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Central Asia Metals (CAML)

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Wednesday 01 April, 2020

Central Asia Metals

2019 Full Year Results

RNS Number : 3138I
Central Asia Metals PLC
01 April 2020
 

1 April 2020

 

CENTRAL ASIA METALS PLC

('CAML' or the 'Company')

 2019 Full Year Results     

Central Asia Metals plc (AIM: CAML) today announces its full year results for the 12 months ended 31 December 2019.

Update regarding COVID-19 pandemic and outlook for 2020

 

· No CAML Group staff or contractors diagnosed with COVID-19

· Both Sasa and Kounrad remain fully operational, with strong 2020 operational performances to date

· Despite host government border restrictions for movement of people, metal sales have to date been unaffected

· Situation intensifying in both countries with a rising number of COVID-19 cases

· No 2019 final dividend proposed

Short-term priority is the welfare of all CAML employees and contractors

Prudent to maintain strong cash position

Decision to be revisited pending greater clarity on the impact of the pandemic

Strong 2019 financial and operational performance

· 2019 full year dividend (interim only) of 6.5 pence (2018: 14.5 pence)

Equates to a c.4.5% yield on the current share price

· Group gross revenue[1] of $180.8 million (2018: $204.2 million) and Group net revenue of $171.8 million (2018: $194.4 million)

· Group profit before tax of $67.8 million (2018: $72.7 million)

· Sasa 2019 C1 zinc equivalent cash cost of $0.47 per pound (2018: $0.46 per pound)

· Kounrad 2019 C1 cash cost of $0.52 per pound (2018: $0.54 per pound)

· Group EBITDA1 of $108.6 million (2018: $125.3 million)

· EBITDA margin1 of 60% (2018: 61%)

· EPS from continuing operations of 29.36 cents (2018: 31.33 cents)

· Group free cash flow1 ('FCF') of $69.8 million (2018: $73.8 million, adjusted)

· Cash in the bank as at 31 December 2019 of $32.6 million[2] (2018: $39.0 million)

· Group net debt1 as at 31 December 2019 of $80.2 million (2018: net debt of $110.3 million)

· 2019 gross debt repayments of $38.4 million (2018: $38.5 million)

· Zinc in concentrate production of 23,369 tonnes (2018: 22,532 tonnes)

 

· Lead in concentrate production of 29,201 tonnes (2018: 29,388 tonnes)

 

· Copper production of 13,771 tonnes (2018: 14,049 tonnes)

· One lost time injury ('LTI') in 2019 (2018: eight LTIs)

 

Nigel Robinson, Chief Executive Officer, commented:

"Our 2019 financial results demonstrate the fundamental strength of the CAML business, which has two low cost base metals operations that are highly profitable and cash generative. We ended the 2019 financial year in a strong position with $32.6 million cash in the bank and gross debt reduced to $108.8 million, almost half the level it was only two years ago when we acquired Sasa. 

"Despite that, we are conscious that we announce these results in very uncertain times, when the short-term outlook for our health, the commodity markets and the global economy is in much doubt due to the COVID-19 pandemic. Our top priority during these times is the welfare of our employees and contractors.

"Both Sasa and Kounrad remain fully operational at present and we have experienced no disruption to either the production or sales of our metal products. However, both North Macedonia and Kazakhstan have now closed their borders to neighbouring countries for the movement of people, although not trade, due to the escalating number of cases. Schools have been closed in North Macedonia and overnight curfews imposed, whilst in Kazakhstan, the cities of Nur-Sultan and Almaty are in lockdown.

"As you would expect, we have implemented respective government guidance plus additional stringent procedures to protect the welfare of our staff at both operations, plus our London-based headquarters, where our CAML Group team now works remotely. While both North Macedonia and Kazakhstan currently have relatively few cases of COVID-19, the numbers are rising daily, and we are seeing the subsequent escalation of government measures therefore cannot rule out the potential for increased restrictions as seen elsewhere.

"Given the current period of uncertainty, we have made the very difficult decision not to recommend a 2019 final dividend. We are also reviewing our 2020 capital expenditure budgets with the aim of identifying near-term savings. Despite the underlying strength of our business with a strong balance sheet and lowest quartile industry costs, we feel these measures are necessary to conserve cash given the unpredictable nature of the current situation, the potential impact on our operations and the volatility of the underlying commodity prices to which we are exposed. We remain confident for the medium and long-term future of our business and intend to review this tough decision as the year progresses and as we gain more clarity on the COVID-19 situation and its impact on our operations and metal prices.

"We fully realise that we have built our business on returns to shareholders and appreciate that this has been a significant factor in the loyal investor support that we have enjoyed for many years. We fully intend to continue that approach in the future and trust that you will understand the rationale whilst we establish the impact of the pandemic and support our decision." 

Analyst conference call

There will be an analyst conference call on Wednesday 1 April 2020 at 09:30 (BST). The call can be accessed by dialling +44 (0) 20 3003 2666 and quoting the confirmation code 'CAML Full Year Results'. Additionally, the presentation can be viewed via a live webcast using the following link https://webcasting.brrmedia.co.uk/broadcast/5e78b4d9599e401fc24fff1f . The webcast and the Company's corporate presentation will be available on the CAML website at www.centralasiametals.com

 

 

 

For further information contact:

Central Asia Metals

Tel: +44 (0) 20 7898 9001

Nigel Robinson, CEO

 

Gavin Ferrar, CFO

 

Louise Wrathall, Director of Corporate Relations

[email protected]

 

 

Peel Hunt (Nominated Advisor and Joint Broker)

Tel: +44 (0) 20 7418 8900

Ross Allister

 

David McKeown

 

 

 

BMO Capital Markets (Joint Broker)

Tel: +44 (0) 20 7236 1010

Thomas Rider

 

Neil Elliot

 

 

 

Blytheweigh (PR Advisors)

Tel: +44 (0) 20 7138 3204 / +44 (0) 7816 924 626

Tim Blythe

 

Megan Ray

 

Rachael Brooks

 


Note to editors:

 

Central Asia Metals, an AIM-listed UK company based in London, owns 100% of the Kounrad SX-EW copper project in central Kazakhstan and 100% of the Sasa zinc-lead mine in North Macedonia.

For further information, please visit:  www.centralasiametals.com and https://twitter.com/CamlMetals

 

CHAIRMAN'S STATEMENT

Operational and financial efficiency

As we report our results, we are in the midst of the COVID-19 pandemic. The challenges and outlook for our health, our business and the global economy are changing daily. Our priority during this time is the welfare of our employees and contractors.

2019 was another good year for CAML. While commodity markets were challenging with lower year on year metal prices prevailing, we have managed to maintain strong financial margins and generate significant profits and cash flow.

Strong 2019 production from our operations led to CAML EBITDA of $108.6 million and free cash flow of $69.8 million. This has, in turn, meant we continued to de-leverage and we ended the year with gross debt of $108.8 million, some $36.1 million lower than 2018.

We have now been listed on the AIM market of the London Stock Exchange for almost 10 years and have been producing copper at our Kounrad facility in Kazakhstan for eight years. In the first half of 2020 we expect to achieve the significant milestone of 100,000 tonnes of copper production from Kounrad. We are proud that this copper has been produced from what was waste material, and at costs that are amongst the lowest in the world.

We grew in 2017 by acquiring the Sasa zinc and lead mine in North Macedonia and we have successfully integrated this operation into our business. We have made significant advances since we bought the mine, having made many incremental improvements in optimising operations and making the recent decision in principle to change our mining method for the long term.

Indeed, we have since our listing generated revenue of $831.8 million and EBITDA of $502.3 million, and we have returned to shareholders in dividends $176.4 million or 97.7 pence per share. Despite this strong long-term performance, we are currently recommending no final dividend for 2019. While we have a robust balance sheet and low cost operations, the situation regarding COVID-19 and its potential impact on the global economy and our operations remains uncertain and is rapidly changing, so we believe that, currently, preserving cash is the most prudent approach.

 

Recognising all our stakeholders

In addition to our supportive shareholders, we recognise that there are many other stakeholders in our business such as our employees, the communities which surround our operations, host governments and suppliers, to name a few.

We have contributed meaningfully to the economies of the countries in which we operate, employing over 1,000 people across Kazakhstan and North Macedonia and providing real financial support and time to important social development programmes. I was particularly proud of the financial and practical support that we provided to the Kind Heart Centre for disabled children in Balkhash, Kazakhstan, as we purchased and refurbished a day care building for the charity.

 

Sustainability

2019 has rightly been a year of increased focus on sustainability and environmental, social and governance ('ESG') both in the investment community as a whole and in particular in the extractives' industries. While we have had a site-based Sustainability Director since 2013, during the year we have revisited our approaches and policies to keep abreast of current developments.

In 2019, I took part in an ESG investor roadshow, where we approached some of our major shareholders to ask what they expect to see from us in terms of governance and sustainability, and their important feedback has informed some of the paths that we have taken.

We will soon be publishing our first standalone Sustainability Report, which is to cover the activities of 2019 and our general approach and strategy with regard to sustainability, as we recognise the growing interest in us providing increased granularity and numerical metrics in this regard.

Sustainability is a wide ranging and crucial topic and we believe that this forthcoming report will provide our investors and other stakeholders with a greater understanding of our efforts and achievements in this important aspect of our business. We hope that it will be seen as a big and positive step in our sustainability journey and no doubt there will be areas for continued improvement going forwards.

 

Board changes

I was delighted to announce the appointment of Dr Gillian Davidson to the CAML Board in November 2019. She is an experienced company director, whose sustainability knowledge has already been invaluable in guiding the Company forwards to continually improve in this important area.

While I remain Chairman of CAML, my role has now transitioned from an executive position to becoming Non-Executive Chairman and I have therefore taken a step back from the day to day running of the Company. This change is part of a long-term succession plan that was initially implemented when I moved from CEO to Executive Chairman four years ago. This enabled Nigel Robinson and Gavin Ferrar to grow into their current roles as CEO and CFO respectively and I am confident that they are very capable of managing our business. My efforts going forward will centre on governance and succession planning to ensure that we continue to plan for the long-term sustainable future of CAML. 

 

Acknowledgements

I would like to thank the Board of Directors, our senior management team and all of our employees for their dedication to our business during 2019. Your efforts do not go unnoticed and we very much appreciate your hard work.

 

Nick Clarke, Non-Executive Chairman

 

 

CEO STATEMENT

2019 overview

We have enjoyed a successful year at CAML, having delivered copper production above guidance at Kounrad and zinc and lead production on target at Sasa, at costs that remain, on average, within the lowest industry quartile of the copper cost curve.

Sasa produced 23,369 tonnes of zinc in concentrate and 29,201 tonnes of lead in concentrate at a C1 zinc equivalent cash cost of production of $0.47 per pound, which is comparable to prior years.

Our Kounrad operations continued to perform well, delivering copper cathode output of 13,771 tonnes, which exceeded production guidance. Kounrad's 2019 C1 copper cash cost of production was $0.52 per pound, demonstrating once again that the operation is one of the lowest cost in the world.

Despite challenging 2019 commodity markets, due to continuing trade wars between the USA and China and an increase in zinc and lead mine supply, our robust operational performance resulted in gross revenue of $180.8 million and EBITDA of $108.6 million, and we maintained our strong margin of 60%.

We have continued to deleverage during 2019, having repaid a further $38.4 million of our debt, plus the remainder of the $12.0 million deferred consideration that was owed to the Sasa vendors. We ended 2019 in a net debt position of $80.2 million, with cash in the bank of $32.6 million (including restricted cash). We view this as a positive development given that CAML had debt of almost $200 million on acquiring Sasa in November 2017. The Group generated 2019 free cash flow of $69.8 million.

Our decision not to recommend a final 2019 dividend was a difficult one, but we firmly believe that preservation of cash is key, given the current uncertainty and as yet unquantifiable impact of the COVID-19 pandemic. We intend to revisit this decision during 2020 as and when there is increased clarity on the impact of the virus. We have over 1,000 employees and are determined to look after their welfare as best as we can in the current environment.

 

Sustainability

This strong economic and financial performance underpins our business and we place significant emphasis on ensuring that we are sustainable for all stakeholders. To demonstrate our credentials in this area, we will soon be publishing our first sustainability report, which will provide quantitative data to support material sustainability topic areas for us and other stakeholders.

We remain focused on safety and are pleased to report a significant improvement in performance in 2019, with a lost time injury frequency rate ('LTIFR') of 0.42, which represents a decrease of 86% from 2018 and compares well with wider industry standards. Whilst the number of lost time injuries ('LTI') reduced from eight in 2018 to only one in 2019, we are committed to achieving a zero-harm workplace.

During 2019, we spent $0.6 million at Sasa and Kounrad supporting the local communities. This is a vital aspect of what we do in the areas close to the operations and, as a result, we enjoy good relations with our neighbours, and we believe we have brought some real positive change. We established the Kounrad Foundation for charitable donations in 2018 and, during 2019, we committed to establishing a similar Sasa foundation to formalise charitable donations that should be operational during 2020.

We have completed construction of our new tailings storage facility 4 ('TSF4') in North Macedonia, which is of downstream construction and has been fully lined in accordance with industry best practice. Our facilities have been reviewed by external expert consultants and we have complied fully with all disclosure requirements in the 2019 Investor Mining & Tailings Safety Initiative, which is governed through a steering committee chaired by the Church of England Pensions Board.

 

Sasa

At Sasa, we have during the year identified many opportunities for incremental improvement, such as using 3D technology as a basis for our mining, geological and ventilation work. We are in the process of installing underground internet to enable better analysis of availability and utilisation of equipment, plus improved communications and health and safety. At surface, we have installed two new crushers during the year, which should allow us to comfortably increase production to a run rate of approximately 850,000 tonnes per annum.

In 2019, our Life of Mine study primarily focussed on whether Sasa's mining method should be changed from the current sub-level caving operation to a more selective cut and fill stoping, and the Board has made the decision in principle to make this transition. This should optimise our production while allowing the storage of potentially over 40% of our tailings underground. Detailed technical study work will continue throughout 2020.

 

Kounrad

During the year at Kounrad, leaching operations performed well, as did the solvent extraction electrowinning ('SX-EW') processing facilities which achieved availability of over 96%. We continued to transition the leaching operations from the Eastern Dumps to the Western Dumps and during 2019, 68% of the copper produced came from the west.  This trend is expected to continue over the next three years by which time all production will come from the Western Dumps.

Capital expenditure remained very low at $1.6 million, comprising some replacement anodes and cathodes, plus increasing our footprint of leaching infrastructure and collector trenches around the Western Dumps.

 

Market performance

At the end of 2019, the CAML share price closed up 1.4% at £2.20 and the FTSE AIM All Share/Basic Resources Index performed in a similar manner, gaining 1.8% during the year. The average prices received for the commodities that CAML produces were lower than those received in 2018. The CAML share price performance was also affected by investor concerns regarding the liquidity of small cap stocks in general and the economic uncertainty caused by protracted Brexit negotiations and the associated volatile exchange rates for Sterling. In December 2019, both the economy and the CAML share price responded favourably to the UK General Election result.

 

Outlook

The outlook for 2020 is uncertain given the severity of the COVID-19 pandemic and our immediate priority is the welfare of our employees and contractors.

Currently, we reiterate our previously announced production guidance for Sasa, which has increased year-on-year to between 23,000 and 25,000 tonnes of zinc and between 30,000 and 32,000 tonnes of lead, generated from higher throughput levels of between 825,000 tonnes and 850,000 tonnes. Likewise, we maintain our Kounrad copper production guidance of 12,500 to 13,500 tonnes. We are facing some headwinds due to the current weak commodity prices exacerbated by COVID-19, coupled with increased 2020 global zinc and lead treatment charges.

