REG - Anglo Asian Mining - 2020 Full year results
Anglo Asian Mining plc / Ticker: AAZ / Index: AIM / Sector: Mining
20 May 2021
Anglo Asian Mining PLC
2020 Full year results
Record turnover of $102.1 million and an increase in profit before tax to $35.7 million
Cash of $38.8 million and no bank debt at 31 December 2020
Final dividend of $0.035 per ordinary share giving a total dividend of $0.095 per ordinary share for 2020 (2019: $0.08 per share)
Anglo Asian Mining PLC ("Anglo Asian" or the "Company"), the AIM listed gold, copper and silver producer focused in Azerbaijan, is pleased to announce its final audited results for the year ended 31 December 2020 ("FY 2020"). Note that all references to "$" are to United States dollars and "£" to United Kingdom pounds sterling.
Financial Highlights
Record total revenues
· Record total revenues in 2020 of $102.1 million representing an 11 per cent. year-on-year ("y-o-y") increase (2019: $92.1 million)
· Profit before taxation for 2020 of $35.7 million (2019: $30.1 million) representing a y-o-y increase of 19 per cent.
· Strong operating cash flow before movements in working capital of $52.8 million (2019: $50.5 million) driven by increased metal prices and the low cost of production
· Cash of $38.8 million at 31 December 2020 (31 December 2019: net cash of $21.2 million)
o Company became bank debt free in early 2020
o Company paid dividends of $10.3 million in 2020
· Final dividend declared in respect of FY 2020 of $0.035 per ordinary share payable on 29 July 2021 subject to approval at the Annual General Meeting giving a FY 2020 total dividend of $0.095 per ordinary share (FY 2019: $0.08 per ordinary share)
o Dividend maintained at the same level as 2019 (excluding special dividend of $0.015 paid in 2020) to retain capital given the exceptional development opportunities in its six contract areas
Operational Highlights
Gedabek licence extended for a further five years
· First of the two five-year permitted extensions of the production sharing agreement for Gedabek granted in April 2021
FY 2020 production in line with expectations
· 67,249 gold equivalent ounces ("GEOs") produced:
o Gold production for FY 2020 of 56,864 ounces (FY 2019: 70,098 ounces)
o Copper production for FY 2020 increased by 17 per cent. y-o-y to 2,591 tonnes (FY 2019: 2,210 tonnes)
o Silver production for FY 2020 of 122,962 ounces (FY 2019: 159,356 ounces)
· FY 2020 gold bullion sales of 48,650 ounces (FY 2019: 53,992 ounces) completed at an average of $1,777 per ounce (FY 2019: $1,410 per ounce)
· FY 2020 copper concentrate shipments to the customer totalled 11,839 dry metric tonnes ("dmt") with a sales value of $17.7 million (excluding Government of Azerbaijan production share) (FY 2019: 10,281 dmt with a sales value of $16.7 million)
· All-in sustaining cost ("AISC") of gold production increased to $702 per ounce (2019: $591 per ounce) due to lower production - AISC remains in the lowest quartile
· Total production target for FY 2021 between 64,000 and 72,000 GEOs
Chairman's statement
The year under review has been without precedent for Anglo Asian. It commenced with the COVID-19 pandemic and ended with the conflict between Azerbaijan and Armenia. The Company's highest priority throughout the year continued to be the safety and welfare of our employees. Despite the many challenges, I am very pleased to report that the Company demonstrated its resilience by ending this exceptionally difficult year financially stronger and better positioned for growth than at the beginning.
The Group's cash generation during the year was excellent and the Company ended 2020 with cash of $39 million and no bank debt. To ensure the Company retains sufficient capital to pursue its exciting development opportunities in all six contract areas, the board has decided to maintain the dividend (excluding the special dividend for 2020) at the same level as 2019 of US 8.0 cents per share. Accordingly, I am very pleased to declare a final dividend in respect of 2020 of US 3.5 cents per share. This will give a total dividend for the year (including the special dividend for 2020) of US 9.5 cents per share.
I am also very pleased to report that in April 2021, the first of the two five-year permitted extensions of the production sharing agreement for Gedabek was granted. This extension demonstrates the Company's excellent relations with the Government of Azerbaijan.
COVID-19 pandemic and the conflict between Azerbaijan and Armenia
The COVID-19 pandemic, commencing from March 2020, severely restricted our operations in Azerbaijan. Restrictions included either curtailing or suspending domestic and international travel which affected our supply chain and movement of staff. The operations of many local businesses were suspended for much of the year. Our gold refiners in Switzerland also halted operations for a short period.
In September 2020, conflict broke out between Azerbaijan and Armenia, which thankfully ended in November with a ceasefire agreement. Martial law was imposed throughout Azerbaijan during the period of the conflict together with a night-time curfew. Many social media and other internet services were either restricted or blocked completely. Some company employees were also conscripted for military service.
The COVID-19 pandemic and the conflict with Armenia were extremely demanding for employees of the Company, many of whom faced new challenges, often daily. Extra health and safety measures had to be quickly put in place and many actions taken to secure our operations. It is a tribute to our employees' endeavours that the Company's operations were maintained throughout the year with only limited disruption.
The restrictions arising from COVID-19 have remained in various forms throughout the year. They have been slowly eased from February 2021 and most restrictions within Azerbaijan have been lifted by now. However, international travel to and from Azerbaijan is still limited, but shipping gold doré to Switzerland by scheduled flights was recommenced in autumn 2020.
Financial results and dividend
The Company's financial performance in the year was highly satisfactory, with revenues of $102 million, compared to $92 million in 2019. Revenues were boosted by increased metal prices, with gold sales averaging $1,777 per ounce over the year, compared to $1,410 per ounce in 2019. The all-in sustaining cost of gold produced increased to $702 per ounce compared to $591 per ounce in 2019 due to the lower production as many costs are either fixed or semi-fixed. The Company ended the year with a very strong balance sheet with cash of $39 million and no bank debt after having paid $10 million of dividends in the year.
The Company is committed to delivering returns to its shareholders and is proud to be one of the few mining companies listed on the London Alternative Investment Market which pays dividends. I am therefore delighted to announce a final dividend for the year ended 31 December 2020 of US 3.5 cents per share, giving a total dividend for 2020 of US 9.5 cents per share. This maintains the dividend at the same level as 2019, excluding the special dividend of US 1.5 cents per share paid in March 2021.
Gedabek site - operational review and production in 2020
In 2020, a total of 67,249 gold equivalent ounces were produced at Gedabek. Production was lower than 2019 because the Ugur open pit mine, which was providing higher grade ore, was mined out during the year. The COVID-19 pandemic and the conflict between Azerbaijan and Armenia also affected our production, due to difficulties in rotating site employees and disruptions to our supply chains. It is not feasible to quantify accurately the production lost but the directors believe it was not very significant.
The health and safety of all of our employees and contractors is of the highest importance to Anglo Asian Mining and testament to this was reaching in July the significant milestone of one million man hours worked without a lost time injury ("LTI"). We are extremely proud of this achievement and will continue to improve our safety procedures as we work towards the target of two million LTI-free man hours. COVID-19 testing is freely available in Azerbaijan and employees and contractors are regularly tested. Social distancing and other measures are in place in line with best practice to endeavour to keep all our employees safe. A new, purpose built, staff canteen was also opened in the year to improve the wellbeing of our employees at Gedabek.
During the year, a new portal was opened and a decline was developed into the ore body below the Gedabek main open pit. Underground mining of the richer ore below the open pit is now being carried out. The decline was also connected to the Gadir underground mine tunnelling to provide the required number of egresses for safe mining.
An application for the first of the two, contractually allowed, five-year extensions of the production sharing agreement for the Gedabek contract area was submitted during the year. The extension was granted by the Government of Azerbaijan in April 2021.
The Company increased the capacity of its tailings dam by 1.4 million cubic metres by raising the wall of the dam by six metres. It now has sufficient capacity until the end of 2022. This will be the last raise of the wall as the dam has reached its maximum design height. A potential site for a new tailings dam has been identified and geotechnical investigations are on-going.
Mineral resources and geological exploration
Sustainable production is an essential part of the Company's strategy, together with a comprehensive exploration programme to identify growth opportunities. We are now in the third year of our internally-funded, three-year exploration programme, which has been a notable success. In 2020, we reported updated JORC statements for our mines, and exploration resulted in the discovery of Zafer, an exciting copper-gold mineral occurrence within the Gedabek contract area.
The updated resources and reserves for the Gedabek open pit showed 284,000 ounces of gold and 26,000 tonnes of copper, of ore reserves remaining. The ore reserves of the Gadir underground mine are 49,000 ounces of gold and 191 tonnes of copper. Exploration is continuing across the Gedabek contract area to increase resources and reserves.
The Zafer copper-gold deposit, conveniently located only 1.5 kilometres from the Gedabek processing plant, is an exciting discovery. The thickness and style of its mineralisation is consistent with porphyry-type mineralisation and a preliminary estimate of the deposit size is about six million tonnes of mineralised rock. An intensive drilling programme is currently underway at Zafer to produce JORC resource and reserve estimates, with a maiden resource expected to be available in June 2021.
Exploration work at the Avshancli mineral district indicates a free-digging central zone with the possibility of mining from an open pit, beginning late this year or early 2022. At Gosha, drilling continued close to the existing underground mine and significant gold grades were encountered. It was not possible to drill at Ordubad in 2020 due to COVID-19 restrictions, although some trench sampling was carried out. It is planned to ramp up exploration in 2021 at Ordubad.
Newly restored contract areas
The restoration of the three contract areas in the formerly occupied territories and Karabakh opens up further opportunities for the Company. The contract areas cover a total of 900 square kilometers and contain existing mines and have exceptional exploration potential. Our production sharing agreement is in good standing and will be reset to "year zero" for each of these contract areas once access has been granted. The political situation is still developing and the Company is closely monitoring events. The Government of Azerbaijan has also commenced building infrastructure in the areas such as roads, railways and airports.
A limited site visit to the Vejnaly contract area has been undertaken. However, due to safety and security concerns, access to Vejnaly and the other restored areas by Company personnel remains somewhat restricted. The determination of their final status continues to be reviewed by the Government of Azerbaijan.
Production guidance for 2021
In 2021, the Company will only be mining from its existing mines and production is forecast to decrease, mainly due to the exhaustion of the Ugur open pit in 2020. We have therefore set a production target of 64,000 to 72,000 gold equivalent ounces for 2021. This includes up to 54,000 ounces of gold and between 2,500 and 2,800 tonnes of copper. We believe our continued exploration programme and other initiatives will result in increased in production in future years.
This 2021 guidance does not include any production from the restored contract areas. Whilst the situation is currently unclear, the Company believes there may be potential for a small amount of production from ore stockpiled at Vejnaly.
Growth strategy
The Group is now vigorously pursuing various opportunities for future growth. We are planning to start production from our new discoveries, possibly commencing with a small open pit mine in the central area of Avshancli-1 which may commence late this year, or early next year. Slightly longer term, Zafer has the potential for a major new underground mine at Gedabek. We are also currently in discussions with the Government of Azerbaijan regarding acquisition of new concessions in the country and we hope to be able to update our shareholders about these in the near future.
Negotiations with Conroy Gold and Natural Resources plc for a joint venture were terminated in early 2021. It had become apparent during the negotiations that the Company had a very different vision for the joint venture to that of Conroy. We still have ambitions to develop mines outside of Azerbaijan and continue to look at other opportunities which will add value for our shareholders.
We believe the restored contract areas and any additional concessions in Azerbaijan offer potential for growth. In addition to resuming operation of the existing mines, significant exploration potential exists on known geological trends in the restored contract areas.
Board of Director changes
Michael Sununu was appointed as a non-executive director in December 2020 following the departure from the board of Richard Round. I warmly welcome Michael to the board and would also like to thank Richard for his work and commitment to the Company over many years.
Annual General Meeting for 2021
The directors have very reluctantly taken the decision to again convene the annual general meeting for 2021 as a "closed meeting" with only the necessary quorum of two members. Whilst all United Kingdom COVID-19 restrictions are planned to end shortly before our annual general meeting, there is a possibility this could be postponed. Further, four out of five directors and the company secretary would need to travel to the United Kingdom for the meeting, which may still not be possible in late June.
The Company has given serious consideration to holding a virtual "hybrid" annual general meeting. However, these are prone to technical problems due to the variable reliability of the internet and they do not offer face to face interaction with shareholders. The directors have therefore decided such a meeting would not offer sufficient benefits to be worthwhile.
In accordance with the latest guidance and to ensure best practice, all voting will be by proxy and the chairman of the meeting should be appointed as the proxy. As last year, a facility will be established for shareholders to submit questions to the board prior to the annual general meeting via the Company's website. The Company will publish all relevant questions together with the Company's response, prior to the closing date for submission of proxy voting cards.
Shareholders are strongly encouraged to vote by proxy. However, shareholders should ensure they appoint the chairman of the meeting as their proxy as other individuals will not be allowed to attend the meeting.
Outlook
The Company's performance in 2020 has been a considerable achievement. Our operational competence and financial discipline leaves the Company in an excellent situation. A strong balance sheet and available capital ensures the continued future development of Anglo Asian Mining.
Geological exploration is expected to yield further positive results with a focus on our five discoveries, particularly the exciting Zafer discovery. We have also begun to evaluate our restored contract areas with a site visit to Vejnaly. We are also in discussions to acquire new concessions in Azerbaijan.
As a part of our plan for sustained growth and longevity, we continue to assess expansion opportunities both in Azerbaijan and other countries that will complement our existing operations and deliver substantial shareholder value.
Anglo Asian Mining is a very well-established, low cost, debt free, dividend paying, gold, copper and silver producer in the junior mining sector. The past year has more than amply demonstrated the Company's resilience and financial performance whilst pursuing growth opportunities.
Appreciation
The COVID-19 pandemic and conflict with Armenia provided great challenges to all our staff in 2020. I would like to take this opportunity to thank the employees of Anglo Asian Mining, our partners, the Government of Azerbaijan and our advisors for their continued support. Our thoughts are also with the family of our employee who lost his life in the conflict. 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
19 May 2021
Dividend
A final dividend of US$0.035 per share will be paid gross in respect of the year ended 31 December 2020 to shareholders on 29 July 2021 that are on the shareholders record at the record date of 2 July 2021 subject to approval of the shareholders at the Company's Annual General Meeting on 29 June 2021. The shares will go ex-dividend on 1 July 2021. 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 5 to 9 July 2021.
