2017 Full Year Results

RNS Number : 6414K

Central Asia Metals PLC

12 April 2018

 

12 April 2018

CENTRAL ASIA METALS PLC

('CAML' or the 'Company')

2017 Full Year Results

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

Financial summary

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

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

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

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

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

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

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

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

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

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

Operational summary

Kounrad

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

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

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

Sasa

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

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

2018 outlook

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

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

·     Sasa production guidance

o  Zinc, between 21,000 and 23,000 tonnes

o  Lead, between 28,000 and 30,000 tonnes

·     Shuak 2018 exploration programme, to commence in Q2

Nick Clarke, Chairman of CAML, commented:

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

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

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

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

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

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

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

Analyst conference call

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

For further information contact:

Central Asia Metals	Tel: [phone]
Nick Clarke, Chairman
Nigel Robinson, CFO
Louise Wrathall, Investor Relations	[e-mail]
Peel Hunt (Nominated Advisor and Joint Broker)	Tel: [phone]
Ross Allister
James Bavister
Mirabaud Securities (Joint Broker)	Tel: [phone]
Peter Krens
Blytheweigh (PR Advisors)	Tel: [phone]
Tim Blythe
Camilla Horsfall
Megan Ray

Note to editors

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

CHAIRMAN'S STATEMENT

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

Key achievements

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

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

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

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

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

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

Kounrad

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

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

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

Sasa

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

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

Shuak

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

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

Copper Bay

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

Market performance

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

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

Outlook

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

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

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

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

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

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

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

 

FINANCIAL REVIEW

Overview

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

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

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

Acquisition of Lynx Resources Limited

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

Purchase consideration:	$'000
Cash paid	340,178
Consideration shares issued	48,883
Deferred consideration	12,000
Total purchase consideration	401,061

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

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

	$'000
Headline consideration	402,500
Amount received from the sellers in April 2018	(3,300)
Consideration interest	2,978
Fair value accounting for consideration shares	(1,117)
Total purchase consideration (IFRS)	401,061

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

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

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

Income statement 

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

Revenue

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

Kounrad

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

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

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

Sasa

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

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

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

Cost of sales

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

Kounrad

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

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

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

Sasa

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

C1 cash cost of production

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

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

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

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

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

Administrative expenses

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

Balance sheet

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

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

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

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

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

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

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

Debt financing

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

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

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

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

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

Discontinued operations

Copper Bay

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

Mongolia

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

Cash flows

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

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

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

Dividend

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

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

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

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

Nigel Robinson

Chief Financial Officer

CONDENSED FINANCIAL INFORMATION

Consolidated Income Statement

for the year ended 31 December

	Note	2017 $'000	2016 $'000
Continuing operations
Revenue	6	102,517	66,707
Presented as:
Gross revenue	6	106,479	69,269
Less:
Silver purchases from silver stream	6	(1,120)	-
Freight cost	6	(252)	-
Off-take buyers' fees	6	(2,590)	(2,562)
Revenue		102,517	66,707
Cost of sales	7	(31,363)	(18,388)
Gross profit		71,154	48,319
Distribution and selling costs	8	(394)	(215)
Administrative expenses	9	(15,294)	(13,266)
Other (expense)/income	10	(12,348)	192
Foreign exchange gain/(loss)		3,349	(1,385)
Operating profit		46,467	33,645
Finance income	11	5,597	67
Finance costs	12	(2,319)	(158)
Profit before income tax		49,745	33,554
Income tax	13	(13,468)	(6,661)
Profit for the year from continuing operations		36,277	26,893
Discontinued operations
Profit/(loss) for the year from discontinued operations	17	56	(796)
Profit for the year		36,333	26,097
Profit attributable to:
-       Non-controlling interests		(36)	(173)
-       Owners of the parent		36,369	26,270
		36,333	26,097
Earnings/(loss) per share from continuing and discontinued operations attributable to owners of the parent during the year (expressed in cents per share)		$ cents	$ cents
Basic earnings/(loss) per share
From continuing operations	14	29.02	24.26
From discontinued operations		0.04	(0.72)
From profit for the year		29.06	23.54
Diluted earnings/(loss) per share
From continuing operations	14	28.31	23.71
From discontinued operations		0.04	(0.72)
From profit for the year		28.35	22.99

