REG - Anglo Asian Mining - 2023 Full year results
16/05/2024 07:00
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RNS Number : 6314O Anglo Asian Mining PLC 16 May 2024
16 May 2024
Anglo Asian Mining PLC
2023 Full year results
Anglo Asian Mining PLC ("Anglo Asian", the "Company" or the "Group"), the AIM
listed gold, copper and silver producer focused in Azerbaijan, announces its
final audited results for the year ended 31 December 2023 ("FY 2023").
Financial overview
· Revenues of $45.9 million (2022: $84.7 million) due to lower
production
o agitation leaching and flotation processing suspended from August to
December 2023 and into 2024
o lower grades of gold ore processed as mining was only from the Gedabek open
pit and Gadir underground mines which are both nearing the end of their lives
· Loss before taxation of $32.0 million (2022: profit of $7.5 million)
and an operating loss of $24.8 million (2022: profit of $9.3 million)
o non-cash impairment charges of $18.0 million
§ $5.0 million relating to Libero Copper & Gold Corporation Limited to
reflect its value recoverable at year-end
§ $13.0 million relating to previously capitalised geological exploration
expenditure on secondary and minor prospects
· Operating cash outflow before movements in working capital of $1.0
million (2022: inflow of $27.2 million)
· All-in sustaining cost ("AISC") of gold production increased to $1,510
per ounce (2022: $1,064 per ounce) due to lower production
· Net debt of $10.3 million at 31 December 2023 (31 December 2022: cash
of $20.4 million)
Operational and production overview
· Total production of 31,821 gold equivalent ounces, in line with
revised guidance
· Gold bullion sales of 15,822 ounces (FY 2022: 34,918 ounces) completed
at an average of $1,951 per ounce (FY 2022: $1,783 per ounce)
· Copper concentrate shipments totalling 11,192 dry metric tonnes with a
sales value of $15.8 million (excluding Government of Azerbaijan production
share) (FY 2022: 12,443 dmt with a sales value of $22.3 million)
· Considerable progress made with assets under development
o JORC mineral resource estimates now completed for Zafar, Gilar and Xarxar
which confirm significant mineralisation
o the Group now has a total of JORC standard mineral resources of over 200,000
tonnes of copper and 328,000 ounces of gold
o Garadag contains a non-JORC resource of over 324,000 tonnes of copper, with
a JORC mineral resource due to be published later in 2024
· Development of Gilar mine commenced in 2023, with first ore expected
to be extracted by the end of 2024
· Environmental audit confirmed that the Company was not in breach of
any international guidelines and permission to restart operations was given
within three months
· Permission from the Government of Azerbaijan to raise the tailings
dam wall now awaited
· Capacity of the flotation plant doubled to 160 tonnes per hour in
anticipation of processing richer ores from Gilar
Outlook
Despite the adversity, good progress was achieved in 2023. Anglo Asian remains
confident in delivering its medium-term growth strategy to become a mid-tier
copper-focused miner by 2028. Gilar is due to commence production this year
and the Group remains focused on bringing Xarxar into production in the next 2
to 3 years. Garadag is planned to enter production in 2028 and the Company is
now in discussion with the Government of Azerbaijan (the "Government")
regarding access to Demirli. These two mines will both provide a meaningful
boost to production.
In 2024, the Company published a JORC mineral resource estimate for the Xarxar
deposit, confirming 25 million tonnes of copper mineralisation at average
grades of 0.48 per cent. We reaffirmed our commitment to ESG by establishing a
Sustainability Committee and committing to implement the Global Industry
Standard on Tailings Management ("GISTM") at our Gedabek operations.
The Company continues to work with the Government regarding raising the
tailings dam wall, having submitted the application on 14 March 2024. A
third-party report by the international geotechnical consultants, Knight
Piésold confirmed the stability of the tailings dam wall, and the Government
is now undertaking the required administrative procedures before granting
permission for the raise of the wall of the tailings dam. Although it has
taken longer than anticipated, the directors are very confident permission
will be granted shortly.
Reza Vaziri, Chief Executive Officer of Anglo Asian, commented:
"2023 was an important year for Anglo Asian in pursuit of our medium-term
growth strategy as we made considerable progress across our assets under
development and confirmed significant resources at our Gilar, Xarxar and
Garadag mineral deposits. Additional operational milestones were achieved
including purchasing a Cat® underground mining fleet and expanding the
capacity of our flotation plant.
"We achieved production in line with our revised full-year guidance and
completed the environmental assessment of our tailings operations.
Governmental approval to raise the wall of the tailings dam is expected to be
received shortly.
"I remain confident that the future is bright for Anglo Asian Mining,
underpinned by a strong portfolio of assets with considerable growth
potential, buoyant commodity prices and a highly experienced and talented
management team."
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 the Group 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
Undoubtedly 2023 was a challenging year for Anglo Asian Mining, with
production partially suspended for the last four months of the year due to the
environmental audit of our Gedabek tailings dam and whilst we were waiting for
the approval of the Government of Azerbaijan (the "Government") to raise the
tailings dam wall. However, the Board remains confident that the underlying
business is strong, with a seasoned and highly motivated team and a blue-chip
portfolio of assets with the capability to achieve our ambitious medium-term
strategy of transitioning to a mid-tier copper-focused producer.
Production
During the year, the Company produced 31,821 gold equivalent ounces ("GEOs"),
which was in the mid-range of the revised production guidance of 30,000 to
34,000 GEOs. Production was expected to decline in 2023 as the Company was
only mining from its Gedabek open pit and Gedabek and Gadir underground mines,
which all have falling grades as they approach the end of their lives.
However, the decrease was more than anticipated due to the lost production
caused by the suspension of flotation and agitation leaching from August to
December 2023. The Group will not issue production guidance for 2024 until it
receives approval to raise the tailings dam wall.
Progress of our strategic growth plan
In March, we announced our medium-term growth strategy, which envisages Anglo
Asian Mining more than doubling its production within the next five years as
we transition to a multi-asset, mid-tier producer, with a portfolio dominated
by copper. The completion of this strategy was a significant achievement, and
I would like to thank the entire management team for their hard work and
dedication in developing it. The environmental audit and partial suspension of
processing has led to certain implementation delays to the growth strategy.
However, we are entirely focused on, and confident of, still achieving
mid-tier production in the medium term and delivering the associated
considerable shareholder value.
A key pillar of our strategic plan is the preparation of mineral resource
estimates for our mineral deposits to the JORC standard. We have been
successful in this regard and have now published JORC mineral resource
estimates for three of our assets under development, Gilar, Zafar and Xarxar.
We will be publishing the JORC mineral resource estimate for Garadag later in
the year. These mineral resources guarantee the long-term future of the
Company and provide increased insights regarding the development plans for
these assets.
Another key pillar of the growth strategy is commencement of production from
the Gilar mine. Development is well underway with production due to start by
the end of 2024. We have also procured, with vendor finance, a Caterpillar
underground mining fleet. The delivery of the fleet to Gedabek was a
significant milestone, and was Caterpillar's first delivery of this type of
underground equipment to Azerbaijan and the broader Caucasus region.
Micon environmental audit
Following protests by local residents at our tailings dam, at the request of
the Government, Micon International Co Limited ("Micon") carried out a health,
safety and environmental review of tailings management at the Gedabek site in
late July. The review was carried out under the auspices of the Ministry of
Ecology and Natural Resources of Azerbaijan. The Company's local
environmental engineers, CQA International, and its independent tailings
management consultant Knight Piésold, assisted in the review. The
environmental audit, which measured multiple environmental factors in detail,
including water samples, soil samples, and air quality, confirmed there were
no issues, with our operations operating well within international guidelines.
Following the finalisation of the report, the Government gave us permission to
restart operations in September.
We are fully implementing the report's recommendations, including improving
our emergency response capabilities, strengthening our environmental
monitoring and documentation, and enhancing how we engage and communicate with
local communities.
Kyzlbulag and Demirli contract areas
Azerbaijan resumed full sovereignty over Karabakh in 2023 and the Russian
peacekeepers have recently left the territory. The Company has not yet been
granted access to its contract areas in Karabakh. However, preliminary
discussions have started with the Government regarding access and commencing
production from the assets situated in the contract areas. The Company has
started obtaining and collating various documentation regarding the assets in
our contract areas in Karabakh and a technical team have recently visited the
Demirli processing plant.
Sustainability and climate reporting
Sustainability and upholding the best principles of Environmental, Social and
Governance ("ESG") are of the utmost importance to the Company and are
fundamental to how we operate and make key decisions.
During early 2024, we established a Sustainability Committee, which will
oversee activities related to sustainable development and social
responsibility and is chaired by Non-Executive Director, Professor John
Monhemius. This committee will also be responsible for overseeing the
Company's activities with respect to mitigating climate risks. We are
determined to deliver real progress in this area and the committee will help
spearhead our efforts as we continue to uphold industry best practice
standards. For example, the Company has recently committed to full compliance
with the Global Industry Standard on Tailings Management ('GISTM') and we are
currently in the process of collating the required information and putting in
place the necessary requirements, and we aim to achieve full GISTM compliance
by 2026. We are also pleased to disclose our climate related risks and
opportunities in line with the Task Force on Climate-Related Financial
Disclosures ("TCFD") reporting framework for the first time this year.
Libero Copper & Gold Corporation ("Libero")
Libero had a poor year as it struggled to raise finance without drilling
permission for its Mocoa property. After two follow-on investments in January
and February, we decided not to invest further in Libero. An impairment
provision of $5 million was recorded against our investment at the end of
2023. In early 2024, our interest fell to approximately 5.7 per cent. Libero
has so far proved a disappointing investment. However, Libero has recently
been restructured and refinanced and is under new management. We believe
Libero still has the ability to create material shareholder value.
Dividend and going concern
The partial suspension of processing has, as you would expect, put a strain on
the finances of the Company. However, the Company still continues to generate
revenue from its heap leach and SART operations and is exercising extremely
stringent cost control to weather this difficult period.
Given the partial suspension of production and the loss for the year, the
Company does not intend to pay a dividend for 2023. However, the Company's
reputation as a reliable dividend payer is important to the directors, who
fully intend to resume dividend payments once conditions allow.
The Group's financial statements contain two material uncertainties as to
going concern; whether permission will be obtained from the Government to
raise the wall of the tailings dam; and obtaining further finance from banks
in Azerbaijan. These uncertainties have arisen because these exercises had not
yet been completed at the date of signing the financial statements. Work on
completing these tasks is ongoing and progressing well and the Government and
banks in Azerbaijan are being supportive. We are also actively exploring other
sources of non-equity finance. We are therefore confident that the permission
to raise the tailings dam wall and further finance will both be obtained in
the short term.
UN Climate Change Conference in Baku in November 2024 ("COP 29")
As I am sure everyone is aware, COP 29 will be held in Baku in November 2024.
Preparations for the conference are well underway with some governments
already establishing staff resources in Baku in advance of the conference. The
Company welcomes this opportunity for Azerbaijan to showcase its capital city
and, as a significant business in Azerbaijan, it intends to fully participate
in the conference where appropriate.
Annual General Meeting
We encourage shareholders to attend our Annual General Meeting, the details of
which are given below, and are also in our annual report for 2023 and
available on our website. The directors welcome all shareholders to attend and
look forward to meeting as many of you as possible.
Summary
Despite a very challenging year, the Board remains excited by Anglo Asian's
growth prospects. The resilience displayed during the year is a testament to
the strength of the business, and we look forward to returning to full
production and continuing to generate value for our stakeholders.
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 our shareholders for
their continued commitment to the Company. I look forward to a better 2024 and
to sharing our future successes with you all.
Khosrow Zamani
Non-executive chairman
15 May 2024
President and chief executive's review
2023 was a year of resilience for Anglo Asian Mining with many unforeseen
challenges. However, despite the adversity, we continued throughout the year
to lay the foundations for our future growth. We are confident that we have
now largely overcome these challenges and the underlying business remains
robust. We own an excellent portfolio of mineral deposits with significant
growth potential and have a well-defined strategy to bring them into
production.
Operational review
The year was pivotal in developing our asset portfolio and positioning Anglo
Asian Mining for growth. We announced our medium-term growth strategy in March
and have already achieved several milestones in its implementation. However,
the Micon environmental audit and the new requirement to obtain the permission
of the Government of Azerbaijan (the "Government") to raise the tailings dam
wall slowed our progress. One benefit of the positive outcome of the
environmental audit is that our credentials are now fully established as a
safe operator that does not pollute the environment. This will greatly assist
us should we need to arrange external financing for our new mines.
One major achievement was the development of the Gilar mine. We have completed
construction of the portals to the mine and underground tunnelling to reach
the mineralisation is currently underway. Unfortunately, progress has been
slower than anticipated due to softer rock and water encountered
underground. However, we remain on track to commence production by the end
of this year from Gilar and have also published its maiden JORC mineral
resource estimate. This confirmed 6.10 million tonnes of mineralisation, with
average grades of 0.88 per cent. copper and 1.30 grams per tonne of gold,
containing over 255,000 ounces of gold and nearly 54,000 tonnes of copper.
We completed a mining scoping study for Zafar and have commenced development
work, including the construction of one of the two planned portals. A JORC
mineral resource estimate confirmed 6.8 million tonnes of mineralisation at
average grades of 0.5 per cent. copper, 0.4 grammes per tonne of gold and 0.6
per cent. zinc, containing 73,000 ounces of gold, 28,000 tonnes of copper and
36,000 tonnes of zinc. This anticipates an ore production rate of 700,000
tonnes per annum. Development of the Zafar mine was put on hold during 2023 in
order to deploy all our resources to developing Gilar, which became our
priority due to its excellent drilling results early in the year. Gilar will
prove key to achieving our production ambitions, supported in the longer term
by production from Zafar, while our larger copper mines are developed.
We published the maiden JORC mineral resource estimate for Xarxar in 2024,
confirming 22.4 million tonnes of indicated and inferred mineralisation at an
average grade of 0.48 per cent. of copper, containing over 110,000 tonnes of
copper, making it a significant copper deposit. An initial assessment of the
Garadag porphyry copper deposit suggests that it has the potential to produce
over 300,000 tonnes of copper. Garadag is another key asset in the
implementation of our growth strategy and we will publish its JORC mineral
resource estimate later in 2024.
We are now prioritising our geological exploration programme around our larger
mineral deposits and plan to carry out less work at our secondary and smaller
prospects. This required the Company to make a provision against historic
exploration expense of $13 million. However, we are maintaining some activity
at Gosha and in the Ordubad area of Nakchivan, targeting both gold and copper
mineralisation. We are also still exploring in the vicinity of the Vejnaly
mine in the Zangilan district of Azerbaijan.
The Government regained full sovereignty over Karabakh in 2023 and the Russian
peacekeepers have recently left the region. Karabakh hosts the Demirli copper
and molybdenum porphyry mine, which is an exciting brownfield project that
lies within our Demirli contract area. The Company is currently discussing
obtaining full access to Demirli with the Government and a technical team from
the Company visited the property in March 2024 for an initial assessment of
the assets.
Another operational milestone in 2023 was taking delivery of a Caterpillar
underground mining fleet for the Gilar mine, the first time this type of
equipment of has been deployed in Azerbaijan, or the wider Caucasus region.
Part of the purchase price is being refinanced with vendor financing in 2024.
This fleet will significantly advance our operational capabilities and
reflects our strong partnership with Caterpillar.
We have also taken the opportunity to increase production capacity at Gedabek
by upgrading the flotation plant during the environmental shutdown, enhancing
its performance in anticipation of increased production volumes in the years
ahead.
Financial review
Revenues were $45.9 million compared to $84.7 million in 2022. This includes
gold bullion sales of 15,822 ounces at an average price of $1,951 per ounce
and total copper concentrate sales of 11,192 dry metric tonnes valued at $15.8
million.
