TIDMAAZ
RNS Number : 6920L
Anglo Asian Mining PLC
17 May 2022
Anglo Asian Mining plc / Ticker: AAZ / Index: AIM / Sector:
Mining
17 May 2022
Anglo Asian Mining PLC
2021 Full year results
Turnover of $92.5 million with profit before tax of $12.6
million
Cash of $37.5 million and no bank debt at 31 December 2021
Final dividend of $0.035 giving a total dividend for 2021 of
$0.080 per ordinary share
Anglo Asian Mining PLC ("Anglo Asian" or the "Company"), the AIM
listed gold, copper and silver producer focused in Azerbaijan, is
pleased to announce its final audited results for the year ended 31
December 2021 ("FY 2021"). Note that all references to "$" are to
United States Dollars and "CAN$" are to Canadian dollars.
Khosrow Zamani, Chairman of Anglo Asian, commented:
"I am delighted to present Anglo Asian's full Year results for
2021, which proved to be a year of transformational change for the
Company. This was brought about by substantial additions to our
portfolio which represent significant progress towards executing
our growth strategy.
"I am very pleased to report profit before taxation of $12.6
million, and to declare a final dividend of $0.035 per share."
Financial Highlights
-- Revenues of $92.5 million (2020: $102.1 million)
-- Profit before taxation of $12.6 million (2020: $35.7 million)
-- Operating cash flow before movements in working capital of
$29.3 million (2020: $52.8 million)
-- Cash of $37.5 million at 31 December 2021 (31 December 2020: $38.8 million)
o Total dividends of $10.9 million paid in 2021
o $2.2 million investment in Libero Copper & Gold Corporation in December 2021
-- All in sustaining cost ("AISC") of gold production increased
to $843 per ounce (2020: $702 per ounce) due to lower production
and cost inflation experienced during the year
-- Final dividend declared in respect of FY 2021 of $0.035 per
ordinary share payable on 28 July 2022, subject to approval at the
Annual General Meeting, bringing the FY 2021 total dividend to
$0.080 per ordinary share (FY 2020: $0.08 excluding special
dividend of $0.015 per ordinary share)
o Dividend maintained at 2020 level (excluding special dividend
of $0.015 paid in 2020) to retain capital given the exceptional
development opportunities
Operational Highlights
-- Discovery of the Zafar deposit at Gedabek and publication of
its final mineral resources, with production commencing in 2023
-- Agreement reached with the Government of Azerbaijan to acquire three new contract areas
-- Production sharing agreement for Gedabek extended for a further five years
-- Access obtained to the restored Vejnaly contract area, with
first processing of stockpiled ore from the mine in December
2021
-- $2.2 million investment in December 2021 for a 19.8% stake in
Libero Copper & Gold Corporation
FY 2021 production in line with guidance
-- 64,610 gold equivalent ounces ("GEOs") produced:
o Gold production for FY 2021 of 48,680 ounces (FY 2020: 56,864 ounces)
o Copper production for FY 2021 increased by 2 per cent.
year-on-year to 2,649 tonnes (FY 2020: 2,591 tonnes)
o Silver production for FY 2021 of 154,515 ounces (FY 2020: 122,962 ounces)
-- FY 2021 gold bullion sales of 39,563 ounces (FY 2020: 48,650
ounces) completed at an average of $1,799 per ounce (FY 2020:
$1,777 per ounce)
-- FY 2021 copper concentrate shipments to customers totalled
11,128 dry metric tonnes ("dmt") with a sales value of $23.7
million, excluding Government of Azerbaijan production share (FY
2020: 11,839 dmt with a sales value of $17.7 million)
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014, which was incorporated into UK law by
the European Union (Withdrawal) Act 2018, until the release of this
announcement.
For further information please contact:
Reza Vaziri Anglo Asian Mining plc Tel: +994 12 596 3350
Bill Morgan Anglo Asian Mining plc Tel: +994 502 910 400
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Stephen Westhead Anglo Asian Mining plc Tel: +994 502 916 894
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Ewan Leggat SP Angel Corporate Finance Tel: +44 (0) 20 3470
Adam Cowl LLP 0470
Nominated Adviser and
Broker
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Charlie Jack Hudson Sandler Tel: +44(0) 20 7796
Elfie Kent 4133
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Competent Person Statement
The information in the announcement that relates to exploration
results, minerals resources and ore reserves is based on
information compiled by Dr Stephen Westhead, who is a full-time
employee of Anglo Asian Mining with the position of Vice President,
Azerbaijan International Mining Company, who is a Fellow of The
Geological Society of London, a Chartered Geologist, Fellow of the
Society of Economic Geologists, Member of The Institute of
Materials, Minerals and Mining and a Member of the Institute of
Directors.
Stephen Westhead has sufficient experience that is relevant to
the style of mineralisation and type of deposit under consideration
and to the activity being undertaken to qualify as a Competent
Person as defined in the 2012 Edition of the 'Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore
Reserves'. Stephen Westhead consents to the inclusion in the
announcement of the matters based on his information in the form
and context in which it appears.
Stephen Westhead has sufficient experience, relevant to the
style of mineralisation and type of deposit under consideration and
to the activity that he is undertaking, to qualify as a "competent
person" as defined by the AIM rules. Stephen Westhead has reviewed
the resources and reserves included in this announcement.
Chairman's statement
It gives me great pleasure to present Anglo Asian's annual
results for 2021, a year of transformational change for the
Company. The Company now has a clearly defined path to become a
mid-tier copper and gold producer following the award of the three
new contract areas in 2021.
Dividend for 2021
The board is pleased to recommend a final dividend of US 3.5
cents per share for 2021 which gives a total dividend for the year
of US 8.0 cents per share. This will maintain the dividend
(excluding the special dividend in 2020 of US 1.5 cents per share)
at the same amount as in 2020. The board believes this is prudent,
despite the lower profitability in 2021, given the Company's
current cash resources. This will be the fourth consecutive year
that the Company has paid a dividend.
The amount of future dividends will depend on the Company's
future profitability and capital requirements as it transitions to
become a significant producer of copper. It is the board's
intention to maintain the Company's record as a reliable dividend
paying company on the London AIM market.
Operational and financial performance
Anglo Asian continued to perform satisfactorily throughout 2021.
We were encouraged by the gradual easing of COVID-19 restrictions
in Azerbaijan and elsewhere during the year and the Company is now
experiencing very little impact of the COVID-19 pandemic on its
operations.
Production of gold equivalent ounces in the year, declined by
four per cent., to 64,610 due to the lower gold grades of ore
processed. The lower production was partially offset by improved
copper prices. Profit before tax decreased to $12.6 million as
costs were also higher as the Company experienced considerable
across-the-board cost inflation like many other similar companies
in the industry. All-in-sustaining-cost increased to $843 per ounce
and inventories decreased by $6.2 million. The Company ended the
year with cash of $37.5 million and no bank debt.
In April 2021, Anglo Asian received approval from the Government
of Azerbaijan (the "Government") for the first of two permitted
five-year extensions of the Company's Production Sharing Agreement
("PSA") for the Gedabek contract area. This extension, which took
place routinely, demonstrates the strength of the Company's
relationship with the Government.
Our exploration programme made considerable progress in 2021 and
2022 to date. We have confirmed a mineral resource of 28,000 tonnes
of copper and 73,000 ounces of gold for our new Zafar deposit. We
will release the ore reserves for Zafar later in the year with
production starting next year. We were also pleased to announce the
discovery of the highly prospective Hasan gold vein at the Gosha
underground mine.
Access was obtained to Vejnaly in late 2021 which is now safe
for operations. Vejnaly hosts a previously worked underground mine.
Ownership of the existing infrastructure, which includes a small
processing plant, has been transferred to the Company. A team is
now based at Vejnaly and our activities are ramping up with
production expected from the beginning of the fourth quarter of
2022.
Production guidance for 2022
This year and next will see significant changes in the
production profile of the Company. We will transition from all our
production being from our existing mines at Gedabek, which are
approaching the end of their operational lives, to new mines at
Gedabek and elsewhere in Azerbaijan. The Company expects to
significantly increase its copper production and produce zinc for
the first time in the next two years.
Metal production of 54,000 to 58,000 gold equivalent ounces is
expected in 2022 from our existing mines at Gedabek. We also expect
to produce metal at Vejnaly and from the Hasan vein later in the
year. This will supplement the output from our existing mines at
Gedabek. We will release our production guidance for 2022 once we
have determined the expected production this year from Vejnaly and
Hasan.
Acquisition of three new contract areas in Azerbaijan
In September 2021, the Company announced the acquisition of
three new contract areas in Azerbaijan and the relinquishment of
our rights to the Soutely mine. These three new contract areas
transform the Company's development pipeline. This acquisition
requires the ratification of the Parliament of Azerbaijan of a
revised PSA for the Company. We have now agreed the revised PSA
with the Government and are still awaiting its ratification by the
Parliament of Azerbaijan. The three concessions, Garadagh, Xarxar
and Demirli, hold very substantial copper reserves.
Investment in Libero Copper & Gold Corporation
In January 2022, the Company completed the acquisition of 19.8
per cent. of Libero Copper & Gold Corporation ("Libero"). This
was the Company's first acquisition outside of Azerbaijan. The
board believes that Libero has an exceptional portfolio of
undervalued copper properties in North and South America and Anglo
Asian can help realise their full value. The board also believes
this acquisition will enhance shareholder value in Anglo Asian as
mining companies operating in multiple jurisdictions are typically
valued more highly than those operating in a single country.
Health and safety
The Company's health and safety record continues to improve.
There were no serious safety incidents or accidents in the year and
our lost time incident rate continues to decrease. A detailed
report on health and safety will be included in the Company's
annual report for 2021.
Sustainable development
The long-term development of Anglo Asian needs to encompass all
the Environmental, Social and Governance ("ESG") aspects of our
business. Anglo Asian considers all stakeholder groups in its
business decisions, carries out its operations with respect for the
environment and strongly values its relationships with local
communities.
In 2021, we made considerable progress towards establishing our
ESG criteria and reporting practices and are progressing with
enhancing our disclosures on sustainability. In 2022, we are
continuing this work with a review of our policies, key performance
indicators ("KPIs") and sustainability targets. I am delighted that
the annual report for 2021 will contain the Company's first
sustainability reporting.
Annual General Meeting for 2022
The directors strongly welcome that, following the recent
lifting of all COVID-19 restrictions in the United Kingdom, the
Company is able to have an in-person "open" Annual General Meeting
("AGM") in 2022 and all shareholders are welcome to attend. The
location, date and time of the AGM are set out below. The directors
very warmly invite all shareholders to attend and look forward to
meeting as many of you as possible.
Outlook
The Company's performance in 2021 was solid given current
economic conditions and leaves the Company financially strong with
increased opportunities for growth. We continue to drive our
organic growth to achieve our ambition to become a mid-tier
producer. Our near-term focus continues to be increasing production
at our currently active contract areas of Gedabek, Gosha and
Vejnaly.
Longer-term, the new Garadagh and Demirli deposits and our
investment in Libero have significantly increased Anglo Asian's
exposure to copper. We expect demand for copper to increase
considerably in the future with the global transition to a
low-carbon economy. We are already planning a very significant
increase in the scale of our copper production in the next three to
five years.
There are considerable headwinds in 2022 as inflationary
pressures and the geopolitical uncertainty brought about by
Russia's invasion of Ukraine continue. However, the Company is
unaffected directly by the war in Ukraine and by international
sanctions levied against various Russian entities. The Company will
continue to demonstrate its proven resilience of the previous two
years.
Appreciation
I would like to take this opportunity to thank the employees of
Anglo Asian Mining, our partners, the Government of Azerbaijan and
our advisers for their continued support. I would also like to
sincerely thank the shareholders for their continued investment and
support in the Company. I look forward to an exciting year and
sharing our future successes with you all.
Khosrow Zamani
Non-executive chairman
16 May 2022
President and chief executive's review
I am pleased to present the results of our 2021 performance. As
anticipated at the end of the first half of the year, the Company's
profitability increased in the second half of 2021. Our financial
position remains robust, and the board has recommended a final
dividend for 2021 of US 3.5 cents per ordinary share.
Operational review
During 2021, the Company continued to mine from its open pit and
underground mines at Gedabek following the exhaustion of the Ugur
open pit in 2020. Total production for 2021 was within our guidance
at 64,610 gold equivalent ounces ("GEOs"). The Company produced
48,680 ounces of gold, 154,515 ounces of silver and 2,649 tonnes of
copper. Total GEO production in 2021 was lower than 2020 due to
reduced gold production. The ore mined contained lower grades of
gold as the open pit and Gadir and Gedabek underground mines are
approaching the end of their lives. The production included 1,308
ounces of gold from ore stockpiled at Vejnaly. This ore was
transported to Gedabek for processing.
Gedabek is now a very mature site with only minimal capital
expenditure required during the year to sustain its operations.
Construction of a new heap leach pad with a planned capacity of
three million tonnes of ore was started in the year. This is to
provide additional leaching capacity once the Zafar mine commences
production and will adjoin the existing heap leach pads.
The Company's existing tailing dam at Gedabek has now reached
its maximum design capacity. Various initiatives were carried out
in 2021 to ensure the tailings dam now has sufficient capacity
until the end of 2023. Permission has been obtained to construct a
new tailings dam in the vicinity of the existing dam. All
geotechnical and other investigations at the site have been carried
out and building of the dam will commence later this year.
Financial results
The Company's financial performance has proved resilient with
revenue of $92.5 million, compared with $102.1 million in 2020.
Lower production was partially offset by higher average metal
prices. Profit before tax in 2021 reduced to $12.6 million from
$35.7 million in 2020 mainly due to the All-In-Sustaining-Cost
('AISC') of gold produced increasing from $702 to $843. This was
due to the across-the-board cost inflation that was experienced,
and the lower gold grades of ore processed. The Company had cash of
$37.5 million at 31 December 2021 and no bank debt. Free cash flow
for the year was within guidance at $12.2 million.
Revenues continued to be subject to an effective royalty of
12.75 per cent. We anticipate that this same royalty rate will
continue until at least 2023, with further details set out in the
financial review below.
Award of three new contract areas in Azerbaijan
In September 2021, Anglo Asian was awarded the rights to three
new contract areas, Garadagh, Xarxar and Demirli, which will be
transformational for the Company and a key driver of future growth.
There was no initial payment for the new concessions.
Garadagh and Xarxar border our existing Gedabek and Gosha
contract areas while Demirli is adjacent to our existing Kyzlbulag
contract area. The proximity of these new contract areas to our
existing concessions will generate significant operational
synergies and decrease the time required to bring them into
production. They are considerable in size with a combined total
area of 822 square kilometres. They contain significant
mineralisation, with the Garadagh porphyry deposit alone known to
contain over 300,000 tonnes of copper with an in-situ value of over
$3 billion at current prices. The results of approximately 28,000
metres of recent core drilling at Garadagh will become the property
of the Company upon ratification of the revised PSA. Demirli is
estimated to contain 275,000 tonnes of copper and 3,200 tonnes of
molybdenum which further increases our mineral resources.
As part of the acquisition, Anglo Asian relinquished its rights
to the Soutely mine in the Kalbajar district. This followed an
assessment into the site's security risks and capital expenditure
required for development. It was determined that the safety and
security of our employees could not be guaranteed. Very
considerable infrastructure investment would have been required to
develop the mine as road access and all the mine's associated
infrastructure is situated in Armenian territory.
Restored contract area of Vejnaly
In December 2021, Anglo Asian was granted permission to access
its Vejnaly contract area in the Zangilan district. Following this
permission, in December 2021, I was delighted to join other members
of our senior management on a visit to carry out an initial
assessment of the property. The existing ore stockpiled at Vejnaly
was transported to Gedabek and processed in December 2021.
Activities at the site are now steadily ramping up, with employees
based permanently on-site with ore production planned from the
beginning of the fourth quarter of the year.
Geological exploration in 2021 and 2022 to date
We are pleased with progress at Zafar, for which we have now
completed a very robust JORC Mineral Resource estimate, confirming
6.8 million tonnes of mineralisation with an average copper grade
of 0.50 per cent. This includes an in-situ Mineral Resource of
28,000 tonnes of copper, 73,000 tonnes of gold and 36,000 tonnes of
zinc. Zafar represents a significant resource to add to our growing
portfolio. We are now proceeding with ore reserves estimation and
mine planning and are on track to commence production in 2023.
In March 2022, we announced the discovery of a new sub-vertical
gold vein, "Hasan", to the south of the Gosha mine. The vein was
discovered by surface drilling and can easily be accessed from the
existing underground tunnelling. It possesses bonanza gold
intersections of up to 229.5 grammes of gold per tonne. We are
evaluating the vein and developing a mine plan for Hasan, with ore
production set to commence from the beginning of the fourth quarter
of the year.
Investment in Libero Copper & Gold Corporation
In December 2021, we were delighted to announce our acquisition
of 19.8 per cent. of Libero Copper & Gold Corporation
("Libero") for $4.9m. The transaction was completed in January 2022
and Michael Sununu was appointed to Libero's board. A technical
committee to direct future exploration was also established with
Farhang Hedjazi appointed to represent Anglo Asian. Farhang visited
the Mocoa site in Colombia and Esperanza in Argentina in April
2022. The recently reported assay results of the first drill hole
at Mocoa are very encouraging. The investment in Libero is part of
our growth strategy to expand our interests beyond our operations
in Azerbaijan .
Libero's portfolio enhances Anglo Asian's exposure to
substantial copper properties without significant impact to the
Company's balance sheet. We believe Libero has an outstanding
portfolio of copper exploration properties and we are ideally
placed to help Libero realise shareholder value from these
assets.
Looking ahead
Our ambition is to transform the Company from a junior gold
miner into a mid-tier producer of copper with gold as a by-product.
In the near-term, our focus remains on our organic growth
opportunities to maintain and increase our production in the next
few years. Later this year, we intend to start production from
Hasan and Vejnaly, whilst in 2023 Zafar will commence production.
We will also continue with our exploration programme. Longer-term,
we have already started the planning to exploit our new contract
areas.
We continue to prioritise ensuring attractive shareholder
returns and are proud of our position as one of AIM's reliable
dividend payers. I am pleased to note that the Board is
recommending a final dividend of US 3.5 cents, which gives a full
year dividend for 2021 of US 8 cents per ordinary share.
Reza Vaziri
President and chief executive
16 May 2022
Dividend
A final dividend of US$0.035 per share will be paid gross in
respect of the year ended 31 December 2021 to shareholders on 28
July 2022 that are on the shareholders record at the record date of
1 July 2022 subject to approval of the shareholders at the
Company's Annual General Meeting on 23 June 2022. The shares will
go ex-dividend on 30 June 2022. All dividends will be paid gross
and in cash. A scrip dividend or any other dividend reinvestment
plan will not be offered by the Company.
The dividend will be payable in pounds sterling. The dividend
will be converted to pounds sterling using the average of the
sterling closing mid-price using the exchange rate published by the
Bank of England at 4pm each day from the 4 to 8 July 2022.
Annual General Meeting for 2022
The Annual General Meeting of the Company for 2022 will be held
on 23 June 2022 at 11:00am at 33 St James's Square, London SW1Y
4JS, United Kingdom. This will be an "open meeting" and all
shareholders are warmly invited to attend.
Corporate governance and Section 172 (1) Statement
A statement of the Company's compliance with the ten principles
of corporate governance in the Quoted Companies Alliance Corporate
Governance Code ('QCA Code') will be included in the Company's
annual report and accounts for 2021.
The Company's Section 172 (1) Statement is included within the
strategic report below.
Sustainability at Anglo Asian Mining
A report on sustainability, including a detailed report on
health and safety, will be included in the Company's annual report
and accounts for 2021.
Strategic report
Principal activities
Anglo Asian Mining PLC (the "Company"), together with its
subsidiaries (the "Group"), owns and operates gold, silver and
copper producing properties in the Republic of Azerbaijan
("Azerbaijan"). It also explores for and develops gold and copper
deposits in Azerbaijan.
In January 2022, the Group completed its first investment
outside of Azerbaijan acquiring 19.8 per cent. of Libero Copper
& Gold Corporation ("Libero"), a company which owns several
copper exploration properties in North and South America including
Mocoa in Colombia, one of the world's largest undeveloped
copper-molybdenum resources.
Mining concessions in Azerbaijan
The Group's mining concessions in Azerbaijan are held under a
Production Sharing Agreement with the Government of Azerbaijan
("PSA") dated 20 August 1997.
The Group's mining concessions are called "Contract Areas" and
the PSA granted the Group six Contract Areas. However, access to
three of the Contract Areas (Vejnaly, Soutely and Kyzlbulag) was
not possible as they were situated in territory occupied by
Armenia. The three Contract Areas were restored to the Group
following the resolution of the conflict between Azerbaijan and
Armenia in November 2020.
In September 2021, the Government of Azerbaijan agreed to grant
the Company three new Contract Areas (Garadagh, Xarxar and Demirli)
and the Company agreed to relinquish its Soutely Contract Area. The
acquisition requires the ratification of the Parliament of the
Republic of Azerbaijan.
The Group will have, following ratification of a revised PSA by
the Parliament of the Republic of Azerbaijan, eight Contract Areas
covering 2,544 square kilometres in western Azerbaijan:
-- Gedabek . The location of the Group's main gold, silver and
copper open pit mine and the Gadir and Gedabek underground mines.
The Group's processing facilities are also located at Gedabek.
-- Gosha . Located approximately 50 kilometres from Gedabek and
hosts a narrow vein gold and silver mine.
-- Ordubad. An early-stage gold and copper exploration project
located in the Nakhchivan exclave.
-- Garadagh. Located to the north of Gedabek, that hosts the
Garadagh deposit which contains 168,000 and 150,700 tonnes of
copper in Soviet resource classifications C1 and C2, respectively,
totalling 318,700 tonnes of copper with an average ore grade of
0.64 per cent. copper.
-- Xarxar. Adjacent to Garadagh and shows significant potential
as it is likely part of the same mineral system.
-- Kyzlbulag. Situated in Karabakh and hosts the Demirli deposit
and a copper/molybdenum mine and an intact processing plant.
-- Demirli. This is adjacent to the Kyzlbulag Contract Area and
expands the Kyzlbulag Contract Area to the north-east.
-- Vejnaly. Situated in the Zangilan district of Azerbaijan and hosts the Vejnaly deposit.
The restored Contract Areas (Kyzlbulag and Vejnaly) have
continued to be held under the Company's existing PSA. However, the
PSA will only commence in respect of each of these contract areas
upon notification by the Government of Azerbaijan to the Company of
the cessation of all hostilities and that it is safe to access the
district. This notification will therefore "reset" the PSA to year
zero for that contract area. Accordingly, the Company then has the
right to explore the contract area for up to five years and then
develop and produce for 15 years, with two five-year extensions
allowed. The PSA has now commenced in respect of the Vejnaly
Contract Area.
