REG - Anglo Asian Mining - 2022 Full year results
16/05/2023 07:00
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RNS Number : 4983Z Anglo Asian Mining PLC 16 May 2023
16 May 2023
Anglo Asian Mining PLC
2022 Full year results
Turnover of $84.7 million with profit before tax of $7.5 million
Full year 2022 dividend maintained at US 8 cents per share
Guidance met and significant progress with development of portfolio
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 2022 ("FY 2022").
Khosrow Zamani, Chairman of Anglo Asian, commented:
"This was another important year for Anglo Asian as it transitions to a
mid-tier, multi-asset copper producer. We met production guidance, whilst
making significant progress with our new mines in accordance with our growth
strategy to bring them into production in the short to medium term. The
Company has a strong balance sheet and is well-positioned to meet our upcoming
capital expenditure requirements. We remain committed to delivering
shareholder value and are therefore pleased to declare a final dividend of US
4 cents per share, maintaining the total dividend for the year of US 8 cents
per share."
Financial highlights
· Revenues of $84.7 million (2021: $92.5 million)
o Lower production due to lower gold grades of ore mined at Gedabek
· Profit before taxation of $7.5 million (2021: $12.6 million)
· Operating cash flow before movements in working capital of $27.2
million (2021: $29.3 million)
· All-in sustaining cost ("AISC") of gold production increased to
$1,064 per ounce (2021: $843 per ounce) due to lower production
· Cash of $20.4 million at 31 December 2022 (31 December 2021: $37.5
million)
o $10.2 million and $7.2 million spent on capital expenditure and geological
exploration respectively
o Dividends paid totalling $8.6 million
· Final dividend declared in respect of FY 2022 of US 4 cents per
ordinary share
o Total dividend for the year maintained at the same level as 2021
o Payable on 27 July 2023, subject to approval at the Annual General Meeting,
giving a FY 2022 total dividend of US 8 cents per ordinary share (FY 2021:
$0.08)
o Total dividends of $8.6 million paid in 2022 demonstrating the Company's
ongoing commitment to provide attractive returns to its shareholders
Operational and production highlights:
· Total production of 57,618 gold equivalent ounces ("GEOs"), in line
with guidance and reflecting falling grades of ore at Gedabek
o Gold production of 43,114 ounces (FY 2021: 48,680 ounces)
o Copper production of 2,516 tonnes (FY 2021: 2,649 tonnes)
o Silver production of 182,046 ounces (FY 2021: 154,515 ounces)
· Gold bullion sales of 34,918 ounces (FY 2021: 39,563 ounces)
completed at an average of $1,783 per ounce (FY 2021: $1,799 per ounce), with
copper concentrate shipments totalling 12,443 dry metric tonnes ("dmt") with a
sales value of $22.3 million (excluding Government of Azerbaijan production
share) (FY 2021: 11,148 dmt with a sales value of $23.7 million)
· The acquisition of three new contract areas - Xarxar, Garadag and
Demirli
· Considerable progress made across the asset portfolio
o A new vein, "Hasan", discovered at Gosha
o Final JORC mineral resource completed for Zafar
o Geological camp established and exploration activity ramped up at Vejnaly
o Preliminary non-JORC mineral resource for the Gilar mine completed
o Exploration commenced at Xarxar
· Expansion of the flotation plant to increase capacity and provide
additional operational flexibility
· Investment completed in an associate company - Libero Copper &
Gold Corporation
Outlook
In March 2023, Anglo Asian released its medium-term growth strategy that
outlined its pathway to become a mid-tier, multi-asset producer by 2028. This
will see copper become the Company's principal product by 2026, with copper
equivalent production targeted at circa 36,000 tonnes by 2028.
In line with Company's growth strategy, guidance for 2023 is total production
of circa 50,000 to 54,000 gold equivalent ounces that includes 10,300 to
11,200 tonnes of copper.
Note that all references to "$" are to United States dollars, "CAN$" are to
Canadian dollars, "£" and "pence" are to the United Kingdom pound sterling
and AZN are to the Azerbaijan New Manat.
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have been deemed
inside information for the purposes of Article 7 of Regulation (EU) No
596/2014, which was incorporated into UK law by the European
Union (Withdrawal) Act 2018, until the release of this announcement.
For further information please contact:
Anglo Asian Mining plc
Reza Vaziri, Chief Executive Officer Tel: +994 12 596 3350
Bill Morgan, Chief Financial Officer Tel: +994 502 910 400
Stephen Westhead, Vice President Tel: +994 502 916 894
SP Angel Corporate Finance LLP (Nominated Adviser and Broker) Tel: +44 (0) 20 3470 0470
Ewan Leggat
Adam Cowl
Hudson Sandler (Financial PR) Tel: +44 (0) 20 7796 4133
Charlie Jack
Harry Griffiths
Competent Person Statement
The information in the announcement that relates to exploration results,
minerals resources and ore reserves is based on information compiled by
Dr Stephen Westhead, who is a full-time employee of Anglo Asian Mining with
the position of Vice-President, who is a Fellow of The Geological Society of
London, a Chartered Geologist, Fellow of the Society of Economic Geologists,
Fellow 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 mineral resources included in
this announcement. For the avoidance of doubt, resources and economically
extractable copper figures in this notification are not based on a Standard
for the reporting of reserves and resources, such as JORC, as defined in the
AIM Rules for Companies.
Chairman's statement
I am delighted to present our annual report for 2022. It was a pivotal year
for Anglo Asian Mining, during which time the Company made substantial
progress with its existing operations and in developing its business. This was
done whilst maintaining its track record of operating profitably and
generating value for all stakeholders.
Operational overview
The Company produced 57,618 gold equivalent ounces ("GEOs") in 2022, towards
the top end of our guidance range. This was achieved despite declining grades
of ore at our Gedabek mine, our core asset. Our production guidance for 2023
is 50,000 to 54,000 GEOs.
Our long-standing assets continue to offer considerable potential. In 2022, we
announced the discovery of a new sub-vertical vein at Gosha and published a
JORC mineral resource of 6.8 million tonnes of mineralisation at Zafar, with
average copper grades of 0.50 per cent. At Gilar, we completed a maiden
mineral resource of over 135,000 ounces of gold, 21,500 tonnes of copper and
23,000 tonnes of zinc; this has since been increased following further
drilling in 2023. Construction of the Gilar and Zafar underground mines
commenced in early 2023, and their development will provide a long-term supply
of ore to support our future growth prospects.
A substantial geological exploration programme at Vejnaly was established in
2022 and exploration restarted at Ordubad in early 2023. These areas both have
very encouraging prospectivity for significant mineral discoveries.
In light of the considerable increase in the amount of copper ore we will mine
in the coming years, we have expanded our flotation plant. Its capacity has
been doubled and the installation of additional flotation cells later in 2023
will provide further operational flexibility to our portfolio of mining
assets.
New contract areas and strategic growth plan
We were delighted that, in July 2022, amendments to the Company's Production
Sharing Agreement ("PSA") were ratified by the Parliament of the Republic
of Azerbaijan, granting the Company the three new contract areas of Xarxar,
Demirli and Garadag. In August 2022, the Company acquired historical
exploration data, drill core, geological studies and other reports in respect
of Xarxar and Garadag from AzerGold CJSC, the previous owner of these contract
areas. This allowed our exploration and development team to immediately begin
an extensive analysis of the new contract areas. This work, together with our
geological fieldwork undertaken since July 2022, culminated in the Company
announcing its growth strategy in March 2023. This outlines how we will
transition to a mid-tier, multi-asset copper and gold producer. By 2026, the
Company expects copper to become its principal product, a commodity vital for
the transition to a future powered by clean energy.
Kyzlbulag and Demirli contract areas
Kyzlbulag, together with the newly acquired Demirli contract area, form a
continuous territory of approximately 536 square kilometres in the Karabakh
economic region. They host the Demirli copper and molybdemun mine and
processing plant. The mine was operating until recently, but we now believe it
is idled. We estimate the Demirli mine and plant has the potential to produce
around 10,000 tonnes of copper per annum. However, the level of investment
that will be required to restart the mine and plant is currently unknown.
The area is claimed by Azerbaijan but Russian peacekeepers, who are scheduled
to leave in November 2025, are currently occupying the territory. Once the
Government of Azerbaijan grants the Company access, the mine and processing
plant will become our property at no cost. However, the situation in the
Karabakh economic region is very fluid with no firm date when the Government
of Azerbaijan will grant the Company access. We are continuing to closely
monitor events.
Libero Copper & Gold Corporation
In January 2022, we were delighted to complete our investment in Libero Copper
& Gold Corporation ("Libero"), following which Anglo Asian Mining owns
approximately 19.8 per cent. of Libero. Michael Sununu now serves on the board
of Libero. Farhang Hedjazi was appointed to the technical committee of Libero
and visited Libero's properties in Argentina and Colombia. Libero is listed on
the TSX Venture Exchange in Canada and owns, or has the option to acquire,
several copper exploration properties in North and South America, including
Mocoa in Colombia, one of the world's largest undeveloped copper-molybdenum
resources. The Company made further investments in 2022 and early 2023 to
maintain its approximate 19.8 per cent. ownership.
Financial overview and dividend
Despite facing inflationary headwinds, the Company continued to manage its
cost base tightly and deliver pre-tax profits of $7.5 million. All-in
sustaining cost increased to $1,064 per ounce mainly due to lower production
and the Company finished the year with cash of $20.4 million and no bank debt.
Accordingly, the board is pleased to recommend a final dividend of US 4 cents
per share for 2022, which gives a total dividend for the year of US 8 cents
per share. This maintains the dividend at the same level of US 8 cents per
share in 2021 while ensuring that the Group retains sufficient capital to
pursue its development plans.
The Company bought back 150,000 of its ordinary shares in 2022 at an average
price of 81 pence per share at a total cost of $145,000. The board believed
the shares were undervalued at that price. The shares are held in treasury and
could be sold in the future to an appropriate investor.
The Company entered into an AZN 55 million ($32 million), unsecured revolving
credit facility with the International Bank of Azerbaijan in early 2023. This
shows the confidence of local Azeri banks in the strength of our business.
Sustainability
The long-term development of the Company must be achieved in alignment with
the interests all our stakeholders. As set out in our last annual report, the
Company established its ESG criteria and reporting practices in 2021. It is
now focused on ensuring it continues to enhance its disclosure. To this
effect, we are pleased that in 2022 we continued to make important progress in
this area with a stakeholder assessment survey and further ESG policy
development.
Health and safety
It was with great sadness and regret that the Company experienced its first
employee fatality in 2022. An employee lost control of a loader he was driving
up a hill at Xarxar and was killed in the resulting accident. An external
investigation cleared the Company of any blame for the incident. Anglo Asian
Mining offered its full support to the family of the bereaved, to whom we
extend our deepest condolences. Anglo Asian Mining continues to review and
strengthen its health and safety policies.
Annual General Meeting ("AGM")
We encourage all shareholders to attend our AGM, the details of which are set
out below. The directors welcome all shareholders to attend and look forward
to meeting as many of you as possible.
Summary
The board is extremely excited by Anglo Asian's future growth prospects. The
awarding of the new contract areas is a testament to our reputation of
successfully bringing assets into production on time and within budget for the
benefit of all stakeholders. Importantly, these assets will generate
meaningful growth whilst the Company will not deviate from its commitment to
generate strong returns for its shareholders. Our existing production assets
continue to show excellent development potential and underpin the Company's
strong position as a cash-generative business with a clear path for growth.
Appreciation
I would like to take this opportunity to thank the employees of Anglo Asian
Mining, our partners, the Government of Azerbaijan and our advisers for their
continued support. I would also like to sincerely thank the shareholders for
their continued investment and support in the Company. I look forward to an
exciting year and to sharing our future successes with you all.
Khosrow Zamani
Non-executive chairman
15 May 2023
President and chief executive's review
2022 was another solid year for Anglo Asian Mining, despite the challenges the
Company and the wider mining sector face due to global macroeconomic events
that continue to exert significant inflationary pressure on the industry.
Against this backdrop, the Company continued to operate its mines efficiently
and profitably.
Operational review
We are pleased with the performance of our ongoing operations. Our total
production of 57,618 gold equivalent ounces ("GEOs") was at the upper end of
our stated guidance range and comprised 43,114 ounces of gold, 2,516 tonnes of
copper and 182,046 ounces of silver. Production was lower than in 2021 mainly
due to the lower grades of ore taken from the Gedabek mine.
During the year, we took several important steps towards increasing our future
production by starting the development of Zafar and Gilar, two new underground
mines. In parallel, the Company worked extensively on evolving its medium-term
growth strategy. This combines the development of our existing and
newly-acquired assets into a clear and defined plan to enable the Company to
achieve its growth ambitions.
In July 2022, our amended Production Sharing Agreement was passed into law,
awarding us the three new contract areas of Garadag, Xarxar and Demirli, which
have a combined area of 882 square kilometres. In August 2022, we acquired
historical geological data regarding Garadag and Xarxar from AzerGold CJSC,
which comprised core drill assay results and geochemical and geophysical data
including maps and interpretative reports. We also acquired 23 kilometres of
AzerGold CJSC drill core. Subsequently, we conducted an in-depth analysis of
all the historical geological data supplemented by our ongoing geological
fieldwork. These data reinforced our confidence that we can establish a
significant copper-gold mining district in the Gedabek region of Azerbaijan.
Throughout the year, we also made considerable progress with the existing
assets within our portfolio, starting with the completion of a JORC mineral
resource of the Zafar deposit. The mineral resource showed 28,000 tonnes of
copper, 73,000 ounces of gold, and 36,000 tonnes of zinc, supported by over
302 metres of continuous mineralisation in the thickest intersection.
We are extremely pleased with the progress of Gilar, which is expected to
commence production in late 2023. Towards the end of 2022, the Company
announced a non-JORC preliminary maiden mineral resource for the Gilar
deposit, with over 135,000 ounces of gold, 21,500 tonnes of copper and 23,000
tonnes of zinc. In early 2023, the Company announced an update which further
increased the mineral resource at Gilar, as discussed in the outlook section
below.
We restarted exploration work in early 2023 at Ordubad in the Nakhchivan
exclave. We now have one drill rig operating there. The drill results will be
combined with data from satellite imaging and geochemical sampling to better
understand the geology of the region. We are also encouraged that the
Government of Azerbaijan continues to strongly support the construction of a
road between Zangilan and Nakhchivan to greatly improve access to the exclave
from Azerbaijan.
We have established an active exploration programme at Vejnaly. A substantial
team of geologists are now based there. Following the decision in late 2022 to
fast-track development of the Gilar mine, recommencing gold production from
Vejnaly is now less of a priority. However, we expect some minor production in
2023 from Vejnaly from ore brought to the surface as our geologists clean out
the existing underground tunnels. The ore will be transported to Gedabek for
processing. At Gosha, we discovered a new sub-vertical gold vein to the south
of the Gosha mine with some bonanza gold grades. However, gold production from
Gosha is now also less of a priority, given the development of Gilar.
Our growth plan includes a significant increase in copper and, as a first
step, we initiated an expansion programme of our existing flotation plant
which doubled its processing capacity. Furthermore, seven additional flotation
cells will be installed later in 2023 to provide extra flexibility and
establish a line to produce zinc concentrate.
The Company has now obtained the necessary permit to build a new tailings dam
in the valley adjoining the current dam. Detailed planning for the
construction of the new dam, together with further geotechnical
investigations, has commenced. The current dam is nearing full capacity, and
to ensure sufficient tailings storage capacity is available until the new dam
is completed, an auxiliary tailings storage dam is being constructed close to
the Zafar mine portal. This will be completed in the third quarter of the year
and will provide enough capacity for 12 to 18 months. The possibility of a
further raise of the wall of the existing dam is being assessed in conjunction
with Knight Piésold, a leading firm of geotechnical and environmental
consulting engineers.
Sustainability initiatives
The long-term growth and profitability of our business must be sustainable and
comply with all relevant and necessary best practice standards. We employ
almost 1,000 people which makes us a large and significant employer in
Azerbaijan. We run multiple community outreach programmes, including
carpet-making to provide homework for family members of our staff and teaching
Taekwondo to children and young adults at Gedabek. Benefitting the communities
in which we operate is critical to ensuring that we remain a responsible
employer and a respected member of the business community in Azerbaijan.
Financial performance
The Company had a turnover in 2022 of $84.7 million and a profit before tax of
$7.5 million. The Company ended the year with cash of $20.4 million and no
bank debt. Cash generation remained good, and the Company generated cash of
$17.0 million from its operations. The Company spent $10.2 million on capital
expenditure and $7.2 million on geological exploration.
The war in Ukraine has resulted in considerable geopolitical uncertainty and
widespread economic disruption. However, the Company was unaffected directly
by the war and the international sanctions levied against various Russian
entities. Like all companies in the mining sector, the Company had to deal
with inflation. Most notably, we saw increases in the price of reagents and
other consumables, such as grinding balls. However, the Company was insulated
to some extent from increases in the cost of energy as Azerbaijan is a
significant energy producer. For example, diesel fuel remained at US 47 cents
per litre throughout 2022. Our focus on tight cost control ensured that the
cost of our inputs was managed to minimise the impact on the Company's
profitability.
Revenues continued to be subject to an effective royalty of 12.75 per cent.
through our Production Sharing Agreement with the Government of Azerbaijan. We
anticipate that this same royalty rate will continue until at least the end
2025, with further details set out in the financial review below.
The price of gold in 2022 averaged $1,801 per ounce for the year, helping
deliver a solid market into which sell our gold. The Company continued not to
hedge gold sales in 2022. However, given the gold price of over $2,000 per
ounce in early 2023, this policy is kept under review.
Health and Safety
The Company's record on health and safety performance, which has undergone a
big improvement over the last few years, unfortunately suffered a reversal in
2022. The Company tragically suffered the first fatality in its history when
the driver of a loader was killed in an accident. The Company also incurred
two incidents where the injured employee had to take time off work (2021:
nil). As a result, the LTI (Lost Time Incident) frequency rate increased to
2.18. Anglo Asian Mining remains committed to the highest standards of health
and safety for all our employees and is strengthening its safety policies and
practices in light of the accidents in 2022.
A detailed report on health and safety will be included in our annual report
and accounts for 2022.
Growth strategy
We were delighted to release our medium-term growth strategy in March 2023
which provides a clear pathway for the Company's growth to mid-tier status.
The strategy is ambitious but achievable and will see Anglo Asian Mining more
than double its production in the next five years. Critically, our transition
towards copper as our primary product is in line with the global clean energy
agenda and the shift to renewable sources. The strategy will establish the
Company as a multi-asset, mid-tier mining company.
The Company forecasts total production increasing by 30 to 50 per cent. to
70,000 to 75,000 GEOs for 2024 and 2025 driven by production from the Gilar
mine. Copper production is targeted to grow to more than 36,000 tonnes per
annum (175,000 GEOs) from 2028, as Xarxar and Garadag are brought into
production.
Our core Gedabek mine remains an important asset which we expect to continue
in production until at least 2028. Alongside this, we expect strong production
from Gilar, where drilling in 2023 has led to the discovery of increased
mineral resources, now estimated to contain over 249,000 ounces of gold,
46,000 tonnes of copper, and 48,000 tonnes of zinc. Recently, additional
encouraging drill results have revealed further increases in the deposit's
size and provided added confidence regarding the extent of the mineralisation.
This underpins the decision to start construction of an underground tunnel at
Gilar for further exploration and early production.
Zafar is progressing well, with the completion of the mine design and
commencement of the construction of two parallel declines. The Company is
currently procuring an underground mining fleet and related equipment. This
fleet can be deployed in either the Zafar or Gilar mine.
An initial assessment of data relating to the Garadag porphyry copper deposit
has also confirmed the potential to produce over 300,000 tonnes of copper.
We remain committed to Libero Copper & Gold Corporation ("Libero"). The
investment in Libero reflects portfolio diversification, and we continue to
seek opportunities beyond Azerbaijan. Libero also complements our growth
strategy well, and we look forward to seeing its world-class copper assets
developed in the coming years.
