Full year results 2018 - pre-tax profit of $25.2m

RNS Number : 1786Z

Anglo Asian Mining PLC

16 May 2019

 

Anglo Asian Mining plc / Ticker: AAZ / Index: AIM / Sector: Mining

16 May 2019

Anglo Asian Mining PLC

Full year results - 2018

Profit before tax increases to $25.2 million (2017: $5.7 million)

Final dividend of $0.04 per share giving a total 2018 dividend of $0.07 per share

Anglo Asian Mining PLC ("Anglo Asian" or the "Company"), the AIM listed gold, copper and silver producer focused in Azerbaijan, is pleased to announce its final audited results for the year ended 31 December 2018 ("FY 2018").  Note that all references to "$" are to United States Dollars.

Highlights

·    Achieved FY 2018 production at the upper range of the Company forecast - 83,736 gold equivalent ounces ("GEOs") produced compared to forecast of 78,000 to 84,000 GEOs:

o Total production for FY 2018 increased by 17 per cent. year-on-year ("y-o-y") to 83,736 GEOs (FY 2017: 71,461 GEOs) 

o Gold production for FY 2018 increased by 22 per cent. y-o-y to 72,798 ounces (FY 2017: 59,617 ounces)

o Copper production for FY 2018 of 1,645 tonnes (FY 2017: 1,991 tonnes)

o Silver production for FY 2018 of 210,184 ounces (FY 2017: 172,853 ounces)

·    Gold bullion sales in FY 2018 of 59,481 ounces (FY 2017: 43,496 ounces) completed at an average of $1,265 per ounce (FY 2017: $1,265 per ounce)

·    All-in sustaining cost of gold production in 2018 further decreased in the lowest quartile to $541 per ounce (2017: $604 per ounce)

·    Net cash of $6.1 million at 31 December 2018

·    Final dividend declared of $0.04 per ordinary share payable on 25 July 2019 subject to approval at the Annual General Meeting giving a FY 2018 total dividend of $0.07 per ordinary share

·    Total production target for FY 2019 of between 82,000 and 86,000 GEOs

Financials

·    Total revenues in 2018 of $90.4 million representing a 26 per cent. y-o-y increase (2017: $71.8 million)

·    Profit before taxation in 2018 of $25.2 million representing a more than four times increase (2017: $5.7 million)

·    Operating cash flow before movements in working capital for FY 2018 of $50.1 million (2017: $32.2 million)

·    Net cash of $6.1 million at 31 December 2018 (31 December 2017: Net debt of $18.1 million) calculated as cash and cash equivalents less aggregate of loans and borrowings

·    Cash of $14.5 million as at 31 December 2018 (31 December 2017: $2.5 million)

Chairman's Statement

It is a great pleasure to report on a truly transformational year for Anglo Asian. All our hard work in previous years came to fruition and this delivered both record production and an outstanding financial performance. I am also delighted that the Company paid its maiden dividend in 2018 and to announce a final dividend of US 4 cents per share. This gives a total dividend for the year of US 7 cents per share and means our shareholders share in our success.

Our main site at Gedabek is now a well-developed operation although we continue to invest to ensure it operates to the highest possible level of safety and efficiency. Gedabek produces gold at one of the lowest costs in the industry, and we are determined to maintain this position as we continue to extend its production life. The evaluation of the mineral resources and ore reserves of Gedabek's three mines in accordance with the JORC code is now also complete, which has extended the combined mine life until 2024.

We embarked upon an extensive three-year geological exploration programme in 2018 to further develop and grow the Company. Our goal is to open further mines which we can do rapidly and efficiently as demonstrated by the fast development of Ugur. The aerial geophysical survey identified many exciting targets at Gedabek and a new discovery has been made at Gosha. We have also substantially increased our efforts at Ordubad which is a highly prospective region with great promise.  Whilst still relatively early days, Ordubad has the potential to significantly grow the Company in future years.

Operational review

A total of 83,736 gold equivalent ounces was produced in 2018, a 17 per cent. increase compared to 2017 and a record for the Company. Gold production was 72,798 ounces compared to 59,617 ounces in 2017, which was a 22 per cent. increase largely due to gold doré production from processing Ugur ore throughout the year. Silver production also increased to 210,184 ounces, an increase of 22 per cent. compared to 2017.

Copper production decreased in 2018 to 1,645 tonnes. The flotation plant was mostly on planned care and maintenance in the first half of the year due to limited feedstock as the agitation leaching plant was processing Ugur ore which does not contain copper. A new, dedicated jaw crusher for the flotation plant commenced operation in July 2018.  As a result, copper production increased significantly in the second half of the year as this capital investment enabled the independent operation of the flotation plant processing copper rich ore. As well as allowing the independent operation of the agitation leaching and flotation plants, the new jaw crusher increases the overall flexibility of our processing plants.

Gedabek's operational performance was strengthened in the year by the recruitment of several highly experienced managers in key areas which included blasting, transportation logistics and ore handling and equipment maintenance. Many opportunities to improve working practices were actioned and these initiatives are all contributing to a more professional and efficient working environment. The Company also signed an off-take agreement in late 2018 for flotation concentrate with Trafigura PTE Ltd. on improved commercial terms.

The tragic collapse of the Brumadinho tailings dam in Brazil was unfortunately not an isolated incident in the last ten years. Safety is our number one priority and the Company's tailing dam has been constructed to the highest possible specification. The dam is constructed from hard rock and not tailings material, as is common in the industry, and the building and maintenance of the dam has been continuously supervised by one environmental and geotechnical consultancy. However, in light of the Brumadinho collapse, the Company has commissioned an inspection of the dam this summer by Knight Piésold, a leading environmental engineering company. Any actions highlighted by the inspection will be carried out immediately.

Financial results and dividend

Our financial performance in the year was exceptional and revenues increased by $18.6 million to $90.4 million. This improvement arose from increased gold doré production together with higher gold and copper prices. Revenues continued to be subject to an effective royalty of 12.75 per cent. in 2018. We anticipate this effective royalty rate will continue until at least 2023 and further details are in the financial review below. The all-in sustaining cost ("AISC") per ounce of gold produced decreased in the year to $541 from $604 in 2017. The Company's AISC has steadily reduced for the past five years and is considered to now be amongst the lowest in the industry.

The Company's balance sheet has been transformed in 2018 with increased cash flow. Cash from operations was $50.7 million and free cash flow was $28.9 million. The Company refinanced $13.5 million of its debt and repaid the remainder outstanding from internally generated funds during the year. At 7 per cent. fixed rate, the refinancing loan has a lower rate of interest than previous borrowings, has no covenants and is unsecured. The loan from the chief executive was repaid in full in March 2018 and I would like to take this opportunity to emphatically thank Reza for his confidence and commitment to the Company which has proven to be amply justified.

A key milestone for the Company was payment of a maiden dividend of US 3 cents per share in November 2018. In accordance with the Company's target of distributing approximately 25 per cent. of free cash flow to shareholders each year, I am delighted to announce a final dividend for the year ended 31 December 2018 of an additional US 4 cents per share. This makes a total dividend for 2018 of US 7 cents per share.

Mineral resources and geological exploration

The Company completed its goal of formalising mineral resource and ore reserves for its three mines at Gedabek by early 2019. In September 2018, an updated mineral resource and ore reserve estimate for the Gedabek open pit was published in accordance with the JORC code. The total mineral resource was around one million ounces of gold, which at this point in time has extended the life of mine of the Gedabek open pit by up to six years. In early 2019, a maiden mineral resource and ore reserve estimate for the Gadir underground mine was published in accordance with the JORC code which established an initial five-year life of mine.

In accordance with our commitment to be a long-term producer of precious metal and copper, a comprehensive three-year geological exploration programme commenced in the year. In the final quarter of 2018, a helicopter-borne electromagnetic survey was carried out over the entire Gedabek contract area which successfully identified many new targets for follow-up exploration work. This was the first such survey in Azerbaijan and was carried out with the assistance of the Azeri Government. Other on-going geological work has identified further copper and gold mineralisation beneath, and extending from, the Gedabek open pit that has the potential to further increase its life of mine.

We substantially increased our exploration efforts at Ordubad during 2018. Soviet era data indicate extensive mineralisation and the region is adjacent to significant copper deposits in neighbouring countries. We have identified several exciting targets all within a five kilometre radius. Extensive surface geological work was carried out in the year and core drilling has started. We were also pleased that a geological team from the Natural History Museum of London assisted our work as part of their "FAMOS" research programme. It is clear from its location and both the Soviet era and current work that Ordubad is a very promising region with widespread mineralisation.

We recently announced a new discovery within Gosha at the Asrikchay target area. This polymetallic discovery is exciting as it is the first indication of copper in the region. We have a track record of rapidly advancing discoveries as evidenced by Ugur, which progressed from discovery to production in just over a year, and we are confident that we can replicate this approach with any future discoveries.

Outlook

The success achieved in 2018 has placed Anglo Asian in an enviable position to move forward. Gedabek is now generating stable cash flow which provides funds for both investment and to pay dividends. The Company's solid balance sheet and excellent relationships with banks in Azerbaijan and elsewhere means loan finance can be easily obtained if required. Together, this means the Company has ample financial resources to seize any suitable opportunities that may arise.

The Company has over 1,000 square kilometers of land within its contract areas. As set out above and in the strategic report below, the Company has a comprehensive exploration programme underway to extensively explore this land for new deposits. This programme is starting to yield results with the identification of several major targets at Gedabek and Gosha. We regard Ordubad as an untapped value opportunity and work there is now being ramped up. The Company will also aggressively pursue any suitable opportunities outside Azerbaijan which it believes can be made commercially successful.

During 2018, Anglo Asian made a concerted effort to meet with many existing and potential investors including organised roadshows, investor presentations and conferences. Our reputation as an attractive investment opportunity was evidenced by the press coverage received in 2018 with articles published both in trade publications and mainstream national newspapers in the United Kingdom.  As the Company develops and grows, we firmly intend to maintain this reputation and increase the profile of the Company. We also intend to increase the Company's social media presence.

We have set a production target of between 82,000 and 86,000 gold equivalent ounces for 2019, which is an increase from 2018. This includes up to 67,500 ounces of gold and up to 3,300 tonnes of copper.  We are on track to achieve this production target and I look forward to updating shareholders with our progress in the coming months. 

I would like to conclude by saying that Anglo Asian accomplished a tremendous amount in 2018. We plan to build on our now very solid foundations to develop your Company into a mid-tier gold, copper and silver producer. It is therefore with continued optimism that I look forward to 2019 and beyond.

Appreciation

I would like to take this opportunity to thank the employees of Anglo Asian, our partners, the Government of Azerbaijan and our advisors for their continued support as we deliver on our strategy of becoming a leading gold, copper and silver producer.  Finally, I wish to sincerely thank our shareholders for their continued investment and support in Anglo Asian.  I look forward to sharing the successes of 2019 with you.

Khosrow Zamani

Non-executive chairman

Dividend

A final dividend of US$0.04 per share will be paid gross in respect of the year ended 31 December 2018 to shareholders on 25 July 2019 that are on the shareholders record at the record date of 28 June 2019 subject to approval of the shareholders at the Company's Annual General Meeting on 20 June 2019. The shares will go ex-dividend on 27 June 2019. All dividends will be paid gross and in cash. A scrip dividend or any other dividend reinvestment plan will not be offered by the Company.

The dividend will be payable in pounds sterling. The dividend will be converted to pounds sterling using the average of the sterling closing mid-price using the exchange rate published by the Bank of England at 4pm each day from the 1 to 5 July 2019.

Corporate Governance

A statement of the Company's compliance with the ten principles of corporate governance contained within the Quoted Companies Alliance Corporate Governance Code ('QCA Code') will be included in the Company's annual report and accounts for 2018.

Market Abuse (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

For further information please visit www.angloasianmining.com or contact:

Reza Vaziri	Anglo Asian Mining plc	Tel: [phone]
Bill Morgan	Anglo Asian Mining plc	Tel: [phone]
Stephen Westhead	Anglo Asian Mining plc	Tel: [phone]
Ewan Leggat	SP Angel Corporate Finance LLP Nominated Adviser and Broker	Tel: [phone]
Soltan Tagiev	SP Angel Corporate Finance LLP	Tel + 44 (0) 20 3470 0470
Isabel de Salis	St Brides Partners Ltd	Tel: [phone]
Gaby Jenner	St Brides Partners Ltd	Tel: [phone]

Competent Person Statement

The information in the announcement that relates to exploration results, minerals resources and ore reserves is based on information compiled by Dr Stephen Westhead, who is a full time employee of Anglo Asian Mining with the position of Director of Geology & Mining, who is a Fellow of The Geological Society of London, a Chartered Geologist, Fellow of the Society of Economic Geologists, Member of The Institute of Materials, Minerals and Mining and a Member of the Institute of Directors.

Stephen Westhead has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Stephen Westhead consents to the inclusion in the announcement of the matters based on his information in the form and context in which it appears.

Stephen Westhead has sufficient experience, relevant to the style of mineralisation and type of deposit under consideration and to the activity that he is undertaking, to qualify as a "competent person" as defined by the AIM rules. Stephen Westhead has reviewed the resources and reserves included in this announcement.

The information in this announcement that relates to Exploration Targets, Exploration Results, Mineral Resources or Ore Reserves is based on information compiled by Dr Stephen Westhead, a Competent Person who is a Member or Fellow of a 'Recognised Professional Organisation' (RPO) included in a list that is posted on the ASXwebsite from time to time (Chartered Geologist and Fellow of the Geological Society and Member of the Institute of Material, Minerals and Mining). Dr. Stephen Westhead is a full-time employee of the Company.

Strategic Report

Principal activities

The principal activity of Anglo Asian Mining PLC (the "Company") is that of a holding company and a provider of support and management services to its main operating subsidiary R.V. Investment Group Services LLC. The Company, together with its subsidiaries (the "Group"), owns and operates gold, silver and copper producing properties in the Republic of Azerbaijan ("Azerbaijan"). It also explores for and develops other potential gold and copper deposits in Azerbaijan.

The Group has a 1,962 square kilometre portfolio of gold, silver and copper properties in western Azerbaijan, at various stages of the development cycle. The Group's primary operating site is Gedabek, which is the location of the Group's main gold, silver and copper open pit mine, the Ugur open pit mine and Gadir, an underground mine. The Group's processing facilities to produce gold doré and copper, silver and gold concentrates are also located at Gedabek. Gosha, the Group's second underground gold and silver mine, is located 50 kilometres away from Gedabek. Ordubad, the Group's early stage gold and copper exploration project is located in Nakhchivan, South West Azerbaijan.

Overview of 2018 and 2019 to date and 2019 production target

In 2018, the Group built upon the successful results of the wide-ranging strategic review carried out in 2017 to ensure long term sustainable production at Gedabek:

·    Mining was carried out throughout 2018 from the Ugur open pit which commenced operations in September 2017.  1.2 million tonnes of ore grading an average of 1.27 grammes of gold per tonne were mined from the Ugur open pit in 2018.

·    A second jaw crusher line was installed for the flotation plant which commenced operation in July 2018. This enabled the agitation leaching plant and the flotation plant to operate independently.

·    The Group continued to formalise all its resources and JORC mineral resources and ore reserves estimates were published for both the Gedabek open pit mine and the Gadir underground mine.

·    A three year geological exploration programme was commenced in 2018 which includes near mine, brownfield and greenfield exploration. As part of this programme, an airborne geophysical survey of the entire Gedabek contract area was carried out in quarter four 2018.

The Group has a production target for the year to 31 December 2019 of 65,000 ounces to 67,500 ounces of gold and 3,100 tonnes to 3,300 tonnes of copper. The total production target for the year to 31 December 2019 expressed as gold equivalent ounces ("GEOs") is between 82,000 GEOs and 86,000 GEOs, compared to total production for the year to 31 December 2018 of 83,736 GEOs.

Gedabek

Introduction

The Gedabek mining operation is located in a 300 square kilometre contract area in the Lesser Caucasus mountains in western Azerbaijan on the Tethyan Tectonic Belt, one of the world's most significant copper and gold-bearing geological structures. Gedabek is the location of the Group's open pits and underground mines and its processing facilities.

Gold was first poured from ore mined from the Gedabek open pit and processed by heap leaching in May 2009, with production fully commencing in September 2009. Copper and precious metal concentrate production began in 2010 when the Sulphidisation, Acidification, Recycling and Thickening (SART) plant was commissioned. The Group's agitation leaching plant commenced production in 2013 and its flotation plant in 2015. Underground extraction of ore at Gedabek started in June 2015 when the Gadir mine was opened. During 2017, the Group brought Ugur, a newly discovered gold deposit three kilometres north-west of its processing facilities, into production as an open pit mine. In July 2018, a second crusher line was added to the flotation plant to enable independent operation and processing by the agitation leaching plant and the flotation plant.

Mineral resources and ore reserves

Key to the future development of the Gedabek site is our knowledge of the mineral resources and ore reserves within our contract areas. The Group's most recent mineral resources and ore reserves estimates for the Gedabek open pit were published as of 18 September 2018. Full JORC (2012) reporting with unchanged mineral resources and ore reserves estimates was subsequently released on 14 March 2019. The mineral resource showed a total mineral resource (at a cut-off grade of 0.3 grammes per tonne of gold) of approximately 986 thousand ounces of gold, 63.4 thousand tonnes of copper and 8,172 thousand ounces of silver. The economically mineable ore reserves are over 343,000 ounces of gold and more than 36,000 tonnes of copper, which has extended the current life of the Gedabek open pit until 2024. Table 1 shows the Gedabek open pit mineral resources estimate at 14 March 2019 and Table 2 shows the Gedabek open pit ore reserves estimate at 14 March 2019.

Table 1 - Gedabek open pit mineral resources estimate at 14 March 2019

Gold (+ Copper) Mineral Resources (cut-off grade ≥ 0.3 g/t gold)
Mineral Resources	Tonnage	Gold Grade	Copper Grade	Silver Grade	Gold	Copper	Silver
	(Mt)	(g/t)	(%)	(g/t)	(koz)	(kt)	(koz)
Measured	18.0	0.9	0.2	8.3	532	38.0	4,800
Indicated	11.1	0.7	0.1	5.6	264	15.7	2,011
Measured+Indicated	29.1	0.9	0.2	7.3	796	53.7	6,811
Inferred	8.5	0.7	0.1	5.0	189	9.7	1,361
Total	37.6	0.8	0.2	6.8	986	63.4	8,172
Copper Mineral Resource (Additional to Gold Mineral Resource) (cut-off grade copper ≥0.3% and gold <0.3 g/t)
Mineral Resources	Tonnage	Gold Grade	Copper Grade	Silver Grade	Gold	Copper	Silver
	(Mt)	(g/t)	(%)	(g/t)	(koz)	(kt)	(koz)
Measured	5.3	0.1	0.5	2.1	21	26.3	356
Indicated	0.9	0.1	0.5	1.6	3	4.4	48
Measured+Indicated	6.2	0.1	0.5	2.0	24	30.7	404
Inferred	0.5	0.1	0.4	1.5	1	1.9	23
Total	6.7	0.1	0.5	2.0	25	32.6	426

Note that due to rounding, numbers presented may not add up precisely to totals.