We have to date encountered no disruption to either the production or sale of our copper or our zinc and lead concentrates, but we are very conscious that the situation could change swiftly in the coming weeks and months.  We will continue to monitor the COVID-19 position daily in both countries of operation and respond to the threats accordingly to protect both our employees and our business interests.

Throughout this uncertainty, we will continue to maintain strong health and safety and environmental standards at both of our operations and we will strengthen our relationships with the local communities by also working closely with them on overcoming the difficulties posed by the COVID-19 pandemic.

 

Nigel Robinson, Chief Executive Officer

 

 

FINANCIAL REVIEW

OVERVIEW

CAML has reported another strong set of financial results, which demonstrate consistent operational performance and effective cost control.  The Group generated an EBITDA margin of 60%, which is broadly consistent with the prior year notwithstanding a period of weak commodity prices.  The Company has continued to deleverage, having repaid debt of $38.4 million during the year. 

 

The Group generated 2019 EBITDA of $108.6 million (2018: $125.3 million), representing a decrease of 13% from the prior year due to the decline in commodity prices. The EBITDA margin however remained broadly stable at 60% (2018: 61%), which reflects the Group's ability to maintain low costs across the operations as well as a reduction in corporate administrative expenses.

 

EPS from continuing operations was 29.36 cents (2018: 31.33 cents), only 6% lower than the previous year, reflecting well controlled operational and corporate costs. 

 

The Company generated $69.8 million (2018 adjusted: $73.8 million) of free cash flow. During 2019, debt repayments were $38.4 million (2018: $38.5 million), ending the year with net debt of $80.2 million (2018: $110.3 million).

 

Sasa's 2019 EBITDA was $59.6 million (2018: $71.2 million), with a margin of 60% (2018: 64%). Zinc and lead prices declined during 2019, although continued cost control has ensured that this mine continues to operate at approximately the 25th percentile of global producers on a C1 zinc equivalent cash cost basis.

 

Kounrad's 2019 EBITDA was $61.7 million (2018: $66.8 million), with a margin of 76% (2018: 72%). EBITDA margin increased despite the decline in copper price, due to effective cost control and a weakening of the local currency during the year.  This enabled the project to continue producing copper at costs well within the lowest industry quartile.

 

GOING CONCERN

 

The Group meets its day to day working capital requirements through its profitable and cash generative 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 2019. The price of copper, zinc and lead have been impacted in 2020 by concerns over the outbreak of the COVID-19 pandemic and this will impact on Group revenue for the year ended 31 December 2020. Whilst there has been little impact of COVID-19 to the Group's operations at present, owing to the volatility of the commodity price environment, uncertainty regarding the future impact on operations and the uncertainty surrounding implementation of government policies to manage the outbreak it is difficult to determine and quantify the financial impact there may be on the business going forward.  The CAML Board has considered and debated a range of substantial possible scenarios on the Group's operations, financial position and forecasts covering a period of at least the next 12 months considering potential impacts associated with a) operational disruption that may be caused by restrictions applied by governments, illness amongst the workforce and disruption to supply chain and offtake arrangements; b) market volatility in respect of commodity prices; c) availability of existing credit facilities. Further information on these forecasts is included in note 2. 

 

After review of these forecasts the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the consolidated financial statements.  However, at the date of approval of the financial statements, the potential future impact of COVID-19 indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern.

 

INCOME STATEMENT

 

Profit before tax for the year was $67.8 million (2018: $72.7 million), a decrease of 7%. This was primarily as a result of decreased revenue due to falling commodity prices as low costs of production were maintained. 

 

Revenue

The Group generated 2019 gross revenue of $180.8 million (2018: $204.2 million), which is reported after deduction of treatment charges but before deductions of off-taker's fees, penalties, assay adjustments and silver purchases from the silver stream. Net revenue under IFRS post these deductions was $171.7 million (2018: $194.4 million).

 

Sasa 

Operationally, Sasa performed strongly with a total of 19,697 tonnes (2018: 18,792 tonnes) of payable zinc in concentrate and 27,875 tonnes (2018: 27,878 tonnes) of payable lead in concentrate sold during the year.

 

The zinc price received declined by 11% to an average of $2,497 per tonne (2018: $2,819 per tonne) and, for lead, the price declined by 8% to an average of $2,001 per tonne (2018: $2,170 per tonne), leading to a reduction in gross revenue generated from the mine.  Revenue also declined due to higher treatment charges during the year which increased by $4.1 million to $13.6 million (2018: $9.5 million), which reflects the change in market conditions for zinc concentrates in particular.  This trend is expected to continue into 2020 with a further significant increase in treatment charges expected for zinc and lead.  After deduction of treatment charges, Sasa generated gross revenue of $99.1 million (2018: $111.5 million).

 

Zinc and lead concentrate sales agreements have been arranged with Traxys through to 31 December 2022 for 100% of Sasa production. Sasa has an existing silver streaming agreement with Osisko Gold Royalties whereby Sasa receives approximately $5 per ounce from its silver production for the life of the mine.

 

Kounrad

A total of 13,100 tonnes (2018: 13,695 tonnes) of copper cathode from Kounrad was sold as part of the Company's off-take arrangements with Traxys which has been fixed through to October 2022. The commitment is for a minimum of 95% of Kounrad's annual production.  A further 500 tonnes (2018: 386 tonnes) were sold locally. Total Kounrad copper sales were 13,600 tonnes (2018: 14,081 tonnes).

 

Kounrad revenue declined due to an 8% decrease in the average copper price received, which was $6,011 per tonne in 2019 (2018: $6,518 per tonne), coupled with lower copper production and sales. This generated gross revenue for Kounrad of $81.7 million (2018: $92.6 million).  During 2019 the off-taker's fee for Kounrad was $2.4 million (2018: $2.5 million). 

 

COST OF SALES

Group 2019 cost of sales was $73.1 million (2018: $76.4 million), consisting $52.8 million (2018: $53.3 million) of Sasa-related costs and $20.3 million of Kounrad-related costs (2018: $23.1 million). This includes depreciation and amortisation charges during the period of $29.5 million (2018: $33.4 million), which reduced as a result of certain assets being fully depreciated at the end of last year. 

 

Sasa

Sasa's cost of sales for the year was lower than the previous year at $52.8 million (2018: $53.3 million). These costs reflect a lower depreciation and amortisation charge as explained above of $25.1 million (2018: $27.7 million), and lower concession fees amounting to $2.6 million (2018: $2.8 million). This tax is calculated at the rate of 2% on the value of metal recovered during the year.

 

Kounrad

Kounrad cost of sales for the year was $20.3 million (2018: $23.1 million). The decrease compared with 2018 was partly due to a reduction in mineral extraction tax paid ('MET').  MET is charged by the Kazakhstan authorities at the rate of 5.7% (2018: 5.7%) on the value of metal recovered during the year.  MET for the year was $4.7 million (2018: $5.2 million) and a reduction resulted from the lower average copper price received and reduced copper sales during the year. 

 

During the year, the Kazakhstan Tenge significantly depreciated against the US Dollar, which resulted in a benefit for the cost base. The average exchange rate for the year was 383 KZT/USD (2018: 345 KZT/USD), with the Kazakhstan Tenge being worth on average 10% less in US Dollar terms in 2019 compared to 2018.  Certain production related costs have risen such as additional costs incurred for increased reagents such as Escaid, and increased coal consumption due to a colder than usual Q2 2019. Kounrad also agreed an average pay rise of 6% for its employees. 

 

Kounrad depreciation and amortisation charges were $4.4 million (2018: $6.3 million) and reduced primarily due to the Tenge devaluation.

 

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 Sasa and Kounrad (power, production labour and materials) as well as local administrative expenses and realisation charges such as freight and treatment charges. Royalties and depreciation and amortisation charges are excluded from the C1 cash cost.

 

C1 cash cost

 

 

2019

2018

Sasa zinc equivalent C1 cash cost, $/lb

0.47

0.46

Sasa RoM unit cost, $/t

40.3

38.8

Konrad copper C1 cash cost, $/lb

0.52

0.54

Cu equivalent production, t

31,233

31,459

Cu equivalent C1 costs, $/lb

0.94

0.87

Fully inclusive, $/lb

1.50

1.64

 

Sasa

Sasa's C1 cash cost of zinc equivalent production for 2019 was $0.47 per pound (2018: $0.46 per pound) which is at the lower end of the second quartile of the zinc industry cost curve. This broadly similar C1 cash cost figure reflects higher treatment charges during the year compared to 2018 against higher zinc production compared to 2018.  Certain production related costs have increased compared to 2018, such as an increase in payroll costs due to an agreed average 5% pay-rise for employees.  This is reflected in on-site costs that amount to $40.3 per tonne of ore mined (2018: $38.8 per tonne).  The 2018 on-site costs have been updated to include Sasa related costs incurred by other Group entities. 

 

Kounrad 

Kounrad's 2019 C1 cash cost of production remains firmly in the lowest quartile of the industry cost curve for copper production at $0.52 per pound (2018: $0.54 per pound). The decrease in C1 cash cost is largely due to tight cost control and as a result of the devaluation of the Kazakhstan Tenge. Approximately 70% of the C1 cash cost base in Kazakhstan is denominated in Tenge. The average C1 cash cost since production commenced in 2012 is $0.55 per pound.

 

Group

CAML reports its Group C1 cash cost on a copper equivalent basis incorporating the production costs at Sasa. The Group's 2019 C1 copper equivalent cash cost was $0.94 per pound (2018: $0.87 per pound). This number is calculated based on Sasa's annual zinc and lead production, which equates to 17,462 copper equivalent tonnes (2018: 17,410 copper equivalent tonnes), based on 2019 average commodity prices achieved, added to Kounrad's copper production of 13,771 tonnes (2018: 14,049 tonnes).

 

The Group C1 cash cost on a copper equivalent basis has increased largely as a result of higher production costs at Sasa, including treatment charges, and lower copper equivalent production units as a result of lower copper production.

 

CAML also reports a fully inclusive cost that includes capital expenditure, local taxes including MET and concession fees, interest on loans and corporate overheads associated with the Sasa and Kounrad projects. The Group's fully inclusive copper equivalent unit cost for the year was lower than 2018 at $1.50 per pound (2018: $1.64 per pound). This was primarily due to lower capital expenditure of $11.0 million (2018: $16.7 million) as a result of reduced costs on the construction of Sasa's TSF4. The Group also incurred lower finance costs given the reducing debt balance and lower share-based payment charges recognised within corporate overheads. 

 

ADMINISTRATIVE EXPENSES

During the year, administrative expenses were lower at $18.3 million (2018: $24.0 million), largely due to a reduced share-based payment charge of $1.1 million (2018: $4.9 million). Options granted in 2019 had a change in the vesting date and vesting performance conditions compared to previous year grants, plus there was a one-off issue awarded upon the successful acquisition of Sasa, which vested on issue amounting to $1.9 million in the previous year.

 

FINANCE COSTS 

The Group incurred lower finance costs of $11.2 million (2018: $15.0 million) given the reducing debt balance. 

 

DISCONTINUED OPERATIONS 

The Group continues to report the results of the Shuak and Copper Bay entities within discontinued operations.  These assets were fully written off in prior years.  In February 2020, the Group reduced its effective interest in Ken Shuak LLP from 80% to 10%. The Group will not be required to contribute towards future costs of the project. 

BALANCE SHEET

During the year, there were additions to property, plant and equipment of $12.1 million (2018: $15.0 million). The additions include $1.8 million at Kounrad, primarily sustaining capital expenditure (2018: $1.4 million), $7.5 million Sasa sustaining capital expenditure (2018: $6.8 million), and costs associated with the construction of TSF4 amounting to $1.9 million (2018: $6.6 million). TSF4 was completed during 2019 with a capacity of six to seven years. Capital expenditure for TSF4 totalled $16.0 million (pre and post CAML ownership).  The costs of TSF4 will be transferred out of asset under construction during 2020 following receipt of the final operating permits. 

 

Due to a change in accounting policy following the adoption of IFRS 16 Leases, a further $0.9 million has been capitalised in respect of finance leases, which primarily relate to the leasing of office space in London.

 

A full audit of Sasa's underground mobile fleet was undertaken and a decision was made during Q4 2019 to undergo a phased process of replacing the current underground mobile plant with a new optimised fleet.  The initial component of this replacement process will include the purchase of six new units in 2020, and three additional units will also be purchased each year in 2021, 2022 and 2023. 

 

As at 31 December 2019, current trade and other receivables were $6.3 million (31 December 2018: $10.1 million) and non-current trade and other receivables were $3.4 million (31 December 2018: $2.1 million). Current trade and other receivables as at 31 December 2019, include trade receivables from the off-take sales of $1.5 million (2018: $3.7 million) and $2.2 million in relation to prepayments (2018: $1.5 million).  As at 31 December 2019, a total of $3.1 million (2018: $2.8 million) of VAT receivable was still owed to the Group by the Kazakhstan authorities. Recovery is still expected through the local sales of cathode to offset these liabilities and a decision has been taken not to write off this balance.

 

As at 31 December 2019, current trade and other payables were $12.3 million (31 December 2018: $20.9 million). The prior year balance included $6.5 million in relation to deferred consideration payable for the Sasa acquisition which was settled during 2019.  In April 2019, a settlement agreement with the previous owners of CMK Resources Limited was finalised in respect of the $5.9 million withholding tax liability in North Macedonia paid in the prior year. The liability related to activities of CMK Europe prior to CAML's ownership. The settlement amounted to $5.5 million and accordingly, during 2019, CAML paid only the balancing $6.5 million due in respect of the $12.0 million deferred consideration owed to the previous owners.

 

During 2019, instalments of $20.2 million (2018: $25.7 million) were paid towards the Group's 2019 corporate income tax liability of which $3.9 million was a non-cash payment offset against VAT receivable.  The Group also received refunds of $1.4 million for corporate income tax overpaid in the prior year.

 

As at 31 December 2019, current and non-current borrowings were $39.3 million and $69.5 million respectively (2018: $38.4 million and $106.5 million).   The reduction of $36.1 million reflects debt repaid during the year of $38.4 million, drawdowns on overdrafts of $0.9 million and finance charges of $1.4 million unwinding directly attributable fees.  The debt financing agreement with Traxys Europe S.A. has a final maturity date of 4 November 2022. The monthly repayment schedule is $3.2 million and interest is payable at LIBOR plus 4.75% and reduced to LIBOR plus 4.00% with effect from 27 March 2020 .   Security is provided over the shares in CAML Kazakhstan BV, certain bank accounts and the offtake agreements between Traxys and each operation.  The debt is subject to financial covenants which include the monitoring of gearing, debt service ratios, and leverage ratios with which the Company has complied.  

 

On 31 December 2019, the Group had cash of $32.6 million (31 December 2018: $39.0 million) including restricted cash of $4.0 million (31 December 2018: $4.4 million).

 

CASH FLOWS  

The strong operational performance of Sasa and Kounrad and the associated low costs of production resulted in robust cash flows for the Group during the year, with cash generated from operations of $105.1 million (2018: $130.1 million).

 

Taking into account capital expenditure, CAML's free cash flow for 2019 was $69.8 million. (2018 adjusted: $73.8 million).  During the year, $32.2 million (2018: $39.6 million) was returned to shareholders as the final 2018 dividend and 2019 interim dividend.

 

During the year, Group debt of $38.4 million was repaid (2018: $38.5 million) plus interest paid totalling $9.4 million (2018: $14.5 million).

 

$3.0 million of North Macedonia corporate income tax was paid during the year (2018: $11.1 million) in addition to a $3.9 million non-cash payment offset against VAT receivable. Payments made during 2019 included $2.2 million towards the 2019 corporate income tax liability and $0.8 million of 2018 corporate income tax paid in April 2019.  The Group also received refunds of $1.4 million for North Macedonia corporate income tax overpaid in the prior year.

