TIDMAAZ
RNS Number : 1744Z
Anglo Asian Mining PLC
25 May 2016
Anglo Asian Mining plc / Ticker: AAZ / Index: AIM / Sector:
Mining
25 May 2016
Anglo Asian Mining plc
Full year results - 2015
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 2015 ("FY 2015"). Note that all references to "$" are to
United States Dollars.
Highlights
-- Strong production performance in FY 2015 with record gold production
-- Total gold production in FY 2015 of 72,032 ounces (FY 2014: 60,285 ounces)
-- Gold sales in FY 2015 of 63,924 ounces (FY 2014: 50,615
ounces) completed at an average of $1,161 per ounce (FY 2014:
$1,267 per ounce)
-- Gold produced at an average cash operating cost net of
by-product credits of $724 per ounce (2014: $971 per ounce). Lower
average cash operating cost due to increase in production and lower
costs
-- Silver production in FY 2015 totalled 28,628 ounces (FY 2014:
31,177 ounces). FY 2015 lower due to changing mineralogy
-- Copper production for FY 2015 was 969 tonnes, a 24 per cent.
increase on FY 2014 production of 784 tonnes
-- Production target of 73,000 to 77,000 ounces of gold and
1,700 to 2,100 tonnes of copper for FY 2016
-- Gadir underground mine commenced production in 2015 with
37,880 tonnes of ore mined with an average grade of 7.98 grammes of
gold per tonne
-- Flotation plant commenced production in Q4 2015 with 578 dry
metric tonnes of copper concentrate produced containing 130 tonnes
of copper, 335 ounces of gold and 9,264 ounces of silver
Financials
-- Total revenues increased to $78.1 million (2014: $68.0 million)
-- Loss before tax reduced to $8.9 million (2014: $14.4 million)
-- Operating cash flow before movements in working capital
increased to $18.6 million (2014: $10.6 million)
-- Net debt of $49.0 million at 31 December 2015 (31 December
2014: $52.4 million) calculated as aggregate of loans and
borrowings less cash and cash equivalents
-- Cash position of $0.2 million as at 31 December 2015 (31 December 2014: $0.3 million)
Chairman's statement
2015 was another important year for Anglo Asian where we
demonstrated our ability as a mid-tier gold, copper and silver
producer. I believe it marks the first stage in turning around your
Company. The performance of our assets in Azerbaijan improved and
we delivered record gold production of 72,032 ounces. With
production increasing at Gedabek, together with the successful
launch of our flotation plant in the fourth quarter of 2015, Anglo
Asian is now able to deliver long-term, sustainable value to
shareholders even during periods of low metal prices such as seen
during 2015. The increase in metal prices seen since the beginning
of 2016, together with the cost reduction and efficiency
initiatives and the devaluation of the Azerbaijan Manat, will
further enhance Anglo Asian's performance in the future.
Review of 2015 and 2016 to date
We reported total gold production for 2015 of 72,032 ounces, a
19 per cent. increase over 2014 of 60,285 ounces; copper production
in 2015 was 969 tonnes, a 24 per cent. increase over 2014 of 784
tonnes. Production of silver, however, totalled 28,628 ounces for
2015, which was an 8 per cent. decrease over 2014 of 31,177 ounces,
due to changes in the mineralogy of the ore. Whilst our gold and
copper production in 2015 increased substantially, the global
environment for mining companies remained poor. The difficulties
experienced by mining companies in 2015 resulting from the low
prices of many commodities were often headline news. Average gold
and copper prices in 2015 were $1,160 per ounce and $5,494 per
tonne respectively which were 8 per cent. and 20 per cent. lower
respectively than in 2014.
The increased gold production beneficially impacted our
financial results for the year. The impact of the first revenues
from flotation was limited in 2015, but is expected to enhance the
results from 2016 onwards. Revenues increased from $68.0 million to
$78.1 million and our cash costs reduced from $971 to $724 per
ounce which resulted in the operating loss reducing to $3.2 million
from $8.9 million in 2014. Cash provided by operating activities
increased in the year to $22.9 million from $14.8 million in 2014.
We serviced our debts on time with net principal and interest
payments made in the year totalling $23.1 million.
We continue to work on improving the efficiency of our
production and to lower costs and in particular the management of
mining contractors. Cyanide is now also being partially sourced
from Georgia at lower prices and its shorter delivery lead time is
enabling cyanide stocks to be reduced. The ore mined at Gedabek was
found to be noticeably harder in late 2015 and early 2016 and as a
result the Company is planning to commission a second
semi-autogenous ("SAG") mill in the agitation leaching plant in the
third quarter of 2016 to improve productivity. This new SAG mill
will eventually be redeployed in an expanded flotation plant. In
March 2016, a new contract was signed with Industrial Minerals S.A.
for the sale of copper concentrate produced from the flotation
plant. This contract is on the same terms as the Company's existing
contract with the exception of improved terms for any penalty due
to the concentrate containing zinc.
We were very pleased to announce the completion of construction
and first production and revenues from our flotation plant in the
fourth quarter of 2015. The successful completion of this project
to build a flotation plant in under two years and for $4.5 million
is a remarkable achievement and a credit to the technical staff of
Anglo Asian and its contractors. Commissioning encountered a few
teething problems, which is usual for such projects, but these have
now been largely overcome. Initial production of concentrate also
contained zinc, which is treated as a contaminant by the buyer. We
are working very hard to mitigate this problem and are making good
progress in reducing the zinc content of the concentrate produced.
The Company is expected to benefit from a full year of production
from the flotation plant in 2016.
During 2015, we were also pleased to announce the first ore
mined from Gadir, an underground mine co-located on the Gedabek
site. During 2015, 37,880 tonnes of ore grading 7.98 grammes per
tonne of gold was extracted and processed. This ore is very
amenable to leaching by our agitation leaching plant and is
therefore prolonging the useful life of the plant. In March and
April 2016, we took delivery of an underground drill machine,
loader and truck from Atlas Copco which is expected to increase the
productivity of the Gadir mine.
The first quarter of 2016 unfortunately saw a slow-down in
production. Ordinarily, the first quarter of the year has always
had lower production due to the difficult winter weather
conditions. However, the harder rock that has been encountered
together with its lower gold grade also adversely affected
production. On the other hand, we were very pleased to report the
first full quarter of production from the flotation plant. In the
three months to 31 March, 2016 the flotation plant produced 1,458
dry metric tonnes of copper concentrate containing 251 metric
tonnes of copper and 777 ounces and 24,595 ounces of gold and
silver respectively.
We place our highest priority on our environmental
responsibilities. A key responsibility is secure storage of
tailings produced at Gedabek. In 2015, we approximately doubled the
capacity of our tailings dam by raising the wall of the dam and
increased security by building a reed bed biological treatment
system immediately downstream of the dam to process any seepage.
The pipes to the tailings dam were also relocated into fully lined
trenches to capture any seepage should any pipe rupture.
We sell our products in US Dollars; however, a significant
portion of our costs are denominated in Azerbaijan Manats. The
recent devaluation of the Azerbaijan Manat against the US Dollar of
43 per cent. in addition to the previous devaluation of 34 per
cent. is unwelcome for Azerbaijan and its people. However, we
believe this will have a considerable beneficial effect for Anglo
Asian in 2016. We estimate that the combined effect of the recent
devaluation and the previous devaluation in February 2015 will
reduce our operating costs by approximately $13 million in the 2016
financial year at the current US Dollar to Azerbaijan Manat
exchange rate of approximately $1 equals AZN1.5
Outlook
It is with optimism that I look forward to 2016 and beyond. I
believe that during the course of 2015, we have demonstrated that
our strategy can deliver success, and we have built a strong
platform for sustained growth and profitability.
The outlook for metal prices remains uncertain. However, the
increase in prices during the first four months of 2016 is
obviously beneficial to us and we hope marks the start of a
sustained recovery in prices.
Despite the production challenges in the first quarter of 2016
as noted above, we are confident that total gold production during
the remainder of the year will improve and accordingly have
announced a gold production target for 2016 of between 73,000
ounces to 77,000 ounces (which includes approximately 4,000 ounces
to 5,000 ounces of production from the flotation plant).
Furthermore, we have also announced a copper production target of
between 1,700 tonnes and 2,100 tonnes for 2016 which is
significantly higher than 2015's production of 969 tonnes. Our
forecast gold production for 2016 is slightly higher than that
achieved in 2015, and there will be a full year's contribution from
our new flotation plant. We are also benefiting from lower costs
due to the devaluation of the Azerbaijan Manat. Accordingly, we
believe the outlook for 2016 represents a further improvement over
2015 and look forward to updating shareholders on our progress.
Appreciation
I would like to take this opportunity to thank our Anglo Asian
senior management team and employees, partners, the Government of
Azerbaijan, advisers and fellow directors 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. I would also like to especially thank our
shareholders for their invaluable support as we look forward to a
successful 2016.
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 assets in the
Republic of Azerbaijan ("Azerbaijan"). It also explores for and
develops other potential gold and copper projects in
Azerbaijan.
The Group has a 1,962 square kilometre portfolio of gold, silver
and copper assets in western Azerbaijan, at various stages of the
development cycle. These include our main Gedabek gold, silver and
copper mine. Gadir, an underground mine, is also located at
Gedabek. The Group's processing facilities to produce gold doré and
copper, silver and gold concentrates, from mined ore are also
located at Gedabek. Gosha, the Group's second gold and silver mine,
is located 50 kilometres away from Gedabek. Ordubad, the Group's
early stage gold and copper exploration project is located in 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:
- continued optimisation of the performance of the agitation
leaching plant to ensure maximum production at lowest possible
cost;
- increasing production of ore from the Gadir underground mine,
which is co-located on the Gedabek property, and which commenced
production in 2015; and
- production of a copper and precious metal concentrate from the
flotation plant which was commissioned in the fourth quarter of
2015.
The Group has a target production for the full year to 31
December 2016 of 73,000 to 77,000 ounces of gold and 1,700 to 2,100
tonnes of copper.
Gedabek
Introduction
The Gedabek mining operation is located in a 300 square
kilometre contract area in the lower Caucasus mountains in western
Azerbaijan on the Tethyan Tectonic Belt, one of the world's most
significant copper and gold bearing geological structures. The
mine, which first poured gold in 2009, is principally an open pit
mining operation. In addition, in late 2014, the Group started to
develop an underground mine, Gadir, co-located on the Gedabek
property, which commenced production in June 2015.
Mineral resources
Key to the future development of the Gedabek site is our
knowledge of the mineral resources and ore reserves within the
contract area. The Group's latest ore reserve estimate was carried
out as of 1 September 2014. This ore reserve estimate showed an
increase of approximately 3.9 million tonnes of ore, after allowing
for depletion due to mining since the previous estimate. It also
showed a significantly higher copper content than the previous
estimate. Table 1 shows the ore reserve estimate as at 1 September
2014.
