and buildings................................................................ 10%
Motor
vehicles............................................................................................. 25% - 37.5%
Land is not depreciated.
Development costs expenditures are not depreciated. Depreciation
on equipment utilized in the development of assets, including
underground mine development, is depreciated and recapitalized as
development costs attributable to the related asset.
The depreciation of property, plant and equipment shall start
after expiration of the month of the start-up in the year in which
the utilisation of the property, plant and equipment started.
2.8 Exploration and development expenditure
Exploration and evaluation expenditure comprises costs that are
directly attributable to:
-- researching and analysing existing exploration data;
-- conducting geological studies, exploratory drilling and sampling;
-- examining and testing extraction and treatment methods; and/or
-- compiling pre-feasibility and feasibility studies.
Evaluation expenditure relates to a detailed assessment of
deposits or other projects that have been identified as having
economic potential. Exploration and evaluation costs are expensed
in the period incurred.
2.9 Intangible assets
Intangible assets with finite useful lives that are acquired
separately are carried at cost less accumulated amortization and
accumulated impairment losses. Intangible assets include the cost
of acquiring exploration licences. Amortization is recognized on a
straight-line basis over their estimated useful lives. The
estimated useful life and amortization method are reviewed at the
end of each reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis. Intangible
assets with indefinite useful lives that are acquired separately
are carried at cost less accumulated impairment losses.
An intangible asset is derecognized on disposal, or when no
future economic benefits are expected from use or disposal. Gains
or losses arising from derecognition of an intangible asset
measured as the difference between the net disposal proceeds and
the carrying amount of the asset are recognized in profit or loss
when the asset is derecognized. Where an impairment subsequently
reverses, the carrying amount is increased to the revised estimate
of recoverable amount, but so that the increased carrying amount
does not exceed the carrying value that would have been determined
if no impairment had been previously been recognized. A reversal is
recognized in the income statement immediately.
Mining rights represents the lump sum payments made to the
Government for the approval of the acquisition transaction in
relation to the transfer of the ownership (concession right) from
the previous owner under the Law on mineral resources. Intangible
mining rights are depreciated on a straight line basis over the
life of mine.
2.10 Impairment of property plant and equipment
At each reporting date, under IAS 36 the Lynx Group reviews the
carrying amounts of its mineral properties, and property, plant and
equipment to determine whether there is any indication that those
assets are impaired. If such an indication exists, the recoverable
amount of the asset is estimated in order to determine the extent
of any impairment. Where the asset does not generate cash flows
that are independent from other assets, the Lynx Group estimates
the recoverable amount of the CGU to which the asset belongs.
Internal and external factors are considered in assessing
whether indicators of impairment are present. Significant
assumptions regarding commodity prices, operating costs, capital
expenditures and discount rates are used in determining whether
there are any indicators of impairment. These assumptions are
reviewed regularly by senior management and compared, where
applicable, to observable market data.
Recoverable amount is the higher of fair value less costs of
disposal and value in use (VIU). Fair value less costs of disposal
is determined as the amount that would be obtained from the sale of
the asset in an arm's length transaction between knowledgeable and
willing parties. For mining assets this would generally be
determined based on the present value of the estimated future cash
flows arising from the continued development, use or eventual
disposal of the asset. In assessing these cash flows and
discounting them to present value, assumptions used are those that
an independent market participant would consider appropriate. In
assessing VIU, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks
specific to the asset for which estimates of future cash flows have
not been adjusted. If the recoverable amount of an asset or CGU is
estimated to be less than its carrying amount, the carrying amount
of the asset or CGU is reduced to its recoverable amount. An
impairment loss is recognised in the income statement.
Where an impairment loss subsequently reverses, the carrying
amount of the asset or CGU is increased to the revised estimate of
its recoverable amount, but so that the increased carrying amount
does not exceed the carrying amount that would have been determined
had no impairment been recognised for the asset or CGU. A reversal
of an impairment loss is recognised in the income statement.
2.11 Inventories
Inventories comprise of raw materials (mined ore and other),
work-in-progress (crushed ore), finished products (concentrate),
spare parts and other materials and are carried at lower of cost
and net realizable value.
The cost of inventories comprises all costs of purchase,
production and other production overheads attributable to the
production of finished goods (such as electricity, salaries,
transport costs, fuel costs, food, beverages, and other) and other
costs incurred in bringing the inventories to their present
location and condition as follows:
Raw materials Mining costs incurred
Spare parts and other Purchase cost on a weighted
materials average basis
Finished goods, work Cost of direct materials
in progress and labour and a proportion
of production overheads,
based on normal operating
capacity
Obsolete, redundant and slow-moving inventories are identified
and written down to their net realizable value as required.
Stockpiles comprise coarse ore that has been extracted from the
mine and is available for further processing. Stockpiles are
measured by estimating the number of tonnes added and removed from
the stockpile. Stockpile tonnages are verified by periodic surveys,
and valued based on procurement or mining costs incurred up to the
point of stockpiling the ore.
Net realizable value is the estimated selling price in the
ordinary course of business less estimated cost of completion and
the estimated costs necessary to make the sale.
2.12 Trade and other receivables
Trade and other receivables are recognized initially at fair
value and subsequently measured at amortized cost using the
effective interest method, less provision for impairment.
A provision for impairment of trade receivables is established
when there is objective evidence that the Lynx Group will not be
able to collect all amounts due according to the original terms of
the receivables. Significant financial difficulties of the debtor,
probability that the debtor will enter bankruptcy or financial
reorganisation, and default or delinquency in payments are
considered indicators that the trade receivable is impaired. The
amount of the provision is the difference between the asset's
carrying amount and the present value of the estimated future cash
flows discounted at the financial asset's original effective
interest rate. The carrying amount of the asset is reduced through
the use of an allowance account, and the amount of the loss is
recognized in profit or loss. When a trade receivable is
uncollectible, it is written off against the allowance account for
trade receivables.
2.13 Cash and cash equivalents
Cash and cash equivalents comprise bank balances in local and
foreign currency, cash in hand and deposits in banks with original
maturity with less than 3 months. The carrying amount of cash and
cash equivalents is stated at cost, which approximates fair
value.
2.14 Impairment of financial assets
The Lynx Group assesses at each reporting date whether a
financial asset or group of financial assets are impaired. A
financial asset is deemed to be impaired if there is objective
evidence of impairment as a result of one or more events that has
occurred after the initial recognition of the asset. Evidence of
impairment may include indications that the debtor is experiencing
significant financial difficulty, default or delinquency in
interest or principal payments, bankruptcy or other such
events.
Assets carried at amortized cost
If there is objective evidence that an impairment loss on assets
carried at amortized cost has been 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 been incurred)
discounted at the financial asset's original effective interest
rate (i.e. the effective interest rate computed at initial
recognition). The carrying amount of the asset is reduced through
use of an allowance account. The amount of the loss shall be
recognized in the consolidated statement of comprehensive
income.
If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event
occurring after the impairment was recognized, the previously
recognized impairment loss is reversed, to the extent that the
carrying value of the asset does not exceed its amortized cost at
the reversal date. Any subsequent reversal of an impairment loss is
recognized in the consolidated statement of comprehensive
income.
In relation to trade receivables, a provision for impairment is
made when there is objective evidence (such as the probability of
insolvency or significant financial difficulties of the debtor)
that the Lynx Group will not be able to collect all of the amounts
due under the original terms of the invoice. The carrying amount of
the receivable is reduced through use of an allowance account.
Impaired debts are derecognized when they are assessed as
uncollectible.
2.15 Share capital
( ) Share capital consists of paid in monetary considerations
contributed by the shareholders.
(b) Reserves
Legal reserves are created during the periods by transfer from
retained earnings based on the legislation and decisions of the
Management of the Lynx Group.
(c) Retained earnings
Retained earnings comprise of non-distributed earnings from the
current and past periods.
(d) Dividends
Dividend distribution to the Lynx Group's owners is recognised
as a liability in the Lynx Group's financial information in the
period in which the dividends are approved (declared) by the Lynx
Group's shareholders.
2.16 Trade and other payables
Trade payables are obligations to pay for goods or services that
have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities
if payment is due within one year or less. If not, they are
presented as non-current liabilities.
Trade payables are recognized initially at fair value and
subsequently measured at amortized cost using the effective
interest method.
2.17 Provisions and contingent liabilities
Provisions are recognized when the Lynx Group has a present
legal or constructive obligation as a result of past events and it
is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation, and a reliable
estimate of the amount of the obligation can be made.
Provisions are measured and recorded as the best estimate of the
expenditure required to settle the present obligation at the
balance sheet date. The provision charge is recognized in the
consolidated statement of comprehensive income within the expense
corresponding to the nature of the provision.
Restoration and decommissioning provision
Management estimate, and provide for, obligations to incur
restoration, rehabilitation and environment costs when
environmental disturbance is caused by the initial or ongoing
development of a mining property. Costs arising from establishing
infrastructure at the start of a project are discounted to their
net present value, provided for and capitalized when obligation
arises. These costs are charged against profits over the useful
life of the related asset through the unwinding of the discount and
depreciation charge.
The estimated future costs of decommissioning are reviewed
annually and adjusted as appropriate. Changes in the estimated
future costs or in the discount rate applied are added to or
deducted from the costs of the asset.
No provision is recognized for contingent liabilities. A
contingent liability is a possible obligation that arises from past
events and whose existence will be confirmed only by the occurrence
or non-occurrence of one or more uncertain future events not wholly
within the control of the entity; or a present obligation that
arises from past events but is not recognized because it is not
probable that an outflow of resources embodying economic benefits
will be required to settle the obligation or the amount of the
obligation cannot be measured with sufficient reliability.
2.18 Income taxes
The tax expense for the period comprises current and deferred
tax. Tax is recognized in profit or loss, except to the extent that
it relates to items recognized in other comprehensive income or
directly in equity. In this case, the tax is also recognized in
other comprehensive income or directly in equity, respectively.
Current tax assets and liabilities for the current and prior
periods are measured at the amounts expected to be recovered or
paid to the taxation authorities. The tax rates and tax laws used
to compute the amounts are those that are enacted or substantively
enacted by the reporting date.
Current income tax applicable in Macedonia
As of 1 August 2014, profit tax law came into force being
applicable from 1 January 2015 for the net income for 2014, with
which the base for income tax computation had been shifted from
income "distribution" concept to the profit before taxes. According
to the provisions of the law, the tax base is the profit generated
during the fiscal year increased for non-deductible expenses and
reduced for deductible revenue (i.e. dividends already taxed at the
payer) and the income tax rate is 10%. In line with these changes
income tax for the year was calculated and recorded in the
Statement of comprehensive income.
Deferred income tax
Deferred tax is recognized applying the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated
financial information. However, deferred tax liabilities are not
recognized if they arise from the initial recognition of goodwill;
deferred income tax is not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a
business combination that at the time of the transaction affects
neither accounting nor taxable profit or loss.
Deferred income tax is determined using tax rates (and laws)
that have been enacted or substantively enacted by the balance
sheet date and are expected to apply when the related deferred
income tax asset is realised or the deferred income tax liability
is settled. Deferred income tax assets are recognized to the extent
that it is probable that future taxable profit will be available
against which the temporary differences can be utilized. Deferred
income tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income taxes assets
and liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable
entities where there is an intention to settle the balances on a
net basis.
2.19 Employees Benefits
a) Pension
The Lynx Group, in the normal course of business, makes payments
on behalf of its employees for pensions, health care, employment
and personnel tax, which are calculated based on gross salaries and
wages according to the legislation. The Lynx Group makes these
contributions to the Governmental health and retirement funds as
well to private retirement funds. The cost of these payments is
charged to the consolidated statement of comprehensive income in
the same period as the related salary cost.
The Lynx Group does not operate any other pension scheme or
post-retirement benefits plan and consequently, has no obligation
in respect of pensions.
b) Termination benefits
Termination benefits are payable whenever an employee's
employment is terminated before the normal retirement date or
whenever an employee accepts voluntary redundancy in exchange for
these benefits. The Lynx Group recognizes termination benefits when
it is demonstrably committed to either terminate the employment of
current employees according to a detailed formal plan without
possibility of withdrawal or to provide termination benefits as a
result of an offer made to encourage voluntary redundancy.
c) Retirement benefits and jubilee awards
Pursuant to the labour law prevailing in the subsidiaries
country of operations, the Lynx Group is obliged to pay retirement
benefits in an amount equal to two average monthly salaries, at
their retirement date. According to the collective agreement, the
Lynx Group is also obliged to pay jubilee anniversary awards that
correspond to the total number of years of service of the employee.
Due to the long-term nature of these plans, such estimates are
subject to significant uncertainty. In addition, the Lynx Group is
not obligated to provide further benefits to current and former
employees.
Retirement benefit obligations arising on severance pay are
stated at the present value of expected future cash payments
towards the qualifying employees. These benefits have been accrued
by an independent actuary in accordance with the prevailing rules
of actuarial mathematics. Actuarial gains and losses arising from
experience adjustments and changes in actuarial assumptions are
charged or credited to income over the employees' expected average
remaining working lives.
2.20 Borrowings
Borrowings are recognized initially at fair value, net of
transaction costs incurred. Borrowings are subsequently carried at
amortized cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognized in the
consolidated statement of comprehensive income over the period of
the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognized
as transaction costs of the loan to the extent that it is probable
that some or all of the facility will be drawn down. In this case,
the fee is deferred until the draw down occurs. To the extent there
is no evidence that it is probable that some or all of the facility
will be drawn down, the fee is capitalized as a pre-payment for
liquidity services and amortized over the period of the facility to
which it relates.
2.21 Leases
Leases where the lessor retains substantially all the risks and
rewards of ownership are classified as operating leases. Payments
made under operating leases (net of any incentives received from
the lessor) are charged to the consolidated statement of
comprehensive income on a straight-line basis over the period of
the lease.
2.22 Revenue
Revenue is derived principally from the sale of metal
concentrate and is measured at the fair value of consideration
received or receivable, after deducting discounts, volume rebates,
value added tax and other sales taxes. A sale is recognized when
the significant risks and rewards of ownership have passed. This is
when title and insurance risk have passed to the customer and the
goods have been delivered to a contractually agreed location.
Sales of metal concentrate are stated at their invoiced amount
which is net of treatment and refining charges. Sales of
commodities are provisionally priced such that the price is not
settled until a predetermined future date and is based on the
market price at that time. Revenue on these sales is initially
recognized (when the above criteria are met) at the current market
price.
Provisionally priced sales are marked to market at each
reporting date using the forward price for the period equivalent to
that outlined in the contract and presented within revenue.
Revenues from the sale of material by-products are included
within revenue. Where a by-product is not regarded as significant,
revenue will be credited against the cost of sales. Revenue from
services is recognized as services are rendered and accepted by the
customer. Amounts billed to customers in respect of shipping and
handling activities are classified as revenue where the Lynx Group
is responsible for freight. In situations where the Lynx Group is
acting as an agent, amounts billed to customers are offset against
the relevant costs.
For provisionally priced sales, changes between the prices
recorded upon recognition of revenue and the final price due to
fluctuations in metal market prices result in the existence of an
embedded derivative in the accounts receivable. This embedded
derivative is recorded at fair value, with changes in fair value
classified as a component of revenue.
The Company reports both a gross revenue and revenue line which
reflects the marketing cost deducted from the sales price,
purchases of silver for the silver stream delivery, and freight
cost.
2.23 Deferred income
Advances received from the precious metal streaming agreement
for future deliveries of silver are recognized as deferred income
and relate to the production over the lifetime of the mine.
Deferred income is realised to the statement of comprehensive
income as the silver is delivered based on the units of
production.
2.24 Marketing costs
Marketing costs, which are allowed to customers on a
shipment-by-shipment basis are recognised on an accrual basis
determined as a difference between the sales and purchase value
based on the signed agreement.
3. Financial risk management
3.1 Financial risk factors
The Lynx Group does not apply hedge accounting for its financial
instruments, all gains and losses are recognized in the profit and
loss for the year. The Lynx Group is exposed in particular to risks
from movements in exchange rates and market prices that affect its
assets and liabilities, credit risk and liquidity risk. Financial
risk management aims to limit these market risks through ongoing
operational and finance activities.
(i) Market risk
Market risk is defined as the 'risk that the fair value or
future cash flows of a financial instrument will fluctuate because
of changes in market prices' and includes interest rate risk,
currency risk and other price risk. The majority of the revenues of
the Lynx Group are generated in USD and the remaining part mainly
in MKD.
Expenses of the Lynx Group that arise are mainly connected to
USD, MKD and EUR. For the presentation of market risks, IFRS 7
requires sensitivity analyzes that show the effects of hypothetical
changes of relevant risk variables on profit or loss and
shareholders' equity. The periodic effects are determined by
relating the hypothetical changes in the risk variables to the
balance of financial instruments at the consolidated financial
information date. The balances at the end of the reporting period
are usually representative for the year as a whole, therefore the
impacts are calculated using the year end balances as though the
balances had been constant throughout the reporting period. The
methods and assumptions used in the sensitivity calculations have
been updated to reflect the current economic situation.
Commodity prices, primarily lead and zinc, are key revenue
drivers for the Lynx Group. The prices for lead and zinc can
fluctuate widely and are affected by various factors beyond the
Lynx Group's control. The main driver for metal price fluctuations
is the supply and demand balance but other factors such as exchange
rates, interest rates or speculative activities and the change in
global economies can impact price levels and volatility too. To
anticipate the full extent of the impact of any driver for
commodity prices market developments is impossible; management
believes that is taking all the necessary measures to support the
sustainability and growth of the Lynx Group's business in the
current circumstances. Nevertheless, future market fluctuations
cannot be predicted with accuracy. The Lynx Group does not
currently hedge interest commodity price exposure. Any hedging
activity requires approval of the Lynx Group's Board of Directors.
The Lynx Group will not hold or issue derivative instruments for
speculation.
Commodity price sensitivity
The Lynx Group is affected by the volatility of certain
commodities. Its operating activities require the ongoing sales of
Pb and Zn and processing of ore. The following table shows the
effect of metal prices on the Lynx Group's financial results:
Changes Effect
in the Effect on profit
financial on financial before
result position tax
------------ ------------- -----------
USD USD
2016................................................................. 100 USD 3,937,005 903,733
(100) USD (3,937,005) (903,733)
2015................................................................. 100 USD 3,790,363 192,940
(100) USD (3,790,363) (192,940)
(ii) Foreign exchange risk
The Lynx Group's functional currency is the USD. The foreign
exchange risk exposure of the Lynx Group is related to holding
foreign currency cash balances, and operating activities through
revenues from and payments to international companies as well as
capital expenditure contracted with vendors in foreign
currency.
As a result of significant operations in Macedonia, the Lynx
Group's consolidated statement of financial position can be
affected significantly by movements in the USD/MKD and USD/Euro
exchange rates. The Lynx Group uses cash deposits in MKD or cash
deposits in MKD indexed to EUR, to economically manage its foreign
currency risk as well as local currency risk in accordance with the
available banks offers.
However, the purchase of spare parts and raw materials are
denominated in USD or EUR and connected to the price movement on
the global movement, which is denominated in both currencies.
Therefore there is associated inherent business risk with such
transactions.
The Lynx Group's exposure to foreign currency risk was as
follows:
2016 USD MKD EUR SEK Other
------------- ------------ ---------- ---------- ---------
Assets
Cash and cash
equivalents.......................... 14,477,901 14,801,010 15,290 - -
Trade and other
financial receivables...... 5,555,725 1,030,513 256,773 - 61,529
------------- ------------ ---------- ---------- ---------
Total
assets......................................
..... 20,033,626 15,831,523 272,063 - 61,529
Liabilities
Trade
payables....................................
.... 16,233 2,596,262 534,295 165,138 97,468
Other financial
liabilities......................... 1,082,114 914,537 - - -
Loans and
borrowings.............................. 73,000,000 18,324,040 - - -
------------- ------------ ---------- ---------- ---------
Total
liabilities.................................
