Anglo Asian Mining plc / Ticker: AAZ / Index: AIM / Sector: Mining
25 May 2016
Anglo Asian Mining plc
Full year results - 2015
Anglo Asian Mining plc ("Anglo Asian" or "the Company"), the AIM listed gold, copper and silver
producer focused in Azerbaijan, is pleased to announce its final audited results for the year ended 31 December 2015 ("FY
2015"). Note that all references to "$" are to United States Dollars.
Highlights
· Strong production performance in FY 2015 with
record gold production
· Total gold production in FY 2015 of 72,032 ounces
(FY 2014: 60,285 ounces)
· Gold sales in FY 2015 of 63,924 ounces (FY 2014:
50,615 ounces) completed at an average of $1,161 per ounce (FY 2014: $1,267 per ounce)
· Gold produced at an average cash operating cost net
of by-product credits of $724 per ounce (2014: $971 per ounce). Lower average cash operating cost due to increase in production
and lower costs
· Silver production in FY 2015 totalled 28,628 ounces
(FY 2014: 31,177 ounces). FY 2015 lower due to changing mineralogy
· Copper production for FY 2015 was 969 tonnes, a 24
per cent. increase on FY 2014 production of 784 tonnes
· Production target of 73,000 to 77,000 ounces of
gold and 1,700 to 2,100 tonnes of copper for FY 2016
· Gadir underground mine commenced production in 2015
with 37,880 tonnes of ore mined with an average grade of 7.98 grammes of gold per tonne
· Flotation plant commenced production in Q4 2015
with 578 dry metric tonnes of copper concentrate produced containing 130 tonnes of copper, 335 ounces of gold and 9,264 ounces of
silver
Financials
· Total revenues increased to $78.1 million (2014:
$68.0 million)
· Loss before tax reduced to $8.9 million (2014:
$14.4 million)
· Operating cash flow before movements in working
capital increased to $18.6 million (2014: $10.6 million)
· Net debt of $49.0 million at 31 December 2015 (31
December 2014: $52.4 million) calculated as aggregate of loans and borrowings less cash and cash equivalents
· Cash position of $0.2 million as at 31 December
2015 (31 December 2014: $0.3 million)
Chairman's statement
2015 was another important year for Anglo Asian where we demonstrated our ability as a mid-tier
gold, copper and silver producer. I believe it marks the first stage in turning around your Company. The performance of our
assets in Azerbaijan improved and we delivered record gold production of 72,032 ounces. With production increasing at Gedabek,
together with the successful launch of our flotation plant in the fourth quarter of 2015, Anglo Asian is now able to deliver
long-term, sustainable value to shareholders even during periods of low metal prices such as seen during 2015. The increase in
metal prices seen since the beginning of 2016, together with the cost reduction and efficiency initiatives and the devaluation of
the Azerbaijan Manat, will further enhance Anglo Asian's performance in the future.
Review of 2015 and 2016 to date
We reported total gold production for 2015 of 72,032 ounces, a 19 per
cent. increase over 2014 of 60,285 ounces; copper production in 2015 was 969 tonnes, a 24 per cent. increase over 2014 of 784
tonnes. Production of silver, however, totalled 28,628 ounces for 2015, which was an 8 per cent. decrease over 2014 of
31,177 ounces, due to changes in the mineralogy of the ore. Whilst our gold and copper production
in 2015 increased substantially, the global environment for mining companies remained poor. The difficulties experienced by
mining companies in 2015 resulting from the low prices of many commodities were often headline news. Average gold and copper
prices in 2015 were $1,160 per ounce and $5,494 per tonne respectively which were 8 per cent. and 20 per cent. lower respectively
than in 2014.
The increased gold production beneficially impacted our financial results for the year. The
impact of the first revenues from flotation was limited in 2015, but is expected to enhance the results from 2016 onwards.
Revenues increased from $68.0 million to $78.1 million and our cash costs reduced from $971 to $724 per ounce which resulted in
the operating loss reducing to $3.2 million from $8.9 million in 2014. Cash provided by operating activities increased in the
year to $22.9 million from $14.8 million in 2014. We serviced our debts on time with net principal and interest payments made in
the year totalling $23.1 million.
We continue to work on improving the efficiency of our production and to lower costs and in
particular the management of mining contractors. Cyanide is now also being partially sourced from Georgia at lower prices and its
shorter delivery lead time is enabling cyanide stocks to be reduced. The ore mined at Gedabek was found to be noticeably
harder in late 2015 and early 2016 and as a result the Company is planning to commission a second semi-autogenous ("SAG") mill in
the agitation leaching plant in the third quarter of 2016 to improve productivity. This new SAG mill will eventually be
redeployed in an expanded flotation plant. In March 2016, a new contract was signed with Industrial Minerals S.A. for the sale of
copper concentrate produced from the flotation plant. This contract is on the same terms as the Company's existing contract with
the exception of improved terms for any penalty due to the concentrate containing zinc.
We were very pleased to announce the completion of construction and first production and
revenues from our flotation plant in the fourth quarter of 2015. The successful completion of this project to build a flotation
plant in under two years and for $4.5 million is a remarkable achievement and a credit to the technical staff of Anglo Asian and
its contractors. Commissioning encountered a few teething problems, which is usual for such projects, but these have now been
largely overcome. Initial production of concentrate also contained zinc, which is treated as a contaminant by the buyer. We are
working very hard to mitigate this problem and are making good progress in reducing the zinc content of the concentrate produced.
The Company is expected to benefit from a full year of production from the flotation plant in 2016.
During 2015, we were also pleased to announce the first ore mined from Gadir, an underground
mine co-located on the Gedabek site. During 2015, 37,880 tonnes of ore grading 7.98 grammes per tonne of gold was extracted and
processed. This ore is very amenable to leaching by our agitation leaching plant and is therefore prolonging the useful life of
the plant. In March and April 2016, we took delivery of an underground drill machine, loader and truck from Atlas Copco which is
expected to increase the productivity of the Gadir mine.
The first quarter of 2016 unfortunately saw a slow-down in production. Ordinarily, the first
quarter of the year has always had lower production due to the difficult winter weather conditions. However, the harder rock that
has been encountered together with its lower gold grade also adversely affected production. On the other hand, we were very
pleased to report the first full quarter of production from the flotation plant. In the three months to 31 March, 2016 the
flotation plant produced 1,458 dry metric tonnes of copper concentrate containing 251 metric tonnes of copper and 777
ounces and 24,595 ounces of gold and silver respectively.
We place our highest priority on our environmental responsibilities. A key responsibility is
secure storage of tailings produced at Gedabek. In 2015, we approximately doubled the capacity of our tailings dam by raising the
wall of the dam and increased security by building a reed bed biological treatment system immediately downstream of the dam to
process any seepage. The pipes to the tailings dam were also relocated into fully lined trenches to capture any seepage should
any pipe rupture.
We sell our products in US Dollars; however, a significant portion of our costs are denominated
in Azerbaijan Manats. The recent devaluation of the Azerbaijan Manat against the US Dollar of 43 per cent. in addition to the
previous devaluation of 34 per cent. is unwelcome for Azerbaijan and its people. However, we believe this will have a
considerable beneficial effect for Anglo Asian in 2016. We estimate that the combined effect of the recent devaluation and the
previous devaluation in February 2015 will reduce our operating costs by approximately $13 million in the 2016 financial year at
the current US Dollar to Azerbaijan Manat exchange rate of approximately $1 equals AZN1.5
Outlook
It is with optimism that I look forward to 2016 and beyond. I believe that during the course of
2015, we have demonstrated that our strategy can deliver success, and we have built a strong platform for sustained growth and
profitability.
The outlook for metal prices remains uncertain. However, the increase in prices during the first
four months of 2016 is obviously beneficial to us and we hope marks the start of a sustained recovery in prices.
Despite the production challenges in the first quarter of 2016 as noted above, we are confident
that total gold production during the remainder of the year will improve and accordingly have announced a gold production target
for 2016 of between 73,000 ounces to 77,000 ounces (which includes approximately 4,000 ounces to 5,000 ounces of production from
the flotation plant). Furthermore, we have also announced a copper production target of between 1,700 tonnes and 2,100 tonnes for
2016 which is significantly higher than 2015's production of 969 tonnes. Our forecast gold production for 2016 is slightly higher
than that achieved in 2015, and there will be a full year's contribution from our new flotation plant. We are also benefiting
from lower costs due to the devaluation of the Azerbaijan Manat. Accordingly, we believe the outlook for 2016 represents a
further improvement over 2015 and look forward to updating shareholders on our progress.
Appreciation
I would like to take this opportunity to thank our Anglo Asian senior management team and
employees, partners, the Government of Azerbaijan, advisers and fellow directors for their continued support as we continue to
build Anglo Asian into a leading and profitable mid-tier gold, copper and silver producer in Azerbaijan and Caucasia. I would
also like to especially thank our shareholders for their invaluable support as we look forward to a successful 2016.
Khosrow Zamani
Non-executive chairman
Strategic report
Principal activities
The principal activity of Anglo Asian Mining PLC is that of a holding company and a provider of
support and management services to its main operating subsidiary R.V. Investment Group Services LLC. The Company, together with
its subsidiaries (the "Group"), owns and operates gold, silver and copper producing assets in the Republic of Azerbaijan
("Azerbaijan"). It also explores for and develops other potential gold and copper projects in Azerbaijan.
The Group has a 1,962 square kilometre portfolio of gold, silver and copper assets in western
Azerbaijan, at various stages of the development cycle. These include our main Gedabek gold, silver and copper mine. Gadir, an
underground mine, is also located at Gedabek. The Group's processing facilities to produce gold doré and copper, silver and gold
concentrates, from mined ore are also located at Gedabek. Gosha, the Group's second gold and silver mine, is located 50
kilometres away from Gedabek. Ordubad, the Group's early stage gold and copper exploration project is located in the Nakhchivan
region of Azerbaijan.
During the period under review, the Group's main focus has been on several key areas to increase
our gold, copper and silver production and ensure the future success of our operations as follows:
- continued optimisation of the performance of the agitation
leaching plant to ensure maximum production at lowest possible cost;
- increasing production of ore from the Gadir underground mine,
which is co-located on the Gedabek property, and which commenced production in 2015; and
- production of a copper and precious metal concentrate from the
flotation plant which was commissioned in the fourth quarter of 2015.
The Group has a target production for the full year to 31 December 2016 of 73,000 to 77,000
ounces of gold and 1,700 to 2,100 tonnes of copper.
Gedabek
Introduction
The Gedabek mining operation is located in a 300 square kilometre contract area in the lower
Caucasus mountains in western Azerbaijan on the Tethyan Tectonic Belt, one of the world's most significant copper and gold
bearing geological structures. The mine, which first poured gold in 2009, is principally an open pit mining operation. In
addition, in late 2014, the Group started to develop an underground mine, Gadir, co-located on the Gedabek property, which
commenced production in June 2015.
Mineral resources
Key to the future development of the Gedabek site is our knowledge of the mineral resources and
ore reserves within the contract area. The Group's latest ore reserve estimate was carried out as of 1 September 2014. This ore
reserve estimate showed an increase of approximately 3.9 million tonnes of ore, after allowing for depletion due to mining since
the previous estimate. It also showed a significantly higher copper content than the previous estimate. Table 1 shows the ore
reserve estimate as at 1 September 2014.
Table 1 - ore reserve estimate as at 1 September 2014
Reserve Category
|
Ore Reserve
|
In Situ
|
In Situ Grades
|
Contained metal
|
Recoverable Metal
|
(tonnes)
|
Au (g/t)
|
Cu (%)
|
Ag (g/t)
|
Au (oz)
|
Cu (t)
|
Ag (oz)
|
Au (oz)
|
Cu (t)
|
Ag (oz)
|
Proven
|
16,733,000
|
1.12
|
0.61
|
7.63
|
600,000
|
87,000
|
4,105,000
|
447,000
|
65,000
|
1,346,000
|
Probable
|
3,761,000
|
0.68
|
0.40
|
6.12
|
82,000
|
15,000
|
740,000
|
58,000
|
11,000
|
268,000
|
Total
|
20,494,000
|
1.03
|
0.50
|
7.35
|
682,000
|
102,000
|
4,845,000
|
505,000
|
76,000
|
1,614,000
|
Mining operations
The principal mining operation at Gedabek is conventional open cast mining from several
contiguous open pits. Ore is first drilled and blasted and then transported either to a processing facility or to a stockpile for
storage. The major mining activities of drilling and blasting and subsequent transportation of ore are carried out by
contractors. Table 2 summarises the ore mined from the open pit at Gedabek for the year ended 31 December 2015.
Table 2 - ore mined from the open pit at Gedabek for the year ended 31 December 2015
Quarter ended
|
Ore mined (tonnes)
|
Waste mined
|
|
High Grade
|
Low Grade
|
Sulphide
|
Total
|
(tonnes)
|
31 March 2015
|
134,334
|
257,472
|
9,410
|
401,216
|
1,482,906
|
30 June 2015
|
145,132
|
260,264
|
58,059
|
463,455
|
1,515,311
|
30 September 2015
|
154,913
|
304,726
|
16,305
|
475,944
|
1,484,146
|
31 December 2015
|
130,800
|
300,264
|
50,492
|
481,556
|
1,444,114
|
Total for the year
|
565,179
|
1,122,726
|
134,266
|
1,822,171
|
5,926,477
|
Ore is also mined at Gedabek from the Gadir underground mine which is situated approximately one
kilometre from the main open pit at the Gedabek site. Development of the Gadir mine commenced in 2014 with the construction of a
decline and the mine started producing ore in June 2015. Table 3 summarises the ore mined from the Gadir underground mine for the
year ended 31 December 2015.
Table 3 - ore mined from the Gadir underground mine for the year ended 31 December
2015
Quarter ended
|
Ore mined (tonnes)
|
|
Ore mined
|
Average gold grade
|
|
tonnes
|
(g/t)
|
30 June 2015
|
2,116
|
9.45
|
30 September 2015
|
6,945
|
8.69
|
31 December 2015
|
28,819
|
7.71
|
Total for the year
|
37,880
|
7.98
|
Processing operations
Ore is processed at Gedabek to produce either gold doré (an alloy of gold and silver with small
amounts of impurities) or a copper and precious metal concentrate.
Gold doré is produced by cyanide leaching. Initial processing is to leach (i.e. dissolve) the
precious metal (and copper) in a cyanide solution. This is done by various methods:
1. Heap leaching of crushed ore. Crushed ore is heaped
into permeable "pads" onto which is sprayed a solution of cyanide. The solution dissolves the metals as it percolates through the
ore by gravity and it is then collected.
2. Heap leaching of run of mine ("ROM") ore. The process
is similar to heap leaching for crushed ore except the ore is not crushed and is heaped into pads as received from the mine (ROM)
without further treatment or crushing.
3. Agitation leaching. Ore is crushed and then processed
through a grinding circuit. The
finely ground ore is then placed in stirred tanks containing a cyanide solution and the
contained metal is dissolved in the solution.
Slurries produced by the above processes with dissolved metal in solution are then transferred
to a resin in pulp ("RIP") plant. A synthetic resin, in the form of small spherical plastic beads designed to absorb gold
selectively over copper and silver, is placed in contact with the leach slurry, or "pulp". After separation from the pulp, the
gold-loaded resin is treated with a second solution, which "strips" (i.e. desorbs) the gold, plus the small amounts of absorbed
copper and silver, transferring the metals from the resin back into solution. The gold and silver dissolved in this final
solution are recovered by electrolysis and are then smelted to produce the doré metal, containing gold and silver.
Copper and precious metal concentrates are produced by two processes, SART processing and
flotation.
1. Sulphidisation, Acidification, Recycling and Thickening
("SART"). The cyanide solution after metal absorption by resin in pulp processing is transferred to the SART plant. The pH
of the solution is then changed by the addition of reagents. This recovers the copper from the solution in the form of a
precipitated copper sulphide concentrate containing silver and minor amounts of gold.