The Group hedged part of its gold bullion production in 2023, as the price of
gold appeared to plateau earlier in the year. In June, monthly forward sales
of gold bullion were made of approximately 25 to 30 per cent. of budgeted
production for the remainder of 2023. A total of 4,600 ounces were sold at
prices between $1,950 to $1,979 per ounce. 3,000 ounces of gold were sold in
2023 under the hedge programme for an average price of $1,969.97 per ounce
with the remaining 1,600 ounces rolled forward to 2024. The hedging programme
generated additional revenue of approximately $75,000.
The Company incurred a loss before tax of $32.0 million compared with a profit
in 2022 of $7.5 million. Part of this loss arose due to the lower production
and the cost of the environmental audit and partial suspension of production.
However, the Company also incurred non-cash impairment charges of $5.0 million
in respect of Libero Copper & Gold Corporation ("Libero") and $13.0
million in respect of historical geological exploration expenditure.
An impairment provision was made in 2023 to write down Libero to reflect its
recoverable value. Subsequently, following a refinancing by Libero in early
2024, in which Anglo Asian did not participate, our holding in Libero fell to
5.7 per cent. It ceased to be an associate company from that date and going
forward will be accounted for as an equity investment. The Group's strategy
changed in 2023 following the discovery and development of the Zafar and Gilar
mines and the acquisition of Xarxar and Garadag. The Group's focus has now
moved away significantly from Ordubad and our other secondary and smaller
exploration prospects. Accordingly, the Company wrote down the value of
previously capitalised exploration expenditure of $13.0 million.
The Company had net debt of $10.3 million at 31 December 2023 and saleable
inventory of 3,296 ounces of gold with a market value of approximately $6.8
million and copper concentrate with a market value of $0.2 million.
Revenues from production at Gedabek 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 to apply to at least the end of 2025. The gold and silver produced
from the ore stockpile at Vejnaly in 2021 was sold in 2023 for $1.6 million.
This was subject to an effective royalty of 32 per cent. because the ore
stockpile was acquired at zero cost.
Environmental audit and community relations
In July 2023, local residents protested against the Company's preferred site
for the construction of its second Gedabek tailings dam and many entirely
untrue assertions were made regarding our existing tailings dam. Anglo Asian
Mining has been operating at Gedabek since 2009 and is proud of its
long-standing environmental and health and safety track record. Historically,
it has enjoyed excellent community relations, particularly given its
significant social and economic contribution to the local area. Gedabek was an
impoverished region with low levels of employment before the arrival of the
Company and is now one of the most prosperous regions in Azerbaijan.
Accordingly, the unrest over the location of the second tailings dam was
entirely unexpected.
Following the unrest, a comprehensive environmental audit by Micon
International Co Ltd ("Micon"), was jointly commissioned by the Government and
Anglo Asian Mining, which confirmed our operations were operating well within
international environmental guidelines. The Government gave permission for the
Company to restart operations in September. We regard obtaining permission to
restart our operations within only a few months as a major achievement and it
is a credit to the team for their hard work. There are many examples in the
industry of mines taking years to restart, if at all, following environmental
shutdowns.
In early 2024, various media organisations published a number of unfounded
allegations regarding the Company's operations. The publications wholly
ignored the comprehensive independent audit that cleared the Company of any
environmental breach and the multiple public statements the Company had made
in 2023 about its operations. Anglo Asian Mining maintains excellent relations
with the Government and wholly supports its commitment and approach to
developing the country's natural resources in a sustainable manner for the
benefit of all stakeholders.
As we continue to advance our sustainability agenda, we remain dedicated to
responsible mining practices that benefit not only our Company, but also the
communities and environments in which we operate.
Tailings storage at Gedabek and the restart of production
The current tailings dam is almost full and the Company has submitted plans to
the Government for a further 7.5 metre raise of the wall to its final design
height, which will give sufficient capacity for two to three more years of
production. This raise will be carried out in two stages, with the first raise
of 2.5 metres being completed approximately three months after permission is
obtained. All necessary documents to obtain permission were submitted to the
Government in March 2024, including a report by Knight Piésold confirming the
stability of the dam. We are very confident that we will receive the
permission shortly. Once permission to raise the tailings dam is received,
full production will restart.
Commitment to Global Standards and Sustainability
Our commitment to sustainability was further consolidated by our pledge in
January 2024 to implement the Global Industry Standard on Tailings Management
('GISTM') at our Gedabek operations, aiming for full compliance by 2026. This
initiative reflects our zero-tolerance policy towards environmental risk and
guides our management of tailings facilities throughout their lifecycle.
Our sustainability efforts are deeply embedded in every aspect of our
operations, guided by a long-term vision of creating enduring value. We remain
one of the largest employers in Azerbaijan, with over 1,600 employees, and we
actively participate in community development through various outreach
programs, including medical assistance, food aid and environmental
initiatives, such as tree planting. In March 2024, we furthered our commitment
by establishing a sustainability committee that will oversee the development
of the Company's strategy and activities related to its sustainable
development and social responsibility.
Anglo Asian Mining is undertaking a significant step in climate transparency
by aligning its reporting with the Task Force on Climate-Related Financial
Disclosures (TCFD) framework and adhering to the climate-related disclosure
standards of the United Kingdom. This initiative signifies a crucial phase in
enhancing environmental accountability and transparency and working within the
IFRS framework in the future.
Looking Ahead
We remain an exciting growth company despite the many challenges of 2023. We
have a portfolio of assets hosting significant mineralisation and a talented,
highly experienced and motivated team. Our extensive portfolio of assets,
including Gilar, Zafar, and Xarxar, host significant ore deposits, with total
JORC mineral resources (measured, indicated, and inferred) amounting to over
200,000 tonnes of copper and over 328,000 ounces of gold. In addition, Garadag
reportedly hosts over 300,000 tonnes of copper. In total, our resource base is
over 500,000 tonnes of copper and 400,000 ounces of gold.
We are well positioned to execute our medium-term growth strategy,
transitioning the Company into a multi-asset, mid-tier, copper and gold
producer. Underpinned by increasingly attractive metal prices and with the
foundations for growth firmly in place, we look forward to continuing to
deliver meaningful value for all our stakeholders and attractive shareholder
returns.
Reza Vaziri
President and chief executive
15 May 2024
Annual General Meeting for 2024
The Annual General Meeting of the Company for 2024 will be held on 20 June
2024 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 2023.
The Company's Section 172 (1) Statement is included within the strategic
report below.
Sustainability and TCFD climate related financial disclosures 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 2023. The
TCFD climate related financial disclosures will also be included in the
Company's annual report and accounts for 2023.
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 has a substantial portfolio of greenfield assets that lay the
foundation for future growth of the business. Gilar, Zafar, Xarxar and Garadag
all host significant ore deposits. The Gilar, Zafar and Xarxar deposits
contain total JORC mineral resources (measured, indicated and inferred) of
over 200,000 tonnes of copper and 328,000 ounces of gold. A non-JORC Company
estimate for the Garadag deposit contains an "indicated" and "inferred"
mineral resource of over 324,000 tonnes of copper.
Production Sharing Agreement with the Government of Azerbaijan
The Group's mining concessions ("Contract Areas") 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.
Contract Areas in Azerbaijan
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
processing facilities are also located at Gedabek.
Ø Xarxar. Located adjacent to Gedabek and Garadag and hosts the Xarxar
deposit. It is likely part of the same mineral system.
Ø Garadag. Located to the north of Gedabek and Xarxar and hosts the large
Garadag copper deposit.
Ø Gosha. Located approximately 50 kilometres from Gedabek and hosts a narrow
vein gold and silver mine.
Ø Vejnaly. Situated in the Zangilan district of Azerbaijan and hosts the
Vejnaly deposit.
Ø Ordubad. An early-stage gold and copper exploration area located in
Azerbaijan's Nakhchivan exclave.
Ø Kyzlbulag. Situated in Karabakh. It hosts the Kyzlbulag mine.
Ø Demirli. Adjacent to Kyzlbulag and expands the Kyzlbulag Contract Area to
the northeast. It hosts a copper and molybdenum mine and a processing plant.
The Gedabek, Xarxar, Garadag and Gosha Contract Areas form a contiguous
territory totalling 1,408 square kilometres. The Group currently has no access
to its Kyzlbulag and Demirli Contract Areas which are situated in Karabakh.
The PSA will only commence in respect of these latter two Contract Areas upon
notification by the Government of Azerbaijan to the Group that it is safe to
access the district in which the Contract Areas are located.
Overview of 2023
The Group's strategy is to transition into a mid-tier copper-focused producer
which will be achieved through developing its considerable assets. The Group
made significant progress towards becoming a mid-tier copper producer in the
year ended 31 December 2023. However, production in 2023 declined
significantly compared to 2022 due to declining ore grades from its existing
mines and the partial suspension of processing at Gedabek from August to
December 2023.
Strategic growth plan
On 30 March 2023, the Group announced its strategic growth plan. Production is
to more than double in the next five years with the Group transitioning to a
multi-asset, mid-tier copper and gold producer by 2029. Copper equivalent
production is targeted to increase to approximately 36,000 plus tonnes per
annum (gold equivalent of 175,000 ounces) from 2028 to 2029. The production
growth will be delivered through the sequential opening of four new mines in
Azerbaijan.
Production
Total production in 2023 was 31,821 gold equivalent ounces ("GEOs") compared
to 57,618 GEOs in 2022. The decrease in production was caused by the
suspension of agitation leaching and flotation processing at Gedabek from
August to December 2023 and decreasing grades in ore mined from the Gedabek
open pit. Agitation leaching and flotation processing were suspended from
August till December. Although permission to restart production was given by
the Government of Azerbaijan in September 2023, the Group did not restart
processing due to the capacity constraint of its tailings dam.
Gilar mineral resources and mine development
The Gilar deposit was extensively drilled throughout 2023 which steadily
extended its mineralisation. The maiden JORC mineral resources estimate for
the Gilar deposit was published on 11 December 2023 as set out in Table 5.
Development of the Gilar mine commenced in January 2023, with the completion
of a portal and the start of the construction of the main production tunnel. A
second tunnel for ventilation is also being constructed and infrastructure
development around the mine is ongoing. The Group also took delivery of a new
underground mining fleet from Caterpillar in December 2023.
Zafar mine development
A mining scoping study was completed for the Zafar underground mine in
February 2023. One of the two portals required for the Zafar mine was also
constructed.
Xarxar
Extensive geological surface and underground exploration was carried out at
Xarxar in 2023. Analysis of the data acquired in 2022 also continued.
Subsequent to the year ended 31 December 2023, a maiden JORC mineral resources
estimate was published for the Xarxar deposit on 20 February 2024 as set out
in Table 6.
Garadag
An initial assessment of data acquired in 2022 relating to the Garadag
porphyry copper deposit confirmed the potential of the deposit to produce over
300,000 tonnes of copper.
Vejnaly
Geological exploration continued until August 2023. In early August 2023, the
Company was advised by the Government of Azerbaijan to evacuate the area. This
was following the Demining Agency of the Government of Azerbaijan finding
additional landmines at the location. The Company was not allowed access to
the area for the remainder of 2023.
Flotation processing facilities
The capacity of the Group's flotation plant was increased in 2023 from
approximately 80 tonnes to 160 tonnes per hour by reconfiguring the plant. New
equipment was installed and the plant "de-bottlenecked" However, the
installation of an additional seven cells using "Imhoflot" pneumatic flotation
technology was postponed to 2024. Extensive maintenance was carried out of the
processing facilities during the suspension of processing from August to
December 2023.
Micon environmental study
Micon International Co Limited ("Micon") was jointly commissioned in July
2023 by the Group and the Government of Azerbaijan to undertake a health,
safety and environmental due diligence review (the "Review") of tailings
management at Gedabek. No environmental contamination was found. In December
2023, the Group agreed an action plan with the Government of Azerbaijan to
address various operational recommendations contained in Micon's report on the
Review.
Libero Copper & Gold Corporation ("Libero")
Two further follow-on investments were made in Libero in January and February
2023 totalling $646,000. The Company did not participate in further share
placements and a rights issue carried out by Libero subsequently in 2023.
Production target for 2024
The Group has not issued production guidance for 2024. It will issue
production guidance upon receipt of permission from the Government to raise
the wall of the tailings dam.
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 resource and ore reserve estimates
are produced both in accordance with the JORC (2012) code ("JORC") and as
non-JORC compliant internal estimates.
Internal Group estimates have been prepared, in accordance with JORC
procedures, of the remaining mineralisation of the Gedabek open pit, the
Gedabek underground mine and the Gilar underground mine as at 1 March 2024.
These are set out in Tables 1 to 3 respectively.
A final JORC mineral resources estimate for the Zafar deposit at 30 November
2021 is set out in Table 4. A maiden JORC mineral resources estimate for the
Gilar deposit was published on 11 December 2023 and is set out in Table 5. A
maiden JORC mineral resources estimate for the Xarxar deposit was published on
20 February 2024 and is set out in Table 6.
Table 7 sets out the Soviet C1 and C2 copper resource for the Garadag deposit
and Table 8 sets out the Soviet mineral resources estimate for the Vejnaly
deposit.
Table 1 - Internal Group estimate of the remaining mineralisation of the
Gedabek open pit in accordance with JORC at 1 March 2024
Tonnage In-situ grades Contained metal
(tonnes)
Gold Copper Silver Zinc Gold Copper Silver Zinc
(g/t) (%) (g/t) (%) (koz) (t) (koz) (t)
Measured and indicated 5,209,556 0.45 0.33 3.5 0.18 76 17,201 710 9,467
Inferred 189,677 0.63 0.22 5.3 0.10 4 423 15 193
Total 5,399,233 0.45 0.33 3.6 0.08 80 17,624 725 9,661
Some of the totals in the above table may not sum due to rounding
Note that all tonnages reported are dry metric tonnes.
Table 2 - Internal Group estimate of the remaining mineralisation of the
Gedabek underground mine in accordance with JORC at 1 March 2024
Tonnage In-situ grades Contained metal
(tonnes)
Gold Copper Silver Zinc Gold Copper Silver Zinc
(g/t) (%) (g/t) (%) (koz) (t) (koz) (t)
Measured and indicated 424,111 1.38 13.93 - 0.31 19 59,058 1 1,311
Inferred - - - - - - - - -
Total 424,111 1.38 13.93 - 0.31 19 59,058 1 1,311
Some of the totals in the above table may not sum due to rounding
Note that all tonnages reported are dry metric tonnes.
Table 3 - Internal Group estimate of the remaining mineralisation of the Gadir
underground mine in accordance with JORC at 1 March 2024
Tonnage In-situ grades Contained metal
(tonnes)
Gold Copper Silver Zinc Gold Copper Silver Zinc
(g/t) (%) (g/t) (%) (koz) (t) (koz) (t)
Measured and indicated 15,483 2.38 0.64 24 0.52 1 99 12 81
Inferred - - - - - - - - -
Total 15,483 2.38 0.64 24 0.52 1 99 12 81
Some of the totals in the above table may not sum due to rounding
Note that all tonnages reported are dry metric tonnes.
Table 4 - Final JORC mineral resources estimate of the Zafar deposit at 30
November 2021
Copper > 0.3 per cent. copper equivalent
Tonnage In-situ grades Contained metal
(million tonnes)
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 5 - Maiden JORC mineral resources estimate of the Gilar deposit at 30
November 2023
Reporting cut-off >= 0.5 grammes per tonne of gold equivalent*
Tonnage In-situ grades Contained metal
(million tonnes)
Gold Copper Zinc Gold Copper Zinc
(g/t) (%) (%) (koz) (kt) (kt)
Measured 3.88 1.49 1.08 0.91 186.06 42.09 35.43
Indicated 2.02 1.00 0.56 0.48 64.80 11.30 9.77
Measured and indicated 5.90 1.32 0.90 0.77 250.86 53.39 45.20
Inferred 0.20 0.70 0.26 0.26 4.38 0.50 0.51
Total 6.10 1.30 0.88 0.75 255.24 53.89 45.72
Some of the totals in the above table may not sum due to rounding
Note that all tonnages reported are dry metric tonnes.
