TIDMCNG
28 June 2017
Annual Report and Accounts
China Nonferrous Gold Limited ?????????? (AIM: CNG), the mineral
exploration and development company currently developing the Pakrut
gold project in the Republic of Tajikistan, today announces its
final results for the year ended 31 December 2016.
The results below are extracted from the Company's audited
Annual Report and Financial Statements. Copies of the Annual Report
will be posted to shareholders today and are available on the
Company's website (www.cnfgold.com) and from the Company's office
at Unit 2.24, The Plaza, 535 Kings Road, London SW10 0SZ.
For further information please visit the Company's website
(www.cnfgold.com) or contact:
China Nonferrous Gold LimitedDavid Tang, Managing DirectorTel:
+86 10 8442 6681orInvestec Bank PlcJeremy Ellis, George PriceTel:
+44 (0)20 7597 5970orBeaufort Securities LimitedJon BellissTel: +44
(0)20 7382 8300orBlytheweighTim Blythe, Camilla Horsfall, Nick
ElwesTel: +44 (0)20 7138 3224
Project Summary
The Pakrut gold project, of which CNG has 100 per cent
ownership, is situated in Tajikistan approximately 120km northeast
of the capital city Dushanbe. Pakrut is located within the Tien
Shan gold belt, which extends from Uzbekistan into Tajikistan,
Kyrgyzstan and Western China, and which hosts a number of
multi-million ounce gold deposits.
About Tajikistan
Tajikistan is a secular republic located in Central Asia. The
country is a member of the Commonwealth of Independent States and
the Shanghai Cooperation Organisation. Tajikistan hosts numerous
operating precious metal mines as well as the largest aluminium
smelter in Central Asia. CNG's management team has extensive
experience in the mining industry in Tajikistan.
Chairman's Statement
As the Chairman of the Board, it gives me great pleasure to
present the Chairman's Statement of the annual report for the year
ended 31 December 2016. This was a momentous year for the Group
during which 230,000 tonnes of ore were processed with 5,479 tonnes
of gold concentrate produced. The total gold ingot production by
the end of the year was 162kg.The period under review also saw, in
June 2016, the ribbon-cutting ceremony of the Pakrut gold project
and the Group was delighted that this ceremony was attended by
Tajikistan President Rahmon. The ceremony was a highlight of the
year.
Shortly after the year end however, the Pakrut mine site and
Vahdat smelting plant experienced snowfall not seen for over 50
years which resulted in an avalanche, landslide and subsequent
flooding at the mine site. The conditions at the mine site were so
severe that full access to the mine site was restricted until May
2017. This materially impacted the operations of the Group and the
management team is in the process of working to repair the damage
while the mine site continues to suffer from flooding. Primarily as
a result of the adverse weather conditions, in particular due to
lack of access to inventory, insufficient time has been available
to prepare all of the financial information necessary for the
auditor to form an opinion on the financial statements. This has
been intensified by the fact that key members of the finance team
were lost during 2016, although the search for suitable
replacements is ongoing. Now that access to the mine site has been
reopened the Group will prepare and provide all outstanding audit
information in respect of the year ended 31 December 2016 and
continue to work with the auditors to review the relevant records
and perform inventory counts. The Group will ask the auditor to
perform an enhanced review on the 30 June 2017 interim figures. The
Directors are also reviewing the structure of the accounting team
to ensure that it is appropriately staffed and skilled to resolve
the current situation.
Construction
Whilst 2016 saw many key project developments at the Pakrut
project, the business made a number of important operational
decisions. These included the selection of a backfilling system,
mining method, underground production capacity and resources and
reserves verification amongst others. As a result of the time
required to ensure the appropriate options were considered fully it
was not possible to fully establish the mine underground tunneling
project. Despite this, the Group was pleased to achieve 2,386
meters of tunneling with1,694 metres of cutting completed during
the period under review. However, further tunneling is still
required.
The construction of all the processing units within the
processing and smelting plant was completed during 2016 and neither
plant was damaged by the avalanche. Furthermore, certain
deficiencies within the processing units have been addressed and
will improve the efficiency of the units going forwards.
Construction of the 2.5 kilometre access road to the Lufujia
tailings dam was completed during the year. The Group has also
completed a topographical map survey of the site as well as carried
out engineering studies. Construction of the new tailings dam is
expected to commence in early 2018. In the meantime the temporary
tailings dam has been reinforced.
