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Share Name Share Symbol Market Type Share ISIN Share Description
Anglo Asian Mining Plc LSE:AAZ London Ordinary Share GB00B0C18177 ORD 1P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -4.50 -3.23% 135.00 130.00 140.00 136.00 134.50 135.00 171,098 12:52:45
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Mining 69.4 22.7 12.8 10.0 154

Anglo Asian Mining PLC 2019 Full year results

13/05/2020 7:00am

UK Regulatory (RNS & others)


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TIDMAAZ

RNS Number : 6951M

Anglo Asian Mining PLC

13 May 2020

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

13 May 2020

Anglo Asian Mining PLC

2019 Full year results

Increase in profit before tax to $30.1 million

Final dividend increases to $0.045 per ordinary share giving a total 2019 dividend of $0.08 per ordinary share (2018: $0.07 per share)

Anglo Asian Mining PLC ("Anglo Asian" or the "Company"), the AIM listed gold, copper and silver producer focused in Azerbaijan, is pleased to announce its final results for the year ended 31 December 2019 ("FY 2019"). Note that all references to "$" are to United States Dollars.

Financial Highlights

Record total revenues

-- Final dividend declared of $0.045 per ordinary share payable on 30 July 2020 subject to approval at the Annual General Meeting giving a FY 2019 total dividend of $0.08 per ordinary share (FY 2018: $0.07 per ordinary share)

-- Record total revenues in 2019 of $92.1 million representing a two per cent. year-on-year ("y-o-y") increase (2018: $90.4 million)

-- Profit before taxation for 2019 of $30.1 million (2018: $25.2 million) - a y-o-y increase of 19 per cent.

-- Strong operating cash flow before movements in working capital of $50.5 million (2018: $50.1 million) driven by strong sales and continued operational efficiencies as one of the lowest cash cost gold producers

-- Net cash of $21.2 million at 31 December 2019 (31 December 2018: $6.1 million) calculated as cash and cash in transit less aggregate of loans and borrowings with Company becoming debt free in February 2020

Operational Highlights

FY 2019 production in line with expectations

-- 82,795 gold equivalent ounces ("GEOs") produced, calculated using budgeted metal prices, compared to forecast of 82,000 to 84,000 GEOs:

o Gold production for FY 2019 decreased by four per cent. y-o-y to 70,098 ounces (FY 2018: 72,798 ounces)

o Copper production for FY 2019 increased by 34 per cent. y-o-y to 2,210 tonnes (FY 2018: 1,645 tonnes)

o Silver production for FY 2019 of 159,356 ounces (FY 2018: 210,184 ounces)

-- FY 2019 gold bullion sales of 53,992 ounces (FY 2018: 59,481 ounces) completed at an average of $1,410 per ounce (FY 2018: $1,265 per ounce)

-- FY 2019 copper concentrate shipments to the customer totalled 10,281 dry metric tonnes ("dmt") with a sales value of $16.7 million (excluding Government of Azerbaijan production share) (FY 2018: 7,675 dmt with a sales value of $15.4 million)

-- All in sustaining cost ("AISC") of gold production increased to $591 per ounce (2018: $541 per ounce) - AISC remains in the lowest quartile

   --      Total production target for FY 2020 between 75,000 and 80,000 GEOs 

Chairman's statement

I am very pleased to report on another year of excellent performance for Anglo Asian. We continue to enjoy higher precious metal prices and the Company increased both its turnover and profits in 2019 with production broadly similar to 2018. The Company is now debt free having repaid the last instalment of its bank debt in February 2020 and has a robust balance sheet. We continue to reward shareholders from our reliable cash flow and I am delighted to declare a final dividend for the year ended 31 December 2019 of US 4.5 cents per share, payable on 30 July 2020, giving a total dividend of US 8.0 cents for 2019.

Our geological exploration programme made very good progress in the year. We announced two new significant copper and gold discoveries at Avshancli and Gilar. The mineral reserves and life of our existing mines are being extended and several promising new mineral occurrences are under investigation. We are proceeding at pace to classify our exploration targets and new discoveries as mineral resources and reserves with the aim of starting their commercial exploitation as soon as possible.

The COVID-19 health emergency has necessarily raised concerns about our current trading. The Government of Azerbaijan acted swiftly and imposed many restrictions to prevent the spread of the coronavirus. However, whilst the safety of our employees is paramount, we have been able to maintain production and continue to sell our gold dor é and copper concentrate. Our production forecast for 2020 is currently unchanged. Although the future evolution of the COVID-19 health emergency and its final effects are unknown at this time, the Company is well placed to weather the situation and continue to provide returns to its shareholders.

Operational review

A total of 81,399 gold equivalent ounces was produced in 2019, a three per cent. decrease compared to 2018. Copper production increased to 2,210 tonnes compared to 1,645 tonnes in 2018. Gold production was 70,098 ounces compared to 72,798 ounces in 2018 which was a four per cent. decrease. Silver production in 2019 was 159,356 ounces, a decrease of 24 per cent. compared to 2018.

Gold production was lower by 2,700 ounces due to lower production of gold within gold dor é of 1,465 ounces and lower gold within copper concentrate of 1,235 ounces. The lower gold production was due to the lower gold grade of ore processed by both the agitation leaching and flotation plants. Copper production increased due to a full year of independent operation of the flotation plant.

The Company has done much to improve the efficiency and safety of the Gedabek site during the previous few years. This has included major enhancements such as the construction of an electrical sub-station and connection of the site to the national power grid and the construction of a water treatment plant. The site is now well developed but the Company continues to make improvements wherever possible. New equipment including a reverse circulation drill rig and four excavators were deployed during 2019 and an on-site vehicle repair facility constructed. The gold room was also refurbished and new equipment installed.

Our tailings dam was inspected in June 2019 by Knight Pi é sold, a leading environmental engineering company. Knight Pi é sold reported that the dam had been properly constructed and showed no signs of instability or seepage. Various recommendations were made by Knight Pi é sold, which have now been implemented. The dam wall is being raised this year by six metres to increase the capacity of the dam by 1.4 million cubic metres. This will provide enough storage capacity for the next two years and will be the final raise of the wall. The Company is looking at alternative sites to build another dam and alternative treatment options for its tailings.

Financial results and dividend

Our financial performance in 2019 was again exceptional with revenues increasing by $1.7 million to $92.1 million and profit after tax by $3.0 million to $19.3 million. Increased gold prices more than offset the marginally lower production. Gold bullion was sold at an average price of $1,410 per ounce in 2019 compared to $1,265 in 2018. Revenues continued to be subject to an effective royalty of 12.75 per cent. in 2019. We anticipate this effective royalty rate will continue until at least 2023 and further details are in the financial review below. The all-in sustaining cost ("AISC") per ounce of gold produced increased in the year to $ 591 from $541 in 2018. This was due to a full year's operation of the flotation plant and increased mining from the Gedabek open pit. The Company's AISC remains amongst the lowest quartile in the industry.

The Group's financial position continued to strengthen in 2019. Cash from operations including cash in transit was $42.9 million and free cash flow was $25.5 million. The final instalment of its bank debt was repaid in February 2020. The Company had over $50 million of bank debt in 2015 and it was therefore a significant milestone to become debt free in early 2020. The Company has agreed terms for a $15 million standby credit facility as a precautionary measure in light of the uncertainty caused by the COVID-19 health emergency.

The Company is committed to delivering returns to shareholders by dividends and has a target of distributing approximately 25 per cent. of free cash flow to its shareholders. I am therefore delighted to announce a final dividend for the year ended 31 December 2019 of US 4.5 cents per share giving a total dividend for 2019 of US 8.0 cents per share.

Mineral resources and geological exploration

Current mineral resource and ore reserves for the Company's three mines at Gedabek, together with recent near-mine exploration work, provide confidence of a combined mine life of Anglo Asian's existing mines to at least 2024. It is the Company's intention to produce new JORC resource and reserves statements for its existing mines during the course of 2020, which is likely to further extend the mine life. This work is ongoing with completion expected during quarter three 2020.

The Company's geological exploration programme continued throughout 2019 with considerable success. Work on investigating the targets identified in 2018 by the aerial ZTEM survey continued during the year. We were delighted to announce the discovery of two new mineral occurrences "Avshancli" and "Gilar" and positive exploration results were obtained in the vicinity of our existing mines. Mineralisation remains open both down dip and to the east of the Gedabek open pit and copper mineralisation was discovered in the vicinity of the Ugur open pit. We also had success at the Gosha contract area which has historically been under explored. Mineralisation at depth was discovered beneath an existing adit of the existing Gosha mine and several new polymetallic targets were identified. WorldView-3 satellite remote sensing image collection took place over Ordubad and the area was visited by geologists from the Natural History Museum of London. Their work suggests that the geology at Ordubad is favourable for porphyry formation. A revised geological map of the contract area is under preparation using all available geological data. A targeted drill programme will then be planned to

produce data for resource estimation.