Table 1 - ore reserve estimate as at 1 September 2014
Ore Reserve
----------- ---------------------------------------------------------------------------------------------------------
In Situ In Situ Grades Contained metal Recoverable 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
----------- ----------- --------- ------- --------- -------- -------- ---------- -------- ------- ----------
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 drilling
and blasting and subsequent transportation of ore are carried out
by contractors. Table 2 summarises the ore mined from the open pit
at Gedabek for the year ended 31 December 2015.
Table 2 - ore mined from the open pit at Gedabek for the year
ended 31 December 2015
Ore mined (tonnes) Waste
Quarter ended mined
----------------------------------------------
High Grade Low Grade Sulphide Total (tonnes)
----------- ---------- --------- ---------- ----------
31 March 2015 134,334 257,472 9,410 401,216 1,482,906
-------------------- ----------- ---------- --------- ---------- ----------
30 June 2015 145,132 260,264 58,059 463,455 1,515,311
-------------------- ----------- ---------- --------- ---------- ----------
30 September 2015 154,913 304,726 16,305 475,944 1,484,146
-------------------- ----------- ---------- --------- ---------- ----------
31 December 2015 130,800 300,264 50,492 481,556 1,444,114
-------------------- ----------- ---------- ---------
Total for the year 565,179 1,122,726 134,266 1,822,171 5,926,477
-------------------- =========== ========== ========= ========== ==========
Ore is also mined at Gedabek from the Gadir underground mine
which is situated approximately one kilometre from the main open
pit at the Gedabek site. Development of the Gadir mine commenced in
2014 with the construction of a decline and the mine started
producing ore in June 2015. Table 3 summarises the ore mined from
the Gadir underground mine for the year ended 31 December 2015.
Table 3 - ore mined from the Gadir underground mine for the year
ended 31 December 2015
Ore mined (tonnes)
Quarter ended
------------------------
Ore mined Average
gold grade
tonnes (g/t)
----------------- ---------- ------------
30 June 2015 2,116 9.45
30 September
2015 6,945 8.69
31 December
2015 28,819 7.71
----------------- ---------- ------------
Total for
the year 37,880 7.98
----------------- ========== ============
Processing operations
Ore is processed at Gedabek to produce either gold doré (an
alloy of gold and silver with small amounts of impurities) or a
copper and precious metal concentrate.
Gold doré is produced by cyanide leaching. Initial processing is
to leach (i.e. dissolve) the precious metal (and copper) in a
cyanide solution. This is done by various methods:
1. Heap leaching of crushed ore. Crushed ore is heaped into
permeable "pads" onto which is sprayed a solution of cyanide. The
solution dissolves the metals as it percolates through the ore by
gravity and it is then collected.
2. Heap leaching of run of mine ("ROM") ore. The process is
similar to heap leaching for crushed ore except the ore is not
crushed and is heaped into pads as received from the mine (ROM)
without further treatment or crushing.
3. Agitation leaching. Ore is crushed and then processed through a grinding circuit. The
finely ground ore is then placed in stirred tanks containing a
cyanide solution 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
dissolved in this final solution are recovered by electrolysis and
are then smelted to produce the doré metal, containing gold and
silver.
Copper and precious metal concentrates are produced by two
processes, SART processing and flotation.
1. Sulphidisation, Acidification, Recycling and Thickening
("SART"). The cyanide solution after metal absorption by resin in
pulp processing is transferred to the SART plant. The pH of the
solution is then changed by the addition of reagents. This recovers
the copper from the solution in the form of a precipitated copper
sulphide concentrate containing silver and minor amounts of
gold.
2 Flotation. Flotation is carried out in a separate flotation
plant. Feedstock is mixed with water and other chemicals including
flocculants to produce a slurry called "pulp". This pulp is
processed in flotation cells (tanks). The flotation cells are
agitated and air introduced as small bubbles. The sulphide minerals
attach to the air bubbles and float to the surface where they form
a froth which is collected. This froth is dewatered to form a
concentrate containing copper, gold and silver. Feedstock can be
either tailings from the agitation leaching plant or freshly
crushed and milled ore.
Initially, gold doré was produced at Gedabek by heap leaching
crushed ore. Heap leaching 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 leaching
plant. Compared to heap leaching, agitation leaching can deliver
higher recoveries of gold without long leaching cycles. Heap leach
pads also require considerable space for their construction and due
to the topology of the Gebabek site, this was a constraint.
The agitation leaching plant's initial performance was not as
planned due to the mineralogical variation of the ore. Due to 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. Throughout 2014 and 2015, the Group has therefore expended
considerable effort in improving the performance of the plant. This
has been focused on both increasing metal recoveries to increase
production and lowering cyanide consumption to decrease costs.
During the year ended 31 December 2015, ore has been processed
by three methods at Gedabek: whole ore heap leaching; crushed ore
heap leaching; and agitation leaching. Table 4 shows the amounts of
ore and its grade processed at Gedabek for the year ended 31
December 2015.
Table 4 - amount of ore and its grade processed at Gedabek for
the year ended 31 December 2015
Amount of ore processed Gold grade of ore
Quarter ended (tonnes) processed (g/t)
-------------------------------- ------------------------------
Heap Heap Agitation Heap Heap Agitation
leach leach leach leach
pad pad pad pad
(Crushed (ROM leaching (Crushed (ROM leaching
ore) ore) plant ore) ore) plant
--------------- --------- -------- ----------- --------- ------- ----------
31 March
2015 92,586 135,531 136,717 1.47 1.00 3.63
30 June 2015 127,510 243,444 141,552 1.50 0.84 3.43
30 September
2015 72,817 135,731 150,370 1.43 1.07 3.25
31 December
2015 101,086 32,004 148,240 1.48 1.09 3.60
--------------- --------- -------- ----------- --------- ------- ----------
Total for
the year 393,999 546,710 576,879 1.47 0.95 3.45
--------------- ========= ======== =========== ========= ======= ==========
The Group's experience of processing has shown the ore at
Gedabek to be poly-metallic containing significant amounts of
copper. Initially, the SART processing plant was constructed to
produce a copper and precious metal concentrate. However, to
further exploit the high copper content of the Group's ore
reserves, the Group commenced construction of a flotation plant in
the fourth quarter of 2014 whose function is primarily to produce
copper with gold and silver as by-products.
The flotation plant has the flexibility to be configured for
various methods of operation. It is able to process the Company's
stockpiles of high copper content ore. It can also treat ore feed
to, or tailings from, the agitation leaching plant. In such
configurations, the plant will be an integral part of the agitation
leaching plant.
The flotation plant was commissioned in the fourth quarter of
2015 and is now producing a copper and precious metal concentrate
from the tailings of the agitation leaching plant. Commissioning
took longer than anticipated due to some minor delays in final
installation of equipment and the time required for the
optimisation of the quality of the concentrate due to the presence
of zinc, which is an impurity. These teething problems have been
largely overcome and the plant is currently producing at around 75
to 80 per cent. of its design capacity which equates to
approximately 1,000 wet tonnes of mineral concentrate per
month.
Production and sales
For the year ended 31 December 2015, total gold production as
doré bars and as a constituent of the copper and precious metal
concentrate totalled 72,032 ounces, which was an increase of 11,747
ounces in comparison to the production of 60,285 ounces in the year
ended 31 December 2014.
Table 5 summarises the gold and silver produced as doré bars and
sales of gold bullion for the year ended 31 December 2015.
Table 5 - gold and silver produced as doré bars and sales of
gold bullion for the year ended 31 December 2015.
Quarter Gold Silver Gold Gold
ended produced* produced Sales** sales
(ounces) (ounces) (ounces) price
($)
---------- ---------- ---------- ---------- ------
)31 Mar
2015 17,185 596 17,206 1,214
---------- ---------- ---------- ---------- ------
30 Jun
2015 18,739 900 16,088 1,193
---------- ---------- ---------- ---------- ------
30 Sept
2015 18,158 907 14,871 1,123
---------- ---------- ---------- ---------- ------
31 Dec
2015 17,588 1,858 15,759 1,108
---------- ---------- ---------- ---------- ------
Total for
the year 71,670 4,261 63,924 1,161
---------- ---------- ---------- ---------- ------
*Including Government of Azerbaijan's share.
** Excludes Government of Azerbaijan's share.
Table 6 summarises the total copper and precious metal
production as concentrate from both SART processing and flotation
for the year ended 31 December 2015.
Table 6 - total copper and precious metal production as
concentrate for the year ended 31 December 2015
Copper (tonnes) Gold (ounces) Silver (ounces)
------------------------- ------------------------- ----------------------------
Quarter ended SART Flotation Total SART Flotation Total SART Flotation Total
--------------- ----- ---------- ------ ----- ---------- ------ ------- ---------- -------
31 March
2015 182 - 182 8 - 8 1,354 - 1,354
--------------- ----- ---------- ------ ----- ---------- ------ ------- ---------- -------
30 June 2015 236 - 236 6 - 6 3,628 - 3,628
--------------- ----- ---------- ------ ----- ---------- ------ ------- ---------- -------
30 September
2015 216 - 216 7 - 7 3,532 - 3,532
--------------- ----- ---------- ------ ----- ---------- ------ ------- ---------- -------
31 December
2015 205 130 335 6 335 341 6,589 9,264 15,853
--------------- ----- ---------- ------ ----- ---------- ------ ------- ---------- -------
Total for
the year 839 130 969 27 335 362 15,103 9,264 24,367
--------------- ----- ---------- ------ ----- ---------- ------ ------- ---------- -------
Table 7 summarises the total copper concentrate sales from both
SART processing and flotation for the year ended 31 December
2015.
Table 7 - total copper concentrate sales for the year ended 31
December 2015
SART processing Flotation Total
------------------ -------------- ---------------
Sales Sales Sales
Quarter ended (dmt) $000 (dmt) $000 (dmt) $000
--------------- ------
31 March
2015 234 635 - - 234 635
--------------- --------- ------- ------- ----- ------- ------
30 June 2015 372 1,021 - - 372 1,021
--------------- --------- ------- ------- ----- ------- ------
30 September
2015 279 601 - - 279 601
--------------- --------- ------- ------- ----- ------- ------
31 December
2015 425 891 392 630 817 1,521
--------------- --------- ------- ------- ----- ------- ------
Total for
the year 1,310 3,148 392 630 1,702 3,778
--------------- --------- ------- ------- ----- ------- ------
Tailings (waste) storage
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. The Company stores its tailings
in a purpose built dam approximately seven kilometres from its
processing operations. The project to approximately double the
capacity of the tailings dam by raising its wall 14 metres to 64
metres is now complete. The tailings dam now has a capacity of
approximately 3.2 million cubic metres. The tailings dam seepage
water return pumping system has been greatly improved with many
failsafe features added. The reed bed biological treatment system
immediately downstream of the dam to process any seepage has also
been completed. This will enable seepage water to be purified
before discharge into the Shamkir river. The new dam construction
and pumping system has now been inspected and approved by
third-party consultant engineers. Work has also been carried out to
relocate the pipes from the agitation leaching plant to the
tailings dam into a fully lined trench designed to capture any
seepage should any pipe rupture.