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 2020.
The Company's Section 172 (1) Statement is included within the strategic report below.
Market Abuse (MAR) Disclosure
Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.
For further information please visit www.angloasianmining.com or contact:
Reza Vaziri
Anglo Asian Mining plc
Tel: +994 12 596 3350
Bill Morgan
Anglo Asian Mining plc
Tel: +994 502 910 400
Stephen Westhead
Anglo Asian Mining plc
Tel: +994 502 916 894
Ewan Leggat
SP Angel Corporate Finance LLP
Nominated Adviser and Broker
Tel: +44 (0) 20 3470 0470
Adam Cowl
SP Angel Corporate Finance LLP
Tel + 44 (0) 20 3470 0470
Megan Ray
Blytheweigh Financial
Tel: +44 (0) 20 7138 3224
Competent Person Statement
The information in the announcement that relates to exploration results, minerals resources and ore reserves is based on information compiled by Dr Stephen Westhead, who is a full-time employee of Anglo Asian Mining with the position of Director of Geology & Mining, who is a Fellow of The Geological Society of London, a Chartered Geologist, Fellow of the Society of Economic Geologists, Member of The Institute of Materials, Minerals and Mining and a Member of the Institute of Directors.
Stephen Westhead has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Stephen Westhead consents to the inclusion in the announcement of the matters based on his information in the form and context in which it appears.
Stephen Westhead has sufficient experience, relevant to the style of mineralisation and type of deposit under consideration and to the activity that he is undertaking, to qualify as a "competent person" as defined by the AIM rules. Stephen Westhead has reviewed the resources and reserves included in this announcement.
Strategic report
Principal activities
The principal activity of Anglo Asian Mining PLC (the "Company") is that of a holding company and a provider of support and management services to its main operating subsidiary R.V. Investment Group Services LLC. The Company, together with its subsidiaries (the "Group"), owns and operates gold, silver and copper producing properties in the Republic of Azerbaijan ("Azerbaijan"). It also explores for and develops other potential gold and copper deposits in Azerbaijan.
The Group has 1,962 square kilometres of land in western Azerbaijan including Karabakh under concession divided into six separate parcels of land called contract areas. This is approximately 2.5 per cent. of the territory of Azerbaijan. Three of the contract areas ("Active Contract Areas") have been exploited since inception of the business and are at various stages of development:
· Gedabek contract area ("Gedabek"). This is 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 to produce gold doré and copper, silver and gold concentrates are also located at Gedabek.
· Gosha contract area ("Gosha"). This is located approximately 50 kilometres from Gedabek and is the location of a small, narrow vein gold and silver mine.
· Ordubad contract area ("Ordubad"). An early-stage gold and copper exploration project located in Nakhchivan, south-west Azerbaijan.
In addition to the Active Contract Areas, the Group has three contract areas ("Restored Contract Areas") which were restored to the Group following the cessation of the conflict between Azerbaijan and Armenia in 2020. The Group will commence exploiting these contract areas as soon as access is obtained and other conditions permit.
· Soutely contract area ("Soutely"). Situated in the Kalbajar district of Azerbaijan and location of the Soyudlu (formerly "Zod") gold and silver mine.
· Kyzlbulag contract area ("Kyzlbulag"). Situated in Karabakh.
· Vejnaly contract area ("Vejnaly"). Situated in the Zangilan district of Azerbaijan and hosts the Vejnaly deposit.
Overview of 2020 and 2021 production target
In 2020, the Company continued its strategy to increase shareholder value by progressing the development of Anglo Asian into a mid-tier gold, copper and silver miner. The key pillars of the strategy are as follows:
Add production in the medium term
· Increase production from new discoveries at Gedabek with potential production scheduled to start in late 2021 or 2022.
· Commence production from mines in the Restored Contract Areas.
Longer-term development
· Develop the large amount of exploration territory under concession including Gosha, Ordubad and the Restored Contract Areas.
· Obtain new concessions in Azerbaijan.
· Pursue any opportunities outside of Azerbaijan which it believes can be made commercially successful.
In November 2020, the ore resource and reserve statements in accordance with the JORC Code (2012) were published for all Company mines. The Company's three-year geological exploration programme, which commenced in 2018, has yielded very positive results with many new targets and potential deposits identified. In early 2021, the Group announced the discovery of "Zafer" at Gedabek. This is a significant copper-gold mineral occurrence.
The Group has a production target for the year to 31 December 2021 of 48,000 ounces to 54,000 ounces of gold and 2,500 tonnes to 2,800 tonnes of copper. The total production target for the year to 31 December 2021 expressed as gold equivalent ounces ("GEOs") is between 64,000 GEOs and 72,000 GEOs, compared to total production for the year to 31 December 2020 of 67,249 GEOs. Silver and copper production were converted into GEOs using the following budget metal prices:
Price of metal
Gold equivalent ounces of metal
Metal
Unit
Actual
31 December 2020
$
Budget 2021
$
Actual
31 December 2020
Ounces
Budget
2021
Ounces
Gold
per ounce
1,893.66
1,650.00
1.000
1.000
Silver
per ounce
26.30
25.00
0.014
0.015
Copper
per tonne
7,741.50
8,700.00
4.088
5.273
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, its Gadir and Gedabek underground mines and the Company's processing facilities. Ore was also mined in 2020 from the Ugur mine, which is now nearing depletion.
Gold was first poured from ore mined from the Gedabek open pit and processed by heap leaching in May 2009, with production commencing fully in September 2009. Copper and precious metal concentrate production began in 2010 when the Sulphidisation, Acidification, Recycling and Thickening ("SART") plant was commissioned. The Group's agitation leaching plant commenced production in 2013 and its flotation plant in 2015.
Underground extraction of ore at Gedabek started in June 2015 when the Gadir mine was opened. In July 2018, a second crusher line was added to enable independent operation of the agitation leaching plant and the flotation plant. In 2020, a decline was developed into the ore body beneath the Gedabek open pit and underground mining was commenced (the "Gedabek underground mine").
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 were published on 2 November 2020. A summary of these estimates is as follows (amounts are in-situ before recovery):
· Mineral resources for Gedabek open pit:
o Total mineral resources of 735,000 ounces of gold and 41,200 tonnes of copper.
o Mineral resources now include material contained in stockpiles.
o Zinc mineral resources now also estimated to enable the technical implications of higher zinc grades at depth to be understood.
· Revised mineral resources for Gadir underground mine:
o Total mineral resources of 267,000 ounces of gold and 2,183 tonnes of copper.
· Combined mineable ore reserves for the Gedabek open pit and Gadir underground mine:
o Gedabek open pit of 284,000 ounces of gold and 26,000 tonnes of copper.
o Gadir underground mine of 49,000 ounces of gold and 191 tonnes of copper.
· Mine life for the Gedabek open pit of eight years:
o Mine life based on only surface mining from the Gedabek open pit.
o Underground mining from beneath the Gedabek open pit will shorten the mine life.
· A residual mineral study of the Ugur open pit showed that, as expected, the mine is nearing depletion.
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 amount of remaining mineable material for the Ugur open pit at 30 June 2020.
Table 1 - Gedabek open pit mineral resources estimate at 30 June 2020
MINERAL RESOURCES (cut-off grade of 0.2 g/t gold)
Mineral
Resources
Tonnage
(Mt)
In-situ grades
Contained metal
Gold
grade
(g/t)
Copper
grade
(%)
Silver
grade
(g/t)
Zinc grade
(%)
Gold
(koz)
Copper
(kt)
Silver
(koz)
Zinc
(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
(Mt)
Gold
grade
(g/t)
Tonnage
(Mt)
Copper
grade
(%)
Tonnage
(Mt)
Silver
grade
(g/t)
Tonnage
(Mt)
Zinc grade
(%)
Gold
(koz)
Copper
(kt)
Silver
(koz)
Zinc
(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 Resources
Tonnage
(Mt)
Stockpile grades
Contained metal
Gold
grade
(g/t)
Copper
grade
(%)
Silver
grade
(g/t)
Gold
(koz)
Copper
(kt)
Silver
(koz)
Agitation leach
0.02
1.87
0.24
17.79
1
0
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
(Mt)
In-situ grades
Contained metal
Gold
grade
(g/t)
Copper
grade
(%)
Silver
grade
(g/t)
Gold
(koz)
Copper
(kt)
Silver
(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
0
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 RESERVE
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)
Mineral
Resources
Tonnage
(kt)
In-situ grades
Contained metal
Gold
grade
(g/t)
Copper
grade
(%)
Silver
grade
(g/t)
Zinc grade
(%)
Gold
(koz)
Copper
(kt)
Silver
(koz)
Zinc
(kt)
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
(Mt)
In-situ grades
Contained metal
Gold
grade
(g/t)
Copper
grade
(%)
Silver
grade
(g/t)
Gold
(koz)
Copper
(kt)
Silver
(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 - remaining mineable material of the Ugur open pit at 30 June 2020
MINEABLE MATERIAL (gold cut-off grade of > = 0.3 g/t)
Tonnage
(Mt)
In-situ grades
Contained metal
Gold
grade
(g/t)
Silver
grade
(g/t)
Gold
(koz)
Silver
(koz)
Mineable
Material
0.28
0.8
3.59
7.15
32.3
MINEABLE MATERIAL (gold cut-off grade of > = 0.2 g/t)
Mineable
Material
0.38
0.65
3.33
7.94
40.7
Some of the totals above may not add due to rounding
Previously heap leached ore
Initial gold production at Gedabek from 2009 to 2013 was only by heap leaching crushed ore as the agitation leaching of ore only commenced following completion 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 material contains significant amounts of gold. The Company estimates it has about 1.7 million tonnes of previously heap leached material with an estimated average grade of 1.35 grammes of gold per tonne at the end of 2020.
Mining operations
The principal mining operation at the Gedabek contract area is conventional open-cast mining using truck and shovel from the Gedabek open pit (which comprises several contiguous smaller open pits). Ore is first drilled and blasted and then transported either to a processing facility or to a stockpile for storage. The mining activities of blast-hole drilling, and haulage of ore and waste rock, are carried out by contractors. Blasting and other mining activities are carried out by the Company.
Ore is also mined from the Gadir and Gedabek underground mines. Table 6 shows the ore mined in the year ended 31 December 2020 from all the Company's mines at Gedabek and Gosha.
Table 6 - Ore mined at Gedabek from all mines (including Gosha) for the year ended 31 December 2020
Total ore mined
12 months to
31 December 2020
Ore mined
Average
gold grade
Mine
(tonnes)
(g/t)
Gedabek open pit
1,303,956
0.94
Ugur - open pit
505,426
0.95
Gadir - underground
125,001
2.53
Gosha - underground
6,024
2.58
Gedabek - underground
16,376
2.37
Total
1,956,783
1.06
Processing operations
Ore is processed at Gedabek to produce either gold doré (an alloy of gold and silver with small amounts of impurities, mainly copper) or a copper and precious metal concentrate.
Gold doré is produced by cyanide leaching. Initial processing is to leach (i.e. dissolve) the precious metal (and some copper) in a cyanide solution. This is done by various methods:
1 Heap leaching of crushed ore. Crushed ore is heaped into permeable "pads" onto which is sprayed a solution of cyanide. The solution dissolves the metals as it percolates through the ore by gravity and it is then collected by the impervious base under the pad.
2 Heap leaching of run of mine ("ROM") ore. The process is similar to heap leaching for crushed ore, except the ore is not crushed, instead it is heaped into pads as received from the mine (ROM) without further treatment or crushing. This process is used for very low grade ores.
3 Agitation leaching. Ore is crushed and then milled in a grinding circuit. The finely ground ore is placed in stirred (agitation) tanks containing cyanide solution and the contained metal is dissolved in the solution. Depending on the composition of the ore, an option is available to process the finely ground ore through the flotation plant prior to, or after treatment by the agitation leaching plant. However, since installation of the second crusher line for the flotation plant in 2018, the two plants have been operating independently. Any coarse, free gold is separated using a centrifugal-type Knelson concentrator.
Slurries produced by the above processes with dissolved metal in solution are then transferred to a resin-in-pulp ("RIP") plant. A synthetic ion exchange resin, in the form of small spherical plastic beads designed to absorb gold selectively over copper and silver, is mixed with the leach slurry or "pulp". After separation from the pulp, the gold-loaded resin is treated with a second solution, which "strips" (i.e. desorbs) the gold, plus the small amounts of absorbed copper and silver, transferring the metals from the resin back into solution. The gold and silver dissolved in this final solution are recovered by electrolysis and are then smelted to produce the doré metal, comprising an alloy of gold and silver. The stripped resin is recycled back to the RIP plant, to be reloaded with gold.
Copper and precious metal concentrates are produced by two processes, SART processing and flotation.
1 Sulphidisation, Acidification, Recycling and Thickening ("SART"). The cyanide solution after gold absorption by resin-in-pulp processing is transferred to the SART plant. The pH of the solution is then changed by the addition of reagents. This precipitates the copper from the solution in the form of a finely divided copper sulphide concentrate containing silver and minor amounts of gold. The process also recovers cyanide from the solution, which is recycled back to leaching.
2 Flotation. Flotation is carried out in a separate flotation plant. Feedstock, which can be either tailings from the agitation leaching plant or freshly crushed and milled ore, is mixed with water to produce a slurry called "pulp" and other reagents are then added. This pulp is processed in flotation cells (tanks) 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.
In the early years of the mine's life, gold doré was produced at Gedabek only by heap leaching crushed and agglomerated ore. Heap leaching is a low capital cost method of production commonly used by mines when they first move into production. Currently, heap leaching at Gedabek is being carried out with ore crushed to less than 25mm in size and the resultant gold recovery is approximately 60 per cent. to 70 per cent. of the contained gold over leaching cycles which extend typically beyond one year.
To increase gold recoveries and production, in 2013 the Group constructed an agitation leaching plant. Compared to heap leaching, agitation leaching can deliver higher recoveries of gold without long leaching cycles. Heap leach pads also require considerable space for their construction and due to the topography of the Gedabek site, this is a constraint. The capacity of the agitation leaching plant was increased in 2016 by the installation of a second semi-autogenous grinding ("SAG") mill.
The ore at Gedabek is polymetallic containing significant amounts of copper. Initially, the SART processing plant was constructed to recover some of the copper as a copper and precious metal chemical concentrate. However, to further exploit the high copper content of the Group's ore reserves, the Group constructed a flotation plant whose function is primarily to produce a copper-rich mineral concentrate, containing gold and silver as by-products. The flotation plant commenced production in November 2015. The flotation plant has the flexibility to be configured for various methods of operation.