... 74,098,347 21,834,839 534,295 165,138 97,468
------------- ------------ ---------- ---------- ---------
Net balance sheet
exposure................ (54,064,721) (6,003,016) (262,232) (165,138) (35,939)
============= ============ ========== ========== =========
2015 USD MKD EUR SEK
Assets
------------- ------------ ---------- ----------
Cash and cash equivalents.............................. 673,787 6,598,747 19,470 -
Trade and other financial
receivables............ 5,701,723 1,283,565 85,296 -
------------- ------------ ---------- ----------
Total
assets...................................................
..... 6,375,510 7,882,312 104.768 -
Liabilities
Trade
payables.................................................
. 69,126 1,466,743 416,611 134,987
Other financial
liabilities................................... 196,175 1,223,354 - -
Loans and borrowings...................................... 25,043,151 11,119,170 - -
------------- ------------ ---------- ----------
Total
liabilities..............................................
.... 25,308,452 13,809,267 416,611 134,987
------------- ------------ ---------- ----------
Net balance sheet
exposure............................. (18,932,942) (5,926,955) (311,845) (134,987)
============= ============ ========== ==========
At 31 December 2016, if the currency had weakened/strengthened
by 0.5%, 2% i.e. 0.5% against the EUR/MKD/SEK respectively with all
other variables held constant, the recalculated post-tax profit for
the year would have been for $1,311 (2015: $1,559) lower/higher for
EUR; $120,066 (2015: $118,539) higher/lower for MKD; $826 (2015:
$675) lower/higher for SEK.
(iii) Interest risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates. Change in the interest rates and
interest margins may influence financing costs and returns on
financial investments. Changes in market interest rates affect the
interest income on time deposits with banks. As of 31 December 2016
the Lynx Group has no time deposits in banks.
The Lynx Group has borrowings in amounts of $91,324,040 as of 31
December 2016 (2015: $36,162,321), therefore 1 percentage point
rise in market interest rate would have caused (ceteris paribus)
the interest paid to increase with approximately $913,240 (2015:
$361,623) annually before tax, while similar decrease would have
caused the same decrease in interest paid.
The Lynx Group has cash and cash equivalents in amounts of
$29,294,201 as of 31 December 2016 (2015: $7,292,004), therefore 1
percentage point rise in market interest rate would have caused
(ceteris paribus) the interest received to increase with
approximately $292,942 (2015: $72,920) annually before tax, while
similar decrease would have caused the same decrease in interest
paid.
(iv) Credit risk
Credit risk is defined as the risk that one party to a financial
instrument will cause a financial loss for the other party by
failing to discharge an obligation. The Lynx Group is exposed to
credit risk from its operating activities and certain financing
activities. The process of managing the credit risk from operating
activities includes preventive measures such as creditability
checking and prevention barring, corrective measures during legal
relationship for example reminding and disconnection activities,
collaboration with collection agencies and collection after legal
relationship as litigation process, court proceedings, involvement
of the executive unit and factoring. The overdue payments are
followed through a debt escalation procedure based on customer's
type, credit class and amount of debt. The credit risk is
controlled through credibility checking which determines that the
customer is not indebted and the customer's credit worthiness and
through preventive barring which determinates the credit limit
based on the customer's previous revenues.
The Lynx Group procedures ensure on a permanent basis that sales
are made to one customer with an appropriate credit history and not
exceed acceptable credit exposure. As of 31 December 2016, the
Company has one customer, Lynx Metals.
The Lynx Group does not guarantee obligations of other parties.
The maximum exposure to credit risk is represented by the carrying
amount of each financial asset in the balance sheet. Consequently,
the Lynx Group considers that its maximum exposure is reflected by
the amount of debtors net of provisions for impairment recognized
and the amount of cash deposits in banks at the Balance Sheet date.
Management is focused on dealing with most reputable banks in
foreign and domestic ownership on the domestic market.
The following table represents the Lynx Group's exposure to
credit risk as at 31 December 2016 and 31 December 2015:
2016 2015
----------- -----------
Cash and cash
equivalents.............................................................................
.... 29,294,201 7,292,004
Trade
receivables.............................................................................
..................... 3,691,173 5,305,224
Other financial
receivables.............................................................................
..... 3,213,367 1765,360
----------- -----------
36,198,741 14,362,588
=========== ===========
The receivables are summarised as follows:
31 December 2016 31 December 2015
---------------------------- ------------------------------
Trade Trade Trade Trade
receivables receivables receivables receivables
- domestic - foreign - domestic - foreign
------------- ------------- ------------- -------------
Neither past due
nor impaired........... 3,690,147 1,026 5,304,324 900
Past due but not - - - -
impaired..................
Impaired......................................
.......... - - - 6,810
------------- ------------- ------------- -------------
Gross.........................................
........... 3,690,147 1,026 5,304,324 7,710
Less: Allowance
for impairment....... - - - (6,810)
------------- ------------- ------------- -------------
Net...........................................
.............. 3,690,147 1,026 5,304,324 900
============= ============= ============= =============
Trade receivables due by related parties of $3,690,147 (2015:
$3,527,149) were neither past due nor impaired. The Lynx Group
analyzes the credit quality of neither past due nor impaired
dividing between related parties and third parties. Further details
are presented in Note 19.
The Lynx Group's maximum exposure to credit risk for trade
receivables at the reporting date by geographic regions is as
follows:
2016 2015
---------- ----------
Domestic..................................................................................
...................... 3,690,147 5,304,324
Other foreign
countries............................................................................... 1,026 900
---------- ----------
3,691,173 5,305,224
========== ==========
(v) Liquidity risk
Liquidity risk is defined as the risk that the Lynx Group would
not be able to settle or meet its obligations on time. The Lynx
Group's policy is to maintain sufficient cash and cash equivalents
to meet its commitments in the foreseeable future. Any excess cash
is mostly deposited in commercial banks. The Lynx Group's liquidity
management process includes projecting cash flows by major
currencies and considering the level of necessary liquid assets,
considering business plan, historical collection and outflow data.
Regular cash projections are prepared and updated by
Management.
The table below analyses Lynx Group's financial liabilities into
relevant maturity groupings based on the remaining period at the
balance sheet date to the contractual maturity date. The amounts
disclosed are the contractual undiscounted cash flows.
6 to
Carrying 12 1 to 31 December
amount 6 months months 5 years 2016
----------- ----------- -------- --------- ------------
Financial assets
Cash and cash
equivalents............ 29,294,201 29,294,201 - - -
Trade receivables........................ 3,691,173 3,691,173 - - -
Other financial
receivables.......... 3,213,367 3,213,367 - - -
----------- ----------- -------- --------- ------------
36,198,741 36,198,741 - - -
----------- ----------- -------- --------- ------------
6 to
Carrying 12 1 to 31 December
amount 6 months months 5 years 2016
----------- ----------- ---------- ----------- ------------
Financial liabilities
Trade payables.......................... 3,409,396 3,409,396 - - -
Other financial
liabilities........... 1,996,651 1,996,631
Borrowings................................ 91,324,040 24,428,851 4,325,760 54,541,719 8,029,710
----------- ----------- ---------- ----------- ------------
96,730,087 29,832,898 4,325,760 54,541.59 8,029,710
----------- ----------- ---------- ----------- ------------
31 December
2015
------------
Carrying 6 to 1 to 5
amount 6 months 12 months years
----------- ----------- ----------- ------------
Financial assets
Cash and cash
equivalents......................... 7,292,004 7,292,004 - -
Trade receivables...................................... 5,305,224 5,305,225 - -
Other financial
receivables........................ 1,765,360 1,765,360 - -
----------- ----------- ----------- ------------
14,362,588 14,362,588 - -
----------- ----------- ----------- ------------
Financial liabilities
Trade payables.......................................... 2,087,467 2,087,467 - -
Other financial
liabilities........................... 1,419,529 1,419,529 - -
Borrowings............................................... 36,119,170 11,119,170 - 25,000,000
Interest payables....................................... 43,151 43,151 - -
----------- ----------- ----------- ------------
39,669,317 14,669,317 - 25,000,000
----------- ----------- ----------- ------------
3.2. Capital risk management
The Lynx Group's objectives when managing capital are to
safeguard the Lynx Group's ability to continue as a going concern
in order to provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital.
3.3. Fair value estimation
Cash and cash equivalents, trade receivables and other financial
receivables mainly have short term maturity. For this reason, their
carrying amounts at the reporting date approximate their fair
values.
The table below shows the categorization of financial assets and
liabilities as at 31 December 2016 and 31 December 2015:
Cash and
other Carrying Fair
31 December 2016 receivables amount value
------------- ----------- -----------
Assets as per the statement
of financial position
Trade and other financial
receivables 6,904,540 6904,540 6,904,540
Cash and cash equivalents 29,294,201 29,294,201 29,294,201
------------- ----------- -----------
36,198,741 36,198,741 36,198,741
------------- ----------- -----------
Other
financial Carrying Fair
liabilities amount value
------------- ----------- -----------
Liabilities as per the
statement of financial
positions
Borrowings 91,324,040 91,324,040 91,324,040
Trade and other financial
liabilities 5,406,047 5,406,047 5,406,047
------------- ----------- -----------
96,730,087 96,730,087 96,730,087
------------- ----------- -----------
Cash and
other Carrying Fair
31 December 2015 receivables amount value
------------- ----------- -----------
Assets as per the statement
of financial position
Trade and other financial
receivables 7,070,584 7,070,584 7,070,584
Cash and cash equivalents 7,292,004 7,292,004 7,292,004
------------- ----------- -----------
14,362,588 14,362,588 14,362,588
------------- ----------- -----------
Other Carrying
financial amount Fair
liabilities value
------------- ----------- -----------
Liabilities as per the
statement of financial
positions
Borrowings 36,162,321 36,162,321 36,162,321
Trade and other financial
liabilities 3,506,996 3,506,999 3,506,996
------------- ----------- -----------
39,669,317 39,669,317 39,669,317
------------- ----------- -----------
The fair value of borrowings has been calculated by discounting
the expected future cash flows at contracted interest rates. The
fair value of loan notes and other financial assets has been
calculated using market interest rates. As at 31 December 2016 and
31 December 2015, the Lynx Group measured the fair value using
techniques for which all inputs which have a significant effect on
the recorded fair value are observable, either directly or
indirectly (Level 2).
The different levels have been defined as follows:
-- Quoted prices (unadjusted) in active markets for identical
assets or liabilities (Level 1).
-- Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (Level
2).
-- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (Level
3).
4. Critical accounting estimates and assumptions
The Lynx Group makes estimates and assumptions concerning the
future. Estimates and judgments are continually evaluated and are
based on historical experience and other factors, including
expectations of future events that are believed to be reasonable
under the circumstances. The most critical estimates and
assumptions are discussed below.
(i) Useful lives of assets
For mineral reserves, mining properties and leases and certain
mining equipment, consumption of the economic benefits of the asset
is linked to production. Except as noted below, these assets are
depreciated on a units of production basis.
In applying the units of production method, depreciation is
normally calculated based on production in the period as a
percentage of total expected production in current and future
periods based on ore reserves and, for some mines, other mineral
resources and therefore the annual depreciation expense could be
materially affected by changes in the underlying estimates which
are driven by the life of mine plans. Changes in estimates can be
the result of actual future production differing from current
forecasts of future production, expansion of mineral reserves
through exploration activities, differences between estimated and
actual costs of mining and differences in the commodity prices used
in the estimation of mineral reserves.
The required level of confidence is unlikely to exist for
minerals that are typically found in low-grade ore. Specific areas
of mineralization have to be evaluated in considerable detail
before their economic status can be predicted with confidence. In
calculating the units of production ratio, management made
significant estimates. Changes in the proven and probable reserves
estimates may impact the carrying value of property, plant and
equipment.
Straight-line basis
Assets within operations for which production is not expected to
fluctuate significantly from one year to another or which have a
physical life shorter than the related mine are depreciated on a
straight-line basis.
Further, due to the significant weight of depreciable assets in
Lynx Group's total assets, the impact of any changes in these
assumptions could be material to Lynx Group's financial position,
and results of operations. If depreciation cost were
decrease/increase by 10%, this would result in change of annual
depreciation expense of approximately $1,449,962 (2015:
$231,457).
(ii) Potential impairment of property, plant and equipment and intangibles
The Lynx Group assesses the impairment of identifiable property,
plant, equipment and intangibles whenever there is a reason to
believe that the carrying value may materially exceed the
recoverable amount and where impairment in value is
anticipated.
If such an indication exists, the recoverable amount of the
asset is estimated in order to determine the extent of any
impairment. Where the asset does not generate cash flows that are
independent from other assets, the Company estimates the
recoverable amount of the CGU to which the asset belongs.
Internal and external factors are considered in assessing
whether indicators of impairment are present. Significant
assumptions regarding commodity prices, operating costs, capital
expenditures and discount rates are used in determining whether
there are any indicators of impairment. These assumptions are
reviewed regularly by senior management and compared, where
applicable, to observable market data.
Recoverable amount is the higher of fair value less costs of
disposal and value in use (VIU). Fair value less costs of disposal
is determined as the amount that would be obtained from the sale of
the asset in an arm's length transaction between knowledgeable and
willing parties. For mining assets this would generally be
determined based on the present value of the estimated future cash
flows arising from the continued development, use or eventual
disposal of the asset. In assessing these cash flows and
discounting them to present value, assumptions used are those that
an independent market participant would consider appropriate. In
assessing VIU, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks
specific to the asset for which estimates of future cash flows have
not been adjusted. If the recoverable amount of an asset or CGU is
estimated to be less than its carrying amount, the carrying amount
of the asset or CGU is reduced to its recoverable amount. An
impairment loss is recognised in the income statement.
Where an impairment loss subsequently reverses, the carrying
amount of the asset or CGU is increased to the revised estimate of
its recoverable amount, but so that the increased carrying amount
does not exceed the carrying amount that would have been determined
had no impairment been recognised for the asset or CGU. A reversal
of an impairment loss is recognised in the income statement.
(iii) Business combinations
All business combinations in the Lynx Group are accounted for
under IFRS 3 'Business Combinations' using the acquisition method.
When the Lynx Group acquires a business, it assesses the fair value
of assets and liabilities acquired for the purpose of purchase
price allocation as at the acquisition date. When discounted cash
flow calculations are undertaken, management estimates the expected
future cash flows from the CGU by considering the future lead and
zinc price, expected lead and zinc ore reserve, lead and zinc
grade, mine life, moisture content and discount rate in order to
estimate the expected present value of cash flows from the mine.
The inputs to these factors are taken from observable markets where
possible, but where this is not feasible, a degree of judgment is
required in establishing fair values.
The consideration transferred for the acquisition of a
subsidiary is the fair value of the assets transferred, the
liabilities incurred to the former owners of the acquiree and the
equity interests issued by the Lynx Group. The consideration
transferred includes the fair value of any asset or liability
resulting from a contingent consideration arrangement. Identifiable
assets acquired and liabilities and contingent liabilities assumed
in a business combination are measured initially at their fair
values at the acquisition date.
(iv) Impairment of trade and other receivables
The Lynx Group calculates impairment for doubtful accounts based
on estimated losses resulting from the inability of its customers
to make required payments. For customers in bankruptcy and
liquidation, impairment is calculated on an individual basis, while
for other customers it is estimated on a portfolio basis, for which
the Lynx Group bases its estimate on the aging of its account
receivables balance and its historical write-off experience,
customer credit-worthiness and changes in its customer payment
terms. These factors are reviewed periodically, and changes are
made to calculations when necessary. The estimates involve
assumptions about future customer behaviour and the resulting
future cash collections. If the financial condition of its
customers were to deteriorate, actual write-offs of currently
existing receivables may be higher than expected and may exceed the
level of the impairment losses recognized so far.
(v) Ore reserves and resources
Mineral Reserves and Resources are defined as the Lynx Group's
best estimate of Mineral Ore that can be mined in an economically
viable fashion from the relevant property. Feasibility is
determined based on operational assumptions that include, but are
not limited to, production costs, mining and processing recoveries,
cut-off grades, long term commodity prices as well as, possibly,
exchange rates, inflation rates and capital costs. The Lynx Group's
estimates are supported by geological studies conducted by
appropriately qualified persons. However, the Lynx Group maintains
that estimates ultimately depend upon interpretation and
statistical inferences drawn from drilling and sampling analysis,
and may therefore be subject to upward or downward restatements
over time.
Mineral Reserves and Resources are determined based on
assumptions that were valid at the time of estimation may change
when new information becomes available. In addition, the
calculation of the unit of production rate of amortisation could be
impacted to the extent that actual production in the future is
different from current forecast production. Any changes in estimate
could affect prospective depreciation rates and asset carrying
values and, as a result, the determination of Ore Reserves is
considered a key source of estimation uncertainty.
(vi) Provision for decommissioning and restoration costs
Management estimates and recognizes provisions for
rehabilitation and environmental disturbances at the moment when
disruption of the environment is caused by the initial and current
development of the mine. Expenses for withdrawal are calculated at
the present value of the estimated future expenses for settlement
of liabilities based on projected cash flows. Consequently, a
rehabilitation asset is recognized within property, plant or
equipment. Cash flows are discounted using a risk free rate and
changes are recognized as financial expenses. Estimated future
expenses for withdrawal are estimated each year. Changes in the
estimated future expenses or discount rates are added or deduct
from the expense of the asset. The carrying amount of the provision
as at 31 December 2016 is $2,432,029.
(vii) Income taxes
The Lynx Group is subject to income taxes in the Country of
operation. Significant estimates are required in determining the
provision for income taxes. There are some transactions and
calculations for which the ultimate tax determination is uncertain.
The Lynx Group recognises liabilities for anticipated tax based on
estimates of whether additional taxes will be due. Where the final
tax outcome of these matters is different from the amounts that
were initially recorded, such differences will impact the income
tax and deferred tax provisions in the period in which such
determination is made.
5. Business combination
The Lynx Group acquired 100% of the zinc and lead mine of Sasa,
a Company holding certain lead and zinc exploration and development
licences, on 3 November 2015. The final fair values of identifiable
assets and liabilities of Sasa as at the date of acquisition
were:
Provisional Final
fair fair Carrying
value value value
------------- ------------- -----------
Assets
Property, plant and
equipment............................. 190,911,522 189,972,158 46,752,829
Inventories
............................................................. 1,391,475 1,450,970 1,391,475
Trade receivables................................................... 22,824 22,824 22,824
Other
receivables.................................................... 1,623,415 1,623,415 1,623,415
Cash and cash equivalents................................... 2,320,922 2,320,922 2,320,922
------------- ------------- -----------
196,270,158 195,390,289 52,111,465
Liabilities
Trade
payables....................................................... 1,808,834 1,808,834 1,808,834
Other current financial
liabilities.......................... 1,167,346 1,167,346 1,167,346
Provision for liabilities........................................... 2,561,574 2,561,574 2,561,574
Income tax payable................................................. 500,827 500,827 500,827
Loans and borrowings........................................... 11,180,919 11,180,919 17,219,500
------------- ------------- -----------
17,219,500 17,219,500 17,219,500
Total identifiable net
assets at fair value
translated at exchange........................................... 179,050,658 178,170,789
Consideration paid................................................. 179,050,658 178,170,789
Purchase consideration of $178,170,789 was paid in cash. The net
cash outflow to acquire Sasa, net of cash acquired was
$175,849,867.
The fair values disclosed are provisional as at 3 November 2015.
An independent valuation advisor confirmed the final fair values in
November 2016. To determine the fair value of the mineral reserves
within property, plant and equipment including mining reserves the
Lynx Group used a discounted cash flow model to estimate the
expected future cash flows of the mine, based on the life-of-mine
plan. Expected future cash flows were based on estimates of future
production and commodity prices, operating costs, and forecast
capital expenditures using the life-of-mine plan as at the
acquisition date.
