TIDMAAZ
RNS Number : 1626G
Anglo Asian Mining PLC
25 May 2017
Anglo Asian Mining plc / Ticker: AAZ / Index: AIM / Sector:
Mining
25 May 2017
Anglo Asian Mining PLC
Full year results - 2016
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 2016 ("FY 2016"). Note that all references to "$" are to
United States Dollars.
Highlights
-- Strong financial performance with the return of the Company to profitability
-- Total gold production for FY 2016 of 65,394 ounces (FY 2015: 72,032 ounces)
-- Gold sales in FY 2016 of 53,281 ounces (FY 2015: 63,924
ounces) completed at an average price of $1,253 per ounce (FY 2015:
$1,161 per ounce)
-- Gold produced in 2016 at an all in sustaining cost net of
by-product credits of $616 per ounce (2015: $858 per ounce). Lower
cash operating cost due to increase in flotation production and
cost reduction initiatives
-- Copper production for FY 2016 was 1,941 tonnes, a 100 per
cent. increase compared to 969 tonnes produced in FY 2015
-- Silver production for FY 2016 totalled 165,131 ounces (FY 2015: 28,626 ounces)
-- Production targets for FY 2017 of 52,000 to 58,000 ounces of
gold and 2,000 to 2,400 tonnes of copper
-- Total production target for FY 2017 expressed as gold
equivalent ounces ("GEOs") of between 64,000 GEOs and 72,000 GEOs
compared to FY 2016 of 72,304 GEOs
-- First full year of production from flotation plant - 6,339
dry metric tonnes of concentrate containing 1,121 tonnes of copper,
4,430 ounces of gold and 122,965 ounces of silver were produced in
2016
-- Gedabek site connected to the Azerbaijan national power grid
-- Extensive exploration programme carried out with the discovery of the Ugur gold deposit
Financials
-- Total revenues increased in 2016 to $79.2 million (2015: $78.1 million)
-- Profit before taxation in 2016 of $6.8 million (2015: loss before taxation of $8.9 million)
-- Operating cash flow before movements in working capital
increased in 2016 to $33.9 million (2015: $18.6 million)
-- Net debt reduced to $34.6 million at 31 December 2016 (31
December 2015: $49.0 million) calculated as aggregate of loans and
borrowings less cash and cash equivalents
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this
announcement.
Chairman's statement
It gives me great pleasure to report the return of Anglo Asian
to profitability. I commented in my statement last year that 2015
was an important year in turning around your Company. The profit
recorded for 2016 shows that this optimism was justified and we
will continue to put in place the foundations for sustainable
profitability and cash generation. A major contributor to the
success in 2016 is the continuing evolution of Anglo Asian into a
company for which copper is increasingly a significant proportion
of its production. Copper production doubled to 1,941 tonnes due to
a full year of production from the flotation plant. This increased
copper production offset the lower level of gold production of
65,394 ounces. The Company is also increasingly focusing on the
long term future development of Gedabek and in 2016 started a major
programme of geological exploration. This is already delivering
results and we were pleased to announce the discovery of Ugur, an
important new gold ore deposit in October 2016. The start of mining
from a new open pit at Ugur in late 2017, together with the other
exploration and production optimisation initiatives currently
underway, will act to further advance the delivery of long-term
value to shareholders.
Review of 2016 and 2017 to date
Anglo Asian produced a total of 65,394 ounces of gold in 2016, a
9 per cent. decrease over production of 72,032 ounces in 2015;
copper production in 2016 was 1,941 tonnes, a 100 per cent.
increase over the 2015 total of 969 tonnes. Production of silver
totalled 165,131 ounces for 2016, which was almost a six times
increase over 2015 of 28,628 ounces. The reduced gold production
resulted from decreased gold ore grades in the fourth quarter of
2016, whilst copper and silver production increased significantly
due to a full year of production from the flotation plant in 2016.
The Company benefited from increased precious metal prices and the
average gold price in 2016 was $1,253 per ounce, which was 8 per
cent. higher than in 2015.
The increase in copper and silver production, together with
improved precious metal prices, beneficially impacted our financial
results for the year and as a result revenues increased slightly in
2016 to $79.2 million from $78.1 million in 2015.
The Company's all in sustaining cost ("AISC") per ounce of gold
produced reduced to $616 in 2016 compared to $858 in 2015. This
resulted in an operating profit of $11.7 million in 2016 compared
to an operating loss of $3.2 million in 2015. The Company has
decided to report its cash cost as an AISC calculated in accordance
with the World Gold Council's guidance. This is a standardised
metric in the industry and will aid comparability with other gold
producers.
Cash provided by operating activities increased in the year to
$29.6 million from $23.0 million in 2015. We serviced our debts on
time and net debt reduced from $49.0 million at the end of 2015 to
$34.6 million at the end of 2016.
The Company's new flotation plant operated throughout 2016,
processing tailings from the agitation leaching plant.
Commissioning encountered a few teething problems, which are not
unusual for such projects, but these were quickly overcome. The
plant produced 6,331 dry metric tonnes of concentrate in 2016
containing 1,121 tonnes of copper and 4,430 and 122,965 ounces of
gold and silver respectively. Since early February 2017, the
flotation and agitation leaching plants have been reconfigured with
ore now initially being treated by flotation. This reconfiguration
was carried out due to the increasing copper content of the ore
feedstock. A second semi-autogenous ("SAG") mill was installed in
the agitation leaching plant in 2016 which has increased the
capacity of the agitation leaching and flotation plants and enables
the plants to treat harder ore.
In order to reduce costs and improve the sustainability of Anglo
Asian, the Company undertook a number of major initiatives in 2016.
The key achievement was the connection of the Gedabek site to the
Azerbaijan national power grid in November 2016. This involved the
construction of an electrical substation and the installation of
approximately 12 kilometres of overhead power cable. The connection
of the Gedabek site to the power grid will substantially reduce the
cost of electrical power and the amount of diesel consumed. The
expansion of the site will also no longer be constrained by the
lack of availability of electrical power. Additionally, a water
purification plant is being constructed at Gedabek which is
expected to be operational in the third quarter of 2017. This plant
will produce potable (drinking quality) water for discharge into
the environment. Water evaporation equipment is now operational at
the tailings dam to improve the water balance at Gedabek.
The Gadir underground mine which commenced production in 2015
continued in operation throughout 2016. During the year, 123,732
tonnes of ore grading 5.40 grammes per tonne of gold were 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. Mining from Gadir was temporarily suspended in
February 2017 and extensive underground exploration and development
tunnelling is now currently being undertaken. Any ore extracted
during this period is being stockpiled for future processing. It is
expected that approximately 5,000 metres of drilling will be
carried out during this exploration programme and mining from Gadir
is expected to recommence in the first quarter of 2018.
The Company embarked on a significant programme of exploration
at prospective targets within the Gedabek contract area in 2016.
Several initiatives were undertaken including surface and
geological mapping of various prospective areas. Drilling of
several prospective areas was also undertaken. As a result of this
work, the Company was very pleased to announce in October 2016, the
discovery of the Ugur gold deposit located three kilometres
north-west from its agitation leaching plant and heap leach
facilities at Gedabek. The Company also undertook exploration work
at the Bittibulag mineral occurrence. These new deposits, which are
potentially rich sources of ore, are important to the future
sustainable operation of Anglo Asian. Further details regarding
these deposits can be found in the strategic report below.
In early 2017, the Company completed a wide-ranging strategic
review of Gedabek in response to the discovery of the Ugur gold
deposit and the decreasing gold grade of ore mined in the main open
pit. As a result of this strategic review, Anglo Asian is now
implementing several initiatives to ensure sustainable long-term
production at Gedabek. These include temporarily suspending ore
production from both the main open pit and Gadir underground mines,
where exploration, ore zone definition and production optimisation
are now being carried out. Any ancillary ore mined will be
stockpiled for later processing. The Ugur deposit will be developed
so that mining can commence from an open pit before the end of
2017. Whilst mining is suspended, the Company will process its
extensive stockpiles of ore and the flotation and agitation
leaching plants have been reconfigured to treat the high copper
content of the stockpiled ore to maintain production.
Outlook
It is with continued optimism that I look forward to 2017 and
beyond. During the course of 2016, we have demonstrated that we can
operate the Group profitably. This return to profitability,
together with the initiatives currently underway, provide a strong
platform for sustained growth in production and development. These
initiatives will inevitably result in a temporary reduction of the
level of gold production in 2017 compared to the past two years,
which has been reflected in our gold production target for the
year. However, this will be offset by increased production of
copper.
The Group has a production target for 2017 of between 52,000
ounces and 58,000 ounces of gold and 2,000 tonnes and 2,400 tonnes
of copper. Given the increasing proportion of copper in its
production, the Group will from now on also present its total
production target in gold equivalent ounces ("GEOs"). The total
production target in GEOs for 2017 is between 64,000 ounces and
72,000 ounces compared to 72,304 ounces in 2016. I look forward to
updating our shareholders on our progress over the remainder of
2017.
Appreciation
I would like to take this opportunity to thank our Anglo Asian
employees, our partners, the Government of Azerbaijan, advisers and
fellow directors for their continued support as we continue to
build the Company into a leading and profitable 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 2017.
Khosrow Zamani
Non-executive chairman
**S**
For further information please visit www.angloasianmining.com or
contact:
Anglo Asian Mining Tel: +994 12 596
Reza Vaziri plc 3350
-------------------- ------------------- ------------------
Bill Morgan Anglo Asian Mining Tel: +994 502 910
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
-------------------- ------------------- ------------------
Susie Geliher St Brides Partners Tel: +44 (0) 20
Ltd 7236 1177
-------------------- ------------------- ------------------
Lottie Brocklehurst 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 also operates the high grade 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 2016 from Gedabek
totalled 65,394 ounces with 1,941 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 is 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.
Strategic report
Principal activities
The principal activity of Anglo Asian Mining PLC (the "Company")
is that of a holding company and a provider of support and
management services to its main operating subsidiary R.V.
Investment Group Services LLC. The Company, together with its
subsidiaries (the "Group"), owns and operates gold, silver and
copper producing properties in the Republic of Azerbaijan
("Azerbaijan"). It also explores for and develops other potential
gold and copper deposits in Azerbaijan.
The Group has a 1,962 square kilometre portfolio of gold, silver
and copper properties in western Azerbaijan and territories
occupied by Armenia, at various stages of the development cycle.
The Group's primary operating site is Gedabek, which is the
location of the Group's main gold, silver and copper open pit mine
and Gadir, an underground mine. The Group's processing facilities
to produce gold doré and copper, silver and gold concentrates are
also located at Gedabek. The Group announced in 2016 the discovery
of Ugur, a gold deposit also located at Gedabek. Gosha, the Group's
second underground gold and silver mine, is located 50 kilometres
away from Gedabek. Ordubad, the Group's early stage gold and copper
exploration project is located in the Nakhchivan region of
Azerbaijan.
During the period under review, the Group's main focus has been
on several key areas to increase its gold, copper and silver
production and ensure the future success of its operations as
follows:
- continued optimisation of the agitation leaching and flotation
plants to ensure maximum production at lowest possible cost;
- increasing the efficiency of our mining operations and
pursuing initiatives to reduce costs and increase the
sustainability of the Group's operations; and
- exploration of our Gedabek site to both increase the
production of our existing open pit and underground mines and to
discover new ore deposits.
The Group has a production target for the year to 31 December
2017 of 52,000 ounces to 58,000 ounces of gold and 2,000 tonnes to
2,400 tonnes of copper. The total production target for the year to
31 December 2017 expressed as gold equivalent ounces ("GEOs") is
between 64,000 GEOs and 72,000 GEOs compared to total production
for the year to 31 December 2016 of 72,304 GEOs.
Gedabek
Introduction
The Gedabek mining operation is located in a 300 square
kilometre contract area in the Lower Caucasus mountains in western
Azerbaijan on the Tethyan Tectonic Belt, one of the world's most
significant copper and gold-bearing geological structures. Gedabek
is the location of the Group's main open pit and underground mines
and its processing facilities.
Gold was first poured from ore mined from the open pit mine and
processed by heap leaching in May 2009. Copper and precious metal
concentrate production began in 2010 when the Sulphidisation,
Acidification, Recycling and Thickening plant was commissioned. The
Group's agitation leaching plant commenced production in 2013 and
its flotation plant in 2015. Underground extraction of ore at
Gedabek, started in June 2015 when the Gadir mine was opened.
During 2016, the Group discovered Ugur, a new gold deposit, three
kilometres north-west of its agitation leaching plant.
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 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 7.63 603,000 87,000 4,105,000 447,000 65,000 1,346,000
----------- ----------- --------- ------- --------- -------- -------- ---------- -------- ------- ----------
Probable 3,761,000 0.68 0.40 6.12 82,000 15,000 740,000 58,000 11,000 268,000
----------- ----------- --------- ------- --------- -------- -------- ---------- -------- ------- ----------
Total 20,494,000 1.03 0.50 7.35 685,000 102,000 4,845,000 505,000 76,000 1,614,000
----------- ----------- --------- ------- --------- -------- -------- ---------- -------- ------- ----------
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 2016.
Table 2 - Ore mined from the open pit at Gedabek for the year
ended 31 December 2016
Ore mined (tonnes) Waste
Quarter ended mined
----------------------------------------------
High Grade Low Grade Sulphide Total (tonnes)
----------- ---------- --------- ---------- ----------
31 March 2016 93,839 224,641 25,691 344,171 1,316,490
30 June 2016 87,597 402,903 709 491,209 1,357,896
30 September 2016 99,280 302,958 7,333 409,571 1,375,983
31 December 2016 116,923 181,778 - 298,701 1,454,752
-------------------- ----------- ---------- --------- ---------- ----------
Total for the year 397,639 1,112,280 33,733 1,543,652 5,505,121
-------------------- =========== ========== ========= ========== ==========
Ore is also mined from the Gadir underground mine which is
situated approximately one kilometre from the main open pit at the
Gedabek site. 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 2016.