Looking ahead
2023 will be a pivotal year as we focus on the implementation of our growth
strategy, with Anglo Asian continuing to benefit from commodity prices which
have started strongly in 2023, with gold hitting its all-time high since
August 2020, at $2,048 per ounce. We remain focused on delivering value to all
our stakeholders and strengthening our commitments to safety, sustainability
and community engagement. We are excited with our portfolio of current and
future assets which we will develop to transition to mid-tier status. I would
like to thank all our employees for their fantastic work and support.
We continue to prioritise ensuring attractive shareholder returns and are
proud of our position as one of AIM's reliable dividend payers. I am pleased
to note that the board is recommending a final dividend of US 4 cents per
ordinary share, which gives a full year dividend for 2022 of US 8 cents per
ordinary share.
Reza Vaziri
President and chief executive
15 May 2023
Dividend
A final dividend of US$0.04 per share will be paid gross in respect of the
year ended 31 December 2022 to shareholders on 27 July 2023 that are on the
shareholders record at the record date of 30 June 2023, subject to approval of
the shareholders at the Company's Annual General Meeting on 22 June 2023. The
shares will go ex-dividend on 29 June 2023. 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 3 to 7 July 2023.
Annual General Meeting for 2023
The Annual General Meeting of the Company for 2023 will be held on 22 June
2023 at 11:00am at 33 St James's Square, London SW1Y 4JS, United Kingdom. All
shareholders are warmly invited to attend.
Corporate governance and Section 172 (1) Statement
A statement of the Company's compliance with the ten principles of corporate
governance in the Quoted Companies Alliance Corporate Governance Code ('QCA
Code') will be included in the Company's annual report and accounts for 2022.
The Company's Section 172 (1) Statement is included within the strategic
report below.
Sustainability at Anglo Asian Mining
A report on sustainability, including a detailed report on health and safety,
will be included in the Company's annual report and accounts for 2022.
Strategic report
Principal activities
Anglo Asian Mining PLC (the "Company"), together with its subsidiaries (the
"Group"), owns and operates gold, silver and copper producing properties in
the Republic of Azerbaijan ("Azerbaijan"). It also explores for and develops
gold and copper deposits in Azerbaijan.
The Group also owns approximately 19.8 per cent. of Libero Copper & Gold
Corporation ("Libero"), a company which owns several copper exploration
properties in North and South America including Mocoa in Colombia, one of the
world's largest undeveloped copper-molybdenum resources.
Production Sharing Agreement with the Government of Azerbaijan
The Group's mining concessions in Azerbaijan are held under a Production
Sharing Agreement ("PSA") with the Government of Azerbaijan dated 20 August
1997. Amendments to the PSA were passed into law in Azerbaijan on 5 July 2022.
The Group's mining concessions are called Contract Areas and six were granted
to the Group by the original PSA in 1997. These were Gedabek, Gosha, Ordubad,
Vejnaly, Kyzlbulag and Soutely. However, there was no access to Vejnaly,
Kyzlbulag and Soutely, which were situated in territory occupied at that time
by Armenia. Following the resolution of the conflict between Azerbaijan and
Armenia in 2020, access was obtained to Vejnaly in 2021.
On 5 July 2022, amendments to the PSA were passed into law by the Government
of Azerbaijan which granted the Group three additional Contract Areas:
Garadag, Xarxar and Demirli and relinquished Soutely. There was no payment
made for the amendments to the PSA.
Ø Garadag and Xarxar are situated 4.0 and 1.5 kilometres respectively from
the northern boundary of the Gedabek Contract Area. They infill the territory
between Gedabek and Gosha and create a contiguous territory totalling 1,408
square kilometres.
Ø Demirli is in the Karabakh economic region and expands the Kyzlbulag
Contract Area to the north-east. There is currently no access to Kyzlbulag and
Demirli. The PSA will only commence in respect of these two Contract Areas
upon notification by the Government of Azerbaijan to the Group of the
cessation of all hostilities and that it is safe to access the district.
Contract Areas in Azerbaijan
Following the amendments to its PSA in 2022, the Group has eight Contract
Areas covering a total of 2,544 square kilometres in western Azerbaijan:
Ø Gedabek. The location of the Group's primary gold, silver and copper open
pit mine and the Gadir and Gedabek underground mines. The Group has two new
underground mines in development at Gedabek - Zafar and Gilar. The Group's
main processing facilities are also located at Gedabek.
Ø Gosha. Located approximately 50 kilometres from Gedabek and hosts a narrow
vein gold and silver mine. A new vein "Hasan" was discovered at Gosha in 2022.
Ø Ordubad. An early-stage gold and copper exploration project located in the
Nakhchivan exclave.
Ø Garadag. Located to the north of Gedabek and which hosts the large Garadag
copper deposit.
Ø Xarxar. Another copper deposit, adjacent to Garadag, which shows
significant potential as it is likely part of the same mineral system.
Ø Kyzlbulag. Situated in the Karabakh economic region. Hosts the Demirli
deposit, a copper/molybdenum mine and a processing plant.
Ø Demirli. Adjacent to Kyzlbulag and expands the Kyzlbulag Contract Area to
the north-east.
Ø Vejnaly. Situated in the Zangilan district of Azerbaijan and hosts the
Vejnaly deposit.
Overview of 2022
The Company's strategy is to transition into a mid-tier copper-focused
producer, which will be achieved through developing its significant assets.
This will favourably position Anglo Asian for the upcoming era of
electrification and decarbonisation to create considerable shareholder value.
In January 2022, the Group completed the remaining 10 per cent. of its initial
investment in Libero, taking it to 19.8 per cent. Michael Sununu was appointed
to Libero's board of directors and a technical committee was established to
which Farhang Hedjazi was appointed as Anglo Asian's representative. Anglo
Asian made three further follow-on investments in Libero via private
placements in August 2022, January 2023 and February 2023 to maintain its
interest at approximately 19.8 per cent.
In March 2022, the Group announced the discovery of a significant new
sub-vertical gold vein, "Hasan", at Gosha.
In March 2022, the final mineral resource estimate for the Zafar deposit was
published. Mine planning continued throughout 2022 with development started in
early 2023. Underground equipment was selected with the major drilling
equipment to be supplied by Epiroc and the mining and loading equipment by
Caterpillar. Initial down payments were made for the equipment in late 2022
and 2023. Construction of the Zafar mine started in early 2023.
Activity was increased at Vejnaly during 2022 following access being obtained
in late 2021. A camp has been established and staff are now permanently
located at Vejnaly. The staff are mainly geologists exploring in the existing
mine and its vicinity.
In July 2022, the Group acquired three additional Contract Areas: Garadag,
Xarxar and Demirli and relinquished the Soutely Contract Area. This was
following amendments to the Group's PSA being passed into law.
In November 2022, the Group commenced an expansion of its flotation processing
plant. The expansion will double the capacity of the plant and cost
approximately $3.0 million. It will also add an additional flotation line
which will increase the flexibility of the plant and enable it to produce a
zinc concentrate. The expansion is expected to be completed in the second half
of 2023.
In December 2022, a preliminary maiden non-JORC mineral resource for the Gilar
deposit was published, following exceptional drilling results. This was
updated in March 2023. Development of an underground mine commenced with the
opening of a portal and commencement of the construction of an underground
tunnel suitable for exploration and production in early 2023.
Production target for 2023
The Group's production guidance for the year ended 31 December 2023 is as
follows:
Metal Unit Full year 2023
Full year 2022 Production guidance
Actual production
Gold ounce 43,114 30,000 to 32,000
Copper tonne 2,516 4,100 to 4,300
Total gold and copper GEO* 57,618 50,000 to 54,000
The Company does not forecast silver production as it is not material.
* Gold equivalent ounce
The gold equivalent ounces were computed using the following budget rates:
Price of metal Gold equivalent ounces of metal
Metal Unit Actual Actual Budget
31 December 2022 Budget 2023 31 December 2022 2023
$ $ Ounces Ounces
Gold ounce 1,797.55 1,800.00 1.000 1.000
Silver ounce 23.97 20.00 0.013 0.011
Copper tonne 8,387.00 8,500.00 4.666 4.722
The Company's production profile will change significantly in 2023 as copper
becomes a greater proportion of its production:
· The agitation leaching plant will operate on a "campaign basis" during
the year processing mainly gold rich ore from the Gedabek open pit and
underground mines. There is a diminishing amount of ore suitable for agitation
leaching at Gedabek. Additionally, it is more commercially advantageous to use
the plant's crushing and grinding circuit to treat ore for the expanded
flotation plant.
· The capacity of the flotation plant will double in 2023 as a result
of the investment of approximately $3 million.
· Copper rich ore from the Gedabek open pit will be used as feedstock
for the flotation plant during 2023. From the fourth quarter of 2023, it is
planned that Gilar ore will also be processed by flotation and its gold
content extracted by agitation leaching. There will be no production of Zafar
ore in 2023.
· Only a very minimal amount of ore will be processed from the Vejnaly
and Gosha mines in 2023. The recent decision to fast-track the Gilar mine into
production has required redeployment of resources away from these two
projects.
Mineral resources and ore reserves
Key to the future development of the Group are the mineral resources and ore
reserves within its Contract Areas. Mineral resources and ore reserves
estimates are produced both in accordance with the JORC (2012) code ("JORC")
and as non-JORC-compliant estimates.
The Group's most recent mineral resources and ore reserves estimates in
accordance with JORC for the Gedabek open pit and Gadir underground mine were
published on 2 November 2020. Table 1 shows the Gedabek open pit mineral
resources estimate and Table 2 shows the Gedabek open pit ore reserves
estimate. Table 3 shows the Gadir underground mine mineral resources estimate
and Table 4 shows the Gadir underground mine ore reserves estimate.
A final mineral resources estimate for the Zafar deposit at 30 November 2021
prepared in accordance with JORC was published on 21 March 2022 and is shown
in Table 5. The latest non-JORC mineral resources estimate for the Gilar
deposit was published in March 2023 and is shown in Table 6.
Table 7 shows the Soviet mineral resource for the Vejnaly deposit and Table 8
shows the Soviet C1 and C2 copper resource for the Garadag deposit.
Table 1 - Gedabek open pit mineral resources estimate at 30 June 2020
MINERAL RESOURCES (cut-off grade of 0.2 g/t gold)
In-situ grades Contained metal
Mineral Tonnage
Resources
(Mt)
Gold Copper Silver Zinc grade Gold Copper Silver Zinc
grade grade grade (%)
(g/t) (%) (g/t) (koz) (kt) (koz) (kt)
Measured 15.8 0.66 0.12 2.58 0.24 335 19.0 1,311 37.9
Indicated 12.0 0.56 0.12 2.31 0.16 216 14.4 891 19.2
Measured and
Indicated
27.8 0.62 0.12 2.46 0.21 551 33.4 2,202 57.1
Inferred 13.0 0.44 0.06 0.61 0.15 184 7.8 255 19.5
TOTAL 40.8 0.56 0.10 1.87 0.19 735 41.2 2,457 76.6
Some of the totals in the above table may not sum due to rounding
ADDITIONAL MINERAL RESOURCES (additional to gold mineral resource)
(gold cut-off < 0.2 g/t and copper > 0.3 %)
Gold Copper Silver Zinc Contained metal
Tonnage Gold Tonnage Copper Tonnage Silver Tonnage Zinc grade Gold Copper Silver Zinc
grade grade grade (%)
(Mt) (g/t) (Mt) (%) (Mt) (g/t) (Mt) (koz) (kt) (koz) (kt)
Measured - - 2.15 0.43 0.08 16.4 1.86 0.53 - 9.2 42 9.9
Indicated - - 2.13 0.34 0.28 13.9 2.03 0.51 - 7.2 125 10.4
Measured and
Indicated
- - 4.28 0.39 0.36 14.5 3.89 0.52 - 16.5 167 20.2
Inferred - - 2.85 0.40 0.15 19.4 7.04 0.54 - 11.4 94 38.0
TOTAL - - 7.10 0.39 0.51 15.9 10.9 0.50 - 27.9 261 58.2
Some of the totals in the above table may not sum 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 Stockpile grades Contained metal
Tonnage
(Mt)
Gold Copper Silver Gold Copper Silver
grade grade grade
(g/t) (%) (g/t) (koz) (kt) (koz)
Agitation leach 0.02 1.87 0.24 17.79 1 - 10
Flotation 0.14 0.90 0.53 11.71 4 0.7 53
Heap leach (crushed) 0.06 0.81 0.11 7.71 2 0.1 16
Heap leach (ROM) 0.61 0.73 0.21 10.23 14 4.3 201
Stockpile Mineral Resources 0.83 0.79 0.26 10.44 21 2.2 279
Some of the totals in the above table may not sum due to rounding
Table 2 - Gedabek open pit ore reserves estimate at 30 June 2020
In-situ grades Contained metal
Tonnage
(Mt)
Gold Copper Silver Gold Copper Silver
grade grade grade
(g/t) (%) (g/t) (koz) (kt) (koz)
Proven 8.07 0.72 0.19 3.48 187 15.3 902
Probable 3.65 0.64 0.23 4.87 75 8.5 572
In-situ ore reserves 11.72 0.70 0.20 3.91 263 24 1,474
Stockpile grades
Agitation leach 0.02 1.87 0.24 17.79 1 - 10
Flotation 0.14 0.90 0.53 11.71 4 0.7 53
Heap leach (crushed) 0.06 0.81 0.11 7.71 2 0.1 16
Heap leach (ROM) 0.61 0.73 0.21 10.23 14 4.3 201
Stockpile ore reserves 0.83 0.79 0.26 10.44 21 2.2 279
TOTAL ORE RESERVES 12.55 0.70 0.21 4.34 284 26.0 1,754
Some of the totals in the above table may not sum due to rounding
Proved and probable ore reserves estimate is based on that portion of the
measured and indicated mineral resources of the deposit within the scheduled
mine designs that may be economically extracted, considering all "Modifying
Factors" in accordance with the JORC (2012) Code.
Table 3 - Gadir underground mine mineral resources estimate at 30 September
2020
MINERAL RESOURCES (cut-off grade of 0.5 g/t gold)
In-situ grades Contained Metal
Mineral Tonnage
Resources
(kt)
Gold Copper Silver Zinc grade Gold Copper Silver Zinc
grade grade grade (%)
(g/t) (%) (g/t) (koz) (t) (koz) (t)
Measured 2,035 2.47 0.09 4.69 0.61 162 1,831 307 12,407
Indicated 966 1.59 0.02 0.63 0.33 49 193 20 3,188
Measured and
Indicated
3,001 2.19 0.07 3.40 0.52 211 2,024 326 15,595
Inferred 1,594 1.10 0.01 0.03 0.10 56 159 2 1,594
TOTAL 4,595 1.81 0.05 2.22 0.37 267 2,183 328 17,189
Some of the totals in the above table may not sum due to rounding
Table 4 - Gadir underground mine ore reserves estimate at 30 September 2020
In-situ grades Contained metal
Tonnage
(Mt)
Gold Copper Silver Gold Copper Silver
grade grade grade
(g/t) (%) (g/t) (koz) (t) (koz)
Proven 0.47 2.32 0.04 3.38 35 173 51
Probable 0.19 2.20 0.01 0.74 14 18 5
TOTAL ORE RESERVE 0.66 2.28 0.03 2.60 49 191 56
Some of the totals in the above table may not sum due to rounding
The above proved and probable ore reserves estimate is based on that portion
of the measured and indicated mineral resource of the deposit within the
scheduled mine designs that may be economically extracted, considering all
"Modifying Factors" in accordance with the JORC (2012) Code. Zinc was not
estimated as part of this reserve as it is under study at resource level
currently.
Table 5 - Zafar mineral resources estimate at 30 November 2021
Copper > 0.3 per cent. copper equivalent
Tonnage In-situ grades Contained metal
(Mt)
Copper Gold Zinc Copper Gold Zinc
(%) (g/t) (%) (kt) (kozs) (kt)
Measured and indicated 5.5 0.5 0.4 0.6 25 64 32
Inferred 1.3 0.2 0.2 0.3 3 9 3
Total 6.8 0.5 0.4 0.6 28 73 36
Some of the totals in the above table may not sum due to rounding
Note that all tonnages reported are dry metric tonnes.
Table 6 - Latest Non-JORC mineral resources estimate of the Gilar deposit
Tonnes Gold Copper Zinc Gold Copper Zinc
(Mt) (g/t) (%) (%) (Oz) (T) (T)
Class 1+2 3.93 1.53 0.93 0.94 192,929 36,687 37,009
Class 3 1.71 1.02 0.57 0.69 56,155 9,778 11,777
Total 5.64 1.37 0.82 0.87 249,083 46,466 48,786
Some of the totals in the above table may not sum due to rounding
Cut-off grade 0.5 gold eq. / gold eq = gold g/t + (copper % x 1.49) + (zinc x
0.46) + (silver x 0.01) + (lead x 0.37).
Amounts of contained metal have been rounded to the nearest hundred of ounces
or tonnes.
Table 7 - Soviet mineral resources of the Vejnaly deposit
Metal content
Units Category C1 Category C2 Total C1 and C2
Ore tonnes 181,032 168,372 349,404
Gold kilograms 2,148.5 2,264.2 4,412.7
Silver kilograms 6,108.9 4,645.2 10,754.1
Copper tonnes 1,593.6 1,348.8 2,942.4
Some of the totals in the above table may not sum due to rounding
Table 8 - Soviet copper resources for the Garadag deposit
Copper content
Category C1 C2 Total C1 and C2
Ore Millions of tonnes 25.35 23.69 49.04
Copper Thousands of tonnes 168.0 150.7 318.7
Grade Per cent. 0.65 0.64 0.64
Some of the totals in the above table may not sum due to rounding
Gedabek
Introduction
The Gedabek mining operation is located in a 300 square kilometre Contract
Area in the Lesser Caucasus mountains in western Azerbaijan on the Tethyan
Tectonic Belt, one of the world's most significant copper and gold-bearing
geological structures. Gedabek is the location of the Group's Gedabek open pit
mine, the Gadir and Gedabek underground mines and the Company's processing
facilities. The new Zafar and Gilar underground mines are both being developed
at Gedabek.
Gold production at Gedabek commenced in September 2009. Ore was initially
mined from an open pit, with underground mining commencing in 2015 when the
Gadir mine was opened. In 2020, underground mining commenced beneath the main
open pit (the "Gedabek underground mine"). The Gedabek and Gadir underground
mines have now been connected to form one continuous underground system of
tunnels.
Initial gold production was by heap leaching, with copper production beginning
in 2010 when the Sulphidisation, Acidification, Recycling and Thickening
("SART") plant was commissioned. The Group's agitation leaching plant
commenced production in 2013 and its flotation plant in 2015. From the start
of production to 31 December 2022, approximately 787 thousand ounces of gold
and 19 thousand tonnes of copper have been produced at Gedabek.
Gedabek open pit and Gedabek and Gadir underground mines
The principal mining operation at the Gedabek is conventional open-cast mining
using trucks and shovels from the Gedabek open pit (which comprises several
contiguous smaller open pits). Ore is also mined from the Gadir and Gedabek
underground mines.
The Group also mined ore in 2022 from the Gadir and Gedabek underground mines.
Table 9 shows all the ore mined by the Group in the year ended 31 December
2022.
Table 9 - Ore mined at Gedabek for the year ended 31 December 2022
Total ore mined
for the year ended
31 December 2022
Ore mined Average
gold grade
Mine (tonnes) (g/t)
Gedabek open pit 1,705,337 0.47
Gadir - underground 136,715 1.41
Gedabek - underground 373,915 1.30
Total for the year 2,215,967 0.67
Zafar and Gilar mine development
The Group is developing two new underground mines at Gedabek - Zafar and
Gilar.