COVID-19 health emergency

T he Government of Azerbaijan (the "Government") implemented various strict restrictions starting from early March 2020 to contain the spread of the coronavirus. All international land borders were closed to passengers (but not to freight) and all scheduled air flights in and out of the country together with domestic flights were suspended. Domestic travel around the country and the movement of people were also severely curtailed.

The Government suspended the operation of many of Azerbaijan's industries but metallurgical companies were not required to close. Gedabek continues to operate and our office in Baku remains open. Gedabek is fortuitously in a fairly isolated location and most of its operations do not require the close gathering of many people. No cases of COVID-19 have so far occurred in Gedebek. The health of our staff is paramount and many measures have been taken to ensure their safety including carrying out an extensive education programme and implementing many hygiene measures. Operating during the COVID-19 health emergency has not added significantly to our costs.

Gold doré is usually shipped to Switzerland by scheduled air flights which have been temporarily suspended. However, the Company continues to ship gold doré by chartered aircraft. The refineries in Switzerland were temporarily closed in March and early April but have since reopened with initially limited operations.

Annual General Meeting for 2020

Due to the UK Government's COVID-19 "Stay Alert" measures which prohibits amongst other things, public gatherings of more than two people, the annual general meeting for 2020 is being convened as a "closed meeting" with only the necessary quorum of two members. Other shareholders will not be allowed to attend the meeting on the grounds of safety.

The directors have very reluctantly taken this measure as previous annual general meetings have been a valuable forum for directors to meet with shareholders. To ensure shareholders can still ask directors questions about the Company, shareholders will be able to submit questions to the board prior to the annual general meeting via the Company's web site. The Company will publish all relevant questions together with the Company's response as soon as practical following the annual general meeting.

Shareholders are strongly encouraged to still vote by proxy. However, shareholders should ensure they appoint the Chairman of the meeting as their proxy as other individuals will not be allowed to attend the meeting.

Outlook

The Company achieved considerable success in 2019 but the COVID-19 health emergency has made the short-term outlook uncertain. However, Anglo Asian is now financially robust and well placed to weather the challenges of COVID-19. The Company's main priority during this period is to protect the health and safety of its staff whilst maintaining normal operations wherever possible.

The Company has over 1,000 square kilometers of land within its contract areas. As set out above and elsewhere in this results announcement, the Company has a comprehensive exploration programme underway to extensively explore this land for new deposits. This programme is yielding results with the identification of several major targets at Gedabek and Gosha and the new mineral occurrences at Avshancli and Gilar. We are also extending the mineral reserves at our existing mines. We still regard Ordubad as an untapped value opportunity and work there has been promising. The Company will also consider any suitable opportunities outside Azerbaijan which it believes can be made commercially successful.

We have set a production target of 75,000 to 80,000 gold equivalent ounces for 2020, which is a small decrease from 2019. This includes up to 67,000 ounces of gold and between 2,200 and 2,400 tonnes of copper. We are currently still on track to achieve this production target and I look forward to updating shareholders with our progress in the coming months. At current metal prices achieving our production guidance is expected to result in a turnover in excess of $100 million.

I would like to conclude by saying that Anglo Asian accomplished much in 2019. We continue to look to the future, beyond the abatement of the COVID-19 health emergency, to build on our very solid foundations to develop your Company into a mid-tier gold, copper and silver producer. Despite the current unprecedented times, I continue to look forward to 2020 and beyond with optimism.

Appreciation

I would like to take this opportunity to thank the employees of Anglo Asian, our partners, the Government of Azerbaijan and our advisors for their continued support in these extraordinary times. I also wish to sincerely thank the shareholders for their continued investment and support in Anglo Asian.

I look forward to sharing the successes of 2020 with you.

Khosrow Zamani

Non-executive chairman

12 May 2020

Dividend

A final dividend of US$0.045 per share will be paid gross in respect of the year ended 31 December 2019 to shareholders on 30 July 2020 that are on the shareholders record at the record date of 3 July 2020 subject to approval of the shareholders at the Company's Annual General Meeting on 23 June 2020. The shares will go ex-dividend on 2 July 2020. All dividends will be paid gross and in cash. A scrip dividend or any other dividend reinvestment plan will not be offered by the Company.

The dividend will be payable in pounds sterling. The dividend will be converted to pounds sterling using the average of the sterling closing mid-price using the exchange rate published by the Bank of England at 4pm each day from the 6 to 10 July 2020.

Corporate governance and Section 172 (1) Statement

A statement of the Company's compliance with the ten principles of corporate governance in the Quoted Companies Alliance Corporate Governance Code ('QCA Code') will be included in the Company's annual report and accounts for 2019.

The Company's Section 172 (1) Statement is included within the strategic report below.

Market Abuse (MAR) Disclosure

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

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

 
 Reza Vaziri        Anglo Asian Mining plc       Tel: +994 12 596 3350 
 Bill Morgan        Anglo Asian Mining plc       Tel: +994 502 910 400 
                   ---------------------------  ---------------------- 
 Stephen Westhead   Anglo Asian Mining plc       Tel: +994 502 916 894 
                   ---------------------------  ---------------------- 
 Ewan Leggat        SP Angel Corporate Finance   Tel: +44 (0) 20 3470 
                     LLP                          0470 
                     Nominated Adviser and 
                     Broker 
                   ---------------------------  ---------------------- 
 Soltan Tagiev      SP Angel Corporate Finance   Tel + 44 (0) 20 3470 
                     LLP                          0470 
                   ---------------------------  ---------------------- 
 Camilla Horsfall   Blytheweigh Financial        Tel: +44 (0) 20 7138 
                                                  3224 
                   ---------------------------  ---------------------- 
 Megan Ray          Blytheweigh Financial        Tel: +44 (0) 20 7138 
                                                  3224 
                   ---------------------------  ---------------------- 
 

Competent Person Statement

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

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

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

Strategic report

Principal activities

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

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

Overview of 2019 and 2020 production target

In 2019, the Company continued its strategy to increase shareholder value by progressing the development of Anglo Asian into a mid-tier gold, copper and silver miner. The key pillars of the strategy are as follows:

   --    Formalise mineral resources and ore reserves for all existing mines 

-- Identify further resources and reserves in proximity to its existing mines which can be brought into production quickly and efficiently in the short to medium term to increase the annual level of production

-- Increase its production profile by identifying further resources and reserves in proximity to its existing mines

-- Pursue a comprehensive geological exploration programme of all of the accessible land at its contract areas for new deposits with the potential to become new mines

   --    Ramp-up exploration at Ordubad which is an untapped value opportunity 

In 2019, the publication of resource and reserve statements in accordance with the JORC Code (2012) were completed for all the Company's mines. The Company's three-year geological exploration programme, which commenced in 2018, is now starting to yield very positive results with many new targets and potential deposits identified. The exploration activities at Ordubad have also increased significantly, with approximately $1.2 million spent on exploration in 2019.

The Group has a production target for the year to 31 December 2020 of 65,000 ounces to 67,000 ounces of gold and 2,200 tonnes to 2,400 tonnes of copper. The total production target for the year to 31 December 2020 expressed as gold equivalent ounces ("GEOs") is between 75,000 GEOs and 80,000 GEOs, compared to total production for the year to 31 December 2019 of 81,399 GEOs. Silver and copper production were converted into GEOs using the following budget metal prices:

 
                              Price of metal          Gold equivalent ounces 
                                                             of metal 
  Metal       Unit            Actual   Budget 2020     31 December     Budget 
                                                              2019 
                         31 December                        Ounces       2020 
                                2019 
                                   $                                   Ounces 
                                                 $ 
          -----------  -------------                --------------  --------- 
 Gold      per ounce        1,517.00      1,400.00           1.000      1.000 
          -----------  -------------  ------------  --------------  --------- 
 Silver    per ounce           17.85         17.00           0.012      0.011 
          -----------  -------------  ------------  --------------  --------- 
 Copper    per tonne        6,174.00      5,800.00           4.070      3.851 
          -----------  -------------  ------------  --------------  --------- 
 

Gedabek

Introduction

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

Gold was first poured from ore mined from the Gedabek open pit and processed by heap leaching in May 2009, with production commencing fully in September 2009. Copper and precious metal concentrate production began in 2010 when the Sulphidisation, Acidification, Recycling and Thickening (SART) plant was commissioned. The Group's agitation leaching plant commenced production in 2013 and its flotation plant in 2015.

Underground extraction of ore at Gedabek started in June 2015 when the Gadir mine was opened. During 2017, the Group brought Ugur, a newly-discovered gold deposit three kilometres north-west of its processing facilities, into production as an open pit mine. In July 2018, a second crusher line was added to the flotation plant to enable independent operation and processing by the agitation leaching plant and the flotation plant.