Table 3 - ore mined from the Gadir underground mine for the year
ended 31 December 2016
Ore mined (tonnes)
Quarter ended
------------------------
Ore mined Average
gold grade
(tonnes) (g/t)
----------------- ---------- ------------
31 March 2016 17,756 5.04
30 June 2016 37,732 6.43
30 September
2016 27,581 5.13
31 December
2016 40,663 4.79
----------------- ---------- ------------
Total for
the year 123,732 5.40
----------------- ========== ============
Processing operations
Ore is processed at Gedabek to produce either gold doré (an
alloy of gold and silver with small amounts of impurities) or a
copper and precious metal concentrate.
Gold doré is produced by cyanide leaching. Initial processing is
to leach (i.e. dissolve) the precious metal (and some copper) in a
cyanide solution. This is done by various methods:
1 Heap leaching of crushed ore. Crushed ore is heaped into
permeable "pads" onto which is sprayed a solution of cyanide. The
solution dissolves the metals as it percolates through the ore by
gravity and it is then collected.
2 Heap leaching of run of mine ("ROM") ore. The process is similar to heap leaching for
crushed ore except the ore is not crushed and is heaped into
pads as received from the mine (ROM) without further treatment or
crushing.
3 Agitation leaching. Prior to the construction of the flotation
plant, ore was crushed and then processed through a grinding
circuit. The finely ground ore is then placed in stirred tanks
containing a cyanide solution and the contained metal is dissolved
in the solution. Subsequent to the construction of the flotation
plant, a further option is available to treat ore in the agitation
leaching plant. This is to process the finely ground ore through
the flotation plant prior to treatment by the agitation leaching
plant.
Slurries produced by the above processes with dissolved metal in
solution are then transferred to a resin in pulp ("RIP") plant. A
synthetic 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 gold 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.
The process also recovers cyanide from the solution which is
recycled back to leaching.
2 Flotation. Flotation is carried out in a separate flotation
plant. Feedstock, which can be either tailings from the agitation
leaching plant or freshly crushed and milled ore, is mixed with
water to produce a slurry called "pulp" and other reagents are then
added. This pulp is processed in flotation cells (tanks). The
flotation cells are agitated and air introduced as small bubbles.
The sulphide 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.
Initially, gold doré was produced at Gedabek only 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 per
cent. 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, in 2013 the Group
constructed an agitation leaching plant. Compared to heap leaching,
agitation leaching can deliver higher recoveries of gold without
long leaching cycles. Heap leach pads also require considerable
space for their construction and due to the topology of the Gedabek
site, this was a constraint. The capacity of the agitation leaching
plant was increased in 2016 by the installation of a second
semi-autogenous grinding ("SAG") mill.
The ore at Gedabek is polymetallic containing significant
amounts of copper. Initially, the SART processing plant was
constructed to recover some of the copper as a copper and precious
metal concentrate. However, to further exploit the high copper
content of the Group's ore reserves, the Group constructed a
flotation plant whose function is primarily to produce copper
concentrate containing gold and silver as by-products. The
flotation plant commenced production in November 2015. It operated
throughout 2016 processing tailings from the agitation leaching
plant. In February 2017, it was reconfigured to treat freshly
crushed and milled ore.
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.
Production and sales
For the year ended 31 December 2016, total gold production as
doré bars and as a constituent of the copper and precious metal
concentrate totalled 65,394 ounces, which was a decrease of 6,638
ounces in comparison to the production of 72,032 ounces for the
year ended 31 December 2015.
Table 4 summarises the amount of ore and its gold grade
processed by heap and agitation leaching for the year ended 31
December 2016.
Table 4 - Amount of ore and its grade processed at Gedabek for
the year ended 31 December 2016
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
2016 91,450 114,508 138,873 1.46 0.87 2.94
30 June 2016 110,202 263,432 156,846 1.32 0.76 3.59
30 September
2016 92,437 190,185 164,492 1.21 0.81 2.45
31 December
2016 74,978 90,310 192,508 1.21 0.85 2.26
--------------- --------- -------- ----------- --------- ------- ----------
Total for
the year 369,067 658,435 652,719 1.32 0.80 2.78
--------------- ========= ======== =========== ========= ======= ==========
Table 5 summarises the gold and silver bullion produced as doré
bars and sales of gold bullion for the year ended 31 December
2016.
Table 5 - gold and silver bullion produced from doré bars and
sales of gold bullion for the year ended 31 December 2016.
Quarter ended Gold produced* Silver Gold Gold sales
(ounces) produced Sales** price
(ounces) (ounces) ($/ounce)
-------------- -------------- ---------- ---------- ----------
31 March
2016 13,383 1,958 12,058 1,184
30 June 2016 17,926 2,983 15,661 1,265
30 September
2016 15,407 2,502 12,567 1,332
31 December
2016 14,221 2,845 12,995 1,227
-------------- -------------- ---------- ---------- ----------
Total for
the year 60,937 10,288 53,281 1,253
-------------- -------------- ---------- ---------- ----------
*including Government of Azerbaijan's share.
** excludes Government of Azerbaijan's share.
Table 6 summarises the total copper, gold and silver produced as
concentrate by both SART processing and flotation processing for
the year ended 31 December 2016.
Table 6 - Total copper and precious metal produced as
concentrate for the year ended 31 December 2016.
Copper (tonnes) Gold (ounces) Silver (ounces)
------------------------- ------------------------- -----------------------------
Quarter ended SART Flotation Total SART Flotation Total SART Flotation Total
--------------- ----- ---------- ------ ----- ---------- ------ ------- ---------- --------
31 March
2016 181 200 381 12 607 619 7,789 19,055 26,844
30 June 2016 195 302 497 4 1,445 1,449 10,047 39,184 49,231
30 September
2016 225 260 485 4 1,123 1,127 7,291 24,106 31,397
31 December
2016 219 359 578 7 1,255 1,262 6,751 40,620 47,371
--------------- ----- ---------- ------ ----- ---------- ------ ------- ---------- --------
Total for
the year 820 1,121 1,941 27 4,430 4,457 31,878 122,965 154,843
=============== ===== ========== ====== ===== ========== ====== ======= ========== ========
Table 7 summarises the total copper and precious metal
concentrate production and sales from both SART processing and
flotation processing for the year ended 31 December 2016.
Table 7 - Total copper concentrate production and sales during
the year ended 31 December 2016
Concentrate Copper Gold Silver Concentrate Concentrate
production* content* content* content* sales** sales**
Quarter ended (dmt) (tonnes) (ounces) (ounces) (dmt) ($000)
--------------- ------------- ---------- ---------- ---------- ------------ ------------
31 March
2016 1,821 381 619 26,844 1,319 2,043
30 June 2016 2,361 497 1,449 49,231 1,582 3,019
30 September
2016 1,844 485 1,127 31,397 1,782 3,577
31 December
2016 2,504 578 1,262 47,371 2,147 3,615
--------------- ------------- ---------- ---------- ---------- ------------ ------------
Total for
the year 8,830 1,941 4,457 154,843 6,830 12,254
=============== ============= ========== ========== ========== ============ ============
*including Government of Azerbaijan share
** excluding the Government of Azerbaijan share
Tailings (waste) storage
The Company is very mindful of the importance of proper storage
of tailings both for efficient operation of its processing plants
and to fulfil its environmental responsibilities. The Company
stores its tailings in a purpose-built dam approximately seven
kilometres from its processing operations. The tailings dam
currently has a capacity of approximately 3.2 million cubic metres.
Immediately downstream of the tailings dam is a reed bed biological
treatment system to process any seepage from the dam. This will
purify any seepage from the dam before discharge into the Shamkir
river. The pipes from the agitation leaching plant to the tailings
dam are located in a fully lined trench designed to capture any
spillage should any pipe rupture.
Sustainability and cost control
The Group embarked on several initiatives during 2016 to improve
sustainability and which also have the benefit of lowering
costs.
Electricity supply
During 2016, the Gedabek site was connected to the Azerbaijan
national power grid. The following were constructed:
- seven kilometres of 35 kilovolt overhead power cable and five
kilometres of 6.3 kilovolt overhead distribution line;
- two main and five auxiliary electricity transformers; and
- an electrical power house comprising two sets of 6.3 and 35
kilovolt electrical panels and ancillary measuring equipment.
The total cost of the installation was $2.1 million. As a result
of the connection to the grid, the Gedabek site will no longer
consume around 11 million litres of diesel fuel per annum to
generate electrical power. This will result in considerable cost
savings and the capital cost of the installation will be recovered
in around one year. The reduction in fuel usage substantially
reduces fuel management at the site and the consequent
environmental risk. The Company's nine existing diesel generators
are not now used but kept as a standby power supply.
Water management
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. In 2016,
two water management projects were undertaken, the construction of
a water treatment plant and the purchase of wastewater evaporation
equipment. These projects will reduce the amount of water that
needs to be stored in the tailings dam, thereby reducing the
capacity required.
In April 2016, the Group contracted with Nanoretech Systems
(Pty) Limited for the construction of a reverse osmosis water
treatment plant to treat process water. The plant will produce
water of sufficient purity that can be discharged into the nearby
Shamkir river. The plant was built in South Africa and is expected
to be operational in the third quarter of 2017. The plant has the
capacity to treat 50 cubic metres of water per hour and will also
produce a concentrate solution which can be further processed to
recover the contained metals. The cost of the plant was $1.4
million.
In August 2016, the Group contracted for the purchase of
wastewater evaporation equipment for the tailings dam. This is
mobile, skid mounted equipment into which water is pumped without
treatment direct from the tailings dam. The equipment then
evaporates the water by jetting it into the atmosphere as a fine
spray. It can evaporate approximately 25 litres per second of water
depending upon climatic conditions. The equipment is expected to be
operational by the end of the third quarter of 2017. The cost of
the equipment was approximately $300,000. As an interim measure
until the equipment is operational, water is being evaporated via a
sprinkler system.
Health, safety and environmental
The health and safety of our employees and the protection of the
environment in and around our mine properties are prime concerns
for the Company's board and senior management team. The health,
safety and environmental ("HSE") department at Gedabek has a
qualified HSE manager, who is assisted by three HSE officers. The
recruitment of additional HSE officers is planned given the
increasing size and complexity of the operation. Overall strategy
for HSE matters in the Company is overseen by the HSE and technical
committee, which is chaired by a board director, Professor John
Monhemius. The HSE and technical committee meets twice a year at
the Gedabek site.
During 2016, there were 58 (2015: 78) reportable safety
incidents, of which five (2015: ten) were lost time incidents
("LTI"), where the casualty had to take time off work. All people
injured with the exception of one employee made a full
recovery.
Several initiatives were undertaken to improve health and safety
at the Gedabek site in 2016. A comprehensive strategic plan for
safety of the Gedabek site was completed and approved. Health
screening of over 500 employees was carried out by external medical
consultants. Employees identified with health issues, such as high
blood pressure or poor vision, were provided follow-up treatment
for their condition. This health screening will be carried out
biannually. Firefighting and ancillary safety equipment such as
breathing apparatus is being procured for the site. The Company's
growing experience of underground mining is resulting in increased
safety underground with fewer incidents occurring.
Exploration at Gedabek site
The Group embarked on a significant programme of exploration at
the Gedabek site in 2016 which has continued into 2017.
Area adjacent to the current operational mine
In 2016, geological mapping was carried out over 0.7 square
kilometres from which 290 outcrop samples were taken and 20 metres
of follow-up trenching was carried out. In addition, two drill
holes with a total of 530 metres of diamond drilling were
completed.
Gadir underground mine
In 2016 and 2017 to date, efforts were focused on underground
mapping and channel sampling. Mineral resource delineation core
drilling continued with the aim of assessing the down dip and
lateral extensions of the known ore bodies. These drill holes were
designed to confirm and extend mineralisation at Gadir. Additional
drill holes (BQ size core) were drilled to define ore zone
geometry.
Ugur discovery
Ugur is a significant gold ore deposit which was discovered by
the Group in 2016. It is located only three kilometres from the
processing facilities at the main Gedabek site which highlights the
clear strategic value of the deposit. The Ugur deposit area is a
significant surface alteration rock assemblage with the presence of
barite, barite-haematite and limonite in gossan-style zones along
with vuggy silica in brecciated volcanic rocks. Initial exploration
comprised stream sediment sampling, soil geochemistry, geological
mapping and outcrop sampling and trenching and shallow pits.
55 vertical reverse circulation drill holes totalling 1,842
metres and 39 core drill holes totalling 5,472 metres have now been
drilled at Ugur to the end of April 2017 which completed the core
drilling of the central area of the Ugur deposit. The area covered
by this drilling and proposed open pit outline is 350 metres
(east-north-east) by 250 metres (north-north-west).
The assay results of the 39 core drill holes resulted in
confirmation of an oxide gold-rich zone to a depth varying between
50 and 60 metres. On receipt of the assays from the final four core
drill holes, a sectional resource and reserve estimate will be made
by the Company for the Government of Azerbaijan. Independent check
assaying of 515 samples and full multi-element analysis are
underway by external consultants and it is planned that an
independent JORC resource estimate and reserve calculation will be
compiled which will be available in the third quarter of 2017.
Work has started to commercially develop the deposit. The design
of the haul road has been finalised following completion of a
detailed topographic survey of the area between the Ugur gold
deposit and the Gedabek processing facilities. Independent
geotechnical studies to assess rock mass strength and structural
geology relationships for mine design parameters have been
completed. Independent environmental impact assessments have been
completed and hydrogeological baseline monitoring is being
established.