Table 2 - Gedabek open pit ore reserves estimate at 14 March 2019

Ore Reserves	Tonnage	Gold Grade	Copper Grade	Silver Grade	Gold	Copper	Silver
	(Mt)	(g/t)	(%)	(g/t)	(koz)	(kt)	(koz)
Proved	10.9	0.89	0.29	8.83	311	31.9	3,084
Probable	1.2	0.82	0.34	9.52	32	4.1	373
Proved and Probable	12.1	0.88	0.30	8.90	343	36.0	3,457

Note that due to rounding, numbers presented may not add up precisely to totals.

The above proved and probable ore reserves estimate is based on that portion of the Measured and Indicated Mineral Resource of the deposit within the scheduled mine designs that may be economically extracted, considering all "Modifying Factors" in accordance with the JORC (2012) Code.

The latest JORC (2012) mineral resources and ore reserves statements for the Ugur deposit were completed in 2017. Table 3 shows the Ugur open pit mineral resources estimate and Table 4 shows the Ugur open pit ore reserves estimate.

Table 3 - Ugur open pit mineral resources estimate at 1 August 2017

Mineral Resources (cut-off grade ≥ 0.2 g/t gold)	Tonnage	Gold Grade	Silver Grade	Gold	Silver
	(Mt)	(g/t)	(g/t)	(oz)	(oz)
Measured	4.12	1.2	6.3	164,000	841,000
Indicated	0.34	0.8	3.9	8,000	44,000
Measured + Indicated	4.46	1.2	6.2	172,000	884,000
Inferred	2.50	0.3	2.1	27,000	165,000
Total	6.96	0.9	4.7	199,000	1,049,000

Note that due to rounding, numbers presented may not add up precisely to totals.

Table 4 - Ugur open pit ore reserves estimate at 1 August 2017

Ore Reserves	Tonnage	Gold Grade	Silver Grade	Gold	Silver
	(Mt)	(g/t)	(g/t)	(oz)	(oz)
Proved	3.37	1.3	7.2	142,000	779,000
Probable	0.22	0.8	4.1	5,000	29,000
Proved and Probable	3.59	1.3	7.0	147,000	808,000

Note that due to rounding, numbers presented may not add up precisely to totals.

The above proved and probable ore reserves estimate is based on that portion of the Measured and Indicated Mineral Resource of the deposit within the scheduled mine designs that may be economically extracted, considering all "Modifying Factors" in accordance with the JORC (2012) Code.

In March 2019, the Group published the JORC (2012) mineral resources statement and ore reserves estimate for its Gadir underground mine. The mineral resources statement showed measured plus indicated mineral resources (at a cut-off grade of 0.5 grammes per tonne of gold) of 1,775,000 tonnes containing 145,200 ounces of gold, 736,100 ounces of silver, 3,295 tonnes of copper and 14,470 tonnes of zinc. Table 5 shows the Gadir underground mine mineral resources estimate as at 20 August 2018. Table 6 shows the Gadir underground mine ore reserves estimate as at 20 August 2018.

Table 5 - Gadir underground mine mineral resources estimate at 20 August 2018

Mineral Resources (cut-off grade ≥ 0.5 g/t gold)	Tonnage	Gold		Silver		Copper		Zinc
	kt	g/t	koz	g/t	koz	%	t	%	t
Measured	540	3.70	64.2	17.49	303.6	0.29	1,566	1.01	5,454
Indicated	1,235	2.04	81.0	10.89	432.4	0.14	1,729	0.73	9,016
Measured+Indicated	1,775	2.54	145.2	12.90	736.1	0.21	3,295	0.84	14,470
Inferred	571	1.48	27.2	5.68	104.4	0.10	571	0.52	2,972
Total	2,347	2.29	172.4	11.14	840.4	0.19	3,866	0.78	17,442

Note that due to rounding, numbers presented may not add up precisely to totals.

Table 6 - Gadir underground mine ore reserves estimate at 20 August 2018 

Ore Reserves	Tonnage	Gold		Silver		Copper
	(kt)	(g/t)	(koz)	(g/t)	(koz)	(%)	(t)
Proved	222	2.81	25	14.13	101	0.24	535
Probable	575	2.41	45	10.99	203	0.15	852
Proved and Probable	797	2.73	70	11.86	304	0.17	1,387

Note that due to rounding, numbers presented may not add up precisely to totals.

The above proved and probable ore reserves estimate is based on that portion of the Measured and Indicated Mineral Resource of the deposit within the scheduled mine designs that may be economically extracted, considering all "Modifying Factors" in accordance with the JORC (2012) Code. Zinc was not estimated as part of this reserve as it is under study at resource level currently.

Mining operations

The principal mining operation at the Gedabek contract area is conventional open-cast mining using truck and shovel from the Gedabek open pit (which comprises several contiguous smaller open pits) and the Ugur open pit. Ore is first drilled and blasted and then transported either to a processing facility or to a stockpile for storage. The major mining activities of blast-hole drilling and haulage of ore and waste rock are carried out by contractors, while blasting and mining activities are carried out by the Company.

Production commenced from the new Ugur open pit mine in September 2017. To enable production, a 4.6 kilometre road was constructed between the mine and the Company's processing facilities. All necessary surface infrastructure, including geology, medical and HSE offices, hygiene facilities, a mechanical workshop, lubricants and spares stores, a weighbridge and a diesel store was also constructed at the mine site. Due to the composition of the Ugur ore, mining of ore in the first few months of operation was by free digging, with drilling and blasting not required. Ore was mined from the Ugur open pit mine throughout 2018.

Ore is also mined from the Gadir underground mine which is situated approximately one kilometre from the Gedabek open pit. Table 7 shows the ore mined in 2018 from all the Company's mines at Gedabek and Gosha.

Table 7 - Ore mined at Gedabek from all mines (including Gosha) for the year ended 31 December 2018

	12 months to  31 December 2018
	Ore mined	Average gold grade
Mine	(tonnes)	(g/t)
Gedabek open pit	362,412	1.06
Ugur - open pit	1,245,104	1.27
Gadir - underground	125,806	4.53
Gosha - underground	10,988	3.44
Total	1,744,310	1.47

Various initiatives were undertaken at Gedabek during 2018 to improve efficiency and working practices of its mining operations. These included the following:

·    The Company reconfigured its ROM stockpile pads. This is to enable more efficient (and therefore lower cost) handling of plant feed as well as optimising ore blending.

·    Transportation logistics were improved with a new spur road link constructed between the Gedabek open pit mine and processing plant. This new road reduces haulage distances between the mine and the processing plant.

·    An expansion of the on-site maintenance facilities and workshop commenced.

·    Several specialist managers were recruited to improve working practices in the areas of mining, drill and blast, equipment operation and maintenance.

·    A diesel filtration system has been installed to improve the quality of fuel used which improves the efficient operation of equipment.

·    A new solution sprinkling system has been installed which better distributes cyanide on heaps that are being leached.

Processing operations

Ore is processed at Gedabek to produce either gold doré (an alloy of gold and silver with small amounts of impurities, mainly copper) or a copper and precious metal concentrate.

Gold doré is produced by cyanide leaching. Initial processing is to leach (i.e. dissolve) the precious metal (and some copper) in a cyanide solution. This is done by various methods:

1    Heap leaching of crushed ore. Crushed ore is heaped into permeable "pads" onto which is sprayed a solution of cyanide. The solution dissolves the metals as it percolates through the ore by gravity and it is then collected by the impervious base under the pad.

2    Heap leaching of run of mine ("ROM") ore. The process is similar to heap leaching for crushed ore, except the ore is not crushed, instead it is heaped into pads as received from the mine (ROM) without further treatment or crushing. This process is used for very low grade ores.

3    Agitation leaching. Ore is crushed and then milled in a grinding circuit. The finely ground ore is placed in stirred (agitation) tanks containing cyanide solution and the contained metal is dissolved in the solution. Depending on the composition of the ore, an option is available to process the finely ground ore through the flotation plant prior to, or after treatment by the agitation leaching plant. However, since installation of the second crusher line for the flotation plant in 2018, the two plants have been operating independently. Any coarse, free gold is separated using a centrifugal type Knelson concentrator.

Slurries produced by the above processes with dissolved metal in solution are then transferred to a resin-in-pulp ("RIP") plant. A synthetic ion exchange resin, in the form of small spherical plastic beads designed to absorb gold selectively over copper and silver, is mixed with the leach slurry or "pulp". After separation from the pulp, the gold-loaded resin is treated with a second solution, which "strips" (i.e. desorbs) the gold, plus the small amounts of absorbed copper and silver, transferring the metals from the resin back into solution. The gold and silver dissolved in this final solution are recovered by electrolysis and are then smelted to produce the doré metal, comprising an alloy of gold and silver.

Copper and precious metal concentrates are produced by two processes, SART processing and flotation.

1    Sulphidisation, Acidification, Recycling and Thickening (SART). The cyanide solution after metal absorption by resin-in-pulp processing is transferred to the SART plant. The pH of the solution is then changed by the addition of reagents. This precipitates the copper from the solution in the form of a finely divided copper sulphide concentrate containing silver and minor amounts of gold. The process also recovers cyanide from the solution, which is recycled back to leaching.

2    Flotation. Flotation is carried out in a separate flotation plant. Feedstock, which can be either tailings from the agitation leaching plant or freshly crushed and milled ore, is mixed with water to produce a slurry called "pulp" and other reagents are then added. This pulp is processed in flotation cells (tanks). The flotation cells are agitated and air introduced as small bubbles. The sulphide mineral particles attach to the air bubbles and float to the surface where they form a froth which is collected. This froth is dewatered to form a mineral concentrate containing copper, gold and silver.

Initially, gold doré was produced at Gedabek only by heap leaching crushed and agglomerated ore. Heap leaching is a low capital cost method of production commonly used by mines when they first move into production. Ore at Gedabek is being crushed to less than 25mm in size and the resultant gold recovery is approximately 60 per cent. to 70 per cent. of the contained gold over leaching cycles which extend typically beyond one year.

To increase gold recoveries and production, in 2013 the Group constructed an agitation leaching plant. Compared to heap leaching, agitation leaching can deliver higher recoveries of gold without long leaching cycles. Heap leach pads also require considerable space for their construction and due to the topography of the Gedabek site, this is a constraint. The capacity of the agitation leaching plant was increased in 2016 by the installation of a second semi-autogenous grinding ("SAG") mill.

The ore at Gedabek is polymetallic containing significant amounts of copper. Initially, the SART processing plant was constructed to recover some of the copper as a copper and precious metal chemical concentrate. However, to further exploit the high copper content of the Group's ore reserves, the Group constructed a flotation plant whose function is primarily to produce a copper-rich mineral concentrate, containing gold and silver as by-products. The flotation plant commenced production in November 2015. The flotation plant has the flexibility to be configured for various methods of operation.

In 2018, a second crusher line was installed for the flotation plant. This has a budgeted capacity of 95 tonnes per hour compared to the original crusher of up to 120 tonnes per hour. This removed a large bottleneck and enabled independent operation of the agitation leaching and flotation plants from separate sources of feedstock. The addition of this second crusher not only significantly increases the capacity of our processing plants, but also their flexibility.

Production and sales

For the year ended 31 December 2018, total gold production as doré bars and as a constituent of the copper and precious metal concentrate totalled 72,798 ounces, which was an increase of 13,181 ounces in comparison to the production of 59,617 ounces for the year ended 31 December 2017. 

Table 8 summarises the amount of ore and its gold grade processed by leaching at Gedabek for the year ended 31 December 2018.

Table 8 - Ore and its gold grade processed by leaching at Gedabek for the year ended 31 December 2018

Quarter ended	Ore processed (tonnes)			Gold grade of ore processed (g/t)
	Heap leach pad	Heap leach pad	Agitation	Heap leach pad	Heap leach pad	Agitation
	(crushed ore)	(ROM ore)	leaching plant	(crushed ore)	(ROM ore)	leaching plant
31 March 2018	170,655	188,364	184,846	0.92	0.51	2.07
30 June 2018	150,573	77,493	196,107	0.91	0.51	2.19
30 September 2018	195,957	136,595	196,700	0.91	0.40	2.39
31 December 2018	154,901	131,861	173,332	0.81	0.48	2.26
Total for the year	672,086	534,313	750,985	0.89	0.47	2.23

Table 9 summarises the amount of ore and its gold, silver and copper content processed by flotation for the year ended 31 December 2018.

Table 9 - Ore and its gold, silver and copper content processed by flotation for the year ended 31 December 2018

	Ore processed	Gold content	Silver content	Copper content
Quarter ended	(tonnes)	(ounces)	(ounces)	(tonnes)
31 March 2018*	43,159	1,790	21,979	199
30 June 2018*	54,134	2,415	29,236	237
30 September 2018**	131,102	4,818	62,472	587
31 December 2018**	129,102	4,625	70,292	690
Total for the year	357,497	13,648	183,979	1,713

* During this time the flotation plant was operated in series with the agitation leaching plant processing its tailings.

** During this time the flotation plant was operated independently in parallel to the agitation leaching plant following installation of the second jaw crusher.

Table 10 summarises the gold and silver bullion produced from doré bars and sales of gold bullion for the year ended 31 December 2018.

Table 10 - Gold and silver bullion produced from doré bars and sales of gold bullion for the year ended 31 December 2018

Quarter ended	Gold produced* (ounces)	Silver produced* (ounces)	Gold Sales** (ounces)	Gold sales price ($/ounce)
31 March 2018	15,750	7,110	14,956	1,328
30 June 2018	15,537	6,014	10,822	1,307
30 September 2018	18,885	7,416	18,637	1,216
31 December 2018	15,444	5,646	15,066	1,231
Total for the year	65,616	26,186	59,481	1,265

*Including Government of Azerbaijan's share.

** Excluding Government of Azerbaijan's share.

Table 11 summarises the total copper, gold and silver produced as concentrate by both SART and flotation processing for the year ended 31 December 2018.

Table 11 - Total copper, gold and silver produced as concentrate by both SART and flotation processing for the year ended 31 December 2018          

	Copper (tonnes)			Gold (ounces)			Silver (ounces)
Quarter ended	SART	Flotation	Total	SART	Flotation	Total	SART	Flotation	Total
31 March 2018	114	141	255	6	735	741	22,118	11,587	33,705
30 June 2018	137	195	332	6	1,226	1,232	21,800	16,387	38,187
30 September 2018	81	389	470	7	2,437	2,444	17,357	34,573	51,930
31 December 2018	67	521	588	13	2,752	2,765	14,229	45,947	60,176
Total for the year	399	1,246	1,645	32	7,150	7,182	75,504	108,494	183,998

Table 12 summarises the total copper concentrate (including gold and silver) production and sales from both SART and flotation processing for the year ended 31 December 2018.

Table 12 - Total copper concentrate (including gold and silver) production and sales from both SART and flotation processing for the year ended 31 December 2018

	Concentrate production*	Copper content*	Gold content*	Silver content*	Concentrate sales	Concentrate sales**
Quarter ended	(dmt)	(tonnes)	(ounces)	(ounces)	(dmt)	($000)
31 March 2018	1,042	255	741	33,705	608	1,715
30 June 2018	1,396	332	1,232	38,187	1,736	4,221
30 September 2018	2,663	470	2,444	51,930	1,557	3,368
31 December 2018	3,706	588	2,765	60,176	3,774	6,131
Total for the year	8,807	1,645	7,182	183,998	7,675	15,435

*Including the Government of Azerbaijan's share.

** These are invoiced sales before any accounting adjustments in respect of IFRS 15. The total for the year does not therefore agree to the revenue disclosed in note 6 - "Revenue" to the Group financial statements.

Infrastructure

The Gedabek contract area is served by excellent infrastructure. The main site is located at the village of Gedabek which is connected by a good tarmacadam road to the regional capital of Ganja. Baku, the capital of Azerbaijan to the south and the country's border with Georgia to the north, are both approximately a four to five hour drive over excellent roads. The site is connected to the Azeri national power grid and there is a dedicated sub-station located at the main Gedabek processing facilities.

Water management

The Gedabek site has its own water treatment plant which was constructed in 2017 and which uses the latest reverse osmosis technology. In the last few years, Gedabek village has experienced water shortages in the summer and this plant reduces to the absolute minimum the consumption of fresh water required by the Company. The plant is now producing around 200,000 litres of pure water per day using water from the tailings dam which is being used in Gedabek's processing facilities.

Wastewater evaporation equipment is also deployed in the tailings dam. This is mobile, skid mounted equipment into which water is pumped without treatment direct from the tailings dam. The equipment then evaporates the water by jetting it into the atmosphere as a fine spray. It can evaporate approximately 25 litres per second of water depending upon climatic conditions.

Tailings (waste) storage

The Company is very mindful of the importance of proper storage of tailings both for efficient operation of its processing plants and to fulfil its environmental responsibilities. The Company stores its tailings in a purpose built dam approximately seven kilometres from its processing facilities, topographically at a lower level than the processing plant, thus allowing gravity assistance of tailings flow in the slurry pipeline. Immediately downstream of the tailings dam is a reed bed biological treatment system to purify any seepage from the dam before discharge into the nearby Shamkir river.

During 2017, the wall of the tailings dam was raised by six metres. This has increased the capacity of the tailings dam from 3.2 million cubic metres to 4.3 million cubic metres. There are two pipelines from the Company's processing facilities to the tailings dam to increase capacity and provide redundancy.

Health, safety and environmental

The health and safety of our employees and the protection of the environment in and around our mine properties are prime concerns for the Company's board and senior management team. The health, safety and environmental ("HSE") department at Gedabek has a qualified HSE manager, who is assisted by a team of HSE officers. Overall strategy for HSE matters in the Company is overseen by the HSE and technical committee, which is chaired by a board director, Professor John Monhemius. The HSE and technical committee meets twice a year at the Gedabek site.

During 2018, there were 44 reportable safety incidents (2017: 45), of which nine involved injuries to personnel.  Five of these cases were minor injuries, but four (2017: two) were lost time incidents (LTI), where the casualty had to take time off work.  A formal Permit-to-Work system has now been fully implemented for all maintenance activities carried out in high-risk areas, to ensure the safety of the personnel engaged in these activities, which are closely monitored by staff from the Health and Safety department.