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

Consolidated Statement of Comprehensive Income for the year ended 31 December
	Note	2017 $'000	2016 $'000
Profit for the year		36,333	26,097
Other comprehensive income: Items that may be subsequently reclassified to profit or loss:
Currency translation differences	21	7,989	1,034
Other comprehensive income for the year, net of tax		7,989	1,034
Total comprehensive income for the year		44,322	27,131
Attributable to:
- Non-controlling interests		(36)	(173)
- Owners of the parent		44,358	27,304
Total comprehensive income for the year		44,322	27,131
Total comprehensive income attributable to equity shareholders arises from:   - Continuing operations		44,266	27,261
- Discontinued operations		56	(130)
		44,322	27,131

Consolidated Statement of Financial Position                                        

as at 31 December

	Note		2017 $'000	2016 $'000
Assets Non-current assets
Property, plant and equipment	15		460,952	50,324
Intangible assets	16		70,321	40,759
Investments			-	-
Other non-current receivables	18		2,519	2,738
			533,792	93,821
Current assets
Inventories			6,998	3,319
Trade and other receivables	18		13,738	919
Restricted cash	19		2,812	118
Cash and cash equivalents	19		43,022	40,258
			66,570	44,614
Assets of disposal group classified as held for sale	17		4,516	45
			71,086	44,659
Total assets			604,878	138,480
Equity attributable to owners of the parent
Ordinary shares	20		1,765	1,121
Share premium	20		191,184	-
Treasury shares	20		(7,780)	(7,780)
Currency translation reserve	21		(79,446)	(87,435)
Retained earnings:
At 1 January			215,479	209,120
Profit for the year attributable to the owners			36,369	26,270
Other changes in retained earnings			(20,553)	(19,911)
			231,295	215,479
			337,018	121,385
Non-controlling interests			55	91
Total equity			337,073	121,476
Liabilities Non-current liabilities
Borrowings	24		141,839	-
Deferred revenue	23		17,621	-
Other non-current payables	22		8,000	-
Deferred income tax liability	29		30,361	8,541
Provisions for other liabilities and charges	25		5,319	2,087
			203,140	10,628
Current liabilities
Borrowings	24		40,075	-
Deferred revenue	23		2,056	-
Trade and other payables	22		22,398	6,020
Provisions for other liabilities and charges	25		46	-
			64,575	6,020
Liabilities of disposal group classified as held for sale	17		90	356
			64,665	6,376
Total liabilities			267,805	17,004
Total equity and liabilities			604,878	138,480