 

$13.3 million of Kazakhstan corporate income tax was paid during 2019 (2018: $14.7 million). Payments made during 2019 included $12.5 million towards the 2019 corporate income tax liability and the final $0.8 million of 2018 corporate income tax paid in April 2019.

 

DIVIDEND  

The final dividend for the year ended 31 December 2018 of 8.0 pence per Ordinary Share was paid to shareholders on 20 May 2019 amounting to $18.2 million.  On 17 September 2019, the Company announced an interim dividend for the year ended 31 December 2019 of 6.5 pence per Ordinary Share and this was paid to shareholders on 25 October 2019 amounting to $14.0 million.

 

In light of COVID-19, the CAML Board has taken the decision not to recommend a 2019 final dividend. This is due to the currently unquantifiable impact of the pandemic, and the Board's current priority is to preserve the Company's cash balances.  Total dividends for the year therefore relate solely to the interim dividend and amount to 6.5 pence.  The total amount returned to shareholders in dividends and share buy-backs since the 2010 IPO listing remains unchanged since the H1 2019 results at $176.4 million.

 

Gavin Ferrar, Chief Financial Officer

 

 

 

 

Non-IFRS financial measures

The following non-IFRS alternative performance financial measures are used in this report:

 

EBITDA

EBITDA is a valuable indicator of the Group's ability to generate liquidity and is frequently used by investors and analysts for valuation purposes. It is also a non-IFRS financial measure which is reconciled as follows:

 

 

2019

$'000

2018

$'000

Profit for the year

51,937

46,585

Plus/(less):

 

 

Income tax expense

15,911

18,822

Depreciation and amortisation

30,080

33,342

Foreign exchange (gain)/loss

(377)

3,879

Other income

(212)

(359)

Other expenses

481

1,030

Finance income

(336)

(264)

Finance costs

11,153

14,999

(Profit)/loss from discontinued operations

(53)

7,274

EBITDA

108,584

125,308

 

Gross revenue

Gross revenue is presented as the total revenue received from sales of all commodities after deducting the directly attributable treatment charges associated with the sale of zinc, lead and silver. This figure is presented as it reflects the total revenue received from the smelters in respect of the zinc and lead concentrate.

 

Net debt

Net debt is calculated as the total of the borrowings held with Traxys Europe S.A. and bank overdrafts less the cash and cash equivalents held at the end of the year. This balance does not include the restricted cash balance of $4.0 million.

 

 

31 Dec 19

$'000

31 Dec 18

$'000

Borrowings

108,768

144,949

Cash and cash equivalents

(28,566)

(34,649)

Net debt

80,202

110,300

 

Free cash flow

Free cash flow is a non-IFRS financial measure of the cash from operations less the capital expenditure and is presented as follows:

 

 

2019

$'000

2018

$'000

Net cash generated from operations

80,853

83,788

Less: Purchase of property, plant and equipment

(11,042)

(15,019)

Less: Purchase of intangible assets

(21)

(907)

Free cash flow

69,790

67,862

Add: Sasa withholding tax paid related to period prior to ownership

 

5,900

Free cash flow adjusted

 

73,762

 

FINANCIAL INFORMATION

 

Consolidated Income Statement

for the year ended 31 December

                                                                                                                                                                                                                                                            Group

 

Note

2019

$'000

2018

$'000

Continuing operations

 

 

 

Revenue

6

171,748

194,379

Presented as:

 

 

 

  Gross revenue

6

180,815

204,152

  Less:

 

 

 

  Silver stream purchases

6

(5,556)

(6,023)

  Off-take buyers' fees

6

(3,511)

(3,750)

Revenue

 

171,748

194,379

Cost of sales

7

(73,098)

(76,418)

Distribution and selling costs

8

(1,823)

(2,045)

Gross profit

 

96,827

115,916

 

 

 

 

Administrative expenses

9

(18,323)

(23,950)

Other expenses

10

(481)

(1,030)

Other income

 

212

359

Foreign exchange gain/(loss)

 

377

(3,879)

Operating profit

 

78,612

87,416

Finance income

14

336

264

Finance costs

15

(11,153)

(14,999)

Profit before income tax

 

67,795

72,681

Income tax

16

(15,911)

(18,822)

Profit for the year from continuing operations

 

51,884

53,859

Discontinued operations

 

 

 

Profit/(loss) for the year from discontinued operations

21

53

(7,274)

Profit for the year

 

51,937

46,585

Profit attributable to:

 

 

 

-  Non-controlling interests

 

60

(1,439)

-  Owners of the parent

 

51,877

48,024

 

 

51,937

46,585

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

17

29.36

31.33

From discontinued operations

 

0.03

(4.12)

From profit for the year

 

29.39

27.21

Diluted earnings/(loss) per share

 

 

 

From continuing operations

17

28.54

30.65

From discontinued operations

 

0.03

(4.12)

From profit for the year

 

28.57

26.53

   

 

Total distribution and selling costs shown above previously recognised as a deduction from gross revenue have been reclassified below revenue in the current year with the comparative reclassified for comparability. 

Consolidated Statement of Comprehensive Income

   Group

for the year ended 31 December

 

Note

2019

$'000

2018

$'000

Profit for the year

 

51,937

46,585

Other comprehensive (expense)/income:

Items that may be subsequently reclassified to profit or loss:

 

 

 

Currency translation differences

26

(11,019)

(10,288)

Foreign exchange on intercompany loan

 

-

(13,020)

Other comprehensive (expense)/income for the year, net of tax

 

(11,019)

(23,308)

Total comprehensive income for the year

 

40,918

23,277

Attributable to:

 

 

 

  - Non-controlling interests

 

60

(1,439)

  - Owners of the parent

 

40,858

24,716

Total comprehensive income for the year

 

40,918

23,277

Total comprehensive income/(expense) attributable to equity shareholders arises from: 

 - Continuing operations

 

40,865

30,551

 - Discontinued operations

 

53

(7,274)

 

 

40,918

23,277

 

Statements of Financial Position                             Registered no. 5559627    

as at 31 December

     Group     Company

 

Note

2019

$'000

2018

$'000

2019

$'000

2018

$'000

Assets

Non-current assets

 

 

 

 

 

Property, plant and equipment

18

406,387

429,601

838

290

Intangible assets

19

58,676

61,311

-

3

Deferred income tax asset

36

266

-

-

-

Investments

20

-

-

5,491

5,491

Other non-current receivables

22

3,389

2,120

-

-

 

 

468,718

493,032

6,329

5,784

Current assets

 

 

 

 

 

Inventories

23

7,283

7,529

-

-

Trade and other receivables

22

6,276

10,078

342,083

374,192

Restricted cash

24

4,013

4,376

3,824

4,222

Cash and cash equivalents (excluding bank overdrafts)

24

28,566

34,649

17,834

15,297

 

 

46,138

56,632

363,741

393,711

Assets of disposal group classified as held for sale

21

219

61

-

-

 

 

46,357

56,693

363,741

393,711

Total assets

 

515,075

549,725

370,070

399,495

Equity attributable to owners of the parent

 

 

 

 

 

Ordinary Shares

25

1,765

1,765

1,765

1,765

Share premium

25

191,184

191,184

191,184

191,184

Treasury shares

25

(6,526)

(6,526)

(6,526)

(6,526)

Currency translation reserve 

26

(100,473)

(89,454)

-

-

Retained earnings

 

250,480

230,281

70,086

63,127

 

 

336,430

327,250

256,509

249,550

Non-controlling interests

 

(1,324)

(1,384)

-

-

Total equity

 

335,106

325,866

256,509

249,550

Liabilities

Non-current liabilities

 

 

 

 

 

Borrowings

30

69,473

106,549

69,473

106,549

Silver streaming commitment

29

20,755

22,905

-

-

Deferred income tax liability

36

26,089

27,670

-

-

Lease liability

 

748

-

723

-

Provisions for other liabilities and charges

31

9,027

5,069

-

-

 

 

126,092

162,193

70,196

106,549

Current liabilities

 

 

 

 

 

Borrowings

30

39,295

38,400

38,400

38,400

Silver streaming commitment

29

2,140

2,263

-

-

Trade and other payables

28

12,305

20,916

4,965

4,996

Provisions for other liabilities and charges

31

46

47

-

-

 

 

53,786

61,626

43,365

43,396

Liabilities of disposal group classified as held for sale

21

91

40

-

-

 

 

53,877

61,666

43,365

43,396

Total liabilities

 

179,969

223,859

113,561

149,945

Total equity and liabilities

 

515,075

549,725

370,070

399,495

 

 

 

 

 

 

 

 

 

 

 

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 2018

 

1,765

191,184

(7,780)

(79,166)

231,241

337,244

55

337,299

Profit/(loss) for the year

 

-

-

-

-

48,024

48,024

(1,439)

46,585

  Other comprehensive expense - currency translation differences

 

26

 

-

 

-

 

-

 

(10,288)

 

-

 

(10,288)

 

-

 

(10,288) 

Foreign exchange on

intercompany loan

 

 

-

 

-

 

-

 

-

 

(13,020)

 

(13,020)

 

-

 

(13,020)

  Total comprehensive income/(expense)

 

 

-

 

-

 

-

 

(10,288)

 

35,004

 

24,716

 

(1,439)

 

23,277

Transactions with owners

 

 

 

 

 

 

 

 

 

Share based payments

9

-

-

-

 

4,904

4,904

-

4,904

Disposal of Zuunmod UUL LLC

 

-

-

-

-

(66)

(66)

-

(66)

Sales of EBT shares

 

-

-

55

-

-

55

-

55

Exercise of options

27

-

-

1,199

-

(1,199)

-

-

-

Dividends

34

-

-

-

-

(39,603)

(39,603)

-

(39,603)

  Total transactions with owners, recognised directly in equity

 

 

-

 

-

1,254

-

(35,964)

(34,710)

-

(34,710)

Balance as at 31 December 2018

 

1,765

191,184

(6,526)

(89,454)

230,281

327,250

(1,384)

325,866

Profit/(loss) for the year

 

-

-

-

-

51,877

51,877

60

51,937

  Other comprehensive expense - currency translation differences

26

-

-

-

(11,019)

-

(11,019)

-

(11,019)

  Total comprehensive income/(expense)

 

-

-

-

(11,019)

51,877

40,858

60

40,918

Transactions with owners

 

 

 

 

 

 

 

 

 

Share based payments

9

-

-

-

-

1,085

1,085

-

1,085

Exercise of options

27

-

-

-

-

(599)

(599)

-

(599)

Dividends

34

-

-

-

-

(32,164)

(32,164)

-

(32,164)

  Total transactions with owners, recognised directly in equity

 

-

-

-

-

(31,678)

(31,678)

-

(31,678)

Balance as at 31 December 2019

 

1,765

191,184

(6,526)

(100,473)

250,480

336,430

(1,324)

335,106

 

 

Company Statement of Changes in Equity

for the year ended 31 December

Company

 

Note

Ordinary

 Shares

$'000

Share

 premium

$'000

Treasury

 shares

$'000

Retained

earnings

$'000

Total

 equity $'000

Balance as at 1 January 2018

 

1,765

191,184

(7,780)

56,195

241,364

Profit for the year

 

-

-

-

42,830

42,830

Total comprehensive income

 

-

-

-

42,830

42,830

Transactions with owners

 

 

 

 

 

 

Share based payments

9

-

-

-

4,904

4,904

Sale of EBT shares

 

-

-

55

-

55

Exercise of options

27

-

-

1,199

(1,199)

-

Dividends

34

-

-

-

(39,603)

(39,603)

  Total transactions with owners, recognised directly in equity

 

-

-

1,254

(35,898)

(34,644)

Balance as at 31 December 2018

 

1,765

191,184

(6,526)

63,127

249,550

Profit for the year

 

-

-

-

38,637

38,637

Total comprehensive income

 

-

-

-

38,637

38,637

Transactions with owners

 

 

 

 

 

 

Share based payments

9

-

-

-

1,085

1,085

Exercise of options

27

-

-

-

(599)

(599)

Dividends

34

-

-

-

(32,164)

(32,164)

  Total transactions with owners, recognised directly in equity

 

-

-

-

(31,678)

(31,678)

Balance as at 31 December 2019

 

1,765

191,184

(6,526)

70,086

256,509

               

 

 

Consolidated Statement of Cash Flows

for the year ended 31 December  

 

 

 

Note

2019

$'000

2018

$'000

Cash flows from operating activities

 

 

 

 

 

Cash generated from operations

 

 

32

105,143

130,131

Interest paid

 

 

 

(9,445)

(14,510)

Corporate income tax paid (net of refunds)

 

 

 

(14,845)

(31,833)

Cash flow generated from operating activities

 

 

 

80,853

83,788

Cash flows from investing activities

 

 

 

 

 

Balancing receipt from CMK Group acquisition

 

 

 

-

3,300

Purchase of property, plant and equipment

 

 

18

(11,042)

(15,019)

Proceeds from sale of property, plant and equipment

 

 

18

233

-

Deferred consideration paid

 

 

 

(6,500)

-

Purchase of intangible assets

 

 

19

(21)

(907)

Interest received

 

 

14

336

264

Decrease/(increase) in restricted cash

 

 

24

363

(1,564)

Net cash used in investing activities

 

 

 

(16,631)

(13,926)

Cash flows from financing activities

 

 

 

 

 

Proceeds from borrowings

 

 

30

-

60,809

Repayment of borrowings

 

 

30

(38,400)

(99,265)

Dividends paid to owners of the parent

 

 

34

(32,164)

(39,603)

Settlement on exercise of share options

 

 

27

(589)

(21)

Net cash used in financing activities

 

 

 

(71,153)

(78,080)

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

 

 

 

1

(248)

Net decrease in cash and cash equivalents

 

 

 

(6,930)

(8,466)

Cash and cash equivalents at the beginning of the year

 

 

24

34,707

43,173

Cash and cash equivalents at the end of the year

 

 

24

27,777

34,707

 

Cash and cash equivalents at 31 December 2019 includes cash at bank and on hand included in assets held for sale of $106,000 (31 December 2018: $58,000) (note 21) and bank overdrafts of $895,000 (2018: nil) (note 30). The Consolidated Statement of Cash Flows does not include the restricted cash balance of $4,013,000 (2018: $4,376,000) (note 24).

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

 

 

 

 

Notes to the Financial Information

for the year ended 31 December 2019

 

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 North Macedonia and a parent holding company based in the United Kingdom ('UK').

The Group's principal business activities are the production of copper cathode at its Kounrad operations in Kazakhstan and the production of lead, zinc and silver at its Sasa operations in North Macedonia. CAML owns 100% of the Kounrad SX-EW copper project in Kazakhstan and 100% of the Sasa zinc-lead mine in North Macedonia. The Company also owns two further operations which are currently held for sale and this includes 80% of the Shuak copper exploration property in northern Kazakhstan and a 75% equity interest in Copper Bay Limited. See note 21 for details.

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 Financial Information

The financial information set out herein does not constitute the Group's statutory financial statements for the year ended 31 December 2019, but is derived from the Group's audited financial statements. The auditors have reported on the 2019 financial statements and their reports were unqualified and did not contain statements under s498(2) or (3) Companies Act 2006 but did contain a material uncertainty in relation to COVID-19. The 2019 Annual Report was approved by the Board of Directors on 31 March 2020, and will be mailed to shareholders in April 2020. 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 Group's consolidated financial statements, which form part of the 2019 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 parent company meets the definition of a qualifying entity under FRS 100 (Financial Reporting Standard 100) issued by the Financial Reporting Council.  The parent company financial statements have therefore been prepared in accordance with FRS 101 (Financial Reporting Standard 101) 'Reduced Disclosure Framework' as issued by the Financial Reporting Council. As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share-based payments, financial instruments, fair value measurements, capital management, presentation of a cash flow statement, new standards not yet effective, impairment of assets and related party transactions.  Where relevant, equivalent disclosures have been given in the Group financial statements of Central Asia Metals plc.