Mineral resources and ore reserves

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

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

 
 Gold (and Copper) Mineral Resources (cut-off grade >= 0.3 g/t gold) 
                            Tonnage          In situ grades                Contained metal 
                                        Gold        Copper   Silver      Gold    Copper   Silver 
                                       grade         grade    grade 
 Mineral Resources             (Mt)    (g/t)   (per cent.)    (g/t)     (koz)      (kt)    (koz) 
                           --------  -------  ------------  -------  --------  --------  ------- 
 Measured                      18.0      0.9           0.2      8.3       532      38.0    4,800 
                           --------  -------  ------------  -------  --------  --------  ------- 
 Indicated                     11.1      0.7           0.1      5.6       264      15.7    2,011 
                           --------  -------  ------------  -------  --------  --------  ------- 
 Measured and Indicated        29.1      0.9           0.2      7.3       796      53.7    6,811 
                           --------  -------  ------------  -------  --------  --------  ------- 
 Inferred                       8.5      0.7           0.1      5.0       189       9.7    1,361 
                           --------  -------  ------------  -------  --------  --------  ------- 
 Total                         37.6      0.8           0.2      6.8       986      63.4    8,172 
-------------------------  --------  -------  ------------  -------  --------  --------  ------- 
 Some of the totals in the above table do not sum due to rounding 
--------------------------------------------------------------------------------------- 
 Copper Mineral Resource (Additional to Gold Mineral Resource) (cut-off 
  grade copper >=0.3% and gold <0.3 g/t) 
                            Tonnage          In situ grades                Contained metal 
                             (Mt) 
                           --------  ------------------------------  --------------------------- 
 Mineral Resources                      Gold        Copper   Silver      Gold    Copper   Silver 
                                       grade         grade    grade 
                           -------- 
                                       (g/t)   (per cent.)    (g/t)     (koz)      (kt)    (koz) 
                           --------  -------  ------------  -------  --------  --------  ------- 
 Measured                       5.3      0.1           0.5      2.1        21      26.3      356 
                           --------  -------  ------------  -------  --------  --------  ------- 
 Indicated                      0.9      0.1           0.5      1.6         3       4.4       48 
                           --------  -------  ------------  -------  --------  --------  ------- 
 Measured and Indicated         6.2      0.1           0.5      2.0        24      30.7      404 
                           --------  -------  ------------  -------  --------  --------  ------- 
 Inferred                       0.5      0.1           0.4      1.5         1       1.9       23 
                           --------  -------  ------------  -------  --------  --------  ------- 
 Total                          6.7      0.1           0.5      2.0        25      32.6      426 
-------------------------  --------  -------  ------------  -------  --------  --------  ------- 
 
 

Some of the totals in the above table do not sum due to rounding

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

 
                        Tonnage          In situ grades               Contained metal 
                           (Mt) 
 Ore reserves                       Gold        Copper   Silver    Gold   Copper   Silver 
                                   grade         grade    grade 
                                   (g/t)   (per cent.)    (g/t)   (koz)     (kt)    (koz) 
                                 -------  ------------  -------  ------  -------  ------- 
 Proved                    10.9     0.89          0.29     8.83     311     31.9    3,084 
                       --------  -------  ------------  -------  ------  -------  ------- 
 Probable                   1.2     0.82          0.34     9.52      32      4.1      373 
                       --------  -------  ------------  -------  ------  -------  ------- 
 Proved and Probable       12.1     0.88          0.30     8.90     343     36.0    3,457 
---------------------  --------  -------  ------------  -------  ------  -------  ------- 
 

Some of the totals in the above table do not sum due to rounding

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

The latest JORC (2012) mineral resources and ore reserves statements for the Ugur deposit were completed in 2017. Table 3 shows the Ugur open pit mineral resources estimate at 1 August 2017 and Table 4 shows the Ugur open pit ore reserves estimate at 1 August 2017.

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

 
 Mineral Resources (cut-off grade >= 0.2 g/t gold) 
 Mineral resources         Tonnage        In situ grades         Contained metal 
                              (Mt) 
                                     Gold grade   Silver grade      Gold   Silver 
                                          (g/t)          (g/t)     (koz)    (koz) 
                                    -----------  -------------  --------  ------- 
 Measured                     4.12          1.2            6.3       164      841 
                          --------  -----------  -------------  --------  ------- 
 Indicated                    0.34          0.8            3.9         8        4 
                          --------  -----------  -------------  --------  ------- 
 Measured and Indicated       4.46          1.2            6.2       172      884 
                          --------  -----------  -------------  --------  ------- 
 Inferred                     2.50          0.3            2.1        27      165 
                          --------  -----------  -------------  --------  ------- 
 Total                        6.96          0.9            4.7       199    1,049 
------------------------  --------  -----------  -------------  --------  ------- 
 

Some of the totals in the above table do not sum due to rounding

Table 4 - Ugur open pit ore reserves estimate at 1 August 201 7

 
                        Tonnage     In situ grades       Contained metal 
                           (Mt) 
 Ore Reserves                     Gold grade   Silver      Gold    Silver 
                                                grade 
                                       (g/t)    (g/t)     (koz)     (koz) 
                                 -----------  -------  --------  -------- 
 Proved                    3.37          1.3      7.2       142       779 
                       --------  -----------  -------  --------  -------- 
 Probable                  0.22          0.8      4.1         5        29 
                       --------  -----------  -------  --------  -------- 
 Proved and Probable       3.59          1.3      7.0       147       808 
---------------------  --------  -----------  -------  --------  -------- 
 

Some of the totals in the above table do not sum due to rounding

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

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

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

 
 Mineral Resources (cut-off grade >= 0.5 g/t gold) 
 Mineral Resources    Tonnage       Gold           Silver           Copper              Zinc 
                         (kt) 
-------------------  --------  --------------  --------------  ----------------  ----------------- 
                                (g/t)   (koz)   (g/t)   (koz)      (per     (t)      (per      (t) 
                                                                 cent.)            cent.) 
-------------------  --------  ------  ------  ------  ------  --------  ------  --------  ------- 
 Measured                 540    3.70      64   17.49     304      0.29   1,566      1.01    5,454 
                     --------  ------  ------  ------  ------  --------  ------  --------  ------- 
 Indicated              1,235    2.04      81   10.89     432      0.14   1,729      0.73    9,016 
                     --------  ------  ------  ------  ------  --------  ------  --------  ------- 
 Measured and 
  indicated             1,775    2.54     145   12.90     736      0.21   3,295      0.84   14,470 
                     --------  ------  ------  ------  ------  --------  ------  --------  ------- 
 Inferred                 571    1.48      27    5.68     104      0.10     571      0.52    2,972 
                     --------  ------  ------  ------  ------  --------  ------  --------  ------- 
 Total                  2,347    2.29     172   11.14     840      0.19   3,866      0.78   17,442 
-------------------  --------  ------  ------  ------  ------  --------  ------  --------  ------- 
 

Some of the totals in the above table do not sum due to rounding

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

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

Some of the totals in the above table do not sum due to rounding

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

Mining operations

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

Production commenced from the Ugur open pit mine in September 2017. To enable production, a 4.6 kilometre road was constructed between the mine and the Company's processing facilities. All necessary surface infrastructure, including geology, medical and HSE offices, hygiene facilities, a mechanical workshop, lubricants and spares stores, a weighbridge and a diesel store was also constructed at the mine site.

Ore is also mined from the Gadir underground mine, the portal of which is situated approximately one kilometre from the Gedabek open pit. Table 7 shows the ore mined in the year ended 31 December 2019 from all the Company's mines at Gedabek and Gosha.

Table 7 - Ore mined at Gedabek from all mines (including Gosha) for the year ended 31 December 2019

 
                            Total ore mined 
                             (12 months to 
                           31 December 2019) 
                                        Average 
                        Ore mined    gold grade 
 Mine                    (tonnes)         (g/t) 
                       ----------  ------------ 
 Gedabek open pit       1,475,278          0.73 
 Ugur - open pit        1,283,437          1.24 
 Gadir - underground      147,316          2.73 
 Gosha - underground        7,235          2.81 
                       ----------  ------------ 
 Total                  2,913,266          1.06 
=====================  ==========  ============ 
 

Processing operations

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

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

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

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

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

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

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

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

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

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

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

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

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

Production and sales

For the year ended 31 December 2019, total gold production as doré bars and as a constituent of the copper and precious metal concentrate totalled 70,098 ounces, which was a decrease of 2,700 ounces in comparison to the production of 72,798 ounces for the year ended 31 December 2018.

Table 8 summarises the amount of ore and its gold grade processed by leaching at Gedabek for the year ended 31 December 2019.

