Source - RNS
RNS Number : 6414K
Central Asia Metals PLC
12 April 2018
 

12 April 2018

CENTRAL ASIA METALS PLC

('CAML' or the 'Company')

2017 Full Year Results

Central Asia Metals plc (AIM: CAML) today announces its full year results for the 12 months ended 31 December 2017.

Financial summary

·     $402.5 million acquisition of Lynx Resources, 100% owner of Sasa zinc-lead mine, Macedonia

·     2017 dividend of 16.5 pence per share (2016: 15.5 pence), includes final proposed dividend of 10 pence

·     Group gross revenue of $106.5 million (2016: $69.3 million)

·     Kounrad 2017 C1 cash cost of $0.52 per pound (2016: $0.43 per pound)

·     Sasa 2017 C1 zinc equivalent cash cost of $0.44 per pound

·     Adjusted Group EBITDA of $66.4 million (2016: $39.9 million)

·     Unadjusted EBITDA of $53.8 million (includes Lynx Resources acquisition cost of $12.6 million)

·     Adjusted EBITDA margin of 62% (2016: 58%), unadjusted EBITDA margin of 51% (2016: 58%)

·     Cash in the bank as at 31 December 2017 of $45.8 million (2016: $40.3 million)

·     Group net debt as at 31 December 2017 of $138.9 million (2016: net cash of $40.3 million)

Operational summary

Kounrad

·     Record copper production of 14,103 tonnes (2016: 14,020 tonnes)

·     Record copper sales of 14,181 tonnes (2016: 13,938 tonnes)

·     Western Dumps under leach with 40% of 2017 production from that area

Sasa

·     Zinc in concentrate production of 21,585 tonnes (CAML attributable 3,625 tonnes)

·     Lead in concentrate production of 29,881 tonnes (CAML attributable 4,951 tonnes)

 

2018 outlook

 

·     Kounrad copper production guidance, between 13,000 and 14,000 tonnes

Approximately 65% of 2018 copper production to be leached from Western Dumps

·     Sasa production guidance

Zinc, between 21,000 and 23,000 tonnes

Lead, between 28,000 and 30,000 tonnes

·     Shuak 2018 exploration programme, to commence in Q2

 

 

Nick Clarke, Chairman of CAML, commented:

"2017 was a truly transformational year for the Company with the $402.5 million acquisition of Lynx Resources, 100% owner of the Sasa zinc-lead mine in Macedonia. We can already see the benefits of our acquisition, as demonstrated by the 66% increase in Group adjusted EBITDA and 62% adjusted EBITDA margin. This result also reflects a much improved copper market, with the LME price increasing by 30% throughout the year.

"In a sector that is now starting to experience cost inflation, we were pleased to deliver a C1 cash cost at Kounrad of $0.52 per pound. While this cost reflects increased electricity usage as a result of commencing Western Dump leaching operations, we are proud to remain one of the lowest cost copper producers in the world. Costs at Sasa were also as expected and reflect a low cost zinc and lead operation by industry standards.

"Adding Sasa to our portfolio has developed CAML from a copper company to a diversified low cost base metals producer. Including our zinc and lead production from Sasa, CAML's annual copper equivalent production has now increased by approximately 150% to 35,000 tonnes, and copper equivalent recoverable resources have increased by almost 200%.

"We are delighted to propose a 10 pence final 2017 dividend, equating to a full year dividend of 16.5 pence. Once the final dividend for 2017 has been paid, the Company will have returned $129 million to its shareholders in six years of Kounrad operations. With production from both Kounrad and Sasa, we are confident that we can continue to offer attractive returns to shareholders in 2018 and beyond. 

"2017 was a strong year for all of the base metals in CAML's portfolio, with the three metals averaging a price increase of 28%. Going forward into 2018, many industry commentators are expecting a challenging year for copper supply that could result in another positive 12 months for the copper price. In the zinc market, supply side challenges remain, while demand is expected to increase to over 15 million tonnes by 2019.

"The 2017 CAML share price closed at £3.06, which represents a 35% increase during the year, and reflected positive market sentiment following our Lynx Resources acquisition. We now move forward into 2018 as a larger and diversified base metals business, with low cost operations in two prospective jurisdictions.

"CAML has enjoyed an excellent 2017 and we look forward to continuing to build the Company's future in 2018. I am pleased to announce the appointments of Nigel Robinson as Chief Executive Officer and Gavin Ferrar as Chief Financial Officer, with effect from 16 April 2018. Both Nigel and Gavin, in their current roles of Chief Financial Officer and Business Development Director respectively, have been instrumental in the success and growth of our business and I believe that their new roles will position the Company for its next stage of development."

Analyst conference call

There will be an analyst conference call on Thursday 12 April 2018 at 09:30 (BST) at the offices of Peel Hunt.  The call can be accessed by dialling 0808 109 0700 and quoting the confirmation code 'Central Asia Metals'.  The presentation will be available on the Company's website and there will be a replay of the call available following the presentation at www.centralasiametals.com.

 

 

For further information contact:

Central Asia Metals

Tel: +44 (0) 20 7898 9001

Nick Clarke, Chairman

 

Nigel Robinson, CFO

 

Louise Wrathall, Investor Relations

[email protected]

 

 

Peel Hunt (Nominated Advisor and Joint Broker)

Tel: +44 (0) 20 7418 8900

Ross Allister

 

James Bavister

 

 

 

Mirabaud Securities (Joint Broker)

Tel: +44 (0) 20 3167 7221

Peter Krens

 

 

 

Blytheweigh (PR Advisors)

Tel: +44 (0) 20 7138 3204

Tim Blythe

 

Camilla Horsfall

 

Megan Ray

 

 

Note to editors

 

Central Asia Metals, an AIM-listed UK company based in London, owns the Kounrad SX-EW copper project in central Kazakhstan and the Sasa zinc-lead mine in Macedonia. The Company also owns 80% of the Shuak copper exploration property in northern Kazakhstan. For further information, please visit www.centralasiametals.com.

 

  

 

 

CHAIRMAN'S STATEMENT

2017 was a transformational year for us as our business development activities came to fruition with the $402.5 million acquisition of Lynx Resources, owner of the Sasa zinc-lead mine in Macedonia. We were delighted that our hard work in this regard was rewarded as we won the Mid-Cap Deal of the Year Award in the prestigious November 2017 Mines and Money Outstanding Achievement Awards.

Key achievements

Following our $402.5 million acquisition by reverse takeover of Lynx Resources, we became sole owners of the Sasa zinc and lead mine in Macedonia on 6 November 2017.

We now move into the future as a diversified base metals producer in two prospective jurisdictions - Kazakhstan and Macedonia. The acquisition of Sasa now provides the Company with two low cost, long life, and cash generative base metal operations that should ensure the Company remains well positioned throughout the commodity cycle. Sasa has significant Inferred Mineral Resources and other brownfield exploration targets that offer potential for growth in terms of production levels and the life of the mine.

The addition of Sasa to our production portfolio has increased our copper equivalent annual production to approximately 35,000 copper equivalent tonnes, an increase of 150% from the standalone 14,103 tonnes of copper from Kounrad. Likewise, our mineral resources have increased by almost 200% from c.185,000 tonnes of recoverable copper at Kounrad to about 560,000 tonnes of copper equivalent recoverable resources. Importantly, both Kounrad and Sasa have cash costs that are low by industry standards meaning that, at the Group level, CAML has been able to report C1 copper equivalent production costs within the lowest quartile at $0.76 per pound.

In Kazakhstan, we have enjoyed another year of solid performance from Kounrad with above guidance copper output and continued support to the local communities in which we operate.

We are proposing a final dividend for 2017 of 10 pence per share and, once that has been distributed, we will have paid dividends of $129 million to our shareholders in less than six years. 

CAML has enjoyed an excellent 2017 and I want to thank not only our Board of Directors for their commitment, but all of our employees for their hard work during the year. We welcome our 700 new employees at Sasa and believe that this team has significant talent. We look forward to working together to build the Company's future.

Kounrad

Our operations at Kounrad have continued to be reliable and we are pleased to have produced 14,103 tonnes of copper during 2017. In April 2017, we began leaching copper from the Western Dumps post our successful Stage 2 Expansion that was delivered on schedule and 30% below budget, due to a combination of cost savings associated with the weaker local currency and engineering efficiencies.

During the year, 40% of our copper production was from the Western Dumps, with the percentage contribution increasing throughout the year. Production from the Western Dumps has been in line with our expectations and we are pleased to note that copper leaches from these dumps as we anticipated. During Q4 2017, approximately 65% of the copper that we produced was from the Western Dumps.

While our C1 cash cost of production increased modestly to $0.52 per pound, our position remains in the lowest quartile of the cost curve and indeed we are proud to be one of the lowest cost copper producers in the world.

Sasa

We are delighted with Sasa's operational performance since we assumed ownership of the mine, and were able to report full year production for zinc of 21,585 tonnes and for lead of 29,881 tonnes, which were in line with the 2017 guidance that we gave at the time of the acquisition. Importantly, costs have remained low by industry standards and we believe that this should continue into 2018.

Our team has been busy integrating the Sasa mine into the Company during Q4 2017 and, while there is still work to be done, we have made significant progress in the short time that we have owned the mine.

Shuak

During the 2017 due diligence and preliminary exploration season, the Shuak team undertook over 22,000 metres of both core hydrotransport ('CHT') and diamond drilling within our 197km2 licence area. The findings have been encouraging, with additional oxide potential identified at the Kyzyl-Sor prospect and some interesting deeper intersections of sulphide mineralisation.

We will soon embark on another exploration season in 2018, which should enable us to better understand the potential at Shuak in terms of continuity and likely scale.

Copper Bay

After announcing the positive results from the Copper Bay definitive feasibility study in January 2017, CAML undertook some additional engineering studies with the intention of improving the economics of the Copper Bay project. Some capital expenditure savings were identified and there is the potential to optimise the project further in the future. However, in the context of our new Sasa mine, the Board decided that Copper Bay was no longer a material asset for us and so we have commenced a formal sales process. 

Market performance

2017 was a much improved year for the commodity markets with the average copper and zinc LME prices 27% and 38% respectively higher than those achieved in 2016. This momentum commenced in Q4 2016 and we are pleased that it continued throughout 2017, with analyst consensus commodity price forecasts now moving higher. 2018 has also started positively, with the market dynamics underlying copper, zinc and lead being stronger than they have been for a considerable period of time.

That said, at Kounrad we have always focused on ensuring that our operations are as low cost as possible as this gives us comfort that we can continue to operate in depressed commodity price environments. We take the same philosophy to Sasa, which is also a low cost operation. 

Outlook

2018 is an exciting year for us as we look forward to a full year of operations from both of our sites. We expect steady production from both Sasa and Kounrad. We have set our 2018 copper production target at between 13,000 and 14,000 tonnes. We expect to produce between 21,000 and 23,000 tonnes of zinc and between 28,000 and 30,000 tonnes of lead from Sasa during 2018.

At Kounrad, our proportion of copper production from the Western Dumps will increase to approximately 65% in 2018, and, by 2020, almost all of our production will be from those areas. At Sasa, our operational focus will be on completing construction of the new tailings storage facilities ('TSF 4'), that will ensure sufficient storage for operations until at least 2026. 