 The preparation of 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 financial information are explained in note 4.

Going concern

The Group sells and distributes its copper cathode product primarily through an off-take arrangement with Traxys Europe S.A. with a minimum of 95% of the SX-EW plant's forecasted output committed as sales for the period up until October 2022.  The Group sells Sasa's zinc and lead concentrate product through an 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 meets its day to day working capital requirements through its profitable and cash generative 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 2019. 

The price of copper, zinc and lead have been impacted in 2020 by concerns over the outbreak of the COVID-19 pandemic and this will impact on Group revenue for the year ended 31 December 2020. Whilst there has been little impact of COVID-19 to the Group's operations at present, owing to the volatility of the commodity price environment, uncertainty regarding the future impact on operations and the uncertainty surrounding implementation of government policies to manage the outbreak it is difficult to determine and quantify the financial impact there may be on the business going forward. 

The CAML Board has considered and debated a range of substantial possible scenarios on the Group's operations, financial position and forecasts covering a period of at least the next 12 months considering potential impacts associated with:

a)  Operational disruption that may be caused by restrictions applied by governments, illness amongst our workforce and disruption to supply chain and offtake arrangements;

b)  Market volatility in respect of commodity prices;

c)  Availability of existing credit facilities. 

These scenarios include the potential for significant downside to commodity prices and production levels at Sasa and Kounrad which may include periods with minimal or no revenue. Under these scenarios possible mitigations within the Group's control or which can reasonably be achieved have been considered by the Board to maintain liquidity and service debt and in light of COVID-19. As a result of the current market uncertainty the CAML Board has taken the decision not to recommend a 2019 final dividend. Under the forecast scenarios the Group is able to maintain liquidity and service debt assuming minimal or no revenue for a period of approximately 3 -4 months, reflecting its current cash resources. However, certain of the scenarios considered indicate a breach to the one of the Group's short-term loan covenants. However, management have engaged in continued dialogue with the lender and, whilst there can be no guarantee, anticipate that existing facilities would remain available where there is a covenant breach.  Should there be a period without production or sales in excess of the above scenarios the Group would require additional funding in the form of debt or equity the availability of which cannot be guaranteed.

After review of these forecasts the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the consolidated financial statements.  However, at the date of approval of the financial statements, the potential future impact of COVID-19 and the resulting forecast breach of covenants should such adverse scenarios materialise indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business.  The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

Please refer to notes 6, 24 and 28 for information on the Group's revenues, cash balances and trade and other payables.

New and amended standards and interpretations adopted by the Group

The Group has adopted the following standards and amendments for the first time for their annual reporting period commencing 1 January 2019:

 

IFRS 16 Leases has been applied from 1 January 2019. IFRS 16 requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.

 

The Group has reviewed all leasing arrangements and contracts in light of the new standard to determine whether the arrangements fall under the definition of a lease per IFRS 16. The Group has applied the simplified transition approach from 1 January 2019 and therefore does not require to restate the comparatives for the 2018 reporting period, as permitted under the specific transition provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019 amounting to $853,000. On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate as of 1 January 2019.  All other right-of-use assets will continue to be measured at the amount of the lease liability on adoption.

 

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

applying a single discount rate to a portfolio of leases with reasonably similar characteristics

accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases

using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

 

IFRIC 23 Uncertainty over Income Tax Treatments was introduced from 1 January 2019 and clarifies the accounting for uncertainties in income taxes which is to be applied to determination of taxable profit and uncertainty over income tax treatments under IAS 12. The Group will assess its judgements and estimates if facts and circumstances change. The Group operates in jurisdictions which necessarily require judgment to be applied when assessing the applicable tax treatment for transactions and the Group obtains professional advice where appropriate to ensure compliance with applicable legislation.

 

The following amendments did not have any impact on the amounts recognised in prior years or the current year and on foreseeable future transactions:

· Annual Improvements to IFRS Standards 2015-2017 Cycle

 

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2019 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

There are no other standards that are not yet effective that would be expected to have a material impact on the Group.

Basis of consolidation

The Group financial statements consolidate the financial statements of CAML and the entities it controls drawn up to 31 December 2019.

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

Intercompany transactions, balances and unrealised losses/gains on transactions between Group companies are eliminated. Unrealised losses/gains are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Business combinations

The Group applies the acquisition method to account for business combinations. 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. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of the acquiree's identifiable net assets.  Acquisition-related costs are expensed as incurred and reported within other expenses.  

 

The excess of the consideration transferred, the amount of any non-controlling interest in the acquired entity, and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase.

 

After initial recognition, goodwill is stated at cost less any accumulated impairment losses, with the carrying value being reviewed for impairment, at least annually and whenever events or changes in circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill is allocated to the cash-generating unit expected to benefit from the business combination in which the goodwill arose. Where the recoverable amount is less than the carrying amount, including goodwill, an impairment loss is recognised in the Income Statement.  The carrying amount of goodwill allocated to an entity is taken into account when determining the gain or loss on disposal of the unit.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity's incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

 

Non-controlling interests

Non-controlling interests represent the portion of profit or loss and net assets in subsidiaries that are not held by the Group and are presented separately within equity in the Consolidated Statement of Financial Position distinct from parent shareholder's equity.

 Where losses are incurred by a partially owned subsidiary, they are consolidated such that the non-controlling interests' share in the losses is apportioned in the same way as profits.

Where profits are then made in future periods, such profits are then allocated to the parent company until all unrecognised losses attributable to the non-controlling interests but absorbed by the parent are recovered at which point, profits are allocated as normal.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker which is considered to be the Board.

 

Foreign currency translation

The functional currency for each entity in the Group is determined as the currency of the primary economic environment in which it operates. The consolidated financial statements are presented in US Dollars, which is the Group's and Company's presentation currency. The functional currency of the Company is US Dollars.

Transactions in currencies other than the functional currency are initially recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to the Income Statement.

The results and financial position of all the Group entities that have a functional currency different from the US Dollar presentation currency are translated into the US Dollar presentation currency as follows:

· assets and liabilities for each Statement of Financial Position presented are translated at the closing rate at the reporting date;

· income and expenses for each Income Statement are translated at average exchange rates; and

· all resulting exchange differences are recognised in other comprehensive income.

 

On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the Income Statement.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost comprises the aggregate amount paid and the fair value of any other consideration given to acquire the asset and includes costs directly attributable to making the asset capable of operating as intended.

The cost of the item also includes the cost of decommissioning any buildings or plant and equipment and making good the site, where a present obligation exists to undertake the restoration work.

Development costs relating to specific mining properties are capitalised once management determines a property will be developed. A development decision is made based upon consideration of project economics, including future metal prices, reserves and resources, and estimated operating and capital costs. Capitalisation of costs incurred and proceeds received during the development phase ceases when the property is capable of operating at levels intended by management and is considered commercially viable. Costs incurred during the production phase to increase future output by providing access to additional reserves, are deferred and depreciated on a units-of-production basis over the component of the reserves to which they relate. Ore reserves may be declared for an undeveloped mining project before its commercial viability has been fully determined.  Development costs incurred after the commencement of production are capitalised to the extent they are expected to give rise to a future economic benefit.  Development costs are not depreciated until such time as the areas under development enter production.

Depreciation is provided on all property, plant and equipment on a straight-line basis over its total expected useful life. As at 31 December 2019 the remaining useful lives were as follows:

· Construction in progress   - not depreciated

· Land  - not depreciated

· Plant and equipment  - over 5 to 21 years

· Mining assets - over 2 to 21 years

· Motor vehicles    - over 2 to 10 years

· Office equipment    - over 2 to 10 years

· Right of use assets  - term of lease agreement

Mineral rights are depreciated on a Unit of Production basis ('UoP'), in proportion to the volume of ore extracted in the year compared with total proven and probable reserves as well as measured, indicated and certain inferred resources which are considered to have a sufficiently high certainty of commercial extraction at the beginning of the year. Assets within operations for which production is not expected to fluctuate significantly from one year to another or which have a physical life shorter than the related mine are depreciated on a straight-line basis.

 

Construction in progress is not depreciated until transferred to other classes of property, plant and equipment.

The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable and are written down immediately to their recoverable amount. Useful lives and residual values are reviewed annually and where adjustments are required, these are made prospectively.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on de-recognition of the asset is included in the Income Statement.

Leases

As per IFRS 16 Leases the Group have applied the simplified transition approach for recognising liabilities. On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate as of 1 January 2019.

 

Until the 2019 financial year, leases of property, plant and equipment were classified as either finance leases or operating leases. From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group.

 

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

· fixed payments (including in-substance fixed payments), less any lease incentives receivable and variable payments based on index or rate

· amounts expected to be payable by the Group under residual value guarantees

· payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.

 

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

 

The Group leases offices and equipment. Rental contracts are typically made for fixed periods of six months to five years and have extension options.

 

Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes.

 

Intangible assets

a)  Exploration and evaluation expenditure

Capitalised costs include costs directly related to any Group exploration and evaluation activities in areas of interest for which there is a high degree of confidence in the feasibility of the project. Exploration and evaluation expenditure capitalised includes acquisition of rights to explore, topographical, geological, geochemical and geophysical studies, exploration drilling, trenching, sampling and activities in relation to the evaluation of the technical feasibility and commercial viability of extracting a mineral resource.

Exploration and evaluation assets are measured at cost less provision for impairment, where required.

b)  Mining licences, permits and computer software

The historical cost model is applied, with intangible assets being carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets with a finite life have no residual value and are amortised on a straight-line basis over their expected useful lives with charges included in either cost of sales or administrative expenses:

Computer software      - over two to five years

Mining licences and permits                 - over the duration of the legal agreement

 

The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.

Impairment of non-financial assets

The Group carries out impairment testing on all assets when there exists an indication of an impairment. If any such indication exists, the Group makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell or its value in use.

Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses are recognised in the Income Statement.

 

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset.

 

The best evidence of an asset's fair value is the value obtained from an active market or binding sale agreement. Where neither exists, fair value less costs to sell is based on the best available information to reflect the amount the Group could receive for the cash-generating unit in an arm's length sale. In some cases, this is estimated using a discounted cash flow analysis on a post tax basis.

A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a reversal of the conditions that originally resulted in the impairment. This reversal is recognised in the Income Statement and is limited to the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised in prior years.

Goodwill is also reviewed annually, as well as whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Non-financial assets other than goodwill which have suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

Revenue

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. These steps are as follows: identification of the customer contract; identification of the contract performance obligations; determination of the contract price; allocation of the contract price to the contract performance obligations; and revenue recognition as performance obligations are satisfied.

Under IFRS 15, revenue is recognised when the performance obligations are satisfied and the customer obtains control of the goods or services, usually when title has passed to the buyer and the goods have been delivered in accordance with the contractual delivery terms.

Revenue is measured at the fair value of consideration received or receivable from sales of metal to an end user, net of any buyers discount, treatment charges and value added tax.  The Group recognises revenue when the amount of revenue can be reliably measured and when it is probable that future economic benefits will flow to the entity.  

The value of consideration is fair value which equates to the contractually agreed price.  The off-take agreements provide 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.  Such a provisional sale contains an embedded derivative which is not required to be separated from the underlying host contract, being the sale of the commodity.  At each reporting date, if any sales are provisionally priced, the provisionally priced copper cathode, zinc and lead sales are marked-to-market using forward prices, with any significant adjustments (both gains and losses) being recorded in revenue in the Income Statement and in trade receivables in the Statement of Financial Position.  

The Company may mitigate commodity price risk by fixing the price in advance for its copper cathode with the off-take partner and also its zinc and lead sales with the banks where a facility has been set up and agreed. The price fixing arrangements are outside the scope of IFRS 9 Financial Instruments: Recognition and Measurement and do not meet the criteria for hedge accounting.

The Group reports both a gross revenue and revenue line.  Gross revenue is reported after deductions of treatment charges but before deductions of off-takers fees and silver purchases under the Silver Stream.

Inventory

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average method.

The cost of finished goods and work in progress comprises raw materials, direct labour and all other direct costs associated with mining the ore and processing it to a saleable product.

Net realisable value is the estimated selling price in the ordinary course of business, less any further costs expected to be incurred to completion. Provision is made, if necessary, for slow-moving, obsolete and defective inventory.

Non-current assets (or disposal groups) held for sale and discontinued operations

Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits, financial assets and investment property that are carried at fair value and contractual rights under insurance contracts, which are specifically exempt from this requirement.

An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition.

Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised.

Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet.

A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the Statement of Comprehensive Income.

Current and deferred income tax

The current income tax charge is calculated based on the tax laws enacted or substantively enacted at the reporting date in the countries where the Group's subsidiaries operate and generate taxable income.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the Statement of Financial Position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are only recognised when they arise from timing differences where their recoverability in the short term is regarded as being probable.

Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

Restricted cash

Restricted cash is cash with banks that is not available for immediate use by the Group.  Restricted cash is shown separately from cash and cash equivalents on the Statement of Financial Position. 

 

Investments

Investments in subsidiaries are recorded at cost less provision for impairment.

Share capital

Ordinary Shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

Treasury shares

Where any Group company purchases the Company's equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company's equity holders until the shares are cancelled or reissued. Where such Ordinary Shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company's equity holders.

 
Share based compensation

The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted, excluding the impact of any non-market service and performance vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total amount expensed is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At each reporting date, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the Income Statement, with a corresponding adjustment to equity.

Trade and other receivables

Trade and other receivables are accounted for under IFRS 9 using the expected credit loss model and are initially recognised at fair value and subsequently measured at amortised cost less any allowance for expected credit losses.

Impairment of financial assets

The Group and the Company has adopted the general expected credit loss model for financial assets, e.g. trade receivables and intercompany receivables. 

 

The allowance for expected credit losses for trade receivables is established by considering on a discounted basis the cash shortfalls it would incur in various default scenarios for prescribed future periods and multiplying the shortfalls by the probability of each scenario occurring. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. The allowance is the sum of these probability weighted outcomes. The allowance and any changes to it are recognised in the Statement of Comprehensive Income within net operating expenses. A provision matrix is used to calculate the allowance for expected credit losses on trade receivables which is based on historical default rates over the expected life of the trade receivables and is adjusted for forward looking estimates. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables.  Subsequent recoveries of amounts previously written off are credited against net operating expenses in the Statement of Comprehensive Income. 

The Company assesses on a forward-looking basis the expected credit losses associated with its intercompany balances carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

 Trade and other payables

Trade and other payables are not interest bearing and are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.

Silver stream commitment

The silver stream arrangement has been accounted for as a commitment as the Group has obligations to deliver silver to a third party at a price below market value. On acquisition, following completion of the business combination, the silver stream commitment was identified as an unfavourable contract and recorded at fair value.  Payments received under the arrangement prior to the acquisition by the Group were not considered to be a transaction with a customer. Management has determined that the agreement is not a derivative as it will be satisfied through the delivery of non-financial items (i.e. silver commodity from the Company's production), rather than cash or financial assets. Subsequent to initial recognition the silver stream commitment is not revalued and is amortised on a units of production basis to cost of sales. 

 

The fair value of consideration received for delivered silver under the agreement is recorded as revenue.  In addition, silver produced in conjunction with the Group's lead and zinc production and sold under the off-take agreement is recorded in gross revenue with a corresponding deduction for silver purchased to deliver under the silver stream recorded in arriving at net revenue.

 

Borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.

An amendment in a loan facility gives rise to a modification gain or loss to reflect the amended terms under the new facility. In 2018, the Group consolidated and restructured its borrowings into one corporate debt package. The total available amount under the facility was increased by $60,000,000. The refinancing resulted in the recognition of a modification gain of $836,000 which was recognised in the Income Statement during 2018.

Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

Provisions

a)  Asset retirement obligation

Provisions for environmental restoration of mining operations are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated. Provisions are not recognised for future operating losses.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the cash flows incorporate assessments of risk. The increase in the provision due to passage of time is recognised as interest expense.

b)  Employee benefits - pension

The Group, in the normal course of business, makes payments on behalf of its employees for pensions, health-care, employment and personnel tax, which are calculated based on gross salaries and wages according to legislation. The cost of these payments is charged to the Consolidated Statement of Comprehensive Income in the same period as the related salary cost.  

c)  Employee benefits - retirement benefits and jubilee awards

Pursuant to the labour law prevailing in the North Macedonian subsidiaries, the Group is obliged to pay retirement benefits for an amount equal to two average monthly salaries, at their retirement date. According to the collective labour agreement, the Group is also obliged to pay jubilee anniversary awards for each 10 years of continuous service of the employee. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. In addition, the Group is not obligated to provide further benefits to current and former employees.

Retirement benefit obligations arising on severance pay are stated at the present value of expected future cash payments towards the qualifying employees. These benefits have been calculated by an independent actuary in accordance with the prevailing rules of actuarial mathematics. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to profit and loss over the employees' expected average remaining working lives.

 

3.  Financial risk management

 

The Group's activities expose it to a variety of financial risks; market risk (including foreign currency exchange risk, commodity price risk and interest rate risk), liquidity risk, capital risk and credit risk.  These risks are mitigated wherever possible by the Group's financial management policies and practices described below.  The Group's risk management is carried out by a central treasury department (Group treasury) under policies approved by the Board. Group treasury identifies, evaluates and hedges financial risks in close co-operation with the Group's operating units.

Foreign currency exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures.  The primary Group currency requirements are US Dollar, British Pound, Kazakhstan Tenge, Euro and North Macedonian Denar. 

The following table highlights the major currencies the Group operates in and the movements against the US Dollar during the course of the year:   

 

 

Average rate

Reporting date spot rate

 

2019

2018

Movement

2019

2018

Movement

Kazakhstan Tenge

382.75

344.71

38.04

381.18

384.20

(3.02)

Macedonian Denar

54.96

52.12

2.84

54.95

53.69

1.26

Euro

1.12

1.15

(0.03)

1.12

1.18

(0.06)

British Pound

0.79

0.75

0.04

0.76

0.79

0.03

 

Foreign exchange risk does not arise from financial instruments that are non-monetary items or financial instruments denominated in the functional currency.  Kazakhstan Tenge and North Macedonian Denar denominated monetary items are therefore not reported in the tables below, as the functional currency of the Group's Kazakhstan-based and North Macedonian-based subsidiaries is the Tenge and Denar respectively. 

The Group's exposure to foreign currency risk based on US Dollar equivalent carrying amounts at the reported date:

In $'000 equivalent

 

  Group

 

  2019

 

 

 

 

USD

EUR

GBP

Cash and cash equivalents

 

 

 

2,419

94

2,220

Trade and other receivables

 

 

 

1

-

-

Trade and other payables

 

 

 

-

(609)

(429)

Net exposure

 

 

 

2,420

(515)

1,791

               

 

In $'000 equivalent

 

  Group

 

  2018

 

 

 

 

USD

EUR

GBP

Cash and cash equivalents

 

 

 

12,792

6

774

Trade and other payables

 

 

 

-

(452)

(2,522)

Net exposure

 

 

 

12,792

(446)

(1,748)

               

 

Trade and other receivables excludes prepayments and VAT receivable and trade and other payables excludes corporation tax, social security and other taxes as they are not considered financial instruments. 

 

At 31 December 2019, if the foreign currencies had weakened/strengthened by 10% against the US Dollar, post-tax Group profit for the year would have been $194,000 lower/higher (2018: $231,000 lower/higher).

Commodity price risk

The Group has a hedging policy in place to allow us to manage commodity price risk however the Directors elected not to hedge during 2019.

The following table details the Group's sensitivity to a 10% increase and decrease in the copper, zinc and lead price against the invoiced price.  10% is the sensitivity used when reporting commodity price internally to management and represents management's assessment of the possible change in price.  A positive number below indicates an increase in profit for the year and other equity where the price increases.

Estimated effect on earnings and equity

 

2019

$'000

2018

$'000

10% increase in copper, zinc and lead price

18,853

20,526

10% decrease in copper, zinc and lead price

(18,853)

(20,526)

 
Liquidity risk

Liquidity risk relates to the ability of the Group to meet future obligations and financial liabilities as and when they fall due. The Group currently has sufficient cash resources to facilitate the debt and a material income stream from the Kounrad and Sasa projects. The Group has no undrawn borrowings as at 31 December 2019 (2018: nil).

Future expected payments:

 

 

Group

 

 

 

31 Dec 19 $'000

31 Dec 18 $'000

Trade and other payables within one year

 

 

8,981

17,637

Borrowings payable within one year (note 30)

 

 

44,684

47,868

Borrowings payable later than one year but not later than five years (note 30)

 

 

76,304

122,323

Lease liability payable later than one year but not later than five years

 

 

748

-

 

 

 

130,717

187,828

 

Capital risk

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal structure to reduce the cost of capital.

The Group manages its capital in order to provide sufficient funds for the Group's activities. Future capital requirements are regularly assessed and Board decisions taken as to the most appropriate source for obtaining the required funds, be it through internal revenue streams, external fund raising, issuing new shares or selling assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The debt is subject to financial covenants which include the monitoring of gearing and leverage ratios and these are all currently complied with.

 

Consistent with others in the industry, the Group monitors capital on the basis of the following gearing ratio:

Net debt

 

 

 

 

Note

2019

$'000

2018

$'000

Cash and cash equivalents

 

 

24

28,566

34,649

Bank overdraft

 

 

30

(895)

-

Borrowings, variable interest rates - repayable within one year

 

 

30

(38,400)

(38,400)

Borrowings, variable interest rates - repayable after one year

 

 

30

(69,473)

(106,549)

Net debt

 

 

 

(80,202)

(110,300)

Total equity

 

 

 

335,106

325,866

Net debt to equity ratio

 

 

 

24%

34%

 

Changes in liabilities arising from financing activities

The total borrowings as at 1 January 2019 were $144,949,000 (1 January 2018: $181,914,000). During the year, total repayments were $38,400,000 (2018: $99,265,000) with nil (2018: $60,809,000) drawdowns during the year. There was a drawdown of an unsecured overdraft of $895,000 (2018: nil). Other changes amounted to $1,324,000 (1 January 2018: $1,491,000) leading to a closing debt balance of $108,768,000 (2018: $144,949,000). See note 30 for more details.

 

The cash and cash equivalents including cash at bank and on hand in assets held for sale brought forward were $34,707,000 (2018: $43,173,000) with a $6,930,000 outflow (2018: $8,466,000 outflow) during the year and therefore a closing balance of $27,777,000 (2018: $34,707,000).

 

Credit risk

Credit risk refers to the risk that the Group's financial assets will be impaired by the default of a third party. The Group is exposed to credit risk primarily on its cash and cash equivalents as set out in note 24 and on its trade and other receivables as set out in note 22.  The Group sells a minimum of 95% of Kounrad's copper cathode production to a credit-worthy off-taker and during the year 100% of Sasa's zinc and lead concentrate was sold to credit-worthy customers.  The Group sells Sasa's zinc and lead concentrate product through an off-take arrangement with Traxys which has been fixed through to 31 December 2022.  The commitment is for 100% of the Sasa concentrate production.  

For banks and financial institutions, only parties with a minimum rating of BBB- are accepted. 24% of the Group's cash and cash equivalents including restricted cash at the year-end were held by an A+ rated bank (2018: 15% by an A+ bank). The rest of the Group's cash was held with a mix of institutions with credit ratings between A to BB (2018: A to BBB-).

 

The Directors have considered the credit exposures and do not consider that they pose a material risk at the present time. The credit risk for cash and cash equivalents is managed by ensuring that all surplus funds are deposited only with financial institutions with high quality credit ratings.

The expected credit loss for intercompany loans receivable are considered immaterial (note 22).

Interest rate risk

The Group's main interest rate risk arises from long-term borrowings with variable rates, which expose the Group to cash flow interest rate risk.  During 2019, the Group's borrowings at variable rates were denominated in US Dollars.  The Group's borrowings are carried at amortised cost. The Group has borrowings at variable interest rates and a 1% point rise in market interest rate would have caused the interest paid to increase by $1,343,000 (2018: $1,666,000) while a similar decrease would have caused the same decrease in interest paid.  The Group does not hedge its exposure to interest rate risk.   

The Group had $14,494,000 of cash balances on short-term deposit as at 31 December 2019 (2018: $13,044,000).  The average fixed interest rate on short-term deposits during the year was 0.6% (2018: 1.2%). 

Categories of financial instruments

Financial assets

Cash and receivables:

 

 

Group

 

 

31 Dec 19 $'000

31 Dec 18 $'000

Cash and cash equivalents including restricted cash (note 24)

 

 

32,579

39,025

Trade and other receivables

 

 

2,980

6,609

 

 

 

35,559

45,634

 

Trade and other receivables excludes prepayments and VAT receivable as they are not considered financial instruments.  All trade and other receivables are receivable within one year for both reporting years.

Financial liabilities

Measured at amortised cost:

 

 

Group

 

 

31 Dec 19 $'000

31 Dec 18 $'000

Trade and other payables within one year

 

 

8,981

17,637

Borrowings payable within one year (note 30)

 

 

39,295

38,400

Borrowings payable later than one year but not later than five years (note 30)

 

 

69,473

106,549

Lease liability later than one year but not later than five years

 

 

748

-

 

 

 

118,497

162,586

 

Trade and other payables excludes the silver streaming commitment, corporation tax, social security and other taxes as they are not considered financial instruments. 

4.  Critical accounting estimates and judgements

 

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

Impairment of non-current assets

Significant accounting judgements

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 CMK Resources Limited acquisition in November 2017 requires an annual impairment review. This review determines 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 19.

Key sources of estimation uncertainty

Estimates are required periodically to assess assets for impairment. The critical accounting estimates are future commodity prices, treatment charges, future ore production, discount rates and projected future costs of development and production. Ore reserves and resources included in the forecasts include certain resources considered to be sufficiently certain and economically viable.  The Group's resources statements include additional resources which are not included in the life of mine plan or impairment test.

 

Decommissioning and site rehabilitation estimates

Significant accounting judgements

Provision is made for the costs of decommissioning and site rehabilitation costs when the related environmental disturbance takes place.  Judgement and experience is used in determining the expected timing, closure and decommissioning methods, which can vary in response to changes in the relevant legal requirements or decommissioning technologies.  

Key sources of estimation uncertainty

The discounted provision recognised represents management's best estimate of the costs that will be incurred, and 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 and in the interim management make assessments for appropriate changes based on the environmental management strategy; however significant changes in the estimates of contamination, restoration standards, timing of expenditure and techniques will result in changes to provisions from period to period.

A 1% change in the discount rate on the Group's rehabilitation estimates would result in an impact of $781,000 (2018: $473,000) on the provision for environmental rehabilitation, and an impact of $781,000 (2018: $473,000) on the statement of comprehensive income.  A 5% change in cost on the Group's rehabilitation estimates would result in an impact of $420,000 (2018: $208,000) on the provision for environmental rehabilitation, and an impact of $48,000 (2018: $21,000) on the statement of comprehensive income.

Mineral reserves and resources

Key sources of estimation uncertainty

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 estimates 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.

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 financial statements.

The Kounrad resources were classified as JORC Compliant in 2013 and mineral resources were estimated in June 2017 and the Sasa JORC ore reserves and mineral resources were estimated in December 2019.

Tax

Significant accounting judgements

Management make judgements in relation to the recognition of various taxes payable by the Group and VAT recoverability for which the recoverability and timing of recovery is assessed. The Group operates in jurisdictions which necessarily require judgment to be applied when assessing the applicable tax treatment for transactions and the Group obtains professional advice where appropriate to ensure compliance with applicable legislation.

 

 

 

5.  Segmental information

 

The segmental results for the year ended 31 December 2019 are as follows:

 

Kounrad $'000

Sasa

 $'000

Unallocated

 $'000

Total

$'000

Gross revenue

81,708

99,107

-

180,815

Silver stream purchases

-

(5,556)

-

(5,556)

Off-take buyers' fees

(2,424)

(1,087)

-

(3,511)

Revenue

79,284

92,464

-

171,748

EBITDA

61,720

59,564

(12,700)

108,584

Depreciation and amortisation

(4,533)

(25,308)

(239)

(30,080)

Foreign exchange (loss)/gain

(169)

698

(152)

377

Other income

182

30

-

212

Other expenses (note 10)

(40)

(441)

-

(481)

Finance income (note 14)

9

1

326

336

Finance costs (note 15)

(106)

(263)

(10,784)

(11,153)

Profit/(loss) before income tax

57,063

34,281

(23,549)

67,795

Income tax

 

 

 

(15,911)

Profit for the year after tax from continuing operations

 

 

 

51,884

Profit from discontinued operations

 

 

 

53

Profit for the year

 

 

 

51,937

*Depreciation and amortisation includes amortisation on the fair value uplift on acquisition of Sasa and Kounrad of $19.4m.

 

The segmental results for the year ended 31 December 2018 are as follows:

 

Kounrad $'000

Sasa

 $'000

Unallocated

 $'000

Total

$'000

Gross revenue

92,644

111,508

-

204,152

Silver stream purchases

-

(6,023)

-

(6,023)

Off-take buyers' fees

(2,535)

(1,215)

-

(3,750)

Revenue

90,109

104,270

-

194,379

EBITDA

66,833

71,221

(12,746)

125,308

Depreciation and amortisation

(6,335)

(26,951)

(56)

(33,342)

Foreign exchange (loss)/gain

276

(4,165)

10

(3,879)

Other income

359

-

-

359

Other expenses (note 10)

-

(561)

(469)

(1,030)

Finance income (note 14)

10

3

251

264

Finance costs (note 15)

(140)

(8,555)

(6,304)

(14,999)

Profit/(loss) before income tax

61,003

30,992

(19,314)

72,681

Income tax

 

 

 

(18,822)

Profit for the year after tax from continuing operations

 

 

 

53,859

Loss from discontinued operations

 

 

 

(7,274)

Profit for the year

 

 

 

46,585

*Depreciation and amortisation includes amortisation on the fair value uplift on acquisition of Sasa and Kounrad of $20.2m.

 

A reconciliation between profit for the year and EBITDA is presented in the Financial Review section.

Group segmental assets and liabilities for the year ended 31 December 2019 are as follows:

 

Segmental assets

Additions to non-current assets

Segmental liabilities

 

31 Dec 19

 $'000

31 Dec 18

 $'000

31 Dec 19

 $'000

31 Dec 18

 $'000

31 Dec 19

 $'000

31 Dec 18

 $'000

Kounrad

76,118

80,384

1,850

1,395

(11,017)

(11,666)

Sasa

411,899

450,495

9,432

13,352

(55,269)

(78,720)

Assets held for sale (note 21)

219

61

-

907

(91)

(40)

Unallocated including corporate 

26,839

18,785

870

298

(113,592)

(133,433)

 

515,075

549,725

12,152

15,952

(179,969)

(223,859)

The assets and liabilities of the Copper Bay and Shuak entities were classified as assets held for sale during the comparative year ended 31 December 2018 (note 21).

