TIDMAAZ
RNS Number : 4279O
Anglo Asian Mining PLC
28 May 2015
Anglo Asian Mining plc / Ticker: AAZ / Index: AIM / Sector:
Mining
28 May 2015
Anglo Asian Mining plc
Final results
Anglo Asian Mining plc ("Anglo Asian" or "the Company"), the AIM
listed gold, copper and silver producer focused in Azerbaijan, is
pleased to announce its final audited results for the year ended 31
December 2014 ("FY 2014").
Highlights
-- Strong production performance with record gold production
-- Total gold production of 60,285 ounces (2013: 52,107 ounces)
-- Gold sales of 50,615 ounces (2013: 46,077 ounces) completed
at an average of $1,267 per ounce (2012: $1,387 per ounce)
-- Gold produced at an average cash operating cost net of
by-product credits of $971 per ounce (2013: $626 per ounce). Higher
cash costs due to there being a full year cost of production of the
agitation leach plant in 2014
-- Silver production totalled 31,177 ounces (2013: 65,939
ounces) - 2014 lower due to changes in mineralogy of the ore
-- Copper production of 784 tonnes, a 140 per cent. increase of 2013 production of 327 tonnes
-- Production target to produce circa 70,000 - 75,000 ounces of
gold for FY 2015 from the agitation leaching plant and heap leach
operation and including ore from Anglo Asian's Gosha and Gadir
operations
-- Revised JORC reserve report announced with 20.5 million
tonnes of ore grading 1.03 grammes per tonne of gold (682,000
ounces); 0.50 per cent. copper (102,000 tonnes); and 7.35 grammes
per tonne of silver (4.84 million ounces)
-- Gosha mine commenced operations in 2014 and Gadir scheduled to commence operations in 2015
-- Construction of small scale flotation plant scheduled to be completed in quarter 3 2015
Financials
-- Total revenue of $70.0 million (2013: $70.8 million)
-- Loss before tax of $14.4 million (2013: Profit before taxation of $1.4 million)
-- Operating cash flow before movement in working capital of $10.6 million (2013: $17.9 million)
-- Net debt of $52.4 million at 31 December 2014 (2013: $45.5
million) calculated as aggregate of loans and borrowings less cash
and cash equivalents
-- Cash position of $0.3 million as at 31 December 2014 (2013: $5.5 million)
Chairman's Statement
Anglo Asian is a gold, copper and silver producer with mining
properties located in Azerbaijan in the prospective Tethyan
Tectonic Belt, one of the world's significant copper and gold
mineralised zones. Our primary focus in 2014 was the optimisation
of production at, and future development of Gedabek - our gold,
copper and silver mining operation located in the lower Caucasus
mountains in the west of the country. We have also been developing
our second gold resource, Gosha, only 50 kilometres away from
Gedabek and a new underground mine, Gadir, situated on the Gedabek
property.
Review of the year
We were pleased to report total gold production for 2014 of
60,285 ounces, a 16 per cent. increase over 2013 production of
52,107 ounces and copper production of 784 tonnes, a 140 per cent.
increase over the 2013 production of 327 tonnes. Production of
silver totalled 31,177 ounces for 2014, however this was a 53 per
cent. decrease over 2013 production of 65,939 ounces due to changes
in the mineralogy of the ore.
Whilst gold and copper production for the year increased
substantially, the environment for mining companies globally
remained poor with the effects still being felt of the sustained
low gold and copper prices. Despite a strong performance in terms
of production, the low global metals prices throughout the year,
together with the first full year's operational cost of the
agitation leach plant at Gedabek, have adversely impacted
profitability for 2014. Whilst we achieved solid revenues of $68.0
million, we are disappointed to report a loss before tax of $14.4
million for the year.
To improve production and lower operating costs during 2014, the
Company has been exploring a number of options to overcome the
lower than expected metal recoveries from the agitation leach plant
and to decrease the large cyanide usage and associated costs
resulting from the high copper sulphide content of its high grade
ore. A Knelson concentrator was installed in March 2014 and the use
of ammonia as a reagent to improve recoveries has been introduced.
The Company has also commenced heap leaching uncrushed (Run of Mine
or ROM) ore during 2014. This is a low cost method to treat low
grade ore which would otherwise not be economic to process.
The Gosha underground mine commenced production in the year. In
2014, it produced 28,891 tonnes of ore grading 4.15 grammes of gold
per tonne. The development of the mine has been hampered due to the
very narrow ore veins which make mining difficult. Ore mined at
Gosha is transported to Gedabek for processing. The Gosha mine will
continue to form an important although small part of the Company's
portfolio of properties. We are also developing a new underground
mine, Gadir, at our Gedabek site. It is expected ore will be
extracted from Gadir in the second half of 2015.
We continue to develop the greater Gedabek area with the aim of
delineating further resources and reserves to increase the life of
mine of the operation. We were therefore delighted to announce a
revised JORC reserve report of 20.5 million tonnes of ore grading
1.03 grammes per tonne of gold (682,000 ounces); 0.50 per cent.
copper (102,000 tonnes); and 7.35 grammes per tonne of silver (4.84
million ounces). Notably this demonstrated a 96 per cent. increase
of copper with recoverable copper increasing by over 500 per cent.
to 68,000 tonnes compared to our May 2012 ore reserve
statement.
Whilst we are still focused on increasing the production of gold
of which we have 682,000 ounces in ore reserves, we are now aiming
to take advantage of the significant copper content of the ore we
are encountering at Gedabek. Consequently, we initiated the
construction of a small scale flotation plant suited to process the
high copper content ore to help increase our copper production, in
tandem with gold and silver. Flotation typically has lower costs
than cyanide leaching as it does not use expensive cyanide as a
reagent.
In order to demonstrate how the flotation process can be used to
enhance recoveries, in-house test work has shown that by applying
the flotation process to the agitation leaching plant tailings,
overall recoveries can be increased to approximately 80 per cent.
for copper, 70 per cent. for silver and 90 per cent. for gold. The
flotation process can produce a saleable copper concentrate with
approximately 20 per cent. copper content.
The construction of the small scale flotation plant is due to be
completed in quarter three, 2015 and if completed on target should
see an additional 5,000 ounces of gold and 1,200 tonnes of copper
produced for the full year 2015. This production will be from
stockpiles of ore which have already been mined and therefore will
incur no additional mining costs.
The Company places the highest priority on its environmental
responsibilities. A key responsibility is secure storage of
tailings produced at Gebabek. Accordingly in 2014, the Company
embarked upon a project to approximately double the capacity of its
tailing dam by raising the wall of the dam and to increase security
by building a reed bed biological treatment system immediately
downstream of the dam to process any seepage. This project is
nearing completion and will provide adequate and secure capacity
for tailings storage for the next few years.
The Company sells its product in US dollars, however it has a
significant portion of costs denominated in Azerbaijan Manats. The
recent 34 per cent. devaluation of the Azerbaijan Manat against the
US dollar is obviously unwelcome for Azerbaijan and its people.
However, we believe this will have a considerable beneficial effect
for us in 2015 by reducing our operating cost by around $6.5
million in the 2015 financial year at the current US dollar to
Azerbaijan Manat exchange rate.
Outlook
2015 is an important year for our Company and a time which we
believe marks the start of our turnaround strategy to restore
profitability. The year has started well and we were delighted to
report quarter one, 2015 production figures of 17,053 ounces of
gold, marking a 52 per cent. increase in gold production from
quarter one 2014. This highly credible performance for quarter one,
2015 demonstrates that the initiatives undertaken during 2014 to
improve production are beginning to take effect. Accordingly, we
have announced a gold production target of between 70,000 to 75,000
ounces for the year to 31 December 2015, which if achieved, will
mark an increase of around 16 to 24 per cent. from the full year
2014.
The construction of our small scale flotation pilot plant
continues to plan with commissioning scheduled for quarter three,
2015. The successful commissioning of this plant, which will enable
us to fully exploit the sulphide ore reserves at Gedabek, will add
an important new source of production and revenues for Anglo
Asian.
Given the improved start to 2015, and the commencement of
flotation later in the year, we believe the outlook for the rest of
the year is a significant improvement over 2014 and look forward to
updating shareholders on our progress.
Appreciation
I would like to take this opportunity to thank our Anglo Asian
employees, partners, the Government of Azerbaijan, advisers, fellow
directors and shareholders for their continued support as we
continue to build Anglo Asian into a leading and profitable
mid-tier gold, copper and silver producer in Azerbaijan and
Caucasia.
Khosrow Zamani
Non-executive chairman
Strategic report
Principal activities
The principal activity of Anglo Asian Mining PLC is that of a
holding company and a provider of support and management services
to its main operating subsidiary R.V. Investment Group Services
LLC. The Company, together with its subsidiaries (the "Group"),
owns and operates gold, silver and copper producing properties in
the Republic of Azerbaijan ("Azerbaijan"). It also explores and
develops other potential gold and copper projects in
Azerbaijan.
The Group has a 1,962 square kilometre portfolio of gold, silver
and copper properties in Azerbaijan, at various stages of the
development cycle. These include our Gedabek gold, silver and
copper mine in western Azerbaijan. Our processing facilities to
produce gold dore, and a copper, silver and gold concentrate, from
mined ore are also located at Gedabek. Gosha, our second gold and
silver mine, is located 50 kilometres away from Gedabek. Ordubad,
our early stage gold-copper exploration project is located in the
Nakhchivan region of Azerbaijan.
During the period under review, the Group's main focus has been
on several key areas to increase our gold, copper and silver
production and ensure the future success of our operations as
follows:
- optimisation of the performance of our agitation leach plant
to ensure maximum production at lowest possible cost;
- implementation of uncrushed ore (Run of Mine or ROM) heap
leaching to provide additional low cost production from low grade
ore; and
- construction of a small scale flotation plant to primarily
produce copper to exploit the copper content of the ore at Gedabek
and provide a path for future development of the site.
The Group has a target production for the full year to 31
December 2015 of between 70,000 to 75,000 ounces of gold.
Gedabek
1 Introduction
The Gedabek mining operation is located in a 300 square
kilometre contract area in the lower Caucasus mountains in western
Azerbaijan on the Tethyan Tectonic Belt, one of the world's most
significant copper and gold bearing structures. The mine, which
first poured gold in 2009, is an open-pit mining operation. In
addition, in late 2014, the Group started to develop an underground
mine, Gadir, on the Gedabek property.
2 Mineral resources
Key to the future development of the Gedabek site is our
knowledge of the mineral resources and ore reserves within the
contract area. In this respect, the Group was pleased to announce
in November 2014 a new ore reserve estimate as of 1 September 2014.
This ore reserve estimate showed an increase of approximately 3.9
million tonnes of ore, after allowing for depletion due to mining
since the previous estimate. It also showed a significantly higher
copper content. Table 1 shows the ore reserve estimate at 1
September 2014.
Table 1 - ore reserve estimate as at 1 September 2014
Ore Reserve
----------- ---------------------------------------------------------------------------------------------------------
In Situ In Situ Grades Contained metal Recovered Metal
----------------------------- ------------------------------ -----------------------------
Reserve (tonnes) Au (g/t) Cu (%) Ag (g/t) Au (oz) Cu (t) Ag (oz) Au (oz) Cu (t) Ag (oz)
Category
----------- ----------- --------- ------- --------- -------- -------- ---------- -------- ------- ----------
Proven 16,733,000 1.12 0.61 7.63 600,000 87,000 4,105,000 447,000 65,000 1,346,000
----------- ----------- --------- ------- --------- -------- -------- ---------- -------- ------- ----------
Probable 3,761,000 0.68 0.40 6.12 82,000 15,000 740,000 58,000 11,000 268,000
----------- ----------- --------- ------- --------- -------- -------- ---------- -------- ------- ----------
Total 20,494,000 1.03 0.50 7.35 682,000 102,000 4,845,000 505,000 76,000 1,614,000
----------- ----------- --------- ------- --------- -------- -------- ---------- -------- ------- ----------
3 Mining operations
The principal mining operation at Gedabek is conventional open
cast mining from several contiguous open pits. Ore is first drilled
and blasted and then transported either to a processing facility or
to a stockpile for storage. The major mining activities of drill
and blasting and subsequent transportation of ore are carried out
by contractors. Table 2 summarises the ore mined from the Gedabek
open pit mining operations during the year ended 31 December
2014.
Table 2 - ore mined at Gedabek for the year ended 31 December
2014
Ore mined (tonnes) Waste
Quarter ended mined
----------------------------------------------------------
High Grade Low Grade Sulphide Total (tonnes)
----------- ----------------- -------------- ---------- ----------
31 March 2014 119,402 137,589 6,869 263,860 1,457,446
-------------------- ----------- ----------------- -------------- ---------- ----------
30 June 2014 151,206 208,205 11,893 371,304 1,654,284
-------------------- ----------- ----------------- -------------- ---------- ----------
30 September 2014 145,392 234,534 16,370 396,296 1,631,610
-------------------- ----------- ----------------- -------------- ---------- ----------
31 December 2014 133,929 202,451 8,425 344,805 1,275,458
-------------------- ----------- ----------------- --------------
Total for 2014 549,929 782,779 43,557 1,376,265 6,018,798
-------------------- =========== ================= ============== ========== ==========
Gadir is being developed as an underground mine and is situated
approximately one kilometre from the main open pit at the Gedabek
site. A decline is being constructed to access the ore body and at
31 March 2015, approximately 350 metres of decline had been
constructed. It is expected that ore will be extracted from the
Gadir mine in 2015.
4 Processing operations
Ore mined at Gedabek is processed to produce either gold dore
(an alloy of gold and silver with small amounts of impurities) or a
copper and precious metal concentrate using several industrial
processes. Initial processing is to leach (i.e. dissolve) the
precious metal (and copper) in a cyanide solution. This is done by
various methods:
1 Heap leaching of crushed ore. Crushed ore is heaped into
"pads" onto which is sprayed a solution of cyanide. The solution
dissolves the metals as it percolates through the ore by gravity
and it is then collected.
2 Heap leaching of run of mine (ROM) ore. The process is similar to heap leaching for
crushed ore except the ore is not crushed and is heaped into
pads just as received from the mine without further treatment or
crushing.
3 Agitation leaching. Ore is crushed and then processed through a grinding circuit. The
ground ore is then placed in tanks containing a cyanide solution
and agitated and the contained metal is dissolved in the
solution.
Slurries produced by the above processes with dissolved metal in
solution are then transferred to a resin in pulp ("RIP") plant. A
synthetic resin, in the form of small spherical plastic beads
designed to absorb gold selectively over copper and silver, is
placed in contact with the leach slurry, or "pulp". After
separation from the pulp, the gold-loaded resin is treated with a
second solution, which "strips" (i.e. desorbs) the gold, plus the
small amounts of absorbed copper and silver, transferring the
metals from the resin back into solution. The gold and silver
within this final solution are recovered by electrolysis and are
then smelted to produce the dore metal, containing gold and
silver.
Copper and silver (and small amounts of gold) are also produced
by the Sulphidisation, Acidification, Recycling and Thickening
("SART") process. The cyanide solution after metal absorption by
RIP processing is transferred to the SART plant. The pH of the
solution is then changed by the addition of reagents. This recovers
the copper from the solution in the form of a precipitated copper
sulphide concentrate containing silver and minor amounts of
gold.
Initially, gold dore was produced at Gedabek by heap leaching
crushed ore. Heap leach is a low capital cost method of production
traditionally used by mines when they first move into production.
However, heap leaching has limitations with regards to the minimum
size of the ore being leached limited to around 25 millimetres.
This limitation results in only approximately 60 to 70 per cent. of
the gold within the ore being recovered with leaching cycles
typically extending up to one year depending on the detailed
composition of the ore.
To increase gold recoveries and production, the Group
constructed and commissioned in July 2013 an agitation leach plant.
Compared to heap leaching, agitation leaching can deliver higher
recoveries of gold without long leaching cycles. Heap leach pads
also require considerable space for their construction and due to
the topology of the Gebabek site, this was a constraint.
Following commissioning in 2013, the plant's performance was not
as planned due to the mineralogical variation of the ore. Due to
the unforeseen presence of very high copper values in the ore,
recoveries of gold were not as high as anticipated and the plant's
usage of cyanide was higher than planned. This was because excess
cyanide was being consumed dissolving copper. Throughout 2014, the
Group has therefore expended considerable effort in improving the
performance of the plant. This has been aimed both at increasing
metal recoveries to increase production and lowering cyanide
consumption to decrease costs. A continuous Knelson concentrator
was installed at the agitation leaching plant in March 2014 which
enhanced gold recoveries. Using ammonia as a reagent in the process
to reduce cyanide consumption has also been introduced.
Table 3 shows the amounts of ore and its average grade processed
by heap and agitated leaching at Gedabek in 2014.