*Gold equivalent calculation = Gold g/t plus (copper %*1.49) plus (zinc*0.46).
The metal price assumptions used were Gold - $1,675 per ounce; Copper - $8,000
per tonne; Zinc - $2,500 per tonne.
Table 6 - Maiden JORC mineral resources estimate of the Xarxar deposit at
January 2024
Reporting cut-off >= 0.2 per cent. copper
Mineral resources estimate for the Xarxar Deposit by oxidation domain
Domain
Indicated Inferred Indicated and inferred*
Tonnes Grade Metal Tonnes Grade Metal Tonnes Grade Metal
(mt) (%) (kt) (mt) (%) (kt) (mt) (%) (kt)
Oxide 5.2 0.55 28.5 0.8 0.66 5.2 5.9 0.57 33.7
Sulphide 16.8 0.46 77.9 2.1 0.35 7.6 18.9 0.45 85.5
Total 22.0 0.48 106.3 2.9 0.44 12.8 24.9 0.48 119.1
Some of the totals in the above table may not sum due to rounding
Note that all tonnages reported are dry metric tonnes.
*Measured resources were nil due to insufficient third-party quality assurance
and quality control ("QAQC") drill core assays being carried out. Further QAQC
drill core assays will be carried out.
Table 7 - 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
Table 8 - Soviet mineral resources estimate 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
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 Group'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 now form one continuous underground system of tunnels.
Initial gold production was by heap leaching, with copper production beginning
in 2010 with the Sulphidisation, Acidification, Recycling and Thickening
("SART") plant. The Group's agitation leaching plant commenced production in
2013 and its flotation plant in 2015. From the start of production to 31
December 2023, approximately 810 thousand ounces of gold and 21 thousand
tonnes of copper have been produced at Gedabek.
Environmental study and Micon report
Micon International Co Limited ("Micon") was jointly commissioned in July 2023
by the Group and the Government of Azerbaijan to undertake a health, safety
and environmental due diligence review (the "Micon Review") of tailings
management at Gedabek. The Micon Review was commissioned following protests in
July 2023 by local residents against the proposed construction of a second
tailings dam close to the location of the existing tailings dam. The Micon
Review also included soil and water sampling and the testing of air quality in
the vicinity of Gedabek. A summary of the results of the Micon Review (the
"Micon Report") was published in September 2023. No significant environmental
contamination was found. The Micon Report contained various recommendations to
improve some operational, social and safety aspects of the Gedabek operations.
In December 2023, the Group agreed an action plan with the Government of
Azerbaijan to address these recommendations. The recommendations of the Action
Plan included improving our emergency response capabilities, strengthening our
environmental monitoring and documentation and how we engage and communicate
with local communities. None of the recommendations affect the safe operation
of Gedabek. These recommendations are being implemented with the Government of
Azerbaijan receiving frequent updates on their status.
Gedabek open pit and Gedabek and Gadir underground mines
The principal mining operation at 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. These two 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.
Ore mined during 2023 compared to 2022 was markedly reduced as mining was
suspended during August to December 2023 whilst the Micon Review was carried
out. Table 9 sets out all the ore mined by the Group in the year ended 31
December 2023.
Table 9 - Ore mined at Gedabek for the year ended 31 December 2023
Total ore mined
for the year ended
31 December 2023
Ore mined Average
gold grade
Mine (tonnes) (g/t)
Gedabek open pit 1,180,695 0.38
Gadir - underground 109,320 1.64
Total for the year 1,290,015 0.49
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 2023, the capacity of the flotation plant was increased from
approximately 80 to 160 tonnes per hour. This was achieved by installing new
pumps and other equipment and "debottlenecking" the plant. An additional seven
cells for the flotation plant have also been acquired together with a new
thickener and filter press at a total cost of approximately $3 million. The
seven new cells use "Imhoflot" pneumatic flotation technology, which require
less energy and offers better recoveries than traditional stirred tank cells
and flotation columns. These new flotation cells and ancillary equipment will
increase the versatility of the flotation plant and enable the production of a
zinc concentrate. The installation of the new flotation cells has been
postponed until 2024.
Table 10 summarises the ore processed by leaching at Gedabek for the year
ended 31 December 2023.
Table 10 - Ore processed by leaching at Gedabek for the year ended 31 December
2023
Quarter ended Ore processed (tonnes) Gold grade of ore processed (g/t)
Heap leach pad crushed ore Heap leach pad ROM Agitation leaching Heap leach pad crushed ore Heap leach pad ROM Agitation leaching
ore plant ore plant
31 March 2023 94,518 196,595 62,006 0.74 0.49 1.30
30 June 2023 56,522 202,788 105,213 0.75 0.46 1.40
30 September 2023 25,690 34,621 - 0.83 0.45 -
31 December 2023 - - - - - -
Total for the year 176,730 434,004 167,219 0.76 0.48 1.40
Table 11 summarises the ore processed by flotation for at Gedabek for the year
ended 31 December 2023.
Table 11 - Ore processed by flotation at Gedabek for the year ended 31
December 2023
Ore processed Gold content Silver content Copper content
Quarter ended
(tonnes) (ounces) (ounces) (tonnes)
31 March 2023 192,516 1,487 19,787 1,133
30 June 2023 190,593 1,033 10,380 1,191
30 September 2023 62,369 478 4,358 363
31 December 2023 - - - -
Total for the year 445,478 2,998 34,525 2,687
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 sets out the amount of previously heap leached
ore processed for the year ended 31 December 2023.
Table 12 - Amount of previously heap leached ore processed for the year ended
31 December 2023
In-situ material Average gold grade
(tonnes) (g/t)
1 January 2023 1,390,624 1.39
Processed in the year (262,825) 0.72
31 December 2023 1,127,799 1.55
Production and sales
Gold doré was produced by agitation and heap leaching and copper concentrate
by flotation and SART processing until the end of July 2023. Agitation
leaching, flotation processing and mining were suspended from August 2023
whilst the Micon Review was carried out. However, production of gold doré and
copper concentrate continued until the end of December by heap leaching and
SART processing, although no new fresh ore was placed on the heaps. Production
during 2023 therefore decreased significantly compared to 2022 due to
declining ore grades from the Gedabek open pit and the partial suspension of
mining and processing from August to December 2023.
For the year ended 31 December 2023, gold production totalled 21,758 ounces,
which was a decrease of 21,356 ounces in comparison to the production of
43,114 ounces for the year ended 31 December 2022.
Table 13 summarises the gold and silver bullion produced from doré bars and
sales of gold bullion for the year ended 31 December 2023.
Table 13 - Gold and silver bullion produced from doré bars and sales of gold
bullion for the year ended 31 December 2023
Quarter ended Gold produced* Silver Gold sales** Gold Sales price
(ounces) produced* (ounces) ($/ounce)
(ounces)
31 March 2023 5,965 2,841 5,719 1,895
30 June 2023 7,375 3,593 4,787 1,992
30 September 2023 4,001 1,488 2,900 1,949
31 December 2023 2,975 1,610 2,416 2,004
Total for the year 20,316 9,532 15,822 1,951
* 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 2023.
Table 14 - Total copper, gold and silver produced as concentrate by both SART
and flotation processing for the year ended 31 December 2023
Copper (tonnes) Gold (ounces) Silver (ounces)
Quarter ended SART Flotation Total SART Flotation Total SART Flotation Total
31 March 2023 191 665 856 26 762 788 8,750 11,095 19,845
30 June 2023 145 869 1,014 16 479 495 10,316 8,101 18,417
30 September 2023 43 207 250 4 151 155 2,194 1,974 4,168
31 December 2023 18 - 18 4 - 4 1,264 - 1,264
Total for the year 397 1,741 2,138 50 1,392 1,442 22,524 21,170 43,694
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 2023.
Table 15 - Total copper concentrate (including gold and silver) production and
sales from both SART and flotation processing for the year ended 31 December
2023
Concentrate Copper Gold Silver Concentrate
Concentrate
production* content* content* content* sales** sales**
(dmt) (tonnes) (ounces) (ounces) (dmt) ($000)
Quarter ended
31 March 2023 4,908 856 788 19,845 1,147 2,743
30 June 2023 5,885 1,014 495 18,417 5,501 7,678
30 Sept 2023 1,401 250 155 4,168 2,358 3,066
31 December 2023 29 18 4 1,264 2,186 2,306
Total for the year 12,223 2,138 1,442 43,694 11,192 15,793
*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.
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 being
discharged safely into the nearby Shamkir river. The current tailings dam has
the capacity for approximately three months of production once production
restarts.
Knight Piésold, a leading firm of geotechnical and consulting engineers, has
determined that the wall of the existing tailings dam has a maximum height of
90 metres. This means the current wall can be raised by an average of
approximately 7.5 metres to give enough capacity for production for the next
two to three years. The Company is proposing to do this wall raise in two
stages of 2.5 metres followed by 5.0 metres. It is anticipated that it will
take approximately three months to raise the wall by 2.5 metres. The Group
submitted an application to the Government of Azerbaijan on 14 March 2024 to
raise the wall of the tailings dam. This included a third party report by
Knight Piésold confirming the stability of the wall of the dam. The Group has
satisfactorily clarified all technical aspects of the application requested by
the Government of Azerbaijan. The Company and the Government of Azerbaijan are
now working through the administrative steps required by the Government of
Azerbaijan to grant the permission.
A site has been identified for a new tailings dam in the close vicinity of the
existing dam and permission for land use has been obtained. However, following
protests against its proposed location by local communities, the suitability
of the site is being reevaluated in conjunction with the Government of
Azerbaijan. Alternative sites for the location of a second tailings dam will
also be considered.
The construction of an auxiliary tailings dam close to the Zafar mine
commenced in 2022. However, following a re-evaluation of the site, it was
decided not to complete its construction. The storage space already
constructed at the location will be used for alternative purposes.
Zafar mine development
The Zafar deposit was discovered in 2021 and is located 1.5 kilometres
northwest of the existing Gedabek processing plant. Its final mineral
resources estimate was published in March 2022 and is set out in Table 4.
A mining scoping study for the Zafar mine was completed in February 2023 and
development commenced. Two tunnels are planned, one for haulage and a parallel
ventilation tunnel. One of the two portals required for the tunnels has been
constructed close to the existing Gedabek processing facilities and about one
kilometre from the mineralisation. Five metres of haulage tunnel and 6.6
metres of ventilation tunnel were completed in 2023.
Development of the Zafar mine was suspended in mid-2023 and resources diverted
to development of the Gilar mine, following exceptional drill results from
Gilar.
Gilar mine development
Gilar is a mineral occurrence located approximately seven kilometres from the
Company's processing facilities and close to the northern boundary of the
Gedabek Contract Area. The Group commenced developing the Gilar underground
mine in late 2022 following exceptional drilling results in the south of the
area.
A maiden JORC mineral resources estimate was published on 11 December 2023 and
is set out in Table 5.
A portal has been constructed and construction of the main production tunnel
has started. A second tunnel for ventilation is also being constructed. At 29
February 2024, 723 metres of the production tunnel and 254 metres of the
ventilation tunnel had been completed. The planned length of the production
and ventilation tunnels are 1,461 metres and 777 metres respectively. The
walls of the tunnels are supported by steel arches and shotcrete where
necessary due to soft rock.
Infrastructure development is ongoing with the construction of a heavy
earthworks equipment workshop, mine office facilities and technical support
and services offices. Security and safety fencing, a mine entrance area and
power generator set foundations have also been constructed.
In December 2023, the Company took delivery of a new underground mining fleet
supplied by Caterpillar for the mine. The fleet comprised three R1700 and two
980UMA underground loaders. This is the first time this type of underground
equipment has been deployed in Azerbaijan.
Xarxar
The 464 square kilometre Contract Area is located immediately north of the
Gedabek Contract Area which it borders. The Xarxar Contract Area was acquired
in 2022 together with historical geological and other data owned by AzerGold
CJSC, its previous owner.
The Xarxar Contract Area hosts the Xarxar copper deposit. The mineralisation
of the deposit is copper-dominant and comprises mainly oxides and secondary
sulphides, with minerals such as malachite, azurite, pyrite, chalcocite and
bornite, together with some primary chalcopyrite, as common minerals in the
deposit, and minor barite and magnetite minerals are also recorded. The main
copper mineralisation lenses are located in the central part of the Xarxar
deposit, with approximate eastwest orientations.
An extensive geological exploration programme continued during 2023 at Xarxar.
Surface core and reverse circulation drilling were carried out. A portal and a
500 metre long exploration tunnel have been constructed and underground core
drilling also completed. The drill holes intercepted significant high-grade
and continuous grades of copper mineralisation. Analysis of the historical
data acquired from AzerGold CJSC also continued. On 20 February 2024, a Maiden
JORC mineral resources estimate was published for the Xarxar deposit and is
set out in Table 6.
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 the Gilar deposit to be fully mined.
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 estimate for the deposit
is set out in Table 7. Garadag has been extensively explored since the end of
the Soviet era, most recently by AzerGold CJSC, its previous owner. The roads
built for drill access are still accessible and serviceable on Garadag.
In 2022, the Group acquired historical geological and other data and
associated reports (the "Data") in respect of Garadag from by AzerGold CJSC
for $3.3 million. The Data includes geochemical and geophysical data including
maps and interpretative reports. Substantial core drilling and data
interpretations were carried out by Azergold CJSC and the Data includes 9,645
chemical assays taken from 23,454 metres of drill core which have been
transferred to the Group. 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.
No drilling or other geological fieldwork was carried at Garadag out in 2023.
However, the Company continued to analyse and log the data and a database is
being developed for the deposit. The database needs to be validated and check
drilling and confirmation of the data will be carried out.
The Company announced a non-JORC mineral resources estimate during 2023 based
on geostatistical techniques and three-dimensional modelling of the Data. This
shows an "indicated" plus "inferred" mineral resource of over 66.3 million
tonnes of ore at 0.49 per cent. copper, containing some 324,688 tonnes of
copper.
Gosha
The Gosha Contract Area is 300 square kilometres in size and is situated in
western Azerbaijan, 50 kilometres northwest of Gedabek. Gosha is regarded as
under explored. 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 2023.
Geological fieldwork has resulted in the recent discovery of additional
mineralisation adjacent to the existing underground mine. This includes
"Hasan", a new sub-vertical high gold grade mineralised vein, immediately
south of the existing Gosha mine. Hasan can be accessed via a short tunnel
from the existing tunnelling at Gosha. A further vein close to Hasan called
"Akir" is also showing promising mineralisation.
The Group is also carrying out geological fieldwork at Asrikchay, a copper and
gold target situated within the Gosha Contract Area. Asrikchay is located in
the northeast corner of the Contract Area, about 7 kilometres from the Gosha
mine, within the Asrikchay valley.
Vejnaly
Vejnaly is a 300 square kilometre Contract Area located in the Zangilan
district in southwest Azerbaijan. It borders Iran to the south and Armenia to
the west and hosts the Vejnaly deposit.
A camp is now established at Vejnaly for Group employees. A thorough 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 operations.
Approximately 30 full-time employees are based at the site, who are mainly
geologists exploring in the vicinity of the existing mine. During 2023,
development of a ventilation tunnel commenced. 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. No ore was transported
during 2023 to Gedabek for processing.
From 3 August to 31 December 2023, staff were not allowed to be present at
Vejnay on the instructions of the Government of Azerbaijan.
Ordubad
The 462 square kilometre Ordubad Contract Area is located in the Nakhchivan
exclave, southwest Azerbaijan, and contains numerous targets. Very limited
geological fieldwork was carried out in 2021 and 2022, as access was
restricted due to the COVID-19 pandemic. However, drilling resumed in 2023
targeting potential copper porphyry deposits.
Kyzlbulag and Demirli
The Kyzlbulag Contract Area is 462 square kilometres and is located in
Karabakh. 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 Contract Area is 74 square kilometres that
extends to the northeast 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.