The fair value of the property, plant and equipment was
determined based on a replacement cost approach. Significant part
of the revenue and profit in the consolidated statement of
comprehensive income arise from Sasa. No deferred tax liability was
recorded upon the business combination since the Lynx Group plans
the merger of the Lynx Europe and the subsidiary (Sasa).
The final value of property, plant and equipment has been
decreased by $939,364, and inventory has been increased by $59,495
at the acquisition date, with a corresponding adjustment to mineral
reserves. The final fair value was not significantly different than
the provisional fair value. The 2015 comparative information is
restated to reflect the adjustment for the year ended 31 December
2015.
6. Gross Revenue
For the
period
2016 19 June
to
31 December
2015
----------- -------------
Revenue on domestic market
- lead and zinc concentrate........... 77,515,409 8,620,144
Revenue on foreign market
- lead and zinc concentrate.............. 23,031 2,767
Revenue of 969,742 -
silver................................................................................
----------- -------------
78,508,182 8,622,911
=========== =============
7. Operating Segment
Sales of lead and zinc concentrate and sales of silver are sold
to customers in Europe.
The Company has one operating segment, Lynx Mining Resources.
This reflects the way in which the Company's management reviews its
business performance, and is consistent with how the executive
management, who act as the chief operating decision-makers,
allocate resources and assess performance of Sasa.
8. Other operating income
For the
period
2016 19 June
to
31 December
2015
-------- -------------
Income from insurance claims........................................................... 170,378 -
Discount 27,684 -
received...............................................................................
Income from sales from PPE.............................................................. 3,341 -
Other operating
income...................................................................... 3,655 18,405
-------- -------------
205,058 18,405
======== =============
9. Consumed raw materials
For the
period
2016 19 June
to
31 December
2015
----------- -------------
Consumed
materials............................................................................ 5,263,141 733,711
Consumed spare parts and tools...................................................... 4,900,412 523,838
Consumed
electricity.......................................................................... 2,298,349 406,036
Consumed
petrol................................................................................
. 896,320 7,781
----------- -------------
13,358,222 1,671,366
=========== =============
10. Salaries/payroll expenses
For the
period
2016 19 June
to
31 December
2015
---------- -------------
Net
salaries...............................................................................
............ 4,120,289 628,523
Compulsory social security
contributions......................................
.......................................................................................
........................ 2,011,307 306,508
Retirement and other benefits 297,125 -
(Note 24)..........................................
Other staff
costs.................................................................................. 1,657,539 246,673
---------- -------------
8,086,260 1,181,704
========== =============
11. Inventory movement and cost value of tools and consumable goods
For the
period
2016 19 June
to
31 December
2015
-------- -------------
Income from insurance claims........................................................... 211,580 180,854
Discount
received............................................................................... (3,964) (862)
-------- -------------
207,616 179,992
======== =============
12. Other operating expenses
For the
period
2016 19 June
to
31 December
2015
---------- -------------
Consultancy and audit expenses...................................................... 4,952,409 840,324
Maintenance expenses
...................................................................... 2,078,549 328,771
Insurance
expenses............................................................................ 893,547 87,063
Sponsorship
expenses....................................................................... 252,244 57,302
Marketing and representation
expenses......................................... 226,752 55,325
Bank
charges................................................................................
....... 139,389 152,787
Security
expenses............................................................................... 123,221 20,269
Transportation
expenses................................................................... 57,470 2,156
Telecommunication expenses........................................................... 49,691 16,244
Rental
expenses...............................................................................
.... 46,367 5,337
Local taxes
.......................................................................................
.... 34,672 54,337
Other..................................................................................
................... 764,141 121,055
---------- -------------
9,618,452 1,740,970
========== =============
13. Finance income and costs
For the
period
2016 19 June
to
31 December
2015
------------- -------------
Foreign exchange
gain....................................................................... 3,793,599 509,970
Interest
income..............................................................................
...... 287 90
------------- -------------
Finance Income
.................................................................................. 3,793,886 510,060
Foreign exchange
loss........................................................................ (4,598,812) (429,426)
Interest
expense.............................................................................
..... (1,365,292) (123,075)
Unwind of retirement
provision........................................................ (279,996) (37,064)
Other finance (249,981) -
expenses......................................................................
------------- -------------
Finance
costs...............................................................................
........ (6,494,081) (689,565)
------------- -------------
Net finance
income/(costs)............................................................... (2,700,195) (179,505)
============= =============
14. Income tax expense
Recognized in the consolidated statement of comprehensive
income:
For the
period
2016 19 June
to
31 December
2015
----------- -------------
Current tax expense
Current
year..................................................................................
....... 2,366,093 280,561
Deferred tax expense
Decrease/(increase) in deferred (120,920) -
tax assets......................................
----------- -------------
Total income tax in the statement
of comprehensive income..... 2,245,173 280,561
=========== =============
For the
period
2016 19 June
to
31 December
2015
------------- -------------
Profit/loss before
tax........................................................................... 12,832,958 1,088,842
Tax
rate................................................................................
................. 10% 10%
------------- -------------
Tax expense at the Lynx Resources
tax rate................................... 1,283,296 108,884
Items which are not deductible
(taxable in calculating taxable
income:
Profit (loss) not subject (8,165,117) -
to tax - group operations
in Bermuda...
Non-deductible expenses -
Consolidated level............................. 15,328,476 1,716,768
Non-deductible expenses - 3,664,611 -
Sasa......................................................
------------- -------------
Subtotal............................................................................
.................... 10,827,970 1,716,768
Tax
Rate................................................................................
................ 10% 10%
------------- -------------
Tax
Effect..............................................................................
................ 1,082,797 171,677
Deferred tax (120,920) -
income............................................................................
------------- -------------
Income tax
expense............................................................................. 2,245,173 280,561
============= =============
Effective tax
rate................................................................................
. 17% 26%
Macedonia tax position
Macedonian tax legislation does not allow tax consolidation.
Lynx Group consolidated current income tax consists of Sasa and
Lynx Europe stand-alone income tax.
According to the provisions of the Macedonian tax law the tax
base is the profit generated during the fiscal year increased for
non-deductible expenses and reduced for deductible revenue (i.e.
dividends already taxed at the payer), with income tax at rate of
10%. In line with this Law, Income tax for the year was calculated
and recorded in the consolidated statement of comprehensive
income.
The tax authorities may at any time inspect the books and
records within 5 to 10 years subsequent to the reported tax year,
and may impose additional tax assessments and penalties. The Lynx
Group's management is not aware of any circumstances, which may
give rise to a potential material liability in this respect.
15. Property, plant and equipment
Buildings Machinery
and and Mineral Construction
Land mining equipment reserves in progress Total
infrastructure
--------- --------------- ------------ ------------- ------------- -------------
For the
period from
19 June
to 31 December
2015
Opening - - - - - -
balance......
Acquisition
of a subsidiary
(Note 5).................. 603,081 25,892,374 20,698,379 135,937,575 6,840,749 189,972,158
Additions................. - - - - 1,297,793 1,297,793
Transfer
from construction
in
progress................... - 498,199 822,895 - (1,321,094) -
Disposals................. - - (19,223) - - (19,223)
Depreciation
charge. - (335,092) (822,997) (1,072,005) - (2,230,094)
Exchange
differences.................
............... (4,653) (225,414) (145,180) (137,471) (52,770) (565,488)
--------- --------------- ------------ ------------- ------------- -------------
Closing
net book
amount.................. 598,428 25,830,067 20,533,874 134,728,099 6,764,678 188,455,146
At 31 December
2015........................
Cost......................... 598,428 26,165,159 21,356,871 135,800,104 6,764,678 190,685,240
Accumulated
depreciation............. - (335,092) (822,997) (1,072,005) - (2,230,094)
--------- --------------- ------------ ------------- ------------- -------------
Net book
amount.. 598,428 25,830,067 20,533,874 134,728,099 6,764,678 188,455,146
Year ended
31 December
2016
Opening
balance...... 598,428 25,830,067 20,533,874 134,728,099 6,764,678 188,455,146
Additions................. 206 2,391,165 - - 8,229,753 10,621,124
Transfer
from construction
in
progress................... - 1,434,788 2,537,761 - (3,972,549) -
Write-off................. - (1,909,846) - - - (1,909,846)
Disposals................. - - (222) - - (222)
Depreciation
charge. - (1,722,096) (5,093,588) (7,177,958) - (13,993,642)
Exchange
differences.................
............... (18,530) (1,000,988) (392,220) (6,960,117) (209,466) (8,581,231)
--------- --------------- ------------ ------------- ------------- -------------
Closing
net book
amount.................. 580,104 25,023,090 17,585,605 120,590,024 10,812,416 174,591,239
--------- --------------- ------------ ------------- ------------- -------------
At 31 December
2016
Cost......................... 580,104 26,745,186 22,679,193 127,767,982 10,812,416 188,584,881
Accumulated
depreciation............. - (1,722,096) (5,093,588) (7,177,958) - (13,993,642)
--------- --------------- ------------ ------------- ------------- -------------
Net book
amount.. 580,104 25,023,090 17,585,605 120,590,024 10,812,416 174,591,239
The Lynx Group has pledged building and equipment with an
estimated value of $11,259,660 (2015: $3,573,504) as a security for
the borrowings (See Note 25).
16. Intangible assets
Total
-----------
For the period from 19 June to 31 December
2015
Opening -
balance.................................................................................................
......................................
Additions..............................................................................................
..................................................... 11,018,526
Amortization
expense................................................................................................
............................... (97,048)
Exchange
differences............................................................................................
.................................... (82,830)
-----------
Closing net book
amount.................................................................................................
....................... 10,838,648
===========
At 31 December 2015
Cost...................................................................................................
.......................................................... 10,935,696
Accumulated
amortization...........................................................................................
............................ (97,048)
-----------
Net book
amount.................................................................................................
...................................... 10,838,648
===========
Year ended 31 December 2016
Opening
balance................................................................................................
....................................... 10,838,648
Amortization
expense................................................................................................
............................... (582,115)
Exchange
differences............................................................................................
.................................... (365,428)
-----------
Closing net book
amount.................................................................................................
....................... 9,891,105
===========
At 31 December 2016
Cost...................................................................................................
.......................................................... 10,570,268
Accumulated
amortization...........................................................................................
............................ (679,163)
-----------
Net book
amount.................................................................................................
...................................... 9,891,105
===========
Intangible assets consist of mining rights, which are payments
made to the Government of the Republic of Macedonia for the
approval of the acquisition transaction in relation to the transfer
of the ownership (concession right) from the previous owner under
the Law on mineral resources in amount of $11,018,526 in 2015.
17. Deferred tax assets
Deferred tax assets and liabilities are attributable to the
following items:
Assets Liabilities
------------------ ----------------
2016 2015 2016 2015
--------- ----- ------ ------
Deferred tax assets
- short term loan 120,920 - - -
to related parties...................................
--------- ----- ------ ------
Tax assets.............................................. 120,920 - - -
========= ===== ====== ======
Deferred tax asset balance is recoverable within 12 months
following the reporting date.
The movement in deferred tax assets during the year is as
follow:
Recognized
At 19 in statement
January of comprehensive At 31 December
2015 income 2016
---------- ------------------ ---------------
Deferred tax
assets.............................................. - 120,920 120,920
----------- ------------------ ---------------
Tax assets (Note
14)........................................... - 120,920 120,920
=========== ================== ===============
18. Inventories
2016 2015
---------- ----------
Raw
materials.................................................................................
................................ 335,185 546,567
Finished
goods.....................................................................................
......................... 284,262 792,735
Spare parts and other
materials.................................................................................
.. 949,603 553,362
---------- ----------
1,569,050 1,892,664
========== ==========
Finished goods represents lead and zinc concentrate.
19. Trade and other financial receivables
Carrying amount of trade receivables is presented as
follows:
2016 2015
---------- ----------
Trade receivables
domestic..................................................................................
.. 3,690,147 5,304,324
Trade receivables
foreign...................................................................................
..... 1,026 7,710
---------- ----------
Trade receivables -
gross.....................................................................................
.. 3,691,173 5,312,034
Provision for impairment of trade
receivables...................................................... - (6,810)
---------- ----------
3,691,173 5,305,224
========== ==========
Carrying amount of trade and other financial receivables is
presented as follows:
2016 2015
---------- ----------
Trade receivables domestic (Note
26)................................................................... 3,690,147 5,304,324
Foreign receivables from related
parties (Note 26).............................................. 1,026 7,710
Less: Provision for
impairment............................................................................... - (6,810)
---------- ----------
Trade receivables -
net.......................................................................................
..... 3,691,173 5,305,224
Prepaid expenses and advance
payments............................................................ 2,218,322 1,147,672
Less: provision for (551,794) -
advances.................................................................................
VAT
receivables...............................................................................
........................ 959,713 617,299
Other short-term
receivables...............................................................................
... 587,126 389
---------- ----------
Other financial
receivables...............................................................................
.... 3,213,367 1,765,360
---------- ----------
6,904,540 7,070,584
========== ==========
The ageing analysis of trade receivables is as follows:
2016 2015
---------- ----------
Not past
due.......................................................................................
....................... 3,691,173 5,305,224
Up to 30 days
From 31 to 90 - -
days.......................................................................................
............
From 91 to 180 - -
days.......................................................................................
..........
---------- ----------
Total gross
receivables...............................................................................
............ 3,691,173 5,305,224
========== ==========
Movement in allowance for impairment for other receivables is as
follows:
2016 2015
-------- ------
At 1
January.........................................................................................
..................... 6,810 6,810
Write-off previously impaired (6,810) -
receivables...........................................................
-------- ------
At 31
December........................................................................................
............... - 6,810
======== ======
Amounts charged to the allowance account are generally
provisioned when there is no expectation of recovering additional
cash, or overdue by 180 days or more. During 2016, the Lynx Group
wrote off advance payments of $579,510 due to their inability to be
collected.
Write off of prepaid expenses and advance payments:
2016 2015
-------- ------
Over 180 days.................................................................................... - -
Over 1
year........................................................................................ 551,794 6,810
-------- ------
551,794 6,810
======== ======
According to the Lynx Group's policies the following factors are
taken into consideration when assessing the impairment of
receivables: receivables above 90 days or more, frequent late
payments, high risk customers and customer with financial
difficulties.
The carrying amounts of the Lynx Group's trade receivables are
denominated in the following currencies:
2016 2015
---------- ----------
MKD.......................................................................................
...... - 900
USD.......................................................................................
....... 3,691,173 5,304,324
---------- ----------
3,691,173 5,305,224
========== ==========
The carrying amounts of the Lynx Group's other financial
receivables are denominated in the following currencies:
2016 2015
---------- ----------
MKD.......................................................................................
...... 1,030,513 1,282,665
EUR.......................................................................................
....... 256,773 85,296
USD........................................................................................ 1,864,552 -
......
RUB........................................................................................ 61,529 -
......
SEK.......................................................................................
....... - 397,399
---------- ----------
3,213,367 1,765,360
========== ==========
The fair value of the trade receivables and the other financial
receivables at the balance sheet date is the same as their carrying
value.
20. Cash and cash equivalents
2016 2015
----------- ----------
Bank deposits........................................................................... 14,625,335 6,531,333
Bank accounts in domestic currency.......................................... 13,054,776 673,787
Bank accounts in foreign currency............................................. 1,614,090 86,884
----------- ----------
29,294,201 7,292,004
=========== ==========
Bank deposit in amount of $14,625,335 represents time deposit in
Ohridska Banka AD Skopje with validity of 13 days calculated from
the date of the loan payment with no interest and was used as a
collateral for obtaining short-term borrowing. Due to the economic
substance of the restriction and the availability of the cash funds
after the maturity, the Lynx Group classified the bank deposits as
cash and cash equivalent as at 31 December 2016.
The carrying amounts of the cash and cash equivalents are
denominated in the following currencies:
2016 2015
----------- ----------
MKD......................................................................................
... 14,801,010 6,598,747
EUR......................................................................................
..... 15,290 19,470
USD......................................................................................
..... 14,477,901 673,787
29,294,201 7,292,004
=========== ==========
21. Capital and reserves
Capital
Paid-in capital
At 31 December 2016 and 2015, the Lynx Group has paid-in
capital, which amounts to $97,454,015 and $173,454,015.
In February 2016, Lynx Resources bought back a $1,000,000
preference share from one of the shareholders.
In October 2016, Lynx Resources distributed a $75,000,000
dividend to its shareholders by way of capital reduction.
Other reserves-Foreign currency translation
Exchange differences arising on translation of the foreign
controlled entity are recognized in other comprehensive income as
described in Note 2.4 and accumulated in a separate reserve within
equity. The cumulative amount is reclassified to profit or loss
when the net investment is disposed of.
The following table shows a breakdown of the balance sheet line
item 'other reserves' and the movements in these reserves during
the year:
Other
reserves
------------
At 19 June 2015 -
Exchange differences on foreign currency
translation............................................. (771,695)
At 31 December
2015...................................................................................... (771,695)
------------
At 1 January
2016............................................................................................... (771,695)
Exchange differences on foreign currency
translation:
Intercompany
loans........................................................................................... (5,074,661)
Sales...............................................................................................
................. 228,064
Other...............................................................................................
................ (544,680)
------------
At 31 December
2016...................................................................................... (6,162,972)
============
Translation differences as above of $5,074,661 originates from
the intercompany loan between Lynx Mining and Lynx Europe, which is
considered a net investment as settlement, is neither planned nor
likely to occur in the foreseeable future.
22. Trade payables and other financial liabilities
Carrying amount of trade payables is presented as follows:
2016 2015
---------- ------------
Domestic trade payables................................................................. 2,596,279 1,466,743
Foreign trade
payables.................................................................... 813,117 620,724
---------- ----------
Trade
payables............................................................................ 3,409,396 2,087,467
Employee related
liabilities.............................................................. 602,923 402,718
Concession
liability......................................................................... 204,361 474,422
Professional fees payable................................................................ 116,285 118,716
Freight cost
payable........................................................................ 30,847 77,458
Other financial
liabilities.................................................................. 1,042,235 346,215
---------- ----------
Other financial liabilities............................................................. 1,996,651 1,419,529
---------- ----------
5,406,047 3,506,996
========== ==========
The carrying amounts of the trade payables are denominated in
the following currencies:
2016 2015
---------- ----------
MKD........................................................................................ 2,596,279 1,466,743
GBP........................................................................................
. 89,959 -
USD.......................................................................................
.. 16,233 69,126
EUR.......................................................................................
.. 534,295 416,611
SEK.......................................................................................
... 165,138 134,987
Other......................................................................................
.. 7,492 -
---------- ----------
3,409,396 2,087,467
========== ==========
The carrying amounts of the other financial liabilities are
denominated in the following currencies:
2016 2015
---------- ----------
MKD........................................................................................ 914,537 1,223,354
USD.......................................................................................
.. 1,082,114 196,175
---------- ----------
1,996,651 1,419,529
========== ==========
23. Deferred revenue-received advances for silver delivery
The carrying amounts of the deferred revenue-received advances
for silver delivery are as follows:
2016 2015
----------- -----
Deferred revenue-received advances
for silver delivery............. 21,573,555 -
----------- -----
21,573,555 -
=========== =====
Current...................................................................................... 1,970,092 -
Non-current............................................................................... 19,603,463 -
----------- -----
On 1 September 2016, Lynx Group entered into a Silver Purchase
Agreement with a related party, Lynx Metals Ltd by netting of its
existing Loan payable with Lynx Metals. The prepayments for the
purchase of silver are recognized as deferred income and are
related to production of silver during the life of the mine.
Deferred income is recognized to the statement of comprehensive
income as the silver is delivered based on the units of
production.
24. Provision for liability and charges
Employee benefits provisions
Restoration,
closure Employee
cost and retirement Other
decommissioning benefits benefits Total
----------------- ------------ ---------- ----------
As of 19 June 2015 - - - -
Acquisition of a subsidiary........................... 2,130.297 133,110 246,398 2,509,805
Unwinding of discount
and changes in
provision............................................