Table 3 - Amount of ore and grade processed at Gedabek
Amount of ore processed (tonnes) Gold grade of ore processed
Quarter ended (g/t)
------------------------------------- ------------------------------------
Heap leach Heap leach Agitation Heap leach Heap leach Agitation
pad pad pad pad
(Crushed (ROM ore) leaching (Crushed (ROM ore) leaching
ore) plant ore) plant
---------------- ------------ ----------- ---------- ----------- ----------- ----------
31 March 2014 110,564 - 152,554 1.14 - 2.51
30 June 2014 154,902 95,542 159,605 1.18 0.98 2.88
30 September
2014 144,861 407,236 151,473 1.27 0.97 2.99
31 December
2014 120,390 312,374 133,470 1.44 0.97 3.41
---------------- ------------ ----------- ---------- ----------- ----------- ----------
Total for
the year 530,717 815,152 597,102 1.26 0.97 2.93
---------------- ============ =========== ========== =========== =========== ==========
For the year to 31 December 2014, gold production totalled
60,285 ounces, which was an increase of 8,217 ounces in comparison
to the production of 52,068 ounces in the year ended 31 December
2013.
Table 4 summarises the total gold production and sales
demonstrates the quarter-on-quarter increase in gold production and
also details the copper and silver production at Gedabek.
Table 4 - gold, silver and copper production at Gedabek
Quarter ended Gold Produced* Gold Gold Sales Copper Produced Copper Concentrate Silver
(oz) Sales** Price (dmt) Sales (dmt) Produced
(oz) ($) (oz)
-------------- -------------- ---------- ------------- ---------------- --------------------- ----------
31 Mar 2014 11,318 10,403 1,302 141 152 13,139
-------------- -------------- ---------- ------------- ---------------- --------------------- ----------
30 Jun 2014 15,736 13,142 1,291 228 523 8,785
-------------- -------------- ---------- ------------- ---------------- --------------------- ----------
30 Sept 2014 16,178 13,798 1,281 210 250 5,504
-------------- -------------- ---------- ------------- ---------------- --------------------- ----------
31 Dec 2014 17,053 13,272 1,201 205 391 3,749
-------------- -------------- ---------- ------------- ---------------- --------------------- ----------
Total for
the year 60,285 50,615 1,267 784 1,316 31,177
-------------- -------------- ---------- ------------- ---------------- --------------------- ----------
* including Government of Azerbaijan's share
** excludes Government of Azerbaijan's share
The Group's experience of processing has shown the ore at
Gedabek to be poly-metallic containing significant amounts of
copper. To exploit this high copper content of the Group's ore
reserves, the Group commenced construction of a small scale
flotation plant in the fourth quarter 2014 whose function would be
to primarily produce copper with gold and silver as by-products. It
was initially envisaged that the flotation plant would act as a
pilot plant to assess future full scale copper production and would
initially process 379,000 tonnes of stockpiled high copper content
sulphide ore to produce a copper and precious metal concentrate.
However in 2015, in-house test work showed that by applying the
flotation process to the agitation leach plant tailings, overall
recoveries for the agitation leaching plant can be increased to 80
per cent. for copper, 70 per cent. for silver and 90 per cent. for
gold. Engineering studies determined that by the addition of an
extra six large flotation cells, each of 50 cubic metres, the small
scale flotation plant can be configured to treat 90 tonnes of ore
per hour which is equivalent to the current throughput of the
agitation leaching plant. The modified small scale flotation plant
will have the flexibility to be configured for various methods of
operation. It will be able to process the stockpiles of high copper
content ore as initially envisaged. However, it will now also be
able to be configured to treat ore feed to, or tailings from the
agitation leach plant. In such configurations, the plant would no
longer be a pilot but an integral part of the agitation leach
plant. The small scale flotation plant is expected to be
commissioned in the third quarter of 2015.
5 Tailings (waste) storage
The Company stores its tailings in a purpose built dam
approximately 7 kilometres from its processing operations. The
Company is very mindful of the importance of proper storage of
tailings both for efficient operation of the plant and to fulfil
its environmental responsibilities. In 2014, the Company embarked
upon a project to increase the capacity and efficiency of its
tailing dam. This comprised raising the existing tailings dam wall
by 14 metres by the deposition of approximately 600,000 cubic
metres of rock on the existing wall. This will approximately double
the capacity of the dam from its current 1.6 million cubic metres.
The Company is also constructing a reed bed biological treatment
system on the downstream side of the dam. This is to collect and
treat any seepage of solution from the dam.
6 Personnel and health and safety
Azerbaijan is not a country with a large mining industry and
there is often a lack of suitable qualified people and therefore
expatriate employees have to be hired to fill the skills gap.
However, the Group is actively training and developing the skills
of local people to replace expatriates. The Group has also been
developing its health, safety and environment ("HSE") procedures
during the year. A HSE team was recruited during 2014 and is
implementing formal systems for monitoring activities alongside
various other safety procedures. The Group aims to minimise the
impact of its operations on the environment and takes all possible
measures to increase the social welfare of its workers and to
create conditions for first-rate quality and safety in work.
7 Exploration at Gedabek site
The main exploration activity at the Gedabek site in the period
under review has been on the Gadir area. During this period nine
drill holes with a total length of 3,400 metres were drilled.
Further geochemical surveys were also made in the vicinity of the
Gadir area.
Gosha
The Group's second mining project, the 300 square kilometre
Gosha contract area, is located in western Azerbaijan, 50
kilometres north-west of Gedabek. Gosha is currently being
developed as a small, high grade, underground gold mine.
During the development and early production of the Gosha mine,
it became evident that the initial estimated ore vein thickness was
not as expected. This not only affected the resource estimate but
also resulted in changes in mining method to decrease dilution
during mining. Currently, based on a non-JORC report by SRK, the
Gosha resource is about 40,000 ounces of gold (140,000 tonnes of
ore grading 9 grammes per tonne - all figures in situ and before
dilution). This ore resource will be mined from 2015 to 2017. We
are also planning for further exploration at Gosha.
A total of 28,892 tonnes of ore of average grade 4.15 grammes
per tonne were mined at Gosha in the year ended 31 December
2014.
Ordubad
Our 462 square kilometre Ordubad Contract Area is located in the
Nakhchivan region of Azerbaijan and contains numerous targets
including Shakardara, Piyazbashi, Misdag, Agyurt, Shalala and
Diakchay, which are all located within a 5 kilometre radius of each
other. Development at Ordubad forms part of the Group's longer-term
development portfolio as a mid-tier gold, copper and silver mining
company.
Sale of Group's products
Important to the Group's success is the ability to transport its
products to market and sell them without disruption.
The Group sells all of its gold dore to MKS Finance SA in
Switzerland. The logistics of transport and sale are well
established and gold dore shipped from Gedabek arrives in
Switzerland within three to five days. The proceeds of the
estimated 90 per cent. of the gold content of the dore is settled
within one to two days of receipt of the dore. The Group has not
experienced any disruptions to its sale of metal due to logistics
or delays in customs clearance. MKS Finance SA both refines and
purchases our precious metal, all assays and a full accounting of
all metal is agreed with them.
The Gedabek mine site has good road transportation links and our
copper and silver concentrate is collected from the Gedabek site by
the purchaser. The Group was pleased to announce in May 2014 that
it had signed an exclusive three year contract with Industrial
Minerals SA, a Swiss based integrated trading, mining and logistics
group for the sale of its copper concentrate. The Group has again
experienced no delays in the sale of its copper concentrate.
Key performance indicators
The Group has adopted certain key performance indicators
("KPIs") which enable it to measure its financial performance.
These KPIs are as follows:
1 Profit before taxation: this is the key performance indicator
used by the Group. It gives insight to cost management, production
growth and performance efficiency.
2 Net cash provided by operating activities: This is a
complementary measure to profit before taxation and demonstrates
conversion of underlying earnings into cash. It provides additional
insight to how we are managing costs and increasing efficiency and
productivity across the business in order to deliver increasing
returns.
3 Cash cost per ounce:Cash cost per ounce of gold produced is a
widely used industry metric and is a measure of how our operation
compares to other producers in the industry.
The Group's performance against these indicators are discussed
in the financial review.
Financial review
Group income statement
The Group generated revenues of $67,964k (2013: $70,820k) from
sales of gold and silver bullion and copper concentrate.
$64,280k of the revenues (2013: $64,386k) were generated from
sales of gold and silver bullion from the Group's share of the
production of dore bars in 2014. Bullion sales in 2014 were 50,615
ounces of gold and 6,802 ounces of silver (2013: 46,077 ounces of
gold and 19,016 ounces of silver) at an average price of $1,267 per
ounce and $20 per ounce respectively (2013: $1,385 per ounce and
$23 per ounce respectively). In addition, the Group generated
revenue from the sale of copper concentrate of $3,684k (2013:
$6,434k).
The Group incurred cost of sales of $68,500k (2013: $57,480k)
and therefore reported a gross loss for 2014 of $536k (2013: gross
profit of $13,340k). The increased cost of sales in FY 2014 was
mainly due to higher processing costs in the agitation leaching
plant following high cyanide consumption and increased depreciation
following the commissioning of the agitation leaching plant. The
cost of sales for 2014 includes a full year's cost of operating the
agitation leach plant.
Accumulated mine development costs within producing mines are
depreciated and amortised on a unit-of-production basis over the
economically recoverable reserves of the mine concerned, except in
the case of assets whose useful life is shorter than the life of
the mine, in which case the straight line method is applied. The
unit of account for run of mine ("ROM") costs and for post-ROM
costs is recoverable ounces of gold. 639,000 ounces of gold were
used to determine depreciation of producing mines, mining rights
and other intangible assets following compilation of a new reserve
statement for the Group.
The Group had other income in 2014 of $632k (2013: $519k) which
arose from the release of accruals and provisions. The Group
incurred administration expenses of $7,202k (2013: $6,845k) and
finance costs for the year of $5,462k (2013: $3,779k). The Group's
administration expenses comprise the cost of the administrative
staff and associated costs at the Gedabek mine site, the cost of
the Baku office and the cost of maintaining the Group's listing on
the AIM market. The finance costs for the year comprise interest on
the credit facilities and loans, interest on letters of credit and
accretion expenses on the rehabilitation provision. The Group
accordingly recorded a loss before taxation for the year of
$14,364k (2013: profit of $1,391k).
The Group had a taxation credit for the year of $3,436k (2013:
charge of $1,055k). This comprised a current income tax charge of
$nil and a deferred tax credit of $3,436k (2013: taxation charge of
$1,055k comprising a current income taxation charge of $nil and a
deferred taxation charge of $1,055k). The Group had no current
taxation charge in 2014 as its main operating companies incurred a
taxable loss for the year. The deferred taxation credit in 2014
arose primarily due to an increase in carry forward losses
partially offset by lower taxation depreciation compared to
accounting depreciation.
Cash cost of production
The Group produced gold at an average cash operating cost net of
by-product credits in 2014 of $971 per ounce compared to $626 per
ounce in 2013. The higher cash cost of production was due to there
being a full year production from the agitation leach plant in 2014
compared to only 6 months in 2013. The cash operating cost of the
agitation leaching plant is higher than from heap leaching.
Group statement of financial position
Non-current assets decreased from $140,457k at the end of 2013
to $137,451k at the end of 2014. The main reasons for the decrease
were property plant and equipment lower by $1,203k due to
depreciation in the year and non-current inventory lower by $1,644k
due to a decrease in ore stockpiles.
Net current assets decreased from $33,040k at the end of 2013 to
$10,136k at the end of 2014. The main reasons for the decrease were
a decrease in cash and cash equivalents, an increase in trade and
other payables and an increase in the current portion of interest
bearing loans and borrowings. The Group's cash balances at 31
December 2014 were $322k (2013: $5,489k). The current portion of
interest bearing loans and borrowings increased from $2,031k to
$16,675k mainly as principal repayments commence in 2015 in respect
of the loans from the Amsterdam Trade Bank and the International
Bank of Azerbaijan to build the agitation leach plant.
Net assets of the Group were $85,916k (2013: $96,750k). The
decrease was primarily due to the loss incurred in the year.
The Group is financed by a mixture of equity and debt. The
Group's total debt at 31 December 2014 was $52.8m and comprised the
following:
a $37.0m term loan from the Amsterdam Trade Bank ("ATB"). The
loan has a quarterly interest rate of LIBOR plus 8.25 per cent. The
term of the loan is 58 months and repayment is by quarterly
instalments of $2.5m which commence in February 2015, 16 months
after drawdown. The final repayment is due on 25 August 2018. The
Group has pledged to ATB its present and future rights against MKS
Finance SA, the sole buyer of the Group's gold and silver bullion
until the loan is repaid. The actual rate of interest the loan
incurred in 2014 was 8.65 per cent. The loan has a debt service
coverage ratio ("DSCR") covenant of 1:1.25 calculated half and full
yearly from the Group's published financial statements. The Group
met this DSCR for both the 6 months ended 30 June 2014 and 12
months ended 31 December 2014.
b $13.0m of loans from the International Bank of Azerbaijan
("IBA"). $11.6m of this loan is the remaining balance of the loans
obtained for the construction of the agitation leach plant.
Repayment starts on 31 March 2015 and ends on 31 March 2018. $1.5m
of the loan is a one year working capital facility and carries an
interest rate of 12 per cent. It is repayable in full on 31
December 2015. Since the year end, the amount of the facility has
been increased to $2.0m.
c $0.8m due to Atlas Copco for equipment financing.
d $0.9m due to Yapi Kredi Bank for working capital financing.
e $1.2m due to Pasha Bank. $1.0m is payable in respect of the
credit line ($3.1m) for financing letters of credit for cyanide
purchases. $0.3m is in respect of the $2.5m credit facility
obtained for the financing of the small scale flotation plant.
The Group had a deferred taxation liability at 31 December 2014
of $16,964k (2013: $20,400k).
Group cash flow statement
Operating cash inflow before movements in working capital was
$10,567k (2013: $17,934k). The main source of operating cash flow
was the profit before taxation, finance costs and amortisation and
depreciation of $10,129k (2013: $17,506k).
Working capital generated cash of $4,254k (2013: $2,694k) due to
a decrease in trade and other receivables of $3,694k (2013:
$1,157k) and an increase in trade and other payables of $3,902k
(2013: decrease of $2,451k) partially offset by an increase in
inventories of $3,342k (2013: decrease of $3,988k).
Income tax paid was $nil (2013: $800k) as the Group incurred
taxable losses for the year.
Net cash provided by operating activities in 2014 was $14,821k
compared to $19,828 in 2013. This lower cash generated from
operations in the year was due to the reduced profitability of the
Group partially offset by cash generated from working capital of
$4,254k.
Expenditure on property, plant and equipment and mine
development was $16,270k (2013: $31,494k). The main items of
expenditure in 2014 were the small scale flotation plant,
construction of a reed bed for the tailings dam and capitalisation
of deferred stripping costs.
Exploration and evaluation expenditure of $608k (2013: $308k)
was incurred and capitalised. This arose due to exploration at the
Gedabek and Ordubad mining properties.
Production sharing agreement ("PSA")
Under the terms of the PSA in place with the Government of
Azerbaijan, the Group and the Government of Azerbaijan share
commercial products of each mine. Until the time the Group has
recovered all its carried forward, unrecovered costs, the
Government of Azerbaijan effectively takes 12.75 per cent. of
commercial products of each mine, with the Group taking 87.25 per
cent. (being 75 per cent. for capital and operating costs plus 49
per cent. of the remaining 25 per cent. balance). The Group will
not have recovered all its costs incurred by the end of 2015 and
the ratio of sharing commercial products for the Gedabek mine of
87.25 per cent. for the Group and 12.75 per cent. for the
Government of Azerbaijan will continue throughout 2015.
Once all prior year costs are recovered, the Group can continue
with cost recovery of up to 75 per cent. of the value of commercial
products, before the remaining product revenues are shared between
the Company and the Government of Azerbaijan in a 49 per cent. to
51 per cent. ratio. The Group can recover the following costs:
-- all direct operating expenses of the Gedabek mine;
-- all exploration expenses incurred on the Gedabek Contract Area;
-- all capital expenditure incurred on the Gedabek mine;
-- an allocation of corporate overheads - currently, overheads
are apportioned to Gedabek according to the ratio of direct capital
and operating expenditure at the Gedabek Contract Area compared
with direct capital and operational expenditure at the Gosha and
Ordubad Contract Areas; and
-- An imputed interest rate of US Dollar LIBOR + 4 per cent. per annum on any unrecovered costs.
Going concern
The directors have prepared the Group financial statements on a
going concern basis after reviewing the Group's forecast cash
position for the period to 30 June 2016 and satisfying themselves
that the Group will have sufficient funds on hand to realise its
assets and meet its obligations as and when they fall due.