The Government of Azerbaijan restored full sovereignty over Karabakh in 2023
and 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 2023 as the Group had no access to
the Contract Areas.
Libero Copper & Gold Corporation ("Libero")
Two further follow-on investments were made in Libero in January and February
2023 totalling $646,000. The Company did not participate in further share
placements and a rights issue carried out by Libero later in 2023. As a
result, the percentage ownership of Libero reduced to 13.1 per cent. at 31
December 2023.
Libero suffered from a shortage of funding and lack of drilling permission for
its Mocoa property in Colombia. As a result, it disposed of its option to its
Big Bulk property in Canada and terminated its option to the Esperanza
property in Argentina as it was unable to meet its payment obligations.
The Company's shareholding in Libero reduced to approximately 5 per cent. in
February 2024 following a refinancing in which the Company did not
participate. Michael Sununu also resigned from the Libero board in February
2024.
Further information about Libero can be found at
https://www.liberocopper.com/.
Geological exploration
Summary
· Surface core and reverse circulation drilling continued to define the
Gedabek open pit ore zone
o Four surface core drill holes completed with a total length of 600 metres
o 35 reverse circulation drill holes completed with a total length of 2,939
metres
o Additional resource of approximately two million tonnes of ore defined
· Mineralisation significantly extended at Gilar and a maiden JORC
mineral resources estimate published
o 21 surface core drill holes completed with a total length of 8,650 metres
o Maiden JORC mineral resources estimate published on 11 December 2023
containing 255,000 ounces of gold, 54,000 tonnes of copper and 46,000 tonnes
of zinc
· Significant copper deposit at Xarxar
o 24 surface core drill holes completed with a total length of 10,795 metres
o Six underground core drill holes completed with a total length of 1,149
metres
o Maiden JORC mineral resources estimate published on 20 February 2024
containing approximately 25 million tonnes of copper ore
· Over 300,000 tonnes of copper identified at Garadag
o Comprehensive assessment of historical geological data continued
o Initial non-JORC assessment showed potential of deposit to produce over
300,000 tonnes of copper
· Drilling recommenced at Ordubad
o Five core drill holes were completed for a total length of 2,684 metres
o Trenching continued at the Dirnis-Dastabashi area
Gedabek
Gedabek open pit mine
Four surface core drill holes were completed with a total length of 600 metres
and 35 reverse circulation drill holes completed with a total length of 2,939
metres to further define the ore zone. The drilling was mostly located in Pits
6, 8, 9, 10 and 11. Based on the reverse circulation drilling, a new mineral
resource of about two million tonnes was defined as a northernly continuation
of pits 10 and 11. This is currently being explored.
Gedabek underground mine
177 metres of underground development below pit 4 was completed. No
underground drilling was carried out.
Gadir underground mine
53 metres of exploration tunnelling was completed. No underground drilling was
carried out.
Gilar
The area hosts two styles of mineralisation, gold in quartz veins and
hydrothermal gold-copper. Three mineralisation bodies have been discovered at
the occurrence.
Extensive geological exploration was carried out at Gilar in 2023. This
significantly extended the mineralisation. 21 surface core drill holes were
completed with a total length of 8,560 metres. A magnetometry geophysical
programme was completed and a surface Induction Polarisation ("IP") survey was
carried out which was in its completion stage by the end of 2023. This survey
will be used to define the mineralisation footprint of the deposit and any
extensions.
A maiden JORC mineral resources estimate was published on 11 December 2023
which contained 255,000 ounces of gold, 54,000 tonnes of copper and 46,000
tonnes of zinc. This mineral resources estimate is set out in Table 5.
Zafar deposit
The geology of the area is structurally complex, comprising mainly of Upper
Bajocian-aged volcanics. The mineralisation seems to be associated with a main
northwest to southeast trending structure, which is interpreted as post-dating
smaller northeast to southwest structures. In the southwest area, outcrops
with tourmaline have been mapped, which can be indicative of the potential for
porphyry-style mineral formation.
There was no geological exploration carried out at Zafar in 2023.
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. However, the recent discovery, the Hasan vein, 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.
Four underground core drill holes totalling 551 metres were drilled in the
Gosha mine in 2023. A detailed underground sampling programme was also
completed in the "Akir" high gold grade zone. 37 metres of channel samples
were taken from "vein 3" from underground which shows high gold grades. 95
field samples were collected and 8.4 metres of trenching completed in the
vicinity of the Gosha mine and the Shamliq exploration area.
Surface magnetometry geophysical exploration work was carried out at Asrikchay
in 2023, a highly prospective area separate in the Gosha Contract Area. A
second stage magnetometry programme was completed and a data interpretation
was received from Reid Geophysics Limited. The advice from Reid was to carry
out an Induction Polarisation ("IP") geophysical programme to try and identify
massive sulphide bodies for future exploration.
Xarxar
Xarxar deposit
Tunnelling from the new portal continued during the year with a total of 465
metres developed. 24 surface core drill holes were completed for a total
length of 10,795 metres. These drill holes targeted the central copper
mineralisation zone and intercepted significantly high and continuous grades
of copper with intercepts of continuous copper for up to 380 metres. These
drill holes defined high and low grade zones within the copper mineralisation
zone. Six underground core drill holes were completed for a total length of
1,149 metres.
Analysis of the historical geological data acquired in 2022 continued
throughout 2023. From these data, together with Company exploration data, an
initial geological block model and open pit optimisation study were completed
during the year.
A maiden JORC mineral resources estimate was published on 20 February 2024 and
is set out in Table 6. This shows the deposit contains approximately 25
million tonnes of copper ore.
Uluxanli
This is a new exploration area where a high-grade quartz gold vein has been
discovered. Field exploration of the area took place in the second half of
2023. A magnetometry survey was carried out using 68 profiles. The total
length of the profiles was 235 kilometres and covered an area of 24 square
kilometres.
Garadag
No geological field work was carried out at Garadag in 2023. However,
assessment of the acquired historical geological data continued throughout the
year. Geological re-logging of six core drill holes was completed which will
assist in understanding the porphyry copper potential of the deposit. A
photographic unit was established to photograph all 23,000 metres of drill
core acquired as part of the historic data.
A mineral resource estimation based on geostatistical techniques and
three-dimensional modelling of data received from AzerGold CJSC was completed
in 2023. This showed an "Indicated" plus "Inferred" mineral resource of
over 66.3 million tonnes of ore at 0.49 per cent. copper, containing some
324,688 tonnes of copper, which further confirmed the copper potential of the
Garadag deposit.
Vejnaly
The Vejnaly deposit is located within the volcanic-plutonic structure of the
Kafan structure formation and incorporates 25 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 geological exploration team and fire assay laboratory was established at
Vejnaly in 2023. Underground sampling in Zone 2 and logging of historic drill
holes was carried out during the year. Some assays of historic core samples
show high grade gold. Vein sampling assays of the deposits also show
significant high-grade gold.
"World View 3" satellite image data for the entire Vejnaly Contract Area was
obtained in 2023. A geological map of the Vejnaly deposit and Contract Area
was completed in 2023. These data are currently being analysed to identify
potential exploration targets.
Ordubad
The COVID-19 restrictions, which had prevented access to Ordubad, were lifted
during 2023 and the Company recommenced its drilling programme. Five core
drill holes were completed for a total length of 2,684 metres on the flank of
the Kalaky mineral occurrence targeting porphyry copper potential. The drill
holes mainly intercepted weak altered intrusive rocks within a silica halo.
One of the drill holes at intercepted high gold grades at three intervals of
7.2, 11.3 and 13.8 grammes per tonne at depth. These will be further explored.
Trenching was also conducted in the Dirnis-Dastabashi area. A high potential
copper vein was detected.
Based on our latest understanding of porphyry mineralisation, a reassessment
of the Shakardara deposit commenced in 2023. 2,908 metres of previously
drilled core were relogged and some intervals were resampled.
Dr. Robin N. Armstrong, mining sector leader of the Natural History
Museum, London, visited Ordubad during 2023. During his visit, geological
logging of the last phase of the core drill holes was carried out. Samples
were also selected for a pathfinder geochemistry study which will assist in
identifying possible copper porphyry mineral targets.
The Company is awaiting results from the samples collected by the geological
team from the Natural History Museum London as part of their ongoing "From Arc
Magmas to Ores" ("FAMOS") international research project. This study is being
carried out to determine whether there are any indications of a porphyry
system within the Ordubad Contract Area.
Expansion of laboratory facilities at Gedabek
An extensive geological laboratory has been established at Gedabek. This
enables samples to be analysed by various techniques including X-Ray
diffraction. The laboratory has a capacity to analyse 200 to 220 samples per
day and identify 81 different chemical elements.
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 2023, the Group shipped all its gold doré to Switzerland for refining by
MKS Finance SA. 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 2023 by
scheduled airflights.
The Gedabek mine site has good road transportation links, and the Group's
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.
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 Group's annual report.
Principal decisions and other key factors in maintaining shareholder value
For the year ended 31 December 2023, 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 2023;
· consideration of the final dividend payable for the year ended 31
December 2022 and the interim dividend payable for the year ended 31 December
2023;
· agreeing to two follow-on investments in Libero Copper & Gold
Corporation ("Libero") and deciding not to make further investments in the
second half of 2023;
· undertaking a gold hedging programme by making forward sales of gold
in the second half of 2023;
· entering into a AZN 55 million credit line with the International
Bank of Azerbaijan;
· commencing the development of the Gilar underground mine and
publication of its JORC mineral resources estimate;
· purchase of a Caterpillar underground mining fleet for the new Gilar
mine and its financing by vendor financing;
· continuing extensive geological exploration at Xarxar and the
publication of a JORC mineral resources estimate in early 2024;
· the establishment of a long-term strategy and business plan to become
a mid-tier producer of copper;
· agreeing to a request by the Government of Azerbaijan for a
third-party environmental audit to be conducted at Gedabek; and
· agreeing to partially suspend processing operations between August
and December 2023 whilst a third-party environmental audit was carried out and
the results agreed.
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 has also recently acquired additional
Contract Areas in Azerbaijan to increase its mineral reserves.
The Board, together with their immediate families, and senior managers of the
Company hold in total approximately 44 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 at Gedabek and the
meetings are attended by directors.
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.
The Company together with officials of the Government of Azerbaijan held a
Board members regularly visit Gedabek and other locations and meet with the "town hall" meeting with local residents at Gedabek to discuss the
local administration and other community leaders to hear their views on environmental audit at Gedabek and future plans for tailings management.
community relations.
A community relations department was established in 2023 and a dedicated
Government affairs and community relations officer was recruited to head the
department.
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 of
Azerbaijan as set out in the Corporate Governance section of the annual Azerbaijan for 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.
Agreeing to a Government of Azerbaijan request for a third party environmental
audit at Gedabek and agreeing to partially shut down processing between August
and December 2023 whilst it was carried out.
Non-financial and sustainability information statement
The Group's climate change and task force on climate-related financial
disclosures ("TCFD") are set in the Group's annual report for 2023.
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 Group 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 Group
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 directors keep under review the potential benefit
of hedging which it carries out from time to time. During 2023, the Group
established a hedging programme for the forward sales of gold bullion of a
proportion of its production. Further details of the hedging programme are set
out in the financial review below.
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 25 - "Financial Instruments" to the
Group financial statements.
Liquidity and interest rate risk
The Group had no bank debt at 1 January 2023 but during 2023 utilised various
credit lines from several banks in Azerbaijan. This was primarily to provide
working capital from August to December 2023 during the partial suspension of
the Group's operations and to finance the purchase of the underground mining
fleet for the new Gilar mine. The banks loans were all at a fixed rate of
interest and therefore the Group had no interest rate risk during 2023.
The Group maintained cash deposits during 2023. 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.
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 2024
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 2023 of $45.9m (2022: $84.7m) from the sales
of gold and silver bullion and copper and precious metal concentrate.
The revenues in 2023 included $31.0m (2022: $62.8m) generated from the sales
of gold and silver bullion from the Group's share of the production of doré
bars. Bullion sales in 2023 were 15,822 (2022: 34,918) ounces of gold and
7,080 (2022: 23,763) ounces of silver at an average price of $1,951 (2022:
$1,783) per ounce and $23 (2022: $22) per ounce respectively. In addition, the
Group generated revenue in 2023 of $14.8m (2022: $21.9m) from the sale of
11,192 (2022: 12,443) dry metric tonnes of copper and precious metal
concentrate. The Group's revenue benefited in the year from a higher average
price of gold at $1,943 (2022: $1,801) per ounce but the average price of
copper was lower at $8,523 (2022: $8,797) per metric tonne.
A gold sales hedging programme was established in 2023. Monthly forward sales
of gold bullion were made equivalent to approximately 25 to 30 per cent. of
the Group's share of budgeted gold bullion production for the months of June
to December 2023. The contracts matured at the end of each respective month
and a total of 4,600 ounces of gold bullion was forward sold. The forward
sales were made at prices between $1,949.75 to $1,979.25 per ounce of gold.
The spot price of gold at the time of contracting the forward sales was
$1,947.50. 3,000 ounces of gold were sold in 2023 under the hedging programme
for an average price of $1,969.97 per ounce with the remaining 1,600 ounces
rolled forward to 2024. The Group generated additional revenue of $75,000 from
the hedging programme calculated by comparing the hedged sale price with the
spot price at each date of sale. The Group did not hedge gold sales in 2022.
The Group incurred cost of sales in 2023 of $50.3m (2022: $69.0m) as follows:
2023 2022 B/(W)
$m $m $m
Cash cost of sales 40.0 57.1 17.1
Depreciation 9.8 16.4 6.6
Cash costs and depreciation 49.8 73.5 23.7
Capitalised costs (1.2) (3.0) (1.8)
Cost of sales before inventory movement
48.6 70.5 21.9
Inventory movement 1.7 (1.5) 3.2
Total cost of sales 50.3 69.0 18.7
The cost of sales in 2023 of $50.3m were $18.7m lower than the $69.0m in 2022.
This was because agitation leaching and flotation processing and mining were
suspended from August to December 2023. Reagent costs, materials and
consumables including spare parts and fuel oil, and haulage and excavation
services were $7.0m, $3.2m and $4.7m respectively lower in 2023 compared to
2022.
Depreciation in 2023 was lower at $9.8m compared to $16.4m in 2022.
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 lower in 2023 due to the lower production
in the year.
Other operating income was $0.4m (2022: $0.4m) which was primarily the
cancellation of an amount payable to a contractor. Administration expenses in
2023 were $7.0m (2022: $5.9m). 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 2023 compared to 2022 at an exchange rate of
$1 = AZN1.7. The United States dollar to the United Kingdom pounds Sterling
exchange rate was volatile in 2023 with a high of £1 = $1.31 to a low of £1
= $1.18. Administration costs in 2023 were higher than 2022 primarily due to
higher legal costs and higher audit fees.
Finance costs in 2023 were $1.8m (2022: $0.8m). Finance costs comprise
interest on borrowings and lease liabilities, interest on the unwinding of the
discount of provisions and interest on the long term AzerGold CJSC creditor.
Finance costs increased in 2023 compared to 2022 due to the Group's increase
in borrowings in 2023, a higher discount rate used to unwind the discount on
provisions and a full year's interest charge in respect of the long-term trade
creditor for the purchase of historical geological data from AzerGold CJSC.
The Group incurred an impairment charge of $5.0m (2022: $nil) in respect of
its investment in Libero Copper & Gold Corporation ("Libero"). Libero was
an associate company at 31 December 2023 but in 2024 will be reclassified as a
financial asset as the Group's interest has reduced to 5.7 per cent. in
January 2024 and Michael Sununu resigned from the board of Libero. The fair
value of the Group's investment in Libero at 31 December 2023 is therefore
estimated as the value of Libero as a financial asset at 31 December 2023. The
market value of the Group's shares in Libero at 31 December 2023 were $242,000
and the investment was accordingly written down to reflect this value.