The Bittibulag mineral occurrence
In 2016, a surface mapping exercise was completed covering an
area of 1.1 square kilometres that included taking 190 outcrop
samples for analysis. Preparation and analysis of 648 samples is
ongoing from the soil geochemistry sampling programme conducted
earlier in 2016. A total of 40 metres of trenches were excavated
and mapped from which 54 samples were taken.
Gosha
The Group's second mining project, the 300 square kilometre
Gosha contract area, is located in western Azerbaijan, 50
kilometres north-west of Gedabek. Gosha is being operated as a
small, high grade, underground gold mine.
A total of 10,627 tonnes of ore of average gold grade 5.10
grammes per tonne were mined at Gosha in the year ended 31 December
2016.
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 are agreed with them.
The Gedabek mine site has good road transportation links and our
copper and precious metal concentrate is collected from the Gedabek
site by the purchaser. The Group was pleased to announce in May
2014 that it had signed an exclusive three year contract with
Industrial Minerals SA, a Swiss-based integrated trading, mining
and logistics group, for the sale of its SART copper concentrate.
The Group has again experienced no delays in the sale of its copper
concentrate in the period under review. In March 2016, the Group
signed an additional contract with Industrial Minerals SA for the
sale of the concentrate produced by its flotation plant which had
improved terms. The second contract is valid for the period to 31
December 2018. Prior to March 2016, sales of concentrate produced
by the flotation plant were made under the original contract.
Principal risks and uncertainties
Country risk in Azerbaijan
The Group currently operates solely in Azerbaijan and is
therefore naturally at risk of adverse changes to the regulatory or
fiscal regime within the country. However, Azerbaijan is outward
looking and desirous of attracting direct foreign investment and
the Company believes the country will be sensitive to the adverse
effect of any proposed changes in the future. In addition,
Azerbaijan has historically had a stable operating environment and
the Company maintains very close links with all relevant
authorities.
Operational risk
The Company currently produces all its products for sale at
Gedabek. Planned production may not be achieved as a result of
unforeseen operational problems, machinery malfunction or other
disruptions. Operating costs and profits for commercial production
therefore remain subject to variation. The Group monitors
production on a daily basis and has robust procedures in place to
effectively manage these risks.
Commodity price risk
The Group's revenues are exposed to fluctuations in the price of
gold, silver and copper and all fluctuations have a direct impact
on the operating profit and cash flow of the Group. Whilst the
Group has no control over the selling price of its commodities, it
has very robust cost controls to minimise costs to ensure it can
withstand any prolonged period of commodity price weakness.
The Group actively monitors all changes in commodity prices to
understand the impact on the business. The Group hedges future
sales of gold bullion when the directors believe it is beneficial
to the Company. The directors periodically review the requirement
for hedging.
Foreign currency risk
The Group reports in United States Dollars and a large
proportion of its costs are incurred in United States Dollars. It
also conducts business in Australian Dollars, Azerbaijan Manats and
United Kingdom Sterling. The Group does not currently hedge its
exposure to other currencies, although it will review this
periodically if the volume of non-United States Dollar transactions
increases significantly. Also, the fact that both revenue of the
Group and the Group's interest bearing debt are settled in United
States Dollars is a key mitigating factor that helps to avoid
significant exposure to foreign currency risk. Information on the
carrying value of monetary assets and liabilities denominated in
foreign currency and the sensitivity analysis of foreign currency
is disclosed in note 23 - "Financial Instruments" in the Group
financial statements below.
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. Part
of the bank loan from Amsterdam Trade Bank was transferred to
Gazprombank (Switzerland) Ltd in 2017, see note 28 below - "Post
balance sheet event" of the Group financial statements below. The
Group has not used any interest rate swaps or other instruments to
manage its interest rate profile during 2016, but this requirement
is reviewed on a periodic basis. Information on the exposure to
changing interest rates is disclosed in note 23 below. 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. All in sustaining cost ("AISC") per ounce. AISC is a widely
used, standardised industry metric and is a measure of how our
operation compares to other producers in the industry. AISC is
calculated in accordance with the World Gold Council's Guidance
Note on Non-GAAP Metrics dated 27 June 2013. The AISC calculation
includes a credit for the revenue generated from the sale of copper
and silver which are classified by the Group as by-products. There
are no royalty costs included in the Company's AISC calculation as
the Production Sharing Agreement with the Government of Azerbaijan
is structured as a revenue sharing arrangement. Therefore, the
Company's AISC is calculated using a cost of sales which is the
cost of producing 100 per cent. of the gold and such costs are
allocated to total gold production including the Government of
Azerbaijan's share.
Financial review
Group income statement
The Group generated revenues of $79,184k (2015: $78,057k) from
sales of gold and silver bullion and copper and precious metal
concentrate.
$66,930k of the revenues (2015: $74,279k) were generated from
sales of gold and silver bullion from the Group's share of the
production of doré bars in 2016. Bullion sales in 2016 were 53,281
ounces of gold and 9,512 ounces of silver (2015: 63,924 ounces of
gold and 3,754 ounces of silver) at an average price of $1,253 per
ounce and $17 per ounce respectively (2015: $1,161 per ounce and
$15 per ounce respectively). In addition, the Group generated
revenue from the sale of copper and precious metal concentrate of
$12,254k (2015: $3,778k).
The Group hedged future gold bullion sales for the first time in
2016. On 29 June 2016, the Group entered into a series of net zero
cost options with a lower (PUT option) sales price of $1,200 per
ounce and an upper (CALL option) sales price of $1,426 per ounce.
The pairs of options matured in lots of 1,500 ounces of gold every
two weeks from the transaction date with the final lot maturing on
13 December 2016. The final two lots of PUT options expired in
November and December and on both expiry dates the spot price of
gold was below the PUT option price of $1,200 per ounce. These
options were exercised generating additional revenue of $80,400.
There were no options outstanding at 31 December 2016.
The Group incurred cost of sales of $62,770k (2015: $75,234k).
The cash cost of mining and processing in 2016 decreased by $8,749k
from $55,323k in 2015 to $46,574k in 2016. This was due to
improving operational efficiency, cost control and the devaluation
of the Azerbaijan Manat against the United States Dollar.
Depreciation and amortisation in 2016 was marginally higher at
$21,964k compared to $21,857k in 2015. 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 2016 of $1,375k (2015: $714k)
which was interest receivable on a loan to a former employee,
consultancy income, release of provisions and foreign currency
exchange gains. The Group incurred administration expenses in 2016
of $4,931k (2015: $5,415k) and finance costs of $4,935k (2015:
$5,721k). The Group's administration expenses comprise the cost of
the administrative staff and associated costs at the Gedabek mine
site, the Baku office and maintaining the Group's listing on AIM.
The Group's administration costs reduced in 2016 compared to 2015
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 profit before taxation in 2016 of $6,779k
compared to a loss before taxation of $8,910k in 2015. This was due
to a lower all in sustaining cost ("AISC") of production of $616
per ounce in 2016 compared to $858 per ounce in 2015 and also
finance costs reduced by $786k due to lower levels of
borrowings.
The Group had a taxation charge for the year of $2,795k (2015:
credit of $1,529k). This comprised a current income tax charge of
$nil and a deferred tax charge of $2,795k (2015: taxation credit of
$1,529k comprising a current income taxation charge of $nil and a
deferred taxation credit of $1,529k). The Group had no current
taxation charge in 2016 as the taxable profits incurred by its main
operating company were offset against taxable losses brought
forward from previous years. The deferred taxation charge in 2016
arose primarily due the utilisation of tax losses in 2016 brought
forward from previous years.
Cash cost of total gold production
The Group produced gold at an all in sustaining cost ("AISC")
per ounce of $616 in 2016 compared to $858 in 2015. The Group
decided in 2016 to report its cash cost as an AISC calculated in
accordance with the World Gold Council's guidance. This is a
standardised metric in the industry. The reason for the decrease in
2016 compared to 2015 was due to the decrease in cash operating
costs and the increase in production from the flotation plant which
has a higher margin than production from agitation leaching.
Group statement of financial position
Non-current assets decreased from $129,464k at the end of 2015
to $116,408k at the end of 2016. The main reasons for the decrease
were intangible assets lower by $1,525k and property, plant and
equipment lower by $9,952k. These decreases were mainly driven by
depreciation and amortisation in the year. There was no non-current
inventory at the end of 2016 as all ore stockpiles at 31 December
2016 are forecast to be processed within 12 months of the balance
sheet date.
There were net current assets of $3,649k at the end of 2016
compared to net current liabilities of $4,243k at the end of 2015.
The main reason for the increase in current assets was an increase
in current inventories of $7,821k in 2016. Current liabilities
comprising trade and other payables and current portion of
borrowings remained approximately level, increasing from $46,820k
at end of 2015 to $47,998k at the end of 2016. The Group's cash
balances at 31 December 2016 were $1,379k (2015: $249k).
Net assets of the Group were $82,646k (2015: $78,644k). The
increase was due to the profit earned in 2016 as there were no
shares issued in the year.
The Group is financed by a mixture of equity and debt. The
Group's total debt at 31 December 2016 was $35,930k as shown in
note 21 - "Interest-bearing loans and borrowings" below. The
significant changes to the Group's debt financing for the year
ended 31 December 2016 and to date are as follows:
-- $9.8m was repaid to the Amsterdam Trade Bank ("ATB") in
accordance with the loan agreement and the effective interest rate
payable on the loan in the year was 9.01 per cent. The Group met
the required debt service coverage ratio ("DSCR") covenant of
1:1.25 for the six months ended 30 June 2016 but for the year ended
31 December 2016 the DSCR was 1:1.07. A waiver of the DSCR covenant
for the year ended 31 December 2016 was obtained from ATB. In
February 2017, 50 per cent. of the balance of the loan being $8.6m,
was transferred to Gazprombank (Switzerland) Ltd ("GPBS"). The
terms of the loan and security remained unchanged with ATB acting
as agent to administer the loan on behalf of ATB and GPBS.
-- $4.8m was repaid to the International Bank of Azerbaijan
("IBA") in accordance with the loan notes to finance the
construction of the agitation leaching plant. The credit facility
outstanding of $1.5m at 1 January 2016 was repaid in 2016. The
Group entered into two further credit facilities in 2016 with IBA
for AZN1m and $1m with interest rates respectively of 18 and 12 per
cent. The loans are repayable on a reducing balance basis over
periods of one and two years respectively. The Group also entered
into a letter of credit facility with IBA of $1.4m to finance the
purchase of its water treatment facility.
-- The Group entered into credit facilities totalling $5.9m from
Pasha Bank in 2016. These were for the purchase of consumables and
capital equipment. The loans for consumables purchase were short
term loans of two months maturity and totalled $2.5m at 31 December
2016 with interest rates of 14 and 18 per cent. The loans for the
purchase of capital equipment totalled $2.4m at 31 December 2016
and carried interest rates of between 7 and 9 per cent. with
maturities of 12 to 24 months. The letter of credit facility with
$4.6m outstanding at 1 January 2016 for the purchase of the
flotation plant was repaid in 2016.
-- The Group entered into short term credit facilities with Yapi
Credit Bank and Kapital Bank in 2016. The facilities are all
denominated in United States Dollars with interest rates of between
7 and 11 per cent. The facilities are all for one year and interest
is repayable either on a reducing balance basis or by equal
quarterly instalments. The total of these loans outstanding at 31
December 2016 was $1.6m.
-- The $3.9m loan from a director was not repaid during 2016 and was extended
until 8 January 2018. The loan carries interest at 10 per cent.
and $nil of interest was paid in respect of the loan in 2016.
The Group had a deferred taxation liability at 31 December 2016
of $18,230k (2015: $15,435k).
Group cash flow statement
Operating cash inflow before movements in working capital was
$33,911k (2015: $18,581k). The main source of operating cash flow
was the profit before taxation after adding back finance costs and
amortisation and depreciation which totalled $33,678k (2015:
$18,668k).
Working capital movements absorbed cash of $4,332k (2015:
generation of $4,382k) due to an increase in inventories of $5,278k
(2015: decrease of $6,285k) mainly driven by an increase in ore
stockpiles of $2,606k and spare parts and consumables of $2,953k
and an increase in trade and other receivables of $2,805k (2015:
$1,110k). This was partially offset by an increase in trade and
other payables of $3,751k (2015: decrease of $793k).
Income tax paid was $nil (2015: $nil). The Group generated
taxable profits for 2016 due to its return to profitability but
these were relieved by taxable losses brought forward from previous
years.
Net cash provided by operating activities in 2016 was $29,579k
compared to $22,963k in 2015. This higher cash generation from
operating activities in the year was due to the turnaround of the
Group from loss to profit partially offset by cash absorbed by
working capital.
Expenditure on property, plant and equipment and mine
development was $10,679k (2015: $14,279k). The main items of
expenditure in 2016 were capitalisation of deferred stripping costs
of $4,091k, underground mining equipment of $1,323k, the new SAG
mill of $1,500k and the cost of the new electricity substation and
related equipment and power lines of $2,098k.
Exploration and evaluation expenditure of $359k (2015: $377k)
was incurred and capitalised. This arose on 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 2017.
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 United States 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 2018 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 2016, the price of gold averaged $1,253 per ounce
with a high of $1,366 per ounce and a low of $1,077 per ounce. The
Group has substantially reduced its net debt during 2016 from $49.0
million at 1 January to $34.6 million at 31 December. However,
total production is forecast to be lower in 2017 compared to
2016.
The Group commenced making payments on the principal of its debt
in 2015. Until the date of this annual report, the Group has made
all payments of interest and principal on time other than by
advance agreement with certain banks to defer payment.