.............. 28,642 5,145 3278 37,065
As at 31 December
2015............................... 2,158,939 138,255 249,676 2,546,870
================= ============ ========== ==========
Non-current..........................................
............ 2,158,939 118,899 132,329 2,410,167
Current..............................................
................ - 19,356 117,347 136,703
----------------- ------------ ---------- ----------
2,158,939 138,255 249,676 2,546,870
================= ============ ========== ==========
Employee benefits provisions
Restoration,
closure Employee
cost and retirement Other
decommissioning benefits benefits Total
----------------- ------------ ---------- ----------
As of 1 January
2016...................................... 2,158,939 138,255 249,676 2,546,870
Unwinding of discount
and changes in
provision............................................
.............. 273,090 (7,550) 203,006 468,546
----------------- ------------ ---------- ----------
As at 31 December
2016............................... 2,432,029 130,705 452,682 3,015,416
Non-current..........................................
............ 2,432,029 111,349 405,754 2,949,132
Current..............................................
................ - 19,356 46,928 66,284
----------------- ------------ ---------- ----------
2,432,029 130,705 452,682 3,015,416
================= ============ ========== ==========
(i) Restoration and decommissioning provision
Under current legislation entities operating mining and related
activities in the Republic of Macedonia are required to take
remedial action for the land where such activities have occurred
based on a plan approved by the Ministry of the Environment as well
as in accordance with international best practices. After the
ceasing of mining activities the Lynx Group is obliged to restore
the mining area and to return in its initial condition.
The Lynx Group has engaged an independent expert to conduct an
independent assessment on the environment of the mining activities
of the Lynx Group and to prepare assessment of the restoration and
the relevant costs connected with the mine, tailing site and the
mining properties. The calculation was performed on a basis of this
independent assessment performed by an environmental technical
expert.
The expected current cash flows were projected over the useful
life of the mining sites and discounted to 2016 terms using a risk
free discount rate. The cost of the related assets are depreciated
over the useful life of the assets and are included in property,
plant and equipment. If the estimated discount rate used in the
calculation had been 10% lower than management's estimates, the
carrying amount of the restoration and decommissioning provision
would have been $255,910 higher.
(ii) Employee retirement benefit provision
All employers in the Republic of Macedonia are obliged to pay
employees minimum severance pay on retirement equal to two months
of the average monthly salary applicable in the Country at the time
of retirement.
(iii) Other employee benefits
The Lynx Group is also obliged to pay jubilee anniversary awards
that correspond to the total number of years of service of the
employee. Provisions for termination and retirement obligations are
recognized in accordance with actuary calculation in 2016. Basic
actuary assumptions are used as follows:
2016
-----
Discount rate . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
. . . . 4.3%
Expected rate of salary increase . . .
. . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
. . 2.5%
Retirement benefit obligation is stated at the present value of
expected future payments to employees with respect to employment
retirement pay. The present value of expected future payments to
employees is determined by an independent authorised actuary in
accordance with the prevailing rules of actuarial mathematics.
25. Borrowings
2016 2015
------------ ------------
Non-current
Borrowings............................................................................
.. 62,571,429 25,000,000
Current
Borrowings............................................................................
.. 28,742,611 11,119,170
Accrued interest
payable................................................................. - 43,151
912,324,040 36,162,321
============ ============
Non-current borrowings are measured at amortized cost.
Non-current borrowings represent the long-term loan that was issued
of $75,000,000 from Societe Generale, Investec and Ohridska Banka
(the Senior Facility) obtained in October 2016 with an interest
rate of 3 month LIBOR plus 5%, maturing on 30 September 2023.
The borrowings are measured at amortized cost. Bank borrowings
from Ohridska Banka represent four short- term loans. The first
loan was issued in amount of $5,307,885 (MKD 310,300,000) with
interest rate of 6.2% p.a. maturing on 30 June 2017. The second
loan was issued in amount of $525,948 (MKD 370,000,000) with
interest rate of 4.5% p.a. with maturity date on 5 September 2017.
The third loan was approved in amount of $1,051,707 (MKD
61,483,000) with interest rate of 4.5% p.a. maturing on 30 November
2017. Short-term loan outstanding as at 31 December 2016 of
$14,625,335 (MKD 855.000.000) is obtained from Ohridska Banka with
interest rate of 3% with maturity date of 13 days.
The carrying amounts and fair value of all borrowings are as
follows:
Carrying amount Fair value
------------------------ ------------------------
2016 2015 2016 2015
----------- ----------- ----------- -----------
Ohridska Banka AD
Skoje.....................................................
........................... 18,324,040 11,119,170 18,324,040 11,119,170
SG
Facility..................................................
......................................................... 73,000,000 - 73,000,000 -
Lynx
Metals....................................................
.................................................... - 25,000,000 - 25,000,000
Accrued interest
payable - Lynx
Metals....................................................
... - 43,151 - 43,151
----------- ----------- ----------- -----------
91,324,040 36,162,321 91,324,040 36,162,321
=========== =========== =========== ===========
The fair value of all borrowings equals their carrying amount,
as the impact of discounting is not significant. The information in
relation to the pledge of collateral is presented in Note 15.
The carrying amounts of the borrowings are denominated in the
following currencies:
2016 2015
----------- -----------
MKD.....................................................................................
.............. 18,234,040 11,119,170
USD.....................................................................................
............... 73,000,000 25,043,151
91,324,040 36,162,321
=========== ===========
26. Related party transactions
The Lynx Group has related party transactions with subsidiaries
of Lynx Resources during its normal course of business activities.
All transactions with related parties are conducted under normal
trading and commercial terms at mutually agreed terms. The tables
below provides information for the volume and balances of the
related party transactions as of and for the years ended 31
December 2016 and 2015.
(i) Year-end balances arising from purchases/sales of commodities and services
2016 2015
----------- -----------
Receivables from related parties
Subsidiaries of the ultimate beneficiaries
of the Lynx Group............................. 3,690,147 3,527,149
At 31 December 3,690,147 3,527,149
=========== ===========
(ii) Year-end balances arising from Borrowings
2016 2015
------ ------------
Borrowings from Lynx Metals - subsidiary
of the ultimate beneficiaries of
the Lynx
Group......................................................................................
................... - 25,000,000
Interest payables to related
parties........................................................................ - 43,151
At 31 December - 25,043,151
======= ============
(iii) Sales of commodities and services
For the
period
from
19 June
to 31
December
2016 2015
------------ -----------
Sales towards Lynx Metals
Gross revenue from sales of subsidiaries
of the ultimate beneficiaries
of the Lynx
Group..................................................................................
..................... 77,515,409 8,620,144
Gross revenue from sales of 969,742 -
silver......................................................................
Marketing (9,372,696) -
Cost....................................................................................
..................
At 31 December 69,112,455 8,620,144
============ ===========
(iv) Services obtained
For the
period
from 19
June to
31 December
2016 2015
---------- -------------
Services obtained from Fusion
Capital - shareholder of Lynx
Resources..............................................................................
............................... 3,015,000 659,091
At 31
December...............................................................................
................... 3,015,000 659,091
---------- -------------
iv) Key management compensation
Key management compensation is paid to the shareholders of Lynx
Resources. Short term employee benefits was $3,015,000 for 2016 and
$695,091 for 2015).
27. Contingencies
) Legal proceedings
From time to time and in the normal course of the business,
claims against the Lynx Group may be received. On the basis of its
own estimates and both internal and external professional advice,
the Management of the Lynx Group is of the opinion that no material
losses will be incurred in respect of claims and accordingly no
provision has been made in this consolidated financial
information.
28. Events after the reporting period
There are no events after the reporting period that would have
impacted on the 2016 statement of comprehensive income, statement
of financial position or statement of cash flows.
SECTION C: UNAUDITED INTERIM FINANCIAL INFORMATION OF LYNX
RESOURCES FOR THE SIX MONTHSED 30 JUNE 2017
Six months
ended 30 June
----------------------------
Note 2017 2016
----- ------------- -------------
Unaudited Unaudited
REVENUE . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . . 50,664,302 30,671,573
--------------------------------------- ----- ------------- -------------
Presented as:
Gross revenue . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . 4 56,157,449 35,654,708
Marketing cost . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . (1,373,143) (4,085,191)
Silver purchase for silver (3,263,432) -
stream . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . .
Freight cost . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . . (856,572) (897,944)
------------- -------------
Revenue . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . . 50,664,302 30,671,573
--------------------------------------- ----- ------------- -------------
OPERATING EXPENSES
Inventory movement . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . (258,718) (171,159)
Consumed raw materials . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . 6 (6,063,122) (6,222,634)
Salaries/payroll expenses
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . (3,237,927) (2,956,272)
Cost value of tools and consumable
goods . . . . . . . . . .
. . . . . . . . . . . . (4,127) (1,931)
Concession expenses . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . (1,353,035) (995,164)
Other operating expenses .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . (6,569,589) (4,970,888)
Write off of PPE and other
financial assets . . . . .
. . . . . . . . . . . . .
. . . . 9,12 (1,326) (234)
Depreciation expenses . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . 9,10 (6,568,036) (7,475,682)
Other operating income . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . 93,905 21,096
------------- -------------
Total operating profit . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . 26,702,327 7,898,705
Finance income . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . 7 7,153,855 378,006
Finance costs . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. 7 (8,328,618) (928,696)
------------- -------------
Total net finance costs .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . (1,174,763) (550,690)
Profit before income tax .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . 25,527,564 7,348,015
Income tax expense . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . 8 (3,836,431) (1,166,983)
------------- -------------
PROFIT FOR THE PERIOD . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . 21,691,133 6,181,032
------------- -------------
OTHER COMPREHENSIVE INCOME
Exchange differences on translation
of foreign operations . .
. . . . . . 14 12,157,458 2,643,625
------------- -------------
Total other comprehensive
income . . . . . . . . . .
. . . . . . . . . . . . .
. . . . 12,157,458 2,643,625
TOTAL COMPREHENSIVE INCOME
FOR THE PERIOD . . . . . .
. 33,848,591 8,824,657
------------- -------------
As at As at
30 June 31 December
Note 2017 2016
----- ------------- -------------
Unaudited
ASSETS
Non-current assets
Intangible Assets . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . . 10 10,438,479 9,891,105
Property, plant and equipment
(PPE) . . . . . . . . . .
. . . . . . . . . . . . .
. . . . 9 186,391,802 174,591,239
------------- -------------
Total non-current assets .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . 196,830,281 184,482,344
Current assets
Inventories . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . 11 2,093,795 1,569,050
Trade receivables . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . . 12 17,409,357 3,691,173
Income tax receivables . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . - 1,825,687
Other financial receivables
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . 12 3,878,643 3,213,367
Cash and cash equivalents
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . 13 14,814,973 29,294,201
Deferred tax assets . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . . 131,291 120,920
------------- -------------
Total current assets . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . 38,328,059 39,714,398
------------- -------------
TOTAL ASSETS . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . 235,158,340 224,196,742
============= =============
EQUITY AND LIABILITIES
Equity
Capital . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . 14 97,454,015 97,454,015
Other reserves . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . . 14 5,994,486 (6,162,972)
Retained earnings . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . 31,253,626 11,586,641
------------- -------------
Total equity . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . . 134,702,127 102,877,684
Non-current liabilities
Borrowings . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . . 17 57,449,924 62,571,429
Deferred revenue received
advances for silver delivery
. . . . . . . . . . 15 18,483,565 19,603,463
Provision for liabilities
and charges . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . 2,749,709 2,949,132
------------- -------------
Total non-current liabilities
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . 78,683,198 85,124,024
Current liabilities
Trade payable . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . . 16 2,331,082 3,409,396
Income tax payables . . . 1,280,933 -
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . .
Borrowings . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. 17 14,219,300 28,752,611
Deferred revenue received
advances for silver delivery
. . . . . . . . . . . 15 2,143,404 1,970,092
Provision for liabilities
and charges . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . 58,447 66,284
Other financial liabilities
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . 16 1,739,849 1,996,651
------------- -------------
Total current liabilities
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . 21,773,015 36,195,034
------------- -------------
TOTAL LIABILITIES AND EQUITY
. . . . . . . . . . . . .
. . . . . . . . . . . . . 235,158,340 224,196,742
------------- -------------
Retained Other
Note Capital earnings reserves Total
----- ------------- ------------ ------------- ---------------
Balance at 1 January
2016 . . . . .
. . . . . . 173,454,015 808,281 (771,695) 173,490,601
----- ------------- ------------ ------------- ---------------
Net profit for
the period . .
. . . . . . .
. .. . - 6,181,032 - 6,181,032
Other comprehensive
income . . . .
. . . . . - - 2,643,625 2,643,625
------------- ------------ ------------- ---------------
Total comprehensive
income . . . .
. . . . . - 6,181,032 2,643,625 8,824,657
------------- ------------ ------------- ---------------
Capital reduction
. . . . . . .
. . . . . . .
. . . . . 14 (1,000,000) - - (1,000,000)
Balance at 30
June 2016 . .
. . . . . . .
. . . 172,454,015 6,989,313 1,871,930 181,315,258
Balance at 1 July
2016 . . . . .
. . . . . . .
. . 172,454,015 6,989,313 1,871,930 181,315,258
============= ============ ============= ===============
Net profit for
the period . .
. . . . . . .
. . . . - 4,597,328 - 4,597,328
Other comprehensive
income . . . .
. . . .. . - - (8,034,902) (8,034,902)
------------- ------------ ------------- ---------------
Total comprehensive
income . . . .
. . . . . - 4,597,328 (8,034,902) (3,437,574)
------------- ------------ ------------- ---------------
Capital reduction
. . . . . . .
. . . . . . .
. . . . . 14 (75,000,000) - - (75,000,000)
Balance at 31
December 2016
. . . . . . .
. 97,454,015 11,586,641 (6,162,972) 102,877,684
============= ===============
Balance at 1 January
2017 . . . . .
. . . . . . 97,454,015 11,586,641 (6,162,972) 102,877,684
------------- ------------ ------------- ---------------
Net profit for
the period . .
. . . . . . .
. . . . - 21,691,133 - 21,691,133
Other comprehensive
income . . . .
. . . . . - - 12,157,458 12,157,458
------------- ------------ ------------- ---------------
Total comprehensive
income . . . .
. . . . . - 21,691,133 12,157,458 33,848,591
------------- ------------ ------------- ---------------
Dividend . . .
. . . . . . .
. . . . . . .
. . . .. . . . (2,024,148) - (2,024,148)
------------- ------------ ------------- ---------------
Balance at 30
June 2017 . .
. . . . . . .
. . . 97,454,015 31,253,626 5,994,486 134,702,127
------------- ------------ ------------- ---------------
(Unaudited)
Six months
ended 30 June
----------------------------
Note 2017 2016
------------ ------------- -------------
Unaudited Unaudited
OPERATING ACTIVITIES
Profit before tax . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . 25,527,564 7,348,015
Adjustments for:
Depreciation . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . 9,10 6,568,036 7,475,682
Write-off of property, plant
and equipment . . . . . .
. . . . . . . . . . . . .
. . . . . 9 1,326 -
Amortization of deferred revenue (946,586) -
received advances for silver
deliver . . . .
Unwind of discount on provisions
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . 91,850 92,203
Interest expense . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . 7 2,280,708 178,969
Interest income . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . 7 (151) -
Unrealized foreign exchange
(gain) loss . . . . . . .
. . . . . . . . . . . . .
. . . . . . . - 221,231
------------- -------------
Cash flow generated from operations
before changes in working
capital . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . 33,522,747 15,316,100
CASH FLOW FROM OPERATING ACTIVITIES
(Increase) / decrease in inventories
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . (524,745) 369,175
(Increase) / decrease in trade
receivables . . . . . . .
. . . . . . . . . . . . .
. . . . . . (13,718,184) (3,254,858)
(Increase) / decrease in other
financial receivables . .
. . . . . . . . . . . . .
. . . . (677,010) (588,189)
Increase / (decrease) in trade
payables . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . (1,078,314) (490,986)
Increase / (decrease) in other
financial liabilities . .
. . . . . . . . . . . . .
. . . . . (137,271) (249,503)
------------- -------------
Cash flow generated from /
(used in) operating activities
. . . . . . . . . . . 17,387,223 11,101,739
Interest and bank charges
paid . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . (2,280,708) (778,450)
Income taxes paid . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . (729,811) (583,375)
------------- -------------
Net cash flow generated from
/ (used in) operating activities
. . . . . . . . 14,376,704 9,739,914
CASH FLOW FROM INVESTING ACTIVITIES
Purchase and deposits on property,
plant and equipment . . .
. . . . . . . . . . . (5,361,599) (3,191,357)
Advances for property, plant
and equipment . . . . . .
. . . . . . . . . . . . .
. . . . (1,815,520) 63,516
Interest received . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . 151 378,250
------------- -------------
Net cash used in investing
activities . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . (7,176,968) (2,749,591)
CASH FLOW FROM FINANCING ACTIVITIES
Repayment of loans and borrowings
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . (19,654,816) (5,208,175)
Dividend paid . . . . . . (2,024,148 -
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. .
Reduction of capital . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . . 14 - (1,000,000)
------------- -------------
Net cash flow generated from
financing activities . . .
. . . . . . . . . . . . .
. (21,678,964) (6,208,175)
Net increase / (decrease)
in cash and cash equivalents
. . . . . . . . . . . . . (14,479,228) 782,148
Cash and cash equivalents
at the beginning of the period
. . . . . . . . . . . . . 29,294,201 7,292,004
------------- -------------
Cash and cash equivalents
at end of the period . . .
. . . . . . . . . . . . .
. . . 13 14,814,973 8,074,152
------------- -------------
1. General information
Lynx Resources Limited ("Lynx Resources"), was incorporated on
19 June 2015 under the Companies Act 1981 of Bermuda. The initial
paid in capital amounted to $173,454,015. The registered office of
Lynx Resources is located at Canon's Court, 22 Victoria Street,
Hamilton HM12, Bermuda.
On 10 July 2015, Lynx Resources through its wholly owned
subsidiary, Lynx Mining Limited, established Lynx Europe dooel
Skopje. As at 3 November 2015, Lynx Europe dooel Skopje acquired
100% of the shares of the zinc and lead mine Rudnik SASA DOOEL
Makedonska Kamenica (Sasa). The ultimate controlling party of the
Lynx Group is Orion Fund JV Ltd., Hamilton, Bermuda.
The primary activity of Lynx Resources Limited and its
subsidiaries (collectively, the "Lynx Group") includes the
extraction of mineralized ores and the production and sale of zinc
and lead concentrates.
The Management of the Lynx Group serving during the financial
year is:
Chris James-Chief Executive Officer
Stefan Peschke-Chief Financial Officer
Florian Dax-Chief Operating Officer
The activity of the Lynx Group is organized through the
following organizational activities:
-- Mine
-- Flotation
-- Laboratory
-- Machine workshop
-- General administration
-- Wholesale and trade of zinc and lead concentrates
The condensed consolidated interim financial information
incorporates the results of Lynx Resources Limited and its
subsidiary undertakings as at 30 June 2017. This condensed
consolidated interim financial information does not constitute
statutory accounts. The condensed consolidated interim financial
information has not been audited.
2. Summary of significant accounting policies
The principal accounting policies adopted are consistent with
those of the previous financial year.
2.1. Basis of preparation
The condensed consolidated interim financial information for the
six months ended 30 June 2017 is prepared for the purposes of the
re-admission of Central Asia Metals to AIM. This financial
information for the period ended 30 June 2017 has been prepared in
accordance with Accounting Standard IAS 34 Interim Financial
Reporting. This special purpose condensed consolidated interim
financial information should be read in conjunction with the
historical financial information of Lynx Resources for the year
ended 31 December 2016, which have been prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union ("IFRS").
