REG - Central Asia Metals - Proposed acquisition of Lynx Resources Limited <Origin Href="QuoteRef">CAML.L</Origin> - Part 10
22/09/2017 07:08
- Part 10: For the preceding part double click ID:nRSV5104Ri
of deposits or other projects that have been identified as having
economic potential. Exploration and evaluation costs are expensed in the period incurred.
2.9 Intangible assets
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization
and accumulated impairment losses. Intangible assets include the cost of acquiring exploration licences. Amortization is
recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method
are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a
prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less
accumulated impairment losses.
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal.
Gains or losses arising from derecognition of an intangible asset measured as the difference between the net disposal
proceeds and the carrying amount of the asset are recognized in profit or loss when the asset is derecognized. Where an
impairment subsequently reverses, the carrying amount is increased to the revised estimate of recoverable amount, but so
that the increased carrying amount does not exceed the carrying value that would have been determined if no impairment had
been previously been recognized. A reversal is recognized in the income statement immediately.
Mining rights represents the lump sum payments made to the Government for the approval of the acquisition transaction in
relation to the transfer of the ownership (concession right) from the previous owner under the Law on mineral resources.
Intangible mining rights are depreciated on a straight line basis over the life of mine.
2.10 Impairment of property plant and equipment
At each reporting date, under IAS 36 the Lynx Group reviews the carrying amounts of its mineral properties, and property,
plant and equipment to determine whether there is any indication that those assets are impaired. If such an indication
exists, the recoverable amount of the asset is estimated in order to determine the extent of any impairment. Where the
asset does not generate cash flows that are independent from other assets, the Lynx Group estimates the recoverable amount
of the CGU to which the asset belongs.
Internal and external factors are considered in assessing whether indicators of impairment are present. Significant
assumptions regarding commodity prices, operating costs, capital expenditures and discount rates are used in determining
whether there are any indicators of impairment. These assumptions are reviewed regularly by senior management and compared,
where applicable, to observable market data.
Recoverable amount is the higher of fair value less costs of disposal and value in use (VIU). Fair value less costs of
disposal is determined as the amount that would be obtained from the sale of the asset in an arm's length transaction
between knowledgeable and willing parties. For mining assets this would generally be determined based on the present value
of the estimated future cash flows arising from the continued development, use or eventual disposal of the asset. In
assessing these cash flows and discounting them to present value, assumptions used are those that an independent market
participant would consider appropriate. In assessing VIU, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset for which estimates of future cash flows have not been adjusted. If the recoverable amount of an
asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its
recoverable amount. An impairment loss is recognised in the income statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment been recognised for the asset or CGU. A reversal of an impairment loss is
recognised in the income statement.
2.11 Inventories
Inventories comprise of raw materials (mined ore and other), work-in-progress (crushed ore), finished products
(concentrate), spare parts and other materials and are carried at lower of cost and net realizable value.
The cost of inventories comprises all costs of purchase, production and other production overheads attributable to the
production of finished goods (such as electricity, salaries, transport costs, fuel costs, food, beverages, and other) and
other costs incurred in bringing the inventories to their present location and condition as follows:
Raw materials Mining costs incurred
Spare parts and other materials Purchase cost on a weighted average basis
Finished goods, work in progress Cost of direct materials and labour and a proportion of production overheads, based on normal operating capacity
Obsolete, redundant and slow-moving inventories are identified and written down to their net realizable value as required.
Stockpiles comprise coarse ore that has been extracted from the mine and is available for further processing. Stockpiles
are measured by estimating the number of tonnes added and removed from the stockpile. Stockpile tonnages are verified by
periodic surveys, and valued based on procurement or mining costs incurred up to the point of stockpiling the ore.
Net realizable value is the estimated selling price in the ordinary course of business less estimated cost of completion
and the estimated costs necessary to make the sale.
2.12 Trade and other receivables
Trade and other receivables are recognized initially at fair value and subsequently measured at amortized cost using the
effective interest method, less provision for impairment.
A provision for impairment of trade receivables is established when there is objective evidence that the Lynx Group will
not be able to collect all amounts due according to the original terms of the receivables. Significant financial
difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or
delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the
difference between the asset's carrying amount and the present value of the estimated future cash flows discounted at the
financial asset's original effective interest rate. The carrying amount of the asset is reduced through the use of an
allowance account, and the amount of the loss is recognized in profit or loss. When a trade receivable is uncollectible, it
is written off against the allowance account for trade receivables.
