TIDMAAZ
RNS Number : 1786Z
Anglo Asian Mining PLC
16 May 2019
Anglo Asian Mining plc / Ticker: AAZ / Index: AIM / Sector:
Mining
16 May 2019
Anglo Asian Mining PLC
Full year results - 2018
Profit before tax increases to $25.2 million (2017: $5.7
million)
Final dividend of $0.04 per share giving a total 2018 dividend
of $0.07 per share
Anglo Asian Mining PLC ("Anglo Asian" or the "Company"), the AIM
listed gold, copper and silver producer focused in Azerbaijan, is
pleased to announce its final audited results for the year ended 31
December 2018 ("FY 2018"). Note that all references to "$" are to
United States Dollars.
Highlights
-- Achieved FY 2018 production at the upper range of the Company
forecast - 83,736 gold equivalent ounces ("GEOs") produced compared
to forecast of 78,000 to 84,000 GEOs:
o Total production for FY 2018 increased by 17 per cent.
year-on-year ("y-o-y") to 83,736 GEOs (FY 2017: 71,461 GEOs)
o Gold production for FY 2018 increased by 22 per cent. y-o-y to
72,798 ounces (FY 2017: 59,617 ounces)
o Copper production for FY 2018 of 1,645 tonnes (FY 2017: 1,991
tonnes)
o Silver production for FY 2018 of 210,184 ounces (FY 2017:
172,853 ounces)
-- Gold bullion sales in FY 2018 of 59,481 ounces (FY 2017:
43,496 ounces) completed at an average of $1,265 per ounce (FY
2017: $1,265 per ounce)
-- All-in sustaining cost of gold production in 2018 further
decreased in the lowest quartile to $541 per ounce (2017: $604 per
ounce)
-- Net cash of $6.1 million at 31 December 2018
-- Final dividend declared of $0.04 per ordinary share payable
on 25 July 2019 subject to approval at the Annual General Meeting
giving a FY 2018 total dividend of $0.07 per ordinary share
-- Total production target for FY 2019 of between 82,000 and 86,000 GEOs
Financials
-- Total revenues in 2018 of $90.4 million representing a 26 per
cent. y-o-y increase (2017: $71.8 million)
-- Profit before taxation in 2018 of $25.2 million representing
a more than four times increase (2017: $5.7 million)
-- Operating cash flow before movements in working capital for
FY 2018 of $50.1 million (2017: $32.2 million)
-- Net cash of $6.1 million at 31 December 2018 (31 December
2017: Net debt of $18.1 million) calculated as cash and cash
equivalents less aggregate of loans and borrowings
-- Cash of $14.5 million as at 31 December 2018 (31 December 2017: $2.5 million)
Chairman's Statement
It is a great pleasure to report on a truly transformational
year for Anglo Asian. All our hard work in previous years came to
fruition and this delivered both record production and an
outstanding financial performance. I am also delighted that the
Company paid its maiden dividend in 2018 and to announce a final
dividend of US 4 cents per share. This gives a total dividend for
the year of US 7 cents per share and means our shareholders share
in our success.
Our main site at Gedabek is now a well-developed operation
although we continue to invest to ensure it operates to the highest
possible level of safety and efficiency. Gedabek produces gold at
one of the lowest costs in the industry, and we are determined to
maintain this position as we continue to extend its production
life. The evaluation of the mineral resources and ore reserves of
Gedabek's three mines in accordance with the JORC code is now also
complete, which has extended the combined mine life until 2024.
We embarked upon an extensive three-year geological exploration
programme in 2018 to further develop and grow the Company. Our goal
is to open further mines which we can do rapidly and efficiently as
demonstrated by the fast development of Ugur. The aerial
geophysical survey identified many exciting targets at Gedabek and
a new discovery has been made at Gosha. We have also substantially
increased our efforts at Ordubad which is a highly prospective
region with great promise. Whilst still relatively early days,
Ordubad has the potential to significantly grow the Company in
future years.
Operational review
A total of 83,736 gold equivalent ounces was produced in 2018, a
17 per cent. increase compared to 2017 and a record for the
Company. Gold production was 72,798 ounces compared to 59,617
ounces in 2017, which was a 22 per cent. increase largely due to
gold doré production from processing Ugur ore throughout the year.
Silver production also increased to 210,184 ounces, an increase of
22 per cent. compared to 2017.
Copper production decreased in 2018 to 1,645 tonnes. The
flotation plant was mostly on planned care and maintenance in the
first half of the year due to limited feedstock as the agitation
leaching plant was processing Ugur ore which does not contain
copper. A new, dedicated jaw crusher for the flotation plant
commenced operation in July 2018. As a result, copper production
increased significantly in the second half of the year as this
capital investment enabled the independent operation of the
flotation plant processing copper rich ore. As well as allowing the
independent operation of the agitation leaching and flotation
plants, the new jaw crusher increases the overall flexibility of
our processing plants.
Gedabek's operational performance was strengthened in the year
by the recruitment of several highly experienced managers in key
areas which included blasting, transportation logistics and ore
handling and equipment maintenance. Many opportunities to improve
working practices were actioned and these initiatives are all
contributing to a more professional and efficient working
environment. The Company also signed an off-take agreement in late
2018 for flotation concentrate with Trafigura PTE Ltd. on improved
commercial terms.
The tragic collapse of the Brumadinho tailings dam in Brazil was
unfortunately not an isolated incident in the last ten years.
Safety is our number one priority and the Company's tailing dam has
been constructed to the highest possible specification. The dam is
constructed from hard rock and not tailings material, as is common
in the industry, and the building and maintenance of the dam has
been continuously supervised by one environmental and geotechnical
consultancy. However, in light of the Brumadinho collapse, the
Company has commissioned an inspection of the dam this summer by
Knight Piésold, a leading environmental engineering company. Any
actions highlighted by the inspection will be carried out
immediately.
Financial results and dividend
Our financial performance in the year was exceptional and
revenues increased by $18.6 million to $90.4 million. This
improvement arose from increased gold doré production together with
higher gold and copper prices. Revenues continued to be subject to
an effective royalty of 12.75 per cent. in 2018. We anticipate this
effective royalty rate will continue until at least 2023 and
further details are in the financial review below. The all-in
sustaining cost ("AISC") per ounce of gold produced decreased in
the year to $541 from $604 in 2017. The Company's AISC has steadily
reduced for the past five years and is considered to now be amongst
the lowest in the industry.
The Company's balance sheet has been transformed in 2018 with
increased cash flow. Cash from operations was $50.7 million and
free cash flow was $28.9 million. The Company refinanced $13.5
million of its debt and repaid the remainder outstanding from
internally generated funds during the year. At 7 per cent. fixed
rate, the refinancing loan has a lower rate of interest than
previous borrowings, has no covenants and is unsecured. The loan
from the chief executive was repaid in full in March 2018 and I
would like to take this opportunity to emphatically thank Reza for
his confidence and commitment to the Company which has proven to be
amply justified.
A key milestone for the Company was payment of a maiden dividend
of US 3 cents per share in November 2018. In accordance with the
Company's target of distributing approximately 25 per cent. of free
cash flow to shareholders each year, I am delighted to announce a
final dividend for the year ended 31 December 2018 of an additional
US 4 cents per share. This makes a total dividend for 2018 of US 7
cents per share.
Mineral resources and geological exploration
The Company completed its goal of formalising mineral resource
and ore reserves for its three mines at Gedabek by early 2019. In
September 2018, an updated mineral resource and ore reserve
estimate for the Gedabek open pit was published in accordance with
the JORC code. The total mineral resource was around one million
ounces of gold, which at this point in time has extended the life
of mine of the Gedabek open pit by up to six years. In early 2019,
a maiden mineral resource and ore reserve estimate for the Gadir
underground mine was published in accordance with the JORC code
which established an initial five-year life of mine.
In accordance with our commitment to be a long-term producer of
precious metal and copper, a comprehensive three-year geological
exploration programme commenced in the year. In the final quarter
of 2018, a helicopter-borne electromagnetic survey was carried out
over the entire Gedabek contract area which successfully identified
many new targets for follow-up exploration work. This was the first
such survey in Azerbaijan and was carried out with the assistance
of the Azeri Government. Other on-going geological work has
identified further copper and gold mineralisation beneath, and
extending from, the Gedabek open pit that has the potential to
further increase its life of mine.
We substantially increased our exploration efforts at Ordubad
during 2018. Soviet era data indicate extensive mineralisation and
the region is adjacent to significant copper deposits in
neighbouring countries. We have identified several exciting targets
all within a five kilometre radius. Extensive surface geological
work was carried out in the year and core drilling has started. We
were also pleased that a geological team from the Natural History
Museum of London assisted our work as part of their "FAMOS"
research programme. It is clear from its location and both the
Soviet era and current work that Ordubad is a very promising region
with widespread mineralisation.
We recently announced a new discovery within Gosha at the
Asrikchay target area. This polymetallic discovery is exciting as
it is the first indication of copper in the region. We have a track
record of rapidly advancing discoveries as evidenced by Ugur, which
progressed from discovery to production in just over a year, and we
are confident that we can replicate this approach with any future
discoveries.
Outlook
The success achieved in 2018 has placed Anglo Asian in an
enviable position to move forward. Gedabek is now generating stable
cash flow which provides funds for both investment and to pay
dividends. The Company's solid balance sheet and excellent
relationships with banks in Azerbaijan and elsewhere means loan
finance can be easily obtained if required. Together, this means
the Company has ample financial resources to seize any suitable
opportunities that may arise.
The Company has over 1,000 square kilometers of land within its
contract areas. As set out above and in the strategic report below,
the Company has a comprehensive exploration programme underway to
extensively explore this land for new deposits. This programme is
starting to yield results with the identification of several major
targets at Gedabek and Gosha. We regard Ordubad as an untapped
value opportunity and work there is now being ramped up. The
Company will also aggressively pursue any suitable opportunities
outside Azerbaijan which it believes can be made commercially
successful.
During 2018, Anglo Asian made a concerted effort to meet with
many existing and potential investors including organised
roadshows, investor presentations and conferences. Our reputation
as an attractive investment opportunity was evidenced by the press
coverage received in 2018 with articles published both in trade
publications and mainstream national newspapers in the United
Kingdom. As the Company develops and grows, we firmly intend to
maintain this reputation and increase the profile of the Company.
We also intend to increase the Company's social media presence.
We have set a production target of between 82,000 and 86,000
gold equivalent ounces for 2019, which is an increase from 2018.
This includes up to 67,500 ounces of gold and up to 3,300 tonnes of
copper. We are on track to achieve this production target and I
look forward to updating shareholders with our progress in the
coming months.
I would like to conclude by saying that Anglo Asian accomplished
a tremendous amount in 2018. We plan to build on our now very solid
foundations to develop your Company into a mid-tier gold, copper
and silver producer. It is therefore with continued optimism that I
look forward to 2019 and beyond.
Appreciation
I would like to take this opportunity to thank the employees of
Anglo Asian, our partners, the Government of Azerbaijan and our
advisors for their continued support as we deliver on our strategy
of becoming a leading gold, copper and silver producer. Finally, I
wish to sincerely thank our shareholders for their continued
investment and support in Anglo Asian. I look forward to sharing
the successes of 2019 with you.
Khosrow Zamani
Non-executive chairman
Dividend
A final dividend of US$0.04 per share will be paid gross in
respect of the year ended 31 December 2018 to shareholders on 25
July 2019 that are on the shareholders record at the record date of
28 June 2019 subject to approval of the shareholders at the
Company's Annual General Meeting on 20 June 2019. The shares will
go ex-dividend on 27 June 2019. All dividends will be paid gross
and in cash. A scrip dividend or any other dividend reinvestment
plan will not be offered by the Company.
The dividend will be payable in pounds sterling. The dividend
will be converted to pounds sterling using the average of the
sterling closing mid-price using the exchange rate published by the
Bank of England at 4pm each day from the 1 to 5 July 2019.
Corporate Governance
A statement of the Company's compliance with the ten principles
of corporate governance contained within the Quoted Companies
Alliance Corporate Governance Code ('QCA Code') will be included in
the Company's annual report and accounts for 2018.
Market Abuse (MAR) Disclosure
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this
announcement.
For further information please visit www.angloasianmining.com or
contact:
Reza Vaziri Anglo Asian Mining plc Tel: +994 12 596 3350
Bill Morgan Anglo Asian Mining plc Tel: +994 502 910 400
--------------------------- ----------------------
Stephen Westhead Anglo Asian Mining plc Tel: +994 502 916 894
--------------------------- ----------------------
Ewan Leggat SP Angel Corporate Finance Tel: +44 (0) 20 3470
LLP 0470
Nominated Adviser and
Broker
--------------------------- ----------------------
Soltan Tagiev SP Angel Corporate Finance Tel + 44 (0) 20 3470
LLP 0470
--------------------------- ----------------------
Isabel de Salis St Brides Partners Ltd Tel: +44 (0) 20 7236
1177
--------------------------- ----------------------
Gaby Jenner St Brides Partners Ltd Tel: +44 (0) 20 7236
1177
--------------------------- ----------------------
Competent Person Statement
The information in the announcement that relates to exploration
results, minerals resources and ore reserves is based on
information compiled by Dr Stephen Westhead, who is a full time
employee of Anglo Asian Mining with the position of Director of
Geology & Mining, who is a Fellow of The Geological Society of
London, a Chartered Geologist, Fellow of the Society of Economic
Geologists, Member of The Institute of Materials, Minerals and
Mining and a Member of the Institute of Directors.
Stephen Westhead has sufficient experience that is relevant to
the style of mineralisation and type of deposit under consideration
and to the activity being undertaken to qualify as a Competent
Person as defined in the 2012 Edition of the 'Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore
Reserves'. Stephen Westhead consents to the inclusion in the
announcement of the matters based on his information in the form
and context in which it appears.
Stephen Westhead has sufficient experience, relevant to the
style of mineralisation and type of deposit under consideration and
to the activity that he is undertaking, to qualify as a "competent
person" as defined by the AIM rules. Stephen Westhead has reviewed
the resources and reserves included in this announcement.
The information in this announcement that relates to Exploration
Targets, Exploration Results, Mineral Resources or Ore Reserves is
based on information compiled by Dr Stephen Westhead, a Competent
Person who is a Member or Fellow of a 'Recognised Professional
Organisation' (RPO) included in a list that is posted on the
ASXwebsite from time to time (Chartered Geologist and Fellow of the
Geological Society and Member of the Institute of Material,
Minerals and Mining). Dr. Stephen Westhead is a full-time employee
of the Company.
Strategic Report
Principal activities
The principal activity of Anglo Asian Mining PLC (the "Company")
is that of a holding company and a provider of support and
management services to its main operating subsidiary R.V.
Investment Group Services LLC. The Company, together with its
subsidiaries (the "Group"), owns and operates gold, silver and
copper producing properties in the Republic of Azerbaijan
("Azerbaijan"). It also explores for and develops other potential
gold and copper deposits in Azerbaijan.
The Group has a 1,962 square kilometre portfolio of gold, silver
and copper properties in western Azerbaijan, at various stages of
the development cycle. The Group's primary operating site is
Gedabek, which is the location of the Group's main gold, silver and
copper open pit mine, the Ugur open pit mine and Gadir, an
underground mine. The Group's processing facilities to produce gold
doré and copper, silver and gold concentrates are also located at
Gedabek. Gosha, the Group's second underground gold and silver
mine, is located 50 kilometres away from Gedabek. Ordubad, the
Group's early stage gold and copper exploration project is located
in Nakhchivan, South West Azerbaijan.
Overview of 2018 and 2019 to date and 2019 production target
In 2018, the Group built upon the successful results of the
wide-ranging strategic review carried out in 2017 to ensure long
term sustainable production at Gedabek:
-- Mining was carried out throughout 2018 from the Ugur open pit
which commenced operations in September 2017. 1.2 million tonnes of
ore grading an average of 1.27 grammes of gold per tonne were mined
from the Ugur open pit in 2018.
-- A second jaw crusher line was installed for the flotation
plant which commenced operation in July 2018. This enabled the
agitation leaching plant and the flotation plant to operate
independently.
-- The Group continued to formalise all its resources and JORC
mineral resources and ore reserves estimates were published for
both the Gedabek open pit mine and the Gadir underground mine.
-- A three year geological exploration programme was commenced
in 2018 which includes near mine, brownfield and greenfield
exploration. As part of this programme, an airborne geophysical
survey of the entire Gedabek contract area was carried out in
quarter four 2018.
The Group has a production target for the year to 31 December
2019 of 65,000 ounces to 67,500 ounces of gold and 3,100 tonnes to
3,300 tonnes of copper. The total production target for the year to
31 December 2019 expressed as gold equivalent ounces ("GEOs") is
between 82,000 GEOs and 86,000 GEOs, compared to total production
for the year to 31 December 2018 of 83,736 GEOs.
Gedabek
Introduction
The Gedabek mining operation is located in a 300 square
kilometre contract area in the Lesser Caucasus mountains in western
Azerbaijan on the Tethyan Tectonic Belt, one of the world's most
significant copper and gold-bearing geological structures. Gedabek
is the location of the Group's open pits and underground mines and
its processing facilities.
Gold was first poured from ore mined from the Gedabek open pit
and processed by heap leaching in May 2009, with production fully
commencing in September 2009. Copper and precious metal concentrate
production began in 2010 when the Sulphidisation, Acidification,
Recycling and Thickening (SART) plant was commissioned. The Group's
agitation leaching plant commenced production in 2013 and its
flotation plant in 2015. Underground extraction of ore at Gedabek
started in June 2015 when the Gadir mine was opened. During 2017,
the Group brought Ugur, a newly discovered gold deposit three
kilometres north-west of its processing facilities, into production
as an open pit mine. In July 2018, a second crusher line was added
to the flotation plant to enable independent operation and
processing by the agitation leaching plant and the flotation
plant.
Mineral resources and ore reserves
Key to the future development of the Gedabek site is our
knowledge of the mineral resources and ore reserves within our
contract areas. The Group's most recent mineral resources and ore
reserves estimates for the Gedabek open pit were published as of 18
September 2018. Full JORC (2012) reporting with unchanged mineral
resources and ore reserves estimates was subsequently released on
14 March 2019. The mineral resource showed a total mineral resource
(at a cut-off grade of 0.3 grammes per tonne of gold) of
approximately 986 thousand ounces of gold, 63.4 thousand tonnes of
copper and 8,172 thousand ounces of silver. The economically
mineable ore reserves are over 343,000 ounces of gold and more than
36,000 tonnes of copper, which has extended the current life of the
Gedabek open pit until 2024. Table 1 shows the Gedabek open pit
mineral resources estimate at 14 March 2019 and Table 2 shows the
Gedabek open pit ore reserves estimate at 14 March 2019.
Table 1 - Gedabek open pit mineral resources estimate at 14
March 2019
Gold (+ Copper) Mineral Resources (cut-off grade >= 0.3 g/t gold)
Mineral Resources Tonnage Gold Grade Copper Grade Silver Gold Copper Silver
Grade
-------- ----------- ------------- ------- ------ ------- -------
(Mt) (g/t) (%) (g/t) (koz) (kt) (koz)
-------- ----------- ------------- ------- ------ ------- -------
Measured 18.0 0.9 0.2 8.3 532 38.0 4,800
-------- ----------- ------------- ------- ------ ------- -------
Indicated 11.1 0.7 0.1 5.6 264 15.7 2,011
-------- ----------- ------------- ------- ------ ------- -------
Measured+Indicated 29.1 0.9 0.2 7.3 796 53.7 6,811
-------- ----------- ------------- ------- ------ ------- -------
Inferred 8.5 0.7 0.1 5.0 189 9.7 1,361
-------- ----------- ------------- ------- ------ ------- -------
Total 37.6 0.8 0.2 6.8 986 63.4 8,172
-------- ----------- ------------- ------- ------ ------- -------
Copper Mineral Resource (Additional to Gold Mineral Resource) (cut-off
grade copper >=0.3% and gold <0.3 g/t)
Mineral Resources Tonnage Gold Grade Copper Grade Silver Gold Copper Silver
Grade
-------- ----------- ------------- ------- ------ ------- -------
(Mt) (g/t) (%) (g/t) (koz) (kt) (koz)
-------- ----------- ------------- ------- ------ ------- -------
Measured 5.3 0.1 0.5 2.1 21 26.3 356
-------- ----------- ------------- ------- ------ ------- -------
Indicated 0.9 0.1 0.5 1.6 3 4.4 48
-------- ----------- ------------- ------- ------ ------- -------
Measured+Indicated 6.2 0.1 0.5 2.0 24 30.7 404
-------- ----------- ------------- ------- ------ ------- -------
Inferred 0.5 0.1 0.4 1.5 1 1.9 23
-------- ----------- ------------- ------- ------ ------- -------
Total 6.7 0.1 0.5 2.0 25 32.6 426
-------- ----------- ------------- ------- ------ ------- -------
Note that due to rounding, numbers presented may not add up
precisely to totals.