An HSE encouragement programme has been introduced, which awards bonuses to members of the workforce for outstanding HSE or housekeeping activities, on the recommendation of HSE or supervisory staff.  Good HSE performance is publicly recognised on posters in the canteen and other public places.

Training for the HSE staff is on-going. In 2018, all the department's staff successfully passed the "IOSH Managing Safely" training course provided by the Institution of Occupational Safety and Health from the United Kingdom.

Geological exploration activity

The Group's geological programme at Gedabek in 2018 formed part of a rolling three-year exploration plan and was designed to achieve the following main objectives:

·    To establish the gold and copper-gold distribution of the Gedabek open pit to update the resource and reserve estimate.

·    To assess the extent of the further mineralisation of the Gadir underground mine and confirm ongoing mineable ore through the publication of a resource and reserve estimate, in accordance with the JORC (2012) Code.

·    To commence exploration of the mineral potential below the Gedabek open pit from underground.

·    To bring new mineral occurrence targets into the resource and reserve pipeline.

·    To identify new areas of mineralisation and targets which can be fast tracked into production as standalone mines.

The major results of geological exploration for the year ended 31 December 2018 are as follows:

·    A clear understanding was obtained of the combined production profile of all operating mines that gave a mine life until the end of 2024 from the current reserves. 

·    A helicopter-borne electromagnetic and magnetic survey was completed over Gedabek. The initial results indicated several targets for follow-up exploration activity.

·    Drilling at the northern and southern margins of the Gedabek open pit confirmed the existence of further mineable copper and gold extensions. Additional mineralisation was also confirmed beneath the Gedabek open pit.

The detailed work carried out at Gedabek in 2018 by location is as follows:

Gedabek regional

·    3,385 linear metres of airborne ZTEM and magnetic geophysics were completed on a 200 metre line spacing. Twenty five targets favourable for epithermal and porphyry mineralisation and six magnetic targets consistent with porphyry systems were identified for more detailed exploration.

·    surface diamond core drill-holes over the AC area (located about 1.5 kilometres west of the Company's heap leach processing area) ("AC") were completed totalling 1,177 metres.

·    surface reverse circulation drill-holes were drilled over AC totalling 587 metres.

·    25 outcrop samples were collected over the Duzyurd area.

Gedabek open pit (and underground)

·    58 surface diamond core drill-holes were completed totalling 5,947 metres.

·    208 surface reverse circulation drill-holes were completed totalling 11,340 metres.

·    7 underground diamond core drill-holes were completed totalling 655 metres.

·    718 metres of tunnel development were completed from the Gadir decline to below Gedabek 'Pit 4'. This will create drilling platforms to better assess the potential for underground development of the Gedabek deposit.

Gadir

·    19 surface diamond core drill-holes were completed totalling 8,953 metres.

·    43 underground diamond core drill-holes (HQ/NQ in size) were completed totalling 4,735 metres.

·    An additional 105 BQ-size underground core drill-holes were completed totalling 2,838 metres.

·    2,703 metres of underground geological mapping from the mine tunnels were completed.

·    Surface induced polarisation ("IP") and ground magnetics over the Gadir footprint completed covering 3.7 square kilometres (results expected shortly).

Ugur

·    12 surface diamond core drill-holes were completed totalling 3,875 metres.

·    650 outcrop samples were collected.

·    250 linear metres of trenching, with 215 samples obtained.

·    40,000 square metres of detailed geological (lithological, alteration and structural) mapping were completed.

Sӧydülü

·    146 outcrop samples were collected.

·    8 stream sediment samples were collected.

Gosha

The Group's second mining project, the 300 square kilometre Gosha contract area, is located in western Azerbaijan, 50 kilometres north-west of Gedabek. Gosha is being operated as a small, high grade, underground gold mine.

Production

A total of 10,988 tonnes of ore of average gold grade 3.44 grammes per tonne were mined at Gosha in the year ended 31 December 2018.

Exploration activity

A new discovery of polymetallic mineralisation was made at the Asrikchay target area, 7 kilometres north from the Gosha underground mine. A significant polymetallic drill-hole intersection was found with weighted grade averages from 228.70 metres to 233.00 meters (4.30 metre downhole thickness) of 4.11 grammes per tonne of gold, 112.23 grammes per tonne of silver, 3.07 per cent. copper and 3.02 per cent. zinc. Preliminary follow-up surface geophysics has been completed over Asrikchay to identify the deposit geometry and the results are awaited.

Ordubad

The 462 square kilometre Ordubad contract area is located in Nakhchivan, South West Azerbaijan and contains numerous targets including Shakardara, Piyazbashi, Misdag, Agyurt, Shalala and Diakchay, all of which are located within a five-kilometre radius of each other.

The presence of gold was first discovered at Shakardara around 1956 to 1958. Soviet geologists estimated resources for the main vein zone of 2.6 million tonnes of ore containing approximately 120,000 ounces of gold, 280,000 ounces of silver and 4.01 tonnes of copper, but these estimates have never been substantiated.

The geological exploration programme at Ordubad was significantly expanded in 2018, compared to previous years. The work was to assess the extent of the copper, gold and associated mineralisation and to verify the Soviet-era data which indicate extensive potential mineralisation.

A summary of the work carried out in 2018 is as follows:

·    Completion of a surface geochemical sampling programme covering the Shakardara and Dirnis areas, for a total area of 26.7 square kilometres, following up on porphyry-style alteration zones and surface outcrops of malachite mineralisation. A total of 5,504 samples were collected and sent for analysis to ALS Minerals 'OMAC' (ALS Loughrea) in Ireland; results are expected in the second quarter of 2019.

·    A geological research team from the Natural History Museum ('NHM') of London worked with the Company at Ordubad for two weeks in November 2018, collecting 83 samples for X-Ray Diffraction analysis ('XRD') and petrographic studies, among others.

·    1,488 metres of linear trenching were completed at Shakardara, with 916 trench samples collected and over 989 metres sampled.

·    42 stream sediment samples were collected at Piyazbashi.

·    Detailed geological (lithological, alteration and structural) mapping was completed over the 26.7 square kilometre Shakardara geochemical study area.

·    5,500 metres of road clearing was completed by bulldozer to access mineral occurrences and deposits.

·    Preliminary review of primary historical geological reports and initial target selection.

·    Drill-hole planning for 2019 at the copper target of Dirnis and the gold targets at Keleki.

Sale of the Group's products

Important to the Group's success is the ability to transport its products to market and sell them without disruption.

The Group ships the majority of its gold doré to MKS Finance SA in Switzerland. The logistics of transport and sale are well established and gold doré shipped from Gedabek arrives in Switzerland within three to five days. The proceeds of the estimated 90 per cent. of the gold content of the doré can be settled within one to two days of receipt of the doré or the Group, at its discretion, can sell the resulting refined gold bullion to MKS Finance SA following refining of the doré. The Group has not experienced in 2018 any disruptions to its sale of metal due to logistics or delays in customs clearance. MKS Finance SA both refines and then purchases our precious metal; all assays and a full accounting of all metal are agreed with them. One trial shipment was made in 2018 to an alternative refiner in Switzerland as the refiner was offering better commercial terms than MKS Finance SA.

The Gedabek mine site has good road transportation links and our copper and precious metal concentrate is collected by truck from the Gedabek site by the purchaser. In 2014, the Group commenced selling its copper concentrate produced by SART processing to Industrial Minerals SA, a Swiss-based integrated trading, mining and logistics group under an exclusive three year contract. This contract has been subsequently renewed and expanded to include copper concentrate produced by flotation, in addition to the SART concentrate. The latest renewal of the contract was signed on 1 January 2019 for a period of one year, but the contract will automatically extend unless terminated by either party.

In June 2018, the Group signed a contract with Trafigura Pte. Limited ("Trafigura") for the sale of copper concentrates produced by flotation processing. The contract has no expiry date unless terminated by either party and the first shipment of concentrate was made under the contract in September 2018.

It is intended that Trafigura will purchase all concentrate produced by flotation and Industrial Minerals SA those produced by SART processing. The Group has experienced no delays in the shipment of copper concentrates in 2018.

Principal risks and uncertainties

Country risk in Azerbaijan

The Group currently operates solely in Azerbaijan and is therefore naturally at risk of adverse changes to the regulatory or fiscal regime within the country. However, Azerbaijan is outward looking and desirous of attracting direct foreign investment and the Company believes the country will be sensitive to the adverse effect of any proposed changes in the future. In addition, Azerbaijan has historically had a stable operating environment and the Company maintains very close links with all relevant authorities.

Operational risk

The Company currently produces all its products for sale at Gedabek. Planned production may not be achieved as a result of unforeseen operational problems, machinery malfunction or other disruptions. Operating costs and profits for commercial production therefore remain subject to variation. The Group monitors production on a daily basis and has robust procedures in place to effectively manage these risks.

Commodity price risk

The Group's revenues are exposed to fluctuations in the price of gold, silver and copper and all fluctuations have a direct impact on the operating profit and cash flow of the Group. Whilst the Group has no control over the selling price of its commodities, it has very robust cost controls to minimise expenditure to ensure it can withstand any prolonged period of commodity price weakness.

The Group actively monitors all changes in commodity prices to understand the impact on the business. The Group hedges future sales of gold bullion when the directors believe it is beneficial to the Company. The directors periodically review the requirement for hedging.

Foreign currency risk

The Group reports in United States Dollars and a large proportion of its costs are incurred in United States Dollars. It also conducts business in Australian Dollars, Azerbaijan Manats and United Kingdom Sterling. The Group does not currently hedge its exposure to other currencies, although it will review this periodically if the volume of non-United States Dollar transactions increases significantly. Also, the fact that both revenue of the Group and the Group's interest-bearing debt are settled in United States Dollars is a key mitigating factor that helps to avoid significant exposure to foreign currency risk. Information on the carrying value of monetary assets and liabilities denominated in foreign currency and the sensitivity analysis of foreign currency is disclosed in note 24 to the financial statements below.

Liquidity and interest rate risk

During 2018, interest rates on loans payable were fixed, except for the three month LIBOR embedded in the terms of the Amsterdam Trade Bank ("ATB") and Gazprombank (Switzerland) Ltd ("GPBS") loans. The loans from ATB and GPBS were repaid in March 2018 and since then the interest rates on all loans have been fixed. The Group has not used any interest rate swaps or other instruments to manage its interest rate profile during 2018, but this recourse is reviewed on a periodic basis. Information on the exposure to changing interest rates is disclosed in note 24 to the financial statements below. The approval of the board of directors is required for all new borrowing facilities.

The Group's surplus cash deposits have been steadily increasing since the beginning of 2018. The Group places these on deposit with a range of banks to both ensure it obtains the best return on these deposits and to minimise counterparty risk. The amount of interest received on these deposits is not material to the financial results of the Company and therefore any decrease in interest rates would not have any adverse effect.

Key performance indicators

The Group has adopted certain key performance indicators ("KPIs") which enable it to measure its financial performance. These KPIs are as follows:

1    Profit before taxation. This is the key performance indicator used by the Group. It gives insight into cost management, production growth and performance efficiency.

2    Net cash provided by operating activities. This is a complementary measure to profit before taxation and demonstrates conversion of underlying earnings into cash. It provides additional insight into how we are managing costs and increasing efficiency and productivity across the business in order to deliver increasing returns. 

3    All-in sustaining cost ("AISC") per ounce. AISC is a widely used, standardised industry metric and is a measure of how our operation compares to other producers in the industry. AISC is calculated in accordance with the World Gold Council's Guidance Note on Non-GAAP Metrics dated 27 June 2013. The AISC calculation includes a credit for the revenue generated from the sale of copper and silver, which are classified by the Group as by-products. There are no royalty costs included in the Company's AISC calculation as the Production Sharing Agreement with the Government of Azerbaijan is structured as a production sharing arrangement. Therefore, the Company's AISC is calculated using a cost of sales, which is the cost of producing 100 per cent. of the gold and such costs are allocated to total gold production including the Government of Azerbaijan's share.

Financial review

Group statement of income

The Group generated revenues in 2018 of $90.4m (2017: $71.8m) from the sales of gold and silver bullion and copper and precious metal concentrate.

The revenues in 2018 included $75.5m (2017: $55.4m) generated from the sales of gold and silver bullion from the Group's share of the production of doré bars. Bullion sales in 2018 were 59,481 ounces of gold and 25,394 ounces of silver (2017: 43,496 ounces of gold and 18,442 ounces of silver) at an average price of $1,265 per ounce and $16 per ounce respectively (2017: $1,265 per ounce and $17 per ounce respectively). In addition, the Group generated revenue of $14.9m (2017: $16.4m) from the sale of 7,675 (2017: 8,497) dry metric tonnes of copper and precious metal concentrate. The Group's revenue benefited in the year from both a higher average price of gold at $1,269 per ounce (2017: $1,258 per ounce) and a higher average price of copper at $6,527 per metric tonne (2017: $6,200 per metric tonne).

The Group did not hedge any metal sales during 2017 or 2018.

The Group incurred cost of sales in 2018 of $56.5m (2017: $56.8m). Higher cash costs, depreciation and stockpile movement were offset by an increased credit in respect of deferred stripping costs which in 2018 were $4.7m compared to $0.5m in 2017. The cash cost of mining and processing increased marginally by $1.4m from $39.1m in 2017 to $40.5m in 2018 despite the increase in production. The cost of reagents decreased by $2.8m due to operational efficiencies and the processing of Ugur ores which do not contain copper. Excavation and haulage costs increased by $2.1m and employee costs by $0.9m following the recruitment of specialised managers in the year.

Depreciation and amortisation in 2018 was slightly higher at $22.9m compared to $22.8m in 2017. Accumulated mine development costs within producing mines are depreciated and amortised on a unit-of-production basis over the economically recoverable reserves of the mine concerned, except in the case of assets whose useful life is shorter than the life of the mine, in which case the straight line method is applied. The impact of the higher production of gold in 2018 was offset by an increase in the amount of economically recoverable reserves used to determine the depreciation and amortisation.

The Group had other income in 2018 of $0.1m (2017: $0.6m). The Group incurred administration expenses in 2018 of $5.3m (2017: $4.7m). The Group's administration expenses comprise the cost of the administrative staff and associated costs at the Gedabek mine site, the Baku office and maintaining the Group's listing on AIM. The majority of the administration costs are incurred in either Azerbaijan New Manats or United Kingdom pounds sterling. United Kingdom pounds sterling strengthened against the US dollar in 2018 compared to 2017 whilst the Azerbaijan New Manat was relatively stable. This resulted in higher administration costs when the costs were translated into United States dollars. Finance costs in 2018 were $1.6m (2017: $3.5m) and comprise interest on the credit facilities and loans, interest on letters of credit and accretion expenses on the rehabilitation provision. The costs reduced in the year due to both a significant reduction in the average debt in 2018 and a reduction in the average interest rate on the debt.

The Group recorded a profit before taxation in 2018 of $25.2m compared to $5.7m in 2017. This was due to higher revenues, a lower all-in sustaining cost of gold production and lower finance costs.

The Group had a taxation charge in 2018 of $8.9m (2017: $3.2m). This comprised a current income tax charge of $7.3m (2017: $nil) and a deferred tax charge of $1.6m (2017: $3.2m). The current income tax charge of $7.3m was incurred by R.V. Investment Group Services ("RVIG") in Azerbaijan. RVIG generated taxable profits in 2018 of $27.5m of which $4.7m were offset against tax losses brought forward. The balance of the taxable profits of $22.8m were taxed at 32 per cent. (the corporation tax rate stipulated in the Group's production sharing agreement) resulting in the income tax charge of $7.3m. RVIG had no tax losses carried forward at 31 December 2018.

The taxable profits of the operating company in Azerbaijan are taxed at 32 per cent. However, the Group's overall tax rate in 2018 was 35 per cent. (2017: 56 per cent.). The overall tax rate is higher than 32 per cent. because the UK administrative costs and depreciation of mining rights in Azerbaijan cannot be offset against the taxable profits arising in Azerbaijan. These costs in 2018 totalled $3.3m (2017: $3.1m).  

All-in sustaining cost of gold production

The Group produced gold at an all-in sustaining cost ("AISC") per ounce of $541 in 2018 compared to $604 in 2017. The Group reports its cash cost as an AISC calculated in accordance with the World Gold Council's guidance which is a standardised metric in the industry. The reason for the decrease in 2018 compared to 2017 was the higher level of production. Although total costs increased, many of the Company's costs are fixed or semi-fixed and did not increase in direct proportion to the revenue.

Group statement of financial position

Non-current assets decreased from $104.4m at the end of 2017 to $98.6m at the end of 2018. The main reason for the decrease was property, plant and equipment being lower by $6.2m due to depreciation in the year. Intangible assets increased from $16.2m at the end of 2017 to $17.0m at the end of 2018 due to expenditure on geological exploration and evaluation of $2.9m offset by amortisation.

There were net current assets of $33.5m at the end of 2018 compared to $12.6m at the end of 2017. The main reason for the increase in net current assets was an increase in cash of $12.0m and a decrease in the current portion of loans payable of $13.3m. The Group's cash balances at 31 December 2018 were $14.5m (2017: $2.5m). Surplus cash is maintained in US dollars and placed on fixed deposit with several banks at tenors of between one to three months at interest rates of around 2.5 to 3.0 per cent.

Net assets of the Group at the end of 2018 were $98.4m (2017: $85.4m). The increase was due to the retained earnings increasing and the issue of shares during the year. During 2018, 631,000 ordinary shares were issued in respect of share options that were held by employees at prices between 9.9 pence and 35.5 pence per share. This increased the net assets of the Group by $0.1m.

The Group is financed by a mixture of equity and debt. The Group's total debt at 31 December 2018 was $8.4m, a significant reduction from $20.7m in 2017 following strong cash generation in the year. The Group also refinanced $13.5m of its outstanding debt during 2018 with a 3 year refinancing loan. This loan carries a fixed interest rate of 7 per cent. and is unsecured and contains no covenants. The refinancing loan is the only outstanding borrowing at 31 December 2018.

The Group continues to reduce the interest rate payable on its borrowings through either refinancing debt at lower interest rates or negotiating lower interest rates with banks in respect of existing loans. The interest rate on its only outstanding loan at 31 December 2018 was 7 per cent. (2017: weighted average interest rate on debt of 8 per cent.).

The Group's holding company, Anglo Asian Mining PLC, reduced its share premium account to $nil in 2018. Accordingly, the reduction of $32.6m was transferred to retained earnings. The reduction was approved by the Court and was to create distributable reserves to allow the holding company to pay dividends. This gave the Group the capacity to pay dividends to its shareholders of up to a total of $13.5m. This amount can be increased by operating profits in subsidiaries being transferred to Anglo Asian Mining PLC by way of dividend. The share premium account had a balance at the end of 2018 of $33,000. This was in respect of the premium on 75,000 shares issued at 35.44 pence subsequent to the reduction in the share premium account.