2 Flotation. Flotation is carried out in a
separate flotation plant. Feedstock is mixed with water and other chemicals including flocculants to produce a slurry called
"pulp". This pulp is processed in flotation cells (tanks). The flotation cells are agitated and air introduced as small bubbles.
The sulphide minerals attach to the air bubbles and float to the surface where they form a froth which is collected. This froth
is dewatered to form a concentrate containing copper, gold and silver. Feedstock can be either tailings from the agitation
leaching plant or freshly crushed and milled ore.
Initially, gold doré was produced at Gedabek by heap leaching crushed ore. Heap leaching is a
low capital cost method of production traditionally used by mines when they first move into production. However, heap leaching
has limitations with regards to the minimum size of the ore being leached limited to around 25 millimetres. This limitation
results in only approximately 60 to 70 per cent. of the gold within the ore being recovered with leaching cycles typically
extending up to one year, depending on the detailed composition of the ore.
To increase gold recoveries and production, the Group constructed and commissioned in July 2013
an agitation leaching plant. Compared to heap leaching, agitation leaching can deliver higher recoveries of gold without long
leaching cycles. Heap leach pads also require considerable space for their construction and due to the topology of the Gebabek
site, this was a constraint.
The agitation leaching plant's initial performance was not as planned due to the mineralogical
variation of the ore. Due to very high copper values in the ore, recoveries of gold were not as high as anticipated and the
plant's usage of cyanide was higher than planned. Throughout 2014 and 2015, the Group has therefore expended considerable effort
in improving the performance of the plant. This has been focused on both increasing metal recoveries to increase production and
lowering cyanide consumption to decrease costs.
During the year ended 31 December 2015, ore has been processed by three methods at Gedabek:
whole ore heap leaching; crushed ore heap leaching; and agitation leaching. Table 4 shows the amounts of ore and its grade
processed at Gedabek for the year ended 31 December 2015.
Table 4 - amount of ore and its grade processed at Gedabek for the year ended 31 December
2015
Quarter ended
|
Amount of ore processed (tonnes)
|
Gold grade of ore processed (g/t)
|
|
Heap leach pad
|
Heap leach pad
|
Agitation
|
Heap leach pad
|
Heap leach pad
|
Agitation
|
|
(Crushed ore)
|
(ROM ore)
|
leaching plant
|
(Crushed ore)
|
(ROM ore)
|
leaching plant
|
31 March 2015
|
92,586
|
135,531
|
136,717
|
1.47
|
1.00
|
3.63
|
30 June 2015
|
127,510
|
243,444
|
141,552
|
1.50
|
0.84
|
3.43
|
30 September 2015
|
72,817
|
135,731
|
150,370
|
1.43
|
1.07
|
3.25
|
31 December 2015
|
101,086
|
32,004
|
148,240
|
1.48
|
1.09
|
3.60
|
Total for the year
|
393,999
|
546,710
|
576,879
|
1.47
|
0.95
|
3.45
|
The Group's experience of processing has shown the ore at Gedabek to be poly-metallic containing
significant amounts of copper. Initially, the SART processing plant was constructed to produce a copper and precious metal
concentrate. However, to further exploit the high copper content of the Group's ore reserves, the Group commenced construction of
a flotation plant in the fourth quarter of 2014 whose function is primarily to produce copper with gold and silver as
by-products.
The flotation plant has the flexibility to be configured for various methods of operation. It is
able to process the Company's stockpiles of high copper content ore. It can also treat ore feed to, or tailings from, the
agitation leaching plant. In such configurations, the plant will be an integral part of the agitation leaching plant.
The flotation plant was commissioned in the fourth quarter of 2015 and is now producing a copper
and precious metal concentrate from the tailings of the agitation leaching plant. Commissioning took longer than anticipated due
to some minor delays in final installation of equipment and the time required for the optimisation of the quality of the
concentrate due to the presence of zinc, which is an impurity. These teething problems have been largely overcome and the plant
is currently producing at around 75 to 80 per cent. of its design capacity which equates to approximately 1,000 wet tonnes of
mineral concentrate per month.
Production and sales
For the year ended 31 December 2015, total gold production as doré bars and as a constituent of
the copper and precious metal concentrate totalled 72,032 ounces, which was an increase of 11,747 ounces in comparison to the
production of 60,285 ounces in the year ended 31 December 2014.
Table 5 summarises the gold and silver produced as doré bars and sales of gold bullion for the
year ended 31 December 2015.
Table 5 - gold and silver produced as doré bars and sales of gold bullion for the year ended 31
December 2015.
Quarter ended
|
Gold produced*
(ounces)
|
Silver produced
(ounces)
|
Gold Sales**
(ounces)
|
Gold sales price
($)
|
)31 Mar 2015
|
17,185
|
596
|
17,206
|
1,214
|
30 Jun 2015
|
18,739
|
900
|
16,088
|
1,193
|
30 Sept 2015
|
18,158
|
907
|
14,871
|
1,123
|
31 Dec 2015
|
17,588
|
1,858
|
15,759
|
1,108
|
Total for the year
|
71,670
|
4,261
|
63,924
|
1,161
|
*Including Government of Azerbaijan's share.
** Excludes Government of Azerbaijan's share.
Table 6 summarises the total copper and precious metal production as concentrate from both SART
processing and flotation for the year ended 31 December 2015.
Table 6 - total copper and precious metal production as concentrate for the year ended 31
December 2015
|
Copper (tonnes)
|
Gold (ounces)
|
Silver (ounces)
|
Quarter ended
|
SART
|
Flotation
|
Total
|
SART
|
Flotation
|
Total
|
SART
|
Flotation
|
Total
|
31 March 2015
|
182
|
-
|
182
|
8
|
-
|
8
|
1,354
|
-
|
1,354
|
30 June 2015
|
236
|
-
|
236
|
6
|
-
|
6
|
3,628
|
-
|
3,628
|
30 September 2015
|
216
|
-
|
216
|
7
|
-
|
7
|
3,532
|
-
|
3,532
|
31 December 2015
|
205
|
130
|
335
|
6
|
335
|
341
|
6,589
|
9,264
|
15,853
|
Total for the year
|
839
|
130
|
969
|
27
|
335
|
362
|
15,103
|
9,264
|
24,367
|
Table 7 summarises the total copper concentrate sales from both SART processing and flotation
for the year ended 31 December 2015.
Table 7 - total copper concentrate sales for the year ended 31 December 2015
|
SART processing
|
Flotation
|
Total
|
Quarter ended
|
Sales (dmt)
|
$000
|
Sales (dmt)
|
$000
|
Sales (dmt)
|
$000
|
31 March 2015
|
234
|
635
|
-
|
-
|
234
|
635
|
30 June 2015
|
372
|
1,021
|
-
|
-
|
372
|
1,021
|
30 September 2015
|
279
|
601
|
-
|
-
|
279
|
601
|
31 December 2015
|
425
|
891
|
392
|
630
|
817
|
1,521
|
Total for the year
|
1,310
|
3,148
|
392
|
630
|
1,702
|
3,778
|
Tailings (waste) storage
The Company is very mindful of the importance of proper storage of tailings both for efficient
operation of the plant and to fulfil its environmental responsibilities. The
Company stores its tailings in a purpose built dam approximately seven kilometres from its processing operations.
The project to approximately double the capacity of the tailings dam by raising its wall 14 metres to 64 metres
is now complete. The tailings dam now has a capacity of approximately 3.2 million cubic metres. The tailings dam seepage water
return pumping system has been greatly improved with many failsafe features added. The reed bed biological treatment system
immediately downstream of the dam to process any seepage has also been completed. This will enable seepage water to be purified
before discharge into the Shamkir river. The new dam construction and pumping system has now been inspected and approved by
third-party consultant engineers. Work has also been carried out to relocate the pipes from the agitation leaching plant to the
tailings dam into a fully lined trench designed to capture any seepage should any pipe rupture.
Due to the high rainfall in the Gedabek region, there is a positive water balance over the mine
property, which accumulates water at a rate of about 300,000 cubic metres per year. To date, all excess water is stored in
the tailings dam, but in 2015 a project was initiated to design and construct a water detoxification system that will enable
clean water to be discharged from the site into local water courses. The treatment system will involve reverse osmosis and
ion exchange and the first phase of this project is expected to start operation during 2016.
Personnel and health and safety
The health and safety of our employees and the protection of the environment in and around our
mine properties are prime concerns for the Company's board and management team. The Health, Safety and Environmental
("HSE") department at Gedabek has a qualified HSE manager, who is assisted by four HSE officers. Overall strategy for HSE
matters in the Company is overseen by the HSE and Technical committee, which is chaired by a board director, Professor John
Monhemius.
During 2015, there were 78 (2014: 65) reportable safety incidents, of which ten (2014: four)
were lost time incidents ("LTI"), where the casualty had to take time off from work. The increased number of incidents is partly
explained by the increasing size and complexity of the mining and processing operations across our properties as the Company's
activities progress. However, the Company is actively monitoring the situation and taking action to reduce the number of
incidents.
To improve medical coverage over all the operations, 85 managers and supervisors have undergone
first aid training, so that they can provide first responder help in the event of accidents or other emergencies, before
professional medical assistance arrives from the local hospital.
A geotechnical inspection of the new Gadir underground mine was carried out in August 2015 by
AMC Consultancy, United Kingdom. Their report identified a number of short and medium term issues that are in the process
of being addressed.
Exploration at Gedabek site
The main exploration activities in the year have been at the Gadir mine and surrounding area at
Gedabek and at the Ordubud site.
Gosha
The Group's second mining project, the 300 square kilometre Gosha contract area, is located in
western Azerbaijan, 50 kilometres north-west of Gedabek. Gosha is currently being developed as a small, high grade, underground
gold mine.
During the development and early production of the Gosha mine, it became evident that the
initial estimated ore vein thickness was not as expected. This not only affected the resource estimate but also resulted in
changes in mining method to decrease dilution during mining. Currently based on a non-JORC report by the consultants SRK, the
Gosha resource is about 40,000 ounces of gold (140,000 tonnes of ore grading 9 grammes per tonne - all figures in situ and before
dilution). We are also planning for further exploration at Gosha.
A total of 14,981 tonnes of ore of average grade 6.15 grammes per tonne were mined at Gosha in
the year ended 31 December 2015.
Ordubad
Our 462 square kilometre Ordubad contract area is located in the Nakhchivan region of Azerbaijan
and contains numerous targets including Shakardara, Piyazbashi, Misdag, Agyurt, Shalala and Diakchay, which are all located
within a 5 kilometre radius of each other. Development at Ordubad forms part of the Group's longer-term development portfolio as
a mid-tier gold, copper and silver mining company.
Sale of the Group's products
Important to the Group's success is the ability to transport its products to market and sell
them without disruption.
The Group ships all of its gold doré to MKS Finance SA in Switzerland. The logistics of
transport and sale are well established and gold doré shipped from Gedabek arrives in Switzerland within three to five days. The
proceeds of the estimated 90 per cent. of the gold content of the doré is settled within one to two days of receipt of the doré.
The Group has not experienced any disruptions to its sale of metal due to logistics or delays in customs clearance. MKS Finance
SA both refines and then purchases our precious metal; all assays and a full accounting of all metal is agreed with
them.
The Gedabek mine site has good road transportation links and our copper and precious metal
concentrate is collected from the Gedabek site by the purchaser. The Group was pleased to announce in May 2014 that it had signed
an exclusive three year contract with Industrial Minerals SA, a Swiss based integrated trading, mining and logistics group, for
the sale of its copper concentrate. The Group has again experienced no delays in the sale of its copper concentrate in the period
under review. In March 2016, the Group signed an additional contract with Industrial Minerals SA for the sale of the concentrate
produced by its flotation plant which had improved terms. The contract is valid for the period to 31 December 2018. Until this
date, sales of concentrate produced by the flotation plant were made under the original contract.
Principal risks and uncertainties
Country risk in Azerbaijan
The Group currently operates solely in Azerbaijan and is therefore naturally at risk of adverse
changes to the regulatory or fiscal regime within the country. However, Azerbaijan is outward looking and desirous of
attracting direct foreign investment and the Company believes the country will be sensitive to the adverse effect of any proposed
changes in the future. In addition, Azerbaijan has historically had a stable operating environment and the Company maintains very
close links with all relevant authorities.
Operational risk
The Company currently produces all its products for sale at Gedabek. Planned production may not
be achieved as a result of unforeseen operational problems, machinery malfunction or other disruptions. Operating costs and
profits for commercial production therefore remain subject to variation. The Group monitors production on a daily basis and
has robust procedures in place to effectively manage these risks.
Commodity price risk
The Group's revenues are exposed to fluctuations in the price of gold, silver and copper and all
fluctuations have a direct impact on the operating profit and cash flow of the Group. Whilst the Group has no control over the
selling price of its commodities, it has very robust cost controls to minimise costs to ensure it can withstand any prolonged
period of commodity price weakness.
The Group does not hedge this commodity price exposure and actively monitors all changes in
commodity prices to understand the impact on the business. The Group remains open to the possibility of hedging, which is
reviewed periodically.
Foreign currency risk
The Group reports in United States Dollars and a large proportion of its costs are incurred in
United States Dollars. It also conducts business in Australian dollars, Azerbaijan Manats and United Kingdom Sterling. The Group
does not currently hedge its exposure to other currencies, although it will review this periodically if the volume of non-United
States dollar transactions increases significantly. Also, the fact that both revenue of the Group and the Group's
interest-bearing debt are settled in United States dollars is a key mitigating factor that helps to avoid significant exposure to
foreign currency risk. Information on the carrying value of monetary assets and liabilities denominated in foreign currency and
the sensitivity analysis of foreign currency is disclosed in note 23 to the following financial statements.
Liquidity and interest rate risk
Interest rates on current loans are fixed except for three month LIBOR embedded in the terms of
the Amsterdam Trade Bank loan. The Group has not used any interest rate swaps or other instruments to manage its interest rate
profile during 2015, but this requirement is reviewed on a periodic basis. Information on the exposure to changing interest rates
is disclosed in note 23 to the following financial statements. The approval of the board of directors is required for all
new borrowing facilities. At the year end, the Group's only interest rate exposure was on the interest rate charged on the
Amsterdam Trade Bank loan.
The levels of deposits held by the Group have also been low, therefore any impact of changing
rates on interest receivable is minimal.
Key performance indicators
The Group has adopted certain key performance indicators ("KPIs") which enable it to measure its
financial performance. These KPIs are as follows:
1. Profit before taxation. This is the key performance
indicator used by the Group. It gives insight into cost management, production growth and performance efficiency.
2. Net cash provided by operating activities. This is a
complementary measure to profit before taxation and demonstrates conversion of underlying earnings into cash. It provides
additional insight into how we are managing costs and increasing efficiency and productivity across the business in order to
deliver increasing returns.
3. Cash cost per ounce. Cash cost per ounce of gold produced
is a widely used industry metric and is a measure of how our operation compares to other producers in the industry.
The Group's performance against these indicators is discussed in the financial
review.
Financial review
Group income statement
The Group generated revenues of $78,057k (2014: $67,964k) from sales of gold and silver bullion
and copper and precious metal concentrates.
$74,279k of the revenues (2014: $64,280k) were generated from sales of gold and silver bullion
from the Group's share of the production of doré bars in 2015. Bullion sales in 2015 were 63,924 ounces of gold and 3,754 ounces
of silver (2014: 50,615 ounces of gold and 6,802 ounces of silver) at an average price of $1,161 per ounce and $15 per ounce
respectively (2014: $1,267 per ounce and $20 per ounce respectively). In addition, the Group generated revenue from the sale of
copper concentrate of $3,778k (2014: $3,684k).
The Group incurred cost of sales of $75,234k (2014: $68,500k). The cash cost of mining and
processing in 2015 decreased by $6,160k from $61,697k in 2014 to $55,537k in 2015. This was due to improving operational
efficiency, cost control and the devaluation of the Azerbaijan Manat. However, this was offset by higher depreciation and
amortisation of $2,819k ($21,857k in 2015 compared to $19,038k in 2014), a net charge in respect of opening and closing inventory
in 2015 of $6,828k and a decrease in capitalised deferred stripping costs in 2015 of $3,289k.