Table 2 - Gedabek open pit ore reserves estimate at 14 March
2019
Ore Reserves Tonnage Gold Grade Copper Grade Silver Gold Copper Silver
Grade
(Mt) (g/t) (%) (g/t) (koz) (kt) (koz)
-------- ----------- ------------- ------- ------ ------- -------
Proved 10.9 0.89 0.29 8.83 311 31.9 3,084
-------- ----------- ------------- ------- ------ ------- -------
Probable 1.2 0.82 0.34 9.52 32 4.1 373
-------- ----------- ------------- ------- ------ ------- -------
Proved and
Probable 12.1 0.88 0.30 8.90 343 36.0 3,457
-------- ----------- ------------- ------- ------ ------- -------
Note that due to rounding, numbers presented may not add up
precisely to totals.
The above proved and probable ore reserves estimate is based on
that portion of the Measured and Indicated Mineral Resource of the
deposit within the scheduled mine designs that may be economically
extracted, considering all "Modifying Factors" in accordance with
the JORC (2012) Code.
The latest JORC (2012) mineral resources and ore reserves
statements for the Ugur deposit were completed in 2017. Table 3
shows the Ugur open pit mineral resources estimate and Table 4
shows the Ugur open pit ore reserves estimate.
Table 3 - Ugur open pit mineral resources estimate at 1 August
2017
Mineral Resources Tonnage Gold Grade Silver Gold Silver
(cut-off grade >= Grade
0.2 g/t gold)
(Mt) (g/t) (g/t) (oz) (oz)
-------- ----------- ------- -------- ----------
Measured 4.12 1.2 6.3 164,000 841,000
-------- ----------- ------- -------- ----------
Indicated 0.34 0.8 3.9 8,000 44,000
-------- ----------- ------- -------- ----------
Measured + Indicated 4.46 1.2 6.2 172,000 884,000
-------- ----------- ------- -------- ----------
Inferred 2.50 0.3 2.1 27,000 165,000
-------- ----------- ------- -------- ----------
Total 6.96 0.9 4.7 199,000 1,049,000
-------- ----------- ------- -------- ----------
Note that due to rounding, numbers presented may not add up
precisely to totals.
Table 4 - Ugur open pit ore reserves estimate at 1 August
2017
Ore Reserves Tonnage Gold Grade Silver Grade Gold Silver
(Mt) (g/t) (g/t) (oz) (oz)
-------- ----------- ------------- -------- --------
Proved 3.37 1.3 7.2 142,000 779,000
-------- ----------- ------------- -------- --------
Probable 0.22 0.8 4.1 5,000 29,000
-------- ----------- ------------- -------- --------
Proved and
Probable 3.59 1.3 7.0 147,000 808,000
-------- ----------- ------------- -------- --------
Note that due to rounding, numbers presented may not add up
precisely to totals.
The above proved and probable ore reserves estimate is based on
that portion of the Measured and Indicated Mineral Resource of the
deposit within the scheduled mine designs that may be economically
extracted, considering all "Modifying Factors" in accordance with
the JORC (2012) Code.
In March 2019, the Group published the JORC (2012) mineral
resources statement and ore reserves estimate for its Gadir
underground mine. The mineral resources statement showed measured
plus indicated mineral resources (at a cut-off grade of 0.5 grammes
per tonne of gold) of 1,775,000 tonnes containing 145,200 ounces of
gold, 736,100 ounces of silver, 3,295 tonnes of copper and 14,470
tonnes of zinc. Table 5 shows the Gadir underground mine mineral
resources estimate as at 20 August 2018. Table 6 shows the Gadir
underground mine ore reserves estimate as at 20 August 2018.
Table 5 - Gadir underground mine mineral resources estimate at
20 August 2018
Mineral Resources Tonnage Gold Silver Copper Zinc
(cut-off grade
>= 0.5 g/t gold)
-------------------- ------------- --------------
kt g/t koz g/t koz % t % t
-------------------- -------- ----- ------ ------ ------ ----- ------ ----- -------
Measured 540 3.70 64.2 17.49 303.6 0.29 1,566 1.01 5,454
-------- ----- ------ ------ ------ ----- ------ ----- -------
Indicated 1,235 2.04 81.0 10.89 432.4 0.14 1,729 0.73 9,016
-------- ----- ------ ------ ------ ----- ------ ----- -------
Measured+Indicated 1,775 2.54 145.2 12.90 736.1 0.21 3,295 0.84 14,470
-------- ----- ------ ------ ------ ----- ------ ----- -------
Inferred 571 1.48 27.2 5.68 104.4 0.10 571 0.52 2,972
-------- ----- ------ ------ ------ ----- ------ ----- -------
Total 2,347 2.29 172.4 11.14 840.4 0.19 3,866 0.78 17,442
-------- ----- ------ ------ ------ ----- ------ ----- -------
Note that due to rounding, numbers presented may not add up
precisely to totals.
Table 6 - Gadir underground mine ore reserves estimate at 20
August 2018
Ore Reserves Tonnage Gold Silver Copper
(kt) (g/t) (koz) (g/t) (koz) (%) (t)
-------- ------ ----- ------ ----- ----- ------
Proved 222 2.81 25 14.13 101 0.24 535
-------- ------ ----- ------ ----- ----- ------
Probable 575 2.41 45 10.99 203 0.15 852
-------- ------ ----- ------ ----- ----- ------
Proved and
Probable 797 2.73 70 11.86 304 0.17 1,387
-------- ------ ----- ------ ----- ----- ------
Note that due to rounding, numbers presented may not add up
precisely to totals.
The above proved and probable ore reserves estimate is based on
that portion of the Measured and Indicated Mineral Resource of the
deposit within the scheduled mine designs that may be economically
extracted, considering all "Modifying Factors" in accordance with
the JORC (2012) Code. Zinc was not estimated as part of this
reserve as it is under study at resource level currently.
Mining operations
The principal mining operation at the Gedabek contract area is
conventional open-cast mining using truck and shovel from the
Gedabek open pit (which comprises several contiguous smaller open
pits) and the Ugur open pit. Ore is first drilled and blasted and
then transported either to a processing facility or to a stockpile
for storage. The major mining activities of blast-hole drilling and
haulage of ore and waste rock are carried out by contractors, while
blasting and mining activities are carried out by the Company.
Production commenced from the new Ugur open pit mine in
September 2017. To enable production, a 4.6 kilometre road was
constructed between the mine and the Company's processing
facilities. All necessary surface infrastructure, including
geology, medical and HSE offices, hygiene facilities, a mechanical
workshop, lubricants and spares stores, a weighbridge and a diesel
store was also constructed at the mine site. Due to the composition
of the Ugur ore, mining of ore in the first few months of operation
was by free digging, with drilling and blasting not required. Ore
was mined from the Ugur open pit mine throughout 2018.
Ore is also mined from the Gadir underground mine which is
situated approximately one kilometre from the Gedabek open pit.
Table 7 shows the ore mined in 2018 from all the Company's mines at
Gedabek and Gosha.
Table 7 - Ore mined at Gedabek from all mines (including Gosha)
for the year ended 31 December 2018
12 months to
31 December 2018
Average
Ore mined gold grade
Mine (tonnes) (g/t)
---------- ------------
Gedabek open pit 362,412 1.06
Ugur - open pit 1,245,104 1.27
Gadir - underground 125,806 4.53
Gosha - underground 10,988 3.44
---------- ------------
Total 1,744,310 1.47
===================== ========== ============
Various initiatives were undertaken at Gedabek during 2018 to
improve efficiency and working practices of its mining operations.
These included the following:
-- The Company reconfigured its ROM stockpile pads. This is to
enable more efficient (and therefore lower cost) handling of plant
feed as well as optimising ore blending.
-- Transportation logistics were improved with a new spur road
link constructed between the Gedabek open pit mine and processing
plant. This new road reduces haulage distances between the mine and
the processing plant.
-- An expansion of the on-site maintenance facilities and workshop commenced.
-- Several specialist managers were recruited to improve working
practices in the areas of mining, drill and blast, equipment
operation and maintenance.
-- A diesel filtration system has been installed to improve the
quality of fuel used which improves the efficient operation of
equipment.
-- A new solution sprinkling system has been installed which
better distributes cyanide on heaps that are being leached.
Processing operations
Ore is processed at Gedabek to produce either gold doré (an
alloy of gold and silver with small amounts of impurities, mainly
copper) 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 by the impervious base under the
pad.
2 Heap leaching of run of mine ("ROM") ore. The process is
similar to heap leaching for crushed ore, except the ore is not
crushed, instead it is heaped into pads as received from the mine
(ROM) without further treatment or crushing. This process is used
for very low grade ores.
3 Agitation leaching. Ore is crushed and then milled in a
grinding circuit. The finely ground ore is placed in stirred
(agitation) tanks containing cyanide solution and the contained
metal is dissolved in the solution. Depending on the composition of
the ore, an option is available to process the finely ground ore
through the flotation plant prior to, or after treatment by the
agitation leaching plant. However, since installation of the second
crusher line for the flotation plant in 2018, the two plants have
been operating independently. Any coarse, free gold is separated
using a centrifugal type Knelson concentrator.
Slurries produced by the above processes with dissolved metal in
solution are then transferred to a resin-in-pulp ("RIP") plant. A
synthetic ion exchange resin, in the form of small spherical
plastic beads designed to absorb gold selectively over copper and
silver, is mixed with the leach slurry or "pulp". After separation
from the pulp, the gold-loaded resin is treated with a second
solution, which "strips" (i.e. desorbs) the gold, plus the small
amounts of absorbed copper and silver, transferring the metals from
the resin back into solution. The gold and silver dissolved in this
final solution are recovered by electrolysis and are then smelted
to produce the doré metal, comprising an alloy of gold and
silver.
Copper and precious metal concentrates are produced by two
processes, SART processing and flotation.
1 Sulphidisation, Acidification, Recycling and Thickening
(SART). The cyanide solution after metal absorption by
resin-in-pulp processing is transferred to the SART plant. The pH
of the solution is then changed by the addition of reagents. This
precipitates the copper from the solution in the form of a finely
divided copper sulphide concentrate containing silver and minor
amounts of gold. The process also recovers cyanide from the
solution, which is recycled back to leaching.
2 Flotation. Flotation is carried out in a separate flotation
plant. Feedstock, which can be either tailings from the agitation
leaching plant or freshly crushed and milled ore, is mixed with
water to produce a slurry called "pulp" and other reagents are then
added. This pulp is processed in flotation cells (tanks). The
flotation cells are agitated and air introduced as small bubbles.
The sulphide mineral particles attach to the air bubbles and float
to the surface where they form a froth which is collected. This
froth is dewatered to form a mineral concentrate containing copper,
gold and silver.
Initially, gold doré was produced at Gedabek only by heap
leaching crushed and agglomerated ore. Heap leaching is a low
capital cost method of production commonly used by mines when they
first move into production. Ore at Gedabek is being crushed to less
than 25mm in size and the resultant gold recovery is approximately
60 per cent. to 70 per cent. of the contained gold over leaching
cycles which extend typically beyond one year.
To increase gold recoveries and production, in 2013 the Group
constructed an agitation leaching plant. Compared to heap leaching,
agitation leaching can deliver higher recoveries of gold without
long leaching cycles. Heap leach pads also require considerable
space for their construction and due to the topography of the
Gedabek site, this is a constraint. The capacity of the agitation
leaching plant was increased in 2016 by the installation of a
second semi-autogenous grinding ("SAG") mill.
The ore at Gedabek is polymetallic containing significant
amounts of copper. Initially, the SART processing plant was
constructed to recover some of the copper as a copper and precious
metal chemical concentrate. However, to further exploit the high
copper content of the Group's ore reserves, the Group constructed a
flotation plant whose function is primarily to produce a
copper-rich mineral concentrate, containing gold and silver as
by-products. The flotation plant commenced production in November
2015. The flotation plant has the flexibility to be configured for
various methods of operation.
In 2018, a second crusher line was installed for the flotation
plant. This has a budgeted capacity of 95 tonnes per hour compared
to the original crusher of up to 120 tonnes per hour. This removed
a large bottleneck and enabled independent operation of the
agitation leaching and flotation plants from separate sources of
feedstock. The addition of this second crusher not only
significantly increases the capacity of our processing plants, but
also their flexibility.
Production and sales
For the year ended 31 December 2018, total gold production as
doré bars and as a constituent of the copper and precious metal
concentrate totalled 72,798 ounces, which was an increase of 13,181
ounces in comparison to the production of 59,617 ounces for the
year ended 31 December 2017.
Table 8 summarises the amount of ore and its gold grade
processed by leaching at Gedabek for the year ended 31 December
2018.
Table 8 - Ore and its gold grade processed by leaching at
Gedabek for the year ended 31 December 2018
Ore processed (tonnes) Gold grade of ore processed
Quarter ended (g/t)
------------------------------------ ------------------------------------
Heap leach Heap leach Heap leach Heap leach
pad pad Agitation pad pad Agitation
(crushed leaching (crushed leaching
ore) (ROM ore) plant ore) (ROM ore) plant
----------- ----------- ---------- ----------- ----------- ----------
31 March 2018 170,655 188,364 184,846 0.92 0.51 2.07
30 June 2018 150,573 77,493 196,107 0.91 0.51 2.19
30 September
2018 195,957 136,595 196,700 0.91 0.40 2.39
31 December
2018 154,901 131,861 173,332 0.81 0.48 2.26
----------- ----------- ---------- ----------- ----------- ----------
Total for the
year 672,086 534,313 750,985 0.89 0.47 2.23
=========== =========== ========== =========== =========== ==========
Table 9 summarises the amount of ore and its gold, silver and
copper content processed by flotation for the year ended 31
December 2018.
Table 9 - Ore and its gold, silver and copper content processed
by flotation for the year ended 31 December 2018
Ore processed Gold content Silver content Copper content
Quarter ended (tonnes) (ounces) (ounces) (tonnes)
-------------- ------------- --------------- ---------------
31 March 2018* 43,159 1,790 21,979 199
-------------- ------------- --------------- ---------------
30 June 2018* 54,134 2,415 29,236 237
-------------- ------------- --------------- ---------------
30 September 2018** 131,102 4,818 62,472 587
-------------- ------------- --------------- ---------------
31 December 2018** 129,102 4,625 70,292 690
-------------- ------------- --------------- ---------------
Total for the
year 357,497 13,648 183,979 1,713
============== ============= =============== ===============
* During this time the flotation plant was operated in series
with the agitation leaching plant processing its tailings.
** During this time the flotation plant was operated
independently in parallel to the agitation leaching plant following
installation of the second jaw crusher.
Table 10 summarises the gold and silver bullion produced from
doré bars and sales of gold bullion for the year ended 31 December
2018.
Table 10 - Gold and silver bullion produced from doré bars and
sales of gold bullion for the year ended 31 December 2018
Quarter ended Gold produced* Silver Gold Sales** Gold sales
(ounces) produced* (ounces) price
(ounces) ($/ounce)
31 March 2018 15,750 7,110 14,956 1,328
30 June 2018 15,537 6,014 10,822 1,307
30 September
2018 18,885 7,416 18,637 1,216
31 December
2018 15,444 5,646 15,066 1,231
-------------- ----------- ------------- ----------
Total for the
year 65,616 26,186 59,481 1,265
-------------- ----------- ------------- ----------
*Including Government of Azerbaijan's share.
** Excluding Government of Azerbaijan's share.
Table 11 summarises the total copper, gold and silver produced
as concentrate by both SART and flotation processing for the year
ended 31 December 2018.
Table 11 - Total copper, gold and silver produced as concentrate
by both SART and flotation processing for the year ended 31
December 2018
Copper (tonnes) Gold (ounces) Silver (ounces)
------------------------- ------------------------- -----------------------------
Quarter ended SART Flotation Total SART Flotation Total SART Flotation Total
----- ---------- ------ ----- ---------- ------ ------- ---------- --------
31 March 2018 114 141 255 6 735 741 22,118 11,587 33,705
30 June 2018 137 195 332 6 1,226 1,232 21,800 16,387 38,187
30 September
2018 81 389 470 7 2,437 2,444 17,357 34,573 51,930
31 December
2018 67 521 588 13 2,752 2,765 14,229 45,947 60,176
----- ---------- ------ ----- ---------- ------ ------- ---------- --------
Total for the
year 399 1,246 1,645 32 7,150 7,182 75,504 108,494 183,998
=============== ===== ========== ====== ===== ========== ====== ======= ========== ========
Table 12 summarises the total copper concentrate (including gold
and silver) production and sales from both SART and flotation
processing for the year ended 31 December 2018.
Table 12 - Total copper concentrate (including gold and silver)
production and sales from both SART and flotation processing for
the year ended 31 December 2018
Concentrate Copper Gold Silver Concentrate Concentrate
production* content* content* content* sales sales**
Quarter ended (dmt) (tonnes) (ounces) (ounces) (dmt) ($000)
------------- ---------- ---------- ------------
31 March 2018 1,042 255 741 33,705 608 1,715
30 June 2018 1,396 332 1,232 38,187 1,736 4,221
30 September
2018 2,663 470 2,444 51,930 1,557 3,368
31 December
2018 3,706 588 2,765 60,176 3,774 6,131
------------- ---------- ---------- ---------- ------------ ------------
Total for the
year 8,807 1,645 7,182 183,998 7,675 15,435
=============== ============= ========== ========== ========== ============ ============
*Including the Government of Azerbaijan's share.
** These are invoiced sales before any accounting adjustments in
respect of IFRS 15. The total for the year does not therefore agree
to the revenue disclosed in note 6 - "Revenue" to the Group
financial statements.
Infrastructure
The Gedabek contract area is served by excellent infrastructure.
The main site is located at the village of Gedabek which is
connected by a good tarmacadam road to the regional capital of
Ganja. Baku, the capital of Azerbaijan to the south and the
country's border with Georgia to the north, are both approximately
a four to five hour drive over excellent roads. The site is
connected to the Azeri national power grid and there is a dedicated
sub-station located at the main Gedabek processing facilities.
Water management
The Gedabek site has its own water treatment plant which was
constructed in 2017 and which uses the latest reverse osmosis
technology. In the last few years, Gedabek village has experienced
water shortages in the summer and this plant reduces to the
absolute minimum the consumption of fresh water required by the
Company. The plant is now producing around 200,000 litres of pure
water per day using water from the tailings dam which is being used
in Gedabek's processing facilities.
Wastewater evaporation equipment is also deployed in the
tailings dam. This is mobile, skid mounted equipment into which
water is pumped without treatment direct from the tailings dam. The
equipment then evaporates the water by jetting it into the
atmosphere as a fine spray. It can evaporate approximately 25
litres per second of water depending upon climatic conditions.
Tailings (waste) storage
The Company is very mindful of the importance of proper storage
of tailings both for efficient operation of its processing plants
and to fulfil its environmental responsibilities. The Company
stores its tailings in a purpose built dam approximately seven
kilometres from its processing facilities, topographically at a
lower level than the processing plant, thus allowing gravity
assistance of tailings flow in the slurry pipeline. Immediately
downstream of the tailings dam is a reed bed biological treatment
system to purify any seepage from the dam before discharge into the
nearby Shamkir river.
During 2017, the wall of the tailings dam was raised by six
metres. This has increased the capacity of the tailings dam from
3.2 million cubic metres to 4.3 million cubic metres. There are two
pipelines from the Company's processing facilities to the tailings
dam to increase capacity and provide redundancy.
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 a team of HSE officers.