In making this assessment the directors have acknowledged the
challenging and uncertain market conditions the Group is operating
in. In 2014, the price of gold averaged $1,266 per ounce with a
high of $1,382 per ounce and a low of $1,144 per ounce. 2015 has
seen a continuation of the depressed gold price which has continued
the low margins experienced in 2014.
The Group has commenced making payments on the principal of its
debt in 2015. Until the date of this announcement, the Group has
made all payments of interest and principal on time. However, in
order to ensure that the Group can meet all principal repayments
for the remainder of 2015, it has negotiated with the International
Bank of Azerbaijan ("IBA") to defer some principal repayments due
in 2015. IBA will defer two thirds of the principal repayments due
in June and September which total $1,544,000 to 2016. The amount of
principal deferred totals $1,029,000. In addition, a principal
shareholder of the Group has committed to provide a loan facility
of $4 million at an interest rate of 10 per cent. per annum to the
Group for the period 20 May 2015 to 8 January 2016. At the date of
this announcement, $2 million of the facility had been
utilised.
The Group is forecasting to meet its debt service cover ratio
for the six months to 30 June 2015. For the full year to 31
December 2015 and subsequent years the Group can comfortably meet
the debt service cover ratio of 1.25 as specified in the loan
agreement with the Amsterdam Trade Bank.
Key to achieving the Group's forecast cash position, and
therefore its going concern assumption are the following:
- achieving the forecast production of its gold production
operations, principally its heap and agitation leaching;
- its gold price assumption; and
- the small scale flotation plant being commissioned on time and
achieving its planned performance.
Should there be a moderate and sustained decrease in either the
production or gold price assumptions, significant doubt would be
cast over the Group's short term cash position. Under this
circumstance, the Group would look to defer all non-essential
capital expenditure and administrative costs in order to preserve
cash. The directors believe that the Group's assumptions are
neither overly aggressive or overly conservative and appropriate
rigour and diligence has been performed by the directors in
approving the assumptions. The directors believe all assumptions
are prepared on a realistic basis using the best available
information.
Should the Group's small scale flotation plant not be
commissioned on time or not achieve the forecast performance, the
Group may not achieve sufficient cash generation to make repayment
of all loan principal due in the first half of 2016. In these
circumstances, the Group would look to establish credit lines
either from commercial banks or its principal shareholder to cover
any shortfall.
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
can be found in the financial statements within the Chairman's
statement and the strategic report above. The financial position of
the Group, its cash flow, liquidity position and borrowing
facilities are described in this financial review. In addition,
note 23 to the consolidated financial statements includes the
Group's objectives, details of its financial instrument exposures
to credit risk and liquidity risk.
After making due enquiry, the directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future.
Accordingly, the Group continues to adopt the going concern basis
in preparing the annual report and financial statements.
Principal risks and uncertainties
Commodity price risk
The Group's revenues are exposed to fluctuations in the price of
gold, silver and copper. The Group does not currently hedge the
commodity price risk on its expected future production.
Foreign currency risk
The Group reports in US Dollars and a large proportion of its
costs are incurred in US Dollars. It also conducts business in
Australian Dollars, Azerbaijan Manats and UK Sterling. The Group
does not currently hedge its exposure to other currencies although
it will review this periodically if the volume of non US Dollar
transactions increases significantly. Also, the fact that both
revenue of the Group and the Group's interest bearing debt are
settled in US Dollars is a key mitigating factor that helps to
avoid significant exposure to foreign currency risk. Information on
the carrying value of monetary assets and liabilities denominated
in foreign currency and the sensitivity analysis of foreign
currency is disclosed in note 25 to the financial statements.
Liquidity and interest rate risk
The Group has not used any interest rate swaps or other
instruments to manage its interest rate profile during 2014 but
will review this requirement on a periodic basis. Interest rates on
current loans are fixed except for three month LIBOR embedded in
interest on the ATB loan. Information on the exposure to changing
interest rates is disclosed in note X to the financial
statements.
The approval of the board of directors is required for all new
borrowing facilities. At the year end the Group's only interest
rate exposure was on cash held in the bank.
Market risk
Exposure to interest rate fluctuations is minimal as the Group
currently has no floating rate debt. Interest rates on UK Sterling
and US Dollar deposits have been at historic lows during the
current year. The levels of deposits held by the Group have also
been low therefore any impact of changing rates is minimal.
The Group is exposed to fluctuations in commodity prices and all
fluctuations have a direct impact on the operating profit of the
Group. The Group does not hedge this commodity price exposure and
actively monitors all changes in the commodity prices to understand
the impact on the business. The Group remains open to the
possibility of hedging to mitigate this commodity price risk and
the policy of hedging is reviewed periodically.
Operational risk
There is exposure to levels of production as a result of
unforeseen operational problems or machinery malfunction and
therefore operating costs and profits for commercial production may
remain subject to variation. The Group monitors production on a
daily basis and has robust procedures in place to effectively
manage these risks.
Reza Vaziri
President and chief executive
Group income statement
year ended 31 December 2014
2014 2013
Notes $000 $000
-------------------------------------------- ------ --------- ---------
Revenue 6 67,964 70,820
Cost of sales 8 (68,500) (57,480)
-------------------------------------------- ------ --------- ---------
Gross (loss) / profit (536) 13,340
Other income 6 632 519
Administrative expenses (7,202) (6,845)
Other operating expense 6 (1,803) (1,878)
-------------------------------------------- ------ --------- ---------
Operating (loss) / profit 8 (8,909) 5,136
Finance income 6 7 34
Finance costs 11 (5,462) (3,779)
-------------------------------------------- ------ --------- ---------
(Loss) / profit before tax (14,364) 1,391
Income tax 12 3,436 (1,055)
-------------------------------------------- ------ --------- ---------
(Loss) / profit attributable to the equity
holders of the parent (10,928) 336
-------------------------------------------- ------ --------- ---------
(Loss) / earnings per share attributable
to the equity holders of the parent
Basic (US cents per share) 13 (9.79) 0.30
Diluted (US cents per share) 13 (9.77) 0.30
-------------------------------------------- ------ --------- ---------
Group statement of comprehensive income
year ended 31 December 2014
2014 2013
$000 $000
---------------- --------- -------
Loss
/ (profit)
for the
year (10,928) 336
---------------- --------- -------
Total
comprehensive
(loss)
/ income (10,928) 336
---------------- --------- -------
Attributable
to the
equity
holders
of the
parent (10,928) 336
---------------- --------- -------
Group statement of financial position
31 December 2014
2014 2013
Notes $000 $000
--------------------------------------- ------ --------- ---------
Non-current assets
Intangible assets 14 20,045 21,157
Property, plant and equipment 15 114,431 115,634
Inventory 17 1,670 3,314
Other receivables 18 1,305 352
--------------------------------------- ------ --------- ---------
137,451 140,457
--------------------------------------- ------ --------- ---------
Current assets
Inventories 33,355 28,742
Trade and other receivables 18 5,350 7,901
Cash and cash equivalents 19 322 5,489
--------------------------------------- ------ --------- ---------
39,027 42,132
--------------------------------------- ------ --------- ---------
Total assets 176,478 182,589
--------------------------------------- ------ --------- ---------
Current liabilities
Trade and other payables 20 (12,216) (7,061)
Interest-bearing loans and borrowings 21 (16,964) (2,031)
--------------------------------------- ------ --------- ---------
(28,891) (9,092)
--------------------------------------- ------ --------- ---------
Net current assets 10,136 33,040
--------------------------------------- ------ --------- ---------
Non-current liabilities
Provision for rehabilitation 22 (8,624) (7,357)
Interest-bearing loans and borrowings 21 (36,083) (48,990)
Deferred tax liability 12 (16,675) (20,400)
--------------------------------------- ------ --------- ---------
(61,671) (76,747)
--------------------------------------- ------ --------- ---------
Total liabilities (90,562) (85,839)
--------------------------------------- ------ --------- ---------
Net assets 85,916 96,750
--------------------------------------- ------ --------- ---------
Equity
Share capital 24 1,978 1,973
Share premium account 32,246 32,173
Share-based payment reserve 670 735
Merger reserve 24 46,206 46,206
Retained earnings 4,816 15,663
--------------------------------------- ------ --------- ---------
Total equity 85,916 96,750
--------------------------------------- ------ --------- ---------
Group cash flow statement
year ended 31 December 2014
2014 2013
Notes $000 $000
------------------------------------------------ ------ ------------------ ------------------
(Loss) / profit before tax (14,364) 1,391
Adjustments for:
Finance income (7) (34)
Finance costs 11 5,462 3,779
Depreciation of property, plant and equipment 15 17,318 10,682
Amortisation of mining rights and other
intangible assets 14 1,720 1,688
Share-based payment expense 25 16 45
Shares issues in lieu of cash payment 50 -
Write down of unrecoverable inventory 17 372 383
------------------------------------------------ ------ ------------------ ------------------
Operating cash flow before movement in working
capital 10,567 17,934
Decrease in trade and other receivables 3,694 1,157
(Increase) / decrease in inventories (3,342) 3,988
Increase / (decrease) in trade and other
payables 3,902 (2,451)
------------------------------------------------ ------ ------------------ ------------------
Cash provided by operations 14,821 20,628
Income taxes paid - (800)
------------------------------------------------ ------ ------------------ ------------------
Net cash provided by operating activities 14,821 19,828
------------------------------------------------ ------ ------------------ ------------------
Investing activities
Expenditure on property, plant and equipment
and mine development (16,270) (31,494)
Investment in exploration and evaluation
assets including other intangible assets (608) (308)
Interest received 7 34
------------------------------------------------ ------ ------------------ ------------------
Net cash used in investing activities (16,871) (31,768)
------------------------------------------------ ------ ------------------ ------------------
Financing activities
Proceeds from issuance of shares 28 -
Proceeds from borrowings 21 8,662 60,951
Repayments of borrowings 21 (6,982) (40,746)
Interest paid (4,825) (5,187)
------------------------------------------------ ------ ------------------ ------------------
Net cash (outflow) / inflow from financing
activities (3,117) 15,018
------------------------------------------------ ------ ------------------ ------------------
Net (decrease)/increase in cash and cash
equivalents (5,167) 3,078
Cash and cash equivalents at the beginning
of the year 19 5,489 2,411
------------------------------------------------ ------ ------------------ ------------------
Cash and cash equivalents at the end
of the year 19 322 5,489
------------------------------------------------ ------ ------------------ ------------------
Group statement of changes in equity
year ended 31 December 2014
Share-based
Share Share payment Merger Retained Total
capital premium reserve reserve earnings equity
Notes $000 $000 $000 $000 $000 $000
------------------------- ------ --------- --------- ------------ --------- ----------- ---------
1 January 2013 1,973 32,173 732 46,206 15,285 96,369
Profit for the year - - - - 336 336
Share options exercised 25 - - (42) - 42 -
Share-based payment
charge 25 - - 45 - - 45
------------------------- ------ --------- --------- ------------ --------- ----------- ---------
31 December 2013 1,973 32,173 735 46,206 15,663 96,750
Loss for the year - - - - (10,928) (10,928)
Share options exercised 2 26 (28) - 28 28
Shares issued 24 3 47 - - - 50
Fair value of forfeited
options - - (53) - 53 -
Share-based payment
charge 25 - - 16 - - 16
------------------------- ------ --------- --------- ------------ --------- ----------- ---------
31 December 2014 1,978 32,246 670 46,206 4,816 85,916
------------------------- ------ --------- --------- ------------ --------- ----------- ---------
Notes
1. General information
Anglo Asian Mining PLC (the "Company") is a company incorporated
in England and Wales under the Companies Act 2006. The Company's
ordinary shares are traded on the Alternative Investment Market
("AIM") of the London Stock Exchange. The Company is a holding
company. The principal activities and place of business of the
Company and its subsidiaries (the "Group") are set out in note 5,
and the chairman's statement and strategic report above.
2. Basis of preparation
The financial information set out above, which was approved by
the board of directors on 27 May 2015, has been prepared in
accordance with International Financial Reporting Standards
("IFRS") adopted by the European Union.
The financial information set out above has been prepared using
accounting policies set out in note 4 which are consistent with all
applicable IFRSs and with those parts of the Companies Act 2006
applicable to companies reporting under IFRSs. For these purposes,
IFRSs comprises the standards issued by the International
Accounting Standards Board and interpretations issued by the
International Financial Reporting Interpretations Committee that
have been endorsed by the European Union.
The financial information set out above has been prepared under
the historical cost convention except for the treatment of share
based payments. The Group financial statements are presented in
United States Dollars ("$") and all values are rounded to the
nearest thousand except where otherwise stated. In the Group
financial statements "GBP" and "pence" are references to the United
Kingdom pound sterling.
The board of directors assessed the ability of the Group to
continue as a going concern and these financial statements have
been prepared on a going concern basis.
Going concern
The directors have prepared the Group financial statements on a
going concern basis after reviewing the Group's forecast cash
position for the period to 30 June 2016 and satisfying themselves
that the Group will have sufficient funds on hand to realise its
assets and meet its obligations as and when they fall due.
In making this assessment the directors have acknowledged the
challenging and uncertain market conditions the Group is operating
in. In 2014, the price of gold averaged $1,266 per ounce with a
high of $1,382 per ounce and a low of $1,144 per ounce. 2015 has
seen a continuation of the depressed gold price which has continued
the low margins experienced in 2014.
The Group has commenced making payments on the principal of its
debt in 2015. Until the date of this announcement, the Group has
made all payments of interest and principal on time. However, in
order to ensure that the Group can meet all principal repayments
for the remainder of 2015, it has negotiated with the International
Bank of Azerbaijan ("IBA") to defer some principal repayments due
in 2015. IBA will defer two thirds of the principal repayments due
in June and September which total $1,544,000 to 2016. The amount of
principal deferred totals $1,029,000. In addition, a principal
shareholder of the Group has committed to provide a loan facility
of $4 million at an interest rate of 10 per cent. per annum to the
Group for the period 20 May 2015 to 8 January 2016. At the date of
this announcement, $2 million of the facility had been
utilised.
The Group is forecasting to meet its debt service cover ratio
("DSCR") for the six months to 30 June 2015. For the full year to
31 December 2015 and subsequent years the Group can comfortably
meet the debt service cover ratio of 1.25 as specified in the loan
agreement with the Amsterdam Trade Bank.
Key to achieving the Group's forecast cash position, and
therefore its going concern assumption are the following:
-- achieving the forecast production of its gold production
operations, principally its heap and agitation leaching;
-- its gold price assumption; and
-- the small scale flotation plant being commissioned on time
and achieving its planned performance.
Should there be a moderate and sustained decrease in either the
production or gold price assumptions, significant doubt would be
cast over the Group's short term cash position. Under this
circumstance, the Group would look to defer all non--essential
capital expenditure and administrative costs in order to preserve
cash. The directors believe the Group's assumptions are neither
overly aggressive or overly conservative and appropriate rigour and
diligence has been performed by the directors in approving the
assumptions. The directors believe all assumptions are prepared on
a realistic basis using the best available information.
Should the Group's small scale flotation plant not be
commissioned on time or not achieve the forecast performance, the
Group may not achieve sufficient cash generation to make repayment
of all loan principal due in the first half of 2016. In these
circumstances, the Group would look to establish credit lines
either from commercial banks or its principal shareholder to cover
any shortfall.
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
can be found in the financial statements within the Chairman's
statement and the strategic report. The financial position of the
Group, its cash flow, liquidity position and borrowing facilities
are described in this financial review. In addition, note 23 to the
consolidated financial statements includes the Group's objectives,
details of its financial instrument exposures to credit risk and
liquidity risk.
After making due enquiry, the directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future.
Accordingly, the Group continues to adopt the going concern basis
in preparing the annual report and financial statements.
3 Adoption of new and revised standards
a) New and amended standards and interpretations
A number of new standards and amendments became effective from 1
January 2014.
-- IFRS 10 'Consolidated Financial Statements' and 'IAS 27 Separate Financial Statements'
The new standard provides additional guidance to assist in the
determination of which entities are controlled and are required to
be consolidated. This standard replaces the portion of IAS 27
'Consolidated and Separate Financial Statements' that addresses the
accounting for consolidated financial statements.
-- IFRS 11 'Joint Arrangements' and 'IAS 28 Investment in Associates and Joint Ventures'
The new standard replaces IAS 31 'Interests in Joint Ventures'
and SIC 13 'Jointly Controlled Entities - Non-monetary
Contributions by Venturers'.
-- IFRS 12 'Disclosure of Involvement With Other Entities'
The new standard covers the disclosures that were previously
required in consolidated financial statements under IAS 27
'Consolidated and Separate Financial Statements' as well as those
included in IAS 31 'Interests in Joint Ventures' and IAS 28
'Investments in Associates'.
-- Amendments to IAS 32 'Financial Instruments: Presentation'
Offsetting Financial Assets and Financial Liabilities.