 

6.  Revenue

 

Group

 

 

2019

$'000

2018

$'000

International customers (Europe) - copper cathode

 

 

78,848

90,376

International customers (Europe) - zinc and lead concentrate

 

 

97,199

109,451

Domestic customers (Kazakhstan) - copper cathode

 

 

2,860

2,269

International customers (Europe) - silver

 

 

1,908

2,056

Total gross revenue

 

 

180,815

204,152

Less:

 

 

 

 

Silver purchases from silver stream

 

 

(5,556)

(6,023)

Off-take buyers' fees

 

 

(3,511)

(3,750)

Revenue

 

 

171,748

194,379

 

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 95% of the SX-EW plant's output. Revenue is recognised at the Kounrad mine gate when the goods have been delivered in accordance with the contractual delivery terms.

 

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, however during 2019 all sales prices were calculated at the LME price on the date of dispatch.  The Company may mitigate commodity price risk by fixing the price in advance for its copper cathode sales with the off-take partner (see note 3).

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 deducted from the selling price.

During 2019, the Group sold 13,100 tonnes (2018: 13,696 tonnes) of copper through the off-take arrangements. Some of the copper cathodes are also sold locally and during 2019, 500 tonnes (2018: 386 tonnes) were sold to local customers.

 

Sasa

The Group sells Sasa's zinc and lead concentrate product to two European smelters through an off-take arrangement with Traxys which has been fixed through to 31 December 2022.  For one of the smelters, revenue is recognised at the Sasa mine gate when the goods have been delivered in accordance with the contractual delivery terms and for the other smelter revenue is recognised on delivery to the smelter in accordance with the contractual delivery terms. The commitment is for 100% of the Sasa concentrate production.  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.  The impact of mark-to-market adjustments for forward prices on provisional sales was not significant in the current or prior year.

The Group sold 19,697 tonnes (2018: 18,792 tonnes) of zinc in concentrate and 27,875 tonnes (2018: 27,878 tonnes) of lead in concentrate.

The revenue arising from silver relates to a contract with Osisko Gold Royalties where the Group has agreed to sell all of its silver at a fixed price of $5.58/oz, significantly below market value and arising from the silver stream commitment inherited on acquisition (note 29).

 

7.  Cost of sales

Group

2019

$'000

2018

$'000

Reagents, electricity and materials

19,931

19,676

Depreciation and amortisation

29,499

33,407

Silver stream commitment (note 29)

(2,285)

(2,627)

Royalties 

7,271

7,995

Employee benefit expense

12,862

12,053

Consulting and other services

5,398

5,412

Taxes and duties

422

502

 

73,098

76,418

 

 

8.  Distribution and selling costs

 

 

Group

2019

$'000

2018

$'000

Freight costs

1,550

1,670

Transportation costs

108

184

Employee benefit expense

61

76

Depreciation and amortisation

20

15

Materials and other expenses

84

100

 

1,823

2,045

 

The above distribution and selling costs are those incurred at Kounrad and Sasa in addition to the costs associated with the off-take arrangements.

9.  Administrative expenses

 

Group

2019

$'000

2018

$'000

Employee benefit expense

8,867

9,709

Share based payments

1,085

4,904

Consulting and other services

6,084

6,345

Auditors remuneration (note 11)

378

409

Office-related costs

1,271

1,783

Taxes and duties

77

45

Depreciation and amortisation

561

755

Total from continuing operations

18,323

23,950

Total from discontinued operations (note 21)

170

153

 

18,493

24,103

 

10.  Other expenses

 

Group

2019

$'000

2018

$'000

Loss on disposal of property, plant and equipment

481

561

Impairment of receivable from Orion

-

469

 

481

1,030

 

The impairment of receivable from Orion in the prior year relates to $5,969,000 of withholding tax payable relating to income from payments in 2016 and 2017. This tax relates to a period pre the Group's ownership and so due to the tax indemnity in place on acquisition was considered fully recoverable as per the acquisition accounting. A settlement was reached in March 2019 where Orion would pay $5,500,000 of the withholding tax payable and therefore the Group recognised a $469,000 write off in 2018.

 

11.  Auditors' remuneration

 

During the year, the Group obtained the following services from the Company's auditors and its associates:

 

2019

$'000

2018

$'000

 Fees payable to BDO LLP the Company's auditors for the audit of the parent company and consolidated financial statements

160

-

Fees payable to PWC LLP the previous Company's auditors for the audit of the parent company and consolidated financial statements

36

146

 Fees payable to BDO LLP the Company's auditors and its associates for other services: 

- The audit of Company's subsidiaries

144

-

 - Tax compliance services

-

-

 - Other assurance services

-

-

 Fees payable to PWC LLP the previous Company's auditors and its associates for other services: 

- The audit of Company's subsidiaries

 

-

 

179

 - Tax compliance services

 

26

 - Other assurance services

38

58

 

 

 

 

378

409

 

 

12.  Employee benefit expense

 

The aggregate remuneration of staff, including Directors, was as follows:

 

Group

2019

$'000

2018

$'000

Wages and salaries

16,294

14,856

Social security costs

3,823

4,484

Staff healthcare and other benefits

2,424

2,266

Other pension costs

564

497

Share based payments (note 27)

1,085

4,904

Total for continuing operations

24,191

27,008

Total for discontinuing operations (note 21)

75

75

 

24,266

27,083

 

The total employee benefit expense includes an amount of $1,316,000 (2018: $1,137,000) which has been capitalised within property, plant and equipment.  The 2018 comparative has been reclassified due to the reallocation of costs to ensure consistent presentation of employee benefit expense.

Company

2019

$'000

2018

$'000

Wages and salaries

5,391

4,778

Social security costs

934

1,325

Staff healthcare and other benefits

533

479

Other pension costs

165

146

Share based payments (note 27)

1,085

4,904

 

8,108

11,632

 

Key management remuneration is disclosed in the Remuneration Committee report.

13.  Monthly average number of people employed

 

Group

2019

Number

2018

Number

Operational

901

906

Construction

8

8

Management and administrative

130

125

 

1,039

1,039

 

The monthly average number of staff employed by the Company during the year was 15 (2018: 14).

14.  Finance income

 

Group

2019

$'000

2018

$'000

Foreign exchange gain on intercompany borrowings

-

3

Bank interest received 

336

261

 

336

264

 
15.  Finance costs

 

Group

2019

$'000

2018

$'000

Provisions: unwinding of discount (note 31)

329

489

Interest on borrowings (note 30)

10,779

15,225

Bank charges

45

117

Gain on modification of the debt facility

-

(832)

Total for continuing operations

11,153

14,999

Total for discontinuing operations (note 21)

57

-

 

11,210

14,999

 

16.  Income tax

   

Group

 

 

2019

$'000

2018

$'000

Current tax on profits for the year

 

 

17,234

20,391

Deferred tax credit (note 36)

 

 

(1,323)

(1,569)

Income tax expense

 

 

15,911

18,822

 

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:

 

 

Group

2019

$'000

2018

$'000

Profit before taxation including loss from discontinued operations

67,794

65,407

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

23,287

27,410

Tax effects of:

 

 

Expenses not deductible for tax purposes

19,854

2,982

Non-taxable income

(27,194)

(15,827)

Movement on unrecognised deferred tax - tax losses

1,287

5,826

Movement on recognised deferred tax (note 36)

(1,323)

(1,569)

Income tax expense

15,911

18,822

 

Corporate income tax is calculated at 19% (2018: 19%) of the assessable profit for the year for the UK parent company, 20% for the operating subsidiaries in Kazakhstan (2018: 20%) and 10% (2018: 10%) for the operating subsidiaries in North Macedonia. 

 

Expenses not deductible for tax purposes includes share-based payment charges, transfer pricing adjustments in accordance with local tax legislation and depreciation and amortisation charges.  Non-taxable income includes intercompany dividend income.  The 2018 comparative has been reclassified to ensure consistent presentation with the current year. 

 

Deferred tax assets have not been recognised on tax losses primarily at the parent company as it remains uncertain whether this entity will have sufficient taxable profits in the future to utilise these losses.

 

17.  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 25).

 

 

2019

$'000

2018

$'000

Profit from continuing operations attributable to owners of the parent

51,824

55,298

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

53

(7,274)

Profitable attributable to owners of the parent

51,877

48,024

 

 

 

 

2019

No.

2018

No.

Weighted average number of Ordinary Shares in issue

176,498,266

176,498,266

 

 

2019

$ cents

2018

$ 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

29.36

31.33

From discontinued operations

0.03

(4.12)

From profit for the year

29.39

27.21

 
(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.

 

2019

$'000

2018

$'000

Profit from continuing operations attributable to owners of the parent

51,824

55,298

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

53

(7,274)

Profitable attributable to owners of the parent

51,877

48,024

 

 

 

 

2019

No.

2018

No.

Weighted average number of Ordinary Shares in issue

176,498,266

176,498,266

Adjusted for:

 

 

-  Share options

5,076,397

3,937,283

Weighted average number of Ordinary Shares for diluted earnings per share

181,574,663

180,435,549

 

Diluted earnings/(loss) per share

2019

$ cents

2018

$ cents

From continuing operations

28.54

30.65

From discontinued operations

0.03

(4.12)

From profit for the year

28.57

26.53

 

 

18.  Property, plant and equipment

Group

Construction in

progress 

$'000

Plant and

equipment

$'000

 

Mining

assets

$'000

Motor vehicles and ROU assets $'000

 

 

Land

$'000

 

Mineral

rights

$'000

Total

$'000

Cost

 

 

 

 

 

 

 

At 1 January 2018

11,038

115,183

1,636

1,703

664

365,010

495,234

Additions

14,398

108

-

513

-

-

15,019

Disposals

(24)

(596)

-

(60)

-

-

(680)

Change in estimate - asset retirement obligation (note 31)

 

-

 

(159)

 

-

 

-

-

-

 

(159)

Transfers

(7,439)

7,432

-

7

-

-

-

Transfer from stock

35

116

-

-

-

-

151

Exchange differences

(691)

(8,809)

(221)

(216)

(30)

(14,677)

(24,644)

Impairment

-

(43)

-

-

-

-

(43)

At 31 December 2018

17,317

113,232

1,415

1,947

634

350,333

484,878

Additions

10,566

481

-

1,084

-

-

12,131

Disposals

(214)

(732)

-

(32)

-

-

(978)

Change in estimate - asset retirement obligation (note 31)

 

-

 

3,664

 

-

 

-

 

-

 

-

 

3,664

Transfers

(12,951)

12,951

-

-

-

-

-

Exchange differences

(345)

(941)

11

(14)

(15)

(8,532)

(9,836)

At 31 December 2019

14,373

128,655

1,426

2,985

619

341,801

489,859

 

 

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

 

At 1 January 2018

-

22,211

168

789

-

2,805

25,973

Provided during the year

-

13,086

89

201

-

18,399

31,775

Disposals

-

(66)

-

(30)

-

-

(96)

Impairment

-

(6)

-

-

-

-

(6)

Exchange differences

-

(2,229)

(32)

(108)

-

-

(2,369)

At 31 December 2018

-

32,996

225

852

-

21,204

55,277

Provided during the year

-

9,964

89

471

-

17,801

28,325

Disposals

-

(237)

-

(27)

-

-

(264)

Exchange differences

-

127

2

5

-

-

134

At 31 December 2019

-

42,850

316

1,301

-

39,005

83,472

 

 

 

 

 

 

 

 

Net book value at 31 December 2018

17,317

80,236

1,190

1,095

634

329,129

429,601

Net book value at 31 December 2019

14,373

85,805

1,110

1,684

619

302,796

406,387

 

The Company had $838,000 of office equipment at net book value as at 31 December 2018 (2018: $290,000).

The increase in estimate in relation to the Kounrad asset retirement obligation of $783,000 (2018: reduction of $159,000) 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 31). 

The increase in estimate in relation to the Sasa asset retirement obligation of $2,881,000 (2018: reduction of $10,000) is due a review of 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 31). 

The Group has reviewed all the leasing arrangements and contracts in light of adopting IFRS 16 Leases and has capitalised $853,000 as right-of-use assets ('ROU') during the year and is included within additions. All right-of-use assets will continue to be measured at the amount of the lease liability on adoption.

During the year there were total disposals of plant, property and equipment at cost of $978,000 with accumulated depreciation of $264,000. The Group received $233,000 consideration for these assets and therefore a loss of $481,000 was recognised in other expenses (note 10). 

Amounts recognised in the income statement

The income statement shows the following amounts relating to leases:

 

 

 

2019

 $'000

2018

 $'000

Depreciation charge of right-of-use assets

 

 

 

 

Office

 

 

323

-

Other

 

 

19

-

 

 

 

342

-

 

 

 

 

 

Interest expense included in finance costs

 

 

54

-

 

As at 31 December 2019 there are no indications of impairment with the fair value of the assets exceeding the net book value.

19.  Intangible assets

Group

Goodwill

$'000

Mining licences and permits

$'000

Computer

software and website

$'000

Total

$'000

Cost

 

 

 

 

At 1 January 2018

33,464

41,730

514

75,708

Additions

-

-

28

28

Disposals

-

-

(6)

(6)

Exchange differences

(2,285)

(4,096)

(17)

(6,398)

At 31 December 2018

31,179

37,634

519

69,332

Additions

-

-

21

21

Disposals

-

-

(12)

(12)

Exchange differences

(507)

(140)

1

(646)

At 31 December 2019

30,672

37,494

529

68,695

 

 

 

 

 

Accumulated amortisation

 

 

 

 

At 1 January 2018

-

5,728

65

5,793

Provided during the year

-

2,134

433

2,567

Disposals

-

-

(6)

(6)

Exchange differences

-

(325)

(8)

(333)

At 31 December 2018

-

7,537

484

8,021

Provided during the year

-

1,940

55

1,995

Disposals

-

-

(12)

(12)

Exchange differences

-

15

-

15

At 31 December 2019

-

9,492

527

10,019

 

 

 

 

 

Net book value at 31 December 2018

31,179

30,097

35

61,311

Net book value at 31 December 2019

30,672

28,002

2

58,676

 

The Company had nil of computer software and website costs at net book value as at 31 December 2019 (2018: $3,000).

Impairment assessment

 

Kounrad project

The Kounrad project located in Kazakhstan has an associated goodwill balance of $8,999,000 (2018: $8,928,000). 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 nominal 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 recoverable amount of the CGU is assessed by reference to the higher of value in use ('VIU'), being the net present value ('NPV') of future cash flows expected to be generated by the asset, and fair value less costs to dispose ('FVLCD'). The FVLCD is considered to be higher than VIU and has been derived using discounted cash flow techniques (NPV of expected future cash flows of a CGU), which incorporate market participant assumptions.

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 $6,372 per tonne (2018: $6,985) and a long-term price of $6,595 per tonne (2018: $7,472) and a discount rate of 8% (2018: 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. Management concluded and the net present value of the asset is significantly in excess of the net book value of assets, and therefore no impairment has been identified.

 

Sasa project

The SASA project located in North Macedonia has an associated goodwill balance of $21,673,000 (2018: $22,251,000). The business combination in 2017 was accounted for at fair value under IFRS 3 and therefore recoverable value is sensitive to changes in commodity prices, operational performance, treatment charges, future cash costs of production and capital expenditures.  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 assessment compared the recoverable amount of the SASA Cash CGU with its carrying value for the year ended 31 December 2019. The recoverable amount of the CGU is assessed by reference to the higher of VIU, being the NPV of future cash flows expected to be generated by the asset, and FVLCD. The FVLCD is considered to be higher than VIU and has been derived using discounted cash flow techniques (NPV of expected future cash flows of a CGU), which incorporate market participant assumptions. Cost to dispose is based on management's best estimates of future selling costs at the time of calculating FVLCD. Costs attributable to the disposal of the CGU are not considered significant. The methodology used for the fair value is a level 3 valuation. 