The maintenance and improvement of external roads around the
Pakrut gold mine area was also an area of focus during the year. In
addition, the construction of a permanent camp is expected to be
finalised by the second half of 2018.
Project Operation
Trial production commenced at the Pakrut gold project in the
fourth quarter of 2015 with the first gold poured in January 2016.
In the first quarter of 2016 production was halted to resolve a
number of minor technical issues at the processing plant. At the
same time, LLC Pakrut also carried out the necessary maintenance
and rectified a number of minor issues at the smelting plant. Once
rectification was completed the connection between the smelting
plant and processing plant was finalised enabling the Company to
undertake production. Trial production recommenced in the second
quarter of 2016 and ramped up to achieve 2,000 tonnes per day
during October2016.
In the year ended 31 December 2016, a total of 230,000 tonnes of
ore was processed. 5,479 tonnes of gold concentrate was produced
and 162 kg of finished gold was produced by the smelting plant.
This is held in inventory at 31 December 2016 and has since been
sold in 2017.
Financial Results
As progress on the Pakrut project accelerated, expenditure
continued to be incurred by the Group on development and
construction work during the year and stood at US$72,768,000 (2015:
US$112,572,000). Administration expenditure was US$5,100,000 (2015:
US$3,166,000). The overall loss incurred by the Group was
US$6,310,000 (2015: US$6,150,000).
During the course of the year the Group signed financing
agreements with CNMC International Capitals Company Limited, an
associate of China Nonferrous Metals International Mining Co., Ltd
for a loan facility of USD$120 million ("CNMC Loan") and with China
Construction Bank Corporation Macau Branch for a loan facility of
up to USD$100 million ("CCBC Loan"). In addition, the 2012 China
Nonferrous Metals Int'l Mining Co., Ltd. facility signed in May
2012,was extended post period end. The total balance outstanding
under the loans noted above amounted to US$254.35 million at the
end of the year.
It is the opinion of the board of directors that the Group
requires additional funds to continue as a going concern. The
Directors anticipate raising additional loan funding to complete
the construction of the mine and to bring the mine into production,
while also managing the repayments due on current loans. In this
respect, the Directors have received a letter of support from a
substantial shareholder, China Nonferrous Metal Mining Group (CNMC)
Co.,Ltd, to provide the funding and support required to bring the
mine into production. It should be noted however, that due to the
disclaimer of opinion within the Financial Statements, no reference
is made by the auditor regarding any conclusion drawn by the
Directors in respect of going concern.
Post balance sheet events
As noted above, in early 2017, the Pakrut region suffered
extreme snowfall which resulted in a serious avalanche, landslide
and flooding. This disrupted the local traffic to the site and
resulted in the interruption of power supply in the Pakrut area,
whilst several buildings also collapsed and certain equipment was
damaged. The mine was submerged below the main ramp at the 2,230
metre level and the avalanche halted all gold production and
operations.
In the immediate aftermath, progress at rectifying the damage
caused by the avalanche has been very slow primarily due to access
to the mine site. The road has now been reopened and a temporary
solution to restore the power supply was reached at the end of May
2017. There is still however significant damage to a number of
high-voltage wire towers which require repairing and the drainage
work required to recommence mining will not commence until a
permanent solution to the power supply situation is resolved. The
equipment for the tailing filter press also requires restoration to
allow operations to be resumed.
In 2016, LLC Pakrut purchased mining property insurance. In
accordance with this the provider visited the mine site to
investigate and evaluate the loss. Whilst claims are expected to be
made throughout the year as the damage and impact of the avalanche
and landslide becomes clearer, an initial claim of RMB62.7 million
(US$:9.2 million) has been made, although this is currently subject
to agreement by the insurance provider.
Outlook
The Group's immediate focus in the aftermath of the avalanche is
to recommence production as well as work with the appropriate
authorities and agencies to help repair the damage that has
occurred in the local community. The Group does not expect
operations at the mine site to return to normal levels until the
first quarter of 2018. Consequently, the Pakrut gold mine will not
achieve the originally budgeted sales revenue for the year ending
31 December 2017, save for the sale of existing inventory. As a
result, the Group will continue to monitor its financial position
and is in discussions with CNMC International Capitals Company
Limited regarding its repayment obligations.