-- Amendments to IAS 36 'Impairment of Assets'
Recoverable Amount Disclosures for Non-Financial Assets.
-- Amendments to IAS 39 'Financial Instruments: Recognition and Measurement'
Novation of derivatives and continuation of hedge
accounting.
-- IFRIC 21 Levies.
-- Improvements to IFRSs - 2010-2012 Cycle: Amendments to IFRS
13 'Short-term receivables and payables'.
-- Improvements to IFRSs - 2011-2013 Cycle: Amendments to IFRS 1 'Meaning of "effective IFRSs"'.
None of these standards and amendments impact the Group
financial statements.
b) Standards issued but not yet effective
The standards and interpretations that are issued, but not yet
effective, up to the date of issuance of the Group financial
statements are disclosed below. The Group intends to adopt these
standards, if applicable, when they become effective.
IFRS 9 'Financial Instruments'
In July 2014, the IASB issued the final version of IFRS 9
'Financial Instruments' which reflects all phases of the financial
instruments project and replaces IAS 39 'Financial Instruments:
Recognition and Measurement and all previous versions of IFRS 9.'
The standard introduces new requirements for classification and
measurement, impairment, and hedge accounting. IFRS 9 is effective
for annual periods beginning on or after 1 January 2018, with early
application permitted. Retrospective application is required, but
comparative information is not compulsory. Early application of
previous versions of IFRS 9 (2009, 2010 and 2013) is permitted if
the date of initial application is before 1 February 2015. The
adoption of IFRS 9 will have an effect on the classification and
measurement of the Group's financial assets, but no impact on the
classification and measurement of the Group's financial
liabilities.
IFRS 14 'Regulatory Deferral Accounts'
IFRS 14 is an optional standard that allows an entity, whose
activities are subject to rate-regulation, to continue applying
most of its existing accounting policies for regulatory deferral
account balances upon its first-time adoption of IFRS. Entities
that adopt IFRS 14 must present the regulatory deferral accounts as
separate line items on the statement of financial position and
present movements in these account balances as separate line items
in the statement of profit or loss and other comprehensive income.
The standard requires disclosures on the nature of, and risks
associated with, the entity's rate-regulation and the effects of
that rate-regulation on its financial statements. IFRS 14 is
effective for annual periods beginning on or after 1 January 2016.
Since the Group is an existing IFRS preparer, this standard would
not apply.
Amendments to IAS 19 'Defined Benefit Plans: Employee
Contributions'
IAS 19 requires an entity to consider contributions from
employees or third parties when accounting for defined benefit
plans. Where the contributions are linked to service, they should
be attributed to periods of service as a negative benefit. These
amendments clarify that, if the amount of the contributions is
independent of the number of years of service, an entity is
permitted to recognise such contributions as a reduction in the
service cost in the period in which the service is rendered,
instead of allocating the contributions to the periods of service.
This amendment is effective for annual periods beginning on or
after 1 July 2014. It is not expected that this amendment would be
relevant to the Group, since none of the entities within the Group
have defined benefit plans with contributions from employees or
third parties.
Annual improvements 2010-2012 Cycle
These improvements are effective from 1 July 2014 and are not
expected to have a material impact on the Group. They include:
IFRS 2 'Share-based Payment'
This improvement is applied prospectively and clarifies various
issues relating to the definitions of performance and service
conditions which are vesting conditions, including:
-- a performance condition must contain a service condition;
-- a performance target must be met while the counterparty is rendering service;
-- a performance target may relate to the operations or
activities of an entity, or to those of another entity in the same
group;
-- a performance condition may be a market or non-market condition; and
-- if the counterparty, regardless of the reason, ceases to
provide service during the vesting period, the service condition is
not satisfied.
IFRS 3 'Business Combinations'
The amendment is applied prospectively and clarifies that all
contingent consideration arrangements classified as liabilities (or
assets) arising from a business combination should be subsequently
measured at fair value through profit or loss whether or not they
fall within the scope of IFRS 9 (or IAS 39, as applicable).
IFRS 8 'Operating Segments'
The amendments are applied retrospectively and clarify that:
-- an entity must disclose the judgements made by management in
applying the aggregation criteria in paragraph 12 of IFRS 8,
including a brief description of operating segments that have been
aggregated and the economic characteristics (e.g. sales and gross
margins) used to assess whether the segments are 'similar';
-- the reconciliation of segment assets to total assets is only
required to be disclosed if the reconciliation is reported to the
chief operating decision maker, similar to the required disclosure
for segment liabilities.
IAS 16 'Property, Plant and Equipment and IAS 38 Intangible
Assets'
The amendment is applied retrospectively and clarifies in IAS 16
and IAS 38 that the asset may be revalued by reference to
observable data on either the gross or the net carrying amount. In
addition, the accumulated depreciation or amortisation is the
difference between the gross and carrying amounts of the asset.
IAS 24 'Related Party Disclosures'
The amendment is applied retrospectively and clarifies that a
management entity (an entity that provides key management personnel
services) is a related party subject to the related party
disclosures. In addition, an entity that uses a management entity
is required to disclose the expenses incurred for management
services.
Annual improvements 2011-2013 Cycle
These improvements were effective from 1 July 2014 and are not
expected to have a material impact on the Group. They include:
IFRS 3 'Business Combinations'
The amendment is applied prospectively and clarifies for the
scope exceptions within IFRS 3 that:
-- Joint arrangements, not just joint ventures, are outside the scope of IFRS 3; and
-- this scope exception applies only to the accounting in the
financial statements of the joint arrangement itself.
IFRS 13 'Fair Value Measurement'
The amendment is applied prospectively and clarifies that the
portfolio exception in IFRS 13 can be applied not only to financial
assets and financial liabilities, but also to other contracts
within the scope of IFRS 9 (or IAS 39, as applicable).
IAS 40 'Investment Property'
The description of ancillary services in IAS 40 differentiates
between investment property and owner-occupied property (i.e.
property, plant and equipment). The amendment is applied
prospectively and clarifies that IFRS 3, and not the description of
ancillary services in IAS 40, is used to determine if the
transaction is the purchase of an asset or business
combination.
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 was issued in May 2014 and establishes a new five-step
model that will apply to revenue arising from contracts with
customers. Under IFRS 15 revenue is recognised at an amount that
reflects the consideration to which an entity expects to be
entitled in exchange for transferring goods or services to a
customer. The principles in IFRS 15 provide a more structured
approach to measuring and recognising revenue.
The new revenue standard is applicable to all entities and will
supersede all current revenue recognition requirements under IFRS.
Either a full or modified retrospective application is required for
annual periods beginning on or after 1 January 2017 with early
adoption permitted. The Group is currently assessing the impact of
IFRS 15 and plans to adopt the new standard on the required
effective date.
Amendments to IFRS 11 'Joint Arrangements: Accounting for
Acquisitions of Interests'
The amendments to IFRS 11 require that a joint operator
accounting for the acquisition of an interest in a joint operation,
in which the activity of the joint operation constitutes a business
must apply the relevant IFRS 3 principles for business combinations
accounting. The amendments also clarify that a previously held
interest in a joint operation is not remeasured on the acquisition
of an additional interest in the same joint operation while joint
control is retained. In addition, a scope exclusion has been added
to IFRS 11 to specify that the amendments do not apply when the
parties sharing joint control, including the reporting entity, are
under common control of the same ultimate controlling party.
The amendments apply to both the acquisition of the initial
interest in a joint operation and the acquisition of any additional
interests in the same joint operation and are prospectively
effective for annual periods beginning on or after 1 January 2016,
with early adoption permitted. These amendments are not expected to
have any impact on the Group.
Amendments to IAS 16 and IAS 38 'Clarification of Acceptable
Methods of Depreciation and Amortisation'
The amendments clarify the principle in IAS 16 and IAS 38 that
revenue reflects a pattern of economic benefits that are generated
from operating a business (of which the asset is part) rather than
the economic benefits that are consumed through use of the asset.
As a result, a revenue-based method cannot be used to depreciate
property, plant and equipment and may only be used in very limited
circumstances to amortise intangible assets. The amendments are
effective prospectively for annual periods beginning on or after 1
January 2016, with early adoption permitted. These amendments are
not expected to have any impact to the Group given that the Group
has not used a revenue-based method to depreciate its non-current
assets.
Amendments to IAS 16 and IAS 41 'Agricultural: Bearer
Plants"
The amendments change the accounting requirements for biological
assets that meet the definition of bearer plants. Under the
amendments, biological assets that meet the definition of bearer
plants will no longer be within the scope of IAS 41. Instead, IAS
16 will apply. After initial recognition, bearer plants will be
measured under IAS 16 at accumulated cost (before maturity) and
using either the cost model or revaluation model (after maturity).
The amendments also require that produce that grows on bearer
plants will remain in the scope of IAS 41 measured at fair value
less costs to sell. For government grants related to bearer plants,
IAS 20 'Accounting for Government Grants and Disclosure of
Government Assistance' will apply. The amendments are
retrospectively effective for annual periods beginning on or after
1 January 2016, with early adoption permitted. These amendments are
not expected to have any impact to the Group as the Group does not
have any bearer plants.
Amendments to IAS 27 'Equity Method in Separate Financial
Statements'
The amendments will allow entities to use the equity method to
account for investments in subsidiaries, joint ventures and
associates in their separate financial statements. Entities already
applying IFRS and electing to change to the equity method in their
separate financial statements will have to apply that change
retrospectively. For first-time adopters of IFRS electing to use
the equity method in their separate financial statements, they will
be required to apply this method from the date of transition to
IFRS. The amendments are effective for annual periods beginning on
or after 1 January 2016, with early adoption permitted. These
amendments will not have any impact on the Group's consolidated
financial statements.
4 Significant accounting policies
a) Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Group and its subsidiaries as at 31 December
2014. Control is achieved when the Group is exposed, or has rights,
to variable returns from its involvement with the investee and has
the ability to affect those returns through its power over the
investee. Specifically, the Group controls an investee if, and only
if, the Group has:
-- power over the investee (i.e. existing rights that give it
the current ability to direct the relevant activities of the
investee);
-- exposure, or rights, to variable returns from its involvement with the investee; and
-- the ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting
rights result in control. To support this presumption and when the
Group has less than a majority of the voting or similar rights of
an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee,
including:
-- the contractual arrangement with the other vote holders of the investee;
-- rights arising from other contractual arrangements; and
-- the Group's voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a
subsidiary beings when the Group obtains control over the
subsidiary and ceases when the Group loses control of the
subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in
the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the
subsidiary.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
The financial statements of the subsidiaries are prepared for
the same reporting period as the parent company, using consistent
accounting policies.
b) Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be
reliably measured.
Revenue from the sale of goods is recognised when the
significant risks and rewards of ownership have been transferred,
which is considered to occur when title passes to the customer.
This generally occurs when product is physically transferred to the
buyer.
The following criteria are also met in specific revenue
transactions:
Gold bullion and copper concentrate sales
Revenue from gold bullion sales is recognised when the
significant risks and rewards of ownership have transferred to the
buyer and selling prices and assay results are known or can be
reasonably estimated. Assay results determine the content of gold
and silver in doré, the price of which is determined based on
market quotations of each metal. Silver in doré which is produced
together with gold, is treated as a by-product and recognised in
sales revenue.
Contractual terms for the Group's sale of gold, silver and
copper in concentrate (metal in concentrate) allow for a price
adjustment based on final assay results of the metal in concentrate
to determine the final content. Recognition of sales revenue for
these commodities is based on the most recently determined estimate
of metal in concentrate (based on initial assay results) and the
spot price at the date of shipment, with a subsequent adjustment
made upon final determination.
Contractual terms with third parties for the sale of metal in
concentrate specify a provisional selling price based on the
average prevailing spot prices at date of shipment to the customer.
Final selling price is based on average prevailing spot prices
during a specified future period after shipment to the customer
(the "quotation period"). Sales revenue for the sale of metal in
concentrate is recognised at final selling price.
Interest revenue
Interest revenue is recognised as it accrues, using the
effective interest rate method.
c) Leases
The determination of whether an arrangement is, or contains, a
lease is based on the substance of the arrangement at inception
date and whether fulfilment of the arrangement is dependent on the
use of a specific asset or assets or the arrangement conveys a
right to use the asset.
Operating lease payments are recognised as an expense in the
Group income statement on a straight line basis over the lease
term.
The Group had no finance leases during 2014 and 2013.
d) Taxation
i)Current and deferred income taxes
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the Group financial statements and the corresponding tax bases
used in the computation of taxable profit and is accounted for
using the balance sheet liability method. Deferred tax liabilities
are generally recognised for all taxable temporary differences and
deferred tax assets are recognised for all deductible temporary
differences, carry forward of unused tax assets and unused tax
losses. Deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences and the carry forward of unused
tax credits and unused tax losses can be utilised.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised, based on tax rates (and tax laws) that have been enacted
or substantively enacted at the reporting date. Deferred tax is
charged or credited in the Group income statement, except when it
relates to items charged or credited directly to equity, in which
case the deferred tax is also dealt with in equity.
Deferred tax assets are not recognised in respect of temporary
differences relating to tax losses where there is insufficient
evidence that the asset will be recovered. Unrecognised deferred
tax assets are reassessed at each reporting date and are recognised
to the extent that it has become probable that future taxable
profits will allow the deferred tax asset to be recovered.
The tax expense represents the sum of the tax currently payable
and deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
Group income statement because it excludes items of income or
expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted at the reporting
date.
ii) Value-added taxes ("VAT")
The Group pays VAT on purchases made in both the Republic of
Azerbaijan and the United Kingdom. Under both jurisdictions, VAT
paid is refundable. Azerbaijani jurisdiction permits offset of an
Azerbaijani VAT credit against other taxes payable to the state
budget.
e) Transactions with related parties
For the purposes of these Group financial statements, parties
are considered to be related if one party has the ability to
control the other party or exercise significant influence over the
other party in making financial or operational decisions. In
considering each possible related party relationship, attention is
directed to the substance of the relationship, not merely the legal
form.
Related parties may enter into transactions which unrelated
parties might not and transactions between related parties may not
be effected on the same terms, conditions and amounts as
transactions between unrelated parties.
It is the nature of transactions with related parties that they
cannot be presumed to be carried out on an arm's length basis.
f) Borrowing costs
Borrowing costs directly relating to the acquisition,
construction or production of a qualifying capital project under
construction are capitalised and added to the project cost during
construction until such time the assets are considered
substantially ready for their intended use i.e. when they are
capable of commercial production. Where funds are borrowed
specifically to finance a project, the amount capitalised
represents the actual borrowing costs incurred. Where surplus funds
are available for a short term out of money borrowed specifically
to finance a project, the income generated from the temporary
investment of such amounts is also capitalised and deducted from
the total capitalised borrowing cost. Where the funds used to
finance a project form part of general borrowings, the amount
capitalised is calculated using a weighted average of rates
applicable to relevant general borrowings of the Group during the
period. All other borrowing costs are recognised in the Group
income statement in the period in which they are incurred.
Even though exploration and evaluation assets can be qualifying
assets, they generally do not meet the 'probable economic benefits'
test. Any related borrowing costs are therefore generally
recognised in the Group income statement in the period they are
incurred.
g) Intangible assets
i)Exploration and evaluation assets
The costs of exploration properties and leases, which include
the cost of acquiring prospective properties and exploration rights
and costs incurred in exploration and evaluation activities, are
capitalised as intangible assets as part of exploration and
evaluation assets.
Exploration and evaluation assets are carried forward during the
exploration and evaluation stage and are assessed for impairment in
accordance with the indicators of impairment as set out in IFRS 6
'Exploration for and Evaluation of Mineral Resources'.
In circumstances where a property is abandoned, the cumulative
capitalised costs relating to the property are written off in the
period. No amortisation is charged prior to the commencement of
production.
Once commercially viable reserves are established and
development is sanctioned, exploration and evaluation assets are
tested for impairment and transferred to assets under
construction.
Upon transfer of Exploration and evaluation costs into Assets
under construction, all subsequent expenditure on the construction,
installation or completion of infrastructure facilities is
capitalised within Assets under construction.
When commercial production commences, exploration, evaluation
and development costs previously capitalised are amortised over the
commercial reserves of the mining property on a units-of-production
basis.
Exploration and evaluation costs incurred after commercial
production start date in relation to evaluation of potential
mineral reserves and resources that is expected to result in
increase of reserves are capitalised as Evaluation and exploration
assets within intangible assets. Once there is evidence that
reserves are increased, such costs are tested for impairment and
transferred to Producing mines.
ii) Mining rights
Mining rights are carried at cost to the Group less any
provisions for impairments which result from evaluations and
assessments of potential mineral recoveries and accumulated
depletion. Mining rights are depleted on the units-of-production
basis over the total reserves of the relevant area.
iii) Other intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. The cost of intangible assets acquired in a
business combination is its fair value as at the date of
acquisition. Following initial recognition, intangible assets are
carried at cost less any accumulated amortisation and any
accumulated impairment losses. Internally generated intangible
assets, excluding capitalised development costs, are not
capitalised and expenditure is reflected in the Group income
statement in the year in which the expenditure is incurred. The
useful lives of intangible assets are assessed as either finite or
indefinite.