Depreciation and amortisation in 2015 was $21,857k compared to $19,038k in 2014. The higher
depreciation was due to increased production of gold. Accumulated mine development costs within producing mines are depreciated
and amortised on a unit-of-production basis over the economically recoverable reserves of the mine concerned, except in the case
of assets whose useful life is shorter than the life of the mine, in which case the straight line method is applied. The unit of
account for run of mine ("ROM") costs and for post-ROM costs is recoverable ounces of gold.
The Group had other income in 2015 of $714k (2014: $632k) which was interest receivable on
employee loans, consultancy and exchange gains. The Group incurred administration expenses in 2015 of $5,415k (2014: $7,202k) and
finance costs of $5,721k (2014: $5,462k). The Group's administration expenses comprise the cost of the administrative staff and
associated costs at the Gedabek mine site, the cost of the Baku office and the cost of maintaining the Group's listing on AIM.
The Group's administration costs reduced in 2015 compared to 2014 due to the devaluation of the Azerbaijan Manat and cost
reduction measures. The finance costs for the year comprise interest on the credit facilities and loans, interest on letters of
credit and accretion expenses on the rehabilitation provision.
The Group recorded a reduced loss before taxation in 2015 of $8,910k (2014: $14,364k) due to
higher revenues in 2015 and average cash costs reducing to $724 per ounce compared to $971 per ounce in 2014.
The Group had a taxation credit for the year of $1,529k (2014: $3,436k). This comprised a
current income tax charge of $nil and a deferred tax credit of $1,529k (2014: taxation credit of $3,436k comprising a current
income taxation charge of $nil and a deferred taxation credit of $3,436k). The Group had no current taxation charge in 2015 as
its main operating companies incurred a taxable loss for the year. The deferred taxation credit in 2015 arose primarily due to an
increase in carry forward losses partially offset by lower taxation depreciation compared to accounting depreciation.
Cash cost of total gold production
The Group produced gold at an average cash operating cost net of by-product credits in 2015 of
$724 per ounce compared to $971 per ounce in 2014. Cash operating cost is defined as the cash cost of mining and processing
(before adjustment for inventory movements and deferred stripping costs capitalised or released) plus metal selling costs.
By-product credits are the sale proceeds (including Government of Azerbaijan share) of copper and silver. The reason for the
decrease in 2015 compared to 2014 was the both the decrease in cash operating costs and the increase in production.
Group statement of financial position
Non-current assets decreased from $137,451k at the end of 2014 to $129,464k at the end of 2015.
The main reasons for the decrease were intangible assets lower by $1,672k and property, plant and equipment lower by $6,003k.
These decreases were mainly driven by depreciation and amortisation in the year. Non-current inventory increased by $873k due to
an increase in ore stockpiles.
Net current assets decreased from $10,136k at the end of 2014 to net current liabilities of
$4,243k at the end of 2015. The main reason for the decrease was an increase in the current portion of interest-bearing loans and
borrowings. The current portion of interest-bearing loans and borrowings increased by $10,033k from $16,675k to $26,708k. This
was mainly due to $2,007k of existing loans from the International Bank of Azerbaijan now maturing within one year, an increase
in the loan of $3,379k due to Pasha Bank which was drawn down in the year to finance the flotation plant construction and the
loan from director of $3,860k which is repayable within one year. The Group's cash balances at 31 December 2015 were $249k (2014:
$322k).
Net assets of the Group were $78,644k (2014: $85,916k). The decrease was mainly due to the loss
incurred in the year.
The Group is financed by a mixture of equity and debt. The Group's total debt at 31 December
2015 was $49,296k and comprised the following:
a $27.1m term loan from the Amsterdam
Trade Bank ("ATB"). The loan has a quarterly interest rate of LIBOR plus 8.25 per cent. The term of the loan is 58 months and
repayment is by quarterly instalments of $2.5m which commence in February 2015, 16 months after drawdown. The final repayment is
due on 25 August 2018. The Group has pledged to ATB its present and future rights against MKS Finance SA, the sole buyer of the
Group's gold and silver bullion until the loan is repaid. The actual rate of interest the loan incurred in 2015 was 8.73 per
cent. The loan has a debt service coverage ratio ("DSCR") covenant of 1:1.25 calculated half and full yearly from the Group's
published half and annual financial statements. The Group met this DSCR for both the six months ended 30 June 2015 and 12 months
ended 31 December 2015.
b $11.7m of loans from the International
Bank of Azerbaijan. $10.2m of these loans is the remaining balance of the loans obtained for the construction of the agitation
leaching plant. Repayment started on 31 March 2015 and ends on 31 March 2018. $1.5m is a working capital facility and carries an
interest rate of 12 per cent. It is repayable in full on 30 June 2016.
c $0.4m due to Atlas Copco for equipment
financing.
d $1.7m due to Yapi Kredi Bank for working
capital financing.
e $4.6m due to Pasha Bank. $1.4m is
payable in respect of the credit line for financing letters of credit for cyanide purchases. $3.3m is in respect of the credit
facility obtained for the financing of the flotation plant. The total amount outstanding under the two facilities is repayable in
two equal instalments in May and November 2016.
f $3.9m from a director. This
carries interest at 10 per cent. Repayment date is 8 July 2016.
The Group had a deferred taxation liability at 31 December 2015 of $15,435k (2014:
$16,964k).
Group cash flow statement
Operating cash inflow before movements in working capital was $18,581k (2014: $10,567k). The
main source of operating cash flow was the profit before taxation, finance costs and amortisation and depreciation of $18,668k
(2014: $10,129k).
Working capital movements generated cash of $4,631k (2014: $4,254k) due to a decrease in
inventories of $6,285k (2014: increase of $3,342k) mainly driven by a decrease in metal in circuit of $6,660k partially offset by
a decrease in trade and other payables of $793k (2014: increase of $3,902k) and an increase in trade and other receivables of
$1,110k (2014: decrease of $3,694k).
Income tax paid was $nil (2014: $nil) as the Group incurred taxable losses for the
year.
Net cash provided by operating activities in 2015 was $22,963k compared to $14,821k in 2014.
This higher cash generated from operating activities in the year was due to the decreased loss of the Group partially offset by
less cash generated from working capital.
Expenditure on property, plant and equipment and mine development was $14,279k (2014: $16,270k).
The main items of expenditure in 2015 were capitalisation of deferred stripping costs of $6,627k, the raise of the wall of the
tailings dam and construction of a reed bed for the tailings dam of $2,983k, construction of the flotation plant of $3,188k and
development of the Gadir mine of $894k.
Exploration and evaluation expenditure of $377k (2014: $608k) was incurred and capitalised. This
arose due to exploration at the Gedabek and Ordubad mining properties.
Production Sharing Agreement ("PSA")
Under the terms of the PSA in place with the Government of Azerbaijan, the Group and the
Government of Azerbaijan share commercial products of each mine. Until the time the Group has recovered all its carried
forward, unrecovered costs, the Government of Azerbaijan effectively takes 12.75 per cent. of commercial products of each mine,
with the Group taking 87.25 per cent. (being 75 per cent. for capital and operating costs plus 49 per cent. of the remaining 25
per cent. balance). The Group will not have recovered all its costs incurred by the end of 2016 and the ratio of sharing
commercial products for the Gedabek mine of 87.25 per cent. for the Group and 12.75 per cent. for the Government of Azerbaijan
will continue throughout 2016.
Once all prior year costs are recovered, the Group can continue with cost recovery of up to 75
per cent. of the value of commercial products, before the remaining product revenues are shared between the Company and the
Government of Azerbaijan in a 49 per cent. to 51 per cent. ratio. The Group can recover the following costs:
· all direct operating expenses of the Gedabek
mine;
· all exploration expenses incurred on the Gedabek
contract area;
· all capital expenditure incurred on the Gedabek
mine;
· an allocation of corporate overheads - currently,
overheads are apportioned to Gedabek according to the ratio of direct capital and operating expenditure at the Gedabek contract
area compared with direct capital and operational expenditure at the Gosha and Ordubad contract areas; and
· an imputed interest rate of US dollar LIBOR + 4 per
cent. per annum on any unrecovered costs.
Going concern
The directors have prepared the Group financial statements on a going concern basis after
reviewing the Group's forecast cash position for the period to 30 June 2017 and satisfying themselves that the Group will have
sufficient funds on hand to realise its assets and meet its obligations as and when they fall due.
In making this assessment the directors have acknowledged the challenging and uncertain market
conditions in which the Group is operating. In 2015, the price of gold averaged $1,160 per ounce with a high of $1,298 per ounce
and a low of $1,060 per ounce. This resulted in a continuation of the depressed margins seen in 2014. However, 2016 has seen a
small but significant increase in the price of gold and during the period 1 January to 20 May 2016, the price of gold averaged
$1,206 per ounce. In addition, the Group received its first revenues from its flotation plant in the fourth quarter of 2015 after
the plant commenced production. 2016 and 2017 will see the benefit of a full years' contribution of revenues from the flotation
plant.
The Group commenced making payments on the principal of its debt in 2015. At the date of this
release, the Group has made all payments of interest and principal on time.
The Group's loan agreement with the Amsterdam Trade Bank contains a debt service cover ratio
("DSCR") covenant of at least 1.25. This ratio is calculated twice a year from its published financial statements. The Group has
so far met the DSCR of 1.25 for all reporting periods subsequent to loan drawdown. For the full year to 31 December 2016 and for
the six month period to 30 June 2017, the Group's cash flow forecasts show the Group is able meet the debt service cover ratio of
1.25 as specified.
Key to achieving the Group's forecast cash position, and therefore its going concern assumption
are the following:
- achieving the forecast production
of gold doré from its heap and agitation leaching facilities.
- achieving its forecast production
of precious metal concentrates from its SART and flotation processing.
- its metal (principally gold and
copper) price assumptions being met or bettered.
Should there be a moderate and sustained decrease in either the production or metal price
assumptions, significant doubt would be cast over the Group's short term cash position. Under this circumstance, the Group would
seek to defer all non-essential capital expenditure and administrative costs in order to preserve cash. The Group also has access
to local sources of short term finance to meet any shortfalls.
The Group's assumptions are based on best estimates and appropriate sensitivities have been
applied. Appropriate rigour and diligence has been performed by the directors in approving the assumptions. The directors
believe all assumptions are prepared on a realistic basis using the best available information.
The Group's business activities, together with the factors likely to affect its future
development, performance and position, can be found in the Group's annual report and accounts and within the chairman's statement
and the strategic report above. The financial position of the Group, its cash flow, liquidity position and borrowing facilities
are discussed in the financial review. In addition, note 23 to the following financial statements includes the Group's objectives
and details of its financial instrument exposures to credit risk and liquidity risk.
After making due enquiry, the directors have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Group continues
to adopt the going concern basis in preparing the financial statements.
Reza Vaziri
President and chief executive
Group income statement
year ended 31 December 2015
|
Notes
|
2015
$000
|
2014
$000
|
Revenue
|
6
|
78,057
|
67,964
|
Cost of sales
|
8
|
(75,234)
|
(68,500)
|
Gross profit / (loss)
|
|
2,823
|
(536)
|
Other income
|
7
|
714
|
632
|
Administrative expenses
|
|
(5,415)
|
(7,202)
|
Other operating expense
|
7
|
(1,311)
|
(1,803)
|
Operating loss
|
8
|
(3,189)
|
(8,909)
|
Finance income
|
6
|
-
|
7
|
Finance costs
|
11
|
(5,721)
|
(5,462)
|
Loss before tax
|
|
(8,910)
|
(14,364)
|
Income tax
|
12
|
1,529
|
3,436
|
Loss attributable to the equity holders of the parent
|
|
(7,381)
|
(10,928)
|
|
|
|
|
Loss per share attributable to the equity holders of the parent
|
|
|
|
Basic (US cents per share)
|
13
|
(6.58)
|
(9.79)
|
Diluted (US cents per share)
|
13
|
(6.58)
|
(9.79)
|
Group statement of comprehensive income
year ended 31 December 2015
|
2015
$000
|
2014
$000
|
Loss for the year
|
(7,381)
|
(10,928)
|
Total comprehensive loss
|
(7,381)
|
(10,928)
|
Attributable to the equity holders of the parent
|
(7,381)
|
(10,928)
|
Group statement of financial position
31 December 2015
|
Notes
|
2015
$000
|
2014
$000
|
Non-current assets
|
|
|
|
Intangible assets
|
14
|
18,373
|
20,045
|
Property, plant and equipment
|
15
|
108,428
|
114,431
|
Inventory
|
17
|
2,543
|
1,670
|
Other receivables
|
18
|
120
|
1,305
|
|
|
129,464
|
137,451
|
Current assets
|
|
|
|
Inventory
|
17
|
26,197
|
33,355
|
Trade and other receivables
|
18
|
16,131
|
5,350
|
Cash and cash equivalents
|
19
|
249
|
322
|
|
|
42,577
|
39,027
|
Total assets
|
|
172,041
|
176,478
|
Current liabilities
|
|
|
|
Trade and other payables
|
20
|
(20,112)
|
(12,216)
|
Interest-bearing loans and borrowings
|
21
|
(26,708)
|
(16,675)
|
|
|
(46,820)
|
(28,891)
|
Net current (liabilities) /assets
|
|
(4,243)
|
10,136
|
Non-current liabilities
|
|
|
|
Provision for rehabilitation
|
22
|
(8,554)
|
(8,624)
|
Interest-bearing loans and borrowings
|
21
|
(22,588)
|
(36,083)
|
Deferred tax liability
|
12
|
(15,435)
|
(16,964)
|
|
|
(46,577)
|
(61,671)
|
Total liabilities
|
|
(93,397)
|
(90,562)
|
Net assets
|
|
78,644
|
85,916
|
|
|
|
|
Equity
|
|
|
|
Share capital
|
24
|
1,993
|
1,978
|
Share premium account
|
|
32,325
|
32,246
|
Share-based payment reserve
|
|
283
|
670
|
Merger reserve
|
24
|
46,206
|
46,206
|
Retained (loss) / earnings
|
|
(2,163)
|
4,816
|
Total equity
|
|
78,644
|
85,916
|
|
|
|
|
|
|
Group cash flow statement
year ended 31 December 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
2014
|
|
Notes
|
$000
|
$000
|
Loss before tax
|
|
(8,910)
|
(14,364)
|
Adjustments for:
|
|
|
|
Finance income
|
|
-
|
(7)
|
Finance costs
|
11
|
5,721
|
5,462
|
Depreciation of property, plant and equipment
|
15
|
19,808
|
17,318
|
Amortisation of mining rights and other intangible assets
|
14
|
2,049
|
1,720
|
Share-based payment expense
|
25
|
15
|
16
|
Shares issues in lieu of cash payment
|
|
94
|
50
|
Foreign exchange gain, net
|
7
|
(380)
|
-
|
Write down of unrecoverable inventory
|
16
|
-
|
372
|
Write down of advances paid
|
7
|
184
|
-
|
Operating cash flow before movement in working capital
|
|
18,581
|
10,567
|
(Increase) / decrease in trade and other receivables
|
|
(1,110)
|
3,694
|
Decrease / (increase) in inventories
|
|
6,285
|
(3,342)
|
(Decrease) / increase in trade and other payables
|
|
(793)
|
3,902
|
Cash provided by operations
|
|
22,963
|
14,821
|
Income taxes paid
|
|
-
|
-
|
Net cash provided by operating activities
|
|
22,963
|
14,821
|
Investing activities
|
|
|
|
Expenditure on property, plant and equipment and mine development
|
|
(14,279)
|
(16,270)
|
Investment in exploration and evaluation assets including other intangible
assets
|
|
(377)
|
(608)
|
Interest received
|
|
-
|
7
|
Net cash used in investing activities
|
|
(14,656)
|
(16,871)
|
Financing activities
|
|
|
|
Proceeds from issuance of shares
|
|
-
|
28
|
Proceeds from borrowings
|
21
|
14,793
|
8,662
|
Repayments of borrowings
|
21
|
(18,314)
|
(6,982)
|
Interest paid
|
|
(4,859)
|
(4,825)
|
Net cash outflow from financing activities
|
|
(8,380)
|
(3,117)
|
Net decrease in cash and cash equivalents
|
|
(73)
|
(5,167)
|
Cash and cash equivalents at the beginning of the year
|
19
|
322
|
5,489
|
Cash and cash equivalents at the end of the year
|
19
|
249
|
322
|
Group statement of changes in equity
year ended 31 December 2015
|
Notes
|
Share
capital
$000
|
Share
premium
$000
|
Share-based
payment
reserve
$000
|
Merger
reserve
$000
|
Retained
earnings
/(loss)
$000
|
Total
equity
$000
|
1 January 2014
|
|
1,973
|
32,173
|
735
|
46,206
|
15,663
|
96,750
|
Loss for the year
|
|
-
|
-
|
-
|
-
|
(10,928)
|
(10,928)
|
Share options exercised
|
25
|
2
|
26
|
(28)
|
-
|
28
|
28
|
Shares issued
|
24
|
3
|
47
|
-
|
-
|
-
|
50
|
Fair value of forfeited options
|
|
-
|
-
|
(53)
|
-
|
53
|
-
|
Share-based payment
|
25
|
-
|
-
|
16
|
-
|
-
|
16
|
31 December 2014
|
|
1,978
|
32,246
|
670
|
46,206
|
4,816
|
85,916
|
Loss for the year
|
|
-
|
-
|
-
|
-
|
(7,381)
|
(7,381)
|
Shares issued
|
24
|
15
|
79
|
-
|
-
|
-
|
94
|
Fair value of forfeited options
|
|
-
|
-
|
(402)
|
-
|
402
|
-
|
Share-based payment
|
25
|
-
|
-
|
15
|
-
|
-
|
15
|
31 December 2015
|
|
1,993
|
32,325
|
283
|
46,206
|
(2,163)
|
78,644
|
Notes
1. General information
Anglo Asian Mining PLC (the "Company") is a company incorporated in England and Wales under the
Companies Act 2006. The Company's ordinary shares are traded on the Alternative Investment Market
("AIM") of the London Stock Exchange. The Company is a holding company. The principal activities and place of business of
the Company and its subsidiaries (the "Group") are set out in note 16, and the chairman's statement and strategic report
above.