In 2018, a second crusher line was installed for the flotation plant. This has a budgeted capacity of 95 tonnes per hour compared to the original crusher of up to 120 tonnes per hour. This removed a large bottleneck and enabled independent operation of the agitation leaching and flotation plants using separate sources of feedstock. The addition of this second crusher not only significantly increases the capacity of our processing plants, but also their flexibility.
Production and sales
For the year ended 31 December 2020, total gold production as doré bars and as a constituent of the copper and precious metal concentrates totalled 56,864 ounces, which was a decrease of 13,234 ounces in comparison to the production of 70,098 ounces for the year ended 31 December 2019.
Table 7 summarises the amount of ore and its gold grade processed by leaching at Gedabek for the year ended 31 December 2020.
Table 7 - Ore and its gold grade processed by leaching at Gedabek for the year ended 31 December 2020
Quarter ended
Ore processed (tonnes)
Gold grade of ore processed (g/t)
Heap leach pad
Heap leach pad
Agitation
Heap leach pad
Heap leach pad
Agitation
crushed ore
ROM ore
leaching plant
crushed ore
ROM ore
leaching plant
31 March 2020
132,731
258,121
163,379
0.84
0.49
2.53
30 June 2020
139,752
134,675
161,079
0.79
0.44
1.95
30 September 2020
168,945
149,031
181,200
0.87
0.50
2.09
31 December 2020
107,852
172,206
177,487
0.89
0.59
1.81
Total for the year
549,280
714,033
683,145
0.85
0.51
2.17
Table 8 summarises the amount of ore and its gold, silver and copper content processed by flotation for the year ended 31 December 2020.
Table 8 - Ore and its gold, silver and copper content processed by flotation for the year ended 31 December 2020
Quarter ended
Ore processed
Gold content
Silver content
Copper content
(tonnes)
(ounces)
(ounces)
(tonnes)
31 March 2020
126,354
1,860
28,831
622
30 June 2020
132,848
1,459
18,354
762
30 September 2020
123,440
1,565
15,530
741
31 December 2020
110,772
859
8,660
693
Total for the year
493,414
5,743
71,375
2,818
Table 9 summarises the gold and silver bullion produced as doré bars and sales of gold bullion for the year ended 31 December 2020.
Table 9 - Gold and silver bullion produced as doré bars and sales of gold bullion for the year ended 31 December 2020
Quarter ended
Gold produced*
ounces
Silver produced*
ounces
Gold sales**
ounces
Gold sales price
$/ounce
31 March 2020
15,034
3,852
11,236
1,577
30 June 2020
11,455
3,562
12,743
1,713
30 September 2020
14,945
5,487
6,599
1,947
31 December 2020
13,276
4,614
18,072
1,884
Total for the year
54,710
17,515
48,650
1,777
*Including Government of Azerbaijan's share.
** Excluding Government of Azerbaijan's share.
Table 10 summarises the total copper, gold and silver produced as concentrate by both SART and flotation processing for the year ended 31 December 2020.
Table 10 - Total copper, gold and silver produced as concentrate by both SART and flotation processing for the year ended 31 December 2020
Copper (tonnes)
Gold (ounces)
Silver (ounces)
Quarter ended
SART
Flotation
Total
SART
Flotation
Total
SART
Flotation
Total
31 March 2020
114
445
559
8
825
833
12,895
17,895
30,790
30 June 2020
151
497
648
7
573
580
10,857
9,542
20,399
30 September 2020
165
523
688
7
476
483
17,148
8,416
25,564
31 December 2020
196
500
696
15
243
258
21,279
7,086
28,365
Total for the year
626
1,965
2,591
37
2,117
2,154
62,179
42,939
105,118
Table 11 summarises the total copper concentrate (including gold and silver) production and sales from both SART and flotation processing for the year ended 31 December 2020.
Table 11 - Total copper concentrate (including gold and silver) production and sales from both SART and flotation processing for the year ended 31 December 2020
Concentrate
production*
Copper
content*
Gold
content*
Silver
content*
Concentrate
sales
Concentrate
sales**
Quarter ended
(dmt)
(tonnes)
(ounces)
(ounces)
(dmt)
($000)
31 March 2020
2,994
559
833
30,790
2,018
2,863
30 June 2020
3,171
648
580
20,499
3,526
4,707
30 September 2020
3,266
688
483
25,745
2,084
3,377
31 December 2020
3,350
696
258
28,413
4,211
6,763
Total for the year
12,781
2,591
2,154
105,447
11,839
17,710
*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 is served by excellent infrastructure. The main 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 excellent roads. The site is connected to the Azeri national power grid and there is a dedicated sub-station located at the main Gedabek processing facilities.
Water management
The Gedabek site has its own water treatment plant which was constructed in 2017 and which uses the latest reverse osmosis technology. In the last few years, Gedabek 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. This is mobile, skid mounted equipment into which water is pumped without treatment direct from the tailings dam. The equipment then evaporates the water by jetting it into the atmosphere as a fine spray. It can evaporate approximately 25 litres per second of water depending upon climatic conditions. This is a stand-by facility, which is used to remove excess water from the dam after periods of excessive rainfall.
Tailings (waste) storage
The Company is very mindful of the importance of proper storage of tailings both for efficient operation of its processing plants and to fulfil its environmental responsibilities. The Company stores its tailings in a purpose-built dam approximately seven kilometres from its processing facilities, topographically at a lower level than the processing plant, thus allowing gravity assistance of tailings flow in the slurry pipeline. Immediately downstream of the tailings dam is a reed bed biological treatment system to purify any seepage from the dam before discharge into the nearby Shamkir river.
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 and the dam now has sufficient capacity for tailings to approximately the end of 2022. There are two pipelines from the Company's processing facilities to the tailings dam to increase capacity and provide redundancy.
A site for the construction of a new tailings dam has been identified. Planning is at a preliminary stage with geotechnical assessment being carried out.
Health, safety and environmental
The health and safety of our employees and the protection of the environment in and around our mine properties are prime concerns for the Company's board and senior management team. The health, safety and environmental ("HSE") department at Gedabek has a qualified HSE manager, who is assisted by a team of HSE officers. Overall strategy for HSE matters in the Company is overseen by the HSE and Technical committee ("HSET"), which is chaired by a board director, Professor John Monhemius. The HSET committee meets twice a year usually at the Gedabek site, but in 2020, both meetings were held by videoconferencing due to the COVID-19 pandemic.
During 2020, there were 13 reportable safety incidents (2019: 21) but no major accidents occurred. Two (2019: seven) were lost time incidents (LTI), where the casualty had to take time off work. The Company was also very pleased to report that on 24 July 2020, one million man-hours working without any lost time injury was achieved during the previous 170 days.
Gosha
The Gosha contract area is 300 square kilometres in size and is located in western Azerbaijan, 50 kilometres north-west of Gedabek. Gosha is currently the location of a small, high grade, underground gold mine. Ore mined at Gosha is transported by road to Gedabek for processing.
A total of 6,024 tonnes of ore of average gold grade 2.58 grammes per tonne were mined at Gosha in the year ended 31 December 2020.
The Company carried out considerable geological exploration work at Gosha in 2020, details of which are set out in the report on geological exploration below.
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 2020 due to the COVID-19 pandemic, details of which are set out in the report on geological exploration below.
Restored Contract Areas
Karabakh is a mountainous enclave wholly within the borders of Azerbaijan. It is bordered by seven districts of Azerbaijan which were occupied by Armenia in 1994 (the "Occupied Territories").
With the cessation of the hostilities over Karabakh and the Occupied Territories in November, 2020, the seven districts which surround Karabakh, which have always been recognised by international bodies as being part of Azerbaijan, have been returned to Azeri administration. These districts of Azerbaijan had been occupied by Armenia since the end of the first Karabakh war in 1994 and were the subject of four United Nations Security Council Resolutions (822, 853, 874 and 884), each calling for the withdrawal of Armenian forces.
In 1997, Anglo Asian obtained six mineral resource contract areas under a Production Sharing Agreement ("PSA") with the Government of Azerbaijan. Two of the contract areas (Soutely and Vejnaly) are located in the formerly Occupied Territories. The Soutely contract area is in the mountainous Kalbajar district and the Vejnaly contract area in the Zangilan district in the south-west of Azerbaijan. The third contract area Kyzlbulag, is located in Karabakh.
The Restored Contract Areas in the formerly Occupied Territories and Karabakh were part of Anglo Asian's original Production Sharing Agreement, along with the Active Contract Areas. All contract areas were reaffirmed to the Company by the Azerbaijan Government in 2006 and continue in good standing.
The Restored Contract Areas 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 Company has always stated its intention to develop its contract areas in the formerly Occupied Territories and Karabakh upon settlement of the conflict over Karabakh and surrounding regions. The Company therefore plans to pursue its legal rights under the PSA to develop these mineral resources. Development will commence when the Company receives notice in accordance with its PSA that the Organisation on Security and Cooperation in Europe ("OSCE") (or comparable international organisation) has acknowledged a liberation of the previously occupied territories and the Company is satisfied the districts are secure.
An initial limited visit has been made to the Vejnaly deposit which is located in the Zangilan district of south-western Azerbaijan. There has been some mining and small scale processing was carried out at the deposit during the Armenian occupation but this has now stopped. The potential for exploration and further production is currently unknown. The region has been secured by the Government of Azerbaijan and Anglo Asian is waiting for permission to permanently access the area further to evaluate its resources and infrastructure as with the Soutely and Kyzlbulag contract areas.
Geological exploration
Summary
Gedabek
· New mineral discovery "Zafer" at Gedabek.
· Initial models of gold and copper mineralisation completed and substantial drilling undertaken in the Avshancli mineral district.
· Initial drill programme commenced and surface Induction Polarisation ("IP") survey conducted at Gilar.
· Substantial drilling completed at the Gadir and Gedabek underground mines0
· Core drilling undertake at Ugur Deeps, targeting the high-grade copper and silver mineralisation.
Gosha
· Infrastructure to support sustained geological exploration was completed in 2020 including a geological camp.
· Drilling undertaken close to the Gosha underground mine targeting areas of extension to "Zone 5" and in the "New Zone" (the area between "Zone 5" and "Zone 13").
Ordubad
· Due to the access restrictions as a result of COVID-19, no drilling was carried out in 2020.
· A limited trenching programme continued at the Uchurdag and Unus targets.
Gedabek
Gedabek open pit and Duzyurd
Exploration in and around the operating Gedabek open pit and Duzyurd was limited in the year due to production priorities. Only two core drill holes and three reverse circulation drill holes were completed, both types designed to explore the geology at depth and test for sub-pit and adjacent mineralisation . The results from Gedabek yielded gold intersections, while the Duzyurd drill hole was not successful in intersecting mineralisation, but did identify alteration. Some reverse circulation drilling was also carried out for grade control and mine planning purposes.
Gadir and Gedabek underground mines
A considerable amount of exploration activity was completed at Gadir during 2020, comprising underground drilling and mapping. Interpretation was completed for the ground-based induced polarisation ("IP") geophysical survey. This work has resulted in defining ore zones that extend the current Gadir mineralisation footprint both laterally and down-dip. Additionally, the drilling continues to help constrain ore body models around production stoping fronts, so that tonnages and grade can be more accurately determined. In 2020, 106 core drill holes (77 in BQ diameter and 29 in HQ/NQ diameter) were completed for a total of 4,831 metres. Gold grades of up to 33 g/t of gold were reported. These positive results demonstrate the expansion potential of the underground mine at Gadir.
Considerable exploration activity was completed at Gedabek underground during H2 2020. Various platforms were utilised to complete 23 core drill holes (16 in BQ diameter and 7 HQ/NQ diameter) for a total of 1,371 metres. Gold grades of up to 6.2 g/t of gold were reported.
Ugur Deeps
Exploration in 2020 was focused on and around the Ugur open pit to assess the potential extensions to the Ugur deposit. Thirteen core drill holes were completed to the south-east of, and around, the Ugur open pit. These holes targeted deeper extents of high-grade copper-silver mineralisation. Intersections assaying more than two per cent. copper were encountered at depths of around 300 metres. Drilling is continuing in 2021.
Zafer
Zafer is a new discovery which was announced 19 January 2021. Zafer was found by Anglo Asian's in-house exploration group and is a new mineral occurrence approximately 1.5 kilometres north-west of the Company's Gedabek processing facilities. The mineralisation was identified by geological exploration follow-up of field mapping between ZTEM targets. Geological, structural and alteration mapping was used to target the initial drilling, which commenced in August 2020. A series of drill holes demonstrated that the geology progressively moved from altered rock into weakly mineralised rocks and finally into the zone of significant mineralisation.
Once the scale of the mineralisation was understood, ground-based IP and resistivity electrical geophysics was employed to define the potential extent of the mineralisation. In total, 10 profile lines covering an overall length of nearly 25 kilometres were completed. The 2-D and 3-D interpretations resulted in the identification of a number of "hot spot" anomalies that are being followed up with further drilling.
The geology of the area is structurally complex, comprising mainly of Upper Bajocian-aged volcanics. The mineralisation seems to be associated with a main northwest-southeast trending structure, which is interpreted as post-dating smaller northeast-southwest 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.
In 2020, 12 drill holes were completed totalling 7,675 metres. The deposit is currently being drilled with four core drill machines and further geophysical work will be carried out if required. A mineralogical study is also underway to assess the textural relations between the metallic minerals and gangue mineralogy. This will establish the associations between the copper and gold mineralisation (grain size and liberation characteristics), which will be used to determine the grind sizes and processing options.
Based on the work in 2020, a preliminary estimate of the size of the Zafer deposit is about six million tonnes of mineralised rock.
Avshancli district
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. In 2020, detailed mapping continued over the region. Both core and reverse circulation drilling, as well as outcrop and trench sampling, were carried out. Twenty seven core drill holes totalling 6,629 metres and seventy nine reverse circulation drill holes totalling 5,349 metres were completed. Significant intercepts of up to 16.7 g/t of gold were reported. Outcrop and trench sampling reported notable surface grades of up to 19.9 g/t of gold.
Initial models of gold (at > 0.3 g/t gold) and copper (at > 0.2 per cent.) mineralisation have been prepared for Avshancli 1. The mineral concentrations exhibit a central zone about 200 by 300 metres surrounded by satellite concentrations that are currently disconnected from the main central zone. The central area contains gold mineralisation near surface in a substrate that is free digging. The thickness of the zone seems restricted and work is continuing to assess geological controls on the continuity both laterally and at depth. Exploration continues in 2021 with further work planned to test the continuity from the central area to the satellite zones.