Overview of 2021
In 2021, the Company continued its strategy to increase
shareholder value by progressing its development towards a mid-tier
gold, copper and silver miner.
In January 2021, the Group announced the discovery of "Zafar" at
Gedabek. Zafar is a significant copper-gold mineral occurrence. The
Group published the final mineral resources for the Zafar deposit
in March 2022. The planning and development of the new mine are
currently underway.
In September 2021, the Group signed heads of terms with the
Government of Azerbaijan to acquire three new Contract Areas and
relinquish its Soutely Contract Area. This agreement requires the
ratification of the Parliament of the Republic of Azerbaijan.
In the second half of 2021, access was obtained to the Vejnaly
Contract Area and, in December, ore stockpiles from the existing
Vejnaly mine were transported to the Gedabek site and processed.
Staff are now based at Vejnaly and planning is underway to start
production at Vejnaly in the second half of 2022.
In December 2021, a strategic interest of 9.9 per cent. was
acquired in Libero Copper & Gold Corporation ("Libero"). In
January 2022, the Group's interest was increased to 19.8 per
cent.
In March 2022, the Group announced the discovery of a
significant new sub-vertical gold vein, "Hasan", at Gosha.
Production target for 2022
The Company expects to commence gold production from both the
Hasan gold vein at Gosha and at Vejnaly in the second half of 2022,
with the amounts achievable by the year end currently under
evaluation. Accordingly, the Group will publish its final
production guidance later in 2022. Currently metal production in
2022 from the existing Gedabek operations is forecast to be between
54,000 and 58,000 gold equivalent ounces.
Gedabek
Introduction
The Gedabek mining operation is located in a 300 square
kilometre Contract Area in the Lesser Caucasus mountains in western
Azerbaijan on the Tethyan Tectonic Belt, one of the world's most
significant copper and gold-bearing geological structures. Gedabek
is the location of the Group's Gedabek open pit mine, the Gadir and
Gedabek underground mines and the Company's processing
facilities.
Gold production at Gedabek commenced in September 2009. Ore was
initially mined from an open pit, with underground mining
commencing in 2015 when the Gadir mine was opened. In 2020,
underground mining commenced beneath the main open pit (the
"Gedabek underground mine"). The Gedabek and Gadir underground
mines have now been connected to form one continuous underground
system of tunnels.
Initial gold production was by heap leaching, with copper
production beginning in 2010 when the Sulphidisation,
Acidification, Recycling and Thickening ("SART") plant was
commissioned. The Group's agitation leaching plant commenced
production in 2013 and its flotation plant in 2015. From the start
of production to 31 December 2021, approximately 745 thousand
ounces of gold and 16.3 thousand tonnes of copper have been
produced at Gedabek.
Mineral resources and ore reserves
Key to the future development of the Company is our knowledge of
the mineral resources within the Company's Contract Areas. The
Group's most recent mineral resources and ore reserves estimates
for the Gedabek open pit and Gadir underground mine were published
on 2 November 2020. A final mineral resources statement for the
Zafar deposit was published on 21 March 2022. A summary of these
estimates is as follows (amounts are in-situ before recovery).
Table 1 shows the Gedabek open pit mineral resources estimate at
30 June 2020 and table 2 shows the Gedabek open pit ore reserves
estimate at 30 June 2020. Table 3 shows the Gadir underground mine
mineral resources estimate at 30 September 2020 and table 4 shows
the Gadir underground mine ore reserves estimate at 30 September
2020 . Table 5 shows the Zafar mineral resources estimate at 30
November 2021.
Table 1 - Gedabek open pit mineral resources estimate at 30 June
2020
MINERAL RESOURCES (cut-off grade of 0.2 g/t gold)
In-situ grades Contained metal
Tonnage Gold Copper Silver Zinc Gold Copper Silver Zinc
Mineral grade grade grade grade
Resources (Mt) (g/t) (%) (g/t) (%) (koz) (kt) (koz) (kt)
Measured 15.8 0.66 0.12 2.58 0.24 335 19.0 1,311 37.9
Indicated 12.0 0.56 0.12 2.31 0.16 216 14.4 891 19.2
------------ -------- ------- ------- ------- ------- ------- ------- -------- -------
Measured
and
Indicated 27.8 0.62 0.12 2.46 0.21 551 33.4 2,202 57.1
------------ -------- ------- ------- ------- ------- ------- ------- -------- -------
Inferred 13.0 0.44 0.06 0.61 0.15 184 7.8 255 19.5
------------ -------- ------- ------- ------- ------- ------- ------- -------- -------
TOTAL 40.8 0.56 0.10 1.87 0.19 735 41.2 2,457 76.6
------------ -------- ------- ------- ------- ------- ------- ------- -------- -------
Some of the totals above may not add due to rounding
ADDITIONAL MINERAL RESOURCES (additional to gold mineral resource)
(gold cut-off < 0.2 g/t and copper > 0.3 %
Gold Copper Silver Zinc Contained metal
Tonnage Gold Tonnage Copper Tonnage Silver Tonnage Zinc Gold Copper Silver Zinc
grade grade grade grade
(Mt) (g/t) (Mt) (%) (Mt) (g/t) (Mt) (%) (koz) (kt) (koz) (kt)
Measured - - 2.15 0.43 0.08 16.4 1.86 0.53 - 9.2 42 9.9
Indicated - - 2.13 0.34 0.28 13.9 2.03 0.51 - 7.2 125 10.4
----------- --------- ------- -------- ------- -------- ------- -------- ------- ------ ------- ------- -------
Measured
and
Indicated - - 4.28 0.39 0.36 14.5 3.89 0.52 - 16.5 167 20.2
----------- --------- ------- -------- ------- -------- ------- -------- ------- ------ ------- ------- -------
Inferred - - 2.85 0.40 0.15 19.4 7.04 0.54 - 11.4 94 38.0
----------- --------- ------- -------- ------- -------- ------- -------- ------- ------ ------- ------- -------
TOTAL - - 7.10 0.39 0.51 15.9 10.9 0.50 - 27.9 261 58.2
----------- --------- ------- -------- ------- -------- ------- -------- ------- ------ ------- ------- -------
Some of the totals above may not add due to rounding
Mineral resource classifications are based on the gold
estimation confidence. Copper, silver, and zinc are reported within
these classifications.
Stockpiles included in Measured Resources and Ore Reserves
Measured Mineral Tonnage Stockpile grades Contained metal
Resources
(Mt)
Gold Copper Silver Gold Copper Silver
grade grade grade
(g/t) (%) (g/t) (koz) (kt) (koz)
Agitation leach 0.02 1.87 0.24 17.79 1 - 10
Flotation 0.14 0.90 0.53 11.71 4 0.7 53
Heap leach (crushed) 0.06 0.81 0.11 7.71 2 0.1 16
Heap leach (ROM) 0.61 0.73 0.21 10.23 14 4.3 201
---------------------- -------- ------- ------- ------- ------- ------- -------
Stockpile Mineral
Resources 0.83 0.79 0.26 10.44 21 2.2 279
---------------------- -------- ------- ------- ------- ------- ------- -------
Some of the totals above may not add due to rounding
Table 2 - Gedabek open pit ore reserves estimate at 30 June
2020.
Tonnage In-situ grades Contained metal
(Mt)
Gold Copper Silver Gold Copper Silver
grade grade grade
(g/t) (%) (g/t) (koz) (kt) (koz)
Proven 8.07 0.72 0.19 3.48 187 15.3 902
Probable 3.65 0.64 0.23 4.87 75 8.5 572
---------------------- -------- ------- ------- ------- ------- ------- -------
In-situ ore reserves 11.72 0.70 0.20 3.91 263 24 1,474
---------------------- -------- ------- ------- ------- ------- ------- -------
Stockpile grades
Agitation leach 0.02 1.87 0.24 17.79 1 - 10
Flotation 0.14 0.90 0.53 11.71 4 0.7 53
Heap leach (crushed) 0.06 0.81 0.11 7.71 2 0.1 16
Heap leach (ROM) 0.61 0.73 0.21 10.23 14 4.3 201
---------------------- -------- ------- ------- ------- ------- ------- -------
Stockpile ore
reserves 0.83 0.79 0.26 10.44 21 2.2 279
---------------------- -------- ------- ------- ------- ------- ------- -------
TOTAL ORE RESERVES 12.55 0.70 0.21 4.34 284 26.0 1,754
---------------------- -------- ------- ------- ------- ------- ------- -------
Some of the totals above may not add due to rounding
Proved and probable ore reserves estimate is based on that
portion of the measured and indicated mineral resources of the
deposit within the scheduled mine designs that may be economically
extracted, considering all "Modifying Factors" in accordance with
the JORC (2012) Code .
Table 3 - Gadir underground mine mineral resources estimate at
30 September 2020
MINERAL RESOURCES (cut-off grade of 0.5 g/t gold)
In-situ grades Contained Metal
Tonnage Gold Copper Silver Zinc Gold Copper Silver Zinc
Mineral grade grade grade grade
Resources (kt) (g/t) (%) (g/t) (%) (koz) (t) (koz) (t)
Measured 2,035 2.47 0.09 4.69 0.61 162 1,831 307 12,407
Indicated 966 1.59 0.02 0.63 0.33 49 193 20 3,188
------------ -------- ------- ------- ------- ------- ------- -------- ------- ---------
Measured
and
Indicated 3,001 2.19 0.07 3.40 0.52 211 2,024 326 15,595
------------ -------- ------- ------- ------- ------- ------- -------- ------- ---------
Inferred 1,594 1.10 0.01 0.03 0.10 56 159 2 1,594
------------ -------- ------- ------- ------- ------- ------- -------- ------- ---------
TOTAL 4,595 1.81 0.05 2.22 0.37 267 2,183 328 17,189
------------ -------- ------- ------- ------- ------- ------- -------- ------- ---------
Some of the totals above may not add due to rounding
Table 4 - Gadir underground mine ore reserves estimate at 30
September 2020
Tonnage In-situ grades Contained metal
(Mt)
Gold Copper Silver Gold Copper Silver
grade grade grade
(g/t) (%) (g/t) (koz) (t) (koz)
Proven 0.47 2.32 0.04 3.38 35 173 51
Probable 0.19 2.20 0.01 0.74 14 18 5
------------------- -------- ------- ------- ------- ------- ------- -------
TOTAL ORE RESERVE 0.66 2.28 0.03 2.60 49 191 56
------------------- -------- ------- ------- ------- ------- ------- -------
Some of the totals in the above table do not sum due to
rounding
The above proved and probable ore reserves estimate is based on
that portion of the measured and indicated mineral resource of the
deposit within the scheduled mine designs that may be economically
extracted, considering all "Modifying Factors" in accordance with
the JORC (2012) Code. Zinc was not estimated as part of this
reserve as it is under study at resource level currently.
Table 5 - Zafar mineral resources estimate at 30 November
2021
Copper > 0.3 per cent. copper equivalent
Tonnage In-situ grades Contained metal
(Mt)
Copper Gold Zinc Copper Gold Zinc
(%) (g/t) (%) (kt) (kozs) (kt)
======================== ======== ========= ======== ======= ========= ========= =======
Measured and indicated 5.5 0.5 0.4 0.6 25 64 32
-------- --------- -------- ------- --------- --------- -------
Inferred 1.3 0.2 0.2 0.3 3 9 3
-------- --------- -------- ------- --------- --------- -------
Total 6.8 0.5 0.4 0.6 28 73 36
======================== ======== ========= ======== ======= ========= ========= =======
Note that all tonnages reported are dry metric tonnes. Totals
may not add due to rounding.
Previously heap leached ore
Gold production at Gedabek from 2009 to 2013 was by heap
leaching crushed ore until the start-up of the agitation leaching
plant in 2013. The heaps remain in-situ and given the high grade of
ore processed prior to the commencement of agitation leaching, and
the lower recovery rates, much of the previously heap leached ore
contains significant amounts of gold. This is now being processed
by agitation leaching. Table 6 shows the amount of previously heap
leached ore processed in 2021.
Table 6 - Amount of previously heap leached ore processed in
2021
In-situ material Average gold
(t) grade
(g/t)
---------------- ----------------- -------------
1 January 2021 1,725,809 1.35
Processed in
the year (139,496) 1.23
---------------- ----------------- -------------
31 December
2021 1,586,313 1.36
---------------- ----------------- -------------
Mining operations
The principal mining operation at the Gedabek contract area is
conventional open-cast mining using trucks and shovels from the
Gedabek open pit (which comprises several contiguous smaller open
pits).
Ore is also mined from the Gadir and Gedabek underground mines.
Table 7 shows the ore mined in the year ended 31 December 2021 from
all the Company's mines.
Table 7 - Ore mined at Gedabek from all mines for the year ended
31 December 2021
Total ore mined
for the year ended
31 December 2021
Average
Ore mined gold grade
Mine (tonnes) (g/t)
---------- ------------
Gedabek open pit 1,815,857 0.74
Gadir - underground 115,943 1.91
Gedabek - underground 248,792 1.42
---------- ------------
Total for the year 2,180,592 0.80
======================= ========== ============
Processing operations
Ore is processed at Gedabek to produce either gold doré (an
alloy of gold and silver with small amounts of impurities, mainly
copper) or a copper and precious metal concentrate.
Gold doré is produced by cyanide leaching. Initial processing is
to leach (i.e. dissolve) the precious metal (and some copper) in a
cyanide solution. This is done by various methods:
1 Heap leaching of crushed ore. Crushed ore is heaped into
permeable "pads" onto which is sprayed a solution of cyanide. The
solution dissolves the metals as it percolates through the ore by
gravity and it is then collected by the impervious base under the
pad.
2 Heap leaching of run of mine ("ROM") ore. The process is
similar to heap leaching for crushed ore, except the ore is not
crushed, instead it is heaped into pads as received from the mine
(ROM) without further treatment or crushing. This process is used
for very low-grade ores.
3 Agitation leaching . Ore is crushed and then milled in a
grinding circuit. The finely ground ore is placed in stirred
(agitation) tanks containing cyanide solution and the contained
metal is dissolved in the solution. Any coarse, free gold is
separated using a centrifugal-type Knelson concentrator.
Slurries produced by the above processes with dissolved metal in
solution are then transferred to a resin-in-pulp ("RIP") plant.
This plant selectively absorbs then de-absorbs the gold and silver.
The gold and silver dissolved in the solution which is produced are
then recovered by electrolysis and are then smelted to produce the
doré metal, comprising an alloy of gold and silver.
Copper and precious metal concentrates are produced by two
processes, SART processing and flotation.
1 Sulphidisation, Acidification, Recycling and Thickening
("SART") . The cyanide solution after gold absorption by
resin-in-pulp processing is transferred to the SART plant. The pH
of the solution is then changed by the addition of reagents which
precipitates the copper and any remaining silver from the solution.
The process also recovers cyanide from the solution, which is
recycled back to leaching.
2 Flotation. Flotation is carried out in a separate flotation
plant. Feedstock is mixed with water to produce a slurry called
"pulp" and other reagents are then added. This pulp is processed in
flotation cells (tanks), where the pulp is stirred and air
introduced as small bubbles. The sulphide mineral particles attach
to the air bubbles and float to the surface where they form a froth
which is collected. This froth is dewatered to form a mineral
concentrate containing copper, gold and silver.
Table 8 summarises the ore processed by leaching at Gedabek for
the year ended 31 December 2021.
Table 8 - Ore processed by leaching at Gedabek for the year
ended 31 December 2021
Ore processed (tonnes) Gold grade of ore processed
Quarter ended (g/t)
------------------------------- --------------------------------
Heap Heap Agitation Heap Heap Agitation
leach leach leach leach
pad pad pad pad
crushed ROM ore leaching crushed ROM ore leaching
ore plant ore plant
-------- -------- ----------- --------- --------- ----------
31 March 2021 110,612 258,097 154,373 0.90 0.61 1.92
30 June 2021 154,619 177,369 164,288 0.81 0.59 1.64
30 September
2021 154,112 194,816 171,029 0.79 0.51 1.65
31 December 2021 113,623 309,374 151,701 0.68 0.49 1.53
-------- -------- ----------- --------- --------- ----------
Total for the
year 532,966 939,656 641,391 0.80 0.54 1.68
================== -------- -------- ----------- --------- --------- ----------
Table 9 summarises ore processed by flotation for the year ended
31 December 2021.
Table 9 - Ore processed by flotation for the year ended 31
December 2021
Quarter ended Ore processed Gold content Silver content Copper content
(tonnes) (ounces) (ounces) (tonnes)
31 March 2021 111,060 920 15,782 652
30 June 2021 116,910 1,251 23,870 596
30 September
2021 121,283 1,231 19,939 519
31 December 2021 129,384 1,856 28,480 762
------------------ -------------- ------------- --------------- ---------------
Total for the
year 478,637 5,258 88,071 2,529
================== -------------- ------------- --------------- ---------------
Production and sales
For the year ended 31 December 2021, gold production totalled
48,680 ounces, which was a decrease of 8,184 ounces in comparison
to the production of 56,864 ounces for the year ended 31 December
2020.
Table 10 summarises the gold and silver bullion produced from
doré bars and sales of gold bullion for the year ended 31 December
2021.
Table 10 - Gold and silver bullion produced from doré bars and
sales of gold bullion for the year ended 31 December 2021
Quarter ended Gold produced* Silver Gold sales** Gold sales
ounces produced* ounces price
ounces $/ounce
31 March 2021 11,541 4,916 5,635 1,697
30 June 2021 11,789 5,921 13,947 1,808
30 September
2021 12,314 5,473 6,828 1,815
31 December
2021 10,561 5,430 13,153 1,825
-------------- ----------- ------------- ----------
Total for the
year 46,205 21,740 39,563 1,799
============== ============== =========== ============= ==========
*Including Government of Azerbaijan's share.
** Excluding Government of Azerbaijan's share.
Table 11 summarises the total copper, gold and silver produced
as concentrate by both SART and flotation processing for the year
ended 31 December 2021.
Table 11 - Total copper, gold and silver produced as concentrate
by both SART and flotation processing for the year ended 31
December 2021
Copper (tonnes) Gold (ounces) Silver (ounces)
-------------------------- ------------------------- -----------------------------
Quarter ended SART Flotation Total SART Flotation Total SART Flotation Total
------ ---------- ------ ----- ---------- ------ ------- ---------- --------
31 March 2021 276 362 638 13 353 366 19,850 10,599 30,449
30 June 2021 301 394 695 12 539 551 22,428 15,216 37,644
30 September
2021 265 308 573 13 517 530 19,526 11,913 31,439
31 December
2021 193 550 743 16 1,012 1,028 16,414 16,829 33,243
------ ---------- ------ ----- ---------- ------ ------- ---------- --------
Total for
the year 1,035 1,614 2,649 54 2,421 2,475 78,218 54,557 132,775
=============== ====== ========== ====== ===== ========== ====== ======= ========== ========
Table 12 summarises the total copper concentrate (including gold
and silver) production and sales from both SART and flotation
processing for the year ended 31 December 2021.
Table 12 - Total copper concentrate (including gold and silver)
production and sales from both SART and flotation processing for
the year ended 31 December 2021
Concentrate Copper Gold Silver Concentrate Concentrate
production* content* content* content* sales sales**
Quarter ended (dmt) (tonnes) (ounces) (ounces) (dmt) ($000)
------------- ---------- ---------- ------------
31 March 2021 2,848 638 366 30,449 - -
30 June 2021 3,164 695 551 37,644 3,467 9,066
30 September
2021 3,103 573 530 31,439 3,549 5,712
31 December
2021 3,922 743 1,028 33,243 4,108 8,941
------------- ---------- ---------- ---------- ------------ ------------
Total for the
year 13,037 2,649 2,475 132,775 11,124 23,719
=============== ------------- ---------- ---------- ---------- ------------ ------------
*Including the Government of Azerbaijan's share.
** These are invoiced sales of the Group's share of production
before any accounting adjustments in respect of IFRS 15. The total
for the year does not therefore agree to the revenue disclosed in
note 6 - "Revenue" to the Group financial statements.
Infrastructure
The Gedabek Contract Area benefits from excellent infrastructure
and access. The site is located at the town of Gedabek, which is
connected by a good tarmacadam road to the regional capital of
Ganja. Baku, the capital of Azerbaijan to the south, and the
country's border with Georgia to the north, are each approximately
a four to five hour drive over good quality roads. The site is
connected to the Azeri national power grid.
Water management
The Gedabek site has its own water treatment plant which was
constructed in 2017 and which uses the latest reverse osmosis
technology. In the last few years, Gedabek town has experienced
water shortages in the summer and this plant reduces to the
absolute minimum the consumption of fresh water required by the
Company. Wastewater evaporation equipment is also deployed in the
tailings dam.
Tailings (waste) storage
Tailings are stored in a purpose-built dam approximately seven
kilometres from the Group's processing facilities, topographically
at a lower level than the processing plant, thus allowing gravity
assistance of tailings flow in the slurry pipeline. Immediately
downstream of the tailings dam is a reed bed biological treatment
system to purify any seepage from the dam before discharge into the
nearby Shamkir river.
The wall of the tailings dam was raised by seven metres in 2020
increasing the capacity of the tailings dam to 6.0 million cubic
metres. This is the final raise of the tailings dam wall. The dam
has now been reconfigured and now has sufficient capacity for
tailings to approximately the end of 2023. There are two pipelines
from the Company's processing facilities to the tailings dam to
increase capacity and provide redundancy.
A site has been identified for a new tailings dam in the
vicinity of the existing dam and permission has been obtained for
the land use. The necessary investigations to determine the
competency of the bedrock at the proposed site have been
successfully completed. The designing of the new dam and planning
to transition to its use are currently underway.
Gosha
The Gosha Contract Area is 300 square kilometres in size and is
situated in western Azerbaijan, 50 kilometres north-west of
Gedabek. Gosha is the location of a high grade, underground gold
mine. Ore mined at Gosha is transported by road to Gedabek for
processing. No mining was carried out in the Gosha mine in the year
ended 31 December 2021.
Geological field work in 2021 resulted in the discovery of a new
sub-vertical high gold grade mineralised vein ("Hasan") immediately
south of the existing Gosha mine. The new gold vein can be accessed
via a short tunnel from the existing tunnelling at Gosha.
Ordubad
The 462 square kilometre Ordubad Contract Area is located in
Nakhchivan, south-west Azerbaijan, and contains numerous targets.
The Company carried out only very limited geological exploration
work at Ordubad in 2021 due to the COVID-19 pandemic, details of
which are set out in the report on geological exploration
below.
Garadagh and Xarxar
Garadagh and Xarxar are situated 4.0 and 1.5 kilometres
respectively from the northern boundary of the Gedabek Contract
Area. These two Contract Areas infill the territory between Gedabek
and Gosha to create a contiguous territory totalling 1,408 square
kilometres. The territory includes areas to the north, north-east
and west of the current Gedabek Contract Area.
