REG - Anglo Asian Mining - Full year results - 2016 <Origin Href="QuoteRef">AAZ.L</Origin> - Part 4
25/05/2017 07:06
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Interest rate risk
The Group's cash deposits, letters of credit, borrowings and interest-bearing
loans are at a fixed rate of interest except for three month LIBOR embedded in
interest with ATB.
The Group manages the risk by maintaining fixed rate instruments, with
approval from the directors required for all new borrowing facilities.
The Group has not used any interest rate swaps or other instruments to manage
its interest rate profile during 2016 and 2015.
Interest rate sensitivity analysis
Interest rate sensitivity of the Group from reasonably possible movement in
the three month LIBOR rate is limited to a negative $137,000 or a positive
$18,000 impact on the Group's profit before taxation. Assumed impact is based
on 0.6 per cent. increase or a 0.08 per cent. decrease respectively in the
three month LIBOR (2015: $203,000 negative or positiveimpact based on a 0.5
per cent. increase or decrease respectively) on interest-bearing loans from
ATB.
Ultimate responsibility for liquidity risk management rests with the board of
directors, which has built an appropriate liquidity risk management framework
for the management of the Group's short, medium and long-term funding and
liquidity management requirements. The Group manages liquidity risk by
maintaining adequate reserves, banking facilities and reserve borrowing
facilities by continuously monitoring forecast and actual cash flows and
matching the maturity profiles of financial liabilities. Included in note 21
is a description of additional undrawn facilities that the Group has at its
disposal to further reduce liquidity risk.
The table below summarises the maturity profile of the Group's financial
liabilities based on contractual undiscounted payments.
Year ended 31 December 2016
Ondemand$000 Less than3 months$000 3 to 12months$000 1 to 5years$000 Total$000
Interest-bearing loans and borrowings - 7,319 20,575 10,142 38,036
Trade and other payables - 21,833 - - 21,833
- 29,152 20,575 10,142 59,869
Year ended 31 December 2015
Ondemand$000 Less than3 months$000 3 to 12months$000 1 to 5years$000 Total$000
Interest-bearing loans and borrowings - 6,574 23,235 24,734 54,543
Trade and other payables - 20,112 - - 20,112
- 26,686 23,235 24,734 74,655
Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Group. The maximum
credit risk exposure relating to financial assets is represented by their
carrying value as at the consolidated statement of financial position date.
The Group has adopted a policy of only dealing with creditworthy banks and has
cash deposits held with reputable financial institutions. Trade receivables
consist of amounts due to the Group from sales of gold and silver bullion and
copper and precious metal concentrates. All sales of gold and silver bullion
are made to MKS Finance SA, a Switzerland-based gold refinery, and copper
concentrate to Industrial Minerals SA. Due to the nature of the customers, the
board of directors does not consider that a significant credit risk exists for
receipt of revenues. The board of directors continually reviews the
possibilities of selling gold to alternative customers and also the
requirement for additional measures to mitigate any potential credit risk.
Foreign currency risk
The presentational currency of the Group is United States Dollars. The Group
is exposed to currency risk due to movements in foreign currencies relative to
the US Dollar affecting foreign currency transactions and balances.
The carrying amounts of the Group's foreign currency denominated monetary
assets and monetary liabilities at 31 December are as follows:
Liabilities Assets
2016$000 2015$000 2016$000 2015$000
UK Sterling 33 187 2 2
Azerbaijan Manats 4,379 3,416 1,390 1,003
Other 434 317 152 -
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 6 per cent., 10 per
cent. and 20 per cent. (2015: 13 per cent., 12.5 per cent. and 15 per cent.)
increase and an 18 per cent., 10 per cent., and 20 per cent. (2015: 4.5 per
cent., 12.5 per cent., and 60 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
2016 2015 2016 2015 2016 2015
$000 $000 $000 $000 $000 $000
Increase - effect on profit / (loss) before tax 2 24 598 1,447 28 40
Decrease - effect on profit / (loss) before tax (6) (8) (598) (362) (28) (40)
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 2016 would
result in a reduction in revenue of $6,677,000 and a 10 per cent. increase in
gold price would have the equal and opposite effect. A 10 per cent. decrease
in silver price would result in a reduction in revenue of $217,000 and a 10
per cent. increase in silver price would have an equal and opposite effect. A
10 per cent. decrease in copper price would result in a reduction in revenue
of $655,000 and a 10 per cent. increase in copper price would have an equal
and opposite effect.
24. Equity
31 December2016£ 31 December2015£
Authorised:
600,000,000 ordinary shares of 1 pence each 6,000,000 6,000,000
Shares $000
Ordinary shares issued and fully paid:
1 January and 31 December 2016 112,661,024 1,993
Fully paid ordinary shares carry one vote per share and carry the right to
dividends.
Share options
The Group has share option scheme under which options to subscribe for the
Company's shares have been granted to certain executives and senior employees
(note 25).
Merger reserve
The merger reserve was created in accordance with the merger relief provisions
under Section 612 of the Companies Act 2006 (as amended) relating to
accounting for Group reconstructions involving the issue of shares at a
premium. In preparing Group consolidated financial statements, the amount by
which the base value of the consideration for the shares allotted exceeded the
aggregate nominal value of those shares was recorded within a merger reserve
on consolidation, rather than in the share premium account.
Retained earnings / (loss)
Retained earnings / (loss) represent the cumulative earnings / (loss) of the
Group attributable to the equity shareholders.