Beyond this, the backfilling station is expected to be completed
in April 2018, and the soil excavation work for the tailing dam is
expected to be completed at the end of 2017. It is also intended
that the ventilation system for construction and mining operations
will be carried out, in the areas not affected by the flood, above
the level of 2,230 metres.
It has been a difficult year and the Group has faced unfortunate
circumstances beyond the Group's control which has led to the
necessity to divert the time and resources of the Group to rectify.
Despite this, the Group has made significant progress and in that
respect I would like to take this opportunity to thank all our
employees, management and advisors for their continued efforts in
2016 and thank our shareholders for their continued support. I very
much look forward to updating our shareholders further on the mine
developments and production levels.
Xiang Wu
ChairmanDirector
June 2017
Independent Auditor's Report to the Members of China Nonferrous
Gold Limited
We have audited the Financial Statements of China Nonferrous
Gold Limited for the year ended 31 December 2016 which comprise the
Consolidated Statement of Comprehensive Income, the Consolidated
Statement of Financial Position, the Consolidated Statement of
Changes in Equity, the Consolidated Statement of Cash Flows, the
Accounting Policies and the related notes. The financial reporting
framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards (IFRSs) as
adopted by the European Union.
This report is made solely to the Company's members, as a body.
Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone, other than the Company and the Company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Respective responsibilities of Directors and Auditor
As explained more fully in the Statement of Directors'
Responsibilities, the Directors are responsible for the preparation
of the Financial Statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit and express an
opinion on the Financial Statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
Ethical Standards for Auditors. Because of the matters described in
the Basis for Disclaimer of Opinion paragraph, however, we were not
able to obtain sufficient appropriate audit evidence to provide a
basis for an audit opinion.
Scope of the audit of the Financial Statements
An audit involves obtaining evidence about the amounts and
disclosures in the Financial Statements sufficient to give
reasonable assurance that the Financial Statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of whether the accounting policies are
appropriate to the Group's circumstances and have been consistently
applied and adequately disclosed, the reasonableness of significant
accounting estimates made by the Directors, and the overall
presentation of the Financial Statements. In addition, we read all
the financial and non-financial information in the Annual Report to
identify material inconsistencies with the audited Financial
Statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If
we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Basis for Disclaimer of Opinion on the Financial Statements
The audit evidence available to us was limited because we were
unable to obtain full access to accounting records due to the high
levels of snowfall at the Pakrut mine site and Vahdat smelting
plant, together with the consequential effect from avalanches,
landslides and flooding which was further impacted by the loss of
key accounting personnel. Management has therefore been prevented
from undertaking key accounting procedures in respect of the Group
financial statements, which include counting physical inventories;
undertaking key accounting reconciliations on inventories,
payables, mines under construction and intercompany balances;
reconciling the value of work performed by contractors at the
accounting reference date; preparing an impairment assessment to
include an estimate of the damage caused at the mine site and
potential recoveries from the associated insurance claim; and
performing a going concern review based upon revised budgets and
cash flow forecasts. The preparation of financial information was
significantly delayed as a result of the adverse weather which
resulted in insufficient time for management to prepare the
required audit information and resolve the issues created. As a
result of the significant outstanding information, we have been
unable to obtain sufficient appropriate audit evidence on which to
form an audit opinion, including the appropriateness of the going
concern basis.
Disclaimer of Opinion on Financial Statements
Because of the significance of the matters described in the
Basis for Disclaimer of Opinion on Financial Statements paragraph,
we have not been able to obtain sufficient appropriate audit
evidence to provide a basis for an audit opinion. Accordingly we do
not express an opinion of the Financial Statements.
PKF Littlejohn LLP 1 Westferry Circus
Chartered Accountants and Registered Auditor Canary Wharf
London E14 4HD
June 2017 United Kingdom
CHINA NONFERROUS GOLD LIMITED 2016 2015
Consolidated Statement of Comprehensive Income
Year ended 31 December 2016
US$000 US$000
Revenue - -
Cost of sales - -
Gross Profit - -
Administrative expenses (5,100) (3,166)
Loss on foreign exchange (1,215) (2,988)
Operating Loss (6,315) (6,154)
Finance income 5 4
Finance costs - -
Loss before Income Tax (6,310) (6,150)
Income tax - -
Loss for the year attributable (6,310) (6,150)
to owners of the parent
Total comprehensive income attributable (6,310) (6,150)
to owners of the parent for the year
Basic and Diluted Earnings per $(0.0165) $(0.0161)
share attributable to owners
of the parent (expressed in dollars per share)
All of the activities of the Group are classed as
continuing.