Both Kounrad and Sasa are expected to be highly cash generative and should enable the Company to remain one of the leading dividend payers in the sector. From 2018, the CAML dividend policy is to return to shareholders a target range of between 30% and 50% of free cash flow, defined as net cash generated from operating activities less capital expenditure. While we have made changes to our dividend policy, we believe that this policy, coupled with the cash generative nature of our two operations, should ensure that our shareholders continue to receive attractive dividends from us.

We have built strong business and community relationships in Kazakhstan, having spent in excess of $1.5 million on local charitable worthy causes to enhance the lives of our employees, their families and their communities in Kounrad and Balkhash. I am particularly proud of the financial and practical support we provided in 2017 for the new recreational areas in central Balkhash, which comprise playgrounds and multi sports facilities.

We are pleased that the Sasa team shares the same ethos in terms of ensuring that all of our stakeholders benefit from our successes as this is particularly important when operating in emerging markets. I was proud that Sasa has supported The International Day for Disabled Persons in the local town, Makedonska Kamenica, and this will continue into the future.

I am proud of our achievements since listing in 2010. We are now positioning ourselves for the next stage of growth and I am therefore delighted to announce the following management changes.

Our Chief Financial Officer, Nigel Robinson, who has been instrumental in the success of our business since before our IPO, will take on the role of Chief Executive Officer. Gavin Ferrar will become Chief Financial Officer and will also retain responsibility for future business development activities. Gavin's in-depth banking industry experience is becoming increasingly important as we grow and continue to develop our business. These changes will come into effect on 16 April 2018 and will provide continuity amongst the current senior management team.

 

 

 

FINANCIAL REVIEW

Overview

CAML has reported a strong set of financial results with the Group generating 2017 EBITDA of $53.8 million (2016: $39.9 million), representing an increase of 35% from the prior year and an adjusted EBITDA of $66.4 million. Unadjusted EBITDA of $53.8 million excludes transaction costs of $12.6 million associated with the acquisition of Lynx Resources Limited (see definition of adjusted EBITDA in note 4 to the condensed financial information). 

 

CAML completed the acquisition of Lynx Resources Limited on 6 November 2017 and has assumed control of this entity from this date. The results of the Lynx Resources Group have been fully consolidated in the CAML condensed financial information for two months in the 2017 financial year (from 1 November 2017).  The acquired business contributed gross revenue of $20.0 million and EBITDA of $14.5 million to the Group during this period.  The Group had the benefit of the Lynx Group's trading from 1 October 2017 to 6 November 2017 and this is reflected in the cash acquired of $8.5 million (see note 5 of the condensed financial information). 

 

CAML achieved increased revenue and EBITDA at Kounrad compared to 2016 due to a combination of higher copper prices achieved and higher sales volumes. Sustained cost control has enabled the Kounrad project to continue producing copper at costs well within the lowest industry quartile. 

 

Acquisition of Lynx Resources Limited

On 6 November 2017, CAML MK Limited, a wholly owned subsidiary of CAML, acquired 100% of the issued share capital of Lynx Resources Limited, a holding company for a group of companies that owns the Sasa mine. The acquisition expands and diversifies CAML's business with the addition of another cash generative asset with low production costs, a resource base supporting a long mine life and a proven operational track record. 

Purchase consideration:

$'000

Cash paid

340,178

Consideration shares issued

48,883

Deferred consideration

12,000

Total purchase consideration

401,061

 

In March 2018, a final determination was reached with regards to the purchase price, pursuant to the share purchase agreement and an amount of $3.3 million was received from the sellers (Orion Co-Investments III and Fusion Capital) in April 2018 and has been deducted from the cash paid amount.  This amount was recognised as a current receivable as at 31 December 2017. 

The total fair value of the purchase consideration of $401.1 million accounted for in accordance with International Financial Reporting Standards ('IFRS'), as adopted by the EU, is lower than the headline transaction amount of $402.5 million previously announced to the market.  $401.1 million includes the $3.3 million received from the sellers in April 2018 and includes $3.0 million interest paid from 1 October 2017 to completion (6 November 2017) at a rate of 9% of the equity value in accordance with the terms of the acquisition ('consideration interest').  In addition, the fair value of the 15,278,528 Ordinary Shares issued as part of the consideration paid ($48.9 million) was based on the published share price on 6 November 2017 of £2.44 per share translated at the USD/GBP spot exchange rate of 1.31124 compared to the contractual amount previously announced of $50.0 million. 

 

$'000

Headline consideration

402,500

Amount received from the sellers in April 2018

(3,300)

Consideration interest

2,978

Fair value accounting for consideration shares

(1,117)

Total purchase consideration (IFRS)

401,061

 

The cash consideration was partially funded by the placing of 49,150,000 shares to institutional investors at £2.30 per share (approximately $150.0 million). The Company entered into a currency hedge arrangement in respect of the majority of the net proceeds of the placing in order to limit its total exposure to adverse currency movements.  The gain on the hedge amounted to $3.0 million.  In addition to the proceeds of the placing, the cash consideration was financed by $120.0 million in new debt facilities provided by metals trader, Traxys, and approximately $67.0 million of existing Lynx Resources Group debt. 

The Company will pay the sellers $12.0 million of deferred consideration, payable in six equal monthly instalments commencing on the first anniversary of the acquisition.

Acquisition-related costs of $12.6 million that were not directly attributable to the issue of shares and borrowing proceeds are included in other expense in profit or loss and in operating cash flows in the statement of cash flows.

Income statement 

Group profit after tax from continuing operations increased by 35% to $36.3 million (2016: $26.9 million), primarily as a result of higher revenue. Earnings per share from continuing operations increased to 29.02 cents (2016: 24.26 cents).

Revenue

The Group generated 2017 gross revenue of $106.5 million (2016: $69.3 million) consisting of Kounrad (full year) and Sasa (two months) gross revenue of $86.5 million (2016: $69.3 million) and $20.0 million respectively.  Gross revenue is reported after deductions of treatment charges but before deductions of off-takers fees, silver purchases from silver stream and freight.  Net revenue post these deductions was $83.9 million at Kounrad (2016: $66.7 million) and $18.7 million at Sasa.    

Kounrad

A total of 14,001 tonnes (2016: 13,751 tonnes) of copper cathode were sold through the Company's off-take arrangements with Traxys and a further 180 tonnes (2016: 187 tonnes) were sold locally. Total sales at Kounrad were 14,181 tonnes (2016: 13,938 tonnes) representing a 2% increase in volumes.

While copper cathode sales volumes have increased when compared to 2016, Group revenue also benefitted from a 22% increase in the average copper price received, which was $6,107 per tonne in 2017 (2016: $4,994 per tonne). This generated gross revenues for the Group of $86.5 million (2016: $69.3 million). 

CAML's off-take arrangement with Traxys has been fixed through to September 2022 and the commitment is for a minimum of 90% of the Kounrad copper cathode production. During 2017 the off-taker's fee was $2.6 million (2016: $2.6 million).  

Sasa

A total of 2,906 tonnes of payable zinc in concentrate and 4,559 tonnes of payable lead in concentrate were sold during the period 1 November 2017 to 31 December 2017.

The average zinc price received during this period was $3,239 per tonne and the average lead price received during this period was $2,401 per tonne. After the deduction of treatment charges, this generated gross revenues for the Group of $20.0 million. 

On 1 January 2018, the Lynx Resources Group entered into a zinc and lead concentrate off-take arrangement with Traxys, which has been fixed through to 31 December 2022.  The commitment is for 100% of the Sasa output.

Cost of sales

The Group reported 2017 cost of sales of $31.4 million (2016: $18.4 million), consisting of $22.7 million of Kounrad related costs (2016: $18.4 million) and $8.7 million of Sasa related costs. 

Kounrad

Cost of sales for the year was $22.7 million (2016: $18.4 million).  The increase is due to higher sales volumes, higher depreciation charges following the completion of the Kounrad Stage 2 Expansion during early 2017 and higher mineral extraction tax ('MET') due to the increased copper price received.  Production from the Western Dumps commenced in April 2017 and this resulted in slightly higher electricity consumption and additional labour costs. Over the coming years, the proportion of copper that Kounrad produces from the Eastern Dumps will fall as production from the Western Dumps gradually increases. This will result in a sustained increase in electricity consumption and additional labour to manage the Western Dumps operations.   

Depreciation and amortisation charges recognised in cost of sales during the year were $6.6 million (2016: $5.0 million).  MET for the year was $5.0 million (2016: $3.9 million) and is charged by the Kazakhstan authorities at the rate of 5.7% on the value of metal recovered during the year.        

During the year, the Kazakhstan Tenge appreciated slightly against the US Dollar which also resulted in some increase in the cost base. The average exchange rate for the year was 326 KZT/USD (2016: 342 KZT/USD), resulting in the Kazakhstan Tenge being worth an average 5% more in US Dollar terms in 2017 compared to 2016. Approximately 60% of the total cost base in Kazakhstan is denominated in Tenge (70% of C1 cash costs).

Sasa

Cost of sales for the period 1 November 2017 to 31 December 2017 were $8.7 million.  This includes depreciation and amortisation charges of $4.1 million, labour costs of $1.5 million and reagents and materials of $2.0 million. 

C1 cash cost of production

C1 cash cost of production is a standard metric used in the mining industry to allow comparison across the sector.  In line with the Wood Mackenzie approach, CAML calculates C1 cash cost by including all direct costs of production at Kounrad and Sasa (realisation charges such as freight and treatment charges, reagents, power, production labour and materials) as well as local administrative expenses. Royalties and depreciation and amortisation charges are excluded from C1 cash cost and reported within the fully inclusive unit cost of production.

Kounrad's 2017 C1 cash cost of copper production remains firmly in the lowest quartile of the industry cost curve for copper production at $0.52 per pound (2016: $0.43 per pound).  Production from the Western Dumps commenced in April 2017 and this resulted in slightly higher electricity consumption and additional labour costs.  The average C1 cash cost of production since production commenced in 2012 is $0.58 per pound.

 

Sasa's C1 cash cost of zinc equivalent production for the full year 2017 was $0.44 per pound (2016: $0.45 per pound) which was at the lower end of the second quartile of the zinc industry cost curve. 

Following the acquisition of the Sasa mine, CAML reports its C1 cash cost on a copper equivalent basis incorporating the production costs at Sasa.  CAML's full year 2017 C1 copper equivalent cash cost was $0.76 per pound.  This number is calculated based on Sasa's 12 month 2017 zinc and lead production which equates to 21,161 copper equivalent tonnes (based upon 2017 average commodity price achieved) added to Kounrad's 2017 copper production of 14,103 tonnes. 

The Group's fully inclusive copper equivalent unit cost for the year was $1.43 per pound (2016: $1.06 per pound excluding Sasa). This includes depreciation and amortisation charges, royalties, finance costs and corporate overheads associated with the Kounrad and Sasa projects.

Administrative expenses

During 2017, administrative expenses were $15.3 million (2016: $13.3 million).  The Group recognised a share based payment charge of $2.8 million (2016:  $3.0 million) in relation to the Company's share option schemes.   