Gilar
Gilar is a new mineral occurrence located approximately two kilometres south of Avshancli 1. A considerable amount of exploration was completed during 2020 comprising core drilling and outcrop mapping. A ground-based Induction IP survey was also carried out in the year.
To commence the initial drill programme, 26 core drill holes were completed at Gilar during 2020 totalling 7,994 metres. Significant intercepts were reported of up to 14.1 g/t of gold. An additional three core drill holes were drilled in the flank of Gilar for the evaluation of ZTEM shallow targets ZS14 and ZS15. Interpretation of the ZTEM drill holes will be reported in 2021.
BLASTO LLC were contracted to conduct an IP survey over the Gilar mineralisation area, which was carried out between 19 August to 1 September 2020. The target depth of exploration was 400 metres. Six profile lines (including one test profile) were run. Interpretation of the IP data is currently being undertaken by both an external consultant and the Company. The preliminary interpretation shows the main anomalies are located in the south-east and north-east part of the mineralisation area.
Gosha
Preliminary infrastructure was constructed in 2020 at Gosha to support exploration efforts. In 2020, twenty core drill holes were completed for a total of 4,616 metres. These were drilled around "Zone 5" and the "New Zone" between "Zone 5" and "Zone 13", which is approximately 500 metres from "Zone 5". The aim of this drill programme continues to be to test the Gosha vein system at depth, below the current "Zone 5" and to further assess the "New Zone". Significant gold grades of up to 15 g/t of gold were encountered. These assay results confirm that gold mineralisation exists at depth below "Zone 5" and "New Zone".
Surface exploration was also carried out at the Gocdere and Khatinca regions of Gosha. In the second half of 2020, 145 outcrop samples were collected and 14 trenches completed totalling 301 metres were from which 190 samples were taken.
A new geological map of Gosha has been compiled from all previous data. This was the first stage of a desktop study to consolidate historical and new geological data and to better understand the regional geology. From this map, 15 porphyry and 13 gold/lead/zinc mineralisation targets have been identified.
Ordubad
Due to COVID-19 restrictions, drill access was restricted during 2020 and therefore no drilling was able to be undertaken in the year. Trench work was carried out during the second half of 2020 on the Unus and Uchurdag gold vein systems. A total of 149 trenches were dug amounting to 561 linear metres. 560 samples were obtained at one metre intervals unless geological constraints warranted adjustment in sample length. Assay results for these samples have not yet been received and will be reported in the first half of 2021.
The Company is still 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 Ordubad. The results of this investigation should have been available by now, but unfortunately they have been delayed by the COVID-19 pandemic.
Detailed reports on geological exploration
Detailed reports on all exploration activities in 2020 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 the ability to transport its products to market and sell them without disruption.
In 2020, the Group shipped all its gold doré for refining to either MKS Finance SA or Argor-Heraeus SA. Both refiners are situated in Switzerland. The Group continually reviews which refiner offers the best commercial terms, and based on these, 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, which were temporarily suspended in mid-2020. The Group made three shipments by chartered aircraft during this period which resulted in minor delays to the export of gold doré. In March 2020, the refiners suspended their operations due to the COVID-19 pandemic as the Swiss authorities closed all non-essential industry. However, the refiners restarted operations in April. Neither the temporary closure of the refiners nor the requirement to ship by chartered aircraft, had any material effect on the Group's operations.
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 below. 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.
Section 172(1) Statement
Introduction
The board of directors of Anglo Asian Mining PLC (the "Board") consider that they have adhered to the requirements of section 172 of the Companies Act 2006 (the "Act") and have, in good faith, acted in a way that they consider 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 have had regard to and recognise 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 which is a holding company. The Group carries out its business of mining in Azerbaijan through its wholly owned subsidiaries. Given the nature and size of the Group, the Board consider 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 Corporate Governance Section of the annual report.
Principal decisions and other key factors in maintaining shareholder value
For the year ended 31 December 2020, the Board consider 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 2020;
· consideration of the final dividend payable for the year ended 31 December 2019 and the interim dividend payable for the year ended 31 December 2020;
· 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. Given it was unknown how the health emergency would develop, contingency plans were made for various possible outcomes of the pandemic;
· agreeing to a potential investment in Ireland by way of a joint venture with Conroy Gold and Natural Resources PLC ("Conroy") which resulted in the signing of the Heads of Terms with Conroy. The Board considered all aspects of the investment and, in particular, to ensure that any downside risk to the investment was limited. The joint venture ultimately did not proceed; and
· agreeing the actions required in response to the conflict between Azerbaijan and Armenia. The focus of the Board was on ensuring the health and safety of its employees.
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 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. 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 all decisions do not disadvantage external shareholders compared to the interests of directors and senior management and that external shareholders are fully and timely informed of all Company developments.
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 recognise 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 their engagement
How the Board has taken their interests into account
Shareholders
The Board aims to provide clear and timely information to its shareholders which gives an honest and transparent view of the performance of the business.
The Board maintains a dialogue with external shareholders and keeps them informed in a variety of ways as set out in the Corporate Governance section of the annual report.
Customers
The Board aims to maintain a mutually beneficial relationship based on trust through a continuous dialogue with each of its customers.
Visits to its customers by senior staff are undertaken and visits are made by customers to the Company 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.
The Company also assisted its customers in fulfilling their responsibilities under the LBMA Responsible Sourcing Programme.
Suppliers
The Board has ensured an appropriately qualified and professional procurement department is in place which maintains close contact with all suppliers. All procurement is carried out via a transparent tender process.
For specialised goods and services, senior management will maintain a dialogue with the supplier and report their engagement to the Board.
All significant purchases are discussed with suppliers and prices and delivery terms agreed which are mutually beneficial to both parties.
Technical staff work in close collaboration with suppliers of specialist services to ensure the supplier provides the highest quality service to the Company within the commercial terms of the contract.
Employees
The Board has mandated a mainly informal approach to engage with employees in light of their number and to ensure appropriate upward communication channels exist for employees.
Directors and senior management regularly visit Gedabek where the majority of the employees are located.
There are also two formal mechanisms for engaging with employees:
· An employee survey is carried out once a year and the 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 2020 were held by video conference due to COVID-19.
The results of the employee survey have been reviewed and action taken to implement suggestions where appropriate.
The health and safety committee considered all reportable safety incidents during the year in consultation with employee representatives and all appropriate actions were taken to prevent further occurrences in the future.
Community
Board members regularly visit Gedabek and meet with the local administration and other community leaders to hear their views on community relations.
The Group has carried out significant community and social development in the region.
Government of Azerbaijan
The Board has set up a formal mechanism for engaging with the Government of Azerbaijan as set out in Corporate Governance section of the annual report.
Directors also meet with high level Government officials on a regular basis.
The Company has promptly complied with all requests from the Government for information about the Company's business.
An open relationship based on trust has been formed with the Government. This enabled the Company to quickly start agreeing access to the restored contract areas following the resolution of the conflict with Armenia.
Principal risks and uncertainties
Country risk in Azerbaijan
The Group currently operates solely in Azerbaijan and is therefore naturally at risk of adverse changes to the regulatory or fiscal regime within the country. However, Azerbaijan is outward looking and desirous of attracting direct foreign investment and the Company believes the country will be sensitive to the adverse effect of any proposed changes in the future. In addition, Azerbaijan has historically had a stable operating environment and the Company maintains very close links with all relevant authorities.
Operational risk
The Company currently produces all its products for sale at Gedabek. Planned production may not be achieved as a result of unforeseen operational problems, machinery malfunction or other disruptions. Operating costs and profits for commercial production therefore remain subject to variation. The Group monitors production on a daily basis and has robust procedures in place to effectively manage these risks.
Commodity price risk
The Group's revenues are exposed to fluctuations in the price of gold, silver and copper and all fluctuations have a direct impact on the operating profit and cash flow of the Group. Whilst the Group has no control over the selling price of its commodities, it has very robust cost controls to minimise expenditure to ensure it can withstand any prolonged period of commodity price weakness. The Group actively monitors all changes in commodity prices to understand the impact on the business. The Group 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 24 to the Group financial statements below.
Liquidity and interest rate risk
During 2020, the only material borrowing of the Group was the Pasha Bank refinancing loan which had a fixed rate of interest. This loan was fully repaid in early 2020 and the Group became debt free. The Group has therefore not used any interest rate swaps or other instruments to manage its interest rate profile during 2020. The approval of the board of directors is required for all new borrowing facilities. The Group occasionally has minor borrowings in connection with providing letters of credit to suppliers.
The Group's surplus cash deposits have steadily increased since the beginning of 2020. 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.
COVID-19 pandemic
The COVID-19 pandemic resulted in restrictions being put in place on the ability of the Group to operate starting in early March 2020. Domestic travel in Azerbaijan and international travel generally was either suspended or curtailed. The operations of many businesses in Azerbaijan were suspended and the Group's gold refiners in Switzerland were closed for a period in March and April 2020.
The measures taken by the board of directors (the "Board") to manage the risk of the COVID-19 pandemic are set out in the Corporate Governance section of the Group's annual report. These included informally convening weekly Board meetings at the start of the pandemic to ensure all possible actions were put in place to protect the health and safety of its staff and to maintain production.
Despite the COVID-19 restrictions, the Company continued in operation and to sell its products throughout 2020. It also put in place actions to safeguard the health of its employees at Gedabek. These included many hygiene measures such as the provision of hand disinfectants, deep cleaning of work areas and key employee homes and the provision of take away food to avoid the close gathering of people in canteens. An education programme for employees was carried out and the Gosha accommodation camp was redeployed as a quarantine facility. The Group also chartered aircraft in mid-2020 to ship its gold doré to Switzerland whilst scheduled flights were suspended.
The Government of Azerbaijan maintained restrictions throughout most of 2020 and into early 2001. However, starting from February 2021 these restrictions were gradually lifted.
The main risk to the Group from the COVID-19 pandemic would be a lower level, or a complete cessation, of production. This could occur due to an outbreak of COVID-19 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. There is also the risk that the Group can continue in production but will be unable to ship and sell its finished products. However, given that the Group was able to operate throughout 2020 and that the COVID-19 pandemic is easing in 2021, the Group considers that these risks are minimal.
Conflict between Azerbaijan and Armenia in 2020
In late September 2020, an armed conflict started between Azerbaijan and Armenia over the occupied territories and Karabakh. The conflict ended in early November with the signing of a peace agreement. During the conflict, martial law was imposed in Azerbaijan which included a night-time curfew, blocking of many social media and other internet applications and additional travel restrictions. Various staff members of the Group were required to perform military service. However, the majority have now returned to work. The conflict did not have a significant effect on the ability of the Group to continue in operation.
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 flow from operating activities less capital expenditure. This is a measure of the amount of cash generated which can either be distributed to investors or used for expansion of the business.
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
19 May 2021
Financial review
Group statement of income
The Group generated revenues in 2020 of $102.1m (2019: $92.1m) from the sales of gold and silver bullion and copper and precious metal concentrate.
The revenues in 2020 included $86.8m (2019: $76.4m) generated from the sales of gold and silver bullion from the Group's share of the production of doré bars. Bullion sales in 2020 were 48,650 ounces of gold and 15,759 ounces of silver (2019: 53,992 ounces of gold and 16,471 ounces of silver) at an average price of $1,777 per ounce and $21 per ounce respectively (2019: $1,410 per ounce and $16 per ounce respectively). In addition, the Group generated revenue in 2020 of $15.3m (2019: $15.7m) from the sale of 11,839 (2019: 10,281) dry metric tonnes of copper and precious metal concentrate. The Group's revenue benefited in the year from a higher average price of gold at $1,772 per ounce (2019: $1,404 per ounce) and a higher average price of copper at $6,190 per metric tonne (2019: $6,015 per metric tonne).
The Group did not hedge any metal sales during 2019 or 2020.
The Group incurred cost of sales in 2020 of $60.3m (2019: $54.6m) as follows:
2020
2019
B/W
$m
$m
$m
Cash cost of sales
48.0
48.0
-
Depreciation
16.2
18.4
2.2
Cash costs and depreciation
64.2
66.4
2.2
Capitalised costs
(5.8)
(2.7)
3.1
Cost of sales before inventory movement
58.4
63.7
5.3
Inventory movement
1.9
(9.1)
(11.0)
Total cost of sales
60.3
54.6
(5.7)
The lower depreciation in 2020 was due to the lower amount of gold produced. The inventory credit in 2019 of $9.1m arose due to an increase of inventory in that year, mainly an increase in stockpiled ore of 267k tonnes and gold in leach pads of 4,509 ounces.
Depreciation and amortisation in 2020 were lower at $16.8m compared to $19.2m in 2019. 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 2020 due to the lower amount of gold produced.
The Group incurred administration expenses in 2020 of $5.0m (2019: $5.2m). 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 2020 compared to 2019. Administration costs in 2020 were lower than 2019 due to lower travel costs resulting from the COVID-19 pandemic. Finance costs in 2020 were $0.6m compared to $1.3m in 2019. Finance costs were lower in 2020 compared to 2019 due to lower interest charged on bank loans, lower interest expense on finance leases and lower interest on the unwinding of provisions. The final instalment of the refinancing loan was settled in February 2020 resulting in lower bank interest payable. The interest expense on lease liabilities was $0.2m (2019: $0.4m) and the interest expense on the unwinding of the discount of provisions was $0.3m (2019: $0.4m). Other income in 2020 of $0.1m (2019: $nil) was the unrealised profit on the revaluation of the shares in Conroy Gold and Natural Resources PLC acquired in 2020 to their market price at 31 December 2020.
The Group recorded a profit before taxation in 2020 of $35.7m compared to $30.1m in 2019. This was due to higher revenues partially offset by higher cost of sales and other operating expenses with lower administration and finance costs. Other operating expenses in 2020 were higher at $1.3m (2019: $0.9m) due the cost in 2020 of chartering aircraft to fly gold doré to Switzerland as a result of the COVID-19 pandemic.
The Group had a taxation charge in 2020 of $12.5m (2019: $10.8m). This comprised a current income tax charge of $14.2m (2019: $7.2m) offset by a deferred tax credit of $1.7m (2019: charge of $3.6m). The current income tax charge of $14.2m was incurred by R.V. Investment Group Services ("RVIG") in Azerbaijan. RVIG generated taxable profits in 2020 of $44.3m (2019: $22.6m) which were taxed at 32 per cent. (the corporation tax rate stipulated in the Group's production sharing agreement). The taxable profits in 2020 were higher due to higher taxable profits being earned in 2020.