2. Basis of preparation
The financial information set out above, which was approved by the board of directors on 24 May
2015, has been prepared in accordance with International Financial Reporting Standards ("IFRS") adopted by the European Union and
therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.
The financial information set out above has been prepared using accounting policies set out in
note 4 which are consistent with all applicable IFRSs and with those parts of the Companies Act 2006 applicable to
companies reporting under IFRSs. For these purposes, IFRSs comprises the standards issued by the International Accounting
Standards Board and interpretations issued by the International Financial Reporting Interpretations Committee that have been
endorsed by the European Union.
The financial information set out above has been prepared under the historical cost convention except for the
treatment of share-based payments. The Group financial statements are presented in United States Dollars ("$")
and all values are rounded to the nearest thousand except where otherwise stated. In the
Group financial statements "£" and "pence" are references to the United Kingdom pound sterling.
The board of directors assessed the ability of the Group to continue as a going concern and these
financial statements have been prepared on a going concern basis.
Going concern
The directors have prepared the Group financial statements on a going concern basis after
reviewing the Group's forecast cash position for the period to 30 June 2017 and satisfying themselves that the Group will have
sufficient funds on hand to realise its assets and meet its obligations as and when they fall due.
In making this assessment the directors have acknowledged the challenging and uncertain market
conditions in which the Group is operating. In 2015, the price of gold averaged $1,160 per ounce with a high of $1,298 per ounce
and a low of $1,060 per ounce. This resulted in a continuation of the depressed margins seen in 2014. However, 2016 has seen a
small but significant increase in the price of gold and during the period 1 January to 20 May 2016, the price of gold averaged
$1,206 per ounce. In addition, the Group received its first revenues from its flotation plant in the fourth quarter of 2015 after
the plant commenced production. 2016 and 2017 will see the benefit of a full years' contribution of revenues from the flotation
plant.
The Group commenced making payments on the principal of its debt in 2015. At the date of this
release, the Group has made all payments of interest and principal on time. The Group's loan agreement with the Amsterdam Trade
Bank contains a debt service cover ratio ("DSCR") covenant of at least 1.25. This ratio is calculated twice a year from its
published financial statements. The Group has so far met the DSCR of 1.25 for all reporting periods subsequent to loan drawdown.
For the full year to 31 December 2016 and for the six month period to 30 June 2017, the Group's cash flow forecasts show the
Group is able meet the debt service cover ratio of 1.25 as specified.
Key to achieving the Group's forecast cash position, and therefore its going concern assumption
are the following:
- achieving the forecast production of gold doré from
its heap and agitation leaching facilities.
- achieving its forecast production of precious metal
concentrates from its SART and flotation processing.
- its metal (principally gold and copper) price
assumptions being met or bettered.
Should there be a moderate and sustained decrease in either the production or metal price
assumptions, significant doubt would be cast over the Group's short term cash position. Under this circumstance, the Group would
seek to defer all non-essential capital expenditure and administrative costs in order to preserve cash. The Group also has access
to local sources of short term finance to meet any shortfalls.
The Group's assumptions are based on best estimates and appropriate sensitivities have been
applied. Appropriate rigour and diligence has been performed by the directors in approving the assumptions. The directors
believe all assumptions are prepared on a realistic basis using the best available information.
The Group's business activities, together with the factors likely to affect its future
development, performance and position, can be found in the Group's annual report and accounts and within the chairman's statement
and the strategic report above. The financial position of the Group, its cash flow, liquidity position and borrowing facilities
are discussed in the financial review. In addition, note 23 to the following financial statements includes the Group's objectives
and details of its financial instrument exposures to credit risk and liquidity risk.
After making due enquiry, the directors have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Group continues
to adopt the going concern basis in preparing the financial statements.
3 Adoption of new and revised standards
a) New and amended standards and interpretations
The Group applied those minor amendments, including annual improvements, which are effective for
annual periods beginning on or after 1 January 2015. However, they do not impact the annual consolidated financial statements of
the Group or the interim financial statements and, hence, have not been disclosed.
b) Standards issued but not yet effective
The standards and interpretations that are issued, but not yet effective, up to the date of
issuance of the financial statements that the Group reasonably expects will have an impact on its disclosures, financial position
or performance when applied at a future date, are disclosed below. The Group intends to adopt these standards when they become
effective. The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the financial
statements that are not expected to impact the Group have not been listed below.
· IFRS 9 'Financial
Instruments'
In July 2014, the IASB issued the final version of IFRS 9 'Financial Instruments' that replaces
IAS 39 and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for the financial
instruments project; classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods
beginning on or after 1 January 2018, with early adoption permitted. Except for hedge accounting, retrospective application is
required, but the provision of comparative information is not compulsory. For hedge accounting, the requirements are generally
applied prospectively, with some limited exceptions.
The Group plans to adopt the new standard on the required effective date. The Group is in the
process of assessing the impact of the changes required by the final version of IFRS 9, but these are not expected to be
materially significant.
· IFRS 15 'Revenue
from Contracts with Customers'
IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising
from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an
entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will
supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified
retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is
permitted.
The Group plans to adopt the new standard on the required effective date using the full
retrospective method. The Group is currently assessing the impact of the changes of IFRS 15, but these are not expected to be
materially significant.
· IAS 7 Statement of
cash flows
An exposure draft proposing amendments to IAS 7 "Statement of cash flows" was issued in December
2014. The exposure draft includes a proposal to require a reconciliation of the amounts in the opening and closing statements of
financial position for each item classified as financing in the statement of cash flows. It also includes a proposal to require
extended disclosures about the restrictions on cash and cash equivalent balances to provide the users with additional information
about the entity's liquidity.
The Group plans to implement the new standard on the effective date for implementation which is
for annual periods beginning on or after 1 January 2017. Comparative information for preceding annual periods is not required to
be restated. The Group does not expect these additional disclosures to be materially significant.
· Amendments to IAS 1 Disclosure
initiative
The amendments to IAS 1 'Presentation of Financial Statements' clarify rather than significantly
change, existing IAS 1 requirements. The amendments clarify:
o the materiality requirements in IAS 1;
o that specific line items in the statement(s) of profit or loss
and other comprehensive income and the statement of financial position may be disaggregated;
o that entities have flexibility as to the order in which they
present the notes to the financial statements; and
o that the share of other comprehensive income of associates and
joint ventures accounted for using the equity method must be restated in aggregate as a single line item, and classified between
those items that will or will not be subsequently reclassified to profit and loss.
Furthermore, the amendments clarify the requirements that apply when additional subtotals are
presented in the statement of financial position and the statement(s) of profit or loss and other comprehensive income. These
amendments are effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments
are not currently expected to have any material impact on the Group.
4 Significant accounting policies
a) Basis of consolidation
The consolidated financial statements comprise the financial statements of the Group and its
subsidiaries as at 31 December 2015. Control is achieved when the Group is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if, and only if, the Group has:
· power over the investee (i.e. existing rights that give it the current
ability to direct the relevant activities of the investee);
· exposure, or rights, to variable returns from its involvement with the
investee; and
· the ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights result in control. To support this presumption
and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant
facts and circumstances in assessing whether it has power over an investee, including:
· the contractual arrangement with the other vote holders of the
investee;
· rights arising from other contractual arrangements; and
· the Group's voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control. Consolidation of a subsidiary beings when the Group obtains control
over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group
gains control until the date the Group ceases to control the subsidiary.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company,
using consistent accounting policies.
b) Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the
revenue can be reliably measured.
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership
have been transferred, which is considered to occur when title passes to the customer. This
generally occurs when product is physically transferred to the buyer.
The following criteria are also met in specific revenue transactions:
Gold bullion and copper concentrate sales
Revenue from gold bullion sales is recognised when the significant risks and rewards of ownership have transferred
to the buyer and selling prices and assay results are known or can be reasonably estimated. Assay results determine the
content of gold and silver in doré, the price of which is determined based on market quotations of each metal. Silver in
doré which is produced together with gold, is treated as a by-product and recognised in sales revenue.
Contractual terms for the Group's sale of gold, silver and copper in concentrate (metal in concentrate) allow for
a price adjustment based on final assay results of the metal in concentrate to determine the final content. Recognition of sales
revenue for these commodities is based on the most recently determined estimate of metal in concentrate (based on initial
assay results) and the spot price at the date of shipment, with a subsequent adjustment made upon final determination.
Contractual terms with third parties for the sale of metal in concentrate specify a provisional
selling price based on the average prevailing spot prices at date of shipment to the customer. Final selling price is based on
average prevailing spot prices during a specified future period after shipment to the customer (the "quotation period"). Sales
revenue for the sale of metal in concentrate is recognised at final selling price.
Interest revenue
Interest revenue is recognised as it accrues, using the effective interest rate method.
c) Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance
of the arrangement at inception date and whether fulfilment of the arrangement is dependent on the use of a specific asset or
assets or the arrangement conveys a right to use the asset.
Operating lease payments are recognised as an expense in the Group income statement on a straight line basis over
the lease term.
The Group had no finance leases during 2015 and 2014.
d) Taxation
i) Current and deferred income taxes
Deferred tax is the tax expected to be payable or recoverable on differences between the
carrying amounts of assets and liabilities in the Group financial statements and the corresponding tax bases used in
the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised
for all deductible temporary differences, carry forward of unused tax assets and unused tax losses. Deferred tax assets are
recognised to the extent that it is probable that taxable profits will be available against which deductible temporary
differences and the carry forward of unused tax credits and unused tax losses can be utilised.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the
liability is settled or the asset is realised, based on tax rates (and tax laws) that have been enacted or substantively
enacted at the reporting date. Deferred tax is charged or credited in the Group income statement, except when
it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in
equity.
Deferred tax assets are not recognised in respect of temporary differences relating to tax losses where there is
insufficient evidence that the asset will be recovered. Unrecognised deferred tax assets are reassessed at each reporting date
and are recognised to the extent that it has become probable that future taxable profits will allow
the deferred tax asset to be recovered.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as
reported in the Group income statement because it excludes items of income or expense that are taxable or deductible in
other years and it further excludes items that are never taxable or deductible. The Group's liability for
current tax is calculated using tax rates that have been enacted or substantively enacted at the reporting date.
ii) Value-added taxes ("VAT")
The Group pays VAT on purchases made in both the Republic of Azerbaijan and the United Kingdom. Under both
jurisdictions, VAT paid is refundable. Azerbaijani jurisdiction permits offset of an Azerbaijani VAT credit against other
taxes payable to the state budget.
e) Transactions with related parties
For the purposes of these Group financial statements, parties are considered to be
related:
- where one party has the ability to control
the other party or exercise significant influence over the other party in making financial or operational decisions;
- entities under common control; and
- key management personnel
In considering each possible related party relationship, attention is directed to the substance
of the relationship, not merely the legal form.
Related parties may enter into transactions which unrelated parties might not and transactions between related
parties may not be effected on the same terms, conditions and amounts as transactions between unrelated
parties.
It is the nature of transactions with related parties that they cannot be presumed to be carried out on an arm's
length basis.
f) Borrowing costs
Borrowing costs directly relating to the acquisition, construction or production of a qualifying
capital project under construction are capitalised and added to the project cost during
construction until such time the assets are considered substantially ready for their intended use i.e. when they are capable
of commercial production. Where funds are borrowed specifically to finance a project, the amount capitalised represents
the actual borrowing costs incurred. Where surplus funds are available for a short term out of money borrowed specifically
to finance a project, the income generated from the temporary investment of such amounts is also capitalised
and deducted from the total capitalised borrowing cost. Where the funds used to finance a project form part of general
borrowings, the amount capitalised is calculated using a weighted average of rates applicable to
relevant general borrowings of the Group during the period. All other borrowing costs are recognised in the Group
income statement in the period in which they are incurred.
Even though exploration and evaluation assets can be qualifying assets, they generally do not meet the 'probable
economic benefits' test. Any related borrowing costs are therefore generally recognised in the Group income statement in the
period they are incurred.
g) Intangible assets
i) Exploration and evaluation assets
The costs of exploration properties and leases, which include the cost of acquiring prospective properties and
exploration rights and costs incurred in exploration and evaluation activities, are capitalised as intangible assets as part
of exploration and evaluation assets.
Exploration and evaluation assets are carried forward during the exploration and evaluation stage and are assessed
for impairment in accordance with the indicators of impairment as set out in IFRS 6 'Exploration for and Evaluation
of Mineral Resources'.
In circumstances where a property is abandoned, the cumulative capitalised costs relating to the property are
written off in the period. No amortisation is charged prior to the commencement of production.
Once commercially viable reserves are established and development is sanctioned, exploration and evaluation assets
are tested for impairment and transferred to assets under construction.
Upon transfer of Exploration and evaluation costs into Assets under construction, all subsequent
expenditure on the construction, installation or completion of infrastructure facilities is capitalised within Assets
under construction.
When commercial production commences, exploration, evaluation and development costs previously capitalised are
amortised over the commercial reserves of the mining property on a units-of-production basis.
Exploration and evaluation costs incurred after commercial production start date in relation to evaluation of
potential mineral reserves and resources that is expected to result in increase of reserves are capitalised as Evaluation and
exploration assets within intangible assets. Once there is evidence that reserves are increased, such costs are tested for
impairment and transferred to Producing mines.
ii) Mining rights
Mining rights are carried at cost to the Group less any provisions for impairments which result
from evaluations and assessments of potential mineral recoveries and accumulated depletion. Mining rights are
depleted on the units-of-production basis over the total reserves of the relevant area.
iii) Other intangible assets
Other intangible assets mainly represent the cost paid to landowners for the use of land ancillary to our mining
operations. They are depreciated over the respective terms of right to use the land.