The Group recorded a total impairment charge in respect of historical
geological exploration expense of $13.0 million. This was $5.0m, $3.0m and
$5.0m for Gedabek, Gosha and Ordubad respectively. The impairment charges are
specifically against secondary and smaller prospects in these Contract Areas.
Following the discovery and development of the Zafar and Gilar mines and the
acquisition of Xarxar and Garadag, the Group's focus has moved away
significantly from Ordubad and our other smaller exploration prospects. It is
unlikely that the Group will expend significant resources into bringing any of
these areas into production in the next five years.
The Group recorded a loss before taxation in 2023 of $32.0m compared to a
profit in 2022 of $7.5m. The loss was due to the gross loss of $4.5m (before
impairment of geological expenditure of $13.0m) resulting from the partial
shut-down of Gedabek processing from August 2023, the provision against
geological exploration cost of $13.0m and the impairment charge for Libero of
$5.0m.
The Group had a taxation benefit in 2023 of $7.7m (2022: charge of $3.8m).
This comprised a current income tax charge of $nil (2022: $0.6m) and a
deferred tax benefit of $7.7m (2022: charge of $3.2m). $4.2m of the deferred
tax credit arose from a reversal of the deferred tax creditor in respect of
the impairment of the capitalised geological exploration expenditure. The
geological exploration expenditure had already been deducted for taxation.
R.V. Investment Group Services ("RVIG") in Azerbaijan generated taxable losses
in 2023 of $17.3m (2022: profits of $1.7m). RVIG's taxable profits are taxed
at 32 per cent. (the corporation tax rate stipulated in the Group's production
sharing agreement). RVIG had tax losses available for carry forward of $17.3m
at 31 December 2023 (2022: $nil).
All-in sustaining cost of gold production
All-in sustaining cost ("AISC") of gold production 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.
The Group produced gold at an AISC" per ounce of $1,510 in 2023 compared to
$1,064 in 2022. The reason for the increase in 2023 compared to 2022 was due
to the much lower production as the majority of the Group's production costs
are fixed or semi-fixed.
Group statement of financial position
Assets and liabilities
Non-current assets decreased from $102.2m at the end of 2022 to $95.2m at the
end of 2023. Intangible assets decreased from $38.6m at the end of 2022 to
$27.1m at the end of 2023 due to additions to geological exploration and
evaluation of $5.9m (2022: $9.4m) offset by transfer to assets under
construction of $3.8m (2022: $nil), amortisation of $0.6m (2022: $1.1m) and
impairment of $13.0m (2022: $nil) in the year. Property, plant and equipment
were higher by $8.7m due to additions of $22.5m partially offset by
depreciation of $9.7m and a decrease in the provision for rehabilitation of
$4.0m. Leased assets were $0.2m lower due to modifications to leased assets of
$0.3m and depreciation of $0.6m offset by $0.7m of additions.
Net current assets were $36.1m at the end of 2023 compared to $60.5m at the
end of 2022. The main reasons for the decrease in net current assets were a
reduction in cash equivalents and restricted cash of $9.9m and an increase in
current liabilities of $5.0m which in 2023 include $13.6m (2022: $nil) of bank
debt due within 12 months. The Group's cash balances at 31 December 2023 were
$4.5m (2022: $20.4m) and there is restricted cash of $6.0m (2022: $nil) which
is not available for use by the Company as it is security for a loan. 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 $4.2m (2022:
$2.9m). This includes $3.1m (2022: $2.9m) 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.
The Group commenced borrowing in 2023 to finance the capital expenditure of
developing its assets and the partial shutdown of processing operations from
August 2023. Total bank borrowings (including accrued interest) at 31 December
were $20.7m (2022: $nil). The Group borrowed from two banks in Azerbaijan
during 2023, International Bank of Azerbaijan and Access Bank. The principal
amounts outstanding were $15.0m and $5.6m respectively at interest rates of
between 5.5 and 6.5 per cent per annum. The loan from Access Bank was secured
against a $6.0m cash deposit.
Net assets of the Group at the end of 2023 were $84.8m (2022: $113.5m). The
net assets were lower due to a decrease in retained earnings as a result of
the loss and the dividend payment in 2023. There were no shares issued or
bought back in 2023.
Equity
The Group was financed entirely by equity and had no bank debt or other
borrowings other than lease liabilities throughout 2022. In 2023, the Group
commenced borrowing from banks and the Group's gearing ratio at 31 December
2023 was 24.4 per cent.
There were no movements of the Group's share capital, merger reserve and share
premium account in 2023. The Group's holding company did not buy back any
ordinary shares in 2023. 150,000 ordinary shares were bought back in 2022
which have not been cancelled and are held in treasury.
Group cash flow statement
Operating cash outflow before movements in working capital for 2023 was $1.0m
(2022: inflow of $27.2m). Operating cash was severely reduced in the year due
to the lower production arising from the suspension of processing. Operating
profit before the non-cash charges of depreciation, amortisation and
impairment in 2023 was an outflow $3.0m (2022: inflow of $24.6m).
Working capital movements generated cash of $2.0m (2022: absorbed cash of
$10.1m) due to trade receivables which were lower by $4.6m (2022: higher by
$5.9m). Inventory was $0.1m higher (2022: $3.4m) and trade and other
receivables were lower by $2.4m (2022: $0.8m).
Cash from operations in 2023 was $1.0m compared to $17.0m in 2022 due to the
operating cash outflow in 2023.
The Company paid corporation tax in 2023 of $0.1m (2022: $3.6m) in Azerbaijan
in accordance with local requirements. This payment was the final payment of
its liability for the year ended 31 December 2022.
Expenditure on property, plant and equipment and mine development were $18.0m
(2022: $10.1m). The main additions in 2023 were capitalised stripping costs of
$0.7m, mine development costs of $8.3m, a Caterpillar underground mining fleet
and associated equipment of $5.2m and an underground drilling machine of
$1.6m.
Expenditure on intangible assets in 2023 was $7.2m (2022: $7.2m) which was
expenditure on exploration and evaluation. The main expenditure on exploration
and evaluation expenditure was $2.1m (2022: $3.6m), $1.9m (2022: $1.6m) and
$1.0m (2022: $0.5m) at Gedabek, Xarxar and Vejnaly respectively.
The Group spent $0.7m (2022: $3.5m) on acquiring shares in Libero during 2023.
Dividends
In respect of the year ended 31 December 2023, the Group did not pay an
interim dividend and no final dividend is proposed. A total dividend of 8 US
cents per share was paid in respect of the year ended 31 December 2022.
Dividends are declared in United States dollars but paid in United Kingdom
pounds sterling. The total cash cost of dividends paid in respect of 2022 was
$4.6m.
Production Sharing Agreement
Under the terms of the Production Sharing Agreement (the "PSA") with the
Government of Azerbaijan (the "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 carried forward 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 and unrecovered costs are calculated separately for each
Contract Area from the total production and total costs for each Contract
Area. Costs incurred in one Contract Area cannot be offset against production
of a different Contract Area. Unrecovered costs can only be recovered against
future production from their respective contract area.
Profit Production for the Group has been subject to the minimum 25 per cent.
for all years since commencement of production including 2023 for the Gedabek
Contract Area. The Government's share of production in 2023 (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 2023 of 12.75 per
cent. (2022: 12.75 per cent.) of the value of its production at Gedabek.
The Group produced gold and silver for the first time in 2021 from its Vejnaly
Contract Area and the metal produced was sold for a total of $1.6m in 2023.
The Government's share of this production was 32.0 per cent. This is because
the mine and other facilities were acquired at no cost and the only costs
available to offset the production were the administration costs of the site,
minor refurbishment capital expenditure, the cost of geological exploration
and Gedabek transport and processing costs. Mining costs were not available
for offset as the metal was produced from ore stockpiled at Vejnaly by the
previous owner.
The Group can recover the following costs in accordance with the PSA for each
Contract Area as follows:
· all direct operating expenses of the mine;
· all exploration expenses;
· all capital expenditure incurred on the mine;
· an allocation of corporate overheads - currently, overheads are
apportioned to Gedabek according to the ratio of direct capital and operating
expenditure at the Gedabek contract area compared with direct capital and
operational expenditure at the Gosha and Ordubad contract areas; and
· an imputed interest rate of United States Dollar LIBOR + 4 per cent.
per annum on any unrecovered costs.
The total unrecovered costs for the Gedabek, Gosha and Vejnaly contract areas
at 31 December 2023 were $64.6m, $34.8m and $1.9m respectively (2022: $37.5m,
$31.4m and $0.8 respectively).
The unrecovered costs at 31 December 2023 for the Garadag and Xarxar contract
areas were $1.2m and $3.4m respectively (2022: $0.9m and $1.0m respectively).
The unrecovered costs include cash payments in 2022 for historical geological
data of $0.8m and $0.2m in respect of Garadag and Xarxar respectively.
Foreign currency exposure
The Group reports in US dollars and a substantial proportion of its business
is conducted in either US dollars or the Azerbaijan Manat ("AZN") which has
been stable at AZN 1 equalling approximately $0.58 during the year ended 31
December 2023. The Company's revenues and its debt facility are also
denominated in US dollars. The Company does not currently have any significant
exposure to foreign exchange fluctuations and the situation is kept under
review.
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
Main business of the Group
The Group produces primarily gold and copper at its Gedabek mining concession
in northwestern Azerbaijan. Ore mined at Gedabek produces gold doré by heap
and agitation leaching and copper concentrate (which also contains gold and
silver) from SART and flotation processing. When processing operations are
fully operational, production is cash generative at current and forecast metal
prices. Historically, the Group has funded all its operational costs
(including Azerbaijan and London overheads) from cash generated from the
sale of precious metal and copper concentrates produced at Gedabek.
Suspension of agitation leaching and flotation processing and interim results
to 30 June 2023
The Group suspended agitation leaching and flotation processing from the
beginning of August 2023 whilst an environmental audit of its Gedabek site was
carried out.
The Group published its six months interim results to 30 June 2023 ("Interim
Results") on 26 September 2023. The Group reported in its Interim Results the
following material uncertainties regarding its going concern:
1. The Group will be able to fully restart agitation leaching
and flotation processing.
2. IBA will agree to restart lending to the Group under its
revolving credit facility.
3. The Government will not impose any conditions or fines etc.
on the Group which will be so onerous as to make it impossible for the Group
to continue in commercial operation.
4. Permission will be obtained to further raise the wall of
the tailings dam and this wall raise will be completed by April 2024
The results of the environmental audit were satisfactory and, subsequent to
the release of the Interim Results, the Group was given permission by the
Government of Azerbaijan (the "Government") on 26 September 2023 to fully
restart operations and did not impose any conditions or fines etc. on the
Group which were so onerous as to make it impossible for the Group to continue
in commercial operation. This removed material uncertainties (1) and (3)
above. Material uncertainties (2) and (4) are discussed further below.
One recommendation arising from the environmental audit was that Government
permission is required for any further raises of the wall of the Group's
tailings dam.
Permission to raise wall of the tailings dam
The Group's agitation leaching and flotation processing produce waste as a
slurry called tailings. These tailings are stored in a dam approximately seven
kilometres from the Group's processing plants. The tailings dam only has
sufficient capacity for another 2 to 3 months of agitation leaching and
flotation production. The Group has therefore applied to the Government to
increase the height of the wall by an average of 7.5 metres to its final
design height, which will give the tailings dam sufficient capacity for an
additional two to three years of production. This raise of the dam wall will
be carried out in two stages with the first stage being a raise of
approximately 2.5 metres.
The Group submitted to the Government an application to raise the wall of the
tailings dam on 14 March 2024. The application included a third-party report
by the geotechnical consultants, Knight Piésold, which confirmed the
stability of the tailings dam. The Group subsequently clarified certain
aspects of the Knight Piésold report and other documentation submitted with
the Government. The Government is now in the process of reviewing the
Company's application.
The Group will not restart agitation leaching and flotation until permission
is obtained from the Government to raise the wall of its tailing dam. The
tailings dam has sufficient capacity for agitation leaching and flotation
processing to begin whilst the raise of the wall is carried out. This will
avoid the need to restart and then stop agitation and flotation processing,
due to the tailings dam reaching full capacity. To commence production and
then stop within a three month period is not operationally desirable.
Financial condition and credit facilities available to the Group
The Group had cash reserves of $9.8 million (including $6.0 million restricted
cash) and debt of $20.7 million at 31 March 2024. The current cost of
maintaining the Group's operations, including mining, Gilar development, heap
leaching, SART processing and administrative overheads in Azerbaijan
and London, is estimated at $3.5 million to $4.0 million per month. The
Group is currently generating revenue of approximately $2.0 million per month
from precious metal and concentrate sales.
The Group has in place an AZN 55 million ($32.3 million) General credit
agreement ("GCA") with the International Bank of Azerbaijan ("IBA"). The
Group has borrowed $15 million under this facility to date, of which $10
million is repayable between May 2024 to 2026, and $5 million was repayable in
May 2024. The $5 million loan repayable in May 2024 was recently extended for
one year and is now repayable in May 2025. The Group is currently negotiating
a further $10 million loan under the GCA which the directors believe is
subject to receiving permission to raise the wall of the tailings dam.
The Group recently signed a vendor refinancing of part of the purchase price
of its Caterpillar mining fleet of $3.7 million and is completing the
conditions precedent in the loan agreement to enable the proceeds to be
disbursed. It is anticipated these proceeds will be received by 31 May 2024.
12 Month cash flow forecast
The Group has prepared a 12 month cash flow forecast until 30 June 2025. It
has been prepared under the following major assumptions:
- The permission for raising the wall of the tailings dam will be
obtained by 31 May 2024.
- The Group will close the $10 million loan and receive the proceeds
from IBA by 31 May 2024.
- The Group will borrow a further $3 million from IBA under the GCA in
September 2024, discussions for which have not yet commenced.
This cash flow uses gold prices of $1,900 to $2,300 per ounce and copper
prices of $8,500 to $8,900 per tonne. This cash flow shows that the Group is
able to finance its operations till the end of the going concern period being
30 June 2025.
The Group has also prepared a 12 month cash flow forecast until 30 June 2025
("Sensitivity Case") using the following major assumptions:
- The permission for raising the wall of the tailings dam will be
obtained by 30 June 2024.
- The Gilar mine will commence production in the first quarter of
2025.
- The Group will close the $10 million loan from IBA by 30 June 2024.
- The Group will borrow a further $7m from IBA under the GCA in August
2024, discussions for which have not yet commenced.
This Sensitivity Case cash flow shows that the Group is able to finance its
operations till the end of the going concern period being 30 June 2025.
Material uncertainties over going concern
At the time of approving the issuance of the financial statements, there exist
the following material uncertainties which are outside of management's
control:
1. Whether the Group will receive permission from the
Government to raise the wall of the tailings dam.
2. Once permission is received, whether the Group will close
the loan of $10 million from IBA which remains subject to their approval, and
the further loans forecast to be taken with IBA in the going concern period,
for which discussion have not yet commenced, ($3 million in the base case and
$7m in the Sensitivity Case) from IBA.
Should the permission not be obtained and the additional loans not be
advanced, the Group and Company is forecast to exhaust its available liquidity
during the going concern period.
These material uncertainties may cast significant doubt on the Group's and
Company's ability to continue as a going concern. It may therefore be unable
to realise its assets and discharge its liabilities in the normal course of
business.
The directors are confident that the permission to raise the wall of the
tailings dam will be received. The application is technically competent and is
currently being progressed by the appropriate ministries and departments of
the Government. The Group has a successful record of obtaining all necessary
approvals from the Government, which has provided the Directors with
confidence that permission will be granted. The Board considers that the
Government is also very desirous that the Group undertakes other business
opportunities in Azerbaijan. These are dependent on restarting full production
at Gedabek.