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.
The Group's cash flow forecasts assume that the newly discovered
Ugur gold deposit will commence production as an open pit mine in
the fourth quarter of 2017. If the start-up of the mine is delayed,
the cash flow forecast will be adversely affected in the absence of
any further actions being taken. In the event of a production delay
from Ugur, the Group has several options to maintain production to
cover any cash flow deficit including recommencing mining in the
main open pit, further processing of stockpiled ores and processing
underground ores from the Gadir underground mine which have been
extracted ancillary to the current exploration programme.
The Group's loan agreement with the Amsterdam Trade Bank ("ATB")
and Gazprombank (Switzerland) Ltd ("GPBS") contains a debt service
cover ratio ("DSCR") covenant of at least 1.25. This ratio is
calculated twice a year from the Group's published financial
statements. The Group has received waivers of the DSCR covenant
from ATB for the full year to 31 December 2016 and from ATB and
GPBS for the half year to 30 June 2017. Based on current forecasts,
the directors believe that the Group will be compliant with the
DSCR covenant for the full year to 31 December 2017.
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 look 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 neither overly aggressive or overly
conservative and appropriate rigour and diligence has been
performed by the directors in approving the assumptions. The
directors believe all assumptions are prepared on a realistic basis
using the best available information.
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
can be found within the chairman's statement and within the
strategic report above. The financial position of the Group, its
cash flow, liquidity position and borrowing facilities are
discussed in the financial review above. In addition, note 23 to
Group the financial statements below includes the Group's
objectives, details of its financial instrument exposures to credit
risk and liquidity risk.
After making due enquiry, the directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future.
Accordingly, the Group continues to adopt the going concern basis
in preparing the annual report and financial statements.
Reza Vaziri
President and chief executive
Group Financial Statements
year ended 31 December 2016
Group income statement
year ended 31 December 2016
2016 2015
Notes $000 $000
-------------------------------------- ------ --------- ---------
Revenue 6 79,184 78,057
Cost of sales 8 (62,770) (75,234)
-------------------------------------- ------ --------- ---------
Gross profit 16,414 2,823
Other income 7 1,375 714
Administrative expenses (4,931) (5,415)
Other operating expense 7 (1,144) (1,311)
-------------------------------------- ------ --------- ---------
Operating profit /(loss) 8 11,714 (3,189)
Finance costs 11 (4,935) (5,721)
-------------------------------------- ------ --------- ---------
Profit /(loss) before tax 6,779 (8,910)
Income tax 12 (2,795) 1,529
-------------------------------------- ------ --------- ---------
Profit/(loss) attributable to
the equity holders of the parent 3,984 (7,381)
-------------------------------------- ------ --------- ---------
Profit/(loss) per share attributable
to the equity holders of the parent
Basic (US cents per share) 13 3.55 (6.58)
Diluted (US cents per share) 13 3.55 (6.58)
-------------------------------------- ------ --------- ---------
Group statement of comprehensive income
year ended 31 December 2016
2016 2015
$000 $000
------------------------------------ -------- --------
Profit /(loss) for the year 3,984 (7,381)
------------------------------------ -------- --------
Total comprehensive profit /(loss) 3,984 (7,381)
------------------------------------ -------- --------
Attributable to the equity holders
of the parent 3,984 (7,381)
------------------------------------ -------- --------
Group statement of financial position
31 December 2016
2016 2015
Notes $000 $000
------------------------------------ ------ --------- ---------
Non-current assets
Intangible assets 14 16,848 18,373
Property, plant and equipment 15 98,476 108,428
Inventory 17 - 2,543
Other receivables 18 1,084 120
------------------------------------ ------ --------- ---------
116,408 129,464
------------------------------------ ------ --------- ---------
Current assets
Inventory 17 34,018 26,197
Trade and other receivables 18 16,250 16,131
Cash and cash equivalents 19 1,379 249
------------------------------------ ------ --------- ---------
51,647 42,577
------------------------------------ ------ --------- ---------
Total assets 168,055 172,041
------------------------------------ ------ --------- ---------
Current liabilities
Trade and other payables 20 (21,833) (20,112)
Interest-bearing loans and
borrowings 21 (26,165) (26,708)
------------------------------------ ------ --------- ---------
(47,998) (46,820)
------------------------------------ ------ --------- ---------
Net current assets / (liabilities) 3,649 (4,243)
------------------------------------ ------ --------- ---------
Non-current liabilities
Provision for rehabilitation 22 (9,416) (8,554)
Interest-bearing loans and
borrowings 21 (9,765) (22,588)
Deferred tax liability 12 (18,230) (15,435)
------------------------------------ ------ --------- ---------
(37,411) (46,577)
------------------------------------ ------ --------- ---------
Total liabilities (85,409) (93,397)
------------------------------------ ------ --------- ---------
Net assets 82,646 78,644
------------------------------------ ------ --------- ---------
Equity
Share capital 24 1,993 1,993
Share premium account 32,325 32,325
Share-based payment reserve 154 283
Merger reserve 24 46,206 46,206
Retained earnings /(loss) 1,968 (2,163)
------------------------------------ ------ --------- ---------
Total equity 82,646 78,644
------------------------------------ ------ --------- ---------
Group cash flow statement
year ended 31 December 2016
2016 2015
Notes $000 $000
-------------------------------------- ------ ------------------ ------------------
Profit/(loss) before tax 6,779 (8,910)
Adjustments for:
Finance costs 11 4,935 5,721
Depreciation of property,
plant and equipment 15 20,080 19,808
Amortisation of mining rights
and other intangible assets 14 1,884 2,049
Share-based payment expense 25 18 15
Shares issued in lieu of cash
payment - 94
Foreign exchange gain, net 7 (138) (380)
Write down of advances paid 7 353 184
-------------------------------------- ------ ------------------ ------------------
Operating cash flow before
movement in working capital 33,911 18,581
Increase in trade and other
receivables (2,805) (1,110)
(Increase) / decrease in inventories (5,278) 6,285
Increase / (decrease) in trade
and other payables 3,751 (793)
-------------------------------------- ------ ------------------ ------------------
Cash provided by operations 29,579 22,963
Income taxes paid - -
-------------------------------------- ------ ------------------ ------------------
Net cash provided by operating
activities 29,579 22,963
-------------------------------------- ------ ------------------ ------------------
Investing activities
Expenditure on property, plant
and equipment and mine development (10,679) (14,279)
Investment in exploration
and evaluation assets including
other intangible assets (359) (377)
Net cash used in investing
activities (11,038) (14,656)
-------------------------------------- ------ ------------------ ------------------
Financing activities
Proceeds from borrowings 21 14,083 14,793
Repayments of borrowings 21 (27,544) (18,314)
Interest paid (3,950) (4,859)
-------------------------------------- ------ ------------------ ------------------
Net cash used in financing
activities (17,411) (8,380)
-------------------------------------- ------ ------------------ ------------------
Net increase / (decrease)
in cash and cash equivalents 1,130 (73)
Cash and cash equivalents
at the beginning of the year 19 249 322
-------------------------------------- ------ ------------------ ------------------
Cash and cash equivalents
at the end of the year 19 1,379 249
-------------------------------------- ------ ------------------ ------------------
Group statement of changes in equity
year ended 31 December 2016
Share-based Retained
Share Share payment Merger earnings Total
capital premium reserve reserve /(loss) equity
Notes $000 $000 $000 $000 $000 $000
--------------- ------ --------- --------- ------------ --------- ----------- --------
1 January
2015 1,978 32,246 670 46,206 4,816 85,916
Loss for
the year - - - - (7,381) (7,381)
Shares issued 15 79 - - - 94
Fair value
of expired
options - - (402) - 402 -
Share-based
payment 25 - - 15 - - 15
--------------- ------ --------- --------- ------------ --------- ----------- --------
31 December
2015 1,993 32,325 283 46,206 (2,163) 78,644
Profit for
the year - - - - 3,984 3,984
Fair value
of expired
options - - (147) - 147 -
Share-based
payment 25 - - 18 - - 18
--------------- ------ --------- --------- ------------ --------- ----------- --------
31 December
2016 1,993 32,325 154 46,206 1,968 82,646
--------------- ------ --------- --------- ------------ --------- ----------- --------
Notes
1. General information
Anglo Asian Mining PLC (the "Company") is a company incorporated
in England and Wales under the Companies Act 2006. The Company's
ordinary shares are traded on the AIM market of the London Stock
Exchange. The Company is a holding company. The principal
activities and place of business of the Company and its
subsidiaries (the "Group") are set out in note 16, and the
chairman's statement and strategic report above.
2. Basis of preparation
The financial information set out above, which was approved by
the board of directors on 24 May 2017, 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 2018 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 2016, the price of gold averaged $1,253 per ounce
with a high of $1,366 per ounce and a low of $1,077 per ounce. The
Group has substantially reduced its net debt during 2016 from $49.0
million at 1 January to $34.6 million at 31 December. However,
total production is forecast to be lower in 2017 compared to
2016.
The Group commenced making payments on the principal of its debt
in 2015. Until the date of this annual report, the Group has made
all payments of interest and principal on time other than by
advance agreement with certain banks to defer payment.
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.
The Group's cash flow forecasts assume that the newly discovered
Ugur gold deposit will commence production as an open pit mine in
the fourth quarter of 2017. If the start-up of the mine is delayed,
the cash flow forecast will be adversely affected in the absence of
any further actions being taken. In the event of a production delay
from Ugur, the Group has several options to maintain production to
cover any cash flow deficit including recommencing mining in the
main open pit, further processing of stockpiled ores and processing
underground ores from the Gadir underground mine which have been
extracted ancillary to the current exploration programme.
The Group's loan agreement with the Amsterdam Trade Bank ("ATB")
and Gazprombank (Switzerland) Ltd ("GPBS") contains a debt service
cover ratio ("DSCR") covenant of at least 1.25. This ratio is
calculated twice a year from the Group's published financial
statements. The Group has received waivers of the DSCR covenant
from ATB for the full year to 31 December 2016 and from ATB and
GPBS for the half year to 30 June 2017. Based on current forecasts,
the directors believe that the Group will be compliant with the
DSCR covenant for the full year to 31 December 2017.
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 look 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 neither overly aggressive or overly
conservative and appropriate rigour and diligence has been
performed by the directors in approving the assumptions. The
directors believe all assumptions are prepared on a realistic basis
using the best available information.
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
can be found in the Group's annual report and accounts within the
chairman's statement and within 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 22 to the Group financial statements includes the
Group's objectives, details of its financial instrument exposures
to credit risk and liquidity risk.
After making due enquiry, the directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future.
Accordingly, the Group continues to adopt the going concern basis
in preparing the annual report and financial statements.
3 Adoption of new and revised standards
a) New and amended standards and interpretations
The Group applied those minor amendments, including annual
improvements, which are effective for annual periods beginning on
or after 1 January 2016. 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 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'
The amendments to IAS 7 "Statement of Cash Flows" are part of
the IASB's Disclosure Initiative and help users of financial
statements better understand changes in an entity's debt. The
amendments require entities to provide disclosures about changes in
their liabilities arising from financing activities, including both
changes arising from cash flows and non-cash changes (such as
foreign exchange gains or losses).
The Group 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.
-- IAS 12 'Recognition of Deferred Tax Assets for Unrealised losses - Amendments to IAS 12'
The amendments clarify that an entity needs to consider whether
tax law restricts the sources of taxable profits against which it
may make deductions on the reversal of that deductible temporary
difference. Furthermore, the amendments provide guidance on how an
entity should determine future taxable profits and explain the
circumstances in which taxable profits may include the recovery of
some assets for more than their carrying amount.
These amendments are effective for annual periods beginning on
or after 1 January 2017 with early application permitted. If an
entity applies the amendments for an earlier period, it must
disclose that fact. These amendments are not expected to have any
impact on the Group.
-- IFRS 16 'Leases'
IFRS 16 was issued in January 2016 and it replaces IAS 17
'Leases', IFRIC 4 'Determining whether an Arrangement contains a
lease', SIC - 15 'Operating Leases - Incentives' and SIC -27
'Evaluation the Substance of Transactions Involving the Legal Form
of a lease', IFRS 16 sets out the principles for the recognition
measurement, presentation and disclosure of leases and requires
lessees to account for all leases under a single on balance sheet
model similar to the accounting for finance leases under IAS 17.
The standard includes two recognition exemptions for lessees -
leases of 'low-value' assets (e.g. personal computers) and
short-term leases (i.e. Ieases with a lease term of 12 months or
less). At the commencement date of a lease, a lessee will recognise
a liability to make lease payments (i.e. the lease liability) and
an asset representing the right to use the underlying asset during
the lease term (i.e. the right-of-use asset). Lessees will be
required to separately recognise the interest expense on the lease
liability and the depreciation expense on the right-of-use
asset.
Lessees will be also required to remeasure the lease liability
upon the occurrence of certain events (e.g. a change in the lease
term or a change in future lease payments resulting from a change
in an index or rate used to determine those payments). The lessee
will generally recognise the amount of the remeasurement of the
lease liability as an adjustment to the right-of-use asset.
Lessor accounting under IFRS 16 is substantially unchanged from
today's accounting under IAS 17. Lessors will continue to classify
all leases using the same classification principle as in IAS 17 and
distinguish between two types of leases: operating and finance
leases.
IFRS 16 also requires lessees and lessors to make more extensive
disclosures than under IAS 17.
IFRS 16 is effective for annual periods beginning on or after 1
January 2019. Early application is permitted, but not before an
entity applies IFRS 15. A lessee can choose to apply the standard
using either a full retrospective or a modified retrospective
approach. The standard's transition provisions permit certain
reliefs.