Intangible assets with finite lives are amortised over the useful economic life and assessed for
impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the
amortisation method for an intangible asset with a finite useful life is reviewed at least at each reporting date. Changes
in the expected useful life or the expected pattern of consumption of future economic benefits embodied in
the asset are accounted for by changing the amortisation period or method, as appropriate, and are treated as changes
in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the Group income
statement in the expense category consistent with the function of the intangible asset.
Gains or losses arising from derecognition of an intangible asset are measured as the difference
between the net disposal proceeds and the carrying amount of the asset and are recognised in the Group
income statement when the asset is derecognised.
h) Property, plant and equipment and mine properties
Development expenditure is net of proceeds from all but the incidental sale of ore extracted during the
development phase.
Upon completion of mine construction, the assets initially charged to assets in the course of construction are
transferred into 'Plant and equipment, motor vehicles and leasehold improvements' or 'Producing mines'. Items
of 'Plant and equipment, motor vehicles and leasehold improvements' and 'Producing mines' are stated at cost,
less accumulated depreciation and accumulated impairment losses.
During the production period expenditures directly attributable to the construction of each individual asset are
capitalised as 'Assets' in the course of construction up to the period when asset is ready to be put into operation. When an
asset is put into operation it is transferred to 'Plant and equipment, motor vehicles and leasehold
improvements' or 'Producing mines'. Additional capitalised costs performed subsequent to the date of commencement of
operation of the asset are charged directly to 'Plant and equipment, motor vehicles and leasehold improvements' or 'Producing
mines', i.e. where the asset itself was transferred.
The initial cost of an asset comprises its purchase price or construction cost, any costs
directly attributable to bringing the asset into operation, the initial estimate of the
rehabilitation obligation and, for qualifying assets, borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration
given to acquire the asset.
When a mine construction project moves into the production stage, the capitalisation of certain mine construction
costs ceases and costs are either regarded as inventory or expensed, except for costs which qualify for
capitalisation relating to mining asset additions or improvements, underground mine development or mineable reserve
development.
i) Depreciation and amortisation
Accumulated mine development costs within producing mines are depreciated and amortised on a
units-of-production basis over the economically recoverable reserves of the mine concerned, except
in the case of assets whose useful life is shorter than the life of the mine, in which case the straight line method is
applied. The unit of account for run of mine ("ROM") costs and for post-ROM costs is recoverable ounces of gold. The
units-of-production rate for the depreciation and amortisation of mine development costs takes into account expenditures incurred
to date.
The premium paid in excess of the intrinsic value of land to gain access is amortised over the life of the
mine.
Other plant and equipment such as mobile mine equipment is generally depreciated on a straight
line basis over their estimated useful lives as follows:
· Temporary buildings -
eight years (2014: eight years)
· Plant and
equipment - eight years (2014: eight years)
· Motor
vehicles - four
years (2014: four years)
· Office
equipment - four years (2014: four years)
· Leasehold improvements - eight years
(2014: eight years)
An item of property, plant and equipment, and any significant part initially recognised, is
derecognised upon disposal or when no future economic benefits are expected from its use or disposal.
Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included in the Group income statement when the asset is derecognised.
The asset's residual values, useful lives and methods of depreciation and amortisation are reviewed at each
reporting date and adjusted prospectively if appropriate.
ii) Major maintenance and repairs
Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets and
overhaul costs. Where an asset or part of an asset that was separately depreciated and is now written off is
replaced, and it is probable that future economic benefits associated with the item will flow to the
Group through an extended life, the expenditure is capitalised.
Where part of the asset was not separately considered as a component, the replacement value is used to estimate
the carrying amount of the replaced assets which is immediately written off. All other day-to-day maintenance
costs are expensed as incurred.
i) Impairment of tangible and intangible assets
The Group conducts annual internal assessments of the carrying values of tangible and intangible assets. The
carrying values of capitalised exploration and evaluation expenditure, mine properties and property, plant and
equipment are assessed for impairment when indicators of such impairment exist or at least annually. In such cases an
estimate of the asset's recoverable amount is calculated. The recoverable amount is determined as the higher of the fair value
less costs to sell for the asset and the asset's value in use. This is determined for an individual asset, unless the asset does
not generate cash inflows that are largely independent of those from other assets or groups of assets. If this
is the case, the individual assets are grouped together into cash-generating units ("CGUs") for impairment purposes. Such
CGUs represent the lowest level for which there are separately identifiable cash inflows that are largely independent of the
cash flows from other assets or other groups of assets. This generally results in the Group evaluating its non‑financial
assets on a geographical or licence basis.
If the carrying amount of the asset exceeds its recoverable amount, the asset is impaired and an impairment loss
is charged to the Group income statement so as to reduce the carrying amount to its recoverable amount (i.e. the higher
of fair value less cost to sell and value in use).
Impairment losses related to continuing operations are recognised in the Group income statement in those expense
categories consistent with the function of the impaired asset.
For assets excluding the intangibles referred to above, an assessment is made at each reporting
date as to whether there is any indication that previously recognised impairment losses may no longer exist or
may have decreased. If such indication exists, the Group makes an estimate of the recoverable amount.
A previously recognised impairment loss is reversed only if there has been a change in the
estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If this is the case,
the carrying amount of the asset is increased to its recoverable amount. The increased
amount cannot exceed the carrying amount that would have been determined, net of depreciation or
amortisation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the
consolidated statement of other comprehensive income. Impairment losses recognised in relation to indefinite life
intangibles are not reversed for subsequent increases in its recoverable amount.
j) Fair value measurement
The Group measures financial instruments such as bank borrowings at fair value at each balance sheet date. Fair
value disclosures for financial instruments measured at fair value or where fair value is disclosed, are summarised in the
following notes:
· Note 18 - 'Trade and other receivables'
· Note 19 - 'Cash and cash equivalents'
· Note 20 - 'Trade and other payables'
· Note 21 - 'Interest bearing loans and borrowings'
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the
transaction to sell the asset or transfer the liability takes place either:
· in the principal market place for the asset or the liability; or
· in the absence of a principal market, the most advantageous market for the
asset or liability.
The fair value of an asset or liability is measured using the assumptions that market participants would use when
pricing the asset or liability, assuming that market participants act in their economic best interest.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is
available to measure fair value, maximising the use of relevant observable inputs and minimising the unobservable
inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are
categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole.
· Level 1 - Quoted (unadjusted) market prices in active markets for identical
assets or liabilities.
· Level 2 - Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly observable.
· Level 3 - Valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a re-occurring basis, the Group
determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest
level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis
of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as set out
above.
k) Provisions
i) General
Provisions are recognised when (a) the Group has a present obligation (legal or constructive) as
a result of a past event and (b) it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect
of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where
appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the
passage of time is recognised as a finance cost.
ii) Rehabilitation provision
The Group records the present value of estimated costs of legal and constructive obligations
required to restore operating locations in the period in which the obligation is incurred. The nature of these restoration
activities includes dismantling and removing structures, rehabilitating mines and tailings dams, dismantling
operating facilities, closure of plant and waste sites and restoration, reclamation and revegetation of affected
areas.
The obligation generally arises when the asset is installed or the ground or environment is
disturbed at the production location. When the liability is initially recognised, the present value of
the estimated cost is capitalised by increasing the carrying amount of the related mining assets to the
extent that it was incurred prior to the production of related ore. Over time, the discounted liability is increased for the
change in present value based on the discount rates that reflect current market assessments and the risks specific to the
liability.
The periodic unwinding of the discount is recognised in the Group income statement as a finance
cost. Additional disturbances or changes in rehabilitation costs will be recognised as additions or charges to the
corresponding assets and rehabilitation liability when they occur. Any reduction in the rehabilitation liability and therefore
any deduction from the rehabilitation asset may not exceed the carrying amount of that asset. If it does, any excess
over the carrying value is taken immediately to the Group income statement.
If the change in estimate results in an increase in the rehabilitation liability and therefore an addition to the
carrying value of the asset, the Group is required to consider whether this is an indication of impairment
of the asset as a whole and test for impairment in accordance with
IAS 36. If, for mature mines, the revised mine assets net of rehabilitation provisions exceeds the recoverable value, that
portion of the increase is charged directly to expense.
For closed sites, changes to estimated costs are recognised immediately in the Group income statement.
Also, rehabilitation obligations that arose as a result of the production phase of a mine should be expensed as
incurred.
l) Financial assets
i) Initial recognition and measurement
Financial assets within the scope of IAS 39 are classified as financial assets at fair value
through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as
derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the
classification of its financial assets at initial recognition. All financial assets are recognised initially at fair value.
Purchases or sales of financial assets that require delivery of assets within a time frame
established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e. the
date that the Group commits to purchase or sell the asset.
The Group's financial assets include cash and short-term deposits as well as trade and other receivables.
ii) Subsequent measurement
The subsequent measurement of financial assets depends on their classification:
Trade and other receivables
Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised
cost using the effective interest rate method, less impairment. Amortised cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral part of the effective interest rate method. The effective
interest rate method amortisation is included in finance income in the consolidated statement of profit or loss. The
losses arising from impairment are recognised in the consolidated statement of profit or loss.
Derecognition
A financial asset (or, where applicable a part of a financial asset) is derecognised when:
· the rights to receive cash flows from the asset have expired; and
· the Group has transferred its rights to receive cash flows from the asset
or has assumed an obligation to pay the received cash flows in full without material delay to a third-party
under a 'pass-through' arrangement; and either (a) the Group has transferred substantially all the risks and rewards of
the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset.
Impairment of financial assets
The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to
be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have
occurred after the initial recognition of the asset (an incurred 'loss event') and that loss event has an impact on the estimated
future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment
may include indications that the debtors or a group of debtors is experiencing significant financial
difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or
other financial re-organisation and where observable data indicates that there is a measurable decrease in the
estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
Financial assets carried at amortised cost
For financial assets carried at amortised cost, the Group first assesses individually whether
objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for
financial assets that are not individually significant. If the Group determines that no objective evidence of impairment
exists for an individually assessed financial asset, whether significant or not, it includes the asset
in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment.
Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are
not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss has incurred, the amount of the loss is measured as the
difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future expected
credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the
financial asset's original effective interest rate.
m) Financial liabilities
i) Initial recognition and measurement
Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair
value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an
effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial
recognition. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings,
plus directly attributable transaction costs. The Group's financial liabilities include trade and other payables,
contractual provisions and loans and borrowings.
ii) Subsequent measurement
The measurement of financial liabilities depends on their classification as follows:
Trade and other payables and contractual provisions
Trade and other payables are initially measured at fair value and are subsequently measured at amortised cost
using the effective interest rate method.
Loans and borrowings
Interest-bearing loans and overdrafts are recorded at the proceeds received, net of direct transaction costs.
Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual
basis and charged to the Group income statement using the effective interest method. They are added to
the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at
amortised cost using the effective interest rate method. Gains and losses are recognised in the Group income statement
when the liabilities are derecognised as well as through the effective interest rate method amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and
fee or costs that are an integral part of the effective interest rate method. The effective interest rate method
amortisation is included in finance costs in the Group income statement.
iii) Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or
expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms,
or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a
derecognition of the original liability and the recognition of a new liability and the difference in the
respective carrying amounts is recognised in the Group income statement.
n) Non-current prepayments
Advances made to suppliers for fixed asset purchases are recognised as non-current prepayments until the time when
fixed assets are supplied.
o) Inventories
Metal in circuit consists of in-circuit material at properties with milling or processing operations and doré
awaiting refinement, all valued at the lower of average cost and net realisable value. In-process inventory costs consist of
direct production costs (including mining, crushing and processing and site administration costs) and allocated indirect costs
(including depreciation, depletion and amortisation of producing mines and mining interests).
Ore stockpiles consist of stockpiled ore, ore on surface and crushed ore, all valued at the
lower of average cost and net realisable value. Ore stockpile costs consist of direct production costs (including mining,
crushing and site administration costs) and allocated indirect costs (including depreciation, depletion
and amortisation of producing mines and mining interests).
Inventory costs are charged to operations on the basis of ounces of gold sold. The Group
regularly evaluates and refines estimates used in determining the costs charged to operations and costs absorbed into inventory
carrying values based upon actual gold recoveries and operating plans.
Finished goods consist of doré bars that have been refined and assayed and are in a form that
allows them to be sold on international bullion markets and metal in
concentrate. Finished goods are valued at the lower of average cost and net realisable value.
Finished goods costs consist of direct production costs (including mining, crushing and processing; site administration
costs; and allocated indirect costs, including depreciation, depletion and amortisation of producing mines
and mining interests).
Spare parts and consumables consist of consumables used in operations, such as fuel, chemicals, reagents and spare
parts, valued at the lower of average cost and replacement cost and, where appropriate, less a provision for
obsolescence.
p) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs, or
value of services received net of any issue costs.
q) Deferred stripping costs
The removal of overburden and other mine waste materials is often necessary during the initial development of a
mine site, in order to access the mineral ore deposit. The directly attributable cost of this activity is capitalised
in full within mining properties and leases, until the point at which the mine is considered to be capable of commercial
production. This is classified as expansionary capital expenditure, within investing cash flows.
The removal of waste material after the point at which a mine is capable of commercial production is referred to
as production stripping.
When the waste removal activity improves access to ore extracted in the current period, the costs of production
stripping are charged to the Group income statement as operating costs in accordance with the principles of IAS 2
'Inventories'.
Where production stripping activity both produces inventory and improves access to ore in future
periods the associated costs of waste removal are allocated between the two elements. The portion which benefits future ore
extraction is capitalised within stripping and development capital expenditure. If the amount to be capitalised cannot be
specifically identified it is determined based on the volume of waste extracted compared with expected volume for the
identified component of the orebody. Components are specific volumes of a mine's orebody that are determined by reference to
the life of mine plan.
In certain instances significant levels of waste removal may occur during the production phase with little or no
associated production.
All amounts capitalised in respect of waste removal are depreciated using the unit of production method based on
the ore reserves of the component of the orebody to which they relate.
The effects of changes to the life of mine plan on the expected cost of waste removal or remaining reserves for a
component are accounted for prospectively as a change in estimate.
r) Employee leave benefits
Liabilities for wages and salaries, including non-monetary benefits and accrued but unused annual leave, are
recognised in respect of employees' services up to the reporting date. They are measured at the amounts expected to be
paid when the liabilities are settled.
s) Retirement benefit costs
The Group does not operate a pension scheme for the benefit of its employees but instead makes contributions to
their personal pension policies. The contributions due for the period are charged to the Group income statement.
t) Share-based payments
The Group has applied the requirements of IFRS 2 'Share-based Payment'. IFRS 2 has been applied
to all grants of equity instruments.
The Group issues equity-settled share-based payments to certain employees. Equity-settled
share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of
grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight line
basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect
of non market-based vesting conditions.
Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been applied
based on management's best-estimate, for the effects of non-transferability, exercise restrictions and behavioural
considerations. The vesting conditions assumptions are reviewed during each reporting period to ensure they reflect current
expectations.
u) Significant accounting judgements, estimates and assumptions
The preparation of the Group financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at
the date of the Group financial statements and reported amounts of revenues and expenses during the
reporting period. Estimates and assumptions are continuously evaluated and are
based on management's experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances. However, actual outcomes can differ from these estimates. In particular, information about
significant areas of estimation uncertainty considered by management in preparing the Group financial statements is
described below.
i) Ore reserves and resources
Ore reserves are estimates of the amount of ore that can be economically and legally extracted
from the Group's mining properties. The Group estimates its ore reserves and mineral resources, based on information
compiled by appropriately qualified persons relating to the geological data on the size, depth and shape of the
ore body and requires complex geological judgements to interpret the data. The estimation of recoverable reserves is based
upon factors such as estimates of foreign exchange rates, commodity prices, future capital requirements and
production costs along with geological assumptions and judgements made in estimating the size and
grade of the ore body. Changes in the reserve or resource estimates may impact upon the carrying value of exploration
and evaluation assets, mine properties, property, plant and equipment, provision for rehabilitation and depreciation
and amortisation charges.
ii) Exploration and evaluation expenditure (note 14)
The application of the Group's accounting policy for exploration and evaluation expenditure
requires judgement in determining whether it is likely that future economic benefits are
likely either from future exploitation or sale or where activities have not reached a stage which
permits a reasonable assessment of the existence of reserves. The determination of a Joint Ore Reserves Committee
('JORC') resource is itself an estimation process that requires varying degrees of uncertainty depending
on sub‑classification and these estimates directly impact the point of deferral of exploration and
evaluation expenditure. The deferral policy requires management to make certain estimates and
assumptions about future events or circumstances, in particular whether an economically viable extraction operation can
be established. Estimates and assumptions made may change if new information becomes available. If, after expenditure
is capitalised, information becomes available suggesting that the recovery of expenditure is unlikely, the amount capitalised
is written off in the consolidated statement of profit or loss in the period when the new information becomes available.
iii) Inventory (note 17)
Net realisable value tests are performed at least annually and represent the estimated future sales price of the
product based on prevailing spot metals prices at the reporting date, less estimated costs to complete
production and bring the product to sale.
Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, the number of
contained gold ounces based on assay data and the estimated recovery percentage based on the expected processing method.
Stockpile tonnages are verified by periodic surveys.
The ounces of gold sold are compared to the remaining reserves of gold for the purpose of
charging inventory costs to operations.
iv) Impairment of tangible and intangible assets (notes 14 and 15)
The assessment of tangible and intangible assets for any internal and external indications of
impairment involves judgement. Each reporting period, the Group assesses whether there are
indicators of impairment, if indicated then a formal estimate of the recoverable amount is performed and
an impairment loss recognised to the extent that the carrying amount exceeds recoverable amount. Recoverable amount is determined
as the higher of fair value less costs to sell and value in use. Determining whether the projects
are impaired requires an estimation of the recoverable value of the individual areas to which value has been ascribed.
The value in use calculation requires the entity to estimate the future cash flows expected to arise from the
projects and a suitable discount rate in order to calculate present value.
v) Production start date
The Group assesses the stage of each mine under construction to determine when a mine moves into the production
stage. The criteria used to assess the start date are determined based on the unique nature of each mine
construction project, such as the complexity of a plant and its location. The Group considers
various relevant criteria to assess when the mine is substantially complete, ready for its intended use and is
reclassified from Assets under construction to Producing mines and Property, plant and equipment. Some of the criteria will
include, but are not limited to, the following:
· the level of capital expenditure compared to the construction cost
estimates;
· completion of a reasonable period of testing of the mine plant and
equipment;
· ability to produce metal in saleable form (within specifications); and
· ability to sustain ongoing production of metal.
When a mine construction project moves into the production stage, the capitalisation of certain mine construction
costs ceases and costs are either regarded as inventory or expensed, except for costs that qualify for capitalisation relating to
mining asset additions or improvements, underground mine development or mineable reserve development. This is also the point
at which the depreciation/amortisation recognition commences.
vi) Mine rehabilitation provision (note 22)
The Group assesses its mine rehabilitation provision annually. Significant estimates and assumptions are made in
determining the provision for mine rehabilitation as there are numerous factors that will affect the ultimate liability
payable. These factors include estimates of the extent and costs of rehabilitation activities, technological changes, regulatory
changes and changes in discount rates. Those uncertainties may result in future actual expenditure differing from the
amounts currently provided. The provision at the reporting date represents management's best
estimate of the present value of the future rehabilitation costs required. Changes to estimated
future costs are recognised in the Group statement of financial position by either
increasing or decreasing the rehabilitation liability and rehabilitation asset if the initial estimate was originally
recognised as part of an asset measured in accordance with IAS 16 'Property, Plant and Equipment'.
vii) Recovery of deferred tax assets (note 12)
Judgement is required in determining whether deferred tax assets are recognised within the Group statement of
financial position. Deferred tax assets, including those arising from unutilised tax losses, require management to assess the
likelihood that the Group will generate taxable earnings in future periods, in order to utilise recognised deferred tax assets.
Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws
in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the
ability of the Group to realise the net deferred tax assets recorded at the reporting date could be impacted.
5. Segment information
The Group determines operating segments based on the information that is internally provided to the Group's chief
operating decision maker. The chief operating decision maker has been identified as the board of directors. The
board of directors currently considers consolidated financial information for the entire Group and
reviews the business based on the Group income statement and Group statement of financial position on this basis.
Accordingly, the Group has only one operating segment, mining operations. The mining operations comprise the Group's major
producing asset, the Gedabek mine which accounts for all the Group's revenues and the majority of its cost of sales, depreciation
and amortisation. The Group's mining operations are all located within Azerbaijan and therefore all within one geographic
segment.
All sales of gold and silver bullion are made to one customer, the Group's gold refinery, MKS Finance SA, based in
Switzerland. Copper concentrate is sold to Industrial Minerals SA.
6. Revenue
The Group's revenue consists of gold and silver bullion and copper concentrate sold to the
third-party customers. Revenue from sales of gold and silver bullion was $74,221,000 and $58,000 respectively (2014: $64,145,000
and $135,000). Revenue from sales of precious metals concentrate was $3,778,000 (2014: $3,684,000).
Finance income of $nil was received in 2015. Finance income of $7,000 in 2014 was interest
received on cash deposits during the year.
7. Other operating expenses and income
Other income
Other income comprises interest receivable from employee loans, consulting income and foreign
exchange gains for the years ended 31 December 2014 and 2015. Foreign exchange gain for the year ended 31 December 2015 was
$629,000 (2014: $nil).
Other operating expense
Other operating expenses consist of metal refining costs, foreign currency exchange loss and
miscellaneous operating expenses for the years ended 31 December 2014 and 2015. Foreign currency exchange loss for the year ended
31 December 2015 was $249,000 (2014: $137,000).
8. Operating loss
|
Notes
|
2015
$000
|
2014
$000
|
Operating loss is stated after charging:
|
|
|
|
Depreciation on property, plant and equipment - owned
|
15
|
19,808
|
17,318
|
Amortisation of mining rights and other intangible assets
|
14
|
2,049
|
1,720
|
Employee benefits and expenses
|
10
|
9,614
|
10,882
|
Foreign currency exchange loss
|
|
249
|
137
|
Inventory expensed during the year
|
|
35,592
|
35,879
|
Operating lease expenses
|
|
616
|
431
|
Fees payable to the Company's auditor for:
|
|
|
|
The audit of the Group's annual accounts
|
|
138
|
194
|
The audit of the Group's subsidiaries pursuant to legislation
|
|
119
|
121
|
Total audit services
|
|
257
|
315
|
Amounts paid to auditor for other services:
|
|
|
|
Tax compliance services
|
|
10
|
15
|
Tax advice services
|
|
-
|
13
|
Audit related assurance services - half year review
|
|
-
|
20
|
Total non-audit services
|
|
10
|
48
|
Total
|
|
267
|
363
|
There were no non-cancellable operating lease and sublease arrangements during 2015 and
2014.
The audit fees for the parent company were $107,000 (2014:$107,000).
9. Remuneration of the directors
Year ended 31 December 2015
|
Consultancy
$
|
Fees
$
|
Benefits
$
|
Total
$
|
John Monhemius
|
6,145
|
50,252
|
-
|
56,397
|
Richard Round
|
-
|
50,252
|
-
|
50,252
|
John Sununu
|
-
|
72,486
|
-
|
72,486
|
Reza Vaziri
|
577,597
|
50,252
|
42,283
|
670,132
|
Khosrow Zamani
|
-
|
124,446
|
-
|
124,446
|
|
583,742
|
347,688
|
42,283
|
973,713
|
Certain fees and expenses of the directors for the year ended 31 December 2015 were settled by
issuing shares to those directors. The number of shares issued and the gross fees (before deduction of taxes) and expenses in
which they were in respect of, are as follows:
Director
|
|
Number of shares issued
|
Fees
$
|
Expenses
$
|
John Monhemius
|
|
157,845
|
25,554
|
-
|
Richard Round
|
|
152,801
|
25,554
|
-
|
Khosrow Zamani
|
|
666,406
|
63,946
|
1,962
|
The shares were issued on 22 July 2015 at a price of 6.19 pence per share.
Year ended 31 December 2014
|
Consultancy
$
|
Fees
$
|
Benefits
$
|
Total
$
|
John Monhemius
|
5,003
|
53,460
|
-
|
58,463
|
Richard Round
|
-
|
53,460
|
-
|
53,460
|
John Sununu
|
-
|
78,292
|
-
|
78,292
|
Reza Vaziri*
|
575,545
|
53,460
|
42,135
|
671,140
|
Khosrow Zamani
|
-
|
131,862
|
-
|
131,862
|
|
580,548
|
370,534
|
42,135
|
993,217
|
* restated to reflect the effect of taxation
Directors' fees and consultancy fees for 2014 were paid in cash
10. Staff numbers and costs
The average number employed by the Group (including directors) during the year, analysed by
category, was as follows:
|
2015
Number
|
2014
Number
|
Management and administration
|
51
|
54
|
Exploration
|
19
|
41
|
Mine operations
|
545
|
491
|
|
615
|
586
|
The aggregate payroll costs of these persons were as follows:
|
2015
$000
|
2014
$000
|
Wages and salaries
|
8,172
|
9,363
|
Share-based payments
|
15
|
16
|
Social security costs
|
1,609
|
2,100
|
|
9,796
|
11,479
|
Less: salary costs capitalised as exploration, evaluation development, fixed asset and
inventory expenditure
|
(182)
|
(597)
|
|
9,614
|
10,882
|
Remuneration of key management personnel
The remuneration of the key management personnel of the Group, is set out below in
aggregate:
|
2015
$
|
2014
$
|
Short-term employee benefits
|
1,541,245
|
1,633,037
|
Share-based payment
|
109,658
|
65.757
|
|
1,650,903
|
1,698,794
|
11. Finance costs
|
2015
$000
|
2014
$000
|
Interest charged on interest-bearing loans and borrowings
|
5,177
|
4,882
|
Finance charges on letters of credit
|
130
|
111
|
Unwinding of discount on provisions
|
414
|
469
|
|
5,721
|
5,462
|
Interest on interest-bearing loans and borrowings represents charges incurred on credit
facilities with the International Bank of Azerbaijan, the Amsterdam Trade Bank, Yapi Kredi Bank Azerbaijan, Pasha Bank,
Atlas Copco Customer Finance AB and a director.
Where a portion of the loans has been used to finance the construction and purchase of assets of
the Group ('qualifying assets'), the interest on that portion of the loans has been capitalised up
until the time the assets were substantially ready for use. For the year ended 31 December 2015, $nil (2014:$nil) interest was
capitalised.
12. Taxation
Corporation tax is calculated at 32 per cent. (as stipulated in the production sharing agreement
for R.V. Investment Group Services LLC ("RVIG") in the Republic of Azerbaijan, the entity that contributes most significant
portion of profit before tax in the Group financial statements) of the estimated assessable profit or loss for the year. Taxation
for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. Deferred income taxes arising in
RVIG are recognised and fully disclosed in these Group financial statements. RVIG's unutilised tax losses at 31 December 2015
were $27,990,000 (2014: $24,888,000).
The major components of the income tax expenses for the year ended 31 December are:
|
2015
|
2014
|
|
$000
|
$000
|
Current income tax
|
|
|
Current income tax charge
|
-
|
-
|
Deferred tax
|
|
|
Relating to origination and reversal of temporary differences
|
1,529
|
3,436
|
Income tax credit for the year
|
1,529
|
3,436
|
Deferred income tax at 31 December relates to the following:
|
Statement
of financial position
|
|
Income statement
|
|
2015
$000
|
2014
$000
|
|
2014
$000
|
2014
$000
|
Deferred income tax liability
|
|
|
|
|
|
Property, plant and equipment - accelerated depreciation
|
(20,791)
|
(20,253)
|
|
(538)
|
(3,474)
|
Non-current prepayments
|
(158)
|
(418)
|
|
260
|
(305)
|
Trade and other receivables
|
(694)
|
(360)
|
|
(334)
|
964
|
Inventories
|
(7,759)
|
(9,770)
|
|
2,011
|
(951)
|
Deferred tax liability
|
(29,402)
|
(30,801)
|
|
|
|
Deferred income tax asset
|
|
|
|
|
|
Trade and other payables and provisions *
|
2,298
|
2,952
|
|
(654)
|
1,201
|
Asset retirement obligation *
|
2,737
|
2,760
|
|
(23)
|
406
|
Interest bearing loans and borrowings *
|
(25)
|
161
|
|
(186)
|
(734)
|
Carry forward losses **
|
8,957
|
7,964
|
|
993
|
6,329
|
Deferred tax asset
|
13,967
|
13,837
|
|
|
|
Deferred income tax credit
|
|
|
|
1,529
|
3,436
|
Net deferred tax liability
|
(15,435)
|
(16,964)
|
|
|
|
* Deferred income tax assets have been recognised for the trade and other payables
and provisions, asset retirement obligation and interest-bearing loans and borrowings based on local tax basis differences
expected to be utilised against future taxable profits.
** Deferred income tax assets have been recognised for the carry forward of unused tax losses to
the extent that it is probable that taxable profits will be available in the future against which the unused tax losses can be
utilised. The probability that taxable profits will be available in the future is based on forward looking budgets and business
plans of the Group.
A reconciliation between accounting loss and the total taxation benefit for the year ended 31
December is as follows:
|
2015
$000
|
2014
$000
|
Loss before tax
|
(8,910)
|
(14,364)
|
|
|
|
Theoretical tax charge at statutory rate of 32 per cent. for RVIG*
|
(2,851)
|
(4,596)
|
Effects of different tax rates for certain Group entities (20/28 per cent.)
|
173
|
130
|
Tax effect of items which are not deductible or assessable for taxation
purposes:
|
|
|
- losses in jurisdictions that are exempt from taxation
|
1
|
5
|
- non-deductible expenses
|
1,175
|
1,078
|
- non-taxable income
|
(27)
|
(53)
|
Income tax credit for the year
|
(1,529)
|
(3,436)
|
* This is the local tax rate applicable in accordance with local legislation
Deferred tax is calculated at the tax rates that are expected to apply in the period when the
liability is settled or the asset is realised.
Deferred tax assets and liabilities have been offset for deferred taxes recognised for RVIG since
there is a legally enforceable right to set off current tax assets against current tax liabilities and they relate to income
taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net
basis in the Republic of Azerbaijan.
At 31 December 2015, the Group had unused tax losses of $30,762,000 (2014: $27,075,000). Unused
tax losses in the Republic of Azerbaijan at 31 December 2015 were $27,990,000 (2014: $24,888,000). No deferred tax assets have
been recognised in respect of jurisdictions other than the Republic of Azerbaijan due to the uncertainty of future profit
streams.
13. Loss per share
The calculation of basic and diluted loss per share is based upon the retained loss for the
financial year of $7,381,000 (2014: $10,928,000).
The weighted average number of ordinary shares for calculating the basic loss and diluted loss
per share after adjusting for the effects of all dilutive potential ordinary shares relating to share options are as
follows:
|
2015
|
2014
|
|
Basic
|
112,117,622
|
111,667,479
|
|
Diluted
|
112,117,622
|
111,667,479
|
|
At 31 December 2015 there were no instruments that could potentially dilute basic earnings per
share due to the loss (2014: nil).