2.13 Cash and cash equivalents
Cash and cash equivalents comprise bank balances in local and foreign currency, cash in hand and deposits in banks with
original maturity with less than 3 months. The carrying amount of cash and cash equivalents is stated at cost, which
approximates fair value.
2.14 Impairment of financial assets
The Lynx Group assesses at each reporting date whether a financial asset or group of financial assets are impaired. A
financial asset is deemed to be impaired if there is objective evidence of impairment as a result of one or more events
that has occurred after the initial recognition of the asset. Evidence of impairment may include indications that the
debtor is experiencing significant financial difficulty, default or delinquency in interest or principal payments,
bankruptcy or other such events.
Assets carried at amortized cost
If there is objective evidence that an impairment loss on assets carried at amortized cost has been incurred, the amount of
the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash
flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset's original
effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the
asset is reduced through use of an allowance account. The amount of the loss shall be recognized in the consolidated
statement of comprehensive income.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognized, the previously recognized impairment loss is reversed, to the extent
that the carrying value of the asset does not exceed its amortized cost at the reversal date. Any subsequent reversal of an
impairment loss is recognized in the consolidated statement of comprehensive income.
In relation to trade receivables, a provision for impairment is made when there is objective evidence (such as the
probability of insolvency or significant financial difficulties of the debtor) that the Lynx Group will not be able to
collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced
through use of an allowance account. Impaired debts are derecognized when they are assessed as uncollectible.
2.15 Share capital
(а) Share capital consists of paid in monetary considerations contributed by the shareholders.
(b) Reserves
Legal reserves are created during the periods by transfer from retained earnings based on the legislation and decisions of
the Management of the Lynx Group.
(c) Retained earnings
Retained earnings comprise of non-distributed earnings from the current and past periods.
(d) Dividends
Dividend distribution to the Lynx Group's owners is recognised as a liability in the Lynx Group's financial information in
the period in which the dividends are approved (declared) by the Lynx Group's shareholders.
2.16 Trade and other payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they
are presented as non-current liabilities.
Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective
interest method.
2.17 Provisions and contingent liabilities
Provisions are recognized when the Lynx Group has a present legal or constructive obligation as a result of past events and
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a
reliable estimate of the amount of the obligation can be made.
Provisions are measured and recorded as the best estimate of the expenditure required to settle the present obligation at
the balance sheet date. The provision charge is recognized in the consolidated statement of comprehensive income within the
expense corresponding to the nature of the provision.
Restoration and decommissioning provision
Management estimate, and provide for, obligations to incur restoration, rehabilitation and environment costs when
environmental disturbance is caused by the initial or ongoing development of a mining property. Costs arising from
establishing infrastructure at the start of a project are discounted to their net present value, provided for and
capitalized when obligation arises. These costs are charged against profits over the useful life of the related asset
through the unwinding of the discount and depreciation charge.
The estimated future costs of decommissioning are reviewed annually and adjusted as appropriate. Changes in the estimated
future costs or in the discount rate applied are added to or deducted from the costs of the asset.
No provision is recognized for contingent liabilities. A contingent liability is a possible obligation that arises from
past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the entity; or a present obligation that arises from past events but is not
recognized because it is not probable that an outflow of resources embodying economic benefits will be required to settle
the obligation or the amount of the obligation cannot be measured with sufficient reliability.
2.18 Income taxes
The tax expense for the period comprises current and deferred tax. Tax is recognized in profit or loss, except to the
extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is
also recognized in other comprehensive income or directly in equity, respectively.
Current tax assets and liabilities for the current and prior periods are measured at the amounts expected to be recovered
or paid to the taxation authorities. The tax rates and tax laws used to compute the amounts are those that are enacted or
substantively enacted by the reporting date.
Current income tax applicable in Macedonia
As of 1 August 2014, profit tax law came into force being applicable from 1 January 2015 for the net income for 2014, with
which the base for income tax computation had been shifted from income "distribution" concept to the profit before taxes.
According to the provisions of the law, the tax base is the profit generated during the fiscal year increased for
non-deductible expenses and reduced for deductible revenue (i.e. dividends already taxed at the payer) and the income tax
rate is 10%. In line with these changes income tax for the year was calculated and recorded in the Statement of
comprehensive income.
Deferred income tax
Deferred tax is recognized applying the liability method, on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated financial information. However, deferred tax liabilities are
not recognized if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it
arises from initial recognition of an asset or liability in a transaction other than a business combination that at the
time of the transaction affects neither accounting nor taxable profit or loss.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance
sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax
liability is settled. Deferred income tax assets are recognized to the extent that it is probable that future taxable
profit will be available against which the temporary differences can be utilized. Deferred income tax assets and
liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable entities where there is an intention to settle the
balances on a net basis.