The Zafar deposit was discovered in 2021 and is close to the Gedabek
processing facilities. Its final mineral resources estimate was published in
March 2022 and is set out in Table 5 - "Zafar mineral resources estimate at 30
November 2021". Two declines will be constructed to access the mineralisation,
a haulage decline and a parallel ventilation decline. The two portals for the
declines have been constructed close to the existing Gedabek processing
facilities and about 1,000 metres from the mineralisation. Mining will be by
sub-level caving supplemented by sub-level open stoping. The necessary
underground machinery has been contracted for with drilling equipment
manufactured by Epiroc and the mining and loading equipment manufactured by
Caterpillar.
The Group commenced developing the Gilar underground mine in late 2022,
following exceptional drilling results in the south of the area. The latest
non-JORC mineral resources estimate was published in March 2023 and is set out
in Table 6 - "Latest Non-JORC mineral resources estimate of the Gilar
deposit". A portal has been constructed and a tunnel is under construction
suitable for both exploration and production.
Processing operations
Ore is processed at Gedabek to produce either gold doré (an alloy of gold and
silver with small amounts of impurities, mainly copper) or a copper and
precious metal concentrate.
Gold doré is produced by cyanide leaching. Initial processing is to leach
(i.e. dissolve) the precious metal (and some copper) in a cyanide solution.
This is done by various methods:
1 Heap leaching of crushed ore. Crushed ore is heaped into permeable
"pads" onto which is sprayed a solution of cyanide. The solution dissolves the
metals as it percolates through the ore by gravity and it is then collected by
the impervious base under the pad.
2 Heap leaching of run of mine ("ROM") ore. The process is similar to
heap leaching for crushed ore, except the ore is not crushed, instead it is
heaped into pads as received from the mine (ROM) without further treatment or
crushing. This process is used for very low-grade ores.
3 Agitation leaching. Ore is crushed and then milled in a grinding
circuit. The finely ground ore is placed in stirred (agitation) tanks
containing cyanide solution and the contained metal is dissolved in the
solution. Any coarse, free gold is separated using a centrifugal-type Knelson
concentrator.
Slurries produced by the above processes with dissolved metal in solution are
then transferred to a resin-in-pulp ("RIP") plant. In this plant, a synthetic
resin is used to selectively absorb the gold and silver from the slurry. The
metal-loaded resin is then "stripped" of its gold and silver by desorption
into another solution, from which the metals are recovered by electrolysis,
followed by smelting to produce the doré metal, which comprises an alloy of
gold and silver.
Copper and precious metal concentrates are produced by two processes, SART
processing and flotation.
1 Sulphidisation, Acidification, Recycling and Thickening ("SART"). The
cyanide solution after gold absorption by resin-in-pulp processing is
transferred to the SART plant. The pH of the solution is then changed by the
addition of reagents which precipitates the copper and any remaining silver
from the solution. The process also recovers cyanide from the solution, which
is recycled back to leaching.
2 Flotation. Finely-ground ore is mixed with water to produce a slurry
called "pulp" and 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.
During 2022, the Group contracted to purchase an additional seven cells for
the flotation plant. These cells use "Imhoflot" pneumatic flotation
technology, which require less energy and offers better recoveries than
traditional tank cells and flotation columns. A new thickener and filter press
were also ordered. The new equipment, together with modifications to
de-bottleneck the existing flotation plant, will double its capacity at a
total cost of around $3.0 million. It will also enable the production of a
zinc concentrate. The modifications to increase the capacity of the flotation
plant have been completed and the new flotation line will be installed in the
second half of 2023.
Table 10 summarises the ore processed by leaching at Gedabek for the year
ended 31 December 2022.
Table 10 - Ore processed by leaching at Gedabek for the year ended 31 December
2022
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 2022 115,173 273,577 144,275 0.75 0.48 1.63
30 June 2022 82,814 299,762 162,239 0.78 0.53 1.49
30 September 2022 92,398 302,714 162,669 0.81 0.57 1.41
31 December 2022 24,606 213,120 156,285 0.72 0.56 1.52
Total for the year 314,991 1,089,173 625,468 0.77 0.56 1.51
Table 11 summarises ore processed by flotation for the year ended 31 December
2022.
Table 11 - Ore processed by flotation for the year ended 31 December 2022
Quarter ended Ore processed Gold content Silver content Copper content
(tonnes) (ounces) (ounces) (tonnes)
31 March 2022 104,475 1,921 33,522 577
30 June 2022 114,099 1,293 24,209 745
30 September 2022 143,838 1,314 24,582 724
31 December 2022 119,819 1,389 18,003 670
Total for the year 482,231 5,917 100,316 2,716
Previously heap leached ore
Gold production at Gedabek from 2009 to 2013 was by heap leaching crushed ore
until the start-up of the agitation leaching plant in 2013. The heaps remain
in-situ and given the high grade of ore processed prior to the commencement of
agitation leaching, and the lower recovery rates, much of the previously heap
leached ore contains significant amounts of gold. This is now being processed
by agitation leaching. Table 12 shows the amount of previously heap leached
ore processed in 2022.
Table 12 - Amount of previously heap leached ore processed in 2022
In-situ material Average gold grade
(t) (g/t)
1 January 2022 1,586,313 1.36
Processed in the year (195,689) 1.18
31 December 2022 1,390,624 1.39
Production and sales
For the year ended 31 December 2022, gold production totalled 43,114 ounces,
which was a decrease of 5,566 ounces in comparison to the production of 48,680
ounces for the year ended 31 December 2021.
Table 13 summarises the gold and silver bullion produced from doré bars and
sales of gold bullion for the year ended 31 December 2022.
Table 13 - Gold and silver bullion produced from doré bars and sales of gold
bullion for the year ended 31 December 2022
Quarter ended Gold produced* Silver produced* Gold sales** Gold sales price
ounces ounces ounces $/ounce
31 March 2022 8,963 7,574 7,519 1,904
30 June 2022 10,137 7,620 3,754 1,895
30 September 2022 10,473 6,949 10,000 1,727
31 December 2022 10,437 4,820 13,645 1,727
Total for the year 40,010 26,963 34,918 1,783
*Including Government of Azerbaijan's share.
** Excluding Government of Azerbaijan's share.
Table 14 summarises the total copper, gold and silver produced as concentrate
by both SART and flotation processing for the year ended 31 December 2022.
Table 14 - Total copper, gold and silver produced as concentrate by both SART
and flotation processing for the year ended 31 December 2022
Copper (tonnes) Gold (ounces) Silver (ounces)
Quarter ended SART Flotation Total SART Flotation Total SART Flotation Total
31 March 2022 188 380 568 12 1,065 1,077 25,114 17,986 43,100
30 June 2022 168 547 715 14 715 729 25,582 15,672 41,254
30 September 2022 208 401 609 33 581 614 24,077 14,094 38,171
31 December 2022 244 380 624 39 645 684 20,833 11,725 32,558
Total for the year 808 1,708 2,516 98 3,006 3,104 95,606 59,477 155,083
Table 15 summarises the total copper concentrate (including gold and silver)
production and sales from both SART and flotation processing for the year
ended 31 December 2022.
Table 15 - Total copper concentrate (including gold and silver) production and
sales from both SART and flotation processing for the year ended 31 December
2022
Concentrate Copper Gold Silver Concentrate Concentrate
production* content* content* content* sales sales**
Quarter ended (dmt) (tonnes) (ounces) (ounces) (dmt) ($000)
31 March 2022 2,916 568 1,077 43,100 1,477 3,248
30 June 2022 4,127 715 729 41,254 4,642 8,127
30 September 2022 3,172 609 614 38,171 1,718 3,378
31 December 2022 3,086 624 684 32,558 4,606 7,487
Total for the year 13,301 2,516 3,104 155,083 12,443 22,240
*Including the Government of Azerbaijan's share.
** These are invoiced sales of the Group's share of production before any
accounting adjustments in respect of IFRS 15. The total for the year does not
therefore agree to the revenue disclosed in note 6 - "Revenue" to the Group
financial statements.
Infrastructure
The Gedabek Contract Area benefits from excellent infrastructure and access.
The site is located at the town of Gedabek, which is connected by a good
tarmacadam road to the regional capital of Ganja. Baku, the capital of
Azerbaijan to the south, and the country's border with Georgia to the north,
are each approximately a four to five hour drive over good quality roads. The
site is connected to the Azeri national power grid.
Water management
The Gedabek site has its own water treatment plant which was constructed in
2017 and which uses the latest reverse osmosis technology. In the last few
years, Gedabek town has experienced water shortages in the summer and this
plant reduces to the absolute minimum the consumption of fresh water required
by the Company. Wastewater evaporation equipment is also deployed in the
tailings dam.
Tailings (waste) storage
Tailings are stored in a purpose-built dam approximately seven kilometres from
the Group's processing facilities, topographically at a lower level than the
processing plant, thus allowing gravity assistance of tailings flow in the
slurry pipeline. Immediately downstream of the tailings dam is a reed bed
biological treatment system to purify any seepage from the dam before
discharge into the nearby Shamkir river. The tailings dam has a final capacity
of 6.0 million cubic metres which is sufficient to approximately the end of
2023.
A site has been identified for a new tailings dam in the vicinity of the
existing dam. The necessary investigations to determine the competency of the
bedrock at the proposed site have been successfully completed. The design for
the tailings dam has also been finalised. Construction of the new tailings dam
was delayed due to an additional Government permit which was required.
However, this has now been obtained and detailed planning for the construction
of the new dam is underway, together with further geotechnical investigation
of the site. To provide tailings storage until the new dam is completed, an
auxiliary tailings dam is being constructed close to the new Zafar mine. This
is a downstream tailings dam with a 45 metre dam wall and which will be fully
lined with a capacity of 1.5 million tonnes. It will be completed around July
2023 and will provide sufficient storage capacity for the next 12 to 18
months. The possibility of a further five metre raise of the wall of the
existing dam is being assessed in conjunction with Knight Piésold, a leading
firm of geotechnical and environmental consulting engineers.
Gosha
The Gosha Contract Area is 300 square kilometres in size and is situated in
western Azerbaijan, 50 kilometres north-west of Gedabek. Gosha is the location
of a high grade, underground gold mine. Ore mined at Gosha is transported by
road to Gedabek for processing. No mining was carried out in the Gosha mine in
the year ended 31 December 2022.
Geological field work in 2021 resulted in the discovery of a new sub-vertical
high gold grade mineralised vein ("Hasan") immediately south of the existing
Gosha mine. The new gold vein can be accessed via a short tunnel from the
existing tunnelling at Gosha.
Ordubad
The 462 square kilometre Ordubad Contract Area is located in Nakhchivan,
south-west Azerbaijan, and contains numerous targets. The Company carried out
only very limited geological exploration work at Ordubad in 2022 due to the
COVID-19 pandemic, details of which are set out in the report on geological
exploration below. Drilling has resumed in 2023 targeting copper porphyry
potential. The first stage of the programme is to drill five core drill holes
with a total depth of 2,250 metres.
Garadag
The 340 square kilometre Garadag Contract Area is situated four kilometres
north of Gedabek alongside the road from Gedabek to Shamkir. Garadag was
explored during the Soviet era and a Soviet resource for the deposit is set
out in Table 8 - "Soviet copper resource for the Garadag deposit". Garadag has
been extensively explored since the end of the Soviet era, most recently by
AzerGold CJSC, its previous owner.
In August 2022, the Group acquired historical geological and other data and
associated reports (the "Data") in respect of Garadag owned by AzerGold CJSC
for $3.3 million. The Data includes geochemical and geophysical data including
maps and interpretative reports. Substantial core drilling and data
interpretation were carried out by Azergold CJSC and the Data includes 9,645
chemical assays taken from 23,454 metres of drill core. The Data also includes
an initial mining scoping study based on a preliminary mineral resource
estimate with various options for mine development including open pit designs,
initial mining schedules and an outline metallurgical flow sheet. An
environmental and socio-economic baseline assessment has also been carried out
and is included in the Data. Since acquisition, the Group has started an
extensive exercise to index, analyse, interpret and verify the Data.
Xarxar
The 464 square kilometre Contract Area is located immediately north of Gedabek
which it borders. Xarxar hosts a portal and exploration tunnel constructed in
Soviet times. However, the tunnel had collapsed near its entrance.
Geological exploration began at Xarxar immediately following its acquisition
in July 2022. A new portal was constructed next to the Soviet portal.
Tunnelling then commenced parallel to the existing tunnel to give access to
it. A surface drill programme was also started. The Group also acquired
historical geological and other data in respect of Xarxar owned by AzerGold
CJSC for $0.7 million. This included 805 assays taken from 4,923 metres of
Xarxar drill core.
Gilar is situated close to the northern boundary of the Gedabek Contract Area.
Geological exploration indicates that this deposit trends to the north. The
Xarxar Contract Area extends the Gedabek Contract Area to the north and will
therefore enable Gilar to be fully exploited.
Kyzlbulag and Demirli
The Kyzlbulag Contract Area is 462 square kilometres located in the Karabakh
economic region. It contains several mines and has excellent potential for
exploration, as indicated by the presence of many mineral deposits and known
targets in the region. The Demirli concession is 74 square kilometres and
extends to the north-east by about 10 kilometres from the Kyzlbulag Contract
Area and contains the Demirli mining property. There are indications that up
to 35,000 ounces of gold per year were extracted from the Kyzlbulag
copper-gold mine, before the mine was closed several years ago, indicating the
presence of a gold mineralising system.
Russian peacekeepers are currently present in the area. The Government of
Azerbaijan will use all reasonable endeavours to ensure that the Company has
physical access to the region to undertake mineral exploration and production.
No work was carried out at Kyzlbulag and Demirli in 2022 as the Group had no
access to the Contract Areas.
Vejnaly
Vejnaly is a 300 square kilometre Contract Area located in the Zangilan
district in south-west Azerbaijan. It borders Iran to the south and Armenia to
the west. It hosts the Vejnaly deposit. Access was obtained in 2021 and in
2022, the Azerbaijan National Agency for Mine Action ('ANAMA') completed its
inspection of Vejnaly and certified access to the site and underground mine as
safe. In accordance with our PSA, the Government of Azerbaijan transferred
all site assets to the Company at nil cost.
A camp is now established at Vejnaly for Group employees. An extensive survey
of the site has been carried out which has found that the main ore body was
extensively mined during the Armenian occupation. There are both open pit and
underground workings at the location. There is also an existing crusher and
flotation processing plant at the mine which will need extensive renovation to
recommence operation. Approximately 35 full time employees are based at the
site who are mainly geologists exploring in the vicinity of the existing
mine. There was no mining or production at Vejnaly in 2022. Minor amounts of
ore are being extracted from the underground mine as the geologists clean out
and rehabilitate the tunnels as part of their exploration. This ore will be
transported to Gedabek for processing during 2023.
Geological exploration
Summary
· New mineral deposit discovery "Zafar" at Gedabek
o Final mineral resource published on 21 March 2022
o In-situ JORC mineral resource of 28,000 tonnes of copper, 73,000 ounces of
gold and 36,000 tonnes of zinc
o Additional exploration and geotechnical drilling carried out in 2022
· New mineral deposit discovery "Gilar" at Gedabek
o Preliminary non-JORC mineral resource published on 19 December 2022
o In-situ non-JORC mineral resource of over 135,000 ounces of gold, 21,500
tonnes of copper, and 23,000 tonnes of zinc
o Considerable exploration activity carried out in 2022 with "bonanza" gold
grades returned
· Exploration continued throughout 2022 in the Gedabek open pit and the
Gedabek and Gadir underground mines to define ore zones and extensions.
· New sub-vertical gold vein, "Hasan", discovered at Gosha
o Located to the immediate south of the existing Gosha mine
o Vein can be accessed from existing underground mine workings
· Extensive historic exploration data acquired for the Garadag and
Xarxar deposits
· Exploration work commenced at Xarxar in 2022
o 10 surface core drill holes were completed with a total length of 3,479
metres
o New portal constructed and 470 metres of underground tunnelling completed
· Very limited geological field work was carried out at Ordubad during
2022 due to COVID-19 travel restrictions
· Exploration work commenced at the Vejnaly deposit
o Soviet mineral resources of the Vejnaly deposit shows 142,000 ounces of gold
and 2,942 tonnes of copper
o Existing galleries have been mapped and vein sampling and ore modelling is
now being carried out
Gedabek
Zafar deposit
Zafar is a new discovery located 1.5 kilometres north-west of the existing
Gedabek processing plant.
The geology of the area is structurally complex, comprising mainly of Upper
Bajocian-aged volcanics. The mineralisation seems to be associated with a main
north-west to south-east trending structure, which is interpreted as
post-dating smaller north-east to south-west structures. In the south-west
area, outcrops with tourmaline have been mapped, which can be indicative of
the potential for porphyry-style mineral formation. The exploration area is
located along the regional Gedabek-Shekarbek fault system, with Shekarbek
being another target area known to host copper mineralisation, situated in the
north-west of the zone.
19 core drill holes with a total length of 5,045 metres were completed at
Zafar in 2022. Four drill holes returned grades above reportable limits. 14
drill holes were for the purpose of geotechnical and metallurgical test work.
Grades of up to 1.5 grammes per tonne of gold and 3.95 per cent. copper were
reported. Bench scale X-ray diffraction ("XRD") analysis of drill core samples
was routinely used during 2022. This uses a portable XRD machine to undertake
mineralogical analyses of core samples. The results are obtained in "real
time" without the need to wait for laboratory analysis, which enables a better
focused drill programme.
The final mineral resource estimate for the Zafar deposit was published on 21
March 2022 and is shown in table 5 - "Zafar mineral resources estimate at 30
November 2021".
Gilar
Gilar is a mineral occurrence located in the Gedabek contract area,
approximately seven kilometres from the Company's processing facilities and
approximately two kilometres south of Avshancli-1. The area hosts two styles
of mineralisation, gold in quartz veins and hydrothermal gold-copper.
The maiden Non-JORC mineral resources estimate was published in March 2023
which contained over 249,000 ounces of gold, 46,000 tonnes of copper, and
49,000 tonnes of zinc. The mineral resource estimate (which is not a JORC
resource) was compiled by an independent consultant and was based on stage one
drilling. The mineral resources were estimated using the JORC guidelines, but
because the mineral resource estimate is subject to validation, classes 1, 2,
and 3 are stated, instead of the usual Measured, Indicated and Inferred
classifications. The mineral resource estimate is contained in Table 6 -
"Latest Non-JORC mineral resources estimate of the Gilar deposit".
Extensive exploration drilling was carried out at Gilar in 2022. 48 surface
core drill holes were completed with a total length of 16,577 metres. Four
geotechnical surface core drill holes totalling 930 metres were also drilled
for underground mine development purposes. The drilling demarcated six zones
of mineralisation with drilling in the second half of 2022 extending and
confirming the deeper zone of continuous mineralisation hosting significant
gold, copper and zinc with an intercept thickness of over 65 metres as
follows:
Borehole 22GLDD127: 68.35m @ 2.40g/t gold, 2.89% copper and 1.58% zinc from
320.00m, including:
· 55.4m @ 2.7g/t Au, 3.5% Cu and 1.4% zinc at 1.5g/t gold cut-off from
331.00m, including at a 2.0 g/t Au cut-off
o 33.3m @ 3.0g/t Au, 5.4% Cu and 2.0% zinc from 333.00m
o 14.4m @ 2.8 g/t Au, 0.4% Cu and 0.2% zinc from 372.00m
One drill hole in the centre of Gilar also intersected significant
mineralisation.
The Group acquired the technology to make and microscopically examine thin
sections of ore in 2022 using SystemAbele®. This system identified the free
gold in the Gilar deposit.
Gedabek open pit
14 surface core drill holes were completed in 2022 with a total length of
2,938 metres and 139 reverse circulation drill holes completed with a total
length of 20,258 metres to define the ore zone and extensions. The majority of
the gold grades returned were in the range 0.01 to 0.99 grammes of gold per
tonne and copper grades of 0.01 to 0.49 per cent. of copper.
Gedabek open pit - underground
The Gedabek and Gadir underground mines are connected, and form one continuous
underground network of tunnels, accessible from both the Gadir and Gedabek
portals. However, a significant fault structure separates the two mines. In
2022, tunnelling of 742 metres was completed from the existing Gadir
underground mine to underneath the northern end of the Gedabek main open pit.