Table 8 - Ore and its gold grade processed by leaching at Gedabek for the year ended 31 December 2019

 
                           Ore processed (tonnes)              Gold grade of ore processed 
 Quarter ended                                                            (g/t) 
                    ------------------------------------  ------------------------------------ 
                     Heap leach   Heap leach   Agitation   Heap leach   Heap leach   Agitation 
                         pad          pad       leaching       pad          pad       leaching 
                      (crushed     (ROM ore)     plant      (crushed     (ROM ore)     plant 
                        ore)                                  ore) 
                    -----------  -----------  ----------  -----------  -----------  ---------- 
 31 March 2019          127,990      133,194     171,211         0.80         0.51        2.50 
 30 June 2019           152,173      286,163     176,602         0.90         0.49        2.40 
 30 September 
  2019                  148,269      261,414     192,097         0.93         0.46        2.25 
 31 December 2019        98,280      288,583     181,710         0.86         0.49        2.44 
                    -----------  -----------  ----------  -----------  -----------  ---------- 
 Total for the 
  year                  526,712      969,354     721,620         0.88         0.49        2.40 
                    ===========  ===========  ==========  ===========  ===========  ========== 
 

Table 9 summarises the amount of ore and its gold, silver and copper content processed by flotation for the year ended 31 December 2019.

Table 9 - Ore and its gold, silver and copper content processed by flotation for the year ended 31 December 2019

 
 Quarter ended       Ore processed   Gold content   Silver content   Copper content 
                       (tonnes)        (ounces)        (ounces)         (tonnes) 
                    --------------  -------------  ---------------  --------------- 
 31 March 2019             127,204          3,498           44,810              633 
 30 June 2019              131,162          2,412           27,288              616 
 30 September 
  2019                     127,761          2,887           28,586              703 
 31 December 2019          121,067          3,797           51,139              790 
                    --------------  -------------  ---------------  --------------- 
 Total for the 
  year                     507,194         12,594          151,823            2,742 
                    ==============  =============  ===============  =============== 
 

Table 10 summarises the gold and silver bullion produced from doré bars and sales of gold bullion for the year ended 31 December 2019.

Table 10 - Gold and silver bullion produced from doré bars and sales of gold bullion for the year ended 31 December 2019

 
Quarter ended   Gold produced*     Silver     Gold Sales**  Gold sales 
                   (ounces)       produced*     (ounces)       price 
                                  (ounces)                   ($/ounce) 
31 March 2019           15,547        6,634         13,122       1,306 
30 June 2019            16,073        4,773         13,467       1,332 
30 September 
 2019                   16,619        4,420         14,894       1,513 
31 December 
 2019                   15,912        3,880         12,509       1,481 
                --------------  -----------  -------------  ---------- 
Total for the 
 year                   64,151       19,707         53,992       1,410 
                ==============  ===========  =============  ========== 
 

*including Government of Azerbaijan's share.

** excluding Government of Azerbaijan's share.

Table 11 summarises the total copper, gold and silver produced as concentrate by both SART and flotation processing for the year ended 31 December 2019.

Table 11 - Total copper, gold and silver produced as concentrate by both SART and flotation processing for the year ended 31 December 2019

 
                      Copper (tonnes)             Gold (ounces)               Silver (ounces) 
                 -------------------------  -------------------------  ----------------------------- 
 Quarter ended    SART   Flotation   Total   SART   Flotation   Total     SART   Flotation     Total 
                 -----  ----------  ------  -----  ----------  ------  -------  ----------  -------- 
 31 March 2019      63         450     513     11       1,687   1,698   16,201      28,461    44,662 
 30 June 2019       65         383     448      8       1,068   1,076   12,794      15,491    28,285 
 30 September 
  2019              70         450     520     10       1,168   1,178   11,754     `17,142    28,896 
 31 December 
  2019             113         616     729     16       1,979   1,995   11,159      26,647    37,806 
                 -----  ----------  ------  -----  ----------  ------  -------  ----------  -------- 
 Total for the 
  year             311       1,899   2,210     45       5,902   5,947   51,908      87,741   139,649 
===============  =====  ==========  ======  =====  ==========  ======  =======  ==========  ======== 
 

Table 12 summarises the total copper concentrate (including gold and silver) production and sales from both SART and flotation processing for the year ended 31 December 2019.

Table 12 - Total copper concentrate (including gold and silver) production and sales from both SART and flotation processing for the year ended 31 December 2019

 
                  Concentrate     Copper       Gold       Silver     Concentrate   Concentrate 
 Quarter ended     production*    content*    content*    content*      sales        sales** 
                     (dmt)       (tonnes)    (ounces)    (ounces)       (dmt)        ($000) 
                 -------------  ----------              ----------                ------------ 
 31 March 2019           3,013         513       1,698      44,662           275           625 
 30 June 2019            2,395         448       1,076      28,285         4,030         6,069 
 30 September 
  2019                   2,947         520       1,178      28,896         2,246         3,189 
 31 December 
  2019                   3,593         729       1,995      37,806         3,730         6,770 
                 -------------  ----------  ----------  ----------  ------------  ------------ 
 Total for the 
  year                  11,948       2,210       5,947     139,649        10,281        16,653 
===============  =============  ==========  ==========  ==========  ============  ============ 
 

*including the Government of Azerbaijan's share.

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

Infrastructure

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

Water management

The Gedabek site has its own water treatment plant which was constructed in 2017 and which uses the latest reverse osmosis technology. In the last few years, Gedabek village has experienced water shortages in the summer and this plant reduces to the absolute minimum the consumption of fresh water required by the Company.

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

Tailings (waste) storage

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

The current capacity of the tailings dam is 4.3 million cubic metres. There are two pipelines from the Company's processing facilities to the tailings dam to increase capacity and provide redundancy.

The tailings dam was inspected in early June 2019 by Knight Pi é sold ("KP"), a leading environmental engineering company. KP reported that the dam had been properly constructed, showed no visible signs of instability and that there were no signs of seepage. Various minor recommendations, including moving the location of the tailings discharge pipes to better spread sediment within the dam, were made to ensure that the dam operates to best practice. These have now been implemented.

Health, safety and environmental

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

During 2019, there were 21 reportable safety incidents (2018: 44), of which ten involved injuries to personnel. Three of these cases were minor injuries, but seven (2018: four) were lost time incidents (LTI), where the casualty had to take time off work. A comprehensive HSE training schedule is being implemented in 2020.

Gosha

The Gosha contract area is 300 square kilometres in size and is located in western Azerbaijan, 50 kilometres north-west of Gedabek. Gosha is currently the location of a small, high grade, underground gold mine. Ore mined at Gosha is transported by road to Gedabek for processing.

A total of 7,235 tonnes of ore of average gold grade 2.81 grammes per tonne were mined at Gosha in the year ended 31 December 2019.

The Company carried out considerable geological exploration work at Gosha in 2019, details of which are set out in the report on geological exploration below.

Ordubad

The 462 square kilometre Ordubad contract area is located in Nakhchivan, south-west Azerbaijan and contains numerous targets. The Company carried out considerable geological exploration work at Ordubad in 2019, details of which are set out in the report on geological exploration below.

Geological exploration

Overview

The Group's geological exploration programme in 2019 was the second year of a rolling three-year exploration plan. The programme was designed to both determine the further mineralisation potential of the Group's existing mines and identify new areas of mineralisation which can be brought into the Group's resource and reserves pipeline.

Summary of exploration results

The Group's exploration programme yielded a number of very significant results during the year:

-- It was demonstrated that mineralisation remains open both down dip and to the east at the Gedabek open pit

-- Further mineable extensions both laterally and down dip were identified at the Gadir underground mine

   --    The existence of copper mineralisation in the vicinity of the Ugur mine was identified 

-- 31 targets were detected by the aerial ZTEM survey carried out in 2018 which are now being investigated including drilling at Duzyurd

   --    Two new mineral occurrences were discovered at Gedabek - " Avshancli" and "Gilar" 

-- Mineralisation at depth was confirmed in an area ("Zone 5") below an existing adit of the Gosha underground mine

   --    Several new polymetallic targets were identified at Gosha. 

-- Drilling at a number of existing and new targets at Ordubad returned very good gold and copper grades

-- Preliminary results from the Natural History Museum of London's whole rock analyses of samples from Ordubad suggest the presence of igneous rocks favourable for porphyry development

Gedabek contract area ("Gedabek")

Gedabek open pit and Duzyurd

14 diamond drill holes were completed at the Gedabek open pit area from surface for a total length of 2,425 metres. 49 reverse circulation drill holes with a total length of 2,772 metres were also completed. The drill holes were to provide confidence in the continuity of copper mineralisation and their locations were focused on the north-western and south-eastern margins of the open pit.

Duzyurd was identified as a possible porphyry target by the ZTEM survey. Its centre lies approximately 2.4 kilometres south-east of the Gedabek open pit. One drill hole was drilled at Duzyurd with a total length of 727 metres. Both the drill hole at Duzyurd and one Gedabek open pit surface drill hole were designed to explore the geology at depth.

Analysis of the drilling results confirms the two distinct types of mineralisation that were established during the 2018 resource estimation process, which are:

   --    Gold mineralisation with variable copper content; and 
   --    Copper mineralisation with no gold content. 