Group cash flow statement

Operating cash inflow before movements in working capital for 2018 was $50.1m (2017: $32.2m). The main source of operating cash flow was operating profit before the non-cash charges of depreciation and amortisation in 2018 of $49.8m (2017: $32.0m) after adding back finance cost.

Working capital movements generated cash of $0.6m (2017: absorbed cash of $2.4m) largely due to an increase in trade and other payables of $2.7m (2017: decrease of $4.6m).

Cash from operations in 2018 was $50.7m compared to $29.8m in 2017 due to higher operating cash inflow before movements in working capital.

The Company paid corporation tax in 2018 of $3.6m (2017: $nil) in Azerbaijan in accordance with local requirements. These were payments on account of its liability for the year ended 31 December 2018 which is discussed above.

Expenditure on property, plant and equipment and mine development was $15.3m (2017: $9.4m). The main items of expenditure in 2018 were capitalisation of deferred stripping costs of the main open pit and the Ugur open pit of $7.2m, the Jaw crusher and associated equipment for the flotation plant of $2.8m, Gadir and Gedabek development of $3.0m and mining and other equipment of $2.3m.

Exploration and evaluation expenditure in 2018 of $2.9m (2017: $1.0m) was incurred and capitalised. This arose on exploration at the Gedabek, Gosha and Ordubad contract areas.

Dividends

The Group paid its first dividend in 2018 of $0.03 per share. The dividend was declared in United States dollars but paid in United Kingdom pounds sterling in the amount of 2.2864 pence. The dividend was converted to United Kingdom pounds sterling using the average of the sterling closing mid-price using the exchange rate published by the Bank of England at 4pm each day from the 15 to 19 October 2018. The total cost of the dividend was $3.4m. The directors have announced a final dividend of $0.04 per share in respect of the financial year ended 31 December 2018. This is subject to the approval of the shareholders and will cost $4.6m but has not been accrued in the 2018 financial statements.

The directors have announced a policy to target a distribution to shareholders each year comprising approximately 25 per cent. of the Group's free cash flow. This distribution will be made in two approximately equal installments comprising an interim and final dividend. The amounts and timing of payment of the interim and final dividends will be announced each year along with the Group's interim and final results respectively. The board will review this policy each year taking into account the financing needs of the business at that time. Free cash flow is defined as net cash flow from operating activities less capital expenditure and in 2018 was $28.9m (2017: $19.4m).

Production Sharing Agreement

Under the terms of the Production Sharing Agreement ("PSA") with the Government of Azerbaijan ("Government"), the Group and the Government share the commercial products of each mine. The Government's share is 51 per cent. of "Profit Production". Profit Production is defined as the value of production, less all capital and operating cash costs incurred during the period when the production took place. Profit Production for any period is subject to a minimum of 25 per cent. of the value of the production. This is to ensure the Government always receives a share of production. The minimum Profit Production is applied when the total capital and operating cash costs (including any unrecovered costs from previous periods) are greater than 75 per cent. of the value of production. All operating and capital cash costs in excess of 75 per cent. of the value of production can be carried forward indefinitely and set off against the value of future production.

Profit Production for the Group has been subject to the minimum 25 per cent. for all years since commencement of production including 2018. The Government's share of production in 2018 (as in all previous years) was therefore 12.75 per cent. being 51 per cent. of 25 per cent. with the Group entitled to the remaining 87.25 per cent. The Group was therefore subject to an effective royalty on its revenues in 2018 of 12.75 per cent. (2017: 12.75 per cent.) of the value of its production.

The Group can recover the following costs in accordance with the PSA:

·    all direct operating expenses of the Gedabek mine;

·    all exploration expenses incurred on the Gedabek contract area;

·    all capital expenditure incurred on the Gedabek mine;

·    an allocation of corporate overheads - currently, overheads are apportioned to Gedabek according to the ratio of direct capital and operating expenditure at the Gedabek contract area compared with direct capital and operational expenditure at the Gosha and Ordubad contract areas; and

·    an imputed interest rate of United States Dollar LIBOR + 4 per cent. per annum on any unrecovered costs.

Unrecovered costs are calculated separately for the three contract areas of Gedabek, Gosha and Ordubad and can only be recovered against production from their respective contract areas. The total unrecovered costs for the Gedabek and Gosha contract areas at 31 December 2018 were $76.9m and $23.3m respectively (2017: $94.6m and $21.8m respectively). The Group's current business plans indicate that these costs will not be fully recovered until at least 2023 and the effective royalty of 12.75 per cent. will therefore continue until then.

Going concern

The directors have prepared the Group financial statements on a going concern basis after reviewing the Group's forecast cash position for the period to 30 June 2020 and satisfying themselves that the Group will have sufficient funds on hand to meet its obligations as and when they fall due over the period of their assessment. Appropriate rigour and diligence has been applied by the directors who believe the assumptions are prepared on a realistic basis using the best available information.

The Group had cash balances of $17.7 million and debt of $6.9 million at 31 March 2019. The Group is able to fund its working capital requirements and service its borrowings from cash generated from its operations at Gedabek. The Group's borrowings are unsecured and without any financial covenants and all payments of interest and principal in 2018 and 2019 to date have been made in accordance with the terms of the relevant loan agreements. The Group has access to local sources of both short and long term finance should this be required.

The Group's business activities, together with the factors likely to affect its future development, performance and position, can be found within the chairman's statement and the strategic report above. The financial position of the Group, its cash flow, liquidity position and borrowing facilities are discussed within this financial review. In addition, note 24 to the Group financial statements below includes the Group's objectives, details of its financial instrument exposures to credit risk and liquidity risk.

After making due enquiry, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing the annual report and financial statements.

Reza Vaziri

President and chief executive

Group statement of income

year ended 31 December 2018

		2018	2017
Continuing operations	Notes	$000	$000
Revenue	6	90,354	71,806
Cost of sales	8	(56,530)	(56,825)
Gross profit		33,824	14,981
Other income	7	68	584
Administrative expenses		(5,291)	(4,745)
Other operating expenses	7	(1,777)	(1,598)
Operating profit	8	26,824	9,222
Finance costs	11	(1,642)	(3,538)
Finance income		64	-
Profit before tax		25,246	5,684
Income tax expense	12	(8,911)	(3,164)
Profit attributable to the equity holders of the parent		16,335	2,520
Profit per share attributable to the equity holders of the parent
Basic (US cents per share)	13	14.32	2.23
Diluted (US cents per share)	13	14.32	2.22

Group statement of comprehensive income

year ended 31 December 2018

	2018	2017
	$000	$000
Profit for the year	16,335	2,520
Total comprehensive profit	16,335	2,520
Attributable to the equity holders of the parent	16,335	2,520

Group statement of financial position

31 December 2018

		2018	2017
	Notes	$000	$000
Non-current assets
Intangible assets	14	17,031	16,145
Property, plant and equipment	15	81,150	87,387
Other receivables	17	436	875
		98,617	104,407
Current assets
Inventory	18	34,159	33,980
Trade and other receivables	17	8,496	11,276
Cash and cash equivalents	19	14,540	2,534
		57,195	47,790
Total assets		155,812	152,197
Current liabilities
Trade and other payables	20	(13,224)	(15,170)
Income tax payable		(3,700)	-
Interest-bearing loans and borrowings	21	(6,750)	(20,051)
		(23,674)	(35,221)
Net current assets		33,521	12,569
Non-current liabilities
Provision for rehabilitation	23	(9,028)	(9,629)
Interest-bearing loans and borrowings	21	(1,688)	(600)
Deferred tax liability	12	(23,017)	(21,394)
		(33,733)	(31,623)
Total liabilities		(57,407)	(66,844)
Net assets		98,405	85,353
Equity
Share capital	25	2,016	2,008
Share premium account	27	33	32,484
Share-based payment reserve		-	74
Merger reserve	25	46,206		46,206
Retained earnings		50,150			4,581
Total equity		98,405			85,353

Group statement of cash flows

year ended 31 December 2018

		2018	2017
	Notes	$000	$000
Cash flows from operating activities
Profit before tax		25,246	5,684
Adjustments to reconcile profit before tax to net cash flows:
Finance costs	11	1,642	3,538
Finance income		(64)	-
Depreciation of property, plant and equipment	15	20,957	21,008
Amortisation of mining rights and other intangible assets	14	1,990	1,778
Share-based payment expense	26	-	13
Disposal of obsolete equipment	7	209	-
Write down of irrecoverable inventory		136	179
Operating cash flow before movement in working capital		50,116	32,200
(Increase) / decrease in trade and other receivables		(1,767)	2,342
Increase in inventories		(314)	(142)
Increase / (decrease) in trade and other payables		2,670	(4,565)
Cash from operations		50,705	29,835
Income taxes paid		(3,588)	-
Net cash flow from operating activities		47,117	29,835
Cash flows from investing activities
Expenditure on property, plant and equipment and mine development		(15,324)	(9,397)
Investment in exploration and evaluation assets including other
intangible assets		(2,875)	(1,075)
Interest received		64	-
Net cash used in investing activities		(18,135)	(10,472)
Cash flows from financing activities
Proceeds from issue of shares	25	149	174
Dividend paid	28	(3,432)	-
Proceeds from borrowings	22	13,995	8,796
Repayments of borrowings	22	(26,208)	(24,116)
Interest paid		(1,480)	(3,062)
Net cash used in financing activities		(16,976)	(18,208)
Net increase in cash and cash equivalents		12,006	1,155
Cash and cash equivalents at the beginning of the year	19	2,534	1,379
Cash and cash equivalents at the end of the year	19	14,540	2,534

Group statement of changes in equity

year ended 31 December 2018

	Notes	Share capital $000	Share premium $000	Share-based payment reserve $000	Merger reserve $000	Retained earnings $000	Total equity $000
1 January 2017		1,993	32,325	154	46,206	1,968	82,646
Profit for the year		-	-	-	-	2,520	2,520
Shares issued	25&27	15	159	-	-	-	174
Share options exercised	26	-	-	(82)	-	82	-
Fair value of expired options		-	-	(11)	-	11	-
Share-based payment	26	-	-	13	-	-	13
31 December 2017		2,008	32,484	74	46,206	4,581	85,353
Profit for the year		-	-	-	-	16,335	16,335
Shares issued	25&27	8	141	-	-	-	149
Share options exercised	26	-	-	(74)	-	74	-
Share premium
reduction	27	-	(32,592)	-	-	32,592	-
Cash dividends paid	28	-	-	-	-	(3,432)	(3,432)
31 December 2018		2,016	33	-	46,206	50,150	98,405

Notes

1      General information

Anglo Asian Mining PLC (the "Company") is a company incorporated in England and Wales under the Companies Act 2006. The Company's ordinary shares are traded on the AIM market of the London Stock Exchange. The Company is a holding company. The principal activities and place of business of the Company and its subsidiaries (the "Group") are set out in note 16, and the chairman's statement and strategic report above.

2    Basis of preparation

The financial information for the year ended 31 December 2018 set out above, which was approved by the board of directors on 15 May 2019, has been prepared in accordance with International Financial Reporting Standards ("IFRS") adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.

The financial information set out above has been prepared using accounting policies set out in note 4 which are consistent with all applicable IFRSs and with those parts of the Companies Act 2006 applicable to companies reporting under IFRSs. For these purposes, IFRSs comprises the standards issued by the International Accounting Standards Board and interpretations issued by the International Financial Reporting Interpretations Committee that have been endorsed by the European Union.

The financial information set out above has been prepared under the historical cost convention except for the treatment of share-based payments and trade receivables at fair value. The Group financial statements are presented in United States Dollars ("$") and all values are rounded to the nearest thousand except where otherwise stated. In the Group financial statements "£" and "pence" are references to the United Kingdom pound sterling.

The directors have prepared the Group financial statements on a going concern basis after reviewing the Group's forecast cash position for the period to 30 June 2020 and satisfying themselves that the Group will have sufficient funds on hand to meet its obligations as and when they fall due over the period of their assessment. Appropriate rigour and diligence has been applied by the directors who believe the assumptions are prepared on a realistic basis using the best available information.

The Group had cash balances of $17.7 million and debt of $6.9 million at 31 March 2019. The Group is able to fund its working capital requirements and service its borrowings from cash generated from its operations at Gedabek. The Group's borrowings are unsecured and without any financial covenants and all payments of interest and principal in 2018 and 2019 to date have been made in accordance with the terms of the relevant loan agreements. The Group has access to local sources of both short and long-term finance should this be required.

The Group's business activities, together with the factors likely to affect its future development, performance and position, can be found within the chairman's statement and the strategic report above. The financial position of the Group, its cash flow, liquidity position and borrowing facilities are discussed in the financial review above. In addition, note 24 to the Group financial statements below includes the Group's objectives, details of its financial instrument exposures to credit risk and liquidity risk.

After making due enquiry, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing the annual report and financial statements.

3    Adoption of new and revised standards

3.1)New and amended standards and interpretations

The Group applied IFRS 9 - 'Financial Instruments' and IFRS 15 - 'Revenue from contracts with customers' for the first time from 1 January 2018. The nature and effect of the changes on the consolidated financial statements of the Group as a result of the adoption of these two new standards are described below. Other than the changes described below, the accounting policies adopted are consistent with those of the previous financial year.

Several other amendments and interpretations applied for the first time in 2018. However, they do not impact the annual consolidated financial statements of the Group or the interim condensed consolidated financial statements of the Group and, hence, have not been disclosed. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.

i) IFRS 9 - 'Financial Instruments'

IFRS 9 - 'Financial Instruments' replaces IAS 39 - 'Financial Instruments: Recognition and Measurement' for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement, impairment and hedge accounting.

The Group has applied IFRS 9 retrospectively, with the initial application date of 1 January 2018 and has adjusted the comparative information for the period beginning 1 January 2017. There were no material impacts on the comparative balances other than a change in classification and separate disclosure of some trade receivables. There was no impact on hedging as the Group did not hedge in 2017 and 2018 or apply hedge accounting.

The effects of adopting IFRS 9 are set out below.

a) Classification and measurement            

Under IFRS 9, there is a change in the classification and measurement requirements relating to financial assets. Previously, there were four categories of financial assets: loans and receivables, fair value through profit or loss, held to maturity and available for sale. Under IFRS 9, financial assets are either classified as amortised cost, fair value through profit or loss or fair value through other comprehensive income.

For debt instruments, the classification is based on two criteria: the Group's business model for managing the assets and whether the contractual cash flows of the financial instruments represent 'solely payments of principal and interest' ("SPPI") on the principal amount outstanding. A financial asset can only be measured at amortised cost if both of the following are satisfied:

·      Business model: the objective of the business model is to hold the financial asset for the collection of the contractual cash flows.

·      Contractual cash flows: the contractual cash flows under the instrument relate solely to payments of principal and interest.

The assessment of the Group's business model was made as of the date of initial application, 1 January 2018, and then applied retrospectively to those financial assets that were not derecognised before 1 January 2018. The assessment of whether contractual cash flows on debt instruments are SPPI was made based on the facts and circumstances as at the initial recognition of the assets.

The classification and measurement requirements of IFRS 9 did not have a significant impact on the Group other than to change the presentation of trade debtors relating to provisionally priced sales (explained in more detail below).

Financial assets

The Group continued measuring at fair value all financial assets previously held at fair value under IAS 39. The following are the changes in the classification of the Group's financial assets:

·      Trade receivables (not subject to provisional pricing) and other current financial assets (i.e., other receivables and loans) previously classified as loans and receivables: these were assessed as being held to collect contractual cash flows and give rise to cash flows representing SPPI. Although now classified as debt instruments at amortised cost, their measurement has not changed.

·      Trade receivables (subject to provisional pricing) and quotational period ("QP") derivatives: prior to the adoption of IFRS 9, the exposure of provisionally priced sales to commodity price movements over the QP, required embedded derivatives to be separated from the host trade receivable and accounted for separately. Under IFRS 9, embedded derivatives are no longer separated from financial assets. Instead, the exposure of the trade receivable to future commodity price movements will cause the trade receivable to fail the SPPI test. Therefore, the entire receivable is now required to be measured at fair value through profit or loss, with subsequent changes in fair value recognised in the statement of profit or loss and other comprehensive income each period until final settlement. The Group did not previously account separately for the embedded derivative in each transaction as the short one to four month transaction cycle would result in any change to the Group's financial statements being immaterial and this policy continued to be applied from 1 January 2018. The key impact of IFRS 9 was to require the separate disclosure of trade receivables between those classified at amortised cost and those at fair value in the Group's balance sheets at 31 December 2016, 2017 and 2018.

Financial liabilities

The Group has not designated any financial liabilities as at fair value through profit or loss. There are no changes in classification and measurement of the Group's financial liabilities.

b)    Other impacts

The change did not have any impact on the Group's statement of cash flows and the basic and diluted EPS.

c)     Impairment

The adoption of IFRS 9 has changed accounting for impairment losses for financial assets by replacing IAS 39's incurred loss approach with a forward-looking expected credit loss ("ECL") approach. IFRS 9 requires the Group to recognise an allowance for ECLs for all debt instruments not held at fair value through profit or loss and contract assets in the scope of IFRS 15.

All of the Group's trade receivables (not subject to provisional pricing) and other current receivables which the Group measures at amortised cost are short term (i.e., less than 12 months) and the Group does not consider that any impairment provision is required. The change to a forward-looking ECL approach did therefore not have any impact on any amount in the financial statements.

d) Hedge accounting

The Group has elected to adopt the new general hedge accounting model in IFRS 9. However, the changes introduced by IFRS 9 relating to hedge accounting currently have no impact, as the Group does not carry out any hedge transactions in 2017 and 2018 or apply hedge accounting.

ii) IFRS 15 - 'Revenue from contracts with customers'

IFRS 15 - 'Revenue from contracts with customers' and its related amendments supersede IAS 11 - 'Construction Contracts' and IAS 18 - 'Revenue' and related Interpretations. It applies to all revenue arising from contracts with its customers and became effective for annual periods beginning on or after 1 January 2018. IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers. It requires revenue to be recognised when (or as) control of a good or service transfers to a customer at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

IFRS 15 requires entities to exercise judgment, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, the standard requires enhanced and extensive disclosures about revenue to help investors better understand the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers.