Due to the high rainfall in the Gedabek region, there is a
positive water balance over the mine property, which accumulates
water at a rate of about 300,000 cubic metres per year. To date,
all excess water is stored in the tailings dam, but in 2015 a
project was initiated to design and construct a water
detoxification system that will enable clean water to be discharged
from the site into local water courses. The treatment system will
involve reverse osmosis and ion exchange and the first phase of
this project is expected to start operation during 2016.
Personnel and health and safety
The health and safety of our employees and the protection of the
environment in and around our mine properties are prime concerns
for the Company's board and management team. The Health, Safety and
Environmental ("HSE") department at Gedabek has a qualified HSE
manager, who is assisted by four HSE officers. Overall strategy for
HSE matters in the Company is overseen by the HSE and Technical
committee, which is chaired by a board director, Professor John
Monhemius.
During 2015, there were 78 (2014: 65) reportable safety
incidents, of which ten (2014: four) were lost time incidents
("LTI"), where the casualty had to take time off from work. The
increased number of incidents is partly explained by the increasing
size and complexity of the mining and processing operations across
our properties as the Company's activities progress. However, the
Company is actively monitoring the situation and taking action to
reduce the number of incidents.
To improve medical coverage over all the operations, 85 managers
and supervisors have undergone first aid training, so that they can
provide first responder help in the event of accidents or other
emergencies, before professional medical assistance arrives from
the local hospital.
A geotechnical inspection of the new Gadir underground mine was
carried out in August 2015 by AMC Consultancy, United Kingdom.
Their report identified a number of short and medium term issues
that are in the process of being addressed.
Exploration at Gedabek site
The main exploration activities in the year have been at the
Gadir mine and surrounding area at Gedabek and at the Ordubud
site.
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 the
consultants 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). We are also planning for further
exploration at Gosha.
A total of 14,981 tonnes of ore of average grade 6.15 grammes
per tonne were mined at Gosha in the year ended 31 December
2015.
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 the Group's products
Important to the Group's success is the ability to transport its
products to market and sell them without disruption.
The Group ships all of its gold doré to MKS Finance SA in
Switzerland. The logistics of transport and sale are well
established and gold doré shipped from Gedabek arrives in
Switzerland within three to five days. The proceeds of the
estimated 90 per cent. of the gold content of the doré is settled
within one to two days of receipt of the doré. The Group has not
experienced any disruptions to its sale of metal due to logistics
or delays in customs clearance. MKS Finance SA both refines and
then purchases our precious metal; all assays and a full accounting
of all metal is agreed with them.
The Gedabek mine site has good road transportation links and our
copper and precious metal concentrate is collected from the Gedabek
site by the purchaser. The Group was pleased to announce in May
2014 that it had signed an exclusive three year contract with
Industrial Minerals SA, a Swiss based integrated trading, mining
and logistics group, for the sale of its copper concentrate. The
Group has again experienced no delays in the sale of its copper
concentrate in the period under review. In March 2016, the Group
signed an additional contract with Industrial Minerals SA for the
sale of the concentrate produced by its flotation plant which had
improved terms. The contract is valid for the period to 31 December
2018. Until this date, sales of concentrate produced by the
flotation plant were made under the original contract.
Principal risks and uncertainties
Country risk in Azerbaijan
The Group currently operates solely in Azerbaijan and is
therefore naturally at risk of adverse changes to the regulatory or
fiscal regime within the country. However, Azerbaijan is outward
looking and desirous of attracting direct foreign investment and
the Company believes the country will be sensitive to the adverse
effect of any proposed changes in the future. In addition,
Azerbaijan has historically had a stable operating environment and
the Company maintains very close links with all relevant
authorities.
Operational risk
The Company currently produces all its products for sale at
Gedabek. Planned production may not be achieved as a result of
unforeseen operational problems, machinery malfunction or other
disruptions. Operating costs and profits for commercial production
therefore remain subject to variation. The Group monitors
production on a daily basis and has robust procedures in place to
effectively manage these risks.
Commodity price risk
The Group's revenues are exposed to fluctuations in the price of
gold, silver and copper and all fluctuations have a direct impact
on the operating profit and cash flow of the Group. Whilst the
Group has no control over the selling price of its commodities, it
has very robust cost controls to minimise costs to ensure it can
withstand any prolonged period of commodity price weakness.
The Group does not hedge this commodity price exposure and
actively monitors all changes in commodity prices to understand the
impact on the business. The Group remains open to the possibility
of hedging, which is reviewed periodically.
Foreign currency risk
The Group reports in United States Dollars and a large
proportion of its costs are incurred in United States Dollars. It
also conducts business in Australian dollars, Azerbaijan Manats and
United Kingdom Sterling. The Group does not currently hedge its
exposure to other currencies, although it will review this
periodically if the volume of non-United States dollar transactions
increases significantly. Also, the fact that both revenue of the
Group and the Group's interest-bearing debt are settled in United
States dollars is a key mitigating factor that helps to avoid
significant exposure to foreign currency risk. Information on the
carrying value of monetary assets and liabilities denominated in
foreign currency and the sensitivity analysis of foreign currency
is disclosed in note 23 to the following financial statements.
Liquidity and interest rate risk
Interest rates on current loans are fixed except for three month
LIBOR embedded in the terms of the Amsterdam Trade Bank loan. The
Group has not used any interest rate swaps or other instruments to
manage its interest rate profile during 2015, but this requirement
is reviewed on a periodic basis. Information on the exposure to
changing interest rates is disclosed in note 23 to the following
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 the interest rate
charged on the Amsterdam Trade Bank loan.
The levels of deposits held by the Group have also been low,
therefore any impact of changing rates on interest receivable is
minimal.
Key performance indicators
The Group has adopted certain key performance indicators
("KPIs") which enable it to measure its financial performance.
These KPIs are as follows:
1. Profit before taxation. This is the key performance indicator
used by the Group. It gives insight into cost management,
production growth and performance efficiency.
2. Net cash provided by operating activities. This is a
complementary measure to profit before taxation and demonstrates
conversion of underlying earnings into cash. It provides additional
insight into how we are managing costs and increasing efficiency
and productivity across the business in order to deliver increasing
returns.
3. 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 is discussed in
the financial review.
Financial review
Group income statement
The Group generated revenues of $78,057k (2014: $67,964k) from
sales of gold and silver bullion and copper and precious metal
concentrates.
$74,279k of the revenues (2014: $64,280k) were generated from
sales of gold and silver bullion from the Group's share of the
production of doré bars in 2015. Bullion sales in 2015 were 63,924
ounces of gold and 3,754 ounces of silver (2014: 50,615 ounces of
gold and 6,802 ounces of silver) at an average price of $1,161 per
ounce and $15 per ounce respectively (2014: $1,267 per ounce and
$20 per ounce respectively). In addition, the Group generated
revenue from the sale of copper concentrate of $3,778k (2014:
$3,684k).
The Group incurred cost of sales of $75,234k (2014: $68,500k).
The cash cost of mining and processing in 2015 decreased by $6,160k
from $61,697k in 2014 to $55,537k in 2015. This was due to
improving operational efficiency, cost control and the devaluation
of the Azerbaijan Manat. However, this was offset by higher
depreciation and amortisation of $2,819k ($21,857k in 2015 compared
to $19,038k in 2014), a net charge in respect of opening and
closing inventory in 2015 of $6,828k and a decrease in capitalised
deferred stripping costs in 2015 of $3,289k.
Depreciation and amortisation in 2015 was $21,857k compared to
$19,038k in 2014. The higher depreciation was due to increased
production of gold. Accumulated mine development costs within
producing mines are depreciated and amortised on a
unit-of-production basis over the economically recoverable reserves
of the mine concerned, except in the case of assets whose useful
life is shorter than the life of the mine, in which case the
straight line method is applied. The unit of account for run of
mine ("ROM") costs and for post-ROM costs is recoverable ounces of
gold.
The Group had other income in 2015 of $714k (2014: $632k) which
was interest receivable on employee loans, consultancy and exchange
gains. The Group incurred administration expenses in 2015 of
$5,415k (2014: $7,202k) and finance costs of $5,721k (2014:
$5,462k). 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 AIM. The Group's administration costs reduced in
2015 compared to 2014 due to the devaluation of the Azerbaijan
Manat and cost reduction measures. 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 recorded a reduced loss before taxation in 2015 of
$8,910k (2014: $14,364k) due to higher revenues in 2015 and average
cash costs reducing to $724 per ounce compared to $971 per ounce in
2014.
The Group had a taxation credit for the year of $1,529k (2014:
$3,436k). This comprised a current income tax charge of $nil and a
deferred tax credit of $1,529k (2014: taxation credit of $3,436k
comprising a current income taxation charge of $nil and a deferred
taxation credit of $3,436k). The Group had no current taxation
charge in 2015 as its main operating companies incurred a taxable
loss for the year. The deferred taxation credit in 2015 arose
primarily due to an increase in carry forward losses partially
offset by lower taxation depreciation compared to accounting
depreciation.
Cash cost of total gold production
The Group produced gold at an average cash operating cost net of
by-product credits in 2015 of $724 per ounce compared to $971 per
ounce in 2014. Cash operating cost is defined as the cash cost of
mining and processing (before adjustment for inventory movements
and deferred stripping costs capitalised or released) plus metal
selling costs. By-product credits are the sale proceeds (including
Government of Azerbaijan share) of copper and silver. The reason
for the decrease in 2015 compared to 2014 was the both the decrease
in cash operating costs and the increase in production.
Group statement of financial position
Non-current assets decreased from $137,451k at the end of 2014
to $129,464k at the end of 2015. The main reasons for the decrease
were intangible assets lower by $1,672k and property, plant and
equipment lower by $6,003k. These decreases were mainly driven by
depreciation and amortisation in the year. Non-current inventory
increased by $873k due to an increase in ore stockpiles.
Net current assets decreased from $10,136k at the end of 2014 to
net current liabilities of $4,243k at the end of 2015. The main
reason for the decrease was an increase in the current portion of
interest-bearing loans and borrowings. The current portion of
interest-bearing loans and borrowings increased by $10,033k from
$16,675k to $26,708k. This was mainly due to $2,007k of existing
loans from the International Bank of Azerbaijan now maturing within
one year, an increase in the loan of $3,379k due to Pasha Bank
which was drawn down in the year to finance the flotation plant
construction and the loan from director of $3,860k which is
repayable within one year. The Group's cash balances at 31 December
2015 were $249k (2014: $322k).