The drilling results demonstrate that both copper and gold mineralisation remains open, both down dip and to the east along strike. The results will be utilised in the next Gedabek open pit mineral resource update. Notable diamond drilling intersections include:

 
                     Intersection                      Weighted average grade 
               Depth      Depth   Downhole    Gold   Silver        Copper          Zinc 
                from         to     length 
  Drill     (metres)   (metres)   (metres)   (g/t)    (g/t)   (per cent.)   (per cent.) 
   hole 
   i.d. 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 19GBD04       85.00      86.00       1.00    1.17    22.00          2.07          0.10 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
               97.00      98.00       1.00    1.94    28.00          1.19          0.20 
                                      0000       . 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 19GBD07       58.00      67.00       9.00    5.07    63.53          0.26          0.63 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 19GBD08      147.90     152.80       4.90   11.05    76.08          0.27         `0.77 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
              154.50     155.50       1.00    2.29    51.88          2.25          4.51 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 

An additional diamond drill hole and a reverse circulation drill hole were drilled from Pit 4 for geotechnical assessment for construction of the ventilation shaft to allow for continued tunnelling below the open pit and for exploration drilling to take place.

Tunnelling from the Gadir underground mine to the target mineralisation beneath the Gedabek open pit continued throughout the year. The ventilation shaft was constructed and 1,669 metres of tunnel were developed.

Gadir underground mine

The following diamond drill holes were completed:

-- 8 deep exploration drill holes from the surface with a total length of 3,809 metres targeting lateral extensions of the deposit; and

-- 80 underground exploration drill holes of either HQ (63.5 millimetre diameter) or NQ (47.6 millimetre diameter) with a total length of 12,447 metres which targeted previously untested areas; and

-- 153 shorter underground drill holes producing BQ-sized (36.5 millimetre) core designed to increase confidence around sites for stoping.

Surface drill holes showing significant grades were as follows:

 
                     Intersection                      Weighted average grade 
             Depth      Depth     Downhole   Gold    Silver     Copper         Zinc 
              from        to       length 
  Drill     (metres)   (metres)   (metres)   (g/t)   (g/t)    (per cent.)   (per cent.) 
   hole 
   i.d. 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 19GDD02      363.00     364.00       1.00    5.86    12.00          0.09          0.02 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 19GDD08      427.10     428.10       1.00   10.05     5.00          0.02          0.02 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
              437.10     438.10       1.00    2.81     5.00          0.61          0.02 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
              447.10     449.10       2.00   10.78     8.50          0.05          0.02 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 19GDD09      438.50     439.50       1.00    2.02     2.88          0.39          0.10 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 

The drilling has resulted in defining ore that extends the current Gadir mineralisation footprint both laterally and down dip. These positive results demonstrate the expansion potential of the Gadir mine. In-house geological wireframe modelling of the drill results commenced in the 2019 which will be utilised to update the geological model of Gadir.

A surface Induced Polarisation ("IP") geophysical survey over the Gadir deposit using an advanced wireless system was completed in the second half of the year. This technique involves transmitting an electrical current into the sub-surface which is then monitored by further electrodes. The results have been interpreted and are currently being analysed in conjunction with drill hole and other geological data. In-house preliminary interpretation of the IP data has established that the Gadir type geological system shows continuation in a south-westerly direction.

Ugur regional

11 surface drill holes were completed around the western, south-western and eastern flanks of the Ugur open pit, with a total length of 4,388 metres targeting down dip extensions. Two of the drill holes were for geotechnical purposes. Several drill holes in the eastern area (19UGDD03 and 19UGDD06) returned particularly positive results for copper, silver and zinc. Notable intersections, including 25 metres at 1 .9 per cent. copper, were as follows:

 
                      Intersection                      Weighted average grade 
              Depth      Depth     Downhole   Gold    Silver     Copper         Zinc 
               from        to       length 
   Drill     (metres)   (metres)   (metres)   (g/t)   (g/t)    (per cent.)   (per cent.) 
    hole 
    i.d. 
            ---------  ---------  ---------  ------  -------  ------------  ------------ 
 19UGDD01       79.00      80.00       1.00    0.10    28.00          1.14          0.00 
            ---------  ---------  ---------  ------  -------  ------------  ------------ 
                91.60      92.40       0.80    0.24    38.00          1.46          0.01 
            ---------  ---------  ---------  ------  -------  ------------  ------------ 
 19UGDD03      356.30     357.00       0.70    0.03    48.00          0.01          0.03 
            ---------  ---------  ---------  ------  -------  ------------  ------------ 
 19GED03       761.60     761.90       0.30    0.73   150.00          0.59          7.19 
            ---------  ---------  ---------  ------  -------  ------------  ------------ 
               762.80     764.50       1.70    1.38    99.00          0.59          6.70 
            ---------  ---------  ---------  ------  -------  ------------  ------------ 
 19UGDD06      309.40     334.40      25.00    0.06   124.80          1.93          1.47 
            ---------  ---------  ---------  ------  -------  ------------  ------------ 
               310.40     315.40       5.00    0.04    68.60          2.78          3.87 
            ---------  ---------  ---------  ------  -------  ------------  ------------ 
               321.40     326.40       5.00    0.07   182.20          2.50          0.83 
            ---------  ---------  ---------  ------  -------  ------------  ------------ 
 

ZTEM aerial survey

The aerial ZTEM survey was carried out in the last quarter of 2018. The survey identified 31 favourable targets as follows:

   --    Shallow: 20 targets at 300 metres or less depth; and 
   --    Deep: 5 targets at between 201 to 500 metres; and 
   --    Porphyry: 6 targets at various depths. 

The shallow targets are possible epithermal-porphyry mineralisation deposits. Several of the targets straddle or lie outside of the boundary of the Gedabek contact area. However, under the production sharing agreement, the Group has the right to explore and exploit mineral deposits outside its contract area provided they can be demonstrated to have geological continuity to within the contract area.

Outcrop sampling was carried out in 2019 at those high priority targets selected for evaluation. The targets identified and the outcrop sampling results are as follows:

 
     ZTEM Anomaly          Number           Summary of results           Current Status 
                          of samples 
 Mount Okuzdag    Zs2             36   One sample returned            Outcrop sampling 
                                        copper grade of 0.93           to continue 
                                        per cent. 
---------------  -----  ------------  -----------------------------  --------------------- 
 Agamaly          Zs4             11   One sample returned            Outcrop sampling 
                                        significant gold grades        to continue 
---------------  -----  ------------  -----------------------------  --------------------- 
 Yagublu          Zs9             12   No sample returned             Panning stream 
                                        reportable grade               sediment sampling 
                                                                       planned 
---------------  -----  ------------  -----------------------------  --------------------- 
 Almalytala                       66   One sample returned            Complex integrated 
  Shallow                               significant gold grades        interpretation 
                                                                       planned 
---------------  -----  ------------  -----------------------------  --------------------- 
 Gyzyljadag       Zs8            194   Two sample returned            Complex integrated 
  East                                  significant gold grades        interpretation 
                                                                       planned 
---------------  -----  ------------  -----------------------------  --------------------- 
 Parakend Bugor                  409   47 samples returned            Trench sampling 
                                        significant gold assays        to be carried out 
---------------  -----  ------------  -----------------------------  --------------------- 
 Korogly          Zs15           166   12 Samples returned            Complex integrated 
                                        grades over reportable         data interpretation 
                                        limits                         planned 
---------------  -----  ------------  -----------------------------  --------------------- 
 Soyugbulag                       35   One sample returned            Panning stream 
                                        grade above the reportable     sediment sampling 
                                        limits                         planned 
---------------  -----  ------------  -----------------------------  --------------------- 
 Zehmetkend       Zs18           214   51 samples returned            Trench sampling 
                                        grades above the reportable    to be carried out 
                                        limits with highest 
                                        being 95.4 grammes 
                                        per tonne of gold. 
---------------  -----  ------------  -----------------------------  --------------------- 
 Deyegarabulag    Zd5              4   No sample reported             Panning stream 
                                        returnable grades              sediment sampling 
                                                                       planned 
---------------  -----  ------------  -----------------------------  --------------------- 
 Narzan           Zs20             8   No sample returned             Outcrop sampling 
                                        reportable grade               to continue 
---------------  -----  ------------  -----------------------------  --------------------- 
 Masxit           Zs19           541   110 Samples returned           Trench sampling 
                                        significant grades             to be carried out 
---------------  -----  ------------  -----------------------------  --------------------- 
 Hachagaya        M1              12   Two adjacent samples           Complex integrated 
                                        returned grades above          data interpretation 
                                        the reportable limits          planned 
---------------  -----  ------------  -----------------------------  --------------------- 
 Ertepe East                      59   10 samples returned            Trench sampling 
                                        grades above the reportable    to be carried out 
                                        limits 
---------------  -----  ------------  -----------------------------  --------------------- 
 

Drilling was also carried out at Duzyurd (M6) and the results of the investigation of the target is discussed above along with the Gedabek open pit.