Consolidated Statement of Changes in Equity

for the year ended 31 December

Attributable to owners of the parent	Note	Ordinary shares $'000	Share premium $'000	Treasury shares $'000	Currency translation reserve $'000	Retained earnings $'000	Total $'000	Non-controlling interests $'000	Total equity $'000
Balance as at 1 January 2016		1,121	-	(7,810)	(88,469)	209,120	113,962	264	114,226
Profit/(loss) for the year		-	-	-	-	26,270	26,270	(173)	26,097
Other comprehensive expense - currency translation differences	21	-	-	-	1,034	-	1,034	-	1,034
Total comprehensive income/(expense)		-	-	-	1,034	26,270	27,304	(173)	27,131
Transactions with owners
Share based payments	9	-	-	-	-	2,959	2,959	-	2,959
Sale of EBT shares	20	-	-	30	-	-	30	-	30
Exercise of options		-	-	-	-	(2,466)	(2,466)	-	(2,466)
Dividends	27	-	-	-	-	(20,404)	(20,404)	-	(20,404)
Total transactions with owners, recognised directly in equity		-	-	30	-	(19,911)	(19,881)	-	(19,881)
Balance as at 31 December 2016		1,121	-	(7,780)	(87,435)	215,479	121,385	91	121,476
Profit/(loss) for the year		-	-	-	-	36,369	36,369	(36)	36,333
Other comprehensive expense - currency translation differences	21	-	-	-	7,989	-	7,989	-	7,989
Total comprehensive income/(expense)		-	-	-	7,989	36,369	44,358	(36)	44,322
Transactions with owners
Issue of shares	20	644	191,184	-	-	-	191,828	-	191,828
Share based payments	9	-	-	-	-	2,823	2,823	-	2,823
Disposal of subsidiaries		-	-	-	-	1,262	1,262	-	1,262
Exercise of options		-	-	-	-	(1,492)	(1,492)	-	(1,492)
Dividends	27	-	-	-	-	(23,146)	(23,146)	-	(23,146)
Total transactions with owners, recognised directly in equity		644	191,184	-	-	(20,553)	171,275	-	171,275
Balance as at 31 December 2017		1,765	191,184	(7,780)	(79,446)	231,295	337,018	55	337,073

Consolidated Statement of Cash Flows

for the year ended 31 December

		Note	2017 $'000	2016 $'000
Cash flows from operating activities
Cash generated from operations		26	60,412	44,746
Interest paid			(2,127)	(4)
Corporate income tax paid			(12,294)	(9,208)
Net cash generated from operating activities			45,991	35,534
Cash flows from investing activities
Payment for acquisition of subsidiary, net of cash acquired		5	(268,008)	-
Purchase of property, plant and equipment		15	(4,082)	(12,331)
Purchase of intangible assets		16	(2,025)	(1,594)
Proceeds from sale of property, plant and equipment			-	147
Interest received		11	323	67
Restricted cash (increase)/decrease		19	(2,694)	376
Net cash used in investing activities			(276,486)	(13,335)
Cash flows from financing activities
Proceeds from issues of shares (net)		20	142,945	-
Gain on currency hedge		11	2,977	-
Proceeds from borrowings		24	120,000	-
Repayment of borrowings		24	(8,362)	-
Dividends paid to owners of the parent		27	(23,146)	(20,360)
Settlement on exercise of share options			(1,491)	(2,436)
Net cash used in financing activity			232,923	(22,796)
Effect of foreign exchange gain/(loss) on cash and cash equivalents			487	(669)
Net increase/(decrease) in cash and cash equivalents			2,915	(1,266)
Cash and cash equivalents at the beginning of the year		19	40,258	41,524
Cash and cash equivalents at the end of the year		19	43,173	40,258