14. Intangible assets
|
Exploration
and evaluation
Ordubad
$000
|
Mining
rights
$000
|
Other
intangible
assets
$000
|
Total
$000
|
Cost
|
|
|
|
|
1 January 2014
|
2,905
|
41,925
|
468
|
45,298
|
Additions
|
608
|
-
|
-
|
608
|
31 December 2014
|
3,513
|
41,925
|
468
|
45,906
|
Additions
|
347
|
-
|
30
|
377
|
31 December 2015
|
3,860
|
41,925
|
498
|
46,283
|
Amortisation and impairment*
|
|
|
|
|
1 January 2014
|
-
|
23,909
|
232
|
24,141
|
Charge for the year
|
-
|
1,697
|
23
|
1,720
|
31 December 2014
|
-
|
25,606
|
255
|
25,861
|
Charge for the year
|
-
|
2,020
|
29
|
2,049
|
31 December 2015
|
-
|
27,626
|
284
|
27,910
|
Net book value
|
|
|
|
|
31 December 2014
|
3,513
|
16,319
|
213
|
20,045
|
31 December 2015
|
3,860
|
14,299
|
214
|
18,373
|
*579,000 ounces of gold at 1 January 2015 were used to determine depreciation of producing mines,
mining rights and other intangible assets following compilation of a new reserve statement for the Group (2014: 639,000
ounces).
15. Property, plant and equipment
|
Plant and
equipment,
motor vehicles
|
|
|
|
|
and leasehold
|
Producing
|
Assets under
|
|
|
improvements
|
mines
|
construction
|
Total
|
|
$000
|
$000
|
$000
|
$000
|
Cost
|
|
|
|
|
1 January 2014
|
18,999
|
135,532
|
10,754
|
165,285
|
Additions
|
410
|
11,877
|
3,029
|
15,316
|
Transfer to producing mines
|
-
|
11,690
|
(11,690)
|
-
|
Increase in provision for rehabilitation
|
-
|
799
|
-
|
799
|
31 December 2014
|
19,409
|
159,898
|
2,093
|
181,400
|
Additions
|
257
|
6,810
|
7,222
|
14,289
|
Transfer to producing mines
|
-
|
8,828
|
(8,838)
|
-
|
Decrease in provision for rehabilitation
|
-
|
(484)
|
-
|
(484)
|
31 December 2015
|
19,666
|
175,062
|
477
|
195,205
|
Depreciation and impairment*
|
|
|
|
|
1 January 2014
|
8,320
|
41,331
|
-
|
49,651
|
Charge for the year
|
2,441
|
14,877
|
-
|
17,318
|
31 December 2014
|
10,761
|
56,208
|
-
|
66,969
|
Charge for the year
|
1,881
|
17,927
|
-
|
19,808
|
31 December 2015
|
12,642
|
74,135
|
-
|
86,777
|
Net book value
|
|
|
|
|
31 December 2014
|
8,648
|
103,690
|
2,093
|
114,431
|
31 December 2015
|
7,024
|
100,927
|
477
|
108,428
|
*579,000 ounces of gold at 1 January 2015 were used to determine
depreciation of producing mines, mining rights and other intangible assets following compilation of a new reserve statement for
the Group (2014: 639,000 ounces).
Upon commencement of production from the Gadir underground mine during 2015, accumulated
development costs and construction in progress assets of Gadir totalling $942,000 were transferred from the
category of assets under construction to the category of producing mines. In addition, upon the completion of tailings dam
capacity increase and tailings reed bed projects, accumulated expenses of $3,182,000 were transferred from the category of assets
under construction to the category of producing mines. Upon completion of construction and commencement of production from the
flotation plant accumulated expenses of $4,496,000 were transferred from the category of assets under construction to the
category of producing mines. During 2015 construction of a workshop for heavy equipment and heating system installation for the
agitation plant commenced and upon completion of construction of the workshop and installation of heating system accumulated
costs of $93,000 and $125,000 were transferred from the category of assets under construction to the category of producing
mines.
As a result of the recoverable amount analysis performed during the year, no impairment losses were recognised by
the Group.
The capital commitments by the Group have been disclosed in note 26.
The Group performs an impairment analysis at each balance sheet date to ascertain that the carrying value of the
Group's property plant and equipment is in excess of its fair value less cost to dispose ("FVLCD"). The determination of FVLCD is
most sensitive to the following key assumptions:
- Production volumes
- Commodity prices
- Discount rates
- Foreign exchange rates
- Capital and operating costs
Production volumes: In calculating the FVLCD, the production volumes incorporated into the
cash flow models were 420,000 ounces of gold and 65,000 tonnes of copper. Estimated production volumes are based on detailed life
of mine plans. Production volumes are dependent on a number of variables such as the recoverable quantities, the cost of the
necessary infrastructure to recover the reserves, the production costs, the contractual duration of the mining rights and the
selling prices of the quantities extracted.
Commodity prices: Forecast precious metal and commodity prices are based on management
estimates. Estimated long-term gold and copper prices of $1,284 (2014: $1,250) per ounce and $6,600 (2014: $6,600) per tonne
respectively have been used to estimate future revenues.
Discount rates: In calculating the FVLCD, a
post-tax discount rate of 13.5 per cent. (2014: 13.54 per cent.) was applied to the post-tax cash flows expressed in real terms.
This discount rate is derived from the Group's post-tax weighted average cost of capital ("WACC"), which takes into account both
equity and debt, and is then adjusted to reflect the Group's assessment of a discount rate that other
market participants would consider when evaluating the assets.
Foreign exchange rates: The only significant exchange foreign exchange rate in the cash
flow model is the US dollar to Azerbaijan Manat rate. A rate of $1 equals 1.55 Manat (2014: $1 equals 0.7845 Manat) has been used
in the cash flow model.
Capital and operating costs: In calculating the cash flow model, the significant capital
and operating costs are the additional future capital cost to be incurred over the life of the mine and the cash cost per ounce
of producing gold. For the 2015 impairment analysis, these costs were $30 million and $750 to $794 per ounce respectively.
Management believes that, other than the volume of gold production, there are no changes which are reasonably
possible in any of the other assumptions discussed above, which would lead to impairment. At 31 December 2015, the
recoverable amount of the Group's assets exceeded its carrying amount by $15 million. It is estimated that
a 10 per cent. reduction in gold production and copper production in the flotation plant, after incorporating any consequential
effects of changes on the other variables used to measure the recoverable amount, would cause impairment of approximately $2.2
million.
16. Subsidiary undertakings
Anglo Asian Mining PLC is the parent and ultimate parent of the Group.
The Company's subsidiaries at 31 December 2015 are as follows:
Name
|
Registered
address
|
Primary
Place of business
|
Percentage
of holding
per cent.
|
Anglo Asian Operations Limited
|
Great Britain
|
United Kingdom
|
100
|
Holance Holdings Limited
|
British Virgin Islands
|
Azerbaijan
|
100
|
Anglo Asian Cayman Limited
|
Cayman Islands
|
Azerbaijan
|
100
|
R.V. Investment Group Services LLC
|
Delaware, USA
|
Azerbaijan
|
100
|
Azerbaijan International Mining Company Limited
|
Cayman Islands
|
Azerbaijan
|
100
|
There has been no change in the subsidiary undertakings since 1 January 2015.
17. Inventory
|
2015
|
2014
|
Non-current assets
|
$000
|
$000
|
Cost
|
|
|
Ore stockpiles
|
2,543
|
1,670
|
|
|
|
Current assets
|
|
|
Cost
|
|
|
Finished goods - bullion
|
1,441
|
3,211
|
Finished goods - metal in concentrate
|
203
|
150
|
Metal in circuit
|
11,899
|
18,559
|
Ore stockpiles
|
4,635
|
1,602
|
Spare parts and consumables
|
8,019
|
9,833
|
Total current inventories
|
26,197
|
33,355
|
|
|
|
Total inventories at the lower of cost and net realisable value
|
28,740
|
35,025
|
The Group has capitalised mining costs related to high grade sulphide ore stockpiled during the
year. Such stockpiles are expected to be utilised as part of agitation leaching process. Inventory
is recognised at lower of cost or net realisable value.
Write down of unrecovered inventory of $nil (2014: $372,000) was recognised during the year as
other operating expense.
18. Trade and other receivables
|
2015
|
2014
|
Non-current assets
|
$000
|
$000
|
Advances for fixed asset purchases
|
-
|
1,143
|
Loans
|
120
|
162
|
|
120
|
1,305
|
|
|
|
Current assets
|
|
|
Gold held due to the Government of Azerbaijan
|
12,412
|
2,557
|
VAT refund due
|
186
|
828
|
Other tax receivable
|
720
|
275
|
Trade receivables
|
642
|
8
|
Prepayments and advances
|
2,121
|
1,634
|
Loans
|
50
|
48
|
|
16,131
|
5,350
|
The carrying amount of trade and other receivables approximates to their fair value.
The VAT refund due at 31 December 2015 and 2014 relates to VAT paid on purchases.
Gold bullion held and transferable to the Government is bullion held by the Group due to the
Government of Azerbaijan. The Group holds the Government's share of the product from its mining activities and from time to time
transfers that product to the Government. A corresponding liability to the Government is included in trade and other payables
shown in note 20.
The Group does not consider any stated trade and other receivables as past due or
impaired.
19 Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and held by the Group within financial
institutions that are available immediately. The carrying amount of these assets approximates their fair value.
The Group's cash on hand and cash held within financial institutions at 31 December 2015
(including short-term cash deposits) comprised $98,000 and $151,000 respectively (2014: $76,000 and $246,000).
The Group's cash and cash equivalents are mostly held in US Dollars.
20. Trade and other payables
|
2015
$000
|
2014
$000
|
Accruals and other payables
|
4,861
|
5,342
|
Trade creditors
|
2,302
|
4,106
|
Gold held due to the Government of Azerbaijan
|
12,412
|
2,557
|
Payable to the Government of Azerbaijan from copper concentrate joint sale
|
537
|
211
|
|
20,112
|
12,216
|
Trade creditors primarily comprise amounts outstanding for trade purchases and ongoing costs.
Trade creditors are non interest‑bearing and the creditor days were 11 (2014: 22).
Accruals and other payables mainly consist of accruals made for accrued but not paid salaries, bonuses, related
payroll taxes and social contributions, accrued interest on borrowings as well as services provided but not billed to the Group
by the end of the reporting period. The directors consider that the carrying amount of trade and other payables approximates to
their fair value.
The amount payable to the Government of Azerbaijan from copper concentrate joint sale represents
the portion of cash received from the customer for the Government's portion from the joint sale of copper concentrate.
21 Interest-bearing loans and borrowings
|
2015
$000
|
2014
$000
|
International Bank of Azerbaijan - agitation leaching plant loan
|
10,209
|
11,526
|
International Bank of Azerbaijan - loan facility
|
1,500
|
1,500
|
Amsterdam Trade Bank
|
27,096
|
36,783
|
Atlas Copco
|
355
|
789
|
Yapi Kredi Bank
|
1,659
|
922
|
Pasha Bank
|
4,617
|
1,238
|
Director
|
3,860
|
-
|
|
49,296
|
52,758
|
|
|
|
Loans repayable in less than one year
|
26,708
|
16,675
|
Loans repayable in more than one year
|
22.588
|
36,083
|
|
49,296
|
52,758
|
International Bank of Azerbaijan ("IBA")
Agitation leaching plant loan
In 2012 and 2013, the Group borrowed $49.5 million under a series of loan agreements to finance
the construction of its agitation leaching plant. The interest rate for each agreement is 12 per cent. The repayment of principal
begins two years from the withdrawal date for each agreement. The loans were partially repaid by the proceeds of a refinancing
loan from Amsterdam Trade Bank. The loan agreements are repayable commencing in 31 March 2015 and finishing in 30 June 2018. The
total gross amount outstanding under the loan agreements at 31 December 2015 was $10.2 million (31 December 2014: $11.5
million).
Loan facility
During 2014, the Group entered into a credit facility for $1.5 million for a period of one year
at an interest rate of 12 per cent. The repayment date of the credit facility was extended in 2015 and the loan is repayable on
30 June 2016.
Amsterdam Trade Bank ("ATB")
During 2013, the Group entered into a loan agreement for $36.8 million to refinance its agitation
leaching plant loan from IBA. The interest rate is 8.25 per cent. per annum plus LIBOR. Principal is repayable in 15 equal
quarterly instalments of $2,467,000. The first payment of principal commenced in February 2015 with the final instalment payable
in August 2018. The Group has pledged to ATB its present and future claims against MKS Finance SA, the Group's sole buyer of gold
doré until termination of the loan agreement. The total gross amount outstanding at 31 December 2015 was $27.1 million (31
December 2014: $36.8 million).
Atlas Copco
The amount outstanding is in respect of vendor financing. The amount outstanding is repayable in
July 2016.
Yapi Credit Bank, Azerbaijan ("YCBA")
The Group entered into credit facilities with YCBA in 2014 for $550,000 and $450,000
respectively. In 2015, further credit facilities were entered into totaling $1,929,000. The interest rate for all facilities is
10 per cent. The credit facilities are all repayable within 12 months of drawdown.
Pasha Bank
Letters of credit for flotation plant construction
In 2014, the Group entered into a facility for $2.5 million to finance a letter of credit for the
construction of its flotation plant. The facility carries an interest rate of 6 per cent. for the unused portion of, and 6.8 per
cent. plus one month LIBOR for the used portion of the credit facility. In 2015, an additional facility was entered into for $1.2
million which carries an interest rate of 6.2 per cent. for the unused portion and 7.05 per cent. plus one month LIBOR for the
used portion of the credit facility. The amounts outstanding under the two facilities at 31 December 2015 were $3,233,000 (31
December 2014: $250,000). The total amount outstanding under the two facilities is repayable in two equal instalments in May and
November 2016.
Letters of credit for cyanide purchases
On 4 July 2014, the Group entered into a credit facility to finance letters of credit with a
total amount of $3,059,000 (ANZ 2.4 million) for the purchase of cyanide. This facility was extended in 2015 to 7 July 2017 for a
total amount of $3 million at an interest rate of 3 per cent. The amount outstanding under these facilities as 31 December 2015
was $1,384,000 (31 December 2014: $988,000). The amounts outstanding are all repayable with 12 months of the balance sheet
date.
Director
On 20 May 2015, the chief executive of Anglo Asian Mining PLC provided a $4 million loan facility
to the Group. Any loan from the facility was repayable on 8 January 2016 at an interest rate of 10 per cent. On 8 January, 2016
the repayment date for the loan facility was extended till 8 July 2016 with all other terms remaining the same.
22. Provision for rehabilitation
|
2015
$000
|
2014
$000
|
1 January
|
8,624
|
7,357
|
Change in estimate
|
(747)
|
221
|
Accretion expense
|
414
|
469
|
Change in discount rate
|
263
|
577
|
31 December
|
8,554
|
8,624
|
The Group has a liability for restoration, rehabilitation and environmental costs arising from its mining
operations. Estimates of the cost of this work including reclamation costs, close down and pollution control are made
on an ongoing basis, based on the estimated life of the mine. This represents the net present value of the best estimate
of the expenditure required to settle the obligation to rehabilitate any environmental disturbances caused by mining
operations. The undiscounted liability for rehabilitation at 31 December 2015 was $9,436,000 (2014: $8,892,000). The undiscounted
liability was discounted using a risk-free rate adjusted to the risks specific to the liability of 5.73 per cent. (2014: 4.77 per
cent.). Expenditures on restoration and rehabilitation works are expected between 2023 and 2025 (2014: between
2021 and 2022).
23. Financial instruments
Financial risk management objectives and policies
The Group's principal financial instruments comprise cash and cash equivalents, loans and
letters of credit. The main purpose of these financial instruments is to finance the Group operations. The Group has other
financial instruments, such as trade and other receivables and trade and other payables, which arise directly from its
operations. Surplus cash within the Group is put on deposit, the objective being to maximise returns on such funds whilst
ensuring that the short-term cash flow requirements of the Group are met.
The main risks that could adversely affect the Group's financial assets, liabilities or future cash flows are
capital risk, market risk, interest rate risk, foreign currency risk, liquidity risk and credit risk. Management reviews and
agrees policies for managing each of these risks which are summarised below.
The following discussion also includes a sensitivity analysis that is intended to illustrate the sensitivity to
changes in market variables on the Group's financial instruments and show the impact on profit or loss and
shareholders' equity, where applicable. Financial instruments affected by market risk include bank loans and overdrafts,
accounts receivable, accounts payable and accrued liabilities.