2.19 Employees Benefits
a) Pension
The Lynx Group, in the normal course of business, makes payments on behalf of its employees for pensions, health care,
employment and personnel tax, which are calculated based on gross salaries and wages according to the legislation. The Lynx
Group makes these contributions to the Governmental health and retirement funds as well to private retirement funds. The
cost of these payments is charged to the consolidated statement of comprehensive income in the same period as the related
salary cost.
The Lynx Group does not operate any other pension scheme or post-retirement benefits plan and consequently, has no
obligation in respect of pensions.
b) Termination benefits
Termination benefits are payable whenever an employee's employment is terminated before the normal retirement date or
whenever an employee accepts voluntary redundancy in exchange for these benefits. The Lynx Group recognizes termination
benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed
formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage
voluntary redundancy.
c) Retirement benefits and jubilee awards
Pursuant to the labour law prevailing in the subsidiaries country of operations, the Lynx Group is obliged to pay
retirement benefits in an amount equal to two average monthly salaries, at their retirement date. According to the
collective agreement, the Lynx Group is also obliged to pay jubilee anniversary awards that correspond to the total number
of years of service of the employee. Due to the long-term nature of these plans, such estimates are subject to significant
uncertainty. In addition, the Lynx Group is not obligated to provide further benefits to current and former employees.
Retirement benefit obligations arising on severance pay are stated at the present value of expected future cash payments
towards the qualifying employees. These benefits have been accrued by an independent actuary in accordance with the
prevailing rules of actuarial mathematics. Actuarial gains and losses arising from experience adjustments and changes in
actuarial assumptions are charged or credited to income over the employees' expected average remaining working lives.
2.20 Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried
at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in
the consolidated statement of comprehensive income over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is
probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs.
To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is
capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates.
2.21 Leases
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated
statement of comprehensive income on a straight-line basis over the period of the lease.
2.22 Revenue
Revenue is derived principally from the sale of metal concentrate and is measured at the fair value of consideration
received or receivable, after deducting discounts, volume rebates, value added tax and other sales taxes. A sale is
recognized when the significant risks and rewards of ownership have passed. This is when title and insurance risk have
passed to the customer and the goods have been delivered to a contractually agreed location.
Sales of metal concentrate are stated at their invoiced amount which is net of treatment and refining charges. Sales of
commodities are provisionally priced such that the price is not settled until a predetermined future date and is based on
the market price at that time. Revenue on these sales is initially recognized (when the above criteria are met) at the
current market price.
Provisionally priced sales are marked to market at each reporting date using the forward price for the period equivalent to
that outlined in the contract and presented within revenue.
Revenues from the sale of material by-products are included within revenue. Where a by-product is not regarded as
significant, revenue will be credited against the cost of sales. Revenue from services is recognized as services are
rendered and accepted by the customer. Amounts billed to customers in respect of shipping and handling activities are
classified as revenue where the Lynx Group is responsible for freight. In situations where the Lynx Group is acting as an
agent, amounts billed to customers are offset against the relevant costs.
For provisionally priced sales, changes between the prices recorded upon recognition of revenue and the final price due to
fluctuations in metal market prices result in the existence of an embedded derivative in the accounts receivable. This
embedded derivative is recorded at fair value, with changes in fair value classified as a component of revenue.
The Company reports both a gross revenue and revenue line which reflects the marketing cost deducted from the sales price,
purchases of silver for the silver stream delivery, and freight cost.
2.23 Deferred income
Advances received from the precious metal streaming agreement for future deliveries of silver are recognized as deferred
income and relate to the production over the lifetime of the mine. Deferred income is realised to the statement of
comprehensive income as the silver is delivered based on the units of production.
2.24 Marketing costs
Marketing costs, which are allowed to customers on a shipment-by-shipment basis are recognised on an accrual basis
determined as a difference between the sales and purchase value based on the signed agreement.
3. Financial risk management
3.1 Financial risk factors
The Lynx Group does not apply hedge accounting for its financial instruments, all gains and losses are recognized in the
profit and loss for the year. The Lynx Group is exposed in particular to risks from movements in exchange rates and market
prices that affect its assets and liabilities, credit risk and liquidity risk. Financial risk management aims to limit
these market risks through ongoing operational and finance activities.