The taxable profits of the operating company in Azerbaijan are taxed at 32 per cent. However, the Group's overall tax rate in 2020 was 35 per cent. (2019: 36 per cent.). The overall tax rate is higher than 32 per cent. because the UK administrative costs and depreciation of mining rights in Azerbaijan cannot be offset against the taxable profits arising in Azerbaijan. These costs in 2020 totalled $2.8m (2019: $3.6m).
All-in sustaining cost of gold production
The Group produced gold at an all-in sustaining cost ("AISC") per ounce of $702 in 2020 compared to $591 in 2019. 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 2020 compared to 2019 was the lower production as many of the Group's costs are fixed or semi-fixed.
Group statement of financial position
Non-current assets decreased from $93.4m at the end of 2019 to $92.5m at the end of 2020. Property, plant and equipment were lower by $3.0m due to depreciation of $15.0m offset by additions of $12.0m and leased assets were $1.8m lower due to lease modifications of $1.3m. The lease modifications arose from the variation in the terms of 2 drilling contracts which reduced their IFRS 16 carrying amount. Intangible assets increased from $20.0m at the end of 2019 to $24.0m at the end of 2020 due to expenditure on geological exploration and evaluation of $5.3m offset by amortisation of $1.3m in the year. The main item of expenditure was $4.2m of exploration and evaluation expenditure at Gedabek. The Group's lower JORC ore reserve estimates, which were published in 2020, were considered an indication of fixed asset impairment. Accordingly, the value in use was calculated of its mines and associated processing facilities at Gedabek ("Mining Operations). The calculated value in use amount was higher than the carrying value of Mining Operations and therefore no impairment charge was made.
Net current assets were $67.8m at the end of 2020 compared to $55.5m at the end of 2019. The main reasons for the increase in net current assets were an increase in cash during 2020 compared to net cash (cash and cash in transit less bank borrowings) at 31 December of 2019 of $17.6m; inventory lower by $2.4m and income tax payable higher by $3.5m. Other current assets also included $0.2m (2019: $nil) being 325,000 shares acquired in Conroy Gold and Natural Resources PLC at 16 pence per share revalued to their market value at 31 December 2020. These were classified as a current asset as the Group sold the shares in early 2021. The Group's cash balances at 31 December 2020 were $38.8m (2019: $22.9m including cash in transit). 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 2020 were $122.0m (2019: $109.0m). The net assets were higher due to the increase in retained earnings. There were no shares issued in 2020.
At 1 January 2020, the Group was financed by a mixture of equity and debt with outstanding bank debt of $1.7m. The bank debt was the final instalment of the $13.5m, 3-year refinancing loan entered into during 2018 with an interest rate of 7 per cent. This final instalment was settled in February 2020 and the Group had no bank debt for the remainder of 2020. Group debt at 31 December 2020 was $1.9m (2019: $3.8m) in respect of lease liabilities due to the adoption in 2019 of IFRS 16 - "Leases".
There were no movements of the Group's share capital or share premium account in 2020. The Group's holding company, Anglo Asian Mining PLC received an intercompany dividend in 2020 of $10.0m (2019: $10.0) which gives it the capacity to pay dividends of $7.4m at 31 December 2020.
Group cash flow statement
Operating cash inflow before movements in working capital for 2020 was $52.8m (2019: $50.5m). The main source of operating cash was operating profit before the non-cash charges of depreciation and amortisation in 2020 of $52.8m (2019: $50.5m).
Working capital movements generated cash of $7.4m (2019: absorbed cash of $7.6m) largely due to a cash generation from trade and other receivables of $4.9m (2019: usage of $2.5m). Inventories were also lower by $2.4m (2019: increase of $9.7m). This was due to reduced inventory of finished goods, ore stockpiles and spare parts and consumables at the end of 2020.
Cash flow from operations in 2020 was $60.2m compared to $37.8m in 2019 due to the higher operating cash flow and funds generated by the movements in working capital.
The Company paid corporation tax in 2020 of $10.7m (2019: $8.2m) in Azerbaijan in accordance with local requirements. This payment was the final payment of its liability for 2019 and payments on account of its liability for the year ended 31 December 2020.
Expenditure on property, plant and equipment and mine development was $10.5m (2019: $4.7m). The main items of expenditure in 2020 were capitalised stripping costs of $3.8m; a raise of the wall of the tailings dam of $2.6m; mine development costs of $2.0m and an ore sorting machine of $1.2m.
Exploration and evaluation expenditure in 2020 of $5.3m (2019: $4.5m) was incurred and capitalised. This arose on exploration and evaluation at the Gedabek, Gosha and Ordubad contract areas with costs of $4.3m, $0.8m and $0.2m respectively.
COVID-19 pandemic and the conflict between Armenia and Azerbaijan in 2020
The Group has operated since early 2020 under restrictions imposed by governments around the world to combat the spread of the coronavirus. Azerbaijan was also subject to martial law between late September to early November 2020 due to the conflict with Armenia. The restrictions were slowly eased in Azerbaijan starting in February 2021.
The Group managed to maintain production and ship and sell its products throughout 2020. It was estimated that the Group incurred additional direct operating costs of approximately $0.1m per month at the peak of the restrictions in the summer 2020. These included the cost of chartering aircraft to ship its gold doré to Switzerland, staff overtime due to reorganisation of staff shifts to prevent the spread of the coronavirus and additional logistical costs. In addition to the direct costs of the pandemic, there were indirect costs such inefficient operation of the Gedabek production facilities due to the inability to rotate staff and other working restrictions due to the cornovirus. It is not considered feasible to calculate the total financial effect on the results of the Company for 2020 due to lost production and increased costs.
The evolution and duration of the emergency is not known but should the Group be required to temporarily suspend its operations it would incur costs of approximately $1.0m per month to place the operation on care and maintenance. It currently costs approximately $4.0m to $5.0m a month to maintain full production.
The Group has entered into a $15m standby credit facility with a bank in Azerbaijan as a precautionary measure. It is for 3 years at an interest rate of 4.5 per cent. It has not been utilised.
As a result of the peace agreement in 2020 following the conflict between Azerbaijan and Armenia, three contract areas were restored to the Group. The Group incurred no expenditure in respect of these three restored contract areas in 2020.
Dividends
In respect of 2020, the Group paid an interim dividend of $0.045 per share, a special dividend of $0.015 per share and has proposed a final dividend of $0.035 per share giving a total for the year of $0.095 per share (2019: total for the year of $0.08 per share). Dividends are declared in United States dollars but paid in United Kingdom pounds sterling. The total cost of the 2019 dividends was $9.2m (£7.4m) and the estimated total cost of the dividends for 2020 is $10.9m (£8.1m). The proposed final dividend for 2020 is subject to the approval of the shareholders and has not been accrued in the 2020 financial statements.
The directors have announced a policy to target a distribution to shareholders each year comprising approximately 25 per cent. of the Group's free cash flow. This distribution will be made in two approximately equal instalments comprising an interim and final dividend. The board will also declare special dividends if the circumstances dictate. The amounts and timing of payment of the interim and final dividends will be announced each year along with the Group's interim and final results respectively. The board will review this policy each year taking into account the financing needs of the business at that time. Free cash flow is defined as net cash flow from operating activities less capital expenditure and for 2020 was $28.7m (2019: $25.5m). Both the free cash flow for 2019 and 2020 have been adjusted for cash in transit of $5.1m at 31 December 2019.
To ensure the Company retains sufficient capital to pursue excellent 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 2019 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 2020. The Government's share of production in 2020 (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 2020 of 12.75 per cent. (2019: 12.75 per cent.) of the value of its production.
The Group can recover the following costs in accordance with the PSA:
• all direct operating expenses of the Gedabek mine;
• all exploration expenses incurred on the Gedabek contract area;
• all capital expenditure incurred on the Gedabek mine;
• an allocation of corporate overheads - currently, overheads are apportioned to Gedabek according to the ratio of direct capital and operating expenditure at the Gedabek contract area compared with direct capital and operational expenditure at the Gosha and Ordubad contract areas; and
• an imputed interest rate of United States Dollar LIBOR + 4 per cent. per annum on any unrecovered costs.
Unrecovered costs are calculated separately for the three contract areas of Gedabek, Gosha and Ordubad and can only be recovered against production from their respective contract areas. The total unrecovered costs for the Gedabek and Gosha contract areas at 31 December 2020 were $36.9m and $27.3m respectively (2019: $60.8m and $25.5m respectively). The Group's current business plans indicate that these costs will not be fully recovered until at least 2023 and the effective royalty of 12.75 per cent. will therefore continue until then.
Going concern
The directors have prepared the Group financial statements on a going concern basis after reviewing the Group's forecast cash position for the period to 30 June 2022 (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 has been applied by the directors who believe the assumptions are prepared on a realistic basis using the best available information.
The Group had cash balances of $22.9 million (31 December 2020: $38.8 million) and no bank debt at 31 March 2021. The directors have prepared a base case cash flow forecast that assumes production is consistent with the business plan and gold prices of $1,650 and $1,700 for 2021 and $1,750 for 2022. The gold prices are 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 provided production is maintained and finished products sold. 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.
Despite the restrictions imposed by the COVID-19 pandemic and martial law in September to November 2020 due to the conflict between Azerbaijan and Armenia, the Company continued production throughout 2020 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. In the second quarter of 2021, the remaining restrictions were not having any material effect on the ability of the business to operate. The directors believe that the ability of the Company to operate throughout 2020 demonstrates the resilience of the business should further restrictions be imposed due to any future intensification of the COVID-19 pandemic.
In the current period the directors reviewed various severe downside scenarios under which the business may in future be required to operate. These downside scenarios are six months of continuing production but having to stockpile finished product for later sale and secondly the full going concern period where production is either disrupted or shut down and the business placed on care and maintenance. No revenue is assumed in both downside scenarios. It is currently costing approximately $5.0 million per month to continue in production and estimated it would cost approximately $1.0 million per month to place the business on care and maintenance. The directors will manage any disruption to, or cessation of, production or inability to sell the Company's products as circumstances dictate. Under the downside scenarios the Group's forecasts to have the financial resources to continue as a going concern, utilising the standby credit facility where necessary. The directors believe the likelihood of both downside scenarios to be remote given the resilience demonstrated in 2020.
The Group's business activities, together with the factors likely to affect its future development, performance and position, can be found within the chairman's statement and the strategic report above. The financial position of the Group, its cash flow, liquidity position and borrowing facilities are discussed within this financial review. In addition, note 24 to the Group financial statements below includes the Group's 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.
Reza Vaziri
President and chief executive
William Morgan
Chief Financial Officer
19 May 2021
Directors Emoluments
Year ended 31 December 2020
Consultancy
$
Fees
$
Benefits
$
Total
$
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
Year ended 31 December 2019
Consultancy
$
Fees
$
Benefits
$
Total
$
John Monhemius
8,452
51,134
-
59,586
Richard Round
-
51,134
-
51,134
John Sununu
19,344
75,129
-
94,473
Reza Vaziri
578,962
51,134
32,891
662,987
Khosrow Zamani
-
125,726
-
125,726
606,758
354,257
32,891
993,906
Directors' fees and consultancy fees for 2019 and 2020 were paid in cash.
No director held or exercised any share options during the years ended 31 December 2019 and 31 December 2020.
Group statement of income
year ended 31 December 2020
2020
2019
Continuing operations
Notes
$000
$000
Revenue
6
102,054
92,052
Cost of sales
8
(60,325)
(54,576)
Gross profit
41,729
37,476
Other operating income
7
646
1
Administrative expenses
(5,033)
(5,208)
Other operating expenses
7
(1,278)
(943)
Operating profit
8
36,064
31,326
Finance costs
10
(564)
(1,269)
Finance income
121
73
Other income
7
116
-
Profit before tax
35,737
30,130
Income tax expense
11
(12,516)
(10,787)
Profit attributable to the equity holders of the parent
23,221
19,343
Profit per share attributable to the equity holders of the parent
Basic (US cents per share)
12
20.30
16.91
Diluted (US cents per share)
12
20.30
16.91
Group statement of comprehensive income
year ended 31 December 2020
2020
2019
$000
$000
Profit for the year
23,221
19,343
Total comprehensive profit
23,221
19,343
Attributable to the equity holders of the parent
23,221
19,343
Group statement of financial position
31 December 2020
2020
2019
Notes
$000
$000
Non-current assets
Intangible assets
13
23,965
19,965
Property, plant and equipment
14
66,680
69,728
Leased assets
15
1,809
3,622
Other receivables
16
-
67
92,454
93,382
Current assets
Inventory
17
41,457
43,881
Trade and other receivables
16
6,830
26,783
Other current financial assets
18
185
-
Cash and cash equivalents
19
38,848
17,801
87,320
88,465
Total assets
179,774
181,847
Current liabilities
Trade and other payables
20
(12,820)
(27,510)
Income tax payable
(6,265)
(2,760)
Interest-bearing loans and borrowings
21
-
(1,688)
Lease liabilities
15
(465)
(1,015)
(19,550)
(32,973)
Net current assets
67,770
55,492
Non-current liabilities
Provision for rehabilitation
23
(11,833)
(10,485)
Lease liabilities
15
(1,482)
(2,741)
Deferred tax liability
11
(24,947)
(26,596)
(38,262)
(39,822)
Total liabilities
(57,812)
(72,795)
Net assets
121,962
109,052
Equity
Share capital
25
2,016
2,016
Share premium account
27
33
33
Merger reserve
25
46,206
46,206
Retained earnings
73,707
60,797
Total equity
121,962
109,052
Group statement of cash flows
year ended 31 December 2020
2020
2019
Notes
$000
$000
Cash flows from operating activities
Profit before tax
35,737
30,130
Adjustments to reconcile profit before tax to net cash flows:
Finance costs
10
564
1,269
Finance income
(121)
(73)
Unrealised gain on financial instruments
(116)
-
Gain on the modification of lease liabilities
(72)
-
Depreciation of owned assets
14
14,949
16,767
Depreciation of leased assets
15
627
795
Amortisation of mining rights and other intangible assets
13
1,267
1,600
Operating cash flow before movement in working capital
52,835
50,488
Decrease / (increase) in trade and other receivables
4,939
(2,502)
Decrease / (increase) in inventories
2,422
(9,722)
Increase / (decrease) in trade and other payables
2
(462)
Cash from operations
60,198
37,802
Income taxes paid
(10,660)
(8,147)
Net cash flow from operating activities
49,538
29,655
Cash flows from investing activities
Expenditure on property, plant and equipment and mine development
(10,476)
(4,703)
Investment in exploration and evaluation assets including other
intangible assets
(5,267)
(4,499)
Purchase of financial instruments
(69)
-
Interest received
121
73
Net cash used in investing activities
(15,691)
(9,129)
Cash flows from financing activities
Dividends paid
28
(10,311)
(8,696)
Proceeds from borrowings
22
-
536
Repayments of borrowings
22
(1,688)
(7,287)
Interest paid - borrowings
(20)
(804)
Interest paid - lease liabilities
15
(230)
(353)
Repayment of lease liabilities
15
(551)
(661)
Net cash used in financing activities
(12,800)
(17,265)
Net increase in cash and cash equivalents
21,047
3,261
Cash and cash equivalents at the beginning of the year
19
17,801
14,540
Cash and cash equivalents at the end of the year
19
38,848
17,801
Group statement of changes in equity
year ended 31 December 2020
Notes
Share
capital
$000
Share
premium
$000
Merger
reserve
$000
Retained
earnings
$000
Total
equity
$000
1 January 2019
2,016
33
46,206
50,150
98,405
Profit for the year
-
-
-
19,343
19,343
Cash dividends paid
28
-
-
-
(8,696)
(8,696)
31 December 2019
2,016
33
46,206
60,797
109,052
Profit for the year
-
-
-
23,221
23,221
Cash dividends paid
28
-
-
-
(10,311)
(10,311)
31 December 2020
2,016
33
46,206
73,707
121,962
Notes
1 General information
Anglo Asian Mining PLC (the "Company") is a company incorporated and limited by shares in England and Wales under the Companies Act 2006. The Company's ordinary shares are traded on the AIM market of the London Stock Exchange. The Company is a holding company. The principal activities and place of business of the Company and its subsidiaries (the "Group") are set out in note 29, the chairman's statement and the strategic report above.