The sensitivity has been prepared for the years ended 31 December 2015 and 2014 using the
amounts of debt and other financial assets and liabilities held as at those reporting dates
Capital risk management
The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 21, cash and
cash equivalents and equity attributable to equity holders of the parent, comprising issued share capital, reserves and
retained earnings as disclosed in the consolidated statement of changes in equity. The Group has sufficient capital to fund
ongoing production and exploration activities, with capital requirements reviewed by the Board on a regular basis. Capital has
been sourced through share issues on the Alternative Investment Market, part of the London Stock Exchange, and loans from
the International Bank of Azerbaijan, Amsterdam Trade Bank ("ATB") and other banks in Azerbaijan. In managing its capital, the
Group's primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through
capital growth. In order to achieve this objective, the Group seeks to maintain a gearing ratio that balances risk and
returns at an acceptable level and also to maintain a sufficient funding base to enable the Group to meet its working
capital and strategic investment needs.
The Group is not subject to externally imposed capital requirements other than the limit for financial
indebtedness with ATB which is that the Group will not incur financial indebtedness of more than $30,000,000 without written
prior approval from ATB. The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus
net debt. The Group's policy is to keep the gearing ratio below 70 per cent. The Group defines net debt as
interest-bearing loans and borrowings less cash and cash equivalents.
|
2015
$000
|
2014
$000
|
Interest-bearing loans and borrowings (note 21)
|
49,296
|
52,758
|
Less cash and cash equivalents (note 19)
|
(249)
|
(322)
|
Net debt
|
49,047
|
52,436
|
Equity
|
78,644
|
85,916
|
Capital and net debt
|
127,691
|
138,352
|
Gearing ratio (per cent.)
|
38
|
38
|
Interest rate risk
The Group's cash deposits, letters of credit, borrowings and interest-bearing loans are at a fixed rate of
interest except for three month LIBOR embedded in interest with ATB.
The Group manages the risk by maintaining fixed rate instruments, with approval from the directors required for
all new borrowing facilities.
The Group has not used any interest rate swaps or other instruments to manage its interest rate profile during
2015 and 2014.
Interest rate sensitivity analysis
Interest rate sensitivity of the Group from reasonably possible movement in the three month
LIBOR rate is limited to $203,000 (2014: $187,000) negative and positive impact on the Group's profit before tax. Assumed
movement is based on 0.5 per cent. increase or decrease in LIBOR on interest-bearing loans from ATB.
Ultimate responsibility for liquidity risk management rests with the board of directors, which
has built an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term
funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate
reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash
flows and matching the maturity profiles of financial liabilities. Included in note 21 is a description
of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk.
The table below summarises the maturity profile of the Group's financial liabilities based on
contractual undiscounted payments.
Year ended 31 December 2015
|
On
demand
$000
|
Less than
3 months
$000
|
3 to 12
months
$000
|
1 to 5
years
$000
|
Total
$000
|
Interest-bearing loans and borrowings
|
-
|
6,574
|
23,235
|
24,734
|
54,543
|
Trade and other payables
|
-
|
20,112
|
-
|
-
|
20,112
|
|
-
|
26,686
|
23,235
|
24,734
|
74,655
|
Year ended 31 December 2014
|
On
demand
$000
|
Less than
3 months
$000
|
3 to 12
months
$000
|
1 to 5
years
$000
|
Total
$000
|
Interest-bearing loans and borrowings
|
-
|
5,014
|
15,705
|
40,714
|
61,433
|
Trade and other payables
|
458
|
11,758
|
-
|
-
|
12,216
|
|
458
|
16,772
|
15,705
|
40,714
|
73,649
|
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations
resulting in financial loss to the Group. The maximum credit risk exposure relating to financial assets is
represented by their carrying value as at the consolidated statement of financial position date.
The Group has adopted a policy of only dealing with creditworthy banks and has cash deposits held with reputable
financial institutions. Trade receivables consist of amounts due to the Group from sales of gold and
silver. All sales of gold and silver bullion are made to MKS Finance SA, a Switzerland-based gold refinery, and copper
concentrate to Industrial Minerals SA. Due to the nature of the customers, the board of directors does not consider that a
significant credit risk exists for receipt of revenues. The board of directors continually reviews the possibilities of
selling gold to alternative customers and also the requirement for additional measures to mitigate any potential credit risk.
Foreign currency
risk
The presentational currency of the Group is United States Dollars. The Group is exposed to currency risk due to
movements in foreign currencies relative to the US Dollar affecting foreign currency transactions and balances.
The carrying amounts of the Group's foreign currency denominated monetary assets and monetary
liabilities at 31 December are as follows:
|
Liabilities
|
|
Assets
|
|
2015
$000
|
2014
$000
|
|
2015
$000
|
2014
$000
|
UK Sterling
|
187
|
330
|
|
2
|
31
|
Azerbaijan Manats
|
3,416
|
4,127
|
|
1,003
|
1,439
|
Other
|
317
|
160
|
|
-
|
-
|
Foreign currency sensitivity analysis
The Group is mainly exposed to the currency of the United Kingdom (UK Sterling), the currency of the European
Union (Euro) and the currency of the Republic of Azerbaijan (Azerbaijan Manat).
The following table details the Group's sensitivity to a 13 per cent., 12.5 per cent. and 15 per
cent. (2014: 5.73 per cent., 6.23 per cent. and 35 per cent.) increase and 4.5 per cent., 12.5 per cent., and 60 per cent.
(2014: 5.73 per cent., 6.23 per cent., and 35 per cent.) decrease in the United States Dollar against United Kingdom Sterling,
Euro and Azerbaijan Manat, respectively. These are the sensitivity rates used when reporting foreign currency risk internally to
key management personnel and represents management's assessment of the reasonably possible change in foreign exchange rates. The
sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the
period end for respective change in foreign currency rates. A positive number below indicates an
increase in profit and other equity where the United States Dollar strengthens by the mentioned rates
against the relevant currency. Weakening of the United States Dollar against the relevant currency, there would be an
equal and opposite impact on the profit and other equity, and the balances below would be reversed.
|
UK Sterling impact
|
|
Azerbaijan Manat impact
|
Euro Impact
|
|
2015
|
2014
|
|
2015
|
2014
|
2015
|
2014
|
|
$000
|
$000
|
|
$000
|
$000
|
$000
|
$000
|
Increase - effect on loss before tax
|
24
|
17
|
|
1,447
|
941
|
40
|
10
|
Decrease - effect on loss before tax
|
(8)
|
(17)
|
|
(362)
|
(941)
|
(40)
|
(10)
|
Market risk
The Group's activities primarily expose it to the financial risks of changes in gold, silver and copper prices
which have a direct impact on revenues. The board of directors monitors both the spot
and forward price of these regularly.
A 10 per cent. decrease in gold price in the year ended 31 December 2015 would result in a
reduction in revenue of $7,447,000 and a 10 per cent. increase in gold price would have the equal and opposite effect. A 10 per
cent. decrease in silver price would result in a reduction in revenue of $29,000 and a 10 per cent. increase in silver
price would have an equal and opposite effect. A 10 per cent. decrease in copper price would result in a reduction in revenue of
$335,000 and a 10 per cent. increase in copper price would have an equal and opposite effect.
Fair value of the Group's interest-bearing loans and borrowings
The Group has estimated the fair value of its interest bearing loans and borrowings at $49.2 million which equals
the carrying value of those liabilities in its balance sheet. This valuation has been carried out using level 3 valuation
techniques (significant unobservable inputs).
24. Equity
|
31 December
2015
British pound
|
31 December
2014
British pound
|
Authorised:
|
|
|
600,000,000 ordinary shares of 1 pence each
|
6,000,000
|
6,000,000
|
|
|
|
|
|
|
|
|
|
Shares
|
$000
|
Ordinary shares issued and fully paid:
|
|
|
1 January 2015
|
111,683,972
|
1,978
|
Shares issued in lieu of cash payment
|
997,052
|
15
|
31 December 2015
|
112,661,024
|
1,993
|
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
The shares issued in lieu of cash payment were to directors for certain fees and expenses as set
out in note 9.
Share options
The Group has share option scheme under which options to subscribe for the Company's shares have
been granted to certain executives and senior employees.
Merger reserve
The merger reserve was created in accordance with the merger relief provisions under Section 612
of the Companies Act 2006 (as amended) relating to accounting for Group reconstructions involving
the issue of shares at a premium. In preparing Group consolidated financial statements, the amount by which the base value of the
consideration for the shares allotted exceeded the aggregate nominal value of those shares was recorded within a merger reserve
on consolidation, rather than in the share premium account.
Retained (loss) / earnings
Retained earnings represent the cumulative (loss) / earnings of the Group attributable to the
equity shareholders
25. Share-based payment
The Group operates a share option scheme for directors and senior employees of the Group. The
vesting periods are up to three years. Options are exercisable at a price equal to the closing quoted market
price of the Group's shares on the date of the board of directors approval to grant options. Options are
forfeited if the employee leaves the Group and the options are not exercised within three months
from leaving date.
The number and weighted average exercise prices ("WAEP") of, and movements in, share options
during the year were as follows:
|
2014
|
|
2014
|
|
Number of
share
options
|
Weighted
average
exercise
price
pence
|
|
Number of
share
options
|
Weighted
average
exercise price
pence
|
I January
|
2,801,684
|
36
|
|
3,001,684
|
38
|
Granted during the year
|
-
|
-
|
|
300,000
|
15
|
Expired during the year
|
(680,825)
|
84
|
|
(350,000)
|
46
|
Exercised during the year
|
-
|
-
|
|
(150,000)
|
11
|
Outstanding at 31 December
|
2,120,859
|
21
|
|
2,801,684
|
36
|
Exercisable at 31 December
|
1,970,859
|
21
|
|
2,501,684
|
39
|
The weighted average remaining contractual life of the share options outstanding at 31 December
2015 was 3 years (2014: 3 years) and the range of their exercise prices was 12 pence to 43 pence (2014: 12 pence to 97
pence).
There were no share options granted during 2015.
Share options are valued using the Black-Scholes model. The assumptions used to value the share options issued in
the year ended 31 December 2014 are as follows:
|
2015*
|
2014
|
Weighted average share price (pence)
|
n/a
|
15
|
Weighted average exercise price (pence)
|
n/a
|
15
|
Expected volatility for six months vesting period option (per cent.)
|
n/a
|
-
|
Expected volatility for one years' vesting period option (per cent.)
|
n/a
|
58
|
Expected volatility for two years' vesting period option (per cent.)
|
n/a
|
58
|
Expected life for six months' vesting period option (years)
|
n/a
|
2
|
Risk free rate (per cent.)
|
n/a
|
1.43
|
*not applicable as no share options were issued in 2015.
Expected volatility was determined by calculating the historical volatility of the Company's
share price over the previous one and two years for share options with one and two year vesting periods, respectively.
The expected life used in the model has been adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural considerations.
The Group recognised total expense related to equity-settled share-based payment transactions for the year ended
31 December 2015 of $15,000 (2014: $16,000)
26. Contingencies and commitments
The Group undertakes its mining operations in the Republic of Azerbaijan pursuant to the provisions of the
Agreement on the Exploration, Development and Production Sharing for the Prospective Gold Mining Areas:
Gedabek, Gosha, Ordubad Group (Piazbashi, Agyurt, Shakardara, Kiliyaki), Soutely, Kyzilbulag and Vejnali
Deposits dated year ended 20 August 1997 (the "PSA"). The PSA contains various provisions relating to
the obligations of the R.V. Investment Group Services LLC ("RVIG"), a wholly owned subsidiary of the Company. The principal
provisions are regarding the exploration and development programme, preparation and timely submission of reports to the
Government, compliance with environmental and ecological requirements. The Directors believe that RVIG is in compliance with the
requirements of the PSA. The Group has announced a discovery on Gosha Mining Property in February 2011 and submitted
the development programme to the Government according to the PSA requirements, which was approved in 2012. In April 2012 the
Group announced a discovery on the Ordubad Group of Mining Properties and submitted the development programme to the
Government for review and approval according to the PSA requirements.
he mining licence on Gedabek expires in March 2022, with the option to extend the licence by ten
years conditional upon satisfaction of certain requirements stipulated in the PSA.
RVIG is also required to comply with the clauses contained in the PSA relating to environmental damage. The
Directors believe RVIG is substantially in compliance with the environmental clauses contained in the PSA.
Based on the pledge agreement signed on 24 July 2013 the Group is a guarantor for one of its suppliers,
Azerinterpartlayish-X MMC, for a loan taken from the International Bank of Azerbaijan in amount of $500,000 for 36
months.
There were no significant operating lease or capital lease commitments at 31 December 2015 (2014: $nil).
27. Related party transactions
Trading transactions
During the years ended 31 December 2014 and 2015, there were no trading transactions between Group companies.
Other related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note. Transactions between the Group and other related parties are
disclosed below.
a) The chief executive had an indirect interest in the lease of
the Company's office in Baku, the Republic of Azerbaijan. The office in Baku was sold during the
year ended 31 December 2014. The cost of the lease for the year ended 31 December 2015 was $nil (2014: $48,000).
b) Shares issued to directors are disclosed in note 9.
c) Remuneration paid to directors is disclosed in note 9.
d) During the year ended 31 December 2015, total payments of $1,018,000 (2014: $1,182,000) were made for
equipment and spare parts purchased from Proses Muhendislik Danismanlik Inshaat ve Tasarim Anonim Shirket, the
entity in which the Chief Technical Officer of Azerbaijan International Mining Company has a direct
ownership interest.
At 31 December 2015 there is an advance payment in relation to the
above related party transaction of $59,000 (2014: $65,000).
e) On 20 May 2015, the chief executive made a $4 million loan facility available to the Group.
The interest accrued and unpaid at 31 December 2015 was $195,000 (2014: $ nil). Details of the loan facility are disclosed in
note 21.
All of the above transactions were made on arm's length terms.
For further information please visit www.angloasianmining.com or contact:
Reza Vaziri
|
Anglo Asian Mining plc
|
Tel: +994 12 596 3350
|
Bill Morgan
|
Anglo Asian Mining plc
|
Tel: +994 502 910 400
|
Ewan Leggat
|
SP Angel Corporate Finance LLP
Nominated Adviser and Broker
|
Tel: +44 (0) 20 3470 0470
|
Laura Harrison
|
SP Angel Corporate Finance LLP
|
Tel + 44 (0) 20 3470 0470
|
Lottie Brocklehurst
|
St Brides Partners Ltd
|
Tel: +44 (0) 20 7236 1177
|
Susie Geliher
|
St Brides Partners Ltd
|
Tel: +44 (0) 20 7236 1177
|
Notes:
Anglo Asian Mining plc (AIM:AAZ) is a gold, copper and silver producer in Central Asia with a
broad portfolio of production and exploration assets in Azerbaijan. The Company has a 1,962 square kilometre portfolio,
assembled from analysis of historic Soviet geological data and held under a Production Sharing Agreement modelled on the Azeri
oil industry.
The Company developed Azerbaijan's first operating gold/copper/silver mine, Gedabek, which
commenced gold production in May 2009. Gedabek is an open cast mine with a series of interconnected pits. The Company is
also mines high grade ore from the Gadir underground mine which is co-located at the Gedabek site. The Company has a second
underground mine, Gosha, which is 50 kilometres from Gedabek. Ore mined at Gosha is processed at
Anglo Asian's Gedabek plant.
Gold production for the year ended 31 December 2015 from Gedabek totaled 72,032 ounces with 969
tonnes of copper also produced. Gedabek is a polymetallic deposit and its ore has a high copper content, and as a result
the Company produces copper concentrate from its Sulphidisation, Acidification, Recycling, and Thickening (SART) plant. Anglo
Asian also produces a copper and precious metal concentrate from its flotation plant, which commenced production in the last
quarter of 2015. This is initially processing tailings from the agitation leach plant.
Anglo Asian is also actively seeking to exploit its first mover advantage in Azerbaijan to
identify additional projects, as well as looking for other properties in order to fulfil its expansion ambitions and become a
mid-tier gold and copper metal production company.