In 2017, the Group plans to assess the potential effect of IFRS
16 on its consolidated financial statements. However, as disclosed
in note 26 below, the Group has no significant leases.
4 Significant accounting policies
4.1) Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Group and its subsidiaries as at 31 December
2016. 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.
4.2) Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be
reliably measured.
Revenue from the sale of goods is recognised when the
significant risks and rewards of ownership have been transferred,
which is considered to occur when title passes to the customer.
This generally occurs when product is physically transferred to the
buyer.
The following criteria are also met in specific revenue
transactions:
(i) Gold bullion and copper concentrate sales
Revenue from gold bullion sales is recognised when the
significant risks and rewards of ownership have transferred to the
buyer and selling prices and assay results are known or can be
reasonably estimated. Assay results determine the content of gold
and silver in doré, the price of which is determined based on
market quotations of each metal. Silver in doré which is produced
together with gold, is treated as a by-product and recognised in
sales revenue.
Contractual terms for the Group's sale of gold, silver and
copper in concentrate (metal in concentrate) allow for a price
adjustment based on final assay results of the metal in concentrate
to determine the final content. Recognition of sales revenue for
these commodities is based on the most recently determined estimate
of metal in concentrate (based on initial assay results) and the
spot price at the date of shipment, with a subsequent adjustment
made upon final determination.
Contractual terms with third parties for the sale of metal in
concentrate specify a provisional selling price based on the
average prevailing spot prices at date of shipment to the customer.
Final selling price is based on average prevailing spot prices
during a specified future period after shipment to the customer
(the "quotation period"). Sales revenue for the sale of metal in
concentrate is recognised at final selling price.
(ii) Interest revenue
Interest revenue is recognised as it accrues, using the
effective interest rate method.
4.3) Leases
The determination of whether an arrangement is, or contains, a
lease is based on the substance of the arrangement at inception
date and whether fulfilment of the arrangement is dependent on the
use of a specific asset or assets or the arrangement conveys a
right to use the asset.
Operating lease payments are recognised as an expense in the
Group income statement on a straight line basis over the lease
term.
The Group had no finance leases during 2016 and 2015.
4.4) Taxation
i) Current and deferred income taxes
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the Group financial statements and the corresponding tax bases
used in the computation of taxable profit and is accounted for
using the balance sheet liability method. Deferred tax liabilities
are generally recognised for all taxable temporary differences and
deferred tax assets are recognised for all deductible temporary
differences, carry forward of unused tax assets and unused tax
losses. Deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences and the carry forward of unused
tax credits and unused tax losses can be utilised.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised, based on tax rates (and tax laws) that have been enacted
or substantively enacted at the reporting date. Deferred tax is
charged or credited in the Group income statement, except when it
relates to items charged or credited directly to equity, in which
case the deferred tax is also dealt with in equity.
Deferred tax assets are not recognised in respect of temporary
differences relating to tax losses where there is insufficient
evidence that the asset will be recovered. Unrecognised deferred
tax assets are reassessed at each reporting date and are recognised
to the extent that it has become probable that future taxable
profits will allow the deferred tax asset to be recovered.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
Group income statement because it excludes items of income or
expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted at the reporting
date.
The tax expense represents the sum of the tax currently payable
and deferred tax.
ii) Value-added taxes ("VAT")
The Group pays VAT on purchases made in both the Republic of
Azerbaijan and the United Kingdom. Under both jurisdictions, VAT
paid is refundable. Azerbaijani jurisdiction permits offset of an
Azerbaijani VAT credit against other taxes payable to the state
budget.
4.5) Transactions with related parties
For the purposes of these Group financial statements, parties
are considered to be related:
- where one party has the ability to control the other party or
exercise significant influence over the other party in making
financial or operational decisions;
- entities under common control; and
- key management personnel
In considering each possible related party relationship,
attention is directed to the substance of the relationship, not
merely the legal form.
Related parties may enter into transactions which unrelated
parties might not and transactions between related parties may not
be effected on the same terms, conditions and amounts as
transactions between unrelated parties.
It is the nature of transactions with related parties that they
cannot be presumed to be carried out on an arm's length basis.
4.6) Borrowing costs
Borrowing costs directly relating to the acquisition,
construction or production of a qualifying capital project under
construction are capitalised and added to the project cost during
construction until such time the assets are considered
substantially ready for their intended use i.e. when they are
capable of commercial production. Where funds are borrowed
specifically to finance a project, the amount capitalised
represents the actual borrowing costs incurred. Where surplus funds
are available for a short term out of money borrowed specifically
to finance a project, the income generated from the temporary
investment of such amounts is also capitalised and deducted from
the total capitalised borrowing cost. Where the funds used to
finance a project form part of general borrowings, the amount
capitalised is calculated using a weighted average of rates
applicable to relevant general borrowings of the Group during the
period. All other borrowing costs are recognised in the Group
income statement in the period in which they are incurred.
Even though exploration and evaluation assets can be qualifying
assets, they generally do not meet the 'probable economic benefits'
test. Any related borrowing costs are therefore generally
recognised in the Group income statement in the period they are
incurred.
4.7) Intangible assets
i) Exploration and evaluation assets
The costs of exploration properties and leases, which include
the cost of acquiring prospective properties and exploration rights
and costs incurred in exploration and evaluation activities, are
capitalised as intangible assets as part of exploration and
evaluation assets.
Exploration and evaluation assets are carried forward during the
exploration and evaluation stage and are assessed for impairment in
accordance with the indicators of impairment as set out in IFRS 6
'Exploration for and Evaluation of Mineral Resources'.
In circumstances where a property is abandoned, the cumulative
capitalised costs relating to the property are written off in the
period. No amortisation is charged prior to the commencement of
production.
Once commercially viable reserves are established and
development is sanctioned, exploration and evaluation assets are
tested for impairment and transferred to assets under
construction.
Upon transfer of Exploration and evaluation costs into Assets
under construction, all subsequent expenditure on the construction,
installation or completion of infrastructure facilities is
capitalised within Assets under construction.
When commercial production commences, exploration, evaluation
and development costs previously capitalised are amortised over the
commercial reserves of the mining property on a units-of-production
basis.
Exploration and evaluation costs incurred after commercial
production start date in relation to evaluation of potential
mineral reserves and resources that 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.
4.8) Property, plant and equipment and mine properties
Development expenditure is net of proceeds from all but the
incidental sale of ore extracted during the development phase.
Upon completion of mine construction, the assets initially
charged to assets in the course of construction are transferred
into 'Plant and equipment, motor vehicles and leasehold
improvements' or 'Producing mines'. Items of 'Plant and equipment,
motor vehicles and leasehold improvements' and 'Producing mines'
are stated at cost, less accumulated depreciation and accumulated
impairment losses.
During the production period expenditures directly attributable
to the construction of each individual asset are capitalised as
'Assets under construction" up to the period when asset is ready to
be put into operation. When an asset is put into operation it is
transferred to 'Plant and equipment, motor vehicles and leasehold
improvements' or 'Producing mines'. Additional capitalised costs
performed subsequent to the date of commencement of operation of
the asset are charged directly to 'Plant and equipment, motor
vehicles and leasehold improvements' or 'Producing mines', i.e.
where the asset itself was transferred.
The initial cost of an asset comprises its purchase price or
construction cost, any costs directly attributable to bringing the
asset into operation, the initial estimate of the rehabilitation
obligation and, for qualifying assets, borrowing costs. The
purchase price or construction cost is the aggregate amount paid
and the fair value of any other consideration given to acquire the
asset.
When a mine construction project moves into the production
stage, the capitalisation of certain mine construction costs ceases
and costs are either regarded as inventory or expensed, except for
costs which qualify for capitalisation relating to mining asset
additions or improvements, underground mine development or mineable
reserve development.
i) Depreciation and amortisation
Accumulated mine development costs within producing mines are
depreciated and amortised on a units-of-production basis over the
economically recoverable reserves of the mine concerned, except in
the case of assets whose useful life is shorter than the life of
the mine, in which case the straight line method is applied. The
unit of account for run of mine ("ROM") costs and for post-ROM
costs is recoverable ounces of gold. The units-of-production rate
for the depreciation and amortisation of mine development costs
takes into account expenditures incurred to date.
The premium paid in excess of the intrinsic value of land to
gain access is amortised over the life of the mine on a
units-of-production basis.
Other plant and equipment such as mobile mine equipment is
generally depreciated on a straight line basis over their estimated
useful lives as follows:
-- Temporary buildings - eight years (2015: eight years)
-- Plant and equipment - eight years (2015: eight years)
-- Motor vehicles - four years (2015: four years)
-- Office equipment - four years (2015: four years)
-- Leasehold improvements - eight years (2015: eight years)
An item of property, plant and equipment, and any significant
part initially recognised, is derecognised upon disposal or when no
future economic benefits are expected from its use or disposal. Any
gain or loss arising on derecognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the Group income statement when
the asset is derecognised.
The asset's residual values, useful lives and methods of
depreciation and amortisation are reviewed at each reporting date
and adjusted prospectively if appropriate.
ii) Major maintenance and repairs
Expenditure on major maintenance refits or repairs comprises the
cost of replacement assets or parts of assets and overhaul costs.
Where an asset or part of an asset that was separately depreciated
and is now written off is replaced, and it is probable that future
economic benefits associated with the item will flow to the Group
through an extended life, the expenditure is capitalised.
Where part of the asset was not separately considered as a
component, the replacement value is used to estimate the carrying
amount of the replaced assets which is immediately written off. All
other day-to-day maintenance costs are expensed as incurred.
4.9) Impairment of tangible and intangible assets
The Group conducts annual internal assessments of the carrying
values of tangible and intangible assets. The carrying values of
capitalised exploration and evaluation expenditure, mine properties
and property, plant and equipment are assessed for impairment when
indicators of such impairment exist or at least annually. In such
cases an estimate of the asset's recoverable amount is calculated.
The recoverable amount is determined as the higher of the fair
value less costs to sell for the asset and the asset's value in
use. This is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of
those from other assets or groups of assets. If this is the case,
the individual assets are grouped together into cash-generating
units ("CGUs") for impairment purposes. Such CGUs represent the
lowest level for which there are separately identifiable cash
inflows that are largely independent of the cash flows from other
assets or other groups of assets. This generally results in the
Group evaluating its non--financial assets on a geographical or
licence basis.
If the carrying amount of the asset exceeds its recoverable
amount, the asset is impaired and an impairment loss is charged to
the Group income statement so as to reduce the carrying amount to
its recoverable amount (i.e. the higher of fair value less cost to
sell and value in use).
Impairment losses related to continuing operations are
recognised in the Group income statement in those expense
categories consistent with the function of the impaired asset.
For assets excluding the intangibles referred to above, an
assessment is made at each reporting date as to whether there is
any indication that previously recognised impairment losses may no
longer exist or may have decreased. If such indication exists, the
Group makes an estimate of the recoverable amount.
A previously recognised impairment loss is reversed only if
there has been a change in the estimates used to determine the
asset's recoverable amount since the last impairment loss was
recognised. If this is the case, the carrying amount of the asset
is increased to its recoverable amount. The increased amount cannot
exceed the carrying amount that would have been determined, net of
depreciation or amortisation, had no impairment loss been
recognised for the asset in prior years. Such reversal is
recognised in the consolidated statement of other comprehensive
income. Impairment losses recognised in relation to indefinite life
intangibles are not reversed for subsequent increases in its
recoverable amount.
4.10) Fair value measurement
The Group measures financial instruments such as bank borrowings
at fair value at each balance sheet date. Fair value disclosures
for financial instruments measured at fair value, or where fair
value is disclosed, are summarised in the following notes:
-- Note 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.
4.11) Provisions
i) General
Provisions are recognised when (a) the Group has a present
obligation (legal or constructive) as a result of a past event and
(b) it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. If the effect
of the time value of money is material, provisions are discounted
using a current pre-tax rate that reflects, where appropriate, the
risks specific to the liability. Where discounting is used, the
increase in the provision due to the passage of time is recognised
as a finance cost.
ii) Rehabilitation provision
The Group records the present value of estimated costs of legal
and constructive obligations required to restore operating
locations in the period in which the obligation is incurred. The
nature of these restoration activities includes dismantling and
removing structures, rehabilitating mines and tailings dams,
dismantling operating facilities, closure of plant and waste sites
and restoration, reclamation and revegetation of affected
areas.
The obligation generally arises when the asset is installed or
the ground or environment is disturbed at the production location.
When the liability is initially recognised, the present value of
the estimated cost is capitalised by increasing the carrying amount
of the related mining assets to the extent that it was incurred
prior to the production of related ore. Over time, the discounted
liability is increased for the change in present value based on the
discount rates that reflect current market assessments and the
risks specific to the liability.
The periodic unwinding of the discount is recognised in the
Group income statement as a finance cost. Additional disturbances
or changes in rehabilitation costs will be recognised as additions
or charges to the corresponding assets and rehabilitation liability
when they occur. Any reduction in the rehabilitation liability and
therefore any deduction from the rehabilitation asset may not
exceed the carrying amount of that asset. If it does, any excess
over the carrying value is taken immediately to the Group income
statement.
If the change in estimate results in an increase in the
rehabilitation liability and therefore an addition to the carrying
value of the asset, the Group is required to consider whether this
is an indication of impairment of the asset as a whole and test for
impairment in accordance with IAS 36. If, for mature mines, the
revised mine assets net of rehabilitation provisions exceeds the
recoverable value, that portion of the increase is charged directly
to expense.
For closed sites, changes to estimated costs are recognised
immediately in the Group income statement. Also, rehabilitation
obligations that arose as a result of the production phase of a
mine should be expensed as incurred.