Intangible assets with finite lives are amortised over the
useful economic life and assessed for impairment whenever there is
an indication that the intangible asset may be impaired. The
amortisation period and the amortisation method for an intangible
asset with a finite useful life is reviewed at least at each
reporting date. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the
asset are accounted for by changing the amortisation period or
method, as appropriate, and are treated as changes in accounting
estimates. The amortisation expense on intangible assets with
finite lives is recognised in the Group income statement in the
expense category consistent with the function of the intangible
asset.
Gains or losses arising from derecognition of an intangible
asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognised in
the Group income statement when the asset is derecognised.
h) Property, plant and equipment and mine properties
Development expenditure is net of proceeds from all but the
incidental sale of ore extracted during the development phase.
Upon completion of mine construction, the assets initially
charged to assets in the course of construction are transferred
into 'Plant and equipment, motor vehicles and leasehold
improvements' or 'Producing mines'. Items of 'Plant and equipment,
motor vehicles and leasehold improvements' and 'Producing mines'
are stated at cost, less accumulated depreciation and accumulated
impairment losses.
During the production period expenditures directly attributable
to the construction of each individual asset are capitalised as
'Assets' in the course of construction up to the period when asset
is ready to be put into operation. When an asset is put into
operation it is transferred to 'Plant and equipment, motor vehicles
and leasehold improvements' or 'Producing mines'. Additional
capitalised costs performed subsequent to the date of commencement
of operation of the asset are charged directly to 'Plant and
equipment, motor vehicles and leasehold improvements' or 'Producing
mines', i.e. where the asset itself was transferred.
The initial cost of an asset comprises its purchase price or
construction cost, any costs directly attributable to bringing the
asset into operation, the initial estimate of the rehabilitation
obligation and, for qualifying assets, borrowing costs. The
purchase price or construction cost is the aggregate amount paid
and the fair value of any other consideration given to acquire the
asset.
When a mine construction project moves into the production
stage, the capitalisation of certain mine construction costs ceases
and costs are either regarded as inventory or expensed, except for
costs which qualify for capitalisation relating to mining asset
additions or improvements, underground mine development or mineable
reserve development.
i) Depreciation and amortisation
Accumulated mine development costs within producing mines are
depreciated and amortised on a units-of-production basis over the
economically recoverable reserves of the mine concerned, except in
the case of assets whose useful life is shorter than the life of
the mine, in which case the straight line method is applied. The
unit of account for run of mine ("ROM") costs and for post-ROM
costs is recoverable ounces of gold. The units-of-production rate
for the depreciation and amortisation of mine development costs
takes into account expenditures incurred to date.
The premium paid in excess of the intrinsic value of land to
gain access is amortised over the life of the mine.
Other plant and equipment such as mobile mine equipment is
generally depreciated on a straight line basis over their estimated
useful lives as follows:
-- Temporary buildings - eight years (2013: eight years)
-- Plant and equipment - eight years (2013: eight years)
-- Motor vehicles - four years (2013: four years)
-- Office equipment - four years (2013: four years)
-- Leasehold improvements - eight years (2013: eight years)
An item of property, plant and equipment, and any significant
part initially recognised, is derecognised upon disposal or when no
future economic benefits are expected from its use or disposal. Any
gain or loss arising on derecognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the Group income statement when
the asset is derecognised.
The asset's residual values, useful lives and methods of
depreciation and amortisation are reviewed at each reporting date
and adjusted prospectively if appropriate.
ii) Major maintenance and repairs
Expenditure on major maintenance refits or repairs comprises the
cost of replacement assets or parts of assets and overhaul costs.
Where an asset or part of an asset that was separately depreciated
and is now written off is replaced, and it is probable that future
economic benefits associated with the item will flow to the Group
through an extended life, the expenditure is capitalised.
Where part of the asset was not separately considered as a
component, the replacement value is used to estimate the carrying
amount of the replaced assets which is immediately written off. All
other day-to-day maintenance costs are expensed as incurred.
i) Impairment of tangible and intangible assets
The Group conducts annual internal assessments of the carrying
values of tangible and intangible assets. The carrying values of
capitalised exploration and evaluation expenditure, mine properties
and property, plant and equipment are assessed for impairment when
indicators of such impairment exist or at least annually. In such
cases an estimate of the asset's recoverable amount is calculated.
The recoverable amount is determined as the higher of the fair
value less costs to sell for the asset and the asset's value in
use. This is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of
those from other assets or groups of assets. If this is the case,
the individual assets are grouped together into cash-generating
units ("CGUs") for impairment purposes. Such CGUs represent the
lowest level for which there are separately identifiable cash
inflows that are largely independent of the cash flows from other
assets or other groups of assets. This generally results in the
Group evaluating its non--financial assets on a geographical or
licence basis.
If the carrying amount of the asset exceeds its recoverable
amount, the asset is impaired and an impairment loss is charged to
the Group income statement so as to reduce the carrying amount to
its recoverable amount (i.e. the higher of fair value less cost to
sell and value in use).
Impairment losses related to continuing operations are
recognised in the Group income statement in those expense
categories consistent with the function of the impaired asset.
For assets excluding the intangibles referred to above, an
assessment is made at each reporting date as to whether there is
any indication that previously recognised impairment losses may no
longer exist or may have decreased. If such indication exists, the
Group makes an estimate of the recoverable amount.
A previously recognised impairment loss is reversed only if
there has been a change in the estimates used to determine the
asset's recoverable amount since the last impairment loss was
recognised. If this is the case, the carrying amount of the asset
is increased to its recoverable amount. The increased amount cannot
exceed the carrying amount that would have been determined, net of
depreciation or amortisation, had no impairment loss been
recognised for the asset in prior years. Such reversal is
recognised in the consolidated statement of other comprehensive
income. Impairment losses recognised in relation to indefinite life
intangibles are not reversed for subsequent increases in its
recoverable amount.
j) Fair value measurement
The Group measures financial instruments such as bank borrowings
at fair value at each balance sheet date. Fair value disclosures
for financial instruments measured at fair value or where fair
value is disclosed, are summarised in the following notes:
-- Note 18 - 'Trade and other receivables'
-- Note 19 - 'Cash and cash equivalents'
-- Note 20 - 'Trade and other payables'
-- Note 21 - 'Interest bearing loans and borrowings'
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either:
-- in the principal market place for the asset or the liability; or
-- in the absence of a principal market, the most advantageous market for the asset or liability.
The fair value of an asset or liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data is available to measure
fair value, maximising the use of relevant observable inputs and
minimising the unobservable inputs.
All assets and liabilities for which fair value is measured or
disclosed in the financial statements are categorised within the
fair value hierarchy, described as follows, based on the lowest
level input that is significant to the fair value measurement as a
whole.
-- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities.
-- Level 2 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable.
-- Level 3 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
For assets and liabilities that are recognised in the financial
statements on a re-occurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that
is significant to the fair value measurement as a whole) at the end
of each reporting period.
For the purpose of fair value disclosures, the Group has
determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and the
level of the fair value hierarchy as set out above.
k) Provisions
i) General
Provisions are recognised when (a) the Group has a present
obligation (legal or constructive) as a result of a past event and
(b) it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. If the effect
of the time value of money is material, provisions are discounted
using a current pre-tax rate that reflects, where appropriate, the
risks specific to the liability. Where discounting is used, the
increase in the provision due to the passage of time is recognised
as a finance cost.
ii) Rehabilitation provision
The Group records the present value of estimated costs of legal
and constructive obligations required to restore operating
locations in the period in which the obligation is incurred. The
nature of these restoration activities includes dismantling and
removing structures, rehabilitating mines and tailings dams,
dismantling operating facilities, closure of plant and waste sites
and restoration, reclamation and revegetation of affected
areas.
The obligation generally arises when the asset is installed or
the ground or environment is disturbed at the production location.
When the liability is initially recognised, the present value of
the estimated cost is capitalised by increasing the carrying amount
of the related mining assets to the extent that it was incurred
prior to the production of related ore. Over time, the discounted
liability is increased for the change in present value based on the
discount rates that reflect current market assessments and the
risks specific to the liability.
The periodic unwinding of the discount is recognised in the
Group income statement as a finance cost. Additional disturbances
or changes in rehabilitation costs will be recognised as additions
or charges to the corresponding assets and rehabilitation liability
when they occur. Any reduction in the rehabilitation liability and
therefore any deduction from the rehabilitation asset may not
exceed the carrying amount of that asset. If it does, any excess
over the carrying value is taken immediately to the Group income
statement.
If the change in estimate results in an increase in the
rehabilitation liability and therefore an addition to the carrying
value of the asset, the Group is required to consider whether this
is an indication of impairment of the asset as a whole and test for
impairment in accordance with IAS 36. If, for mature mines, the
revised mine assets net of rehabilitation provisions exceeds the
recoverable value, that portion of the increase is charged directly
to expense.
For closed sites, changes to estimated costs are recognised
immediately in the Group income statement. Also, rehabilitation
obligations that arose as a result of the production phase of a
mine should be expensed as incurred.
l) Financial assets
i) Initial recognition and measurement
Financial assets within the scope of IAS 39 are classified as
financial assets at fair value through profit or loss, loans and
receivables, held-to-maturity investments, available-for-sale
financial assets, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate. The Group
determines the classification of its financial assets at initial
recognition. All financial assets are recognised initially at fair
value.
Purchases or sales of financial assets that require delivery of
assets within a time frame established by regulation or convention
in the marketplace (regular way trades) are recognised on the trade
date, i.e. the date that the Group commits to purchase or sell the
asset.
The Group's financial assets include cash and short-term
deposits as well as trade and other receivables.
ii) Subsequent measurement
The subsequent measurement of financial assets depends on their
classification:
Trade and other receivables
Trade and other receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in an
active market. After initial measurement, such financial assets are
subsequently measured at amortised cost using the effective
interest rate method, less impairment. Amortised cost is calculated
by taking into account any discount or premium on acquisition and
fees or costs that are an integral part of the effective interest
rate method. The effective interest rate method amortisation is
included in finance income in the consolidated statement of profit
or loss. The losses arising from impairment are recognised in the
consolidated statement of profit or loss.
Derecognition
A financial asset (or, where applicable a part of a financial
asset) is derecognised when:
-- the rights to receive cash flows from the asset have expired; and
-- the Group has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third-party under a
'pass-through' arrangement; and either (a) the Group has
transferred substantially all the risks and rewards of the asset,
or (b) the Group has neither transferred nor retained substantially
all the risks and rewards of the asset, but has transferred control
of the asset.
Impairment of financial assets
The Group assesses at each reporting date whether there is any
objective evidence that a financial asset or a group of financial
assets is impaired. A financial asset or a group of financial
assets is deemed to be impaired if, and only if, there is objective
evidence of impairment as a result of one or more events that have
occurred after the initial recognition of the asset (an incurred
'loss event') and that loss event has an impact on the estimated
future cash flows of the financial asset or the group of financial
assets that can be reliably estimated. Evidence of impairment may
include indications that the debtors or a group of debtors is
experiencing significant financial difficulty, default or
delinquency in interest or principal payments, the probability that
they will enter bankruptcy or other financial re-organisation and
where observable data indicates that there is a measurable decrease
in the estimated future cash flows, such as changes in arrears or
economic conditions that correlate with defaults.
Financial assets carried at amortised cost
For financial assets carried at amortised cost, the Group first
assesses individually whether objective evidence of impairment
exists individually for financial assets that are individually
significant, or collectively for financial assets that are not
individually significant. If the Group determines that no objective
evidence of impairment exists for an individually assessed
financial asset, whether significant or not, it includes the asset
in a group of financial assets with similar credit risk
characteristics and collectively assesses them for impairment.
Assets that are individually assessed for impairment and for which
an impairment loss is, or continues to be, recognised are not
included in a collective assessment of impairment.
If there is objective evidence that an impairment loss has
incurred, the amount of the loss is measured as the difference
between the asset's carrying amount and the present value of
estimated future cash flows (excluding future expected credit
losses that have not yet been incurred). The present value of the
estimated future cash flows is discounted at the financial asset's
original effective interest rate.
m) Financial liabilities
i) Initial recognition and measurement
Financial liabilities within the scope of IAS 39 are classified
as financial liabilities at fair value through profit or loss,
loans and borrowings, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate. The Group
determines the classification of its financial liabilities at
initial recognition. All financial liabilities are recognised
initially at fair value and in the case of loans and borrowings,
plus directly attributable transaction costs. The Group's financial
liabilities include trade and other payables, contractual
provisions and loans and borrowings.
ii) Subsequent measurement
The measurement of financial liabilities depends on their
classification as follows:
Trade and other payables and contractual provisions
Trade and other payables are initially measured at fair value
and are subsequently measured at amortised cost using the effective
interest rate method.
Loans and borrowings
Interest-bearing loans and overdrafts are recorded at the
proceeds received, net of direct transaction costs. Finance
charges, including premiums payable on settlement or redemption and
direct issue costs, are accounted for on an accrual basis and
charged to the Group income statement using the effective interest
method. They are added to the carrying amount of the instrument to
the extent that they are not settled in the period in which they
arise.
After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortised cost using the effective
interest rate method. Gains and losses are recognised in the Group
income statement when the liabilities are derecognised as well as
through the effective interest rate method amortisation
process.
Amortised cost is calculated by taking into account any discount
or premium on acquisition and fee or costs that are an integral
part of the effective interest rate method. The effective interest
rate method amortisation is included in finance costs in the Group
income statement.
v) Derecognition
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original
liability and the recognition of a new liability and the difference
in the respective carrying amounts is recognised in the Group
income statement.
n) Non-current prepayments
Advances made to suppliers for fixed asset purchases are
recognised as non-current prepayments until the time when fixed
assets are supplied.
o) Inventories
Metal in circuit consists of in-circuit material at properties
with milling or processing operations and doré awaiting refinement,
all valued at the lower of average cost and net realisable value.
In-process inventory costs consist of direct production costs
(including mining, crushing and processing and site administration
costs) and allocated indirect costs (including depreciation,
depletion and amortisation of producing mines and mining
interests).
Ore stockpiles consist of stockpiled ore, ore on surface and
crushed ore, all valued at the lower of average cost and net
realisable value. Ore stockpile costs consist of direct production
costs (including mining, crushing and site administration costs)
and allocated indirect costs (including depreciation, depletion and
amortisation of producing mines and mining interests).
Inventory costs are charged to operations on the basis of ounces
of gold sold. The Group regularly evaluates and refines estimates
used in determining the costs charged to operations and costs
absorbed into inventory carrying values based upon actual gold
recoveries and operating plans.
Finished goods consist of doré bars that have been refined and
assayed and are in a form that allows them to be sold on
international bullion markets and metal in concentrate. Finished
goods are valued at the lower of average cost and net realisable
value. Finished goods costs consist of direct production costs
(including mining, crushing and processing; site administration
costs; and allocated indirect costs, including depreciation,
depletion and amortisation of producing mines and mining
interests).
Spare parts and consumables consist of consumables used in
operations, such as fuel, chemicals, reagents and spare parts,
valued at the lower of average cost and replacement cost and, where
appropriate, less a provision for obsolescence.
p) Equity instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs, or value of services
received net of any issue costs.
q) Deferred stripping costs
The removal of overburden and other mine waste materials is
often necessary during the initial development of a mine site, in
order to access the mineral ore deposit. The directly attributable
cost of this activity is capitalised in full within mining
properties and leases, until the point at which the mine is
considered to be capable of commercial production. This is
classified as expansionary capital expenditure, within investing
cash flows.
The removal of waste material after the point at which a mine is
capable of commercial production is referred to as production
stripping.
When the waste removal activity improves access to ore extracted
in the current period, the costs of production stripping are
charged to the Group income statement as operating costs in
accordance with the principles of IAS 2 'Inventories'.
Where production stripping activity both produces inventory and
improves access to ore in future periods the associated costs of
waste removal are allocated between the two elements. The portion
which benefits future ore extraction is capitalised within
stripping and development capital expenditure. If the amount to be
capitalised cannot be specifically identified it is determined
based on the volume of waste extracted compared with expected
volume for the identified component of the orebody. Components are
specific volumes of a mine's orebody that are determined by
reference to the life of mine plan.
In certain instances significant levels of waste removal may
occur during the production phase with little or no associated
production.
All amounts capitalised in respect of waste removal are
depreciated using the unit of production method based on the ore
reserves of the component of the orebody to which they relate.