Nine core drill holes (HQ/NQ size) totalling 1,125 metres were completed,
along the length of the tunnel, which showed significant mineralisation. The
tunnelling provides access to the mineralisation between Gadir and the main
open pit.
Gadir underground mine
During 2022, six underground exploration core drill holes (HQ/NQ size) were
completed with a total length of 944 metres. 1,140 metres of underground
sidewall and tunnel roof mapping were completed. This defined zones for
continuation of mining and extended the down dip footprint of the
mineralisation. As part of the mining activity, 15 core drill holes (HQ/NQ
size) with a total length of 2,056 metres were completed for ore zone
definition. 100 metres of underground development tunelling was also
completed.
Avshancli
Avshancli is a mineral district which is 10.5 kilometres north-east of the
Gedabek open pit. In 2022, four core drill holes were completed totalling
1,316 metres. The geological work to date at Avshancli-1 shows discontinuous
surface mineralisation with gold grades dropping off from the surface as the
structures narrow with depth. Given the distribution of mineralisation,
economic volumes of ore are likely to be small.
Ugur open pit and Ugur Deeps
The Ugur pit has now been fully exhausted. In 2022, drilling was carried out
in the vicinity of the depleted open pit (Ugur Deeps region) to locate
possible extensions to the deposit. Two core drill holes were completed with a
total length of 515 metres targeting high-grade copper-silver
mineralisation. Five trenches of length 65 metres were sampled, and 250,000
square metres of lithological-alteration structural mapping was completed. No
significant results were obtained.
Gosha
The Gosha contract area, which hosts the Gosha mine, is located next to the
Armenian border. Surface core drilling which commenced in 2021, resulted in
the discovery of a new sub-vertical high gold grade mineralised vein
("Hasan"), after surface mapping suggested the presence of gold at the
location. The discovery was announced in March 2022. The new gold vein can be
accessed via a short tunnel from the existing tunnelling at Gosha.
The Gosha mine was previously thought to consist of two narrow gold veins,
zone 13 and zone 5 to the south. Mining has previously taken place from both
veins. Hasan is located immediately south of the zone 5 and intersects it at
one point. The host rock mostly exhibits silicification and kaolinisation
alteration, which changes to quartz-haematite alteration in andesite.
68 metres of underground mapping and 204 metres of channel samples were taken
from the Gosha mine in 2022. Five underground core drill holes totalling 1,144
metres were also drilled in 2022.
The Group is also carrying out surface magnetometry geophysical exploration
work at Asrikchay. The work is to determine the mineralisation potential for
planning the next stage of exploration. Asrikchay is a copper-gold target in
the Gosha Contract Area which was discovered in 2018.
Xarxar
Xarxar is a known area of copper mineralisation which had been explored in the
Soviet era. Exploration by the Group began in the second half of 2022
immediately upon acquisition of the Contract Area. The area contains a portal
and exploration tunnel constructed during the Soviet era. However, the tunnel
was found to be of very limited length and collapsed in places. A new portal
has therefore been constructed and 470 metres of underground tunnelling
completed in 2022.
Ten surface core drill holes totalling 3,479 metres were drilled and 147
channel samples were collected. These returned copper grades of around an
average of 0.6 per cent. Structural mapping and a geotechnical study of the
deposit was also completed by an independent contractor. The Group also
acquired historic exploration results as set out above in "Xarxar".
Garadag
No field exploration work was carried out at Garadag in 2022. However, the
Group acquired considerable geological data about the deposit as described
above in "Garadag". 538 metres of drill core from the Azergold CJSC was
geologically logged and assayed in the Group's laboratory.
Ordubad
Due to COVID-19 restrictions, drill access was proscribed during 2022 and
therefore very limited geological field work was completed. To better
understand the geology of the region, 3,397 metres of drill core previously
drilled by the Group were relogged and some intervals resampled.
Vejnaly
The Vejnaly deposit is located within the volcanic-plutonic structure of the
Kafan structure formation and incorporates twenty-five gold-bearing vein
zones. Ore veins and zones of the deposit are mainly represented by
quartz-sulphide and, rarely, by quartz-carbonate-sulphide veins and
hydrothermally altered, disintegrated and brecciated rocks. Sulphides are
dominated by pyrite with subordinate chalcopyrite. There are prospects for
porphyry, epithermal and skarn type deposits.
A Soviet mineral resource estimate for the Vejnaly deposit is contained within
Table 7 - "Soviet resource of the Vejnaly deposit" and shows a total C1 and C1
resource of 141,000 ounces of gold and 2,942 tonnes of copper. However, the
Vejnaly deposit has been extensively mined whilst under Armenian occupation.
A geological team was established at Vejnaly in early 2022 and commenced vein
sampling and ore modelling. The logging of historic drill holes of the deposit
was also carried out throughout 2022. Vein sampling assays of the deposit show
significant high gold grades. The rebuilding and cleaning of collapsed areas
of the underground gallery is also ongoing to allow assessment of previously
mined areas.
Sale of the Group's products
Important to the Group's success is its ability to transport its products to
market and sell them without disruption.
In 2022, the Group shipped all its gold doré to Switzerland for refining by
MKS Finance SA. The Group also sold gold bullion inventory at 31 December 2021
to Argor-Heraeus SA in 2022. The Group continually reviews which refiner
offers the best commercial terms, and based on this, decides to which refiner
to ship each consignment. The logistics of transport and sale are well
established and gold doré shipped from Gedabek arrives in Switzerland within
three to five days. The proceeds of the estimated 90 per cent. of the gold
content of the doré can be settled within one to two days of receipt of the
doré. The Group, at its discretion, can sell the resulting refined gold
bullion to the refiner. The Group shipped all its gold doré to Switzerland in
2022 by scheduled airflights.
The Gedabek mine site has good road transportation links, and our copper and
precious metal concentrate is collected by truck from the Gedabek site by the
purchaser. The Group sells its copper concentrate to three metal traders as
detailed in note 6 to the Group financial statements. The contracts with each
metal trader are periodically renewed and each new contract requires the
approval of the Government of Azerbaijan.
Libero Copper & Gold Corporation
The Group acquired 19.8 per cent. of Libero Copper & Gold Corporation
("Libero") in January 2022. Further follow-on investments to maintain its
investment at approximately 19.8 per cent have been made since January 2022 as
detailed in the Group financial statements in note 11 - "Investment in
associate company" and note 33 - "Subsequent events".
Libero has an extremely attractive portfolio of exploration assets in
mining-friendly jurisdictions in North and South America, including Mocoa in
Colombia, Big Bulk and Big Red in British Columbia, Canada, and Esperanza in
Argentina.
Mocoa
Extensive geological exploration was carried out in 2022.
· Core drilling commenced in February 2022. The first drill hole
intercepted 840 metres containing 0.72 per cent. copper.
· Interpretation of data obtained from an airborne survey in 2021
identified nine additional porphyry targets in the vicinity of Mocoa.
· Soil sampling identified a large 2 kilometre long by 800 - 1,000 metre
wide multi-element soil geochemical anomaly coincidental with the Mocoa
deposit. This significantly expands the footprint and potential size of the
deposit outside of the forest reserve.
In November 2022, Libero entered into a "Cooperation Framework Agreement for
Participation and Generation of Shared Benefits" with the local community of
Montclar. This agreement is to share the benefits of mine development.
In November 2022, Libero together with the National University of Colombia,
extracted metallic copper from pulp from Mocoa ore. This was the first copper
produced in Colombia from a deposit in Colombia.
Esperanza
Permitting is ongoing and in late 2022, representatives from the Ministry of
Mines of San Juan visited the project to confirm conditions at the site before
restart of activities. The visit complimented the latest water quality work
carried out by the Institute of Hydraulic Investigation of the National
University of San Juan for the water baseline study.
Big Red
Four core drill holes were completed at Big Red between August and October
2022. The drilling tested a large, 4 by 4 by 4 kilometre triangular-shaped
area with strong potassic alteration immediately southeast of, and continuous
with, the Terry porphyry copper and gold discovery. One hole intersected 0.24
per cent. copper, and 0.03 grammes per tonne of gold over 100.5 metres and
confirmed the down dip extension of previous drilling. The other three drill
holes yielded no significant results.
Further information about Libero can be found at
https://www.liberocopper.com/.
Section 172(1) Statement
Introduction
The board of directors of Anglo Asian Mining PLC (the "Board") considers that
it has adhered to the requirements of section 172 of the Companies Act 2006
(the "Act") and, in good faith, acted in a way that it considers would be most
likely to promote the success of the Company for the benefit of its
shareholders as a whole. In acting this way, the Board has recognised the
importance of considering all stakeholders and other matters as set out in
section 172(1) (a to f) of the Act in its decision-making.
The Board members are directors of Anglo Asian Mining PLC, a holding company
for the Group. The Group carries out its business of mineral exploration and
mining in Azerbaijan and elsewhere through its wholly-owned subsidiaries and
other investments. Given the nature and size of the Group, the Board considers
it reasonable that executive decision making for the entire Group, including
its subsidiaries in Azerbaijan, is the responsibility of the Board. The
section 172(1) statement has accordingly been prepared for the entire Group.
The commentary and table below sets out the Company's section 172(1)
statement. This statement provides details of key stakeholder engagement
undertaken by the Board during the year and how this helps the Board to factor
in potential impacts on stakeholders in the decision-making process.
General
The Group promotes the highest standards of governance as set out in Corporate
Governance in the Group's annual report. The principles of Corporate
Governance underpin how the Board conducts itself. The Board is very conscious
of the impact that the Group's business and decisions has on its direct
stakeholders as well as its societal impact. The Company operates to the
highest ethical standards as discussed in the Corporate Governance Section of
the annual report.
Principal decisions and other key factors in maintaining shareholder value
For the year ended 31 December 2022, the Board considers that the following
are examples of the principal decisions that it made in the year:
· consideration and agreement of the Group's budget together with the
associated production guidance for the year ended 31 December 2022;
· consideration of the final dividend payable for the year ended 31
December 2021 and the interim dividend payable for the year ending 31 December
2022;
· consideration of the mineral resources estimate of the Gilar mine and
to undertake the development of the resource;
· agreeing to follow on investments in Libero Copper & Gold
Corporation ("Libero") to maintain the Group's interest at 19.8 per cent.;
· agreeing to put in place a programme to buy back the Company's own
shares and then buying back certain shares in the market place;
· agreeing to purchase historical geological data in respect of the
Xarxar and Garadag contract areas from AzerGold CJSC for a total of $4 million
following the acquisition of the two new Contract Areas;
· agreeing to purchase new equipment to increase the capacity of its
existing flotation plant; and
· agreeing to the purchase of a mining fleet, drilling equipment and
other underground equipment for its new Zafar mine and agreeing to obtain
vendor financing for certain of the equipment.
· The establishment of a long-term strategy and business plan to become
a mid-tier producer of copper.
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, the Company has an active
geological exploration campaign at its Contract Areas to which it has access.
The Board monitors the campaign through regular reports and site visits by
directors whenever possible. The Company is also looking at other
opportunities and the Board receive regular updates on progress in this area.
The Board and senior managers of the Company hold in total approximately 42
per cent. of the shares of the Company with the remainder held by a wide range
of individual and institutional shareholders. The Board are extremely mindful
that all shareholders must be treated equally. This is reflected in the
Board's behaviour to ensure decisions do not disadvantage external
shareholders compared to the interests of directors and senior management and
that external shareholders are fully informed of all Company developments in a
timely manner.
Engagement with key stakeholders
The table below sets out the Board's key stakeholders and provides examples of
how the Board engaged with them in the year as well as demonstrating
stakeholder consideration in the decision-making process. However, the Board
recognises that, depending on the nature of an issue, the interests of each
stakeholder group may differ. The Board seeks to understand the relative
interests and priorities of each stakeholder and to have regard to these, as
appropriate, in its decision making. However, the Board acknowledges that not
every decision it makes will necessarily result in a positive outcome for all
stakeholders.
Stakeholder How the Board has approached their engagement How the Board has taken their interests into account
Shareholders The Board aims to provide clear and timely information to its shareholders The Board maintains a dialogue with external shareholders and keeps them
which gives an honest and transparent view of the performance of the business. 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 Visits to its customers by senior staff are undertaken and visits are made by
through a continuous dialogue with each of its customers. 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.
Suppliers The Board has ensured an appropriately qualified and professional procurement All significant purchases are discussed with suppliers and prices and delivery
department is in place which maintains close contact with all suppliers. All terms agreed which are mutually beneficial to both parties.
procurement is carried out via a transparent tender process.
Technical staff work in close collaboration with suppliers of specialist
For specialised goods and services, senior management will maintain a dialogue services to ensure the supplier provides the highest quality service to the
with the supplier and report their engagement to the Board. Company within the commercial terms of the contract.
Employees The Board has mandated a mainly informal approach to engage with employees in The results of the employee survey have been reviewed and action taken to
light of their number and to ensure appropriate upward communication channels implement suggestions where appropriate.
exist for employees.
The health and safety committee considered all reportable safety incidents
Directors and senior management regularly visit Gedabek where the majority of during the year in consultation with employee representatives and all
the employees are located. appropriate actions were taken to prevent further occurrences in the future.
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. Face-to-face meetings resumed at Gedabek during
2022.
Community and environment The Board aims to build trust and conduct its operations in partnership with The Group has carried out significant community and social development in the
the communities at all locations where the Group operates whilst minimising region.
any adverse effect on the environment.
Comprehensive environmental monitoring was continuously carried out at Gedabek
Board members regularly visit Gedabek and other locations and meet with the throughout 2022.
local administration and other community leaders to hear their views on
community relations.
Government of Azerbaijan The Board has set up a formal mechanism for engaging with the Government of The Company has promptly complied with all requests from the Government for
Azerbaijan as set out in the Corporate Governance section of the annual information about the Company's business.
report.
An open relationship based on trust has been formed with the Government.
Directors also meet with high level Government officials on a regular basis.
Principal risks and uncertainties
Country risk in Azerbaijan
The Group's wholly owned operations are solely in Azerbaijan and are therefore
naturally at risk of adverse changes to the regulatory or fiscal regime within
the country. However, Azerbaijan is outward looking and desirous of attracting
direct foreign investment and the Company believes the country will be
sensitive to the adverse effect of any proposed changes in the future. In
addition, Azerbaijan has historically had a stable operating environment and
the Company maintains very close links with all relevant authorities.
Operational risk
The Company currently produces all its products for sale at Gedabek. Planned
production may not be achieved as a result of unforeseen operational problems,
machinery malfunction or other disruptions. Operating costs and profits for
commercial production therefore remain subject to variation. The Group
monitors production on a daily basis and has robust procedures in place to
effectively manage these risks.
Commodity price risk
The Group's revenues are exposed to fluctuations in the price of gold, silver
and copper and all fluctuations have a direct impact on the operating profit
and cash flow of the Group. Whilst the Group has no control over the selling
price of its commodities, it has very robust cost controls to minimise
expenditure to ensure it can withstand any prolonged period of commodity price
weakness. The Group actively monitors all changes in commodity prices to
understand the impact on the business. The Group has previously hedged against
the future movement in the price of gold. The directors keep under review the
potential benefit of hedging.
Foreign currency risk
The Group reports in United States Dollars and a large proportion of its costs
are incurred in United States Dollars. It also conducts business in Australian
Dollars, Azerbaijan Manats and United Kingdom Sterling. The Group does not
currently hedge its exposure to other currencies, although it will review this
periodically if the volume of non-United States Dollar transactions increases
significantly. Information on the carrying value of monetary assets and
liabilities denominated in foreign currency and the sensitivity analysis of
foreign currency is disclosed in note 24 - "Financial Instruments" to the
Group financial statements.
Liquidity and interest rate risk
During 2022, the Group had no bank debt and only occasional minor borrowings
in connection with providing letters of credit to suppliers. The Group did
therefore not have any significant interest rate risk during the year.
The Group had significant surplus cash deposits during 2022. The Group places
these on deposit in United States Dollars with a range of banks to both ensure
it obtains the best return on these deposits and to minimise counterparty
risk. The amount of interest received on these deposits is not material to the
financial results of the Company and therefore any decrease in interest rates
would not have any adverse effect.
Russian invasion of Ukraine
The Company is unaffected directly by the Russian invasion of Ukraine or the
international sanctions levied against various private and governmental
Russian entities.
COVID-19 pandemic
The COVID-19 pandemic continued into 2022 but its intensity decreased
significantly compared to prior years. By the start of 2022, the majority of
the COVID-19 restrictions had been lifted in Azerbaijan. The board monitored
the COVID-19 pandemic throughout 2022 but did not notice that it resulted in
any significant effect on its business.
Key performance indicators
The Group has adopted certain key performance indicators ("KPIs") which enable
it to measure its financial performance. These KPIs are as follows:
1 Profit before taxation. This is the key performance indicator used by
the Group. It gives insight into cost management, production growth and
performance efficiency.
2 Net cash provided by operating activities. This is a complementary
measure to profit before taxation and demonstrates conversion of underlying
earnings into cash. It provides additional insight into how we are managing
costs and increasing efficiency and productivity across the business in order
to deliver increasing returns.
3 Free cash flow ("FCF"). FCF is calculated as net cash from operating
activities less expenditure on property, plant and equipment and mine
development and, Investment in exploration and evaluation assets including
other intangible assets.
4 All-in sustaining cost ("AISC") per ounce. AISC is a widely used,
standardised industry metric and is a measure of how our operation compares to
other producers in the industry. AISC is calculated in accordance with the
World Gold Council's Guidance Note on Non-GAAP Metrics dated 27 June 2013. The
AISC calculation includes a credit for the revenue generated from the sale of
copper and silver, which are classified by the Group as by-products. There are
no royalty costs included in the Company's AISC calculation as the Production
Sharing Agreement with the Government of Azerbaijan is structured as a
physical production sharing arrangement. Therefore, the Company's AISC is
calculated using a cost of sales, which is the cost of producing 100 per cent.
of the gold and such costs are allocated to total gold production including
the Government of Azerbaijan's share.
Reza Vaziri
President and chief executive
15 May 2023
Financial review
Currency of financial review
References to "$" and "cents" are to United States dollars and cents.
References to "CAN$" and "CAN cents" are to Canadian dollars and cents.
References to "£" and "p" are to United Kingdom Sterling pounds and pence.
References to AZN are to the Azerbaijan New Manat.
Group statement of income
The Group generated revenues in 2022 of $84.7m (2021: $92.5m) from the sales
of gold and silver bullion and copper and precious metal concentrate.
The revenues in 2022 included $62.8m (2021: $71.6m) generated from the sales
of gold and silver bullion from the Group's share of the production of doré
bars. Bullion sales in 2022 were 34,918 (2021: 39,563) ounces of gold and
23,763 (2021: 18,023) ounces of silver at an average price of $1,783 (2021:
$1,799) per ounce and $22 (2021: $25) per ounce respectively. In addition, the
Group generated revenue in 2022 of $21.9m (2021: $20.9m) from the sale of
12,443 (2021: 11,124) dry metric tonnes of copper and precious metal
concentrate. The Group's revenue benefited in the year from a slightly higher
average price of gold at $1,801 (2021: $1,799) per ounce but the average price
of copper was lower at $8,797 (2021: $9,294) per metric tonne.
The Group did not hedge any metal sales during 2021 or 2022.
The Group incurred cost of sales in 2022 of $69.0m (2021: $74.5m) as follows:
2022 2021 B/(W)
$m $m $m
Cash cost of sales 57.1 55.6 (1.5)
Depreciation 16.4 16.1 (0.3)
Cash costs and depreciation 73.5 71.7 (1.8)
Capitalised costs (3.0) (3.4) (0.4)
Cost of sales before inventory movement
70.5 68.3 (2.2)
Inventory movement (1.5) 6.2 7.7
Total cost of sales 69.0 74.5 5.5
The cash costs in 2022 compared to 2021 were higher due to increased material
and haulage costs.