CHINA NONFERROUS GOLD LIMITED
Consolidated Statement of Financial Position
Year ended 31 December 2016
As at As at
31 December 2016 31 December 2015
US$000 US$000
Non-Current Assets
Intangible assets - -
Mines under construction 317,297 244,529
Property, plant and equipment 3,946 11,624
Total Non-Current Assets 321,243 256,153
Current Assets
Inventories 28,166 39,390
Trade and other receivables 4,084 1,010
Cash and cash equivalents 12,357 2,213
Total Current Assets 44,607 42,613
Non-Current Liabilities
Borrowings (227,684) (56,437)
Provisions for other liabilities (704) (646)
and charges
Total Non-Current Liabilities (228,388) (57,083)
Current Liabilities
Borrowings (26,667) (132,583)
Trade and other payables (82,209) (74,204)
Total Current Liabilities (108,876) (206,787)
Net Current Liabilities (64,269) (164,174)
Net Assets 28,586 34,896
Equity attributable to the
owners of the parent
Share capital 38 38
Share premium 65,901 65,901
Other reserve 10,175 10,175
Retained earnings (47,528) (41,218)
Total Equity 28,586 34,896
These Financial Statements were approved and authorised for
issue by the Directors on June 2017 and are signed on their behalf
by
Mr Weili TangManaging Director
CHINA NONFERROUS GOLD LIMITED
Consolidated Statement of Changes in Equity
Year ended 31 December 2016
Attributable to owners of the parent
Share capital Share premium Other reserve Retained Total
US$000 US$000 US$000 earnings US$000
US$000
Balance 38 65,711 10,175 (35,068) 40,856
at 1
January
2015
Loss and - - - (6,150) (6,150)
Total
comprehensive
income
for
the year
Issue of - 190 - - 190
ordinary
shares
Total - 190 - - 190
contributions
by and
distributions
to
owners
of
the
parent,
recognised
directly
in
equity
Balance 38 65,901 10,175 (41,218) 34,896
at 31
December
2015
Balance 38 65,901 10,175 (41,218) 34,896
at 1
January
2016
Loss and - - - (6,310) (6,310)
Total
comprehensive
income
for
the year
38 65,901 10,175 (47,528) 28,586
Total - - - - -
contributions
by and
distributions
to
owners
of
the
parent,
recognised
directly
in
equity
Balance 38 65,901 10,175 (47,528) 28,586
at 31
December
2016
Description and purpose of reserves:
a) Share capital: share capital consists of amounts subscribed
for share capital at nominal value.
b) Share premium: share premium consists of amounts subscribed
for share capital in excess of nominal value.
c) Other reserve: other reserve comprises the capital
reorganisation reserve under the scheme of arrangement.
d) Retained earnings: cumulative net gains and losses recognised
in the consolidated statement of comprehensive income. Also
included in this figure is an amount of $7.39m (2015: $8.14m),
being the share options and warrants reserve established in 2013 as
part of the capital restructuring program. This consists of the
fair value of options and warrants outstanding at the year end.
CHINA NONFERROUS GOLD LIMITED
Consolidated Statement of Cash Flows
Year ended 31 December 2016
31 December 31 December
2016 2015
US$000 US$000
Cash flows from Operating Activities (note 24) 306 44,042
Net cash generated from Operating Activities 306 44,042
Cash flows from Investing Activities
Payments for mining rights and (66,391) (111,999)
construction in progress
Purchase of property, plant and equipment (333) (2,282)
Movement in inventories 11,224 (14,658)
Interest received 5 4
Net cash used in Investing Activities (55,495) (128,935)
Cash flows from Financing Activities
Cash acquired from contractor
Proceeds from issuance of equity share capital - 190
Proceeds from borrowings (net 244,837 110,909
of capitalised issue costs)
Repayment of borrowings (167,435) (31,375)
Interest paid (12,069) (10,890)
Net cash generated from Financing Activities 65,333 68,834
Net increase/(decrease) in 10,144 (16,059)
Cash and cash equivalents
Cash and cash equivalents 2,213 18,272
at beginning of the year
Cash and cash equivalents at end of the year 12,357 2,213
Major non-cash transactions
Year ended 31 December 2016
During the year the Group made drawdowns from its loan facility
with CNMC of USD 10,162,387, which under the terms of the agreement
were paid directly to CNMIM as part settlement of its loan facility
with CNMIM.