The effects of changes to the life of mine plan on the expected
cost of waste removal or remaining reserves for a component are
accounted for prospectively as a change in estimate.
r) Employee leave benefits
Liabilities for wages and salaries, including non-monetary
benefits and accrued but unused annual leave, are recognised in
respect of employees' services up to the reporting date. They are
measured at the amounts expected to be paid when the liabilities
are settled.
s) Retirement benefit costs
The Group does not operate a pension scheme for the benefit of
its employees but instead makes contributions to their personal
pension policies. The contributions due for the period are charged
to the Group income statement.
t) Share-based payments
The Group has applied the requirements of IFRS 2 'Share-based
Payment'. IFRS 2 has been applied to all grants of equity
instruments.
The Group issues equity-settled share-based payments to certain
employees. Equity-settled share-based payments are measured at fair
value (excluding the effect of non market-based vesting conditions)
at the date of grant. The fair value determined at the grant date
of the equity-settled share-based payments is expensed on a
straight line basis over the vesting period, based on the Group's
estimate of shares that will eventually vest and adjusted for the
effect of non market-based vesting conditions.
Fair value is measured by use of the Black-Scholes model. The
expected life used in the model has been applied based on
management's best-estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations. The vesting
conditions assumptions are reviewed during each reporting period to
ensure they reflect current expectations.
u) Significant accounting judgements, estimates and
assumptions
The preparation of the Group financial statements in conformity
with IFRS requires management to make judgements, estimates and
assumptions that affect the reported amounts of assets, liabilities
and contingent liabilities at the date of the Group financial
statements and reported amounts of revenues and expenses during the
reporting period. Estimates and assumptions are continuously
evaluated and are based on management's experience and other
factors, including expectations of future events that are believed
to be reasonable under the circumstances. However, actual outcomes
can differ from these estimates. In particular, information about
significant areas of estimation uncertainty considered by
management in preparing the Group financial statements is described
below.
i) Ore reserves and resources
Ore reserves are estimates of the amount of ore that can be
economically and legally extracted from the Group's mining
properties. The Group estimates its ore reserves and mineral
resources, based on information compiled by appropriately qualified
persons relating to the geological data on the size, depth and
shape of the ore body and requires complex geological judgements to
interpret the data. The estimation of recoverable reserves is based
upon factors such as estimates of foreign exchange rates, commodity
prices, future capital requirements and production costs along with
geological assumptions and judgements made in estimating the size
and grade of the ore body. Changes in the reserve or resource
estimates may impact upon the carrying value of exploration and
evaluation assets, mine properties, property, plant and equipment,
provision for rehabilitation and depreciation and amortisation
charges.
ii) Exploration and evaluation expenditure (note 14)
The application of the Group's accounting policy for exploration
and evaluation expenditure requires judgement in determining
whether it is likely that future economic benefits are likely
either from future exploitation or sale or where activities have
not reached a stage which permits a reasonable assessment of the
existence of reserves. The determination of a Joint Ore Reserves
Committee ('JORC') resource is itself an estimation process that
requires varying degrees of uncertainty depending on
sub--classification and these estimates directly impact the point
of deferral of exploration and evaluation expenditure. The deferral
policy requires management to make certain estimates and
assumptions about future events or circumstances, in particular
whether an economically viable extraction operation can be
established. Estimates and assumptions made may change if new
information becomes available. If, after expenditure is
capitalised, information becomes available suggesting that the
recovery of expenditure is unlikely, the amount capitalised is
written off in the consolidated statement of profit or loss in the
period when the new information becomes available.
iii) Inventory (note 17)
Net realisable value tests are performed at least annually and
represent the estimated future sales price of the product based on
prevailing spot metals prices at the reporting date, less estimated
costs to complete production and bring the product to sale.
Stockpiles are measured by estimating the number of tonnes added
and removed from the stockpile, the number of contained gold ounces
based on assay data and the estimated recovery percentage based on
the expected processing method. Stockpile tonnages are verified by
periodic surveys.
The ounces of gold sold are compared to the remaining reserves
of gold for the purpose of charging inventory costs to
operations.
iv) Impairment of tangible and intangible assets (notes 14 and
15)
The assessment of tangible and intangible assets for any
internal and external indications of impairment involves judgement.
Each reporting period, the Group assesses whether there are
indicators of impairment, if indicated then a formal estimate of
the recoverable amount is performed and an impairment loss
recognised to the extent that the carrying amount exceeds
recoverable amount. Recoverable amount is determined as the higher
of fair value less costs to sell and value in use. Determining
whether the projects are impaired requires an estimation of the
recoverable value of the individual areas to which value has been
ascribed. The value in use calculation requires the entity to
estimate the future cash flows expected to arise from the projects
and a suitable discount rate in order to calculate present
value.
v) Production start date
The Group assesses the stage of each mine under construction to
determine when a mine moves into the production stage. The criteria
used to assess the start date are determined based on the unique
nature of each mine construction project, such as the complexity of
a plant and its location. The Group considers various relevant
criteria to assess when the mine is substantially complete, ready
for its intended use and is reclassified from Assets under
construction to Producing mines and Property, plant and equipment.
Some of the criteria will include, but are not limited to, the
following:
-- the level of capital expenditure compared to the construction cost estimates;
-- completion of a reasonable period of testing of the mine plant and equipment;
-- ability to produce metal in saleable form (within specifications); and
-- ability to sustain ongoing production of metal.
When a mine construction project moves into the production
stage, the capitalisation of certain mine construction costs ceases
and costs are either regarded as inventory or expensed, except for
costs that qualify for capitalisation relating to mining asset
additions or improvements, underground mine development or mineable
reserve development. This is also the point at which the
depreciation/amortisation recognition commences.
vi) Mine rehabilitation provision (note 22)
The Group assesses its mine rehabilitation provision annually.
Significant estimates and assumptions are made in determining the
provision for mine rehabilitation as there are numerous factors
that will affect the ultimate liability payable. These factors
include estimates of the extent and costs of rehabilitation
activities, technological changes, regulatory changes and changes
in discount rates. Those uncertainties may result in future actual
expenditure differing from the amounts currently provided. The
provision at the reporting date represents management's best
estimate of the present value of the future rehabilitation costs
required. Changes to estimated future costs are recognised in the
Group statement of financial position by either increasing or
decreasing the rehabilitation liability and rehabilitation asset if
the initial estimate was originally recognised as part of an asset
measured in accordance with IAS 16 'Property, Plant and
Equipment'.
vii) Recovery of deferred tax assets (note 12)
Judgement is required in determining whether deferred tax assets
are recognised within the Group statement of financial position.
Deferred tax assets, including those arising from unutilised tax
losses, require management to assess the likelihood that the Group
will generate taxable earnings in future periods, in order to
utilise recognised deferred tax assets. Estimates of future taxable
income are based on forecast cash flows from operations and the
application of existing tax laws in each jurisdiction. To the
extent that future cash flows and taxable income differ
significantly from estimates, the ability of the Group to realise
the net deferred tax assets recorded at the reporting date could be
impacted.
5. Segment information
The Group determines operating segments based on the information
that is internally provided to the Group's chief operating decision
maker. The chief operating decision maker has been identified as
the board of directors. The board of directors currently considers
consolidated financial information for the entire Group and reviews
the business based on the Group income statement and Group
statement of financial position in their entireties. Accordingly
the Group has only one operating segment, mining operations. The
mining operations comprise the Group's major producing asset, the
Gedabek mine which accounts for all the Group's revenues and the
majority of its cost of sales, depreciation and amortisation. The
Group's mining operations are all located within Azerbaijan and
therefore all within one geographic segment.
All sales of gold and silver bullion are made to one customer,
the Group's gold refinery, MKS Finance SA, based in Switzerland.
Copper concentrate is sold to two customers: Glencore International
AG and Industrial Minerals SA.
6. Revenue
The Group's revenue consists of gold and silver bullion and
copper concentrate sold to the third-party customers. Revenue from
sales of gold and silver bullion was $64,145,000 and $135,000
respectively (2013: $63,907,000 and $479,000). Revenue from sales
of copper concentrate was $3,684,000 (2013: $6,434,000).
Finance income of $7,000 in 2014 represents cash deposit
interest received during the year (2013: $34,000).
7. Other operating expenses and income
Other operating income relates to the income generated as a
result of release of accruals and provisions during 2014 and
2013.
Other operating expenses consist of metal refining costs,
foreign currency exchange loss and miscellaneous operating
expenses. Foreign currency exchange loss for the year ended 31
December 2014 comprised $137,000 (2013: $295,000).
8. Operating (loss) /profit
2014 2013
Notes $000 $000
------------------------------------------------ ------ ---------------------- -------
Operating (loss) /profit is stated after
charging:
Depreciation on property, plant and equipment
- owned 15 17,318 10,682
Amortisation of mining rights and other
intangible assets 14 1,720 1,687
Employee benefits and expenses 10 10,882 10,138
Net foreign currency exchange loss 137 342
Inventory expensed during the year 35,879 36,960
Operating lease expenses 431 360
------------------------------------------------ ------ ---------------------- -------
Fees payable to the Company's auditor for:
The audit of the Group's annual accounts 190 229
The audit of the Group's subsidiaries pursuant
to legislation 119 119
------------------------------------------------ ------ ---------------------- -------
Total audit fees 309 348
------------------------------------------------ ------ ---------------------- -------
Amounts paid to auditor for other services:
Tax compliance services 15 14
Tax advice services 13 -
Audit related assurance services - half 20
year review -
------------------------------------------------ ------ ---------------------- -------
Total non-audit services 48 14
------------------------------------------------ ------ ---------------------- -------
Total 357 362
------------------------------------------------ ------ ---------------------- -------
There were no non-cancellable operating lease and sublease
arrangements during 2014 and 2013.
The audit fees for the parent company were $107,000
(2013:$147,000).
9. Remuneration of the directors
Consultancy Fees Benefits Total
Year ended 31 December 2014 $ $ $ $
----------------------------- ------------ -------- --------- --------
John Monhemius 5,003 53,460 - 58,463
Richard Round - 53,460 - 53,460
John Sununu - 78,292 - 78,292
Reza Vaziri 474,141 53,460 42,000 569,601
Khosrow Zamani - 131,862 - 131,862
----------------------------- ------------ -------- --------- --------
479,144 370,534 42,000 891,678
----------------------------- ------------ -------- --------- --------
During the year ended 31 December 2014, a gain of $6,848 (2013:
$nil) was realised by a director as a result of the exercise of
share options.
Consultancy Fees Benefits Total
Year ended 31 December 2013 $ $ $ $
----------------------------- ------------ -------- --------- --------
John Monhemius 15,870 50,845 - 66,715
Richard Round - 58,845 - 50,845
John Sununu - 74,274 - 74,274
Reza Vaziri 493,160 50,845 42,000 586,005
Khosrow Zamani - 125,094 - 125,094
----------------------------- ------------ -------- --------- --------
509,030 351,903 42,000 902,933
----------------------------- ------------ -------- --------- --------
Directors' fees and consultancy fees for 2013 included above
were paid in cash.
10. Staff numbers and costs
The average number employed by the Group (including directors)
during the year, analysed by category, was as follows:
2014 2013
Number Number
------------------------------- -------- --------
Management and administration 54 49
Exploration 41 39
Mine operations 491 467
------------------------------- -------- --------
586 555
------------------------------- -------- --------
The aggregate payroll costs of these persons were as
follows:
2014 2013
$000 $000
---------------------------------------------------- ------- -------
Wages and salaries 9,363 8,998
Share-based payments 16 45
Social security costs 2,100 1,979
---------------------------------------------------- ------- -------
11,479 11,022
Less: salary costs capitalised as exploration,
evaluation development, fixed asset and inventory
expenditure (597) (884)
---------------------------------------------------- ------- -------
10,882 10,138
---------------------------------------------------- ------- -------
Remuneration of key management personnel
The remuneration of the key management personnel of the Group,
is set out below in aggregate:
2014 2013
$ $
------------------------------ ---------- ----------
Short-term employee benefits 1,384,320 1,261,672
Share-based payment 65,757 45,375
------------------------------ ---------- ----------
1,450,077 1,307,047
------------------------------ ---------- ----------
11. Finance costs
2014 2013
$000 $000
------------------------------------------------ ------ --------
Interest charged on interest-bearing loans and
borrowings 4,882 5,244
Finance charges on letters of credit 111 123
Unwinding of discount on provisions 469 306
Interest capitalised during the period - (1,894)
------------------------------------------------ ------ --------
5,462 3,779
------------------------------------------------ ------ --------
Interest on interest-bearing loans and borrowings represents
charges incurred on credit facilities with the International Bank
of Azerbaijan, the Amsterdam Trade Bank N.V., Yapi Kredi Bank
Azerbaijan, Pashabank and Atlas Copco Customer Finance AB.
Where a portion of the loans has been used to finance the
construction and purchase of assets of the Group ('qualifying
assets'), the interest on that portion of the loans has been
capitalised up until the time the assets were substantially ready
for use. For the year ended 31 December 2014, $nil
(2013:$1,894,000) interest was capitalised.
12. Taxation
Corporation tax is calculated at 32 per cent. (as stipulated in
the PSA for RVIG in the Republic of Azerbaijan, the entity that
contributes most significant portion of profit before tax in the
Group financial statements) of the estimated assessable profit or
loss for the year. Taxation for other jurisdictions is calculated
at the rates prevailing in the respective jurisdictions. Deferred
income taxes arising in RVIG are recognised and fully disclosed in
these Group financial statements. RVIG's unutilised tax losses at
31 December 2014 were $24,888,000 (2013: $5,108,000).
The major components of the income tax expenses for the year
ended 31 December are:
2014 2013
$000 $000
--------------------------------------------------- ------ --------
Current income tax
Current income tax charge - -
Deferred tax
Relating to origination and reversal of temporary
differences 3,436 (1,055)
--------------------------------------------------- ------ --------
Income tax credit / (expense) for the year 3,436 (1,055)
--------------------------------------------------- ------ --------
Deferred income tax at 31 December relates to the following:
Statement
of financial
position Income statement
-------------------- -------------------
2014 2013 2014 2013
$000 $000 $000 $000
----------------------------------------- --------- --------- --------- --------
Deferred income tax liability:
Property, plant and equipment -
accelerated depreciation (20,253) (16,779) (3,474) (6,143)
Non-current prepayments (418) (113) (305) 766
Trade and other receivables (360) (1,324) 964 (18)
Inventories (9,770) (8,819) (951) 1,639
----------------------------------------- --------- --------- --------- --------
Deferred tax liability (30,801) (27,035)
----------------------------------------- --------- --------- --------- --------
Deferred income tax asset:
Trade and other payables and provisions
* 2,952 1,751 1,201 (703)
Asset retirement obligation * 2,760 2,354 406 874
Interest bearing loans and borrowings
* 161 895 (734) 895
Carry forward losses ** 7,964 1,635 6,329 1,635
----------------------------------------- --------- --------- --------- --------
Deferred tax asset 13,837 6,635
----------------------------------------- --------- --------- --------- --------
Deferred income tax credit / (expense) 3,436 (1,055)
----------------------------------------- --------- --------- --------- --------
Net deferred tax liability (16,964) (20,400)
----------------------------------------- --------- --------- --------- --------
* Deferred tax assets have been recognised for the trade and
other payables and provisions, asset retirement obligation and
interest bearing loans and borrowings based on local tax basis
differences expected to be utilised against future taxable
profits.
** Deferred tax assets have been recognised for the
carry-forward of unused tax losses to the extent that it is
probable that taxable profits will be available in the future
against which the unused tax losses can be utilised. The
probability that taxable profits will be available in the future is
based on forward looking budgets and business plans of the
Group.
A reconciliation between accounting (loss) / profit and the
total taxation (benefit) / charge for the year ended 31 December is
as follows:
2014 2013
$000 $000
------------------------------------------------------------ --------- ------
(Loss) / profit before tax (14,364) 1,391
------------------------------------------------------------ --------- ------
Theoretical tax charge at statutory rate of 32 per
cent. for RVIG* (4,596) 445
Effects of different tax rates for certain Group
entities (28 per cent.) 130 61
Tax effect of items which are not deductible or assessable
for taxation purposes:
- losses in jurisdictions that are exempt from taxation 5 6
- non-deductible expenses 1,078 609
- non-taxable income (53) (66)
------------------------------------------------------------ --------- ------
Income tax (credit) / expense for the year (3,436) 1,055
------------------------------------------------------------ --------- ------
* This is the local tax rate applicable in accordance with local
legislation
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised.
Deferred tax assets and liabilities have been offset for
deferred taxes recognised for RVIG since there is a legally
enforceable right to set off current tax assets against current tax
liabilities and they relate to income taxes levied by the same
taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis in the Republic of
Azerbaijan.