2 Basis of preparation
The financial information for the year ended 31 December 2020 was approved by the board of directors on 19 May 2021. The financial information has been prepared in accordance with International accounting standards in conformity with the requirements of the Companies Act 2006.
The financial information has been prepared using accounting policies set out in note 4 which are consistent with all applicable IFRSs and with those parts of the Companies Act 2006 applicable to companies reporting under IFRSs. For these purposes, IFRSs comprises the standards issued by the International Accounting Standards Board and interpretations issued by the International Financial Reporting Interpretations Committee that have been endorsed by the European Union.
The financial information set out above has been prepared under the historical cost convention except for the treatment of share-based payments and trade receivables at fair value. The Group financial statements are presented in United States Dollars ("$") and all values are rounded to the nearest thousand except where otherwise stated. In the Group financial statements "£" and "pence" are references to the United Kingdom pound sterling.
The directors have prepared the Group financial statements on a going concern basis after reviewing the Group's forecast cash position for the period to 30 June 2022 (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 has been applied by the directors who believe the assumptions are prepared on a realistic basis using the best available information.
The Group had cash balances of $22.9 million (31 December 2020: $38.8 million) and no bank debt at 31 March 2021. The directors have prepared a base case cash flow forecast that assumes production is consistent with the business plan and gold prices of $1,650 and $1,700 for 2021 and $1,750 for 2022. The gold prices are 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 provided production is maintained and finished products sold. 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.
Despite the restrictions imposed by the COVID-19 pandemic and martial law in September to November 2020 due to the conflict between Azerbaijan and Armenia, the Company continued production throughout 2020 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. In the second quarter of 2021, the remaining restrictions were not having any material effect on the ability of the business to operate. The directors believe that the ability of the Company to operate throughout 2020 demonstrates the resilience of the business should further restrictions be imposed due to any future intensification of the COVID-19 pandemic.
In the current period the directors reviewed various severe downside scenarios under which the business may in future be required to operate. These downside scenarios are six months of continuing production but having to stockpile finished product for later sale and secondly the full going concern period where production is either disrupted or shut down and the business placed on care and maintenance. No revenue is assumed in both downside scenarios. It is currently costing approximately $5.0 million per month to continue in production and estimated it would cost approximately $1.0 million per month to place the business on care and maintenance. The directors will manage any disruption to, or cessation of, production or inability to sell the Company's products as circumstances dictate. Under the downside scenarios the Group's forecasts to have the financial resources to continue as a going concern, utilising the standby credit facility where necessary. The directors believe the likelihood of both downside scenarios to be remote given the resilience demonstrated in 2020.
The Group's business activities, together with the factors likely to affect its future development, performance and position, can be found within the chairman's statement and the strategic report above. The financial position of the Group, its cash flow, liquidity position and borrowing facilities are discussed within this financial review. In addition, note 24 to the Group financial statements below includes the Group's 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 2020:
· Amendments to IFRS 3: Definition of a business
· Amendments to IAS 1 and IAS 8: Definition of material
· Conceptual Framework for Financial Reporting Issued on 29 March 2018
· Amendments to IFRS 16: Covid-19 Related Rent Concessions
The above standards and amendments had no impact on the consolidated financial statements of the Group
3.2 Standards issued but not yet 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
The above standards and amendments are not expected to have any impact 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 2020. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:
· power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
· exposure, or rights, to variable returns from its involvement with the investee; and
· the ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
· the contractual arrangement with the other vote holders of the investee;
· rights arising from other contractual arrangements; and
· the Group's voting rights and potential voting rights.
The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.
4.2 Revenue
The Group is principally engaged in the business of producing gold and silver bullion and gold and copper concentrate. Revenue from contracts with customers is recognised when control of the goods is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods.
The Group has generally concluded that it is the principal in its revenue contracts because it typically controls the goods before transferring them to the customer.
i Contract balances
a Contract assets
A contract asset is the right to consideration in exchange for goods transferred to the customer. If the Group performs by transferring goods to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional. The Group does not have any contract assets as performance and a right to consideration occurs within a short period of time and all rights to consideration are unconditional.
b Trade receivables
A trade receivable represents the Group's right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). Refer to accounting policy 4.12 for the accounting policies for financial assets and accounting policy 4.13 for the accounting policy for trade receivables.
c Contract liabilities
A contract liability is the obligation to transfer goods to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group performs under the contract.
ii Gold and silver sales to the refiner
For gold sales, these are sold under spot sales contracts with the Company's gold 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.
Revenue is recognised at a point in time when control passes to the refiner. As the gold and silver is at this time already on the premises of the refiner, physical delivery has already taken place when the sales are made.
With these arrangements, there are no advance payments received from the refiner, no conditional rights to consideration, i.e., no contract assets are recognised. A trade receivable is recognised at the date of sale and there are only several days between recognition of revenue and payment. The contract is entered into and the transaction price is determined at outturn by virtue of the deal confirmation and there are no further adjustments to this price. Also, given each spot sale represents the enforceable contract and all performance obligations are satisfied at that time, there are no remaining performance obligations (unsatisfied or partially unsatisfied) requiring disclosure. Refer to note 16 - 'Trade and other receivables' for details of payment terms.
iii) Gold and copper in concentrate (metal in concentrate) sales
For gold and copper in concentrate (metal in concentrate) sales, the enforceable contract is each purchase order, which is an individual, short-term contract. The performance obligation is the delivery of the concentrate to the customer.
The Group's sales of metal in concentrate allow for price adjustments based on the market price at the end of the relevant quotational period ("QP") stipulated in the contract. These are referred to as provisional pricing arrangements and are such that the selling price for metal in concentrate is based on prevailing spot prices on a specified future date (or average of future spot prices over a defined period, usually a week) after shipment to the customer. Adjustments to the sales price occur based on movements in quoted market prices up to the end of the QP. The period between provisional invoicing and the end of the QP can be between one and four months.
Revenue is recognised when control passes to the customer, which occurs at a point in time when the metal in concentrate is physically delivered to the customer at the mine site. The revenue is measured at the amount to which the Group expects to be entitled, being the estimate of the price expected to be received at the end of the QP, i.e., the forward price, and a corresponding trade receivable is recognised.
For these provisional pricing arrangements, any future change that occur over the QP is an embedded derivative within the provisionally priced trade receivables and are, therefore, within the scope of IFRS 9 and not within the scope of IFRS 15. The Group does not separately account for the embedded derivative in each transaction as the short transaction cycle of one to four months would result in any changes to the Group's financial statements being immaterial. Any difference between the provisional and final price is adjusted through revenue from contracts with customers. Changes in fair value over, and until the end of, the QP, are estimated by reference to updated forward market prices for gold and copper as well as taking into account relevant other fair value considerations as set out in IFRS 13, including interest rate and credit risk adjustments. See accounting policy 4.10 for further discussion on fair value. Refer to note 16 for details of payments terms for trade receivables.
As noted above, as the enforceable contract for most arrangements is the purchase order, the transaction price is determined at the date of each sale (i.e., for each separate contract) and, therefore, there is no future variability within scope of IFRS 15 and no further remaining performance obligations under those contracts.
Iv Interest revenue
Interest revenue is recognised as it accrues, using the effective interest rate method.
4.3 Leases
The 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 (2019: eight years)
· Plant and equipment - eight years (2019: eight years)
· Motor vehicles - four years (2019: four years)
· Office equipment - four years (2019: four years)
· Leasehold improvements - the lower of eight years (2019: 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 such as bank borrowings at fair value at each balance sheet date. Fair value disclosures for financial instruments measured at fair value, or where fair value is disclosed, are summarised in the following notes:
· Note 16 - 'Trade and other receivables'
· Note 19 - 'Cash and cash equivalents'
· Note 20 - 'Trade and other payables'; and
· Note 21 - 'Interest-bearing loans and borrowings'
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
· in the principal market place for the asset or the liability; or
· in the absence of a principal market, the most advantageous market for the asset or liability.
The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole.
· Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
· Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
· Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a re-occurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as set out above.
4.11 Provisions
i) General
Provisions are recognised when (a) the Group has a present obligation (legal or constructive) as a result of a past event and (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
ii) Rehabilitation provision
The Group records the present value of estimated costs of legal and constructive obligations required to restore operating locations in the period in which the obligation is incurred. The nature of these restoration activities includes dismantling and removing structures, rehabilitating mines and tailings dams, dismantling operating facilities, closure of plant and waste sites and restoration, reclamation and revegetation of affected areas.
The obligation generally arises when the asset is installed or the ground or environment is disturbed at the production location. When the liability is initially recognised, the present value of the estimated cost is capitalised by increasing the carrying amount of the related mining assets to the extent that it was incurred prior to the production of related ore. Over time, the discounted liability is increased for the change in present value based on the discount rates that reflect current market assessments and the risks specific to the liability.
The periodic unwinding of the discount is recognised in the Group income statement as a finance cost. Additional disturbances or changes in rehabilitation costs will be recognised as additions or charges to the corresponding assets and rehabilitation liability when they occur. Any reduction in the rehabilitation liability and therefore any deduction from the rehabilitation asset may not exceed the carrying amount of that asset. If it does, any excess over the carrying value is taken immediately to the Group income statement.
If the change in estimate results in an increase in the rehabilitation liability and therefore an addition to the carrying value of the asset, the Group is required to consider whether this is an indication of impairment of the asset as a whole and test for impairment in accordance with IAS 36. If, for mature mines, the revised mine assets net of rehabilitation provisions exceeds the recoverable value, that portion of the increase is charged directly to expense.
For closed sites, changes to estimated costs are recognised immediately in the Group income statement. Also, rehabilitation obligations that arose as a result of the production phase of a mine should be expensed as incurred.
4.12 Financial instruments - initial recognition and subsequent measurement
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
a) Financial assets
i) Initial recognition and measurement
Financial assets are classified, at initial recognition, and subsequently measured at amortised cost, fair value through other comprehensive income ("OCI"), or fair value through profit or loss.
The classification of financial assets at initial recognition that are debt instruments depends on the financial asset's contractual cash flow characteristics and the Group's business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient for contracts that have a maturity of one year or less, are measured at the transaction price determined under IFRS 15. Refer to the accounting policy 4.2 - 'Revenue from contracts with customers'
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are 'solely payments of principal and interest ("SPPI") on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
The Group's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.
ii) Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
· Financial assets at amortised cost (debt instruments).
· Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments).
· Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments).
· Financial assets at fair value through profit or loss.
iii) Financial assets at amortised cost (debt instruments)
This category is the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met:
· The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and
· The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured using the effective interest rate ("EIR") method and are subject to impairment. Interest received is recognised as part of finance income in the statement of profit or loss and other comprehensive income. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.
The Group's financial assets at amortised cost include trade receivables (not subject to provisional pricing) and other receivables. Refer below to 'Financial assets at fair value through profit or loss' for a discussion of trade receivables (subject to provisional pricing).
iv) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading, e.g., derivative instruments, financial assets designated upon initial recognition at fair value through profit or loss, e.g., debt or equity instruments, or financial assets mandatorily required to be measured at fair value, i.e., where they fail the SPPI test. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that do not pass the SPPI test are required to be classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortised cost or at fair value through OCI, as described above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the profit or loss account.
A derivative embedded in a hybrid contract with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category.
As IFRS 9 now has the SPPI test for financial assets, the requirements relating to the separation of embedded derivatives is no longer needed for financial assets. An embedded derivative will often make a financial asset fail the SPPI test thereby requiring the instrument to be measured at fair value through profit or loss in its entirety. This is applicable to the Group's trade receivables (subject to provisional pricing). These receivables relate to sales contracts where the selling price is determined after delivery to the customer, based on the market price at the relevant QP stipulated in the contract. This exposure to the commodity price causes such trade receivables to fail the SPPI test. As a result, these receivables are measured at fair value through profit or loss from the date of recognition of the corresponding sale, with subsequent movements 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 pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
vi) Impairment of financial assets
Further disclosures relating to impairment of financial assets are also provided in the following notes:
· Disclosure of significant assumptions: accounting policy 4.20
· Trade and other receivables:accounting policy 4.13 and note 16
The Group recognises an allowance for expected credit loss ("ECL") for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original EIR. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
For trade receivables (not subject to provisional pricing) and other receivables due in less than 12 months, the Group applies the simplified approach in calculating ECLs, as permitted by IFRS 9. Therefore, the Group does not track changes in credit risk, but instead, recognises a loss allowance based on the financial asset's lifetime ECL at each reporting date. For any other financial assets carried at amortised cost (which are due in more than 12 months), the ECL is based on the 12-month ECL. The 12-month ECL is the proportion of lifetime ECLs that results from default events on a financial instrument that are possible within 12 months after the reporting date. However, when there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime ECL. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and informed credit assessment including forward-looking information.