Overall strategy for HSE matters in the Company is overseen by the
HSE and technical committee, which is chaired by a board director,
Professor John Monhemius. The HSE and technical committee meets
twice a year at the Gedabek site.
During 2018, there were 44 reportable safety incidents (2017:
45), of which nine involved injuries to personnel. Five of these
cases were minor injuries, but four (2017: two) were lost time
incidents (LTI), where the casualty had to take time off work. A
formal Permit-to-Work system has now been fully implemented for all
maintenance activities carried out in high-risk areas, to ensure
the safety of the personnel engaged in these activities, which are
closely monitored by staff from the Health and Safety
department.
An HSE encouragement programme has been introduced, which awards
bonuses to members of the workforce for outstanding HSE or
housekeeping activities, on the recommendation of HSE or
supervisory staff. Good HSE performance is publicly recognised on
posters in the canteen and other public places.
Training for the HSE staff is on-going. In 2018, all the
department's staff successfully passed the "IOSH Managing Safely"
training course provided by the Institution of Occupational Safety
and Health from the United Kingdom.
Geological exploration activity
The Group's geological programme at Gedabek in 2018 formed part
of a rolling three-year exploration plan and was designed to
achieve the following main objectives:
-- To establish the gold and copper-gold distribution of the
Gedabek open pit to update the resource and reserve estimate.
-- To assess the extent of the further mineralisation of the
Gadir underground mine and confirm ongoing mineable ore through the
publication of a resource and reserve estimate, in accordance with
the JORC (2012) Code.
-- To commence exploration of the mineral potential below the Gedabek open pit from underground.
-- To bring new mineral occurrence targets into the resource and reserve pipeline.
-- To identify new areas of mineralisation and targets which can
be fast tracked into production as standalone mines.
The major results of geological exploration for the year ended
31 December 2018 are as follows:
-- A clear understanding was obtained of the combined production
profile of all operating mines that gave a mine life until the end
of 2024 from the current reserves.
-- A helicopter-borne electromagnetic and magnetic survey was
completed over Gedabek. The initial results indicated several
targets for follow-up exploration activity.
-- Drilling at the northern and southern margins of the Gedabek
open pit confirmed the existence of further mineable copper and
gold extensions. Additional mineralisation was also confirmed
beneath the Gedabek open pit.
The detailed work carried out at Gedabek in 2018 by location is
as follows:
Gedabek regional
-- 3,385 linear metres of airborne ZTEM and magnetic geophysics
were completed on a 200 metre line spacing. Twenty five targets
favourable for epithermal and porphyry mineralisation and six
magnetic targets consistent with porphyry systems were identified
for more detailed exploration.
-- surface diamond core drill-holes over the AC area (located
about 1.5 kilometres west of the Company's heap leach processing
area) ("AC") were completed totalling 1,177 metres.
-- surface reverse circulation drill-holes were drilled over AC totalling 587 metres.
-- 25 outcrop samples were collected over the Duzyurd area.
Gedabek open pit (and underground)
-- 58 surface diamond core drill-holes were completed totalling 5,947 metres.
-- 208 surface reverse circulation drill-holes were completed totalling 11,340 metres.
-- 7 underground diamond core drill-holes were completed totalling 655 metres.
-- 718 metres of tunnel development were completed from the
Gadir decline to below Gedabek 'Pit 4'. This will create drilling
platforms to better assess the potential for underground
development of the Gedabek deposit.
Gadir
-- 19 surface diamond core drill-holes were completed totalling 8,953 metres.
-- 43 underground diamond core drill-holes (HQ/NQ in size) were
completed totalling 4,735 metres.
-- An additional 105 BQ-size underground core drill-holes were completed totalling 2,838 metres.
-- 2,703 metres of underground geological mapping from the mine tunnels were completed.
-- Surface induced polarisation ("IP") and ground magnetics over
the Gadir footprint completed covering 3.7 square kilometres
(results expected shortly).
Ugur
-- 12 surface diamond core drill-holes were completed totalling 3,875 metres.
-- 650 outcrop samples were collected.
-- 250 linear metres of trenching, with 215 samples obtained.
-- 40,000 square metres of detailed geological (lithological,
alteration and structural) mapping were completed.
S ydülü
-- 146 outcrop samples were collected.
-- 8 stream sediment samples were collected.
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.
Production
A total of 10,988 tonnes of ore of average gold grade 3.44
grammes per tonne were mined at Gosha in the year ended 31 December
2018.
Exploration activity
A new discovery of polymetallic mineralisation was made at the
Asrikchay target area, 7 kilometres north from the Gosha
underground mine. A significant polymetallic drill-hole
intersection was found with weighted grade averages from 228.70
metres to 233.00 meters (4.30 metre downhole thickness) of 4.11
grammes per tonne of gold, 112.23 grammes per tonne of silver, 3.07
per cent. copper and 3.02 per cent. zinc. Preliminary follow-up
surface geophysics has been completed over Asrikchay to identify
the deposit geometry and the results are awaited.
Ordubad
The 462 square kilometre Ordubad contract area is located in
Nakhchivan, South West Azerbaijan and contains numerous targets
including Shakardara, Piyazbashi, Misdag, Agyurt, Shalala and
Diakchay, all of which are located within a five-kilometre radius
of each other.
The presence of gold was first discovered at Shakardara around
1956 to 1958. Soviet geologists estimated resources for the main
vein zone of 2.6 million tonnes of ore containing approximately
120,000 ounces of gold, 280,000 ounces of silver and 4.01 tonnes of
copper, but these estimates have never been substantiated.
The geological exploration programme at Ordubad was
significantly expanded in 2018, compared to previous years. The
work was to assess the extent of the copper, gold and associated
mineralisation and to verify the Soviet-era data which indicate
extensive potential mineralisation.
A summary of the work carried out in 2018 is as follows:
-- Completion of a surface geochemical sampling programme
covering the Shakardara and Dirnis areas, for a total area of 26.7
square kilometres, following up on porphyry-style alteration zones
and surface outcrops of malachite mineralisation. A total of 5,504
samples were collected and sent for analysis to ALS Minerals 'OMAC'
(ALS Loughrea) in Ireland; results are expected in the second
quarter of 2019.
-- A geological research team from the Natural History Museum
('NHM') of London worked with the Company at Ordubad for two weeks
in November 2018, collecting 83 samples for X-Ray Diffraction
analysis ('XRD') and petrographic studies, among others.
-- 1,488 metres of linear trenching were completed at
Shakardara, with 916 trench samples collected and over 989 metres
sampled.
-- 42 stream sediment samples were collected at Piyazbashi.
-- Detailed geological (lithological, alteration and structural)
mapping was completed over the 26.7 square kilometre Shakardara
geochemical study area.
-- 5,500 metres of road clearing was completed by bulldozer to
access mineral occurrences and deposits.
-- Preliminary review of primary historical geological reports and initial target selection.
-- Drill-hole planning for 2019 at the copper target of Dirnis and the gold targets at Keleki.
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 the majority 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 can be
settled within one to two days of receipt of the doré or the Group,
at its discretion, can sell the resulting refined gold bullion to
MKS Finance SA following refining of the doré. The Group has not
experienced in 2018 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. One trial
shipment was made in 2018 to an alternative refiner in Switzerland
as the refiner was offering better commercial terms than MKS
Finance SA.
The Gedabek mine site has good road transportation links and our
copper and precious metal concentrate is collected by truck from
the Gedabek site by the purchaser. In 2014, the Group commenced
selling its copper concentrate produced by SART processing to
Industrial Minerals SA, a Swiss-based integrated trading, mining
and logistics group under an exclusive three year contract. This
contract has been subsequently renewed and expanded to include
copper concentrate produced by flotation, in addition to the SART
concentrate. The latest renewal of the contract was signed on 1
January 2019 for a period of one year, but the contract will
automatically extend unless terminated by either party.
In June 2018, the Group signed a contract with Trafigura Pte.
Limited ("Trafigura") for the sale of copper concentrates produced
by flotation processing. The contract has no expiry date unless
terminated by either party and the first shipment of concentrate
was made under the contract in September 2018.
It is intended that Trafigura will purchase all concentrate
produced by flotation and Industrial Minerals SA those produced by
SART processing. The Group has experienced no delays in the
shipment of copper concentrates in 2018.
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 expenditure to ensure it
can withstand any prolonged period of commodity price weakness.
The Group actively monitors all changes in commodity prices to
understand the impact on the business. The Group hedges future
sales of gold bullion when the directors believe it is beneficial
to the Company. The directors periodically review the requirement
for hedging.
Foreign currency risk
The Group reports in United States Dollars and a large
proportion of its costs are incurred in United States Dollars. It
also conducts business in Australian Dollars, Azerbaijan Manats and
United Kingdom Sterling. The Group does not currently hedge its
exposure to other currencies, although it will review this
periodically if the volume of non-United States Dollar transactions
increases significantly. Also, the fact that both revenue of the
Group and the Group's interest-bearing debt are settled in United
States Dollars is a key mitigating factor that helps to avoid
significant exposure to foreign currency risk. Information on the
carrying value of monetary assets and liabilities denominated in
foreign currency and the sensitivity analysis of foreign currency
is disclosed in note 24 to the financial statements below.
Liquidity and interest rate risk
During 2018, interest rates on loans payable were fixed, except
for the three month LIBOR embedded in the terms of the Amsterdam
Trade Bank ("ATB") and Gazprombank (Switzerland) Ltd ("GPBS")
loans. The loans from ATB and GPBS were repaid in March 2018 and
since then the interest rates on all loans have been fixed. The
Group has not used any interest rate swaps or other instruments to
manage its interest rate profile during 2018, but this recourse is
reviewed on a periodic basis. Information on the exposure to
changing interest rates is disclosed in note 24 to the financial
statements below. The approval of the board of directors is
required for all new borrowing facilities.
The Group's surplus cash deposits have been steadily increasing
since the beginning of 2018. The Group places these on deposit with
a range of banks to both ensure it obtains the best return on these
deposits and to minimise counterparty risk. The amount of interest
received on these deposits is not material to the financial results
of the Company and therefore any decrease in interest rates would
not have any adverse effect.
Key performance indicators
The Group has adopted certain key performance indicators
("KPIs") which enable it to measure its financial performance.
These KPIs are as follows:
1 Profit before taxation. This is the key performance indicator
used by the Group. It gives insight into cost management,
production growth and performance efficiency.
2 Net cash provided by operating activities. This is a
complementary measure to profit before taxation and demonstrates
conversion of underlying earnings into cash. It provides additional
insight into how we are managing costs and increasing efficiency
and productivity across the business in order to deliver increasing
returns.
3 All-in sustaining cost ("AISC") per ounce. AISC is a widely
used, standardised industry metric and is a measure of how our
operation compares to other producers in the industry. AISC is
calculated in accordance with the World Gold Council's Guidance
Note on Non-GAAP Metrics dated 27 June 2013. The AISC calculation
includes a credit for the revenue generated from the sale of copper
and silver, which are classified by the Group as by-products. There
are no royalty costs included in the Company's AISC calculation as
the Production Sharing Agreement with the Government of Azerbaijan
is structured as a production sharing arrangement. Therefore, the
Company's AISC is calculated using a cost of sales, which is the
cost of producing 100 per cent. of the gold and such costs are
allocated to total gold production including the Government of
Azerbaijan's share.
Financial review
Group statement of income
The Group generated revenues in 2018 of $90.4m (2017: $71.8m)
from the sales of gold and silver bullion and copper and precious
metal concentrate.
The revenues in 2018 included $75.5m (2017: $55.4m) generated
from the sales of gold and silver bullion from the Group's share of
the production of doré bars. Bullion sales in 2018 were 59,481
ounces of gold and 25,394 ounces of silver (2017: 43,496 ounces of
gold and 18,442 ounces of silver) at an average price of $1,265 per
ounce and $16 per ounce respectively (2017: $1,265 per ounce and
$17 per ounce respectively). In addition, the Group generated
revenue of $14.9m (2017: $16.4m) from the sale of 7,675 (2017:
8,497) dry metric tonnes of copper and precious metal concentrate.
The Group's revenue benefited in the year from both a higher
average price of gold at $1,269 per ounce (2017: $1,258 per ounce)
and a higher average price of copper at $6,527 per metric tonne
(2017: $6,200 per metric tonne).
The Group did not hedge any metal sales during 2017 or 2018.
The Group incurred cost of sales in 2018 of $56.5m (2017:
$56.8m). Higher cash costs, depreciation and stockpile movement
were offset by an increased credit in respect of deferred stripping
costs which in 2018 were $4.7m compared to $0.5m in 2017. The cash
cost of mining and processing increased marginally by $1.4m from
$39.1m in 2017 to $40.5m in 2018 despite the increase in
production. The cost of reagents decreased by $2.8m due to
operational efficiencies and the processing of Ugur ores which do
not contain copper. Excavation and haulage costs increased by $2.1m
and employee costs by $0.9m following the recruitment of
specialised managers in the year.
Depreciation and amortisation in 2018 was slightly higher at
$22.9m compared to $22.8m in 2017. 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 impact of the higher
production of gold in 2018 was offset by an increase in the amount
of economically recoverable reserves used to determine the
depreciation and amortisation.
The Group had other income in 2018 of $0.1m (2017: $0.6m). The
Group incurred administration expenses in 2018 of $5.3m (2017:
$4.7m). The Group's administration expenses comprise the cost of
the administrative staff and associated costs at the Gedabek mine
site, the Baku office and maintaining the Group's listing on AIM.
The majority of the administration costs are incurred in either
Azerbaijan New Manats or United Kingdom pounds sterling. United
Kingdom pounds sterling strengthened against the US dollar in 2018
compared to 2017 whilst the Azerbaijan New Manat was relatively
stable. This resulted in higher administration costs when the costs
were translated into United States dollars. Finance costs in 2018
were $1.6m (2017: $3.5m) and comprise interest on the credit
facilities and loans, interest on letters of credit and accretion
expenses on the rehabilitation provision. The costs reduced in the
year due to both a significant reduction in the average debt in
2018 and a reduction in the average interest rate on the debt.
The Group recorded a profit before taxation in 2018 of $25.2m
compared to $5.7m in 2017. This was due to higher revenues, a lower
all-in sustaining cost of gold production and lower finance
costs.
The Group had a taxation charge in 2018 of $8.9m (2017: $3.2m).
This comprised a current income tax charge of $7.3m (2017: $nil)
and a deferred tax charge of $1.6m (2017: $3.2m). The current
income tax charge of $7.3m was incurred by R.V. Investment Group
Services ("RVIG") in Azerbaijan. RVIG generated taxable profits in
2018 of $27.5m of which $4.7m were offset against tax losses
brought forward. The balance of the taxable profits of $22.8m were
taxed at 32 per cent. (the corporation tax rate stipulated in the
Group's production sharing agreement) resulting in the income tax
charge of $7.3m. RVIG had no tax losses carried forward at 31
December 2018.
The taxable profits of the operating company in Azerbaijan are
taxed at 32 per cent. However, the Group's overall tax rate in 2018
was 35 per cent. (2017: 56 per cent.). The overall tax rate is
higher than 32 per cent. because the UK administrative costs and
depreciation of mining rights in Azerbaijan cannot be offset
against the taxable profits arising in Azerbaijan. These costs in
2018 totalled $3.3m (2017: $3.1m).
All-in sustaining cost of gold production
The Group produced gold at an all-in sustaining cost ("AISC")
per ounce of $541 in 2018 compared to $604 in 2017. The Group
reports its cash cost as an AISC calculated in accordance with the
World Gold Council's guidance which is a standardised metric in the
industry. The reason for the decrease in 2018 compared to 2017 was
the higher level of production. Although total costs increased,
many of the Company's costs are fixed or semi-fixed and did not
increase in direct proportion to the revenue.
Group statement of financial position
Non-current assets decreased from $104.4m at the end of 2017 to
$98.6m at the end of 2018. The main reason for the decrease was
property, plant and equipment being lower by $6.2m due to
depreciation in the year. Intangible assets increased from $16.2m
at the end of 2017 to $17.0m at the end of 2018 due to expenditure
on geological exploration and evaluation of $2.9m offset by
amortisation.
There were net current assets of $33.5m at the end of 2018
compared to $12.6m at the end of 2017. The main reason for the
increase in net current assets was an increase in cash of $12.0m
and a decrease in the current portion of loans payable of $13.3m.
The Group's cash balances at 31 December 2018 were $14.5m (2017:
$2.5m). Surplus cash is maintained in US dollars and placed on
fixed deposit with several banks at tenors of between one to three
months at interest rates of around 2.5 to 3.0 per cent.
Net assets of the Group at the end of 2018 were $98.4m (2017:
$85.4m). The increase was due to the retained earnings increasing
and the issue of shares during the year. During 2018, 631,000
ordinary shares were issued in respect of share options that were
held by employees at prices between 9.9 pence and 35.5 pence per
share. This increased the net assets of the Group by $0.1m.
The Group is financed by a mixture of equity and debt. The
Group's total debt at 31 December 2018 was $8.4m, a significant
reduction from $20.7m in 2017 following strong cash generation in
the year. The Group also refinanced $13.5m of its outstanding debt
during 2018 with a 3 year refinancing loan. This loan carries a
fixed interest rate of 7 per cent. and is unsecured and contains no
covenants. The refinancing loan is the only outstanding borrowing
at 31 December 2018.
The Group continues to reduce the interest rate payable on its
borrowings through either refinancing debt at lower interest rates
or negotiating lower interest rates with banks in respect of
existing loans. The interest rate on its only outstanding loan at
31 December 2018 was 7 per cent. (2017: weighted average interest
rate on debt of 8 per cent.).
The Group's holding company, Anglo Asian Mining PLC, reduced its
share premium account to $nil in 2018. Accordingly, the reduction
of $32.6m was transferred to retained earnings. The reduction was
approved by the Court and was to create distributable reserves to
allow the holding company to pay dividends. This gave the Group the
capacity to pay dividends to its shareholders of up to a total of
$13.5m. This amount can be increased by operating profits in
subsidiaries being transferred to Anglo Asian Mining PLC by way of
dividend. The share premium account had a balance at the end of
2018 of $33,000. This was in respect of the premium on 75,000
shares issued at 35.44 pence subsequent to the reduction in the
share premium account.
Group cash flow statement
Operating cash inflow before movements in working capital for
2018 was $50.1m (2017: $32.2m). The main source of operating cash
flow was operating profit before the non-cash charges of
depreciation and amortisation in 2018 of $49.8m (2017: $32.0m)
after adding back finance cost.
Working capital movements generated cash of $0.6m (2017:
absorbed cash of $2.4m) largely due to an increase in trade and
other payables of $2.7m (2017: decrease of $4.6m).
Cash from operations in 2018 was $50.7m compared to $29.8m in
2017 due to higher operating cash inflow before movements in
working capital.
The Company paid corporation tax in 2018 of $3.6m (2017: $nil)
in Azerbaijan in accordance with local requirements. These were
payments on account of its liability for the year ended 31 December
2018 which is discussed above.
Expenditure on property, plant and equipment and mine
development was $15.3m (2017: $9.4m). The main items of expenditure
in 2018 were capitalisation of deferred stripping costs of the main
open pit and the Ugur open pit of $7.2m, the Jaw crusher and
associated equipment for the flotation plant of $2.8m, Gadir and
Gedabek development of $3.0m and mining and other equipment of
$2.3m.
Exploration and evaluation expenditure in 2018 of $2.9m (2017:
$1.0m) was incurred and capitalised. This arose on exploration at
the Gedabek, Gosha and Ordubad contract areas.
Dividends
The Group paid its first dividend in 2018 of $0.03 per share.
The dividend was declared in United States dollars but paid in
United Kingdom pounds sterling in the amount of 2.2864 pence. The
dividend was converted to United Kingdom pounds sterling using the
average of the sterling closing mid-price using the exchange rate
published by the Bank of England at 4pm each day from the 15 to 19
October 2018. The total cost of the dividend was $3.4m. The
directors have announced a final dividend of $0.04 per share in
respect of the financial year ended 31 December 2018. This is
subject to the approval of the shareholders and will cost $4.6m but
has not been accrued in the 2018 financial statements.