The Group adopted IFRS 15 using the modified retrospective method of adoption and, therefore, has not restated its comparative information which is prepared using the accounting policies applicable in the prior year. Modified retrospective adoption of IFRS 15 does not give rise to any material changes to the consolidated financial statements for the years ended 31 December 2017 and 2018. The Group has not applied any practical expedients to effect the transition to IFRS 15.

a) Overall impact

The Group's revenue from contracts with customers comprises two streams being the sale of gold (contained within gold doré and refined bullion) and silver bullion to its refiner and sale of gold and copper concentrates. The Group undertook a comprehensive analysis of the impact of the new revenue standard based on a review of the contractual terms of its two revenue streams with the primary focus being to understand whether the timing and amount of revenue recognised could differ under IFRS 15. For both of the Group's revenue streams, the nature  and timing of satisfaction of the performance obligations, and, hence, the amount and timing of revenue recognised under IFRS 15, is the same as that under IAS 18.

b) Impact on statement of profit or loss and other comprehensive income

Gold and silver sales to its refiner 

There were no changes identified with respect to the timing or amount of revenue recognition. This was because all of the Group's gold and silver sold to its refiner are sold under a spot sale arrangement and the timing between contract inception and the satisfaction of the performance obligation (being delivery of gold and silver) is very short, i.e., several days, and the pricing is determined based on the gold price on the London Metal Exchange at the date specified in each spot contract.

Gold and copper concentrate (metal in concentrate) sales 

There were no changes identified with respect to the timing of revenue recognition in relation to metal in concentrate, as control transfers to customers at the date at which the customer takes delivery of the concentrate at the mine site, which is consistent with the point in time when risks and rewards passed under IAS 18.

The Group's sales of metal in concentrate to customers contain terms which allow for price adjustments based on the market price at the end of a quotational period ("QP") stipulated in the contract - these are referred to as "provisionally priced sales".

Under previous accounting standards (IAS 18 and IAS 39), provisionally priced sales were considered to contain an embedded derivative ("ED"), which was required to be separated from the host contract for accounting purposes at the date the customer collected the metal concentrate from the mine site ("Shipment Date"). Revenue was initially recognised for these sales at the Shipment Date (which was when the risks and rewards passed) and was based on the most recently determined estimate of metal in concentrate (based on initial assay results) and the estimated forward price which the entity expected to receive at the end of the QP, determined at the Shipment Date. Subsequent changes in the fair value of the ED were recognised in the statement of profit or loss and other comprehensive income each period until the end of the QP, and were included within, and presented as, gold and copper concentrate revenue.

Under IFRS 15, the accounting for this revenue will remain unchanged in that revenue will be recognised when control passes to the customer (which will continue to be the Shipment date) and will be measured at the amount to which the Group expects to be entitled. This will be the estimate of the price expected to be received at the end of the QP, i.e., the forward price. It will be the impact of the requirements of IFRS 9 that will lead to a change to the Group's accounting (see IFRS 9 note above and accounting policy 4.12 for further discussion).

While the Group will be able to continue to present such movements as part of consolidated revenue on the face of the statement of profit or loss and other comprehensive income, IFRS 15 requires separate disclosure of sales of metal concentrate. This is because the movements throughout the QP are not within the scope of IFRS 15, and therefore this revenue is required to be disclosed separately from revenue from contracts with customers within the scope of IFRS 15 in the notes to the accounts. The Group already separately discloses these amounts and will continue to do so and there will therefore be no change to the disclosures of the Group. There will be no impact on the net profit or loss of the Group arising from this change.

3.2) Standards issued but not yet effective

i) IFRS 16 'Leases'

IFRS 16 - 'Leases' was issued in January 2016 and it replaces IAS 17 - 'Leases', IFRIC 4 - 'Determining whether an arrangement contains a lease', SIC - 15 'Operating Leases - Incentives' and SIC -27 'Evaluation the Substance of Transactions Involving the Legal Form of a lease', IFRS 16 sets out the principles for the recognition measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees - leases of 'low-value' assets (e.g. personal computers) and short-term leases (i.e. Ieases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e. the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e. the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g. a change in the lease term or a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting under IFRS 16 is substantially unchanged from today's accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.

IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17.

IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard's transition provisions permit certain reliefs.

The Group has various operating leases. These are the rental of light vehicles, industrial and residential land, buildings and office accommodation and working animals. The total annual rental of the operating leases is approximately $600,000 per annum of which the majority is land and buildings and vehicles. The Group will account for these leases in accordance with IFRS 16 from 1 January 2019. However, the amounts of the leases are not material, and the change of policy will therefore not result in a material difference to the Group financial statements or additional disclosures.

4      Significant accounting policies

4.1)  Basis of consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2018. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

·   power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the    investee);

·   exposure, or rights, to variable returns from its involvement with the investee; and

·   the ability to use its power over the investee to affect its returns.

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

·   the contractual arrangement with the other vote holders of the investee;

·   rights arising from other contractual arrangements; and

·   the Group's voting rights and potential voting rights.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

4.2)  Revenue  

The Group is principally engaged in the business of producing gold and silver bullion and gold and copper concentrate. Revenue from contracts with customers is recognised when control of the goods is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods.

The Group has generally concluded that it is the principal in its revenue contracts because it typically controls the goods before transferring them to the customer.

i) Contract balances

a) Contract assets

A contract asset is the right to consideration in exchange for goods transferred to the customer. If the Group performs by transferring goods to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional.  The Group does not have any contract assets as performance and a right to consideration occurs within a short period of time and all rights to consideration are unconditional.

b) Trade receivables

A trade receivable represents the Group's right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). Refer to accounting policy 4.12 for the accounting policies for financial assets and accounting policy 4.13 for the accounting policy for trade receivables.

c) Contract liabilities

A contract liability is the obligation to transfer goods to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group performs under the contract.

ii) Gold and silver sales to the refiner

For gold sales, these are sold under spot sales contracts with the Company's gold refiner. The Group initially sends its unrefined doré to the refiner. The refiner is contracted by the Company to perform two separate and distinct functions, to process the doré into gold and silver bullion and to purchase gold and silver.  The gold contained in the doré may be purchased at two different times at the discretion of the Company and instruction is given to the refiner as to the method of sale on a shipment-by-shipment basis:

·      Upon receipt of the doré. In this circumstance, the refiner will purchase 90 per cent. of the estimated gold content of the doré. The balance of the gold will be sold to the refiner as gold bullion following refining and agreement of final gold content of the doré with the refiner.

·      Following production of gold bullion by the refining process. During the refining process ownership (i.e., control of the gold) does not pass to the refiner, it is simply providing refining services to the Group.

There is no formal sales agreement for each sale of gold. Instead, there is a deal confirmation, which sets out the terms of the sale including the applicable spot price and this is considered to be the enforceable contract. The only performance obligation is the sale of gold within the doré or as bullion.

Silver is only sold to the refiner as silver bullion following the refining process. The process of sale of the silver bullion is the same as for gold bullion.

Revenue is recognised at a point in time when control passes to the refiner. As the gold and silver is at this time already on the premises of the refiner, physical delivery has already taken place when the sales are made.

With these arrangements, there are no advance payments received from the refiner, no conditional rights to consideration, i.e., no contract assets are recognised. A trade receivable is recognised at the date of sale and there are only several days between recognition of revenue and payment. The contract is entered into and the transaction price is determined at outturn by virtue of the deal confirmation and there are no further adjustments to this price. Also, given each spot sale represents the enforceable contract and all performance obligations are satisfied at that time, there are no remaining performance obligations (unsatisfied or partially unsatisfied) requiring disclosure. Refer to note 17 - 'Trade and other receivables' for details of payment terms.      

iii) Gold and copper in concentrate (metal in concentrate) sales

For gold and copper in concentrate (metal in concentrate) sales, the enforceable contract is each purchase order, which is an individual, short-term contract. The performance obligation is the delivery of the concentrate to the customer.

The Group's sales of metal in concentrate allow for price adjustments based on the market price at the end of the relevant quotational period ("QP") stipulated in the contract. These are referred to as provisional pricing arrangements and are such that the selling price for metal in concentrate is based on prevailing spot prices on a specified future date (or average of future spot prices over a defined period, usually a week) after shipment to the customer. Adjustments to the sales price occur based on movements in quoted market prices up to the end of the QP. The period between provisional invoicing and the end of the QP can be between one and four months.

Revenue is recognised when control passes to the customer, which occurs at a point in time when the metal in concentrate is physically delivered to the customer at the mine site. The revenue is measured at the amount to which the Group expects to be entitled, being the estimate of the price expected to be received at the end of the QP, i.e., the forward price, and a corresponding trade receivable is recognised.

For these provisional pricing arrangements, any future change that occur over the QP is an embedded derivative within the provisionally priced trade receivables and are, therefore, within the scope of IFRS 9 and not within the scope of IFRS 15. The Group does not separately account for the embedded derivative in each transaction as the short transaction cycle of one to four months would result in any changes to the Group's financial statements being immaterial. Any difference between the provisional and final price is adjusted through revenue from from contracts with customers. Changes in fair value over, and until the end of, the QP, are estimated by reference to updated forward market prices for gold and copper as well as taking into account relevant other fair value considerations as set out in IFRS 13, including interest rate and credit risk adjustments. See accounting policy 4.10 for further discussion on fair value. Refer to note 17 for details of payments terms for trade receivables.

As noted above, as the enforceable contract for most arrangements is the purchase order, the transaction price is determined at the date of each sale (i.e., for each separate contract) and, therefore, there is no future variability within scope of IFRS 15 and no further remaining performance obligations under those contracts.

iv) Interest revenue

Interest revenue is recognised as it accrues, using the effective interest rate method.

4.3)    Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date and whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

Operating lease payments are recognised as an expense in the Group income statement on a straight line basis over the lease term.

The Group had no finance leases during 2018 and 2017.

4.4)    Taxation

i) Current and deferred income taxes

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the Group financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax assets and unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilised.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax is charged or credited in the Group income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets are not recognised in respect of temporary differences relating to tax losses where there is insufficient evidence that the asset will be recovered. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are classified as non-current assets ans liabilities.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Group income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the reporting date.

The tax expense represents the sum of the tax currently payable and deferred tax.

ii) Value-added taxes ("VAT")

The Group pays VAT on purchases made in both the Republic of Azerbaijan and the United Kingdom. Under both jurisdictions, VAT paid is refundable. Azerbaijani jurisdiction permits offset of an Azerbaijani VAT credit against other taxes payable to the state budget.

4.5)    Transactions with related parties

For the purposes of these Group financial statements, parties are considered to be related:

·     where one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions;

·    entities under common control; and

·    key management personnel

In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

Related parties may enter into transactions which unrelated parties might not and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties.

It is the nature of transactions with related parties that they cannot be presumed to be carried out on an arm's length basis.

4.6)  Borrowing costs

Borrowing costs directly relating to the acquisition, construction or production of a qualifying capital project under construction are capitalised and added to the project cost during construction until such time the assets are considered substantially ready for their intended use i.e. when they are capable of commercial production. Where funds are borrowed specifically to finance a project, the amount capitalised represents the actual borrowing costs incurred. Where surplus funds are available for a short term out of money borrowed specifically to finance a project, the income generated from the temporary investment of such amounts is also capitalised and deducted from the total capitalised borrowing cost. Where the funds used to finance a project form part of general borrowings, the amount capitalised is calculated using a weighted average of rates applicable to relevant general borrowings of the Group during the period. All other borrowing costs are recognised in the Group income statement in the period in which they are incurred.

Even though exploration and evaluation assets can be qualifying assets, they generally do not meet the 'probable economic benefits' test. Any related borrowing costs are therefore generally recognised in the Group income statement in the period they are incurred.

4.7)    Intangible assets

i) Exploration and evaluation assets

The costs of exploration properties and leases, which include the cost of acquiring prospective properties and exploration rights and costs incurred in exploration and evaluation activities, are capitalised as intangible assets as part of exploration and evaluation assets.

Exploration and evaluation assets are carried forward during the exploration and evaluation stage and are assessed for impairment in accordance with the indicators of impairment as set out in IFRS 6 - 'Exploration for and Evaluation of Mineral Resources'.

In circumstances where a property is abandoned, the cumulative capitalised costs relating to the property are written off in the period. No amortisation is charged prior to the commencement of production.

Once commercially viable reserves are established and development is sanctioned, exploration and evaluation assets are transferred to assets under construction.

Upon transfer of Exploration and evaluation costs into Assets under construction, all subsequent expenditure on the construction, installation or completion of infrastructure facilities is capitalised within Assets under construction.

When commercial production commences, exploration, evaluation and development costs previously capitalised are amortised over the commercial reserves of the mining property on a units-of-production basis.

Exploration and evaluation costs incurred after commercial production start date in relation to evaluation of potential mineral reserves and resources that are expected to result in increase of reserves are capitalised as Evaluation and exploration assets within intangible assets. Once there is evidence that reserves are increased, such costs are tested for impairment and transferred to Producing mines.

ii) Mining rights

Mining rights are carried at cost to the Group less any provisions for impairments which result from evaluations and assessments of potential mineral recoveries and accumulated depletion. Mining rights are depleted on the units-of-production basis over the total reserves of the relevant area.

iii) Other intangible assets

Other intangible assets mainly represent the cost paid to landowners for the use of land ancillary to our mining operations. They are depreciated over the respective terms of right to use the land.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each reporting date. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the Group income statement in the expense category consistent with the function of the intangible asset.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the Group income statement when the asset is derecognised.

4.8)    Property, plant and equipment and mine properties

Development expenditure is net of proceeds from all but the incidental sale of ore extracted during the development phase.

Upon completion of mine construction, the assets initially charged to assets in the course of construction are transferred into 'Plant and equipment, motor vehicles and leasehold improvements' or 'Producing mines'. Items of 'Plant and equipment, motor vehicles and leasehold improvements' and 'Producing mines' are stated at cost, less accumulated depreciation and accumulated impairment losses.

During the production period expenditures directly attributable to the construction of each individual asset are capitalised as 'Assets' in the course of construction up to the period when asset is ready to be put into operation. When an asset is put into operation it is transferred to 'Plant and equipment, motor vehicles and leasehold improvements' or 'Producing mines'. Additional capitalised costs performed subsequent to the date of commencement of operation of the asset are charged directly to 'Plant and equipment, motor vehicles and leasehold improvements' or 'Producing mines', i.e. where the asset itself was transferred.

The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the rehabilitation obligation and, for qualifying assets, borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset.

When a mine construction project moves into the production stage, the capitalisation of certain mine construction costs ceases and costs are either regarded as inventory or expensed, except for costs which qualify for capitalisation relating to mining asset additions or improvements, underground mine development or mineable reserve development.

i) Depreciation and amortisation

Accumulated mine development costs within producing mines are depreciated and amortised on a units-of-production basis over the economically recoverable reserves of the mine concerned, except in the case of assets whose useful life is shorter than the life of the mine, in which case the straight line method is applied. The unit of account for run of mine ("ROM") costs and for post-ROM costs is recoverable ounces of gold. The units-of-production rate for the depreciation and amortisation of mine development costs takes into account expenditures incurred to date.

The premium paid in excess of the intrinsic value of land to gain access is amortised over the life of the mine on a units-of-production basis.

Other plant and equipment such as mobile mine equipment is generally depreciated on a straight line basis over their estimated useful lives as follows:

·   Temporary buildings                 -              eight years (2017: eight years)

·   Plant and equipment                 -              eight years (2017: eight years)

·   Motor vehicles                           -              four years (2017: four years)

·   Office equipment                       -              four years (2017: four years)

·   Leasehold improvements         -              eight years (2017: eight years)

An item of property, plant and equipment, and any significant part initially recognised, is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Group income statement when the asset is derecognised.

The asset's residual values, useful lives and methods of depreciation and amortisation are reviewed at each reporting date and adjusted prospectively if appropriate.

ii) Major maintenance and repairs

Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets and overhaul costs. Where an asset or part of an asset that was separately depreciated and is now written off is replaced, and it is probable that future economic benefits associated with the item will flow to the Group through an extended life, the expenditure is capitalised.

Where part of the asset was not separately considered as a component, the replacement value is used to estimate the carrying amount of the replaced assets which is immediately written off. All other day-to-day maintenance costs are expensed as incurred.

4.9)    Impairment of tangible and intangible assets

The Group conducts annual internal assessments of the carrying values of tangible and intangible assets. The carrying values of capitalised exploration and evaluation expenditure, mine properties and property, plant and equipment are assessed for impairment when indicators of such impairment exist or at least annually. In such cases an estimate of the asset's recoverable amount is calculated. The recoverable amount is determined as the higher of the fair value less costs to sell for the asset and the asset's value in use. This is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, the individual assets are grouped together into cash-generating units ("CGUs") for impairment purposes. Such CGUs represent the lowest level for which there are separately identifiable cash inflows that are largely independent of the cash flows from other assets or other groups of assets. This generally results in the Group evaluating its non‑financial assets on a geographical or licence basis.

If the carrying amount of the asset exceeds its recoverable amount, the asset is impaired and an impairment loss is charged to the Group income statement so as to reduce the carrying amount to its recoverable amount (i.e. the higher of fair value less cost to sell and value in use).

Impairment losses related to continuing operations are recognised in the Group income statement in those expense categories consistent with the function of the impaired asset.

For assets excluding the intangibles referred to above, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of the recoverable amount.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If this is the case, the carrying amount of the asset is increased to its recoverable amount. The increased amount cannot exceed the carrying amount that would have been determined, net of depreciation or amortisation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the consolidated statement of other comprehensive income. Impairment losses recognised in relation to indefinite life intangibles are not reversed for subsequent increases in its recoverable amount.

4.10) Fair value measurement

The Group measures financial instruments such as bank borrowings at fair value at each balance sheet date. Fair value disclosures for financial instruments measured at fair value, or where fair value is disclosed, are summarised in the following notes:

·   Note 17 - 'Trade and other receivables'

·   Note 19 - 'Cash and cash equivalents'

·   Note 20 - 'Trade and other payables'; and

·   Note 21 - 'Interest-bearing loans and borrowings'

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

·   in the principal market place for the asset or the liability; or

·   in the absence of a principal market, the most advantageous market for the asset or liability.

The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole.

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

·     Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

·     Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the financial statements on a re-occurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as set out above.

4.11) Provisions

i) General

Provisions are recognised when (a) the Group has a present obligation (legal or constructive) as a result of a past event and (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

ii) Rehabilitation provision

The Group records the present value of estimated costs of legal and constructive obligations required to restore operating locations in the period in which the obligation is incurred. The nature of these restoration activities includes dismantling and removing structures, rehabilitating mines and tailings dams, dismantling operating facilities, closure of plant and waste sites and restoration, reclamation and revegetation of affected areas.

The obligation generally arises when the asset is installed or the ground or environment is disturbed at the production location. When the liability is initially recognised, the present value of the estimated cost is capitalised by increasing the carrying amount of the related mining assets to the extent that it was incurred prior to the production of related ore. Over time, the discounted liability is increased for the change in present value based on the discount rates that reflect current market assessments and the risks specific to the liability.