Year ended 31 December 2015
During 2015 the Group made drawdowns from its loan facility with
CNMIM of USD 10,470,925, and made drawdowns from ICBC loan
facilities of USD 100,000,000, which under the agency arrangement
were paid directly to suppliers and contractors in order to settle
the Group's liabilities for mine construction, power line
construction and the provision of processing plant equipment and
materials.
Notes to the Financial Statements
1.Basis of Preparation
The principal accounting policies applied in the preparation of
these Consolidated Financial Statements are set out below. These
policies have been consistently applied to all the years presented,
unless otherwise stated. The Consolidated Financial Statements have
been prepared in accordance with International Financial Reporting
Standards (IFRS) and IFRS Interpretations Committee (IFRSIC) as
adopted by the European Union. The Financial Statements have been
prepared on a historical cost basis.
2.Critical Accounting Estimates, Assumptions and Judgements
The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amount of assets and
liabilities are set out below. Estimates and assumptions are
continually 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. Uncertainty
about these assumptions and estimates could result in outcomes that
require a material adjustment to the carrying amount of assets and
liabilities affected in future periods.
The Group has identified the following areas where significant
estimates, assumptions and judgements are required. The most
significant judgement for the Group is the assumption that
exploration and development at its sites will ultimately lead to a
commercial mining operation. Failure to do so could lead to the
write-off of the mine under construction assets and property, plant
and equipment relating to the particular site.
Estimated impairment of mines under construction
The Group tests annually whether exploration, evaluation and
licensing assets and mines under construction have suffered any
impairment. The recoverable amounts of the cash generating units
("CGUs") have been determined based on value in use calculations
which require the use of estimates and assumptions such as
long-term commodity prices, discount rates, operating costs, future
capital requirements and mineral resource estimates (see below).
These estimates and assumptions are subject to risk and uncertainty
and therefore there is a possibility that changes in circumstances
will impact the recoverable amount. Management has assessed its
CGUs as being individual exploration and mine sites, which is the
lowest level for which cash inflows are independent of those of
other assets or CGUs.
In assessing the carrying amounts of its exploration, evaluation
and licensing assets and mines under construction at Pakrut, the
Directors have used an independently prepared and Director approved
bankable feasibility study. The assessment period used in the
report is the anticipated life of the mine to the expiration of the
licence in 2030, which consists of 1 year to prepare for full
production, and 13 years of full production. Gold revenues have
been estimated over that period at a price of US$1,100 per ounce to
US$1,210. These estimates are based on, and are consistent with,
external sources of information. The calculation assumes a mining
capacity of 2,000 tonnes of ore daily increasing to 4,000 tonnes
per day. The total cost per ounce including royalties, taxes,
depreciation and amortisation is US$698, after taking into account
external information available and adjusted according to prevailing
market prices and forecasts over the period of production.
Royalties have been calculated at 6% of sales revenues and
corporate income tax at 14%, according to the relevant laws in
Tajikistan. A discount rate of 10% has been utilised.
The calculations have been tested for sensitivity to changes in
the key assumptions. The most sensitive inputs in the calculation
of the value in use are operating costs, the gold price, and the
discount rate. An impairment to the mine value would occur if gold
prices fell to the five year low, costs were to increase by 10%,
and the discount factor used were to increase to 12%.
Certain of the Group's other exploration and evaluation projects
are at an early stage of development and no JORC compliant resource
estimates are available to enable value in use calculations to be
prepared. The Directors therefore undertook an assessment of the
following areas and circumstances which could indicate the
existence of impairment:
-- The Group's right to explore in an area has expired, or will expire in
the near future without renewal.
-- No further exploration or evaluation is planned or budgeted for.
-- A decision has been taken by the Board to discontinue exploration and
evaluation in an area due to the absence of a commercial level
of
reserves.
-- Sufficient data exists to indicate that the book value will not be
fully recovered from future development and production.