Avshancli district

Avshancli is a mineral district which is 10.5 kilometres north-east of the Gedabek open pit. Avshancli is a gold-copper occurrence comprising three defined areas; Avshancli 1,2 and 3. It was discovered in the second half of the year whilst fieldwork was being conducted over the area. It was not directly identified through the ZTEM survey. However, it lies immediately south of the Zehmetkend and Masxit ZTEM targets and was defined by structural mapping of trends linking ZTEM targets.

A significant amount of exploration work took place in the second half of the year following completion of preliminary field mapping:

   --    466 outcrop samples were collected 
   --    1,732 metres of trenching was carried out 
   --    Nine surface drill holes of 1,732 metres total length were completed 

Of the 466 outcrop samples, 156 returned reportable assay grades with gold grades as high as 4 to 6 grammes per tonne and copper grades as high as 1.5 per cent. These results are significant as they indicate the area could be a potential near-surface mineralised system.

Trenching was carried out over all three Avshancli areas. Two trenches were dug in Avshancli 1 and one each in Avshancli 2 and 3. Notable intersections were as follows:

 
                 Intersection                   Weighted average grade 
                                       Gold   Silver        Copper          Zinc 
 Trench    Metres   Metres   Metres   (g/t)    (g/t)   (per cent.)   (per cent.) 
   i.d. 
          -------  -------  -------  ------  -------  ------------  ------------ 
 AV1TR1      4.00     5.00     1.00    5.27    28.00          0.30          0.02 
          -------  -------  -------  ------  -------  ------------  ------------ 
             5.50    10.00     4.50    4.29     8.33          0.49          0.03 
          -------  -------  -------  ------  -------  ------------  ------------ 
            13.00    14.00     1.00    0.05     5.00          0.44          0.05 
          -------  -------  -------  ------  -------  ------------  ------------ 
            19.00    27.00     8.00    0.05     5.00          0.55          0.11 
          -------  -------  -------  ------  -------  ------------  ------------ 
 

Nine surface drill holes with a total length of 1,732 metres were completed at the Avshancli district to commence the initial drill programme. There was one notable intersection as follows:

 
                      Intersection                      Weighted average grade 
              Depth      Depth     Downhole   Gold    Silver     Copper         Zinc 
               from        to       length 
   Drill     (metres)   (metres)   (metres)   (g/t)   (g/t)    (per cent.)   (per cent.) 
    hole 
    i.d. 
            ---------  ---------  ---------  ------  -------  ------------  ------------ 
 19BFDD05        0.90       2.00       1.10    7.03     5.00          0.45          0.04 
            ---------  ---------  ---------  ------  -------  ------------  ------------ 
 

A ground based magnetic survey covering approximately 0.15 square kilometres was completed over the Avshancli 1 region in October 2019. This was to determine if there was any subsurface magnetic response to help target drilling. The survey utilised a GEM System Overhauser GSM-19 magnetometer. Three key magnetic anomalies were identified which are believed to be associated with alteration zones. This study will enable optimisation of the drilling programme by identifying geological favourable targets. Further use of this technique together with ground based IP geophysics is planned over both Avahancli-2 and -3 during 2020.

Gilar

Gilar is a new mineral occurrence located approximately two kilometres south of Avshancli-1. It was identified during geological fieldwork in the region. It is a quartz vein deposit. Following preliminary field mapping, outcrop sampling and a preliminary drilling programme were carried out.

A total of 72 outcrop sampling assays were taken over the entire area. 35 of these returned gold grades, with 14 samples having elevated gold grades in the range of 3 to 12 grammes per tonne. One sample returned a gold grade of 16.02 grammes per tonne.

Four drill holes with a total length of 692 metres were completed at Gilar in the fourth quarter of the year. Assay results have been returned from all of the drill holes with the following significant intersections.

 
                        Intersection                      Weighted average grade 
                Depth      Depth     Downhole   Gold    Silver     Copper         Zinc 
                 from        to       length 
 Drill-hole    (metres)   (metres)   (metres)   (g/t)   (g/t)    (per cent.)   (per cent.) 
     i.d. 
              ---------  ---------  ---------  ------  -------  ------------  ------------ 
  19GLDD01        13.00      14.00       1.00    0.03     5.00          0.35          0.21 
              ---------  ---------  ---------  ------  -------  ------------  ------------ 
                  23.00      24.40       1.40    5.48     5.00          0.01          0.01 
              ---------  ---------  ---------  ------  -------  ------------  ------------ 
                  28.20      29.40       1.20    0.03    20.00          0.01          0.01 
              ---------  ---------  ---------  ------  -------  ------------  ------------ 
 19GLDD02         21.40      22.10       0.70    0.55     5.00          0.03          0.01 
              ---------  ---------  ---------  ------  -------  ------------  ------------ 
 19GLDD03         16.00      17.00       1.00    0.41     5.00          0.01          0.01 
              ---------  ---------  ---------  ------  -------  ------------  ------------ 
 

WorldView-3 Remote Sensing Project ("WorldView-3")

WorldView-3 remote sensing took place over Gedabek in September 2019 with data and image processing conducted by Exploration Mapping Group Inc. This is the second WorldView satellite reconnaissance carried out by the Company, following the one carried out at Ordubad (see below). The area covered by the survey is in the north-west of Gedabek in the region of the Agamaly, Narzan and Hachagaya ZTEM anomalies. These areas are being targeted to test the satellite capabilities over heavily vegetated terrain, where access is difficult. Follow-up field validation is planned to test the initial interpretation that showed significant amounts of alteration, structural trends and potential areas of mineralisation.

Natural history Museum (London) ("NHM") site visit

Geologists from the NHM visited Gedabek in late November 2019 and worked with the Company's geology team to assess the porphyry potential at Gedabek. Correlation work with the WorldView-3 data also provided information relating to alteration and structural patterns that may relate to buried porphyry systems, above which is the surface expression of the epithermal style gold-copper mineralisation seen. Samples were collected by the visiting team for further analysis at the NHM research facilities in London. Discussions are ongoing with the NHM to assess the potential to further utilise their services to assist with mineral target definition, rock age dating and geochemical interpretation.

Gosha contract area ("Gosha")

The Gosha contract area is underexplored and during the year geological fieldwork was undertaken to increase our understanding of the area. Drilling, trenching and outcrop sampling were all carried out in the near-mine region of Gosha. The results confirm the dominance of gold mineralisation around the vicinity of the Gosha mine and that gold mineralisation exists at depth below an existing adit of the Gosha mine ("Zone 5").

Exploration also took place in the Gosha region at two prospects - "Asrikchay" and "Khatinca".

Near mine exploration and "Zone 5"

Seventeen core drill holes were completed in the year with a total length of 5,700 metres in the vicinity of the Gosha mine. The aim of this drilling was to test the Gosha vein system at depth below and adjacent to the current adit ("Zone 5"). Notable intersections of the drill holes are as follows:

 
                     Intersection                      Weighted average grade 
             Depth      Depth     Downhole   Gold    Silver     Copper         Zinc 
              from        to       length 
  Drill     (metres)   (metres)   (metres)   (g/t)   (g/t)    (per cent.)   (per cent.) 
   hole 
   i.d. 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 GSHDD02      269.15     273.00       3.85    1.05     5.00          0.04          0.00 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
              304.40     306.00       1.60    0.91     5.00          0.01          0.00 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
              312.40     313.00       0.60    0.90     5.00          0.02          0.00 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
              339.00     343.20       4.20    0.88     5.00          0.04          0.00 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
              364.00     368.00       4.00    0.81     5.00          0.04          0.01 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 GSHDD04      187.00     189.00       2.00    0.83     5.00          0.05          0.00 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 GSHDD06      259.80     260.00       0.20    0.77     5.00          0.01          0.07 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
              265.20     265.30       0.10    5.92     5.00          0.14          0.00 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 GSHDD10      125.00     126.00       1.00    1.97     5.00          0.01          0.01 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
              208.80     210.00       1.20   11.86     5.00          0.02          0.00 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 GSHDD11      142.40     142.60       0.20    1.05     5.00          0.06          0.01 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
              149.00     149.30       0.30    1.30     5.00          0.05          0.01 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
              155.30      155.7       0.40    1.24     5.00          0.13          0.01 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
              296.60     297.30       0.70    3.07     5.00          0.04          0.05 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 GSHDD15       52.00      52.20       0.20    1.11     5.00          0.01          0.01 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
               97.00      97.50       0.50    1.29     5.00          0.01          0.01 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
              108.60     108.80       0.20    1.06     5.00          0.02          0.00 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
              110.30     110.60       0.30   10.08     5.00          3.79          0.01 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 GSHDD16       59.60      60.20       0.60    1.44     5.00          0.01          0.01 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
               62.00      63.00       1.00    1.75     5.00          0.03          0.00 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 GSHDD17       68.20      68.50       0.30   10.10     5.00          1.08          0.28 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 GSHDD12      117.00     118.00       1.00    1.68     5.00          0.02          0.00 
           ---------  ---------  ---------  ------  -------  ------------  ------------ 
 