Balance sheet

The provisional net assets recognised as a result of the Lynx Resources acquisition were $312.5 million, in addition to provisional goodwill of $21.6 million (see note 5 of the condensed financial information). 

During the year, there were additions to property, plant and equipment of $4.1 million (2016: $12.3 million). The additions were a combination of Sasa and Kounrad sustaining capital expenditure as well as costs incurred to finalise the commissioning of the Kounrad Stage 2 Expansion at the Western Dumps.  Kounrad capital expenditure is significantly reduced from the prior year due to finalisation of the Stage 2 Expansion in early 2017.  This expansion was completed approximately 30% below the original $19.5 million budget, due to a combination of cost savings associated with the weaker local currency and engineering efficiencies.   

During the year, there were additions to intangible assets of $2.0 million (2016: $1.6 million) including  $2.0 million (2016: $1.6 million) capitalised in relation to exploration and evaluation costs incurred on the Copper Bay project, which was subsequently classified as held for sale, and the Shuak exploration project.

As at 31 December 2017, current trade and other receivables were $13.7 million (31 December 2016: $0.9 million) and non-current trade and other receivables were $2.5 million (31 December 2016: $2.7 million).  Current trade and other receivables as at 31 December 2017, includes trade receivables from customers of $6.3 million and $3.3 million received from the sellers of Lynx Resources Limited in April 2018 as explained above. 

As explained in note 18 of the condensed financial information, as at 31 December 2017, a total of $2.7 million (2016: $2.9 million) of VAT receivable was still owed to the Group by the Kazakhstan authorities.  In 2017, the Kazakhstan authorities refunded $0.8 million and a further amount of $0.2 million was refunded from the authorities in January 2018 and has been classified as current trade and other receivables as at 31 December 2017.  The Group is working closely with its advisors to recover the remaining portion. The planned means of recovery will be through a combination of the local sales of cathode copper to offset VAT liabilities and by a continued dialogue with the authorities.

As at 31 December 2017, current trade and other payables were $22.4 million (31 December 2016: $6.0 million).  During 2017, instalments of $12.3 million were paid towards the Group's 2017 corporate income tax liability and at 31 December 2017, approximately $6.0 million remained outstanding.

On 31 December 2017, the Group had cash of $45.8 million (31 December 2016: $40.4 million) including restricted cash of $2.8 million (31 December 2016: $0.1 million).

Debt financing

As at 31 December 2017, non-current and current borrowings were $141.8 million and $40.1 million respectively. 

The cash consideration payable for the acquisition of Lynx Resources was partly financed by $120.0 million in new secured debt facilities provided by Traxys. 

The debt financing agreement forms part of a pre-payment arrangement between the Group and Traxys under which Traxys is advancing funds in expectation of acquiring production from the Group's Kounrad operations.

The debt financing agreement has a term of five years, with monthly repayments of $2.0 million. Cash sweeps are required equal to 33% of Kounrad free cashflow less $1.0 million per quarter.  Interest is payable at LIBOR plus 4.75%. Security is provided over the shares in CAML Kazakhstan BV, certain bank accounts and the Traxys Kounrad off-take agreement. The agreement contains typical covenants for this type of facility, including financial covenants related to financial performance of the Company's Kounrad operations.

Borrowings also represent the long-term loan of $75.0 million from Societe Generale and Investec (the Senior Facility) obtained in October 2016 with an interest rate of 3 month LIBOR plus 5%, maturing on 30 September 2023. In addition, the Group had short-term bank borrowings from Ohridska Banka and more details are included in the notes of the condensed financial information. 

Discontinued operations

Copper Bay

 

The assets and liabilities of the Copper Bay entities have been presented as held for sale in the consolidated balance sheet following the decision of the CAML Board in August 2017 to sell the project. The financial results of the Copper Bay entities for the year ended 31 December 2017 and the comparative period ended 31 December 2016 are shown within discontinued operations in the consolidated income statement. 

Mongolia

 

In December 2016, CAML Mongolia BV signed an agreement with a third party to sell its entire interest in Monresources LLC for a cash consideration of $100 with deferred consideration dependent on the outcome of future events. Confirmation of the transfer of shares to the third party was received in February 2017.  Following unsuccessful attempts to dispose of the Ereen project, CAML has taken the decision to exit its position in Zuunmod UUL LLC and this process was completed in April 2018.  The Group continues to hold for sale these assets in this financial year, although they were fully written off in prior years.

Cash flows

The continued strong operational performance of the Kounrad project and the associated low costs of production resulted in robust cash flows for the Group. Cash generated from operations increased to $60.4 million (2016: $44.7 million) and during the year $23.1 million was returned to shareholders as dividends (2016: $20.4 million).

The outflow of cash to acquire Lynx Resources Limited net of cash acquired was $268.0 million.  During 2017, proceeds from the issue of shares net of transaction costs amounted to $142.9 million.  Cash received from the drawdown of new debt financing was $120.0 million and during the year $8.4 million of Group debt was repaid. 

$12.3 million of corporate income tax was paid during 2017 (2016: $9.2 million) towards the 2017 Kazakhstan corporate income tax liability.

Dividend

For the year ended 31 December 2017, the Company's dividend policy was to return a minimum of 20% of the attributable revenues generated from the Kounrad project to shareholders subject to maintaining three times cash cover. The final dividend for the year ended 31 December 2016 of 10 pence per Ordinary Share was paid to Shareholders on 7 June 2017.  On 22 September 2017 the Company announced an interim dividend for the period from 1 January 2017 to 30 June 2017 of 6.5 pence per Ordinary Share and was paid to shareholders on 27 October 2017.

In conjunction with CAML's 2017 annual results, the Board proposes a final 2017 dividend of 10 pence per Ordinary Share, bringing total dividends declared for the year to 16.5 pence (2016: 15.5 pence). These dividends equate to approximately 39% of the Kounrad gross revenue for the year and will be payable on 25 May 2018 to shareholders registered on 27 April 2018. 

This latest dividend will increase the amount returned to shareholders in dividends and share buy-backs since the 2010 IPO listing to $129 million. 

Commencing on 1 January 2018, the Company's new dividend policy is to return to shareholders a target range of between 30% and 50% of free cash flow (defined as net cash generated from operating activities less capital expenditure). The dividends will only be paid provided there is sufficient cash remaining in the Group to meet the ongoing contractual debt repayments and that banking covenants are not breached.

 

Nigel Robinson

Chief Financial Officer

 

 

 

 

 

 

CONDENSED FINANCIAL INFORMATION

Consolidated Income Statement

for the year ended 31 December

 

Note

2017

$'000

2016

$'000

Continuing operations

 

 

 

Revenue

6

102,517

66,707

Presented as:

 

 

 

   Gross revenue

6

106,479

69,269

   Less:

 

 

 

   Silver purchases from silver stream

6

(1,120)

-

   Freight cost

6

(252)

-

   Off-take buyers' fees

6

(2,590)

(2,562)

   Revenue

 

102,517

66,707

Cost of sales

7

(31,363)

(18,388)

Gross profit

 

71,154

48,319

Distribution and selling costs

8

(394)

(215)

Administrative expenses

9

(15,294)

(13,266)

Other (expense)/income

10

(12,348)

192

Foreign exchange gain/(loss)

 

3,349

(1,385)

Operating profit

 

46,467

33,645

Finance income

11

5,597

67

Finance costs

12

(2,319)

(158)

Profit before income tax

 

49,745

33,554

Income tax

13

(13,468)

(6,661)

Profit for the year from continuing operations

 

36,277

26,893

Discontinued operations

 

 

 

Profit/(loss) for the year from discontinued operations

17

56

(796)

Profit for the year

 

36,333

26,097

Profit attributable to:

 

 

 

-       Non-controlling interests

 

(36)

(173)

-       Owners of the parent

 

36,369

26,270

 

 

36,333

26,097

Earnings/(loss) per share from continuing and discontinued operations attributable to owners of the parent during the year (expressed in cents per share)

 

 

$ cents

 

$ cents

Basic earnings/(loss) per share

 

 

 

From continuing operations

14

29.02

24.26

From discontinued operations

 

0.04

(0.72)

From profit for the year

 

29.06

23.54

Diluted earnings/(loss) per share

 

 

 

From continuing operations

14

28.31

23.71

From discontinued operations

 

0.04

(0.72)

From profit for the year

 

28.35

22.99

 

The results of the Copper Bay entities were reclassified as discontinued operations in the comparative year ended 31 December 2016 in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations (note 17).

 

Consolidated Statement of Comprehensive Income

for the year ended 31 December                                                                                                                                                                                                                                                                             

 

 

Note

2017

$'000

2016

$'000

Profit for the year

 

36,333

26,097

Other comprehensive income:

Items that may be subsequently reclassified to profit or loss:

 

 

 

Currency translation differences

21

7,989

1,034

Other comprehensive income for the year, net of tax

 

7,989

1,034

Total comprehensive income for the year

 

44,322

27,131

Attributable to:

 

 

 

       - Non-controlling interests

 

(36)

(173)

       - Owners of the parent

 

44,358

27,304

Total comprehensive income for the year

 

44,322

27,131

Total comprehensive income attributable to equity shareholders arises from: 

 - Continuing operations

 

44,266

27,261

 - Discontinued operations

 

56

(130)

 

 

44,322

27,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Financial Position                                        

as at 31 December

                                                                                 

Note

 

2017

$'000

2016

$'000

Assets

Non-current assets

 

 

 

 

Property, plant and equipment

15

 

460,952

50,324

Intangible assets

16

 

70,321

40,759

Investments

 

 

-

-

Other non-current receivables

18

 

2,519

2,738

 

 

 

533,792

93,821

Current assets

 

 

 

 

Inventories

 

 

6,998

3,319

Trade and other receivables

18

 

13,738

919

Restricted cash

19

 

2,812

118

Cash and cash equivalents

19

 

43,022

40,258

 

 

 

66,570

44,614

Assets of disposal group classified as held for sale

17

 

4,516

45

 

 

 

71,086

44,659

Total assets

 

 

604,878

138,480

 

Equity attributable to owners of the parent

 

 

 

 

Ordinary shares

20

 

1,765

1,121

Share premium

20

 

191,184

-

Treasury shares

20

 

(7,780)

(7,780)

Currency translation reserve 

21

 

(79,446)

(87,435)

Retained earnings:

 

 

 

 

At 1 January

 

 

215,479

209,120

Profit for the year attributable to the owners

 

 

36,369

26,270

Other changes in retained earnings

 

 

(20,553)

(19,911)

 

 

 

231,295

215,479

 

 

 

337,018

121,385

Non-controlling interests

 

 

55

91

Total equity

 

 

337,073

121,476

Liabilities

Non-current liabilities

 

 

 

 

Borrowings

24

 

141,839

-

Deferred revenue

23

 

17,621

-

Other non-current payables

22

 

8,000

-

Deferred income tax liability

29

 

30,361

8,541

Provisions for other liabilities and charges

25

 

5,319

2,087

 

 

 

203,140

10,628

Current liabilities

 

 

 

 

Borrowings

24

 

40,075

-

Deferred revenue

23

 

2,056

-

Trade and other payables

22

 