The cash flow contains certain discretionary expenditure on capital
expenditure and geological exploration totalling $7.2 million. Should the
permission to raise the wall of the tailings dam be delayed beyond 31 May
2024, this expenditure can be deferred. This will enable the Group to have
sufficient working capital to continue producing from only heap leaching and
SART till the end of 2024.
The directors are confident that it will be granted a further loan of $10
million because of the strong existing relationship with IBA, the history of
completing loans and the advanced stage of the current approvals process.
However, the required IBA approvals for the $10 million loan are not yet
completed and are contingent on the tailings dam approval. The Group is also
negotiating with other banks in Azerbaijan. If the $10 million loan from IBA
is not completed, the Board will seek alternative sources of bank financing
from a Bank with which it currently has other borrowings. The directors
believe that the banks in Azerbaijan are likely to require that the Group has
the permission from the Government to raise the tailings dam wall before
advancing any further funds. Following the loan of $10 million, there will be
$7.3 million remaining of the GCA from which the $3 million loan can be made
($7 million in the Sensitivity Case). The directors are confident that it will
be granted the additional loan forecast in the base case and Sensitivity Case
because of the strong existing relationship with IBA and the history of
completing loans with IBA. The Group is also actively exploring other sources
of non-equity financing.
Accordingly, the directors believe it is appropriate to prepare these
financial statements on a going concern basis.
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 Chief Executive Officer'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.
William Morgan
Chief financial officer
15 May 2023
Directors emoluments
Year ended 31 December 2023 Consultancy Fees Benefits Total
$ $ $ $
John Monhemius 9,817 56,898 - 66,715
John Sununu - 74,400 - 74,400
Michael Sununu - 54,000 - 54,000
Reza Vaziri 576,096 54,000 33,106 663,202
Khosrow Zamani - 123,600 - 123,600
585,913 362,898 33,106 981,917
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
Directors' fees and consultancy for 2022 and 2023 were paid in cash.
No director held or exercised any share options during the years ended 31
December 2022 and 31 December 2023.
Group statement of income
year ended 31 December 2023
2023 2022
Continuing operations Notes $000 $000
Revenue 6 45,855 84,719
Cost of sales (50,317) (68,958)
Gross (loss)/profit (4,462) 15,761
Other operating income 7 407 420
Administrative expenses (7,008) (5,930)
Other operating expenses 7 (696) (971)
Impairment of geological exploration 14 (13,031) -
Operating (loss)/profit 8 (24,790) 9,280
Finance costs 10 (1,831) (814)
Finance income 266 84
Other expense 7 (39) (570)
Share of loss of an associate company 11 (541) (476)
Impairment of an associate company 11 (5,035) -
(Loss)/profit before tax (31,970) 7,504
Income tax benefit/(expense) 12 7,728 (3,844)
(Loss)/profit attributable to the equity holders of the parent (24,242) 3,660
(Loss)/profit per share attributable to the equity holders of the parent
Basic (US cents per share) 13 (21.00) 3.20
Diluted (US cents per share) 13 (21.00) 3.20
Group statement of comprehensive income
year ended 31 December 2023
2023 2022
Notes $000 $000
(Loss)/profit for the year (24,242) 3,660
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 (loss)/ profit of an associate company 11 (1) 8
Net other comprehensive loss that may be reclassified to profit and loss in
subsequent year (1) (225)
Total comprehensive (loss)/income for the year* (24,243) 3,435
* These are gross amounts and the tax effect is $nil
Group statement of financial position
31 December 2023
2023 2022
Notes $000 $000
Non-current assets
Intangible assets 14 27,126 38,616
Property, plant and equipment 15 64,775 56,045
Leased assets 16 2,053 2,363
Investment in an associate company 11 242 5,172
Non-current financial assets 17 - 39
Non-current trade and other receivables 18 975 -
95,171 102,235
Current assets
Inventory 19 40,342 40,202
Trade and other receivables 18 8,654 18,331
Restricted cash 20 6,000 -
Cash and cash equivalents 20 4,477 20,410
59,473 78,943
Total assets 154,644 181,178
Current liabilities
Trade and other payables 21 (9,200) (18,022)
Income tax payable - (46)
Interest-bearing loans and borrowings 22 (13,629) -
Lease liabilities 16 (555) (419)
(23,384) (18,487)
Net current assets 36,089 60,456
Non-current liabilities
Trade and other payables 21 (4,219) (2,897)
Provision for rehabilitation 24 (12,948) (16,006)
Interest-bearing loans and borrowings 22 (7,105) -
Lease liabilities 16 (1,916) (2,289)
Deferred tax liability 12 (20,264) (27,992)
(46,452) (49,184)
Total liabilities (69,836) (67,671)
Net assets 84,808 113,507
Equity
Share capital 26 2,016 2,016
Share premium 27 33 33
Treasury shares 28 (145) (145)
Share-based payment reserve 29 571 424
Merger reserve 26 46,206 46,206
Foreign currency translation reserve (233) (233)
Retained earnings 36,360 65,206
Total equity 84,808 113,507
Group statement of cash flows
year ended 31 December 2023
2023 2022
Notes $000 $000
Cash flows from operating activities
(Loss)/profit before tax (31,970) 7,504
Adjustments to reconcile (loss)/profit before tax to net cash flows:
Finance costs 10 1,831 814
Finance income (266) (84)
Unrealised loss on financial instruments 39 572
Gain on the modification of lease liabilities (71) (65)
Write down of unrecoverable inventory - 108
Gain on previously written off receivables 7 (33) -
Gain on reversal of previously recognised accrual (303) -
Depreciation of owned assets 15 9,707 15,443
Depreciation of leased assets 16 566 540
Amortisation of mining rights and other intangible assets 14 593 1,131
Share-based payment expense 29 147 412
Share of loss of an associate company 11 541 476
Impairment of an associate company 11 5,035 -
Impairment of geological exploration 14 13,031 -
Foreign exchange loss 105 317
Operating cash (outflow)/inflow before movement in working capital (1,048) 27,168
Decrease / (increase) in trade and other receivables 4,607 (5,933)
Increase in inventories (140) (3,399)
Decrease in trade and other payables (2,429) (779)
Cash from operations 990 17,057
Income taxes paid (51) (3,566)
Net cash flow generated from operating activities 939 13,491
Cash flows from investing activities
Expenditure on property, plant and equipment and mine development (18,032) (10,158)
Investment in exploration and evaluation assets including other
intangible assets (7,240) (7,162)
Increase in restricted cash 22 (6,000) -
Investment in an associate company 11 (646) (3,491)
Interest received 81 -
Net cash used in investing activities (31,837) (20,811)
Cash flows from financing activities
Purchase of treasury shares 28 - (145)
Dividends paid 30 (4,603) (8,612)
Proceeds from borrowings 22 20,650 -
Interest paid - borrowings 22 (280) -
Interest paid - lease liabilities 16 (275) (291)
Repayment of lease liabilities 16 (422) (358)
Net cash generated from/(used in) financing activities 15,070 (9,406)
Net decrease in cash and cash equivalents (15,828) (16,726)
Net foreign exchange difference (105) (317)
Cash and cash equivalents at the beginning of the year 20 20,410 37,453
Cash and cash equivalents at the end of the year 20 4,477 20,410
Group statement of changes in equity
year ended 31 December 2023
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 2022 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 30 - - - - - - (8,612) (8,612)
Share-based payment 29
- - - 412 - - - 412
Purchase of shares for treasury 28
- - (145) - - - - (145)
31 December 2022 2,016 33 (145) 424 46,206 (233) 65,206 113,507
Loss for the year - - - - - - (24,242) (24,242)
Other comprehensive loss for the year
- - - - - - (1) (1)
Total comprehensive loss for the year
- - - - - - (24,243) (24,243)
Cash dividends paid 30 - - - - - - (4,603) (4,603)
Share-based payment 29
- - - 147 - - - 147
31 December 2023 2,016 33 (145) 571 46,206 (233) 36,360 84,808
Notes to the Group financial statements
year ended 31 December 2023
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 31 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 2023 was approved by
the board of directors on 15 May 2024. The financial information has been
prepared 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.
Going concern
Main business of the Group
The Group produces primarily gold and copper at its Gedabek mining concession
in northwestern Azerbaijan. Ore mined at Gedabek produces gold doré by heap
and agitation leaching and copper concentrate (which also contains gold and
silver) from SART and flotation processing. When processing operations are
fully operational, production is cash generative at current and forecast metal
prices. Historically, the Group has funded all its operational costs
(including Azerbaijan and London overheads) from cash generated from the
sale of precious metal and copper concentrates produced at Gedabek.
Suspension of agitation leaching and flotation processing and interim results
to 30 June 2023
The Group suspended agitation leaching and flotation processing from the
beginning of August 2023 whilst an environmental audit of its Gedabek site was
carried out.
The Group published its six months interim results to 30 June 2023 ("Interim
Results") on 26 September 2023. The Group reported in its Interim Results the
following material uncertainties regarding its going concern:
1. The Group will be able to fully restart agitation leaching and
flotation processing.
2. IBA will agree to restart lending to the Group under its
revolving credit facility.
3. The Government will not impose any conditions or fines etc. on
the Group which will be so onerous as to make it impossible for the Group to
continue in commercial operation.
4. Permission will be obtained to further raise the wall of the
tailings dam and this wall raise will be completed by April 2024
The results of the environmental audit were satisfactory and, subsequent to
the release of the Interim Results, the Group was given permission by the
Government of Azerbaijan (the "Government") on 26 September 2023 to fully
restart operations and did not impose any conditions or fines etc. on the
Group which were so onerous as to make it impossible for the Group to continue
in commercial operation. This removed material uncertainties (1) and (3)
above. Material uncertainties (2) and (4) are discussed further below.
One recommendation arising from the environmental audit was that Government
permission is required for any further raises of the wall of the Group's
tailings dam.
Permission to raise wall of the tailings dam
The Group's agitation leaching and flotation processing produce waste as a
slurry called tailings. These tailings are stored in a dam approximately seven
kilometres from the Group's processing plants. The tailings dam only has
sufficient capacity for another 2 to 3 months of agitation leaching and
flotation production. The Group has therefore applied to the Government to
increase the height of the wall by an average of 7.5 metres to its final
design height, which will give the tailings dam sufficient capacity for an
additional two to three years of production. This raise of the dam wall will
be carried out in two stages with the first stage being a raise of
approximately 2.5 metres.
The Group submitted to the Government an application to raise the wall of the
tailings dam on 14 March 2024. The application included a third-party report
by the geotechnical consultants, Knight Piésold, which confirmed the
stability of the tailings dam. The Group subsequently clarified certain
aspects of the Knight Piésold report and other documentation submitted with
the Government. The Government is now in the process of reviewing the
Company's application.
The Group will not restart agitation leaching and flotation until permission
is obtained from the Government to raise the wall of its tailing dam. The
tailings dam has sufficient capacity for agitation leaching and flotation
processing to begin whilst the raise of the wall is carried out. This will
avoid the need to restart and then stop agitation and flotation processing,
due to the tailings dam reaching full capacity. To commence production and
then stop within a three month period is not operationally desirable.
Financial condition and credit facilities available to the Group
The Group had cash reserves of $9.8 million (including $6.0 million restricted
cash) and debt of $20.7 million at 31 March 2024. The current cost of
maintaining the Group's operations, including mining, Gilar development, heap
leaching, SART processing and administrative overheads in Azerbaijan
and London, is estimated at $3.5 million to $4.0 million per month. The
Group is currently generating revenue of approximately $2.0 million per month
from precious metal and concentrate sales.
The Group has in place an AZN 55 million ($32.3 million) General credit
agreement ("GCA") with the International Bank of Azerbaijan ("IBA"). The
Group has borrowed $15 million under this facility to date, of which $10
million is repayable between May 2024 to 2026, and $5 million was repayable in
May 2024. The $5 million loan repayable in May 2024 was recently extended for
one year and is now repayable in May 2025. The Group is currently negotiating
a further $10 million loan under the GCA which the directors believe is
subject to receiving permission to raise the wall of the tailings dam.
The Group recently signed a vendor refinancing of part of the purchase price
of its Caterpillar mining fleet of $3.7 million and is completing the
conditions precedent in the loan agreement to enable the proceeds to be
disbursed. It is anticipated these proceeds will be received by 31 May 2024.
12 Month cash flow forecast
The Group has prepared a 12 month cash flow forecast until 30 June 2025. It
has been prepared under the following major assumptions:
- The permission for raising the wall of the tailings dam will be
obtained by 31 May 2024.
- The Group will close the $10 million loan and receive the
proceeds from IBA by 31 May 2024.
- The Group will borrow a further $3 million from IBA under the
GCA in September 2024, discussions for which have not yet commenced.
This cash flow uses gold prices of $1,900 to $2,300 per ounce and copper
prices of $8,500 to $8,900 per tonne. This cash flow shows that the Group is
able to finance its operations till the end of the going concern period being
30 June 2025.
The Group has also prepared a 12 month cash flow forecast until 30 June 2025
("Sensitivity Case") using the following major assumptions:
- The permission for raising the wall of the tailings dam will be
obtained by 30 June 2024.
- The Gilar mine will commence production in the first quarter of
2025.
- The Group will close the $10 million loan from IBA by 30 June
2024.
- The Group will borrow a further $7m from IBA under the GCA in
August 2024, discussions for which have not yet commenced.
This Sensitivity Case cash flow shows that the Group is able to finance its
operations till the end of the going concern period being 30 June 2025.
Material uncertainties over going concern
At the time of approving the issuance of the financial statements, there exist
the following material uncertainties which are outside
of management's control:
1. Whether the Group will receive permission from the Government
to raise the wall of the tailings dam.
2. Once permission is received, whether the Group will close the
loan of $10 million from IBA which remains subject to their approval, and the
further loans forecast to be taken with IBA in the going concern period, for
which discussion have not yet commenced, ($3 million in the base case and $7m
in the Sensitivity Case) from IBA.
Should the permission not be obtained and the additional loans not be
advanced, the Group and Company is forecast to exhaust its available liquidity
during the going concern period.
These material uncertainties may cast significant doubt on the Group's and
Company's ability to continue as a going concern. It may therefore be unable
to realise its assets and discharge its liabilities in the normal course of
business.
The directors are confident that the permission to raise the wall of the
tailings dam will be received. The application is technically competent and is
currently being progressed by the appropriate ministries and departments of
the Government. The Group has a successful record of obtaining all necessary
approvals from the Government, which has provided the Directors with
confidence that permission will be granted. The Board considers that the
Government is also very desirous that the Group undertakes other business
opportunities in Azerbaijan. These are dependent on restarting full production
at Gedabek.
The cash flow contains certain discretionary expenditure on capital
expenditure and geological exploration totalling $7.2 million. Should the
permission to raise the wall of the tailings dam be delayed beyond 31 May
2024, this expenditure can be deferred. This will enable the Group to have
sufficient working capital to continue producing from only heap leaching and
SART till the end of 2024.
The directors are confident that it will be granted a further loan of $10
million because of the strong existing relationship with IBA, the history of
completing loans and the advanced stage of the current approvals process.
However, the required IBA approvals for the $10 million loan are not yet
completed and are contingent on the tailings dam approval. The Group is also
negotiating with other banks in Azerbaijan. If the $10 million loan from IBA
is not completed, the Board will seek alternative sources of bank financing
from a Bank with which it currently has other borrowings. The directors
believe that the banks in Azerbaijan are likely to require that the Group has
the permission from the Government to raise the tailings dam wall before
advancing any further funds. Following the loan of $10 million, there will be
$7.3 million remaining of the GCA from which the $3 million loan can be made
($7 million in the Sensitivity Case). The directors are confident that it will
be granted the additional loan forecast in the base case and Sensitivity Case
because of the strong existing relationship with IBA and the history of
completing loans with IBA. The Group is also actively exploring other sources
of non-equity financing.
Accordingly, the directors believe it is appropriate to prepare these
financial statements on a going concern basis.
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 Chief Executive Officer'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.