The Avshancli and Gilar discoveries are situated close to the
northern boundary of the Gedabek Contract Area. Geological
exploration of Avshancli and Gilar indicates that these discoveries
trend to the north towards Xarxar. The extension of the Contract
Area to the north will therefore enable these discoveries to be
fully incorporated into the Company's expansion plans. The Gilar,
Avshancli, Xarxar and Garadagh deposits are all situated in close
proximity within a ten square kilometre region. This will
facilitate their coordinated development across the properties.
No work was carried out at Garadagh and Xarxar in 2021 as the
Company will only acquire the rights to the Contract Areas
following ratification of the revised PSA by the Parliament of the
Government of the Republic of Azerbaijan.
Kyzlbulag and Demirli
The Kyzlbulag Contract Area in the Karabakh economic region
contains several mines and has excellent potential for exploration,
as indicated by the presence of many mineral deposits and known
targets in the region. The new Demirli Contract Area contains the
Demirli mining property. There are indications that up to 35,000
ounces of gold per year were extracted from the Kyzlbulag
copper-gold mine, before the mine was closed several years ago,
indicating the presence of a gold mineralising system.
Russian peacekeepers are currently present in the area ensuring
the region is safe. The Government of Azerbaijan will use all
reasonable endeavours to ensure that the Company has physical
access to the region to undertake mineral exploration.
The new Demirli concession is 74 square kilometres and extends
by about 10 kilometres to the north-east from the Kyzlbulag
Contract Area.
No work was carried out at Kyzlbulag in 2021 as the Company had
no access to the Contract Area in 2021. No work was carried out at
Demirli in 2021 as the Company will only acquire the rights to the
Contract Area following ratification of the revised PSA by the
Parliament of the Government of the Republic of Azerbaijan.
Vejnaly
Access to Vejnaly was granted in the second half of 2021.
Members of the Company's senior management including Reza Vaziri,
president and chief executive officer, travelled to Zangilan in
early December 2021 to assess the Contract Area, including the
existing underground mine at the site.
Initial investigations of the site were carried out and
surveying of ore stockpiles was completed in December 2021. A
technical study of the existing mine and plant is now underway.
Employees are now permanently based on site and the camp is being
refurbished. The Azerbaijan National Agency for Mine Action
('ANAMA') has recently completed its inspection and has certified
access to the site and underground mine as safe. In accordance with
our existing Production Sharing Agreement, the Government of
Azerbaijan has transferred all site assets to the Company.
10,575 dry metric tonnes of stockpiled Vejnaly ore grading 3.91
grammes per tonne of gold and 0.27 per cent. copper were
transported to Gedabek and processed by agitation leaching in
December 2021, with gold recoveries of 95 per cent. producing 1,308
ounces of gold.
Geological exploration
Summary
-- New mineral deposit "Zafar" discovered at Gedabek
o Maiden Mineral Resource published on 16 August 2021 with the
final Mineral Resource published on 21 March 2022
o Extensive core drilling carried out throughout the year at the
deposit
-- New sub-vertical gold vein, "Hasan", discovered at Gosha
o Located to the immediate south of the existing Gosha mine
o Vein can be easily accessed from existing underground mine
workings
-- The Gedabek and Gadir underground mines are now connected and
form one continuous tunnel system and extensive underground core
drilling took place in 2021
o Extensions to the underground mines discovered
-- New mineralisation body discovered at Gilar
o Ore body is a south-west continuation of the deposit
-- Infill drilling carried out in pit 5 and pit 9 of the Gedabek open pit
o Drilling intersections returned with grades of up to one per
cent. copper in this copper-rich area of the main open pit
-- No geological field work was carried out at Ordubad during
2021 due to COVID-19 travel restrictions
Gedabek
Zafar deposit
The discovery of a new mineral deposit "Zafar" was announced in
early 2021. The deposit is located 1.5 kilometres north-west of the
existing Gedabek processing plant.
The geology of the area is structurally complex, comprising
mainly of Upper Bajocian-aged volcanics. The mineralisation seems
to be associated with a main north-west to south-east trending
structure, which is interpreted as post-dating smaller north-east
to south-west structures. In the south-west area, outcrops with
tourmaline have been mapped, which can be indicative of the
potential for porphyry-style mineral formation. The exploration
area is located along the regional Gedabek-Shekarbek fault system,
with Shekarbek being another target area known to host copper
mineralisation, situated in the north-west of the zone.
75 core drill holes with a total length of 36,432 metres were
completed at Zafar in 2021. 20 drill holes returned grades above
reportable limits. One drill hole encountered abundant sulphide
mineralisation with a thickness of 133 metres and grading 0.85 per
cent. copper, 1.35 per cent. zinc and 0.58 grammes of gold per
tonne. Bench scale X-RAY diffraction ("XRD") analysis of drill core
samples commenced during the year. This uses a portable XRD machine
to undertake geochemical analyses of core samples. The results are
obtained in "real time" without the need to wait for laboratory
analysis which enables a better focused drill programme.
The maiden Mineral Resource estimate for the Zafar deposit was
published on 16 August 2021. The final Mineral Resource estimate
was completed during 2021 and early 2022 and published on 21 March
2022 and is contained within table 5 above.
Gedabek and Gadir underground mines
The Gedabek and Gadir underground mines are now connected and
form one continuous underground network of tunnels accessible from
both the Gadir and Gedabek portals. However, a significant fault
structure separates the two mines. Underground drilling was
conducted along the tunnel connecting the Gedabek and Gadir mines
and 45 core drill holes (19 BQ and 26 HQ/NQ diameter) with a total
length of 3,328 metres were completed. This underground drilling
enables the Company to capture truly 3-dimensional data.
Underground mapping was also carried out. The drilling results have
yielded extensions to the Gedabek and Gadir underground mines.
Infill drilling at pit 5 and pit 9 of the Gedabek open pit
Infill reverse circulation drilling at pit 5 and pit 9 of the
Gedabek open pit was carried out in 2021. The drilling was for
grade control and to locate ore extensions for mining. 95 drill
holes for a total length of 7,484 metres of drilling were
completed. Notable intersections included 6 metres at 2.86 per
cent. copper and 5 metres at 3.06 per cent. copper in this
copper-rich area of the Gedabek open pit.
Avshancli
Avshancli is a significant mineral district which is 10.5
kilometres north-east of the Gedabek open pit. Avshancli is a
gold-copper occurrence comprising three defined areas, Avshancli-1,
-2 and -3. 92 reverse circulation drill holes with a total length
of 2,176 metres were completed at Avshancli-1 and 9 reverse
circulation drill holes with a total length of 1,022 were completed
at Avshancli-2 in 2021. The geological work to date at Avshancli-1
shows discontinuous surface mineralisation with gold grades
dropping off from the surface as the structures narrow with depth.
Given the distribution of mineralisation, economic volumes of ore
are likely to be small.
Gilar
Gilar is a mineral occurrence located approximately two
kilometres south of Avshancli-1. The area hosts two styles of
mineralisation, gold in quartz veins and hydrothermal gold-copper.
37 surface core drill holes were completed in 2021 for a total
length of 14,165 metres. The drilling allows the determination of
zone continuity and a new mineralisation body was discovered which
is a south-west continuation of the deposit. The Company continues
to assess the economic feasibility of tunnelling for further
exploration at Gilar to allow for underground drilling and bulk
sampling.
Ugur open pit and Ugur Deeps
The Ugur pit has now been fully exhausted. However, in the first
half of the year, drilling continued in the vicinity of the
depleted open pit (Ugur Deeps region) to locate possible extensions
to the deposit. Ten core drill holes with a total length of 3,360
metres were completed, targeting high-grade copper-silver
mineralisation. However, the drill rigs at Ugur Deeps were
redeployed in the second half of the year and no further drilling
was carried out. Limited trench sampling was undertaken in the
second half of the year.
Gosha
The Gosha contract area, which hosts the Gosha mine, is located
next to the Armenian border. Due to the conflict between Azerbaijan
and Armenia, geological field work was carried out only in the
second half of the year. This was mainly surface core drilling in
the vicinity of the Gosha underground mine. However, some outcrop
and trench sampling was also carried out. The surface core drilling
resulted in the discovery of a new sub-vertical high gold grade
mineralised vein ("Hasan"), after surface mapping suggested the
presence of gold at the location. The new gold vein can be accessed
via a short tunnel from the existing tunnelling at Gosha.
The Gosha mine was previously thought to consist of two narrow
gold veins, zone 13 and zone 5 to the south. Mining has previously
taken place from both veins. Hasan is located immediately south of
the zone 5 and intersects it at one point. The host rock mostly
exhibits silicification and kaolinisation alteration which changes
to quartz-haematite alteration in andesite.
During 2021, 15 core drill holes for a total length of 4,618
metres were completed. Outstanding grades of up to 229.5 grammes of
gold per tonne were returned, with significant drill intersections
as follows:
Depth Downhole Gold Silver
Length
meters g/t g/t
From To
Hole i.d meters meters
-------- --------
21GODDH01 65.80 69.40 3.20 53.42 5.00
-------- -------- --------- ------- -------
66.80 67.30 0.50 229.50 5.00
-------- -------- --------- ------- -------
61.00 71.00 10.00 23.24 5.00
-------- -------- --------- ------- -------
New geological maps were also compiled for the Gosha Contract
Area using all previously obtained data. This is the first stage of
a desktop study to consolidate all historical and newly obtained
data to better understand the regional geology.
Ordubad
Due to COVID-19 restrictions, drill access was restricted during
2021 and therefore very limited geological field work was
completed.
The Company is awaiting results from the samples collected by
the geological team from the Natural History Museum London as part
of their ongoing "From Arc Magmas to Ores" ("FAMOS") international
research project. This study is being carried out to determine
whether there are any indications of a porphyry system within the
Ordubad Contract Area. The results of this investigation have
unfortunately been delayed by the COVID-19 pandemic.
Detailed reports on geological exploration
Detailed reports on all exploration activities in 2021 can be
found on the Group's website at:
https://www.angloasianmining.com/operations/exploration-and-development/
.
Sale of the Group's products
Important to the Group's success is its ability to transport its
products to market and sell them without disruption.
In 2021, the Group shipped all its gold doré to Switzerland for
refining by either MKS Finance SA or Argor-Heraeus SA. The Group
continually reviews which refiner offers the best commercial terms,
and based on this, decides to which refiner to ship each
consignment. The logistics of transport and sale are well
established and gold doré shipped from Gedabek arrives in
Switzerland within three to five days. The proceeds of the
estimated 90 per cent. of the gold content of the doré can be
settled within one to two days of receipt of the doré. The Group,
at its discretion, can sell the resulting refined gold bullion to
the refiner. The Group usually ships its gold doré to Switzerland
by scheduled airflights. In 2021 all shipments were made by
scheduled airflights and the refineries operated without
disruption.
The Gedabek mine site has good road transportation links and our
copper and precious metal concentrate is collected by truck from
the Gedabek site by the purchaser. The Group sells its copper
concentrate to three metal traders as detailed in note 6 to the
Group financial statements. The contracts with each metal trader
are periodically renewed and each new contract requires the
approval of the Government of Azerbaijan. Some minor delays in
selling concentrate have been experienced whilst waiting for
Government approval of new contracts.
Libero Copper & Gold Corporation
A private placement to acquire a strategic interest in Libero
Copper & Gold Corporation ("Libero") was signed in December
2021. The transaction was completed and 19.8 per cent. of Libero
acquired in January 2022.
Libero has an extremely attractive portfolio of exploration
assets in mining-friendly jurisdictions in North and South America,
including Mocoa in Colombia, Big Bulk and Big Red in British
Columbia, Canada, and Esperanza in Argentina.
Further information can be found at
https://www.liberocopper.com/.
Section 172(1) Statement
Introduction
The board of directors of Anglo Asian Mining PLC (the "Board")
considers that it has adhered to the requirements of section 172 of
the Companies Act 2006 (the "Act") and, in good faith, acted in a
way that it considers would be most likely to promote the success
of the Company for the benefit of its shareholders as a whole. In
acting this way, the Board has recognised the importance of
considering all stakeholders and other matters as set out in
section 172(1) (a to f) of the Act in its decision-making.
The Board members are directors of Anglo Asian Mining PLC, a
holding company for the Group. The Group carries out its business
of mineral exploration and mining in Azerbaijan and elsewhere
through its wholly-owned subsidiaries and other investments. Given
the nature and size of the Group, the Board considers it reasonable
that executive decision making for the entire Group, including its
subsidiaries in Azerbaijan, is the responsibility of the Board. The
section 172(1) statement has accordingly been prepared for the
entire Group.
The commentary and table below sets out the Company's section
172(1) statement. This statement provides details of key
stakeholder engagement undertaken by the Board during the year and
how this helps the Board to factor in potential impacts on
stakeholders in the decision-making process.
General
The Group promotes the highest standards of governance as set
out in Corporate Governance in the Group's annual report. The
principles of Corporate Governance underpin how the Board conducts
itself. The Board is very conscious of the impact that the Group's
business and decisions has on its direct stakeholders as well as
its societal impact. The Company operates to the highest ethical
standards as discussed in the Corporate Governance Section of the
annual report.
Principal decisions and other key factors in maintaining
shareholder value
For the year ended 31 December 2021, the Board considers that
the following are examples of the principal decisions that it made
in the year:
-- consideration and agreement of the Group's budget together
with the associated production guidance for the year ended 31
December 2021;
-- consideration of the special and final dividends payable for
the year ended 31 December 2020 and the interim dividend payable
for the year ended 31 December 2021;
-- consideration of the Mineral Resources estimate of the Zafar
mine and to undertake the development of the resource;
-- considering a proposal by the Government of Azerbaijan to
amend the Group's existing production sharing agreement by adding
three new contract areas and relinquishing its rights to the
Soutely contract area. The Board considered all aspects of the
transaction and in particular the risks and benefits of the Group
to acquire and develop the rights for the new mining contract areas
in return for the rights to the Soutely contract area and
associated mine;
-- agreeing to an investment in Libero Copper & Gold
Corporation ("Libero") and entering into a private placement
through which the Group acquired 19.8 per cent. of Libero and a
seat on the board of directors. The board considered all aspects of
the investment and, in particular, to ensure that any downside risk
to the investment was limited; and
-- agreeing the actions required in response to the COVID-19
health emergency. The Board considered all aspects of the health
emergency with its principal focus to ensure the health and safety
of its employees. The Board also addressed measures required to
ensure continuity of production and selling of its production.
The Group, like all companies operating in the extractive
industries, is required to continually replace and increase its
mineral reserves to maintain and improve the sustainability of its
business. This concern is a high priority of the Board. To address
this priority, a rolling three-year geological exploration campaign
of its existing mining concessions was started in 2018, which the
Board monitor through regular reports and site visits by directors
whenever possible. The Company is also looking at other
opportunities and the Board receive regular updates on progress in
this area.
The Board and senior managers of the Company hold in total
approximately 42 per cent. of the shares of the Company with the
remainder held by a wide range of individual and institutional
shareholders. The Board are extremely mindful that all shareholders
must be treated equally. This is reflected in the Board's behaviour
to ensure decisions do not disadvantage external shareholders
compared to the interests of directors and senior management and
that external shareholders are fully informed of all Company
developments in a timely manner.
Engagement with key stakeholders
The table below sets out the Board's key stakeholders and
provides examples of how the Board engaged with them in the year as
well as demonstrating stakeholder consideration in the
decision-making process. However, the Board recognises that,
depending on the nature of an issue, the interests of each
stakeholder group may differ. The Board seeks to understand the
relative interests and priorities of each stakeholder and to have
regard to these, as appropriate, in its decision making. However,
the Board acknowledges that not every decision it makes will
necessarily result in a positive outcome for all stakeholders.
Stakeholder How the Board has approached How the Board has taken
their engagement their interests into
account
Shareholders The Board aims to provide The Board maintains a
clear and timely information dialogue with external
to its shareholders which shareholders and keeps
gives an honest and transparent them informed in a variety
view of the performance of ways as set out in
of the business. the Corporate Governance
section of the annual
report.
Customers The Board aims to maintain Visits to its customers
a mutually beneficial by senior staff are
relationship based on undertaken
trust through a continuous and visits are made by
dialogue with each of customers to the Company
its customers. in Azerbaijan to show
them the Group's production
facilities.
The Company maintains
a continuous dialogue
with its customers
regarding
the technical
specifications
of its products to ensure
the most beneficial sales
terms are obtained for
both parties.
Suppliers The Board has ensured All significant purchases
an appropriately qualified are discussed with
and professional procurement suppliers
department is in place and prices and delivery
which maintains close terms agreed which are
contact with all suppliers. mutually beneficial to
All procurement is carried both parties.
out via a transparent Technical staff work
tender process. in close collaboration
For specialised goods with suppliers of
and services, senior specialist
management will maintain services to ensure the
a dialogue with the supplier supplier provides the
and report their engagement highest quality service
to the Board. to the Company within
the commercial terms
of the contract.
A new manager was appointed
in December 2021 to manage
the Company's procurement
activities.
Employees The Board has mandated The results of the employee
a mainly informal approach survey have been reviewed
to engage with employees and action taken to
in light of their number implement
and to ensure appropriate suggestions where
upward communication appropriate.
channels exist for employees. The health and safety
Directors and senior committee considered
management regularly all reportable safety
visit Gedabek where the incidents during the
majority of the employees year in consultation
are located. with employee
There are also two formal representatives
mechanisms for engaging and all appropriate actions
with employees: were taken to prevent
further occurrences in
* An employee survey is carried out once a year and the the future.
results are circulated to directors.
* The health and safety committee meet twice a year and
the meetings are attended by directors. The meetings
are usually held at Gedabek but in 2021 were held by
video conference due to COVID-19.
Community and environment The Board aims to build The Group has carried
trust and conduct its out significant community
operations in partnership and social development
with the communities in the region.
at all locations where Comprehensive environmental
the Group operates whilst monitoring was continuously
minimising any adverse carried out at Gedabek
effect on the environment. throughout 2021.
Board members regularly
visit Gedabek and other
locations and meet with
the local administration
and other community leaders
to hear their views on
community relations.
Government of Azerbaijan The Board has set up The Company has promptly
a formal mechanism for complied with all requests
engaging with the Government from the Government for
of Azerbaijan as set information about the
out in the Corporate Company's business.
Governance section of An open relationship
the annual report. based on trust has been
Directors also meet with formed with the Government.
high level Government This enabled the Company
officials on a regular to quickly start obtaining
basis. access to the Company's
occupied contract areas
following the resolution
of the conflict with
Armenia.
Principal risks and uncertainties
Country risk in Azerbaijan
The Group's wholly owned operations are solely in Azerbaijan and
are therefore naturally at risk of adverse changes to the
regulatory or fiscal regime within the country. However, Azerbaijan
is outward looking and desirous of attracting direct foreign
investment and the Company believes the country will be sensitive
to the adverse effect of any proposed changes in the future. In
addition, Azerbaijan has historically had a stable operating
environment and the Company maintains very close links with all
relevant authorities.
Operational risk
The Company currently produces all its products for sale at
Gedabek. Planned production may not be achieved as a result of
unforeseen operational problems, machinery malfunction or other
disruptions. Operating costs and profits for commercial production
therefore remain subject to variation. The Group monitors
production on a daily basis and has robust procedures in place to
effectively manage these risks.
Commodity price risk
The Group's revenues are exposed to fluctuations in the price of
gold, silver and copper and all fluctuations have a direct impact
on the operating profit and cash flow of the Group. Whilst the
Group has no control over the selling price of its commodities, it
has very robust cost controls to minimise expenditure to ensure it
can withstand any prolonged period of commodity price weakness. The
Group actively monitors all changes in commodity prices to
understand the impact on the business. The Group has previously
hedged against the future movement in the price of gold. The
directors keep under review the potential benefit of hedging.
Foreign currency risk
The Group reports in United States Dollars and a large
proportion of its costs are incurred in United States Dollars. It
also conducts business in Australian Dollars, Azerbaijan Manats and
United Kingdom Sterling. The Group does not currently hedge its
exposure to other currencies, although it will review this
periodically if the volume of non-United States Dollar transactions
increases significantly. 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 Group financial statements below.
Liquidity and interest rate risk
During 2021, the Group had no bank debt and only occasional
minor borrowings in connection with providing letters of credit to
suppliers. The Group did therefore not have any significant
interest rate risk during the year.
The Group had significant surplus cash deposits during 2021. The
Group places these on deposit in United States dollars with a range
of banks to both ensure it obtains the best return on these
deposits and to minimise counterparty risk. The amount of interest
received on these deposits is not material to the financial results
of the Company and therefore any decrease in interest rates would
not have any adverse effect.
Russian invasion of Ukraine
The Company is unaffected directly by the Russian invasion of
Ukraine or the international sanctions levied against various
private and governmental Russian entities.
COVID-19 pandemic
The COVID-19 pandemic continued into 2021, but the intensity of
the pandemic decreased throughout the year. As a result, the
Government of Azerbaijan slowly eased the restrictions in the
country with most of the restrictions lifted in the first half of
2021. The COVID-19 pandemic remained a priority for the Group
throughout the year and the board continued to monitor the
situation closely.
The main risk to the Group from a resurgence of the COVID-19
pandemic would be a lower level, or complete cessation, of
production. This could occur due to an outbreak at Gedabek or
action by the Government of Azerbaijan to prevent the spread of the
coronavirus. The Group may also be required to operate at a lower
level of production or cease production altogether due to its
inability to obtain necessary supplies and services or to
adequately staff or maintain its operations. However, given the
Group has been able to continue its operations since the start of
the pandemic without issue, the Group considers these risks as
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 Free cash flow ("FCF"). FCF is calculated as net cash from
operating activities less expenditure on property, plant and
equipment and mine development and, Investment in exploration and
evaluation assets including other intangible assets.
4 All-in sustaining cost ("AISC") per ounce . AISC is a widely
used, standardised industry metric and is a measure of how our
operation compares to other producers in the industry. AISC is
calculated in accordance with the World Gold Council's Guidance
Note on Non-GAAP Metrics dated 27 June 2013. The AISC calculation
includes a credit for the revenue generated from the sale of copper
and silver, which are classified by the Group as by-products. There
are no royalty costs included in the Company's AISC calculation as
the Production Sharing Agreement with the Government of Azerbaijan
is structured as a physical production sharing arrangement.
Therefore, the Company's AISC is calculated using a cost of sales,
which is the cost of producing 100 per cent. of the gold and such
costs are allocated to total gold production including the
Government of Azerbaijan's share.
Reza Vaziri
President and chief executive
16 May 2022
Financial review
Currency of financial review
References to "$" and "cents" are to United States dollars and
cents. References to "CAN$" and "CAN cents" are to Canadian dollars
and cents. References to "GBP" and "p" are to United Kingdom
Sterling pounds and pence.