 

The expected future cash flows utilised in the FVLCD model are derived from estimates of projected future revenues based on broker consensus commodity prices, treatment charges, future cash costs of production and capital expenditures contained in the life of mine ('LOM') plan, and as a result FVLCD is considered to be higher than VIU. The Group's discounted cash flow analysis reflects probable reserves as well as indicated resources and certain inferred resources which are considered sufficiently certain and economically viable, and is based on detailed research, analysis and modelling. The forecast operational and capital expenditure reflects the transition of mining method from sub-level caving to cut and fill stoping, which is expected to lead to improved reserve grades for both zinc and lead and increased metal production over the life of mine. 

 

At 31 December 2019, the Group has reviewed the indicators for impairment, including forecasted commodity prices, treatment charges, discount rates, operating and capital expenditure, and the mineral reserves and resources' estimates and an impairment is not necessary. For the purposes of the impairment review a discount rate of 8.07% (2018: 12%) was applied to calculate the present value of the CGU. The reduction in the discount rate from the prior year was supported by a detailed WACC calculation and due to the reduced country risk profile and asset specific risk factors through operational improvements, environmental and social plans having owned and operated the asset for over two years. The key economic assumptions used in the review were a five-year forecast average nominal zinc and lead price of $2,220 (2018: $2,441) and $1,986 (2018: $2,200) per tonne respectively and a long-term price of $2,358 (2018: $2,604) and $1,900 (2018: $2,264) per tonne respectively.  Zinc and lead treatment charges are forecast to rise significantly in 2020 with a significant reduction from these returning to historic averages by 2022. 

Management then performed sensitivity analyses whereby certain parameters were flexed downwards by reasonable amounts for the CGU to assess whether the recoverable value for the CGU would result in an impairment charge. The following sensitivities were applied:

Long-term zinc price reduced by 5%

Long-term lead price reduced by 5%

Discount rate increased to 9%

Production decreased by 2.5%

Treatment charges increased by 20%

Operational expenditure increased by 7%

Capital expenditure increased by 20%

 

In isolation, none of the changes set out above would result in an impairment. This sensitivity analysis also does not take into account any of management's mitigation factors should these changes occur or the planned production optimisation in future years. The Board considers the base case forecasts to be appropriate and balanced best estimates.

20.  Investments

 

Shares in Group undertakings:

    Company

 

 

 

31 Dec 19 $'000

31 Dec 18 $'000

At 1 January

 

 

5,491

11,821

Investment in Shuak BV

 

 

2,800

35

Impairment of investment in Shuak BV

 

 

(2,800)

(143)

Impairment of investment in Copper Bay

 

 

-

(6,222)

At 31 December 

 

 

5,491

5,491

 

Investments in Group undertakings are recorded at cost which is the fair value of the consideration paid, less impairment.

Details of the Company holdings are included in the table below:

Subsidiary

Registered office address

Activity

 

 

CAML % 2019

 

 

CAML % 2018

 

Date of  incorporation

CAML Kazakhstan BV

Herikerbergweg 238, 1101 CM Amsterdam, The Netherlands

Holding Company

100

100

23 Jun 08

Shuak BV

Herikerbergweg 238, 1101 CM Amsterdam, The Netherlands

Holding Company

80

80

20 Sep 16

Sary Kazna LLP

Business Centre No. 2, 4 Mira Street, Balkhash, Kazakhstan

Kounrad project (SUC operations)

100

100

6 Feb 06

Kounrad Copper Company LLP

Business Centre No. 2, 4 Mira Street, Balkhash, Kazakhstan

Kounrad project (SX-EW plant)

100

100

29 Apr 08

Ken Shuak LLP

Business Centre No. 2, 4 Mira Street, Balkhash, Kazakhstan

Shuak project (exploration)

80

80

5 Oct 16

Copper Bay Limited

Masters House, 107 Hammersmith Road, London, W14 0QH, United Kingdom

Holding Company

75*

75*

29 Oct 10

Copper Bay (UK) Ltd

Masters House, 107 Hammersmith Road, London, W14 0QH, United Kingdom

Holding Company

75*

75*

9 Nov 11

Copper Bay Chile Limitada

Ebro 2740, Oficina 603, Las Condes, Santiago, Chile

Holding Company

75*

75*

12 Oct 11

Minera Playa Verde Limitada

Ebro 2740, Oficina 603, Las Condes, Santiago, Chile

Exploration - Copper

75*

75*

20 Oct 11

CAML MK Limited

Masters House, 107 Hammersmith Road, London, W14 0QH, United Kingdom

Seller of zinc and lead concentrate

100

100

5 Sep 17

CMK Resources Limited

Cannon's Court, 22 Victoria St, Hamilton HM12, Bermuda

Holding Company

100

100

19 June 2015

CMK Mining B.V.  

Prins Bernhardplein 200

1097 JB Amsterham, The Netherlands

Holding Company

100

100

30 June 2015

CMK Europe SPLLC Skopje

Ivo Lola Ribar no. 57-1/6, 1000 Skopje, North Macedonia

Holding Company

100

100

10 July 2015

Rudnik SASA DOOEL Makedonska Kamenica

28 Rudarska Str, Makedonska Kamenica, 2304, North Macedonia

Sasa project

100

100

22 June 2005

*Fully diluted basis

 

CAML MK

For the period ended 31 December 2019, CAML MK Limited (registered number: 10946728) has opted to take advantage of a statutory exemption from audit under section 479A of the Companies Act 2006 relating to subsidiary companies. The members of CAML MK Limited have not required it to obtain an audit of their financial statements for the period ended 31 December 2019. In order to facilitate the adoption of this exemption, Central Asia Metals plc, the parent company of the subsidiaries concerned, undertakes to provide a guarantee under Section 479C of the Companies Act 2006 in respect of CAML MK Limited.

 

Shuak

In February 2020, the Group reduced its effective interest in Ken Shuak LLP from 80% to 10%. The Group will not be required to contribute towards future costs of the project.  The asset has been fully impaired.  

CMK Resources Limited

During 2019, CMK Mining B.V. (formally CMK Mining Limited (Bermuda) was reincorporated from Bermuda into the Netherlands.  Prior to this reincorporation, CMK Resources Limited transferred its shareholding in CMK Mining B.V. to CAML MK LimitedCMK Resources Limited was liquidated in February 2020, see note 37.

 

21.  Assets held for sale

 

The assets and liabilities of the Shuak entities continue to be presented as held for sale in the Statement of Financial Position.  During the prior year, the exploration assets and property, plant and equipment held in Shuak were impaired in full.  In February 2020, the Group reduced its effective interest in the Shuak project from 80% to 10%.  The Group will not be required to contribute towards future costs of the project. 

The assets and liabilities of the Copper Bay entities continue to be 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 progresses it's sale process.  The results of the Copper Bay entities for the year ended 31 December 2019 and the comparative year ended 31 December 2018 are shown within discontinued operations in the Consolidated Income Statement.  During the prior year, the exploration assets and property, plant and equipment held in Copper Bay were impaired in full as although the Group is confident of making a sale in the near future, it is not clear of the cash generative abilities of these assets.

 

Assets of disposal group classified as held for sale:

 

31 Dec 19 $'000

31 Dec 18 $'000

Cash and cash equivalents

106

58

Trade and other receivables

113

3

 

219

61

 

 

Liabilities of disposal group classified as held for sale:

 

 

 

 31 Dec 19 $'000

 31 Dec 18 $'000

Trade and other payables

 

 

73

40

Provisions

 

 

18

-

 

 

 

91

40

 

During the year the following have been recognised in discontinued operations:

 

Profit/(loss) from discontinued operations:

 

 

 

2019

$'000

2018

$'000

General and administrative expenses

 

 

(170)

(153)

Foreign exchange gain/(loss)

 

 

280

(927)

Finance costs

 

 

(57)

-

Impairment of exploration and evaluation assets

 

 

-

(6,194)

Loss from discontinued operations

 

 

53

(7,274)

 

Cash flows of disposal group classified as held for sale:

 

 

 

 

2019

$'000

 

 

 

2018

$'000

Operating cash flows

 

 

48

(93)

Total cash flows

 

 

48

(93)

 

 

22.  Trade and other receivables

 

 

Current receivables

 Group

Company

31 Dec 19 $'000

31 Dec 18 $'000

31 Dec 19 $'000

31 Dec 18 $'000

Receivable from subsidiary 

-

-

381

215

Loans due from subsidiaries

-

-

341,005

373,182

Trade receivables

1,493

3,746

-

-

Prepayments

2,195

1,463

387

395

VAT receivable

1,101

2,006

90

189

Other receivables

1,487

2,863

220

211

 

6,276

10,078

342,083

374,192

 

 

 

 

 

Non-current receivables

 

 

 

 

Prepayments

441

71

-

-

VAT receivable

2,948

2,049

-

-

 

3,389

2,120

-

-

 

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.  Trade and other receivables and loans due from subsidiaries are accounted for under IFRS 9 using the expected credit loss model and are initially recognised at fair value and subsequently measured at amortised cost less any allowance for expected credit losses.

There are two loans due from subsidiaries. One loan is owed by CAML MK Limited, a directly owned subsidiary for $301,179,000 (2018: $315,116,000), accrues interest at a rate of 5% per annum and is repayable on demand.  There is another loan which is owed by CMK Mining B.V, a subsidiary, for $39,826,000 (2018: $58,067,000) which accrues interest at a rate of 4.75% per annum and is repayable on demand.  These loans have been assessed for expected credit loss under IFRS 9, however as the Group's strategies are aligned there is no realistic expectation that repayment would be demanded. The expected future cash flows arising from the asset exceed the intercompany loan values under various scenarios considered so it is believed these loans can be repaid and the expected credit loss is immaterial.

As at 31 December 2019, the total Group VAT receivable was $4,049,000 (2018: $4,055,000) which includes an amount of $3,086,000 (2018: $2,813,000) of VAT owed to the Group by the Kazakhstan authorities.  In 2019, the Kazakhstan authorities refunded $403,000 and a further $125,306 was received in March 2020 and this has been classified as current trade and other receivables as at 31 December 2019.  The Group is working closely with its advisers 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.

23.  Inventories

Group

31 Dec 19

$'000

31 Dec 18

$'000

Raw materials

6,431

6,901

Finished goods

852

628

 

7,283

7,529

 

The Group did not have any slow-moving, obsolete or defective inventory as at 31 December 2019 and therefore there were no write-offs to the Income Statement during the year (2018: nil).  The total inventory recognised through the Income Statement was $4,955,000 (2018: $4,668,000).

24.  Cash and cash equivalents and restricted cash

     Group    Company

 

31 Dec 19

 $'000

31 Dec 18

 $'000

31 Dec 19

 $'000

31 Dec 18

 $'000

Cash at bank and on hand

14,072

21,605

3,340

2,253

Short-term deposits

14,494

13,044

14,494

13,044

 Cash and cash equivalents

28,566

34,649

17,834

15,297

Restricted cash

4,013

4,376

3,824

4,222

Total cash and cash equivalent including restricted cash

32,579

39,025

21,658

19,519

 

The restricted cash amount of $4,013,000 (2018: $4,376,000) is held at bank to cover debt service compliance and Kounrad SUC licence requirements.  Short-term deposits are held at call with banks. 

The Group holds an overdraft facility in Sasa and these amounts are disclosed in note 30 Borrowings.

Reconciliation to cash flow statements

The above figures reconcile to the amount of cash shown in the statement of cash flows at the end of the financial year as follows:

 

 

 

 Group

 

 

31 Dec 19 $'000

31 Dec 18 $'000

Cash and cash equivalents as above (excluding restricted cash) 

 

 

28,566

34,649

Bank overdrafts (note 30)

 

 

(895)

-

Cash at bank and on hand in assets held for sale (note 21)

 

 

106

58

Balance per statement of cash flows

 

 

27,777

34,707

 

 

 

 

 

 

25.  Share capital and premium

 

 

 

Number of

shares

Ordinary

Shares

$'000

Share

premium

 $'000

Treasury

shares

$'000

At 1 January 2018

 

176,498,266

1,765

191,184

(7,780)

Treasury shares

 

-

-

-

1,254

At 31 December 2018

 

176,498,266

1,765

191,184

(6,526)

Treasury shares

 

-

-

-

-

At 31 December 2019

 

176,498,266

1,765

191,184

(6,526)

 

The par value of Ordinary Shares is $0.01 per share and all shares are fully paid. 

26.  Currency translation reserve

 

Currency translation differences arose primarily on the translation on consolidation of the Group's Kazakhstan-based and North Macedonian-based subsidiaries whose functional currency is the Tenge and North Macedonian Denar respectively.  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 CMK Resources acquisition which are denominated in Tenge and Denar respectively.  During 2019, a non-cash currency translation loss of $11,019,000 (2018: $10,288,000) was recognised within equity. 

 

27.  Share based payments

 

The Company provides rewards to staff in addition to their salaries and annual discretionary bonuses, through the granting of share options in the Company. The Company effectively has two such option schemes in place, the Old Scheme and the New Scheme.

Old Scheme

The first share option plan was introduced by the Company in February 2008 and initially had an exercise price of $6.42. On the recommendation of the Remuneration Committee, the exercise price for the participants was reduced to $0.68 in February 2010 to reflect the changed economic circumstances of the Company and maintain some form of incentive for staff. Only those staff still employed by the Group at this time benefited from this decision and those participants who had left the Group maintained an exercise price of $6.42 on their options. The vesting of share options in the plan is purely conditional upon time served by the participant and as at 31 December 2019, all options have fully vested.

New Scheme

The Company introduced the second share option plan in October 2011. This scheme has an exercise price of effectively nil for the participants.  The share options granted during 2012 until 2018 under this scheme were based on the achievement by the Group and the participant of the performance targets as determined by the CAML Remuneration Committee that are required to be met in year one and then options could be exercised one third annually from the end of year one. Options granted during 2012 to 2018 had straight forward conditions attached and were valued using a Black-Scholes model.   

 

Share options granted in 2019 vest after three years depending on achievement of the Group of performance target relating to the level of absolute total shareholder return compound annual growth rate of the value of the Company's shares over the performance period of three financial years ending 31 December 2021.  The fair value at grant date is independently determined using a Monte Carlo simulation model that takes into account the exercise price, the term of the option, the impact of dilution (where material), the share price at grant date and expected price volatility of the underlying share, the expected dividend yield, the risk-free interest rate for the term of the option, and the correlations and volatilities of the share price.

The assessed fair value at grant date of options granted during the year ended 31 December 2019 was $1,450,000 in total with an amount of $362,000 expensed for the year ended 31 December 2019.  An additional dividend related share option charge of $723,000 (2018: $699,000) was also recognised.  The number of shares covered by such awards is increased by up to the value of dividends declared as if these were reinvested in Company shares at the dates of payment.  The outstanding share options included in the calculation of diluted earnings/(loss) per share (note 17) includes these additional awards but they are excluded from the disclosures in this note.  In total, an amount of $1,085,000 (2018: $4,904,000) has been credited to retained earnings and expensed within employee benefits expense from continuing operations for the grant of stock options for the year ended 31 December 2019.

The model inputs for options granted during the year ended 31 December 2019 included:

Vesting period: 3 years

Vested options are exercisable for a period of 7 years after vesting

Exercise price: $0.01

Grant date: 30 May 2019

Expiry date: 29 May 2029

Share price at grant date: $2.71

Expected price volatility of the Company's shares: 15%

Risk-free interest rate: 1.84%

 

As at 31 December 2019, nil (2018: 16,000) Old Scheme options and 4,182,729 (2018: 3,295,600) New Scheme options (including those issued to Nurlan Zhakupov) were outstanding. Share options are granted to Directors and selected employees. The exercise price of the granted options is presented in the table below for every grant. The Company has the option but not the legal or constructive obligation to repurchase or settle the options in cash.