Depreciation and amortisation in 2022 were higher at $16.4m compared to $16.1m
in 2021. 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 or by the straight-line method. The
depreciation and amortisation were higher in 2022 due to the lower
economically recoverable reserves of the mines concerned used to calculate the
depreciation and the amortisation.
Other operating income was $0.4m (2021: $0.2m) and included $0.3m which was
the recovery of previously expensed United Kingdom value added tax.
Administration expenses in 2022 were $5.9m (2021: $5.2m). 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. The Azerbaijan New Manat was stable against the US dollar in 2022
compared to 2021 at an exchange rate of $1 = AZN1.7. The United States dollar
to the United Kingdom pounds Sterling rate was volatile in 2022 with a high of
£1 = $1.37 to a low of £1 = $1.07. Administration costs in 2022 were higher
than 2021 due to an increased share-based payment charge of $0.4m (2021:
$0.1m) due to an increase in the number of share options outstanding and
employee costs increasing by $0.3m due to higher staff numbers in Azerbaijan.
Finance costs in 2022 were $0.8m (2021: $0.7m). Finance costs in 2022 and 2021
were mainly the interest expense of finance leases and interest on the
unwinding of provisions. These remained at a similar level in both 2022 and
2021. The finance costs for 2022 also included $0.1m (2021: $nil) in respect
of the long-term trade creditor for the purchase of historical geological data
from AzerGold CJSC. The other expense in 2022 of $0.6m (2021: $nil) arose from
the Libero Copper & Gold Corporation ("Libero") transaction ("Libero
Copper & Gold Corporation transaction" below).
The Group recorded a profit before taxation in 2022 of $7.5m compared to
$12.6m in 2021. This reduction was mainly due to a lower gross margin of
$15.8m (2021: $18.0m) due to lower metal sales and the share of the loss of
the associate company of $0.5m (2021: $nil).
The Group had a taxation charge in 2022 of $3.8m (2021: $5.2m). This comprised
a current income tax charge of $0.6m (2021: $5.5m) and a deferred tax charge
of $3.2m (2021: credit of $0.3m). The current income tax charge of $0.6m was
incurred by R.V. Investment Group Services ("RVIG") in Azerbaijan. RVIG
generated taxable profits in 2022 of $1.7m (2021: $17.1m) which were taxed at
32 per cent. (the corporation tax rate stipulated in the Group's production
sharing agreement).
The Group's overall tax rate in 2022 was 51 per cent. (2021: 42 per cent.).
The higher tax charge than 32 per cent. arose as several significant expenses
of the Group are not deductible for tax. These are mainly the United Kingdom
administration costs, amortisation of mining property and the loss of the
associate company.
The Group had an Other comprehensive loss in 2022 of $0.2m (2021: $nil). This
was mainly a translation loss on the translation of Libero's financial
statements into United States dollars at 31 December 2022. This arose as the
Canadian dollar depreciated against the United States dollar in 2022.
All-in sustaining cost of gold production
The Group produced gold at an all-in sustaining cost ("AISC") per ounce of
$1,064 in 2022 compared to $843 in 2021. 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 2022
compared to 2021 was a combination of the lower production as most of the
Group's production costs are fixed or semi-fixed and higher cash costs.
Group statement of financial position
Assets and liabilities
Non-current assets increased from $95.0m at the end of 2021 to $102.2m at the
end of 2022. Intangible assets increased from $30.3m at the end of 2021 to
$38.6m at the end of 2022 due to expenditure on geological exploration and
evaluation of $9.4m (2021: $7.6m) offset by amortisation of $1.1m (2021:
$1.2m) in the year. Property, plant and equipment were lower by $2.7m due to
depreciation of $15.5m mainly offset by additions of $9.1m and an increase in
the provision for rehabilitation of $3.7m. Leased assets were $0.7m lower due
to lower modifications to leased assets of $0.5m and depreciation of $0.5m
offset by $0.3m additions.
Net current assets were $60.5m at the end of 2022 compared to $62.8m at the
end of 2021. The main reason for the decrease in net current assets was a
reduction in cash of $17.0m partially offset by a decrease in trade and other
payables of $10.0m and income tax payable of $3.0m. Trade and other payables
were lower due to a decrease of $8.8m in gold held due to the Government of
Azerbaijan. The Group's cash balances at 31 December 2022 were $20.4m (2021:
$37.5m). Surplus cash is maintained in US dollars and was placed on fixed
deposit with banks in Azerbaijan at tenors of between one to three months at
interest rates of around 1.5 to 4.0 per cent.
Non-current liabilities included trade and other payables of $2.9m (2021:
$nil). This was in respect of the purchase of historical exploration data of
Xarxar and Garadag. The total cost of the purchase was $4.0m of which $1.0m
was paid in 2022. The remaining creditor of $3.0m was discounted over 2.5
years using an interest rate of 8 per cent. and includes attributable VAT of
$0.6m.
Net assets of the Group at the end of 2022 were $113.5m (2021: $118.4m). The
net assets were lower due to a decrease in retained earnings following
dividend payments which were higher than profits after taxation and the
purchase of Company shares for treasury. There were no shares issued in 2022.
Equity
The Group was financed entirely by equity and had no bank debt or other
borrowings throughout 2022.
There were no movements of the Group's share capital, merger reserve and share
premium account in 2022. The Group's holding company bought back certain of
its ordinary shares for the first time in 2022. 150,000 ordinary shares were
bought in the open market at an average price of 81.42 pence at a total cost
of $145,000. The ordinary shares have not been cancelled and are held in
treasury. The cost of buying back the shares is included in equity as a
negative reserve.
The Group's holding company received an intercompany dividend in 2022 of $10m
(2021: $10.0) which gives it the capacity to pay dividends of $1.2m during
2023. Further dividends by the Group's holding company will require additional
dividends to be paid by its subsidiaries.
Libero Copper & Gold Corporation transaction
On 26 January 2022, the Company acquired a further 10 per cent. of Libero
which was then reclassified as an associate company of the Group. A
reconciliation of its cost of acquisition to its carrying value at 31 December
2022 is as follows:
$000
Market value of the Company's existing 9.8 per cent. trade investment at 26
January 2022
2,168
Close out of forward contract established at 31 December 2021 214
Transfer from financial assets to associate company 2,382
Cost of the 10 per cent. investment (7m shares at CAD$0.50 per share) 2,781
Total acquisition cost of Libero as an associate Company 5,163
Further investment (2.9m shares at CAD$0.33 per share) 710
Our share of its loss - 27 January to 31 December 2022 (476)
Currency translation (225)
Carrying value of associate company at 31 December 2022 5,172
The cost of the two investments in Libero during the year is as follows:
$000
Cost of the 10 per cent. investment (7m shares at CAD$0.50 per share) 2,781
Further investment (2.9m shares at CAD$0.33 per share) 710
Total investment in the year 3,491
A reconciliation of the acquisition cost to the net assets of Libero is as
follow:
$000
Company's share of the net assets of Libero 1,417
Goodwill on acquisition 3,746
Total acquisition cost of Libero as an associate company 5,163
The acquisition of Libero also resulted in a loss of $221,000, being a loss on
the revaluation to market price of the Company's initial investment between 31
December 2021 and 26 January 2022. The Company also revalued its warrants in
Libero to market value at 31 December 2022, resulting in a loss of $349,000
due to the share price of Libero decreasing from CAD$0.54 at 31 December 2021
to CAD$0.16 at 31 December 2022. The total of the loss on the revaluation of
the investment and warrants of $570,000 has been included in other expense in
the profit and loss account.
The Group's percentage ownership of Libero fluctuated during 2022 as Libero
issued shares throughout the year. Our share of its loss has been calculated
using our average ownership for each quarterly period for which Libero
publishes its results.
Group cash flow statement
Operating cash inflow before movements in working capital for 2022 was $27.2m
(2021: $29.3m). The main source of operating cash was operating profit before
the non-cash charges of depreciation and amortisation in 2022 of $24.6m (2021:
$29.2m).
Working capital movements absorbed cash of $10.1m (2021: generated cash of
$5.4m) mainly due to trade receivables which were higher by $5.9m (2021:
$0.4m) and inventory which was $3.4m higher (2021: $4.5m lower).
Cash from operations in 2022 was $17.0m compared to $34.7m in 2021 due to the
lower operating cash flow and cash absorbed by working capital.
The Company paid corporation tax in 2022 of $3.6m (2021: $8.7m) in Azerbaijan
in accordance with local requirements. This payment was the final payment of
its liability for 2021 and payments on account of its liability for the year
ended 31 December 2022.
Expenditure on property, plant and equipment and mine development was $9.1m
(2021: $7.4m). The main items of expenditure in 2022 were capitalised
stripping costs of $2.9m, mine development costs of $2.8m and equipment of
$1.9m.
Expenditure on intangible assets was $9.4m which was mainly expenditure on
exploration and evaluation of $9.2m. The main expenditure on exploration and
evaluation expenditure was $3.6m (2021: $6.8m), $1.6m (2021: $nil) and $2.8m
(2021: $nil) at Gedabek, Xarxar and Garadag respectively. The expenditure for
Xarxar and Garadag include $0.6m and $2.7m respectively for the purchase of
historical geological data from AzerGold CJSC.
The Group spent $3.5m (2021: $2.2m) on acquiring shares in Libero during 2022.
COVID-19 pandemic
The majority of the travel and other restrictions arising from the COVID-19
pandemic were lifted by the end of 2021. The Group monitored the COVID-19
pandemic throughout the year but did not detect any noticeable effect on its
business. The Group considers the risks from the pandemic are very minimal.
Further details regarding the risks are set out in the Strategic Report.
Dividends
In respect of 2022, the Group paid an interim dividend of $0.04 per share and
has proposed a final dividend of $0.04 per share giving a total for the year
of $0.08 per share (2021: 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 cash cost of dividends paid in respect of 2021 was $9.2m
and the estimated total cost of the dividends in respect of 2022 is $9.2m. The
proposed final dividend for 2022 is subject to the approval of the
shareholders and has not been accrued in the 2022 financial statements.
To ensure the Company retains sufficient capital to its growth strategy, the
board has decided to maintain the dividend at the same level as 2021 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 2022. The
Government's share of production in 2022 (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 2022 of 12.75 per cent. (2021: 12.75
per cent.) of the value of its production.
The Group can recover the following costs in accordance with the PSA for its
Gedabek contract area (currently its main operating site):
• all direct operating expenses of the Gedabek mines;
• all exploration expenses incurred on the Gedabek contract area;
• all capital expenditure incurred on the Gedabek mines;
• an allocation of corporate overheads - currently, overheads are
apportioned to Gedabek according to the ratio of direct capital and operating
expenditure at the Gedabek contract area compared with direct capital and
operational expenditure at the Gosha and Ordubad contract areas; and
• an imputed interest rate of United States Dollar SOFR + 4 per cent. per
annum on any unrecovered costs.
Unrecovered costs are calculated separately for each individual contract area
and can only be recovered against production from that respective contract
area. The total unrecovered costs for the Gedabek and Gosha contract areas at
31 December 2022 were $37.5m and $31.4m respectively (2021: $29.7m and $19.7m
respectively). The Group's current business plans indicate that these costs
will not be fully recovered until at least the end of 2025 and the effective
royalty of 12.75 per cent. will therefore continue until then for the Gedabek
and Gosha contract areas. The unrecovered costs at 31 December 2022 for the
Garadag and Xarxar contract areas are $0.9m and $1.0m respectively. The
unrecovered costs include cash payments for historical geological data of
$0.8m and $0.2m in respect of Garadag and Xarxar respectively.
The Group produced gold and copper for the first time in 2021 from its Vejnaly
contract area and the metal produced will be sold in 2023. The Government's
share of this production in 2021 may be higher than 12.75 per cent. This is
because the mine and other facilities were acquired at no cost and the only
costs available to offset the production will be the administration costs of
the site, minor refurbishment capital expenditure, the cost of geological
exploration and Gedabek production costs. There will be no mining costs
available for offset as the metal was produced from ore stockpiled at Vejnaly
by the previous owner. Vejnaly had unrecovered costs at 31 December 2022 of
$0.8m.
Calculation of non-IFRS financial indicators
Net debt / cash
Calculated as the cash and cash equivalents minus current and non-current
interest-bearing loans and borrowings.
Free cash flow
Calculated as net cash from operating activities less expenditure on property,
plant and equipment and mine development and, Investment in exploration and
evaluation assets including other intangible assets.
All-in sustaining cost ("AISC") per ounce.
AISC is calculated in accordance with the World Gold Council's Guidance Note
on Non-GAAP Metrics dated 27 June 2013. The AISC calculation includes a credit
for the revenue generated from the sale of copper and silver, which are
classified by the Group as by-products.
Going concern
The directors have prepared the Group financial statements on a going concern
basis after reviewing the Group's forecast cash position for the period to 30
June 2024 (the 'going concern review period') and satisfying themselves that
the Group will have sufficient funds on hand to meet its obligations as and
when they fall due over the period of their assessment. Appropriate rigour and
diligence have been applied by the directors who believe the assumptions are
prepared on a realistic basis using the best available information.
The Group had cash balances of $10.7 million (31 December 2022: $20.4 million)
and no bank debt at 31 March 2023. The directors have prepared a base case
cash flow forecast that assumes production is consistent with the business
plan and a gold price of between $1,675 and $1,850 for 2023 and 2024. A
copper price of $8,500 per tonne has been used for 2023 and $8,000 per tonne
for 2024. The base case cash flow forecast shows the Group is able to fund its
working capital requirements from cash generated from its operations at
Gedabek.
The Group is currently building two new mines, Gilar and Zafar. These mines
will require significant capital expenditure to bring into production. The
Group estimates this capital expenditure will be around $17 million to $20
million in the 18 months to 30 June 2024. The Group is also incurring capital
expenditure on maintaining its current operations and geological exploration.
The base case cash flow shows that the Group is able to finance this
expenditure from existing operating cash flow and current undrawn debt
facilities.
The Group has access to local sources of both short and long-term finance and
has an AZN55 million ($32.3 million) revolving credit facility
with International Bank of Azerbaijan which is available until 31 December
2030 with no conditions on drawdown. The Group is also utilising vendor
financing for certain of its equipment purchases.
The majority of the restrictions imposed by the Government of Azerbaijan to
combat the COVID-19 pandemic have now been lifted. The directors believe the
COVID-19 pandemic is not now having any effect on the business.
The Group's business activities, together with the factors likely to affect
its future development, performance and position, can be found within the
chairman's statement, the president and chief executive's review and the
strategic report above. The financial position of the Group, its cash flow,
liquidity position and borrowing facilities are discussed within this
financial review. In addition, note 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.
William Morgan
Chief financial officer
15 May 2023
Directors emoluments
Year ended 31 December 2022 Consultancy Fees Benefits Total
$ $ $ $
John Monhemius 5,362 51,436 - 56,798
John Sununu - 74,211 - 74,211
Michael Sununu - 51,613 - 51,613
Reza Vaziri 578,483 51,613 33,166 663,262
Khosrow Zamani - 123,888 - 123,888
583,845 352,761 33,166 969,772
Year ended 31 December 2021 Consultancy Fees Benefits Total
$ $ $ $
John Monhemius - 55,019 - 55,019
John Sununu - 80,877 - 80,877
Michael Sununu - 55,019 - 55,019
Reza Vaziri 575,077 55,019 32,813 662,909
Khosrow Zamani - 135,346 - 136,346
575,077 381,280 32,813 989,170
Directors' fees and consultancy for 2021 and 2022 were paid in cash.
No director held or exercised any share options during the years ended 31
December 2021 and 31 December 2022.
Group statement of income
year ended 31 December 2022
2022 2021
Continuing operations Notes $000 $000
Revenue 6 84,719 92,494
Cost of sales (68,958) (74,473)
Gross profit 15,761 18,021
Other operating income 7 420 228
Administrative expenses (5,930) (5,126)
Other operating expenses 7 (971) (741)
Operating profit 8 9,280 12,382
Finance costs 10 (814) (652)
Finance income 84 114
Other income 7 - 748
Other expense 7 (570) -
Share of loss of an associate company 11 (476) -
Profit before tax 7,504 12,592
Income tax expense 12 (3,844) (5,231)
Profit attributable to the equity holders of the parent 3,660 7,361
Profit per share attributable to the equity holders of the parent
Basic (US cents per share) 13 3.20 6.43
Diluted (US cents per share) 13 3.20 6.43
Group statement of comprehensive income
year ended 31 December 2022
2022 2021
Notes $000 $000
Profit for the year 3,660 7,361
Other comprehensive income
Other comprehensive income that may be reclassified to profit and loss in
subsequent years*:
Exchange differences on translation of foreign associate company 11 (233) -
Share of comprehensive profit of an associate company 11 8 -
Net other comprehensive loss that may be reclassified to profit and loss in
subsequent year (225) -
Total comprehensive income for the year* 3,435 7,361
* These are gross amounts and the tax effect is $nil
Group statement of financial position
31 December 2022
2022 2021
Notes $000 $000
Non-current assets
Intangible assets 14 38,616 30,347
Property, plant and equipment 15 56,045 58,710
Leased assets 16 2,363 3,066
Investment in an associate company 11 5,172 -
Non-current financial assets 17 39 2,777
Other receivables 18 - 185
102,235 95,085
Current assets
Inventory 19 40,202 36,912
Trade and other receivables 18 18,331 19,752
Other current financial assets 17 - 214
Cash and cash equivalents 20 20,410 37,453
78,943 94,331
Total assets 181,178 189,416
Current liabilities
Trade and other payables 21 (18,022) (28,024)
Income tax payable (46) (3,061)
Lease liabilities 16 (419) (403)
(18,487) (31,488)
Net current assets 60,456 62,843
Non-current liabilities
Trade and other payables 21 (2,897) -
Provision for rehabilitation 23 (16,006) (11,922)
Lease liabilities 16 (2,289) (2,890)
Deferred tax liability 12 (27,992) (24,699)
(49,184) (39,511)
Total liabilities (67,671) (70,999)
Net assets 113,507 118,417
Equity
Share capital 25 2,016 2,016
Share premium 26 33 33
Treasury shares 27 (145) -
Share-based payment reserve 28 424 12
Merger reserve 25 46,206 46,206
Foreign currency translation reserve (233) -
Retained earnings 65,206 70,150
Total equity 113,507 118,417
Group statement of cash flows
year ended 31 December 2022
2022 2021
Notes $000 $000
Cash flows from operating activities
Profit before tax 7,504 12,592
Adjustments to reconcile profit before tax to net cash flows:
Finance costs 10 814 652
Finance income (84) (114)
Unrealised loss /(gain) on financial instruments 572 (749)
Gain on the modification of lease liabilities (65) -
Write down of unrecoverable inventory 108 -
Depreciation of owned assets 15 15,443 15,075
Depreciation of leased assets 16 540 523
Amortisation of mining rights and other intangible assets 14 1,131 1,206
Share-based payment expense 28 412 12
Share of loss of an associate company 11 476 -
Foreign exchange loss 317 72
Operating cash flow before movement in working capital 27,168 29,269
Increase in trade and other receivables (5,933) (381)
(Increase) / decrease in inventories (3,399) 4,545
(Decrease) / increase in trade and other payables (779) 1,274
Cash from operations 17,057 34,707
Income taxes paid (3,566) (8,682)
Net cash flow from operating activities 13,491 26,025
Cash flows from investing activities
Expenditure on property, plant and equipment and mine development (10,158) (6,199)
Investment in exploration and evaluation assets including other
intangible assets (7,162) (7,587)
Proceeds from sale of financial instruments - 110
Purchase of financial instruments - (2,168)
Acquisition of an associate company 11 (3,491) -
Interest received - 114
Net cash used in investing activities (20,811) (15,730)
Cash flows from financing activities
Purchase of treasury shares 27 (145) -
Dividends paid 29 (8,612) (10,918)
Interest paid - lease liabilities 16 (291) (266)
Repayment of lease liabilities 16 (358) (434)
Net cash used in financing activities (9,406) (11,618)
Net decrease in cash and cash equivalents (16,726) (1,323)
Net foreign exchange difference (317) (72)
Cash and cash equivalents at the beginning of the year 20 37,453 38,848
Cash and cash equivalents at the end of the year 20 20,410 37,453
Group statement of changes in equity
year ended 31 December 2022
Notes Share Share Merger Total
capital premium reserve equity
$000 $000 Share-based $000 Foreign Retained $000
payment currency earnings
Treasury reserve translation $000
shares $000 reserve
$000 $000
1 January 2021 2,016 33 - - 46,206 - 73,707 121,962
Profit for the year - - - - - - 7,361 7,361
Cash dividends paid 29 - - - - - - (10,918) (10,918)
Share-based payment 28
- - - 12 - - - 12
31 December 2021 2,016 33 - 12 46,206 - 70,150 118,417
Profit for the year - - - - - - 3,660 3,660
Other comprehensive loss for the year
- - - - - (233) 8 (225)
Total comprehensive income for the year
- - - - - (233) 3,668 3,435
Cash dividends paid 29 - - - - - - (8,612) (8,612)
Share-based payment 28
- - - 412 - - - 412
Purchase of shares for treasury 27
- - (145) - - - - (145)
31 December 2022 2,016 33 (145) 424 46,206 (233) 65,206 113,507
Notes to the Group financial statements
year ended 31 December 2022
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 30 below
and the chairman's statement, the president and chief executive's review and
the strategic report above.