The rights of LLC Pakrut to carry out exploration and evaluation
activity at the Pakrut deposit expired on 1 April 2014. The
Exploration Licence area includes the Pakrut, Eastern Pakrut,
Rufigor and Sulfidnoye gold and mineral deposits. The renewal
application by the Group to extend the Exploration Licence is being
considered by the Government of Tajikistan. Although the Directors
are not aware of any legal or other impediments which would
ultimately prevent approval of the licence extension, the Directors
fully impaired the carrying value of the exploration and evaluation
assets relating to Eastern Pakrut, Rufigar and Sulfidnoye during
2014 due to non-renewal of the Exploration Licence as at 31
December 2014. The licences remain unapproved as at 31 December
2016. Exploration and evaluation activities can continue at the
Pakrut Gold Deposit in the area covered by the Mining Licence.
In making their assessment consideration has been given to the
adverse weather conditions (heavy snowfall) experienced at the mine
site in Tajikistan shortly after the year end, which resulted in
damages to buildings and equipment, and the expected cost required
to repair said damages and from where this cost will be sourced,
including insurance proceeds.
Approval of Pakrut reserves by Tajik Department of Geology
In November 2011, the Government of the Republic of Tajikistan
issued the Pakrut Gold Project mining licence to LLC Pakrut.
According to the terms of the licence, the amount of ore that can
be mined is variable depending upon the mine plan. The plan
submitted by the Group envisages an initial processing capacity of
660,000 tons of ore per annum, increasing to 1,320,000 tons per
annum. The mining licence is valid until 2 November 2030.
The mining licence issued in November 2011 currently entitles
the Group to mine JORC compliant resources (measured, indicated and
inferred) of 904,000 ounces out of total JORC compliant resources
of 4,383,000 ounces at Pakrut, excluding the Eastern Pakrut,
Rufigar and Sulfidnoye ore zones. The JORC compliant resources
include the results from the Group's exploration and evaluation
work subsequent to the mining licence issue date.
LLC Pakrut has sought approval of the increased JORC compliant
resources from the Tajik Department of Geology and the Scientific
and Technical Counsel which includes the results of all exploration
and evaluation activities undertaken by the Group between 2009 and
2013. The application is currently subject to that approval process
and the Directors are not aware of any legal or other impediments
which would prevent approval of their application and therefore
permit the Group to mine the increased resources. However, the
approval process currently remains incomplete.
The mine design and construction work undertaken to date,
together with the assessment of the recoverable amount of 'Mines
under Construction' (see below), is based upon the total quantity
of JORC compliant resources of which part falls outside the area
covered by the mining licence and still subject to formal approval,
as noted above. Failure to obtain this approval would lead to an
impairment of 'Mines under Construction', together with
inventories, and also impact the going concern basis of preparation
of the Financial Statements. The Group has made the judgement that
this approval will be forthcoming. No provision for impairment has
been recognised in these Financial Statements relating to this
uncertainty.
Mineral resource and reserve estimates
Reserves are estimates of the amount of resources that can be
economically and legally extracted from the Group's mining
properties. The Group estimates its mineral resources based on
information compiled by appropriately qualified persons relating to
the geological and technical data on the size, depth, shape and
grade of the ore body and suitable production techniques and
recovery rates. This analysis requires complex geological
judgements to interpret the data. The estimation of the recoverable
amount is based upon factors such as estimates of commodity prices,
future capital expenditure and production costs along with
geological assumptions made in estimating the size and grade of the
resources.
The Group estimates and reports mineral resource estimates in
line with the principles contained in the Australasian Code for
Reporting Exploration Results, Mineral Resources and Ore Reserves
(December 2004), which is prepared by the Joint Ore Reserves
Committee (JORC) of the Australasian Institute of Mining and
Metallurgy, Australian Institute of Geoscientists and Minerals
Council of Australia, known as the "JORC Code". The determination
of a JORC resource is itself an estimation process that involves
varying degrees of uncertainty depending on how the resources are
classified (i.e. measured, indicated or inferred).
As additional geological information is produced during the
operation of a mine and through additional exploration activity,
mineral resource estimates may change. Such changes may impact on
the Group's reported financial position which includes the carrying
value of mines under construction, property, plant and equipment
and inventories.
Mine rehabilitation provision
Rehabilitation costs will be incurred by the Group at the end of
the operating life of the Pakrut mine and some of the processing
facilities. The Group assesses its rehabilitation provision at each
reporting date. The ultimate rehabilitation costs are uncertain and
cost estimates can vary in response to various factors, including
estimates of the extent and costs of rehabilitation activities,
regulatory changes, inflation rates and changes in discount rates.