Group statement of income
The Group generated revenues in 2021 of $92.5m (2020: $102.1m)
from the sales of gold and silver bullion and copper and precious
metal concentrate.
The revenues in 2021 included $71.6m (2020: $86.8m) generated
from the sales of gold and silver bullion from the Group's share of
the production of doré bars. Bullion sales in 2021 were 39,563
(2020: 48,650) ounces of gold and 18,023 (2020: 15,759) ounces of
silver at an average price of $1,799 (2020: $1,777) per ounce and
$25 (2020: $21) per ounce respectively. In addition, the Group
generated revenue in 2021 of $20.9m (2020: $15.3m) from the sale of
11,124 (2020: 11,839) dry metric tonnes of copper and precious
metal concentrate. The Group's revenue benefited in the year from a
slightly higher average price of gold at $1,799 (2020: $1,772) per
ounce and a higher average price of copper at $9,294 (2020: $6,190)
per metric tonne.
The Group did not hedge any metal sales during 2020 or 2021.
The Group incurred cost of sales in 2021 of $74.5m (2020:
$60.3m) as follows:
2021 2020 B/(W)
$m $m $m
Cash cost of sales 55.6 48.0 (7.6)
Depreciation 16.1 16.2 0.1
------- ------- --------
Cash costs and depreciation 71.7 64.2 (7.5)
Capitalised costs (3.4) (5.8) (2.4)
------- ------- --------
Cost of sales before
inventory movement 68.3 58.4 (9.9)
Inventory movement 6.2 1.9 (4.3)
------- ------- --------
Total cost of sales 74.5 60.3 (14.2)
======= ======= ========
The cash costs in 2021 compared to 2020 were higher due to
increased labour, reagent, material and haulage costs. The Company
generally experienced significant cost inflation during the year
especially for reagents and diesel fuel.
Depreciation and amortisation in 2021 were lower at $16.1m
compared to $16.2m in 2020. 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 depreciation and amortisation
were lower in 2021 due to the lower amount of gold produced.
The Group incurred administration expenses in 2021 of $5.2m
(2020: $5.0m). The Group's administration expenses comprise the
cost of the administrative staff and associated costs at the
Gedabek mine site, the Baku office and maintaining the Group's
listing on AIM. The majority of the administration costs are
incurred in either Azerbaijan New Manats, the United States dollar
or United Kingdom pounds sterling. Both the United Kingdom pounds
sterling and the Azerbaijan New Manat were stable against the US
dollar in 2021 compared to 2020. Administration costs in 2021 were
higher than 2020 due to higher administrative salaries and the
legal costs incurred on the award of the new contract areas.
Finance costs in 2021 were $0.7m (2020: $0.6m). Finance costs in
2021 and 2020 were mainly the interest expense of finance leases
and interest on the unwinding of provisions. These remained at a
similar level in both 2021 and 2020. The finance costs in 2020
included interest on external bank loans of $20k. Other income in
2021 of $0.8m arose from the Libero Copper & Gold Corporation
transaction (see "Libero Copper & Gold Corporation transaction"
below).
The Group recorded a profit before taxation in 2021 of $12.6m
compared to $35.7m in 2020. This reduction was mainly due to lower
revenues from reduced gold production and higher cost of sales
arising primarily from inflationary pressure and inventory
reduction. Other operating expenses in 2021 were lower at $0.7m
(2020: $1.3m) due the cost incurred in 2020 of chartering aircraft
to fly gold doré to Switzerland as a result of the COVID-19
pandemic. All shipments of doré in 2021 were by scheduled airline
flight.
The Group had a taxation charge in 2021 of $5.2m (2020: $12.5m).
This comprised a current income tax charge of $5.5m (2020: $14.2m)
offset by a deferred tax credit of $0.3m (2020: $1.7m). The current
income tax charge of $5.5m was incurred by R.V. Investment Group
Services ("RVIG") in Azerbaijan. RVIG generated taxable profits in
2021 of $17.1m (2020: $35.7m) which were taxed at 32 per cent. (the
corporation tax rate stipulated in the Group's production sharing
agreement).
The Group's overall tax rate in 2021 was 42 per cent. (2020: 35
per cent.). The taxable profits of RVIG are calculated on a cash
payment and receipt basis instead of the accrual accounting basis
used to prepare the IFRS financial statements. The higher tax
charge arose as the taxable profits for RVIG of $17.1m were
significantly higher than its taxable profits of $13.9m calculated
on an accrual accounting basis. The overall tax rate is also higher
than 32 per cent. because the UK administrative costs and
depreciation of mining rights in Azerbaijan cannot be offset
against the taxable profits arising in Azerbaijan. These costs in
2021 totalled $1.2m (2020: $2.8m).
All-in sustaining cost of gold production
The Group produced gold at an all-in sustaining cost ("AISC")
per ounce of $843 in 2021 compared to $702 in 2020. The Group
reports its cash cost as an AISC calculated in accordance with the
World Gold Council's guidance which is a standardised metric in the
industry. The reason for the increase in 2021 compared to 2020 was
the higher cash costs of production due to the general price
inflation experienced in the year and the impact of lower
production on fixed costs.
Group statement of financial position
Non-current assets increased from $92.5m at the end of 2020 to
$95.1m at the end of 2021. Property, plant and equipment were lower
by $8.0m due to depreciation of $15.1m mainly offset by additions
of $7.4m and leased assets were $1.2m higher due to capitalised
leased assets and modifications to leased assets of $1.8m offset by
depreciation of $0.5m. Intangible assets increased from $24.0m at
the end of 2020 to $30.3m at the end of 2021 due to expenditure on
geological exploration and evaluation of $7.6m (2020: $5.3m) offset
by amortisation of $1.2m (2020: $1.2m) in the year. The main
expenditure was $6.8m (2020: $4.2m) of exploration and evaluation
expenditure at Gedabek.
Net current assets were $62.8m at the end of 2021 compared to
$67.8m at the end of 2020. The main reason for the decrease in net
current assets was a reduction in inventory of $4.5m. Trade and
other payables and trade receivables were both higher reflecting an
increase of $12.4m in gold held due to the Government of
Azerbaijan. The Group's cash balances at 31 December 2021 were
$37.5m (2020: $38.8m). Surplus cash is maintained in US dollars and
was placed on fixed deposit with several banks at tenors of between
one to three months at interest rates of around 0.5 per cent.
Net assets of the Group at the end of 2021 were $118.4m (2020:
$122.0m). The net assets were lower due to a decrease in retained
earnings following dividend payments which were higher than profits
after taxation. There were no shares issued in 2021.
At 1 January 2021, the Group was financed by equity and had no
bank debt throughout 2021. The total debt in respect of lease
liabilities at 31 December 2021 was $3.3m (2020: $1.9m).
There were no movements of the Group's share capital or share
premium account in 2021. The Group's holding company, Anglo Asian
Mining PLC received an intercompany dividend in 2021 of $10m (2020:
$10.0) which gives it the capacity to pay dividends of $5.7m during
2022.
Libero Copper & Gold Corporation transaction
The Company subscribed for 12.6 million shares (together with an
associated 6.3 million warrants) in Libero Copper & Gold
Corporation ("Libero") at 50 CAN cents per share for a total of
CAN$6.3m ($4.9m) in December 2021. In December 2021, 5.6 million
shares (and associated 2.8 million warrants) were acquired for
CAN$2.8m ($2.2m) and the remaining 7.0 million shares (and
associated 3.5 million warrants) acquired for CAN$3.5m ($2.8m) in
January 2022. Libero is listed on the Toronto Ventures Stock
Exchange. The shares in Libero acquired in December 2021 were
revalued to market value of $2.4m at 31 December 2021 and included
in non-current financial assets. The fair value of the 6.3m
warrants of $0.4m was also included in non-current financial assets
and the fair value of the contractual right to acquire the 7
million shares in January 2022 of $0.2m was included in other
current financial assets. The fair values were calculated using
internationally accepted valuation techniques by an outside
specialist valuation expert.
The Libero transaction resulted in other income of $0.8m. The
fair value of the contractual right to acquire 7.0 million shares
of Libero subsequent to 31 December 2021 and the 6.3m options
totalling $0.6m were recognised as other income. In addition, the
revaluation to market value at 31 December 2021 of the Libero
shares resulted in a gain of $0.2m.
Group cash flow statement
Operating cash inflow before movements in working capital for
2021 was $29.3m (2020: $52.8m). The main source of operating cash
was operating profit before the non-cash charges of depreciation
and amortisation in 2021 of $29.2m (2020: $52.6m).
Working capital movements generated cash of $5.4m (2020: $7.4m)
mainly due to inventories which were lower by $5.4m (2020: $2.4m)
and increased trade and other payables $1.3m (2020: nil).
Cash from operations in 2021 was $34.7m compared to $60.2m in
2020 due to the lower operating cash flow.
The Company paid corporation tax in 2021 of $8.7m (2020: $10.7m)
in Azerbaijan in accordance with local requirements. This payment
was the final payment of its liability for 2020 and payments on
account of its liability for the year ended 31 December 2021.
Expenditure on property, plant and equipment and mine
development was $6.2m (2020: $10.5m). The main items of expenditure
in 2021 were capitalised stripping costs of $2.0m and mine
development costs of $2.5m.
Exploration and evaluation expenditure in 2021 of $7.6m (2020:
$5.3m) was incurred and capitalised. This arose on exploration and
evaluation at the Gedabek, Gosha and Ordubad contract areas with
costs of $6.9m, $0.6m and $0.2m respectively.
COVID-19 pandemic
The COVID-19 pandemic continued into 2021 but the intensity of
the pandemic decreased throughout the year. As a result, the
Government of Azerbaijan slowly eased the restrictions in the
country with most of the restrictions lifted in the first half of
2021. The COVID-19 pandemic remained a priority of the Group
throughout the year with the board monitoring the situation at each
monthly board meeting.
Given that the Group has managed to maintain its operations
throughout the COVID-19 pandemic, the Group considers the risks
from the pandemic are minimal. Further details regarding the risks
are set out in the Strategic Report.
Dividends
In respect of 2021, the Group paid an interim dividend of $0.045
per share and has proposed a final dividend of $0.035 per share
giving a total for the year of $0.08 per share (2020: total for the
year of $0.095 per share). Dividends are declared in United States
dollars but paid in United Kingdom pounds sterling. The total cash
cost of the 2020 dividends was $10.9m and the estimated total cost
of the dividends for 2021 is $9.2m. The proposed final dividend for
2021 is subject to the approval of the shareholders and has not
been accrued in the 2021 financial statements.
To ensure the Company retains sufficient capital to pursue
development opportunities across all contract areas, the board has
decided to maintain the dividend (excluding the special dividend
for 2020) at the same level as 2020 of $0.08 per share.
Production Sharing Agreement
Under the terms of the Production Sharing Agreement ("PSA") with
the Government of Azerbaijan ("Government"), the Group and the
Government share the commercial products of each mine. The
Government's share is 51 per cent. of "Profit Production". Profit
Production is defined as the value of production, less all capital
and operating cash costs incurred during the period when the
production took place. Profit Production for any period is subject
to a minimum of 25 per cent. of the value of the production. This
is to ensure the Government always receives a share of production.
The minimum Profit Production is applied when the total capital and
operating cash costs (including any unrecovered costs from previous
periods) are greater than 75 per cent. of the value of production.
All operating and capital cash costs in excess of 75 per cent. of
the value of production can be carried forward indefinitely and set
off against the value of future production.
Profit Production for the Group has been subject to the minimum
25 per cent. for all years since commencement of production
including 2021. The Government's share of production in 2021 (as in
all previous years) was therefore 12.75 per cent. being 51 per
cent. of 25 per cent. with the Group entitled to the remaining
87.25 per cent. The Group was therefore subject to an effective
royalty on its revenues in 2021 of 12.75 per cent. (2020: 12.75 per
cent.) of the value of its production.
The Group can recover the following costs in accordance with the
PSA for its production at Gedabek:
-- all direct operating expenses of the Gedabek mines;
-- all exploration expenses incurred on the Gedabek contract
area;
-- all capital expenditure incurred on the Gedabek mines;
-- an allocation of corporate overheads - currently, overheads
are apportioned to Gedabek according to the ratio of direct capital
and operating expenditure at the Gedabek contract area compared
with direct capital and operational expenditure at the Gosha and
Ordubad contract areas; and
-- an imputed interest rate of United States Dollar LIBOR + 4
per cent. per annum on any unrecovered costs.
Unrecovered costs are calculated separately for each individual
contract area and can only be recovered against production from
that respective contract area. The total unrecovered costs for the
Gedabek and Gosha contract areas at 31 December 2021 were $29.7m
and $19.7m respectively (2020: $36.9m and $27.3m respectively). The
Group's current business plans indicate that these costs will not
be fully recovered until at least 2023 and the effective royalty of
12.75 per cent. will therefore continue until then for the Gedabek
and Gosha contract areas.
The Group produced gold and copper for the first time in 2021
from its Vejnaly contract area and the metal produced will be sold
in 2022. The Government's share of this production in 2021 and any
further production in 2022 will likely be higher than 12.75 per
cent. This is because the mine and other facilities were acquired
at no cost and the only costs available to offset the production
will be the administration costs of the site, minor refurbishment
capital expenditure and the direct costs of production.
Calculation of non-IFRS financial indicators
Net debt / cash
Calculated as the cash and cash equivalents minus current and
non-current interest-bearing loans and borrowings.
Free cash flow
Calculated as net cash from operating activities less
expenditure on property, plant and equipment and mine development
and, Investment in exploration and evaluation assets including
other intangible assets.
All-in sustaining cost ("AISC") per ounce .
AISC is calculated in accordance with the World Gold Council's
Guidance Note on Non-GAAP Metrics dated 27 June 2013. The AISC
calculation includes a credit for the revenue generated from the
sale of copper and silver, which are classified by the Group as
by-products.
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 2023 (the 'going concern review
period') and satisfying themselves that the Group will have
sufficient funds on hand to meet its obligations as and when they
fall due over the period of their assessment. Appropriate rigour
and diligence have been applied by the directors who believe the
assumptions are prepared on a realistic basis using the best
available information.
The Group had cash balances of $27.9 million (31 December 2021:
$37.5 million) and no bank debt at 31 March 2022. The directors
have prepared a base case cash flow forecast that assumes
production is consistent with the business plan and a gold price of
$1,800 for 2022 and 2023. The gold price is lower than that used
for the impairment testing to add further conservatism to the
forecast. The base case cash flow forecast shows the Group is able
to fund its working capital requirements from cash generated from
its operations at Gedabek. The base case cash flow also shows that
the Group is able to fund its capital expenditure requirements on
developing new mines and production facilities from internal
sources.
The Group has access to local sources of both short and
long-term finance should this be required and has a $15.0 million
standby credit facility with Pasha Bank as a contingency measure
which is available until April 2023 with no conditions on
drawdown.
Despite the restrictions imposed by the COVID-19 pandemic during
2021, the Company continued production throughout the year at
Gedabek and to ship and sell gold doré and copper concentrate. From
February 2021, the Government of Azerbaijan started lifting many of
the restrictions imposed to restrict the spread of the coronavirus
with the vast majority of the restrictions lifted by May 2022. The
remaining restrictions were not having any effect on the ability of
the Company to operate.
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
can be found within the chairman's statement, the president and
chief executive's review and the strategic report above. The
financial position of the Group, its cash flow, liquidity position
and borrowing facilities are discussed within this financial
review. In addition, note 23 to the Group financial statements
includes the Group's financial management risk 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 directors continue to adopt the going concern
basis in preparing the annual report and financial statements.
William Morgan
Chief financial officer
16 May 2022
Directors Emoluments
Consultancy Fees Benefits Total
Year ended 31 December 2021 $ $ $ $
----------------------------- ------------ -------- --------- --------
John Monhemius - 55,019 - 55,019
John Sununu - 80,877 - 80,877
Michael Sununu - 55,019 - 55,019
Reza Vaziri 575,077 55,019 32,813 662,909
Khosrow Zamani - 135,346 - 136,346
----------------------------- ------------ -------- --------- --------
575,077 381,280 32,813 989,170
----------------------------- ------------ -------- --------- --------
Consultancy Fees Benefits Total
Year ended 31 December 2020 $ $ $ $
-------------------------------------- ------------ -------- --------- --------
John Monhemius - 51,154 - 59,154
Richard Round (resigned 7 December
2020) - 47,971 - 47,971
John Sununu - 75,707 - 75,707
Michael Sununu (appointed 7 December
2020) - 3,665 - 3,665
Reza Vaziri 578,942 51,154 32,952 663,048
Khosrow Zamani - 126,694 - 126,694
-------------------------------------- ------------ -------- --------- --------
578,942 356,345 32,952 968,239
-------------------------------------- ------------ -------- --------- --------
Directors' fees and consultancy fees for 2020 and 2021 were paid
in cash.
No director held or exercised any share options during the years
ended 31 December 2020 and 31 December 2021.
Group statement of income
year ended 31 December 2021
2021 2020
Continuing operations Notes $000 $000
--------------------------------------------- ------ --------- ---------
Revenue 6 92,494 102,054
Cost of sales 8 (74,473) (60,325)
--------------------------------------------- ------ --------- ---------
Gross profit 18,021 41,729
Other operating income 7 228 646
Administrative expenses (5,126) (5,033)
Other operating expenses 7 (741) (1,278)
--------------------------------------------- ------ --------- ---------
Operating profit 8 12,382 36,064
Finance costs 10 (652) (564)
Finance income 114 121
Other income 7 748 116
--------------------------------------------- ------ --------- ---------
Profit before tax 12,592 35,737
Income tax expense 11 (5,231) (12,516)
--------------------------------------------- ------ --------- ---------
Profit attributable to the equity holders
of the parent 7,361 23,221
--------------------------------------------- ------ --------- ---------
Profit per share attributable to the equity
holders of the parent
Basic (US cents per share) 12 6.43 20.30
Diluted (US cents per share) 12 6.43 20.30
--------------------------------------------- ------ --------- ---------
Group statement of comprehensive income
year ended 31 December 2021
2021 2020
$000 $000
Profit for the year 7,361 23,221
-------------------------------------------------- ------ -------
Total comprehensive profit 7,361 23,221
-------------------------------------------------- ------ -------
Attributable to the equity holders of the parent 7,361 23,221
-------------------------------------------------- ------ -------
Group statement of financial position
31 December 2021
2021 2020
Notes $000 $000
-------------------------------- ------ --------- ---------
Non-current assets
Intangible assets 13 30,347 23,965
Property, plant and equipment 14 58,710 66,680
Leased assets 15 3,066 1,809
Non-current financial assets 16 2,777 -
Other receivables 17 185 -
-------------------------------- ------ --------- ---------
95,085 92,454
-------------------------------- ------ --------- ---------
Current assets
Inventory 18 36,912 41,457
Trade and other receivables 17 19,752 6,830
Other current financial assets 16 214 185
Cash and cash equivalents 19 37,453 38,848
-------------------------------- ------ --------- ---------
94,331 87,320
-------------------------------- ------ --------- ---------
Total assets 189,416 179,774
-------------------------------- ------ --------- ---------
Current liabilities
Trade and other payables 20 (28,024) (12,820)
Income tax payable (3,061) (6,265)
Lease liabilities 15 (403) (465)
-------------------------------- ------ --------- ---------
(31,488) (19,550)
-------------------------------- ------ --------- ---------
Net current assets 62,843 67,770
-------------------------------- ------ --------- ---------
Non-current liabilities
Provision for rehabilitation 22 (11,922) (11,833)
Lease liabilities 15 (2,890) (1,482)
Deferred tax liability 11 (24,699) (24,947)
-------------------------------- ------ --------- ---------
(39,511) (38,262)
-------------------------------- ------ --------- ---------
Total liabilities (70,999) (57,812)
-------------------------------- ------ --------- ---------
Net assets 118,417 121,962
-------------------------------- ------ --------- ---------
Equity
Share capital 24 2,016 2,016
Share premium account 26 33 33
Share-based payment reserve 25 12 -
Merger reserve 24 46,206 46,206
Retained earnings 70,150 73,707
-------------------------------- ------ --------- ---------
Total equity 118,417 121,962
-------------------------------- ------ --------- ---------
Group statement of cash flows
year ended 31 December 2021
2021 2020
Notes $000 $000
----------------------------------------------- ------ --------- ---------
Cash flows from operating activities
Profit before tax 12,592 35,737
Adjustments to reconcile profit before
tax to net cash flows:
Finance costs 10 652 564
Finance income (114) (121)
Unrealised gain on financial instruments (749) (116)
Gain on the modification of lease liabilities - (72)
Depreciation of owned assets 14 15,075 14,949
Depreciation of leased assets 15 523 627
Amortisation of mining rights and other
intangible assets 13 1,206 1,267
Share-based payment expense 25 12 -
Foreign exchange loss 72 -
Operating cash flow before movement
in working capital 29,269 52,835
(Increase) / decrease in trade and
other receivables (381) 4,939
Decrease in inventories 4,545 2,422
Increase in trade and other payables 1,274 2
----------------------------------------------- ------ --------- ---------
Cash from operations 34,707 60,198
Income taxes paid (8,682) (10,660)
----------------------------------------------- ------ --------- ---------
Net cash flow from operating activities 26,025 49,538
----------------------------------------------- ------ --------- ---------
Cash flows from investing activities
Expenditure on property, plant and
equipment and mine development (6,199) (10,476)
Investment in exploration and evaluation
assets including other
intangible assets (7,587) (5,267)
Proceeds from sale of financial instruments 110 -
Purchase of financial instruments (2,168) (69)
Interest received 114 121
Net cash used in investing activities (15,730) (15,691)
----------------------------------------------- ------ --------- ---------
Cash flows from financing activities
Dividends paid 27 (10,918) (10,311)
Repayments of borrowings 21 - (1,688)
Interest paid - borrowings - (20)
Interest paid - lease liabilities 15 (266) (230)
Repayment of lease liabilities 15 (434) (551)
----------------------------------------------- ------ --------- ---------
Net cash used in financing activities (11,618) (12,800)
----------------------------------------------- ------ --------- ---------
Net (decrease) / increase in cash
and cash equivalents (1,323) 21,047
Net foreign exchange difference (72) -
Cash and cash equivalents at the beginning
of the year 19 38,848 17,801
----------------------------------------------- ------ --------- ---------
Cash and cash equivalents at the end
of the year 19 37,453 38,848
----------------------------------------------- ------ --------- ---------
Group statement of changes in equity
year ended 31 December 2021
Share-based
Share Share payment Merger Retained Total
capital premium reserve reserve earnings equity
Notes $000 $000 $000 $000 $000 $000
---------------- ------ --------- --------- ------------- --------- ----------- ---------
1 January 2020 2,016 33 - 46,206 60,797 109,052
Profit for the
year - - - - 23,221 23,221
Cash dividends
paid 27 - - - - (10,311) (10,311)
---------------- ------ --------- --------- ------------- --------- ----------- ---------
31 December
2020 2,016 33 - 46,206 73,707 121,962
Profit for the
year - - - - 7,361 7,361
Cash dividends
paid 27 - - - - (10,918) (10,918)
Share-based
payment 25 - - 12 - - 12
---------------- ------ --------- --------- ------------- --------- ----------- ---------
31 December
2021 2,016 33 12 46,206 70,150 118,417
---------------- ------ --------- --------- ------------- --------- ----------- ---------
Notes
1 General information
Anglo Asian Mining PLC (the "Company") is a company incorporated
and limited by shares in England and Wales under the Companies Act
2006. The Company's ordinary shares are traded on the AIM market of
the London Stock Exchange. The Company is a holding company. The
principal activities and place of business of the Company and its
subsidiaries (the "Group") are set out in note 28 below and the
chairman's statement, the president and chief executive's review
and the strategic report above.