The condensed consolidated interim financial information is
presented in United States Dollars. The accounting policies,
methods of computation and presentation used in the preparation of
the interim financial information are the same as those used in the
Lynx Group's audited financial information for the year ended 31
December 2016 except as described below:
-- A number of amendments to IFRS became effective for the
financial year beginning 1 January 2017 however the Lynx Group did
not have to change its accounting policies or make material
retrospective adjustments as a result of adopting these new
standards.
-- Taxes on income in the interim periods are accrued using the
tax rate that would be applicable to expected total annual profit
or loss.
The preparation of the historical consolidated financial
information in conformity with IFRS requires the use of certain
critical accounting estimates. It also requires management to
exercise its judgment in the process of applying the Lynx Group's
accounting policies.
In order to maintain consistency with the current year
presentation, where appropriate certain items have been
reclassified for comparative purposes. Such reclassifications,
however, have not resulted in significant changes of the content
and format of the financial information as presented herein.
2.2. Going concern
After review of the Lynx Group's operations, financial position
and forecasts, the Directors have a reasonable expectation that the
Lynx Group has adequate resources to continue in operational
existence for a period of at least twelve months. Accordingly, the
Directors continue to adopt the going concern basis in preparing
the unaudited interim financial information.
3. Financial risk management
3.1 Financial risk factors
The group's activities expose it to a variety of financial
risks: market risk (including currency risk, fair value interest
rate risk, cash flow interest rate risk and price risk), credit
risk and liquidity risk.
The condensed interim financial information does not include all
financial risk management information and disclosures required in
annual financial information; they should be read in conjunction
with the Lynx Group's annual financial information as at 31
December 2016. There have been no changes in the risk management
department or in any risk management policies since the year
end.
3.2. Capital risk management
The Lynx Group's objectives when managing capital are to
safeguard the Lynx Group's ability to continue as a going concern
in order to provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital.
There have been no changes in the capital risk management
policies since the year end.
3.3. Fair value estimation
Cash and cash equivalents, trade receivables and other financial
receivables mainly have short term maturity. For this reason, their
carrying amounts at the reporting date approximate their fair
values.
The table below shows the categorization of financial assets and
liabilities as at 30 June 2017 and 31 December 2016:
Cash
and
other Carrying Fair
30 June 2017 receivables amount value
------------- ----------- -----------
Assets as per the statement
of financial position
Trade and other financial
receivables .............................. 21,288,000 21,288,000 21,288,000
Cash and cash equivalents
.............................................. 14,814,973 14,814,973 14,814,973
36,102,973 36,102,973 36,102,973
============= =========== ===========
Other
financial Carrying Fair
liabilities amount value
------------ ----------- -----------
Liabilities as per the statement
of financial position
Borrowings
.........................................................................
.. 71,669,224 71,669,224 71,669,224
Trade and other financial
receivables ................................... 4,070,931 4,070,931 4,070,931
------------ ----------- -----------
75,740,155 75,740,155 75,740,155
============ =========== ===========
Cash
and other Carrying Fair
31 December 2016 receivables amount value
------------ ----------- -----------
Assets as per the statement
of financial position
Trade and other financial
receivables................................ 6,904,540 6,904,540 6,904,540
Cash and cash equivalents
............................................... 29,294,201 29,294,201 29,294,201
------------ ----------- -----------
36,198,741 36,198,741 36,198,741
============ =========== ===========
Other
Liabilities as per the statement financial Carrying Fair
of financial position liabilities amount value
------------ ----------- -----------
Borrowings
.........................................................................
.. 91,324,040 91,324,040 91,324,040
Trade and other financial
receivables.................................... 5,406,047 5,406,047 5,406,047
------------ ----------- -----------
96,730,087 96,730,087 96,730,087
============ =========== ===========
The fair value of borrowings has been calculated by discounting
the expected future cash flows at contracted interest rates. The
fair value of loan notes and other financial assets has been
calculated using market interest rates. As at 30 June 2017 and 31
December 2016, the Lynx Group measured the fair value using
techniques for which all inputs which have a significant effect on
the recorded fair value are observable, either directly or
indirectly (Level 2). There have been no transfers between fair
value hierarchy level as of 30 June 2017.
The different levels have been defined as follows:
-- Quoted prices (unadjusted) in active markets for identical
assets or liabilities (Level 1).
-- Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (Level
2).
-- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (Level
3).
4. Gross Revenue
30 June 30 June
2017 2016
----------- -----------
Revenue on domestic market-lead
and zinc concentrate................................. 54,084,815 35,644,648
Revenue on foreign market-lead
and zinc concentrate.................................... 18,468 10,060
Revenue of 2,054,166 -
silver...................................................................................
...................
56,157,449 35,654,708
5. Operating segment
Sales of lead and zinc concentrate and sales of silver are sold
to customers in Europe.
Lynx Resources has one operating segment, Lynx Mining Resources.
This reflects the way in which the company's management reviews its
business performance, and is consistent with how the executive
management, who act as the chief operating decision-makers,
allocate resources and assess performance of Sasa.
6. Consumed raw materials
30 June 30 June
2017 2016
---------- ----------
Consumed
materials.................................................................................
................ 2,309,766 2,554,732
Consumed spare parts and
tools........................................................................... 2,286,133 2,065,667
Consumed
electricity...............................................................................
................ 1,020,762 1,179,862
Consumed
petrol....................................................................................
.................. 446,461 422,373
6,063,122 6,222,634
7. Finance income and costs
30 June 30 June
2017 2016
------------ ----------
Foreign exchange
gain....................................................................................
......... 7,153,704 378,006
Interest 151 -
income...................................................................................
......................
------------ ----------
Finance
income..................................................................................
...................... 7,153,855 378,006
Foreign exchange
loss....................................................................................
......... (5,956,060) (657,524)
Interest
expense.................................................................................
....................... (2,280,708) (178,969)
Other finance
expense.................................................................................
............ (91,850) (92,203)
------------ ----------
Finance
costs...................................................................................
......................... (8,328,618) (928,696)
------------ ----------
Net finance
income/(costs)..........................................................................
........... (1,174,763) (550,690)
------------ ----------
8. Income tax expense
According to the provisions of the Macedonian tax law the tax
base is the profit generated during the fiscal year increased for
non-deductible expenses and reduced for deductible revenue (i.e.
dividends already taxed at the payer), with income tax at rate of
10%. In line with this Law, Income tax for the period was
calculated and recorded in the consolidated statement of
comprehensive income.
The increase in income tax expense is mainly due to an increase
in profit before tax, net of profit not subject to tax for group
operations in Bermuda, and non-deductible expenses. The increase in
deferred tax assets for the period ending 30 June 2017 was
$10,371.
9. Property, plant and equipment
Building
and Machinery
Mining and Mineral Construction in
Land Infrastructure equipment reserves progress Total
---------------- ------------ ------------ -------------
Year ended 31
December 2016
Opening balance .
. . . . . . . . .
.. . 598,428 25,830,067 20,533,874 134,728,099 6,764,678 188,455,146
Additions . . . .
. . . . . . . . .
. . . . 206 2,391,165 - - 8,229,753 10,621,124
Transfer from
construction in
progress. . . . .
. . . . . . . . .
. . . . . . - 1,434,788 2,537,761 - (3,972,549) -
Write-off. . . . .
. . . . . . . . .
. . . . . - (1,909,846) - - - (1,909,846)
Disposals. . . . .
. . . . . . . . .
. . . . . - - (222) - - (222)
Depreciation
charge. . . . . .
. . . . . - (1,722,096) (5,093,588) (7,177,958) - (13,993,642)
Exchange
differences. . .
. . . . . . (18,530) (1,000,988) (392,220) (6,960,117) (209,466) (8,581,321)
---------------- ------------
Closing net book
amount . . . . . 580,104 25,023,090 17,585,605 120,590,024 10,812,416 174,591,239
---------------- ------------
At 31 December
2016
Cost . . . . . . .
. . . . . . . . .
. . . . . . 580,104 26,745,186 22,679,193 127,767,982 10,812,416 188,584,881
Accumulated
depreciation - (1,722,096) (5,093,588) (7,177,958) (13,993,642)
---------------- ------------
Net book amount 580,104 25,023,090 17,585,605 120,590,024 10,812,416 174,591,239
---------------- ------------
Period ended 30
June 2017
Opening balance .
. . . . . . . . .
. . 580,104 25,023,090 17,585,605 120,590,024 10,812,416 174,591,239
Additions . . . .
. . . . . . . . .
. . . . . - (127,202) 300,915 - 4,116,209 4,289,922
Transfer from
construction in
progress. . . . .
. . . . . . . . .
. . . . . . - 8,179,189 2,264,085 - (10,443,274) -
Write-off. . . . .
. . . . . . . . .
. . . . . - (1,326) - - - (1,326)
Depreciation
charge. . . . . .
. . . . . - (816,742) (1,993,241) (3,473,169) - (6,283,152)
Exchange
differences. . .
. . . . . . 49,752 856,267 158,205 11,803,589 927,306 13,795,119
---------------- ------------
Closing net book
amount . . . . . 629,856 33,113,276 18,315,569 128,920,444 5,412,657 186,391,802
---------------- ------------
At 31 December
2016
Cost . . . . . . .
. . . . . . . . .
. . . . . . 629,856 35,652,114 25,402,398 139,571,571 5,412,657 206,668,596
Accumulated
depreciation. . .
. . . - (2,538,838) (7,086,829) (10,651,127) - (20,276,791)
---------------- ------------
Net book amount 629,856 33,113,276 18,315,569 128,920,444 5,412,657 186,391,802
---------------- ------------
The Lynx Group has pledged building and equipment with an
estimated value of $9,086,293 as of 30 June 2017 (June 30, 2016: $
12,021,145) as a security for the borrowings (See Note 17).
10. Intangible assets
Year ended 31 December 2016 Total
Opening
balance..............................................................................................
......................................................................... 10,779,153
Amortization
expense..............................................................................................
................................................................ (582,115)
Exchange
differences..........................................................................................
...................................................................... (305,933)
Closing net book
amount...............................................................................................
...................................................... 9,891,105
At 31 December 2016
Cost.................................................................................................
.............................................................................................. 10,570,268
Accumulated
amortization.........................................................................................
............................................................. (679,163))
Exchange
differences..........................................................................................
...................................................................... (305,933)
Net book
amount...............................................................................................
...................................................................... 9,891,105
Period ended 30 June 2017
Opening
balance...............................................................................................
........................................................................ 9,891,105
Depreciation
charge................................................................................................
................................................................. (284,884)
Exchange
differences...........................................................................................
..................................................................... 832,258
Closing net book
amount................................................................................................
..................................................... 10,438,479
At 30 June 2017
Cost.................................................................................................
.............................................................................................. 11,402,526
Accumulated
amortization.........................................................................................
............................................................. (964,047)
Net book
amount...............................................................................................
...................................................................... 10,438,479
11. Inventories
30 June 31 December
2017 2016
---------- ------------
Raw
materials...............................................................................
........................................................................................
...... 338,279 335,185
Finished
goods...................................................................................
....................................................................................... 61,011 284,262
Spare parts and other
materials...............................................................................
............................................................... 1,694,505 949,603
2,093,795 1,569,050
Finished goods represents lead and zinc concentrate.
12. Trade and other financial receivables
Carrying amount of trade receivables is presented as
follows:
30 June 31 December
2017 2016
----------- ------------
Trade receivables
domestic...............................................................................
...................................................................... 17,409,357 3,690,147
Trade receivables
foreign................................................................................
........................................................................ - 1,026
----------- ------------
Trade receivables -
gross..................................................................................
.................................................................... 17,409,357 3,691,173
Provision for impairment of trade - -
receivables.............................................................................
......................................
----------- ------------
17,409,357 3,691,173
----------- ------------
Carrying amount of trade and other financial receivables is
presented as follows:
30 June 31 December
2017 2016
----------- ------------
Trade receivables domestic (Note
18)....................................................................................
............................................. 17,409,357 3,690,147
Foreign receivables from related
parties................................................................................
............................................. - 1,026
----------- ------------
Trade receivables -
net....................................................................................
....................................................................... 17,409,357 3,691,173
Advanced
payments...............................................................................
.................................................................................. 1,884,399 2,218,322
VAT
receivables............................................................................
.......................................................................................
..... 1,116,061 959,713
Other short-term
receivables............................................................................
...................................................................... 878,183 587,126
Less: provision for
advances...............................................................................
.................................................................. - (551,794)
----------- ------------
Other financial
receivables............................................................................
...................................................................... 3,878,643 3,213,367
----------- ------------
21,288,000 6,904,540
----------- ------------
Movements on the provision for impairment of trade receivables
are as follows:
30 June 31 December
2017 2016
--------- ------------
Opening balance at 1
January.................................................................................
............................................................... - 6,810
Write-off previously impaired
receivables.............................................................................
............................................ - (6,810)
---------- ------------
- 3,691,173
---------- ------------
Movement in allowance for impairment for other receivables is as
follows:
30 June 31 December
2017 2016
--------- ------------
Other receivables
Opening balance at 1 - -
January..................................................................................
..............................................................
Write-off previously impaired
receivables.............................................................................
............................................ - 551,794
---------- ------------
- 551,794
---------- ------------
According the Lynx Group's policies the following factors are
taken into consideration when assessing the impairment of
receivables: receivables above 90 days or more, frequent late
payments, high risk customers and customer with financial
difficulties.
The fair value of the trade receivables and the other financial
receivables at the balance sheet date is the same as their carrying
value.
During 2016, the Lynx Group wrote off other receivables
amounting to $551,794 as these amounts are not expected to be
recoverable.
13. Cash and cash equivalents
30 June 31 December
2017 2016
----------- ------------
Bank
deposits...............................................................................
.......................................................................................
...... - 14,625,335
Bank accounts in domestic
currency...............................................................................
.................................................... 12,043,270 13,054,776
Bank accounts in foreign
currency...............................................................................
........................................................ 2,771,703 1,614,090
----------- ------------
14,814,973 29,294,201
----------- ------------
Bank deposit in amount of $14,625,335 as of 31 December 2016
represents time deposit in Ohridska Banka AD Skopje with validity
of 13 days calculated from the date of the loan payment with no
interest and was used as collateral for obtaining short-term
borrowing. Due to the economic substance of the restriction and the
availability of the cash funds after the maturity, the Lynx Group
classified the bank deposits as cash and cash equivalent as at 30
June 2017, 30 June 2016 and 31 December 2016.
The carrying amounts of the cash and cash equivalents are
denominated in the following currencies:
31 December
30 June 2016
2017
----------- ------------
MKD....................................................................................
.......................................................................................
.................. 280,915 14,801,010
EUR....................................................................................
.......................................................................................
................... 2,659,415 15,290
USD....................................................................................
.......................................................................................
................... 11,874,643 14,477,901
----------- ------------
14,814,973 29,294,201
----------- ------------
14. Capital and reserves
Capital
Paid-in capital
At 31 December 2016 and 2015, the Lynx Group has paid-in
capital, which amounts to $97,454,015 and $173,454,015.
In February 2016, Lynx Resources bought back a $1,000,000
preference share from one of the shareholders. In October 2016,
Lynx Resources distributed a $75,000,000 dividend to its
shareholders by way of capital reduction.
Other reserves-Foreign currency translation
Exchange differences arising on translation of the foreign
controlled entity are recognized in other comprehensive income and
accumulated in a separate reserve within equity. The cumulative
amount is reclassified to profit or loss when the net investment is
disposed of.
The following table shows a breakdown of the balance sheet line
item 'other reserves' and the movements in these reserves during
the year:
Other
reserves
------------
At 1 January
2016.................................................................................................................................................................................................................. (771,695)
------------
Exchange differences on foreign currency translation:
Other.................................................................................................................................................................................................................
...................... (114,257)
Sales.................................................................................................................................................................................................................
....................... 743,876
Intercompany
loans............................................................................................................................................................................................................ 2,014,006
------------
At 30 June
2016..................................................................................................................................................................................................................... 2,643,625
============
At 1 January
2016.................................................................................................................................................................................................................. (6,162,972)
Exchange differences on foreign currency translation:
Other.................................................................................................................................................................................................................
...................... 1,307,187
Sales.................................................................................................................................................................................................................
....................... 454,762
Intercompany
loans............................................................................................................................................................................................................ 10,395,509
------------
At 30 June
2017..................................................................................................................................................................................................................... 5,994,486
------------
Translation differences as above of $5,994,486 (30 June 2016:
$2,643,625) originates from the intercompany loan between Lynx
Mining and Lynx Europe, which is considered a net investment as
settlement, which the timing of repayment is uncertain.
15. Deferred revenue-received advances for silver delivery
The carrying amounts of the deferred revenue-received advances
for silver delivery are as follows:
30 June 31 December
2017 2016
----------- ------------
Deferred revenue - received advances
for silver
delivery...............................................................................
............... 20,626,969 21,573,555
20,626,969 21,573,555
----------- ------------
30 June 31 December
2017 2016
----------- ------------
Current................................................................................
.......................................................................................
.................. 2,143,404 1,970,092
Non-current............................................................................
.......................................................................................
............. 18,483,565 19,603,463
20,626,969 21,573,555
----------- ------------
On 1 September 2016, Lynx Group entered into a Silver Purchase
Agreement with Lynx Metals Limited (Lynx Metals) by netting of its
existing Loan payable with Lynx Metals. The prepayment for the
purchase of silver are recognized as deferred income and are
related to production of silver during the life time of the mine.
Deferred income is recognized to the statement of comprehensive
income as the silver is delivered based on the units of
production.
16. Trade payable and other financial liabilities
30 June 31 December
2017 2016
---------- ------------
Domestic trade
payables................................................................................
......................................................................... 1,831,864 2,596,279
Foreign trade
payables................................................................................
............................................................................ 499,218 813,117
---------- ------------
Trade
payables................................................................................
........................................................................................
. 2,331,082 3,409,396
Employee related
liabilities.............................................................................
...................................................................... 685,669 602,923
Concession
liability...............................................................................
................................................................................. 684,213 204,361
Professional fees
payable.................................................................................
....................................................................... 154,243 116,285
Freight cost
payable.................................................................................
................................................................................ 96,334 30,847
Other current
liabilities.............................................................................
............................................................................. 119,390 1,042,235
---------- ------------
Other financial
liabilities.............................................................................
....................................................................... 1,739,849 1,996,651
========== ============
17. Borrowings
30 June 31 December
2017 2016
------------ ------------
Non-current
Borrowings............................................................................
......................................................................................
............ 57,449,924 62,571,429
Current
Borrowings............................................................................
......................................................................................
............ 14,219,300 28,752,611
Accrued interest - -
payable.............................................................................
........................................................................
------------ ------------
71,669,224 91,324,040
============ ============
Current and non-current borrowings represent the long-term loan
that was issued in amount of $75,000,000 from Societe Generale,
Investec and Ohridska Banka (the Senior Facility) obtained in
October 2016 with an interest rate of 3 month LIBOR plus 5%,
maturing on 30 September 2023. For the six month period ending 30
June 2017 there have been repayments of borrowings.
Bank borrowings from Ohridska Banka represent short-term loans.
The first loan was issued in amount of $5,307,885 with interest
rate of 6.2% p.a. which matured on 30 June 2017 has been repaid.
The second loan was issued in amount of $525,948 with interest rate
of 4.5% p.a. and has a maturity date on 5 September 2017. The third
loan was approved in amount of $1,051,707 with interest rate of
4.5% p.a. maturing on 30 November 2017. For the six month period
ending 30 June 2017 there have been repayments of borrowings.
The carrying amounts and fair value of all borrowings are as
follows:
Carrying amount Fair value
----------------------------- -------------------------
30 June 30 June 31 December
2017 31 December 2016 2017 2016
----------- ----------- ------------
Ohridska Banka
AD
Skopje............................................
. 5,182,275 18,324,040 5,182,275 18,324,040
SG
Facility..........................................