(i) Market risk
Market risk is defined as the 'risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market prices' and includes interest rate risk, currency risk and other price risk. The majority of
the revenues of the Lynx Group are generated in USD and the remaining part mainly in MKD.
Expenses of the Lynx Group that arise are mainly connected to USD, MKD and EUR. For the presentation of market risks, IFRS
7 requires sensitivity analyzes that show the effects of hypothetical changes of relevant risk variables on profit or loss
and shareholders' equity. The periodic effects are determined by relating the hypothetical changes in the risk variables to
the balance of financial instruments at the consolidated financial information date. The balances at the end of the
reporting period are usually representative for the year as a whole, therefore the impacts are calculated using the year
end balances as though the balances had been constant throughout the reporting period. The methods and assumptions used in
the sensitivity calculations have been updated to reflect the current economic situation.
Commodity prices, primarily lead and zinc, are key revenue drivers for the Lynx Group. The prices for lead and zinc can
fluctuate widely and are affected by various factors beyond the Lynx Group's control. The main driver for metal price
fluctuations is the supply and demand balance but other factors such as exchange rates, interest rates or speculative
activities and the change in global economies can impact price levels and volatility too. To anticipate the full extent of
the impact of any driver for commodity prices market developments is impossible; management believes that is taking all the
necessary measures to support the sustainability and growth of the Lynx Group's business in the current circumstances.
Nevertheless, future market fluctuations cannot be predicted with accuracy. The Lynx Group does not currently hedge
interest commodity price exposure. Any hedging activity requires approval of the Lynx Group's Board of Directors. The Lynx
Group will not hold or issue derivative instruments for speculation.
Commodity price sensitivity
The Lynx Group is affected by the volatility of certain commodities. Its operating activities require the ongoing sales of
Pb and Zn and processing of ore. The following table shows the effect of metal prices on the Lynx Group's financial
results:
2016................................................................. 100 USD 3,937,005 903,733
(100) USD (3,937,005) (903,733)
2015................................................................. 100 USD 3,790,363 192,940
(100) USD (3,790,363) (192,940)
2015.................................................................
100 USD
3,790,363
192,940
(100) USD
(3,790,363)
(192,940)
(ii) Foreign exchange risk
The Lynx Group's functional currency is the USD. The foreign exchange risk exposure of the Lynx Group is related to holding
foreign currency cash balances, and operating activities through revenues from and payments to international companies as
well as capital expenditure contracted with vendors in foreign currency.
As a result of significant operations in Macedonia, the Lynx Group's consolidated statement of financial position can be
affected significantly by movements in the USD/MKD and USD/Euro exchange rates. The Lynx Group uses cash deposits in MKD or
cash deposits in MKD indexed to EUR, to economically manage its foreign currency risk as well as local currency risk in
accordance with the available banks offers.
However, the purchase of spare parts and raw materials are denominated in USD or EUR and connected to the price movement on
the global movement, which is denominated in both currencies. Therefore there is associated inherent business risk with
such transactions.
The Lynx Group's exposure to foreign currency risk was as follows:
Assets
Cash and cash equivalents.......................... 14,477,901 14,801,010 15,290 - -
Trade and other financial receivables...... 5,555,725 1,030,513 256,773 - 61,529
Total assets........................................... 20,033,626 15,831,523 272,063 - 61,529
Liabilities
Trade payables........................................ 16,233 2,596,262 534,295 165,138 97,468
Other financial liabilities......................... 1,082,114 914,537 - - -
Loans and borrowings.............................. 73,000,000 18,324,040 - - -
Total liabilities.................................... 74,098,347 21,834,839 534,295 165,138 97,468
Net balance sheet exposure................ (54,064,721) (6,003,016) (262,232) (165,138) (35,939)
Net balance sheet exposure................
(54,064,721)
(6,003,016)
(262,232)
(165,138)
(35,939)
Assets
Cash and cash equivalents.............................. 673,787 6,598,747 19,470 -
Trade and other financial receivables............ 5,701,723 1,283,565 85,296 -
Total assets........................................................ 6,375,510 7,882,312 104.768 -
Liabilities
Trade payables.................................................. 69,126 1,466,743 416,611 134,987
Other financial liabilities................................... 196,175 1,223,354 - -
Loans and borrowings...................................... 25,043,151 11,119,170 - -
Total liabilities.................................................. 25,308,452 13,809,267 416,611 134,987
Net balance sheet exposure............................. (18,932,942) (5,926,955) (311,845) (134,987)
Net balance sheet exposure.............................
