REG - Atalaya Mining PLC - Final Results <Origin Href="QuoteRef">ATYM.L</Origin> - Part 6
06/04/2017 07:06
- Part 6: For the preceding part double click ID:nRSF7360Be
Minera, S.L.U. The fair values
have been applied as a modification of the original purchase price allocation. As such, the fair values are capitalised
during the year ended 31 December 2016 as part of the Company's intangible assets under "Permits of the Rio Tinto Project"
(Note 14).
Notes to the consolidated financial statements
Years ended 31 December 2016 and 2015
27. Deferred consideration (continued)
THE GROUP
The main assumptions of the net present value are as follows:
Gross amount: E53,000,000
Discount rate: 5.5%
Net present value: E 44,346,167.81
THE COMPANY
The main assumptions of the net present value are as follows:
Gross amount: E9,116,617.30
Discount rate: 5.5%
Net present value: E 7,359,395.05
When determining the net present value of the Deferred Consideration, the Company has used historical facts and future
assumptions, based on opinions and estimates on the excess cash to be generated at Atalaya Riotinto Minera, S.L.U.
Many of these assumptions are based on factors such as commodities prices, cost of operations, future settlements on
current and future trade creditors and debtors and other events that are not within the control of Atalaya.
28. Derivative instruments
28.1. Foreign exchange contract
As at 31 December 2016, Atalaya had certain short term foreign exchange contracts. The contracts were in an unrealised loss
position which was recorded as a finance cost in the income statements (2016 - E0.2 million), the corresponding receivable
amount recorded in other receivables. The relevant information of the contracts is as follows:
Foreign exchange contracts - Euro/USD
Period Contract type Amount in USD Contract rate Strike
June 2016 - March 2017 FX Forward - Put 5,000,000 1.0955 n/a
FX Forward - Call 10,000,000 1.0955 1.0450
10,000,000
1.0955
1.0450
The counter parties of the foreign exchange agreements are third parties.
28.2. Commodity contract
In 2016, Atalaya signed the following short term commodity contracts, for copper, with a third party:
Period Commodity Contract type FMT (Fine metric tonnes) Strike price US$/FMT
August 2016 Copper Forward 2,113 4,960
September 2016 Copper Forward 1,090 4.845
The agreements were closed at the maturity date with a gain of E0.5 million, which has been recorded as revenue during the
year. As at 31 December 2016, the Group had no open positions.
Notes to the consolidated financial statements
Years ended 31 December 2016 and 2015
29. Convertible note
THE GROUP and the company
2016 2015
(Euro 000's) Debt component Derivative component Debt component Derivative component
1 January - - 13,952 130
Accrued interest - - 1,178 -
Accretion expense - - 31 -
Foreign exchange - - 894 -
Fair value of the derivative component - - - (130)
Repayment - - (16,055) -
31 December - - - -
On 12 July 2013 the Company issued Convertible Notes (the "Notes") in the amount of GBP 9,582,000 of which GBP 7,026,800
was subscribed by XGC and Stg £2,555,200 was subscribed by Orion. The Notes had an original term of 18 months to 12
January 2015 (the "Maturity Date"). As part of the Loan agreed on 24 December 2014 with the Note holders and others, the
Maturity Date of the Notes was extended to be the earlier of 30 March 2015 and the date on which the Loan was due for
payment. On 27 March 2015, by virtue of the extension of the maturity date of the Loan, the maturity date was extended to
be the earlier of 30 June 2015 and the date of which the Loan was due for repayment. The Notes carried a coupon of 9% per
annum in the first 12 months and 11% thereafter. Interest was capitalised every three months and rolled up, payable either
on the Maturity Date or the earlier conversion or redemption of the Notes.
Within the period of 10 business days prior to the Maturity Date, the Note holders could have elected to convert all
outstanding principal and accrued interest of their Notes into ordinary shares of 0.25 pence each in the Company ("Ordinary
Shares"). Note holders could also have elected to convert their Notes following the Company seeking to redeem the Notes or
a potential business sale or change of control of the Company. In addition, the Notes would have automatically converted
into new Ordinary Shares at the time the Company (or any of its subsidiaries) made its first drawdown (the "Drawdown Date")
from a facility made available by senior financial institutions for the restart of operations at the Company's Proyecto
Riotinto in Andalucía, Spain. Where the Notes automatically converted on funds being made available under a senior secured
debt facility, the conversion price of the Notes was the lower of 9 pence per share and the VWAP of a Company share on AIM
for the 20 immediately preceding trading days immediately preceding the Drawdown Date. In all other cases, the Notes would
have converted at 9 pence per share.