.................................. 66,486,949 73,000,000 66,486,949 73,000,000
----------- ---------------- ----------- ------------
71,669,224 91,324,040 71,669,224 91,324,040
=========== ================ =========== ============
The fair value of all borrowings equals their carrying amount,
as the impact of discounting is not significant. The information in
relation to the pledge of collateral is presented in Note 10.
The carrying amounts of the borrowings are denominated in the
following currencies:
30 June 31 December
2017 2016
----------- ------------
MKD....................................................................................
.......................................................................................
.................. 5,182,275 18,324,040
USD....................................................................................
.......................................................................................
................... 66,486,949 73,000,000
71,669,224 91,324,040
----------- ------------
18. Related party transactions
The Lynx Group has related party transactions with subsidiaries
of its parent company during its normal course of business
activities. All transactions with related parties are conducted
under normal trading and commercial terms at mutually agreed terms.
The tables below provide information for the volume and balances of
the related party transactions as of and for the period ended 30
June 2017, 30 June 2016 and year ended 31 December 2016.
(i) Year-end balances arising from purchases/sales of commodities and services
30 June 31 December
2017 2016
------------ ------------
Receivables from related parties
Subsidiaries of the ultimate beneficiaries
of the Lynx
Group.................................................................................
...... 17,409,357 3,690,147
17,409,357 3,690,147
------------ ------------
(ii) Sales of commodities and services
30 June 30 June
2017 2016
------------ ------------
Sales towards Lynx Metals
Subsidiaries of the ultimate beneficiaries
of the Lynx
Group.................................................................................
...... 54,084,815 35,644,648
Sales of 2,054,166 -
silver.................................................................................
.......................................................................................
.....
Marketing
cost..................................................................................
......................................................................................
... (1,373,143) (4,085,191)
54,765,838 31,559,457
------------ ------------
(iii) Services obtained
30 June 30 June
2017 2016
---------- ----------
Services obtained from Fusion Capital
- shareholder of Lync Resources........................................................... 1,802,500 1,500,000
---------- ----------
1,802,500 1,500,000
---------- ----------
30 June 30 June
2017 2016
----------- -----------
Services obtained from Lynx Metails
Marketing
cost....................................................................................
....................................................................................... 1,373,143 4,085,191
----------- -----------
1,373,143 4,085,191
----------- -----------
(iv) Deferred revenue
Please refer to note 15 for details of deferred revenue
recognized in relation to the Silver Purchase Agreement with Lynx
Metals.
19. Commitments
The Lynx Group has signed long-term contracts to either support
its standard operational activity (production materials, oil,
explosives, etc.) or develop new projects. In the latter category,
the Lynx Group is currently committed to the construction of
facilities for the appropriate treatment of "tailings" and has
engaged one main contractor for the related construction work; the
total value of all standing commitments after 30 June 2017 is
approximately $840,000.
20. Contingencies
Legal proceedings
From time to time and in the normal course of the business,
claims against the Lynx Group may be received. On the basis of its
own estimates and both internal and external professional advice,
the Management of the Lynx Group is of the opinion that no material
losses will be incurred in respect of claims and accordingly no
provision has been made in this consolidated financial
information.
21. Events after the reporting period
On 22 September 2017, it was announced that CAML will, subject
to the satisfactory completion of certain conditions, acquire the
entire issued share capital of Lynx Resources Limited.
There are no events after the reporting period that would have
impact on the 30 June 2017 condensed consolidated interim statement
of comprehensive income, condensed consolidated interim statement
of financial position, condensed consolidated interim statement of
cash flows.
27. Unaudited Pro Forma Statement of Net Assets of the Enlarged Group
The unaudited pro forma financial information of the Enlarged
Group in this section 27 has been prepared to illustrate the effect
on the net assets of CAML as if the Acquisition, the Debt Financing
and the Company Placing had taken place on 30 June 2017.
The unaudited pro forma financial information is based on the
consolidated net assets of CAML as at 30 June 2017 and has been
prepared using accounting policies consistent with those set out in
the interim financial statements of the Group for the six months
ended 30 June 2017.
The unaudited pro forma financial information has been prepared
for illustrative purposes only and, because of its nature,
addresses a hypothetical situation and, therefore, does not
represent CAML's or the Enlarged Group's actual financial position.
The unaudited pro forma financial information has been prepared on
the basis set out in the notes below and in accordance with
Schedule Two of the AIM Rules for Companies.
The unaudited pro forma information does not constitute
financial statements within the meaning of Section 434 of the
Act.
Unaudited Pro Forma Statement of Net Assets
Adjustments
Pro
forma
Lynx
Group
as at
30 June Debt
2017 financing Company Placing Total
Acquisition
of
the
Lynx
Group
CAML as at 30 June 2017 $'000 $'000 $'000 $'000 $'000 $'000
-------- ------------ ---------- --------
(Note 1) (Note (Note (Note (Note 5)
2) 3) 4)
Non-current
assets
Property,
plant and
equipment 50,361 186,392 - - - 236,753
Intangible
assets 41,761 10,438 200,798 - - 252,997
Other
non-current
receivables 2,653 - - - - 2,653
--------
94,775 196,830 200,798 - - 492,403
Current assets
Inventories 4,406 2,094 - - - 6,500
Trade and
other
receivables 975 17,409 - - - 18,384
Other
financial
receivables - 3,879 - - - 3,879
Deferred tax
assets - 131 - - - 131
Restricted
cash 122 - - - - 122
Cash and cash
equivalents 41,580 14,815 (285,676) 117,360 147,207 35,286
47,083 38,328 (285,676) 117,360 147,207 64,302
--------
Total assets 141,858 235,158 (84,878) 117,360 147,207 556,705
========
Non-current
liabilities
Borrowings - 57,450 - 101,360 - 158,810
Deferred
Consideration - - 12,000 - - 12,000
Deferred
revenue
received
advances for
silver
delivery - 18,484 - - - 18,484
Deferred
income tax
liability 8,661 - - - - 8,661
Provisions for
other
liabilities
and charges 2,023 2,750 - - - 4,773
--------
10,684 78,684 12,000 101,360 - 202,728
Current
liabilities
Borrowings - 14,219 - 16,000 - 30,219
Deferred
revenue
adances for
silver
delivery - 2,143 - - - 2,143
Other
financial
liabilities - 1,740 - - - 1,740
Provisions for
other
liabilities
and charges - 58 - - - 58
Trade and
other
payables 4,770 3,612 (771) - - 7,611
--------
4,770 21,772 (771) 16,000 - 41,771
--------
Total
liabilities 15,454 100,456 11,229 117,360 - 244,499
--------
Net assets 126,404 134,702 (96,107) - 147,207 312,206
========
Notes:
(1) The net assets of CAML as at 30 June 2017 have been
extracted without material adjustment from the unaudited interim
financial statements of CAML for the six months ended 30 June 2017,
which is available at www.centralasiametals.com.
(2) The net assets of the Lynx Group for the six months ended 30
June 2017 have been extracted without material adjustment from the
unaudited interim financial information of the Lynx Group for the
six months ended 30 June 2017, set out in section C of section 26
of this announcement.
(3) The adjustments arising as a result of the acquisition of
the Lynx Group are set out below:
(a) The adjustment to current assets of $285.7 million
represents the aggregate of $273.5 million cash consideration
payable to the Sellers for the Acquisition and $12.2 million of
estimated transaction costs. This includes $0.8 million of
estimated transaction costs which were accrued as at 30 June 2017.
In addition, transaction costs of $0.1 million were paid prior to
30 June 2017. Estimated Acquisition costs include those of the
financial and legal advisers, fees, reporting accountant and other
costs associated with the Acquisition. In accordance with IFRS, no
provision has been made for possible contingent costs associated
with the Acquisition, estimated at $23.0 million.
(b) The unaudited pro forma statement of net assets has been
prepared on the basis that the acquisition of Lynx will be
accounted for using the acquisition accounting method. The excess
of consideration over the book value of assets acquired has been
reflected as intangible assets. No account has been taken of any
fair value adjustments which may arise on the acquisition,
including for any amounts that may be reclassified to property,
plant and equipment (mining assets).
The intangible assets arising on this basis have been calculated
as follows:
$'m
Consideration:
Cash consideration (note 3(i)) 273.5
Deferred consideration (note 3(ii)) 12.00
Equity consideration (note 3(iii)) 50.0
335.5
Less net assets of the Lynx Group (note 3(iv)) (134.7)
Intangible assets 200.8
(i) The cash consideration of $273.5 million will be financed by
the $120.0 million new debt facilities provided by Traxys (Note 4)
and the proceeds of the Placing (Note 5). No adjustment has been
made for any net debt and net working capital adjustments under the
Acquisition Agreement.
(ii) Deferred cash consideration of $12.0 million has been
accrued, payable in six equal monthly instalments commencing on the
first anniversary of the completion of the Acquisition.
(iii) The equity consideration amount assumes the issue of $50 million of new CAML shares.
(iv) The net assets of the Lynx Group are those as at 30 June
2017 as set out Section C of section 26.
(4) As set out in section 28.4 of this announcement the Company
entered into a term loan agreement dated 22 September 2017 with
Traxys to advance aggregate facilities of $120.0 million. This
adjustment illustrates the impact of the draw down of $120.0
million of the Debt Fiancing. Estimated costs of $2.6 million
associated with the Debt Financing have been capitalised against
non-current borrowing.
(5) Adjustment to reflect the net proceeds of the Company
Placing by the Company of $147.2 million, net of associated costs
of $6.3 million, which for the purposes of the pro forma financial
information have been assumed as being directly attributable to the
Company Placing and therefore capitalised.
(6) The unaudited pro forma financial information does not take
into account trading of either CAML subsequent to the interim
balance sheet date of 30 June 2017 or of the Lynx Group subsequent
to the interim balance sheet date of 30 June 2017.
28. Additional Information
28.1 Current and previous directorships or partnerships
The Directors hold, and have during the five years preceding the
date of this announcement held, the following directorships or
partnerships (other than the Company):
Name Current directorships/partnerships Previous directorships/partnerships
Nicholas Royston Clarke ........... Wolf Minerals Limited Empire Mining Corporation (now known
Wolf Minerals (UK) Limited as Columbus Copper Corporation)
Nigel Francis Robinson .............. Copper Bay Limited CAML Mongolia BV
Copper Bay (UK) Ltd
CAML Kazakhstan BV
Shuak BV
Copper Bay Chile Limitada Minera Playa
Verde Limitada CAML MK Limited
Gavin Ronald Copper Bay Limited New World Investment
Ferrar...................... Copper Bay Chile Limitada Managers Limited
Minera Playa Verde Limitada
Tredore Consulting Limited
Christopher Nigel Hurst- Hotchkis and Wiley Ltd
Brown................................. Borders & Southern Petroleum plc
........ Strath Halladale Partnership
Sainne Partnership
Robert Maitland Cathery............. Redburn Events Limited Vostok Energy plc (dissolved)
9 Redburn Street Limited Dipley Resources Limited
(dissolved)
SOCO International plc
Salamander Energy plc
David John Sunrise Resources plc Cambridge Mineral Resource plc
Swan.......................... Oriel Resources Limited Lubel Coal Company (UK)
Limited
Roger Owen Davey .................... Atalaya Mining plc Orosur Mining Inc Alexander Mining Plc
Condor Gold plc Master Drilling Group Ltd Martwick Ltd
Atalaya Touro (UK) Limited
Atalaya Minasderiotinto Project
(UK) Limited
Piazza Barnaloft Management
Limited
Tharisa plc
Kenges Rakishev Evoshave Limited Satferro Limited (dissolved)
........................ SAT & Company JSC Kazkommersbank JSC Jinsheng SAT
Net Element International, Inc. (Tianjin) Commercial and
Mobli Media Inc. Trading Co.Ltd
Mobli Technology 2010 Baicheng Jinsheng Nickel
TriPlay Inc. Industry Co.Ltd
Singulariteam LP PTE. LTD Taonan City Jinsheng
Singulariteam GP PTE. LTD Metallurgical Product Co.Ltd
BTA Bank JSC Ulanhot Jinyuanda Heavy
JSC "Insurance Company Chemical Industry Co.Ltd
"Kazkommerts-Policy" SAT Ferro Limited
JSC "Life Insurance Company SAT & Co Netherlands N.V
"Kazkommerts-Life" Avanteguard Services Limited
(dissolved)
Beyond Verbal Communication,
Ltd.
CB Moskommertsbank
Alnair Capital Holdings JSC
(Qazaq Financial Group JSC)
ShalkiyaZinc N.V
National Company Kazakhstan
Engineering
Nurlan SPK Astana
Zhakupov.......................... JSC Kazatomprom
Robert Maitland Cathery was a director of Vostok Energy Public
Limited Company when it went into administration on 14 October
2013. All known creditors of the company were paid in full,
together with statutory interest.
Robert Maitland Cathery was a director of Dipley Resources
Limited when it was dissolved on 24 April 2012 via compulsory
strike-off.
David John Swan was a director of Lubel Coal Company (UK)
Limited within twelve months preceding the date on which it was
dissolved on 26 June 2012 via voluntary strike-off.
Gavin Ronald Ferrar is the sole director of Tredore Consulting
Limited which is in the process of being dissolved on a voluntary
basis.
Gavin Ronald Ferrar was a director of New World Investment
Managers Limited from 11 December 2012 to 17 May 2014. A liquidator
was appointed on 23 September 2014 and the company was dissolved on
5 April 2016. All creditors were paid in full and shareholders'
funds were returned.
Nigel Francis Robinson was a director of CAML Mongolia BV when
it was liquidated on 5 July 2017 via a turbo liquidation process.
There were no outstanding creditors.
Kenges Rakishev was a director of Avanteguard Services Limited
when it was dissolved on 17 January 2017 via voluntary
strike-off.
Save as disclosed above, none of the Directors has:
(A) any unspent convictions relating to indictable offences
(including fraudulent offences);
(B) any bankruptcies or entered into any individual voluntary
arrangements with his creditors;
(C) been a director of any company at the time of, or within the
12 months preceding, any receivership or liquidation (including
compulsory liquidation, creditors' voluntary liquidation),
administration, company voluntary arrangement or any composition or
arrangement with creditors generally or any class of creditors of
such company;
(D) been a partner of any partnership at the time of, or within
the 12 months preceding, any compulsory liquidation, administration
or partnership voluntary arrangement of such partnership;
(E) had any of their assets made the subject of any receivership
or have been a partner of a partnership at the time of or within
the 12 months preceding any assets thereof being the subject of a
receivership; or
(F) received any official public incrimination and/or sanction
by any statutory or regulatory authorities (including recognised
professional bodies) or been disqualified by a court from acting as
a director of a company or from acting in the management or conduct
of the affairs of a company.
28.2 Payments made to third parties
Excluding professional advisers otherwise named in this
announcement, trade suppliers and other consultants engaged in the
ordinary course of business, no person has at any time within the
12 months preceding the date of this announcement received,
directly or indirectly, from the Company, the Group or the Lynx
Group or entered into any contractual arrangement to receive,
directly or indirectly, from the Company, the Group or the Lynx
Group on or after Admission any fees totalling GBP10,000 or more or
securities in the Company, the Group or the Lynx Group with a value
of GBP10,000 or more or any other benefit with a value of GBP10,000
or more.
28.3 Payments made to government or regulatory authorities
A summary of payments aggregating over GBP10,000 made to any
government or regulatory authority or similar body by the Enlarged
Group or on behalf of it, with regard to the acquisition of, or
maintenance of, its assets, as at the date of this announcement, is
set out in the table below:
Government authority Description Acquisition Maintenance Total
------------------------------------ -------------------------------- --------------- ------------- --------------
SPK Saryarka (National Company
Social and Entrepreneural
Corporation Saryarka) Signature bonus $151,812 - $151,812
Operating land plot design
DGP Karaganda NPZem, Kazakhstan service $15,928 - $15,928
Department of State Revenues of
Balkhash Land Lease Fees - $4,339,528 $4,339,528
Department of State Revenues of
Balkhash Government Compensation Fee - $106,035 $106,035
Department of State Revenues of
Balkhash Historical Geological Costs - $27,119 $27,119
Park of Innovation Technologies Research and Development Costs - $22,534 $22,534
Department of State Revenues of
Balkhash Commercial Discovery Bonus - $3,713,901 $3,713,901
Department of State Revenues of
Balkhash Compulsory Social Contributions - $160,000 $160,000
SPK Saryarka (National Company
Social and Entrepreneural
Corporation Saryarka) Compulsory Social Contributions - $1,137,316 $1,137,316
SPK Saryarka Corporate Foundation Compulsory Social Contributions - $235,940 $235,940
Ministry of Finance, Macedonia Land Acquisitions GBP16,004 - GBP16,004
Macedonian Government/ Municipality Concession Fee - GBP2,372,344 GBP2,372,344
Kamenica 78%
Macedonian Government Concession Fee MKD616,039,970 - MKD616,039,970
28.4 Material Contracts
The following contracts (i) not being contracts entered into in
the ordinary course of business have been entered into by members
of the Enlarged Group (a) in the two years immediately preceding
the publication of this announcement and are, or may be material or
(b) contain provisions under which any member of the Enlarged Group
has any obligation or entitlement which is material to the Enlarged
Group as at the date of this announcement or (ii) are subsisting
agreements which are included within or which relate to the assets
and liabilities of the Enlarged Group (regardless of whether such
agreements are within the ordinary course or were entered into
outside the two years immediately preceding publication of this
announcement).
Summaries of the key contracts relating to the Enlarged Group's
assets in Kazakhstan and Macedonia are set out in sections 22.3 and
23.3 of this announcement.
THE GROUP
(A) The Acquisition Agreement, details of which are set out in
section 19 of this announcement.
(B) The Shareholder Participation Agreement
Orion has also entered into the Shareholder Participation
Agreement with the Company pursuant to which it has undertaken, for
a period of 12 months from Completion, not to:
-- acquire shares in the Company;
-- influence the voting of the Ordinary Shares;
-- seek to control or influence the Company's management or
obtain representation on the Board; or
-- engage in any discussions which may result in Orion gaining control over CAML.
Orion has also undertaken until the earlier of (i) 18 months
from Readmission, or (ii) the date on which they hold in aggregate
less than 4 per cent. of the issued Ordinary Shares to vote, or
cause to be voted at all meetings of the Company's shareholders, in
a manner consistent with the recommendation made by management of
the Company or the Board in relation to a number of matters,
including the election or re-election of directors and auditors,
the renewal of, or adoption of new, share incentive plans,
executive remuneration and certain acquisitions.
In addition, subject to certain exceptions, the Shareholder
Participation Agreement requires Orion not to sell any
Consideration Shares for the first six months following Completion,
and not to sell more than 50 per cent. of the Consideration Shares
between six months from Completion and the first anniversary of
Completion (without the prior consent of the Company). Any
Consideration Shares forming part of the 50 per cent. referred to
above that are sold in the second six months must be sold via the
Joint Bookrunners in order to maintain orderly markets.
(C) The Debt Financing Agreement
The Company (as borrower), KCC (as seller), Sary Kazna and CAML
Kazakhstan BV (both as guarantors) and Traxys (as lender, facility
agent and security agent) entered into an agreement on 22 September
2017 in respect of a US$120,000,000 prepayment facility.
The Debt Financing Agreement, which was put in place to
partially fund the cash consideration payable for the Acquisition,
has a term of five years, with monthly repayments of US$2,000,000
per month. Early repayment may be required following typical events
such as events of default, change in control and illegality.
Interest will be payable at LIBOR plus 4.75%. Security will be
provided over the shares in CAML Kazakhstan BV, certain bank
accounts and the Traxys Offtake Agreement between Traxys and KCC.
The agreement contains typical covenants for this type of facility,
including financial covenants related to financial performance of
the Company's operations in Kazakhstan.
The Debt Financing Agreement forms part of a pre-payment
arrangement between the Group and Traxys under which Traxys is
advancing funds in expectation of acquiring production from the
Group's business in Kazakhstan.