(18,932,942)
(5,926,955)
(311,845)
(134,987)
At 31 December 2016, if the currency had weakened/strengthened by 0.5%, 2% i.e. 0.5% against the EUR/MKD/SEK respectively
with all other variables held constant, the recalculated post-tax profit for the year would have been for $1,311 (2015:
$1,559) lower/higher for EUR; $120,066 (2015: $118,539) higher/lower for MKD; $826 (2015: $675) lower/higher for SEK.
(iii) Interest risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market interest rates. Change in the interest rates and interest margins may influence financing costs and
returns on financial investments. Changes in market interest rates affect the interest income on time deposits with banks.
As of 31 December 2016 the Lynx Group has no time deposits in banks.
The Lynx Group has borrowings in amounts of $91,324,040 as of 31 December 2016 (2015: $36,162,321), therefore 1 percentage
point rise in market interest rate would have caused (ceteris paribus) the interest paid to increase with approximately
$913,240 (2015: $361,623) annually before tax, while similar decrease would have caused the same decrease in interest
paid.
The Lynx Group has cash and cash equivalents in amounts of $29,294,201 as of 31 December 2016 (2015: $7,292,004), therefore
1 percentage point rise in market interest rate would have caused (ceteris paribus) the interest received to increase with
approximately $292,942 (2015: $72,920) annually before tax, while similar decrease would have caused the same decrease in
interest paid.
(iv) Credit risk
Credit risk is defined as the risk that one party to a financial instrument will cause a financial loss for the other party
by failing to discharge an obligation. The Lynx Group is exposed to credit risk from its operating activities and
certain financing activities. The process of managing the credit risk from operating activities includes preventive
measures such as creditability checking and prevention barring, corrective measures during legal relationship for example
reminding and disconnection activities, collaboration with collection agencies and collection after legal relationship as
litigation process, court proceedings, involvement of the executive unit and factoring. The overdue payments are followed
through a debt escalation procedure based on customer's type, credit class and amount of debt. The credit risk is
controlled through credibility checking which determines that the customer is not indebted and the customer's credit
worthiness and through preventive barring which determinates the credit limit based on the customer's previous revenues.
The Lynx Group procedures ensure on a permanent basis that sales are made to one customer with an appropriate credit
history and not exceed acceptable credit exposure. As of 31 December 2016, the Company has one customer, Lynx Metals.
The Lynx Group does not guarantee obligations of other parties. The maximum exposure to credit risk is represented by the
carrying amount of each financial asset in the balance sheet. Consequently, the Lynx Group considers that its maximum
exposure is reflected by the amount of debtors net of provisions for impairment recognized and the amount of cash deposits
in banks at the Balance Sheet date. Management is focused on dealing with most reputable banks in foreign and domestic
ownership on the domestic market.
The following table represents the Lynx Group's exposure to credit risk as at 31 December 2016 and 31 December 2015:
Cash and cash equivalents................................................................................. 29,294,201 7,292,004
Trade receivables.................................................................................................. 3,691,173 5,305,224
Other financial receivables.................................................................................. 3,213,367 1765,360
36,198,741 14,362,588
36,198,741
14,362,588
The receivables are summarised as follows:
Neither past due nor impaired........... 3,690,147 1,026 5,304,324 900
Past due but not impaired.................. - - - -
Impaired................................................ - - - 6,810
Gross.................................................... 3,690,147 1,026 5,304,324 7,710
Less: Allowance for impairment....... - - - (6,810)
Net......................................................... 3,690,147 1,026 5,304,324 900
1,026
5,304,324
900
Trade receivables due by related parties of $3,690,147 (2015: $3,527,149) were neither past due nor impaired. The Lynx
Group analyzes the credit quality of neither past due nor impaired dividing between related parties and third parties.
Further details are presented in Note 19.
The Lynx Group's maximum exposure to credit risk for trade receivables at the reporting date by geographic regions is as
follows:
Domestic........................................................................................................ 3,690,147 5,304,324
Other foreign countries............................................................................... 1,026 900
3,691,173 5,305,224
3,691,173
5,305,224
(v) Liquidity risk
Liquidity risk is defined as the risk that the Lynx Group would not be able to settle or meet its obligations on time. The
Lynx Group's policy is to maintain sufficient cash and cash equivalents to meet its commitments in the foreseeable future.
Any excess cash is mostly deposited in commercial banks. The Lynx Group's liquidity management process includes projecting
cash flows by major currencies and considering the level of necessary liquid assets, considering business plan, historical
collection and outflow data. Regular cash projections are prepared and updated by Management.