The periodic unwinding of the discount is recognised in the Group income statement as a finance cost. Additional disturbances or changes in rehabilitation costs will be recognised as additions or charges to the corresponding assets and rehabilitation liability when they occur. Any reduction in the rehabilitation liability and therefore any deduction from the rehabilitation asset may not exceed the carrying amount of that asset. If it does, any excess over the carrying value is taken immediately to the Group income statement.

If the change in estimate results in an increase in the rehabilitation liability and therefore an addition to the carrying value of the asset, the Group is required to consider whether this is an indication of impairment of the asset as a whole and test for impairment in accordance with IAS 36. If, for mature mines, the revised mine assets net of rehabilitation provisions exceeds the recoverable value, that portion of the increase is charged directly to expense.

For closed sites, changes to estimated costs are recognised immediately in the Group income statement. Also, rehabilitation obligations that arose as a result of the production phase of a mine should be expensed as incurred.

4.12) Financial instruments - initial recognition and subsequent measurement

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

a) Financial assets

i) Initial recognition and measurement

Financial assets are classified, at initial recognition, and subsequently measured at amortised cost, fair value through other comprehensive income ("OCI"), or fair value through profit or loss.

The classification of financial assets at initial recognition that are debt instruments depends on the financial asset's contractual cash flow characteristics and the Group's business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient for contracts that have a maturity of one year or less, are measured at the transaction price determined under IFRS 15. Refer to the accounting policy 4.2 - 'Revenue from contracts with customers'

In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are 'solely payments of principal and interest ("SPPI") on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.

The Group's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

ii) Subsequent measurement

For purposes of subsequent measurement, financial assets are classified in four categories:

•  Financial assets at amortised cost (debt instruments).

•  Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments).

•  Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments).

•  Financial assets at fair value through profit or loss.

iii) Financial assets at amortised cost (debt instruments)     

This category is the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met:

•  The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and

•  The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at amortised cost are subsequently measured using the effective interest rate ("EIR") method and are subject to impairment. Interest received is recognised as part of finance income in the statement of profit or loss and other comprehensive income. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

The Group's financial assets at amortised cost include trade receivables (not subject to provisional pricing) and other receivables. Refer below to 'Financial assets at fair value through profit or loss' for a discussion of trade receivables (subject to provisional pricing).

iv) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading, e.g., derivative instruments, financial assets designated upon initial recognition at fair value through profit or loss, e.g., debt or equity instruments, or financial assets mandatorily required to be measured at fair value, i.e., where they fail the SPPI test. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that do not pass the SPPI test are required to be classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortised cost or at fair value through OCI, as described above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the profit or loss account.

A derivative embedded in a hybrid contract with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category.

As IFRS 9 now has the SPPI test for financial assets, the requirements relating to the separation of embedded derivatives is no longer needed for financial assets. An embedded derivative will often make a financial asset fail the SPPI test thereby requiring the instrument to be measured at fair value through profit or loss in its entirety. This is applicable to the Group's trade receivables (subject to provisional pricing). These receivables relate to sales contracts where the selling price is determined after delivery to the customer, based on the market price at the relevant QP stipulated in the contract. This exposure to the commodity price causes such trade receivables to fail the SPPI test. As a result, these receivables are measured at fair value through profit or loss from the date of recognition of the corresponding sale, with subsequent movements being recognised in 'fair value gains/losses on provisionally priced trade receivables' in the statement of profit or loss and other comprehensive income.

The Group does not currently account separately for embedded derivatives in its trade receivables subject to provisional pricing. The short one to four month transaction cycle would result in any change to the Group's financial statements being immaterial. Any adjustment to the trade receivable subsequent to initial recording is adjusted through revenue.

v) Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group's consolidated statement of financial position) when:

•      The rights to receive cash flows from the asset have expired; or

•      The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement;  and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

vi) Impairment of financial assets              

Further disclosures relating to impairment of financial assets are also provided in the following notes:

•      Disclosure of significant assumptions:              accounting policy 4.20

•      Trade and other receivables:                               accounting policy 4.13 and note 17

The Group recognises an allowance for expected credit loss ("ECL") for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original EIR. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

For trade receivables (not subject to provisional pricing) and other receivables due in less than 12 months, the Group applies the simplified approach in calculating ECLs, as permitted by IFRS 9. Therefore, the Group does not track changes in credit risk, but instead, recognises a loss allowance based on the financial asset's lifetime ECL at each reporting date. For any other financial assets carried at amortised cost (which are due in more than 12 months), the ECL is based on the 12-month ECL. The 12-month ECL is the proportion of lifetime ECLs that results from default events on a financial instrument that are possible within 12 months after the reporting date. However, when there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime ECL. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and informed credit assessment including forward-looking information.

The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows and usually occurs when past due for more than one year and not subject to enforcement activity.

At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit- impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

b)   Financial liabilities

1) Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

The Group's financial liabilities include trade and other payables and loans and borrowings including bank overdrafts.

ii) Subsequent  measurement

The measurement of financial liabilities depends on their classification, as described below:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on liabilities held for trading are recognised in the statement of profit or loss and other comprehensive income.

Loans and borrowings and trade and other payables

After initial recognition, interest-bearing loans and borrowings and trade and other payables are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in the statement of profit or loss and other comprehensive income when the liabilities are derecognised, as well as through the EIR amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss and other comprehensive income.

This category generally applies to interest-bearing loans and borrowings and trade and other payables

iii) Derecognition of financial liabilities

A financial liability is derecognised when the associated obligation is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss and other comprehensive income.

c) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.              

d) Cash and cash equivalents

Cash and cash equivalents in the statement of financial position comprise cash at banks and on hand and short- term deposits with an original maturity of three months or less, but exclude any restricted cash. Restricted cash is not available for use by the Group and therefore is not considered highly liquid, for example, cash set aside to cover rehabilitation obligations.

For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short- term deposits as defined above, net of outstanding bank overdrafts.

4.13) Trade and other receivables

The Group presents trade and other receivables in the statement of financial position based on a current or non-current classification. A trade and other receivable is classified as current as follows:

·  expected to be realised or intended to be sold or consumed in the normal operating cycle;

·  held primarily for the purpose of trading; and

·  expected to be realised within 12 months after the date of the statement of financial position.

Gold bullion held on behalf of the Government of Azerbaijan is classified as a current asset and valued at the current market price of gold at the statement of financial position date.  A current liability of equal amount representing the liability of the gold bullion to the Government of Azerbaijan is also established.

Advances made to suppliers for fixed asset purchases are recognised as non-current prepayments until the fixed asset is delivered when they are capitalised as part of the cost of the fixed asset.

4.14) Inventories

Metal in circuit consists of in-circuit material at properties with milling or processing operations and doré awaiting refinement, all valued at the lower of average cost and net realisable value. In-process inventory costs consist of direct production costs (including mining, crushing and processing and site administration costs) and allocated indirect costs (including depreciation, depletion and amortisation of producing mines and mining interests).

Ore stockpiles consist of stockpiled ore, ore on surface and crushed ore, all valued at the lower of average cost and net realisable value. Ore stockpile costs consist of direct production costs (including mining, crushing and site administration costs) and allocated indirect costs (including depreciation, depletion and amortisation of producing mines and mining interests).

Inventory costs are charged to operations on the basis of ounces of gold sold. The Group regularly evaluates and refines estimates used in determining the costs charged to operations and costs absorbed into inventory carrying values based upon actual gold recoveries and operating plans.

Finished goods consist of doré bars that have been refined and assayed and are in a form that allows them to be sold on international bullion markets and metal in concentrate. Finished goods are valued at the lower of average cost and net realisable value. Finished goods costs consist of direct production costs (including mining, crushing and processing; site administration costs; and allocated indirect costs, including depreciation, depletion and amortisation of producing mines and mining interests).

Spare parts and consumables consist of consumables used in operations, such as fuel, chemicals, reagents and spare parts, valued at the lower of average cost and replacement cost and, where appropriate, less a provision for obsolescence.

4.15) Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs, or value of services received net of any issue costs.

4.16) Deferred stripping costs

The removal of overburden and other mine waste materials is often necessary during the initial development of a mine site, in order to access the mineral ore deposit. The directly attributable cost of this activity is capitalised in full within mining properties and leases, until the point at which the mine is considered to be capable of commercial production. This is classified as expansionary capital expenditure, within investing cash flows.

The removal of waste material after the point at which a mine is capable of commercial production is referred to as production stripping.

When the waste removal activity improves access to ore extracted in the current period, the costs of production stripping are accounted for as part of the cost of producing those inventories.

Where production stripping activity both produces inventory and improves access to ore in future periods the associated costs of waste removal are allocated between the two elements. The portion which benefits future ore extraction is capitalised within stripping and development capital expenditure. If the amount to be capitalised cannot be specifically identified it is determined based on the volume of waste extracted compared with expected volume for the identified component of the orebody. Components are specific volumes of a mine's orebody that are determined by reference to the life of mine plan.

In certain instances significant levels of waste removal may occur during the production phase with little or no associated production.

All amounts capitalised in respect of waste removal are depreciated using the unit of production method based on the ore reserves of the component of the orebody to which they relate.

The effects of changes to the life of mine plan on the expected cost of waste removal or remaining reserves for a component are accounted for prospectively as a change in estimate.

4.17) Employee leave benefits

Liabilities for wages and salaries, including non-monetary benefits and accrued but unused annual leave, are recognised in respect of employees' services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled.

4.18) Retirement benefit costs

The Group does not operate a pension scheme for the benefit of its employees but instead makes contributions to their personal pension policies. The contributions due for the period are charged to the Group income statement.

4.19) Share-based payments

The Group has applied the requirements of IFRS 2 - 'Share-based Payment'. IFRS 2 has been applied to all grants of equity instruments.

The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions.

Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been applied based on management's best-estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The vesting conditions assumptions are reviewed during each reporting period to ensure they reflect current expectations.

4.20) Significant accounting judgements

The preparation of the Group financial statements in conformity with IFRS requires management to make judgements that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the Group financial statements and reported amounts of revenues and expenses during the reporting period.

4.20i) Recovery of deferred tax assets (note 12)

Judgement is required in determining whether deferred tax assets are recognised within the Group statement of financial position. Deferred tax assets, including those arising from unutilised tax losses, require management to assess the likelihood that the Group will generate taxable earnings in future periods, in order to utilise recognised deferred tax assets. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred tax assets recorded at the reporting date could be impacted.

4.20ii) Exploration and evaluation expenditure (note 14)

The application of the Group's accounting policy for exploration and evaluation expenditure requires judgement in determining whether it is likely that future economic benefits are likely from future exploitation. If information becomes available suggesting that the recovery of expenditure is unlikely, the amount capitalised is written off in the consolidated statement of profit or loss in the period when the new information becomes available.

4.20iii) Impairment of intangible and tangible assets (notes 14 and 15)

The assessment of tangible and intangible assets for any internal and external indications of impairment involves judgement. Each reporting period, the Group assesses whether there are indicators of impairment, if indicated then a formal estimate of the recoverable amount is performed and an impairment loss recognised to the extent that the carrying amount exceeds recoverable amount. Recoverable amount is determined as the higher of fair value less cost to dispose ("FVLCD") and value in use. Determining whether the projects are impaired requires an estimation of the recoverable value of the individual areas to which value has been ascribed. The FVLCD calculation requires the entity to estimate the future cash flows expected to arise from the projects and a suitable discount rate in order to calculate present value.

4.20iv) Production start date (note 15)

The Group assesses the stage of each mine under construction to determine when a mine moves into the production stage. The criteria used to assess the start date are determined based on the unique nature of each mine construction project, such as the complexity of a plant and its location. The Group considers various relevant criteria to assess when the mine is substantially complete, ready for its intended use and is reclassified from Assets under construction to Producing mines and Property, plant and equipment. Some of the criteria will include, but are not limited to, the following:

•   the level of capital expenditure compared to the construction cost estimates;

•   completion of a reasonable period of testing of the mine plant and equipment;

•   ability to produce metal in saleable form (within specifications); and

•   ability to sustain ongoing production of metal.

When a mine construction project moves into the production stage, the capitalisation of certain mine construction costs ceases and costs are either regarded as inventory or expensed, except for costs that qualify for capitalisation relating to mining asset additions or improvements, underground mine development or mineable reserve development. This is also the point at which the depreciation/amortisation recognition commences.

4.20v) Renewal of Production Sharing Agreement ("PSA") (note 29)

The Group operates its mines and processing facilities on contract areas licenced under a PSA with the Government of Azerbaijan. The majority of the Group's fixed assets, including its processing facilities and its main producing mines, are located on the Gedabek contract area which has a mining licence expiring in March 2022. The Group depreciates each tangible fixed asset over its estimated useful life regardless of whether or not the end of its useful life is later than March 2022. There is an option to extend the Gedabek licence for a further ten years conditional upon satisfaction of certain requirements stipulated in the PSA. The directors have judged that the requirements to renew the licence for a further 10 years will be satisfied and therefore it is valid to depreciate assets over useful lives which end later than the end date of the current Gedabek licence.

4.21) Significant accounting estimates

The preparation of the Group financial statements in conformity with IFRS requires management to make estimates that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the Group financial statements and reported amounts of revenues and expenses during the reporting period. Estimates are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates. In particular, information about significant areas of estimation uncertainty considered by management in preparing the Group financial statements is described below.

4.21i) Impairment of intangible and tangible assets (notes 14 and 15)

Once an intangible or tangible asset has been judged as impaired, an estimate is made of its recoverable amount. Recoverable amount is determined as the higher of fair value less costs to sell and value in use. Determining whether the projects are impaired requires an estimation of the recoverable value of the individual areas to which value has been ascribed. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the projects and a suitable discount rate in order to calculate present value.

4.21ii) Ore reserves and resources (notes 14 and 15)

Ore reserves are estimates of the amount of ore that can be economically and legally extracted from the Group's mining properties. The Group estimates its ore reserves and mineral resources, based on information compiled by appropriately qualified persons relating to the geological data on the size, depth and shape of the ore body and requires complex geological judgements to interpret the data. The estimation of recoverable reserves is based upon factors such as estimates of foreign exchange rates, commodity prices, future capital requirements and production costs along with geological assumptions and judgements made in estimating the size and grade of the ore body. Changes in the reserve or resource estimates may impact upon the carrying value of exploration and evaluation assets, mine properties, property, plant and equipment, provision for rehabilitation and depreciation and amortisation charges.

4.21iii) Inventory (note 18)

Net realisable value tests are performed at least annually and represent the estimated future sales price of the product based on prevailing spot metals prices at the reporting date, less estimated costs to complete production and bring the product to sale.

Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, the number of contained gold ounces based on assay data and the estimated recovery percentage based on the expected processing method. Stockpile tonnages are verified by periodic surveys. The ounces of gold sold are compared to the remaining reserves of gold for the purpose of charging inventory costs to operations.

4.21iv) Mine rehabilitation provision (note 23)

The Group assesses its mine rehabilitation provision annually. Significant estimates and assumptions are made in determining the provision for mine rehabilitation as there are numerous factors that will affect the ultimate liability payable. These factors include estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes and changes in discount rates. Those uncertainties may result in future actual expenditure differing from the amounts currently provided. The provision at the reporting date represents management's best estimate of the present value of the future rehabilitation costs required. Changes to estimated future costs are recognised in the Group statement of financial position by either increasing or decreasing the rehabilitation liability and rehabilitation asset if the initial estimate was originally recognised as part of an asset measured in accordance with IAS 16 'Property, Plant and Equipment'. Expenditure on mine rehabilitation is expected to take place between 2023 and 2025.

.

5    Segment information

The Group determines operating segments based on the information that is internally provided to the Group's chief operating decision maker. The chief operating decision maker has been identified as the board of directors. The board of directors currently considers consolidated financial information for the entire Group and reviews the business based on the Group income statement and Group statement of financial position on this basis. Accordingly, the Group has only one operating segment, mining operations. The mining operations comprise the Group's major producing asset, the Gedabek mine which accounts for all the Group's revenues and the majority of its cost of sales, depreciation and amortisation. The Group's mining operations are all located within Azerbaijan and therefore all within one geographic segment.

6    Revenue

The Group's revenue consists of sales to third parties of:

·      gold contained within doré and gold and silver bullion to the Group's refiner; and

·      gold and copper concentrate.

	2018 $000	2017 $000
Gold within doré and gold bullion	75,078	55,099
Silver bullion	403	311
Gold and copper concentrate	14,873	16,396
	90,354	71,806

All revenue from sales of gold within doré and gold and silver bullion and gold and copper concentrate is recognised at the time when control passes to the customer.

The majority of sales of gold within doré and gold and silver bullion were made to one customer, the Group's gold refiner. MKS Finance S.A., based in Switzerland. One trial shipment of gold doré was made to a second refiner in 2018 but the sale amount was immaterial.

The gold and copper concentrate was sold in 2018 to Industrial Minerals SA and Trafigura PTE Ltd. (2017: Industrial Minerals SA).

7    Other income and operating expenses

Other income

	2018 $000	2017 $000
Interest receivable	5	13
Recovery of advances previously written off	-	175
Provisions no longer required	63	396
	68	584

Other operating expenses

	2018 $000	2017 $000
Transportation and refining costs	647	754
Foreign exchange loss	704	484
Advances and inventory written off	217	360
Disposal of obsolete equipment	209	-
	1,777	1,598

8 Operating profit

	Notes	2018 $000	2017 $000
Operating profit is stated after charging:
Depreciation on property, plant and equipment - owned	15	20,957	21,008
Amortisation of mining rights and other intangible assets	14	1,990	1,778
Employee benefits and expenses	10	8,708	7,305
Foreign currency exchange net loss		704	484
Inventory expensed during the year		19,270	21,502
Operating lease expenses		1,058	591
Fees payable to the Company's auditor for:
The audit of the Group's annual accounts		135	135
The audit of the Group's subsidiaries pursuant to legislation		119	119
Audit related assurance services - half year review		2	2
Total audit services		256	256
Amounts paid to auditor for other services:
Tax compliance services		13	14
Tax advice regarding dividend and share premium reduction		39	-
Total non-audit services		52	14
Total		308	270

There were no non-cancellable operating lease and no sublease arrangements during 2018 and 2017.

The audit fees for the parent company were $107,000 (2017: $107,000).

9  Remuneration of the directors

Year ended 31 December 2018	Consultancy $	Fees $	Benefits $	Total $
John Monhemius	10,329	53,183	-	63,512
Richard Round	-	53,183	-	53,183
John Sununu	-	78,224	-	78,224
Reza Vaziri	576,913	53,183	33,095	663,191
Khosrow Zamani	-	130,906	-	130,906
	587,242	368,679	33,095	989,016

Year ended 31 December 2017	Consultancy $	Fees $	Benefits $	Total $
John Monhemius	13,750	51,970	-	65,720
Richard Round	-	51,970	-	51,970
John Sununu	-	76,342	-	76,342
Reza Vaziri	578,126	51,970	32,471	662,567
Khosrow Zamani	-	127,761	-	127,761
	591,876	360,013	32,471	984,360

Directors' fees and consultancy fees for 2017 and 2018 were paid in cash.