2 Basis of preparation
The financial information for the year ended 31 December 2021
was approved by the board of directors on 16 May 2022. The
financial information has been prepared in accordance with
International accounting standards in accordance with UK-adopted
IFRSs.
The financial information 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 UK Endorsement Board.
The financial information has been prepared under the historical
cost convention except for the treatment of share-based payments,
certain trade receivables at fair value, derivatives not designated
as hedging instruments and financial assets at fair value through
profit and loss. The financial information is presented in United
States Dollars ("$") and all values are rounded to the nearest
thousand except where otherwise stated. In the financial
information "GBP" and "pence" are references to the United Kingdom
pound sterling and "CAN$" and "CAN cents" are references to
Canadian dollars and cents.
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 2023 (the 'going concern review
period') and satisfying themselves that the Group will have
sufficient funds on hand to meet its obligations as and when they
fall due over the period of their assessment. Appropriate rigour
and diligence have been applied by the directors who believe the
assumptions are prepared on a realistic basis using the best
available information.
The Group had cash balances of $27.9 million (31 December 2021:
$37.5 million) and no bank debt at 31 March 2022. The directors
have prepared a base case cash flow forecast that assumes
production is consistent with the business plan and a gold price of
$1,800 for 2022 and 2023. The gold price is lower than that used
for the impairment testing to add further conservatism to the
forecast. The base case cash flow forecast shows the Group is able
to fund its working capital requirements from cash generated from
its operations at Gedabek. The base case cash flow also shows that
the Group is able to fund its capital expenditure requirements on
developing new mines and production facilities from internal
sources.
The Group has access to local sources of both short and
long-term finance should this be required and has a $15.0 million
standby credit facility with Pasha Bank as a contingency measure
which is available until April 2023 with no conditions on
drawdown.
Despite the restrictions imposed by the COVID-19 pandemic during
2021, the Company continued production throughout the year at
Gedabek and to ship and sell gold doré and copper concentrate. From
February 2021, the Government of Azerbaijan started lifting many of
the restrictions imposed to restrict the spread of the coronavirus
with the vast majority of the restrictions lifted by May 2022. The
remaining restrictions were not having any effect on the ability of
the Company to operate.
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
can be found within the chairman's statement, the president and
chief executive's review and the strategic report above. The
financial position of the Group, its cash flow, liquidity position
and borrowing facilities are discussed within the financial review
above. In addition, note 23 to the Group financial statements
includes the Group's financial management risk 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 directors continue to adopt the going concern
basis in preparing the annual report and financial statements.
3 Adoption of new and revised standards
3.1 New and amended standards and interpretations
The following standards and amendments were applicable for
annual financial statements beginning on or after 1 January
2021:
-- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16:
Interest Rate Benchmark Reform - Phase 2
The above amendments had no impact on the consolidated financial
statements of the Group.
3.2 Standards issued but not yet effective
The new and amended standards and interpretations that are
issued, but not yet effective, up to the date of issuance of the
Group's financial statements are disclosed below. The Group intends
to adopt these new and amended standards and interpretations, if
applicable, when they become effective.
-- IFRS 17: Insurance Contracts
-- Amendments to IAS 1: Classification of Liabilities as Current or Non-current
-- Amendments to IFRS 3: Reference to the Conceptual Framework
-- Amendments to IAS 16: Property, Plant and Equipment: proceeds before intended use
-- Amendments to IAS 37: Onerous contracts - costs of Fulfilling a Contract
-- IFRS 1: First-time adoption of International Financial
Reporting Standards: subsidiary as a first-time adopter
-- IFRS 9 Financial Instruments: Fees in the "10 per cent." test
for derecognition of financial liabilities
-- IAS 41: Agriculture - Taxation in fair value measurements
-- Amendments to IAS 8: Definition of accounting estimates
-- Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies
-- Amendments to IAS 12: Deferred Tax related to assets and
liabilities arising from a single transaction
The impact is being determined of the above standards and
amendments on the consolidated financial statements of the
Group.
4 Significant accounting policies
4.1 Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Group and its subsidiaries as at 31 December
2021. Control is achieved when the Group is exposed, or has rights,
to variable returns from its involvement with the investee and has
the ability to affect those returns through its power over the
investee. Specifically, the Group controls an investee if, and only
if, the Group has:
-- power over the investee (i.e. existing rights that give it
the current ability to direct the relevant activities of the
investee);
-- exposure, or rights, to variable returns from its involvement with the investee; and
-- the ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting
rights result in control. To support this presumption and when the
Group has less than a majority of the voting or similar rights of
an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee,
including:
-- the contractual arrangement with the other vote holders of the investee;
-- rights arising from other contractual arrangements; and
-- the Group's voting rights and potential voting rights.
The Group reassesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a
subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the
subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in
the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the
subsidiary.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
The financial statements of the subsidiaries are prepared for
the same reporting period as the parent company, using consistent
accounting policies.
4.2 Revenue
The Group is principally engaged in the business of producing
gold and silver bullion and gold and copper concentrate. Revenue
from contracts with customers is recognised when control of the
goods is transferred to the customer at an amount that reflects the
consideration to which the Group expects to be entitled in exchange
for those goods.
The Group has generally concluded that it is the principal in
its revenue contracts because it typically controls the goods
before transferring them to the customer.
i Contract balances
a Contract assets
A contract asset is the right to consideration in exchange for
goods transferred to the customer. If the Group performs by
transferring goods to a customer before the customer pays
consideration or before payment is due, a contract asset is
recognised for the earned consideration that is conditional. The
Group does not have any contract assets as performance and a right
to consideration occurs within a short period of time and all
rights to consideration are unconditional.
b Trade receivables
A trade receivable represents the Group's right to an amount of
consideration that is unconditional (i.e., only the passage of time
is required before payment of the consideration is due). Refer to
accounting policy 4.12 for the accounting policies for financial
assets and accounting policy 4.13 for the accounting policy for
trade receivables.
c Contract liabilities
A contract liability is the obligation to transfer goods to a
customer for which the Group has received consideration (or an
amount of consideration is due) from the customer. If a customer
pays consideration before the Group transfers goods to the
customer, a contract liability is recognised when the payment is
made or the payment is due (whichever is earlier). Contract
liabilities are recognised as revenue w hen the Group performs
under the contract.
ii Gold and silver sales to the refiner
For gold sales, these are sold under spot sales contracts with
the Company's gold refiners. The Group initially sends its
unrefined doré to the refiner. The refiner is contracted by the
Company to perform two separate and distinct functions, to process
the doré into gold and silver bullion and to purchase gold and
silver. The gold contained in the doré may be purchased at two
different times at the discretion of the Company and instruction is
given to the refiner as to the method of sale on a
shipment-by-shipment basis:
-- Upon receipt of the doré. In this circumstance, the refiner
will purchase 90 per cent. of the estimated gold content of the
doré. The balance of the gold will be sold to the refiner as gold
bullion following refining and agreement of final gold content of
the doré with the refiner.
-- Following production of gold bullion by the refining process.
During the refining process ownership ( i.e., control of the gold)
does not pass to the refiner, it is simply providing refining
services to the Group.
There is no formal sales agreement for each sale of gold.
Instead, there is a deal confirmation, which sets out the terms of
the sale including the applicable spot price and this is considered
to be the enforceable contract. The only performance obligation is
the sale of gold within the doré or as bullion.
Silver is only sold to the refiner as silver bullion following
the refining process. The process of sale of the silver bullion is
the same as for gold bullion.
R evenue is recognised at a point in time when control passes to
the refiner. As the gold and silver is at this time already on the
premises of the refiner, physical delivery has already taken place
when the sales are made.
With these arrangements, there are no advance payments received
from the refiner, no conditional rights to consideration, i.e., no
contract assets are recognised. A trade receivable is recognised at
the date of sale and there are only several days between
recognition of revenue and payment. The contract is entered into
and the transaction price is determined at outturn by virtue of the
deal confirmation and there are no further adjustments to this
price. Also, given each spot sale represents the enforceable
contract and all performance obligations are satisfied at that
time, there are no remaining performance obligations (unsatisfied
or partially unsatisfied) requiring disclosure. Refer to note 17 -
'Trade and other receivables' f or details of payment terms.
iii) Gold and copper in concentrate (metal in concentrate) sal
es
For gold and copper in concentrate (metal in concentrate) sales,
the enforceable contract is each purchase order, which is an
individual, short-term contract. The performance obligation is the
delivery of the concentrate to the customer.
The Group's sales of metal in concentrate allow for price
adjustments based on the market price at the end of the relevant
quotational period ("QP") stipulated in the contract. These are
referred to as provisional pricing arrangements and are such that
the selling price for metal in concentrate is based on prevailing
spot prices on a specified future date (or average of future spot
prices over a defined period, usually a week) after shipment to the
customer. Adjustments to the sales price occur based on movements
in quoted market prices up to the end of the QP. The period between
provisional invoicing and the end of the QP can be bet ween one and
four months.
R evenue is recognised when control passes to the customer,
which occurs at a point in time when the metal in concentrate is
physically delivered to the customer at the mine site. The revenue
is measured at the amount to which the Group expects to be
entitled, being the estimate of the price expected to be received
at the end of the QP, i.e., the forward price, and a corresponding
trade receivable is recognised.
For these provisional pricing arrangements, any future change
that occur over the QP is an embedded derivative within the
provisionally priced trade receivables and are, therefore, within
the scope of IFRS 9 and not within the scope of IFRS 15. The Group
does not separately account for the embedded derivative in each
transaction as the short transaction cycle of one to four months
would result in any changes to the Group's financial statements
being immaterial. Any difference between the provisional and final
price is adjusted through revenue from contracts with customers.
Changes in fair value over, and until the end of, the QP, are
estimated by reference to updated for ward market prices for gold
and copper as well as taking into account relevant other fair value
considerations as set out in IFRS 13, including interest rate and
credit risk adjustments. See accounting policy 4.10 f or further
discussion on fair value. Refer to note 17 for details of payments
terms for trade receivables.
As noted above, as the enforceable contract for most
arrangements is the purchase order, the transaction price is
determined at the date of each sale (i.e., for each separate
contract) and, therefore, there is no future variability within
scope of IFRS 15 and no further remaining performance obligations
under those contracts.
v Interest revenue
Interest revenue is recognised as it accrues, using the
effective interest rate method.
4.3 Leases
The Group assesses at contract inception, all arrangements to
determine whether they are, or contain, a lease. That is, if the
contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration. The Group
is not a lessor in any transactions, it is only a lessee.
i) Group as a lessee
The Group applies a single recognition and measurement approach
for all leases, except for short term leases. The Group recognises
lease liabilities to make lease payments and right of use assets
representing the right to use the underlying assets.
a) Right of use assets
The Group recognises right of use assets at the commencement
date of the lease (i.e., the date when the underlying asset is
available for use). Right of use assets are measured at cost, less
any accumulated depreciation and impairment losses, and adjusted
for any remeasurement of lease liabilities. The cost of right of
use assets includes the amount of lease liabilities recognised,
initial direct costs incurred, and lease payments made at or before
the commencement date less any lease incentives received. Right of
use assets are depreciated on a straight line basis over the
shorter of the lease term and the estimated useful lives of the
assets, as follows:
-- Plant and equipment - 6 years
-- Motor vehicles - 4 years
-- Land and buildings - 8 years
If ownership of the leased asset transfers to the Group at the
end of the lease term or the cost reflects the exercise of a
purchase option, depreciation is calculated using the estimated
useful life of the asset.
The right of use assets are also subject to impairment. Refer to
the accounting policies in note 4.9 - "Impairment of tangible and
intangible assets".
b) Lease liabilities
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments less any lease incentives receivable, variable lease
payments that depend on an index or a rate, and amounts expected to
be paid under residual value guarantees.
In calculating the present value of lease payments, the Group
uses its incremental borrowing rate at the lease commencement date
because the interest rate implicit in the lease is generally not
readily determinable. After the commencement date, the amount of
lease liabilities is increased to reflect the accretion of interest
and reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a
modification, a change in the lease term or a change in the lease
payments.
The Group's lease liabilities are separately disclosed in the
Group statement of financial position.
(c) Short-term leases
The Group applies the short term lease recognition exemption to
its short term leases of equipment and other assets (i.e., those
leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option). Lease
payments on short term leases are recognised as an expense on a
straight line basis over the lease term.
(d) Lease modifications
Where the terms of a lease are varied during its term which
results in a revised carrying amount of the lease, the change to
the carrying amount is accounted for as "Lease Modifications".
4.4 Taxation
i) Current and deferred income taxes
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the Group financial statements and the corresponding tax bases
used in the computation of taxable profit and is accounted for
using the balance sheet liability method. Deferred tax liabilities
are generally recognised for all taxable temporary differences and
deferred tax assets are recognised for all deductible temporary
differences, carry forward of unused tax assets and unused tax
losses. Deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences and the carry forward of unused
tax credits and unused tax losses can be utilised.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised, based on tax rates (and tax laws) that have been enacted
or substantively enacted at the reporting date. Deferred tax is
charged or credited in the Group income statement, except when it
relates to items charged or credited directly to equity, in which
case the deferred tax is also dealt with in equity.
Deferred tax assets are not recognised in respect of temporary
differences relating to tax losses where there is insufficient
evidence that the asset will be recovered. Unrecognised deferred
tax assets are reassessed at each reporting date and are recognised
to the extent that it has become probable that future taxable
profits will allow the deferred tax asset to be recovered. Deferred
tax assets and liabilities are classified as non-current assets ans
liabilities.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
Group income statement because it excludes items of income or
expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted at the reporting
date.
The tax expense represents the sum of the tax currently payable
and deferred tax.
ii) Value-added taxes ("VAT")
The Group pays VAT on purchases made in both the Republic of
Azerbaijan and the United Kingdom. Under both jurisdictions, VAT
paid is refundable. Azerbaijani jurisdiction permits offset of an
Azerbaijani VAT credit against other taxes payable to the state
budget.
4.5 Transactions with related parties
For the purposes of these Group financial statements, parties
are considered to be related:
-- where one party has the ability to control the other party or
exercise significant influence over the other party in making
financial or operational decisions;
-- entities under common control; and
-- key management personnel
In considering each possible related party relationship,
attention is directed to the substance of the relationship, not
merely the legal form.
Related parties may enter into transactions which unrelated
parties might not and transactions between related parties may not
be effected on the same terms, conditions and amounts as
transactions between unrelated parties.
It is the nature of transactions with related parties that they
cannot be presumed to be carried out on an arm's length basis.
4.6 Borrowing costs
Borrowing costs directly relating to the acquisition,
construction or production of a qualifying capital project under
construction are capitalised and added to the project cost during
construction until such time the assets are considered
substantially ready for their intended use i.e. when they are
capable of commercial production. Where funds are borrowed
specifically to finance a project, the amount capitalised
represents the actual borrowing costs incurred. Where surplus funds
are available for a short term out of money borrowed specifically
to finance a project, the income generated from the temporary
investment of such amounts is also capitalised and deducted from
the total capitalised borrowing cost. Where the funds used to
finance a project form part of general borrowings, the amount
capitalised is calculated using a weighted average of rates
applicable to relevant general borrowings of the Group during the
period. All other borrowing costs are recognised in the Group
income statement in the period in which they are incurred.
Even though exploration and evaluation assets can be qualifying
assets, they generally do not meet the 'probable economic benefits'
test. Any related borrowing costs are therefore generally
recognised in the Group income statement in the period they are
incurred.
4.7 Intangible assets
i) Exploration and evaluation assets
The costs of exploration properties and leases, which include
the cost of acquiring prospective properties and exploration rights
and costs incurred in exploration and evaluation activities, are
capitalised as intangible assets as part of exploration and
evaluation assets.
Exploration and evaluation assets are carried forward during the
exploration and evaluation stage and are assessed for impairment in
accordance with the indicators of impairment as set out in IFRS 6 -
'Exploration for and Evaluation of Mineral Resources'.
In circumstances where a property is abandoned, the cumulative
capitalised costs relating to the property are written off in the
period. No amortisation is charged prior to the commencement of
production.
Once commercially viable reserves are established and
development is sanctioned, exploration and evaluation assets are
transferred to assets under construction.
Upon transfer of Exploration and evaluation costs into Assets
under construction, all subsequent expenditure on the construction,
installation or completion of infrastructure facilities is
capitalised within Assets under construction.
When commercial production commences, exploration, evaluation
and development costs previously capitalised are amortised over the
commercial reserves of the mining property on a units-of-production
basis.
Exploration and evaluation costs incurred after commercial
production start date in relation to evaluation of potential
mineral reserves and resources that are expected to result in
increase of reserves are capitalised as Evaluation and exploration
assets within intangible assets. Once there is evidence that
reserves are increased, such costs are tested for impairment and
transferred to Producing mines.
ii) Mining rights
Mining rights are carried at cost to the Group less any
provisions for impairments which result from evaluations and
assessments of potential mineral recoveries and accumulated
depletion. Mining rights are depleted on the units-of-production
basis over the total reserves of the relevant area.
iii) Other intangible assets
Other intangible assets mainly represent the cost paid to
landowners for the use of land ancillary to our mining operations.
They are depreciated over the respective terms of right to use the
land.
Intangible assets with finite lives are amortised over the
useful economic life and assessed for impairment whenever there is
an indication that the intangible asset may be impaired. The
amortisation period and the amortisation method for an intangible
asset with a finite useful life is reviewed at least at each
reporting date. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the
asset are accounted for by changing the amortisation period or
method, as appropriate, and are treated as changes in accounting
estimates. The amortisation expense on intangible assets with
finite lives is recognised in the Group income statement in the
expense category consistent with the function of the intangible
asset.
Gains or losses arising from derecognition of an intangible
asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognised in
the Group income statement when the asset is derecognised.
4.8 Property, plant and equipment and mine properties
Development expenditure is net of proceeds from all but the
incidental sale of ore extracted during the development phase.
Upon completion of mine construction, the assets initially
charged to 'Assets under construction' are transferred into 'Plant
and equipment and motor vehicles' or 'Producing mines'. Items of
'Plant and equipment and motor vehicles' and 'Producing mines' are
stated at cost, less accumulated depreciation and accumulated
impairment losses.
During the production period expenditures directly attributable
to the construction of each individual asset are capitalised as
'Assets under construction' up to the period when asset is ready to
be put into operation. When an asset is put into operation it is
transferred to 'Plant and equipment and motor vehicles' or
'Producing mines'. Additional capital costs incurred subsequent to
the date of commencement of operation of the asset are charged
directly to 'Plant and equipment and motor vehicles' 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 plus future field
development costs required to recover the commercial reserves
remaining. Changes in the estimates of commercial reserves or
future field development costs are dealt with prospectively.
The premium paid in excess of the intrinsic value of land to
gain access is amortised over the life of the mine on a
units-of-production basis.
Other plant and equipment such as mobile mine equipment is
generally depreciated on a straight line basis over their estimated
useful lives as follows:
-- Temporary buildings - eight years (2020: eight years)
-- Plant and equipment - eight years (2020: eight years)
-- Motor vehicles - four years (2020: four years)
-- Office equipment - four years (2020: four years)
-- Leasehold improvements - the lower of eight years (2020:
eight years) and the remaining term of the lease
An item of property, plant and equipment, and any significant
part initially recognised, is derecognised upon disposal or when no
future economic benefits are expected from its use or disposal. Any
gain or loss arising on derecognition of the asset (calculated as
the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the Group income statement when
the asset is derecognised.
The asset's residual values, useful lives and methods of
depreciation and amortisation are reviewed at each reporting date
and adjusted prospectively if appropriate.
ii) Major maintenance and repairs
Expenditure on major maintenance refits or repairs comprises the
cost of replacement assets or parts of assets and overhaul costs.
Where an asset or part of an asset that was separately depreciated
and is now written off is replaced, and it is probable that future
economic benefits associated with the item will flow to the Group
through an extended life, the expenditure is capitalised.
Where part of the asset was not separately considered as a
component, the replacement value is used to estimate the carrying
amount of the replaced assets which is immediately written off. All
other day-to-day maintenance costs are expensed as incurred.
4.9 Impairment of tangible and intangible assets
The Group conducts annual internal assessments of the carrying
values of tangible and intangible assets. The carrying values of
capitalised exploration and evaluation expenditure, mine properties
and property, plant and equipment are assessed for impairment when
indicators of such impairment exist or at least annually. In such
cases an estimate of the asset's recoverable amount is calculated.
The recoverable amount is determined as the higher of the fair
value less costs to sell for the asset and the asset's value in
use. This is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of
those from other assets or groups of assets. If this is the case,
the individual assets are grouped together into cash-generating
units ("CGUs") for impairment purposes. Such CGUs represent the
lowest level for which there are separately identifiable cash
inflows that are largely independent of the cash flows from other
assets or other groups of assets. This generally results in the
Group evaluating its non--financial assets on a geographical or
licence basis.
If the carrying amount of the asset exceeds its recoverable
amount, the asset is impaired and an impairment loss is charged to
the Group income statement so as to reduce the carrying amount to
its recoverable amount (i.e. the higher of fair value less cost to
sell and value in use).
Impairment losses related to continuing operations are
recognised in the Group income statement in those expense
categories consistent with the function of the impaired asset.
For assets excluding the intangibles referred to above, an
assessment is made at each reporting date as to whether there is
any indication that previously recognised impairment losses may no
longer exist or may have decreased. If such indication exists, the
Group makes an estimate of the recoverable amount.
A previously recognised impairment loss is reversed only if
there has been a change in the estimates used to determine the
asset's recoverable amount since the last impairment loss was
recognised. If this is the case, the carrying amount of the asset
is increased to its recoverable amount. The increased amount cannot
exceed the carrying amount that would have been determined, net of
depreciation or amortisation, had no impairment loss been
recognised for the asset in prior years. Such reversal is
recognised in the consolidated statement of other comprehensive
income. Impairment losses recognised in relation to indefinite life
intangibles are not reversed for subsequent increases in its
recoverable amount.