4.12) Financial instruments - initial recognition and subsequent
measurement
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
a) Financial assets
i) Initial recognition and measurement
Financial assets are classified as financial assets at fair
value through profit or loss, loans and receivables,
held-to-maturity investments, available-for-sale financial assets,
or as derivatives designated as hedging instruments in an effective
hedge, as appropriate. The Group determines the classification of
its financial assets at initial recognition. All financial assets
are recognised initially at fair value.
Purchases or sales of financial assets that require delivery of
assets within a time frame established by regulation or convention
in the marketplace (regular way trades) are recognised on the trade
date, i.e. the date that the Group commits to purchase or sell the
asset.
The Group's financial assets include cash and short-term
deposits as well as trade and other receivables.
ii) Subsequent measurement
The subsequent measurement of financial assets depends on their
classification:
- financial assets at fair value through profit and loss;
- loans and receivables;
- held-to-maturity investments; and
- available for sale financial assets.
The only category of financial assets of the Group is currently
loans and receivables.
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. After initial measurement, such financial assets are
subsequently measured at amortised cost using the effective
interest rate method, less impairment. Amortised cost is calculated
by taking into account any discount or premium on acquisition and
fees or costs that are an integral part of the effective interest
rate method. The effective interest rate method amortisation is
included in finance income in the Group income statement. The
losses arising from impairment are recognised in the Group income
statement.
iii) Derecognition
A financial asset (or, where applicable a part of a financial
asset) is derecognised when:
-- the rights to receive cash flows from the asset have expired; and
-- the Group has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third-party under a
'pass-through' arrangement; and either (a) the Group has
transferred substantially all the risks and rewards of the asset,
or (b) the Group has neither transferred nor retained substantially
all the risks and rewards of the asset, but has transferred control
of the asset.
iv) Impairment of financial assets
The Group assesses at each reporting date whether there is any
objective evidence that a financial asset or a group of financial
assets is impaired. A financial asset or a group of financial
assets is deemed to be impaired if, and only if, there is objective
evidence of impairment as a result of one or more events that have
occurred after the initial recognition of the asset (an incurred
'loss event') and that loss event has an impact on the estimated
future cash flows of the financial asset or the group of financial
assets that can be reliably estimated. Evidence of impairment may
include indications that the debtors or a group of debtors is
experiencing significant financial difficulty, default or
delinquency in interest or principal payments, the probability that
they will enter bankruptcy or other financial re-organisation and
where observable data indicates that there is a measurable decrease
in the estimated future cash flows, such as changes in arrears or
economic conditions that correlate with defaults.
v) Financial assets carried at amortised cost
For financial assets carried at amortised cost, the Group first
assesses individually whether objective evidence of impairment
exists individually for financial assets that are individually
significant, or collectively for financial assets that are not
individually significant. If the Group determines that no objective
evidence of impairment exists for an individually assessed
financial asset, whether significant or not, it includes the asset
in a group of financial assets with similar credit risk
characteristics and collectively assesses them for impairment.
Assets that are individually assessed for impairment and for which
an impairment loss is, or continues to be, recognised are not
included in a collective assessment of impairment.
If there is objective evidence that an impairment loss has
incurred, the amount of the loss is measured as the difference
between the asset's carrying amount and the present value of
estimated future cash flows (excluding future expected credit
losses that have not yet been incurred). The present value of the
estimated future cash flows is discounted at the financial asset's
original effective interest rate.
b) Financial liabilities
i) Initial recognition and measurement
Financial liabilities are classified as financial liabilities at
fair value through profit or loss, loans and borrowings, or as
derivatives designated as hedging instruments in an effective
hedge, as appropriate. The Group determines the classification of
its financial liabilities at initial recognition. All financial
liabilities are recognised initially at fair value and in the case
of loans and borrowings, plus directly attributable transaction
costs. The Group's financial liabilities include trade and other
payables, contractual provisions and loans and borrowings.
ii) Subsequent measurement
The measurement of financial liabilities depends on their
classification as follows:
Trade and other payables and contractual provisions
Trade and other payables are initially measured at fair value
and are subsequently measured at amortised cost using the effective
interest rate method.
Loans and borrowings
Interest-bearing loans and overdrafts are recorded at the
proceeds received, net of direct transaction costs. Finance
charges, including premiums payable on settlement or redemption and
direct issue costs, are accounted for on an accrual basis and
charged to the Group income statement using the effective interest
method. They are added to the carrying amount of the instrument to
the extent that they are not settled in the period in which they
arise.
After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortised cost using the effective
interest rate method. Gains and losses are recognised in the Group
income statement when the liabilities are derecognised as well as
through the effective interest rate method amortisation
process.
Amortised cost is calculated by taking into account any discount
or premium on acquisition and fee or costs that are an integral
part of the effective interest rate method. The effective interest
rate method amortisation is included in finance costs in the Group
income statement.
iii) Derecognition
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original
liability and the recognition of a new liability and the difference
in the respective carrying amounts is recognised in the Group
income statement.
c) Derivative financial instruments
The Group uses derivative financial instruments such as forward
commodity and option contracts to hedge its commodity price risks.
Such contracts are not designated as hedges or accounted for as
such in accordance with IAS 39. Such derivative financial
instruments are initially recognised at fair value on the date on
which the derivative contract is entered into and are subsequently
re-measured at fair value. Derivative financial instruments are
accounted for as financial assets when their fair value is positive
and as financial liabilities when their fair value is negative. Any
gains or losses arising from changes in the fair value of
derivative financial instruments are included in the Group income
statement.
4.13) Trade and other receivables
The Group presents trade and other receivables in the statement
of financial position based on a current or non-current
classification. A trade and other receivable is classified as
current as follows:
- expected to be realised or intended to be sold or consumed in
the normal operating cycle;
- held primarily for the purpose of trading; and
- expected to be realised within 12 months after the date of the
statement of financial position.
Gold bullion held on behalf of the Government of Azerbaijan is
classified as a current asset and valued at the current market
price of gold at the statement of financial position date. A
current liability of equal amount representing the liability of the
gold bullion to the Government of Azerbaijan is also
established.
Advances made to suppliers for fixed asset purchases are
recognised as non-current prepayments until the fixed asset is
delivered when they are capitalised as part of the cost of the
fixed asset.
4.14) Inventories
Metal in circuit consists of in-circuit material at properties
with milling or processing operations and doré awaiting refinement,
all valued at the lower of average cost and net realisable value.
In-process inventory costs consist of direct production costs
(including mining, crushing and processing and site administration
costs) and allocated indirect costs (including depreciation,
depletion and amortisation of producing mines and mining
interests).
Ore stockpiles consist of stockpiled ore, ore on surface and
crushed ore, all valued at the lower of average cost and net
realisable value. Ore stockpile costs consist of direct production
costs (including mining, crushing and site administration costs)
and allocated indirect costs (including depreciation, depletion and
amortisation of producing mines and mining interests).
Inventory costs are charged to operations on the basis of ounces
of gold sold. The Group regularly evaluates and refines estimates
used in determining the costs charged to operations and costs
absorbed into inventory carrying values based upon actual gold
recoveries and operating plans.
Finished goods consist of doré bars that have been refined and
assayed and are in a form that allows them to be sold on
international bullion markets and metal in concentrate. Finished
goods are valued at the lower of average cost and net realisable
value. Finished goods costs consist of direct production costs
(including mining, crushing and processing; site administration
costs; and allocated indirect costs, including depreciation,
depletion and amortisation of producing mines and mining
interests).
Spare parts and consumables consist of consumables used in
operations, such as fuel, chemicals, reagents and spare parts,
valued at the lower of average cost and replacement cost and, where
appropriate, less a provision for obsolescence.
4.15) Equity instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs, or value of services
received net of any issue costs.
4.16) Deferred stripping costs
The removal of overburden and other mine waste materials is
often necessary during the initial development of a mine site, in
order to access the mineral ore deposit. The directly attributable
cost of this activity is capitalised in full within mining
properties and leases, until the point at which the mine is
considered to be capable of commercial production. This is
classified as expansionary capital expenditure, within investing
cash flows.
The removal of waste material after the point at which a mine is
capable of commercial production is referred to as production
stripping.
When the waste removal activity improves access to ore extracted
in the current period, the costs of production stripping are
charged to the Group income statement as operating costs in
accordance with the principles of IAS 2 'Inventories'.
Where production stripping activity both produces inventory and
improves access to ore in future periods the associated costs of
waste removal are allocated between the two elements. The portion
which benefits future ore extraction is capitalised within
stripping and development capital expenditure. If the amount to be
capitalised cannot be specifically identified it is determined
based on the volume of waste extracted compared with expected
volume for the identified component of the orebody. Components are
specific volumes of a mine's orebody that are determined by
reference to the life of mine plan.
In certain instances significant levels of waste removal may
occur during the production phase with little or no associated
production.
All amounts capitalised in respect of waste removal are
depreciated using the unit of production method based on the ore
reserves of the component of the orebody to which they relate.
The effects of changes to the life of mine plan on the expected
cost of waste removal or remaining reserves for a component are
accounted for prospectively as a change in estimate.
4.17) Employee leave benefits
Liabilities for wages and salaries, including non-monetary
benefits and accrued but unused annual leave, are recognised in
respect of employees' services up to the reporting date. They are
measured at the amounts expected to be paid when the liabilities
are settled.
4.18) Retirement benefit costs
The Group does not operate a pension scheme for the benefit of
its employees but instead makes contributions to their personal
pension policies. The contributions due for the period are charged
to the Group income statement.
4.19) Share-based payments
The Group has applied the requirements of IFRS 2 'Share-based
Payment'. IFRS 2 has been applied to all grants of equity
instruments.
The Group issues equity-settled share-based payments to certain
employees. Equity-settled share-based payments are measured at fair
value (excluding the effect of non market-based vesting conditions)
at the date of grant. The fair value determined at the grant date
of the equity-settled share-based payments is expensed on a
straight line basis over the vesting period, based on the Group's
estimate of shares that will eventually vest and adjusted for the
effect of non market-based vesting conditions.
Fair value is measured by use of the Black-Scholes model. The
expected life used in the model has been applied based on
management's best-estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations. The vesting
conditions assumptions are reviewed during each reporting period to
ensure they reflect current expectations.
4.20) Significant accounting judgements, 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 $66,766,000 and $164,000
respectively (2015: $74,221,000 and $58,000). Revenue from sales of
precious metal concentrate was $12,254,000 (2015: $3,778,000).
7. Other operating income and expense
Other income
Other income comprises loan interest receivable in respect of a
loan to a former employee, release of provisions no longer required
and foreign exchange gains for the years ended 31 December 2015 and
2016. Foreign exchange gain for the year ended 31 December 2016 was
$138,000 (2015: $629,000).
Other operating expense
Other operating expense consist of metal refining costs, foreign
currency exchange losses, write down of advances paid and other
miscellaneous operating expenses for the years ended 31 December
2015 and 2016.
8. Operating profit /(loss)
2016 2015
Notes $000 $000
------------------------------------ ------ ---------------------- ----------------------
Operating profit /(loss)
is stated after charging:
Depreciation on property,
plant and equipment - owned 15 20,080 19,808
Amortisation of mining rights
and other intangible assets 14 1,884 2,049
Employee benefits and expenses 10 7,471 9,614
Foreign currency exchange
loss 138 249
Inventory expensed during
the year 28,520 35,592
Operating lease expenses 730 616
------------------------------------ ------ ---------------------- ----------------------
Fees payable to the Company's
auditor for:
The audit of the Group's
annual accounts 132 138
The audit of the Group's
subsidiaries pursuant to
legislation 114 119
Audit related assurance 2 -
services - half year review
Total audit services 248 257
------------------------------------ ------ ---------------------- ----------------------
Amounts paid to auditor
for other services:
Tax compliance services 9 10
Total non-audit services 9 10
------------------------------------ ------ ---------------------- ----------------------
Total 248 267
------------------------------------ ------ ---------------------- ----------------------
There were no non-cancellable operating lease and sublease
arrangements during 2016 and 2015.
The audit fees for the parent company were $107,000
(2015:$107,000).
9. Remuneration of the directors
Year ended 31 December Consultancy Fees Benefits Total
2016 $ $ $ $
--------------------------- ------------ -------- --------- --------
John Monhemius 6,422 43,704 - 50,126
Richard Round - 43,704 - 43,704
John Sununu - 64,007 - 64,007
Reza Vaziri 586,392 43,704 40,862 670,958
Khosrow Zamani - 107,801 - 107,801
--------------------------- ------------ -------- --------- --------
592,814 302,920 40,862 936,596
--------------------------- ------------ -------- --------- --------
Directors' fees and consultancy fees for 2016 were paid in
cash.
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 6.19p per
share.
10. Staff numbers and costs
The average number employed by the Group (including directors)
during the year, analysed by category, was as follows:
2016 2015
Number Number
---------------------------------- -------- --------
Management and administration 51 51
Exploration 20 19
Mine operations 580 545
---------------------------------- -------- --------
651 615
---------------------------------- -------- --------
The aggregate payroll costs of these persons were as
follows:
2016 2015
$000 $000
---------------------------------------------- ------ ------
Wages and salaries 6,109 8,172
Share-based payments 18 15
Social security costs 1,343 1,609
---------------------------------------------- ------ ------
7,470 9,796
Less: salary costs capitalised
as exploration, evaluation, development,
fixed asset and inventory expenditure - (182)
---------------------------------------------- ------ ------
7,470 9,614
---------------------------------------------- ------ ------
Remuneration of key management personnel
The remuneration of the key management personnel of the Group,
is set out below in aggregate:
2016 2015
$ $
--------------------------------- ---------- ----------
Short-term employee benefits 1,750,094 1,541,245
Share-based payment 18,705 109,658
--------------------------------- ---------- ----------
1,768,799 1,650,903
--------------------------------- ---------- ----------
11. Finance costs
2016 2015
$000 $000
-------------------------------------- ------ ------
Interest charged on interest-bearing
loans and borrowings 4,344 5,177
Finance charges on letters of
credit 98 130
Unwinding of discount on provisions 493 414
-------------------------------------- ------ ------
4,935 5,721
-------------------------------------- ------ ------
Interest on interest-bearing loans and borrowings represents
charges on those credit facilities as set out in note 21 below.