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

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

Notes to the Condensed Financial Information

for the year ended 31 December 2017

1.    General information

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

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

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

2.    Summary of significant accounting policies

Basis of preparation of the Condensed Financial Information

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

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

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

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

Going concern

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

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

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

3.    Critical accounting estimates and judgments

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

Mineral reserves and resources

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

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

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

Impairment of non-current assets

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

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

Functional currency

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

Decommissioning and site rehabilitation estimates

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

Business combinations

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

VAT recoverability

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

4.    Segmental information

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

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

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

	Kounrad $'000	Sasa  $'000	Shuak $'000	Unallocated  $'000	Total $'000
Gross revenue	86,443	20,036	-	-	106,479
Silver purchases from silver stream	-	(1,120)	-	-	(1,120)
Freight cost	-	(252)	-	-	(252)
Off-take buyers' fees	(2,590)	-	-	-	(2,590)
Revenue	83,853	18,664	-	-	102,517
EBITDA	63,565	14,485	(130)	(24,127)	53,793
Lynx Resources acquisition costs	-	-	-	12,600	12,600
Adjusted EBITDA	63,565	14,485	(130)	(11,527)	66,393
Depreciation and amortisation	(6,695)	(4,176)	(1)	(55)	(10,927)
Foreign exchange (loss)/gain	(29)	2,683	(13)	708	3,349
Other income/(expense)	268	(16)	-	(12,600)	(12,348)
Finance income	8	2,296	-	3,293	5,597
Finance costs	(172)	(783)	(4)	(1,360)	(2,319)
Profit/(loss) before income tax					49,745
Income tax					(13,468)
Profit for the year after tax from continuing operations					36,277
Profit from discontinued operations					56
Profit for the year					36,333

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

	Kounrad $'000	Unallocated  $'000	Total $'000
Gross revenue	69,269	-	69,269
Off-take buyers' fees	(2,562)	-	(2,562)
Revenue	66,707	-	66,707
EBITDA	51,321	(11,400)	39,921
Depreciation and amortisation	(5,028)	(55)	(5,083)
Foreign exchange loss	(271)	(1,114)	(1,385)
Other income	192	-	192
Finance income	8	59	67
Finance costs	(158)	-	(158)
Profit/(loss) before income tax	46,064	(12,510)	33,554
Income tax			(6,661)
Profit for the year after tax from continuing operations			26,893
Loss from discontinued operations			(796)
Profit for the year			26,097

Adjusted EBITDA

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

EBITDA excludes the following items:

·     Income tax expense;

·     Finance income and expense;

·     Other income/(expense);

·     Foreign exchange;

·     Depreciation and amortisation; and

·     Discontinuing operations;

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

	2017	2016
	$'000	$'000
Profit for the year	36,333	26,097
Plus/(less):
Income tax expense	13,468	6,661
Depreciation and amortisation	10,927	5,083
Foreign exchange (gain)/loss	(3,349)	1,385
Other income	(252)	(192)
Finance income	(5,597)	(67)
Finance costs	2,319	158
(Profit)/loss from discontinued operations	(56)	796
Group continuing operations EBITDA	53,793	39,921
Lynx Resources Limited acquisition costs (note 5)	12,600	-
Group continuing operations adjusted EBITDA	66,393	39,921

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

	Segmental assets		Additions to non-current assets		Segmental liabilities
	31 Dec 17  $'000	31 Dec 16  $'000	31 Dec 17  $'000	31 Dec 16  $'000	31 Dec 17  $'000	31 Dec 16  $'000
Kounrad	99,872	98,275	1,050	12,354	(13,953)	(13,700)
Sasa	477,657	-	3,043	-	(122,975)	-
Shuak	1,475	-	1,244	-	(71)	-
Copper Bay	-	4,766	-	2,002	-	(259)
Assets held for sale (note 17)	4,516	45	758	-	(90)	(356)
Unallocated including corporate	21,358	35,394	-	-	(130,716)	(2,689)
	604,878	138,480	6,095	14,356	(267,805)	(17,004)

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

5.    Business combination

 

a)    Summary of acquisition

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

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

Purchase consideration:	Provisional fair value
	$'000
Cash consideration	340,178
Ordinary shares issued	48,883
Deferred consideration	12,000
	401,061
Less: net debt acquired	(67,000)
Total purchase consideration	334,061

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

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

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

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

	Provisional fair value $'000
Intangible assets	10,841
Property, plant and equipment	402,567
Inventories	2,420
Trade and other receivables	13,128
Cash and cash equivalents	8,470
Borrowings	(70,276)
Deferred revenue	(19,981)
Provisions for other liabilities and charges	(3,493)
Trade and other payables	(9,615)
Deferred tax liability	(21,558)
Net assets acquired	312,503
Purchase consideration	334,061
Provisional goodwill	21,558

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

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

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

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

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

b)    Purchase consideration - cash outflow

	2017 $'000
Outflow of cash to acquire subsidiary, net of cash acquired:
Cash consideration less net debt acquired	276,478
Less: cash acquired	(8,470)
Net outflow of cash - investing activities	268,008