The directors have announced a policy to target a distribution
to shareholders each year comprising approximately 25 per cent. of
the Group's free cash flow. This distribution will be made in two
approximately equal installments comprising an interim and final
dividend. The amounts and timing of payment of the interim and
final dividends will be announced each year along with the Group's
interim and final results respectively. The board will review this
policy each year taking into account the financing needs of the
business at that time. Free cash flow is defined as net cash flow
from operating activities less capital expenditure and in 2018 was
$28.9m (2017: $19.4m).
Production Sharing Agreement
Under the terms of the Production Sharing Agreement ("PSA") with
the Government of Azerbaijan ("Government"), the Group and the
Government share the commercial products of each mine. The
Government's share is 51 per cent. of "Profit Production". Profit
Production is defined as the value of production, less all capital
and operating cash costs incurred during the period when the
production took place. Profit Production for any period is subject
to a minimum of 25 per cent. of the value of the production. This
is to ensure the Government always receives a share of production.
The minimum Profit Production is applied when the total capital and
operating cash costs (including any unrecovered costs from previous
periods) are greater than 75 per cent. of the value of production.
All operating and capital cash costs in excess of 75 per cent. of
the value of production can be carried forward indefinitely and set
off against the value of future production.
Profit Production for the Group has been subject to the minimum
25 per cent. for all years since commencement of production
including 2018. The Government's share of production in 2018 (as in
all previous years) was therefore 12.75 per cent. being 51 per
cent. of 25 per cent. with the Group entitled to the remaining
87.25 per cent. The Group was therefore subject to an effective
royalty on its revenues in 2018 of 12.75 per cent. (2017: 12.75 per
cent.) of the value of its production.
The Group can recover the following costs in accordance with the
PSA:
-- all direct operating expenses of the Gedabek mine;
-- all exploration expenses incurred on the Gedabek contract area;
-- all capital expenditure incurred on the Gedabek mine;
-- an allocation of corporate overheads - currently, overheads
are apportioned to Gedabek according to the ratio of direct capital
and operating expenditure at the Gedabek contract area compared
with direct capital and operational expenditure at the Gosha and
Ordubad contract areas; and
-- an imputed interest rate of United States Dollar LIBOR + 4
per cent. per annum on any unrecovered costs.
Unrecovered costs are calculated separately for the three
contract areas of Gedabek, Gosha and Ordubad and can only be
recovered against production from their respective contract areas.
The total unrecovered costs for the Gedabek and Gosha contract
areas at 31 December 2018 were $76.9m and $23.3m respectively
(2017: $94.6m and $21.8m respectively). The Group's current
business plans indicate that these costs will not be fully
recovered until at least 2023 and the effective royalty of 12.75
per cent. will therefore continue until then.
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 2020 and satisfying themselves
that the Group will have sufficient funds on hand to meet its
obligations as and when they fall due over the period of their
assessment. Appropriate rigour and diligence has been applied by
the directors who believe the assumptions are prepared on a
realistic basis using the best available information.
The Group had cash balances of $17.7 million and debt of $6.9
million at 31 March 2019. The Group is able to fund its working
capital requirements and service its borrowings from cash generated
from its operations at Gedabek. The Group's borrowings are
unsecured and without any financial covenants and all payments of
interest and principal in 2018 and 2019 to date have been made in
accordance with the terms of the relevant loan agreements. The
Group has access to local sources of both short and long term
finance should this be required.
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
can be found within the chairman's statement and the strategic
report above. The financial position of the Group, its cash flow,
liquidity position and borrowing facilities are discussed within
this financial review. In addition, note 24 to the Group 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 directors continue to adopt the going concern
basis in preparing the annual report and financial statements.
Reza Vaziri
President and chief executive
Group statement of income
year ended 31 December 2018
2018 2017
Continuing operations Notes $000 $000
Revenue 6 90,354 71,806
Cost of sales 8 (56,530) (56,825)
--------------------------------------------- ------ --------- ---------
Gross profit 33,824 14,981
Other income 7 68 584
Administrative expenses (5,291) (4,745)
Other operating expenses 7 (1,777) (1,598)
--------------------------------------------- ------ --------- ---------
Operating profit 8 26,824 9,222
Finance costs 11 (1,642) (3,538)
Finance income 64 -
--------------------------------------------- ------ --------- ---------
Profit before tax 25,246 5,684
Income tax expense 12 (8,911) (3,164)
--------------------------------------------- ------ --------- ---------
Profit attributable to the equity holders
of the parent 16,335 2,520
--------------------------------------------- ------ --------- ---------
Profit per share attributable to the equity
holders of the parent
Basic (US cents per share) 13 14.32 2.23
Diluted (US cents per share) 13 14.32 2.22
--------------------------------------------- ------ --------- ---------
Group statement of comprehensive income
year ended 31 December 2018
2018 2017
$000 $000
Profit for the year 16,335 2,520
-------------------------------------------------- ------- ------
Total comprehensive profit 16,335 2,520
-------------------------------------------------- ------- ------
Attributable to the equity holders of the parent 16,335 2,520
-------------------------------------------------- ------- ------
Group statement of financial position
31 December 2018
2018 2017
Notes $000 $000
--------------------------------------- ------ --------- ---------
Non-current assets
Intangible assets 14 17,031 16,145
Property, plant and equipment 15 81,150 87,387
Other receivables 17 436 875
--------------------------------------- ------ --------- ---------
98,617 104,407
--------------------------------------- ------ --------- ---------
Current assets
Inventory 18 34,159 33,980
Trade and other receivables 17 8,496 11,276
Cash and cash equivalents 19 14,540 2,534
--------------------------------------- ------ --------- ---------
57,195 47,790
--------------------------------------- ------ --------- ---------
Total assets 155,812 152,197
--------------------------------------- ------ --------- ---------
Current liabilities
Trade and other payables 20 (13,224) (15,170)
Income tax payable (3,700) -
Interest-bearing loans and borrowings 21 (6,750) (20,051)
--------------------------------------- ------ --------- ---------
(23,674) (35,221)
--------------------------------------- ------ --------- ---------
Net current assets 33,521 12,569
--------------------------------------- ------ --------- ---------
Non-current liabilities
Provision for rehabilitation 23 (9,028) (9,629)
Interest-bearing loans and borrowings 21 (1,688) (600)
Deferred tax liability 12 (23,017) (21,394)
--------------------------------------- ------ --------- ---------
(33,733) (31,623)
--------------------------------------- ------ --------- ---------
Total liabilities (57,407) (66,844)
--------------------------------------- ------ --------- ---------
Net assets 98,405 85,353
--------------------------------------- ------ --------- ---------
Equity
Share capital 25 2,016 2,008
Share premium account 27 33 32,484
Share-based payment reserve - 74
Merger reserve 25 46,206 46,206
Retained earnings 50,150 4,581
--------------------------------------- ------ --------- ---------
Total equity 98,405 85,353
--------------------------------------- ------ --------- ---------
Group statement of cash flows
year ended 31 December 2018
2018 2017
Notes $000 $000
-------------------------------------------- ------ --------- -------------------
Cash flows from operating activities
Profit before tax 25,246 5,684
Adjustments to reconcile profit before
tax to net cash flows:
Finance costs 11 1,642 3,538
Finance income (64) -
Depreciation of property, plant and
equipment 15 20,957 21,008
Amortisation of mining rights and other
intangible assets 14 1,990 1,778
Share-based payment expense 26 - 13
Disposal of obsolete equipment 7 209 -
Write down of irrecoverable inventory 136 179
-------------------------------------------- ------ --------- -------------------
Operating cash flow before movement
in working capital 50,116 32,200
(Increase) / decrease in trade and
other receivables (1,767) 2,342
Increase in inventories (314) (142)
Increase / (decrease) in trade and
other payables 2,670 (4,565)
-------------------------------------------- ------ --------- -------------------
Cash from operations 50,705 29,835
Income taxes paid (3,588) -
-------------------------------------------- ------ --------- -------------------
Net cash flow from operating activities 47,117 29,835
-------------------------------------------- ------ --------- -------------------
Cash flows from investing activities
Expenditure on property, plant and
equipment and mine development (15,324) (9,397)
Investment in exploration and evaluation
assets including other
intangible assets (2,875) (1,075)
Interest received 64 -
Net cash used in investing activities (18,135) (10,472)
-------------------------------------------- ------ --------- -------------------
Cash flows from financing activities
Proceeds from issue of shares 25 149 174
Dividend paid 28 (3,432) -
Proceeds from borrowings 22 13,995 8,796
Repayments of borrowings 22 (26,208) (24,116)
Interest paid (1,480) (3,062)
-------------------------------------------- ------ --------- -------------------
Net cash used in financing activities (16,976) (18,208)
-------------------------------------------- ------ --------- -------------------
Net increase in cash and cash equivalents 12,006 1,155
Cash and cash equivalents at the beginning
of the year 19 2,534 1,379
-------------------------------------------- ------ --------- -------------------
Cash and cash equivalents at the end
of the year 19 14,540 2,534
-------------------------------------------- ------ --------- -------------------
Group statement of changes in equity
year ended 31 December 2018
Share-based
Share Share payment Merger Retained Total
capital premium reserve reserve earnings equity
Notes $000 $000 $000 $000 $000 $000
------------------ ------ --------- --------- ------------ --------- ----------- --------
1 January 2017 1,993 32,325 154 46,206 1,968 82,646
Profit for the
year - - - - 2,520 2,520
Shares issued 25&27 15 159 - - - 174
Share options
exercised 26 - - (82) - 82 -
Fair value of
expired options - - (11) - 11 -
Share-based
payment 26 - - 13 - - 13
------------------ ------ --------- --------- ------------ --------- ----------- --------
31 December
2017 2,008 32,484 74 46,206 4,581 85,353
Profit for the
year - - - - 16,335 16,335
Shares issued 25&27 8 141 - - - 149
Share options
exercised 26 - - (74) - 74 -
Share premium
reduction 27 - (32,592) - - 32,592 -
Cash dividends
paid 28 - - - - (3,432) (3,432)
------------------ ------ --------- --------- ------------ --------- ----------- --------
31 December
2018 2,016 33 - 46,206 50,150 98,405
------------------ ------ --------- --------- ------------ --------- ----------- --------
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 for the year ended 31 December 2018
set out above, which was approved by the board of directors on 15
May 2019, 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 and trade receivables at fair value. 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 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 2020 and satisfying themselves
that the Group will have sufficient funds on hand to meet its
obligations as and when they fall due over the period of their
assessment. Appropriate rigour and diligence has been applied by
the directors who believe the assumptions are prepared on a
realistic basis using the best available information.
The Group had cash balances of $17.7 million and debt of $6.9
million at 31 March 2019. The Group is able to fund its working
capital requirements and service its borrowings from cash generated
from its operations at Gedabek. The Group's borrowings are
unsecured and without any financial covenants and all payments of
interest and principal in 2018 and 2019 to date have been made in
accordance with the terms of the relevant loan agreements. The
Group has access to local sources of both short and long-term
finance should this be required.
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
can be found within the chairman's statement and the strategic
report above. The financial position of the Group, its cash flow,
liquidity position and borrowing facilities are discussed in the
financial review above. In addition, note 24 to the Group 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.
3 Adoption of new and revised standards
3.1)New and amended standards and interpretations
The Group applied IFRS 9 - 'Financial Instruments' and IFRS 15 -
'Revenue from contracts with customers' for the first time from 1
January 2018. The nature and effect of the changes on the
consolidated financial statements of the Group as a result of the
adoption of these two new standards are described below. Other than
the changes described below, the accounting policies adopted are
consistent with those of the previous financial year.
Several other amendments and interpretations applied for the
first time in 2018. However, they do not impact the annual
consolidated financial statements of the Group or the interim
condensed consolidated financial statements of the Group and,
hence, have not been disclosed. The Group has not early adopted any
standards, interpretations or amendments that have been issued but
are not yet effective.
i) IFRS 9 - 'Financial Instruments'
IFRS 9 - 'Financial Instruments' replaces IAS 39 - 'Financial
Instruments: Recognition and Measurement' for annual periods
beginning on or after 1 January 2018, bringing together all three
aspects of the accounting for financial instruments: classification
and measurement, impairment and hedge accounting.
The Group has applied IFRS 9 retrospectively, with the initial
application date of 1 January 2018 and has adjusted the comparative
information for the period beginning 1 January 2017. There were no
material impacts on the comparative balances other than a change in
classification and separate disclosure of some trade receivables.
There was no impact on hedging as the Group did not hedge in 2017
and 2018 or apply hedge accounting.
The effects of adopting IFRS 9 are set out below.
a) Classification and measurement
Under IFRS 9, there is a change in the classification and
measurement requirements relating to financial assets. Previously,
there were four categories of financial assets: loans and
receivables, fair value through profit or loss, held to maturity
and available for sale. Under IFRS 9, financial assets are either
classified as amortised cost, fair value through profit or loss or
fair value through other comprehensive income.
For debt instruments, the classification is based on two
criteria: the Group's business model for managing the assets and
whether the contractual cash flows of the financial instruments
represent 'solely payments of principal and interest' ("SPPI") on
the principal amount outstanding. A financial asset can only be
measured at amortised cost if both of the following are
satisfied:
-- Business model: the objective of the business model is to
hold the financial asset for the collection of the contractual cash
flows.
-- Contractual cash flows: the contractual cash flows under the
instrument relate solely to payments of principal and interest.
The assessment of the Group's business model was made as of the
date of initial application, 1 January 2018, and then applied
retrospectively to those financial assets that were not
derecognised before 1 January 2018. The assessment of whether
contractual cash flows on debt instruments are SPPI was made based
on the facts and circumstances as at the initial recognition of the
assets.
The classification and measurement requirements of IFRS 9 did
not have a significant impact on the Group other than to change the
presentation of trade debtors relating to provisionally priced
sales (explained in more detail below).
Financial assets
The Group continued measuring at fair value all financial assets
previously held at fair value under IAS 39. The following are the
changes in the classification of the Group's financial assets:
-- Trade receivables (not subject to provisional pricing) and
other current financial assets (i.e., other receivables and loans)
previously classified as loans and receivables: these were assessed
as being held to collect contractual cash flows and give rise to
cash flows representing SPPI. Although now classified as debt
instruments at amortised cost, their measurement has not
changed.
-- Trade receivables (subject to provisional pricing) and
quotational period ("QP") derivatives: prior to the adoption of
IFRS 9, the exposure of provisionally priced sales to commodity
price movements over the QP, required embedded derivatives to be
separated from the host trade receivable and accounted for
separately. Under IFRS 9, embedded derivatives are no longer
separated from financial assets. Instead, the exposure of the trade
receivable to future commodity price movements will cause the trade
receivable to fail the SPPI test. Therefore, the entire receivable
is now required to be measured at fair value through profit or
loss, with subsequent changes in fair value recognised in the
statement of profit or loss and other comprehensive income each
period until final settlement. The Group did not previously account
separately for the embedded derivative in each transaction as the
short one to four month transaction cycle would result in any
change to the Group's financial statements being immaterial and
this policy continued to be applied from 1 January 2018. The key
impact of IFRS 9 was to require the separate disclosure of trade
receivables between those classified at amortised cost and those at
fair value in the Group's balance sheets at 31 December 2016, 2017
and 2018.
Financial liabilities
The Group has not designated any financial liabilities as at
fair value through profit or loss. There are no changes in
classification and measurement of the Group's financial
liabilities.
b) Other impacts
The change did not have any impact on the Group's statement of
cash flows and the basic and diluted EPS.
c) Impairment
The adoption of IFRS 9 has changed accounting for impairment
losses for financial assets by replacing IAS 39's incurred loss
approach with a forward-looking expected credit loss ("ECL")
approach. IFRS 9 requires the Group to recognise an allowance for
ECLs for all debt instruments not held at fair value through profit
or loss and contract assets in the scope of IFRS 15.
All of the Group's trade receivables (not subject to provisional
pricing) and other current receivables which the Group measures at
amortised cost are short term (i.e., less than 12 months) and the
Group does not consider that any impairment provision is required.
The change to a forward-looking ECL approach did therefore not have
any impact on any amount in the financial statements.
d) Hedge accounting
The Group has elected to adopt the new general hedge accounting
model in IFRS 9. However, the changes introduced by IFRS 9 relating
to hedge accounting currently have no impact, as the Group does not
carry out any hedge transactions in 2017 and 2018 or apply hedge
accounting.
ii) IFRS 15 - 'Revenue from contracts with customers'
IFRS 15 - 'Revenue from contracts with customers' and its
related amendments supersede IAS 11 - 'Construction Contracts' and
IAS 18 - 'Revenue' and related Interpretations. It applies to all
revenue arising from contracts with its customers and became
effective for annual periods beginning on or after 1 January 2018.
IFRS 15 establishes a five-step model to account for revenue
arising from contracts with customers. It requires revenue to be
recognised when (or as) control of a good or service transfers to a
customer 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.
IFRS 15 requires entities to exercise judgment, taking into
consideration all of the relevant facts and circumstances when
applying each step of the model to contracts with their customers.
The standard also specifies the accounting for the incremental
costs of obtaining a contract and the costs directly related to
fulfilling a contract. In addition, the standard requires enhanced
and extensive disclosures about revenue to help investors better
understand the nature, amount, timing and uncertainty of revenue
and cash flows from contracts with customers.
The Group adopted IFRS 15 using the modified retrospective
method of adoption and, therefore, has not restated its comparative
information which is prepared using the accounting policies
applicable in the prior year. Modified retrospective adoption of
IFRS 15 does not give rise to any material changes to the
consolidated financial statements for the years ended 31 December
2017 and 2018. The Group has not applied any practical expedients
to effect the transition to IFRS 15.
a) Overall impact
The Group's revenue from contracts with customers comprises two
streams being the sale of gold (contained within gold doré and
refined bullion) and silver bullion to its refiner and sale of gold
and copper concentrates. The Group undertook a comprehensive
analysis of the impact of the new revenue standard based on a
review of the contractual terms of its two revenue streams with the
primary focus being to understand whether the timing and amount of
revenue recognised could differ under IFRS 15. For both of the
Group's revenue streams, the nature and timing of satisfaction of
the performance obligations, and, hence, the amount and timing of
revenue recognised under IFRS 15, is the same as that under IAS
18.
b) Impact on statement of profit or loss and other comprehensive
income
Gold and silver sales to its refiner
There were no changes identified with respect to the timing or
amount of revenue recognition. This was because all of the Group's
gold and silver sold to its refiner are sold under a spot sale
arrangement and the timing between contract inception and the
satisfaction of the performance obligation (being delivery of gold
and silver) is very short, i.e., several days, and the pricing is
determined based on the gold price on the London Metal Exchange at
the date specified in each spot contract.
Gold and copper concentrate (metal in concentrate) sales
There were no changes identified with respect to the timing of
revenue recognition in relation to metal in concentrate, as control
transfers to customers at the date at which the customer takes
delivery of the concentrate at the mine site, which is consistent
with the point in time when risks and rewards passed under IAS
18.
The Group's sales of metal in concentrate to customers contain
terms which allow for price adjustments based on the market price
at the end of a quotational period ("QP") stipulated in the
contract - these are referred to as "provisionally priced
sales".
Under previous accounting standards (IAS 18 and IAS 39),
provisionally priced sales were considered to contain an embedded
derivative ("ED"), which was required to be separated from the host
contract for accounting purposes at the date the customer collected
the metal concentrate from the mine site ("Shipment Date"). Revenue
was initially recognised for these sales at the Shipment Date
(which was when the risks and rewards passed) and was based on the
most recently determined estimate of metal in concentrate (based on
initial assay results) and the estimated forward price which the
entity expected to receive at the end of the QP, determined at the
Shipment Date. Subsequent changes in the fair value of the ED were
recognised in the statement of profit or loss and other
comprehensive income each period until the end of the QP, and were
included within, and presented as, gold and copper concentrate
revenue.
Under IFRS 15, the accounting for this revenue will remain
unchanged in that revenue will be recognised when control passes to
the customer (which will continue to be the Shipment date) and will
be measured at the amount to which the Group expects to be
entitled. This will be the estimate of the price expected to be
received at the end of the QP, i.e., the forward price. It will be
the impact of the requirements of IFRS 9 that will lead to a change
to the Group's accounting (see IFRS 9 note above and accounting
policy 4.12 for further discussion).