At 31 December 2014, the Group has unused tax losses of
$31,723,000 (2013: $15,259,000). Unused tax losses in the Republic
of Azerbaijan at 31 December 2014 were $24,888,000 (2013:
$5,108,000). No deferred tax assets have been recognised in respect
of jurisdictions other than the Republic of Azerbaijan due to the
uncertainty of future profit streams.
13. (Loss) / earnings per share
The calculation of basic and diluted earnings per share is based
upon the retained loss for the financial year of $10,928,000 (2013:
retained profit of $336,000).
The weighted average number of ordinary shares for calculating
the basic loss (2013: profit) and diluted loss (2013: profit) per
share after adjusting for the effects of all dilutive potential
ordinary shares relating to share options are as follows:
2014 2013
--------- ------------ -----------
Basic 111,667,479 111,397,307
--------- ------------ -----------
Diluted 111,808,003 112,233,035
--------- ------------ -----------
For instruments that could potentially dilute basic earnings per
share in the future see note 25 - "Share based payments" which
shows 2,501,684 share options which could be dilutive in the
future.
14. Intangible assets
Other
Mining intangible
Exploration rights assets
& $000 $000 Total
evaluation $000
Ordubad
$000
------------------------------ ------------- ---------------- ------------ --------
Cost
1 January 2013 2,684 41,925 673 45,282
Additions 221 - 87 308
Reclassification - - (292) (292)
------------------------------ ------------- ---------------- ------------ --------
31 December 2013 2,905 41,925 468 45,298
Additions 608 - - 608
------------------------------ ------------- ---------------- ------------ --------
31 December 2014 3,513 41,925 468 45,906
------------------------------ ------------- ---------------- ------------ --------
Amortisation and impairment*
1 January 2013 - 22,260 193 22,453
Charge for the year - 1,649 39 1,688
------------------------------ ------------- ---------------- ------------ --------
31 December 2013 - 23,909 232 24,141
Charge for the year - 1,697 23 1,720
------------------------------ ------------- ---------------- ------------ --------
31 December 2014 - 25,606 255 25,861
------------------------------ ------------- ---------------- ------------ --------
Net book value
31 December 2013 2,905 18,016 236 21,157
------------------------------ ------------- ---------------- ------------ --------
31 December 2014 3,513 16,319 213 20,045
------------------------------ ------------- ---------------- ------------ --------
*639,000 ounces of gold were used to determine depreciation of
producing mines, mining rights and other intangible assets
following compilation of a new reserve statement for the Group
(2013: 621,000 ounces).
15. Property, plant and equipment
Plant and
equipment,
motor vehicles
and leasehold Producing Assets
under
improvements mines construction Total
$000 $000 $000 $000
----------------------- ---------------- ---------- ------------- --------
Cost
1 January 2013 12,712 75,062 39,072 126,846
Capitalisation of
interest - - 1,894 1,894
Additions 6,287 4,506 23,032 33,825
Transfer to producing
mines - 53,244 (53,244) -
Transfer from other
intangible assets - 292 - 292
Increase in provision
for rehabilitation - 2,428 - 2,428
----------------------- ---------------- ---------- ------------- --------
31 December 2013 18,999 135,532 10,754 165,285
Additions 410 11,877 3,029 15,316
Transfer to producing
mines - 11,690 (11,690) -
Increase in provision
for rehabilitation - 799 - 799
----------------------- ---------------- ---------- ------------- --------
31 December 2014 19,409 159,898 2,093 181,400
----------------------- ---------------- ---------- ------------- --------
Depreciation and
impairment*
1 January 2013 6,636 32,333 - 38,969
Charge for the year 1,684 8,998 - 10,682
----------------------- ---------------- ---------- ------------- --------
31 December 2013 8,320 41,331 - 49,651
Charge for the year 2,441 14,877 - 17,318
----------------------- ---------------- ---------- ------------- --------
31 December 2014 10,761 56,208 - 66,969
----------------------- ---------------- ---------- ------------- --------
Net book value
31 December 2013 10,679 94,201 10,754 115,634
----------------------- ---------------- ---------- ------------- --------
31 December 2014 8,648 103,690 2,093 114,431
----------------------- ---------------- ---------- ------------- --------
*639,000 ounces of gold were used to determine depreciation of
producing mines, mining rights and other intangible assets
following compilation of a new reserve statement for the Group
(2013: 621,000 ounces).
Upon commencement of production from Gosha during 2014,
accumulated development costs and construction in progress assets
of Gosha totalling $7,736,000 were transferred from the category of
assets under construction to the category of producing mines. In
addition, upon the completion of a new storage pond facility at
Gedabek, accumulated expenses of $3,954,000 were transferred from
the category of assets under construction to the category of
producing mines.
As a result of the recoverable amount analysis performed during
the year, no impairment losses were recognised by the Group.
The capital commitments by the Group have been disclosed in note
26.
The Group performs an impairment analysis at each balance sheet
date to ascertain that the carrying value of the Group's property
plant and equipment is in excess of its fair value less cash to
dispose ("FVLCD"). The determination of FVLCD is most sensitive to
the following key assumptions:
- Production volumes
- Commodity prices
- Discount rates
- Foreign exchange rates
- Capital and operating costs
Production volumes: In calculating the FVLCD, the production
volumes incorporated into the cash flow models were 509,100 ounces
of gold and 73,513 ounces of copper. Estimated production volumes
are based on detailed life of mine plans. Production volumes are
dependent on a number of variables such as the recoverable
quantities, the cost of the necessary infrastructure to recover the
reserves, the production costs, the contractual duration of the
mining rights and the selling prices of the quantities
extracted.
Commodity prices: Forecast precious metal and commodity prices
are based on management estimates. Estimated long-term gold and
copper prices of $1,250 (2013: $1,300 per ounce) and $6,600 per
tonne (2013: $6,600 per tonne) respectively have been used to
estimate future revenues.
Discounts rates: In calculating the FVLCD, a real post-tax
discount rate of 13.54 per cent. was applied to the post tax cash
flows expressed in real terms. This discount rate is derived from
the Group's post-tax weighted average cost of capital ("WACC"). The
WACC takes into account both equity and debt.
Foreign exchange rates: The only significant exchange foreign
exchange rate in the cash flow model is the US dollar to Azerbaijan
Manat rate. A rate of $1 equals 0.7845 Manat (2013: $1 equals
0.7845 Manat) has been used in the cash flow model.
Capital and operating costs: In calculating the cash flow model,
the significant capital and operating costs are the additional
future capital cost to be incurred over the life of the mine and
the cash cost per ounce of producing gold. For 2014, these costs
were $40 million and $750 to $794 per ounce respectively.
Management believes that, other than the volume of gold
production, there are no changes which are reasonably possible in
any of the other assumptions discussed above, which would lead to
impairment. At 31 December 2014, the recoverable amount of the
Group's assets exceeded its carrying amount by $20 million. It is
estimated that a 10 per cent. reduction in gold production, after
incorporating any consequential effects of changes on the other
variables used to measure the recoverable amount, would cause
impairment of approximately $4 million.
16. Subsidiary undertakings
Anglo Asian Mining PLC is the parent and ultimate parent of the
Group.
The Company's subsidiaries at 31 December 2014 are as
follows:
Percentage
Country of Primary of holding
Name incorporation activity per cent.
-------------------------------- ---------------- --------------------- ------------
Anglo Asian Operations Limited Great Britain Holding company 100
British Virgin
Holance Holdings Limited Islands Holding company 100
Anglo Asian Cayman Limited Cayman Islands Holding company 100
R.V. Investment Group Services
LLC Delaware, USA Mineral development 100
Azerbaijan International
Mining Company Limited Cayman Islands Mineral development 100
-------------------------------- ---------------- --------------------- ------------
There has been no change in the subsidiary undertakings since 1
January 2014.
17. Inventory
2014 2013
Non-current assets $000 $000
-------------------------------------------- ------- -------
Cost
Ore stockpiles 1,670 3,314
-------------------------------------------- ------- -------
Current assets
-------------------------------------------- ------- -------
Cost
Finished goods - bullion 3,211 1,844
Finished goods - metal in concentrate 150 471
Metal in circuit 18,559 13,035
Ore stockpiles 1,602 4,579
Spare parts and consumables 9,833 8,813
-------------------------------------------- ------- -------
Total current inventories 33,355 28,742
-------------------------------------------- ------- -------
Total inventories at the lower of cost and
net realisable value 35,025 32,056
-------------------------------------------- ------- -------
The Group has capitalised mining costs related to high grade
sulphide ore stockpiled during the year. Such stockpiles are
expected to be utilised as part of agitation leaching process.
Inventory is recognised at lower of cost or net realisable
value.
Write down of unrecovered inventory of $372,000 (2013: $384,000)
was recognised during the year as other operating expense.
18. Trade and other receivables
2014 2013
Non-current assets $000 $000
----------------------------------------------- ------ ------
Advances for fixed asset purchases 1,143 352
Loans 162 -
----------------------------------------------- ------ ------
1,305 352
----------------------------------------------- ------ ------
Current assets
----------------------------------------------- ------ ------
Gold held due to the Government of Azerbaijan 2,557 1,413
VAT refund due 828 792
Other tax receivable 275 456
Trade receivables 8 169
Prepayments and advances 1,634 4,093
Loans 48 -
Advance payment for profit tax - 978
----------------------------------------------- ------ ------
5,350 7,901
----------------------------------------------- ------ ------
The carrying amount of trade and other receivables approximates
to their fair value.
The VAT refund due at 31 December 2014 and 2013 relates to VAT
paid on purchases.
The gold bullion held and transferable to the Government relates
to bullion held by the Group due to the Government of Azerbaijan.
The Group holds the Government's share of the product from its
mining activities and from time to time transfers that product to
the Government. A corresponding liability to the Government is
included in trade and other payables shown in note 20.
The Group does not consider any stated trade and other
receivables as past due or impaired.
19 Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and held by
the Group within financial institutions that are available
immediately. The carrying amount of these assets approximates their
fair value.
The Group's cash on hand and cash held within financial
institutions at 31 December 2014 (including short-term cash
deposits) comprised $76,000 and $246,000 respectively (2013:
$175,000 and $5,314,000).
The Group's cash and cash equivalents are mostly held in US
Dollars.
20. Trade and other payables
2014 2013
$000 $000
----------------------------------------------- ------- ------
Accruals and other payables 5,342 4,843
Trade creditors 4,106 553
Gold held due to the Government of Azerbaijan 2,557 1,413
Payable to the Government of Azerbaijan from
copper concentrate joint sale 211 252
12,216 7,061
----------------------------------------------- ------- ------
Trade creditors primarily comprise amounts outstanding for trade
purchases and ongoing costs. Trade creditors are
non--interest--bearing and the creditor days were 22 (2013: 25).
Accruals and other payables mainly consist of accruals made for
accrued but not paid salaries, bonuses, related payroll taxes and
social contributions, as well as services provided but not billed
to the Group by the end of the reporting period. The directors
consider that the carrying amount of trade and other payables
approximates to their fair value.
Amount payable to the Government of Azerbaijan from copper
concentrate joint sale represents the portion of cash received from
the customer for the Government's portion from the joint sale of
copper concentrate.
21 Interest-bearing loans and borrowings
2014 2013
$000 $000
--------------------------------------------- ------- -------
Loans from International Bank of Azerbaijan 13,026 11,501
Loans from Amsterdam Trade Bank 36,783 36,697
Loans from Atlas Copco 789 2,823
Loans from Yapi Kredi Bank 922 -
Loans from Pasha Bank 1,238 -
--------------------------------------------- ------- -------
Total interest-bearing loans and borrowings 52,758 51,012
--------------------------------------------- ------- -------
Loans repayable in less than one year 16,675 2,031
Loans repayable in more than one year 36,083 48,990
--------------------------------------------- ------- -------
Prior to 31 December 2013, the Group had borrowed $49.5 million
from the International Bank of Azerbaijan ("IBA") under a series of
loan agreements. The interest rate for each agreement is 12 per
cent. Repayment of the principal begins two years from the
withdrawal date for each loan contract. The loans due to IBA were
partially repaid in 2013 by the proceeds of a refinancing loan
obtained from the Amsterdam Trade Bank ("ATB"). The gross amount of
the loan agreements outstanding with IBA at 31 December 2013 was
$11.5 million. They are repayable between 31 March 2015 and 30 June
2018.
During 2013, the Group entered into a loan agreement with ATB
for $37.0 million for the purpose of refinancing its loans from
IBA. The interest rate is 8.25 per cent. per annum plus the three
months LIBOR rate. The loan principal repayments start in February
2016 which is 16 months subsequent to loan principal drawdown.
According to the terms of a pledge agreement signed with ATB, the
Group has pledged to ATB its present and future claims against MKS
Finance SA, the Group's sole buyer of gold dore until termination
of the loan agreement.
During 2014, the Group opened a credit facility with the
International Bank of Azerbaijan in the amount of $1,500,000 with
an interest rate of 12 per cent. for a one year period. As of 31
December 2014, this credit facility was fully utilised. This
facility was increased by $2 million subsequent to 31 December
2014. The Group entered into loan agreements with Yapi Kredi Bank
Azerbaijan on 17 November 2014 and 19 November 2014 for amounts of
$550,000 and $450,000 respectively, with a 14 per cent. interest
rate for a one year period. An amount of $78,000 was repaid during
2014 in respect of these loan agreements. On 4 July 2014, the Group
entered into a credit facility to finance letters of credit with
Pashabank in the amount of $3,059,000 (AZN 2,400,000) for the
financing of cyanide purchases. This credit facility is valid until
7 January 2016. As of 31 December 2014, $988,000 was payable to
Pashabank in respect of this credit facility. The Group also
entered into a credit facility to finance a letter of credit with
Pashabank in the amount $2,500,000 with 6 per cent. interest for
the unused portion of, and 6.8 per cent. plus one month LIBOR for
the used portion of the credit facility. The purpose of this credit
facility was to finance the construction of the small scale
flotation plant. As of 31 December 2014, $250,000 was utilised from
this credit facility from the Pashabank. The Group has repaid
$1,879,340 of its loan from Atlas Copco during 2014.
22. Provision for rehabilitation
2014 2013
$000 $000
------------------------------------------ ------ ------
1 January 7,357 4,623
Change in estimate 221 2,239
Accretion expense 469 306
Effect of passage of time and changes in
discount rate 577 189
------------------------------------------ ------ ------
31 December 8,624 7,357
------------------------------------------ ------ ------
The Group has a liability for restoration, rehabilitation and
environmental costs arising from its mining operations. Estimates
of the cost of this work including reclamation costs, close down
and pollution control are made on an ongoing basis, based on the
estimated life of the mine. This represents the net present value
of the best estimate of the expenditure required to settle the
obligation to rehabilitate any environmental disturbances caused by
mining operations. The undiscounted liability for rehabilitation at
31 December 2014 was $8,892,000 (2013: $8,638,000). The
undiscounted liability was discounted using a risk free rate
adjusted to the risks specific to the liability of 4.77 per cent.
(2013: 6.33 per cent.). Expenditures on restoration and
rehabilitation works are expected between 2021 and 2022.
23. Financial instruments
Financial risk management objectives and policies
The Group's principal financial instruments comprise cash and
cash equivalents, loans and letters of credit. The main purpose of
these financial instruments is to finance the Group operations. The
Group has other financial instruments, such as trade and other
receivables and trade and other payables, which arise directly from
its operations. Surplus cash within the Group is put on deposit,
the objective being to maximise returns on such funds whilst
ensuring that the short-term cash flow requirements of the Group
are met.
The main risks that could adversely affect the Group's financial
assets, liabilities or future cash flows are capital risk, market
risk, interest rate risk, foreign currency risk, liquidity risk and
credit risk. Management reviews and agrees policies for managing
each of these risks which are summarised below.
The following discussion also includes a sensitivity analysis
that is intended to illustrate the sensitivity to changes in market
variables on the Group's financial instruments and show the impact
on profit or loss and shareholders' equity, where applicable.
Financial instruments affected by market risk include bank loans
and overdrafts, accounts receivable, accounts payable and accrued
liabilities.
The sensitivity has been prepared for the years ended 31
December 2014 and 2013 using the amounts of debt and other
financial assets and liabilities held as at those reporting
dates.
Capital risk management
The capital structure of the Group consists of debt, which
includes the borrowings disclosed in note 20, cash and cash
equivalents and equity attributable to equity holders of the
parent, comprising issued share capital, reserves and retained
earnings as disclosed in the consolidated statement of changes in
equity. The Group has sufficient capital to fund ongoing production
and exploration activities, with capital requirements reviewed by
the Board on a regular basis. Capital has been sourced through
share issues on the Alternative Investment Market, part of the
London Stock Exchange, and loans from the International Bank of
Azerbaijan, Amsterdam Trade Bank ("ATB") and other banks in
Azerbaijan. In managing its capital, the Group's primary objective
is to ensure its continued ability to provide a consistent return
for its equity shareholders through capital growth. In order to
achieve this objective, the Group seeks to maintain a gearing ratio
that balances risk and returns at an acceptable level and also to
maintain a sufficient funding base to enable the Group to meet its
working capital and strategic investment needs.