No director held or exercised any share options during the year ended 31 December 2018

10  Staff numbers and costs

The average number of staff employed by the Group (including directors) during the year, analysed by category, was as follows:

	2018	2017
Management and administration	47	49
Exploration	42	19
Mine operations	656	626
	745	694

The aggregate payroll costs of these persons were as follows:

	2018 $000	2017 $000
Wages and salaries	7,559	6,043
Share-based payments	-	13
Social security costs	1,580	1,249
Costs capitalised as exploration	(431)	-
	8,708	7,305

Remuneration of key management personnel

The remuneration of the key management personnel of the Group, is set out below in aggregate:

	2018 $	2017 $
Short-term employee benefits	1,943,329	1,861,343
Share-based payment	-	13,399
	1,943,329	1,874,742

The key management personnel of the Group comprise the chief executive officer, the vice president of government affairs, the senior vice president, Azerbaijan International Mining Company Limited, the vice president of technical services, the director of geology and the chief financial officer. The remuneration of the directors as required by the Companies Act 2006 is given in note 9 above.

11 Finance costs

	2018 $000	2017 $000
Interest charged on interest-bearing loans and borrowings	1,150	3,043
Finance charges on letters of credit	3	33
Unwinding of discount on provisions	489	462
	1,642	3,538

Interest on interest-bearing loans and borrowings represents charges on those credit facilities as set out in note 21 - "Interest-bearing loans and borrowings" below.

Where a portion of the loans has been used to finance the construction and purchase of assets of the Group ('qualifying assets'), the interest on that portion of the loans has been capitalised up until the time the assets were substantially ready for use. For the year ended 31 December 2018, $nil (2017: $nil) interest was capitalised.

12  Taxation

Corporation tax is calculated at 32 per cent. (as stipulated in the production sharing agreement for R.V. Investment Group Services LLC ("RVIG") in the Republic of Azerbaijan, the entity that contributes the most significant portion of profit before tax in the Group financial statements) of the estimated assessable profit or loss for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. Deferred income taxes arising in RVIG are recognised and fully disclosed in these Group financial statements. RVIG's unutilised tax losses at 31 December 2018 were $nil (2017: $4,697,000).

The major components of the income tax charge for the year ended 31 December are:

	2018	2017
	$000	$000
Current income tax
Current income tax charge	7,288	-
Deferred tax
Charge relating to origination and reversal of temporary differences	1,623	3,164
Income tax charge for the year	8,911	3,164

Deferred income tax at 31 December relates to the following:

	Statement of financial position			Income statement
	2018 $000	2017 $000		2018 $000	2017 $000
Deferred income tax liability
Property, plant and equipment - accelerated depreciation	(18,165)	(17,834)		(331)	1,619
Non-current prepayments	(139)	(280)		141	67
Trade and other receivables	(1,280)	(796)		(484)	670
Inventories	(9,493)	(9,435)		(58)	12
Deferred tax liability	(29,077)	(28,345)
Deferred income tax asset
Trade and other payables and provisions *	3,171	2,367		804	(1,122)
Asset retirement obligation *	2,889	3,081		(192)	68
Interest bearing loans and borrowings *	-	-		-	151
Carry forward losses **	-	1,503		(1,503)	(4,629)
Deferred tax asset	6,060	6,951
Deferred income tax charge				(1 ,623)	(3,164)
Net deferred tax liability	(23,017)	(21,394)

*        Deferred income tax assets have been recognised for the trade and other payables and provisions, asset retirement obligation and interest-bearing loans and borrowings based on local tax basis differences expected to be utilised against future taxable profits.

**       Deferred income tax assets have been recognised for the carry forward of unused tax losses to the extent that it is probable that taxable profits will be available in the future against which the unused tax losses can be utilised. The probability that taxable profits will be available in the future is based on forward looking budgets and business plans of the Group.

A reconciliation between the accounting profit and the total taxation charge for the year ended 31 December is as follows:

	2018 $000	2017 $000
Profit before tax	25,246	5,684
Theoretical tax charge at statutory rate of 32 per cent. for RVIG*	8,079	1,819
Effects of different tax rates for certain Group entities (20 per cent.)	161	164
Tax effect of items which are not deductible or assessable for taxation purposes:
- losses in jurisdictions that are exempt from taxation	-	1
- non-deductible expenses	732	1,231
- non-taxable income	(61)	(51)
Income tax charge for the year	8,911	3,164

* This is the tax rate stipulated in RVIG's production sharing agreement.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised.

Deferred tax assets and liabilities have been offset for deferred taxes recognised for RVIG since there is a legally enforceable right to set off current tax assets against current tax liabilities and they relate to income taxes levied by the same taxation authority. The Group intends to settle its current tax assets and liabilities on a net basis in the Republic of Azerbaijan.

At 31 December 2018, the Group had unused tax losses available for offset against future profits of $18,648,000 (2017: $22,032,000). Unused tax losses in the Republic of Azerbaijan at 31 December 2018 were $nil (2017: $4,697,000). No deferred tax assets have been recognised in respect of jurisdictions other than the Republic of Azerbaijan due to the uncertainty of future profit streams.

13  Profit per share

The calculation of basic and diluted profit per share is based upon the retained profit for the financial year of $16,335,000 (2017: $2,520,000).

The weighted average number of ordinary shares for calculating the basic profit and diluted profit per share after adjusting for the effects of all dilutive potential ordinary shares relating to share options are as follows:

	2018	2017
Basic	114,047,503	113,134,175
Diluted	114,047,503	113,322,046

At 31 December 2018 there were no unexercised share options that could potentially dilute basic earnings per share (2017: 631,000).

14  Intangible assets

	Exploration and evaluation Gedabek $000	Exploration and evaluation Gosha $000	Exploration and evaluation Ordubad $000	Mining rights $000	Other intangible assets $000	Total $000
Cost
1 January 2017	191	-	4,028	41,925	498	46,642
Additions	919	-	125	-	31	1,075
31 December 2017	1,110	-	4,153	41,925	529	47,717
Additions	2,326	350	192	-	8	2,876
31 December 2018	3,436	350	4,345	41,925	537	50,593
Amortisation and impairment*
1 January 2017	-	-	-	29,469	325	29,794
Charge for the year	-	-	-	1,738	40	1,778
31 December 2017	-	-	-	31,207	365	31,572
Charge for the year	-	-	-	1,948	42	1,990
31 December 2018	-	-	-	33,155	407	33,562
Net book value
31 December 2017	1,110	-	4,153	10,718	164	16,145
31 December 2018	3,436	350	4,345	8,770	130	17,031

*367,000 ounces of gold at 1 January 2018 were used to determine depreciation of producing mines, mining rights and other intangible assets (2017: 427,000 ounces). A 5 per cent. increase or decreased in the ounces of gold used to compute the amortisation of intangible assets would result in a decrease in amortisation of $57,000 and an increase in amortisation of $61,000 respectively.

15  Property, plant and equipment

	Plant and equipment and motor vehicles	Producing mines	Assets under construction	Total
	$000	$000	$000	$000
Cost
1 January 2017	21,465	183,433	435	205,333
Additions	434	4,559	5,175	10,168
Transfer to producing mines	-	1,229	(1,229)	-
Decrease in provision for rehabilitation	-	(249)	-	(249)
31 December 2017	21,899	188,972	4,381	215,252
Additions	2,205	10,091	3,722	16,018
Transfer to producing mines	-	7,581	(7,581)	-
Disposal	-	-	(209)	(209)
Decrease in provision for rehabilitation	-	(1,089)	-	(1,089)
31 December 2018	24,104	205,555	313	229,972
Depreciation and impairment*
1 January 2017	14,656	92,201	-	106,857
Charge for the year	1,765	19,243	-	21,008
31 December 2017	16,421	111,444	-	127,865
Charge for the year	1,751	19,206	-	20,957
31 December 2018	18,172	130,650	-	148,822
Net book value
31 December 2017	5,478	77,528	4,381	87,387
31 December 2018	5,932	74,905	313	81,150

 *367,000 ounces of gold at 1 January 2018 were used to determine depreciation of producing mines, mining rights and other intangible assets (2017: 427,000 ounces). A 5 per cent. increase or decreased in the ounces of gold used to compute the depreciation of property plant and equipment would result in a decrease in depreciation of $461,000 and an increase in depreciation of $510,000 respectively.

The Ugur new open pit commenced production in 2017 with the development cost transferred to producing mines on 1 September 2017 with depreciation commencing from this date. Initial mining from the Ugur open pit was by free digging and September 2017 was the first month in which significant amounts of ore were extracted from the Ugur open pit. Gold doré from Ugur ore also commenced in September 2017. The development cost of Ugur was $1.1 million and the cost will be amortised using the unit of production method with 137,000 ounces of gold as the total resource to determine the amortisation.

No impairment losses were recognised by the Group at 31 December 2018 or 31 December 2017.

The Group assesses at each balance sheet date whether any indicators exist of impairment of its fixed assets.  Should any indicators exist, the Group will perform an impairment analysis at that balance sheet date to ascertain that the carrying value of the Group's property, plant and equipment is in excess of its fair value less cost to dispose ("FVLCD"). 

 The determination of FVLCD is most sensitive to the following key assumptions:

-    Production volumes

-    Commodity prices

-    Discount rates

-    Foreign exchange rates

-    Capital and operating costs

The management assessed that there were no indicators of impairment at 31 December 2017 and 31 December 2018. Accordingly, no impairment analysis was performed for the balance sheet at 31 December 2017 and 31 December 2018.

The capital commitments by the Group have been disclosed in note 29.

16 Subsidiary undertakings

Anglo Asian Mining PLC is the parent and ultimate parent of the Group.

The Company's subsidiaries at 31 December 2018 are as follows:

Name	Registered address	Primary place of business	Percentage of holding per cent.
Anglo Asian Operations Limited	England and Wales	United Kingdom	100
Holance Holdings Limited	British Virgin Islands	Azerbaijan	100
Anglo Asian Cayman Limited	Cayman Islands	Azerbaijan	100
R.V. Investment Group Services LLC	Delaware, USA	Azerbaijan	100
Azerbaijan International Mining Company Limited	Cayman Islands	Azerbaijan	100

There has been no change in subsidiary undertakings since 1 January 2018.

17 Trade and other receivables

			1 January
	2018	2017	2017
Non-current assets	$000	$000	$000
Advances for fixed asset purchases	436	860	989
Loans	-	15	95
	436	875	1,084
Current assets
Gold held due to the Government of Azerbaijan	2,898	7,445	10,078
VAT refund due	312	206	339
Other tax receivable	1,016	891	926
Trade receivables - amortised cost*	250	440	-
Trade receivables - fair value**	1,988	-	639
Prepayments and advances	1,927	2,187	4,218
Loans	105	107	50
	8,496	11,276	16,250

* Trade receivables not subject to provisional pricing.

**Trade receivables subject to provisional pricing

Trade receivables (not subject to provisional pricing) are for sales of gold and silver to the refiner and are non interest-bearing and payment is usually received one to two days after the date of sale.

Trade receivables (subject to provisional pricing) are for sales of gold and copper concentrate and are non interest-bearing, but as discussed in accounting policy 4.2, are exposed to future commodity price movements over the quotational period ("QP") and, hence, fail the 'solely payments of principal and interest' test and are measured at fair value up until the date of settlement. These trade receivables are initially measured at the amount which the Group expects to be entitled, being the estimate of the price expected to be received at the end of the QP. Approximately 90 per cent. of the provisional invoice (based on the provisional price) is received in cash within one to two weeks from when the concentrate is collected from site, which reduces the initial receivable recognised under IFRS 15. The QPs can range between one and four months post shipment and final payment is due between 30-90 days from the end of the QP. Refer to accounting policy 4.10 for details of fair value measurement.

The Group does not consider any trade or other receivable as past due or impaired. All receivables at amortised cost have been received shortly after the balance sheet date and therefore the Group does not consider that there is any credit risk exposure. No provision for any expected credit loss has therefore been established in 2017 or 2018.

The VAT refund due at 31 December 2018, 2017 and 2016 relates to VAT paid on purchases.

Gold bullion held and transferable to the Government is bullion held by the Group due to the Government of Azerbaijan. The Group holds the Government's share of the product from its mining activities and from time to time transfers that product to the Government. A corresponding liability to the Government is included in trade and other payables shown in note 20.

18 Inventory

	2018	2017
Current assets	$000	$000
Cost
Finished goods - bullion	319	2,059
Finished goods - metal in concentrate	458	489
Metal in circuit	14,105	13,476
Ore stockpiles	6,371	6,753
Spare parts and consumables	12,906	11,203
Total current inventories	34,159	33,980
Total inventories at the lower of cost and net realisable value	34,159	33,980

The Group has capitalised mining costs related to high grade sulphide ore stockpiled during the year. Such stockpiles are expected to be utilised as part of the flotation processing. Inventory is recognised at lower of cost or net realisable value.

19  Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and held by the Group within financial institutions that are available immediately. The carrying amount of these assets approximates their fair value.

The Group's cash on hand and cash held within financial institutions at 31 December 2018 (including short-term cash deposits) comprised $39,000 and $14,501,000 respectively (2017: $117,000 and $2,417,000).

The Group's cash and cash equivalents are mostly held in United States Dollars.

20 Trade and other payables

	2018 $000	2017 $000
Accruals and other payables	5,581	3,979
Trade creditors	3,065	3,431
Gold held due to the Government of Azerbaijan	2,898	7,445
Payable to the Government of Azerbaijan from copper concentrate joint sale	1,680	315
	13,224	15,170

Trade creditors primarily comprise amounts outstanding for trade purchases and ongoing costs. Trade creditors are non interest‑bearing and the creditor days were 18 (2017: 22). Accruals and other payables mainly consist of accruals made for accrued but not paid salaries, bonuses, related payroll taxes and social contributions, accrued interest on borrowings and services provided but not billed to the Group by the end of the reporting period. The increase of accruals in 2018 relate to the increase in exploration activity. The directors consider that the carrying amount of trade and other payables approximates to their fair value.

The amount payable to the Government of Azerbaijan from copper concentrate joint sale represents the portion of cash received from the customer for the Government's portion from the joint sale of copper concentrate.

21 Interest-bearing loans and borrowings

	2018 $000	2017 $000
International Bank of Azerbaijan - agitation leaching plant loan	-	1,640
International Bank of Azerbaijan - loan facility	-	481
Amsterdam Trade Bank	-	3,700
Gazprombank (Switzerland)	-	3,700
Atlas Copco	-	303
Yapi Kredi Bank	-	2,254
Pasha Bank - loans	-	3,713
Kapital Bank	-	1,000
Director	-	3,860
Pasha Bank - refinancing loan	8,438	-
	8,438	20,651
Loans repayable in less than one year	6,750	20,051
Loans repayable in more than one year	1,688	600
	8,438	20,651

International Bank of Azerbaijan ("IBA")

Agitation leaching plant loan

In 2012 and 2013, the Group borrowed $49.5 million under a series of loan agreements to finance the construction of its agitation leaching plant. The annual interest rate for each agreement was12 per cent. The repayment of principal begins two years from the withdrawal date for each agreement. The loans were partially repaid by the proceeds of a refinancing loan from Amsterdam Trade Bank. The loans are repayable commencing in 31 March 2015 and finishing in 30 June 2018. The interest rate on the outstanding loan agreements at 6 November 2017 was reduced to 7 per cent. from that date. The loans were fully repaid during the year ended 31 December 2018.

Loan facilities

During 2016, the group entered into three credit facilities with IBA:

·      AZN1 million at an annual interest rate of 18 per cent. The interest and principal are repayable on a reducing balance basis in 12 equal monthly instalments of AZN92,000 and the final instalment is payable in January 2017.

·      $1.5 million at an annual interest rate of 12 per cent. The interest and principal are repayable on a reducing balance basis in 24 equal monthly instalments of $71,000 and the final instalment was payable in February 2018. The loan was fully repaid during the year ended 31 December 2018.

·      $1.4 million at an annual interest rate of 12 per cent. for the purchase of the water treatment plant. $1.1 million of the loan was drawn down in 2017 and the amount of the loan outstanding at 31 December 2017 was $0.4 million. The balance of the loan at 31 December 2017 together with interest is repayable in equal monthly installments on an annuity basis with the final payment in June 2018. The interest rate was reduced to 10 per cent. in September 2017 and to 7 per cent. on 6 November 2017. The loan was fully repaid during the year ended 31 December 2018.

Amsterdam Trade Bank ("ATB") and Gazprombank (Switzerland) Ltd

During 2013, the Group entered into a loan agreement for $37.0 million to refinance its agitation leaching plant loan from IBA. The annual interest rate was 8.25 per cent. plus LIBOR. Principal was repayable in 15 equal quarterly instalments of $2,467,000. The first payment of principal commenced in February 2015 with the final instalment payable in August 2018. The Group pledged to ATB its present and future claims against MKS Finance SA, the Group's sole buyer of gold doré until termination of the loan agreement. In February 2017, a transaction was finalised to transfer 50 per cent. of the balance of the loan with ATB, being $8.6 million, to Gazprombank (Switzerland) Ltd ("GPBS"). The terms of the loan and security remained unchanged and ATB acted as agent to administer the loan on behalf of ATB and GPBS.  In February 2018, the loans from ATB and GPBS were repaid from the proceeds of the Pasha Bank OJSC refinancing loan.

Atlas Copco

The amounts outstanding are in respect of vendor equipment financing. During 2016, the Group entered into vendor equipment financing for Euro 1.1 million at annual interest rate of 8.14 per cent. The principal is repayable quarterly in eight equal instalments which commenced on 31 August 2016 with the final instalment payable on 31 May 2018. Interest is payable quarterly with the principal. The vendor financing was fully repaid during the year ended 31 December 2018.

Yapi Credit Bank, Azerbaijan ("YCBA")

In 2016 and 2017, the Group entered into several credit facilities with YCBA. The annual interest rate for each facility was 10 to 11 per cent. and each facility is repayable in 12 equal monthly instalments on a reducing balance basis starting one month after drawdown. In February 2018, the total outstanding balance of the loans of $2.2 million was repaid from the proceeds of the Pasha Bank refinancing loan.

Pasha Bank

The Group entered into loans with Pasha Bank in 2016 at annual interest rates and maturities as in the following table. No principal repayment had been made in respect of any of these loans in 2016.

Loan value     $000	Term (months)	Interest rate (per cent.)	Principal repayment
1,000	18	7	2 equal instalments in March and September 2017
1,500	12	9	November 2017
916	24	7	7 equal instalments, 2017 - $525,000; 2018 - $391,000
2,100	2	14	2 equal instalments January and February 2017
419	2	18	2 equal instalments January and February 2017

All of the above loans were repaid in 2017 with the exception of the loan for $916,000 of which $713,000 was outstanding at 31 December 2017.