Movements in the number of share options outstanding and their related weighted average price are as following:

 

   

2019

2018

 

Average exercise

price in $ per

share option

Options  (number)

Average exercise

price in $ per

share option

Options  (number)

At 1 January

0.01

3,311,600

0.39

2,772,260

Granted

0.01

1,124,877

0.01

1,067,414

Exercised

0.08

(156,627)

0.01

(364,074)

Expired

-

-

6.42

(164,000)

Non-vesting

0.01

(97,121)

-

-

At 31 December

0.01

4,182,729

0.01

3,311,600

 

Non-vesting shares relates to options granted for which the performance targets were not met.  Out of the outstanding options of

4,182,729 (2018: 3,311,600), 2,149,192 options (2018: 1,505,830) were exercisable as at 31 December 2019 excluding the value of additional share options for dividends declared on those outstanding.  The related weighted average share price at the time of exercise was $2.73 (2018: $3.71) per share. 

Share options exercised by the Directors during the year are disclosed in the Remuneration Committee Report. 

 

Share options outstanding at the end of the year have the following expiry date and exercise prices:

      

 

 

Grant - vest

 

Expiry date

of option

Option exercise

price $

 

  2019   2018

  Share options (number)

Old Scheme:

 

 

 

 

21 Feb 10

21 Feb 20

0.68

-

16,000

New Scheme:

 

 

 

 

8 May 12

7 May 22

0.01

100,000

100,000

24 Jul 13

23 Jul 23

0.01

60,155

60,155

3 Jun 14

2 Jun 24

0.01

196,355

196,355

8 Oct 14

7 Oct 24

0.01

214,354

214,354

22 Apr 15

21 Apr 25

0.01

358,948

358,948

18 Apr 16

18 Apr 26

0.01

533,157

621,790

21 Apr 17

21 Apr 27

0.01

642,376

676,583

2 May 18

2 May 28

0.01

952,507

1,067,415

30 May 19

2 May 29

0.01

1,124,877

-

 

 

 

 

 

 

 

 

4,182,729

3,311,600

 
Employee Benefit Trust

The Company set up an Employee Benefit Trust ('EBT') during 2009 as a means of incentivising certain Directors and senior management of CAML prior to the Initial Public Offering ('IPO'). All of the shares awarded as part of the EBT scheme vested on the successful completion of the IPO on 30 September 2010.

2,534,688 Ordinary Shares were initially issued as part of the arrangements in December 2009 followed by a further issue of 853,258 in September 2010. The shares were issued at the exercise price of $0.68, which was the best estimate of the Company's valuation at the time. Details of the awards to Directors of the Company are contained in the Remuneration Committee Report.

28.  Trade and other payables
  Group     Company

 

31 Dec 19

$'000

31 Dec 18 $'000

31 Dec 19 $'000

31 Dec 18 $'000

Trade and other payables including accruals

8,981

11,137

4,760

4,805

Deferred consideration

-

6,500

-

-

Corporation tax, social security and other taxes

3,324

3,279

205

191

 

12,305

20,916

4,965

4,996

 

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

In April 2019, an agreement with the previous owners of CMK Resources Limited for receipt of $5,500,000 was finalised relating to the $5,900,000 withholding tax liability in North Macedonia that relates to the activities of CMK Europe prior to CAML ownership. During the year, the Group has paid the remaining $6,500,000 of deferred consideration.

The Group made a provision for the 2019 Kazakhstan corporate income tax liability of $424,000 (2018: $773,000) having paid an amount of $13,284,000 in advance during the year (2018: $13,588,000). $841,000 was also paid during the year in relation to 2018 corporate income tax (2018: $1,259,000 in relation to 2017). 

The Group made a provision for the 2019 North Macedonian corporate income tax liability of $nil (2018: $1,293,000) having paid an amount of $6,211,000 in advance during the year which exceeded the final liability (2018: $8,191,000). $792,000 was also paid during the year in relation to 2018 corporate income tax (2018: $2,840,000 in relation to 2017).

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

 

29.  Silver streaming commitment

 

The carrying amounts of the silver streaming commitment for silver delivery are as follows:

  Group    Company

 

31 Dec 19 $'000

31 Dec 18 $'000

31 Dec 19 $'000

31 Dec 18

$'000

Current

2,140

2,263

-

-

Non-current

20,755

22,905

-

-

 

22,895

25,168

-

-

 

On 1 September 2016, the CMK Group entered into a Silver Purchase Agreement. The Group acquired this agreement as part of the acquisition of the CMK Group and inherited a silver streaming commitment related to the production of silver during the life of the mine. The reduction in the silver streaming commitment is recognised in the Income Statement within cost of sales as the silver is delivered based on the units of production.

30.  Borrowings
  Group    Company

 

31 Dec 19

$'000

31 Dec 18 $'000

31 Dec 19

 $'000

31 Dec 18

 $'000

Secured: Non-current

 

 

 

 

Bank loans

69,473

106,549

69,473

106,549

Secured: Current

 

 

 

 

Bank loans

38,400

38,400

38,400

38,400

Unsecured: Current

 

 

 

 

Bank overdraft

895

-

-

-

Total Current

39,295

38,400

38,400

38,400

 

 

 

 

 

Total borrowings

108,768

144,949

107,873

144,949

 

The carrying value of loans approximates fair value:

 

Carrying amount

 

31 Dec 19 $'000

31 Dec 18 $'000

31 Dec 19 $'000

31 Dec 18 $'000

Traxys

107,873

144,949

107,873

144,949

Bank overdraft

895

-

895

-

 

108,768

144,949

108,768

144,949

 

The movement on borrowings can be summarised as follows:

  Group    Company

 

31 Dec 19

$'000

31 Dec 18 $'000

31 Dec 19

 $'000

31 Dec 18

 $'000

 

 

 

 

 

Balance at 1 January

144,949

181,914

144,949

113,711

Drawdown of borrowings

-

60,809

-

60,000

Repayment of borrowings

(38,400)

(99,265)

(38,400)

(28,744)

Finance charge interest

9,455

12,065

9,455

7,142

Finance charge unwinding of directly attributable fees

1,324

2,323

1,324

814

Interest paid

(9,455)

(12,065)

(9,455)

(7,142)

Gain on modification of the debt facility

-

(832)

-

(832)

Overdraft drawdown

895

-

-

-

Balance at 31 December

108,768

144,949

107,873

144,949

 

During the year, $38,400,000 (2018: $38,500,000) of the principal amount of Group debt was repaid as well as a further $9,455,000 (2018: $12,065,000) interest. As at 31 December 2019, non-current and current borrowings were $69,473,000 and $38,400,000 respectively (2018: $106,549,000 and $38,400,000 respectively).

 

The Group holds one corporate debt package with Traxys Europe S.A. repayable on 4 November 2022. Interest is payable at LIBOR plus 4.75% and reduced to LIBOR plus 4.00% with effect from 27 March 2020. Security is provided over the shares in CAML Kazakhstan BV, certain bank accounts and the Kounrad off-take agreement as well as over the Sasa off-take agreement.

 

The debt is subject to financial covenants which include the monitoring of gearing and leverage ratios and these are all currently complied with.

 

In August 2019, an overdraft facility was agreed with Komercijalna Banka AD Skopje with a fixed interest rate of 3.80% denominated in Macedonian Denar. The overdraft was utilised for the first time in December 2019.

 

As at 31 December 2019, 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).

 

31.  Provisions for other liabilities and charges

 

  Group 

 

Asset

retirement obligation

$'000

Employee retirement

benefits

$'000

Other

employee

benefits

$'000

 

 

Legal claims

$'000

 

 

Total

$'000

At 1 January 2018

4,576

180

154

455

5,365

Change in estimate

(159)

55

21

-

(83)

Settlements of provision

-

(31)

(3)

(108)

(142)

Unwinding of discount (note 15)

489

-

-

-

489

Exchange rate difference

(478)

(8)

(7)

(20)

(513)

At 31 December 2018

4,428

196

165

327

5,116

Change in estimate

3,664

39

36

-

3,739

Settlements of provision

-

(32)

(11)

(30)

(73)

Unwinding of discount (note 15)

329

-

-

-

329

Exchange rate difference

(23)

(4)

(4)

(7)

(38)

At 31 December 2019

8,398

199

186

290

9,073

Non-current

8,398

171

168

290

9,027

Current

-

28

18

-

46

At 31 December 2019

8,398

199

186

290

9,073

 

a)  Asset retirement obligation

The Group provides for the asset retirement obligation associated with the mining activities at Kounrad, estimated internally 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% (2018: 8.07%).  The increase in estimate in relation to the asset retirement obligation of $750,000 (2018: reduction of $159,000) is due to a combination of adjusting the provision recognised at the net present value of future expected costs using an inflation rate of 4.13% (2018: 5.59%) 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 North 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.  In 2017, the Group engaged an independent expert to conduct an independent assessment on the environment of the mining activities of the Group and to prepare an assessment of the restoration and the relevant costs connected with the mine, and the mining properties and in 2019, the Group engaged the University of Shtip to assess future costs in relation to TSF3.2 and TSF4. The final asset retirement obligation used these external assessment as well as the Group's own internal calculations to estimate the future potential obligations.  The expected current cash flows were projected over the useful life of the mining sites and discounted to 2019 terms using a discount rate of 7.25% (2018: 7.87%). The cost of the related assets are depreciated over the useful life of the assets and are included in property, plant and equipment.  The increase in estimate in relation to the asset retirement obligation of $2,914,000 (2018: reduction of $10,000) is from 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 2038. 

 

b)  Employee retirement benefit

All employers in North 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 in North Macedonia for each ten years of continuous service of the employee. Provisions for termination and retirement obligations are recognised in accordance with actuary calculations. Basic 2019 actuary assumptions are used as follows:

Discount rate: 3.0%

Expected rate of salary increase: 2.2%

 

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.

 

32.  Cash generated from operations   

Group

Note

 

 

2019

$'000

2018

$'000

 

Profit before income tax including discontinued operations

 

 

 

67,847

65,406

Adjustments for:

 

 

 

 

 

Depreciation and amortisation

 

 

 

30,080

33,342

Silver stream commitment

 

 

 

(2,285)

(1,599)

Loss on disposal of property, plant and equipment

10

 

 

481

561

Foreign exchange gain/(loss)

 

 

 

(375)

3,879

Share based payments

27

 

 

1,085

4,904

Finance income

14

 

 

(336)

(264)

Finance costs

15

 

 

11,153

14,999

Other expenses

10

 

 

-

576

Impairment of held for sale assets

21

 

 

-

6,194

Changes in working capital:

 

 

 

 

 

Inventories

23

 

 

246

(683)

Trade and other receivables

22

 

 

(1,740)

(386)

Trade and other payables

28

 

 

(940)

3,550

Provisions for other liabilities and charges

31

 

 

(73)

(348)

Cash generated from operations

 

 

 

105,143

130,131

 

Non-cash investing activities

In April 2019, a settlement agreement with the previous owners of CMK Resources Limited was finalised in respect of the $5,900,000 withholding tax liability in North Macedonia paid in the prior year. The liability related to activities of CMK Europe prior to CAML's ownership. The settlement amounted to $5,500,000 and accordingly, during 2019, CAML agreed to pay only the balancing $6,500,000 due in respect of the $12,000,000 deferred consideration owed to the previous owners.

33.  Commitments

 

Significant expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows:

Group

31 Dec 19 $'000

31 Dec 18 $'000

Property, plant and equipment

851

475

Other 

340

570

 

1,191

1,045

 

 

34.  Dividend per share

 

In line with the Company dividend policy, the Company paid $32,164,000 in 2019 (2018: $39,603,000) which consisted of a 2019 interim dividend of 6.5 pence per share and a final dividend for 2018 of 8.0 pence per share (2018: interim dividend of 6.5 pence per share and a final dividend for 2017 of 10.0 pence per share). 

35.  Related party transactions

 

Key management remuneration

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

Non-Executive Directors

During the year, the Group paid consultancy fees of nil (2018: $13,261) 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. 

The Kounrad foundation, a vehicle through which Kounrad donates to the community, was advanced $195,000 (2018: $226,000). This is a related party by virtue of common Directors.

36.  Deferred income tax asset and liability
 
Group

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

 

 

 

At 1 January

2019

$'000

Currency translation

differences $'000

(Debit)/credit to income

statement

$'000

 

At 31 December

2019 $'000

Other timing differences

 

(77)

-

(113)

(190)

Deferred tax liability on fair value adjustment on Kounrad Transaction

 

(6,681)

(51)

304

(6,428)

Deferred tax liability on fair value adjustment on CMK acquisition

 

(20,912)

575

1,132

(19,205)

Deferred tax liability, net

 

(27,670)

524

1,323

(25,823)

 

 

 

 

 

 

Reflected in the statement of financial position as:

 

 

 

31 Dec 19

$'000

31 Dec 18

$'000

Deferred tax asset

 

 

 

266

-

Deferred tax liability

 

 

 

(26,089)

(27,670)

 

A taxable temporary difference arose as a result of the Kounrad Transaction and CMK 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 $1,436,000 during the year (2018: $1,535,000) to reflect the tax consequences of depreciating and amortising the recognised fair values of the assets during the year.

 

 

 

At 1 January

2018 $'000

Currency translation

differences $'000

(Debit)/credit to income

statement

$'000

 

At 31 December

2018 $'000

Other timing differences

 

(121)

10

34

(77)

Deferred tax liability on fair value adjustment on Kounrad Transaction

 

(8,103)

1,056

366

(6,681)

Deferred tax liability on fair value adjustment on CMK acquisition

 

(22,972)

891

1,169

(20,912)

Deferred tax liability, net

 

(31,196)

1,957

1,569

(27,670)

   

 

 

 

 

 

 

 

At 31 December 2019

$'000

 

At 31 December 2018

$'000

Deferred tax liability due within 12 months

 

 

 

 

(1,345)

(1,017)

Deferred tax liability due after 12 months

 

 

 

 

(24,744)

(26,653)

Deferred tax liability, net

 

 

 

 

(26,089)

(27,670)

 

All deferred tax assets are due after 12 months.

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 $7,417,000 (2018: $8,465,000) as there is insufficient evidence of future taxable profits within the entities concerned. Unrecognised losses can be carried forward indefinitely.

At 31 December 2019, the Group had other deferred tax assets of $2,810,000 (2018: $2,085,000) 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 2019 and 2018, respectively.

Company

At 31 December 2019 and 2018 respectively, the Company had no recognised deferred tax assets or liabilities.

At 31 December 2019, the Company had not recognised potential deferred tax assets arising from losses of $7,417,000 (2018: $8,465,000) as there is insufficient evidence of future taxable profits. The losses can be carried forward indefinitely.

At 31 December 2019, the Company had other deferred tax assets of $2,810,000 (2018: $2,085,000) in respect of share-based payments and other temporary differences which had not been recognised because of insufficient evidence of future taxable profits.

37.  Events after the reporting period

 

On 6 February 2020, the Group reduced its effective interest in Ken Shuak LLP from 80% to 10%.  The Group will not be required to contribute towards future costs of the project. 

On 7 February 2020, the Group liquidated CMK Resources Limited, a wholly owned subsidiary.

The price of copper, zinc and lead have been impacted in 2020 by concerns over the outbreak of the COVID-19 pandemic and this will impact on Group revenue for the year ended 31 December 2020 and may impact future asset values should they remain depressed.  The CAML Board has considered and debated a substantial range of possible scenarios of the Group's operations, financial position and forecasts covering a period of at least the next 12 months from the date of this report and these are discussed in note 2.  Whilst there has been little impact of COVID-19 to our operations at present, restrictions on the movement of goods, people and services could impact the Group's operations and management. 

 

 

 

 

 

[1] See Financial Review section for definition of non-IFRS alternative performance measures

[2] The cash balance figure disclosed includes restricted cash balance


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