22,398

6,020

Provisions for other liabilities and charges

25

 

46

-

 

 

 

64,575

6,020

Liabilities of disposal group classified as held for sale

17

 

90

356

 

 

 

64,665

6,376

Total liabilities

 

 

267,805

17,004

Total equity and liabilities

 

 

604,878

138,480

 

Consolidated Statement of Changes in Equity

for the year ended 31 December

 

 

 

Attributable to owners of the parent

Note

Ordinary shares

$'000

Share

premium

$'000

Treasury

shares

$'000

Currency translation reserve

$'000

Retained earnings

$'000

 

 

Total

$'000

Non-controlling interests

$'000

Total

equity

$'000

Balance as at 1 January 2016

 

1,121

-

(7,810)

(88,469)

209,120

113,962

264

114,226

Profit/(loss) for the year

 

-

-

-

-

26,270

26,270

(173)

26,097

   Other comprehensive expense - currency translation differences

 

21

 

-

 

-

 

-

 

1,034

 

-

 

1,034

 

-

 

1,034

   Total comprehensive income/(expense)

 

 

-

 

-

 

-

 

1,034

 

26,270

 

27,304

 

(173)

 

27,131

Transactions with owners

 

 

 

 

 

 

 

 

 

Share based payments

9

-

-

-

-

2,959

2,959

-

2,959

Sale of EBT shares

20

-

-

30

-

-

30

-

30

Exercise of options

 

-

-

-

-

(2,466)

(2,466)

-

(2,466)

Dividends

27

-

-

-

-

(20,404)

(20,404)

-

(20,404)

   Total transactions with owners, recognised directly in equity

 

 

-

 

-

 

30

 

-

 

(19,911)

 

(19,881)

 

-

 

(19,881)

Balance as at 31 December 2016

 

 

1,121

 

-

 

(7,780)

 

(87,435)

 

215,479

 

121,385

 

91

 

121,476

Profit/(loss) for the year

 

-

-

-

-

36,369

36,369

(36)

36,333

   Other comprehensive expense - currency translation differences

 

21

 

-

 

-

 

-

 

7,989

 

-

 

7,989

 

-

 

7,989

   Total comprehensive income/(expense)

 

 

-

 

-

 

-

 

7,989

 

36,369

 

44,358

 

(36)

 

44,322

Transactions with owners

 

 

 

 

 

 

 

 

 

Issue of shares

20

644

191,184

-

-

-

191,828

-

191,828

Share based payments

9

-

-

-

-

2,823

2,823

-

2,823

Disposal of subsidiaries

 

-

-

-

-

1,262

1,262

-

1,262

Exercise of options

 

-

-

-

-

(1,492)

(1,492)

-

(1,492)

Dividends

27

-

-

-

-

(23,146)

(23,146)

-

(23,146)

   Total transactions with owners, recognised directly in equity

 

 

644

 

191,184

 

-

 

-

 

(20,553)

 

171,275

 

-

 

171,275

Balance as at 31 December 2017

 

 

1,765

 

191,184

 

(7,780)

 

(79,446)

 

231,295

 

337,018

 

55

 

337,073

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Cash Flows

for the year ended 31 December

                      

 

 

Note

2017

$'000

2016

$'000

Cash flows from operating activities

 

 

 

 

Cash generated from operations

 

26

60,412

44,746

Interest paid

 

 

(2,127)

(4)

Corporate income tax paid

 

 

(12,294)

(9,208)

Net cash generated from operating activities

 

 

45,991

35,534

Cash flows from investing activities

 

 

 

 

Payment for acquisition of subsidiary, net of cash acquired

 

5

(268,008)

-

Purchase of property, plant and equipment

 

15

(4,082)

(12,331)

Purchase of intangible assets

 

16

(2,025)

(1,594)

Proceeds from sale of property, plant and equipment

 

 

-

147

Interest received

 

11

323

67

Restricted cash (increase)/decrease

 

19

(2,694)

376

Net cash used in investing activities

 

 

(276,486)

(13,335)

Cash flows from financing activities

 

 

 

 

Proceeds from issues of shares (net)

 

20

142,945

-

Gain on currency hedge

 

11

2,977

-

Proceeds from borrowings

 

24

120,000

-

Repayment of borrowings

 

24

(8,362)

-

Dividends paid to owners of the parent

 

27

(23,146)

(20,360)

Settlement on exercise of share options

 

 

(1,491)

(2,436)

Net cash used in financing activity

 

 

232,923

(22,796)

Effect of foreign exchange gain/(loss) on cash and cash equivalents

 

 

487

(669)

Net increase/(decrease) in cash and cash equivalents

 

 

2,915

(1,266)

Cash and cash equivalents at the beginning of the year

 

19

40,258

41,524

Cash and cash equivalents at the end of the year

 

19

43,173

40,258

 

Cash and cash equivalents at 31 December 2017 includes cash at bank and on hand included in assets held for sale of $151,000 (31 December 2016: nil) (note 19).  

The notes below are an integral part of this condensed consolidated financial information. 

 

Notes to the Condensed Financial Information

for the year ended 31 December 2017

 

1.    General information

 

Central Asia Metals plc ('CAML' or the 'Company') and its subsidiaries (the 'Group') are a mining and exploration organisation with operations primarily in Kazakhstan and Macedonia and a parent holding company based in the United Kingdom ('UK').

CAML owns 100% of the Kounrad SX-EW copper project in Kazakhstan and 100% of the Sasa zinc-lead mine in Macedonia. The Company also owns 80% of the Shuak copper exploration property in northern Kazakhstan. During the year, the Group held for sale its 75% equity interest in Copper Bay Limited, which is a private company that has conducted a definitive feasibility study at its copper project in Chañaral Bay, Chile.  The Group also held for sale two exploration projects in Mongolia and in February 2017 the Group disposed of its interest in one of the projects (note 17).

CAML is a public limited company, which is listed on the AIM market of the London Stock Exchange and incorporated and domiciled in England, UK. The address of its registered office is Masters House, 107 Hammersmith Road, London, W14 0QH.  The Company's registered number is 5559627.

2.    Summary of significant accounting policies

 

Basis of preparation of the Condensed Financial Information

 

The financial information set out herein does not constitute the Group's statutory financial statements for the year ended 31 December 2017, but is derived from the Group's audited full financial statements. The auditors have reported on the 2017 financial statements and their reports were unqualified and did not contain statements under s498(2) or (3) Companies Act 2006. The 2017 Annual Report was approved by the Board of Directors on 12 April 2018, and will be mailed to shareholders in April 2018. The financial information in this statement is audited but does not have the status of statutory accounts within the meaning of Section 434 of the Companies Act 2006.

 

The financial information is in accordance with the accounting policies set out in the 2017 financial statements and have been prepared on a going concern basis.

 

The Group's consolidated financial statements, which form part of the 2017 Annual Report, have been prepared in accordance with International Financial Reporting standards ('IFRS') and IFRS Interpretations Committee ('IFRSIC') interpretations as adopted by the European Union, and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention with the exception of assets held for sale which have been held at fair value. The Group financial information is presented in US Dollars ($) and rounded to the nearest thousand.

 

The preparation of condensed financial information in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the condensed financial information are explained in note 3.

Going concern

The Group meets its day to day working capital requirements through its profitable operations at Kounrad and Sasa. The Group manages liquidity risk by maintaining adequate committed borrowing facilities and the Group has substantial cash balances as at 31 December 2017. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence over a period of at least 12 months from the date of approval of the condensed financial information.

The Group sells and distributes its copper cathode product primarily through an off-take arrangement with a minimum of 90% of the SX-EW plant's forecasted output committed as sales for the period up until September 2022.   During the year, 100% of Sasa's zinc and lead concentrate was sold to credit-worthy customers and on 1 January 2018, Lynx Mining Limited entered into a zinc and lead concentrate off-take arrangement with Traxys, which has been fixed through to 31 December 2022.  The commitment is for 100% of the Sasa concentrate production. 

The Group therefore continues to adopt the going concern basis in preparing its condensed financial information. Please refer to notes 6, 19 and 22 for information on the Group's revenues, cash balances and trade and other payables.

 

 

 

3.    Critical accounting estimates and judgments

 

The Group has the following key areas where critical accounting estimates and judgements are required that could have a material impact on the condensed financial information:

Mineral reserves and resources

The major value associated with the Group is the value of its mineral reserves and resources.  The value of the reserves and resources have an impact on the Group's accounting judgements in relation to depreciation and amortisation, impairment of assets and the assessment of going concern.  These resources are the Group's best estimate of product that can be economically and legally extracted from the relevant mining property. The Group's estimates are supported by geological studies and drilling samples to determine the quantity and grade of each deposit.

Significant judgement is required to generate an estimate based on the geological data available. Ore resource estimates may vary from period to period. This judgement has a significant impact on impairment consideration and the period over which capitalised assets are depreciated within the condensed financial information.

The Kounrad resources were classified as JORC Compliant in 2013 and the Sasa JORC ore reserves and mineral resources were estimated in July 2017. As part of the 2016 Copper Bay Definitive Feasibility Study, Cube Consulting Pty Ltd, Australia, undertook a Mineral Resource estimate to JORC (2012) standards.

Impairment of non-current assets

Estimates are required periodically to assess assets for impairment. The critical accounting estimates are future commodity prices, ore reserves, discount rates and projected future costs of development and production. This includes an assessment of the carrying values of assets held for sale.

The carrying value of the goodwill generated by accounting for the business combination of the Group acquiring an additional 40% in the Kounrad project in May 2014 (the 'Kounrad Transaction') and the Lynx Resources Limited acquisition in November 2017 requires an annual impairment review. This review will determine whether the value of the goodwill can be justified by reference to the carrying value of the business assets and the future discounted cash flows of the business.  The key assumptions used in the Group's impairment assessments are disclosed in note 16.

Functional currency

The functional currency of the Kazakhstan subsidiaries is Kazakhstan Tenge and the functional currency of the Macedonian subsidiaries is Macedonian Denar, which reflects the currency of the primary economic environment in which these entities operate. Determination of functional currency may involve certain judgments to determine the primary economic environment and this is re-evaluated for each new entity, or if conditions change.

Decommissioning and site rehabilitation estimates

Provision is made for the costs of decommissioning and site rehabilitation costs when the related environmental disturbance takes place. The discounted provision recognised represents management's best estimate of the costs that will be incurred, but significant judgement is required, as many of these costs will not crystallise until the end of the life of the mine. Estimates are reviewed annually and are based on current contractual and regulatory requirements and the estimated useful life of mines. Engineering and feasibility studies are undertaken periodically; however significant changes in the estimates of contamination, restoration standards and techniques will result in changes to provisions from period to period.

Business combinations

All business combinations in the Group are accounted for under IFRS 3 'Business Combinations' using the acquisition method. When the Group acquires a business, it assesses the fair value of assets and liabilities acquired for the purpose of purchase price allocation as at the acquisition date. When discounted cash flow calculations are undertaken, management estimates the expected future cash flows from the cash generating unit ('CGU') by considering the future metal price, expected ore reserve, grade, mine life, moisture content and discount rate in order to estimate the expected present value of cash flows from the mine.  The inputs to these factors are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values.  The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.  During the year, the Group completed the acquisition of Lynx Resources Limited which has been accounted for under IFRS 3 'Business Combinations' using the acquisition method.  The key assumptions used to determine the provisional fair value of assets acquired and liabilities assumed are disclosed in note 5.