Where a portion of the loans has been used to finance the
construction and purchase of assets of the Group ('qualifying
assets'), the interest on that portion of the loans has been
capitalised up until the time the assets were substantially ready
for use. For the year ended 31 December 2016, $nil (2015:$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 2016 were $19,162,000 (2015: $27,990,000).
The major components of the income tax expenses for the year
ended 31 December are:
2016 2015
$000 $000
-------------------------------------- -------- ------
Current income tax
Current income tax charge - -
Deferred tax
Relating to origination and reversal
of temporary differences (2,795) 1,529
-------------------------------------- -------- ------
Income tax (charge) /credit for the
year (2,795) 1,529
-------------------------------------- -------- ------
Deferred income tax at 31 December relates to the following:
Statement
of financial
position Income statement
-------------------- -------------------
2016 2015 2016 2015
$000 $000 $000 $000
----------------------------- --------- --------- --- ---------- -------
Deferred income tax
liability
Property, plant and
equipment - accelerated
depreciation (19,453) (20,791) 1,338 (538)
Non-current prepayments (347) (158) (189) 260
Trade and other receivables (1,466) (694) (772) (334)
Inventories (9,447) (7,759) (1,688) 2,011
----------------------------- --------- --------- --- ---------- -------
Deferred tax liability (30,713) (29,402)
----------------------------- --------- --------- --- ---------- -------
Deferred income tax
asset
Trade and other payables
and provisions * 3,489 2,298 1,191 (654)
Asset retirement obligation
* 3,013 2,737 276 (23)
Interest bearing loans
and borrowings * (151) (25) (126) (186)
Carry forward losses
** 6,132 8,957 (2,825) 993
----------------------------- --------- --------- --- ---------- -------
Deferred tax asset 12,483 13,967
----------------------------- --------- --------- --- ---------- -------
Deferred income tax
(charge) / credit (2,795) 1,529
----------------------------- --------- --------- --- ---------- -------
Net deferred tax liability (18,230) (15,435)
----------------------------- --------- --------- --- ---------- -------
* 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 profit /(loss) and the total
taxation charge/(credit) for the years ended 31 December is as
follows:
2016 2015
$000 $000
------------------------------------ ------ --------
Loss before tax 6,779 (8,910)
------------------------------------ ------ --------
Theoretical tax charge / (credit)
at statutory rate of 32 per cent.
for RVIG* 2,169 (2,851)
Effects of different tax rates
for certain Group entities (20
per cent.) 127 173
Tax effect of items which are
not deductible or assessable for
taxation purposes:
- losses in jurisdictions that
are exempt from taxation 2 1
- non-deductible expenses 867 1,175
- non-taxable income (370) (27)
------------------------------------ ------ --------
Income tax charge / (credit) for
the year 2,795 (1,529)
------------------------------------ ------ --------
* 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 2016, the Group had unused tax losses of
$22,877,000 (2015: $30,762,000). Unused tax losses in the Republic
of Azerbaijan at 31 December 2016 were $19,162,000 (2015:
$27,990,000). No deferred tax assets have been recognised in
respect of jurisdictions other than the Republic of Azerbaijan due
to the uncertainty of future profit streams.
13. Profit/(loss) per share
The calculation of basic and diluted profit per share is based
upon the retained profit for the financial year of $3,984,000
(2015: loss of $7,381,000).
The weighted average number of ordinary shares for calculating
the basic profit (2015: loss) and diluted profit (2015: loss) per
share after adjusting for the effects of all dilutive potential
ordinary shares relating to share options are as follows:
2016 2015
--------- ------------ -----------
Basic 112,117,622 112,117,622
--------- ------------ -----------
Diluted 112,295,664 112,117,622
--------- ------------ -----------
At 31 December 2016 there were 1,100,000 unexercised share
options that could potentially dilute basic earnings per share
(2015: nil).
14. Intangible assets
Exploration Exploration Other
and evaluation and evaluation Mining intangible
Gedabek Ordubad rights assets Total
$000 $000 $000 $000 $000
------------------ --------------- --------------- --------- ------------ --------
Cost
1 January 2015 - 3,513 41,925 468 45,906
Additions - 347 - 30 377
31 December
2015 - 3,860 41,925 498 46,283
Additions 191 168 - 30 359
------------------ --------------- --------------- --------- ------------ --------
31 December
2016 191 4,028 41,925 498 46,642
------------------ --------------- --------------- --------- ------------ --------
Amortisation
and impairment*
1 January 2015 - - 25,606 255 25,861
Charge for the
year - - 2,020 29 2,049
------------------ --------------- --------------- --------- ------------ --------
31 December
2015 - - 27,626 284 27,910
Charge for the
year - - 1,843 41 1,884
------------------ --------------- --------------- --------- ------------ --------
31 December
2016 - - 29,469 325 29,794
------------------ --------------- --------------- --------- ------------ --------
Net book value
31 December
2015 - 3,860 14,299 214 18,373
------------------ --------------- --------------- --------- ------------ --------
31 December
2016 191 4,028 12,456 173 16,848
------------------ --------------- --------------- --------- ------------ --------
*507,000 ounces of gold at 1 January 2016 were used to determine
depreciation of producing mines, mining rights and other intangible
assets (2015: 579,000 ounces).
15. Property, plant and equipment
Plant and
equipment Producing Assets Total
and mines under
motor vehicles construction
$000 $000 $000 $000
------------------ ---------------- ------------ --------------- --------
Cost
1 January 2015 19,409 159,898 2,093 181,400
Additions 257 6,810 7,222 14,289
Transfer to
producing mines - 8,838 (8,838) -
Increase in
provision for
rehabilitation - (484) - (484)
------------------ ---------------- ------------ --------------- --------
31 December
2015 19,666 175,062 477 195,205
Additions 1,799 4,404 3,556 9,759
Transfer to
producing mines - 3,598 (3,598) -
Decrease in
provision for
rehabilitation - 369 - 369
------------------ ---------------- ------------ --------------- --------
31 December
2016 21,465 183,433 435 205,333
------------------ ---------------- ------------ --------------- --------
Depreciation
and impairment*
1 January 2015 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
Charge for
the year 2,014 18,066 - 20,080
------------------ ---------------- ------------ --------------- --------
31 December
2016 14,656 92,201 - 106,857
------------------ ---------------- ------------ --------------- --------
Net book value
31 December
2015 7,024 100,927 477 108,428
------------------ ---------------- ------------ --------------- --------
31 December
2016 6,809 91,232 435 98,476
------------------ ---------------- ------------ --------------- --------
*507,000 ounces of gold at 1 January 2016 were used to determine
depreciation of producing mines, mining rights and other intangible
assets (2015: 579,000 ounces).
Upon completion of construction and commencement of operation,
SAG mill construction costs of $1,500,000 and electricity
substation construction costs of $2,098,000, were transferred 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 453,000 ounces
of gold and 58,000 tonnes of copper. Estimated production volumes
are based on detailed life of mine plans. Production volumes are
dependent on a number of variables such as the recoverable
quantities, the cost of the necessary infrastructure to recover the
reserves, the production costs, the contractual duration of the
mining rights and the selling prices of the quantities extracted.
These production volumes are based on the mine being operational
until the end of 2027.
Commodity prices: Forecast precious metal and commodity prices
are based on management estimates. Estimated long-term gold prices
between $1,400 and $1,535 per ounce (2015: $1,284 per ounce) and
estimated long-term copper prices of between $6,146 and $6,739 per
tonne (2015: $6,600 per tonne) have been used to estimate future
revenues.
Discount rates: In calculating the FVLCD, a post-tax discount
rate of 10.53 per cent. (2015: 13.5 per cent.) was applied to the
post-tax cash flows expressed in real terms. This discount rate is
derived from the Group's post-tax weighted average cost of capital
("WACC"), which takes into account both equity and debt, and is
then adjusted to reflect the Group's assessment of a discount rate
that other market participants would consider when evaluating the
assets.
Foreign exchange rates: The only significant exchange foreign
exchange rate in the cash flow model is the United States Dollar to
Azerbaijan Manat rate. A rate of $1 equals 1.84 Manat (2015: $1
equals 1.55 Manat) has been used in the cash flow model.
Capital and operating costs: In calculating the cash flow model,
the significant capital and operating costs are the additional
future capital cost to be incurred over the life of the mine of
$459 million and the cash cost per ounce of producing gold. Cash
costs per ounce of producing gold were used of $650 to $750 per
ounce.
Management believes that, other than the volume of gold
production, there are no changes which are reasonably possible in
any of the other assumptions discussed above, which would lead to
impairment. At 31 December 2016, the recoverable amount of the
Group's assets exceeded its carrying amount by $29 million. It is
estimated that a 10 per cent. reduction in gold production and
copper production in the flotation plant, after incorporating any
consequential effects of changes on the other variables used to
measure the recoverable amount, would cause impairment of
approximately $8 million.
16. Subsidiary undertakings
Anglo Asian Mining PLC is the parent and ultimate parent of the
Group.
The Company's subsidiaries at 31 December 2016 are as
follows:
Percentage
Primary of holding
Registered Place of per
Name address business cent.
----------------------------- --------------- ------------ ------------
Anglo Asian Operations United
Limited Great Britain Kingdom 100
British
Virgin
Holance Holdings Limited Islands Azerbaijan 100
Anglo Asian Cayman Cayman
Limited Islands Azerbaijan 100
R.V. Investment Group Delaware,
Services LLC USA Azerbaijan 100
Azerbaijan International Cayman
Mining Company Limited Islands Azerbaijan 100
----------------------------- --------------- ------------ ------------
There has been no change in the subsidiary undertakings since 1
January 2016.
17. Inventory
2016 2015
Non-current assets $000 $000
--------------------------------------- ------- -------
Cost
Ore stockpiles - 2,543
--------------------------------------- ------- -------
Current assets
--------------------------------------- ------- -------
Cost
Finished goods - bullion 903 1,441
Finished goods - metal in concentrate 240 203
Metal in circuit 12,119 11,899
Ore stockpiles 9,784 4,635
Spare parts and consumables 10,972 8,019
--------------------------------------- ------- -------
Total current inventories 34,018 26,197
--------------------------------------- ------- -------
Total inventories at the lower
of cost and net realisable value 34,018 28,740
--------------------------------------- ------- -------
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 flotation processing. Inventory
is recognised at lower of cost or net realisable value.
18. Trade and other receivables
2016 2015
Non-current assets $000 $000
------------------------------------ ------- -------
Advances for fixed asset purchases 989 -
Loans 95 120
------------------------------------ ------- -------
1,084 120
------------------------------------ ------- -------
Current assets
------------------------------------ ------- -------
Gold held due to the Government
of Azerbaijan 10,078 12,412
VAT refund due 339 186
Other tax receivable 926 720
Trade receivables 639 642
Prepayments and advances 4,218 2,121
Loans 50 50
------------------------------------ ------- -------
16,250 16,131
------------------------------------ ------- -------
The carrying amount of trade and other receivables approximates
to their fair value.
The VAT refund due at 31 December 2016 and 2015 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 2016 (including short-term cash
deposits) comprised $118,000 and $1,261,000 respectively (2015:
$98,000 and $151,000)
The Group's cash and cash equivalents are mostly held in United
States Dollars.
20. Trade and other payables
2016 2015
$000 $000
-------------------------------------------- ------- -------
Accruals and other payables 3,111 4,861
Trade creditors 7,815 2,302
Gold held due to the Government
of Azerbaijan 10,078 12,412
Payable to the Government of Azerbaijan
from copper concentrate joint
sale 829 537
21,833 20,112
-------------------------------------------- ------- -------
Trade creditors primarily comprise amounts outstanding for trade
purchases and ongoing costs. Trade creditors are non
interest--bearing and the creditor days were 42 (2015: 11).
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
2016 2015
$000 $000
---------------------------------- ------- -------
International Bank of Azerbaijan
- agitation leaching plant loan 5,385 10,209
International Bank of Azerbaijan
- loan facility 970 1,500
Amsterdam Trade Bank 17,307 27,096
Atlas Copco 801 355
Yapi Kredi Bank 672 1,659
Pasha Bank - letters of credit - 4,617
Pasha Bank - loans 5,935 -
Kapital Bank 1,000 -
Director 3,860 3,860
---------------------------------- ------- -------
35,930 49,296
---------------------------------- ------- -------
Loans repayable in less than one
year 26,165 26,708
Loans repayable in more than one
year 9,765 22,588
---------------------------------- ------- -------
35,930 49,296
---------------------------------- ------- -------
International Bank of Azerbaijan ("IBA")
Agitation leaching plant loan
In 2012 and 2013, the Group borrowed $49.5 million under a
series of loan agreements to finance the construction of its
agitation leaching plant. The annual interest rate for each
agreement 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 loans 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 2016 was $5.4
million (31 December 2015: $10.2 million).
Loan facilities
During 2014, the Group entered into a credit facility for $1.5
million for a period of one year at an annual interest rate of 12
per cent. The repayment date of the credit facility was extended in
2015 and the loan was repaid in 2016.
In 2016, the Group entered into 2 further credit facilities with
IBA:
-- AZN1 million at an annual interest rate of 18 per cent. The
interest and principal are repayable on a reducing balance basis in
12 equal monthly instalments of AZN92,000 and the final instalment
is payable in January 2017.