25. Share-based payment
The Group operates a share option scheme for directors and senior employees of
the Group. The vesting periods are up to three years. Options are exercisable
at a price equal to the closing quoted market price of the Group's shares on
the date of the board of directors approval to grant options. Options are
forfeited if the employee leaves the Group and the options are not exercised
within three months from leaving date.
The number and weighted average exercise prices ("WAEP") of, and movements in,
share options during the year were as follows:
2016 2015
Number ofshareoptions Weightedaverageexercisepricepence Number ofshareoptions Weightedaverageexercise pricepence
I January 2,120,859 21 2,801,684 36
Granted during the year 120,000 10 - -
Expired during the year (495,859) 42 (680,825) 84
Outstanding at 31 December 1,745,000 14 2,120,859 21
Exercisable at 31 December 1,665,000 14 1,970,859 21
The weighted average remaining contractual life of the share options
outstanding at 31 December 2016 was 3 years (2015: 3 years) and the range of
their exercise prices was 10 pence to 35 pence (2015: 12 pence to 43 pence).
On 11 November 2016, 120,000 share options were granted with a weighted
average fair value of £0.09.
Share options are valued using the Black-Scholes model. The assumptions used
to value the share options issued in the year ended 31 December 2016 are as
follows:
2016 2015*
Weighted average share price (pence) 26 n/a
Weighted average exercise price (pence) 9.88 n/a
Expected volatility for six months vesting period option (per cent.) - n/a
Expected volatility for one years' vesting period option (per cent.) 70 n/a
Expected volatility for two years' vesting period option (per cent.) 70 n/a
Expected life for six months' vesting period option (years) 2 n/a
Risk free rate (per cent.) 2.23 n/a
*not applicable as no share options were issued in 2015.
Expected volatility was determined by calculating the historical volatility of
the Company's share price over the previous one and two years for share
options with one and two year vesting periods, respectively. The expected life
used in the model has been adjusted, based on management's best estimate, for
the effects of non-transferability, exercise restrictions and behavioural
considerations.
The Group recognised total expense related to equity-settled share-based
payment transactions for the year ended 31 December 2016 of $18,000 (2015:
$15,000).
26. Contingencies and commitments
The Group undertakes its mining operations in the Republic of Azerbaijan
pursuant to the provisions of the Agreement on the Exploration, Development
and Production Sharing for the Prospective Gold Mining Areas: Gedabek, Gosha,
Ordubad Group (Piazbashi, Agyurt, Shakardara, Kiliyaki), Soutely, Kyzilbulag
and Vejnali Deposits dated year ended 20 August 1997 (the "PSA"). The PSA
contains various provisions relating to the obligations of the R.V. Investment
Group Services LLC ("RVIG"), a wholly owned subsidiary of the Company. The
principal provisions are regarding the exploration and development programme,
preparation and timely submission of reports to the Government, compliance
with environmental and ecological requirements. The Directors believe that
RVIG is in compliance with the requirements of the PSA. The Group has
announced a discovery on Gosha Mining Property in February 2011 and submitted
the development programme to the Government according to the PSA requirements,
which was approved in 2012. In April 2012 the Group announced a discovery on
the Ordubad Group of Mining Properties and submitted the development programme
to the Government for review and approval according to the PSA requirements.
he mining licence on Gedabek expires in March 2022, with the option to extend
the licence by ten years conditional upon satisfaction of certain requirements
stipulated in the PSA.
RVIG is also required to comply with the clauses contained in the PSA relating
to environmental damage. The Directors believe RVIG is in compliance with the
environmental clauses contained in the PSA.
In accordance with a pledge agreement signed on 24 July 2013, the Group is a
guarantor for one of its suppliers, Azerinterpartlayish-X MMC, for a loan from
the International Bank of Azerbaijan in amount of Azerbaijan New Manat
("AZN")500,000 for an initial 36 months. The pledge agreement was extended in
2016 until 1 July 2018. The amount of the loan outstanding at 31 December 2016
was AZN364,026.
There were no significant operating lease or capital lease commitments at 31
December 2016 (2015: $nil).
27. Related party transactions
Trading transactions
During the years ended 31 December 2016 and 2016, 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) Shares issued to directors are disclosed in note 9.
c) Remuneration paid to directors is disclosed in note 9.
d) During the year ended 31 December 2016, total payments of $1,522,000 (2015:
$1,018,000) were made for equipment and spare parts purchased from Proses
Muhendislik Danismanlik Inshaat ve Tasarim Anonim Shirket, the entity in which
the Chief Technical Officer of Azerbaijan International Mining Company has a
direct ownership interest.
At 31 December 2014 there is an advance payment in relation to the above
related party transaction of $34,000 (2015: $59,000).
d) On 20 May 2015, the chief executive made a $4 million loan facility
available to the Group. The interest accrued and unpaid at 31 December 2016
was $385,000 (2015: $195,000). Details of the loan facility are disclosed in
note 21.
All of the above transactions were made on arm's length terms.
28. Post balance sheet event
Partial transfer of loan from Amsterdam Trade Bank N.V. to Gazprombank
(Switzerland) Ltd
In October 2013, the Group entered into a loan with Amsterdam Trade Bank N.V.
("ATB N.V.") for $37 million for the purpose of constructing its agitation
leaching plant. The balance of the loan at 31 December 2016 was $17.3 million.
On 15 February 2017, a transaction was finalised to transfer 50 per cent. of
the balance of the loan being $8.6 million to Gazprombank (Switzerland) Ltd
("GPBS"). The terms of the loan and security remained unchanged and ATB N.V.
will act as agent to administer the loan on behalf of ATB N.V. and GPBS.
This information is provided by RNS
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