Net assets of the Group were $78,644k (2014: $85,916k). The
decrease was mainly 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 2015 was $49,296k and comprised
the following:
a $27.1m 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 2015 was 8.73 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 half and annual financial
statements. The Group met this DSCR for both the six months ended
30 June 2015 and 12 months ended 31 December 2015.
b $11.7m of loans from the International Bank of Azerbaijan.
$10.2m of these loans is the remaining balance of the loans
obtained for the construction of the agitation leaching plant.
Repayment started on 31 March 2015 and ends on 31 March 2018. $1.5m
is a working capital facility and carries an interest rate of 12
per cent. It is repayable in full on 30 June 2016.
c $0.4m due to Atlas Copco for equipment financing.
d $1.7m due to Yapi Kredi Bank for working capital financing.
e $4.6m due to Pasha Bank. $1.4m is payable in respect of the
credit line for financing letters of credit for cyanide purchases.
$3.3m is in respect of the credit facility obtained for the
financing of the flotation plant. The total amount outstanding
under the two facilities is repayable in two equal instalments in
May and November 2016.
f $3.9m from a director. This carries interest at 10 per cent.
Repayment date is 8 July 2016.
The Group had a deferred taxation liability at 31 December 2015
of $15,435k (2014: $16,964k).
Group cash flow statement
Operating cash inflow before movements in working capital was
$18,581k (2014: $10,567k). The main source of operating cash flow
was the profit before taxation, finance costs and amortisation and
depreciation of $18,668k (2014: $10,129k).
Working capital movements generated cash of $4,631k (2014:
$4,254k) due to a decrease in inventories of $6,285k (2014:
increase of $3,342k) mainly driven by a decrease in metal in
circuit of $6,660k partially offset by a decrease in trade and
other payables of $793k (2014: increase of $3,902k) and an increase
in trade and other receivables of $1,110k (2014: decrease of
$3,694k).
Income tax paid was $nil (2014: $nil) as the Group incurred
taxable losses for the year.
Net cash provided by operating activities in 2015 was $22,963k
compared to $14,821k in 2014. This higher cash generated from
operating activities in the year was due to the decreased loss of
the Group partially offset by less cash generated from working
capital.
Expenditure on property, plant and equipment and mine
development was $14,279k (2014: $16,270k). The main items of
expenditure in 2015 were capitalisation of deferred stripping costs
of $6,627k, the raise of the wall of the tailings dam and
construction of a reed bed for the tailings dam of $2,983k,
construction of the flotation plant of $3,188k and development of
the Gadir mine of $894k.
Exploration and evaluation expenditure of $377k (2014: $608k)
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 2016 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 2016.
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 2017 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 in which the Group is
operating. In 2015, the price of gold averaged $1,160 per ounce
with a high of $1,298 per ounce and a low of $1,060 per ounce. This
resulted in a continuation of the depressed margins seen in 2014.
However, 2016 has seen a small but significant increase in the
price of gold and during the period 1 January to 20 May 2016, the
price of gold averaged $1,206 per ounce. In addition, the Group
received its first revenues from its flotation plant in the fourth
quarter of 2015 after the plant commenced production. 2016 and 2017
will see the benefit of a full years' contribution of revenues from
the flotation plant.
The Group commenced making payments on the principal of its debt
in 2015. At the date of this release, the Group has made all
payments of interest and principal on time.
The Group's loan agreement with the Amsterdam Trade Bank
contains a debt service cover ratio ("DSCR") covenant of at least
1.25. This ratio is calculated twice a year from its published
financial statements. The Group has so far met the DSCR of 1.25 for
all reporting periods subsequent to loan drawdown. For the full
year to 31 December 2016 and for the six month period to 30 June
2017, the Group's cash flow forecasts show the Group is able meet
the debt service cover ratio of 1.25 as specified.
Key to achieving the Group's forecast cash position, and
therefore its going concern assumption are the following:
- achieving the forecast production of gold doré from its heap
and agitation leaching facilities.
- achieving its forecast production of precious metal
concentrates from its SART and flotation processing.
- its metal (principally gold and copper) price assumptions being met or bettered.
Should there be a moderate and sustained decrease in either the
production or metal price assumptions, significant doubt would be
cast over the Group's short term cash position. Under this
circumstance, the Group would seek to defer all non-essential
capital expenditure and administrative costs in order to preserve
cash. The Group also has access to local sources of short term
finance to meet any shortfalls.
The Group's assumptions are based on best estimates and
appropriate sensitivities have been applied. Appropriate rigour and
diligence has been performed by the directors in approving the
assumptions. The directors believe all assumptions are prepared on
a realistic basis using the best available information.
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
can be found in the Group's annual report and accounts and within
the chairman's statement and the strategic report above. The
financial position of the Group, its cash flow, liquidity position
and borrowing facilities are discussed in the financial review. In
addition, note 23 to the following financial statements includes
the Group's objectives and 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 financial statements.
Reza Vaziri
President and chief executive
Group income statement
year ended 31 December 2015
2015 2014
Notes $000 $000
----------------------------------- ------ --------- ---------
Revenue 6 78,057 67,964
Cost of sales 8 (75,234) (68,500)
----------------------------------- ------ --------- ---------
Gross profit / (loss) 2,823 (536)
Other income 7 714 632
Administrative expenses (5,415) (7,202)
Other operating expense 7 (1,311) (1,803)
----------------------------------- ------ --------- ---------
Operating loss 8 (3,189) (8,909)
Finance income 6 - 7
Finance costs 11 (5,721) (5,462)
----------------------------------- ------ --------- ---------
Loss before tax (8,910) (14,364)
Income tax 12 1,529 3,436
----------------------------------- ------ --------- ---------
Loss attributable to the equity
holders of the parent (7,381) (10,928)
----------------------------------- ------ --------- ---------
Loss per share attributable to
the equity holders of the parent
Basic (US cents per share) 13 (6.58) (9.79)
Diluted (US cents per share) 13 (6.58) (9.79)
----------------------------------- ------ --------- ---------
Group statement of comprehensive income
year ended 31 December 2015
2015 2014
$000 $000
------------------------------------ -------- ---------
Loss for the year (7,381) (10,928)
------------------------------------ -------- ---------
Total comprehensive loss (7,381) (10,928)
------------------------------------ -------- ---------
Attributable to the equity holders
of the parent (7,381) (10,928)
------------------------------------ -------- ---------
Group statement of financial position
31 December 2015
2015 2014
Notes $000 $000
------------------------------- ------ --------- ---------
Non-current assets
Intangible assets 14 18,373 20,045
Property, plant and equipment 15 108,428 114,431
Inventory 17 2,543 1,670
Other receivables 18 120 1,305
------------------------------- ------ --------- ---------
129,464 137,451
------------------------------- ------ --------- ---------
Current assets
Inventory 17 26,197 33,355
Trade and other receivables 18 16,131 5,350
Cash and cash equivalents 19 249 322
------------------------------- ------ --------- ---------
42,577 39,027
------------------------------- ------ --------- ---------
Total assets 172,041 176,478
------------------------------- ------ --------- ---------
Current liabilities
Trade and other payables 20 (20,112) (12,216)
Interest-bearing loans and
borrowings 21 (26,708) (16,675)
------------------------------- ------ --------- ---------
(46,820) (28,891)
------------------------------- ------ --------- ---------
Net current (liabilities)
/assets (4,243) 10,136
------------------------------- ------ --------- ---------
Non-current liabilities
Provision for rehabilitation 22 (8,554) (8,624)
Interest-bearing loans and
borrowings 21 (22,588) (36,083)
Deferred tax liability 12 (15,435) (16,964)
------------------------------- ------ --------- ---------
(46,577) (61,671)
------------------------------- ------ --------- ---------
Total liabilities (93,397) (90,562)
------------------------------- ------ --------- ---------
Net assets 78,644 85,916
------------------------------- ------ --------- ---------
Equity
Share capital 24 1,993 1,978
Share premium account 32,325 32,246
Share-based payment reserve 283 670
Merger reserve 24 46,206 46,206
Retained (loss) / earnings (2,163) 4,816
------------------------------- ------ --------- ---------
Total equity 78,644 85,916
------------------------------- ------ --------- ---------
Group cash flow statement
year ended 31 December 2015
2015 2014
Notes $000 $000
-------------------------------------- ------ ------------------ ------------------
Loss before tax (8,910) (14,364)
Adjustments for:
Finance income - (7)
Finance costs 11 5,721 5,462
Depreciation of property,
plant and equipment 15 19,808 17,318
Amortisation of mining rights
and other intangible assets 14 2,049 1,720
Share-based payment expense 25 15 16
Shares issues in lieu of cash
payment 94 50
Foreign exchange gain, net 7 (380) -
Write down of unrecoverable
inventory 16 - 372
Write down of advances paid 7 184 -
-------------------------------------- ------ ------------------ ------------------
Operating cash flow before
movement in working capital 18,581 10,567
(Increase) / decrease in trade
and other receivables (1,110) 3,694
Decrease / (increase) in inventories 6,285 (3,342)
(Decrease) / increase in trade
and other payables (793) 3,902
-------------------------------------- ------ ------------------ ------------------
Cash provided by operations 22,963 14,821
Income taxes paid - -
-------------------------------------- ------ ------------------ ------------------
Net cash provided by operating
activities 22,963 14,821
-------------------------------------- ------ ------------------ ------------------
Investing activities
Expenditure on property, plant
and equipment and mine development (14,279) (16,270)
Investment in exploration
and evaluation assets including
other intangible assets (377) (608)
Interest received - 7
-------------------------------------- ------ ------------------ ------------------
Net cash used in investing
activities (14,656) (16,871)
-------------------------------------- ------ ------------------ ------------------
Financing activities
Proceeds from issuance of
shares - 28
Proceeds from borrowings 21 14,793 8,662
Repayments of borrowings 21 (18,314) (6,982)
Interest paid (4,859) (4,825)
-------------------------------------- ------ ------------------ ------------------
Net cash outflow from financing
activities (8,380) (3,117)
-------------------------------------- ------ ------------------ ------------------
Net decrease in cash and cash
equivalents (73) (5,167)
Cash and cash equivalents
at the beginning of the year 19 322 5,489
-------------------------------------- ------ ------------------ ------------------
Cash and cash equivalents
at the end of the year 19 249 322
-------------------------------------- ------ ------------------ ------------------
Group statement of changes in equity
year ended 31 December 2015
Share-based Retained
Share Share payment Merger earnings Total
capital premium reserve reserve /(loss) equity
Notes $000 $000 $000 $000 $000 $000
--------------- ------ --------- --------- ------------ --------- ----------- ---------
1 January
2014 1,973 32,173 735 46,206 15,663 96,750
Loss for
the year - - - - (10,928) (10,928)
Share options
exercised 25 2 26 (28) - 28 28
Shares issued 24 3 47 - - - 50
Fair value
of forfeited
options - - (53) - 53 -
Share-based
payment 25 - - 16 - - 16
--------------- ------ --------- --------- ------------ --------- ----------- ---------
31 December
2014 1,978 32,246 670 46,206 4,816 85,916
Loss for
the year - - - - (7,381) (7,381)
Shares issued 24 15 79 - - - 94
Fair value
of forfeited
options - - (402) - 402 -
Share-based
payment 25 - - 15 - - 15
--------------- ------ --------- --------- ------------ --------- ----------- ---------
31 December
2015 1,993 32,325 283 46,206 (2,163) 78,644
--------------- ------ --------- --------- ------------ --------- ----------- ---------
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 16,
and the chairman's statement and strategic report above.