The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows and usually occurs when past due for more than one year and not subject to enforcement activity.
At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit- impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
b) Financial liabilities
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 profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the statement of profit or loss and other comprehensive income.
Loans and borrowings and trade and other payables
After initial recognition, interest-bearing loans and borrowings and trade and other payables are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in the statement of profit or loss and other comprehensive income when the liabilities are derecognised, as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss and other comprehensive income.
This category generally applies to interest-bearing loans and borrowings and trade and other payables
iii) Derecognition of financial liabilities
A financial liability is derecognised when the associated obligation is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss and other comprehensive income.
c) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
d) Cash and cash equivalents
Cash and cash equivalents in the statement of financial position comprise cash at banks and on hand and short- term deposits with an original maturity of three months or less, but exclude any restricted cash. Restricted cash is not available for use by the Group and therefore is not considered highly liquid, for example, cash set aside to cover rehabilitation obligations.
For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short- term deposits as defined above, net of outstanding bank overdrafts.
4.13 Trade and other receivables
The Group presents trade and other receivables in the statement of financial position based on a current or non-current classification. A trade and other receivable is classified as current as follows:
· expected to be realised or intended to be sold or consumed in the normal operating cycle;
· held primarily for the purpose of trading; and
· expected to be realised within 12 months after the date of the statement of financial position.
Gold bullion held on behalf of the Government of Azerbaijan is classified as a current asset and valued at the current market price of gold at the statement of financial position date. A current liability of equal amount representing the liability of the gold bullion to the Government of Azerbaijan is also established.
Advances made to suppliers for fixed asset purchases are recognised as non-current prepayments until the fixed asset is delivered when they are capitalised as part of the cost of the fixed asset.
4.14 Inventories
Metal in circuit consists of in-circuit material at properties with milling or processing operations and doré awaiting refinement, all valued at the lower of average cost and net realisable value. In-process inventory costs consist of direct production costs (including mining, crushing and processing and site administration costs) and allocated indirect costs (including depreciation, depletion and amortisation of producing mines and mining interests).
Ore stockpiles consist of stockpiled ore, ore on surface and crushed ore, all valued at the lower of average cost and net realisable value. Ore stockpile costs consist of direct production costs (including mining, crushing and site administration costs) and allocated indirect costs (including depreciation, depletion and amortisation of producing mines and mining interests).
Inventory costs are charged to operations on the basis of ounces of gold sold. The Group regularly evaluates and refines estimates used in determining the costs charged to operations and costs absorbed into inventory carrying values based upon actual gold recoveries and operating plans.
Finished goods consist of doré bars that have been refined and assayed and are in a form that allows them to be sold on international bullion markets and metal in concentrate. Finished goods are valued at the lower of average cost and net realisable value. Finished goods costs consist of direct production costs (including mining, crushing and processing; site administration costs; and allocated indirect costs, including depreciation, depletion and amortisation of producing mines and mining interests).
Spare parts and consumables consist of consumables used in operations, such as fuel, chemicals, reagents and spare parts, valued at the lower of average cost and replacement cost and, where appropriate, less a provision for obsolescence.
4.15 Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs, or value of services received net of any issue costs.
4.16 Deferred stripping costs
The removal of overburden and other mine waste materials is often necessary during the initial development of a mine site, in order to access the mineral ore deposit. The directly attributable cost of this activity is capitalised in full within mining properties and leases, until the point at which the mine is considered to be capable of commercial production. This is classified as expansionary capital expenditure, within investing cash flows.
The removal of waste material after the point at which a mine is capable of commercial production is referred to as production stripping.
When the waste removal activity improves access to ore extracted in the current period, the costs of production stripping are accounted for as part of the cost of producing those inventories.
Where production stripping activity both produces inventory and improves access to ore in future periods the associated costs of waste removal are allocated between the two elements. The portion which benefits future ore extraction is capitalised within stripping and development capital expenditure. If the amount to be capitalised cannot be specifically identified it is determined based on the volume of waste extracted compared with expected volume for the identified component of the orebody. Components are specific volumes of a mine's orebody that are determined by reference to the life of mine plan.
In certain instances significant levels of waste removal may occur during the production phase with little or no associated production.
All amounts capitalised in respect of waste removal are depreciated using the unit of production method based on the ore reserves of the component of the orebody to which they relate.
The effects of changes to the life of mine plan on the expected cost of waste removal or remaining reserves for a component are accounted for prospectively as a change in estimate.
4.17 Employee leave benefits
Liabilities for wages and salaries, including non-monetary benefits and accrued but unused annual leave, are recognised in respect of employees' services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled.
4.18 Retirement benefit costs
The Group does not operate a pension scheme for the benefit of its employees but instead makes contributions to their personal pension policies. The contributions due for the period are charged to the Group income statement.
4.19 Share-based payments
The Group has applied the requirements of IFRS 2 - 'Share-based Payment'. IFRS 2 has been applied to all grants of equity instruments.
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions.
Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been applied based on management's best-estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The vesting conditions assumptions are reviewed during each reporting period to ensure they reflect current expectations.
4.20 Significant accounting judgements
The preparation of the Group financial statements in conformity with IFRS requires management to make judgements that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the Group financial statements and reported amounts of revenues and expenses during the reporting period.
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 30)
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 17)
Net realisable value tests are performed at least annually and represent the estimated future sales price of the product based on prevailing spot metals prices at the reporting date, less estimated costs to complete production and bring the product to sale.
Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, the number of contained gold ounces based on assay data and the estimated recovery percentage based on the expected processing method. Stockpile tonnages are verified by periodic surveys. The ounces of gold sold are compared to the remaining reserves of gold for the purpose of charging inventory costs to operations.
iv) Mine rehabilitation provision (note 23)
The Group assesses its mine rehabilitation provision annually. Significant estimates and assumptions are made in determining the provision for mine rehabilitation as there are numerous factors that will affect the ultimate liability payable. These factors include estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes and changes in discount rates. Those uncertainties may result in future actual expenditure differing from the amounts currently provided. The provision at the reporting date represents management's best estimate of the present value of the future rehabilitation costs required. Changes to estimated future costs are recognised in the Group statement of financial position by either increasing or decreasing the rehabilitation liability and rehabilitation asset if the initial estimate was originally recognised as part of an asset measured in accordance with IAS 16 'Property, Plant and Equipment'. Expenditure on mine rehabilitation is expected to take place between 2023 and 2025.
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 income statement and Group statement of financial position on this basis. Accordingly, the Group has only one operating segment, mining operations. The mining operations comprise the Group's major producing asset, the Gedabek mine which accounts for all the Group's revenues and the majority of its cost of sales, depreciation and amortisation. The Group's mining operations are all located within Azerbaijan and therefore all within one geographic segment.
6 Revenue
The Group's revenue consists of sales to third parties of:
· gold contained within doré and gold and silver bullion to the Group's refiners; and
· gold and copper concentrate.
2020
$000
2019
$000
Gold within doré and gold bullion
86,441
76,123
Silver bullion
337
264
Gold and copper concentrate
15,276
15,665
102,054
92,052
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 2020 and 2019 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
2020
$000
2019
$000
Interest receivable
-
1
Gain on the modification of lease liabilities
72
-
Gain on cancellation of trade payables
574
-
646
1
Other operating expenses
2020
$000
2019
$000
Transportation and refining costs
782
399
Foreign exchange loss
130
139
Advances and inventory written off
366
405
1,278
943
Other income
2020
$000
2019
$000
Fair value gain on equity instruments at fair value through profit or loss
116
-
8 Operating profit
Notes
2020
$000
2019
$000
Operating profit is stated after charging:
Depreciation on property, plant and equipment - owned
15
14,949
16,767
Depreciation on property plant and equipment - right of use assets
16
627
795
Amortisation of mining rights and other intangible assets
14
1,267
1,600
Employee benefits and expenses
10
10,021
8,026
Foreign currency exchange net loss
130
139
Inventory expensed during the year
24,240
24,470
Fees payable to the Company's auditor for:
The audit of the Group's annual accounts
154
155
The audit of the Group's subsidiaries pursuant to legislation
119
119
Audit related assurance services - half year review
3
2
Total audit services
276
276
Amounts paid to auditor for other services:
Tax compliance services
13
13
Tax advice regarding dividend and share premium reduction
34
48
Total non-audit services
47
61
Total
323
337
The audit fees for the parent company were $111,000 (2019: $107,000).
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:
2020
2019
Management and administration
45
44
Exploration
47
29
Mine operations
767
705
859
778
The aggregate payroll costs of these persons were as follows:
2020
$000
2019
$000
Wages and salaries
8,732
6,750
Social security costs
1,706
1,701
Costs capitalised as exploration
(417)
(425)
10,012
8,026
Remuneration of key management personnel
The remuneration of the key management personnel of the Group, is set out below in aggregate:
2020
$
2019
$
Short-term employee benefits
1,713,791
1,674,133
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 director of geology and mining 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
2020
$000
2019
$000
Interest charged on interest-bearing loans and borrowings
20
466
Finance charges on letters of credit
4
12
Interest expense on lease liabilities
230
353
Unwinding of discount on provisions
310
438
564
1,269
Interest on interest-bearing loans and borrowings represents charges on those credit facilities as set out in note 21 - "Interest-bearing loans and borrowings" below.
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 2020 were $nil (2019: $nil).
The major components of the income tax charge for the year ended 31 December are:
2020
2019
$000
$000
Current income tax
Current income tax charge
14,165
7,208
Deferred tax
(Benefit) / charge relating to origination and reversal of temporary differences
(1,649)
3,579
Income tax charge for the year
12,516
10,787
Deferred income tax at 31 December relates to the following:
Statement
of financial position
Income statement
2020
$000
2019
$000
2020
$000
2019
$000
Deferred income tax liability
Property, plant and equipment - accelerated depreciation
(19,049)
(18,072)
(977)
93
Right of use assets - accelerated depreciation
(579)
(1,159)
580
(1,159)
Non-current prepayments
-
(21)
21
118
Trade and other receivables
(616)
(2,062)
1,446
(782)
Inventories
(11,828)
(12,604)
776
(3,111)
Deferred tax liability
(32,072)
(33,918)
Deferred income tax asset
Trade and other payables and provisions *
2,716
2,765
(49)
(406)
Lease liabilities
623
1,202
(579)
1,202
Asset retirement obligation *
3,786
3,355
431
466
Deferred tax asset
7,125
7,322
Deferred income tax benefit / (charge)
1,649
(3,579)
Net deferred tax liability
(24,947)
(26,596)
* 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:
2020
$000
2019
$000
Profit before tax
35,737
30,130
Theoretical tax charge at statutory rate of 32 per cent. for RVIG*
11,436
9,642
Effects of different tax rates for certain Group entities (20 per cent.)
171
198
Tax effect of items which are not deductible or assessable for taxation purposes:
- non-deductible expenses
909
947
Income tax charge for the year
12,516
10,787
* 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 2020, the Group had unused tax losses available for offset against future profits of $21,599,000 (2019: $20,181,000). Unused tax losses in the Republic of Azerbaijan at 31 December 2020 were $nil (2019: $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 $23,221,000 (2019: $19,343,000).
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:
2020
2019
Basic
114,392,024
114,392,024
Diluted
114,392,024
114,392,024
At 31 December 2020 there were no unexercised share options that could potentially dilute basic earnings per share (2019: nil).
13 Intangible assets
Exploration
and evaluation
Gedabek
$000
Exploration
and evaluation
Gosha
$000
Exploration
and evaluation
Ordubad
$000
Mining
rights
$000
Other
intangible
assets
$000
Total
$000
Cost
1 January 2019
3,436
350
4,345
41,925
537
50,593
Additions
2,838
480
1,191
-
25
4,534
31 December 2019
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
Amortisation and impairment*
1 January 2019
-
-
-
33,155
407
33,562
Charge for the year
-
-
-
1,578
22
1,600
31 December 2019
-
-
-
34,733
429
35,162
Charge for the year
-
-
-
1,233
34
1,267
31 December 2020
-
-
-
35,966
463
36,429
Net book value
31 December 2019
6,274
830
5,536
7,192
133
19,965
31 December 2020
10,514
1,642
5,751
5,959
99
23,965
*290,000 ounces of gold at 1 January 2020 were used to determine depreciation of producing mines, mining rights and other intangible assets (2019: 355,000 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 $55,000 and an increase in amortisation of $61,000 respectively.
14 Property, plant and equipment
Plant and
equipment and
motor vehicles
Producing
mines
Assets under construction
Total
$000
$000
$000
$000
Cost
1 January 2019
24,104
205,555
313
229,972
Additions
484
3,835
8
4,327
Transfer to producing mines
-
241
(241)
-
Increase in provision for rehabilitation
-
1,018
-
1,018
31 December 2019
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
Depreciation and impairment*
1 January 2019
18,172
130,650
-
148,822
Charge for the year
1,851
14,916
-
16,767
31 December 2019
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
Net book value
31 December 2019
4,565
65,083
80
69,728
31 December 2020
3,441
61,649
1,590
66,680
*290,000 ounces of gold at 1 January 2020 were used to determine depreciation of producing mines, mining rights and other intangible assets (2019: 355,000 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 $149,000 and an increase in depreciation of $166,000 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 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.
The capital commitments by the Group have been disclosed in note 30.