VAT recoverability

As explained in note 18, as at 31 December 2017, a total of $2,703,000 (2016: $2,838,000) of VAT receivable was still owed to the Group by the Kazakhstan authorities.  In 2017, the Kazakhstan authorities refunded $820,000 and a further amount of $223,000 was refunded from the authorities in January 2018 and has been classified as current trade and other receivables as at 31 December 2017.  The Group is working closely with its advisors to recover the remaining portion. The planned means of recovery will be through a combination of the local sales of cathode copper to offset VAT liabilities and by a continued dialogue with the authorities.

4.    Segmental information

 

The Board is the Group's chief operating decision maker. Management have determined the operating segments based on the information reviewed by the Board for the purposes of allocating resources and assessing performance. The Board considers the business from a project perspective.

 

The Group has three business segments consisting of the SX-EW copper plant at Kounrad in Kazakhstan, the Sasa zinc-lead mine in Macedonia and the Shuak exploration project in Kazakhstan. The Group operations are controlled from a head office in London, UK, but this does not represent a separate business segment.  The Copper Bay project is reported within discounted operations (note 17). 

 

The segmental results for the year ended 31 December 2017 are as follows:

 

 

Kounrad $'000

 

Sasa

 $'000

 

Shuak

$'000

 

Unallocated

 $'000

 

Total

$'000

Gross revenue

86,443

20,036

-

-

106,479

Silver purchases from silver stream

-

(1,120)

-

-

(1,120)

Freight cost

-

(252)

-

-

(252)

Off-take buyers' fees

(2,590)

-

-

-

(2,590)

Revenue

83,853

18,664

-

-

102,517

EBITDA

63,565

14,485

(130)

(24,127)

53,793

Lynx Resources acquisition costs

-

-

-

12,600

12,600

Adjusted EBITDA

63,565

14,485

(130)

(11,527)

66,393

Depreciation and amortisation

(6,695)

(4,176)

(1)

(55)

(10,927)

Foreign exchange (loss)/gain

(29)

2,683

(13)

708

3,349

Other income/(expense)

268

(16)

-

(12,600)

(12,348)

Finance income

8

2,296

-

3,293

5,597

Finance costs

(172)

(783)

(4)

(1,360)

(2,319)

Profit/(loss) before income tax

 

 

 

 

49,745

Income tax

 

 

 

 

(13,468)

Profit for the year after tax from continuing operations

 

 

 

 

 

36,277

Profit from discontinued operations

 

 

 

 

56

Profit for the year

 

 

 

 

36,333

 

CAML signed the framework agreement to acquire the Shuak copper-gold exploration project in November 2016 and the comparative segmental results for the year ended 31 December 2016 do not include the results of the Shuak project.  The segmental results for the year ended 31 December 2016 are as follows:

 

 

 

Kounrad $'000

 

Unallocated

 $'000

 

Total

$'000

Gross revenue

69,269

-

69,269

Off-take buyers' fees

(2,562)

-

(2,562)

Revenue

66,707

-

66,707

EBITDA

51,321

(11,400)

39,921

Depreciation and amortisation

(5,028)

(55)

(5,083)

Foreign exchange loss

(271)

(1,114)

(1,385)

Other income

192

-

192

Finance income

8

59

67

Finance costs

(158)

-

(158)

Profit/(loss) before income tax

46,064

(12,510)

33,554

Income tax

 

 

(6,661)

Profit for the year after tax from continuing operations

 

 

26,893

Loss from discontinued operations

 

 

(796)

Profit for the year

 

 

26,097

 

Adjusted EBITDA

 

Adjusted EBITDA is a non-IFRS financial measure and excludes subsidiary acquisitions costs which may have an impact on the quality of earnings.  Adjusted EBITDA is intended to provide additional information to investors and analysts. It does not have any standardised meaning prescribed by IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Adjusted EBITDA excludes the impact of cash costs of financing activities and taxes, and the effects of changes in operating working capital balances, and therefore is not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate adjusted EBITDA differently.  

EBITDA excludes the following items:

·     Income tax expense;

·     Finance income and expense;

·     Other income/(expense);

·     Foreign exchange;

·     Depreciation and amortisation; and

·     Discontinuing operations;

A reconciliation between profit for the year and adjusted EBITDA is presented below:

 

2017

2016

 

$'000

$'000

Profit for the year

36,333

26,097

Plus/(less):

 

 

Income tax expense

13,468

6,661

Depreciation and amortisation

10,927

5,083

Foreign exchange (gain)/loss

(3,349)

1,385

Other income

(252)

(192)

Finance income

(5,597)

(67)

Finance costs

2,319

158

(Profit)/loss from discontinued operations

(56)

796

Group continuing operations EBITDA

53,793

39,921

Lynx Resources Limited acquisition costs (note 5)

12,600

-

Group continuing operations adjusted EBITDA

66,393

39,921

 

Group segmental assets and liabilities for the year ended 31 December 2017 are as follows:

 

Segmental assets

Additions to non-current assets

Segmental liabilities

 

31 Dec 17

 $'000

31 Dec 16

 $'000

31 Dec 17

 $'000

31 Dec 16

 $'000

31 Dec 17

 $'000

31 Dec 16

 $'000

Kounrad

99,872

98,275

1,050

12,354

(13,953)

(13,700)

Sasa

477,657

-

3,043

-

(122,975)

-

Shuak

1,475

-

1,244

-

(71)

-

Copper Bay

-

4,766

-

2,002

-

(259)

Assets held for sale (note 17)

4,516

45

758

-

(90)

(356)

Unallocated including corporate 

21,358

35,394

-

-

(130,716)

(2,689)

 

604,878

138,480

6,095

14,356

(267,805)

(17,004)

 

The assets and liabilities of the Copper Bay entities have been classified as assets held for sale during the year ended 31 December 2017 (note 17).

 

5.    Business combination
 

a)    Summary of acquisition

On 6 November 2017, CAML MK Limited, a wholly owned subsidiary of CAML, acquired 100% of the issued share capital of Lynx Resources Limited, a holding company for a group of companies that owns the SASA mine.  The SASA mine located in north-eastern Macedonia, comprises an operating underground zinc and lead mine and a processing facility that produces both zinc and lead concentrate.  The acquisition expands and diversifies CAML's business with the addition of another cash generative asset with low production costs, a resource base supporting a long mine life and a proven operational track record. 

The acquisition has been accounted for under IFRS 3 'Business Combinations' using the acquisition method.  The acquisition was classified as a reverse takeover under the AIM Rules for Companies. 

 

 

Purchase consideration:

 

Provisional

fair value

 

$'000

Cash consideration

340,178

Ordinary shares issued

48,883

Deferred consideration

12,000

 

401,061

Less: net debt acquired

(67,000)

Total purchase consideration

334,061

 

In March 2018, a final determination was reached with regards to the purchase price, pursuant to the share purchase agreement and an amount of $3,300,000 was received from the sellers in April 2018 and is deducted from the cash paid amount.  This amount was recognised as a current receivable as at 31 December 2017. 

The fair value of the 15,278,528 shares issued as part of the consideration paid for Lynx Resources Limited ($48,883,000) was based on the published share price on 6 November 2017 of £2.44 per share translated at the USD/GBP spot exchange rate of 1.31124. 

The Company will pay the sellers $12,000,000 of deferred consideration, payable in six equal monthly instalments commencing on the first anniversary of the acquisition (6 November 2018).  The impact of discounting the deferred consideration is not material.

The provisional assets and liabilities recognised as a results of the acquisition are as follows:

 

Provisional

fair value

$'000

Intangible assets

10,841

Property, plant and equipment

402,567

Inventories

2,420

Trade and other receivables

13,128

Cash and cash equivalents

8,470

Borrowings

(70,276)

Deferred revenue

(19,981)

Provisions for other liabilities and charges

(3,493)

Trade and other payables

(9,615)

Deferred tax liability

(21,558)

Net assets acquired

312,503

Purchase consideration

334,061

Provisional goodwill

21,558

 

As permitted by IFRS 3 Business Combinations, the business combination is accounted for using provisional amounts.  Any adjustments to the provisional amounts, will be made within the measurement period to reflect new information obtained about facts and circumstances that were in existence at the acquisition date.  The measurement period cannot exceed one year from the acquisition date.  Among other things, management are currently reviewing the fair value of the silver stream (note 23) which is reported as deferred revenue of $19,981,000 in the table above.

To determine the fair value of the mineral reserves within property, plant and equipment including mining reserves, management used a discounted cash flow model to estimate the expected future cash flows of the mine, based on the life-of-mine plan. Expected future cash flows were based on estimates of future production and commodity prices, operating costs, and forecast capital expenditures using the life-of-mine plan as at the acquisition date.  The key economic assumptions used were a five year consensus forecast average price of $2,701 per tonne and a long-term price of $2,282 per tonne for zinc, $2,199 per tonne and $1,991 per tonne for lead, and $19.10 per ounce and $18.40 per ounce for silver.  A post-tax discount rate of 12% has been applied to discount the future post tax cash flows.  The fair value of the remaining property, plant and equipment was determined based on a replacement cost approach. 

 

The goodwill arising on the completion of and transaction amounting to $21,558,000 is equal to the deferred tax liability which arises on the difference between the assigned fair value of the acquired assets and liabilities and their tax base.

The results of the Lynx Resources Group have been fully consolidated in the CAML condensed financial information for two months in the 2017 financial year (from 1 November 2017).  The impact of six days between 1 November and 6 November 2017 is not material.  The acquired business contributed gross revenue of $20,036,000 and EBITDA of $14,485,000 to the Group during this period.  If the acquisition had occurred on 1 January 2017, consolidated pro-forma gross revenue and profit for the year ended 31 December 2017 would have been $119,740,000 and $56,320,000 respectively. These amounts have been calculated using the subsidiary's results and adjusting them for the additional depreciation and amortisation that would have been charged assuming the fair value adjustments to property, plant and equipment had applied from 1 January 2017, together with the consequential tax effects.

 

Acquisition-related costs of $12,600,000 that were not directly attributable to the issue of shares and borrowing proceeds are included in other expense in profit or loss and in operating cash flows in the statement of cash flows.

 

b)    Purchase consideration - cash outflow

 

2017

$'000

Outflow of cash to acquire subsidiary, net of cash acquired:

 

Cash consideration less net debt acquired

276,478

Less: cash acquired

(8,470)

Net outflow of cash - investing activities

268,008

 

The cash consideration in the table above excludes the amount of $3,300,000 received from the sellers in April 2018. 