2 Basis of preparation
The financial information for the year ended 31 December 2022 was approved by
the board of directors on 15 May 2023. The financial information has been
prepared in accordance with International accounting standards in accordance
with UK-adopted International accounting standards.
The financial information has been prepared using accounting policies set out
in note 4 which are consistent with all applicable IFRSs and with those parts
of the Companies Act 2006 applicable to companies reporting under IFRSs. For
these purposes, IFRSs comprises the standards issued by the International
Accounting Standards Board and interpretations issued by the International
Financial Reporting Interpretations Committee that have been endorsed by the
UK Endorsement Board.
The financial information has been prepared under the historical cost
convention except for the treatment of share-based payments, certain trade
receivables at fair value, derivatives not designated as hedging instruments
and financial assets at fair value through profit and loss. The financial
information is presented in United States Dollars ("$") and all values are
rounded to the nearest thousand except where otherwise stated. In the
financial information "£" and "pence" are references to the United Kingdom
pound sterling and "CAN$" and "CAN cents" are references to Canadian dollars
and cents.
The directors have prepared the Group financial statements on a going concern
basis after reviewing the Group's forecast cash position for the period to 30
June 2024 (the 'going concern review period') and satisfying themselves that
the Group will have sufficient funds on hand to meet its obligations as and
when they fall due over the period of their assessment. Appropriate rigour and
diligence have been applied by the directors who believe the assumptions are
prepared on a realistic basis using the best available information.
The Group had cash balances of $10.7 million (31 December 2022: $20.4 million)
and no bank debt at 31 March 2023. The directors have prepared a base case
cash flow forecast that assumes production is consistent with the business
plan and a gold price of between $1,675 and $1,850 for 2023 and 2024. A
copper price of $8,500 per tonne has been used for 2023 and $8,000 per tonne
for 2024. The base case cash flow forecast shows the Group is able to fund its
working capital requirements from cash generated from its operations at
Gedabek.
The Group is currently building two new mines, Gilar and Zafar. These mines
will require significant capital expenditure to bring into production. The
Group estimates this capital expenditure will be around $17 million to $20
million in the 18 months to 30 June 2024. The Group is also incurring capital
expenditure on maintaining its current operations and geological exploration.
The base case cash flow shows that the Group is able to finance this
expenditure from existing operating cash flow and current undrawn debt
facilities.
The Group has access to local sources of both short and long-term finance and
has an AZN55 million ($32.3 million) revolving credit facility
with International Bank of Azerbaijan which is available until 31 December
2030 with no conditions on drawdown. The Group is also utilising vendor
financing for certain of its equipment purchases.
The majority of the restrictions imposed by the Government of Azerbaijan to
combat the COVID-19 pandemic have now been lifted. The directors believe the
COVID-19 pandemic is not now having any effect on the business.
The Group's business activities, together with the factors likely to affect
its future development, performance and position, can be found within the
chairman's statement, the president and chief executive's review and the
strategic report above. The financial position of the Group, its cash flow,
liquidity position and borrowing facilities are discussed within the financial
review above. In addition, note 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 2022:
· Amendments to IAS 37, IFRS 3, IAS 16, IFRS 1, IFRS 9 and IAS 41.
The above amendments had no impact on the consolidated financial statements of
the Group.
3.2 Standards issued but not yet effective
The new and amended standards and interpretations that are issued, but not yet
effective, up to the date of issuance of the Group's financial statements are
disclosed below. The Group intends to adopt these new and amended standards
and interpretations, if applicable, when they become effective.
· IFRS 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17 'Insurance Contracts', a comprehensive
new accounting standard for insurance contracts covering recognition and
measurement, presentation and disclosure.
The Group is currently reviewing this standard but believes it will have no
impact as the Group does not issue insurance contracts.
· Amendments to IAS 1: Classification of Liabilities as Current or
Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to
specify the requirements for classifying liabilities as current or
non-current.
The amendments are effective for annual reporting periods beginning on or
after 1 January 2023 and must be applied retrospectively. The Group is
currently assessing the impact the amendments will have on its current
practice.
· Definition of Accounting Estimates - Amendments to IAS 8
In February 2021, the IASB issued amendments to IAS 8, in which it introduces
a definition of 'accounting estimates'. The amendments clarify the distinction
between changes in accounting estimates and changes in accounting policies and
the correction of errors.
The amendments are effective for annual reporting periods beginning on or
after 1 January 2023 and are not expected to have a material impact on the
Group's financial statements.
· Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS
Practice Statement 2
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice
Statement 2 Making Materiality Judgements, in which it provides guidance and
examples to help entities apply materiality judgements to accounting policy
disclosures.
The Group is currently revisiting their accounting policy information
disclosures to ensure consistency with the amended requirements.
· Deferred Tax related to Assets and Liabilities arising from a
Single Transaction - Amendments to IAS 12
In May 2021, the Board issued amendments to IAS 12, which narrow the scope of
the initial recognition exception under IAS 12, so that it no longer applies
to transactions that give rise to equal taxable and deductible temporary
differences.
There is no impact to the Group financial statements of the amendments.
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 2022. 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 4.13 for the
accounting policies for financial assets and accounting policy 4.14 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.
There are no advance payments received from the refiner and therefore no
conditional rights to consideration.
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 18 - '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 4.11 for further discussion on fair
value. Refer to note 18 for details of payments terms for trade receivables.
As noted above, as the enforceable contract for most arrangements is the
purchase order, the transaction price is determined at the date of each sale
(i.e., for each separate contract) and, therefore, there is no future
variability within scope of IFRS 15 and no further remaining performance
obligations under those contracts.
v Interest revenue
Interest revenue is recognised as it accrues, using the effective interest
rate method.
4.3 Leases
The Group assesses at contract inception, all arrangements to determine
whether they are, or contain, a lease. That is, if the contract conveys the
right to control the use of an identified asset for a period of time in
exchange for consideration. The Group is not a lessor in any transactions, it
is only a lessee.
i) Group as a lessee
The Group applies a single recognition and measurement approach for all
leases, except for short term leases. The Group recognises lease liabilities
to make lease payments and right of use assets representing the right to use
the underlying assets.
a) Right of use assets
The Group recognises right of use assets at the commencement date of the lease
(i.e., the date when the underlying asset is available for use). Right of use
assets are measured at cost, less any accumulated depreciation and impairment
losses, and adjusted for any remeasurement of lease liabilities. The cost of
right of use assets includes the amount of lease liabilities recognised,
initial direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Right of use assets are
depreciated on a straight line basis over the shorter of the lease term and
the estimated useful lives of the assets, as follows:
· Plant and equipment - six years
· Motor vehicles - four years
· Land and buildings - eight 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 4.10 - "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 relating to items recognised in the Group income
statement is charged or credited in the Group income statement. Deferred tax
relating to items recognised outside the Group income statement is recognised
outside the Group income statement and items are recognised in correlation to
the underlying transaction either in the Group statement of comprehensive
income or directly 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 and 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 (2021: eight years)
· Plant and equipment - eight
years (2021: eight years)
· Motor vehicles -
four years (2021: four years)
· Office equipment - four
years (2021: four years)
· Leasehold improvements - the lower of
eight years (2021: eight years) and the remaining term of the relevant 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 Investment in associate companies and joint ventures
The Group acquired an interest in an associate company in the year ended 31
December 2022. Accordingly, the Group has adopted the following accounting
policy for associate companies from 1 January 2022:
An associate is an entity over which the Group has significant influence.
Significant influence is the power to participate in the financial and
operating policy decisions of the investee but is not control or joint control
over those policies.
The considerations made in determining significant influence are similar to
those necessary to determine control over subsidiaries. The Group's investment
in its associate company is accounted for using the equity method.
Under the equity method, the investment in an associate company is initially
recognised at cost. The carrying amount of the investment is adjusted to
recognise changes in the Group's share of net assets of the associate company
since the acquisition date. Goodwill relating to the associate company, that
existed at the initial recognition date, is included in the carrying amount of
the investment and is not tested for impairment separately as subsequent
goodwill is treated differently.
The statement of profit or loss reflects the Group's share of the results of
operations of the associate company. Any change in other comprehensive income
of those investees is presented as part of the Group's comprehensive income.
In addition, when there has been a change recognised directly in the equity of
the associate company, the Group recognises its share of any changes, when
applicable, in the statement of changes in equity.
The aggregate of the Group's share of profit or loss of the associate company
is shown on the face of the statement of profit or loss outside operating
profit and represents profit or loss after tax and non- controlling interests
in the subsidiaries of the associate company.
The financial statements of the associate company are prepared for the same
reporting period as the Group. When necessary, adjustments are made to bring
the accounting policies in line with those of the Group.
After application of the equity method, the Group determines whether it is
necessary to recognise an impairment loss on its investment in its associate
or company. At each reporting date, the Group determines whether there is
objective evidence that the investment in the associate company is impaired.
If there is such evidence, the Group calculates the amount of impairment as
the difference between the recoverable amount of the associate company and its
carrying value, and then recognises the loss within 'Share of profit of an
associate company' in the statement of profit or loss.
Upon loss of significant influence, the Group measures and recognises any
retained investment at its fair value. Any difference between the carrying
amount of the associate company upon loss of significant influence or joint
control and the fair value of the retained investment and proceeds from
disposal is recognised in profit or loss.
4.10 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.
4.11 Fair value measurement
The Group measures financial instruments at fair value at each balance sheet
date. Fair value disclosures for financial instruments measured at fair value,
or where fair value is disclosed, are summarised in the following notes:
· Note 18 - 'Trade and other receivables'
· Note 20 - 'Cash and cash equivalents'
· Note 17 - 'Financial assets'; and
· Note 21 - 'Trade and other payables'
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability takes place
either:
· in the principal market place for the asset or the liability; or
· in the absence of a principal market, the most advantageous market for
the asset or liability.
The fair value of an asset or liability is measured using the assumptions that
market participants would use when pricing the asset or liability, assuming
that market participants act in their economic best interest.
The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data is available to measure fair value, maximising
the use of relevant observable inputs and minimising the unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in
the financial statements are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole.
· Level 1 - Quoted (unadjusted) market prices in active markets for
identical assets or liabilities.
· Level 2 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or indirectly
observable.
· Level 3 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on
a recurring basis, the Group determines whether transfers have occurred
between levels in the hierarchy by re-assessing categorisation (based on the
lowest level input that is significant to the fair value measurement as a
whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of
assets and liabilities on the basis of the nature, characteristics and risks
of the asset or liability and the level of the fair value hierarchy as set out
above.
4.12 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.
4.13 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. Financial assets with cash flows that are not SPPI are
classified and measured at fair value through profit or loss, irrespective of
the business model.
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.
ii) Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in
four categories:
· Financial assets at amortised cost (debt instruments);
· Financial assets at fair value through OCI with recycling of cumulative
gains and losses (debt instruments);
· Financial assets designated at fair value through OCI with no recycling
of cumulative gains and losses upon derecognition (equity instruments); and
· Financial assets at fair value through profit or loss.
iii) Financial assets at amortised cost (debt instruments)
This category is the most relevant to the Group. The Group measures financial
assets at amortised cost if both of the following conditions are met:
· The financial asset is held within a business model with the objective
to hold financial assets in order to collect contractual cash flows; and
· The contractual terms of the financial asset give rise on specified
dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
Financial assets at amortised cost are subsequently measured using the
effective interest rate ("EIR") method and are subject to impairment. Interest
received is recognised as part of finance income in the statement of profit or
loss and other comprehensive income. Gains and losses are recognised in profit
or loss when the asset is derecognised, modified or impaired.
The Group's financial assets at amortised cost include trade receivables (not
subject to provisional pricing) and other receivables. Refer below to
'Financial assets at fair value through profit or loss' for a discussion of
trade receivables (subject to provisional pricing).
iv) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets
held for 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 fttransferred nor retained substantially
all of the risks and rewards of the asset, nor transferred control of the
asset, the Group continues to recognise the transferred asset to the extent of
its continuing involvement. In that case, the Group also recognises an
associated liability. The transferred asset and the associated liability are
measured on a basis that reflects the rights and obligations that the Group
has retained.
Continuing involvement that takes the form of a guarantee over the transferred
asset is measured at the lower of the original carrying amount of the asset
and the maximum amount of consideration that the Group could be required to
repay.
vi) Impairment of financial assets
Further disclosures relating to impairment of financial assets are also
provided in the following notes:
· Disclosure of significant assumptions: accounting policy 4.22
· Trade and other receivables:
accounting policy 4.14 and note 18
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.
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.
For the purpose of the consolidated statement of cash flows, cash and cash
equivalents consist of cash and short- term deposits as defined
above.
4.14 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.
4.15 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.
4.16 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 Treasury shares
Own equity instruments that are reacquired (treasury shares) are recognised at
cost and deducted from equity. No gain or loss is recognised in profit or loss
on the purchase, sale, issue or cancellation of the Group's own equity
instruments. Any difference between the carrying amount and the consideration,
if reissued, is recognised in the share premium.
4.18 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.
4.19 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.
4.20 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.
4.21 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.
The fair value of share options is calculated using the assumption that they
will only be exercised if the share price prevailing at the date of exercise
is equal to, or above, the price at which the options were granted. This
methodology approximates to valuing the share options using a Black-Scholes
model. The expected life used in the model has been calculated using
management's best estimate of the effects of non-transferability, exercise
restrictions and behavioural considerations. The vesting condition
assumptions are reviewed during each reporting period to ensure they reflect
current expectations.
4.22 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 14)
The application of the Group's accounting policy for exploration and
evaluation expenditure requires judgement in determining whether it is likely
that future economic benefits are likely from future exploitation. If
information becomes available suggesting that the recovery of expenditure is
unlikely, the amount capitalised is written off in the consolidated statement
of profit or loss in the period when the new information becomes available.
ii) Impairment of intangible and tangible assets (notes 14,15 and 16)
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 15)
The Group assesses the stage of each mine under construction to determine when
a mine moves into the production stage. The criteria used to assess the start
date are determined based on the unique nature of each mine construction
project, such as the complexity of a plant and its location. The Group
considers various relevant criteria to assess when the mine is substantially
complete, ready for its intended use and is reclassified from Assets under
construction to Producing mines and Property, plant and equipment. Some of the
criteria will include, but are not limited to, the following:
• the level of capital expenditure compared to the construction cost
estimates;
• completion of a reasonable period of testing of the mine plant and
equipment;
• ability to produce metal in saleable form (within specifications); and
• ability to sustain ongoing production of metal.
When a mine construction project moves into the production stage, the
capitalisation of certain mine construction costs ceases and costs are either
regarded as inventory or expensed, except for costs that qualify for
capitalisation relating to mining asset additions or improvements, underground
mine development or mineable reserve development. This is also the point at
which the depreciation/amortisation recognition commences.
iv) Leases (note 16)
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 31)
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 PSA contains an option to extend
the Gedabek licence for a further ten years from March 2022, conditional upon
satisfaction of certain requirements stipulated in the PSA, and the first of
the two five-year extensions allowed under the PSA to March 2027 has been
obtained. The directors have judged that the requirements to renew the licence
for the second five-year extension from March 2027 to March 2032 will be
satisfied. The Group depreciates each tangible fixed asset over its estimated
useful life subject to no asset having a life extending beyond March 2032.
4.23) 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 14,15 and 16)
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 14 and 15)
Ore reserves are estimates of the amount of ore that can be economically and
legally extracted from the Group's mining properties. The Group estimates its
ore reserves and mineral resources, based on information compiled by
appropriately qualified persons relating to the geological data on the size,
depth and shape of the ore body and requires complex geological judgements to
interpret the data. The estimation of recoverable reserves is based upon
factors such as estimates of foreign exchange rates, commodity prices, future
capital requirements and production costs along with geological assumptions
and judgements made in estimating the size and grade of the ore body. Changes
in the reserve or resource estimates may impact upon the carrying value of
exploration and evaluation assets, mine properties, property, plant and
equipment, provision for rehabilitation and depreciation and amortisation
charges.
iii) Inventory (note 19)
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 2028 and 2030.
v) Recovery of deferred tax assets (note 12)
Judgement is required in determining whether deferred tax assets are
recognised within the Group statement of financial position. Deferred tax
assets, including those arising from unutilised tax losses, require management
to assess the likelihood that the Group will generate taxable earnings in
future periods, in order to utilise recognised deferred tax assets. Estimates
of future taxable income are based on forecast cash flows from operations and
the application of existing tax laws in each jurisdiction. To the extent that
future cash flows and taxable income differ significantly from estimates, the
ability of the Group to realise the net deferred tax assets recorded at the
reporting date could be impacted.
vi) Leases (note 16)
The implementation of IFRS 16 requires the Group to make 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.
5 Segment information
The Group determines operating segments based on the information that is
internally provided to the Group's chief operating decision maker. The chief
operating decision maker has been identified as the board of directors. The
board of directors currently considers consolidated financial information for
the entire Group and reviews the business based on the Group statement of
income and Group statement of financial position on this basis. Accordingly,
the Group has only one operating segment, mining operations. The Group's
mining operations mainly comprise its producing assets, the Gedabek and Gadir
mines and related exploration and development at its Gedabek mining
concession. The majority of the Group's revenues and its cost of sales,
depreciation and amortisation are generated at Gedabek.
The majority of the Group's exploration and all of its development and
production activities are carried out by its wholly-owned subsidiaries in
Azerbaijan. The Group's associate company, Libero Copper & Gold
Corporation ("Libero") explores for minerals in North and South America.
Libero has no revenue and is accounted for by the equity method. The Group's
share of Libero's loss and its assets are disclosed in the Group statement of
income and statement of financial position.
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.
2022 2021
$000 $000
Gold within doré and gold bullion 62,258 71,175
Silver bullion 515 449
Gold and copper concentrate 21,946 20,870
84,719 92,494
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 in 2022 and 2021 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 2022 and 2021 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
2022 2021
$000 $000
Gain from insurance proceeds - 52
Gain on the modifications of lease liabilities 65 -
Gain on cancellation of trade payables - 176
Reversal of previously written off receivables 355 -
420 228
Other operating expenses
2022 2021
$000 $000
Transportation and refining costs 351 308
Foreign exchange loss 317 186
Advances and inventory written off - 126
Research costs 303 121
971 741
Other income
2022 2021
$000 $000
Fair value gain on derivatives not designated as hedging instruments - 597
Fair value gain on financial assets at fair value through profit and loss - 151
- 748
Other expense
2022 2021
$000 $000
Fair value loss on financial assets 570 -
Notes 2022 2021
$000 $000
Operating profit is stated after charging:
Depreciation on property, plant and equipment - owned 15 15,443 15,075
Depreciation on property plant and equipment - right of use assets 16 540 523
Amortisation of mining rights and other intangible assets 14 1,131 1,206
Employee benefits and expenses 9 11,359 11,571
Foreign currency exchange net loss 317 186
Inventory expensed during the year 30,776 30,987
Fees payable to the Company's auditor for:
The audit of the Group's annual accounts 243 191
The audit of the Group's subsidiaries pursuant to legislation 134 119
Audit related assurance services - half year review 3 3
Total audit services 380 313
Amounts paid to auditor for other services:
Tax compliance services 10 10
Total non-audit services 10 10
Total 390 323
The audit fees for the parent company were $160,000 (2021: $148,000).