4.10 Fair value measurement
The Group measures financial instruments at fair value at each
balance sheet date. Fair value disclosures for financial
instruments measured at fair value, or where fair value is
disclosed, are summarised in the following notes:
-- Note 17 - 'Trade and other receivables'
-- Note 19 - 'Cash and cash equivalents'
-- Note 16 - 'Other financial assets'; and
-- Note 20 - 'Trade and other payables'
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 recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that
is significant to the fair value measurement as a whole) at the end
of each reporting period.
For the purpose of fair value disclosures, the Group has
determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and the
level of the fair value hierarchy as set out above.
4.11 Provisions
i) General
Provisions are recognised when (a) the Group has a present
obligation (legal or constructive) as a result of a past event and
(b) it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. If the effect
of the time value of money is material, provisions are discounted
using a current pre-tax rate that reflects, where appropriate, the
risks specific to the liability. Where discounting is used, the
increase in the provision due to the passage of time is recognised
as a finance cost.
ii) Rehabilitation provision
The Group records the present value of estimated costs of legal
and constructive obligations required to restore operating
locations in the period in which the obligation is incurred. The
nature of these restoration activities includes dismantling and
removing structures, rehabilitating mines and tailings dams,
dismantling operating facilities, closure of plant and waste sites
and restoration, reclamation and revegetation of affected
areas.
The obligation generally arises when the asset is installed or
the ground or environment is disturbed at the production location.
When the liability is initially recognised, the present value of
the estimated cost is capitalised by increasing the carrying amount
of the related mining assets to the extent that it was incurred
prior to the production of related ore. Over time, the discounted
liability is increased for the change in present value based on the
discount rates that reflect current market assessments and the
risks specific to the liability.
The periodic unwinding of the discount is recognised in the
Group income statement as a finance cost. Additional disturbances
or changes in rehabilitation costs will be recognised as additions
or charges to the corresponding assets and rehabilitation liability
when they occur. Any reduction in the rehabilitation liability and
therefore any deduction from the rehabilitation asset may not
exceed the carrying amount of that asset. If it does, any excess
over the carrying value is taken immediately to the Group income
statement.
If the change in estimate results in an increase in the
rehabilitation liability and therefore an addition to the carrying
value of the asset, the Group is required to consider whether this
is an indication of impairment of the asset as a whole and test for
impairment in accordance with IAS 36. If, for mature mines, the
revised mine assets net of rehabilitation provisions exceeds the
recoverable value, that portion of the increase is charged directly
to expense.
For closed sites, changes to estimated costs are recognised
immediately in the Group income statement. Also, rehabilitation
obligations that arose as a result of the production phase of a
mine should be expensed as incurred.
4.12 Financial instruments - initial recognition and subsequent
measurement
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
a) Financial assets
i) Initial recognition and measurement
Financial assets are classified, at initial recognition, a nd
subsequently measured at amortised cost, fair value through other
comprehensive income ("OCI"), or fair value through profit or
loss.
The classification of financial assets at initial recognition
that are debt instruments depends on the financial asset's
contractual cash flow characteristics and the Group's business
model for managing them. With the exception of trade receivables
that do not contain a significant financing component or for which
the Group has applied the practical expedient, the Group initially
measures a financial asset at its fair value plus, in the case of a
financial asset not at fair value through profit or loss,
transaction costs. Trade receivables that do not contain a
significant financing component or for which the Group has applied
the practical expedient for contracts that have a maturity of one
year or less, are measured at the transaction price determined
under IFRS 15. Refer to the accounting policy 4.2 - 'Revenue from
contracts with customers'
In order for a financial asset to be classified and measured at
amortised cost or fair value through OCI, it needs to give rise to
cash flows that are 'solely payments of principal and interest
("SPPI") on the principal amount outstanding. This assessment is
referred to as the SPPI test and is performed at an instrument
level.
The Group's business model for managing financial assets refers
to how it manages its financial assets in order to generate cash
flows. The business model determines whether cash flows will result
from collecting contractual cash flows, selling the financial
assets, or both.
Purchases or sales of financial assets that require delivery of
assets within a time frame established by regulation or convention
in the market place (regular way trades) are recognised on the
trade date, i.e., the date that the Group commits to purchase or
sell the asset.
ii) Subsequent measurement
For purposes of subsequent measurement, financial assets are
classified in four categories:
-- Financial assets at amortised cost (debt instruments);
-- Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments);
-- Financial assets designated at fair value through OCI with no
recycling of cumulative gains and losses upon derecognition (equity
instruments); and
-- Financial assets at fair value through profit or loss.
iii) Financial assets at amortised cost (debt instruments)
This category is the most relevant to the Group. The Group
measures financial assets at amortised cost if both of the
following conditions are met:
-- The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows; and
-- The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured
using the effective interest rate ("EIR") method and are subject to
impairment. Interest received is recognised as part of finance
income in the statement of profit or loss and other comprehensive
income. Gains and losses are recognised in profit or loss when the
asset is derecognised, modified or impaired.
The Group's financial assets at amortised cost include trade
receivables (not subject to provisional pricing) and other
receivables. Refer below to 'Financial assets at fair value through
profit or loss' for a discussion of trade receivables (subject to
provisional pricing).
iv) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include
financial assets held for tradin g, e.g., derivative instruments,
financial assets designated upon initial recognition at fair value
through profit or loss, e .g., debt or equity instruments, or
financial assets mandatorily required to be measured at fair value,
i.e., where they fail the SPPI test. Financial assets are
classified as held for trading if they are acquired for the purpose
of selling or repurchasing in the near term. Derivatives, including
separated embedded derivatives, are also classified as held for
trading unless they are designated as effective hedging
instruments. Financial assets with cash flows that do not pass the
SPPI test are required to be classified and measured at fair value
through profit or loss, irrespective of the business model.
Notwithstanding the criteria for debt instruments to be classified
at amortised cost or at fair value through OCI, as described above,
debt instruments may be designated at fair value through profit or
loss on initial recognition if doing so eliminates, or
significantly reduces, an accounting mismatch.
Financial assets at fair value through profit or loss are
carried in the statement of financial position at fair value w ith
net changes in fair value recognised in the profit or loss
account.
A derivative embedded in a hybrid contract with a financial
liability or non -financial host, is separated from the host and
accounted for as a separate derivative if: the economic
characteristics and risks are not closely related to the host; a
separate instrument with the same terms as the embedded derivative
would meet the definition of a derivative; and the hybrid contract
is not measured at fair value through profit or loss. Embedded
derivatives are measured at fair value w ith changes in fair value
recognised in profit or loss. Reassessment only occurs if there is
either a change in the terms of the contract that significantly
modifies the cash flows that would otherwise be required or a
reclassification of a financial asset out of the fair value through
profit or loss category.
As IFRS 9 now has the SPPI test for financial assets, the
requirements relating to the separation of embedded derivatives is
no longer needed for financial assets. An embedded derivative will
often make a financial asset fail the SPPI test thereby requiring
the instrument to be measured at fair value through profit or loss
in its entirety. This is applicable to the Group's trade
receivables (subject to provisional pricing). These receivables
relate to sales contracts where the selling price is determined
after delivery to the customer, based on the market price at the
relevant QP stipulated in the contract. This exposure to the
commodity price causes such trade receivables to fail the SPPI
test. As a result, these receivables are measured at fair value
through profit or loss from the date of recognition of the
corresponding sale, with subsequent movements where material being
recognised in 'fair value gains/losses on provisionally priced
trade receivables' in the statement of profit or loss and other
comprehensive income.
The Group does not currently account separately for embedded
derivatives in its trade receivables subject to provisional
pricing. The short one to four month transaction cycle would result
in any change to the Group's financial statements being immaterial.
Any adjustment to the trade receivable subsequent to initial
recording is adjusted through revenue.
v) Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is primarily
derecognised (i.e., removed from the Group's consolidated statement
of financial position) when:
-- The rights to receive cash flows from the asset have expired; or
-- The Group has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a
'pass -through' arrangement; and either (a) the Group has
transferred substantially all the risks and rewards of the asset,
or (b) the Group has neither transferred nor retained substantially
all the risks and rewards of the asset, but has transferred control
of the asset.
When the Group has transferred its rights to receive cash flows
from an asset or has entered into a pas s -through fttransferred
nor retained substantially all of the risks and rewards of the
asset, nor transferred control of the asset, the Group continues to
recognise the transferred asset to the extent of its continuing
involvement. In that case, the Group also recognises an associated
liability. The transferred asset and the associated liability are
measured on a basis that reflects the rights and obligations that
the Group has retained.
Continuing involvement that takes the form of a guarantee over
the transferred asset is measured at the lower of the original
carrying amount of the asset and the maximum amount of
consideration that the Group could be required to repay.
vi) Impairment of financial assets
Further disclosures relating to impairment of financial assets
are also provided in the following notes:
-- Disclosure of significant assumptions: accounting policy 4.20
-- Trade and other receivables: accounting policy 4.13 and note 17
The Group recognises an allo wance for expected credit loss
("ECL") for all debt instruments not held at fair value through
profit or loss. ECLs are based on the difference between the
contractual cash flows due in accordance with the contract and all
the cash flo ws that the Group expects to receive, discounted at an
approximation of the original E IR. The expected cash flows will
include cash flows from the sale of collateral held or other credit
enhancements that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for
which there has not been a significant increase in credit risk
since initial recognition, ECLs are provided for credit losses that
result from default events that are possible within the next
12-months (a 12-month ECL). For those credit exposures for which
there has been a significant increase in credit risk since initial
recognition, a loss allowance is required for credit losses
expected over the remaining life of the exposure, irrespective of
the timing of the default (a lifetime ECL).
For trade receivables (not subject to provisional pricing) and
other receivables due in less than 12 months, the Group applies the
simplified approach in calculating ECLs, as permitted by IFRS 9.
Therefore, the Group does not track changes in credit risk, but
instead, recognises a loss allowance based on the financial asset's
lifetime ECL at each reporting date. For any other financial assets
carried at amortised cost (which are due in more than 12 months),
the ECL is based on the 12-month ECL. The 12-month ECL is the
proportion of lifetime ECLs that results from default events on a
financial instrument that are possible within 12 months after the
reporting date. However, when there has been a significant increase
in credit risk since origination, t he allowance will be based on
the lifetime ECL. When determining whether the credit risk of a
financial asset has increased significantly since initial
recognition and when estimating ECLs, the Group considers
reasonable and supportable information that is relevant and
available without undue cost or effort. This includes both
quantitative and qualitative information and analysis, based on the
Group's historical experience and informed credit assessment
including forward -looking information.
The Group considers a financial asset in def ault when
contractual payments are 90 days past due. However, in certain
cases, the Group may also consider a financial asset to be in def
ault when internal or external information indicates that the Group
is un likely to receive the outstanding contractual amounts in full
before taking into account any credit enhancements held by the
Group. A financial asset is written off when there is no reasonable
expectation of recovering the contractual cash flows and usually
occurs when past due for more than one year and not subject to
enforcement activity.
At each reporting date, the Group assesses whether financial
assets carried at amortised cost are credit- impaired. A financial
asset is credit -impaired when one or more events that have a
detrimental impact on the estimated future cash flows of the
financial asset have occurred.
b) Financial liabilities
i) Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans
and borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value
and, in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
The Group's financial liabilities include trade and other
payables and loans and borrowings including bank overdrafts.
ii) Subsequent measurement
The measurement of financial liabilities depends on their
classification, as described below:
Financial liabilities at fair value through p rofit or loss
Financial liabilities at fair value through profit or loss
include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair value
through profit or loss.
Financial liabilities are classified as held for trading if they
are incurred for the purpose of repurchasing in the near term. This
category also includes derivative financial instruments entered
into by the Group that are not designated as hedging instruments in
hedge relationships as defined by IFRS 9. Separated embedded
derivatives are also classified as held for trading unless they are
designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised
in the statement of profit or loss and other comprehensive
income.
Loans and borrowings and trade and other payables
After initial recognition, interest-bearing loans and borrowings
and trade and other payables are subsequently measured at amortised
cost using the EIR method. Gains and losses are recognised in the
statement of profit or loss and other comprehensive income when the
liabilities are derecognised, as well as through the EIR
amortisation process.
Amortised cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral
part of the EI R. The EIR amortisation is included as finance costs
in the statement of profit or loss and other comprehensive
income.
This category generally applies to interest-bearing loans and
borrowings and trade and other payab l es
iii) Derecognition of financial liabilities
A financial liability is derecognised when the associated
obligation is discharged or cancelled or expires.
When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in profit or loss and
other comprehensive income.
c) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the
net amount is reported in the consolidated statement of financial
position if there is a currently enforceable legal right to offset
the recognised amounts and there is an intention to settle on a net
basis, to realise the assets and settle the liabilities
simultaneously.
d) Cash and cash equivalents
Cash and cash equivalents in the statement of financial position
comprise cash at banks and on hand and short- term deposits with an
original maturity of three months or less.
For the purpose of the consolidated statement of cash flows,
cash and cash equivalents consist of cash and short- term deposits
as defined above.
4.13 Trade and other receivables
The Group presents trade and other receivables in the statement
of financial position based on a current or non-current
classification. A trade and other receivable is classified as
current as follows:
-- expected to be realised or intended to be sold or consumed in
the normal operating cycle;
-- held primarily for the purpose of trading; and
-- expected to be realised within 12 months after the date of
the statement of financial position.
Gold bullion held on behalf of the Government of Azerbaijan is
classified as a current asset and valued at the current market
price of gold at the statement of financial position date. A
current liability of equal amount representing the liability of the
gold bullion to the Government of Azerbaijan is also
established.
Advances made to suppliers for fixed asset purchases are
recognised as non-current prepayments until the fixed asset is
delivered when they are capitalised as part of the cost of the
fixed asset.
4.14 Inventories
Metal in circuit consists of in-circuit material at properties
with milling or processing operations and doré awaiting refinement,
all valued at the lower of average cost and net realisable value.
In-process inventory costs consist of direct production costs
(including mining, crushing and processing and site administration
costs) and allocated indirect costs (including depreciation,
depletion and amortisation of producing mines and mining
interests).
Ore stockpiles consist of stockpiled ore, ore on surface and
crushed ore, all valued at the lower of average cost and net
realisable value. Ore stockpile costs consist of direct production
costs (including mining, crushing and site administration costs)
and allocated indirect costs (including depreciation, depletion and
amortisation of producing mines and mining interests).
Inventory costs are charged to operations on the basis of ounces
of gold sold. The Group regularly evaluates and refines estimates
used in determining the costs charged to operations and costs
absorbed into inventory carrying values based upon actual gold
recoveries and operating plans.
Finished goods consist of doré bars that have been refined and
assayed and are in a form that allows them to be sold on
international bullion markets and metal in concentrate . Finished
goods are valued at the lower of average cost and net realisable
value. Finished goods costs consist of direct production costs
(including mining, crushing and processing; site administration
costs; and allocated indirect costs, including depreciation,
depletion and amortisation of producing mines and mining
interests).
Spare parts and consumables consist of consumables used in
operations, such as fuel, chemicals, reagents and spare parts,
valued at the lower of average cost and replacement cost and, where
appropriate, less a provision for obsolescence.
4.15 Equity instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs, or value of services
received net of any issue costs.
4.16 Deferred stripping costs
The removal of overburden and other mine waste materials is
often necessary during the initial development of a mine site, in
order to access the mineral ore deposit. The directly attributable
cost of this activity is capitalised in full within mining
properties and leases, until the point at which the mine is
considered to be capable of commercial production. This is
classified as expansionary capital expenditure, within investing
cash flows.
The removal of waste material after the point at which a mine is
capable of commercial production is referred to as production
stripping.
When the waste removal activity improves access to ore extracted
in the current period, the costs of production stripping are
accounted for as part of the cost of producing those
inventories.
Where production stripping activity both produces inventory and
improves access to ore in future periods the associated costs of
waste removal are allocated between the two elements. The portion
which benefits future ore extraction is capitalised within
stripping and development capital expenditure. If the amount to be
capitalised cannot be specifically identified it is determined
based on the volume of waste extracted compared with expected
volume for the identified component of the orebody. Components are
specific volumes of a mine's orebody that are determined by
reference to the life of mine plan.
In certain instances significant levels of waste removal may
occur during the production phase with little or no associated
production.
All amounts capitalised in respect of waste removal are
depreciated using the unit of production method based on the ore
reserves of the component of the orebody to which they relate.
The effects of changes to the life of mine plan on the expected
cost of waste removal or remaining reserves for a component are
accounted for prospectively as a change in estimate.
4.17 Employee leave benefits
Liabilities for wages and salaries, including non-monetary
benefits and accrued but unused annual leave, are recognised in
respect of employees' services up to the reporting date. They are
measured at the amounts expected to be paid when the liabilities
are settled.
4.18 Retirement benefit costs
The Group does not operate a pension scheme for the benefit of
its employees but instead makes contributions to their personal
pension policies. The contributions due for the period are charged
to the Group income statement.
4.19 Share-based payments
The Group has applied the requirements of IFRS 2 - 'Share-based
Payment'. IFRS 2 has been applied to all grants of equity
instruments.
The Group issues equity-settled share-based payments to certain
employees. Equity-settled share-based payments are measured at fair
value (excluding the effect of non market-based vesting conditions)
at the date of grant. The fair value determined at the grant date
of the equity-settled share-based payments is expensed on a
straight line basis over the vesting period, based on the Group's
estimate of shares that will eventually vest and adjusted for the
effect of non market-based vesting conditions.
Fair value is measured by use of the Black-Scholes model. The
expected life used in the model has been applied based on
management's best-estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations. The vesting
conditions assumptions are reviewed during each reporting period to
ensure they reflect current expectations.
4.20 Significant accounting judgements
The preparation of the Group financial statements in conformity
with IFRS requires management to make judgements that affect the
reported amounts of assets, liabilities and contingent liabilities
at the date of the Group financial statements and reported amounts
of revenues and expenses during the reporting period.
i) Exploration and evaluation expenditure (note 13)
The application of the Group's accounting policy for exploration
and evaluation expenditure requires judgement in determining
whether it is likely that future economic benefits are likely from
future exploitation. If information becomes available suggesting
that the recovery of expenditure is unlikely, the amount
capitalised is written off in the consolidated statement of profit
or loss in the period when the new information becomes
available.
ii) Impairment of intangible and tangible assets (notes 13,14
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 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 in order to calculate present value.
The Group has calculated the value in use of its only operating
cash generating unit ("CGU") which are its mines together with
their associated processing facilities at Gedabek ("Mining
Operations") to assess whether any impairment provision is
required. The significant accounting judgements made to perform
this calculation are: production volumes, precious metal and copper
prices, discount rates and exchange rates.
iii) Production start date (note 14)
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.
iv) Leases (note 15)
The implementation of IFRS 16 requires the Group to make
judgements as to whether any contract entered into by the Group
contains a lease. In making this judgement, the Group looks at a
number of factors including the broader economics of each contract.
Once a contract has been determined to contain a lease, the Group
is required to make judgements and estimates that affect the
measurement of right to use assets and lease liabilities. In
determining the lease term, the Group considers all facts and
circumstances that determine the likely total length of time the
asset will be leased. Estimates are required to determine the
appropriate discount rates used to measure lease liabilities.
v) Renewal of Production Sharing Agreement ("PSA") (note 29)
The Group operates its mines and processing facilities on
contract areas licenced under a PSA with the Government of
Azerbaijan. The majority of the Group's fixed assets, including its
processing facilities and its main producing mines, are located on
the Gedabek contract area which initially had a mining licence
expiring in March 2022. The Group depreciates each tangible fixed
asset over its estimated useful life regardless of whether or not
the end of its useful life is later than March 2022. There is an
option to extend the Gedabek licence for a further ten years
conditional upon satisfaction of certain requirements stipulated in
the PSA and the first of the two five-year extensions allowed under
the PSA has now been obtained. The directors have judged that the
requirements to renew the licence for the second five-year
extension will be satisfied and therefore it is valid to depreciate
assets over useful lives which end later than March 2027.
4.21) Significant accounting estimates
The preparation of the Group financial statements in conformity
with IFRS requires management to make estimates that affect the
reported amounts of assets, liabilities and contingent liabilities
at the date of the Group financial statements and reported amounts
of revenues and expenses during the reporting period. Estimates are
continuously evaluated and are based on management's experience and
other factors, including expectations of future events that are
believed to be reasonable under the circumstances. However, actual
outcomes can differ from these estimates. In particular,
information about significant areas of estimation uncertainty
considered by management in preparing the Group financial
statements is described below.
i) Impairment of intangible and tangible assets (notes 13,14 and
15)
Once an intangible or tangible asset has been judged as
impaired, an estimate is made of its recoverable amount.
Recoverable amount is determined as the higher of fair value less
costs to sell and value in use. Determining whether the projects
are impaired requires an estimation of the recoverable value of the
individual areas to which value has been ascribed. The value in use
calculation requires the entity to estimate the future cash flows
expected to arise from the projects and a suitable discount rate in
order to calculate present value.
ii) Ore reserves and resources (notes 13 and 14)
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.
iii) Inventory (note 18)
Net realisable value tests are performed at least annually and
represent the estimated future sales price of the product based on
prevailing spot metals prices at the reporting date, less estimated
costs to complete production and bring the product to sale.
Stockpiles are measured by estimating the number of tonnes added
and removed from the stockpile, the number of contained gold ounces
based on assay data and the estimated recovery percentage based on
the expected processing method. Stockpile tonnages are verified by
periodic surveys. The ounces of gold sold are compared to the
remaining reserves of gold for the purpose of charging inventory
costs to operations.
iv) 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'.
Expenditure on mine rehabilitation is expected to take place
between 2028 and 2030.
v) Recovery of deferred tax assets (note 11)
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 statement of income and Group
statement of financial position on this basis. Accordingly, the
Group has only one operating segment, mining operations. The mining
operations comprise the Group's major producing asset, the Gedabek
mine which accounts for all the Group's revenues and the majority
of its cost of sales, depreciation and amortisation. The Group's
mining operations are all located within Azerbaijan and therefore
all within one geographic segment.
6 Revenue
The Group's revenue consists of sales to third parties of:
-- gold contained within doré and gold and silver bullion to the Group's refiners; and
-- gold and copper concentrate.
2021 2020
$000 $000
---------------------------------------- ------- --------
Gold within doré and gold bullion 71,175 86,441
Silver bullion 449 337
Gold and copper concentrate 20,870 15,276
---------------------------------------- ------- --------
92,494 102,054
---------------------------------------- ------- --------
All revenue from sales of gold within doré and gold and silver
bullion and gold and copper concentrate is recognised at the time
when control passes to the customer.