The Company may have elected to redeem for cash the principal and accrued interest of the Notes at any time between 12 July
2014 (first anniversary of the date of issue) and the first to occur of the Drawdown Date or Maturity Date upon giving the
holders of the Notes not less than 15 business days' notice. A Note holder could have chosen to convert their Notes into
Ordinary Shares rather than have them redeemed but if they did so it would have been at a price of 9 pence per share and
was not conditional on the Drawdown Date occurring. The Notes benefited from security interests granted by the Company
over the share capital of EMED Holdings (UK) Limited and EMED Marketing Limited as well as certain intra-group debts owing
to the Company. In addition, the Company and certain of its subsidiaries had undertaken not to further encumber their
assets or share capital, save in certain circumstances, including in connection with the proposed senior debt facility
required in order to restart operations at Proyecto Riotinto.
The Notes were subject to certain standard events of default following which Note holders could have elected to immediately
redeem their Notes and accrued interest.
Assuming that the Notes converted in full at a conversion price of 9 pence per share (including the conversion of 21
months' accrued interest) the Note Holders would have received 125,494,668 shares. The Company paid intermediary fees of
Stg£192,000 on the issuance of these Notes. The Notes were considered hybrid financial instruments comprising a Note
liability and a conversion feature for Ordinary Shares ("the Conversion Feature"). As the conversion price (9 pence) was
denominated in a currency other than the Company's functional currency, the Conversion Feature was considered to be a
derivative financial instrument and was measured at fair value through profit or loss.
Notes to the consolidated financial statements
Years ended 31 December 2016 and 2015
29. Convertible note (continued)
On 25 June 2015, in connection with the Subscription, Placing and Open Offer to raise Stg £64.9 million announced on 28 May
2015, the liability to pay the outstanding principal of the Notes together with accrued interest up to and including 15 May
2015 was satisfied by the issue of 241,668,731 shares for the conversion of the Notes at 4.75 pence per share.
30. Acquisition and disposals of subsidiaries
There were no acquisitions during 2016 and 2015.
There were no disposals during 2016.
During 2015, there were three disposals of subsidiaries - see Notes 16, 17 and 21.
31. Wind-up of subsidiaries
There were no operations wound-up during 2016 and 2015.
32. Related party transactions
The following transactions were carried out with related parties:
32.1 Compensation of key management personnel
The total remuneration and fees of Directors (including Executive Directors) and other key management personnel was as
follows:
(Euro 000's) 2016 2015
Directors' remuneration and fees 696 592
Directors' bonus 500 -
Directors' bonus shares 63 101
Contractual entitlements upon resignation 83 292
Share option-based benefits to directors 56 56
Key management personnel fees 444 505
Key management bonus 500 -
Share option-based and other benefits to key management personnel 33 39
2,375 1,585
Share-based benefits
The directors and key management personnel have not been granted options or bonus shares during 2016 (Note 24). Charges in
2016 relate to options issued in prior years which vest over a three-year period.
32.2 Transactions with shareholders
(Euro 000's) 2016 2015
Trafigura PTE LTD ("Trafigura") - Sales of goods (pre-commissioning sales offset against the cost of constructing assets) 2,452 10,954
Trafigura- Sales of goods 26,351 -
Orion Mine Finance (Master) Fund I LP ("Orion") - Sales of goods 3,526 -
32,329 10,954
XGC has been granted an offtake over 49.12% of life of mine reserves as per the NI 43-101 report issued in September 2016.
Similarly, Orion has been granted an offtake over 31.54% and Trafigura 19.34% respectively of life of mine reserves as per
the same NI 43-101 report. In November 2016, the Group was notified and consented the novation of the Orion offtake
agreement as Orion reached an agreement with a third party to transfer the rights over the concentrates.
Notes to the consolidated financial statements
Years ended 31 December 2016 and 2015
32. Related party transactions (continued)
32.3 Year-end balances with related parties
(Euro 000's) 2016 2015
Receivable from related party (Note 20):
Fundacion Atalaya Riotinto 12 -
Recursos Cuenca Minera S.L. 56 55
68 55
The above balances bear no interest and are repayable on demand.
32.4 Year-end balances with shareholders
(Euro 000's) 2016 2015
Trafigura - Debtor balance (Note 20) 2,024 6,541
Orion - Creditor balance (Note 25) (12) -
The above debtor balance arising from the pre-commissioning sales of goods bear no interest and is repayable on demand.