2. Basis of preparation
The financial information set out above, which was approved by
the board of directors on 24 May 2015, has been prepared in
accordance with International Financial Reporting Standards
("IFRS") adopted by the European Union and therefore the Group
financial statements comply with Article 4 of the EU IAS
Regulation.
The financial information set out above has been prepared using
accounting policies set out in note 4 which are consistent with all
applicable IFRSs and with those parts of the Companies Act 2006
applicable to companies reporting under IFRSs. For these purposes,
IFRSs comprises the standards issued by the International
Accounting Standards Board and interpretations issued by the
International Financial Reporting Interpretations Committee that
have been endorsed by the European Union.
The financial information set out above has been prepared under
the historical cost convention except for the treatment of
share-based payments. The Group financial statements are presented
in United States Dollars ("$") and all values are rounded to the
nearest thousand except where otherwise stated. In the Group
financial statements "GBP" and "pence" are references to the United
Kingdom pound sterling.
The board of directors assessed the ability of the Group to
continue as a going concern and these financial statements have
been prepared on a going concern basis.
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 2017 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 in which the Group is
operating. In 2015, the price of gold averaged $1,160 per ounce
with a high of $1,298 per ounce and a low of $1,060 per ounce. This
resulted in a continuation of the depressed margins seen in 2014.
However, 2016 has seen a small but significant increase in the
price of gold and during the period 1 January to 20 May 2016, the
price of gold averaged $1,206 per ounce. In addition, the Group
received its first revenues from its flotation plant in the fourth
quarter of 2015 after the plant commenced production. 2016 and 2017
will see the benefit of a full years' contribution of revenues from
the flotation plant.
The Group commenced making payments on the principal of its debt
in 2015. At the date of this release, the Group has made all
payments of interest and principal on time. The Group's loan
agreement with the Amsterdam Trade Bank contains a debt service
cover ratio ("DSCR") covenant of at least 1.25. This ratio is
calculated twice a year from its published financial statements.
The Group has so far met the DSCR of 1.25 for all reporting periods
subsequent to loan drawdown. For the full year to 31 December 2016
and for the six month period to 30 June 2017, the Group's cash flow
forecasts show the Group is able meet the debt service cover ratio
of 1.25 as specified.
Key to achieving the Group's forecast cash position, and
therefore its going concern assumption are the following:
- achieving the forecast production of gold doré from its heap
and agitation leaching facilities.
- achieving its forecast production of precious metal
concentrates from its SART and flotation processing.
- its metal (principally gold and copper) price assumptions being met or bettered.
Should there be a moderate and sustained decrease in either the
production or metal price assumptions, significant doubt would be
cast over the Group's short term cash position. Under this
circumstance, the Group would seek to defer all non-essential
capital expenditure and administrative costs in order to preserve
cash. The Group also has access to local sources of short term
finance to meet any shortfalls.
The Group's assumptions are based on best estimates and
appropriate sensitivities have been applied. Appropriate rigour and
diligence has been performed by the directors in approving the
assumptions. The directors believe all assumptions are prepared on
a realistic basis using the best available information.
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
can be found in the Group's annual report and accounts and within
the chairman's statement and the strategic report above. The
financial position of the Group, its cash flow, liquidity position
and borrowing facilities are discussed in the financial review. In
addition, note 23 to the following financial statements includes
the Group's objectives and 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 financial statements.
3 Adoption of new and revised standards
a) New and amended standards and interpretations
The Group applied those minor amendments, including annual
improvements, which are effective for annual periods beginning on
or after 1 January 2015. However, they do not impact the annual
consolidated financial statements of the Group or the interim
financial statements and, hence, have not been disclosed.
b) Standards issued but not yet effective
The standards and interpretations that are issued, but not yet
effective, up to the date of issuance of the financial statements
that the Group reasonably expects will have an impact on its
disclosures, financial position or performance when applied at a
future date, are disclosed below. The Group intends to adopt these
standards when they become effective. The standards and
interpretations that are issued, but not yet effective, up to the
date of issuance of the financial statements that are not expected
to impact the Group have not been listed below.
-- IFRS 9 'Financial Instruments'
In July 2014, the IASB issued the final version of IFRS 9
'Financial Instruments' that replaces IAS 39 and all previous
versions of IFRS 9. IFRS 9 brings together all three aspects of the
accounting for the financial instruments project; classification
and measurement, impairment and hedge accounting. IFRS 9 is
effective for annual periods beginning on or after 1 January 2018,
with early adoption permitted. Except for hedge accounting,
retrospective application is required, but the provision of
comparative information is not compulsory. For hedge accounting,
the requirements are generally applied prospectively, with some
limited exceptions.
The Group plans to adopt the new standard on the required
effective date. The Group is in the process of assessing the impact
of the changes required by the final version of IFRS 9, but these
are not expected to be materially significant.
-- IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 was issued in May 2014 and establishes a five-step model
to account for revenue arising from contracts with customers. Under
IFRS 15, revenue is recognised at an amount that reflects the
consideration to which an entity expects to be entitled in exchange
for transferring goods or services to a customer. The new revenue
standard will supersede all current revenue recognition
requirements under IFRS. Either a full retrospective application or
a modified retrospective application is required for annual periods
beginning on or after 1 January 2018. Early adoption is
permitted.
The Group plans to adopt the new standard on the required
effective date using the full retrospective method. The Group is
currently assessing the impact of the changes of IFRS 15, but these
are not expected to be materially significant.
-- IAS 7 Statement of cash flows
An exposure draft proposing amendments to IAS 7 "Statement of
cash flows" was issued in December 2014. The exposure draft
includes a proposal to require a reconciliation of the amounts in
the opening and closing statements of financial position for each
item classified as financing in the statement of cash flows. It
also includes a proposal to require extended disclosures about the
restrictions on cash and cash equivalent balances to provide the
users with additional information about the entity's liquidity.
The Group plans to implement the new standard on the effective
date for implementation which is for annual periods beginning on or
after 1 January 2017. Comparative information for preceding annual
periods is not required to be restated. The Group does not expect
these additional disclosures to be materially significant.
-- Amendments to IAS 1 Disclosure initiative
The amendments to IAS 1 'Presentation of Financial Statements'
clarify rather than significantly change, existing IAS 1
requirements. The amendments clarify:
o the materiality requirements in IAS 1;
o that specific line items in the statement(s) of profit or loss
and other comprehensive income and the statement of financial
position may be disaggregated;
o that entities have flexibility as to the order in which they
present the notes to the financial statements; and
o that the share of other comprehensive income of associates and
joint ventures accounted for using the equity method must be
restated in aggregate as a single line item, and classified between
those items that will or will not be subsequently reclassified to
profit and loss.
Furthermore, the amendments clarify the requirements that apply
when additional subtotals are presented in the statement of
financial position and the statement(s) of profit or loss and other
comprehensive income. These amendments are effective for annual
periods beginning on or after 1 January 2016, with early adoption
permitted. These amendments are not currently expected to have any
material impact on the Group.
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
2015. 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 2015 and 2014.
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:
- where one party has the ability to control the other party or
exercise significant influence over the other party in making
financial or operational decisions;
- entities under common control; and
- key management personnel
In considering each possible related party relationship,
attention is directed to the substance of the relationship, not
merely the legal form.
Related parties may enter into transactions which unrelated
parties might not and transactions between related parties may not
be effected on the same terms, conditions and amounts as
transactions between unrelated parties.
It is the nature of transactions with related parties that they
cannot be presumed to be carried out on an arm's length basis.
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
Other intangible assets mainly represent the cost paid to
landowners for the use of land ancillary to our mining operations.
They are depreciated over the respective terms of right to use the
land.
Intangible assets with finite lives are amortised over the
useful economic life and assessed for impairment whenever there is
an indication that the intangible asset may be impaired. The
amortisation period and the amortisation method for an intangible
asset with a finite useful life is reviewed at least at each
reporting date. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the
asset are accounted for by changing the amortisation period or
method, as appropriate, and are treated as changes in accounting
estimates. The amortisation expense on intangible assets with
finite lives is recognised in the Group income statement in the
expense category consistent with the function of the intangible
asset.
Gains or losses arising from derecognition of an intangible
asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognised in
the Group income statement when the asset is derecognised.
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 (2014: eight years)
-- Plant and equipment - eight years (2014: eight years)
-- Motor vehicles - four years (2014: four years)
-- Office equipment - four years (2014: four years)
-- Leasehold improvements - eight years (2014: 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.
iii) Derecognition
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original
liability and the recognition of a new liability and the difference
in the respective carrying amounts is recognised in the Group
income statement.
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 on this basis. Accordingly, the
Group has only one operating segment, mining operations. The mining
operations comprise the Group's major producing asset, the Gedabek
mine which accounts for all the Group's revenues and the majority
of its cost of sales, depreciation and amortisation. The Group's
mining operations are all located within Azerbaijan and therefore
all within one geographic segment.
All sales of gold and silver bullion are made to one customer,
the Group's gold refinery, MKS Finance SA, based in Switzerland.
Copper concentrate is sold to Industrial Minerals SA.
6. Revenue
The Group's revenue consists of gold and silver bullion and
copper concentrate sold to the third-party customers. Revenue from
sales of gold and silver bullion was $74,221,000 and $58,000
respectively (2014: $64,145,000 and $135,000). Revenue from sales
of precious metals concentrate was $3,778,000 (2014:
$3,684,000).
Finance income of $nil was received in 2015. Finance income of
$7,000 in 2014 was interest received on cash deposits during the
year.
7. Other operating expenses and income
Other income
Other income comprises interest receivable from employee loans,
consulting income and foreign exchange gains for the years ended 31
December 2014 and 2015. Foreign exchange gain for the year ended 31
December 2015 was $629,000 (2014: $nil).