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:
2022 2021
Management and administration 46 44
Exploration 61 57
Mine operations 838 817
945 918
The aggregate payroll costs of these persons were as follows:
2022 2021
$000 $000
Wages and salaries 10,154 10,158
Social security costs 2,250 2,094
Costs capitalised as exploration (1,045) (681)
11,359 11,571
The Group does not make any contributions to either individual or collective
staff pension plans.
Remuneration of key management personnel
The remuneration of the key management personnel of the Group, is set out
below in aggregate:
2022 2021
$ $
Short-term employee benefits 1,742,750 1,826,118
The key management personnel of the Group comprise the chief executive
officer, the vice president of government affairs, the vice president of
technical services, the vice president Azerbaijan International Mining Company
and the chief financial officer. The disclosure of the remuneration of the
directors as required by the Companies Act 2006 is given above.
10 Finance costs
2022 2021
$000 $000
Finance charges on letters of credit 11 9
Interest expense on lease liabilities 291 266
Unwinding of discount on provisions 425 377
Interest on long term creditor: geological data 87 -
814 652
11 Associate company
Libero Copper & Gold Corporation ("Libero") is a minerals exploration
company listed on the TSX Venture Exchange (ticker: LBC) in Canada and owns,
or has the right to acquire, several copper exploration properties in North
and South America.
On 26 January 2022, the Group acquired a further 10 per cent. interest in
Libero taking its total interest to 19.8 per cent. From this date, Libero is
accounted for using the equity method of accounting in the Group's
consolidated financial statements. The Group took the market value of its 9.8
per cent. holding (fair value), the cost of its additional 10 per cent.
investment and the close out value of the forward contract established at 31
December 2021 as the acquisition cost of Libero as an associate company. Prior
to 26 January 2022, the Group had a 9.8 per cent. interest in Libero and
accounted for the investment as a financial asset. The Group's interest was
subsequently reduced in the period to 19.6 per cent. following an issue of
shares by Libero in which the Group did not participate. The Group made a
further investment in August 2022 to acquire 2.9 million new shares at CAN 33
cents per share for a total consideration of CAN$957,000 ($748,000).
The Group has significant influence over Libero as it has a shareholding of
approximately 20 per cent. in Libero, a Group director is also a director of
Libero and the Group's Vice president, technical services is a member of the
technical committee of Libero. The market value of the Libero shares held by
the Group, which corresponds to their fair value, on 30 December 2022 was
$1,830,000. There are no restrictions on the ability of the Group to transfer
funds to Libero and for Libero to transfer funds to the Group. The financial
statements of Libero are made up to 31 December of each year. The financial
information about Libero, included in these Group financial statements, has
been taken from their audited financial statements for the year ended 31
December 2022 dated 25 April 2023.
The Group's interest in Libero at 31 December 2022 was 18.29 per cent. Libero
carried out a placement of 6,747,000 shares on 30 December 2022. The Group
subscribed for 2.6 million shares as part of this placement to maintain its
interest in Libero at 19.8 per cent. The Group completed its placement on 8
January 2023. The Group's interest in Libero was therefore temporarily 18.29
per cent. in the period 31 December 2022 to 7 January 2023. The reduction in
the Group's interest in Libero at 31 December 2022 of 1.5 per cent. has been
treated as part disposal of its investment. The following tables illustrates
the summarised financial information of the Group's investment in Libero:
The goodwill and other assets of Libero at 31 December 2022 were assessed for
impairment and no impairment charge was considered necessary.
Balance sheet of Libero at 31 December
2022 2021
$000 $000
Current assets 338 3,184
Non-current assets 2,579 2,734
Current liabilities (639) (627)
Non-current liabilities (139) (88)
Equity 2,139 5,203
Reconciliation to carrying value in the Group balance sheet at 31 December
2022
2022
$000
Equity of Libero 2,139
Share based payment expense (874)
Exploration expense 6,531
Equity recognised by the Group 7,796
Group's share in equity - 18.3 per cent. (2021: nil) 1,426
Goodwill 3,746
Group carrying value of associate company
5,172
Profit and loss account of Libero for the year ended 31 December
2022 2021
$000 $000
Expenses 10,205 9,061
Other expenses / (income) 638 (579)
Loss before taxation 10,843 8,482
Taxation (278) (396)
Loss for the year 10,565 8,086
Other comprehensive income (44) (4)
Total comprehensive loss for the year 10,521 8,082
Libero has no revenue and all losses are from continuing
operations.
Reconciliation to loss of associate in the Group profit and loss account
2022
$000
Loss for the period 10,565
Pre-acquisition loss to 25 January 2022 (659)
Exploration expense (6,802)
Post acquisition loss for the year 3,104
Group's share of the loss at 19.6 and 19.8 per cent. 611
Profit on deemed disposal of 1.5 per cent. of Libero (135)
Loss recognised as an associate 476
Reconciliation of the movement in associate company in the year ended 31
December 2022
2022
$000
1 January 2022 -
Transfer from other financial assets 2,382
Additions 3,491
Share of loss of the associate (476)
Foreign exchange loss (225)
31 December 2022 5,172
Libero had no contingent liabilities or capital commitments on 31 December
2022 and 2021. The Group had no contingent liabilities relating to Libero.
12 Taxation
Corporation tax is calculated at 32 per cent. (as stipulated in the production
sharing agreement for R.V. Investment Group Services LLC ("RVIG")) in the
Republic of Azerbaijan, the entity that contributes the most significant
portion of profit before tax in the Group financial statements of the
estimated assessable profit 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 2022 were
$nil (2021: $nil).
The major components of the income tax charge for the year ended 31 December
are:
2022 2021
$000 $000
Current income tax
Current income tax charge 551 5,479
Deferred tax
Charge /(benefit) relating to origination and reversal of temporary 3,293 (248)
differences
Income tax charge for the year 3,844 5,231
Deferred income tax at 31 December relates to the following:
Statement Income statement
of financial position
2022 2021 2022 2021
$000 $000 $000 $000
Deferred income tax liability
Property, plant and equipment - accelerated depreciation (22,377) (19,978) (2,399) (929)
Right of use assets - accelerated depreciation (756) (981) 225 (402)
Non-current prepayments - (59) 59 (59)
Trade and other receivables (2,507) (954) (1,553) (338)
Inventories (11,426) (10,374) (1,052) 1,454
Deferred income tax liability (37,066) (32,346)
Deferred income tax asset
Trade and other payables and provisions * 3,085 2,778 307 62
Lease liabilities 867 1,054 (187) 431
Asset retirement obligation * 5,122 3,815 1,307 29
Deferred income tax asset 9,074 7,647
Deferred income tax benefit (3,293) 248
Net deferred tax liability (27,922) (24,699)
* 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:
2022 2021
$000 $000
Profit before tax 7,504 12,592
Theoretical tax charge at statutory rate of 32 per cent. for RVIG* 2,401 4,029
Effects of different tax rates for certain Group entities (20 per cent.) 179 185
Tax effect of items which are not deductible or assessable for taxation
purposes:
- Items not deductible or assessable 1,264 1,017
Income tax charge for the year 3,844 5,231
* 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 2022, the Group had unused tax losses available for offset
against future profits of $28,354,000 (2021: $22,332,000). Unused tax losses
in the Republic of Azerbaijan at 31 December 2022 were $nil (2021: $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.
13 Profit per share
The calculation of basic and diluted profit per share is based upon the
retained profit for the financial year of $3,660,000 (2021: $7,361,000).
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 and treasury
shares are as follows:
2022 2021
Basic 114,335,175 114,392,024
Diluted 114,335,175 114,392,024
At 31 December 2022 there were no unexercised share options that could
potentially dilute basic earnings per share (2021: nil).
14 Intangible assets
Exploration Exploration Exploration Exploration and evaluation Exploration and evaluation Exploration and evaluation
and evaluation and evaluation and evaluation Vejnaly Xarxar Garadag Other
Gedabek Gosha Ordubad $000 $000 $000 Mining intangible
$000 $000 $000 rights assets Total
$000 $000 $000
Cost
1 January 2021 10,514 1,642 5,751 - - - 41,925 562 60,394
Additions 6,842 556 190 - - - 7,588
31 December 2021 17,356 2,198 5,941 - - - 41,925 562 67,982
Additions 3,654 515 165 517 1,613 2,772 - 164 9,400
31 December 2022 21,010 2,713 6,106 517 1,613 2,772 41,925 726 77,382
Amortisation and impairment*
1 January 2021 - - - - - - 35,966 463 36,429
Charge for the year - - - - - - 1,176 30 1,206
31 December 2021 - - - - - - 37,142 493 37,635
Charge for the year - - - - - - 1,107 24 1,131
31 December 2022 - - - - - - 38,249 517 38,766
Net book value
31 December 2021 17,356 2,198 5,941 - - - 4,783 69 30,347
31 December 2022 21,010 2,713 6,106 517 1,613 2,772 3,676 209 38,616
During the year the Company spent $13,000 and $23,000 respectively for
obtaining geological data for the Demirli and Kyzlbulag contract areas. These
contract areas are within the region controlled by the Russian peacekeeping
force. The amounts are included in other intangible assets.
*186,000 ounces of gold at 1 January 2022 were used to determine depreciation
of producing mines, mining rights and other intangible assets (2021: 232,000
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 $52,000 (2021: $56,000) and an increase in amortisation of
$58,000 (2021: $61,000) respectively.
15 Property, plant and equipment
Plant and
equipment and Producing Assets under construction
motor vehicles mines Total
$000 $000 $000 $000
Cost
1 January 2021 25,207 220,421 1,590 247,218
Additions 1,974 4,782 637 7,393
Decrease in provision for rehabilitation - (288) - (288)
31 December 2021 27,181 224,915 2,227 254,323
Additions 1,409 7,106 601 9,116
Transfer to producing mines - 647 (647) -
Increase in provision for rehabilitation - 3,662 - 3,662
31 December 2022 28,590 236,330 2,181 267,101
Depreciation and impairment*
1 January 2021 21,766 158,772 - 180,538
Charge for the year 1,427 13,648 - 15,075
31 December 2021 23,193 172,420 - 195,613
Charge for the year 1,002 14,441 - 15,443
31 December 2022 24,195 186,861 - 211,056
Net book value
31 December 2021 3,988 52,495 2,227 58,710
31 December 2022 4,395 49,469 2,181 56,045
*186,000 ounces of gold at 1 January 2022 were used to determine
depreciation of producing mines, mining rights and other intangible assets
(2021: 232,000 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 $863,000 (2021: $717,000) and an
increase in depreciation of $994,000 (2021: $793,000) respectively.
Impairment assessment of the Group's fixed assets
The Group assesses at each balance sheet date whether any indicators of
impairment exist for each asset or cash generating unit ("CGU"). The Group has
only one operating CGU. This is the Group's mines together with their
associated processing facilities at Gedabek ("Mining Operations"). If any such
indications of impairment exist, a formal estimate of the recoverable amount
is performed.
In assessing whether an impairment is required, the carrying value of Mining
Operations is compared with its recoverable amount. The recoverable amount is
the higher of the fair value less costs of disposal ("FVLCD") and value in use
("VIU"). Given the nature of the Group's activities, information on the fair
value less costs to disposal of Mining Operations is difficult to obtain
unless negotiations with potential purchasers or similar transactions are
taking place. Consequently, the VIU recoverable amount for Mining Operations
is estimated based on the discounted future estimated cash flows (expressed in
nominal terms) expected to be generated from its continued use using
market-based commodity price assumptions, estimated quantities of recoverable
minerals, production levels, operating costs and capital requirements based on
the Group's strategic growth 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 2022
In the year ended 31 December 2022, future operating cost forecasts were
prepared for the Group's Gedabek open pit mine and Gedabek and Gadir
underground mines. These showed an increase in future operating costs compared
to historic operating costs which was considered an indication of impairment.
Accordingly, the recoverable amount of Mining Operations was calculated and
compared to its carrying value. The results of the analysis are as follows:
$M
Recoverable amount of Mining Operations 71.7
Carrying value of Mining Operations (60.7)
Excess of carrying value over recoverable amount 11.0
As the recoverable amount of Mining Operations was in excess of its carrying
value, no impairment charge was made during 2022.
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
· 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 2023 to 2028 ("Cash Flow
Model"):
Gold: 219,000 ounces
Silver: 429,000 ounces
Copper: 38,861 tonnes
Estimated production volumes are based on the Group's forecasts contained
within its Strategic Growth plan which was published by the Company on 30
March 2023. 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
JORC and non-JORC resource and reserves statements published by the Company
for its Zafar and Gilar ore deposits. The detailed information on these
reserves and resources can be found in the following Company announcements (a)
"Increased Mineral Resource Estimate at Gilar" dated 21 March 2023 (b) "Zafar
JORC Mineral Resource completed - 6.8 million tonnes of mineralisation with
average copper grade of 0.50 per cent." dated 21 March 2022.
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
2023 2024 2025 2026 2027 2028 Average
Gold $/ounce 1,800 1,720 1,700 1,700 1,700 1,700 1,720
Silver $/ounce 21 21 21 21 21 21 21
Copper $/tonne 8,400 8,000 8,000 8,000 8,000 8,000 8,067
Discount rate
In calculating the recoverable amount, a nominal pre-tax discount rate of
10.27 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.
Operating and capital expenditure
Operating expenditures are based on actual costs and budgets. Capital
expenditures are based on budgets and the Group's strategic growth plan.
Sensitivity analysis
The directors believe there are no reasonably possible changes in any of the
assumptions, except the commodity price and production volumes and operating
costs, which would lead to an impairment in Mining Operations. It is estimated
that a 10 per cent. decrease in the gold and silver prices and an average 10
per cent. decrease in copper price together used in the Cash Flow Model would
result in an impairment of $15.7 million. It is estimated that a 10 per cent.
decrease in the production used in the Cash Flow Model would result in an
impairment of $15.7 million. It is estimated that a 10 per cent. increase in
operating costs would result in an impairment of $13.1 million.
Indication of impairment during the year ended 31 December 2021
In the year ended 31 December 2021, 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 67.2
Carrying value of Mining Operations (65.2)
Excess of carrying value over recoverable amount 2.0
As the recoverable amount of Mining Operations was in excess of its carrying
value, no impairment charge was made during 2021.
Key assumptions in calculating recoverable amount of Mining Operations
The determination of the recoverable amount of Mining Operations is most
sensitive to the following key assumptions:
· Production volumes
· Precious metal and copper prices
· Discount rates
· Operating and capital expenditure
Production volumes
In calculating the recoverable amount, the following production volumes were
incorporated into the cash flow model for the years 2022 to 2025 ("Cash Flow
Model"):
Gold: 186,000 ounces
Silver: 373,000 ounces
Copper: 9,856 tonnes
Estimated production volumes are based on the Group's latest ore reserve
estimates and internal budgets and forecasts and the Group's five-year plan.
Production volumes are dependent on a number of variables, including: the
recoverable quantities; the production profile; the cost to maintain the
infrastructure necessary to extract the reserves; the production costs and the
selling price of the precious metal and copper extracted.
The volumes used for the production profile are consistent with the latest
revised JORC resource and reserves statements published in 2020 adjusted by
production in 2021. The Cash Flow Model also includes production from
approximately 1.6 million tonnes of previously crushed heap-leached ore with
an estimated average grade of 1.25 grammes of gold. This is high grade ore
which was processed prior to construction of the Group's agitation leaching
plant and has remained in-situ since heap leaching. As heap leaching only
recovers around 30 per cent. to 60 per cent. of the gold and silver content,
this material contains a sufficiently high grade of gold to be economic to
process and recover by agitation leaching.
Precious metal and copper prices
The precious metal and copper prices used in the Cash Flow Model are the best
estimates by management based on all readily available sources of internal and
external information. These prices are reviewed annually. The estimated gold,
silver and copper prices used for the Cash Flow Model are as follows:
Year
Metal Unit 2022 2023 2024 2025 Average
Gold $/ounce 1,830 1,800 1,750 1,750 1,770
Silver $/ounce 22 21 21 21 21
Copper $/tonne 9,000 9,100 9,000 9,000 9,025
Discount rate
In calculating the recoverable amount, a nominal pre-tax discount rate of 8.71
per cent. was applied to the pre-tax cash flows expressed in nominal terms.
This is the Group's estimated pre-tax average weighted cost of capital
("WACC"). The cost of the Group's equity is derived from the expected return
on investment by the Group's investors.
Sensitivity analysis
The directors believe there are no reasonably possible changes in any of the
assumptions, except the commodity price and production volumes and operating
costs which would lead to an impairment in Mining Operations. It is estimated
that a 10 per cent. decrease in the gold and silver prices and an average 10
per cent. decrease in copper price together used in the Cash Flow Model would
result in an impairment of $10.8 million. It is estimated that a 10 per cent.
decrease in production used in the Cash Flow Model would result in an
impairment of $10.8 million. It is estimated that a 10 per cent. increase in
operating costs would result in an impairment of $6.1 million.
Capital commitments
The capital commitments by the Group have been disclosed in note 31.
16 Leases
Right of use assets
Plant and
equipment and Land and Total
motor vehicles buildings
$000 $000 $000
Cost
1 January 2021 2,357 553 2,910
Additions 166 541 707
Lease modifications 957 116 1,073
31 December 2021 3,480 1,210 4,690
Additions 337 - 337
Lease modifications (743) (57) (800)
31 December 2022 3,074 1,153 4,227
Depreciation
1 January 2021 813 288 1,101
Charge for the year 410 113 523
31 December 2021 1,223 401 1,624
Charge for the year 386 154 540
Lease modifications (264) (36) (300)
31 December 2022 1,345 519 1,864
Net book value
31 December 2021 2,257 809 3,066
31 December 2022 1,729 634 2,363
Lease liabilities
2022 2021
$000 $000
1 January 3,293 1,947
Additions 337 707
Lease modifications (565) 1,073
Interest expense 291 266
Repayment (648) (700)
31 December 2,708 3,293
Current liabilities 419 403
Non-current liabilities 2,289 2,890
2,708 3,293
Amount recognised in the profit and loss account
2022 2021
$000 $000
Depreciation expense of right of use assets 540 523
Gain on lease modifications (65) -
Interest expense 291 266
Expenses relating to short term leases 347 413
1,113 1,202
The amount of future lease commitments for short-term leases at 31 December
2021 and 2022 are similar to the amounts expensed in 2021 and 2022
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.
17 Financial assets
2022 2021
Non-current $000 $000
Derivatives not designated as hedging instruments
Share warrants 39 384
Financial assets at fair value through profit or loss
Listed equity investments - 2,393
39 2,777
2022 2021
Current $000 $000
Derivatives not designated as hedging instruments
Forward contract for the purchase of shares - 214
Derivatives not designated as hedging instruments
Share warrants
Each of the 12,600,000 shares purchased in total in Libero in December 2021
and January 2022 had a half a warrant attached totalling 6,300,000 warrants.
The 2,900,000 shares acquired in August 2022 had no warrants attached. The
6,300,000 (2021: 6,300,000) share warrants are valued using a risk-neutral
binomial tree. Quantitative information about the fair value measurement of
the warrants using significant directly or indirectly observable inputs is as
follows:
Assumption 31 December 2022 31 December 2021
Share price of Libero CAD$0.16 CAD$0.54
Option exercise price CAD$0.75 CAD$0.75
Acceleration condition CAD$1.00 CAD$1.00
Lapse date
2,800,000 warrants issued 22 December 2021 21 December 2023 21 December 2023
3,500,000 warrants issued 26 January 2022 25 January 2024 Not applicable
Risk free rate 4.6 per cent. 0.51 per cent.