While the Group will be able to continue to present such
movements as part of consolidated revenue on the face of the
statement of profit or loss and other comprehensive income, IFRS 15
requires separate disclosure of sales of metal concentrate. This is
because the movements throughout the QP are not within the scope of
IFRS 15, and therefore this revenue is required to be disclosed
separately from revenue from contracts with customers within the
scope of IFRS 15 in the notes to the accounts. The Group already
separately discloses these amounts and will continue to do so and
there will therefore be no change to the disclosures of the Group.
There will be no impact on the net profit or loss of the Group
arising from this change.
3.2) Standards issued but not yet effective
i) IFRS 16 'Leases'
IFRS 16 - 'Leases' 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.
The Group has various operating leases. These are the rental of
light vehicles, industrial and residential land, buildings and
office accommodation and working animals. The total annual rental
of the operating leases is approximately $600,000 per annum of
which the majority is land and buildings and vehicles. The Group
will account for these leases in accordance with IFRS 16 from 1
January 2019. However, the amounts of the leases are not material,
and the change of policy will therefore not result in a material
difference to the Group financial statements or additional
disclosures.
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
2018. 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 reassesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a
subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the
subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in
the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the
subsidiary.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
The financial statements of the subsidiaries are prepared for
the same reporting period as the parent company, using consistent
accounting policies.
4.2) Revenue
The Group is principally engaged in the business of producing
gold and silver bullion and gold and copper concentrate. Revenue
from contracts with customers is recognised when control of the
goods is transferred to the customer at an amount that reflects the
consideration to which the Group expects to be entitled in exchange
for those goods.
The Group has generally concluded that it is the principal in
its revenue contracts because it typically controls the goods
before transferring them to the customer.
i) Contract balances
a) Contract assets
A contract asset is the right to consideration in exchange for
goods transferred to the customer. If the Group performs by
transferring goods to a customer before the customer pays
consideration or before payment is due, a contract asset is
recognised for the earned consideration that is conditional. The
Group does not have any contract assets as performance and a right
to consideration occurs within a short period of time and all
rights to consideration are unconditional.
b) Trade receivables
A trade receivable represents the Group's right to an amount of
consideration that is unconditional (i.e., only the passage of time
is required before payment of the consideration is due). Refer to
accounting policy 4.12 for the accounting policies for financial
assets and accounting policy 4.13 for the accounting policy for
trade receivables.
c) Contract liabilities
A contract liability is the obligation to transfer goods to a
customer for which the Group has received consideration (or an
amount of consideration is due) from the customer. If a customer
pays consideration before the Group transfers goods to the
customer, a contract liability is recognised when the payment is
made or the payment is due (whichever is earlier). Contract
liabilities are recognised as revenue when the Group performs under
the contract.
ii) Gold and silver sales to the refiner
For gold sales, these are sold under spot sales contracts with
the Company's gold refiner. The Group initially sends its unrefined
doré to the refiner. The refiner is contracted by the Company to
perform two separate and distinct functions, to process the doré
into gold and silver bullion and to purchase gold and silver. The
gold contained in the doré may be purchased at two different times
at the discretion of the Company and instruction is given to the
refiner as to the method of sale on a shipment-by-shipment
basis:
-- Upon receipt of the doré. In this circumstance, the refiner
will purchase 90 per cent. of the estimated gold content of the
doré. The balance of the gold will be sold to the refiner as gold
bullion following refining and agreement of final gold content of
the doré with the refiner.
-- Following production of gold bullion by the refining process.
During the refining process ownership (i.e., control of the gold)
does not pass to the refiner, it is simply providing refining
services to the Group.
There is no formal sales agreement for each sale of gold.
Instead, there is a deal confirmation, which sets out the terms of
the sale including the applicable spot price and this is considered
to be the enforceable contract. The only performance obligation is
the sale of gold within the doré or as bullion.
Silver is only sold to the refiner as silver bullion following
the refining process. The process of sale of the silver bullion is
the same as for gold bullion.
Revenue is recognised at a point in time when control passes to
the refiner. As the gold and silver is at this time already on the
premises of the refiner, physical delivery has already taken place
when the sales are made.
With these arrangements, there are no advance payments received
from the refiner, no conditional rights to consideration, i.e., no
contract assets are recognised. A trade receivable is recognised at
the date of sale and there are only several days between
recognition of revenue and payment. The contract is entered into
and the transaction price is determined at outturn by virtue of the
deal confirmation and there are no further adjustments to this
price. Also, given each spot sale represents the enforceable
contract and all performance obligations are satisfied at that
time, there are no remaining performance obligations (unsatisfied
or partially unsatisfied) requiring disclosure. Refer to note 17 -
'Trade and other receivables' for details of payment terms.
iii) Gold and copper in concentrate (metal in concentrate)
sales
For gold and copper in concentrate (metal in concentrate) sales,
the enforceable contract is each purchase order, which is an
individual, short-term contract. The performance obligation is the
delivery of the concentrate to the customer.
The Group's sales of metal in concentrate allow for price
adjustments based on the market price at the end of the relevant
quotational period ("QP") stipulated in the contract. These are
referred to as provisional pricing arrangements and are such that
the selling price for metal in concentrate is based on prevailing
spot prices on a specified future date (or average of future spot
prices over a defined period, usually a week) after shipment to the
customer. Adjustments to the sales price occur based on movements
in quoted market prices up to the end of the QP. The period between
provisional invoicing and the end of the QP can be between one and
four months.
Revenue is recognised when control passes to the customer, which
occurs at a point in time when the metal in concentrate is
physically delivered to the customer at the mine site. The revenue
is measured at the amount to which the Group expects to be
entitled, being the estimate of the price expected to be received
at the end of the QP, i.e., the forward price, and a corresponding
trade receivable is recognised.
For these provisional pricing arrangements, any future change
that occur over the QP is an embedded derivative within the
provisionally priced trade receivables and are, therefore, within
the scope of IFRS 9 and not within the scope of IFRS 15. The Group
does not separately account for the embedded derivative in each
transaction as the short transaction cycle of one to four months
would result in any changes to the Group's financial statements
being immaterial. Any difference between the provisional and final
price is adjusted through revenue from from contracts with
customers. Changes in fair value over, and until the end of, the
QP, are estimated by reference to updated forward market prices for
gold and copper as well as taking into account relevant other fair
value considerations as set out in IFRS 13, including interest rate
and credit risk adjustments. See accounting policy 4.10 for further
discussion on fair value. Refer to note 17 for details of payments
terms for trade receivables.
As noted above, as the enforceable contract for most
arrangements is the purchase order, the transaction price is
determined at the date of each sale (i.e., for each separate
contract) and, therefore, there is no future variability within
scope of IFRS 15 and no further remaining performance obligations
under those contracts.
iv) 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 2018 and 2017.
4.4) Taxation
i) Current and deferred income taxes
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the Group financial statements and the corresponding tax bases
used in the computation of taxable profit and is accounted for
using the balance sheet liability method. Deferred tax liabilities
are generally recognised for all taxable temporary differences and
deferred tax assets are recognised for all deductible temporary
differences, carry forward of unused tax assets and unused tax
losses. Deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences and the carry forward of unused
tax credits and unused tax losses can be utilised.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised, based on tax rates (and tax laws) that have been enacted
or substantively enacted at the reporting date. Deferred tax is
charged or credited in the Group income statement, except when it
relates to items charged or credited directly to equity, in which
case the deferred tax is also dealt with in equity.
Deferred tax assets are not recognised in respect of temporary
differences relating to tax losses where there is insufficient
evidence that the asset will be recovered. Unrecognised deferred
tax assets are reassessed at each reporting date and are recognised
to the extent that it has become probable that future taxable
profits will allow the deferred tax asset to be recovered. Deferred
tax assets and liabilities are classified as non-current assets ans
liabilities.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
Group income statement because it excludes items of income or
expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted at the reporting
date.
The tax expense represents the sum of the tax currently payable
and deferred tax.
ii) Value-added taxes ("VAT")
The Group pays VAT on purchases made in both the Republic of
Azerbaijan and the United Kingdom. Under both jurisdictions, VAT
paid is refundable. Azerbaijani jurisdiction permits offset of an
Azerbaijani VAT credit against other taxes payable to the state
budget.
4.5) Transactions with related parties
For the purposes of these Group financial statements, parties
are considered to be related:
-- where one party has the ability to control the other party or
exercise significant influence over the other party in making
financial or operational decisions;
-- entities under common control; and
-- key management personnel
In considering each possible related party relationship,
attention is directed to the substance of the relationship, not
merely the legal form.
Related parties may enter into transactions which unrelated
parties might not and transactions between related parties may not
be effected on the same terms, conditions and amounts as
transactions between unrelated parties.
It is the nature of transactions with related parties that they
cannot be presumed to be carried out on an arm's length basis.
4.6) Borrowing costs
Borrowing costs directly relating to the acquisition,
construction or production of a qualifying capital project under
construction are capitalised and added to the project cost during
construction until such time the assets are considered
substantially ready for their intended use i.e. when they are
capable of commercial production. Where funds are borrowed
specifically to finance a project, the amount capitalised
represents the actual borrowing costs incurred. Where surplus funds
are available for a short term out of money borrowed specifically
to finance a project, the income generated from the temporary
investment of such amounts is also capitalised and deducted from
the total capitalised borrowing cost. Where the funds used to
finance a project form part of general borrowings, the amount
capitalised is calculated using a weighted average of rates
applicable to relevant general borrowings of the Group during the
period. All other borrowing costs are recognised in the Group
income statement in the period in which they are incurred.
Even though exploration and evaluation assets can be qualifying
assets, they generally do not meet the 'probable economic benefits'
test. Any related borrowing costs are therefore generally
recognised in the Group income statement in the period they are
incurred.
4.7) Intangible assets
i) Exploration and evaluation assets
The costs of exploration properties and leases, which include
the cost of acquiring prospective properties and exploration rights
and costs incurred in exploration and evaluation activities, are
capitalised as intangible assets as part of exploration and
evaluation assets.
Exploration and evaluation assets are carried forward during the
exploration and evaluation stage and are assessed for impairment in
accordance with the indicators of impairment as set out in IFRS 6 -
'Exploration for and Evaluation of Mineral Resources'.
In circumstances where a property is abandoned, the cumulative
capitalised costs relating to the property are written off in the
period. No amortisation is charged prior to the commencement of
production.
Once commercially viable reserves are established and
development is sanctioned, exploration and evaluation assets are
transferred to assets under construction.
Upon transfer of Exploration and evaluation costs into Assets
under construction, all subsequent expenditure on the construction,
installation or completion of infrastructure facilities is
capitalised within Assets under construction.
When commercial production commences, exploration, evaluation
and development costs previously capitalised are amortised over the
commercial reserves of the mining property on a units-of-production
basis.
Exploration and evaluation costs incurred after commercial
production start date in relation to evaluation of potential
mineral reserves and resources that are expected to result in
increase of reserves are capitalised as Evaluation and exploration
assets within intangible assets. Once there is evidence that
reserves are increased, such costs are tested for impairment and
transferred to Producing mines.
ii) Mining rights
Mining rights are carried at cost to the Group less any
provisions for impairments which result from evaluations and
assessments of potential mineral recoveries and accumulated
depletion. Mining rights are depleted on the units-of-production
basis over the total reserves of the relevant area.
iii) Other intangible assets
Other intangible assets mainly represent the cost paid to
landowners for the use of land ancillary to our mining operations.
They are depreciated over the respective terms of right to use the
land.
Intangible assets with finite lives are amortised over the
useful economic life and assessed for impairment whenever there is
an indication that the intangible asset may be impaired. The
amortisation period and the amortisation method for an intangible
asset with a finite useful life is reviewed at least at each
reporting date. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the
asset are accounted for by changing the amortisation period or
method, as appropriate, and are treated as changes in accounting
estimates. The amortisation expense on intangible assets with
finite lives is recognised in the Group income statement in the
expense category consistent with the function of the intangible
asset.
Gains or losses arising from derecognition of an intangible
asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognised in
the Group income statement when the asset is derecognised.
4.8) Property, plant and equipment and mine properties
Development expenditure is net of proceeds from all but the
incidental sale of ore extracted during the development phase.
Upon completion of mine construction, the assets initially
charged to assets in the course of construction are transferred
into 'Plant and equipment, motor vehicles and leasehold
improvements' or 'Producing mines'. Items of 'Plant and equipment,
motor vehicles and leasehold improvements' and 'Producing mines'
are stated at cost, less accumulated depreciation and accumulated
impairment losses.
During the production period expenditures directly attributable
to the construction of each individual asset are capitalised as
'Assets' in the course of construction up to the period when asset
is ready to be put into operation. When an asset is put into
operation it is transferred to 'Plant and equipment, motor vehicles
and leasehold improvements' or 'Producing mines'. Additional
capitalised costs performed subsequent to the date of commencement
of operation of the asset are charged directly to 'Plant and
equipment, motor vehicles and leasehold improvements' or 'Producing
mines', i.e. where the asset itself was transferred.
The initial cost of an asset comprises its purchase price or
construction cost, any costs directly attributable to bringing the
asset into operation, the initial estimate of the rehabilitation
obligation and, for qualifying assets, borrowing costs. The
purchase price or construction cost is the aggregate amount paid
and the fair value of any other consideration given to acquire the
asset.
When a mine construction project moves into the production
stage, the capitalisation of certain mine construction costs ceases
and costs are either regarded as inventory or expensed, except for
costs which qualify for capitalisation relating to mining asset
additions or improvements, underground mine development or mineable
reserve development.
i) Depreciation and amortisation
Accumulated mine development costs within producing mines are
depreciated and amortised on a units-of-production basis over the
economically recoverable reserves of the mine concerned, except in
the case of assets whose useful life is shorter than the life of
the mine, in which case the straight line method is applied. The
unit of account for run of mine ("ROM") costs and for post-ROM
costs is recoverable ounces of gold. The units-of-production rate
for the depreciation and amortisation of mine development costs
takes into account expenditures incurred to date.
The premium paid in excess of the intrinsic value of land to
gain access is amortised over the life of the mine on a
units-of-production basis.
Other plant and equipment such as mobile mine equipment is
generally depreciated on a straight line basis over their estimated
useful lives as follows:
-- Temporary buildings - eight years (2017: eight years)
-- Plant and equipment - eight years (2017: eight years)
-- Motor vehicles - four years (2017: four years)
-- Office equipment - four years (2017: four years)
-- Leasehold improvements - eight years (2017: eight years)
An item of property, plant and equipment, and any significant
part initially recognised, is derecognised upon disposal or when no
future economic benefits are expected from its use or disposal. Any
gain or loss arising on derecognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the Group income statement when
the asset is derecognised.
The asset's residual values, useful lives and methods of
depreciation and amortisation are reviewed at each reporting date
and adjusted prospectively if appropriate.
ii) Major maintenance and repairs
Expenditure on major maintenance refits or repairs comprises the
cost of replacement assets or parts of assets and overhaul costs.
Where an asset or part of an asset that was separately depreciated
and is now written off is replaced, and it is probable that future
economic benefits associated with the item will flow to the Group
through an extended life, the expenditure is capitalised.
Where part of the asset was not separately considered as a
component, the replacement value is used to estimate the carrying
amount of the replaced assets which is immediately written off. All
other day-to-day maintenance costs are expensed as incurred.
4.9) Impairment of tangible and intangible assets
The Group conducts annual internal assessments of the carrying
values of tangible and intangible assets. The carrying values of
capitalised exploration and evaluation expenditure, mine properties
and property, plant and equipment are assessed for impairment when
indicators of such impairment exist or at least annually. In such
cases an estimate of the asset's recoverable amount is calculated.
The recoverable amount is determined as the higher of the fair
value less costs to sell for the asset and the asset's value in
use. This is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of
those from other assets or groups of assets. If this is the case,
the individual assets are grouped together into cash-generating
units ("CGUs") for impairment purposes. Such CGUs represent the
lowest level for which there are separately identifiable cash
inflows that are largely independent of the cash flows from other
assets or other groups of assets. This generally results in the
Group evaluating its non--financial assets on a geographical or
licence basis.
If the carrying amount of the asset exceeds its recoverable
amount, the asset is impaired and an impairment loss is charged to
the Group income statement so as to reduce the carrying amount to
its recoverable amount (i.e. the higher of fair value less cost to
sell and value in use).
Impairment losses related to continuing operations are
recognised in the Group income statement in those expense
categories consistent with the function of the impaired asset.
For assets excluding the intangibles referred to above, an
assessment is made at each reporting date as to whether there is
any indication that previously recognised impairment losses may no
longer exist or may have decreased. If such indication exists, the
Group makes an estimate of the recoverable amount.
A previously recognised impairment loss is reversed only if
there has been a change in the estimates used to determine the
asset's recoverable amount since the last impairment loss was
recognised. If this is the case, the carrying amount of the asset
is increased to its recoverable amount. The increased amount cannot
exceed the carrying amount that would have been determined, net of
depreciation or amortisation, had no impairment loss been
recognised for the asset in prior years. Such reversal is
recognised in the consolidated statement of other comprehensive
income. Impairment losses recognised in relation to indefinite life
intangibles are not reversed for subsequent increases in its
recoverable amount.
4.10) Fair value measurement
The Group measures financial instruments such as bank borrowings
at fair value at each balance sheet date. Fair value disclosures
for financial instruments measured at fair value, or where fair
value is disclosed, are summarised in the following notes:
-- Note 17 - 'Trade and other receivables'
-- Note 19 - 'Cash and cash equivalents'
-- Note 20 - 'Trade and other payables'; and
-- 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, at initial recognition, and
subsequently measured at amortised cost, fair value through other
comprehensive income ("OCI"), or fair value through profit or
loss.
The classification of financial assets at initial recognition
that are debt instruments depends on the financial asset's
contractual cash flow characteristics and the Group's business
model for managing them. With the exception of trade receivables
that do not contain a significant financing component or for which
the Group has applied the practical expedient, the Group initially
measures a financial asset at its fair value plus, in the case of a
financial asset not at fair value through profit or loss,
transaction costs. Trade receivables that do not contain a
significant financing component or for which the Group has applied
the practical expedient for contracts that have a maturity of one
year or less, are measured at the transaction price determined
under IFRS 15. Refer to the accounting policy 4.2 - 'Revenue from
contracts with customers'
In order for a financial asset to be classified and measured at
amortised cost or fair value through OCI, it needs to give rise to
cash flows that are 'solely payments of principal and interest
("SPPI") on the principal amount outstanding. This assessment is
referred to as the SPPI test and is performed at an instrument
level.
The Group's business model for managing financial assets refers
to how it manages its financial assets in order to generate cash
flows. The business model determines whether cash flows will result
from collecting contractual cash flows, selling the financial
assets, or both.
Purchases or sales of financial assets that require delivery of
assets within a time frame established by regulation or convention
in the market place (regular way trades) are recognised on the
trade date, i.e., the date that the Group commits to purchase or
sell the asset.
ii) Subsequent measurement
For purposes of subsequent measurement, financial assets are
classified in four categories:
-- Financial assets at amortised cost (debt instruments).
-- Financial assets at fair value through OCI with recycling of
cumulative gains and losses (debt instruments).
-- Financial assets designated at fair value through OCI with no
recycling of cumulative gains and losses upon derecognition (equity
instruments).
-- Financial assets at fair value through profit or loss.
iii) Financial assets at amortised cost (debt instruments)
This category is the most relevant to the Group. The Group
measures financial assets at amortised cost if both of the
following conditions are met:
-- The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows; and
-- The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured
using the effective interest rate ("EIR") method and are subject to
impairment. Interest received is recognised as part of finance
income in the statement of profit or loss and other comprehensive
income. Gains and losses are recognised in profit or loss when the
asset is derecognised, modified or impaired.
The Group's financial assets at amortised cost include trade
receivables (not subject to provisional pricing) and other
receivables. Refer below to 'Financial assets at fair value through
profit or loss' for a discussion of trade receivables (subject to
provisional pricing).
iv) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include
financial assets held for trading, e.g., derivative instruments,
financial assets designated upon initial recognition at fair value
through profit or loss, e.g., debt or equity instruments, or
financial assets mandatorily required to be measured at fair value,
i.e., where they fail the SPPI test. Financial assets are
classified as held for trading if they are acquired for the purpose
of selling or repurchasing in the near term. Derivatives, including
separated embedded derivatives, are also classified as held for
trading unless they are designated as effective hedging
instruments. Financial assets with cash flows that do not pass the
SPPI test are required to be classified and measured at fair value
through profit or loss, irrespective of the business model.