Traxys will be funding the advances made under the pre-payment
arrangement from its own lenders and the availability of the
facility is subject to the availability of such funding to Traxys.
The agreement contains other conditions precedent to drawdown which
are typical for this type of facility.
(D) The Nominated Adviser Agreement
The Company, the Directors and Peel Hunt entered into an
agreement on 10 March 2014 in relation to Peel Hunt's obligations
as nominated adviser to the Company.
Under the nominated adviser agreement the Company has agreed to
pay certain fees and to reimburse certain expenses to Peel Hunt in
respect of the services to be provided to the Company by Peel Hunt
in connection with its role as Nominated Adviser.
The Company has agreed to indemnify Peel Hunt and its
subsidiaries, holding company, branches, affiliates, directors,
officers, representatives, agents and employees in respect of
losses incurred in connection with the performance by Peel Hunt LLP
of its services under the nominated adviser agreement, subject to
certain carve-outs.
Peel Hunt can terminate the nominated adviser agreement in
certain circumstances, including in relation to the Company's
failure to perform a material obligation under the nominated
adviser agreement which is not remedied.
(E) Placing Agreement
On 22 September 2017, the Company, the Directors and the Lead
Managers entered into a Placing Agreement pursuant to which the
Lead Managers have agreed, subject to certain terms and conditions,
to use reasonable endeavours to procure subscribers for, or failing
which the Joint Bookrunners have agreed to subscribe for, at the
Placing Price, the Company Placing Shares to be issued pursuant to
the Company Placing.
The Placing Agreement contains, amongst others, the following
further provisions:
1) the obligations of the Lead Managers to procure subscribers
for, or failing which, the Joint Bookrunners themselves pursuant to
the Placing Agreement, are subject to certain conditions including
approval of the Resolutions, approval by the Kazakh government for
the issue of the Company Placing Shares and the Consideration
Shares and certain conditions that are customary for an agreement
of this nature including, amongst others, the Company and the
Directors providing a certificate to the Lead Managers, in the form
set out in Schedule 5 of the Placing Agreement by 5.00pm on the
Business Day immediately prior to the day of Admission, Admission
having occurred by not later than 8.00 a.m. (London time) on 12
October 2017 (or such later time and/or date as the Joint
Bookrunners may agree, not being later than 26 October 2017) and
there having occurred no material adverse effect in relation to the
Group or the Target Group since the date of the Placing Agreement.
The Joint Bookrunners may terminate the Placing Agreement in
certain customary circumstances prior to Admission, including the
occurrence of certain material changes in the condition (financial,
operational, legal or otherwise) of the Group or the Target Group.
The Placing Agreement will become unconditional in respect of the
Company Placing and the Joint Bookrunners' right to terminate the
Placing Agreement in respect of the Company Placing will cease from
Admission;
2) the obligations of Peel Hunt in connection with Readmission
are subject to Admission and certain conditions that are typical
for an agreement of this nature including, amongst others, the
Company and the Directors providing a certificate to the Joint
Bookrunners, in the form set out in Schedule 5 of the Placing
Agreement by 5.00pm on the Business Day immediately prior to the
day of Readmission, Readmission having occurred by not later than
8.00 a.m. (London time) on the sixth business day following
satisfaction of the conditions to the Acquistion Agreement (or such
later time and/or date as the Joint Bookrunners may agree, not
being later than 15 December 2017) and there having occurred no
material adverse effect in relation to the Group or the Target
Group since the date of the Placing Agreement. The Joint
Bookrunners may terminate the Placing Agreement in certain
customary circumstances prior to Readmission, including the
occurrence of certain material changes in the condition (financial,
operational, legal or otherwise) of the Company or the Enlarged
Group. The Placing Agreement will become unconditional in respect
of Readmission and the Joint Bookrunners' right to terminate the
Placing Agreement in respect of Readmission will cease from
Readmission;
3) In consideration of the Lead Managers' services in connection
with the Company Placing, the Company shall pay, inter alia, the
following commissions:
-- to the Joint Bookrunners a commission of 0.5 per cent. of the
aggregate of the Company Placing Shares at the Placing Price in
connection with the Joint Bookrunners' underwriting obligation
payable on signing the Admission Document, and
-- to the Lead Managers, a further commission of 3.25 per cent.
of the aggregate of the Company Placing Shares at the Placing Price
payable on Admission,
together with an amount equal to any applicable value added tax
payable therein.
4) the Company has agreed to pay or cause to be paid (together
with, in each case, any related value added tax) certain costs,
charges, fees and expenses of, or in connection with, or incidental
to, amongst other things, the Company Placing and/or Admission
and/or Readmission;
5) the Company has undertaken, amongst other things, during the
period beginning on the date of this announcement and continuing to
and including the date 365 days after the date of Admission, not to
issue, allot, pledge, lend sell, or grant options, rights, warrants
or contracts to purchase, contracts to issue, pledge or sell, or
otherwise dispose of, directly or indirectly, except for customary
exceptions as provided in the Placing Agreement, any Ordinary
Shares or any securities of the Company that are substantially
similar to the Ordinary Shares, including but not limited to any
securities that are convertible into, or exchangeable for, or that
represent the right to receive, Ordinary Shares or any such
substantially similar securities (other than pursuant to employee
stock option schemes, agreements and arrangements disclosed in this
announcement); and
6) the Company and the Directors have given certain warranties
to the Lead Managers and in addition, the Company has given certain
indemnities to the Lead Managers and their associates,
subsidiaries, divisions, branches and affiliates, and current and
former directors, officers, employees and agents of each of such
persons. The Company's liabilities are unlimited as to time and
amount.
(F) Relationship Agreement
On 19 May 2014, Kenges Rakishev entered into a relationship
agreement with the Company due to his position as both a Board
member and significant shareholder. This is to ensure that
transactions entered into between any member of the Group and
Kenges Rakishev, or any of his associates, are conducted on an
arm's length basis and on normal commercial terms.
Under this relationship agreement, Kenges Rakishev has given
certain undertakings, including, to exercise his voting rights,
insofar as he is able, as a shareholder and as a board member, to:
(1) ensure that no variations are made to the Company's Articles of
Association which would be contrary to the maintenance of the
Company's independence; (2) that transactions between Kenges
Rakishev (and his associates) are made on an arm's length basis and
on, in the Company's opinion, normal commercial terms; and (3) that
the Company will make decisions for the benefit of shareholders of
the Company as a whole and not solely for the benefit of Kenges
Rakishev.
This agreement will terminate with effect from Admission upon
Kenges Rakishev's interests in the Company falling below 14 per
cent. of the Enlarged Share Capital, which is the threshold for
automatic termination set out in the agreement.
(G) Transitional Services Agreement
In connection with the Acquisition and conditional on
Completion, the Company has entered into a Transitional Services
Agreement with Fusion Capital pursuant to which it will have
limited access to Chris James, Stefan Peschke, Florian Dax and
Patrick Henze for the provision of transitional services for a
period of three months following Completion.
(H) Other material contracts relating to the Group's operations
in Kazakhstan are set out in section 22 (Information on Kazakhstan
& Kazakh Mineral Policy and Law) of this announcement.
THE LYNX GROUP
(A) Solway Acquisition Agremeent
Lynx Europe's acquisition of Rudnik SASA DOOEL from the Solway
Sellers completed on 3 November 2015. Pursuant to the acquisition
agreement, Lynx Europe has the right to make claims for breaches of
warranties relating to the Solway Sellers' capacity, authority and
titles and a breach of the tax warranties or tax covenant until
November 2020. The Solway Sellers provided a tax covenant to Lynx
Europe in respect of certain tax liabilities of Rudnik SASA DOOEL
(including penalties, charges and interest thereon), subject to
customary limitations and exclusions. The tax covenant contains
specific provisions relating to current litigation with the
Macedonian tax authority, details of which are set out in section
28.5 below. Pursuant to those provisions, the Solway Sellers are
entitled to conduct negotiations with the Macedonian tax authority
in relation to the litigation (subject to certain restrictions and
at the Solway Sellers' sole cost). Any amounts repaid to Rudnik
SASA DOOEL in respect of the litigation are repayable to the Solway
Sellers under the provisions of the tax covenant.
(B) Facility Agreement
Rudnik SASA DOOEL (as borrower), Lynx Europe and Lynx Mining (as
guarantors) and Société Générale, London Branch and Investec Bank
plc (as lenders) entered into an agreement on 13 October 2016. The
Facility Agreement has a term of seven years, with amortisation
payments from December 2016 to September 2023. Early repayment may
be required following typical events such as events of default,
change in control and illegality. Interest is payable at LIBOR plus
5.00%. Security is provided over the Macedonian assets and
operations of the Group.The agreement contains typical covenants
for the type of facility, including financial covenants related to
financial performance of the Rudnik SASA DOOEL's operations in
Macedonia.
(C) Other material contracts relating to the Lynx Group's
operations in Macedonia are set out in section 23.3 (Information on
Macedonia and Macedonian Mineral Policy & Law) of this
announcement.
28.5 Litigation
Neither the Company nor any member of the Group is or has been
involved in any governmental, legal or arbitration proceedings
(including any such proceedings which are pending or threatened of
which the Company is aware) which may have, or have had during the
12 months prior to the date of this announcement, a significant
effect on the Company and/or the financial position or
profitability of the Group.
Save as disclosed below, no member of the Lynx Group is or has
been involved in any governmental, legal or arbitration proceedings
(including any such proceedings which are pending or threatened of
which the Company is aware) which may have, or have had during the
12 months prior to the date of this announcement, a significant
effect on the financial position or profitability of the Lynx
Group.
The Macedonian tax authority, the Public Revenue Office (the
"PRO"), has concluded that the loan provided to the former
shareholders of Rudnik SASA DOOEL (from whom Lynx Resources
acquired Rudnik SASA DOOEL) was a fictive profit distribution. As a
result, Rudnik SASA DOOEL was required to pay MKD 646,796,624 of
withholding tax, with an additional amount of MKD 11,642,339 which
represents default interest for the period from 1 October 2013 to
31 November 2013 and for the period after 1 December 2013, 0.03 per
cent. of all due amounts as default interest until day of final
payment. All amounts due under the PRO's decision have been fully
paid by Rudnik SASA DOOEL. The Macedonian courts have confirmed the
PRO's decision on appeal. Rudnik SASA DOOEL has appealed this
decision to a higher court and the case is still pending. If Rudnik
SASA DOOEL's appeal is successful, any amounts received by Rudnik
SASA DOOEL will be payable to the Solway Sellers. The PRO could
also choose to repay Rudnik SASA DOOEL by setting off any amounts
owed to the company against future tax payments. There is a remote
risk that the situation could trigger a criminal investigation for
tax evasion by the public prosecutor's office which could lead to
Rudnik SASA DOOEL being fined up to EUR 500,000.
28.6 No Significant Change
There has been no significant change in the financial or trading
position of the Group since 30 June 2017, being the date to which
its last unaudited interim financial statements were prepared.
There has been no significant change in the financial or trading
position of the Lynx Group since 30 June 2017, being the date to
which its last unaudited interim financial information was
prepared.
28.7 Related Party Transactions
The transactions or arrangements entered into between members of
the Enlarged Group and its related parties are summarised in:
-- the Lynx Group Historical Financial Information set out in this announcement; and
-- the notes to CAML's interim results for the six months to 30
June 2017 and its annual consolidated accounts for each of the
financial years ending 31 December 2016, 31 December 2015 and 31
December 2014 (each of which is available at
www.centralasiametals.com).
28.8 Employees
On Readmission, the Enlarged Group is expected to have a total
of full time employees with 11 in the United Kingdom, 356 in
Kazakhstan, 683 in Macedonia and 2 in Chile.
28.9 Miscellaneous
-- The total costs and expenses (including possible contingent
costs estimated at US$23 million) payable by the Enlarged Group in
connection with or incidental to the Acquisition, Placing,
Admission and Readmission, including governmental fees,
commissions, AIM fees, professional fees, consulting and investor
relation services and the costs of printing and distribution are
currently expected to amount to up to US$44.2 million (excluding
applicable VAT). Further information relating to these costs and
expenses is provided in the Unaudited Pro Forma Statement Of Net
Assets Of The Enlarged Group as set out in section 27 of this
announcement.
-- The gross proceeds expected to be raised by the Company
Placing are approximately US$153.5 million.
-- Save as disclosed in this announcement, the Company had no
principal investments for each financial year covered by the
historical financial information (which is available at
www.centralasiametals.com) and there are no principal investments
in progress and there are no principal future investments on which
the Board has made a firm commitment.
"1985 Act" the UK Companies Act 1985
"A-integrated Permit" A-integrated environmental permit no. 11-3677/5 dated 25 October 2016
issued by the Macedonian
Ministry of Environment and Physical Planning to the Rudnik SASA DOOEL
"Acquisition" the proposed acquisition by CAML of the entire issued share capital of
Lynx Resources Limited
pursuant to the terms of the Acquisition Agreement
"Acquisition Agreement" the agreement dated 22 September 2017 between, amongst others, CAML,
the Purchaser and the
Sellers relating to the sale and purchase of the entire issued share
capital of Lynx Resources
Limited
"Acquisition Conditions" the conditions to the completion of the Acquisition being, inter alia,
the Resolutions being
passed at the Extraordinary General Meeting and Admission
"Act" the UK Companies Act 2006
"Admission" the admission of the Company Placing Shares to trading on AIM becoming
effective in accordance
with the AIM Rules
"AGM" the Company's Annual General Meeting
"AIM" the AIM market of the London Stock Exchange
"AIM Rules" the AIM Rules for Companies and the AIM Rules for Nominated Advisers
published by the London
Stock Exchange from time to time
"AIM Rules for Companies" the AIM Rules for Companies as published by the London Stock Exchange
from time to time including
the AIM Note for Mining and Oil and Gas Companies
"AIM Rules for Nominated Advisers" the AIM Rules for Nominated Advisers as published by the London Stock
Exchange from time to
time
"Aksu-Esil" the Company's business partner in Kazakhstan
"Articles" the articles of association of the Company, as amended from time to
time
"Audit Committee" the audit committee established by the Board
"Banks" J.P Morgan Securities plc, Peel Hunt LLP and Mirabaud Securities
Limited
"Board" the board of directors of CAML from time to time
"Business Day" any day (other than a Saturday or Sunday) on which clearing banks in
the City of London are
open for business
"Company" or "CAML" Central Asia Metals PLC, a company incorporated in England and Wales
under the Companies Act
1985 with registered number 05559627
"Company Placing" the proposed placing of the Company Placing Shares by Peel Hunt LLP,
J.P. Morgan Securities
plc and Mirabaud Securities Limited at the Placing Price pursuant to
the Placing Agreement
"Company Placing Shares" new Ordinary Shares to be issued by the Company pursuant to the
Company Placing
"Competent Body" the Kazakhstasn Ministry of Industry and New Technologies (previously
the Ministry of Energy
and Mineral Resources)
"Completion" completion of the Acquisition pursuant to the terms of the Acquisition
Agreement
"Copper Bay" the development project at Chañaral Bay, in the Atacama region of
Chile
"Consideration Shares" new Ordinary Shares to be subscribed for by Orion pursuant to the
Acquisition Agreement
"CPRs" or "Competent Person's Reports" the Kazakh Competent Person's Report and the Macedonian Competent
Person's Report
"CREST" the computerised settlement system (being the relevant system as
defined in the CREST Regulations)
to facilitate the transfer of title of shares in uncertificated form
operated by Euroclear
"CREST Regulations" the Uncertificated Securities Regulations 2001 (SI 2001/3755), as
amended
"Directors" or "Board" The directors of the Company and any duly constituted committee of the
board of directors
from time to time
"Debt Financing" or "Debt Financing Agreement" The agreement described in paragraph section 28.4 of this announcement
"Employee Benefit Trust" the Central Asia Metals Limited Employee Benefit Trust adopted by the
Board on 6 August 2010
"Enlarged Group" the Group following completion of the Acquisition
"Enlarged Share Capital" the issued share capital of the Company immediately following
Readmission as enlarged by the
Company Placing (assuming all of the Company Placing Shares are
allotted) and the Consideration
Shares
"Euroclear" Euroclear UK & Ireland Limited
"Excluded Territories" Australia, Canada, Dubai International Financial Centre, Guernsey,
Jersey, Japan, Malaysia,
New Zealand, Singapore, Switzerland, The Republic of South Africa and
the United States and
any jurisdiction where the availability of the Placing would breach
any applicable laws or
regulations and "Excluded Territory" shall mean any of them
"Existing Ordinary Shares" the existing ordinary shares of US$0.01 each in the capital of the
Company
"Executive Directors" Nicholas Clarke, Nigel Robinson and Gavin Ferrar
"Existing Shareholders" Shareholders in the Company as at the date of the Admission Document
"Extraordinary General Meeting" the extraordinary general meeting of the Company to be held at 21
Tudor Street, London EC4Y
0DJ at 11.00 a.m. on 11 October 2017
"FCA" the Financial Conduct Authority of the United Kingdom
"FSMA" the Financial Services and Markets Act 2000 of the United Kingdom, as
amended or supplemented
from time to time
"GKZ (Republic of Kazakhstan)" the Committee for Geology and Subsoil Use of the Ministry of Energy
and Mineral Resources
of the Republic of Kazakhstan (previously known as the Committee for
Geology and Subsoil Protection
of the Ministry of Energy and Mineral Resources of the Republic of
Kazakhstan prior to 28
October 2004)
"Group" the Company and its subsidiaries
"IFRS" International Financial Reporting Standards
"Independent Board" the Board save for Mr. Kenges Rakishev
"Issue" the Ordinary Shares to be offered pursuant to the Company Placing and
the Consideration Shares
"Issue Price" the price at which Consideration Shares are to be issued pursuant to
the Acquisition
"Joint Bookrunners" J.P. Morgan Securities plc and Peel Hunt LLP
"Kazakh Competent Person's Report" as described in section 24 of this announcement, a fully copy of which
is available on the
Company's website, www.centralasiametals.com
"KCC" Kounrad Copper Company LLP, in which the Group has a 100 per cent.
interest
"Kounrad Contract" The contract for exploration and development of copper out of the
technical mineral generations
of the Kounrad Mine entered into by the MEMR and Saryarka dated 20
August 2007, as amended
"Kounrad JOA" the agreement between Sary Kazna LLP and Saryarka originally dated 6
September 2007, as amended
and dated 16 August 2010
"Kounrad Project" the construction and operation of a 10,000 tonnes per annum commercial
copper SX-EW plant
at the Kounrad mine in accordance with the Kounrad JOA
"Kyoto Protocol" The Kyoto Protocol to the United Nations Framework Convention on
Climate Change adopted on
11 December 1997
"Lead Managers" J.P. Morgan Securities plc, Peel Hunt LLP and Mirabaud Securities
Limited
"LME" the London Metal Exchange
"London Stock Exchange" London Stock Exchange plc
"Lynx Group" Lynx Resources and the Lynx Subsidiaries
"Lynx Europe" limited liability company incorporated in Macedonia with company
registration number 7048998
and its registered seat at St. Cyril and Methodius str. No. 52b/1-18,
Skopje, Republic of
Macedonia
"Lynx Metals" Lynx Metals Limited
"Lynx Mining" limited liability company incorporated in Bermuda with registration
number 50422 and its registered
office at Canon's Court, 22 Victoria Street, Hamilton HM 12, Bermuda
"Lynx Resources" limited liability company incorporated in Bermuda with registration
number 50388 and its registered
office at Canon's Court, 22 Victoria Street, Hamilton HM 12, Bermuda
"Lynx Subsidiaries" Lynx Mining, Lynx Europe and Rudnik SASA DOOEL
"Macedonian Competent Person's Report" as described in section 25 of this announcement, a fully copy of which
is available on the
Company's website, www.centralasiametals.com
"MEMR" Ministry of Energy and Mineral Resources of Kazakhstan
"Memorandum" the memorandum of association of the Company, as amended from time to
time
"Minerals Law" the Law on Mineral Resources 2012 (Official Gazette of the Republic of
Macedonia no. 136/2012;
25/2013; 93/2013; 44/2014; 160/2014; 129/15; 192/15; 39/16; 53/16;
120/16 and 189/16), as
amended from time to time
"Nominated Adviser" Peel Hunt LLP
"Non-Executive Directors" Nigel Hurst-Brown, Robert Cathery, David Swan, Roger Davey, Kenges
Rakishev and Nurlan Zhakupov
"Official List" the Official List of the United Kingdom Listing Authority
"OPEC" Organisation of Petroleum Exporting Countries
"Options" Share options awarded under the Option Plan
"Option Plan" the Central Asia Metals plc Share Option Plan adopted by the Board in
October 2011
"Ordinary Shares" ordinary shares in the issued share capital of the Company from time
to time
"Paris Agreement" the Paris Agreement under the United Nations Framework Convention on
Climate Change which
came into force on 4 November 2016
"Panel" the Panel on Takeovers and Mergers in the UK
"Placees" any person that has agreed to subscribe for and/or acquire (as
applicable) Placing Shares
"Placing" the proposed Company Placing and the Selling Shareholder Placing
"Placing Agreement" the agreement dated 22 September 2017 between the Company, the
Directors, Peel Hunt LLP, J.P.