6.    Revenue

 

 

 

 

2017

$'000

2016

$'000

International customers (Europe) - copper cathode

 

 

85,342

68,442

International customers (Europe)  - zinc and lead concentrate

 

 

19,373

-

Domestic customers (Kazakhstan) - copper cathode

 

 

1,100

827

Revenue of silver

 

 

664

-

Total gross revenue

 

 

106,479

69,269

Less:

 

 

 

 

Silver purchases from silver stream

 

 

(1,120)

-

Off-take buyers' fees

 

 

(2,590)

(2,562)

Freight

 

 

(252)

-

Revenue

 

 

102,517

66,707

 

Kounrad

The Group sells and distributes its copper cathode product primarily through an off-take arrangement with Traxys, which has been retained as CAML's off-take partner through to September 2022. The off-take arrangements are for a minimum of 90% of the SX-EW plant's output. The copper cathodes are delivered from the Kounrad site by rail under an FCA (Incoterms 2010) contractual basis and delivered to the end customers in Turkey.

 

The off-take agreement provides for the option of provisional pricing i.e. the selling price is subject to final adjustment at the end of the quotation period based on the average price for the month following delivery to the buyer.  The Company may mitigate commodity price risk by fixing the price in advance for its copper cathode sales with the off-take partner.

The costs of delivery to the end customers have been effectively borne by the Group through means of an annually agreed buyer's fee which is offset from the selling price.

During 2017, the Group sold 14,001 tonnes (2016: 13,751 tonnes) of copper through the off-take arrangements. Some of the copper cathodes are also sold locally and during 2017, 180 tonnes (2016: 187 tonnes) were sold to local customers.

 

Lynx Resources Group

During the two month period ended 31 December 2017, the Lynx Resources Group sold its zinc and lead concentrate to two European smelters.  The agreements with the smelters provides for provisional pricing i.e. the selling price is subject to final adjustment at the end of the quotation period based on the average price for the month following delivery to the buyer and subject to final adjustment for assaying results. 

During the two month period ended 31 December 2017, the Group sold 2,906 tonnes of zinc concentrate and 4,559 tonnes of lead concentrate.

 

On 1 January 2018, the Lynx Resources Group entered into a zinc and lead concentrate off-take arrangement with Traxys, which has been fixed through to 31 December 2022.  The commitment is for 100% of the Sasa concentrate production.

On 1 September 2016, the Lynx Group entered into a Silver Purchase Agreement with Lynx Metals Limited by netting of its existing loan payable with Lynx Metals. The prepayments for the purchase of silver are recognised as deferred revenue (note 23) and are related to production of silver during the life of the mine.  Deferred revenue is recognised in the income statement as the silver is delivered based on the units of production. 

 

7.    Cost of sales

 

2017

$'000

2016

$'000

Reagents, electricity and materials

7,600

5,291

Depreciation and amortisation (note 15, 16)

10,736

4,975

Royalties 

5,459

3,858

Employee benefit expense

5,079

2,670

Consulting and other services

1,995

1,138

Taxes and duties

494

456

 

31,363

18,388

 

 

8.    Distribution and selling costs

 

 

2017

$'000

2016

$'000

Transportation costs

108

44

Employee benefit expense

72

61

Taxes and duties

32

20

Depreciation and amortisation

18

16

Materials and other expenses

164

74

 

394

215

 

The above distribution and selling costs are those incurred at Kounrad and Sasa in addition to the costs associated with the off-take arrangements. Note 6 refers to the costs associated with the off-take arrangements (off-take buyers' fee).

9.    Administrative expenses

 

 

2017

$'000

2016

$'000

Employee benefit expense

8,063

6,056

Share based payments

2,823

2,959

Consulting and other services

3,324

2,830

Office-related costs

883

851

Taxes and duties

27

478

Depreciation and amortisation

174

92

Total from continuing operations

15,294

13,266

Total from discontinued operations (note 17)

442

947

 

15,736

14,213

 

10.  Other (expense)/income

 

2017

$'000

2016

$'000

Lynx Resources Limited acquisition costs (note 5)

(12,600)

-

Other income

252

192

 

(12,348)

192

 

 

11.  Finance income

 

2017

$'000

2016

$'000

Gain on currency hedge

2,977

-

Foreign exchange gain on intercompany borrowings

2,297

-

Bank interest received 

323

67

 

5,597

67

 

The Company entered into a currency hedge arrangement in respect of the majority of the net proceeds of the share placing (note 20) in order to limit its total exposure to adverse currency movements. 

12.  Finance costs

 

2017

$'000

2016

$'000

Provisions: unwinding of discount (note 25)

192

153

Interest on borrowings (note 24)

2,106

-

Bank charges

21

5

 

2,319

158

 

13.  Income tax

 

 

 

 

2017

$'000

2016

$'000

Current tax on profits for the year

 

 

13,984

9,580

Deferred tax credit (note 29)

 

 

(516)

(2,919)

Income tax expense

 

 

13,468

6,661

 

Taxation for each jurisdiction is calculated at the rates prevailing in the respective jurisdictions.

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:

 

 

 

2017

$'000

2016

$'000

Profit before taxation including loss from discontinued operations

49,801

32,758

Tax calculated at domestic tax rates applicable to profits in the respective countries

9,037

6,553

Tax effects of:

 

 

Expenses not deductible for tax purposes

3,582

1,758

Profit/(loss) not subject to tax - Group operations in Bermuda

180

-

Movement on unrecognised deferred tax  - tax losses

1,185

2,120

Movement on unrecognised deferred tax - other

-

(851)

Movement on recognised deferred tax (note 29)

(516)

(2,919)

Income tax expense

13,468

6,661

 

Corporate income tax is calculated at 19.25% (2016: 20%) of the assessable profit for the year for the UK parent company, 20% for the operating subsidiaries in Kazakhstan (2016: 20%) and 10% for the operating subsidiaries in Macedonia. 

 

Expenses not deductible for tax purposes includes share based payment charges and transfer pricing adjustments in accordance with local tax legislation. 

 

14.  Earnings/(loss) per share

 

(a)  Basic

Basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to owners of the Company by the weighted average number of Ordinary Shares in issue during the year excluding Ordinary Shares purchased by the Company and held as treasury shares (note 20).

 

 

2017

$'000

2016

$'000

Profit from continuing operations attributable to owners of the parent

36,313

27,066

Profit/(loss) from discontinued operations attributable to owners of the parent

56

(796)

Profitable attributable to owners of the parent

36,369

26,270

Weighted average number of Ordinary Shares in issue

125,144,585

111,558,091

 

 

2017

$ cents

2016

$ cents

Earnings/(loss) per share from continuing and discontinued operations attributable to owners of the parent during the year (expressed in $ cents per share)

 

 

From continuing operations

29.02

24.26

From discontinued operations

0.04

(0.72)

From profit for the year

29.06

23.54

 
(b)  Diluted

The diluted earnings/(loss) per share is calculated by adjusting the weighted average number of Ordinary Shares outstanding after assuming the conversion of all outstanding granted share options.

 

2017

$'000

2016

$'000

Profit from continuing operations attributable to owners of the parent

36,313

27,066

Loss from discontinued operations attributable to owners of the parent

56

(796)

Profitable attributable to owners of the parent

36,369

26,270

Weighted average number of Ordinary Shares in issue

125,144,585

111,558,091

Adjusted for

 

 

-       Share options

3,115,417

2,670,098

Weighted average number of Ordinary Shares for diluted earnings per share

128,260,002

114,228,189

 

2017

$ cents

2016

$ cents

From continuing operations

28.31

23.71

From discontinued operations

0.04

(0.72)

From profit for the year

28.35

22.99

 

 

15.  Property, plant and equipment

 

Construction in

progress     

$'000

Plant and

equipment

$'000

 

 

Mining

assets

$'000

Motor vehicles and office

equipment $'000

 

 

 

Land

$'000

 

 

Mineral

rights

$'000

Total

$'000

Cost

 

 

 

 

 

 

 

At 1 January 2016

2,003

49,408

1,601

1,301

-

-

54,313

Additions

11,572

557

-

202

-

-

12,331

Disposals

-

(246)

-

(3)

-

-

(249)

Change in estimate - asset retirement obligation (note 25)

 

-

 

(22)

 

-

 

-

 

-

 

-

 

(22)

Transfers

(10,443)

10,427

-

16

-

-

-

Exchange differences

67

985

30

26

-

-

1,108

At 31 December 2016

3,199

61,109

1,631

1,542

-

-

67,481

Acquisition of subsidiary (note 5)

8,722

48,216

-

-

643

344,986

402,567

Additions

3,903

26

-

132

21

-

4,082

Disposals

(28)

(396)

-

(46)

-

-

(470)

Change in estimate - asset retirement obligation (note 25)

 

-

 

(477)

 

-

 

-

 

-

 

-

 

(477)

Transfers

(5,129)

5,057

-

72

-

-

-

Exchange differences

371

1,648

5

3

-

11,654

13,681

At 31 December 2017

11,038

115,183

1,636

1,703

664

356,640

486,864

 

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

 

At 1 January 2016

-

12,953

62

498

-

-

13,513

Provided during the year

-

3,445

38

155

-

-

3,638

Disposals

-

(246)

-

(3)

-

-

(249)

Exchange differences

-

213

-

42

-

 

255

At 31 December 2016

-

16,365

100

692

-

-

17,157

Provided during the year

-

6,321

69

142

-

2,744

9,276

Disposals

-

(435)

-

(19)

-

-

(454)

Exchange differences

-

(40)

(1)

(26)

-

-

(67)

At 31 December 2017

-

22,211

168

789

-

2,744

25,912

 

 

 

 

 

 

 

 

Net book value

at 31 December 2016

3,199

44,744

1,531

850

-

-

50,324

Net book value

at 31 December 2017

11,038

92,972

1,468

914

664

353,896

460,952

 

The Lynx Group has pledged building and equipment with an estimated carrying value of $8,836,000 as of 31 December 2017 as a security for the borrowings (note 24).

 

The reduction in estimate in relation to the asset retirement obligation of $477,000 (2016: $22,000) is due to a combination of adjusting the provision recognised at the net present value of future expected costs using latest assumptions on inflation rates and discount rates as well as updating the provision for management's best estimate of the costs that will be incurred based on current contractual and regulatory requirements and the estimated useful life of mine (note 25). 

16.  Intangible assets

 

Goodwill

$'000

 

Exploration and

evaluation costs

$'000

Mining licences and permits

$'000

Computer

software and website

$'000

Total

$'000

Cost

 

 

 

 

 

At 1 January 2016

10,106

2,039

30,631

38

42,814

Additions

-

1,561

14

19

1,594

Exchange differences

187

-

306

1

494

At 31 December 2016

10,293

3,600

30,951

58

44,902

Acquisition of subsidiary (note 5)

21,558

-

10,412

430

32,400

Additions

-

2,002

-

23

2,025

Assets classified as held for sale (note 17)

-

(4,358)

-

-

(4,358)

Exchange differences

775

-

367

3

1,145

At 31 December 2017

32,626

1,244

41,730

514

76,114

 

 

 

 

 

 

Accumulated amortisation

 

 

 

 

 

At 1 January 2016

-

-

2,524

23

2,547

Provided during the year

-

-

1,554

9

1,563

Exchange differences

-

-

30

3

33

At 31 December 2016

-

-

4,108

35

4,143

Provided during the year

-

-

1,628

30

1,658

Exchange differences

-

-

(8)

-

(8)

At 31 December 2017

-

-

5,728

65

5,793

 

 

 

 

 

 

Net book value at 31 December 2016

10,293

3,600

26,843

23

40,759

Net book value at 31 December 2017

32,626

1,244

36,002

449

70,321

 

Impairment assessment

 

Kounrad project

The Kounrad project located in Kazakhstan has an associated goodwill balance. In accordance with IAS 36 'Impairment of assets' and IAS 38 'Intangible Assets', a review for impairment of goodwill is undertaken annually or at any time an indicator of impairment is considered to exist and in accordance with IAS 16 'Property, plant and equipment', a review for impairment of long-lived assets is undertaken at any time an indicator of impairment is considered to exist. The discount rate applied to calculate the present value is based upon the real weighted average cost of capital applicable to the cash generating unit ('CGU'). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

The discount rate reflects equity risk premiums over the risk-free rate, the impact of the remaining economic life of the CGU and the risks associated with the relevant cash flows based on the country in which the CGU is located. These risk adjustments are based on observed equity risk premiums, historical country risk premiums and average credit default swap spreads for the period.