Notwithstanding the criteria for debt instruments to be classified
at amortised cost or at fair value through OCI, as described above,
debt instruments may be designated at fair value through profit or
loss on initial recognition if doing so eliminates, or
significantly reduces, an accounting mismatch.
Financial assets at fair value through profit or loss are
carried in the statement of financial position at fair value with
net changes in fair value recognised in the profit or loss
account.
A derivative embedded in a hybrid contract with a financial
liability or non-financial host, is separated from the host and
accounted for as a separate derivative if: the economic
characteristics and risks are not closely related to the host; a
separate instrument with the same terms as the embedded derivative
would meet the definition of a derivative; and the hybrid contract
is not measured at fair value through profit or loss. Embedded
derivatives are measured at fair value with changes in fair value
recognised in profit or loss. Reassessment only occurs if there is
either a change in the terms of the contract that significantly
modifies the cash flows that would otherwise be required or a
reclassification of a financial asset out of the fair value through
profit or loss category.
As IFRS 9 now has the SPPI test for financial assets, the
requirements relating to the separation of embedded derivatives is
no longer needed for financial assets. An embedded derivative will
often make a financial asset fail the SPPI test thereby requiring
the instrument to be measured at fair value through profit or loss
in its entirety. This is applicable to the Group's trade
receivables (subject to provisional pricing). These receivables
relate to sales contracts where the selling price is determined
after delivery to the customer, based on the market price at the
relevant QP stipulated in the contract. This exposure to the
commodity price causes such trade receivables to fail the SPPI
test. As a result, these receivables are measured at fair value
through profit or loss from the date of recognition of the
corresponding sale, with subsequent movements being recognised in
'fair value gains/losses on provisionally priced trade receivables'
in the statement of profit or loss and other comprehensive
income.
The Group does not currently account separately for embedded
derivatives in its trade receivables subject to provisional
pricing. The short one to four month transaction cycle would result
in any change to the Group's financial statements being immaterial.
Any adjustment to the trade receivable subsequent to initial
recording is adjusted through revenue.
v) Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is primarily
derecognised (i.e., removed from the Group's consolidated statement
of financial position) when:
-- The rights to receive cash flows from the asset have expired; or
-- 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.
When the Group has transferred its rights to receive cash flows
from an asset or has entered into a pass-through arrangement, it
evaluates if, and to what extent, it has retained the risks and
rewards of ownership. When it has neither transferred nor retained
substantially all of the risks and rewards of the asset, nor
transferred control of the asset, the Group continues to recognise
the transferred asset to the extent of its continuing involvement.
In that case, the Group also recognises an associated liability.
The transferred asset and the associated liability are measured on
a basis that reflects the rights and obligations that the Group has
retained.
Continuing involvement that takes the form of a guarantee over
the transferred asset is measured at the lower of the original
carrying amount of the asset and the maximum amount of
consideration that the Group could be required to repay.
vi) Impairment of financial assets
Further disclosures relating to impairment of financial assets
are also provided in the following notes:
-- Disclosure of significant assumptions: accounting policy 4.20
-- Trade and other receivables: accounting policy 4.13 and note
17
The Group recognises an allowance for expected credit loss
("ECL") for all debt instruments not held at fair value through
profit or loss. ECLs are based on the difference between the
contractual cash flows due in accordance with the contract and all
the cash flows that the Group expects to receive, discounted at an
approximation of the original EIR. The expected cash flows will
include cash flows from the sale of collateral held or other credit
enhancements that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for
which there has not been a significant increase in credit risk
since initial recognition, ECLs are provided for credit losses that
result from default events that are possible within the next
12-months (a 12-month ECL). For those credit exposures for which
there has been a significant increase in credit risk since initial
recognition, a loss allowance is required for credit losses
expected over the remaining life of the exposure, irrespective of
the timing of the default (a lifetime ECL).
For trade receivables (not subject to provisional pricing) and
other receivables due in less than 12 months, the Group applies the
simplified approach in calculating ECLs, as permitted by IFRS 9.
Therefore, the Group does not track changes in credit risk, but
instead, recognises a loss allowance based on the financial asset's
lifetime ECL at each reporting date. For any other financial assets
carried at amortised cost (which are due in more than 12 months),
the ECL is based on the 12-month ECL. The 12-month ECL is the
proportion of lifetime ECLs that results from default events on a
financial instrument that are possible within 12 months after the
reporting date. However, when there has been a significant increase
in credit risk since origination, the allowance will be based on
the lifetime ECL. When determining whether the credit risk of a
financial asset has increased significantly since initial
recognition and when estimating ECLs, the Group considers
reasonable and supportable information that is relevant and
available without undue cost or effort. This includes both
quantitative and qualitative information and analysis, based on the
Group's historical experience and informed credit
assessment including forward-looking information.
The Group considers a financial asset in default when
contractual payments are 90 days past due. However, in certain
cases, the Group may also consider a financial asset to be in
default when internal or external information indicates that the
Group is unlikely to receive the outstanding contractual amounts in
full before taking into account any credit enhancements held by the
Group. A financial asset is written off when there is no reasonable
expectation of recovering the contractual cash flows and usually
occurs when past due for more than one year and not subject to
enforcement activity.
At each reporting date, the Group assesses whether financial
assets carried at amortised cost are credit- impaired. A financial
asset is credit-impaired when one or more events that have a
detrimental impact on the estimated future cash flows of the
financial asset have occurred.
b) Financial liabilities
1) Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans
and borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value
and, in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
The Group's financial liabilities include trade and other
payables and loans and borrowings including bank overdrafts.
ii) Subsequent measurement
The measurement of financial liabilities depends on their
classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss
include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair value
through profit or loss.
Financial liabilities are classified as held for trading if they
are incurred for the purpose of repurchasing in the near term. This
category also includes derivative financial instruments entered
into by the Group that are not designated as hedging instruments in
hedge relationships as defined by IFRS 9. Separated embedded
derivatives are also classified as held for trading unless they are
designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised
in the statement of profit or loss and other comprehensive
income.
Loans and borrowings and trade and other payables
After initial recognition, interest-bearing loans and borrowings
and trade and other payables are subsequently measured at amortised
cost using the EIR method. Gains and losses are recognised in the
statement of profit or loss and other comprehensive income when the
liabilities are derecognised, as well as through the EIR
amortisation process.
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 EIR. The EIR amortisation is included as finance costs
in the statement of profit or loss and other comprehensive
income.
This category generally applies to interest-bearing loans and
borrowings and trade and other payables
iii) Derecognition of financial liabilities
A financial liability is derecognised when the associated
obligation 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 the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in profit or loss and
other comprehensive income.
c) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the
net amount is reported in the consolidated statement of financial
position if there is a currently enforceable legal right to offset
the recognised amounts and there is an intention to settle on a net
basis, to realise the assets and settle the liabilities
simultaneously.
d) Cash and cash equivalents
Cash and cash equivalents in the statement of financial position
comprise cash at banks and on hand and short- term deposits with an
original maturity of three months or less, but exclude any
restricted cash. Restricted cash is not available for use by the
Group and therefore is not considered highly liquid, for example,
cash set aside to cover rehabilitation obligations.
For the purpose of the consolidated statement of cash flows,
cash and cash equivalents consist of cash and short- term deposits
as defined above, net of outstanding bank overdrafts.
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
accounted for as part of the cost of producing those
inventories.
Where production stripping activity both produces inventory and
improves access to ore in future periods the associated costs of
waste removal are allocated between the two elements. The portion
which benefits future ore extraction is capitalised within
stripping and development capital expenditure. If the amount to be
capitalised cannot be specifically identified it is determined
based on the volume of waste extracted compared with expected
volume for the identified component of the orebody. Components are
specific volumes of a mine's orebody that are determined by
reference to the life of mine plan.
In certain instances significant levels of waste removal may
occur during the production phase with little or no associated
production.
All amounts capitalised in respect of waste removal are
depreciated using the unit of production method based on the ore
reserves of the component of the orebody to which they relate.
The effects of changes to the life of mine plan on the expected
cost of waste removal or remaining reserves for a component are
accounted for prospectively as a change in estimate.
4.17) Employee leave benefits
Liabilities for wages and salaries, including non-monetary
benefits and accrued but unused annual leave, are recognised in
respect of employees' services up to the reporting date. They are
measured at the amounts expected to be paid when the liabilities
are settled.
4.18) Retirement benefit costs
The Group does not operate a pension scheme for the benefit of
its employees but instead makes contributions to their personal
pension policies. The contributions due for the period are charged
to the Group income statement.
4.19) Share-based payments
The Group has applied the requirements of IFRS 2 - 'Share-based
Payment'. IFRS 2 has been applied to all grants of equity
instruments.
The Group issues equity-settled share-based payments to certain
employees. Equity-settled share-based payments are measured at fair
value (excluding the effect of non market-based vesting conditions)
at the date of grant. The fair value determined at the grant date
of the equity-settled share-based payments is expensed on a
straight line basis over the vesting period, based on the Group's
estimate of shares that will eventually vest and adjusted for the
effect of non market-based vesting conditions.
Fair value is measured by use of the Black-Scholes model. The
expected life used in the model has been applied based on
management's best-estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations. The vesting
conditions assumptions are reviewed during each reporting period to
ensure they reflect current expectations.
4.20) Significant accounting judgements
The preparation of the Group financial statements in conformity
with IFRS requires management to make judgements that affect the
reported amounts of assets, liabilities and contingent liabilities
at the date of the Group financial statements and reported amounts
of revenues and expenses during the reporting period.
4.20i) Recovery of deferred tax assets (note 12)
Judgement is required in determining whether deferred tax assets
are recognised within the Group statement of financial position.
Deferred tax assets, including those arising from unutilised tax
losses, require management to assess the likelihood that the Group
will generate taxable earnings in future periods, in order to
utilise recognised deferred tax assets. Estimates of future taxable
income are based on forecast cash flows from operations and the
application of existing tax laws in each jurisdiction. To the
extent that future cash flows and taxable income differ
significantly from estimates, the ability of the Group to realise
the net deferred tax assets recorded at the reporting date could be
impacted.
4.20ii) Exploration and evaluation expenditure (note 14)
The application of the Group's accounting policy for exploration
and evaluation expenditure requires judgement in determining
whether it is likely that future economic benefits are likely from
future exploitation. If information becomes available suggesting
that the recovery of expenditure is unlikely, the amount
capitalised is written off in the consolidated statement of profit
or loss in the period when the new information becomes
available.
4.20iii) Impairment of intangible and tangible assets (notes 14
and 15)
The assessment of tangible and intangible assets for any
internal and external indications of impairment involves judgement.
Each reporting period, the Group assesses whether there are
indicators of impairment, if indicated then a formal estimate of
the recoverable amount is performed and an impairment loss
recognised to the extent that the carrying amount exceeds
recoverable amount. Recoverable amount is determined as the higher
of fair value less cost to dispose ("FVLCD") 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 FVLCD calculation requires the
entity to estimate the future cash flows expected to arise from the
projects and a suitable discount rate in order to calculate present
value.
4.20iv) Production start date (note 15)
The Group assesses the stage of each mine under construction to
determine when a mine moves into the production stage. The criteria
used to assess the start date are determined based on the unique
nature of each mine construction project, such as the complexity of
a plant and its location. The Group considers various relevant
criteria to assess when the mine is substantially complete, ready
for its intended use and is reclassified from Assets under
construction to Producing mines and Property, plant and equipment.
Some of the criteria will include, but are not limited to, the
following:
-- the level of capital expenditure compared to the construction cost estimates;
-- completion of a reasonable period of testing of the mine plant and equipment;
-- ability to produce metal in saleable form (within specifications); and
-- ability to sustain ongoing production of metal.
When a mine construction project moves into the production
stage, the capitalisation of certain mine construction costs ceases
and costs are either regarded as inventory or expensed, except for
costs that qualify for capitalisation relating to mining asset
additions or improvements, underground mine development or mineable
reserve development. This is also the point at which the
depreciation/amortisation recognition commences.
4.20v) Renewal of Production Sharing Agreement ("PSA") (note
29)
The Group operates its mines and processing facilities on
contract areas licenced under a PSA with the Government of
Azerbaijan. The majority of the Group's fixed assets, including its
processing facilities and its main producing mines, are located on
the Gedabek contract area which has a mining licence expiring in
March 2022. The Group depreciates each tangible fixed asset over
its estimated useful life regardless of whether or not the end of
its useful life is later than March 2022. There is an option to
extend the Gedabek licence for a further ten years conditional upon
satisfaction of certain requirements stipulated in the PSA. The
directors have judged that the requirements to renew the licence
for a further 10 years will be satisfied and therefore it is valid
to depreciate assets over useful lives which end later than the end
date of the current Gedabek licence.
4.21) Significant accounting estimates
The preparation of the Group financial statements in conformity
with IFRS requires management to make estimates that affect the
reported amounts of assets, liabilities and contingent liabilities
at the date of the Group financial statements and reported amounts
of revenues and expenses during the reporting period. Estimates are
continuously evaluated and are based on management's experience and
other factors, including expectations of future events that are
believed to be reasonable under the circumstances. However, actual
outcomes can differ from these estimates. In particular,
information about significant areas of estimation uncertainty
considered by management in preparing the Group financial
statements is described below.
4.21i) Impairment of intangible and tangible assets (notes 14
and 15)
Once an intangible or tangible asset has been judged as
impaired, an estimate is made of its recoverable amount.
Recoverable amount is determined as the higher of fair value less
costs to sell and value in use. Determining whether the projects
are impaired requires an estimation of the recoverable value of the
individual areas to which value has been ascribed. The value in use
calculation requires the entity to estimate the future cash flows
expected to arise from the projects and a suitable discount rate in
order to calculate present value.
4.21ii) Ore reserves and resources (notes 14 and 15)
Ore reserves are estimates of the amount of ore that can be
economically and legally extracted from the Group's mining
properties. The Group estimates its ore reserves and mineral
resources, based on information compiled by appropriately qualified
persons relating to the geological data on the size, depth and
shape of the ore body and requires complex geological judgements to
interpret the data. The estimation of recoverable reserves is based
upon factors such as estimates of foreign exchange rates, commodity
prices, future capital requirements and production costs along with
geological assumptions and judgements made in estimating the size
and grade of the ore body. Changes in the reserve or resource
estimates may impact upon the carrying value of exploration and
evaluation assets, mine properties, property, plant and equipment,
provision for rehabilitation and depreciation and amortisation
charges.
4.21iii) Inventory (note 18)
Net realisable value tests are performed at least annually and
represent the estimated future sales price of the product based on
prevailing spot metals prices at the reporting date, less estimated
costs to complete production and bring the product to sale.
Stockpiles are measured by estimating the number of tonnes added
and removed from the stockpile, the number of contained gold ounces
based on assay data and the estimated recovery percentage based on
the expected processing method. Stockpile tonnages are verified by
periodic surveys. The ounces of gold sold are compared to the
remaining reserves of gold for the purpose of charging inventory
costs to operations.
4.21iv) Mine rehabilitation provision (note 23)
The Group assesses its mine rehabilitation provision annually.
Significant estimates and assumptions are made in determining the
provision for mine rehabilitation as there are numerous factors
that will affect the ultimate liability payable. These factors
include estimates of the extent and costs of rehabilitation
activities, technological changes, regulatory changes and changes
in discount rates. Those uncertainties may result in future actual
expenditure differing from the amounts currently provided. The
provision at the reporting date represents management's best
estimate of the present value of the future rehabilitation costs
required. Changes to estimated future costs are recognised in the
Group statement of financial position by either increasing or
decreasing the rehabilitation liability and rehabilitation asset if
the initial estimate was originally recognised as part of an asset
measured in accordance with IAS 16 'Property, Plant and Equipment'.
Expenditure on mine rehabilitation is expected to take place
between 2023 and 2025.
.
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.
6 Revenue
The Group's revenue consists of sales to third parties of:
-- gold contained within doré and gold and silver bullion to the Group's refiner; and
-- gold and copper concentrate.
2018 2017
$000 $000
---------------------------------------- ------- -------
Gold within doré and gold bullion 75,078 55,099
Silver bullion 403 311
Gold and copper concentrate 14,873 16,396
---------------------------------------- ------- -------
90,354 71,806
---------------------------------------- ------- -------
All revenue from sales of gold within doré and gold and silver
bullion and gold and copper concentrate is recognised at the time
when control passes to the customer.
The majority of sales of gold within doré and gold and silver
bullion were made to one customer, the Group's gold refiner. MKS
Finance S.A., based in Switzerland. One trial shipment of gold doré
was made to a second refiner in 2018 but the sale amount was
immaterial.
The gold and copper concentrate was sold in 2018 to Industrial
Minerals SA and Trafigura PTE Ltd. (2017: Industrial Minerals
SA).
7 Other income and operating expenses
Other income
2018 2017
$000 $000
--------------------------------------------- ------ ------
Interest receivable 5 13
Recovery of advances previously written off - 175
Provisions no longer required 63 396
--------------------------------------------- ------ ------
68 584
--------------------------------------------- ------ ------
Other operating expenses
2018 2017
$000 $000
------------------------------------ ------ ------
Transportation and refining costs 647 754
Foreign exchange loss 704 484
Advances and inventory written off 217 360
Disposal of obsolete equipment 209 -
------------------------------------ ------ ------
1,777 1,598
------------------------------------ ------ ------
8 Operating profit
2018 2017
Notes $000 $000
----------------------------------------------- ------ ---------------------- ----------------------
Operating profit is stated after charging:
Depreciation on property, plant and equipment
- owned 15 20,957 21,008
Amortisation of mining rights and other
intangible assets 14 1,990 1,778
Employee benefits and expenses 10 8,708 7,305
Foreign currency exchange net loss 704 484
Inventory expensed during the year 19,270 21,502
Operating lease expenses 1,058 591
----------------------------------------------- ------ ---------------------- ----------------------
Fees payable to the Company's auditor
for:
The audit of the Group's annual accounts 135 135
The audit of the Group's subsidiaries
pursuant to legislation 119 119
Audit related assurance services - half
year review 2 2
Total audit services 256 256
----------------------------------------------- ------ ---------------------- ----------------------
Amounts paid to auditor for other services:
Tax compliance services 13 14
Tax advice regarding dividend and share 39 -
premium reduction
Total non-audit services 52 14
----------------------------------------------- ------ ---------------------- ----------------------
Total 308 270
----------------------------------------------- ------ ---------------------- ----------------------
There were no non-cancellable operating lease and no sublease
arrangements during 2018 and 2017.
The audit fees for the parent company were $107,000 (2017:
$107,000).
9 Remuneration of the directors
Consultancy Fees Benefits Total
Year ended 31 December 2018 $ $ $ $
----------------------------- ------------ -------- --------- --------
John Monhemius 10,329 53,183 - 63,512
Richard Round - 53,183 - 53,183
John Sununu - 78,224 - 78,224
Reza Vaziri 576,913 53,183 33,095 663,191
Khosrow Zamani - 130,906 - 130,906
----------------------------- ------------ -------- --------- --------
587,242 368,679 33,095 989,016
----------------------------- ------------ -------- --------- --------
Consultancy Fees Benefits Total
Year ended 31 December 2017 $ $ $ $
----------------------------- ------------ -------- --------- --------
John Monhemius 13,750 51,970 - 65,720
Richard Round - 51,970 - 51,970
John Sununu - 76,342 - 76,342
Reza Vaziri 578,126 51,970 32,471 662,567
Khosrow Zamani - 127,761 - 127,761
----------------------------- ------------ -------- --------- --------
591,876 360,013 32,471 984,360
----------------------------- ------------ -------- --------- --------
Directors' fees and consultancy fees for 2017 and 2018 were paid
in cash.