The table below analyses Lynx Group's financial liabilities into relevant maturity groupings based on the remaining period
at the balance sheet date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash
flows.
Financial assets
Cash and cash equivalents............ 29,294,201 29,294,201 - - -
Trade receivables........................ 3,691,173 3,691,173 - - -
Other financial receivables.......... 3,213,367 3,213,367 - - -
36,198,741 36,198,741 - - -
36,198,741
36,198,741
-
-
-
Financial liabilities
Trade payables.......................... 3,409,396 3,409,396 - - -
Other financial liabilities........... 1,996,651 1,996,631
Borrowings................................ 91,324,040 24,428,851 4,325,760 54,541,719 8,029,710
96,730,087 29,832,898 4,325,760 54,541.59 8,029,710
96,730,087
29,832,898
4,325,760
54,541.59
8,029,710
Financial assets
Cash and cash equivalents......................... 7,292,004 7,292,004 - -
Trade receivables...................................... 5,305,224 5,305,225 - -
Other financial receivables........................ 1,765,360 1,765,360 - -
14,362,588 14,362,588 - -
Financial liabilities
Trade payables.......................................... 2,087,467 2,087,467 - -
Other financial liabilities........................... 1,419,529 1,419,529 - -
Borrowings............................................... 36,119,170 11,119,170 - 25,000,000
Interest payables....................................... 43,151 43,151 - -
39,669,317 14,669,317 - 25,000,000
43,151
43,151
-
-
39,669,317
14,669,317
-
25,000,000
3.2. Capital risk management
The Lynx Group's objectives when managing capital are to safeguard the Lynx Group's ability to continue as a going concern
in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital
structure to reduce the cost of capital.
3.3. Fair value estimation
Cash and cash equivalents, trade receivables and other financial receivables mainly have short term maturity. For this
reason, their carrying amounts at the reporting date approximate their fair values.
The table below shows the categorization of financial assets and liabilities as at 31 December 2016 and 31 December 2015:
Trade and other financial receivables 6,904,540 6904,540 6,904,540
Cash and cash equivalents 29,294,201 29,294,201 29,294,201
36,198,741 36,198,741 36,198,741
Cash and cash equivalents
29,294,201
29,294,201
29,294,201
36,198,741
36,198,741
36,198,741
Borrowings 91,324,040 91,324,040 91,324,040
Trade and other financial liabilities 5,406,047 5,406,047 5,406,047
96,730,087 96,730,087 96,730,087
5,406,047
5,406,047
5,406,047
96,730,087
96,730,087
96,730,087
Trade and other financial receivables 7,070,584 7,070,584 7,070,584
Cash and cash equivalents 7,292,004 7,292,004 7,292,004
14,362,588 14,362,588 14,362,588
Cash and cash equivalents
7,292,004
7,292,004
7,292,004
14,362,588
14,362,588
14,362,588
Other financial liabilities Carrying amount Fair value
Liabilities as per the statement of financial positions
Borrowings 36,162,321 36,162,321 36,162,321
Trade and other financial liabilities 3,506,996 3,506,999 3,506,996
39,669,317 39,669,317 39,669,317
The fair value of borrowings has been calculated by discounting the expected future cash flows at contracted interest
rates. The fair value of loan notes and other financial assets has been calculated using market interest rates. As at 31
December 2016 and 31 December 2015, the Lynx Group measured the fair value using techniques for which all inputs which have
a significant effect on the recorded fair value are observable, either directly or indirectly (Level 2).
The different levels have been defined as follows:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).
• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).
• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)
(Level 3).
4. Critical accounting estimates and assumptions
The Lynx Group makes estimates and assumptions concerning the future. Estimates and judgments are continually evaluated and
are based on historical experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances. The most critical estimates and assumptions are discussed below.
(i) Useful lives of assets
For mineral reserves, mining properties and leases and certain mining equipment, consumption of the economic benefits of
the asset is linked to production. Except as noted below, these assets are depreciated on a units of production basis.
In applying the units of production method, depreciation is normally calculated based on production in the period as a
percentage of total expected production in current and future periods based on ore reserves and, for some mines, other
mineral resources and therefore the annual depreciation expense could be materially affected by changes in the underlying
estimates which are driven by the life of mine plans. Changes in estimates can be the result of actual future production
differing from current forecasts of future production, expansion of mineral reserves through exploration activities,
differences between estimated and actual costs of mining and differences in the commodity prices used in the estimation of
mineral reserves.