33. Contingent liabilities
Judicial and administrative cases
In the normal course of business, the Company may be involved in legal proceedings, claims and assessments. Such matters
are subject to many uncertainties, and outcomes are not predictable with assurance. Legal fees for such matters are
expensed as incurred and the Company accrues for adverse outcomes as they become probable and estimable.
The Company has been named a defendant in several legal actions in Spain, the outcome of which is not determinable as at
December 31, 2016. No provision for these claims has been reflected in these financial statements
On 23 September 2010, ARM was notified that the Andalucían Water Authority ("AWA") had initiated a Statement of Objections
and Opening of File (the "Administrative File 2010") following allegations by third parties of unauthorised industrial
discharges from the Tailings Management Facility ("TMF") at the Rio Tinto Copper Mine in the winter months of late 2010 and
early 2011. These assertions are judicial (alleging negligence) and administrative (alleging damage to the environment) in
nature. At that time, the Company owned 33% of the TMF and the owners of the remaining 67% are co-defendants (Rumbo and
Zeitung).
In December 2011, the judicial claims were dismissed in the initial discovery phase by the appeals Court (upholding a lower
court decision) finding that the controlled discharges of excess rainwater were force majeure events carried out to protect
the stability of the TMF, thereby ensuring public safety and protection of the environment (the "Court Decisions").
Given that all judicial claims were dismissed in the very early stages of the court´s investigation, no formal charges were
ever made against ARM or against any of its Directors or Officers.
Now that the Court Decisions are final, the Administrative File 2010, which can only result in a monetary sanction against
the co-defendants, was re-opened in 2012. The defence arguments successfully used in a later case which has been dismissed
on 11 February 2015 (see below) will be used in the defence of Administrative File 2010 and the management is positive that
they will be accepted.
On January 2, 2013 ARM, Rumbo and Zeitung were notified of a Resolution of Fine and Damages (in a total amount of
E1,867,958.39). In February 2013 ARM appealed this Resolution and the Court has agreed that the Fine and Damages amount be
secured by a mortgage over certain properties owned by ARM until the final decision on the alleged discharges is known.
Notes to the consolidated financial statements
Years ended 31 December 2016 and 2015
33. Contingent liabilities (continued)
In the Company's view, no "industrial discharge" took place, but rather a force majeure controlled discharge of excess
rainwater accumulated in the TMF since industrial operations ceased in the early 2000´s with no actual damage to the
environment having taken place. In the Company's view it is unlikely that any fine or sanction will be imposed against ARM
once the Administrative File 2010 reaches its final conclusion after all appeals are exhausted in approximately 3-5 years.
On 28 January 2016, the Court ruled in favour of ARM, Rumbo and Zeitung. On 26 April 2016 the Court issued a final decree
by which the 28 January 2016 ruling was declared final.
On 20 January 2014, ARM was notified that the Huelva Territorial Delegation of the Ministry of Environment (which has
absorbed the former AWA) had initiated another disciplinary proceeding for unauthorised discharge (the "Administrative File
2013") of administrative nature following allegations by the administration of alleged unauthorised industrial discharges
from the TMF at the Rio Tinto Copper Mine during the heavy rains occurred from 7 March to 25 April 2013. The
Administration has proposed the amount of E726,933.30 as compensation for alleged damages to the environment ("Public Water
Domain") and a fine of between E300,507 and E601,012. On 11 February 2015, the Huelva Territorial Delegation of the
Ministry of Environment dismissed the case. On 13 May 2015, the Huelva Territorial Delegation of the Ministry of
Environment re-opened the Administrative File 2013. Written allegations were submitted on 30 May 2015. On 29 March 2016 the
Huelva Territorial Delegation of the Ministry of Environment dismissed finally and without further recourse the
Administrative File 2013.
On 19 February 2015, ARM was notified that the Huelva Territorial Delegation of the Ministry of Environment had initiated
another disciplinary proceeding for unauthorised discharge (the "Administrative File 2014") which has proposed a fine of
between E300,507 and E601,012. On 10 March 2015 the Company submitted the relevant defence arguments.
The Junta de Andalucía notified ARM of another disciplinary proceeding for unauthorised discharge in 2014. ARM submitted
the relevant defence arguments on 10 March 2015 but has had no response or feedback from the Junta de Andalucía since the
submissions. Based on the time that has lapsed without a response, it is expected that the outcome of this proceedings
will also be favourable for ARM. Once the necessary time has lapsed, ARM will ask for the Administrative File to be
dismissed.
34. Commitments
There are no minimum exploration requirements at Proyecto Riotinto. However, the Group is obliged to pay municipal land
taxes which currently are approximately E235,000 per year in Spain and the Group is required to maintain the Riotinto site
in compliance with all applicable regulatory requirements.