15 Leases
Right of use assets
Plant and
equipment and
motor vehicles
Land and
buildings
Total
$000
$000
$000
Cost
1 January and 31 December 2019
3,934
483
4,417
Additions
-
70
70
Lease modifications
(1,577)
-
(1,577)
31 December 2020
2,357
553
2,910
Depreciation
1 January 2019
-
-
-
Charge for the year
657
138
795
31 December 2019
657
138
795
Charge for the year
477
150
627
Lease modifications
(321)
-
(321)
31 December 2020
813
288
1,101
Net book value
31 December 2019
3,277
345
3,622
31 December 2020
1,544
265
1,809
Lease liabilities
2020
2019
$000
$000
1 January
3,756
4,417
Additions
70
-
Lease modifications
(1,328)
-
Interest expense
230
353
Repayment
(781)
(1,014)
31 December
1,947
3,756
Current liabilities
465
1,015
Non-current liabilities
1,482
2,741
1,947
3,756
Amount recognised in the profit and loss account
2020
$000
2019
$000
Depreciation expense of right of use assets
627
795
Gain on lease modifications
(72)
-
Interest expense
230
353
Expenses relating to short term leases
202
200
987
1,348
The amount of future lease commitments for short-term leases at 31 December 2019 and 2020 are similar to the amounts expensed in 2019 and 2020 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 Trade and other receivables
2020
2019
Non-current assets
$000
$000
Advances for fixed asset purchases
-
67
Current assets
Gold held due to the Government of Azerbaijan
3,664
18,684
VAT refund due
671
735
Other tax receivable
256
207
Trade receivables - fair value*
614
-
Prepayments and advances
1,625
2,012
Loans
-
60
Cash in transit**
-
5,085
6,830
26,783
*Trade receivables subject to provisional pricing
** This was a payment from a customer prior to the year end which was not received until early January due to a delay by the bank.
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 2019 or 2020.
The VAT refund due at 31 December 2020 and 2019 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.
17 Inventory
2020
2019
Current assets
$000
$000
Cost
Finished goods - bullion
1,313
1,973
Finished goods - metal in concentrate
456
863
Metal in circuit
17,226
17,041
Ore stockpiles
9,464
10,615
Spare parts and consumables
12,998
13,389
Total current inventories
41,457
43,881
Total inventories at the lower of cost and net realisable value
41,457
43,881
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.
18 Other current financial assets
2020
$000
2019
$000
Financial assets at fair value through profit and loss
Listed equity investment
185
-
The listed equity investment are equity shares which were listed on the AIM market of the London Stock Exchange at 31 December 2020. Their value is determined by reference to published price quotations of the AIM market.
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 2020 (including short-term cash deposits) comprised $21,000 and $38,827,000 respectively (2019: $8,000 and $17,793,000).
The Group's cash and cash equivalents are mostly held in United States Dollars.
20 Trade and other payables
2020
$000
2019
$000
Accruals and other payables
4,570
4,950
Trade creditors
3,369
2,544
Gold held due to the Government of Azerbaijan
3,664
18,684
Payable to the Government of Azerbaijan from copper concentrate joint sale
1,217
1,332
12,820
27,510
Trade creditors primarily comprise amounts outstanding for trade purchases and ongoing costs. Trade creditors are non interest‑bearing and the creditor days were 20 (2019: 16). Accruals and other payables mainly consist of accruals made for accrued but not paid salaries, bonuses, related payroll taxes and social contributions, accrued interest on borrowings and services provided but not billed to the Group by the end of the reporting period. The directors consider that the carrying amount of trade and other payables approximates to their fair value.
The amount payable to the Government of Azerbaijan from copper concentrate joint sale represents the portion of cash received from the customer for the Government's portion from the joint sale of copper concentrate.
21 Interest-bearing loans and borrowings
2020
$000
2019
$000
Pasha Bank - refinancing loan
-
1,688
Loans repayable in less than one year
-
1,688
The directors consider that the carrying amount of interest-bearing loans and borrowings approximates to their fair value.
Pasha Bank - refinancing loan
In 2018, entered into a refinancing agreement with Pasha Bank OJSC, as arranger, for a syndicated loan facility for up to $15 million to refinance the majority of the Group's existing loans. The facility is for two years with a fixed interest rate of 7 per cent. and early repayment is permitted. Loan principal is repayable in 8 equal quarterly instalments. The loan facility is unsecured and there are no financial covenants.
A total of $13.5 million of the facility was drawn-down on the 9 and 12 of February 2018 and used to repay the following loans:
· $2.2 million to Yapi Credit Bank;
· $3.7 million to Amsterdam Trade Bank N. V.;
· $3.7 million to Gazprombank (Switzerland) Ltd; and
· $3.9 million to the Chief Executive.
The loan refinancing was completed by the end of March 2018 and in accordance with the terms of the loan, fully repaid in March 2020.
Unused credit facilities
The Group had a $2 million credit facility from Yapi Credit Bank and a $18 million credit facility from Pasha Bank at 31 December 2020 which were not utilised (2019: $2 million credit facility from Yapi Credit Bank).
22 Changes in liabilities arising from financing activities
2020
1 January
$000
Cash flows
$000
Other
$000
31 December
$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
2019
1 January
$000
Cash flows
$000
Other
$000
31 December
$000
Current interest-bearing loans and borrowings
6,750
(5,062)
-
1,688
Non-current interest- bearing loans and borrowings
1,688
(1,688)
-
-
Lease liabilities
-
(1,014)
4,770
3,756
Total liabilities from financing activities
8,438
(7,764)
4,770
5,444
Other in 2019 results from the implementation of IFRS 16 - "Leases" (note 15). Other in 2020 results mainly from lease modifications.
23 Provision for rehabilitation
2020
$000
2019
$000
1 January
10,485
9,028
Additions
1,330
292
Accretion expense
310
438
Effect of passage of time and change in discount rate
(292)
727
31 December
11,833
10,485
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 2020 was $13,497,000 (2019: $12,211,000). The undiscounted liability was discounted using a risk-free rate of 3.19 per cent. (2019: 2.94 per cent.). Expenditures on restoration and rehabilitation works are expected between 2023 and 2025 (2019: between 2023 and 2025).
24 Financial instruments
Financial risk management objectives and policies
The Group's principal financial instruments at 31 December 2020 comprised cash and cash equivalents. The Group also had bank loans and letters of credit outstanding during the year ended 31 December 2020 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 2020 and 2019 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 2020 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 bank loans and letters of credit outstanding during the year ended 31 December 2020 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 the International Bank of Azerbaijan, Amsterdam Trade Bank ("ATB") and other banks in Azerbaijan. In managing its capital, the Group's primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through capital growth. In order to achieve this objective, the Group seeks to maintain a gearing ratio that balances risk and returns at an acceptable level and also to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs.
The Group is not subject to externally imposed capital requirements and monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group's policy is to keep the gearing ratio below 70 per cent. The Group defines net debt as interest-bearing loans and borrowings less cash and cash equivalents.
Interest rate risk
The Group's cash deposits are at a fixed rate of interest. The Group's bank debt and letters of credit outstanding during the year ended 31 December 2020 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 2019 and 2018.
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. Included in note 21 is a description of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk.
The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments.
Year ended 31 December 2020
On
demand
$000
Less than
3 months
$000
3 to 12
months
$000
1 to 5
years
$000
Total
$000
Lease liabilities
-
220
440
1,980
2,640
Trade and other payables
-
12,820
-
-
12,820
-
13,040
440
1,980
15,460
Year ended 31 December 2019
On
demand
$000
Less than
3 months
$000
3 to 12
months
$000
1 to 5
years
$000
Total
$000
Interest-bearing loans and borrowings
-
1,688
-
-
1,688
Lease liabilities
-
170
846
2,740
3,756
Trade and other payables
-
27,510
-
-
27,510
-
29,368
846
2,740
32,954
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 and Trafigura PTE Ltd. Due to the nature of the customers, the board of directors does not consider that a significant credit risk exists for receipt of revenues. The board of directors continually reviews the possibilities of selling gold to alternative customers and also the requirement for additional measures to mitigate any potential credit risk.
Foreign currency risk
The presentational currency of the Group is United States Dollars. The Group is exposed to currency risk due to movements in foreign currencies relative to the US Dollar affecting foreign currency transactions and balances.
The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at 31 December are as follows:
Liabilities
Assets
2020
$000
2019
$000
2020
$000
2019
$000
UK Sterling
157
-
195
130
Azerbaijan Manats
6,045
5,226
1,085
1,044
Other
525
139
402
-
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 10 per cent., 9 per cent. and 20 per cent. (2019: 9 per cent., 10 per cent. and 10 per cent.) increase and a 10 per cent., 10 per cent., and 3 per cent. (2019: 9 per cent., 8 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 impact
Azerbaijan Manat impact
Euro Impact
2020
2019
2020
2019
2020
2019
$000
$000
$000
$000
$000
$000
Increase - effect on profit before tax
(4)
(12)
992
418
11
11
Decrease - effect on profit before tax
4
12
(149)
(125)
(12)
(11)
Market risk
The Group's activities primarily expose it to the financial risks of changes in gold, silver and copper prices which have a direct impact on revenues. The management and board of directors continuously monitor the spot price of these commodities. The forward prices for these commodities are also regularly monitored. The majority of the Group's production is sold by reference to the spot price on the date of sale. However, the board of directors will enter into forward and option contracts for the purchase and sale of commodities when it is commercially advantageous.
A 10 per cent. decrease in gold price in the year ended 31 December 2020 would result in a reduction in revenue of $8.9 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 $0.1 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 $1.2 million and a 10 per cent. increase in copper price would have an equal and opposite effect.
25 Equity
2020
2019
Number
£
Number
£
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. There were no share options outstanding at 31 December 2019 and 2020 (note 26).
Merger reserve
The merger reserve was created in accordance with the merger relief provisions under Section 612 of the Companies Act 2006 (as amended) relating to accounting for Group reconstructions involving the issue of shares at a premium. In preparing Group consolidated financial statements, the amount by which the base value of the consideration for the shares allotted exceeded the aggregate nominal value of those shares was recorded within a merger reserve on consolidation, rather than in the share premium account.
26 Share-based payment
The Group operates a share option scheme for directors and senior employees of the Group. The vesting periods are up to three years. Options are exercisable at a price equal to the closing quoted market price of the Group's shares on the date of the board of directors approval to grant options. Options are forfeited if the employee leaves the Group and the options are not exercised within three months from leaving date.
There were no share options issued, exercised or outstanding during the years ending 2019 or 2020.
27 Share premium account
2020
$000
2019
$000
1 January and 31 December
33
33
28 Distributions made and proposed
2020
$000
2019
$000
Cash dividends on ordinary shares declared and paid
Final dividend for 2018: 4.0 US cents per share
-
4,592
Interim dividend for 2019: 3.5 US cents per share
-
4,104
Final dividend for 2019: 4.5 US cents per share
5,153
-
Interim dividend for 2020: 4.5 US cents per share
5,158
-
10,311
8,696
Cash dividends on ordinary shares declared and paid subsequent to balance sheet date
Special dividend of 2020: 1.5 US cents per share
1,716
-
Proposed dividends on ordinary shares
Final dividend for 2020: 3.5 US cents per share*
4,004
-
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
rate
Dividend
pence
Final dividend for 2018: 4.0 US cents per share
1.2580
3.1797
Interim dividend for 2019: 3.5 US cents per share
1.2344
3.5739
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 U S cents per share
1.3932
1.0767
*The proposed final dividend for the year ending 31 December 2020 is subject to approval by shareholders at the annual general meeting for 2021 at a rate to be announced. It has not been recognised as a liability in the Group statement of financial position at 31 December 2020.
29 Subsidiary undertakings
Anglo Asian Mining PLC is the parent and ultimate parent of the Group.
The Company's subsidiaries at 31 December 2020 are as follows:
Name
Registered
address
Primary
place of business
Percentage
of holding
per cent.
Anglo Asian Operations Limited
England and Wales
United Kingdom
100
Holance Holdings Limited
British Virgin Islands
Azerbaijan
100
Anglo Asian Cayman Limited
Cayman Islands
Azerbaijan
100
R.V. Investment Group Services LLC
Delaware, USA
Azerbaijan
100
Azerbaijan International Mining Company Limited
Cayman Islands
Azerbaijan
100
There has been no change in subsidiary undertakings since 1 January 2020.
30 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.
31 Related party transactions
Trading transactions
During the years ended 31 December 2019 and 2020, 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 2020, total payments of $658,000 (2019: $887,000) 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 2020 there is a payable in relation to the above related party transaction of $39,000 (2019: $nil).
c) During the year ended 31 December 2020, total payments of $2,244,000 (2019: $1,865,000 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 2020 there is a payable in relation to the above related party transaction of $249,000 (2019: $134,000).
d) On 20 May 2015, the chief executive of the Company made a $4 million loan facility available to the Group. The principal amount of the loan was fully repaid during the year ended 31 December 2018. The interest accrued and unpaid at 31 December 2018 was $325,000 (2017: $655,000). The Group made a payment of $333,000 in April 2019 to the chief executive to settle the interest outstanding at 31 December 2018 together with the additional interest accrued in 2019.
All of the above transactions were made on arm's length terms.
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.
**ENDS**
Notes:
Anglo Asian Mining plc (AIM:AAZ) is a gold, copper and silver producer in Central Asia with a broad portfolio of production and exploration assets in Azerbaijan. The Company has a 1,962 square kilometre portfolio at its active Gedabek, Gosha and Ordubad contract areas assembled from analysis of historic Soviet geological data and held under a Production Sharing Agreement ("PSA") modelled on the Azeri oil industry. The Company also has three recently restored contract areas in the formerly Occupied Territories and Karabakh under its PSA and which the Company has started to preliminary evaluate.
The Company's main operating location is the Gedabek contract area ("Gedabek") which is a 300 square kilometre area in the Lesser Caucasus mountains in western Azerbaijan. The Company developed Azerbaijan's first operating gold/copper/silver mine at Gedabek which commenced gold production in May 2009. Mining at Gedabek was initially from its main open pit which is an open cast mine with a series of interconnected pits. The Company also operates the high grade Gadir underground mine which is co-located at the Gedabek site. The Company has a second underground mine, Gosha, which is 50 kilometres from Gedabek. Ore mined at Gosha is processed at Anglo Asian's Gedabek plant.
The Company produced 67,249 gold equivalent ounces ("GEOs") for the year ended 31 December 2020. Gedabek is a polymetallic ore deposit that has gold together with significant concentrations of copper in the main open pit mine. The Company therefore employs a series of flexible processing routes to optimise metal recoveries and efficiencies. The Company produces gold doré through agitation and heap leaching operations, copper concentrate from its Sulphidisation, Acidification, Recycling, and Thickening (SART) plant and also a copper and precious metal concentrate from its flotation plant.
The Company has a production target for the year to 31 December 2021 of 48,000 ounces to 54,000 ounces of gold and 2,500 tonnes to 2,800 tonnes of copper. This total production target expressed as gold equivalent ounces ("GEOs") at budgeted prices is between 64,000 GEOs and 72,000 GEOs.
Anglo Asian is also actively seeking to exploit its first mover advantage in Azerbaijan to identify additional projects, as well as looking for properties in other jurisdictions in order to fulfil its expansion ambitions and become a mid-tier gold and copper metal production company.
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