No director held or exercised any share options during the year
ended 31 December 2018
10 Staff numbers and costs
The average number of staff employed by the Group (including
directors) during the year, analysed by category, was as
follows:
2018 2017
------------------------------- ----- -----
Management and administration 47 49
Exploration 42 19
Mine operations 656 626
------------------------------- ----- -----
745 694
------------------------------- ----- -----
The aggregate payroll costs of these persons were as
follows:
2018 2017
$000 $000
---------------------------------- ------ ------
Wages and salaries 7,559 6,043
Share-based payments - 13
Social security costs 1,580 1,249
Costs capitalised as exploration (431) -
---------------------------------- ------ ------
8,708 7,305
---------------------------------- ------ ------
Remuneration of key management personnel
The remuneration of the key management personnel of the Group,
is set out below in aggregate:
2018 2017
$ $
------------------------------ ---------- ----------
Short-term employee benefits 1,943,329 1,861,343
Share-based payment - 13,399
------------------------------ ---------- ----------
1,943,329 1,874,742
------------------------------ ---------- ----------
The key management personnel of the Group comprise the chief
executive officer, the vice president of government affairs, the
senior vice president, Azerbaijan International Mining Company
Limited, the vice president of technical services, the director of
geology and the chief financial officer. The remuneration of the
directors as required by the Companies Act 2006 is given in note 9
above.
11 Finance costs
2018 2017
$000 $000
-------------------------------------------- ------ ------
Interest charged on interest-bearing loans
and borrowings 1,150 3,043
Finance charges on letters of credit 3 33
Unwinding of discount on provisions 489 462
-------------------------------------------- ------ ------
1,642 3,538
-------------------------------------------- ------ ------
Interest on interest-bearing loans and borrowings represents
charges on those credit facilities as set out in note 21 -
"Interest-bearing loans and borrowings" 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 2018, $nil (2017: $nil)
interest was capitalised.
12 Taxation
Corporation tax is calculated at 32 per cent. (as stipulated in
the production sharing agreement for R.V. Investment Group Services
LLC ("RVIG") in the Republic of Azerbaijan, the entity that
contributes the most significant portion of profit before tax in
the Group financial statements) of the estimated assessable profit
or loss for the year. Taxation for other jurisdictions is
calculated at the rates prevailing in the respective jurisdictions.
Deferred income taxes arising in RVIG are recognised and fully
disclosed in these Group financial statements. RVIG's unutilised
tax losses at 31 December 2018 were $nil (2017: $4,697,000).
The major components of the income tax charge for the year ended
31 December are:
2018 2017
$000 $000
--------------------------------------------- ------ ------
Current income tax
Current income tax charge 7,288 -
Deferred tax
Charge relating to origination and reversal
of temporary differences 1,623 3,164
--------------------------------------------- ------ ------
Income tax charge for the year 8,911 3,164
--------------------------------------------- ------ ------
Deferred income tax at 31 December relates to the following:
Statement
of financial
position Income statement
-------------------- -----------------------
2018 2017 2018 2017
$000 $000 $000 $000
------------------------------- --------- --------- ----------- ----------
Deferred income tax liability
Property, plant and equipment
- accelerated depreciation (18,165) (17,834) (331) 1,619
Non-current prepayments (139) (280) 141 67
Trade and other receivables (1,280) (796) (484) 670
Inventories (9,493) (9,435) (58) 12
------------------------------- --------- ---------
Deferred tax liability (29,077) (28,345)
------------------------------- --------- ---------
Deferred income tax asset
Trade and other payables
and provisions * 3,171 2,367 804 (1,122)
Asset retirement obligation
* 2,889 3,081 (192) 68
Interest bearing loans and
borrowings * - - - 151
Carry forward losses ** - 1,503 (1,503) (4,629)
------------------------------- --------- --------- ----------- ----------
Deferred tax asset 6,060 6,951
------------------------------- --------- ---------
Deferred income tax
charge (1 ,623) (3,164)
------------------------------- --------- --------- ----------- ----------
Net deferred tax liability (23,017) (21,394)
------------------------------- --------- --------- ----------- ----------
* Deferred income tax assets have been recognised for the trade
and other payables and provisions, asset retirement obligation and
interest-bearing loans and borrowings based on local tax basis
differences expected to be utilised against future taxable
profits.
** Deferred income tax assets have been recognised for the carry
forward of unused tax losses to the extent that it is probable that
taxable profits will be available in the future against which the
unused tax losses can be utilised. The probability that taxable
profits will be available in the future is based on forward looking
budgets and business plans of the Group.
A reconciliation between the accounting profit and the total
taxation charge for the year ended 31 December is as follows:
2018 2017
$000 $000
---------------------------------------------- ------- ------
Profit before tax 25,246 5,684
---------------------------------------------- ------- ------
Theoretical tax charge at statutory rate
of 32 per cent. for RVIG* 8,079 1,819
Effects of different tax rates for certain
Group entities (20 per cent.) 161 164
Tax effect of items which are not deductible
or assessable for taxation purposes:
- losses in jurisdictions that are exempt
from taxation - 1
- non-deductible expenses 732 1,231
- non-taxable income (61) (51)
---------------------------------------------- ------- ------
Income tax charge for the year 8,911 3,164
---------------------------------------------- ------- ------
* This is the tax rate stipulated in RVIG's production sharing
agreement.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised.
Deferred tax assets and liabilities have been offset for
deferred taxes recognised for RVIG since there is a legally
enforceable right to set off current tax assets against current tax
liabilities and they relate to income taxes levied by the same
taxation authority. The Group intends to settle its current tax
assets and liabilities on a net basis in the Republic of
Azerbaijan.
At 31 December 2018, the Group had unused tax losses available
for offset against future profits of $18,648,000 (2017:
$22,032,000). Unused tax losses in the Republic of Azerbaijan at 31
December 2018 were $nil (2017: $4,697,000). No deferred tax assets
have been recognised in respect of jurisdictions other than the
Republic of Azerbaijan due to the uncertainty of future profit
streams.
13 Profit per share
The calculation of basic and diluted profit per share is based
upon the retained profit for the financial year of $16,335,000
(2017: $2,520,000).
The weighted average number of ordinary shares for calculating
the basic profit and diluted profit per share after adjusting for
the effects of all dilutive potential ordinary shares relating to
share options are as follows:
2018 2017
--------- ------------ -----------
Basic 114,047,503 113,134,175
--------- ------------ -----------
Diluted 114,047,503 113,322,046
--------- ------------ -----------
At 31 December 2018 there were no unexercised share options that
could potentially dilute basic earnings per share (2017:
631,000).
14 Intangible assets
Exploration Exploration Exploration Other
and evaluation and evaluation and evaluation Mining intangible
Gedabek Gosha Ordubad rights assets Total
$000 $000 $000 $000 $000 $000
--------------------- --------------- --------------- --------------- --------- ------------ --------
Cost
1 January 2017 191 - 4,028 41,925 498 46,642
Additions 919 - 125 - 31 1,075
--------------- --------------- --------------- --------- ------------ --------
31 December 2017 1,110 - 4,153 41,925 529 47,717
Additions 2,326 350 192 - 8 2,876
--------------------- --------------- --------------- --------------- --------- ------------ --------
31 December 2018 3,436 350 4,345 41,925 537 50,593
--------------------- --------------- --------------- --------------- --------- ------------ --------
Amortisation and
impairment*
1 January 2017 - - - 29,469 325 29,794
Charge for the year - - - 1,738 40 1,778
--------------------- --------------- --------------- --------------- --------- ------------ --------
31 December 2017 - - - 31,207 365 31,572
Charge for the year - - - 1,948 42 1,990
--------------------- --------------- --------------- --------------- --------- ------------ --------
31 December 2018 - - - 33,155 407 33,562
--------------------- --------------- --------------- --------------- --------- ------------ --------
Net book value
31 December 2017 1,110 - 4,153 10,718 164 16,145
--------------------- --------------- --------------- --------------- --------- ------------ --------
31 December 2018 3,436 350 4,345 8,770 130 17,031
--------------------- --------------- --------------- --------------- --------- ------------ --------
*367,000 ounces of gold at 1 January 2018 were used to determine
depreciation of producing mines, mining rights and other intangible
assets (2017: 427,000 ounces). A 5 per cent. increase or decreased
in the ounces of gold used to compute the amortisation of
intangible assets would result in a decrease in amortisation of
$57,000 and an increase in amortisation of $61,000
respectively.
15 Property, plant and equipment
Plant and
equipment Producing Assets Total
and mines under
motor vehicles construction
$000 $000 $000 $000
----------------------- ---------------- ------------ --------------- --------
Cost
1 January 2017 21,465 183,433 435 205,333
Additions 434 4,559 5,175 10,168
Transfer to producing
mines - 1,229 (1,229) -
Decrease in provision
for rehabilitation - (249) - (249)
----------------------- ---------------- ------------ --------------- --------
31 December 2017 21,899 188,972 4,381 215,252
Additions 2,205 10,091 3,722 16,018
Transfer to producing
mines - 7,581 (7,581) -
Disposal - - (209) (209)
Decrease in provision
for rehabilitation - (1,089) - (1,089)
----------------------- ---------------- ------------ --------------- --------
31 December 2018 24,104 205,555 313 229,972
----------------------- ---------------- ------------ --------------- --------
Depreciation and
impairment*
1 January 2017 14,656 92,201 - 106,857
Charge for the
year 1,765 19,243 - 21,008
----------------------- ---------------- ------------ --------------- --------
31 December 2017 16,421 111,444 - 127,865
Charge for the
year 1,751 19,206 - 20,957
----------------------- ---------------- ------------ --------------- --------
31 December 2018 18,172 130,650 - 148,822
----------------------- ---------------- ------------ --------------- --------
Net book value
31 December 2017 5,478 77,528 4,381 87,387
----------------------- ---------------- ------------ --------------- --------
31 December 2018 5,932 74,905 313 81,150
----------------------- ---------------- ------------ --------------- --------
*367,000 ounces of gold at 1 January 2018 were used to determine
depreciation of producing mines, mining rights and other intangible
assets (2017: 427,000 ounces). A 5 per cent. increase or decreased
in the ounces of gold used to compute the depreciation of property
plant and equipment would result in a decrease in depreciation of
$461,000 and an increase in depreciation of $510,000
respectively.
The Ugur new open pit commenced production in 2017 with the
development cost transferred to producing mines on 1 September 2017
with depreciation commencing from this date. Initial mining from
the Ugur open pit was by free digging and September 2017 was the
first month in which significant amounts of ore were extracted from
the Ugur open pit. Gold doré from Ugur ore also commenced in
September 2017. The development cost of Ugur was $1.1 million and
the cost will be amortised using the unit of production method with
137,000 ounces of gold as the total resource to determine the
amortisation.
No impairment losses were recognised by the Group at 31 December
2018 or 31 December 2017.
The Group assesses at each balance sheet date whether any
indicators exist of impairment of its fixed assets. Should any
indicators exist, the Group will perform an impairment analysis at
that balance sheet date to ascertain that the carrying value of the
Group's property, plant and equipment is in excess of its fair
value less cost to dispose ("FVLCD").
The determination of FVLCD is most sensitive to the following
key assumptions:
- Production volumes
- Commodity prices
- Discount rates
- Foreign exchange rates
- Capital and operating costs
The management assessed that there were no indicators of
impairment at 31 December 2017 and 31 December 2018. Accordingly,
no impairment analysis was performed for the balance sheet at 31
December 2017 and 31 December 2018.
The capital commitments by the Group have been disclosed in note
29.
16 Subsidiary undertakings
Anglo Asian Mining PLC is the parent and ultimate parent of the
Group.
The Company's subsidiaries at 31 December 2018 are as
follows:
Percentage
Registered Primary of holding
Name address place of business per cent.
------------------------------------ ---------------- -------------------- ------------
England and
Anglo Asian Operations Limited Wales United Kingdom 100
British Virgin
Holance Holdings Limited Islands Azerbaijan 100
Anglo Asian Cayman Limited Cayman Islands Azerbaijan 100
R.V. Investment Group Services Delaware,
LLC USA Azerbaijan 100
Azerbaijan International Mining
Company Limited Cayman Islands Azerbaijan 100
------------------------------------ ---------------- -------------------- ------------
There has been no change in subsidiary undertakings since 1
January 2018.
17 Trade and other receivables
1 January
2018 2017 2017
Non-current assets $000 $000 $000
------------------------------------- ----- ------- ----------
Advances for fixed asset purchases 436 860 989
Loans - 15 95
------------------------------------- ----- ------- ----------
436 875 1,084
------------------------------------- ----- ------- ----------
Current assets
------------------------------------- ----- ------- ----------
Gold held due to the Government of
Azerbaijan 2,898 7,445 10,078
VAT refund due 312 206 339
Other tax receivable 1,016 891 926
Trade receivables - amortised cost* 250 440 -
Trade receivables - fair value** 1,988 - 639
Prepayments and advances 1,927 2,187 4,218
Loans 105 107 50
------------------------------------- ----- ------- ----------
8,496 11,276 16,250
------------------------------------- ----- ------- ----------
* Trade receivables not subject to provisional pricing.
**Trade receivables subject to provisional pricing
Trade receivables (not subject to provisional pricing) are for
sales of gold and silver to the refiner and are non
interest-bearing and payment is usually received one to two days
after the date of sale.
Trade receivables (subject to provisional pricing) are for sales
of gold and copper concentrate and are non interest-bearing, but as
discussed in accounting policy 4.2, are exposed to future commodity
price movements over the quotational period ("QP") and, hence, fail
the 'solely payments of principal and interest' test and are
measured at fair value up until the date of settlement. These trade
receivables are initially measured at the amount which the Group
expects to be entitled, being the estimate of the price expected to
be received at the end of the QP. Approximately 90 per cent. of the
provisional invoice (based on the provisional price) is received in
cash within one to two weeks from when the concentrate is collected
from site, which reduces the initial receivable recognised under
IFRS 15. The QPs can range between one and four months post
shipment and final payment is due between 30-90 days from the end
of the QP. Refer to accounting policy 4.10 for details of fair
value measurement.
The Group does not consider any trade or other receivable as
past due or impaired. All receivables at amortised cost have been
received shortly after the balance sheet date and therefore the
Group does not consider that there is any credit risk exposure. No
provision for any expected credit loss has therefore been
established in 2017 or 2018.
The VAT refund due at 31 December 2018, 2017 and 2016 relates to
VAT paid on purchases.
Gold bullion held and transferable to the Government is bullion
held by the Group due to the Government of Azerbaijan. The Group
holds the Government's share of the product from its mining
activities and from time to time transfers that product to the
Government. A corresponding liability to the Government is included
in trade and other payables shown in note 20.
18 Inventory
2018 2017
Current assets $000 $000
-------------------------------------------- ------- -------
Cost
Finished goods - bullion 319 2,059
Finished goods - metal in concentrate 458 489
Metal in circuit 14,105 13,476
Ore stockpiles 6,371 6,753
Spare parts and consumables 12,906 11,203
-------------------------------------------- ------- -------
Total current inventories 34,159 33,980
-------------------------------------------- ------- -------
Total inventories at the lower of cost and
net realisable value 34,159 33,980
-------------------------------------------- ------- -------
The Group has capitalised mining costs related to high grade
sulphide ore stockpiled during the year. Such stockpiles are
expected to be utilised as part of the flotation processing.
Inventory is recognised at lower of cost or net realisable
value.
19 Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and held by
the Group within financial institutions that are available
immediately. The carrying amount of these assets approximates their
fair value.
The Group's cash on hand and cash held within financial
institutions at 31 December 2018 (including short-term cash
deposits) comprised $39,000 and $14,501,000 respectively (2017:
$117,000 and $2,417,000).
The Group's cash and cash equivalents are mostly held in United
States Dollars.
20 Trade and other payables
2018 2017
$000 $000
----------------------------------------------- ------- -------
Accruals and other payables 5,581 3,979
Trade creditors 3,065 3,431
Gold held due to the Government of Azerbaijan 2,898 7,445
Payable to the Government of Azerbaijan
from copper concentrate joint sale 1,680 315
13,224 15,170
----------------------------------------------- ------- -------
Trade creditors primarily comprise amounts outstanding for trade
purchases and ongoing costs. Trade creditors are non
interest--bearing and the creditor days were 18 (2017: 22).
Accruals and other payables mainly consist of accruals made for
accrued but not paid salaries, bonuses, related payroll taxes and
social contributions, accrued interest on borrowings and services
provided but not billed to the Group by the end of the reporting
period. The increase of accruals in 2018 relate to the increase in
exploration activity. 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
2018 2017
$000 $000
---------------------------------------------- ------ -------
International Bank of Azerbaijan - agitation
leaching plant loan - 1,640
International Bank of Azerbaijan - loan
facility - 481
Amsterdam Trade Bank - 3,700
Gazprombank (Switzerland) - 3,700
Atlas Copco - 303
Yapi Kredi Bank - 2,254
Pasha Bank - loans - 3,713
Kapital Bank - 1,000
Director - 3,860
Pasha Bank - refinancing loan 8,438 -
---------------------------------------------- ------ -------
8,438 20,651
---------------------------------------------- ------ -------
Loans repayable in less than one year 6,750 20,051
Loans repayable in more than one year 1,688 600
---------------------------------------------- ------ -------
8,438 20,651
---------------------------------------------- ------ -------
International Bank of Azerbaijan ("IBA")
Agitation leaching plant loan
In 2012 and 2013, the Group borrowed $49.5 million under a
series of loan agreements to finance the construction of its
agitation leaching plant. The annual interest rate for each
agreement was12 per cent. The repayment of principal begins two
years from the withdrawal date for each agreement. The loans were
partially repaid by the proceeds of a refinancing loan from
Amsterdam Trade Bank. The loans are repayable commencing in 31
March 2015 and finishing in 30 June 2018. The interest rate on the
outstanding loan agreements at 6 November 2017 was reduced to 7 per
cent. from that date. The loans were fully repaid during the year
ended 31 December 2018.
Loan facilities
During 2016, the group entered into three credit facilities with
IBA:
-- AZN1 million at an annual interest rate of 18 per cent. The
interest and principal are repayable on a reducing balance basis in
12 equal monthly instalments of AZN92,000 and the final instalment
is payable in January 2017.
-- $1.5 million at an annual interest rate of 12 per cent. The
interest and principal are repayable on a reducing balance basis in
24 equal monthly instalments of $71,000 and the final instalment
was payable in February 2018. The loan was fully repaid during the
year ended 31 December 2018.
-- $1.4 million at an annual interest rate of 12 per cent. for
the purchase of the water treatment plant. $1.1 million of the loan
was drawn down in 2017 and the amount of the loan outstanding at 31
December 2017 was $0.4 million. The balance of the loan at 31
December 2017 together with interest is repayable in equal monthly
installments on an annuity basis with the final payment in June
2018. The interest rate was reduced to 10 per cent. in September
2017 and to 7 per cent. on 6 November 2017. The loan was fully
repaid during the year ended 31 December 2018.
Amsterdam Trade Bank ("ATB") and Gazprombank (Switzerland)
Ltd
During 2013, the Group entered into a loan agreement for $37.0
million to refinance its agitation leaching plant loan from IBA.
The annual interest rate was 8.25 per cent. plus LIBOR. Principal
was repayable in 15 equal quarterly instalments of $2,467,000. The
first payment of principal commenced in February 2015 with the
final instalment payable in August 2018. The Group pledged to ATB
its present and future claims against MKS Finance SA, the Group's
sole buyer of gold doré until termination of the loan agreement. In
February 2017, a transaction was finalised to transfer 50 per cent.
of the balance of the loan with ATB, being $8.6 million, to
Gazprombank (Switzerland) Ltd ("GPBS"). The terms of the loan and
security remained unchanged and ATB acted as agent to administer
the loan on behalf of ATB and GPBS. In February 2018, the loans
from ATB and GPBS were repaid from the proceeds of the Pasha Bank
OJSC refinancing loan.
Atlas Copco
The amounts outstanding are in respect of vendor equipment
financing. During 2016, the Group entered into vendor equipment
financing for Euro 1.1 million at annual interest rate of 8.14 per
cent. The principal is repayable quarterly in eight equal
instalments which commenced on 31 August 2016 with the final
instalment payable on 31 May 2018. Interest is payable quarterly
with the principal. The vendor financing was fully repaid during
the year ended 31 December 2018.