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 2023:
Amendments to IAS 8, IFRS 17, IAS 1 and IFRS Practice Statement 2, IAS 12.
The above standards and 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 16: Lease liability in a sale and leaseback transaction
In September 2022, the IASB issued amendments to IFRS 16 to specify the
requirements that a seller-lessee uses in measuring the lease liability
arising in a sale and leaseback transaction. The amendments will be effective
for annual reporting periods beginning on or after 1 January 2024.
The Group is currently reviewing this standard but believes it will have no
impact as the Group does not undertake sale and leaseback transactions.
Amendments to IAS 1: Classification of liabilities as current or non-current
In January 2020 and October 2022, 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 2024 and must be applied retrospectively. The Group is
currently assessing the impact the amendments will have on its current
practice but believes the amendments will have no effect on its financial
statements as it does not contract liabilities with deferred payment terms or
embedded derivatives.
Supplier finance arrangements
In May 2023, the IASB issued amendments to IAS 7 to clarify the
characteristics of supplier finance arrangements and require additional
disclosure of such arrangements.
In 2024, the Group entered into an arrangement with a supplier to finance the
purchase of heavy plant and equipment. The arrangement was structured as a
conventional term loan to the Group secured on the equipment. The Group does
not enter into any arrangements involving supply chain financing or "reverse
factoring". Accordingly, the Group believes that the amendments will have no
effect on its financial statements.
Amendments to IAS 21: Lack of Exchangeability
On 15 August 2023, the IASB issued amendments to IAS 21 - "The effects of
changes in foreign exchange rates - lack of exchangeability". The amendments
are effective from accounting periods beginning 1 January 2025. The Group only
uses freely exchangeable currencies for which there are well-developed spot
and forward markets. Accordingly, the Group believes that the amendments will
have no effect on its financial statements.
4 Material 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 2023. 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.
The Group enters into forward sales contracts of gold bullion. These forward
sales contracts are entered into (and continue to be held) for the purpose of
the delivery of physical gold bullion (a non-financial item) in accordance
with the entity's expected delivery and sale requirements. Therefore, these
contracts meet the normal purchase and sale exemption and do not meet the
criteria of financial instruments under IFRS 9. They are accounted for as sale
contracts with revenue recognition in the period in which the gold bullion is
delivered.
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 (2022: eight years)
· Plant and equipment -
eight years (2022: eight years)
· Motor vehicles
- four years (2022: four years)
· Office equipment -
four years (2022: four years)
· Leasehold improvements - the
lower of eight years (2022: 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
An associate company 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
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/loss 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 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 - 'Restricted cash and cash and cash equivalents';
· Note 17 - 'Financial assets';
· Note 21 - 'Trade and other payables'; and
· Note 22 - 'Interest-bearing loans and borrowings'
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability takes place
either:
· in the principal market place for the asset or the liability; or
· in the absence of a principal market, the most advantageous market for
the asset or liability.
The fair value of an asset or liability is measured using the assumptions that
market participants would use when pricing the asset or liability, assuming
that market participants act in their economic best interest.
The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data is available to measure fair value, maximising
the use of relevant observable inputs and minimising the unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in
the financial statements are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole.
· Level 1 - Quoted (unadjusted) market prices in active markets for
identical assets or liabilities.
· Level 2 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or indirectly
observable.
· Level 3 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on
a 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 assumptions made to perform
this calculation are: production volumes, precious metal and copper prices,
discount rates and operating and capital expenditure, all of which are
discussed within the significant accounting estimates note 4.23.
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 which have been
considered in more detail in the significant accounting estimates disclosure
below in note 4.23. 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 32)
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 determined to have an indicator
of impairment, 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 24)
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.
4.23 Other accounting estimates
i) 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.
ii) 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. 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.
2023 2022
$000 $000
Gold within doré and gold bullion 30,869 62,258
Silver bullion 165 515
Gold and copper concentrate 14,821 21,946
45,855 84,719
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 2023 and 2022 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 2023 and 2022 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
2023 2022
$000 $000
Gain on the modifications of lease liabilities 71 65
Gain on cancellation of trade payables 303 -
Reversal of previously written off receivables 33 355
407 420
Other operating expenses
2023 2022
$000 $000
Transportation and refining costs 220 351
Foreign exchange loss 105 317
Fee payable on cancellation of equipment purchase 100 -
Research costs 271 303
696 971
Other expense
2023 2022
$000 $000
Fair value loss on financial assets 39 570
8 Operating profit
Notes 2023 2022
$000 $000
Operating profit is stated after charging:
Depreciation on property, plant and equipment - owned 15 9,707 15,443
Depreciation on property plant and equipment - right of use assets 16 566 540
Amortisation of mining rights and other intangible assets 14 593 1,131
Impairment of intangible assets 14 13,031 -
Employee benefits and expenses 9 10,806 11,359
Foreign currency exchange net loss 105 317
Inventory expensed during the year 20,166 30,776
Fees payable to the Company's auditor for:
The audit of the Group's annual accounts 277 243
The audit of the Group's subsidiaries pursuant to legislation 149 134
Audit related assurance services - half year review 3 3
Total audit services 429 380
Amounts paid to auditor for other services:
Tax compliance services 10 10
Total non-audit services - 10
Total 439 390
The audit fees for the parent company were $170,000 (2022: $160,000).
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:
2023 2022
Management and administration 43 46
Exploration 45 61
Mine operations 832 838
920 945
The aggregate payroll costs of these persons were as follows:
2023 2022
$000 $000
Wages and salaries 10,578 10,154
Social security costs 2,314 2,250
Costs capitalised as exploration (2,086) (1,045)
10,806 11,359
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:
2023 2022
$ $
Share based payment expense 146,664 299,273
Short-term employee benefits 2,396,952 1,920,972
2,543,616 2,220,245
The key management personnel of the Group comprise the chief executive
officer, the vice president of procurement, HR and IT, the vice president of
technical services, the two vice presidents of 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
2023 2022
$000 $000
Interest charged on interest-bearing loans and borrowings 364 -
Finance charges on letters of credit 1 11
Interest expense on lease liabilities 275 291
Unwinding of discount on provisions 959 425
Interest on long term creditor: geological data 232 87
1,831 814
11 Investment in an 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 had the right to acquire in 2023, several copper exploration properties in
North and South America.
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. 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 total of the market value of its 9.8 per cent. holding at
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. 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).
In the year ended 31 December 2023, the Group made two further investments in
Libero. On 6 January 2023, the Group 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) with 2,600,000 warrants attached at CAN 22 cents per share. On 17
February 2023, the Group 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) with
3,200,000 warrants attached at CAN 22 cents per share. Subsequent to February
2023, Libero also issued further shares by way of subscription agreement and
also carried out a rights issue. The Group did not participate or subscribe
for shares in these share issues. As result, the Group's interest in Libero at
31 December 2023 reduced to 13.11 per cent. (2022: 18.29 per cent.). The
Group's interest at 31 December 2022 was temporary reduced from 19.8 per cent
to 18.29 per cent as Libero carried out a placement in December 2022 in which
the Group did not participate until January 2023.
The Group had significant influence over Libero as it had a shareholding in
Libero between 26 January 2022 and 31 December 2023 of between 13.11 to 18.29
per cent., a Group director was a director of Libero and the Group's Vice
president, technical services was 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 29 December 2023 was $241,000 (30 December
2022: $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 2023 dated 25 April 2024. (2022: financial statements
for the year ended 31 December 2022 dated 25 April 2023).
The recoverable value of Libero has been estimated at 31 December 2023 at the
market value of its shares of $242,000. This value at 31 December 2023 is
lower than its carrying value as an associate company and is regarded as an
indication of impairment. This gave rise to an impairment charge of $5.0
million (2022: nil). On 22 January 2024, the Group's interest in Libero
reduced to 5.7 per cent. as set out in note 34 - "subsequent events". From
this date, Libero ceased to be an associate company and is classified as an
equity investment. The Group's holding in Libero from 22 January 2024 will be
valued at each balance sheet date as the market value of its shares which
corresponds to the fair value.
Balance sheet of Libero at 31 December
2023 2022
$000 $000
Current assets 696 338
Non-current assets 1,323 2,579
Current liabilities (1,486) (635)
Non-current liabilities (142) (139)
Equity 391 2,143
Reconciliation to carrying value in the Group balance sheet at 31
December
2023 2022
$000 $000
Equity of Libero 391 2,143
Share based payment expense (977) (874)
Exploration expense 9,052 6,527
Equity recognised by the Group 8,466 7,796
Group's share in equity - 13.11 per cent. (2022: 18.29 per cent.) 1,110 1,426
Goodwill 4,167 3,746
Impairment charge (5,035) -
Group carrying value of associate company 242 5,172
Profit and loss account of Libero for the years ended 31 December
2023 2022
$000 $000
Expenses 3,934 10,205
Other expenses 1,582 638
Loss before taxation 5,516 10,843
Taxation (94) (278)
Loss for the year 5,422 10,565
Other comprehensive income (7) (44)
Total comprehensive loss for the year 5,415 10,521
Libero has no revenue and all losses are from continuing operations.
Reconciliation to loss of associate in the Group profit and loss
account for the years ended 31 December
2023 2022
$000 $000
Loss for the year 5,422 10,565
Pre-acquisition loss to 25 January 2022 - (659)
Exploration expense (2,333) (6,802)
Loss for the year as an associate company 3,089 3,104
Group's share of the loss at 19.8 to 15.2 per cent. (2022: 19.6 and 19.8 per 551 611
cent.)
Profit on deemed disposal (10) (135)
Loss recognised as an associate company 541 476
Reconciliation of the movement in associate company in the years
ended 31 December
2023 2022
$000 $000
1 January 5,172 -
Transfer from other financial assets - 2,382
Additions 646 3,491
Share of loss of the associate (541) (476)
Foreign exchange loss - (225)
Impairment (5,035) -
31 December 242 5,172
Libero had no contingent liabilities or capital commitments on 31 December
2023 and 2022. 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 2023 were
$17,334,000 (2022: $nil).
The major components of the income tax charge for the year ended 31 December
are:
2023 2022
$000 $000
Current income tax
Current income tax charge - 551
Deferred tax
(Benefit)/charge relating to origination and reversal of temporary differences (7,728) 3,293
Income tax (benefit)/charge for the year (7,728) 3,844
Deferred income tax at 31 December relates to the following:
Statement Income statement
of financial position
2023 2022 2023 2022
$000 $000 $000 $000
Deferred income tax liability
Property, plant and equipment - accelerated depreciation (20,205) (22,377) 2,172 (2,399)
Right of use assets - accelerated depreciation (657) (756) 99 225
Non-current trade and other receivables (312) - (312) 59
Trade and other receivables (954) (2,507) 1,553 (1,553)
Inventories (11,471) (11,426) (45) (1,052)
Deferred income tax liability (33,599) (37,066)
Deferred income tax asset
Tax losses brought forward 5,548 - 5,548 -
Trade and other payables and provisions * 2,854 3,085 (231) 307
Lease liabilities 791 867 (76) (187)
Asset retirement obligation * 4,142 5,122 (980) 1,307
Deferred income tax asset 13,335 9,074
Deferred income tax benefit / (charge) 7,728 (3,293)
Net deferred tax liability (20,264) (27,922)
* 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:
2023 2022
$000 $000
(Loss)/profit before tax (31,970) 7,504
Theoretical tax charge at statutory rate of 32 per cent. for RVIG* (10,230) 2,401
Effects of different tax rates for certain Group entities (20 per cent.) 338 179
Tax effect of items which are not deductible or assessable for taxation
purposes:
- Items not deductible or assessable 2,164 1,264
Income tax (benefit) /charge for the year (7,728) 3,844
* This is the tax rate stipulated in RVIG's production sharing agreement.
The Group has a consolidated turnover below Euro 750 million. Therefore, the
OECD Pillar Two model rules do not apply to the Group.
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 2023, the Group had total unused tax losses available for
offset against future profits of $50,139,000 (2022: $28,354,000). Unused tax
losses in the Republic of Azerbaijan at 31 December 2023 were $17,334,000
(2022: $nil) and unused tax losses in the United Kingdom were $32,805,000
(2022: $28,354,000). The tax losses in the Republic of Azerbaijan and the
United Kingdom can be carried forward indefinitely. 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 (Loss)/profit per share
The calculation of basic and diluted (loss)/profit per share is based upon the
retained (loss)/profit for the financial year of $24,242,000 (2022:
$3,660,000).
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:
2023 2022
Basic 114,335,175 114,335,175
Diluted 114,335,175 114,335,175
At 31 December 2023 there were no unexercised share options that could
potentially dilute basic earnings per share (2022: 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 2022 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
Additions 2,131 254 627 961 1,901 62 - - 5,936
Transfer to assets under construction
(3,802) - - - - - - - (3,802)
31 December 2023 19,339 2,967 6,733 1,478 3,514 2,834 41,925 726 79,516
Amortisation and impairment*
1 January 2022 - - - - - - 37,142 493 37,63
Charge for the year - - - - - - 1,107 24 1,131
31 December 2022 - - - - - - 38,249 517 38,766
Charge for the year - - - - - - 566 27 593
Impairment 5,086 2,967 4,978 - - - - - 13,031
31 December 2023 5,086 2,967 4,978 - - - 38,815 544 52,390
Net book value
31 December 2022 21,010 2,713 6,106 517 1,613 2,772 3,676 209 38,616
31 December 2023 14,253 - 1,755 1,478 3,514 2,834 3,110 182 27,126
*143,000 ounces of gold at 1 January 2023 were used to determine depreciation
of producing mines, mining rights and other intangible assets (2022: 186,000
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 $27,000 (2022: $52,000) and an increase in amortisation of
$30,000 (2022: $58,000) respectively.
During the year ended 31 December 2022, 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 Karabakh. The amounts are
included in other intangible assets.
Impairment of exploration and evaluation assets
The Group has had in the last 10 to 15 years, an active exploration programme
to identify new mineral deposits at Gedabek and other contract areas of the
Group. However, in the last two to three years, the Group has discovered the
Zafar and Gilar deposits at Gedabek and acquired new contract areas containing
the Xarxar and Garadag deposits. These are all significant mineral deposits.
In March 2023, the Group announced a new strategy to focus on growing its
production in the next five years by exploiting these four new deposits.
Accordingly, the Group's focus has shifted away from its other exploration
areas. It is unlikely that Group will expend significant resources in
developing these other exploration areas in the next five years. The new
strategy has been regarded as an indicator of impairment.
The Group's accounting policy requires judgement to determine whether future
economic benefits are likely to be derived from exploration areas through
either future exploitation or sale of properties or whether activities have
reached a stage that permits a reasonable assessment of the existence of
reserves. Given the change of strategy of the Group, the directors have
concluded that historic expenditure on exploration and evaluation at three of
its contract areas is above the amount that is likely to be realised in the
foreseeable future. Accordingly, an impairment of $13.0 million (2022: $nil)
was made related to the write-off of costs associated with exploration
licenses where future exploration is neither budgeted or planned, or future
resources are deemed uncommercial or not viable. In making this assessment,
the directors have made certain assumptions about future events and
circumstances, particularly, whether an economically viable extraction
operation can be achieved. Any such estimates and assumptions may change as
new information becomes available.
15 Property, plant and equipment
Plant and
equipment and Producing Assets under construction
motor vehicles mines Total
$000 $000 $000 $000
Cost
1 January 2022 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
Additions 7,700 4,637 10,117 22,454
Decrease in provision for rehabilitation - (4,017) - (4,017)
31 December 2023 36,290 236,950 12,298 285,538
Depreciation and impairment*
1 January 2022 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
Charge for the year 1,142 8,565 - 9,707
31 December 2023 25,337 195,426 - 220,763
Net book value
31 December 2022 4,395 49,469 2,181 56,045
31 December 2023 10,953 41,524 12,298 64,775
*143,000 ounces of gold at 1 January 2023 were used to determine
depreciation of producing mines, mining rights and other intangible assets
(2022: 186,000 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 $505,000 (2022: $863,000) and an
increase in depreciation of $589,000 (2022: $994,000) 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 2023
In the year ended 31 December 2023, 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 78.5
Carrying value of Mining Operations (75.3)
Excess of carrying value over recoverable amount 3.2
As the recoverable amount of Mining Operations was in excess of its carrying
value, no impairment charge was made during 2023.