The Group is not subject to externally imposed capital
requirements other than the limit for financial indebtedness with
ATB which is that the Group will not incur financial indebtedness
of more than $30,000,000 without written prior approval from ATB.
The Group monitors capital using a gearing ratio, which is net debt
divided by total capital plus net debt. The Group's policy is to
keep the gearing ratio below 70 per cent. The Group defines net
debt as interest-bearing loans and borrowings less cash and cash
equivalents.
2014 2013
$000 $000
------------------------------------------------- -------- --------
Interest-bearing loans and borrowings (note 21) 52,758 51,021
Less cash and cash equivalents (note 19) (322) (5,489)
------------------------------------------------- -------- --------
Net debt 52,436 45,532
Equity 85,916 96,750
------------------------------------------------- -------- --------
Capital and net debt 138,352 142,282
------------------------------------------------- -------- --------
Gearing ratio (per cent.) 38 32
------------------------------------------------- -------- --------
Interest rate risk
The Group's cash deposits, letters of credit, borrowings and
interest-bearing loans are at a fixed rate of interest except for
three month LIBOR embedded in interest with ATB.
The Group manages the risk by maintaining fixed rate
instruments, with approval from the directors required for all new
borrowing facilities.
The Group has not used any interest rate swaps or other
instruments to manage its interest rate profile during 2014 and
2013.
Interest rate sensitivity analysis
Interest rate sensitivity of the Group from reasonably possible
movement in the three month LIBOR rate is limited to $187,000
(2013: $185,000) negative and positive impact on the Group's profit
before tax. Assumed movement is based on 0.5 per cent. increase or
decrease in LIBOR on interest bearing loans from ATB.
Ultimate responsibility for liquidity risk management rests with
the board of directors, which has built an appropriate liquidity
risk management framework for the management of the Group's short,
medium and long-term funding and liquidity management requirements.
The Group manages liquidity risk by maintaining adequate reserves,
banking facilities and reserve borrowing facilities by continuously
monitoring forecast and actual cash flows and matching the maturity
profiles of financial liabilities. Included in note 20 is a
description of additional undrawn facilities that the Group has at
its disposal to further reduce liquidity risk.
The table below summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted
payments.
Year ended 31 December 2014
On Less than 3 to 12 1 to 5 > 5 years Total
demand 3 months months years $000 $000
$000 $000 $000 $000
-------------------------- -------- ---------- -------- ------- ---------- -------
Interest-bearing loans
and borrowings - 5,014 15,705 40,714 - 63,433
Trade and other payables 458 11,758 - - - 12,216
-------------------------- -------- ---------- -------- ------- ---------- -------
458 16,772 15,705 40,714 - 73,649
-------------------------- -------- ---------- -------- ------- ---------- -------
Year ended 31 December 2013
On Less 3 to 1 to > 5 years Total
demand than 12 5 $000 $000
$000 3 months months years
$000 $000 $000
----------------------- -------- ---------- -------- ------- ---------- -------
Interest-bearing
loans and borrowings - 1,704 5,048 57,842 - 64,594
Trade and other
payables 1,664 5,313 - - - 6,977
----------------------- -------- ---------- -------- ------- ---------- -------
1,664 7,017 5,048 57,842 - 71,571
----------------------- -------- ---------- -------- ------- ---------- -------
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. The maximum credit risk exposure relating to financial
assets is represented by their carrying value as at the
consolidated statement of financial position date.
The Group has adopted a policy of only dealing with creditworthy
banks and has cash deposits held with reputable financial
institutions. Trade receivables consist of amounts due to the Group
from sales of gold and silver. All sales of gold and silver bullion
are made to MKS Finance SA, a Switzerland-based gold refinery, and
copper concentrate to Industrial Minerals SA and Glencore
International AG. Due to the nature of the customers, the board of
directors does not feel that a significant credit risk exists for
receipt of revenues. The board of directors continually reviews the
possibilities of selling gold to alternative customers and also the
requirement for additional measures to mitigate any potential
credit risk.
Foreign currency risk
The presentational currency of the Group is United States
Dollars. The Group is exposed to currency risk due to movements in
foreign currencies relative to the US Dollar affecting foreign
currency transactions and balances.
The carrying amounts of the Group's foreign currency denominated
monetary assets and monetary liabilities at 31 December are as
follows:
Liabilities Assets
-------------- --------------
2014 2013 2014 2013
$000 $000 $000 $000
------------------- ------ ------ ------ ------
UK Sterling 330 53 31 69
Azerbaijan Manats 4,127 3,679 1,439 1,851
Other 160 160 - 2
------------------- ------ ------ ------ ------
Foreign currency sensitivity analysis
The Group is mainly exposed to the currency of the United
Kingdom (UK Sterling), the currency of the European Union (Euro)
and the currency of the Republic of Azerbaijan (Azerbaijan
Manat).
The following table details the Group's sensitivity to a 5.73
per cent., 6.23 per cent. and 35 per cent. (2013: 7.5 per cent.,
9.41 per cent. and 1.37 per cent.) increase and decrease in the
United States Dollar against United Kingdom Sterling, Euro and
Azerbaijan Manat, respectively. These are the sensitivity rates
used when reporting foreign currency risk internally to key
management personnel and represents management's assessment of the
reasonably possible change in foreign exchange rates. The
sensitivity analysis includes only outstanding foreign currency
denominated monetary items and adjusts their translation at the
period end for respective change in foreign currency rates. A
positive number below indicates an increase in profit and other
equity where the United States Dollar strengthens by the mentioned
rates against the relevant currency. Weakening of the United States
Dollar against the relevant currency, there would be an equal and
opposite impact on the profit and other equity, and the balances
below would be reversed.
UK Sterling Azerbaijan Euro Impact
impact Manat impact
-------------- ---------------- --------------
2014 2013 2014 2013 2014 2013
$000 $000 $000 $000 $000 $000
--------------------------- ------ ------ ------- ------- ------ ------
Effect on (loss) / profit
before tax 17 1 941 25 10 15
--------------------------- ------ ------ ------- ------- ------ ------
Market risk
The Group's activities primarily expose it to the financial
risks of changes in gold, silver and copper prices which have a
direct impact on revenues. The board of directors monitors both the
spot and forward price of these regularly.
A 10 per cent. decrease in gold price would result in a
reduction in revenue of $6,415 and a 10 per cent. increase in gold
price would have the equal and opposite effect. A 10 per cent.
decrease in silver price would result in a reduction in revenue of
$14 and a 10 per cent. increase in silver price would have an equal
and opposite effect. A 10 per cent. decrease in copper price would
result in a reduction in revenue of $330 and a 10 per cent.
increase in copper price would have an equal and opposite
effect.
Fair value of the Group's interest bearing loans and
borrowings
The Group has estimated the fair value of its interest bearing
loans and borrowings at $57.8 million which equals the carrying
value of those liabilities in its balance sheet. This valuation has
been carried out using level 3 valuation techniques (significant
unobservable inputs).
24. Equity
31 December 31 December
2014 2013
British British
Pound Pound
--------------------------------------------- -------------- --------------
Authorised:
600,000,000 ordinary shares of 1 pence each 6,000,000 6,000,000
--------------------------------------------- -------------- --------------
Shares $000
---------------------------------------- ------------ ------
Ordinary shares issued and fully paid:
1 January and 31 December 2013 111,397,307 1,973
Exercise of share options 150,000 3
Shares issued in lieu of cash payment 136,665 2
---------------------------------------- ------------ ------
31 December 2014 111,683,972 1,978
---------------------------------------- ------------ ------
Fully paid ordinary shares carry one vote per share and carry
the right to dividends.
Share options
The Group has share option scheme under which options to
subscribe for the Company's shares have been granted to certain
executives and senior employees.
Merger reserve
The merger reserve was created in accordance with the merger
relief provisions under Section 612 of the Companies Act 2006 (as
amended) relating to accounting for Group reconstructions involving
the issue of shares at a premium. In preparing Group consolidated
financial statements, the amount by which the base value of the
consideration for the shares allotted exceeded the aggregate
nominal value of those shares was recorded within a merger reserve
on consolidation, rather than in the share premium account.
Retained earnings
Retained earnings represent the cumulative profit/(loss) of the
Group attributable to the equity shareholders
25. Share-based payments
Equity-settled share options
The Group operates a share option scheme for directors and
senior employees of the Group. The vesting periods are up to three
years. Options are exercisable at a price equal to the closing
quoted market price of the Group's shares on the date of the board
of directors approval to grant options. Options are forfeited if
the employee leaves the Group and the options are not exercised
within three months from leaving date.
The number and weighted average exercise prices ("WAEP") of, and
movements in, share options during the year were as follows:
2014 2013
---------------------- ----------------------
Number Weighted Number of Weighted
of average share average
share exercise options exercise
options price price
pence pence
---------------------------- ---------- ---------- ---------- ----------
I January 3,001,684 38 3,101,684 34
Granted during the year 300,000 15 50,000 22
Forfeited during the year (350,000) 46 (150,000) 35
Exercised during the year (150,000) 11 - -
---------------------------- ---------- ---------- ---------- ----------
Outstanding at 31 December 2,801,684 36 3,001,684 38
---------------------------- ---------- ---------- ---------- ----------
Exercisable at 31 December 2,501,684 39 2,701,684 38
---------------------------- ---------- ---------- ---------- ----------
The weighted average remaining contractual life of the share
options outstanding at 31 December 2014 was 2 years (2013: 5 years)
and the range of their exercise prices was 12 pence to 97 pence
(2013: 11.5 pence to 97 pence).
The weighted average fair value of the share options granted
during the year was GBP0.06 ($0.10) (2013: GBP0.11 ($0.18)).
Share options are valued using the Black-Scholes model. The
assumptions used to value the share options issued in the years
ended 31 December are as follows:
2014 2013
--------------------------------------------------- ---- -----
Weighted average share price (pence) 15 22
Weighted average exercise price (pence) 15 22
Expected volatility for six months vesting period
option (per cent.) - 81
Expected volatility for one years' vesting period 58 -
option (per cent.)
Expected volatility for two years' vesting period 58 -
option (per cent.)
Expected life for six months' vesting period
option (years) 2 2
Risk free rate (per cent.) 1.43 0.82
--------------------------------------------------- ---- -----
Expected volatility was determined by calculating the historical
volatility of the Company's share price over the previous one and
two years for share options with one and two year vesting periods,
respectively. The expected life used in the model has been
adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations.
The Group recognised total expense related to equity-settled
share-based payment transactions for the year ended 31 December
2014 of $16,000 (2013: $45,000)
26. Contingencies and commitments
The Group undertakes its mining operations in the Republic of
Azerbaijan pursuant to the provisions of the Agreement on the
Exploration, Development and Production Sharing for the Prospective
Gold Mining Areas: Gedabek, Gosha, Ordubad Group (Piazbashi,
Agyurt, Shakardara, Kiliyaki), Soutely, Kyzilbulag and Vejnali
Deposits dated year ended 20 August 1997 (the "PSA"). The PSA
contains various provisions relating to the obligations of the R.V.
Investment Group Services LLC ("RVIG"), a wholly owned subsidiary
of the Company, with regards to the exploration and development
programme, preparation and timely submission of reports to the
Government, compliance with environmental and ecological
requirements, etc. The Directors believe that RVIG is in compliance
with the requirements of the PSA. The Group has announced a
discovery on Gosha Mining Property in February 2011 and submitted
the development programme to the Government according to the PSA
requirements, which was approved in 2012. In April 2012 the Group
announced a discovery on the Ordubad Group of Mining Properties and
submitted the development programme to the Government for review
and approval according to the PSA requirements.
The mining licence on Gedabek expires in March 2022, with the
option to extend the licence by ten years conditional upon
satisfaction of certain requirements stipulated in the PSA.
RVIG is also required to comply with the clauses contained in
the PSA relating to environmental damage. The Directors believe
RVIG is substantially in compliance with the environmental clauses
contained in the PSA.
Based on the pledge agreement signed on 24 July 2013 the Group
is a guarantor for one of its suppliers, Azerinterpartlayish-X MMC,
for a loan taken from the International Bank of Azerbaijan in
amount of $500,000 for 36 months.
There were no significant operating lease or capital lease
commitments at 31 December 2014 (2013: $nil).
27. Related party transactions
Trading transactions
During the years ended 31 December 2013 and 2014, there were no
trading transactions between Group companies.
Other related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note. Transactions between the Group and other
related parties are disclosed below.
a) Reza Vaziri had an indirect interest in the lease of the
Company's office in Baku, the Republic of Azerbaijan. The office in
Baku was sold during the year ended 31 December 2014. The cost of
the lease for the year ended 31 December 2014 was $48,000 (2013:
$94,000).
b) Remuneration paid to directors is disclosed in note 9.
c) During the year ended 31 December 2014, total payments of
$1,182,000 (2013: $2,589,000) were made for equipment and spare
parts purchased from Proses Muhendislik Danismanlik Inshaat ve
Tasarim Anonim Shirket, the entity in which the Chief Technical
Officer of Azerbaijan International Mining Company has a direct
ownership interest.
At 31 December 2014 there is an advance payment in relation to
the above related party transaction of $65,000 (2013: $66,000).
All of the above transactions were made on arm's length
terms.
28. Subsequent events
The following subsequent events relate to the period from 31
December 2014 to the date of approval of the consolidated financial
statements on 27 May 2015.
Devaluation of the Azerbaijan Manat
On 21 February 2015, the Azerbaijan Manat ("AZN") was devalued
against the US Dollar and other major currencies by approximately
34 per cent. The exchange rates before and after devaluation were
AZN 0.786 and AZN 1.050 to $1, respectively. In light of this
devaluation, the Group has taken precautionary measures it
considered necessary in order to support the sustainability and
development of its business in the foreseeable future.
Loan from major shareholder
On 22 May 2015, Reza Vaziri, President and chief executive
officer of the Company agreed to provide a loan facility to the
Company. The principal terms of the loan were as follows:
-- Facility up to $4 million.
-- Term of loan is until 8 January 2016.
-- Interest of 10 per cent. per annum payable in full at the end of the term.
-- Early repayment allowed with approval of both the Company and Reza Vaziri.
The Company intends to use the loan for working capital
purposes.
For further information please visit www.angloasianmining.com or
contact:
Reza Vaziri Anglo Asian Mining plc Tel: +994 12 596 3350
------------------- -------------------------- ---------------------
Bill Morgan Anglo Asian Mining plc Tel: +994 502 910 400
------------------- -------------------------- ---------------------
Ewan Leggat SP Angel Corporate Finance Tel: +44 (0) 20 3470
LLP 0470
Nominated adviser and
Broker
------------------- -------------------------- ---------------------
Stuart Gledhill SP Angel Corporate Finance Tel: +44 (0) 20 3470
LLP 0470
------------------- -------------------------- ---------------------
Felicity Winkles St Brides Partners Tel: +44 (0) 20 7236
1177
------------------- -------------------------- ---------------------
Lottie Brocklehurst St Brides Partners Tel: +44 (0) 20 7236
1177
------------------- -------------------------- ---------------------
Notes:
Anglo Asian Mining plc (AIM:AAZ) is a gold, copper and silver
producer in Central Asia with a broad portfolio of production and
exploration assets in Azerbaijan. The Company has a 1,962 square
kilometre prospective exploration portfolio, assembled from
analysis of historic Soviet geological data and held under a
Production Sharing Agreement modelled on the Azeri oil
industry.
The Company developed Azerbaijan's first operating
gold/copper/silver mine, Gedabek, which commenced gold production
in May 2009. Gold production for the year ended 31 December 2014
from Gedabek totalled 60,285 ounces and 784 tonnes of copper. The
Company is also developing a second resource area, Gosha, which is
50 kilometres from Gedabek, and the ore produced at Gosha is
processed at Anglo Asian's Gedabek plant. The Company's production
target for full year 2015 is between 70,000 ounces and 75,000
ounces of gold. Gedabek is a polymetallic deposit and its ore has a
high copper content, and as a result the Company produces copper
concentrate from its Sulphidisation, Acidification, Recycling, and
Thickening (SART) plant. Anglo Asian is also constructing a small
scale, low capital expenditure flotation plant to produce a copper
and precious metal concentrate. This will initially process ore
from its existing stockpiles of sulphide ore with a high copper
content.
Anglo Asian is also actively looking to exploit its first mover
advantage in Azerbaijan to identify additional projects, as well as
looking for other properties in order to fulfil its expansion
ambitions and become a mid-tier gold and copper metal production
company.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UBABRVAAVUAR
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