Other operating expense
Other operating expenses consist of metal refining costs,
foreign currency exchange loss and miscellaneous operating expenses
for the years ended 31 December 2014 and 2015. Foreign currency
exchange loss for the year ended 31 December 2015 was $249,000
(2014: $137,000).
8. Operating loss
2015 2014
Notes $000 $000
--------------------------------------- ------ ---------------------- ----------------------
Operating loss is stated after
charging:
Depreciation on property, plant
and equipment - owned 15 19,808 17,318
Amortisation of mining rights
and other intangible assets 14 2,049 1,720
Employee benefits and expenses 10 9,614 10,882
Foreign currency exchange
loss 249 137
Inventory expensed during
the year 35,592 35,879
Operating lease expenses 616 431
--------------------------------------- ------ ---------------------- ----------------------
Fees payable to the Company's
auditor for:
The audit of the Group's annual
accounts 138 194
The audit of the Group's subsidiaries
pursuant to legislation 119 121
--------------------------------------- ------ ---------------------- ----------------------
Total audit services 257 315
--------------------------------------- ------ ---------------------- ----------------------
Amounts paid to auditor for
other services:
Tax compliance services 10 15
Tax advice services - 13
Audit related assurance services
- half year review - 20
--------------------------------------- ------ ---------------------- ----------------------
Total non-audit services 10 48
--------------------------------------- ------ ---------------------- ----------------------
Total 267 363
--------------------------------------- ------ ---------------------- ----------------------
There were no non-cancellable operating lease and sublease
arrangements during 2015 and 2014.
The audit fees for the parent company were $107,000
(2014:$107,000).
9. Remuneration of the directors
Year ended 31 December Consultancy Fees Benefits Total
2015 $ $ $ $
------------------------ ------------ -------- --------- --------
John Monhemius 6,145 50,252 - 56,397
Richard Round - 50,252 - 50,252
John Sununu - 72,486 - 72,486
Reza Vaziri 577,597 50,252 42,283 670,132
Khosrow Zamani - 124,446 - 124,446
------------------------ ------------ -------- --------- --------
583,742 347,688 42,283 973,713
------------------------ ------------ -------- --------- --------
Certain fees and expenses of the directors for the year ended 31
December 2015 were settled by issuing shares to those directors.
The number of shares issued and the gross fees (before deduction of
taxes) and expenses in which they were in respect of, are as
follows:
Number
of
shares Fees Expenses
Director issued $ $
---------------- -------- ------- ---------
John Monhemius 157,845 25,554 -
Richard Round 152,801 25,554 -
Khosrow Zamani 666,406 63,946 1,962
----------------- -------- ------- ---------
The shares were issued on 22 July 2015 at a price of 6.19 pence
per share.
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* 575,545 53,460 42,135 671,140
Khosrow Zamani - 131,862 - 131,862
----------------------------- ------------ -------- --------- --------
580,548 370,534 42,135 993,217
----------------------------- ------------ -------- --------- --------
* restated to reflect the effect of taxation
Directors' fees and consultancy fees for 2014 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:
2015 2014
Number Number
------------------------------- -------- --------
Management and administration 51 54
Exploration 19 41
Mine operations 545 491
------------------------------- -------- --------
615 586
------------------------------- -------- --------
The aggregate payroll costs of these persons were as
follows:
2015 2014
$000 $000
---------------------------------------- ------ -------
Wages and salaries 8,172 9,363
Share-based payments 15 16
Social security costs 1,609 2,100
---------------------------------------- ------ -------
9,796 11,479
Less: salary costs capitalised as
exploration, evaluation development,
fixed asset and inventory expenditure (182) (597)
---------------------------------------- ------ -------
9,614 10,882
---------------------------------------- ------ -------
Remuneration of key management personnel
The remuneration of the key management personnel of the Group,
is set out below in aggregate:
2015 2014
$ $
------------------------------ ---------- ----------
Short-term employee benefits 1,541,245 1,633,037
Share-based payment 109,658 65.757
------------------------------ ---------- ----------
1,650,903 1,698,794
------------------------------ ---------- ----------
11. Finance costs
2015 2014
$000 $000
-------------------------------------- ------ ------
Interest charged on interest-bearing
loans and borrowings 5,177 4,882
Finance charges on letters of credit 130 111
Unwinding of discount on provisions 414 469
-------------------------------------- ------ ------
5,721 5,462
-------------------------------------- ------ ------
Interest on interest-bearing loans and borrowings represents
charges incurred on credit facilities with the International Bank
of Azerbaijan, the Amsterdam Trade Bank, Yapi Kredi Bank
Azerbaijan, Pasha Bank, Atlas Copco Customer Finance AB and a
director.
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 2015, $nil (2014:$nil)
interest was capitalised.
12. Taxation
Corporation tax is calculated at 32 per cent. (as stipulated in
the production sharing agreement for R.V. Investment Group Services
LLC ("RVIG") in the Republic of Azerbaijan, the entity that
contributes 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 2015 were $27,990,000 (2014: $24,888,000).
The major components of the income tax expenses for the year
ended 31 December are:
2015 2014
$000 $000
-------------------------------------- ------ ------
Current income tax
Current income tax charge - -
Deferred tax
Relating to origination and reversal
of temporary differences 1,529 3,436
-------------------------------------- ------ ------
Income tax credit for the year 1,529 3,436
-------------------------------------- ------ ------
Deferred income tax at 31 December relates to the following:
Statement
of financial
position Income statement
-------------------- -------------------
2015 2014 2014 2014
$000 $000 $000 $000
----------------------------- --------- --------- -------- ---------
Deferred income tax
liability
Property, plant and
equipment - accelerated
depreciation (20,791) (20,253) (538) (3,474)
Non-current prepayments (158) (418) 260 (305)
Trade and other receivables (694) (360) (334) 964
Inventories (7,759) (9,770) 2,011 (951)
----------------------------- --------- --------- -------- ---------
Deferred tax liability (29,402) (30,801)
----------------------------- --------- --------- -------- ---------
Deferred income tax
asset
Trade and other payables
and provisions * 2,298 2,952 (654) 1,201
Asset retirement
obligation * 2,737 2,760 (23) 406
Interest bearing
loans and borrowings
* (25) 161 (186) (734)
Carry forward losses
** 8,957 7,964 993 6,329
----------------------------- --------- --------- -------- ---------
Deferred tax asset 13,967 13,837
----------------------------- --------- --------- -------- ---------
Deferred income tax
credit 1,529 3,436
----------------------------- --------- --------- -------- ---------
Net deferred tax
liability (15,435) (16,964)
----------------------------- --------- --------- -------- ---------
* Deferred income tax assets have been recognised for the trade
and other payables and provisions, asset retirement obligation and
interest-bearing loans and borrowings based on local tax basis
differences expected to be utilised against future taxable
profits.
** Deferred income tax assets have been recognised for the carry
forward of unused tax losses to the extent that it is probable that
taxable profits will be available in the future against which the
unused tax losses can be utilised. The probability that taxable
profits will be available in the future is based on forward looking
budgets and business plans of the Group.
A reconciliation between accounting loss and the total taxation
benefit for the year ended 31 December is as follows:
2015 2014
$000 $000
---------------------------------------------- -------- ---------
Loss before tax (8,910) (14,364)
---------------------------------------------- -------- ---------
Theoretical tax charge at statutory
rate of 32 per cent. for RVIG* (2,851) (4,596)
Effects of different tax rates for certain
Group entities (20/28 per cent.) 173 130
Tax effect of items which are not deductible
or assessable for taxation purposes:
- losses in jurisdictions that are exempt
from taxation 1 5
- non-deductible expenses 1,175 1,078
- non-taxable income (27) (53)
---------------------------------------------- -------- ---------
Income tax credit for the year (1,529) (3,436)
---------------------------------------------- -------- ---------
* 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 2015, the Group had unused tax losses of
$30,762,000 (2014: $27,075,000). Unused tax losses in the Republic
of Azerbaijan at 31 December 2015 were $27,990,000 (2014:
$24,888,000). 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 per share
The calculation of basic and diluted loss per share is based
upon the retained loss for the financial year of $7,381,000 (2014:
$10,928,000).
The weighted average number of ordinary shares for calculating
the basic loss and diluted loss per share after adjusting for the
effects of all dilutive potential ordinary shares relating to share
options are as follows:
2015 2014
--------- ------------ -----------
Basic 112,117,622 111,667,479
--------- ------------ -----------
Diluted 112,117,622 111,667,479
--------- ------------ -----------
At 31 December 2015 there were no instruments that could
potentially dilute basic earnings per share due to the loss (2014:
nil).
14. Intangible assets
Exploration Other
and evaluation Mining intangible
Ordubad rights assets Total
$000 $000 $000 $000
------------------------------ --------------- --------- ------------ --------
Cost
1 January 2014 2,905 41,925 468 45,298
Additions 608 - - 608
31 December 2014 3,513 41,925 468 45,906
Additions 347 - 30 377
------------------------------ --------------- --------- ------------ --------
31 December 2015 3,860 41,925 498 46,283
------------------------------ --------------- --------- ------------ --------
Amortisation and impairment*
1 January 2014 - 23,909 232 24,141
Charge for the year - 1,697 23 1,720
------------------------------ --------------- --------- ------------ --------
31 December 2014 - 25,606 255 25,861
Charge for the year - 2,020 29 2,049
------------------------------ --------------- --------- ------------ --------
31 December 2015 - 27,626 284 27,910
------------------------------ --------------- --------- ------------ --------
Net book value
31 December 2014 3,513 16,319 213 20,045
------------------------------ --------------- --------- ------------ --------
31 December 2015 3,860 14,299 214 18,373
------------------------------ --------------- --------- ------------ --------
*579,000 ounces of gold at 1 January 2015 were used to determine
depreciation of producing mines, mining rights and other intangible
assets following compilation of a new reserve statement for the
Group (2014: 639,000 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 2014 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
Additions 257 6,810 7,222 14,289
Transfer to
producing mines - 8,828 (8,838) -
Decrease in
provision for
rehabilitation - (484) - (484)
------------------ ---------------- ---------- ------------- --------
31 December
2015 19,666 175,062 477 195,205
------------------ ---------------- ---------- ------------- --------
Depreciation
and impairment*
1 January 2014 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
Charge for
the year 1,881 17,927 - 19,808
------------------ ---------------- ---------- ------------- --------
31 December
2015 12,642 74,135 - 86,777
------------------ ---------------- ---------- ------------- --------
Net book value
31 December
2014 8,648 103,690 2,093 114,431
------------------ ---------------- ---------- ------------- --------
31 December
2015 7,024 100,927 477 108,428
------------------ ---------------- ---------- ------------- --------
*579,000 ounces of gold at 1 January 2015 were used to determine
depreciation of producing mines, mining rights and other intangible
assets following compilation of a new reserve statement for the
Group (2014: 639,000 ounces).