 

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

6.    Revenue

			2017 $'000	2016 $'000
International customers (Europe) - copper cathode			85,342	68,442
International customers (Europe)  - zinc and lead concentrate			19,373	-
Domestic customers (Kazakhstan) - copper cathode			1,100	827
Revenue of silver			664	-
Total gross revenue			106,479	69,269
Less:
Silver purchases from silver stream			(1,120)	-
Off-take buyers' fees			(2,590)	(2,562)
Freight			(252)	-
Revenue			102,517	66,707

Kounrad

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

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

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

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

Lynx Resources Group

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

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

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

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

7.    Cost of sales

	2017 $'000	2016 $'000
Reagents, electricity and materials	7,600	5,291
Depreciation and amortisation (note 15, 16)	10,736	4,975
Royalties	5,459	3,858
Employee benefit expense	5,079	2,670
Consulting and other services	1,995	1,138
Taxes and duties	494	456
	31,363	18,388

8.    Distribution and selling costs

	2017 $'000	2016 $'000
Transportation costs	108	44
Employee benefit expense	72	61
Taxes and duties	32	20
Depreciation and amortisation	18	16
Materials and other expenses	164	74
	394	215

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

9.    Administrative expenses

	2017 $'000	2016 $'000
Employee benefit expense	8,063	6,056
Share based payments	2,823	2,959
Consulting and other services	3,324	2,830
Office-related costs	883	851
Taxes and duties	27	478
Depreciation and amortisation	174	92
Total from continuing operations	15,294	13,266
Total from discontinued operations (note 17)	442	947
	15,736	14,213

10.  Other (expense)/income

	2017 $'000	2016 $'000
Lynx Resources Limited acquisition costs (note 5)	(12,600)	-
Other income	252	192
	(12,348)	192

11.  Finance income

	2017 $'000	2016 $'000
Gain on currency hedge	2,977	-
Foreign exchange gain on intercompany borrowings	2,297	-
Bank interest received	323	67
	5,597	67

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

12.  Finance costs

	2017 $'000	2016 $'000
Provisions: unwinding of discount (note 25)	192	153
Interest on borrowings (note 24)	2,106	-
Bank charges	21	5
	2,319	158

13.  Income tax

			2017 $'000	2016 $'000
Current tax on profits for the year			13,984	9,580
Deferred tax credit (note 29)			(516)	(2,919)
Income tax expense			13,468	6,661

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

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

	2017 $'000	2016 $'000
Profit before taxation including loss from discontinued operations	49,801	32,758
Tax calculated at domestic tax rates applicable to profits in the respective countries	9,037	6,553
Tax effects of:
Expenses not deductible for tax purposes	3,582	1,758
Profit/(loss) not subject to tax - Group operations in Bermuda	180	-
Movement on unrecognised deferred tax  - tax losses	1,185	2,120
Movement on unrecognised deferred tax - other	-	(851)
Movement on recognised deferred tax (note 29)	(516)	(2,919)
Income tax expense	13,468	6,661

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

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

14.  Earnings/(loss) per share

(a)  Basic

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

	2017 $'000	2016 $'000
Profit from continuing operations attributable to owners of the parent	36,313	27,066
Profit/(loss) from discontinued operations attributable to owners of the parent	56	(796)
Profitable attributable to owners of the parent	36,369	26,270
Weighted average number of Ordinary Shares in issue	125,144,585	111,558,091

	2017 $ cents	2016 $ cents
Earnings/(loss) per share from continuing and discontinued operations attributable to owners of the parent during the year (expressed in $ cents per share)
From continuing operations	29.02	24.26
From discontinued operations	0.04	(0.72)
From profit for the year	29.06	23.54

 