A total of 10 trenches were completed in the Gosha near mine region in 2019 of total length 88 metres. 104 samples were obtained taken at one metre intervals unless geological constraints warranted adjustments in sample length. Significant intersections were as follows:

 
  Trench             Intersection                    Weighted average grades 
   i.d. 
                                              Gold    Silver      Copper       Zinc 
              Metres     Metres     Metres    (g/t)    (g/t)    (per cent.)     (per 
                                                                               cent.) 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
 TR19-01        0.00       0.50       0.50     0.49     5.00           0.02      0.01 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
                0.50       1.00       0.50     1.30     5.00           0.04      0.05 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
                1.00       1.50       0.50     0.55     5.00           0.01      0.00 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
                1.50       2.00       0.50     0.31     5.00           0.01      0.00 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
                2.00       2.50       0.50     0.44     5.00           0.01      0.00 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
                2.50       3.00       0.50     0.37     5.00           0.01      0.01 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
                3.00       3.50       0.50     0.32     5.00           0.01      0.01 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
                3.50       4.00       0.50     0.36     5.00           0.01      0.01 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
                4.00       4.50       0.50     0.30     5.00           0.01      0.01 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
                4.50       5.00       0.50     0.36     5.00           0.01      0.01 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
 TR19-02        0.00       0.50       0.50     0.32     5.00           0.01      0.00 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
                0.50       1.00       0.50     0.81     5.00           0.01      0.00 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
                1.00       1.50       0.50     0.34     5.00           0.01      0.01 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
                3.00       3.50       0.50     0.31     5.00           0.01      0.01 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
 TR19-04        0.00       0.50       0.50     0.37     5.00           0.02      0.01 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
                0.50       1.00       0.50     0.41     5.00           0.03      0.00 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
                1.00       1.50       0.50     0.32     5.00           0.04      0.00 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
 TR19-06        0.50       1.00       0.50     0.34    10.00           0.17      0.01 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
 TR19-10       19.20      19.70       0.50     0.78     5.00           0.01      0.00 
           ---------  ---------  ---------  -------  -------  -------------  -------- 
 

A total of 169 outcrop samples were collected with five samples returning positive grades for both gold and copper as follows:

 
 Sample i.d.               Weighted average grades 
                  Gold   Silver         Copper           Zinc 
                 (g/t)    (g/t)    (per cent.)    (per cent.) 
               -------  -------  -------------  ------------- 
 GSHCHA2-05       0.35     5.00           0.06           0.01 
               -------  -------  -------------  ------------- 
 GSHCHA2-06       0.34     5.00           0.07           0.01 
               -------  -------  -------------  ------------- 
 GSHCHS-04        0.05     5.00           0.01           0.00 
               -------  -------  -------------  ------------- 
 GSHCHS-110       0.53     5.00           0.01           0.03 
               -------  -------  -------------  ------------- 
 GSHCHS-116       0.07     5.00           0.32           0.16 
               -------  -------  -------------  ------------- 
 

Asrikchay

Asrikchay is a recent polymetallic mineralisation discovery within the Gosha contract area. It is approximately seven kilometres north of the existing Gosha underground mine within the Asrikchay valley. No drilling was conducted during the year at Asrikchay, however interpretation of the drilling in the previous year continued. An IP geophysical survey was completed but initial interpretation of the data did not correlate well with the drill results. Further refinement of the data processing algorithms is ongoing to define the locations of mineralisation from drilling and to then expand the target area.

Asrikchay has been divided into two adjacent areas - "QS" and "ASKL". 19 and 8 outcrop samples were obtained during the year from areas QS and ASKL, respectively. Some notable grades were obtained from the QS area as follows:

 
                    Gold grade   Silver grade   Copper grade 
   Sample number         (g/t)          (g/t)    (per cent.) 
 QS02                     2.77          33.50           9.75 
                   -----------  -------------  ------------- 
 QS03                     0.82          19.00           0.19 
                   -----------  -------------  ------------- 
 QS04                     4.13          30.72          10.32 
                   -----------  -------------  ------------- 
 QS14                     0.08          31.97           0.38 
                   -----------  -------------  ------------- 
 QS16                     7.46          99.34           9.26 
                   -----------  -------------  ------------- 
 QS17                     2.52          22.27           0.98 
                   -----------  -------------  ------------- 
 QS18                     4.38          38.77           0.10 
                   -----------  -------------  ------------- 
 QS19                     1.82          35.36           0.54 
                   -----------  -------------  ------------- 
 

A small stream sediment sampling programme was also carried out in the Asrikchay valley and surrounding water courses but none of the samples returned notable grades.

Khatinca

Exploration commenced in the year at Khatinca which is a target one kilometre from the village of Khatyndzhan and approximately four kilometres from the existing Gosha mine. Khatinca has been selected for its favourable geology, which is similar to the Gosha mine and its easy surface conditions for access. 22 outcrop samples were collected in 2019 but none returned notable grades.

Ordubad contract area ("Ordubad")

Shakardara and surrounding area (copper, gold and silver prospects)

Results were returned in the year for all 5,504 litho-geochemical samples obtained during 2018, collected over the Shakardara, Dirnis and Keleki targets. All samples passed QAQC checks and the data are currently being interpreted in-house. 48 element multi-element analysis and gold determination were completed on each sample and show positive results. Study of these results to define anomaly trends with integration of other geological data is ongoing. Based on preliminary interpretation of the geochemical data, two new areas of vein-style mineralisation were identified, namely Aylis and Unus.

Dirnis (copper and silver prospect)

The Dirnis prospect is located approximately 2.5 kilometres west of Dirnis village. It is a copper-silver occurrence and significant grades have previously been returned from malachite veining occurring in areas hosting both "White Rock" and "Green Rock" alteration.

A total of 18 diamond drill holes were completed during the year at Dirnis. Notable intersections of these drill holes are as follows:

 
 Hole I.D.              Intersection                      Weighted average grades 
                Depth       Depth     Downhole     Gold    Silver      Copper       Zinc 
                 From         To        length 
               (metres)    (metres)    (metres)    (g/t)    (g/t)    (per cent.)    (ppm) 
             ----------  ----------  ----------  -------  -------  -------------  ------- 
  DRDD06A         47.00       48.00        1.00     0.03     5.00           0.20       95 
             ----------  ----------  ----------  -------  -------  -------------  ------- 
                  85.00       87.00        2.00   203.89     5.00           0.09      552 
             ----------  ----------  ----------  -------  -------  -------------  ------- 
  DRDD09A          0.00        4.10        4.10    10.61     5.00           0.67      134 
             ----------  ----------  ----------  -------  -------  -------------  ------- 
  DRDD09B          0.00         3.5         3.5     8.76    18.91           2.69       46 
             ----------  ----------  ----------  -------  -------  -------------  ------- 
                   7.50       16.00        8.50     7.23    17.46           1.23      105 
             ----------  ----------  ----------  -------  -------  -------------  ------- 
                  46.00       48.00        2.00     0.03    11.55           0.28      159 
             ----------  ----------  ----------  -------  -------  -------------  ------- 
  DRDD13A         34.00       36.40        2.40     0.03    23.48           1.95      104 
             ----------  ----------  ----------  -------  -------  -------------  ------- 
                  41.40       41.80        0.40     0.03    62.79           4.51       71 
             ----------  ----------  ----------  -------  -------  -------------  ------- 
                  70.50       71.00        0.50     0.03     5.00           0.66       95 
             ----------  ----------  ----------  -------  -------  -------------  ------- 
   DRDD21         25.00       26.00        1.00   126.61     5.00           0.08      421 
             ----------  ----------  ----------  -------  -------  -------------  ------- 
 

Due to the high gold grades of DRDD06A and DRDD21 and holes previously reported, a study is being carried out on the coarseness of the gold mineralisation and the assays are being verified. Sampling pulps for the check assays are planned to be sent with the next batch of QAQC samples to the external independent laboratory used by AIMC.