Sales of gold within doré and gold and silver bullion were made
to two customers, the Group's gold refiners, MKS Finance S.A., and
Argor-Heraeus SA, both based in Switzerland.
The gold and copper concentrate was sold in 2021 and 2020 to
Industrial Minerals SA, Trafigura PTE Ltd and Metal-Kim Metalurgi
Ve Kimya Tarim Sanayi Tic Ltd Sti.
7 Other operating income and expenses and other income
Other operating income
2021 2020
$000 $000
------------------------------------------------ ------- ------
Gain from insurance proceeds 52 -
Gain on the modifications of lease liabilities - 72
Gain on cancellation of trade payables 176 574
228 646
------------------------------------------------ ------- ------
Other operating expenses
2021 2020
$000 $000
------------------------------------ ------- ------
Transportation and refining costs 308 782
Foreign exchange loss 186 130
Advances and inventory written off 126 366
Research costs 121 -
741 1,278
------------------------------------ ------- ------
Other income
2021 2020
$000 $000
----------------------------------------------- ------- ------
Fair value gain on derivatives not designated 597 -
as hedging instruments
Fair value gain on financial assets at fair
value through profit and loss 151 116
----------------------------------------------- ------- ------
748 116
----------------------------------------------- ------- ------
8 Operating profit
2021 2020
Notes $000 $000
----------------------------------------------- ------ ------- -------
Operating profit is stated after charging:
Depreciation on property, plant and equipment
- owned 14 15,075 14,949
Depreciation on property plant and equipment
- right of use assets 15 523 627
Amortisation of mining rights and other
intangible assets 13 1,206 1,267
Employee benefits and expenses 9 11,571 10,021
Foreign currency exchange net loss 186 130
Inventory expensed during the year 30,987 24,240
Fees payable to the Company's auditor
for:
The audit of the Group's annual accounts 191 154
The audit of the Group's subsidiaries
pursuant to legislation 119 119
Audit related assurance services - half
year review 3 3
Total audit services 313 276
----------------------------------------------- ------ ------- -------
Amounts paid to auditor for other services:
Tax compliance services 10 13
Tax advice regarding dividend - 34
Total non-audit services 10 47
----------------------------------------------- ------ ------- -------
Total 323 323
----------------------------------------------- ------ ------- -------
The audit fees for the parent company were $148,000 (2020:
$111,000).
9 Staff numbers and costs
The average number of staff employed by the Group (including
directors) during the year, analysed by category, was as
follows:
2021 2020
------------------------------- ----- -----
Management and administration 44 45
Exploration 57 47
Mine operations 817 767
------------------------------- ----- -----
918 859
------------------------------- ----- -----
The aggregate payroll costs of these persons were as
follows:
2021 2020
$000 $000
---------------------------------- ------- -------
Wages and salaries 10,158 8,732
Social security costs 2,094 1,706
Costs capitalised as exploration (681) (417)
---------------------------------- ------- -------
11,571 10,012
---------------------------------- ------- -------
Remuneration of key management personnel
The remuneration of the key management personnel of the Group,
is set out below in aggregate:
2021 2020
$ $
------------------------------ ---------- ----------
Short-term employee benefits 1,826,118 1,713,791
------------------------------ ---------- ----------
The key management personnel of the Group comprise the chief
executive officer, the vice president of government affairs, the
vice president of technical services, the vice president Azerbaijan
International Mining Company and the chief financial officer. The
disclosure of the remuneration of the directors as required by the
Companies Act 2006 is given above.
10 Finance costs
2021 2020
$000 $000
-------------------------------------------- ------- ------
Interest charged on interest-bearing loans
and borrowings - 20
Finance charges on letters of credit 9 4
Interest expense on lease liabilities 266 230
Unwinding of discount on provisions 377 310
-------------------------------------------- ------- ------
652 564
-------------------------------------------- ------- ------
Interest charged on interest-bearing loans and borrowings for
the year ended 31 December 2020 was interest charged on the Pasha
Bank refinancing loan which was fully repaid in March 2020.
11 Taxation
Corporation tax is calculated at 32 per cent. (as stipulated in
the production sharing agreement for R.V. Investment Group Services
LLC ("RVIG")) in the Republic of Azerbaijan, the entity that
contributes the most significant portion of profit before tax in
the Group financial statements) of the estimated assessable profit
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 2021 were $nil (2020: $nil).
The major components of the income tax charge for the year ended
31 December are:
2021 2020
$000 $000
---------------------------------------------- ------ --------
Current income tax
Current income tax charge 5,479 14,165
Deferred tax
Benefit relating to origination and reversal
of temporary differences (248) (1,649)
---------------------------------------------- ------ --------
Income tax charge for the year 5,231 12,516
---------------------------------------------- ------ --------
The increase from 1 April 2023 in the main rate of UK
Corporation tax from 19 per cent. to 25 per cent. does not have any
effect on the Group financial statements for the year ended 31
December 2021.
Deferred income tax at 31 December relates to the following:
Statement
of financial
position Income statement
-------------------- --------------------
2021 2020 2021 2020
$000 $000 $000 $000
----------------------------------- --------- --------- ---------- --------
Deferred income tax liability
Property, plant and equipment
- accelerated depreciation (19,978) (19,049) (929) (977)
Right of use assets - accelerated
depreciation (981) (579) (402) 580
Non-current prepayments (59) - (59) 21
Trade and other receivables (954) (616) (338) 1,446
Inventories (10,374) (11,828) 1,454 776
----------------------------------- --------- ---------
Deferred income tax liability (32,346) (32,072)
----------------------------------- --------- ---------
Deferred income tax asset
Trade and other payables
and provisions * 2,778 2,716 62 (49)
Lease liabilities 1,054 623 431 (579)
Asset retirement obligation
* 3,815 3,786 29 431
----------------------------------- --------- ---------
Deferred income tax asset 7,647 7,125
----------------------------------- --------- --------- ---------- --------
Deferred income tax benefit 248 1,649
----------------------------------- --------- --------- ---------- --------
Net deferred tax liability (24,699) (24,947)
----------------------------------- --------- ---------
* Deferred income tax assets have been recognised for the trade
and other payables and provisions, asset retirement obligation and
lease liabilities based on local tax basis differences expected to
be utilised against future taxable profits.
A reconciliation between the accounting profit and the total
taxation charge for the year ended 31 December is as follows:
2021 2020
$000 $000
---------------------------------------------- ------- -------
Profit before tax 12,592 35,737
---------------------------------------------- ------- -------
Theoretical tax charge at statutory rate
of 32 per cent. for RVIG* 4,029 11,436
Effects of different tax rates for certain
Group entities (20 per cent.) 185 171
Tax effect of items which are not deductible
or assessable for taxation purposes:
- Items not deductible or assessable 1,017 909
Income tax charge for the year 5,231 12,516
---------------------------------------------- ------- -------
* This is the tax rate stipulated in RVIG's production sharing
agreement.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised.
Deferred tax assets and liabilities have been offset for
deferred taxes recognised for RVIG since there is a legally
enforceable right to set off current tax assets against current tax
liabilities and they relate to income taxes levied by the same
taxation authority. The Group intends to settle its current tax
assets and liabilities on a net basis in the Republic of
Azerbaijan.
At 31 December 2021, the Group had unused tax losses available
for offset against future profits of $22,332,000 (2020:
$21,599,000). Unused tax losses in the Republic of Azerbaijan at 31
December 2021 were $nil (2020: $nil). 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.
12 Profit per share
The calculation of basic and diluted profit per share is based
upon the retained profit for the financial year of $7,361,000
(2020: $23,221,000).
The weighted average number of ordinary shares for calculating
the basic profit and diluted profit per share after adjusting for
the effects of all dilutive potential ordinary shares relating to
share options are as follows:
2021 2020
--------- ------------ -----------
Basic 114,392,024 114,392,024
--------- ------------ -----------
Diluted 114,392,024 114,392,024
--------- ------------ -----------
At 31 December 2021 there were no unexercised share options that
could potentially dilute basic earnings per share (2020: nil).
13 Intangible assets
Exploration Exploration Exploration Other
and evaluation and evaluation and evaluation Mining intangible
Gedabek Gosha Ordubad rights assets Total
$000 $000 $000 $000 $000 $000
Cost
1 January 2020 6,274 830 5,536 41,925 562 55,127
Additions 4,240 812 215 - - 5,267
--------------------- --------------- --------------- --------------- --------- ------------ --------
31 December 2020 10,514 1,642 5,751 41,925 562 60,394
Additions 6,842 556 190 - - 7,588
--------------------- --------------- --------------- --------------- --------- ------------ --------
31 December 2021 17,356 2,198 5,941 41,925 562 67,982
--------------------- --------------- --------------- --------------- --------- ------------ --------
Amortisation and
impairment*
1 January 2020 - - - 34,733 429 35,162
Charge for the year - - - 1,233 34 1,267
--------------------- --------------- --------------- --------------- --------- ------------ --------
31 December 2020 - - - 35,966 463 36,429
Charge for the year - - - 1,176 30 1,206
--------------------- --------------- --------------- --------------- --------- ------------ --------
31 December 2021 - - - 37,142 493 37,635
--------------------- --------------- --------------- --------------- --------- ------------ --------
Net book value
31 December 2020 10,514 1,642 5,751 5,959 99 23,965
--------------------- --------------- --------------- --------------- --------- ------------ --------
31 December 2021 17,356 2,198 5,941 4,783 69 30,347
--------------------- --------------- --------------- --------------- --------- ------------ --------
*232,000 ounces of gold at 1 January 2021 were used to determine
depreciation of producing mines, mining rights and other intangible
assets (2020: 290,000 ounces). A 5 per cent. increase or decrease
in the ounces of gold used to compute the amortisation of
intangible assets would result in a decrease in amortisation of
$56,000 and an increase in amortisation of $61,000
respectively.
14 Property, plant and equipment
Plant and
equipment Producing Assets Total
and mines under
motor vehicles construction
$000 $000 $000 $000
----------------------- ---------------- ------------ --------------- --------
Cost
1 January 2020 24,588 210,649 80 235,317
Additions 619 8,734 1,510 10,863
Increase in provision
for rehabilitation - 1,038 - 1,038
----------------------- ---------------- ------------ --------------- --------
31 December 2020 25,207 220,421 1,590 247,218
Additions 1,974 4,782 637 7,393
Decrease in provision
for rehabilitation - (288) - (288)
----------------------- ---------------- ------------ --------------- --------
31 December 2021 27,181 224,915 2,227 254,323
----------------------- ---------------- ------------ --------------- --------
Depreciation and
impairment*
1 January 2020 20,023 145,566 - 165,589
Charge for the
year 1,743 13,206 - 14,949
----------------------- ---------------- ------------ --------------- --------
31 December 2020 21,766 158,772 - 180,538
Charge for the
year 1,427 13,648 - 15,075
----------------------- ---------------- ------------ --------------- --------
31 December 2021 23,193 172,420 - 195,613
----------------------- ---------------- ------------ --------------- --------
Net book value
31 December 2020 3,441 61,649 1,590 66,680
----------------------- ---------------- ------------ --------------- --------
31 December 2021 3,988 52,495 2,227 58,710
----------------------- ---------------- ------------ --------------- --------
*232,000 ounces of gold at 1 January 2021 were used to determine
depreciation of producing mines, mining rights and other intangible
assets (2020: 290,000 ounces). A 5 per cent. increase or decrease
in the ounces of gold used to compute the depreciation of property
plant and equipment would result in a decrease in depreciation of
$717,000 and an increase in depreciation of $793,000
respectively.
Impairment assessment of the Group's fixed assets
The Group assesses at each balance sheet date whether any
indicators of impairment exist for each asset or cash generating
unit ("CGU"). The Group has only one operating CGU. This is the
Group's mines together with their associated processing facilities
at Gedabek ("Mining Operations"). If any such indications of
impairment exist, a formal estimate of the recoverable amount is
performed.
In assessing whether an impairment is required, the carrying
value of Mining Operations is compared with its recoverable amount.
The recoverable amount is the higher of the fair value less costs
of disposal ("FVLCD") and value in use ("VIU"). Given the nature of
the Group's activities, information on the fair value less costs to
disposal of Mining Operations is difficult to obtain unless
negotiations with potential purchasers or similar transactions are
taking place. Consequently, the VIU recoverable amount for Mining
Operations is estimated based on the discounted future estimated
cash flows (expressed in nominal terms) expected to be generated
from its continued use using market-based commodity price and
exchange rate assumptions, estimated quantities of recoverable
minerals, production levels, operating costs and capital
requirements based on the Group's latest five-year plan and life of
mine plan. The cash flows are discounted using a nominal discount
rate before taxation that reflects current market assessments of
the time value of money and the risks specific to Mining
Operations.
Indication of impairment during the year ended 31 December
2021
In the year ended 31 December 2021, future operating cost
forecasts were prepared for the Group's Gedabek open pit mine and
Gedabek and Gadir underground mines. These showed an increase in
future operating costs compared to historic operating costs which
was considered an indication of impairment. Accordingly, the
recoverable amount of Mining Operations was calculated and compared
to its carrying value. The results of the analysis are as
follows:
$M
Recoverable amount of Mining Operations 67.2
Carrying value of Mining Operations (65.2)
----------
Excess of carrying value over recoverable
amount 2.0
----------
As the recoverable amount of Mining Operations was in excess of
its carrying value, no impairment charge was made during 2021.
Key assumptions in calculating recoverable amount of Mining
Operations
The determination of the recoverable amount of Mining Operations
is most sensitive to the following key assumptions:
-- Production volumes
-- Precious metal and copper prices
-- Discount rates
-- Exchange rates
-- Operating and capital expenditure
Production volumes
In calculating the recoverable amount, the following production
volumes were incorporated into the cash flow model for the years
2022 to 2025 ("Cash Flow Model"):
Gold: 186,000 ounces
Silver: 373,000 ounces
Copper: 9,856 tonnes
Estimated production volumes are based on the Group's latest ore
reserve estimates and internal budgets and forecasts and the
Group's five-year plan. Production volumes are dependent on a
number of variables, including: the recoverable quantities; the
production profile; the cost to maintain the infrastructure
necessary to extract the reserves; the production costs and the
selling price of the precious metal and copper extracted.
The volumes used for the production profile are consistent with
the latest revised JORC resource and reserves statements published
in 2020 adjusted by production in 2021. The Cash Flow Model also
includes production from approximately 1.6 million tonnes of
previously crushed heap-leached ore with an estimated average grade
of 1.25 grammes of gold. This is high grade ore which was processed
prior to construction of the Group's agitation leaching plant and
has remained in-situ since heap leaching. As heap leaching only
recovers around 30 per cent. to 60 per cent. of the gold and silver
content, this material contains a sufficiently high grade of gold
to be economic to process and recover by agitation leaching.
Precious metal and copper prices
The precious metal and copper prices used in the Cash Flow Model
are the best estimates by management based on all readily available
sources of internal and external information. These prices are
reviewed annually. The estimated gold, silver and copper prices
used for the Cash Flow Model are as follows:
Year
Metal Unit 2022 2023 2024 2025 Average
Gold $/ounce 1,830 1,800 1,750 1,700 1,770
Silver $/ounce 22 21 21 20 21
Copper $/tonne 9,000 9,100 9,000 9,000 9,025
Discount rate
In calculating the recoverable amount, a nominal pre-tax
discount rate of 8.71 per cent. was applied to the pre-tax cash
flows expressed in nominal terms. This is the Group's estimated
pre-tax average weighted cost of capital ("WACC"). The cost of the
Group's equity is derived from the expected return on investment by
the Group's investors.
Sensitivity analysis
The directors believe there are no reasonably possible changes
in any of the assumptions, except the commodity price and
production volumes and operating costs, which would lead to an
impairment in Mining Operations. It is estimated that a 10 per
cent. decrease in the gold and silver prices and an average 10 per
cent. decrease in copper price together used in the Cash Flow Model
would result in an impairment of $10.8 million. It is estimated
that a 10 per cent. decrease in the production used in the Cash
Flow Model would result in an impairment of $10.8 million. It is
estimated that a 10 per cent. increase in operating costs would
result in an impairment of $6.1 million.
Indication of impairment during the year ended 31 December
2020
In the year ended 31 December 2020, revised JORC ore reserve
estimates were prepared and published for the Group's Gedabek open
pit mine and Gadir underground mine. These showed decreased ore
reserves compared to previous estimates which was considered an
indication of impairment. Accordingly, the recoverable amount of
Mining Operations was calculated and compared to its carrying
value. The results of the analysis are as follows:
$M
Recoverable amount of Mining Operations 90.7
Carrying value of Mining Operations (76.0)
----------
Excess of carrying value over recoverable
amount 14.7
----------
As the recoverable amount of Mining Operations was in excess of
its carrying value, no impairment charge was made during 2020.
Key assumptions in calculating recoverable amount of Mining
Operations
The determination of the recoverable amount of Mining Operations
is most sensitive to the following key assumptions:
-- Production volumes
-- Precious metal and copper prices
-- Discount rates
-- Exchange rates
-- Operating and capital expenditure
Production volumes
In calculating the recoverable amount, the following production
volumes were incorporated into the cash flow model for the years
2021 to 2025 ("Cash Flow Model"):
Gold: 231,000 ounces
Silver: 536,321 ounces
Copper: 12,517 tonnes
Estimated production volumes are based on the Group's latest ore
reserve estimates and internal budgets and forecasts and the
Group's five-year plan. Production volumes are dependent on a
number of variables, including: the recoverable quantities; the
production profile; the cost to maintain the infrastructure
necessary to extract the reserves; the production costs and the
selling price of the precious metal and copper extracted.
The volumes used for the production profile are consistent with
the latest revised JORC resource and reserves statements published
in 2020. The Cash Flow Model also includes production from
approximately 1.5 million tonnes of previously crushed heap-leached
ore with an estimated average grade of 1.35 grammes of gold. This
is high grade ore which was processed prior to construction of the
Group's agitation leaching plant and has remained in-situ since
heap leaching. As heap leaching only recovers around 30 per cent.
to 60 per cent. of the gold and silver content, this material
contains a sufficiently high grade of gold to be economic to
process and recover by agitation leaching.
Precious metal and copper prices
The precious metal and copper prices used in the Cash Flow Model
are the best estimates by management based on all readily available
sources of internal and external information. These prices are
reviewed annually. The estimated gold, silver and copper prices
used for the Cash Flow Model are as follows:
Year
Metal Unit 2021 2022 2023 2024 2025 Average
Gold $/ounce 1,895 1,830 1,800 1,750 1,700 1,795
Silver $/ounce 25 22 21 21 20 22
Copper $/tonne 7,202 7,200 7,100 7,000 7,000 7,100
Discount rate
In calculating the recoverable amount, a nominal pre-tax
discount rate of 12.34 per cent. was applied to the pre-tax cash
flows expressed in nominal terms. This is the Group's estimated
pre-tax average weighted cost of capital ("WACC"). The cost of the
Group's equity is derived from the expected return on investment by
the Group's investors.
Exchange rates
The only exchange rate significant to the Cash Flow Model is the
United State dollar ("US$") to Azeri New Manat ("AZN") exchange
rate. The rate used is US$1 equals AZN1.7. This exchange rate has
been stable following the devaluation in 2015 of the Azeri New
Manat.
Sensitivity analysis
The directors believe there are no reasonably possible changes
in any of the assumptions, except the commodity price and
production volumes, which would lead to an impairment in Mining
Operations. It is estimated that a 11 per cent. decrease in the
gold and silver prices and an average 19 per cent. decrease in
copper price together used in the Cash Flow Model would result in
an impairment of $12.8 million. It is estimated that a 10 per cent.
decrease in production volumes would result in an impairment of
$2.2 million.
Capital commitments
The capital commitments by the Group have been disclosed in note
29.
15 Leases
Right of use assets
Plant and
equipment Land and Total
and buildings
motor vehicles
$000 $000 $000
--------------------- --------------- ------------ --------
Cost
1 January 2020 3,934 483 4,417
Additions - 70 70
Lease modifications (1,577) - (1,577)
--------------------- --------------- ------------ --------
31 December 2020 2,357 553 2,910
Additions 166 541 707
Lease modifications 957 116 1,073
--------------------- --------------- ------------ --------
31 December 2021 3,480 1,210 4,690
--------------------- --------------- ------------ --------
Depreciation
1 January 2020 657 138 795
Charge for the year 477 150 627
Lease modifications (321) - (321)
--------------------- --------------- ------------ --------
31 December 2020 813 288 1,101
Charge for the year 410 113 523
31 December 2021 1,223 401 1,624
--------------------- --------------- ------------ --------
Net book value
31 December 2020 1,544 265 1,809
--------------------- --------------- ------------ --------
31 December 2021 2,257 809 3,066
--------------------- --------------- ------------ --------
Lease liabilities
2021 2020
$000 $000
------------------------- ----- --------
1 January 1,947 3,756
Additions 707 70
Lease modifications 1,073 (1,328)
Interest expense 266 230
Repayment (700) (781)
31 December 3,293 1,947
------------------------- ----- --------
Current liabilities 403 465
Non-current liabilities 2,890 1,482
------------------------- ----- --------
3,293 1,947
------------------------- ----- --------
Amount recognised in the profit and loss account
2021 2020
$000 $000
--------------------------------------------- ------- -----
Depreciation expense of right of use assets 523 627
Gain on lease modifications - (72)
Interest expense 266 230
Expenses relating to short term leases 413 202
1,202 987
--------------------------------------------- ------- -----
The amount of future lease commitments for short-term leases at
31 December 2020 and 2021 are similar to the amounts expensed in
2020 and 2021 respectively as the level of leasing activity has not
changed. As these amounts are not dissimilar to the expense for the
respective years, the amounts of the lease commitments have not
been disclosed.
16 Other financial assets
2021 2020
Non-current $000 $000
---------------------------------------- -------- -------
Derivatives not designated as hedging
instruments
Share warrants 384 -
Financial assets at fair value through
profit or loss
Listed equity investments 2,393 -
2,777 -
---------------------------------------- -------- -------
2021 2020
Current $000 $000
---------------------------------------- ------ ------
Derivatives not designated as hedging
instruments
Forward contract for the purchase of
shares 214 -
Financial assets at fair value through
profit or loss
Listed equity investments - 185
214 185
---------------------------------------- ------ ------
Derivatives not designated as hedging instruments
Forward contract for the purchase of shares
In December 2021, the Group subscribed for 12,600,000 shares in
Libero Copper & Gold Corporation ("Libero"). 5,600,000 shares
were purchased in December 2021, with the remaining 7,000,000
shares purchased in January 2022. Accordingly, the 7,000,000 shares
purchased in January 2022 is a forward contract for the purchase of
shares. The forward contract is measured at fair value.