These uncertainties may result in future actual expenditure
differing from the amounts currently provided and there could be
significant adjustments to the provisions established which would
affect future financial results. The provision as at 31 December
2016 represents management's best estimate of the present value of
future rehabilitation costs required.
Production start date
The Group assesses the stage of the Pakrut mine under
construction to determine when it moves into the production phase,
this being when the mine is substantially complete and ready for
its intended use. The criteria used to assess the start date are
determined based on the unique nature of the mine construction
project, the complexity of the project and its location. The Group
considers various relevant criteria to assess when the production
phase is considered to have commenced. At this point, all related
amounts are reclassified from 'Mines under construction' to 'Mine
Properties' and 'Property, plant and equipment'. Some of the
criteria used to identify the production start date include:
-- Level of capital expenditure incurred compared to the original
construction cost estimate;
-- Completion of testing of the mine plant and processing equipment; and
-- Ability to produce metal in a saleable form.
When the mine development and construction project moves into
the production phase, the capitalisation of certain costs ceases
and costs are either regarded as forming part of the cost of
inventory or expensed, except for costs that qualify for
capitalisation. It is also at this point that depreciation
commences.
Going concern
The Group's ability to continue as a going concern is dependent
on a variety of factors including its ability to secure further
financing, the amount of insurance received, the time required to
bring the mine into production and the timing of the first gold
sales. As a result in performing their going concern assessment the
Directors exercised their judgment accordingly in relation to these
factors.
3.Finance Income and Costs
2016 2015
US$000 US$000
Finance Income
Interest income on short term bank deposits 5 4
Finance Costs
Interest expense on shareholder's loans 8,967 5,099
wholly repayable within five years
Interest expense on bank borrowings wholly 4,530 3,673
repayable within five years
Less: Borrowing costs capitalised in qualifying assets (13,497) (8,772)
Provisions: Unwinding of discount 58 53
Less: Unwinding of discount capitalised (58) (53)
in qualifying assets
Finance costs - -
4.Earnings per Share
2016 2015
US$ US$
Basic and diluted earnings per share (0.0165) (0.0161)
The basic earnings per share is calculated by dividing the loss
attributable to equity holders after tax of US$6,310,000 (2015 -
loss US$6,150,000) by the weighted average number of shares in
issue and carrying the right to receive dividend. For the year
ended 31 December 2016 this was 382,392,292 (2015 - 382,232,000)
shares.
As the Group has incurred a loss for the year, no option or
warrant is potentially dilutive, and hence the basic and diluted
earnings per share are the same. At year end there were 1,525,000
(2015 - 5,625,000) share options outstanding that are potentially
dilutive in future.
5.Mines under Construction
Cost Mining rights US$000 Construction Total US$000
in progress
US$000
At 1 January 2015 35,595 96,935 132,530
Additions including (573) 112,572 111,999
foreign
exchange differences
At 31 December 2015 35,022 209,507 244,529
Additions including - 72,768 72,768
foreign
exchange differences
At 31 December 2016 35,022 282,275 317,297
At 31 December 2015 35,022 209,507 244,529
Mining rights comprise exploration and evaluation assets up to
the date the Pakrut Gold Project was determined to be technically
feasible and commercially viable. All subsequent exploration and
evaluation expenditure at this site is capitalised within mining
rights. Mining rights also includes the subsoil contract signature
bonus, a share based payment for securing the Pakrut Mining Licence
and payments to obtain land use rights.
Construction in progress comprises the mine, smelting plant,
tailings pond, power lines and road construction work carried out
at the Pakrut Gold Project by contractors and directly by the
Group. It also includes the borrowing costs associated with the
loan to finance the mine construction from China Nonferrous Metals
Intl Mining Co. Limited ("CNMIM") and China Construction Bank
("CCB"), together with associated legal, professional and
consultancy costs.
Mines under construction are not depreciated until construction
is completed and the assets are available for their intended use,
signified by the formal commissioning of the mine for
production.
View source version on businesswire.com:
http://www.businesswire.com/news/home/20170627006618/en/
This information is provided by Business Wire
(END) Dow Jones Newswires
June 28, 2017 02:15 ET (06:15 GMT)
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