As part of the consideration for the purchase of land from Rumbo, ARM has agreed to pay a royalty to Rumbo subject to
commencement of production of $250,000 in each quarter where the average price of LME copper or the average copper sale
price achieved by the Group is at least $2.60/lb. No royalty is payable in respect of any quarter where the average copper
price for that quarter is below this amount and in certain circumstances any quarterly royalty payment can be deferred
until the following quarter. The royalty obligation terminates 10 years after commencement of production. No payments
made in 2016 (2015 - nil). Commencement of production is defined as being the first to occur of processing of ore at a rate
of nine million metric tonnes per annum for a continuous period of six months or the date that is 18 months after the first
product sales from Proyecto Riotinto.
ARM has entered into a 50/50 joint venture with Rumbo to evaluate and exploit the potential of the class B resources in the
tailings dam and waste areas at Proyecto Riotinto (mainly residual gold and silver in the old gossan tailings). Under the
joint venture agreement, ARM will be the operator of the joint venture, will reimburse Rumbo for the costs associated with
the application for classification of the Class B resources and will fund the initial expenditure of a feasibility study up
to a maximum of E2 million. Costs are then borne by the joint venture partners in accordance with their respective
ownership interests. Half of the costs paid by ARM in connection with the feasibility study can be deducted from any
royalty which may fall due to be paid.
Notes to the consolidated financial statements
Years ended 31 December 2016 and 2015
34. Commitments (continued)
At Proyecto Riotinto, the Group had four year options with each of Zeitung and Inland for the purchase of certain land
plots adjacent to the mine at a purchase price of E4,202,000 (expiry date 31 July 2016) and E4,648,000 (expiry date 2
August 2016) respectively. The completion of the infill drilling programme, assays and updating of the block model
provided the Group with a better understanding of the mineralisation. Based on these results, the Group took the view that
the options on the said land plots were no longer necessary and opted not to exercise them.
35. Events after the reporting period
Touro Project
On 23 February 2017, the Company announced that it had exercised an option to acquire 10% of the share capital of Cobre San
Rafael S.L., ("CSR"), a wholly owned subsidiary of Explotaciones Gallegas S.L. ("EG"), part of the F. GOMEZ Group. This is
part of an earn-in agreement (the "Agreement"), which will enable the Company to acquire up to 80% of CSR.
Following the acquisition of the initial 10% of CSR's share capital, the agreement included the following four phases:
· Phase 1 - The Company paid E0.5 million to secure the exclusivity agreement and will continue to fund up to a
maximum of E5 million to get the project through the permitting and financing stages.
· Phase 2 - When permits are granted, the Company will pay E2 million to earn-in an additional 30% interest in the
project (cumulative 40%).
· Phase 3 - Once development capital is in place and construction is underway, the Company will pay E5 million to
earn-in an additional 30% interest in the project (cumulative 70%).
· Phase 4 - Once commercial production is declared, the Company will purchase an additional 10% interest in the
project (cumulative 80%) in return for a 0.75% Net Smelter Return (NSR) royalty, with a buyback option.
The Agreement has been structured so that the various phases and payments will only occur once the project is de-risked,
permitted and in operation.
Astor case
On 6 March 2017, judgement in the Astor Case was handed down in the High Court of Justice in London (the "Judgment"). On 31
March 2017 declarations were made by the High Court giving effect to the Judgment. A summary of the Judgement and its
impact in the Financial Statements of the Company have been provided in the Directors' Report on page 5 and in Note 27.
Share options
In March 2017, the Group announced that 900,000 share options were granted to Persons Discharging Managerial
Responsibilities and management, of which 800,000 were in accordance with the incentive share option plan and 100,000 were
under a contractual entitlement. These included 150,000 share options granted to a Director, as disclosed in the Directors'
Report. The key information of the share options granted is:
Grant date Expiry date Exercise price - Stg £ Share options
23 Feb 2017 23 Feb 2022 1.44 900,000
Cancelation of the FX hedging agreement
In February 2017, the Group entered into certain foreign exchange hedging contracts to offset the agreements in force as of
31 December 2016 (Note 28). The contracts were signed with the same financial institution and resulted in a loss of E9k
which was recorded as financial expense during 2017.
Changed of name of Emed Holdings (UK) Ltd and incorporation of Atalaya Touro (UK) Ltd
In February 2017, Emed Holdings (UK) Ltd changed its name to Atalaya Riotinto Project (UK) Ltd. In March 2017, the Group
incorporated Atalaya Touro (UK) Ltd to hold the investment in the Touro Project.
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