In 2017, the Group entered into a $3.0 million loan agreement with Pasha Bank at an interest rate of 8.5 per cent. The interest is payable monthly and the principal is repayable in 5 equal installments of $600,000 payable in in April, July, August and October 2018 and January 2019. 

All of the above loans were fully repaid in the year ended 31 December 2018.

Kapital Bank

In December 2016, the Group entered into a working capital credit facility for $1 million with Kapital Bank. The facility is for one year with an annual interest rate of 7 per cent. Interest is payable monthly and the principal is repayable by 4 equal quarterly monthly instalments commencing March 2017. The loan was fully repaid by 31 December 2017. On 17 May 2017, the Group entered into a further $1 million loan facility with Kapital Bank. The term of the loan was for 18 months at an interest rate of 8 per cent. with the principal repayable at the end of the term. The loan was fully repaid during the year ended 31 December 2018.

Director

On 20 May 2015, the chief executive of Anglo Asian Mining PLC provided a $4 million loan facility to the Group. Any loan from the facility was repayable on 8 January 2016 at an interest rate of 10 per cent. The loan was extended during 2016 and 2017 on the same terms till 8 January 2018. On January 2018, the term of the loan was extended for one year until 8 January 2019. The interest rate on the loan was reduced to 7 per cent., and all other terms of the loan remained unchanged. In March 2018, the loan was repaid from the proceeds of the Pasha Bank OSJC refinancing loan.

Pasha Bank - refinancing loan

      In 2018, entered into a refinancing agreement with Pasha Bank OJSC, as arranger, for a syndicated loan facility for up to $15 million to refinance the majority of the Group's existing loans. The facility is for two years with a fixed interest rate of 7 per cent. And early repayment is permitted. Loan principal is repayable ion 8 equal quarterly instalments. The loan facility is unsecured and there are no financial covenants.

      A total of $13.5 million of the facility was drawn-down on the 9 and 12 of February 2018 and used to repay the following loans:

·   $2.2 million to Yapi Credit Bank;

·   $3.7 million to Amsterdam Trade Bank N. V.;

·   $3.7 million to Gazprombank (Switzerland) Ltd; and

·   $3.9 million to the Chief Executive.

      The loan refinancing was completed by the end of March 2018.

Unused credit facilities

The Group had a $2 million credit facility from Yapi Credit Bank at 31 December 2018 which was not utilised (2017: $nil).

22  Changes in liabilities arising from financing activities

	2018
	1 January $000	Cash flows $000	Other $000	31 December $000
Current interest-bearing loans and borrowings	20,051	(13,301)	-	6,750
Non-current interest- bearing loans and borrowings	600	1,088	-	1,688
Total liabilities from financing activities	20,651	(12,213)	-	8,438

	2017
	1 January $000	Cash flows $000	Other $000	31 December $000
Current interest-bearing loans and borrowings	26,165	(15,879)	9,765	20,051
Non-current interest- bearing loans and borrowings	9,765	600	(9,765)	600
Total liabilities from financing activities	35,930	(15,279)	-	20,651

Other is the effect of reclassification of the non-current portion of interest-bearing loans and borrowings to current at the end of the year due to the passage of time, the effect of accrued but not yet paid interest on interest-bearing loans and borrowings and other adjustments.

23  Provision for rehabilitation

	2018 $000	2017 $000
1 January	9,629	9,416
Change in estimate	-	-
Additions	654	557
Accretion expense	489	462
Effect of passage of time and change in discount rate	(1,744)	(806)
31 December	9,028	9,629

The Group has a liability for restoration, rehabilitation and environmental costs arising from its mining operations. Estimates of the cost of this work including reclamation costs, close down and pollution control are made on an ongoing basis, based on the estimated life of the mine. This provision represents the net present value of the best estimate of the expenditure required to settle the obligation to rehabilitate any environmental disturbances caused by mining operations. The undiscounted liability for rehabilitation at 31 December 2018 was $12,100,000 (2017: $13,736,000). The undiscounted liability was discounted using a risk-free rate of 4.83 per cent. (2017: 5.05 per cent.). Expenditures on restoration and rehabilitation works are expected between 2023 and 2025 (2017: between 2023 and 2025).

24  Financial instruments

Financial risk management objectives and policies

The Group's principal financial instruments comprise cash and cash equivalents, loans and letters of credit. The main purpose of these financial instruments is to finance the Group operations. The Group has other financial instruments, such as trade and other receivables and trade and other payables, which arise directly from its operations. Surplus cash within the Group is put on deposit, the objective being to maximise returns on such funds whilst ensuring that the short-term cash flow requirements of the Group are met.

The main risks that could adversely affect the Group's financial assets, liabilities or future cash flows are capital risk, market risk, interest rate risk, foreign currency risk, liquidity risk and credit risk. Management reviews and agrees policies for managing each of these risks which are summarised below.

The following discussion also includes a sensitivity analysis that is intended to illustrate the sensitivity to changes in market variables on the Group's financial instruments and show the impact on profit or loss and shareholders' equity, where applicable. Financial instruments affected by market risk include bank loans and overdrafts, accounts receivable, accounts payable and accrued liabilities.

The sensitivity has been prepared for the years ended 31 December 2018 and 2017 using the amounts of debt and other financial assets and liabilities held as at those reporting dates.

Capital risk management

The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 21, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued share capital, reserves and retained earnings as disclosed in the consolidated statement of changes in equity. The Group has sufficient capital to fund ongoing production and exploration activities, with capital requirements reviewed by the Board on a regular basis. Capital has been sourced through share issues on the AIM, part of the London Stock Exchange, and loans from the International Bank of Azerbaijan, Amsterdam Trade Bank ("ATB") and other banks in Azerbaijan. In managing its capital, the Group's primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through capital growth. In order to achieve this objective, the Group seeks to maintain a gearing ratio that balances risk and returns at an acceptable level and also to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs.

The Group is not subject to externally imposed capital requirements and monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group's policy is to keep the gearing ratio below 70 per cent. The Group defines net debt as interest-bearing loans and borrowings less cash and cash equivalents.

Interest rate risk

The Group's cash deposits, letters of credit, borrowings and interest-bearing loans subsequent to the loan refinancing by Pasha Bank in 2018 are at a fixed rate of interest.

The Group manages the risk by maintaining fixed rate instruments, with approval from the directors required for all new borrowing facilities.

The Group has not used any interest rate swaps or other instruments to manage its interest rate profile during 2018 and 2017.

Interest rate sensitivity analysis

The Group had no sensitivity to any movement in LIBOR rates in 2018 and 2017.

Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial liabilities. Included in note 21 is a description of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk.

The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments.

Year ended 31 December 2018

	On demand $000	Less than 3 months $000	3 to 12 months $000	1 to 5 years $000	Total $000
Interest-bearing loans and borrowings	-	1,688	5,062	1,688	8,438
Trade and other payables	-	13,224	-	-	13,224
	-	14,912	5,062	1,688	21,662

Year ended 31 December 2017

	On demand $000	Less than 3 months $000	3 to 12 months $000	1 to 5 years $000	Total $000
Interest-bearing loans and borrowings	-	9,962	10,089	600	20,651
Trade and other payables	-	15,170	-	-	15,170
	-	25,132	10,089	600	35,821

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The maximum credit risk exposure relating to financial assets is represented by their carrying value as at the consolidated statement of financial position date.

The Group has adopted a policy of only dealing with creditworthy banks and has cash deposits held with reputable financial institutions. These usually have a lower to upper medium grade credit rating. Trade receivables consist of amounts due to the Group from sales of gold and silver and copper and precious metal concentrates. The majority of the sales of gold and silver bullion are made to MKS Finance SA, a Switzerland-based gold refinery, and copper concentrate is sold to Industrial Minerals SA and Trafigura PTE Ltd. Due to the nature of the customers, the board of directors does not consider that a significant credit risk exists for receipt of revenues. The board of directors continually reviews the possibilities of selling gold to alternative customers and also the requirement for additional measures to mitigate any potential credit risk.

Foreign currency risk                         

The presentational currency of the Group is United States Dollars. The Group is exposed to currency risk due to movements in foreign currencies relative to the US Dollar affecting foreign currency transactions and balances.

The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at 31 December are as follows:

	Liabilities			Assets
	2018 $000	2017 $000		2018 $000	2017 $000
UK Sterling	1	1		334	2
Azerbaijan Manats	3,228	3,909		1,784	1,342
Other	297	151		3	4

Foreign currency sensitivity analysis

The Group is mainly exposed to the currency of the United Kingdom (UK Sterling), the currency of the European Union (Euro) and the currency of the Republic of Azerbaijan (Azerbaijan Manat).

The following table details the Group's sensitivity to an 8 per cent., 7 per cent. and 12 per cent. (2017: 11 per cent., 12.5 per cent. and 11.3 per cent.) increase and a 11 per cent., 11 per cent., and 3 per cent. (2017: 7 per cent., 7.5 per cent., and 11.3 per cent.) decrease in the United States Dollar against United Kingdom Sterling, Euro and Azerbaijan Manat, respectively. These are the sensitivity rates used when reporting foreign currency risk internally to key management personnel and represents management's assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for respective change in foreign currency rates. A positive number below indicates an increase in profit and other equity where the United States Dollar strengthens by the mentioned rates against the relevant currency. Weakening of the United States Dollar against the relevant currency, there would be an equal and opposite impact on the profit and other equity, and the balances below would be reversed.

	UK Sterling impact			Azerbaijan Manat impact		Euro Impact
	2018	2017		2018	2017	2018	2017
	$000	$000		$000	$000	$000	$000
Increase - effect on profit before tax	(27)	-		173	290	21	18
Decrease - effect on profit before tax	37	-		(43)	(290)	(32)	(11)

Market risk

The Group's activities primarily expose it to the financial risks of changes in gold, silver and copper prices which have a direct impact on revenues. The management and board of directors continuously monitor the spot price of these commodities. The forward prices for these commodities are also regularly monitored. The majority of the Group's production is sold by reference to the spot price on the date of sale. However, the board of directors will enter into forward and option contracts for the purchase and sale of commodities when it is commercially advantageous.

A 10 per cent. decrease in gold price in the year ended 31 December 2018 would result in a reduction in revenue of $8.1 million and a 10 per cent. increase in gold price would have the equal and opposite effect. A 10 per cent. decrease in silver price would result in a reduction in revenue of $0.3 million and a 10 per cent. increase in silver price would have an equal and opposite effect. A 10 per cent. decrease in copper price would result in a reduction in revenue of $0.7 million and a 10 per cent. increase in copper price would have an equal and opposite effect.

25  Equity

	2018		2017
	Number	£	Number	£
Authorised Ordinary shares of 1 pence each	600,000,000	6,000,000	600,000,000	6,000,000
	Shares	$000	Shares	$000
Ordinary shares issued and fully paid I January	113,761,024	2,008	112,661,024	1,993
Exercise of share options	631,000	8	1,100,000	15
31 December	114,392,024	2,016	113,761,024	2,008

Fully paid ordinary shares carry one vote per share and carry the right to dividends.

Share options

The Group has share option scheme under which options to subscribe for the Company's shares have been granted to certain executives and senior employees (note 26).

Merger reserve

The merger reserve was created in accordance with the merger relief provisions under Section 612 of the Companies Act 2006 (as amended) relating to accounting for Group reconstructions involving the issue of shares at a premium. In preparing Group consolidated financial statements, the amount by which the base value of the consideration for the shares allotted exceeded the aggregate nominal value of those shares was recorded within a merger reserve on consolidation, rather than in the share premium account.

26  Share-based payment

The Group operates a share option scheme for directors and senior employees of the Group. The vesting periods are up to three years. Options are exercisable at a price equal to the closing quoted market price of the Group's shares on the date of the board of directors approval to grant options. Options are forfeited if the employee leaves the Group and the options are not exercised within three months from leaving date.

The number and weighted average exercise prices ("WAEP") of, and movements in, share options during the year were as follows:

	2018			2017
	Number	WAEP pence		Number	WAEP pence
I January	631,000	17		1,745,000	14
Granted prior to 2017	-	-		86,000	22
Exercised during the year	(631,000)	17		(1,100,000)	12
Expired during the year	-	-		(100,000)	16
Outstanding at 31 December	-	-		631,000	17
Exercisable at 31 December	-	-		631,000	17

The weighted average remaining contractual life of the share options outstanding at 31 December 2017 was 7 years and the range of their exercise prices was 10 pence to 35 pence.

There were no share options issued in 2017 or 2018.

The Group recognised total expense related to equity-settled share-based payment transactions for the year ended 31 December 2018 of $nil (2017: $13,000).

27   Share premium account

	2018 $000	2017 $000
1 January	32,484	32,325
Issue of shares	141	159
Court approved reduction	(32,592)	-
31 December	33	32,484

On 13 July 2018, the Company issued a circular to its shareholders proposing a resolution to reduce its share premium account to $nil. This resolution was passed by its shareholders at a meeting of its shareholders on 30 July 2018.

The reduction in the share premium account to $nil was approved by the court on 28 August 2018. The share premium account of $33,000 at 31 December 2018 is the share premium on shares issued subsequent to the court approved reduction.

28  Dividends made and proposed

	2018 $000	2017 $000
Cash dividends on ordinary shares declared and paid
Interim dividend for 2018: 3 US cents*  per share	3,432	-
Proposed dividends on ordinary shares		-
Final dividend for 2018: 4 US cents** per share	4,576	-

* the dividend was declared in United States dollars but paid in Sterling in the amount of 2.2864 per ordinary share. The dividend was converted into Sterling at the rate of £1 = $1.3121 being the average of the sterling closing mid-price using the exchange rate published by the Bank of England at 4pm each day from the 15 to 19 October 2018.

** to be paid in Sterling at a rate to be announced.

The proposed final dividend on ordinary shares is subject to approval by shareholders at the annual general meeting for 2019 and not recognised as a liability in the Group statement of financial position at 31 December 2018.

29  Contingencies and commitments

The Group undertakes its mining operations in the Republic of Azerbaijan pursuant to the provisions of the Agreement on the Exploration, Development and Production Sharing for the Prospective Gold Mining Areas: Gedabek, Gosha, Ordubad Group (Piazbashi, Agyurt, Shakardara, Kiliyaki), Soutely, Kyzilbulag and Vejnali Deposits dated year ended 20 August 1997 (the "PSA"). The PSA contains various provisions relating to the obligations of the R.V. Investment Group Services LLC ("RVIG"), a wholly owned subsidiary of the Company. The principal provisions are regarding the exploration and development programme, preparation and timely submission of reports to the Government, compliance with environmental and ecological requirements. The Directors believe that RVIG is in compliance with the requirements of the PSA. The Group has announced a discovery on Gosha Mining Property in February 2011 and submitted the development programme to the Government according to the PSA requirements, which was approved in 2012. In April 2012 the Group announced a discovery on the Ordubad Group of Mining Properties and submitted the development programme to the Government for review and approval according to the PSA requirements. The Group and the Government are still discussing the formal approval of the development programme.

The mining licence on Gedabek expires in March 2022, with the option to extend the licence by ten years conditional upon satisfaction of certain requirements stipulated in the PSA.

RVIG is also required to comply with the clauses contained in the PSA relating to environmental damage. The Directors believe RVIG is in compliance with the environmental clauses contained in the PSA.

There were no significant operating lease or capital lease commitments at 31 December 2018 (2017: $nil).

30  Related party transactions

Trading transactions

During the years ended 31 December 2017 and 2018, there were no trading transactions between Group companies.

Other related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and other related parties are disclosed below.

a)  Remuneration paid to directors is disclosed in note 9 above.

b)  During the year ended 31 December 2018, total payments of $2,563,000 (2017: $1,400,000) were made for equipment and spare parts purchased from Proses Muhendislik Danismanlik Inshaat ve Tasarim Anonim Shirket, the entity in which the Chief Technical Officer of Azerbaijan International Mining Company has a direct ownership interest.

At 31 December 2018 there is a payable in relation to the above related party transaction of $51,000 (2017: $267,000)

c)  On 20 May 2015, the chief executive made a $4 million loan facility available to the Group. The principle of the loan was fully repaid during the year ended 31 December 2018. The interest accrued and unpaid at 31 December 2018 was $325,000 (2017: $655,000). Details of the loan facility are disclosed in note 21 - "Interest-bearing loans and borrowings".

All of the above transactions were made on arm's length terms.

**ENDS**

Notes:

Anglo Asian Mining plc (AIM:AAZ) is a gold, copper and silver producer in Central Asia with a broad portfolio of production and exploration assets in Azerbaijan. The Company has a 1,962 square kilometre portfolio, assembled from analysis of historic Soviet geological data and held under a Production Sharing Agreement modelled on the Azeri oil industry.

The Company's main operating location is the Gedabek contract area ("Gedabek") which is a 300 square kilometre area in the lesser Caucasus mountains in western Azerbaijan. The Company developed Azerbaijan's first operating gold/copper/silver mine at Gedabek which commenced gold production in May 2009. Mining at Gedabek was initially from its main open pit, which is an open cast mine with a series of interconnected pits.

The Company also operates the high grade Gadir underground mine, which is  co-located  at  the  Gedabek  site.  In September 2017, production commenced at the Ugur open pit mine, a recently discovered gold ore deposit at Gedabek. The Company has a second underground mine, Gosha, which is 50 kilometres from Gedabek. Ore mined at Gosha is processed at Anglo Asian's Gedabek plant.

The Company produced 83,736 gold equivalent ounces ('GEOs') for the year ended 31 December 2018. Gedabek is a polymetallic ore deposit that has gold together with significant concentrations of copper in the main open pit mine, and an oxide gold-rich zone at Ugur. The Company therefore employs a series of flexible processing routes to optimise metal recoveries and efficiencies. The Company produces gold dore through agitation and heap leaching operations, copper concentrate from its Sulphidisation, Acidification, Recycling, and Thickening (SART) plant and also a copper and precious metal concentrate from its flotation plant. A second dedicated crusher line  has  been  commissioned  and  is  now  in  operation  for  the flotation plant to enable it to operate independently of the agitation leaching plant.

The Company has forecast metal production for FY 2019 of between 82,000 to 86,000 gold equivalent ounces ("GEOs"). Of the forecast production for FY 2019, between 28,000 to 30,000 GEOs is in the form of copper and gold concentrate.

Anglo Asian is also actively seeking to exploit its first mover advantage in Azerbaijan to identify additional projects, as well as looking for other properties in order to fulfil its expansion ambitions and become a mid-tier gold and copper metal production company.

 

END

 

 

FR GMGMKNKDGLZM