Morgan Securities and Mirabaud Securities Limited pursuant to which
Peel Hunt LLP, J.P. Morgan
Securities plc and Mirabaud Securities Limited agree to procure
subscribers for the Company
Placing Shares
"Placing Price" the price at which Ordinary Shares are offered pursuant to the Placing
"Placing Shares" the Company Placing Shares and the Selling Shareholder Placing Shares
"Proposals" the Acquisition and the Company Placing
"Purchaser" CAML MK Limited, a wholly owned subsidiary of the Company
"Readmission" admission of the Enlarged Share Capital to trading on AIM
"Registrar" Computershare Investor Services PLC
"Regulation S" Regulation S promulgated under the US Securities Act
"Resolutions" the resolutions to be proposed at the Extraordinary General Meeting,
each a "Resolution",
as described in section 13 of this announcement
"Remuneration Committee" the remuneration committee established by the Board
"Rudnik SASA DOOEL" Rudnik SASA DOOEL Makedonska Kamenica, a limited liability company
incorporated in Macedonia
with company registration number 6006094 and its registered seat at
Rudarska Street No. 28,
Makedonska Kamenica, Republic of Macedonia
"Sale Shares" the entire issued share capital of Lynx Resources
"Saryarka" the National Company Social and Entrepreneurial Corporation Joint
Stock Company, a Kazakh
government entity
"Sary Kazna" Sary Kazna LLP, a wholly owned subsidiary of the Company
"Selling Shareholder" CBH Europe Limited
"Selling Shareholder Placing" the proposed placing of the Selling Shareholder Placing Shares by Peel
Hunt LLP and J.P. Morgan
Securities plc at the Placing Price pursuant to an agreement between
the Joint Bookrunners
and the Selling Shareholder
"Selling Shareholder Placing Shares" the Existing Ordinary Shares to be sold by the Selling Shareholder
pursuant to the Selling
Shareholder Placing
"Sellers" Orion Co-Investments III L.P. and Fusion Capital AG
"Shareholder" a person recorded in the Company's register of shareholders as a
holder of Ordinary Shares
"Shareholder Participation Agreement" the agreement described in section 19 of this announcement
"Shareholding" a holding of Ordinary Shares
"Share Capital" the Group's total issued share capital prior to Admission and/or
Readmission taking place
"Silver Purchase Agreement" the silver purchase agreement described in section 23.3.2 of this
announcement
"SASA Mine" means the zinc, lead and silver mine which is located near the town of
Makedonska Kamenica,
in the Northeast part of Macedonia's Osogovo Mountain Massif and is
currently owned by Lynx
Resources Limited
"SASA Project" the mining project in relation to the SASA Mine, as described in
section 21.3 of this announcement
"Solway Sellers" Solway Industries Ltd and Solway Industries EESTI AS
"SRK" SRK Consulting (UK) Limited
"Stage 1 Expansion" the initial expansion of the Kounrad Project which involved enhancing
the throughput and copper
plating capacity of the processing plant
"Stage 2 Expansion" the expansion of the Kounrad Project which comprised building
electricity and pipeline infrastructure
to connect Western Dumps to the existing SX-EW plant and constructing
a pipeline to Lake Balkash
in order to extract water for processing at Kounrad in the future
"Subsidiary" as defined in section 1159 of the Act
"Subsoil Law" the Law of the Republic of Kazakhstan dated 27 January 1996 "On
Subsoil and Subsoil Use" as
amended
"Substantial Shareholder" a Shareholder holding ten per cent. or more of the Enlarged Share
Capital
"Takeover Code" means The City Code on Takeovers and Mergers issued and administered
by the UK Panel on Takeovers
and Mergers, as amended, modified or supplemented from time to time
"Taxes Act" the Income and Corporation Taxes Act 1988 of the United Kingdom, as
amended
"Third Party Offtake Agreements" the offtake agreements described in section 23.3.2 of this
announcement, save for the Silver
Purchase Agreement.
"Traxys" Traxys Europe SA
"Trustee" Ogier Employee Benefit Trustee Limited
"Trust Deed" a Trust deed between the Company and the Trustee dated 16 December
2009
"United Kingdom" or "UK" the United Kingdom of Great Britain and Northern Ireland
"US" or "USA" the United States of America, its territories and possessions, any
State of America and the
District of Columbia
"US Person" has the meaning given in Regulation S
"US Securities Act" United States Securities Act of 1933, as amended
"Wardell Armstrong" or "WAI" Wardell Armstrong International Limited, the Company's independent
technical consultant
GLOSSARY OF TECHNICAL TERMS
"Adit" A horizontal or sub-horizontal underground development providing access to underground
workings
from surface
"Anode" An electrode through which conventional current flows into a polarised electrical
device
"ASL" Above sea level
"Barren" Of rock or vein material containing no minerals of value
"Base metals" Any of the more common and more chemically active metals, e.g., lead, copper
"C1 cash costs" A Wood Mackenzie industry definition of the costs incurred on a per unit basis at each
processing
stage from mining through to recoverable metal delivered to market, less net
by-product credits
"Category C2" A GKZ resource and reserve category. These reserves are based on a loose exploration
grid,
with limited data. The limits of the orebody are defined by extrapolation within known
geological
structures, and from comparison with other similar deposits in the vicinity. The grade
and
mineral properties of the orebody are determined from core samples and comparison with
similar
mineral deposits in the area
"Category P1" A GKZ resource and reserve category. P resources are estimated for mineralisation
outside
of the limits defined in the C2 category. The outer limits of P1 resources are
determined
indirectly by extrapolating from similar known mineral deposits in the area. P1 is the
main
source from which C2 reserves can be increased
"Cathode" An electrode from which a conventional current leaves a polarised electrical device
"Chalcopyrite" The mineral sulphide of iron and copper, CuFeS
"Concentrate" A metal-rich product resulting from a mineral enrichment process such as gravity
concentration
or flotation, in which most of the desired mineral has been separated from the waste
material
in the ore
"Copper" or "Cu" A soft, malleable and ductile metal with very high thermal and electrical
conductivity, chemical
symbol Cu
"Copper cathode" A cathode-a 50 to 80 kg copper plate-is produced in an electrolytic refining process.
The
saleable end product from the Kounrad operation. The primary raw material for the
copper wire
industry
"Cut-off grade" The grade below which material within an orebody does not contain sufficient value to
justify
extraction
"Decline" A spiral tunnel that is typically developed from surface to an orebody in underground
mining
and may be used to transport ore
"Definitive Feasibility study" A comprehensive study of a mineral deposit in which all geological, engineering,
legal, operating,
economic, social, environmental and other relevant factors are considered in
sufficient detail
so that it could reasonably serve as the basis for a final decision by a financial
institution
to finance the development of the deposit for mineral production. In a Feasibility
Study the
declaration of Ore Reserves would be expected and the economic viability of the
mineral deposit
could be demonstrated with sole reliance on the depletion of the Ore Reserves without
inclusion
of Mineral Resources. In parallel to the development of the Feasibility Study it is
normally
expected that an Environmental and Social Impact Study would have been completed.
Typical
contingencies included within the capital expenditure estimate range between 10 per
cent.
and 15 per cent. and accuracy ranges are typically +/-15 per cent.
"Diamond drilling" Drilling method which obtains a cylindrical core of rock by drilling with an annular
bit impregnated
with diamonds
"Dilute sulphuric acid" A strong acid with formula, H2SO4. The leaching chemical used to irrigate the Kounrad
dumps
"Dilution" The contamination of ore with barren or low grade bearing wall rock in mining. The
assay of
the ore after mining is frequently lower than when sampled in place. The proportion of
waste
that is contained in the Run-of-Mine ore delivered to the metallurgical processing
plant
"Dip" The angle of descent of a tilted bed or geological feature relative to the horizontal
plane
"Dredging" A method of extracting material, usually carried out in shallow water. Proposed
extraction
technique for Copper Bay
"Drive" A horizontal underground tunnel
"Dump leach" Similar to heap leach except ore is not stacked. Copper extraction process at Kounrad
"EA" Environmental Assessment
"EIA" Environmental Impact Assessment
"Electrolysis" The passing of a direct current (DC) through a substance that is dissolved in a
suitable solvent,
resulting in the separation of materials. Process used to produce copper cathode at
Kounrad
"Electrolyte" Copper rich solution produced from the solvent extraction process at Kounrad
"ESIA" Environmental and Social Impact Assessment
"Exploration" Process of evaluating mineral potential
"Facies" An assemblage or association of minerals reflecting the environment and conditions or
origin
of the rock
"Fault" The mass of rock underlying the mineral deposit or reef or the underlying side of an
orebody
or stope
"Flotation" A mineral processing technique used to separate mineral particles in a slurry, by
causing
them to selectively adhere to a froth and float to the surface
"Footwall" The mass of rock underlying the mineral deposit or reef
"g/t" Grammes per tonne
"Galena" Economically important sulphide ore of lead, chemical formula PbS
"Gangue" General term for minerals that are not considered to be of economic significance
"GDP" Gross Domestic Product; total value of goods produced and services provided in a
country in
one year
"Geochemistry" Prospecting techniques which measure the content of specified metals in soils and
rocks; sampling
defines anomalies for further testing
"Geological losses" Losses to account for all necessary adjustments with respect to faults, potholes,
dykes etc.
Incorporated into the Mineral Resource estimates
"Geophysics" Prospecting techniques which measure the physical properties (magnetism, conductivity,
density,
etc.) of rocks and define anomalies for further testing
"GKZ" The Russian State Commission on Mineral Reserves
"GPS" Global Positioning System
"Grade" Relative quantity or the percentage of mineral or metal content in an ore body
"Ground water" Water present below the earth's surface, occupying openings, cavities, and spaces in
rocks
and soils
"Hanging wall" The mass of rock overlying the mineral deposit
"HDPE" High Density Polyethylene
"Hydrogeology" The study of water flow and distribution underground
"Indicated Mineral Resource" The part of a Mineral Resource for which tonnage, densities, shape, physical
characteristics,
grade and mineral content can be estimated with a reasonable level of confidence. It
is based
on exploration, sampling and testing information gathered through appropriate
techniques from
locations such as outcrops, trenches, pits, workings and drill-holes. The locations
are too
widely or inappropriately spaced to confirm geological and/or grade continuity but are
spaced
closely enough for continuity to be assumed
"Inferred Mineral Resource" The part of a Mineral Resource for which tonnage, grade and mineral content can be
estimated
with a low level of confidence. It is inferred from geological evidence and assumed
but not
verified geological and/or grade continuity. It is based on information gathered
through appropriate
techniques from locations such as outcrops, trenches, pits, workings and drill holes
which
may be limited or of uncertain quality and reliability
"IRR" Internal Rate of Return is a capital budgeting method used by firms to decide whether
they
should make long term investments; the IRR is defined as any discount rate that
results in
a net present value of zero, and is usually interpreted as the expected return
generated by
the investment
"JORC Code 2012" The 2012 Australasian Code for Reporting of Exploration Results, Mineral Resources and
Ore
Reserves as published by the Joint Ore Reserves Committee of the Australasian
Institute of
Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of
Australia
"km" Kilometres
"km2" Square kilometres
"Kriging" An interpolation method of assigning values from samples to blocks that minimises the
estimation
error
"kt" Kilo tonnes (1,000 tonnes)
"kV" Kilo-volt
"Leaching" The removal of soluble material from a substance, such as rock, through the
percolation of
water or other fluids
"Lead" or "Pb" A soft and malleable heavy metal, with chemical symbol Pb. One of the most important
products
from the SASA Mine
"LME" London Metal Exchange, major global base metals trading platform
"Lower Palaeozoic" The earliest of the three geological eras, from 541 to 252 million years old
"m" Metre
"Ma" million years
"Malachite" A bright green copper carbonate hydroxide found in the oxide zone of copper deposits
"Measured Mineral Resource" That part of a Mineral Resource for which tonnage, densities, shape, physical
characteristics,
grade and mineral content can be estimated with a high level of confidence. It is
based on
detailed and reliable exploration, sampling and testing information gathered through
appropriate
techniques from locations such as outcrops, trenches, pits, workings and drillholes.
The locations
are spaced closely enough to confirm geological and grade continuity
"Modifying Factor" Considerations made when converting mineral resources to ore reserves. Includes
mining, processing,
infrastructure and environmental factors
"Metasomatism" The alteration of the chemical composition of a rock by hydrothermal or other fluids
"Micro" Prefix that divides a basic unit by 1 million or multiplies it by 106; a prefix
meaning small;
when modifying a rock name, it signifies fine-grained, as in microgranite
"Mill" Equipment used to grind crushed rocks to the desired size for mineral extraction
"Mineral Resource" A concentration or occurrence of material of intrinsic economic interest in or on the
earth's
crust in such a form that there are reasonable prospects for the eventual economic
extraction;
the location, quantity, grade geological characteristics and continuity of a mineral
resource
are known, estimated or interpreted from specific geological evidence and knowledge;
mineral
resources are sub-divided into Inferred Mineral Resource, Indicated Mineral Resource
and Measured
Mineral Resource categories
"Mineral Resource Estimation" Set of computerised processes and procedures used to derive estimates of in-situ
tonnages
and grades of a mineral deposit
"Mineralisation" Process of formation and concentration of elements and their chemical compounds within
a mass
or body of rock
"mm" Millimetre, one thousandth of a metre
"Moz" Million troy ounces
"MPa" Unit to measure rock strength, Megapascal
"Mt" Million tonnes
"NPV" Net Present Value is a standard method in finance of capital budgeting-the planning of
long-term
investments; using the NPV method a potential investment project should be undertaken
if the
present value of all cash inflows minus the present value of all cash outflows (which
equals
the net present value) is greater than zero
"Open pit" A surface mine
"Orebody" Mining term to define a solid mass of mineralised rock which can be mined profitably
under
current or immediately foreseeable economic conditions "ore" a mineral deposit that
can be
extracted and marketed profitably
"Ore Reserves" An Ore Reserve is the economically mineable part of a Measured Mineral Resource and/or
Indicated
Mineral Resource. It includes diluting materials and allowances for losses, which may
occur
when the material is mined or extracted and is defined by studies at Pre-Feasibility
or Feasibility
level as appropriate that include application of Modifying Factors. Such studies
demonstrate
that, at the time of reporting, extraction could reasonably be justified
"Ounce" or "oz", 1 troy ounce = 31.1035 grammes
"Oxides" Minerals that occur in predominantly oxide based compounds
"pregnant leach solution" the copper-bearing solution used in the SX process
"ppb" Parts per billion
"ppm" Parts per million
"Porphyry" A term for an intrusive igneous rock consisting of large grained crystals. Common host
of
copper deposits
"Probable Ore Reserves" The economically mineable part of an Indicated Mineral Resource, and in some
circumstances,
a Measured Mineral Resource. The confidence in the Modifying Factors applying to a
Probable
Ore Reserve is lower than that applying to a Proved Ore Reserve
"Proved Ore Reserves" The economically mineable part of a Measured Mineral Resource. A Proved Ore Reserve
implies
a high degree of confidence in the Modifying Factors
"Raffinate" The liquid from which impurities and dissolved metals have been removed in the solvent
extraction
process
"Recovery" Proportion of valuable material obtained in the processing of an ore, stated as a
percentage
of the material recovered compared with the total material present
"Run-of-Mine" Ore mined and delivered to the processing plant
"Scoping Study" A study that includes an economic analysis of the potential viability of mineral
resources
taken at an early stage of the project prior to the completion of a pre-feasibility
study.
A Scoping Study may be based on Measured, Indicated Mineral Resource, or Inferred
Mineral
Resources or a combination of any of these and include disclosure of forecast mine
production
rates and may contain capital costs to develop and sustain the mining operation,
operating
costs. A Scoping Study would have limited site specific data in respect of key
operating assumptions
and would only address certain disciplines on a high level fatal flaw basis. Both the
contingency
(>30%) and accuracy/sensitivity (+/-30%) associated with key assumptions are generally
higher
than that assumed for PFSs. Key deliverables of a Scoping Study would include the
determination
of sufficiently positive technical and economic outcomes such that advancement to PFS
level
is warranted. A Scoping Study is preliminary in nature, in that it may also include
Inferred
Mineral Resources
"Shaft" Vertical or inclined excavation into mine workings
"Silver" or "Ag" A soft, white, precious metal with very high thermal and electrical conductivity,
chemical
symbol Ag
"Smelting" A high temperature pyrometallurgical operation conducted in a furnace, in which the
valuable
metal is collected to a molten matte phase and separated from the gangue components
that accumulate
in a less dense molten slag phase
"Sphalerite" An economically important zinc sulphide mineral, chemical formula ZnS
"Stoping" The process of extracting the ore from an underground mine, leaving behind an open
space known
as a stope
"Stratiform" Of deposits that are confined within specific geological strata. Mineralisation style
at SASA
Mine
"Strike" Direction of line formed by the intersection of strata surfaces with the horizontal
plane,
always perpendicular to the dip direction
"Sub-level caving" An underground bulk mining method that is suitable for large orebodies with a steep
dip. Utilises
the geological characteristics of the weak hanging wall to allow the rock to cave
naturally
after ore has been extracted
"Sulphides" Minerals containing sulphur in non-oxidised form
"SX-EW" Solvent extraction and electro-winning is a two-stage process that first extracts and
upgrades
copper ions from low-grade leach solutions into a concentrated electrolyte, and then
deposits
pure copper onto cathodes using an electrolytic procedure
"t" A metric tonne
"Tailings" Material that remains after all metals/minerals considered economic have been removed
from
the ore
"Tailings storage facility" An impoundment used to deposit tailings arising as waste from a metallurgical
processing facility
"tpa" Tonnes per annum
"Treatment plant" A plant where ore undergoes physical or chemical treatment to extract the valuable
metals/minerals
"Trench sampling" Sampling of a trench cut through the rock, generally in the form of a series of
continuous
channels (channel samples)
"Weathering" The breakdown of rocks and minerals in the near-surface environment by the action of
physical
and chemical processes, in the presence of air and water
"Zinc" or "Zn" A metallic element with the chemical symbol Zn. One of the most important products
from the
SASA Mine
"um" Micron (one millionth of a metre)
[1] Zinc and lead resources converted into copper equivalent
based on long term (real) consensus prices (copper $6,232/t, zinc
$2,205/t, lead $1,984/t)
[2] Zinc and lead 2017E production converted into copper
equivalent based on 2017E consensus prices (copper $5,710/t, zinc
$2,767/t, lead $2,205/t)
This information is provided by RNS
The company news service from the London Stock Exchange
END
ACQZLLBLDKFLBBX
(END) Dow Jones Newswires
September 22, 2017 02:01 ET (06:01 GMT)
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