-- $1.5 million at an annual interest rate of 12 per cent. The
interest and principal are repayable on a reducing balance basis in
24 equal monthly instalments of $71,000 and the final instalment is
payable in February 2018.
Amsterdam Trade Bank ("ATB")
During 2013, the Group entered into a loan agreement for $37.0
million to refinance its agitation leaching plant loan from IBA.
The annual interest rate is 8.25 per cent. 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 2016
was $17.3 million (31 December 2015: $27.1 million). Part of the
bank loan from Amsterdam Trade Bank was transferred to Gazprombank
(Switzerland) Ltd in 2017, see note 28 below - "Post balance sheet
event".
Atlas Copco
The amounts outstanding are in respect of vendor equipment
financing. The amount outstanding at 31 December 2015 was repaid in
2016. In 2016, The Group entered into further vendor equipment
financing for Euro 1.1 million at an annual interest rate of 8.14
per cent. The principal is repayable quarterly in 8 equal
instalments which commenced on 31 August 2016 with the final
repayment on 31 May 2018. Interest is payable quarterly with the
principal.
Yapi Credit Bank, Azerbaijan ("YCBA")
The Group has entered into several credit facilities with YCBA.
The annual interest rate for each facility is 10 to 11 per cent.
and each facility is repayable in 12 equal monthly instalments on a
reducing balance basis starting one month after drawdown. In 2016,
new credit facilities were entered into totalling $1,488,000 (2015:
$1,929,000).
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 carried an annual 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 2016, an additional
facility was entered into for $1.2 million which carried an annual
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 facilities were repaid in 2016.
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 annual interest rate of 3 per cent. The letters of credit were
repaid in 2016.
Loans
The Group entered into loans with Pasha Bank in 2016 at annual
interest rates and maturities as in the following table. No
principal repayment had been made in respect of any of these loans
in 2016.
Loan value Term Interest Principal repayment
$000 (months) rate
(per cent.)
----------- ---------- ------------- -----------------------------
2 equal instalments in March
1,000 18 7 and September 2017
----------- ---------- ------------- -----------------------------
1,500 12 9 November 2017
----------- ---------- ------------- -----------------------------
7 equal instalments, 2017
916 24 7 - $525,000; 2018 - $391,000
----------- ---------- ------------- -----------------------------
2 equal instalments January
2,100 2 14 and February 2017
----------- ---------- ------------- -----------------------------
2 equal instalments January
416 2 18 and February 2017
----------- ---------- ------------- -----------------------------
Kapital Bank
In December 2016, the Group entered into a working capital
credit facility for $1 million with Kapital Bank. The facility is
for one year with an annual interest rate of 7 per cent. Interest
is payable monthly and the principal is repayable by 4 equal
quarterly monthly instalments commencing March 2017.
Director
On 20 May 2015, the chief executive of Anglo Asian Mining PLC
provided a $4 million loan facility to the Group. Any loan from the
facility was repayable on 8 January 2016 at an interest rate of 10
per cent. The loan has been extended on the same terms till 8
January 2018.
Unused credit facilities
The Group had no credit facilities at 31 December 2016 which
were not utilised (2015: $nil).
22. Provision for rehabilitation
2016 2015
$000 $000
---------------------------- ------ ------
1 January 8,554 8,624
Change in estimate - (747)
Accretion expense 493 414
Change in discount rate 369 263
---------------------------- ------ ------
31 December 9,416 8,554
---------------------------- ------ ------
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 2016 was $15,314,000 (2015: $14,294,000). The
undiscounted liability was discounted using a risk-free rate of
4.88 per cent. (2015: 5.73 per cent.). Expenditures on restoration
and rehabilitation works are expected between 2025 and 2027 (2015:
between 2023 and 2025).
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 2016 and 2015 using the amounts of debt and other
financial assets and liabilities held as at those reporting
dates
Capital risk management
The capital structure of the Group consists of debt, which
includes the borrowings disclosed in note 21, cash and cash
equivalents and equity attributable to equity holders of the
parent, comprising issued share capital, reserves and retained
earnings as disclosed in the consolidated statement of changes in
equity. The Group has sufficient capital to fund ongoing production
and exploration activities, with capital requirements reviewed by
the Board on a regular basis. Capital has been sourced through
share issues on the AIM, part of the London Stock Exchange, and
loans from the International Bank of Azerbaijan, Amsterdam Trade
Bank ("ATB") and other banks in Azerbaijan. In managing its
capital, the Group's primary objective is to ensure its continued
ability to provide a consistent return for its equity shareholders
through capital growth. In order to achieve this objective, the
Group seeks to maintain a gearing ratio that balances risk and
returns at an acceptable level and also to maintain a sufficient
funding base to enable the Group to meet its working capital and
strategic investment needs.
The Group is not subject to externally imposed capital
requirements 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.
2016 2015
$000 $000
--------------------------------------- -------- --------
Interest-bearing loans and borrowings
(note 21) 35,930 49,296
Less cash and cash equivalents
(note 19) (1,379) (249)
--------------------------------------- -------- --------
Net debt 34,551 49,047
Equity 82,646 78,644
--------------------------------------- -------- --------
Capital and net debt 117,197 127,691
--------------------------------------- -------- --------
Gearing ratio (per cent.) 29 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 2016 and
2015.
Interest rate sensitivity analysis
Interest rate sensitivity of the Group from reasonably possible
movement in the three month LIBOR rate is limited to a negative
$137,000 or a positive $18,000 impact on the Group's profit before
taxation. Assumed impact is based on 0.6 per cent. increase or a
0.08 per cent. decrease respectively in the three month LIBOR
(2015: $203,000 negative or positiveimpact based on a 0.5 per cent.
increase or decrease respectively) on interest-bearing loans from
ATB.
Ultimate responsibility for liquidity risk management rests with
the board of directors, which has built an appropriate liquidity
risk management framework for the management of the Group's short,
medium and long-term funding and liquidity management requirements.
The Group manages liquidity risk by maintaining adequate reserves,
banking facilities and reserve borrowing facilities by continuously
monitoring forecast and actual cash flows and matching the maturity
profiles of financial liabilities. Included in note 21 is a
description of additional undrawn facilities that the Group has at
its disposal to further reduce liquidity risk.
The table below summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted
payments.
Year ended 31 December 2016
On Less 3 to 1 to Total
demand than 12 5 $000
$000 3 months months years
$000 $000 $000
----------------------- --------- ---------- -------- ------- -------
Interest-bearing
loans and borrowings - 7,319 20,575 10,142 38,036
Trade and other
payables - 21,833 - - 21,833
----------------------- --------- ---------- -------- ------- -------
- 29,152 20,575 10,142 59,869
--------------------------------- ---------- -------- ------- -------
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
--------------------------------- ---------- -------- ------- -------
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 bullion and copper and precious metal
concentrates. 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
-------------- --------------
2016 2015 2016 2015
$000 $000 $000 $000
------------------- ------ ------ --- ------ ------
UK Sterling 33 187 2 2
Azerbaijan Manats 4,379 3,416 1,390 1,003
Other 434 317 152 -
------------------- ------ ------ --- ------ ------
Foreign currency sensitivity analysis
The Group is mainly exposed to the currency of the United
Kingdom (UK Sterling), the currency of the European Union (Euro)
and the currency of the Republic of Azerbaijan (Azerbaijan
Manat).
The following table details the Group's sensitivity to a 6 per
cent., 10 per cent. and 20 per cent. (2015: 13 per cent., 12.5 per
cent. and 15 per cent.) increase and an 18 per cent., 10 per cent.,
and 20 per cent. (2015: 4.5 per cent., 12.5 per cent., and 60 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
-------------- ---------------- --------------
2016 2015 2016 2015 2016 2015
$000 $000 $000 $000 $000 $000
--------------------- ------ ------ ------- ------- ------ ------
Increase - effect
on profit / (loss)
before tax 2 24 598 1,447 28 40
Decrease - effect
on profit / (loss)
before tax (6) (8) (598) (362) (28) (40)
--------------------- ------ ------ ------- ------- ------ ------
Market risk
The Group's activities primarily expose it to the financial
risks of changes in gold, silver and copper prices which have a
direct impact on revenues. The management and board of directors
continuously monitor the spot price of these commodities. The
forward prices for these commodities are also regularly monitored.
The majority of the Group's production is sold by reference to the
spot price on the date of sale. However, the board of directors
will enter into forward and option contracts for the purchase and
sale of commodities when it is commercially advantageous.
A 10 per cent. decrease in gold price in the year ended 31
December 2016 would result in a reduction in revenue of $6,677,000
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 $217,000 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 $655,000 and a 10 per cent. increase in copper price
would have an equal and opposite effect.
24. Equity
31 December 31 December
2016 2015
GBP GBP
----------------------------- -------------- --------------
Authorised:
600,000,000 ordinary shares
of 1 pence each 6,000,000 6,000,000
----------------------------- -------------- --------------
Shares $000
-------------------------------- ------------ ------
Ordinary shares issued and
fully paid:
1 January and 31 December 2016 112,661,024 1,993
-------------------------------- ------------ ------
Fully paid ordinary shares carry one vote per share and carry
the right to dividends.
Share options
The Group has share option scheme under which options to
subscribe for the Company's shares have been granted to certain
executives and senior employees (note 25).
Merger reserve
The merger reserve was created in accordance with the merger
relief provisions under Section 612 of the Companies Act 2006 (as
amended) relating to accounting for Group reconstructions involving
the issue of shares at a premium. In preparing Group consolidated
financial statements, the amount by which the base value of the
consideration for the shares allotted exceeded the aggregate
nominal value of those shares was recorded within a merger reserve
on consolidation, rather than in the share premium account.
Retained earnings / (loss)
Retained earnings / (loss) represent the cumulative earnings /
(loss) of the Group attributable to the equity shareholders.
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:
2016 2015
---------------------- ----------------------
Number Weighted Number Weighted
of average of average
share exercise share exercise
options price options price
pence pence
-------------------- ---------- ---------- ---------- ----------
I January 2,120,859 21 2,801,684 36
Granted during the
year 120,000 10 - -
Expired during the
year (495,859) 42 (680,825) 84
-------------------- ---------- ---------- ---------- ----------
Outstanding at 31
December 1,745,000 14 2,120,859 21
-------------------- ---------- ---------- ---------- ----------
Exercisable at 31
December 1,665,000 14 1,970,859 21
-------------------- ---------- ---------- ---------- ----------
The weighted average remaining contractual life of the share
options outstanding at 31 December 2016 was 3 years (2015: 3 years)
and the range of their exercise prices was 10 pence to 35 pence
(2015: 12 pence to 43 pence).
On 11 November 2016, 120,000 share options were granted with a
weighted average fair value of GBP0.09.
Share options are valued using the Black-Scholes model. The
assumptions used to value the share options issued in the year
ended 31 December 2016 are as follows:
2016 2015*
---------------------------------------- ---- ------
Weighted average share price (pence) 26 n/a
Weighted average exercise price (pence) 9.88 n/a
Expected volatility for six months - n/a
vesting period option (per cent.)
Expected volatility for one years' 70 n/a
vesting period option (per cent.)
Expected volatility for two years' 70 n/a
vesting period option (per cent.)
Expected life for six months' vesting 2 n/a
period option (years)
Risk free rate (per cent.) 2.23 n/a
---------------------------------------- ---- ------
*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
2016 of $18,000 (2015: $15,000).
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 in compliance with the environmental clauses contained in
the PSA.
In accordance with a pledge agreement signed on 24 July 2013,
the Group is a guarantor for one of its suppliers,
Azerinterpartlayish-X MMC, for a loan from the International Bank
of Azerbaijan in amount of Azerbaijan New Manat ("AZN")500,000 for
an initial 36 months. The pledge agreement was extended in 2016
until 1 July 2018. The amount of the loan outstanding at 31
December 2016 was AZN364,026.
There were no significant operating lease or capital lease
commitments at 31 December 2016 (2015: $nil).
27. Related party transactions
Trading transactions
During the years ended 31 December 2016 and 2016, there were no
trading transactions between Group companies.
Other related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note. Transactions between the Group and other
related parties are disclosed below.
a) Shares issued to directors are disclosed in note 9.
c) Remuneration paid to directors is disclosed in note 9.
d) During the year ended 31 December 2016, total payments of
$1,522,000 (2015: $1,018,000) were made for equipment and spare
parts purchased from Proses Muhendislik Danismanlik Inshaat ve
Tasarim Anonim Shirket, the entity in which the Chief Technical
Officer of Azerbaijan International Mining Company has a direct
ownership interest.
At 31 December 2014 there is an advance payment in relation to
the above related party transaction of $34,000 (2015: $59,000).
d) On 20 May 2015, the chief executive made a $4 million loan
facility available to the Group. The interest accrued and unpaid at
31 December 2016 was $385,000 (2015: $195,000). Details of the loan
facility are disclosed in note 21.
All of the above transactions were made on arm's length
terms.
28. Post balance sheet event
Partial transfer of loan from Amsterdam Trade Bank N.V. to
Gazprombank (Switzerland) Ltd
In October 2013, the Group entered into a loan with Amsterdam
Trade Bank N.V. ("ATB N.V.") for $37 million for the purpose of
constructing its agitation leaching plant. The balance of the loan
at 31 December 2016 was $17.3 million. On 15 February 2017, a
transaction was finalised to transfer 50 per cent. of the balance
of the loan being $8.6 million to Gazprombank (Switzerland) Ltd
("GPBS"). The terms of the loan and security remained unchanged and
ATB N.V. will act as agent to administer the loan on behalf of ATB
N.V. and GPBS.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKQDNABKDNPB
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