(b)  Diluted

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

	2017 $'000	2016 $'000
Profit from continuing operations attributable to owners of the parent	36,313	27,066
Loss from discontinued operations attributable to owners of the parent	56	(796)
Profitable attributable to owners of the parent	36,369	26,270
Weighted average number of Ordinary Shares in issue	125,144,585	111,558,091
Adjusted for
-       Share options	3,115,417	2,670,098
Weighted average number of Ordinary Shares for diluted earnings per share	128,260,002	114,228,189

Diluted earnings/(loss) per share	2017 $ cents	2016 $ cents
From continuing operations	28.31	23.71
From discontinued operations	0.04	(0.72)
From profit for the year	28.35	22.99

15.  Property, plant and equipment

	Construction in progress      $'000	Plant and equipment $'000	Mining assets $'000	Motor vehicles and office equipment $'000	Land $'000	Mineral rights $'000	Total $'000
Cost
At 1 January 2016	2,003	49,408	1,601	1,301	-	-	54,313
Additions	11,572	557	-	202	-	-	12,331
Disposals	-	(246)	-	(3)	-	-	(249)
Change in estimate - asset retirement obligation (note 25)	-	(22)	-	-	-	-	(22)
Transfers	(10,443)	10,427	-	16	-	-	-
Exchange differences	67	985	30	26	-	-	1,108
At 31 December 2016	3,199	61,109	1,631	1,542	-	-	67,481
Acquisition of subsidiary (note 5)	8,722	48,216	-	-	643	344,986	402,567
Additions	3,903	26	-	132	21	-	4,082
Disposals	(28)	(396)	-	(46)	-	-	(470)
Change in estimate - asset retirement obligation (note 25)	-	(477)	-	-	-	-	(477)
Transfers	(5,129)	5,057	-	72	-	-	-
Exchange differences	371	1,648	5	3	-	11,654	13,681
At 31 December 2017	11,038	115,183	1,636	1,703	664	356,640	486,864
Accumulated depreciation
At 1 January 2016	-	12,953	62	498	-	-	13,513
Provided during the year	-	3,445	38	155	-	-	3,638
Disposals	-	(246)	-	(3)	-	-	(249)
Exchange differences	-	213	-	42	-		255
At 31 December 2016	-	16,365	100	692	-	-	17,157
Provided during the year	-	6,321	69	142	-	2,744	9,276
Disposals	-	(435)	-	(19)	-	-	(454)
Exchange differences	-	(40)	(1)	(26)	-	-	(67)
At 31 December 2017	-	22,211	168	789	-	2,744	25,912
Net book value at 31 December 2016	3,199	44,744	1,531	850	-	-	50,324
Net book value at 31 December 2017	11,038	92,972	1,468	914	664	353,896	460,952

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

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

16.  Intangible assets

	Goodwill $'000	Exploration and evaluation costs $'000	Mining licences and permits $'000	Computer software and website $'000	Total $'000
Cost
At 1 January 2016	10,106	2,039	30,631	38	42,814
Additions	-	1,561	14	19	1,594
Exchange differences	187	-	306	1	494
At 31 December 2016	10,293	3,600	30,951	58	44,902
Acquisition of subsidiary (note 5)	21,558	-	10,412	430	32,400
Additions	-	2,002	-	23	2,025
Assets classified as held for sale (note 17)	-	(4,358)	-	-	(4,358)
Exchange differences	775	-	367	3	1,145
At 31 December 2017	32,626	1,244	41,730	514	76,114
Accumulated amortisation
At 1 January 2016	-	-	2,524	23	2,547
Provided during the year	-	-	1,554	9	1,563
Exchange differences	-	-	30	3	33
At 31 December 2016	-	-	4,108	35	4,143
Provided during the year	-	-	1,628	30	1,658
Exchange differences	-	-	(8)	-	(8)
At 31 December 2017	-	-	5,728	65	5,793
Net book value at 31 December 2016	10,293	3,600	26,843	23	40,759
Net book value at 31 December 2017	32,626	1,244	36,002	449	70,321