The key economic assumptions used in the review were a five year forecast average nominal copper price of $7,292 per tonne and a long-term price of $7,372 per tonne and a discount rate of 8%.  Assumptions in relation to operational and capital expenditure are based on the latest budget approved by the Board.  The carrying value of the net assets is not currently sensitive to any reasonable changes in key assumptions.

 

Sasa project

The Sasa project located in Macedonia has an associated goodwill balance. In accordance with IAS 36 'Impairment of assets' and IAS 38 'Intangible Assets', a review for impairment of goodwill is undertaken annually or at any time an indicator of impairment is considered to exist and in accordance with IAS 16 'Property, plant and equipment', a review for impairment of long-lived assets is undertaken at any time an indicator of impairment is considered to exist.

The discount rate reflects equity risk premiums over the risk-free rate, the impact of the remaining economic life of the CGU and the risks associated with the relevant cash flows based on the country in which the CGU is located. These risk adjustments are based on observed equity risk premiums, historical country risk premiums and average credit default swap spreads for the period.

The key economic assumptions used in the review were a five year consensus forecast average price of $2,701 per tonne and a long-term price of $2,282 per tonne for zinc, $2,199 per tonne and $1,991 per tonne for lead, and $19.10 per ounce and $18.40 per ounce for silver a discount rate of 12%.  Assumptions in relation to operational and capital expenditure are based on the latest budget approved by the Board. 

 

At 31 December 2017, the Group has reviewed the indicators for impairment, including forecasted commodity prices, discount rates, operating and capital expenditure, and the mineral reserves and resources' estimates and has not identified any impairment indicators.

 

Copper Bay project

The Group has reviewed the indicators for impairment under IFRS 6 Exploration and Evaluation of Mineral Resources and, although held for sale, has not identified any indicators of impairment.  The carrying value of the net assets is not currently sensitive to any reasonable changes in key assumptions.  The Company has commenced a formal sales process of the asset.  

17.  Assets held for sale

 

The assets and liabilities of the Copper Bay entities have been presented as held for sale in the statement of financial position following the decision of the CAML Board to sell the project in August 2017 and the Company has commenced a formal sales process.  The results of the Copper Bay entities for the year ended 31 December 2017 and the comparative year ended 31 December 2016 are shown within discontinued operations in the consolidated income statement.  The Group has reviewed the indicators for impairment under IFRS 6 Exploration and Evaluation of Mineral Resources and has not identified any indicators of impairment. 

 

During 2017, the Group continued to hold for sale the assets it owns in Mongolia.  The Group disposed of its interest in Monresources LLC in February 2017 and its interest in Zuunmod UUL LLC in April 2018.  The Mongolian assets are fully written-down. 

Assets of disposal group classified as held for sale:

 

 

31 Dec 17 $'000

31 Dec 16 $'000

Cash and cash equivalents

151

-

Property plant and equipment

-

45

Intangible assets

4,358

-

Trade and other receivables

7

-

 

4,516

45

 

Liabilities of disposal group classified as held for sale:

 

 

 

 31 Dec 17 $'000

 31 Dec 16 $'000

Provisions

 

-

336

Trade and other payables

 

90

20

 

 

90

356

Profit/(loss) from discontinued operations:

 

 

2017

$'000

2016

$'000

General and administrative expenses

 

(442)

(947)

Other income

 

100

-

Foreign exchange gain

 

398

151

Profit/(loss) from discontinued operations

 

56

(796)

Cash flows of disposal group classified as held for sale:

 

 

2017

$'000

2016

$'000

Operating cash flows

 

151

(22)

Total cash flows

 

151

(22)

 

 

18.  Trade and other receivables

 

 

 

31 Dec 17 $'000

31 Dec 16 $'000

Trade receivables

 

 

6,254

-

Prepayments

 

 

2,367

347

VAT receivable

 

 

1,563

548

Other receivables

 

 

3,554

24

 

 

 

13,738

919

 

 

 

 

 

Non-current receivables

 

 

 

 

Prepayments

 

 

39

368

VAT receivable

 

 

2,480

2,370

 

 

 

2,519

2,738

 

The carrying value of all the above receivables is a reasonable approximation of fair value.  There are no amounts past due at the end of the reporting period that have not been impaired apart from the VAT receivable balance as explained below.  Management's policy is to assess all trade and other receivables for recoverability on a regular basis. A provision is made where doubt exists and amounts are fully written-off when information becomes known that the amounts due will not be recovered.

Other receivables includes $3,300,000 received from the Sellers of Lynx Resources Limited in April 2018 (note 5).

As at 31 December 2017, the total Group VAT receivable was $4,043,000 (2016: $2,918,000) which includes an amount of $2,703,000 (2016: $2,838,000) of VAT owed to the Group by the Kazakhstan authorities.  In 2017, the Kazakhstan authorities refunded $820,000 and a further amount of $223,000 was refunded from the authorities in January 2018 and has been classified as current trade and other receivables as at 31 December 2017.  The Group is working closely with its advisors to recover the remaining portion. The planned means of recovery will be through a combination of the local sales of cathode copper to offset VAT liabilities and by a continued dialogue with the authorities.

19.  Cash and cash equivalents

                                                                                                                                                                                                                                                                                                           

 

 

31 Dec 17

 $'000

31 Dec 16

 $'000

Cash at bank and on hand

 

35,208

32,209

Short-term deposits

 

 

43,022

40,258

Cash at bank and on hand included in assets held for sale

 

151

-

Total cash and cash equivalent

 

43,173

40,258

Restricted cash

 

2,812

118

Total cash and cash equivalent including restricted cash

 

45,985

40,376

 

The restricted cash amount of $2,812,000 (2016: $118,000) is held at bank to cover debt compliance and Kounrad SUC licence requirements.  Short-term deposits are held at call with banks.  

20.  Share capital and premium

 

 

 

Number of

shares

Ordinary

shares

$'000

Share

premium

 $'000

Treasury

shares

$'000

At 1 January 2016

 

112,069,738

1,121

-

(7,810)

Sale of EBT shares

 

-

-

-

30

At 31 December 2016

 

112,069,738

1,121

-

(7,780)

Issue of shares

 

64,428,528

644

191,184

-

At 31 December 2017

 

176,498,266

1,765

191,184

(7,780)

 

The par value of Ordinary Shares is $0.01 per share and all shares are fully paid.  The cash consideration for the Lynx Resources acquisition was partially funded by the placing of 49,150,000 shares to institutional investors at £2.30 per share (approximately $142,945,000 net of issue costs) allotted on 12 October 2017. In addition, the fair value of the 15,278,528 Ordinary Shares issued on 6 November 2017 as part of the consideration paid ($48,883,000) was based on the published share price on 6 November 2017 of £2.44 per share translated at the USD/GBP spot exchange rate of 1.31124. 

 

21.  Currency translation reserve

 

Currency translation differences arose primarily on the translation on consolidation of the Group's Kazakhstan-based and Macedonian-based subsidiaries whose functional currency is the Tenge and Macedonian Denar.  In addition, currency translation differences arose on the goodwill and fair value uplift adjustments to the carrying amounts of assets and liabilities arising on the Kounrad Transaction and Lynx Resources acquisition which are denominated in Tenge and Denar.  During 2017, a non-cash currency translation gain of $7,989,000 (2016: gain of $1,034,000) was recognised within equity. 

 

 

22.  Trade and other payables
                                                 

 

 

31 Dec 17 $'000

31 Dec 16 $'000

Trade and other payables including accruals

 

10,626

3,762

Deferred consideration (note 5)

 

4,000

-

Corporation tax, social security and other taxes

 

7,772

2,258

 

 

22,398

6,020

 

 

 

 

Other non-current payables:

 

 

 

Deferred consideration (note 5)

 

8,000

-

 

 

8,000

-

 

The carrying value of all the above payables is equivalent to fair value.

The Group made a provision for the 2017 Kazakhstan corporate income tax liability of $1,331,000 (2016: $940,000) having paid an amount of $11,367,000 in advance during the year (2016: $8,675,000).  $927,000 was also paid during the year in relation to 2016 corporate income tax.  The Group made a provision for the 2017 Macedonian corporate income tax liability of $4,677,000. 

All Group trade and other payables are payable within less than one year for both reporting periods.

23.  Deferred revenue

 

The carrying amounts of the deferred revenue-received advances for silver delivery are as follows:

                                                                    

 

 

31 Dec 17 $'000

31 Dec 16

$'000

Current

 

2,056

-

Non-current

 

17,621

-

 

 

19,677

-

 

On 1 September 2016, the Lynx Group entered into a Silver Purchase Agreement with Lynx Metals Limited by netting off its existing loan payable with Lynx Metals (note 6). The prepayments for the purchase of silver are recognised as deferred revenue and are related to the production of silver during the life of the mine.  Deferred revenue is recognised in the income statement as the silver is delivered based on the units of production.  Management are currently reviewing the fair value of the silver stream (note 5).

 

24.  Borrowings
                                                                                                                                                                                                                                                                                                                                                                                                                                 

 

 

31 Dec 17 $'000

31 Dec 16

$'000

Secured: Non-current

 

 

 

Bank loans

 

141,839

-

Secured: Current

 

 

 

Bank loans

 

40,075

-

 

 

181,914

-

 

The carrying value of loans approximates fair value:

 

Carrying amount

Fair value

 

31 Dec 17 $'000

31 Dec 16 $'000

31 Dec 17 $'000

31 Dec 16

$'000

Ohridska Banka AD Skopje

5,539

-

5,539

-

SG Facility

62,664

-

62,664

-

Traxys

113,711

-

113,711

-

 

181,914

-

181,914

-

 

Current and non-current borrowings includes the long-term loan that was issued for an amount of $75,000,000 from Societe Generale and Investec (the Senior Facility) obtained in October 2016 with an interest rate of 3 month LIBOR plus 5%, maturing on 30 September 2023. 

 

Bank borrowings from Ohrdiska Bank represents a 4.5% interest rate rollover credit facility of up to MKD 307,500,000, which was partially drawn in four separate tranches:

-      $2,43,000 (MKD 123,000,000) maturing on 30 June 2018;

-      $600,000 (MKD 30,747,000) maturing on 5 September 2018;

-      $1,199,000 (MKD 61,483,000) maturing on 30 November 2018;

-      $1,260,000 (MKD 64,589,000) maturing on 24 February 2018. 