Upon commencement of production from the Gadir underground mine
during 2015, accumulated development costs and construction in
progress assets of Gadir totalling $942,000 were transferred from
the category of assets under construction to the category of
producing mines. In addition, upon the completion of tailings dam
capacity increase and tailings reed bed projects, accumulated
expenses of $3,182,000 were transferred from the category of assets
under construction to the category of producing mines. Upon
completion of construction and commencement of production from the
flotation plant accumulated expenses of $4,496,000 were transferred
from the category of assets under construction to the category of
producing mines. During 2015 construction of a workshop for heavy
equipment and heating system installation for the agitation plant
commenced and upon completion of construction of the workshop and
installation of heating system accumulated costs of $93,000 and
$125,000 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 cost to
dispose ("FVLCD"). The determination of FVLCD is most sensitive to
the following key assumptions:
- Production volumes
- Commodity prices
- Discount rates
- Foreign exchange rates
- Capital and operating costs
Production volumes: In calculating the FVLCD, the production
volumes incorporated into the cash flow models were 420,000 ounces
of gold and 65,000 tonnes of copper. Estimated production volumes
are based on detailed life of mine plans. Production volumes are
dependent on a number of variables such as the recoverable
quantities, the cost of the necessary infrastructure to recover the
reserves, the production costs, the contractual duration of the
mining rights and the selling prices of the quantities
extracted.
Commodity prices: Forecast precious metal and commodity prices
are based on management estimates. Estimated long-term gold and
copper prices of $1,284 (2014: $1,250) per ounce and $6,600 (2014:
$6,600) per tonne respectively have been used to estimate future
revenues.
Discount rates: In calculating the FVLCD, a post-tax discount
rate of 13.5 per cent. (2014: 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"), which takes into account both equity and debt, and is
then adjusted to reflect the Group's assessment of a discount rate
that other market participants would consider when evaluating the
assets.
Foreign exchange rates: The only significant exchange foreign
exchange rate in the cash flow model is the US dollar to Azerbaijan
Manat rate. A rate of $1 equals 1.55 Manat (2014: $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 the 2015 impairment
analysis, these costs were $30 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 2015, the recoverable amount of the
Group's assets exceeded its carrying amount by $15 million. It is
estimated that a 10 per cent. reduction in gold production and
copper production in the flotation plant, after incorporating any
consequential effects of changes on the other variables used to
measure the recoverable amount, would cause impairment of
approximately $2.2 million.
16. Subsidiary undertakings
Anglo Asian Mining PLC is the parent and ultimate parent of the
Group.
The Company's subsidiaries at 31 December 2015 are as
follows:
Percentage
of
Primary holding
Registered Place of per
Name address business cent.
-------------------------- ---------------- ---------------- -----------
Anglo Asian Operations
Limited Great Britain United Kingdom 100
Holance Holdings British Virgin
Limited Islands Azerbaijan 100
Anglo Asian Cayman
Limited Cayman Islands Azerbaijan 100
R.V. Investment Group Delaware,
Services LLC USA Azerbaijan 100
Azerbaijan International
Mining Company Limited Cayman Islands Azerbaijan 100
-------------------------- ---------------- ---------------- -----------
There has been no change in the subsidiary undertakings since 1
January 2015.
17. Inventory
2015 2014
Non-current assets $000 $000
--------------------------------------- ------- -------
Cost
Ore stockpiles 2,543 1,670
--------------------------------------- ------- -------
Current assets
--------------------------------------- ------- -------
Cost
Finished goods - bullion 1,441 3,211
Finished goods - metal in concentrate 203 150
Metal in circuit 11,899 18,559
Ore stockpiles 4,635 1,602
Spare parts and consumables 8,019 9,833
--------------------------------------- ------- -------
Total current inventories 26,197 33,355
--------------------------------------- ------- -------
Total inventories at the lower of
cost and net realisable value 28,740 35,025
--------------------------------------- ------- -------
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 $nil (2014: $372,000) was
recognised during the year as other operating expense.
18. Trade and other receivables
2015 2014
Non-current assets $000 $000
------------------------------------ ------- ------
Advances for fixed asset purchases - 1,143
Loans 120 162
------------------------------------ ------- ------
120 1,305
------------------------------------ ------- ------
Current assets
------------------------------------ ------- ------
Gold held due to the Government
of Azerbaijan 12,412 2,557
VAT refund due 186 828
Other tax receivable 720 275
Trade receivables 642 8
Prepayments and advances 2,121 1,634
Loans 50 48
------------------------------------ ------- ------
16,131 5,350
------------------------------------ ------- ------
The carrying amount of trade and other receivables approximates
to their fair value.
The VAT refund due at 31 December 2015 and 2014 relates to VAT
paid on purchases.
Gold bullion held and transferable to the Government is bullion
held by the Group due to the Government of Azerbaijan. The Group
holds the Government's share of the product from its mining
activities and from time to time transfers that product to the
Government. A corresponding liability to the Government is included
in trade and other payables shown in note 20.
The Group does not consider any stated trade and other
receivables as past due or impaired.
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 2015 (including short-term cash
deposits) comprised $98,000 and $151,000 respectively (2014:
$76,000 and $246,000).
The Group's cash and cash equivalents are mostly held in US
Dollars.
20. Trade and other payables
2015 2014
$000 $000
----------------------------------------- ------- -------
Accruals and other payables 4,861 5,342
Trade creditors 2,302 4,106
Gold held due to the Government
of Azerbaijan 12,412 2,557
Payable to the Government of Azerbaijan
from copper concentrate joint sale 537 211
20,112 12,216
----------------------------------------- ------- -------
Trade creditors primarily comprise amounts outstanding for trade
purchases and ongoing costs. Trade creditors are non
interest--bearing and the creditor days were 11 (2014: 22).
Accruals and other payables mainly consist of accruals made for
accrued but not paid salaries, bonuses, related payroll taxes and
social contributions, accrued interest on borrowings 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.
The amount payable to the Government of Azerbaijan from copper
concentrate joint sale represents the portion of cash received from
the customer for the Government's portion from the joint sale of
copper concentrate.
21 Interest-bearing loans and borrowings
2015 2014
$000 $000
------------------------------------------------------- ------- -------
International Bank of Azerbaijan - agitation leaching
plant loan 10,209 11,526
International Bank of Azerbaijan - loan facility 1,500 1,500
Amsterdam Trade Bank 27,096 36,783
Atlas Copco 355 789
Yapi Kredi Bank 1,659 922
Pasha Bank 4,617 1,238
Director 3,860 -
------------------------------------------------------- ------- -------
49,296 52,758
------------------------------------------------------- ------- -------
Loans repayable in less than one year 26,708 16,675
Loans repayable in more than one year 22.588 36,083
------------------------------------------------------- ------- -------
49,296 52,758
------------------------------------------------------- ------- -------
International Bank of Azerbaijan ("IBA")
Agitation leaching plant loan
In 2012 and 2013, the Group borrowed $49.5 million under a
series of loan agreements to finance the construction of its
agitation leaching plant. The interest rate for each agreement is
12 per cent. The repayment of principal begins two years from the
withdrawal date for each agreement. The loans were partially repaid
by the proceeds of a refinancing loan from Amsterdam Trade Bank.
The loan agreements are repayable commencing in 31 March 2015 and
finishing in 30 June 2018. The total gross amount outstanding under
the loan agreements at 31 December 2015 was $10.2 million (31
December 2014: $11.5 million).
Loan facility
During 2014, the Group entered into a credit facility for $1.5
million for a period of one year at an interest rate of 12 per
cent. The repayment date of the credit facility was extended in
2015 and the loan is repayable on 30 June 2016.
Amsterdam Trade Bank ("ATB")
During 2013, the Group entered into a loan agreement for $36.8
million to refinance its agitation leaching plant loan from IBA.
The interest rate is 8.25 per cent. per annum plus LIBOR. Principal
is repayable in 15 equal quarterly instalments of $2,467,000. The
first payment of principal commenced in February 2015 with the
final instalment payable in August 2018. The Group has pledged to
ATB its present and future claims against MKS Finance SA, the
Group's sole buyer of gold doré until termination of the loan
agreement. The total gross amount outstanding at 31 December 2015
was $27.1 million (31 December 2014: $36.8 million).
Atlas Copco
The amount outstanding is in respect of vendor financing. The
amount outstanding is repayable in July 2016.
Yapi Credit Bank, Azerbaijan ("YCBA")
The Group entered into credit facilities with YCBA in 2014 for
$550,000 and $450,000 respectively. In 2015, further credit
facilities were entered into totaling $1,929,000. The interest rate
for all facilities is 10 per cent. The credit facilities are all
repayable within 12 months of drawdown.
Pasha Bank
Letters of credit for flotation plant construction
In 2014, the Group entered into a facility for $2.5 million to
finance a letter of credit for the construction of its flotation
plant. The facility carries an interest rate of 6 per cent. for the
unused portion of, and 6.8 per cent. plus one month LIBOR for the
used portion of the credit facility. In 2015, an additional
facility was entered into for $1.2 million which carries an
interest rate of 6.2 per cent. for the unused portion and 7.05 per
cent. plus one month LIBOR for the used portion of the credit
facility. The amounts outstanding under the two facilities at 31
December 2015 were $3,233,000 (31 December 2014: $250,000). The
total amount outstanding under the two facilities is repayable in
two equal instalments in May and November 2016.
Letters of credit for cyanide purchases
On 4 July 2014, the Group entered into a credit facility to
finance letters of credit with a total amount of $3,059,000 (ANZ
2.4 million) for the purchase of cyanide. This facility was
extended in 2015 to 7 July 2017 for a total amount of $3 million at
an interest rate of 3 per cent. The amount outstanding under these
facilities as 31 December 2015 was $1,384,000 (31 December 2014:
$988,000). The amounts outstanding are all repayable with 12 months
of the balance sheet date.
Director
On 20 May 2015, the chief executive of Anglo Asian Mining PLC
provided a $4 million loan facility to the Group. Any loan from the
facility was repayable on 8 January 2016 at an interest rate of 10
per cent. On 8 January, 2016 the repayment date for the loan
facility was extended till 8 July 2016 with all other terms
remaining the same.
22. Provision for rehabilitation
2015 2014
$000 $000
------------------------- ------ ------
1 January 8,624 7,357
Change in estimate (747) 221
Accretion expense 414 469
Change in discount rate 263 577
------------------------- ------ ------
31 December 8,554 8,624
------------------------- ------ ------
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 2015 was $9,436,000 (2014: $8,892,000). The
undiscounted liability was discounted using a risk-free rate
adjusted to the risks specific to the liability of 5.73 per cent.