The required level of confidence is unlikely to exist for minerals that are typically found in low-grade ore. Specific
areas of mineralization have to be evaluated in considerable detail before their economic status can be predicted with
confidence. In calculating the units of production ratio, management made significant estimates. Changes in the proven and
probable reserves estimates may impact the carrying value of property, plant and equipment.
Straight-line basis
Assets within operations for which production is not expected to fluctuate significantly from one year to another or which
have a physical life shorter than the related mine are depreciated on a straight-line basis.
Further, due to the significant weight of depreciable assets in Lynx Group's total assets, the impact of any changes in
these assumptions could be material to Lynx Group's financial position, and results of operations. If depreciation cost
were decrease/increase by 10%, this would result in change of annual depreciation expense of approximately $1,449,962
(2015: $231,457).
(ii) Potential impairment of property, plant and equipment and intangibles
The Lynx Group assesses the impairment of identifiable property, plant, equipment and intangibles whenever there is a
reason to believe that the carrying value may materially exceed the recoverable amount and where impairment in value is
anticipated.
If such an indication exists, the recoverable amount of the asset is estimated in order to determine the extent of any
impairment. Where the asset does not generate cash flows that are independent from other assets, the Company estimates the
recoverable amount of the CGU to which the asset belongs.
Internal and external factors are considered in assessing whether indicators of impairment are present. Significant
assumptions regarding commodity prices, operating costs, capital expenditures and discount rates are used in determining
whether there are any indicators of impairment. These assumptions are reviewed regularly by senior management and compared,
where applicable, to observable market data.
Recoverable amount is the higher of fair value less costs of disposal and value in use (VIU). Fair value less costs of
disposal is determined as the amount that would be obtained from the sale of the asset in an arm's length transaction
between knowledgeable and willing parties. For mining assets this would generally be determined based on the present value
of the estimated future cash flows arising from the continued development, use or eventual disposal of the asset. In
assessing these cash flows and discounting them to present value, assumptions used are those that an independent market
participant would consider appropriate. In assessing VIU, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset for which estimates of future cash flows have not been adjusted. If the recoverable amount of an
asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its
recoverable amount. An impairment loss is recognised in the income statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment been recognised for the asset or CGU. A reversal of an impairment loss is
recognised in the income statement.
(iii) Business combinations
All business combinations in the Lynx Group are accounted for under IFRS 3 'Business Combinations' using the acquisition
method. When the Lynx Group acquires a business, it assesses the fair value of assets and liabilities acquired for the
purpose of purchase price allocation as at the acquisition date. When discounted cash flow calculations are undertaken,
management estimates the expected future cash flows from the CGU by considering the future lead and zinc price, expected
lead and zinc ore reserve, lead and zinc grade, mine life, moisture content and discount rate in order to estimate the
expected present value of cash flows from the mine. The inputs to these factors are taken from observable markets where
possible, but where this is not feasible, a degree of judgment is required in establishing fair values.
The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the
liabilities incurred to the former owners of the acquiree and the equity interests issued by the Lynx Group. The
consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration
arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date.
(iv) Impairment of trade and other receivables
The Lynx Group calculates impairment for doubtful accounts based on estimated losses resulting from the inability of its
customers to make required payments. For customers in bankruptcy and liquidation, impairment is calculated on an individual
basis, while for other customers it is estimated on a portfolio basis, for which the Lynx Group bases its estimate on the
aging of its account receivables balance and its historical write-off experience, customer credit-worthiness and changes in
its customer payment terms. These factors are reviewed periodically, and changes are made to calculations when necessary.
The estimates involve assumptions about future customer behaviour and the resulting future cash collections. If the
financial condition of its customers were to deteriorate, actual write-offs of currently existing receivables may be higher
than expected and may exceed the level of the impairment losses recognized so far.
(v) Ore reserves and resources
Mineral Reserves and Resources are defined as the Lynx Group's best estimate of Mineral Ore that can be mined in an
economically viable fashion from the relevant property. Feasibility is determined based on operational assumptions that
include, but are not limited to, production costs, mining and processing recoveries, cut-off grades, long term commodity
prices as well as, possibly, exchange rates, inflation rates and capital costs. The Lynx Group's estimates are supported by
geological studies conducted by appropriately qualified persons. However, the Lynx Group maintains that estimates
ultimately depend upon interpretation and statistical inferences drawn from drilling and sampling analysis, and may
therefore be subject to upward or downward restatements over time.