Yapi Credit Bank, Azerbaijan ("YCBA")
In 2016 and 2017, the Group entered into several credit
facilities with YCBA. The annual interest rate for each facility
was 10 to 11 per cent. and each facility is repayable in 12 equal
monthly instalments on a reducing balance basis starting one month
after drawdown. In February 2018, the total outstanding balance of
the loans of $2.2 million was repaid from the proceeds of the Pasha
Bank refinancing loan.
Pasha Bank
The Group entered into loans with Pasha Bank in 2016 at annual
interest rates and maturities as in the following table. No
principal repayment had been made in respect of any of these loans
in 2016.
Loan value Term Interest Principal repayment
$000 (months) rate
(per cent.)
2 equal instalments in March and
1,000 18 7 September 2017
------------- ---------------- -----------------------------------------
1,500 12 9 November 2017
------------- ---------------- -----------------------------------------
916 24 7 7 equal instalments, 2017 - $525,000;
2018 - $391,000
------------- ---------------- -----------------------------------------
2 equal instalments January and
2,100 2 14 February 2017
------------- ---------------- -----------------------------------------
2 equal instalments January and
419 2 18 February 2017
------------- ---------------- -----------------------------------------
All of the above loans were repaid in 2017 with the exception of
the loan for $916,000 of which $713,000 was outstanding at 31
December 2017.
In 2017, the Group entered into a $3.0 million loan agreement
with Pasha Bank at an interest rate of 8.5 per cent. The interest
is payable monthly and the principal is repayable in 5 equal
installments of $600,000 payable in in April, July, August and
October 2018 and January 2019.
All of the above loans were fully repaid in the year ended 31
December 2018.
Kapital Bank
In December 2016, the Group entered into a working capital
credit facility for $1 million with Kapital Bank. The facility is
for one year with an annual interest rate of 7 per cent. Interest
is payable monthly and the principal is repayable by 4 equal
quarterly monthly instalments commencing March 2017. The loan was
fully repaid by 31 December 2017. On 17 May 2017, the Group entered
into a further $1 million loan facility with Kapital Bank. The term
of the loan was for 18 months at an interest rate of 8 per cent.
with the principal repayable at the end of the term. The loan was
fully repaid during the year ended 31 December 2018.
Director
On 20 May 2015, the chief executive of Anglo Asian Mining PLC
provided a $4 million loan facility to the Group. Any loan from the
facility was repayable on 8 January 2016 at an interest rate of 10
per cent. The loan was extended during 2016 and 2017 on the same
terms till 8 January 2018. On January 2018, the term of the loan
was extended for one year until 8 January 2019. The interest rate
on the loan was reduced to 7 per cent., and all other terms of the
loan remained unchanged. In March 2018, the loan was repaid from
the proceeds of the Pasha Bank OSJC refinancing loan.
Pasha Bank - refinancing loan
In 2018, entered into a refinancing agreement with Pasha Bank
OJSC, as arranger, for a syndicated loan facility for up to $15
million to refinance the majority of the Group's existing loans.
The facility is for two years with a fixed interest rate of 7 per
cent. And early repayment is permitted. Loan principal is repayable
ion 8 equal quarterly instalments. The loan facility is unsecured
and there are no financial covenants.
A total of $13.5 million of the facility was drawn-down on the 9
and 12 of February 2018 and used to repay the following loans:
-- $2.2 million to Yapi Credit Bank;
-- $3.7 million to Amsterdam Trade Bank N. V.;
-- $3.7 million to Gazprombank (Switzerland) Ltd; and
-- $3.9 million to the Chief Executive.
The loan refinancing was completed by the end of March 2018.
Unused credit facilities
The Group had a $2 million credit facility from Yapi Credit Bank
at 31 December 2018 which was not utilised (2017: $nil).
22 Changes in liabilities arising from financing activities
2018
---------------------------------------------
1 January Cash flows Other 31 December
$000 $000 $000 $000
------------------------------- ---------- ----------- ------ ------------
Current interest-bearing
loans and borrowings 20,051 (13,301) - 6,750
Non-current interest-
bearing loans and borrowings 600 1,088 - 1,688
------------------------------- ---------- ----------- ------ ------------
Total liabilities from
financing activities 20,651 (12,213) - 8,438
------------------------------- ---------- ----------- ------ ------------
2017
-------------------------------------------------
1 January Cash flows Other 31 December
$000 $000 $000 $000
------------------------------- ---------- ----------- ---------- ------------
Current interest-bearing
loans and borrowings 26,165 (15,879) 9,765 20,051
Non-current interest-
bearing loans and borrowings 9,765 600 (9,765) 600
------------------------------- ---------- ----------- ---------- ------------
Total liabilities from
financing activities 35,930 (15,279) - 20,651
------------------------------- ---------- ----------- ---------- ------------
Other is the effect of reclassification of the non-current
portion of interest-bearing loans and borrowings to current at the
end of the year due to the passage of time, the effect of accrued
but not yet paid interest on interest-bearing loans and borrowings
and other adjustments.
23 Provision for rehabilitation
2018 2017
$000 $000
----------------------------------------- -------- ------
1 January 9,629 9,416
Change in estimate - -
Additions 654 557
Accretion expense 489 462
Effect of passage of time and change in
discount rate (1,744) (806)
----------------------------------------- -------- ------
31 December 9,028 9,629
----------------------------------------- -------- ------
The Group has a liability for restoration, rehabilitation and
environmental costs arising from its mining operations. Estimates
of the cost of this work including reclamation costs, close down
and pollution control are made on an ongoing basis, based on the
estimated life of the mine. This provision represents the net
present value of the best estimate of the expenditure required to
settle the obligation to rehabilitate any environmental
disturbances caused by mining operations. The undiscounted
liability for rehabilitation at 31 December 2018 was $12,100,000
(2017: $13,736,000). The undiscounted liability was discounted
using a risk-free rate of 4.83 per cent. (2017: 5.05 per cent.).
Expenditures on restoration and rehabilitation works are expected
between 2023 and 2025 (2017: between 2023 and 2025).
24 Financial instruments
Financial risk management objectives and policies
The Group's principal financial instruments comprise cash and
cash equivalents, loans and letters of credit. The main purpose of
these financial instruments is to finance the Group operations. The
Group has other financial instruments, such as trade and other
receivables and trade and other payables, which arise directly from
its operations. Surplus cash within the Group is put on deposit,
the objective being to maximise returns on such funds whilst
ensuring that the short-term cash flow requirements of the Group
are met.
The main risks that could adversely affect the Group's financial
assets, liabilities or future cash flows are capital risk, market
risk, interest rate risk, foreign currency risk, liquidity risk and
credit risk. Management reviews and agrees policies for managing
each of these risks which are summarised below.
The following discussion also includes a sensitivity analysis
that is intended to illustrate the sensitivity to changes in market
variables on the Group's financial instruments and show the impact
on profit or loss and shareholders' equity, where applicable.
Financial instruments affected by market risk include bank loans
and overdrafts, accounts receivable, accounts payable and accrued
liabilities.
The sensitivity has been prepared for the years ended 31
December 2018 and 2017 using the amounts of debt and other
financial assets and liabilities held as at those reporting
dates.
Capital risk management
The capital structure of the Group consists of debt, which
includes the borrowings disclosed in note 21, cash and cash
equivalents and equity attributable to equity holders of the
parent, comprising issued share capital, reserves and retained
earnings as disclosed in the consolidated statement of changes in
equity. The Group has sufficient capital to fund ongoing production
and exploration activities, with capital requirements reviewed by
the Board on a regular basis. Capital has been sourced through
share issues on the AIM, part of the London Stock Exchange, and
loans from the International Bank of Azerbaijan, Amsterdam Trade
Bank ("ATB") and other banks in Azerbaijan. In managing its
capital, the Group's primary objective is to ensure its continued
ability to provide a consistent return for its equity shareholders
through capital growth. In order to achieve this objective, the
Group seeks to maintain a gearing ratio that balances risk and
returns at an acceptable level and also to maintain a sufficient
funding base to enable the Group to meet its working capital and
strategic investment needs.
The Group is not subject to externally imposed capital
requirements and monitors capital using a gearing ratio, which is
net debt divided by total capital plus net debt. The Group's policy
is to keep the gearing ratio below 70 per cent. The Group defines
net debt as interest-bearing loans and borrowings less cash and
cash equivalents.
Interest rate risk
The Group's cash deposits, letters of credit, borrowings and
interest-bearing loans subsequent to the loan refinancing by Pasha
Bank in 2018 are at a fixed rate of interest.
The Group manages the risk by maintaining fixed rate
instruments, with approval from the directors required for all new
borrowing facilities.
The Group has not used any interest rate swaps or other
instruments to manage its interest rate profile during 2018 and
2017.
Interest rate sensitivity analysis
The Group had no sensitivity to any movement in LIBOR rates in
2018 and 2017.
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 2018
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 - 1,688 5,062 1,688 8,438
Trade and other payables - 13,224 - - 13,224
-------------------------- --------- ---------- -------- ------- -------
- 14,912 5,062 1,688 21,662
------------------------------------ ---------- -------- ------- -------
Year ended 31 December 2017
On Less 3 to 1 to Total
demand than 12 5 $000
$000 3 months months years
$000 $000 $000
-------------------------- --------- ---------- -------- ------- -------
Interest-bearing loans
and borrowings - 9,962 10,089 600 20,651
Trade and other payables - 15,170 - - 15,170
-------------------------- --------- ---------- -------- ------- -------
- 25,132 10,089 600 35,821
------------------------------------ ---------- -------- ------- -------
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. The maximum credit risk exposure relating to financial
assets is represented by their carrying value as at the
consolidated statement of financial position date.
The Group has adopted a policy of only dealing with creditworthy
banks and has cash deposits held with reputable financial
institutions. These usually have a lower to upper medium grade
credit rating. Trade receivables consist of amounts due to the
Group from sales of gold and silver and copper and precious metal
concentrates. The majority of the sales of gold and silver bullion
are made to MKS Finance SA, a Switzerland-based gold refinery, and
copper concentrate is sold to Industrial Minerals SA and Trafigura
PTE Ltd. 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
-------------- --------------
2018 2017 2018 2017
$000 $000 $000 $000
------------------- ------ ------ ------ ------
UK Sterling 1 1 334 2
Azerbaijan Manats 3,228 3,909 1,784 1,342
Other 297 151 3 4
------------------- ------ ------ ------ ------
Foreign currency sensitivity analysis
The Group is mainly exposed to the currency of the United
Kingdom (UK Sterling), the currency of the European Union (Euro)
and the currency of the Republic of Azerbaijan (Azerbaijan
Manat).
The following table details the Group's sensitivity to an 8 per
cent., 7 per cent. and 12 per cent. (2017: 11 per cent., 12.5 per
cent. and 11.3 per cent.) increase and a 11 per cent., 11 per
cent., and 3 per cent. (2017: 7 per cent., 7.5 per cent., and 11.3
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
-------------- ---------------- --------------
2018 2017 2018 2017 2018 2017
$000 $000 $000 $000 $000 $000
----------------------------- ------ ------ ------- ------- ------ ------
Increase - effect on profit
before tax (27) - 173 290 21 18
Decrease - effect on profit
before tax 37 - (43) (290) (32) (11)
----------------------------- ------ ------ ------- ------- ------ ------
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 2018 would result in a reduction in revenue of $8.1
million and a 10 per cent. increase in gold price would have the
equal and opposite effect. A 10 per cent. decrease in silver price
would result in a reduction in revenue of $0.3 million and a 10 per
cent. increase in silver price would have an equal and opposite
effect. A 10 per cent. decrease in copper price would result in a
reduction in revenue of $0.7 million and a 10 per cent. increase in
copper price would have an equal and opposite effect.
25 Equity
2018 2017
---------------------------- ----------------------------
Number GBP Number GBP
----------------------------- -------------- ------------ -------------- ------------
Authorised
Ordinary shares of 1 pence
each 600,000,000 6,000,000 600,000,000 6,000,000
----------------------------- -------------- ------------ -------------- ------------
Shares $000 Shares $000
----------------------------- -------------- ------------ -------------- ------------
Ordinary shares issued and
fully paid
I January 113,761,024 2,008 112,661,024 1,993
Exercise of share options 631,000 8 1,100,000 15
----------------------------- -------------- ------------ -------------- ------------
31 December 114,392,024 2,016 113,761,024 2,008
----------------------------- -------------- ------------ -------------- ------------
Fully paid ordinary shares carry one vote per share and carry
the right to dividends.
Share options
The Group has share option scheme under which options to
subscribe for the Company's shares have been granted to certain
executives and senior employees (note 26).
Merger reserve
The merger reserve was created in accordance with the merger
relief provisions under Section 612 of the Companies Act 2006 (as
amended) relating to accounting for Group reconstructions involving
the issue of shares at a premium. In preparing Group consolidated
financial statements, the amount by which the base value of the
consideration for the shares allotted exceeded the aggregate
nominal value of those shares was recorded within a merger reserve
on consolidation, rather than in the share premium account.
26 Share-based payment
The Group operates a share option scheme for directors and
senior employees of the Group. The vesting periods are up to three
years. Options are exercisable at a price equal to the closing
quoted market price of the Group's shares on the date of the board
of directors approval to grant options. Options are forfeited if
the employee leaves the Group and the options are not exercised
within three months from leaving date.
The number and weighted average exercise prices ("WAEP") of, and
movements in, share options during the year were as follows:
2018 2017
------------------- ----------------------
WAEP WAEP
Number pence Number pence
---------------------------- ---------- ------- ------------ --------
I January 631,000 17 1,745,000 14
Granted prior to 2017 - - 86,000 22
Exercised during the year (631,000) 17 (1,100,000) 12
Expired during the year - - (100,000) 16
---------------------------- ---------- ------- ------------ --------
Outstanding at 31 December - - 631,000 17
---------------------------- ---------- ------- ------------ --------
Exercisable at 31 December - - 631,000 17
---------------------------- ---------- ------- ------------ --------
The weighted average remaining contractual life of the share
options outstanding at 31 December 2017 was 7 years and the range
of their exercise prices was 10 pence to 35 pence.
There were no share options issued in 2017 or 2018.
The Group recognised total expense related to equity-settled
share-based payment transactions for the year ended 31 December
2018 of $nil (2017: $13,000).
27 Share premium account
2018 2017
$000 $000
-------------------------- --------- -------
1 January 32,484 32,325
Issue of shares 141 159
Court approved reduction (32,592) -
-------------------------- --------- -------
31 December 33 32,484
-------------------------- --------- -------
On 13 July 2018, the Company issued a circular to its
shareholders proposing a resolution to reduce its share premium
account to $nil. This resolution was passed by its shareholders at
a meeting of its shareholders on 30 July 2018.
The reduction in the share premium account to $nil was approved
by the court on 28 August 2018. The share premium account of
$33,000 at 31 December 2018 is the share premium on shares issued
subsequent to the court approved reduction.
28 Dividends made and proposed
2018 2017
$000 $000
------------------------------------------- ------ ------
Cash dividends on ordinary shares declared
and paid
Interim dividend for 2018: 3 US cents* per 3,432 -
share
------------------------------------------- ------ ------
Proposed dividends on ordinary shares -
Final dividend for 2018: 4 US cents** per 4,576 -
share
------------------------------------------- ------ ------
* the dividend was declared in United States dollars but paid in
Sterling in the amount of 2.2864 per ordinary share. The dividend
was converted into Sterling at the rate of GBP1 = $1.3121 being the
average of the sterling closing mid-price using the exchange rate
published by the Bank of England at 4pm each day from the 15 to 19
October 2018.
** to be paid in Sterling at a rate to be announced.
The proposed final dividend on ordinary shares is subject to
approval by shareholders at the annual general meeting for 2019 and
not recognised as a liability in the Group statement of financial
position at 31 December 2018.
29 Contingencies and commitments
The Group undertakes its mining operations in the Republic of
Azerbaijan pursuant to the provisions of the Agreement on the
Exploration, Development and Production Sharing for the Prospective
Gold Mining Areas: Gedabek, Gosha, Ordubad Group (Piazbashi,
Agyurt, Shakardara, Kiliyaki), Soutely, Kyzilbulag and Vejnali
Deposits dated year ended 20 August 1997 (the "PSA"). The PSA
contains various provisions relating to the obligations of the R.V.
Investment Group Services LLC ("RVIG"), a wholly owned subsidiary
of the Company. The principal provisions are regarding the
exploration and development programme, preparation and timely
submission of reports to the Government, compliance with
environmental and ecological requirements. The Directors believe
that RVIG is in compliance with the requirements of the PSA. The
Group has announced a discovery on Gosha Mining Property in
February 2011 and submitted the development programme to the
Government according to the PSA requirements, which was approved in
2012. In April 2012 the Group announced a discovery on the Ordubad
Group of Mining Properties and submitted the development programme
to the Government for review and approval according to the PSA
requirements. The Group and the Government are still discussing the
formal approval of the development programme.
The mining licence on Gedabek expires in March 2022, with the
option to extend the licence by ten years conditional upon
satisfaction of certain requirements stipulated in the PSA.
RVIG is also required to comply with the clauses contained in
the PSA relating to environmental damage. The Directors believe
RVIG is in compliance with the environmental clauses contained in
the PSA.
There were no significant operating lease or capital lease
commitments at 31 December 2018 (2017: $nil).
30 Related party transactions
Trading transactions
During the years ended 31 December 2017 and 2018, 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) Remuneration paid to directors is disclosed in note 9
above.
b) During the year ended 31 December 2018, total payments of
$2,563,000 (2017: $1,400,000) 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 2018 there is a payable in relation to the above
related party transaction of $51,000 (2017: $267,000)
c) On 20 May 2015, the chief executive made a $4 million loan
facility available to the Group. The principle of the loan was
fully repaid during the year ended 31 December 2018. The interest
accrued and unpaid at 31 December 2018 was $325,000 (2017:
$655,000). Details of the loan facility are disclosed in note 21 -
"Interest-bearing loans and borrowings".
All of the above transactions were made on arm's length
terms.
**ENDS**
Notes:
Anglo Asian Mining plc (AIM:AAZ) is a gold, copper and silver
producer in Central Asia with a broad portfolio of production and
exploration assets in Azerbaijan. The Company has a 1,962 square
kilometre portfolio, assembled from analysis of historic Soviet
geological data and held under a Production Sharing Agreement
modelled on the Azeri oil industry.
The Company's main operating location is the Gedabek contract
area ("Gedabek") which is a 300 square kilometre area in the lesser
Caucasus mountains in western Azerbaijan. The Company developed
Azerbaijan's first operating gold/copper/silver mine at Gedabek
which commenced gold production in May 2009. Mining at Gedabek was
initially from its main open pit, which is an open cast mine with a
series of interconnected pits.
The Company also operates the high grade Gadir underground mine,
which is co-located at the Gedabek site. In September 2017,
production commenced at the Ugur open pit mine, a recently
discovered gold ore deposit at Gedabek. The Company has a second
underground mine, Gosha, which is 50 kilometres from Gedabek. Ore
mined at Gosha is processed at Anglo Asian's Gedabek plant.
The Company produced 83,736 gold equivalent ounces ('GEOs') for
the year ended 31 December 2018. Gedabek is a polymetallic ore
deposit that has gold together with significant concentrations of
copper in the main open pit mine, and an oxide gold-rich zone at
Ugur. The Company therefore employs a series of flexible processing
routes to optimise metal recoveries and efficiencies. The Company
produces gold dore through agitation and heap leaching operations,
copper concentrate from its Sulphidisation, Acidification,
Recycling, and Thickening (SART) plant and also a copper and
precious metal concentrate from its flotation plant. A second
dedicated crusher line has been commissioned and is now in
operation for the flotation plant to enable it to operate
independently of the agitation leaching plant.
The Company has forecast metal production for FY 2019 of between
82,000 to 86,000 gold equivalent ounces ("GEOs"). Of the forecast
production for FY 2019, between 28,000 to 30,000 GEOs is in the
form of copper and gold concentrate.
Anglo Asian is also actively seeking to exploit its first mover
advantage in Azerbaijan to identify additional projects, as well as
looking for other properties in order to fulfil its expansion
ambitions and become a mid-tier gold and copper metal production
company.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GMGMKNKDGLZM
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