Expected volatility - daily 6.88 per cent. 7.64 per cent.
Expected volatility - annualised 109.26 per cent. 121.25 per cent.
Probability of regulatory approval Not applicable 95 per cent.
Discount for lack of marketability 13.97 per cent. 15.36 per cent.
Exchange rate US$1 = CAD$1.3549 US$1 = CAD$1.2634
Forward contract for the purchase of shares
In December 2021, the Group subscribed for 12,600,000 shares in Libero Copper
& Gold Corporation ("Libero"). 5,600,000 shares were purchased in December
2021, with the remaining 7,000,000 shares purchased in January 2022.
Accordingly, the 7,000,000 shares purchased in January 2022 is a forward
contract for the purchase of shares at 31 December 2021. The forward contract
is measured at fair value at 31 December 2021. The carrying value of the
forward contract of $214,000 was added to the acquisition cost of the
associate company following the acquisition of the 7,000,000 shares in January
2022.
`
Financial assets at fair value through profit or loss
Listed equity investments
At 31 December 2021, these were 5,600,000 shares in Libero, a company which is
listed on the Toronto Ventures Stock Exchange in Canada. On 26 January 2022,
the Group purchased a further 7,000,000 shares and Libero became an associate
company of the Group (note 11 - 'Investment in an associate company').
18 Trade and other receivables
Other receivables
2022 2021
Non-current $000 $000
Advances for purchases - 185
Trade receivables
Current
Gold held due to the Government of Azerbaijan 7,274 16,094
VAT refund due 1,562 390
Loan to an employee* 510 -
Other tax receivable 1,038 182
Trade receivables - fair value** 2,716 718
Prepayments and advances 5,231 2,368
18,331 19,752
*See note 32 - "Related party transactions"
**Trade receivables subject to provisional pricing.
Trade receivables (not subject to provisional pricing) are for sales of gold
and silver to the refiner and are non interest-bearing and payment is usually
received one to two days after the date of sale.
Trade receivables (subject to provisional pricing) are for sales of gold and
copper concentrate and are non interest-bearing, but as discussed in
accounting policy 4.2, are exposed to future commodity price movements over
the quotational period ("QP") and, hence, fail the 'solely payments of
principal and interest' test and are measured at fair value up until the date
of settlement. These trade receivables are initially measured at the amount
which the Group expects to be entitled, being the estimate of the price
expected to be received at the end of the QP. Approximately 90 per cent. of
the provisional invoice (based on the provisional price) is received in cash
within one to two weeks from when the concentrate is collected from site,
which reduces the initial receivable recognised under IFRS 15. The QPs can
range between one and four months post shipment and final payment is due
between 30-90 days from the end of the QP. Refer to accounting policy 4.11 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 2021 or 2022.
The VAT refund due at 31 December 2022 and 2021 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 21
"Trade and other payables".
19 Inventory
2022 2021
Current assets $000 $000
Cost
0Finished goods - bullion 2,243 2,001
Finished goods - metal in concentrate 1,128 1,079
Metal in circuit 12,140 12,026
Ore stockpiles 8,299 7,107
Spare parts and consumables 16,392 14,699
Total current inventories 40,202 36,912
Total inventories at the lower of cost and net realisable value 40,202 36,912
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.
20 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 2022 (including short-term cash deposits) comprised $17,000 and
$20,393,000 respectively (2021: $11,000 and $37,442,000).
The Group's cash and cash equivalents are mostly held in United States
Dollars.
21 Trade and other payables
2022 2021
Current $000 $000
Accruals and other payables 4,912 5,999
Trade creditors 3,311 3,629
Gold held due to the Government of Azerbaijan 7,274 16,094
Payable to the Government of Azerbaijan from copper concentrate joint sale 2,525 2,302
18,022 28,024
2022 2021
Non-current $000 $000
Accruals and other payables 2,897 -
Trade creditors primarily comprise amounts outstanding for trade purchases and
ongoing costs. Trade creditors are non-interest bearing and the creditor days
were 33 (2021: 18). Accruals and other payables mainly consist of accruals
made for accrued but not paid salaries, bonuses, related payroll taxes and
social contributions, and services provided but not billed to the Group by the
end of the reporting period. The directors consider that the carrying amount
of trade and other payables approximates to their fair value.
The amount payable to the Government of Azerbaijan from copper concentrate
joint sale represents the portion of cash received from the customer for the
Government's portion from the joint sale of copper concentrate.
In the year ended 31 December 2022, the Group contracted with AzerGold CJSC to
pay $4.0 million for the historical geological data Azergold CJSC owned in
respect of the Garadag and Xarxar Contract Areas. The consideration was
apportioned as $3.3 million for Garadag data and $0.7 million for Xarxar data.
$1.0 million (25 per cent.) was paid in 2022 with the remaining $3.0 million
(75 per cent.) payable after three years, or if earlier for each respective
deposit, the balance of the purchase price on the approval of the Group's
development and production programme for the deposit in accordance with the
Group's Production Sharing Agreement. The amount outstanding under the
contract at 31 December 2022 has been classified as a non-current liability.
The long-term creditor has been discounted at a rate of 8 per cent. being the
risk-free rate. The repayment dates of the creditor are the directors' best
estimation of when repayment will occur. The undiscounted amount of the
creditor at 31 December 2022 is $3.0 million (2021: nil).
The $1.0 million payment made in 2022 has been included in the Group cash flow
statement as investment in exploration and evaluation assets. The full amount
of $4.0 million less the discount of $0.7 million has been capitalised in the
Group balance sheet as an intangible asset - exploration and evaluation.
22 Changes in liabilities arising from financing activities
2022
1 January Cash flows Other 31 December
$000 $000 $000 $000
Lease liabilities 3,293 (648) 63 2,708
Total liabilities from financing activities 3,293 (648) 63 2,708
2021
1 January Cash flows Other 31 December
$000 $000 $000 $000
Lease liabilities 1,947 (700) 2,046 3,293
Total liabilities from financing activities 1,947 (700) 2,046 3,293
Other in 2021 results mainly from a change in the estimate of the mine life.
23 Provision for rehabilitation
2022 2021
$000 $000
1 January 11,922 11,833
Additions 5,704 614
Accretion expense 425 377
Effect of passage of time and change in discount rate (2,045) (902)
31 December 16,006 11,922
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 2022 was $24,235,000 (2021: $15,883,000). The
undiscounted liability was discounted using a risk-free rate of 5.99 per cent.
(2021: 3.57 per cent.). Expenditures on restoration and rehabilitation works
are expected between 2028 and 2030 (2021: between 2028 and 2030).
24 Financial instruments
Financial risk management objectives and policies
The Group's principal financial instruments at 31 December 2022 comprised cash
and cash equivalents. The Group also had letters of credit outstanding during
the year ended 31 December 2022 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 2022 and
2021 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 2022 consists of lease
liabilities, cash and cash equivalents and equity attributable to equity
holders of the parent, comprising issued share capital, reserves and retained
earnings as disclosed in the consolidated statement of changes in equity. The
Group also had letters of credit outstanding during the year ended 31 December
2022 but these were all settled during the year. The Group may enter into bank
and other loans and letters of credit in the future. The Group has sufficient
capital to fund ongoing production and exploration activities, with capital
requirements reviewed by the Board on a regular basis. Capital has been
sourced through share issues on the AIM, part of the London Stock Exchange,
and loans from banks in Azerbaijan and elsewhere. In managing its capital, the
Group's primary objective is to ensure its continued ability to provide a
consistent return for its equity shareholders through capital growth. In order
to achieve this objective, the Group seeks to maintain a gearing ratio that
balances risk and returns at an acceptable level and also to maintain a
sufficient funding base to enable the Group to meet its working capital and
strategic investment needs.
The Group is not subject to externally imposed capital requirements and
monitors capital using a gearing ratio, which is net debt divided by total
capital plus net debt. The Group's policy is to keep the gearing ratio
below 70 per cent.
Interest rate risk
The Group's cash deposits are at a fixed rate of interest. The Group's letters
of credit outstanding during the year ended 31 December 2022 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 2022 and 2021.
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the board of
directors, which has built an appropriate liquidity risk management framework
for the management of the Group's short, medium and long-term funding and
liquidity management requirements. The Group manages liquidity risk by
maintaining adequate reserves, banking facilities and reserve borrowing
facilities by continuously monitoring forecast and actual cash flows and
matching the maturity profiles of financial liabilities. The Group has access
to local sources of both short and long-term finance should this be required.
The table below summarises the maturity profile of the Group's financial
liabilities based on their contractual payment amounts as disclosed in the
Group balance sheet.
Year ended 31 December 2022
On Less than 3 to 12 1 to 5 >5 Total
demand 3 months months years years $000
$000 $000 $000 $000 $000
Lease liabilities - 105 314 2,289 - 2,708
Trade and other payables - 18,022 - 2,897 - 20,919
- 18,127 314 5,186 - 23,627
Year ended 31 December 2021
On Less 3 to 12 1 to 5 >5 Total
demand than months years years $000
$000 3 months $000 $000 $000
$000
Lease liabilities - 182 547 2,916 122 3,767
Trade and other payables - 28,024 - - - 28,024
- 28,206 547 2,916 122 31,791
Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Group. The maximum
credit risk exposure relating to financial assets is represented by their
carrying value as at the consolidated statement of financial position date.
The Group has adopted a policy of only dealing with creditworthy banks and has
cash deposits held with reputable financial institutions. These usually have a
lower to upper medium grade credit rating. Trade receivables consist of
amounts due to the Group from sales of gold and silver and copper and precious
metal concentrates. Sales of gold and silver bullion are made to MKS Finance
SA and Argor Heraeus SA, Switzerland-based gold refineries, and copper
concentrate is sold to Industrial Minerals SA, Trafigura PTE Ltd and Metal-Kim
Metalurgi Ve Kimya Tarim Sanayi Tic Ltd Sti. Due to the nature of the
customers, the board of directors does not consider that a significant credit
risk exists for receipt of revenues. The board of directors continually
reviews the possibilities of selling gold to alternative customers and also
the requirement for additional measures to mitigate any potential credit risk.
Foreign currency risk
The presentational currency of the Group is United States Dollars. The Group
is exposed to currency risk due to movements in foreign currencies relative
to the US Dollar affecting foreign currency transactions and balances.
The carrying amounts of the Group's foreign currency denominated monetary
assets and monetary liabilities at 31 December are as follows:
Liabilities Assets
2022 2021 2022 2021
$000 $000 $000 $000
UK Sterling 253 277 473 2
Azerbaijan Manats 9,503 7,448 2,300 1,474
Other 698 377 65 152
Foreign currency sensitivity analysis
The Group is mainly exposed to the currency of the United Kingdom (UK
Sterling), the currency of the European Union (Euro) and the currency of the
Republic of Azerbaijan (Azerbaijan Manat).
The following table details the Group's sensitivity to a 10.6 per cent., 10.6
per cent. and 0.14 per cent. (2021: 9 per cent., 9 per cent. and 20 per
cent.) increase and a 10.6 per cent., 10.6 per cent., and 0.14 per cent.
(2021: 9 per cent., 9 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
2022 2021 2022 2021 2022 2021
$000 $000 $000 $000 $000 $000
Increase - effect on profit before tax (23) 23 10 1,171 67 20
Decrease - effect on profit before tax 23 (23) (10) (176) (67) (21)
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 2022 would
result in a reduction in revenue of $6.7 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 $0.02
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 $1.6 million and a 10 per cent. increase in copper
price would have an equal and opposite effect.
25 Share capital and merger reserve
2022 2021
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. 150,000 ordinary shares were bought back during the year ended 31
December 2022 and are now held in treasury (note 27 - 'Treasury shares').
Share options
The Group has share option scheme under which options to subscribe for the
Company's shares have been granted to certain executives and senior employees
(note 28 - 'Share based payment').
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 premium
2022 2021
$000 $000
1 January and 31 December 33 33
27 Treasury shares
2022 2021
Number $000 Number $000
1 January - - - -
Shares bought back during the year 150,000 145 - -
31 December 150,000 145 - -
The Company bought back the following ordinary shares in the year ended 31
December 2022:
Price per share pence Total cost Total cost
Date of buyback Number of shares £ $000
21 July 2022 50,000 81.75 40,875 49
10 August 2022 50,000 89.50 44,750 54
16 September 2022 50,000 73.00 36,500 42
Total 150,000 81.42* 122,125 145
* Average cost
28 Share-based payment
The Group operates a share option scheme for directors and senior employees of
the Group. The period during which share options can be exercised is
determined by the board of directors for each individual grant of share
options subject to exercise not taking place later than the tenth anniversary
of their issue. Options are exercisable at a price equal to the closing quoted
market price of the Group's shares on the date of the board of directors
approval to grant options. Options are forfeited if the employee leaves the
Group and the options are not exercised within three months from leaving date.
The number and weighted average exercise prices ("WAEP") of, and movements in,
share options during the year were as follows:
2022 2021
WAEP WAEP
Number pence Number pence
I January 220,000 115 - -
Granted during the year 160,000 111 220,000 115
Outstanding at 31 December 380,000 115 220,000 115
Exercisable at 31 December 110,000 115 - -
The weighted average remaining contractual life of the share options
outstanding at 31 December 2022 was 4.4 years (2021: 6 years) and their
exercise price was 113 pence.
On 2 February 2022, 160,000 share options were granted at a price of £1.11.
Share options are valued using the assumption that they will only be exercised
if the share price prevailing at the date of exercise is equal to, or above,
the price at which the options were granted. This methodology approximates to
valuing the share options using a Black-Scholes model.
The Group recognised total expense related to equity-settled share-based
payment transactions for the year ended 31 December 2022 of $412,000 (2021:
$12,000).
29 Distributions paid and proposed
2022 2021
$000 $000
Cash dividends on ordinary shares declared and paid
Special dividend for 2020: 1.5 US cents per share - 1,711
Final dividend for 2020: 3.5 US cents per share - 4,010
Interim dividend for 2021: 4.5 US cents per share - 5,197
Final dividend for 2021: 3.5 US cents per share 3,995 -
Interim dividend for 2022: 4.0 US cents per share 4,617 -
8,612 10,918
Proposed dividends on ordinary shares
Final dividend for 2022: 4.0 US cents per share* 4,570 -
Cash dividends are declared in US dollars but paid in pounds Sterling.
Dividends are converted into pounds Sterling using a five-day average of the
sterling closing mid-price published by the Bank of England at 4pm each day
for a specified week prior to payment of the dividend.
The rates used to convert the dividends from US dollars into pounds Sterling
for the dividends above which have been paid and the corresponding sterling
amount of dividend are as follows:
Conversion Dividend
rate pence
Special dividend for 2020: 1.5 US cents per share 1.3932 1.0767
Final dividend for 2020: 3.5 US cents per share 1.3805 2.5354
Interim dividend for 2021: 4.5 US cents per share 1.3662 3.2937
Final dividend for 2021: 3.5 U S cents per share 1.1994 2.9181
Interim dividend for 2022: 4.0 US cents per share 1.1249 3.5559
*The proposed final dividend for the year ending 31 December 2022 is subject
to approval by shareholders at the annual general meeting for 2023 at a rate
to be announced. It has not been recognised as a liability in the Group
statement of financial position at 31 December 2022.
30 Subsidiary undertakings and associate company
Anglo Asian Mining PLC is the parent and ultimate parent of the Group.
The Company's subsidiaries included in the Group financial statements at 31
December 2022 are as follows:
Name Country of incorporation Primary Percentage
place of business 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 2022.
The Company's associate company included in the Group financial
statements at 31 December 2022 is as follows:
Name Registered address Primary place Percentage
of business of holding
per cent.
Libero Copper & Gold Corporation Suite 905 - 111 West Hastings, Vancouver The Americas 18.3
British Columbia, Canada, V6E 2JE
The associate company was acquired in the year ended 31
December 2022.
31 Contingencies and commitments
The Group undertakes its mining operations in the Republic of Azerbaijan
pursuant to the provisions of an Agreement on the Exploration, Development and
Production Sharing for Prospective Gold Mining Areas ("PSA"). The original
agreement was dated 20 August 1997 and granted the Group mining rights over
the following contract areas containing mineral deposits: Gedabek, Gosha,
Ordubad Group (Piyazbashi, Agyurt, Shakardara, Kiliyaki), Soutely, Kyzilbulag
and Vejnali. On 5 July 2022, amendments to the PSA were ratified by
the Parliament of the Republic of Azerbaijan granting the Group three new
contract areas with a combined area of 882 square kilometres and which
relinquished the Soutely contract area. The parliamentary ratification was
signed into law on 5 July 2022 by the President of the Republic of
Azerbaijan.
The PSA contains various provisions relating to the obligations of 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.
32 Related party transactions
Trading transactions
During the years ended 31 December 2021 and 2022, 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 2022, total payments of $3,533,000
(2021: $715,000) 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 2022 there is a payable in relation to the above related party
transaction of $250,000 (2021: $157,000).
c) During the year ended 31 December 2022, total payments of $1,609,000 (2021:
$1,489,000) 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 2022 there is a payable in relation to the above related party
transaction of $nil (2021: $862,000).
(d) On 30 June 2022, a loan of $500,000 was made to the vice
president of technical services of Azerbaijan International Mining Company.
The loan carries an interest rate of 4 per cent. and is repayable on 30 June
2023 with earlier repayment permissible. The loan is secured on the Anglo
Asian Mining plc shares owned by the vice president of technical services of
Azerbaijan International Mining Company. The loan was guaranteed by the
president and chief executive officer of Anglo Asian Mining plc.
All of the above transactions were made on arm's length terms.
31 Subsequent events
Libero Copper & Gold Corporation ("Libero")
On 6 January 2023, the Company made its second follow-on investment in Libero
by way of a subscription agreement. The subscription agreement was for
2,600,000 new shares at CAN 15 cents per share totalling CAN$390,000
($289,000). The Company also acquired 2,600,000 warrants at CAN 22 cents per
share. The shares were admitted to the TSXV following issue. Following the
subscription, the Company held 18.1 million common shares in Libero, as well
as a total of 2.6 million warrants exercisable at CAN 22 cents and 6.3
million warrants exercisable at CAN 75 cents per share. The investment
maintained the Company's 19.8 per cent. shareholding in Libero.
On 17 February 2023, the Company made its third follow-on investment in Libero
by way of a subscription agreement. The subscription agreement was for
3,200,000 new shares at CAN 15 cents per share totalling CAN$480,000
($355,000). The Company also acquired 3,200,000 warrants at CAN 22 cents per
share. The shares were admitted to the TSXV following issue. Following the
subscription, the Company held 21.3 million common shares in Libero, as well
as a total of 5.8 million warrants exercisable at CAN 22 cents and 6.3
million warrants exercisable at CAN 75 cents per share. The investment
maintained the Company's 19.8 per cent. shareholding in Libero.
**ENDS**
Notes to editors:
Anglo Asian Mining plc (AIM:AAZ) is a gold, copper and silver producer with a
high-quality portfolio of production and exploration assets in Azerbaijan.
The Company produced 57,618 gold equivalent ounces ("GEOs") for the year
ended 31 December 2022.
On 30 March 2023, the Company published its strategic plan for growth which
shows a clearly defined path for the Company to transition to a multi-asset,
mid-tier copper and gold producer by 2028. By 2028, copper will be the
principal product of the Company, with forecast production of around 36,000
copper equivalent tonnes. It plans to achieve this growth by bringing into
production four new mines during 2023 to 2028 at Zafar, Gilar, Xarxar and
Garadag.
The Company owns approximately 19.8 per cent. of Libero Copper & Gold
Corporation ("Libero"). Libero is listed on the TSX Venture
Exchange in Canada and owns, or has the option to acquire, several copper
exploration properties in North and South America, including Mocoa
in Colombia, one of the world's largest undeveloped copper-molybdenum
resources.
https://www.angloasianmining.com/ (https://www.angloasianmining.com/)
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