 

The cash consideration payable for the acquisition of Lynx Resources was partly financed by $120,000,000 in new secured debt facilities provided by Traxys on 22 September 2017.  The debt financing agreement forms part of a pre-payment arrangement between the Group and Traxys under which Traxys is advancing funds in expectation of acquiring production from the Group's Kounrad operations.  The debt financing agreement has a term of five years, with monthly repayments of $2,000,000 per month.  Additional quarterly repayments (cash sweeps) are required equal to 33% of Kounrad free cash-flow less $1,000,000 per quarter.  Interest is payable at LIBOR plus 4.75%. Security is provided over the shares in CAML Kazakhstan BV, certain bank accounts and the Traxys Kounrad off-take agreement. The agreement contains typical covenants for this type of facility, including financial covenants related to financial performance of the Company's Kounrad operations including a gearing ratio of less than 100% and total debt to Group EBITDA of less than 250%.  The following Group subsidiaries are guarantors: Sary Kazna LLP, Kounrad Copper Company LLP and CAML Kazakhstan BV.  Kounrad Copper Company LLP is required to maintain a minimum cash balance of $2,500,000. 

During the year, there were repayments of borrowings amounting to $8,362,000.

The fair value of borrowings has been calculated by discounting the expected future cash flows at contracted interest rates.

As at 31 December 2017, the Group measured the fair value using techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly (Level 2).

 

The different levels have been defined as follows:

•      Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).

•      Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).

•      Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

 

25.  Provisions for other liabilities and charges

 

                                                                                                                                                                                                                                    

 

Asset

retirement obligation

$'000

Employee retirement

benefits

$'000

Other

employee

benefits

$'000

 

 

Legal claims

$'000

 

 

Total

$'000

At 1 January 2016

1,916

-

-

-

1,916

Change in estimate

     (22) 

-

-

-

     (22) 

Unwinding of discount

     153

-

-

-

     153

Exchange rate difference

     40

-

-

-

     40

At 31 December 2016

 2,087

-

-

-

 2,087

Acquisition of subsidiary (note 5)

2,746

123

184

440

3,493

Change in estimate

(477)

57

(30)

-

(450)

Unwinding of discount (note 12)

192

-

-

-

192

Exchange rate difference

28

-

-

15

43

At 31 December 2017

4,576

180

154

455

5,365

Non-current

4,576

171

149

423

5,319

Current

-

9

5

32

46

At 31 December 2017

4,576

180

154

455

5,365

 

a)    Asset retirement obligation

The Group provides for the asset retirement obligation associated with the mining activities at Kounrad, estimated to be required in 2034. The provision is recognised at the net present value of future expected costs using a discount rate of 8.07% (2016: 8.07%) representing the risk-free rate (pre-tax) for Kazakhstan.  The reduction in estimate in relation to the asset retirement obligation of $477,000 (2016: $22,000) is due to a combination of adjusting the provision recognised at the net present value of future expected costs using an inflation rate of 5.59% (2016: 6.02%) and discount rate of 8.07% (2016: 8.07%) representing the risk-free rate (pre-tax) for Kazakhstan as well as updating the provision for management's best estimate of the costs that will be incurred based on current contractual and regulatory requirements and the estimated useful life of mine to 2034. 

 

Under current legislation entities operating mining and related activities in Macedonia are required to take remedial action for the land where such activities have occurred based on a plan approved by the Ministry of the Environment as well as in accordance with international best practices. After the ceasing of mining activities the Group is obliged to restore the mining area and to return it to its initial condition.  The Group has engaged an independent expert to conduct an independent assessment on the environment of the mining activities of the Group and to prepare assessment of the restoration and the relevant costs connected with the mine, tailing site and the mining properties. The calculation was performed on a basis of this independent assessment performed by an environmental technical expert.  The expected current cash flows were projected over the useful life of the mining sites and discounted to 2017 terms using a risk free discount rate of 7.98%. The cost of the related assets are depreciated over the useful life of the assets and are included in property, plant and equipment.

 

b)    Employee retirement benefit

All employers in Macedonia are obliged to pay employees minimum severance pay on retirement equal to two months of the average monthly salary applicable in the country at the time of retirement.  The retirement benefit obligation is stated at the present value of expected future payments to employees with respect to employment retirement pay. The present value of expected future payments to employees is determined by an independent authorised actuary in accordance with the prevailing rules of actuarial mathematics.

 

c)    Other employee benefit

The Group is also obliged to pay jubilee anniversary awards at each ten years of continuous service of the employee. Provisions for termination and retirement obligations are recognised in accordance with actuary calculations. Basic 2017 actuary assumptions are used as follows:

Discount rate: 3.8%

Expected rate of salary increase: 2.5%

 

d)    Legal claims

The Group is party to certain legal claims and the recognised provision reflects management's best estimate of the most likely outcome.

 

26.  Cash generated from operations               

 

Note

 

2017

$'000

2016

$'000

 

Profit before income tax including discontinued operations

 

 

49,801

32,758

Adjustments for:

 

 

 

 

Depreciation and amortisation

15,16

 

10,927

5,083

Amortisation of deferred revenue - received advances for silver delivery

 

 

(304)

-

Gain on disposal of property, plant and equipment

 

 

-

(64)

Foreign exchange (gain)/loss

 

 

(3,349)

1,234

Share based payments

 

 

2,823

2,959

Finance income

11

 

(5,597)

(67)

Finance costs

12

 

2,319

158

Changes in working capital:

 

 

 

 

Inventories

 

 

(1,259)

(288)

Trade and other receivables

18

 

3,868

3,241

Trade and other payables

22

 

1,113

(268)

Provisions for other liabilities and charges

25

 

70

-

Cash generated from operations

 

 

60,412

44,746

 

27.  Dividend per share

 

In line with the Company dividend policy, the Company paid $23,146,000 in 2017 (2016: $20,360,000) which consisted of a 2017 interim dividend of 6.5 pence per share and a final dividend for 2016 of 10.0 pence per share (2016: interim dividend of 5.5 pence per share and a final dividend for 2015 of 8.0 pence per share). 

The Directors will propose a final dividend in respect of the year ended 31 December 2017 of 10.0 pence per share at the forthcoming Annual General meeting (AGM).

28.  Related party transactions

 

Key management remuneration

Key management remuneration comprises the Directors' remuneration, including Non-Executive Directors, disclosed in the 2017 Annual Report.

Non-Executive Directors
Mr Kenges Rakishev became a major shareholder of CAML on 23 May 2014 following completion of the Kounrad Transaction. He was appointed to the CAML Board on 9 December 2013 following the completion of the first part of the transaction.  As part of the obligations on Kenges Rakishev for completing the Kounrad Transaction, he signed a relationship agreement with CAML setting out the terms of the relationship between himself and the Group.
 
In June 2017, Kenges Rakishev sold his 86.09% interest in JSC Kazkommertsbank ('KKB') to JSC Halyk Bank and resigned as Chairman of KKB in July 2017.  The Group uses the facilities of KKB and JSC Halyk Bank within Kazakhstan for its normal day-to-day banking. 

 

Kenges Rakishev has an interest in other finance and insurance entities in Kazakhstan.  The Group has insurance relationships with such entities and has made an insurance claim under which a syndicate of insurers, including some related to Kenges Rakishev, have a potential liability.

 

In September 2017, Kenges Rakishev sold 10,605,875 ordinary CAML shares of $0.01 each at a price of 230 pence per share.  In February 2018, he sold his remaining shareholding of 10,605,876 ordinary shares at a price of 275 pence per share. 

During the year, the Group paid consultancy fees of $75,000 (2016: nil) to Nurlan Zhakupov, a Non-Executive Director of the Company, under a consultancy agreement in terms of which Mr Zhakupov provides services over and above his normal duties.  
 
29.  Deferred income tax liability
 

The movements in the Group's deferred tax assets and liabilities are as follows:

 

 

 

At 1 January

2017 $'000

Lynx Resources acquisition

$'000

Currency translation

differences $'000

(Debit)/credit to income

statement

$'000

At 31 December

2017 $'000

Other timing differences

 

(82)

-

(2)

(37)

(121)

Deferred tax liability on fair value adjustment on Kounrad Transaction

 

(8,459)

-

(31)

387

(8,103)

Deferred tax liability on fair value adjustment on Lynx acquisition (note 5)

 

 

-

 

(21,558)

 

(745)

 

166

 

(22,137)

Deferred tax liability, net

 

(8,541)

(21,558)

(778)

516

(30,361)

 

A taxable temporary difference arose as a result of the Kounrad Transaction and Lynx Resources Limited acquisition, where the carrying amount of the assets acquired were increased to fair value at the date of acquisition but the tax base remained at cost.  The deferred tax liability arising from these taxable temporary differences has been reduced by $553,000 during the year (2016: $2,867,000) to reflect the tax consequences of depreciating and amortising the recognised fair values of the assets during the year.

 

 

 

At 1 January

2016 $'000

Currency translation

differences $'000

Credit to income

statement

$'000

At 31 December

2016 $'000

Other timing differences

 

(134)

-

52

(82)

Deferred tax liability on fair value adjustment on Kounrad Transaction

 

(10,106)

(1,220)

2,867

(8,459)

Deferred tax liability, net

 

(10,240)

(1,220)

2,919

(8,541)

                                                                                                                                                  

 

 

 

 

 

 

 

At 31 December 2017

$'000

 

At 31 December 2016

$'000

Deferred tax liability due within 12 months

 

 

 

 

(1,597)

(352)

Deferred tax liability due within 12 months

 

 

 

 

(28,764)

(8,189)

Deferred tax liability, net

 

 

 

 

(30,361)

(8,451)

 

Where the realisation of deferred tax assets is dependent on future profits, the Group recognises losses carried forward and other deferred tax assets only to the extent that the realisation of the related tax benefit through future taxable profits is probable.

The Group did not recognise other potential deferred tax assets arising from losses of $8,758,000 (2016: $7,991,000) as there is insufficient evidence of future taxable profits within the entities concerned. Unrecognised losses can be carried forward indefinitely.

At 31 December 2017, the Group had other deferred tax assets of $2,195,000 (2016: $1,543,000) in respect of share based payments and other temporary differences which had not been recognised because of insufficient evidence of future taxable profits within the entities concerned.

There are no significant unrecognised temporary differences associated with undistributed profits of subsidiaries at 31 December 2017 and 2016, respectively.

30.  Events after the reporting period

 

Kazakhstan VAT recoverability

As at 31 December 2017 a total of $2,703,000 (2016: $2,838,000) of VAT receivable was still owed to the Group by the Kazakhstan authorities. A portion of this amount totalling $233,000 was refunded from the authorities in January 2018 and has been classified as current trade and other receivables as at 31 December 2017.

Lynx Resources acquisition

In March 2018, a final determination was reached with regards to the purchase price, pursuant to the share purchase agreement. Consistent with the closing account mechanics of the agreement, the amount of $3,300,000 was received from the sellers in April 2018.  This amount was recognised as a current receivable as at 31 December 2017. 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
FR UAONRWOASAAR