Share warrants
Each of the 12,600,000 shares purchased in Libero has half a
warrant attached totalling 6,300,000 warrants. The carrying value
is the value of the 6,300,000 warrants valued using a risk-neutral
binomial tree. Quantitative information about the fair value
measurement of the warrants using significant directly or
indirectly observable inputs is as follows:
The methodology and major assumptions to value the share
warrants in Libero are as follows:
Share price of Libero at
at 31 December 2021: CAD$0.54
Exercise price: CAD$0.75
Acceleration condition: CAD$1.00
Lapse date: 22 December 2023
Risk free rate: 0.51 per cent.
Expected volatility: Daily volatility - 7.64 per cent. (annualised -121.25 per cent.)
Probability of
regulatory approval: 95 per cent.
Discount for lack of
marketability: 15.36 per cent.
Exchange rate: US$1.00 = CAD$1.2634
Financial assets at fair value through profit or loss
Listed equity investments
At 31 December 2020, these were 325,000 shares in Conroy Gold
and Natural Resources PLC ("Conroy"), a company listed on the AIM
market of the London Stock Exchange. The shares were sold in 2021
at a loss of $75,000 following the termination of discussions with
Conroy regarding a proposed joint venture.
At 31 December 2021, these were 5,600,000 shares in Libero, a
company which is listed on the Toronto Ventures Stock Exchange in
Canada. On 26 January 2022, the Group purchased a further 7,000,000
shares (see note 31 - "Subsequent events").
17 Trade and other receivables
2021 2020
Non-current assets $000 $000
----------------------------------------------- ------- ------
Advances for purchases 185 -
----------------------------------------------- ------- ------
Current assets
Gold held due to the Government of Azerbaijan 16,094 3,664
VAT refund due 390 671
Other tax receivable 182 256
Trade receivables - fair value* 718 614
Prepayments and advances 2,368 1,625
19,752 6,830
----------------------------------------------- ------- ------
*Trade receivables subject to provisional pricing.
Trade receivables (not subject to provisional pricing) are for
sales of gold and silver to the refiner and are non
interest-bearing and payment is usually received one to two days
after the date of sale.
Trade receivables (subject to provisional pricing) are for sales
of gold and copper concentrate and are non interest-bearing, but as
discussed in accounting policy 4.2, are exposed to future commodity
price movements over the quotational period ("QP") and, hence, fail
the 'solely payments of principal and interest' test and are
measured at fair value up until the date of settlement. These trade
receivables are initially measured at the amount which the Group
expects to be entitled, being the estimate of the price expected to
be received at the end of the QP. Approximately 90 per cent. of the
provisional invoice (based on the provisional price) is received in
cash within one to two weeks from when the concentrate is collected
from site, which reduces the initial receivable recognised under
IFRS 15. The QPs can range between one and four months post
shipment and final payment is due between 30-90 days from the end
of the QP. Refer to accounting policy 4.10 for details of fair
value measurement.
The Group does not consider any trade or other receivable as
past due or impaired. All receivables at amortised cost have been
received shortly after the balance sheet date and therefore the
Group does not consider that there is any credit risk exposure. No
provision for any expected credit loss has therefore been
established in 2020 or 2021.
The VAT refund due at 31 December 2021 and 2020 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 as disclosed in note 20.
18 Inventory
2021 2020
$000 $000
-------------------------------------------- ------- -------
Cost
Finished goods - bullion 2,001 1,313
Finished goods - metal in concentrate 1,079 456
Metal in circuit 12,026 17,226
Ore stockpiles 7,107 9,464
Spare parts and consumables 14,699 12,998
-------------------------------------------- ------- -------
Total current inventories 36,912 41,457
-------------------------------------------- ------- -------
Total inventories at the lower of cost and
net realisable value 36,912 41,457
-------------------------------------------- ------- -------
The Group has capitalised mining costs related to high grade
sulphide ore stockpiled during the year. Such stockpiles are
expected to be utilised as part of the flotation processing.
Inventory is recognised at lower of cost or net realisable
value.
19 Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and held by
the Group within financial institutions that are available
immediately. The carrying amount of these assets approximates their
fair value.
The Group's cash on hand and cash held within financial
institutions at 31 December 2021 (including short-term cash
deposits) comprised $11,000 and $37,442,000 respectively (2020:
$21,000 and $38,827,000).
The Group's cash and cash equivalents are mostly held in United
States Dollars.
20 Trade and other payables
2021 2020
$000 $000
----------------------------------------------- ------- -------
Accruals and other payables 5,999 4,570
Trade creditors 3,629 3,369
Gold held due to the Government of Azerbaijan 16,094 3,664
Payable to the Government of Azerbaijan
from copper concentrate joint sale 2,302 1,217
28,024 12,820
----------------------------------------------- ------- -------
Trade creditors primarily comprise amounts outstanding for trade
purchases and ongoing costs. Trade creditors are non
interest--bearing and the creditor days were 18 (2020: 20).
Accruals and other payables mainly consist of accruals made for
accrued but not paid salaries, bonuses, related payroll taxes and
social contributions and 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 Changes in liabilities arising from financing activities
2021
---------------------------------------------
1 January Cash flows Other 31 December
$000 $000 $000 $000
------------------------ ---------- ----------- ------ ------------
Lease liabilities 1,947 (700) 2,046 3,293
------------------------ ---------- ----------- ------ ------------
Total liabilities from
financing activities 1,947 (700) 2,046 3,293
------------------------ ---------- ----------- ------ ------------
2020
-----------------------------------------------
1 January Cash flows Other 31 December
$000 $000 $000 $000
-------------------------- ---------- ----------- -------- ------------
Current interest-bearing
loans and borrowings 1,688 (1,688) - -
Lease liabilities 3,756 (781) (1,028) 1,947
-------------------------- ---------- ----------- -------- ------------
Total liabilities from
financing activities 5,444 (2,469) (1,028) 1,947
-------------------------- ---------- ----------- -------- ------------
Other in 2020 results mainly from lease modifications. Other in
2021 results mainly from a change in the estimate of the mine
life.
22 Provision for rehabilitation
2021 2020
$000 $000
----------------------------------------- ------- -------
1 January 11,833 10,485
Additions 614 1,330
Accretion expense 377 310
Effect of passage of time and change in
discount rate (902) (292)
----------------------------------------- ------- -------
31 December 11,922 11,833
----------------------------------------- ------- -------
The Group has a liability for restoration, rehabilitation and
environmental costs arising from its mining operations. Estimates
of the cost of this work including reclamation costs, close down
and pollution control are made on an ongoing basis, based on the
estimated life of the mine. This provision represents the net
present value of the best estimate of the expenditure required to
settle the obligation to rehabilitate any environmental
disturbances caused by mining operations. The undiscounted
liability for rehabilitation at 31 December 2021 was $15,883,000
(2020: $13,497,000). The undiscounted liability was discounted
using a risk-free rate of 3.57 per cent. (2020: 3.19 per cent.).
Expenditures on restoration and rehabilitation works are expected
between 2028 and 2030 (2020: between 2023 and 2025).
23 Financial instruments
Financial risk management objectives and policies
The Group's principal financial instruments at 31 December 2021
comprised cash and cash equivalents. The Group also had letters of
credit outstanding during the year ended 31 December 2021 but these
were all settled during the year. The Group may enter into bank and
other loans and letters of credit in the future. 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 2021 and 2020 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 at 31 December 2021 consists
of lease liabilities, 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 also had
letters of credit outstanding during the year ended 31 December
2021 but these were all settled during the year. The Group may
enter into bank and other loans and letters of credit in the
future. The Group has sufficient capital to fund ongoing production
and exploration activities, with capital requirements reviewed by
the Board on a regular basis. Capital has been sourced through
share issues on the AIM, part of the London Stock Exchange, and
loans from banks in Azerbaijan and elsewhere. In managing its
capital, the Group's primary objective is to ensure its continued
ability to provide a consistent return for its equity shareholders
through capital growth. In order to achieve this objective, the
Group seeks to maintain a gearing ratio that balances risk and
returns at an acceptable level and also to maintain a sufficient
funding base to enable the Group to meet its working capital and
strategic investment needs.
The Group is not subject to externally imposed capital
requirements and monitors capital using a gearing ratio, which is
net debt divided by total capital plus net debt. The Group's policy
is to keep the gearing ratio below 70 per cent.
Interest rate risk
The Group's cash deposits are at a fixed rate of interest. The
Group's letters of credit outstanding during the year ended 31
December 2021 were also at a fixed rate of interest. The Group
would expect any future bank and other borrowings and letters of
credit to be at a fixed rate of interest.
The Group manages the risk by maintaining fixed rate
instruments, with approval from the directors required for all new
borrowing facilities.
The Group has not used any interest rate swaps or other
instruments to manage its interest rate profile during 2021 and
2020.
Liquidity risk
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. The Group has access to local
sources of both short and long-term finance should this be required
and has a $15 million standby credit facility with Pasha Bank as a
contingency measure which is available until April 2023 with no
conditions on drawdown to 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 2021
On Less 3 to 1 to >5 Total
demand than 12 5 years $000
$000 3 months months years $000
$000 $000 $000
--------------------------- --------- ---------- -------- ------- ------ ---------
Lease liabilities - 182 547 2,916 122 3,767
Trade and other payables - 28,024 - - - 28,024
-------------------------- ---------- ---------- -------- ------- ------ -------
- 28,206 547 2,916 122 31,791
---------- ---------- -------- ------- ------ -------
Year ended 31 December 2020
On Less 3 to 1 to >5 Total
demand than 12 5 years $000
$000 3 months months years $000
$000 $000 $000
-------------------------- --------- ---------- -------- ------- ------ -------
Lease liabilities - 220 440 1,980 - 2,640
Trade and other payables - 12,820 - - - 12,820
-------------------------- --------- ---------- -------- ------- ------ -------
- 13,040 440 1,980 - 15,460
------------------------------------ ---------- -------- ------- ------ -------
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. The maximum credit risk exposure relating to financial
assets is represented by their carrying value as at the
consolidated statement of financial position date.
The Group has adopted a policy of only dealing with creditworthy
banks and has cash deposits held with reputable financial
institutions. These usually have a lower to upper medium grade
credit rating. Trade receivables consist of amounts due to the
Group from sales of gold and silver and copper and precious metal
concentrates. Sales of gold and silver bullion are made to MKS
Finance SA and Argor Heraeus SA, Switzerland-based gold refineries,
and copper concentrate is sold to Industrial Minerals SA, Trafigura
PTE Ltd and Metal-Kim Metalurgi Ve Kimya Tarim Sanayi Tic Ltd Sti.
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
--------------- ---------------
2021 2020 2021 2020
$000 $000 $000 $000
------------------- ------- ------ --- ------- ------
UK Sterling 277 157 3 195
Azerbaijan Manats 7,448 6,045 1,474 1,085
Other 377 525 152 -
------------------- ------- ------ --- ------- ------
Foreign currency sensitivity analysis
The Group is mainly exposed to the currency of the United
Kingdom (UK Sterling), the currency of the European Union (Euro)
and the currency of the Republic of Azerbaijan (Azerbaijan
Manat).
The following table details the Group's sensitivity to a 9 per
cent., 9 per cent. and 20 per cent. (2020: 10 per cent., 9 per
cent. and 20 per cent.) increase and a 9 per cent., 9 per cent.,
and 3 per cent. (2020: 10 per cent., 10 per cent., and 3 per cent.)
decrease in the United States Dollar against United Kingdom
Sterling, Euro and Azerbaijan Manat, respectively. These are the
sensitivity rates used when reporting foreign currency risk
internally to key management personnel and represents management's
assessment of the reasonably possible change in foreign exchange
rates. The sensitivity analysis includes only outstanding foreign
currency denominated monetary items and adjusts their translation
at the period end for respective change in foreign currency rates.
A positive number below indicates an increase in profit and other
equity where the United States Dollar strengthens by the mentioned
rates against the relevant currency. Weakening of the United States
Dollar against the relevant currency, there would be an equal and
opposite impact on the profit and other equity, and the balances
below would be reversed.
UK Sterling Azerbaijan Euro Impact
impact Manat impact
-------------- ---------------- --------------
2021 2020 2021 2020 2021 2020
$000 $000 $000 $000 $000 $000
----------------------------- ------ ------ ------- ------- ------ ------
Increase - effect on profit
before tax 23 (4) 1,171 992 20 11
Decrease - effect on profit
before tax (23) 4 (176) (149) (21) (12)
----------------------------- ------ ------ ------- ------- ------ ------
Market risk
The Group's activities primarily expose it to the financial
risks of changes in gold, silver and copper prices which have a
direct impact on revenues. The management and board of directors
continuously monitor the spot price of these commodities. The
forward prices for these commodities are also regularly monitored.
The majority of the Group's production is sold by reference to the
spot price on the date of sale. However, the board of directors
will enter into forward and option contracts for the purchase and
sale of commodities when it is commercially advantageous.
A 10 per cent. decrease in gold price in the year ended 31
December 2021 would result in a reduction in revenue of $7.3
million and a 10 per cent. increase in gold price would have the
equal and opposite effect. A 10 per cent. decrease in silver price
would result in a reduction in revenue of $0.05 million and a 10
per cent. increase in silver price would have an equal and opposite
effect. A 10 per cent. decrease in copper price would result in a
reduction in revenue of $1.9 million and a 10 per cent. increase in
copper price would have an equal and opposite effect.
24 Equity
2021 2020
---------------------------- ----------------------------
Number GBP Number GBP
----------------------------- -------------- ------------ -------------- ------------
Authorised
Ordinary shares of 1 pence
each 600,000,000 6,000,000 600,000,000 6,000,000
----------------------------- -------------- ------------ -------------- ------------
Shares $000 Shares $000
----------------------------- -------------- ------------ -------------- ------------
Ordinary shares issued
and fully paid
1 January and 31 December 114,392,024 2,016 114,392,024 2,016
----------------------------- -------------- ------------ -------------- ------------
Fully paid ordinary shares carry one vote per share and carry
the right to dividends.
Share options
The Group has share option scheme under which options to
subscribe for the Company's shares have been granted to certain
executives and senior employees (note 25).
Merger reserve
The merger reserve was created in accordance with the merger
relief provisions under Section 612 of the Companies Act 2006 (as
amended) relating to accounting for Group reconstructions involving
the issue of shares at a premium. In preparing Group consolidated
financial statements, the amount by which the base value of the
consideration for the shares allotted exceeded the aggregate
nominal value of those shares was recorded within a merger reserve
on consolidation, rather than in the share premium account.
25 Share-based payment
The Group operates a share option scheme for directors and
senior employees of the Group. The period during which share
options can be exercised is determined by the board of directors
for each individual grant of share options subject to exercise not
taking place later than the tenth anniversary of their issue.
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:
2021 2020
------------------ -------------------
WAEP WAEP
Number pence Number pence
---------------------------- --------- ------- --------- --------
I January - - - -
Granted during the year 220,000 - - -
Outstanding at 31 December 220,000 115 - -
---------------------------- --------- ------- --------- --------
Exercisable at 31 December - - - -
---------------------------- --------- ------- --------- --------
The weighted average remaining contractual life of the share
options outstanding at 31 December 2021 was 6 years and their
exercise price was 115 pence.
On 13 December 2021, 220,000 share options were granted with a
weighted average fair value of GBP1.15
Share options are valued using the assumption that they will
only be exercised if the share price prevailing at the date of
exercise is equal to, or above, the price at which the options were
granted. This methodology approximates to valuing the share options
using a Black-Scholes model.
The Group recognised total expense related to equity-settled
share-based payment transactions for the year ended 31 December
2021 of $12,000 (2020: $nil).
26 Share premium account
2021 2020
$000 $000
--------------------------- ------- ------
1 January and 31 December 33 33
--------------------------- ------- ------
27 Distributions made and proposed
2021 2020
$000 $000
-------------------------------------------- ------- -------
Cash dividends on ordinary shares declared
and paid
Final dividend for 2019: 4.5 US cents per
share - 5,153
Interim dividend for 2020: 4.5 US cents
per share - 5,158
Special dividend for 2020: 1.5 US cents 1,711 -
per share
Final dividend for 2020: 3.5 US cents per 4,010 -
share
Interim dividend for 2021: 4.5 US cents 5,197 -
per share
-------------------------------------------- ------- -------
10,918 10,311
-------------------------------------------- ------- -------
Proposed dividends on ordinary shares
Final dividend for 2021: 3.5 US cents per 4,010 -
share*
-------------------------------------------- ------- -------
Cash dividends are declared in US dollars but paid in pounds
Sterling. Dividends are converted into pounds Sterling using a
five-day average of the sterling closing mid-price published by the
Bank of England at 4pm each day for a specified week prior to
payment of the dividend.
The rates used to convert the dividends from US dollars into
pounds Sterling for the dividends above which have been paid and
the corresponding sterling amount of dividend are as follows:
Conversion Dividend
rate pence
------------------------------------------- ----------- ---------
Final dividend for 2019: 4.5 US cents per
share 1.2591 3.5739
Interim dividend for 2020: 4.5 US cents
per share 1.2987 3.4651
Special dividend for 2020: 1.5 US cents
per share 1.3932 1.0767
Final dividend for 2020: 3.5 US cents per
share 1.3805 2.5354
Final dividend for 2021: 4.5 U S cents
per share 1.3662 3.2937
------------------------------------------- ----------- ---------
*The proposed final dividend for the year ending 31 December
2021 is subject to approval by shareholders at the annual general
meeting for 2022 at a rate to be announced. It has not been
recognised as a liability in the Group statement of financial
position at 31 December 2021.
28 Subsidiary undertakings
Anglo Asian Mining PLC is the parent and ultimate parent of the
Group.
The Company's subsidiaries at 31 December 2021 are as
follows:
Percentage
Registered Primary of holding
Name address place of business per cent.
-------------------------------- ---------------- -------------------- ------------
England and
Anglo Asian Operations Limited Wales United Kingdom 100
British Virgin
Holance Holdings Limited Islands Azerbaijan 100
Anglo Asian Cayman Limited Cayman Islands Azerbaijan 100
R.V. Investment Group Services Delaware,
LLC USA Azerbaijan 100
Azerbaijan International
Mining Company Limited Cayman Islands Azerbaijan 100
-------------------------------- ---------------- -------------------- ------------
There has been no change in subsidiary undertakings since 1
January 2021.
29 Contingencies and commitments
The Group undertakes its mining operations in the Republic of
Azerbaijan pursuant to the provisions of the Agreement on the
Exploration, Development and Production Sharing for the Prospective
Gold Mining Areas: Gedabek, Gosha, Ordubad Group (Piazbashi,
Agyurt, Shakardara, Kiliyaki), Soutely, Kyzilbulag and Vejnali
deposits dated year ended 20 August 1997 (the "PSA"). The PSA
contains various provisions relating to the obligations of the R.V.
Investment Group Services LLC ("RVIG"), a wholly owned subsidiary
of the Company. The principal provisions are regarding the
exploration and development programme, preparation and timely
submission of reports to the Government, compliance with
environmental and ecological requirements. The Directors believe
that RVIG is in compliance with the requirements of the PSA. The
Group has announced a discovery on Gosha Mining Property in
February 2011 and submitted the development programme to the
Government according to the PSA requirements, which was approved in
2012. In April 2012 the Group announced a discovery on the Ordubad
Group of Mining Properties and submitted the development programme
to the Government for review and approval according to the PSA
requirements. The Group and the Government are still discussing the
formal approval of the development programme.
The initial period of the mining licence for Gedabek was until
March 2022. The Company has the option to extend the licence for
two five-year periods (ten years in total) conditional upon
satisfaction of certain requirements in the PSA. The first of the
five year extensions was obtained by the Company in April 2021 and
accordingly the mining licence is now to March 2027 with a further
five year extension permitted.
RVIG is also required to comply with the clauses contained in
the PSA relating to environmental damage. The Directors believe
RVIG is in compliance with the environmental clauses contained in
the PSA.
30 Related party transactions
Trading transactions
During the years ended 31 December 2020 and 2021, there were no
trading transactions between Group companies.
Other related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note. Transactions between the Group and other
related parties are disclosed below.
a) Remuneration paid to directors is disclosed above.
b) During the year ended 31 December 2021, total payments of
$715,000 (2020: $658,000) were made for processing equipment and
supplies purchased from Proses Muhendislik Danismanlik Inshaat ve
Tasarim Anonim Shirket, an entity in which the Vice President of
technical services of Azerbaijan International Mining Company has a
direct ownership interest.
At 31 December 2021 there is a payable in relation to the above
related party transaction of $157,000 (2020: $39,000).
c) During the year ended 31 December 2021, total payments of
$1,489,000 (2020: $2,244,000) were made for processing equipment
and supplies purchased from F&H Group LLC "F&H"), an entity
in which the Vice President of technical services of Azerbaijan
International Mining Company has a direct ownership interest.
At 31 December 2021 there is a payable in relation to the above
related party transaction of $862,000 (2020: $249,000).
All of the above transactions were made on arm's length
terms.
31 Subsequent events
Libero Copper & Gold Corporation ("Libero")
On 22 December 2021, the Company entered into a subscription
agreement to acquire 19.9 per cent. of Libero by way of a private
placement. The subscription agreement was for 12,600,000 new shares
at CAN 50 cents per share. 5,600,000 shares were acquired
immediately for CAN$2.8 million ($2.2 million). The subscription
for the remainder of the shares required the regulatory approval of
the TSX Venture Exchange ("TSXV") in Canada. This approval was
granted on 19 January 2022 and on 26 January 2022, the Company
acquired the remaining 7,000,000 shares at CAN 50 cents per share
for CAN$3.5 million ($2.8 million). Libero is quoted on the TSXV
and both tranches of shares were admitted to the exchange following
issue.
On 26 January 2022, Michael Sununu, a director of the Group was
appointed as a director of Libero and the Group's interest in
Libero was increased to 19.8 per cent.
**ENDS**
Notes:
Anglo Asian Mining plc (AIM:AAZ) is a gold, copper and silver
producer in Central Asia with a broad portfolio of production and
exploration assets in Azerbaijan. The Company produced 64,610 gold
equivalent ounces ("GEOs") for the year ended 31 December 2021.
In September 2021, the Company announced a transaction with the
Government of Azerbaijan which grants it three additional
concessions with a combined area of 882 square kilometres,
including the Garadagh porphyry copper deposit, with a Soviet
classified resource of over 300,000 tonnes of copper. The
transaction is subject to ratification by the parliament of
Azerbaijan.
In December 2021, the Company completed a private placement to
acquire 19.9 per cent. of Libero Copper & Gold Corporation
("Libero"). Libero is listed on the TSX Venture Exchange in Canada
and owns, or has the option to acquire, several copper exploration
properties in North and South America, including Mocoa in Colombia,
one of the world's largest undeveloped copper-molybdenum
resources.
https://www.angloasianmining.com/
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FR AFMMTMTJBTLT
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May 17, 2022 02:01 ET (06:01 GMT)
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