(2014: 4.77 per cent.). Expenditures on restoration and
rehabilitation works are expected between 2023 and 2025 (2014:
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 2015 and 2014 using the amounts of debt and other
financial assets and liabilities held as at those reporting
dates
Capital risk management
The capital structure of the Group consists of debt, which
includes the borrowings disclosed in note 21, cash and cash
equivalents and equity attributable to equity holders of the
parent, comprising issued share capital, reserves and retained
earnings as disclosed in the consolidated statement of changes in
equity. The Group has sufficient capital to fund ongoing production
and exploration activities, with capital requirements reviewed by
the Board on a regular basis. Capital has been sourced through
share issues on the 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.
2015 2014
$000 $000
------------------------------------------------- -------- --------
Interest-bearing loans and borrowings (note 21) 49,296 52,758
Less cash and cash equivalents (note
19) (249) (322)
------------------------------------------------- -------- --------
Net debt 49,047 52,436
Equity 78,644 85,916
------------------------------------------------- -------- --------
Capital and net debt 127,691 138,352
------------------------------------------------- -------- --------
Gearing ratio (per cent.) 38 38
------------------------------------------------- -------- --------
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 2015 and
2014.
Interest rate sensitivity analysis
Interest rate sensitivity of the Group from reasonably possible
movement in the three month LIBOR rate is limited to $203,000
(2014: $187,000) 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 21 is a
description of additional undrawn facilities that the Group has at
its disposal to further reduce liquidity risk.
The table below summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted
payments.
Year ended 31 December 2015
On Less 3 to 1 to Total
demand than 12 5 $000
$000 3 months months years
$000 $000 $000
----------------------- --------- ---------- -------- ------- -------
Interest-bearing
loans and borrowings - 6,574 23,235 24,734 54,543
Trade and other
payables - 20,112 - - 20,112
----------------------- --------- ---------- -------- ------- -------
- 26,686 23,235 24,734 74,655
--------------------------------- ---------- -------- ------- -------
Year ended 31 December 2014
On Less 3 to 1 to Total
demand than 12 5 $000
$000 3 months months years
$000 $000 $000
----------------------- -------- ---------- -------- ------- -------
Interest-bearing
loans and borrowings - 5,014 15,705 40,714 61,433
Trade and other
payables 458 11,758 - - 12,216
----------------------- -------- ---------- -------- ------- -------
458 16,772 15,705 40,714 73,649
----------------------- -------- ---------- -------- ------- -------
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. Due to the nature of
the customers, the board of directors does not consider that a
significant credit risk exists for receipt of revenues. The board
of directors continually reviews the possibilities of selling gold
to alternative customers and also the requirement for additional
measures to mitigate any potential credit risk.
Foreign currency risk
The presentational currency of the Group is United States
Dollars. The Group is exposed to currency risk due to movements in
foreign currencies relative to the US Dollar affecting foreign
currency transactions and balances.
The carrying amounts of the Group's foreign currency denominated
monetary assets and monetary liabilities at 31 December are as
follows:
Liabilities Assets
-------------- --------------
2015 2014 2015 2014
$000 $000 $000 $000
------------------- ------ ------ ------ ------
UK Sterling 187 330 2 31
Azerbaijan Manats 3,416 4,127 1,003 1,439
Other 317 160 - -
------------------- ------ ------ ------ ------
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 13 per
cent., 12.5 per cent. and 15 per cent. (2014: 5.73 per cent., 6.23
per cent. and 35 per cent.) increase and 4.5 per cent., 12.5 per
cent., and 60 per cent. (2014: 5.73 per cent., 6.23 per cent., and
35 per cent.) decrease in the United States Dollar against United
Kingdom Sterling, Euro and Azerbaijan Manat, respectively. These
are the sensitivity rates used when reporting foreign currency risk
internally to key management personnel and represents management's
assessment of the reasonably possible change in foreign exchange
rates. The sensitivity analysis includes only outstanding foreign
currency denominated monetary items and adjusts their translation
at the period end for respective change in foreign currency rates.
A positive number below indicates an increase in profit and other
equity where the United States Dollar strengthens by the mentioned
rates against the relevant currency. Weakening of the United States
Dollar against the relevant currency, there would be an equal and
opposite impact on the profit and other equity, and the balances
below would be reversed.
UK Sterling Azerbaijan Euro Impact
impact Manat impact
-------------- ---------------- --------------
2015 2014 2015 2014 2015 2014
$000 $000 $000 $000 $000 $000
--------------------- ------ ------ ------- ------- ------ ------
Increase - effect
on loss before tax 24 17 1,447 941 40 10
Decrease - effect
on loss before tax (8) (17) (362) (941) (40) (10)
--------------------- ------ ------ ------- ------- ------ ------
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 in the year ended 31
December 2015 would result in a reduction in revenue of $7,447,000
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 $29,000 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 $335,000 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 $49.2 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
2015 2014
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 2015 111,683,972 1,978
Shares issued in lieu of cash
payment 997,052 15
------------------------------- ------------ ------
31 December 2015 112,661,024 1,993
------------------------------- ------------ ------
Fully paid ordinary shares carry one vote per share and carry
the right to dividends.
The shares issued in lieu of cash payment were to directors for
certain fees and expenses as set out in note 9.
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 (loss) / earnings
Retained earnings represent the cumulative (loss) / earnings of
the Group attributable to the equity shareholders
25. Share-based payment
The Group operates a share option scheme for directors and
senior employees of the Group. The vesting periods are up to three
years. Options are exercisable at a price equal to the closing
quoted market price of the Group's shares on the date of the board
of directors approval to grant options. Options are forfeited if
the employee leaves the Group and the options are not exercised
within three months from leaving date.
The number and weighted average exercise prices ("WAEP") of, and
movements in, share options during the year were as follows:
2014 2014
---------------------- ----------------------
Number Weighted Number of Weighted
of average share average
share exercise options exercise
options price price
pence pence
-------------------- ---------- ---------- ---------- ----------
I January 2,801,684 36 3,001,684 38
Granted during the
year - - 300,000 15
Expired during the
year (680,825) 84 (350,000) 46
Exercised during
the year - - (150,000) 11
-------------------- ---------- ---------- ---------- ----------
Outstanding at 31
December 2,120,859 21 2,801,684 36
-------------------- ---------- ---------- ---------- ----------
Exercisable at 31
December 1,970,859 21 2,501,684 39
-------------------- ---------- ---------- ---------- ----------
The weighted average remaining contractual life of the share
options outstanding at 31 December 2015 was 3 years (2014: 3 years)
and the range of their exercise prices was 12 pence to 43 pence
(2014: 12 pence to 97 pence).
There were no share options granted during 2015.
Share options are valued using the Black-Scholes model. The
assumptions used to value the share options issued in the year
ended 31 December 2014 are as follows:
2015* 2014
----------------------------------------- ------ -----
Weighted average share price (pence) n/a 15
Weighted average exercise price (pence) n/a 15
Expected volatility for six months n/a -
vesting period option (per cent.)
Expected volatility for one years'
vesting period option (per cent.) n/a 58
Expected volatility for two years'
vesting period option (per cent.) n/a 58
Expected life for six months' vesting
period option (years) n/a 2
Risk free rate (per cent.) n/a 1.43
----------------------------------------- ------ -----
*not applicable as no share options were issued in 2015.
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
2015 of $15,000 (2014: $16,000)
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. The principal provisions are regarding the
exploration and development programme, preparation and timely
submission of reports to the Government, compliance with
environmental and ecological requirements. The Directors believe
that RVIG is in compliance with the requirements of the PSA. The
Group has announced a discovery on Gosha Mining Property in
February 2011 and submitted the development programme to the
Government according to the PSA requirements, which was approved in
2012. In April 2012 the Group announced a discovery on the Ordubad
Group of Mining Properties and submitted the development programme
to the Government for review and approval according to the PSA
requirements.
he mining licence on Gedabek expires in March 2022, with the
option to extend the licence by ten years conditional upon
satisfaction of certain requirements stipulated in the PSA.
RVIG is also required to comply with the clauses contained in
the PSA relating to environmental damage. The Directors believe
RVIG is 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 2015 (2014: $nil).
27. Related party transactions
Trading transactions
During the years ended 31 December 2014 and 2015, 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) The chief executive 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 2015 was $nil
(2014: $48,000).
b) Shares issued to directors are disclosed in note 9.
c) Remuneration paid to directors is disclosed in note 9.
d) During the year ended 31 December 2015, total payments of
$1,018,000 (2014: $1,182,000) 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 2015 there is an advance payment in relation to
the above related party transaction of $59,000 (2014: $65,000).
e) On 20 May 2015, the chief executive made a $4 million loan
facility available to the Group. The interest accrued and unpaid at
31 December 2015 was $195,000 (2014: $ nil). Details of the loan
facility are disclosed in note 21.
All of the above transactions were made on arm's length
terms.
For further information please visit www.angloasianmining.com or
contact:
Anglo Asian Mining Tel: +994 12 596
Reza Vaziri plc 3350
-------------------- ------------------- ------------------
Anglo Asian Mining Tel: +994 502 910
Bill Morgan plc 400
-------------------- ------------------- ------------------
Ewan Leggat SP Angel Corporate Tel: +44 (0) 20
Finance LLP 3470 0470
Nominated Adviser
and Broker
-------------------- ------------------- ------------------
Laura Harrison SP Angel Corporate Tel + 44 (0) 20
Finance LLP 3470 0470
-------------------- ------------------- ------------------
Lottie Brocklehurst St Brides Partners Tel: +44 (0) 20
Ltd 7236 1177
-------------------- ------------------- ------------------
Susie Geliher St Brides Partners Tel: +44 (0) 20
Ltd 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 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. Gedabek is an open cast mine with a series of
interconnected pits. The Company is also mines high grade ore from
the Gadir underground mine which is co-located at the Gedabek site.
The Company has a second underground mine, Gosha, which is 50
kilometres from Gedabek. Ore mined at Gosha is processed at Anglo
Asian's Gedabek plant.
Gold production for the year ended 31 December 2015 from Gedabek
totaled 72,032 ounces with 969 tonnes of copper also produced.
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 also produces a copper and precious metal
concentrate from its flotation plant, which commenced production in
the last quarter of 2015. This is initially processing tailings
from the agitation leach plant.
Anglo Asian is also actively seeking to exploit its first mover
advantage in Azerbaijan to identify additional projects, as well as
looking for other properties in order to fulfil its expansion
ambitions and become a mid-tier gold and copper metal production
company.
The company news service from the London Stock Exchange
END
FR USVSRNUAVUAR
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May 25, 2016 02:00 ET (06:00 GMT)
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