Mineral Reserves and Resources are determined based on assumptions that were valid at the time of estimation may change
when new information becomes available. In addition, the calculation of the unit of production rate of amortisation could
be impacted to the extent that actual production in the future is different from current forecast production. Any changes
in estimate could affect prospective depreciation rates and asset carrying values and, as a result, the determination of
Ore Reserves is considered a key source of estimation uncertainty.
(vi) Provision for decommissioning and restoration costs
Management estimates and recognizes provisions for rehabilitation and environmental disturbances at the moment when
disruption of the environment is caused by the initial and current development of the mine. Expenses for withdrawal are
calculated at the present value of the estimated future expenses for settlement of liabilities based on projected cash
flows. Consequently, a rehabilitation asset is recognized within property, plant or equipment. Cash flows are discounted
using a risk free rate and changes are recognized as financial expenses. Estimated future expenses for withdrawal are
estimated each year. Changes in the estimated future expenses or discount rates are added or deduct from the expense of the
asset. The carrying amount of the provision as at 31 December 2016 is $2,432,029.
(vii) Income taxes
The Lynx Group is subject to income taxes in the Country of operation. Significant estimates are required in determining
the provision for income taxes. There are some transactions and calculations for which the ultimate tax determination is
uncertain. The Lynx Group recognises liabilities for anticipated tax based on estimates of whether additional taxes will be
due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such
differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
5. Business combination
The Lynx Group acquired 100% of the zinc and lead mine of Sasa, a Company holding certain lead and zinc exploration and
development licences, on 3 November 2015. The final fair values of identifiable assets and liabilities of Sasa as at the
date of acquisition were:
Provisional fair value Final Carrying value
fair value
Assets
Property, plant and equipment............................. 190,911,522 189,972,158 46,752,829
Inventories ............................................................. 1,391,475 1,450,970 1,391,475
Trade receivables................................................... 22,824 22,824 22,824
Other receivables.................................................... 1,623,415 1,623,415 1,623,415
Cash and cash equivalents................................... 2,320,922 2,320,922 2,320,922
196,270,158 195,390,289 52,111,465
Liabilities
Trade payables....................................................... 1,808,834 1,808,834 1,808,834
Other current financial liabilities.......................... 1,167,346 1,167,346 1,167,346
Provision for liabilities........................................... 2,561,574 2,561,574 2,561,574
Income tax payable................................................. 500,827 500,827 500,827
Loans and borrowings........................................... 11,180,919 11,180,919 17,219,500
17,219,500 17,219,500 17,219,500
Total identifiable net assets at fair value translated at exchange........................................... 179,050,658 178,170,789
Consideration paid................................................. 179,050,658 178,170,789
Purchase consideration of $178,170,789 was paid in cash. The net cash outflow to acquire Sasa, net of cash acquired was
$175,849,867.
The fair values disclosed are provisional as at 3 November 2015. An independent valuation advisor confirmed the final fair
values in November 2016. To determine the fair value of the mineral reserves within property, plant and equipment including
mining reserves the Lynx Group used a discounted cash flow model to estimate the expected future cash flows of the mine,
based on the life-of-mine plan. Expected future cash flows were based on estimates of future production and commodity
prices, operating costs, and forecast capital expenditures using the life-of-mine plan as at the acquisition date.
The fair value of the property, plant and equipment was determined based on a replacement cost approach. Significant part
of the revenue and profit in the consolidated statement of comprehensive income arise from Sasa. No deferred tax liability
was recorded upon the business combination since the Lynx Group plans the merger of the Lynx Europe and the subsidiary
(Sasa).
The final value of property, plant and equipment has been decreased by $939,364, and inventory has been increased by
$59,495 at the acquisition date, with a corresponding adjustment to mineral reserves. The final fair value was not
significantly different than the provisional fair value. The 2015 comparative information is restated to reflect the
adjustment for the year ended 31 December 2015.
6. Gross Revenue
2016 For the period
19 June to
31 December 2015
Revenue on domestic market - lead and zinc concentrate........... 77,515,409 8,620,144
Revenue on foreign market - lead and zinc concentrate.............. 23,031 2,767
Revenue of silver................................................................................ 969,742 -
78,508,182 8,622,911
7. Operating Segment
Sales of lead and zinc concentrate and sales of silver are sold to customers in Europe.
The Company has one operating segment, Lynx Mining Resources. This reflects the way in which the Company's management
reviews its business performance, and is consistent with how the executive management, who act as the chief operating
decision-makers, allocate resources and assess performance of Sasa.
8. Other operating income
2016 For the period
19 June to
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