Impairment assessment

Kounrad project

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

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

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

Sasa project

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

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

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

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

Copper Bay project

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

17.  Assets held for sale

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

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

Assets of disposal group classified as held for sale:	31 Dec 17 $'000	31 Dec 16 $'000
Cash and cash equivalents	151	-
Property plant and equipment	-	45
Intangible assets	4,358	-
Trade and other receivables	7	-
	4,516	45

Liabilities of disposal group classified as held for sale:		31 Dec 17 $'000	31 Dec 16 $'000
Provisions		-	336
Trade and other payables		90	20
		90	356
Profit/(loss) from discontinued operations:		2017 $'000	2016 $'000
General and administrative expenses		(442)	(947)
Other income		100	-
Foreign exchange gain		398	151
Profit/(loss) from discontinued operations		56	(796)
Cash flows of disposal group classified as held for sale:		2017 $'000	2016 $'000
Operating cash flows		151	(22)
Total cash flows		151	(22)

18.  Trade and other receivables

			31 Dec 17 $'000	31 Dec 16 $'000
Trade receivables			6,254	-
Prepayments			2,367	347
VAT receivable			1,563	548
Other receivables			3,554	24
			13,738	919
Non-current receivables
Prepayments			39	368
VAT receivable			2,480	2,370
			2,519	2,738

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

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

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

19.  Cash and cash equivalents

		31 Dec 17  $'000	31 Dec 16  $'000
Cash at bank and on hand		35,208	32,209
Short-term deposits		7,814	8,049
		43,022	40,258
Cash at bank and on hand included in assets held for sale		151	-
Total cash and cash equivalent		43,173	40,258
Restricted cash		2,812	118
Total cash and cash equivalent including restricted cash		45,985	40,376

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

20.  Share capital and premium

		Number of shares	Ordinary shares $'000	Share premium  $'000	Treasury shares $'000
At 1 January 2016		112,069,738	1,121	-	(7,810)
Sale of EBT shares		-	-	-	30
At 31 December 2016		112,069,738	1,121	-	(7,780)
Issue of shares		64,428,528	644	191,184	-
At 31 December 2017		176,498,266	1,765	191,184	(7,780)

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

21.  Currency translation reserve

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

22.  Trade and other payables

                                                 

		31 Dec 17 $'000	31 Dec 16 $'000
Trade and other payables including accruals		10,626	3,762
Deferred consideration (note 5)		4,000	-
Corporation tax, social security and other taxes		7,772	2,258
		22,398	6,020
Other non-current payables:
Deferred consideration (note 5)		8,000	-
		8,000	-

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

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

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

23.  Deferred revenue

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

                                                                    

		31 Dec 17 $'000	31 Dec 16 $'000
Current		2,056	-
Non-current		17,621	-
		19,677	-

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

24.  Borrowings

                                                                                                                                                                                                                                                                                                                                                                                                                                 

		31 Dec 17 $'000	31 Dec 16 $'000
Secured: Non-current
Bank loans		141,839	-
Secured: Current
Bank loans		40,075	-
		181,914	-

The carrying value of loans approximates fair value:

	Carrying amount		Fair value
	31 Dec 17 $'000	31 Dec 16 $'000	31 Dec 17 $'000	31 Dec 16 $'000
Ohridska Banka AD Skopje	5,539	-	5,539	-
SG Facility	62,664	-	62,664	-
Traxys	113,711	-	113,711	-
	181,914	-	181,914	-

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

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

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

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

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

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

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

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

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

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

The different levels have been defined as follows:

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

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

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

25.  Provisions for other liabilities and charges

	Asset retirement obligation $'000	Employee retirement benefits $'000	Other employee benefits $'000	Legal claims $'000	Total $'000
At 1 January 2016	1,916	-	-	-	1,916
Change in estimate	(22)	-	-	-	(22)
Unwinding of discount	153	-	-	-	153
Exchange rate difference	40	-	-	-	40
At 31 December 2016	2,087	-	-	-	2,087
Acquisition of subsidiary (note 5)	2,746	123	184	440	3,493
Change in estimate	(477)	57	(30)	-	(450)
Unwinding of discount (note 12)	192	-	-	-	192
Exchange rate difference	28	-	-	15	43
At 31 December 2017	4,576	180	154	455	5,365
Non-current	4,576	171	149	423	5,319
Current	-	9	5	32	46
At 31 December 2017	4,576	180	154	455	5,365

a)    Asset retirement obligation

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

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

b)    Employee retirement benefit

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

c)    Other employee benefit

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

Discount rate: 3.8%

Expected rate of salary increase: 2.5%

d)    Legal claims

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

26.  Cash generated from operations               

	Note		2017 $'000	2016 $'000
Profit before income tax including discontinued operations			49,801	32,758
Adjustments for:
Depreciation and amortisation	15,16		10,927	5,083
Amortisation of deferred revenue - received advances for silver delivery			(304)	-
Gain on disposal of property, plant and equipment			-	(64)
Foreign exchange (gain)/loss			(3,349)	1,234
Share based payments			2,823	2,959
Finance income	11		(5,597)	(67)
Finance costs	12		2,319	158
Changes in working capital:
Inventories			(1,259)	(288)
Trade and other receivables	18		3,868	3,241
Trade and other payables	22		1,113	(268)
Provisions for other liabilities and charges	25		70	-
Cash generated from operations			60,412	44,746

27.  Dividend per share

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

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

28.  Related party transactions

Key management remuneration

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

Non-Executive Directors

Mr Kenges Rakishev became a major shareholder of CAML on 23 May 2014 following completion of the Kounrad Transaction. He was appointed to the CAML Board on 9 December 2013 following the completion of the first part of the transaction.  As part of the obligations on Kenges Rakishev for completing the Kounrad Transaction, he signed a relationship agreement with CAML setting out the terms of the relationship between himself and the Group.

 

In June 2017, Kenges Rakishev sold his 86.09% interest in JSC Kazkommertsbank ('KKB') to JSC Halyk Bank and resigned as Chairman of KKB in July 2017.  The Group uses the facilities of KKB and JSC Halyk Bank within Kazakhstan for its normal day-to-day banking. 

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

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

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

 

29.  Deferred income tax liability

 

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

		At 1 January 2017 $'000	Lynx Resources acquisition $'000	Currency translation differences $'000	(Debit)/credit to income statement $'000	At 31 December 2017 $'000
Other timing differences		(82)	-	(2)	(37)	(121)
Deferred tax liability on fair value adjustment on Kounrad Transaction		(8,459)	-	(31)	387	(8,103)
Deferred tax liability on fair value adjustment on Lynx acquisition (note 5)		-	(21,558)	(745)	166	(22,137)
Deferred tax liability, net		(8,541)	(21,558)	(778)	516	(30,361)

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

		At 1 January 2016 $'000	Currency translation differences $'000	Credit to income statement $'000	At 31 December 2016 $'000
Other timing differences		(134)	-	52	(82)
Deferred tax liability on fair value adjustment on Kounrad Transaction		(10,106)	(1,220)	2,867	(8,459)
Deferred tax liability, net		(10,240)	(1,220)	2,919	(8,541)

					At 31 December 2017 $'000	At 31 December 2016 $'000
Deferred tax liability due within 12 months					(1,597)	(352)
Deferred tax liability due within 12 months					(28,764)	(8,189)
Deferred tax liability, net					(30,361)	(8,451)

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

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

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

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

30.  Events after the reporting period

Kazakhstan VAT recoverability

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

Lynx Resources acquisition

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

 

END

 

 

FR UAONRWOASAAR