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 2024 to 2029 ("Cash Flow
Model"):
Gold: 154,000 ounces
Silver: 623,000 ounces
Copper: 34,000 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 2024 2025 2026 2027 2028 Average
Gold $/ounce 1,925 1,898 1,823 1,799 1,859 1,861
Silver $/ounce 24 24 23 23 23 23
Copper $/tonne 8,772 9,318 9,590 9,522 9,727 9,386
Discount rate
In calculating the recoverable amount, a nominal pre-tax discount rate of
13.91 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 the discount
rate assumption. Reasonably possible changes in the commodity price and
production volumes and operating costs assumptions 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 $20.8
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 $20.8 million. It is
estimated that a 10 per cent. increase in operating costs would result in an
impairment of $13.8 million.
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 the discount
rate assumption. Reasonably possible changes in the commodity price and
production volumes and operating costs assumptions 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.
Capital commitments
The capital commitments by the Group have been disclosed in note 32.
16 Leases
Right of use assets
Plant and
equipment and Land and Total
motor vehicles buildings
$000 $000 $000
Cost
1 January 2022 3,480 1,210 4,690
Additions 337 - 337
Lease modifications (743) (57) (800)
31 December 2022 3,074 1,153 4,227
Additions 682 - 682
Lease modifications (593) - (593)
31 December 2023 3,163 1,153 4,316
Depreciation
1 January 2022 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
Charge for the year 401 165 566
Lease modifications (167) - (167)
31 December 2023 1,579 684 2,263
Net book value
31 December 2022 1,729 634 2,363
31 December 2023 1,584 469 2,053
Lease liabilities
2023 2022
$000 $000
1 January 2,708 3,293
Additions 682 337
Lease modifications (497) (565)
Interest expense 275 291
Repayment (697) (648)
31 December 2,471 2,708
Current liabilities 555 419
Non-current liabilities 1,916 2,289
2,471 2,708
Amount recognised in the profit and loss account
2023 2022
$000 $000
Depreciation expense of right of use assets 566 540
Gain on lease modifications (71) (65)
Interest expense 275 291
Expenses relating to short term leases 280 347
1,050 1,113
The amount of future lease commitments for short-term leases at 31 December
2022 and 2023 are similar to the amounts expensed in 2022 and 2023
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.
The total cash outflow related to leases in the year ended 31 December 2023
was $1,023,000 (2022: $1,045,000).
17 Financial assets
2023 2022
Non-current $000 $000
Derivatives not designated as hedging instruments
Share warrants - 39
Derivatives not designated as hedging instruments
Share warrants
The Group has acquired share warrants in Libero Copper & Gold Corporation
("Libero") which were attached to certain of its subscriptions for ordinary
shares. Details of these warrants are as follows:
Number of Exercise price
Date of issue warrants (CAN cents) Length of warrant Last day of exercise
22 December 2021 2,800,000 75 24 months 21 December 2023
26 January 2022 3,500,000 75 24 months 25 January 2024
6 January 2023 2,600,000 22 24 months 5 January 2025
17 February 2023 3,200,000 22 24 months 16 February 2025
None of the share warrants in Libero had been exercised at the date of the
signing the financial statements. The 2,800,000 warrants issued on 22 December
2021 at 75 CAN cents per warrant expired in the year ended 31 December 2023.
The share warrants outstanding at 31 December 2022 were valued using a
risk-neutral binomial tree. Quantitative information about the fair value
measurement of the warrants using significant directly or indirectly
observable inputs was as follows:
Assumption 31 December 2022
Share price of Libero CAD$0.16
Option exercise price CAD$0.75
Acceleration condition CAD$1.00
Lapse date
2,800,000 warrants issued 22 December 2021 21 December 2023
3,500,000 warrants issued 26 January 2022 25 January 2024
Risk free rate 4.6 per cent.
Expected volatility - daily 6.88 per cent.
Expected volatility - annualised 109.26 per cent.
Discount for lack of marketability 13.97 per cent.
Exchange rate US$1 = CAD$1.3549
No value has been ascribed to the share warrants outstanding at 31 December
2023.
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
2023 2022
Non-current $000 $000
Advances for purchases 195 -
Loans to an employees* 780 -
975 -
Trade and other receivables
Current
Gold held due to the Government of Azerbaijan 1,988 7,274
VAT refund due 1,609 1,562
Loan to employee* - 510
Other tax receivable 734 1,038
Trade receivables - fair value** 637 2,716
Prepayments and advances 3,686 5,231
8,654 18,331
*See note 33 - "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 2022 or 2023.
The VAT refund due at 31 December 2023 and 2022 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
2023 2022
Current assets $000 $000
Cost
Finished goods - bullion 5,922 2,243
Finished goods - metal in concentrate 53 1,128
Metal in circuit 10,350 12,140
Ore stockpiles 5,745 8,299
Spare parts and consumables 18,272 16,392
Total current inventories 40,342 40,202
Total inventories at the lower of cost and net realisable value 40,342 40,202
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 Restricted cash and cash and cash equivalents
Restricted cash comprises of a bank deposit in Azerbaijan which has been
pledged as security for a $5,650,000 loan from the bank. Details of the loan
are set out in note 22 - "Interest-bearing loans and borrowings".
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 2023 (including short-term cash deposits) comprised $9,000 and
$4,468,000 respectively (2022: $17,000 and $20,393,000).
The Group's cash and cash equivalents are mostly held in United States
Dollars.
21 Trade and other payables
2023 2022
Current $000 $000
Accruals and other payables 3,610 4,912
Trade creditors 2,721 3,311
Gold held due to the Government of Azerbaijan 1,988 7,274
Payable to the Government of Azerbaijan from copper concentrate joint sale 881 2,525
9,200 18,022
2023 2022
Non-current $000 $000
Geological data 3,129 2,897
Other payables 1,090 -
4,219 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 50 (2022: 33). 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 and 31 December 2023 has been classified as a
non-current liability. The long-term creditor at 31 December 2023 has been
discounted at a rate of 8 per cent. (2022: 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 2023 is $3.0 million (2022: $3.0 million).
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 in the year ended 31 December 2022 as an intangible asset
- exploration and evaluation.
22 Interest-bearing loans and borrowings
Interest rate 2023 2022
(per cent.) Final maturity date $000 $000
$1,000,000 bank loan 5.5 per annum May 2024 1,002 -
$2,500,000 bank loan 5.5 per annum May 2024 2,505 -
$1,500,000 bank loan 5.5 per annum May 2024 1,504 -
$5,650,000 bank loan 0.5 per month April 2024 5,678 -
$10,000,000 bank loan 6.5 per annum May 2026 10,045 -
20,734 -
Loans repayable in less than one year 13,629 -
Loans repayable in more than one year 7,105 -
20,734 -
The directors consider that the carrying amount of interest-bearing loans and
borrowings approximates to their fair value.
$1,000,000 bank loan
The loan is unsecured and repayable in full on 11 May 2024.
$2,500,000 bank loan
The loan is unsecured and repayable in full on 11 May 2024.
$1,500,000 bank loan
The loan is unsecured and repayable in full on 11 May 2024.
$5,650,000 bank loan
The loan is secured against a $6 million deposit maintained with the lender.
The principal is repayable in 2 instalments of $2,818,659 and $2,831,341 in
March 2024 and April 2024 respectively. The $6 million deposit has been
disclosed as restricted cash in the Group balance sheet at 31 December 2023.
$10,000,000 bank loan
The loan is unsecured. The borrowing commenced on 6 November 2023. The loan
has a 6-month capital repayment grace period during which only interest of
$54,167 per month is payable. From May 2024 till May 2026, 25 equal monthly
repayments of principal and interest totalling $413,306 will be made to repay
the principal on a monthly reducing balance basis. A final repayment of
principal and interest of $413,306 will also be made in May 2026.
23 Changes in liabilities arising from financing activities
2023
1 January Cash flows Other 31 December
$000 $000 $000 $000
Interest bearing loans and borrowings - 20,370 364 20,734
Lease liabilities 2,708 (697) 460 2,471
Total liabilities from financing activities 2,708 19,673 824 23,205
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
24 Provision for rehabilitation
2023 2022
$000 $000
1 January 16,006 11,922
Additions (2,866) 5,704
Accretion expense 959 425
Effect of passage of time and change in discount rate (1,151) (2,045)
31 December 12,948 16,006
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. Disposals and
additions disclosed above represent changes to these cost estimates.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 2023 was $19,115,000 (2022:
$24,235,000). The undiscounted liability was discounted using a risk-free rate
of 6.57 per cent. (2022: 5.99 per cent.). Expenditures on restoration
and rehabilitation works are expected between 2028 and 2030 (2022: between
2028 and 2030).
25 Financial instruments
Financial risk management objectives and policies
The Group's principal financial instruments at 31 December 2023 comprised cash
and cash equivalents and borrowings. The Group also had letters of credit
outstanding during the year ended 31 December 2023 but these were all settled
during the year. 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 2023 and
2022 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 2023 consists cash and cash
equivalents, bank borrowings, lease liabilities 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 2023 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. None of the Group's borrowings at 31
December 2023 were subject to covenants.
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 bank
borrowings and letters of credit outstanding during the year ended 31
December 2023 were also at a fixed rate of interest. The Group would expect
any future bank borrowings and letters of credit to be at a fixed rate of
interest. The Group may also utilise supplier financing at a variable rate of
interest but supplier financing was not utilised during the year ended 31
December 2023.
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 2023 and 2022.
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 2023
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 - 139 416 1,916 - 2,471
Interest-bearing loans and borrowings - 2,903 10,726 7,105 - 20,734
Trade and other payables - 9,200 - 4,219 - 13,419
- 12,242 11,142 13,240 - 36,624
Year ended 31 December 2022
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 - 105 314 2,289 - 2,708
Trade and other payables - 18,022 - 2,897 - 20,919
- 18,127 314 5,186 - 23,627
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
2023 2022 2023 2022
$000 $000 $000 $000
UK Sterling 477 253 149 473
Azerbaijan Manats 8,905 9,503 2,392 2,300
Other 2,519 698 1 65
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 10.44 per cent.,
10.24 per cent. and 10.00 per cent. (2022: 10.60 per cent., 10.6 per cent.
and 0.14 per cent.) increase and a 10.44 per cent.,10.24 per cent., and 10.00
per cent. (2022: 10.6 per cent., 10.6 per cent., and 0.14 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
2023 2022 2023 2022 2023 2022
$000 $000 $000 $000 $000 $000
Increase - effect on (loss) /profit before tax 34 23 651 10 258 67
Decrease - effect on (loss) / profit before tax (34) (23) (651) (10) (258) (67)
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 2023 would
result in a reduction in revenue of $3.3 million (2022: $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 $0.06 million (2022: $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 $1.4 million (2022:
$1.6 million) and a 10 per cent. increase in copper price would have an equal
and opposite effect.
26 Share capital and merger reserve
2023 2022
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 28 - '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 29 - '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.
27 Share premium
2023 2022
$000 $000
1 January and 31 December 33 33
28 Treasury shares
2023 2022
Number $000 Number $000
1 January 150,000 145 - -
Shares bought back during the year - - 150,000 145
31 December 150,000 145 150,000 145
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
150,000 81.42* 122,125 145
* Average cost
29 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:
2023 2022
WAEP WAEP
Number pence Number pence
I January 380,000 113 220,000 115
Granted during the year - - 160,000 111
Outstanding at 31 December 380,000 113 380,000 115
Exercisable at 31 December 300,000 114 110,000 115
The weighted average remaining contractual life of the share options
outstanding at 31 December 2023 was 3.5 years (2022: 4.0 years) and their
exercise price was 113 pence (2022: 113 pence).
There were no share options issued in the year ended 31 December 2023. 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 2023 of $147,000 (2022:
$412,000).
30 Distributions paid
2023 2022
$000 $000
Cash dividends on ordinary shares declared and paid
Final dividend for 2021: 3.5 US cents per share - 3,995
Interim dividend for 2022: 4.0 US cents per share - 4,617
Final dividend for 2020: 3.5 US cents per share 4,603 -
4,603 8,612
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
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
Final dividend for 2022: 4.0 US cents per share 1.2730 3.1421
31 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 2023 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 2023.
The Company's associate company included in the Group financial
statements at 31 December 2023 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 13.11
British Columbia, Canada, V6E 2JE
The associate company was acquired in the year ended 31
December 2022.
32 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.
33 Related party transactions
Trading transactions
During the years ended 31 December 2022 and 2023, 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 2023, total payments of $4,173,000
(2022: $3,533,000) 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 2023 there is a payable in relation to the above related party
transaction of $33,000 (2022: $250,000).
c) During the year ended 31 December 2023, total payments of $282,000 (2022:
$1,609,000) 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.
(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 was 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. In June 2023,
the loan was renewed on the same terms as previously except the term of the
loan was extended for 3 years from the date of the original advance and the
interest rate was increased to 6 per cent.
(e) During 2023, Ilham Khalilov was promoted to Vice President,
Azerbaijan International Mining Company ("AIMC") and become a member of the
key management personnel of the Group. On 1 October 2020, AIMC lent $245,000
to Ilham Khalilov for a period of 3 years. On 1 October 2023, the loan was
extended until 31 December 2026 at an interest rate of 6 per cent.
All of the above transactions were made on arm's length terms.
34 Subsequent events
Libero Copper & Gold Corporation
On 19 January 2024, Libero Copper & Gold Corporation ("Libero') announced
a 1 for 10 common share consolidation. The common share consolidation was
effective from 13 February 2024. Libero had approximately 174.8 million common
shares outstanding at the date of the consolidation and following the
consolidation had approximately 17.5 million common shares outstanding. The
number of common shares the Company held prior to the consolidation was
21,300,000 which was reduced to 2,130,000 common shares after the share
consolidation.
On 22 January 2024, Libero announced a non-brokered private placement for
aggregate gross proceeds of up to CAN $3 million.The private placement
completed on 15 February 2024. The Company did not participate in the private
placement and its interest in Libero reduced to approximately 5.7 per cent and
Michael Sununu resigned from the board of directors of Libero. Libero ceased
to be an associated company from that date.
Caterpillar financing of mining fleet
On 2 May 2024, Azerbaijan International Mining Company (a wholly owned
subsidiary of the Group), agreed and signed a vendor financing facility with
Caterpillar Financial Services Corporation. The principal terms of the
facility were as follows:
· Amount of the financing: $3,708,000
· Guarantor: Anglo Asian Mining PLC
· Interest rate: CME Term SOFR rate plus a margin of 2 per cent.
· Repayment of interest: quarterly
· Repayment of capital: 12 equal quarterly installments
· Security: The equipment purchased under the agreement
· Net debt to EBITDA and net worth covenants
· Prepayment: allowed subject to a fee
This loan agreement represents a non-adjusting event for the year ended 31
December 2023. The accounting implications of this agreement will be
recognised in the year ending 31 December 2024.
Renewal of bank financing in 2024
The three bank loans which totalled $5 million and matured in May 2024, were
consolidated into a single loan of $5 million, which was renewed for a period
to 11 May 2025 at an interest rate of 6.0 per cent. per annum.
The $5.65 million bank loan which matured in April 2024 was renewed for a
further period to 3 March 2025 at an interest rate of 0.5 per cent. per month.
**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 31,821 gold equivalent ounces ("GEOs") for the year
ended 31 December 2023.
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 which time 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 the period 2024 to 2028 at Zafar, Gilar,
Xarxar and Garadag.
https://www.angloasianmining.com/ (https://www.angloasianmining.com/)
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