Keleki (gold prospect)

The Keleki mineral target is located approximately 500 metres north of the village of Keleki and 500 metres east of the village of Unus with easy site access. Geologically, Keleki is similar to the Shakardara deposit and host rocks are various volcanic facies of Lower Eocene age. A total of ten drill holes were completed in the year to assess the depth of the extensions of the gold bearing vein system and to better understand the orientation of the ore body. Due to the very high gold grades returned, further checks of the data are planned. Significant intersections were as follows:

 
 Hole I.D.              Intersection                      Weighted average grades 
                Depth       Depth     Downhole     Gold    Silver      Copper       Zinc 
                 From         To        length 
               (metres)    (metres)    (metres)    (g/t)    (g/t)    (per cent.)    (ppm) 
             ----------  ----------  ----------  -------  -------  -------------  ------- 
   KLDD03         20.00       20.80        0.80   158.80     5.00           0.08      518 
             ----------  ----------  ----------  -------  -------  -------------  ------- 
                  86.50       87.50        1.00    86.06     5.00           0.04      255 
             ----------  ----------  ----------  -------  -------  -------------  ------- 
                 142.50      143.20        0.70   249.17     5.00           0.15      828 
             ----------  ----------  ----------  -------  -------  -------------  ------- 
   KLDD05        106.00      107.00        1.00   139.56     5.00           0.14      602 
             ----------  ----------  ----------  -------  -------  -------------  ------- 
 

Destabashi

Destabashi is a copper prospect in the south-western corner of Ordubad. The Destabashi area hosts lower volcanic units capped by Cretaceous sedimentary rocks. A small-scale surface geochemical sampling campaign was completed during the year. The total area covered was 4.2 square kilometres, spread over two zones. In total, 244 samples were collected, and detailed geological mapping was completed of the sampling area. 82 samples were collected from 'Zone 1' (approximately two kilometres southeast of the village of Khanagha) and 162 samples were obtained from 'Zone 2' (adjacent to the village of Desta). Geochemical results have been received from ALS Minerals "OMAC" laboratory in Ireland and are being assessed for reporting.

Aylis

Aylis is a target recently identified through the Shakardara geochemical programme, which lies approximately 2.5 kilometres north-east of Dirnis and 2 kilometres east of Keleki. Geological mapping of total area four square kilometres was carried out in the year. Trench sampling also commenced at Aylis in late 2019. A total of 48 trenches were dug totalling 327 linear metres until the sampling was stopped due to unfavourable weather conditions. The work will recommence when weather conditions allow. The quartz veins range from 0.4 metres to 1.2 metres in thickness and contain polymetallic mineralisation. Exploration will continue of this epithermal system.

WorldView-3 satellite remote sensing

WorldView-3 satellite image collection took place over Ordubad in the second half of the year. Data were collected over an area of 244 square kilometres. Studies were completed in the final quarter of the year in collaboration with a member of the From Arc Magmas to Ores ('FAMOS') research team of the NHM to corroborate preliminary interpretations of the Worldview-3 imaging and data against field observations.

Natural History Museum of London ("NHM") whole rock analysis study

A field visit took place by geologists from the NHM in late 2018. The results of the study were published separately alongside the results of Q3 2019 exploration report for Ordubad. The potential indicators suggest that the geochemistry of the igneous sites is favourable for porphyry formations.

Detailed reports on Geological exploration

Detailed reports on all exploration activities in 2019 can be found on the Group's web-site at

https://www.angloasianmining.com/operations/exploration-and-development/

Sale of the Group's products

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

Until late 2018, the Group shipped all its gold doré to MKS Finance SA in Switzerland for refining. In late 2018, the Group signed an additional contract with Argor-Heraeus SA, also in Switzerland, for the refining of gold dor é . The Group contracted with a second refiner to ensure refining services are obtained on the best commercial terms. The Group now ships its gold dor é to both refiners. The logistics of transport and sale are well established and gold doré shipped from Gedabek arrives in Switzerland within three to five days. The proceeds of the estimated 90 per cent. of the gold content of the doré can be settled within one to two days of receipt of the doré. The Group, at its discretion, can sell the resulting refined gold bullion to the refiner. The Group experienced very minor delays to its export of gold dor é in 2019 due to delays in obtaining export permission following a reorganisation of the Ministry of Finance of the Government of Azerbaijan. The delays had no significant effect on the operations of the Group and the protocol for gold export was subsequently amended by the Government of Azerbaijan. Since the protocol was amended, no delay in the export of gold dor é has been experienced other than delays due to the temporary suspension of scheduled airflights due to the COVID-19 pandemic.

The Gedabek mine site has good road transportation links and our copper and precious metal concentrate is collected by truck from the Gedabek site by the purchaser. In 2014, the Group commenced selling its copper concentrate produced by SART processing to Industrial Minerals SA, a Swiss-based integrated trading, mining and logistics group under an exclusive three year contract. This contract has been subsequently renewed and expanded to include copper concentrate produced by flotation, in addition to the SART concentrate. The latest renewal of the contract was signed in early 2020 for a period of one year, but the contract will automatically extend unless terminated by either party.

In June 2018, the Group signed a contract with Trafigura Pte. Limited ("Trafigura") for the sale of copper concentrates produced by flotation processing. The contract has no expiry date unless terminated by either party and the first shipment of concentrate was made under the contract in September 2018. In 2019, Trafigura purchased all concentrate produced by flotation and Industrial Minerals SA purchased all concentrate produced by SART processing. The Group experienced minor delays in the shipment of flotation concentrates in the first half of 2019 whilst Trafigura established its logistical procedures. These have now been settled and no delays have subsequently been experienced in the sale of concentrates.

Section 172(1) Statement and stakeholders engagement

Introduction

The board of directors of Anglo Asian Mining PLC (the "Board") consider that they have adhered to the requirements of section 172 of the Companies Act 2006 (the "Act") and have, in good faith, acted in a way that they consider would be most likely to promote the success of the Company for the benefit of its shareholders as a whole. In acting this way, the Board have had regard to and recognise the importance of considering all stakeholders and other matters as set out in section 172(1) (a to f) of the Act in its decision-making.

The Board members are directors of Anglo Asian Mining PLC which is a holding company. The Group carries out its business of mining in Azerbaijan through its wholly owned subsidiaries. Given the nature and size of the Group, the Board consider it reasonable that executive decision making for the entire Group, including its subsidiaries in Azerbaijan, is the responsibility of the Board. The section 172(1) statement has accordingly been prepared for the entire Group.

The new reporting legislation around stakeholder engagement is welcomed by the Board and the commentary and table below sets out the Company's section 172(1) statement. This statement provides details of key stakeholder engagement undertaken by the Board during the year and how this helps the Board to factor in potential impacts on stakeholders in the decision-making process.

General

The Group promotes the highest standards of governance as set out in Corporate Governance in the Group's annual report. The principles of Corporate Governance underpin how the Board conducts itself. The Board is very conscious of the impact that the Group's business and decisions has on its direct stakeholders as well as its societal impact. The Company operates to the highest ethical standards as discussed in Corporate Governance Section of the annual report.

Principal decisions and other key factors in maintaining shareholder value

For the year ended 31 December 2019, the Board consider that the following are examples of the principal decisions that it made in the year:

-- Consideration and agreement of the Group's budget together with the associated production guidance for the year ended 31 December 2019.

-- Consideration of the final dividend payable for the year ended 31 December 2018 and the interim dividend payable for the year ending 31 December 2019.

The Group, like all companies operating in the extractive industries, is required to continually replace and increase its mineral reserves to maintain and improve the sustainability of its business. This concern is a high priority of the Board. To address this priority, a three-year geological exploration campaign of its existing mining concessions was started in 2018 which the Board monitor through regular reports and site visits by directors. The Company is also looking at other opportunities and the Board receive regular updates on progress in this area.

The Board and senior managers of the Company hold in total 44.6 per cent. of the shares of the Company with the remainder held by a wide range of individual and institutional shareholders. The Board are extremely mindful that all shareholders must be treated equally. This is reflected in the Board's behaviour to ensure all decisions do not disadvantage external shareholders compared to the interests of directors and senior management and that external shareholders are fully and timely informed of all company developments.

Engagement with key stakeholders

The table below sets out the Board's key stakeholders and provides examples of how the Board engaged with them in the year as well as demonstrating stakeholder consideration in the decision-making process. However, the Board recognise that depending on the nature of an issue, the interests of each stakeholder group may differ. The Board seeks to understand the relative interests and priorities of each stakeholder and to have regard to these, as appropriate, in its decision making. However, the Board acknowledges that not every decision it makes will necessarily result in a positive outcome for all stakeholders.

COVID-19

The Board are very focused on the COVID-19 Health emergency and the effect on its stakeholders. The Board has ensured its shareholders are regularly updated by issuing press releases setting out in detail its effect on the Group's operations.

 
 Stakeholder                How the Board has approached                                  How the Board has taken 
                             their engagement                                              their interests into 
                                                                                           account 
 Shareholders               The Board aims to provide                                     The Board maintains a 
                             clear and timely information                                  dialogue with external 
                             to its shareholders which                                     shareholders and keeps 
                             gives an honest and transparent                               them informed in a variety 
                             view of the performance                                       of ways as set out in 
                             of the business.                                              the Corporate Governance 
                                                                                           section of the annual 
                                                                                           report. 
                           ------------------------------------------------------------  ----------------------------- 
 Customers                  The Board aims to maintain                                    Visits to its customers 
                             a mutually beneficial                                        by senior staff are 
                             relationship based on                                        undertaken 
                             trust through a continuous                                   and visits are made by 
                             dialogue with each of                                        customers to the Company 
                             its customers.                                               in Azerbaijan to show 
                                                                                          them the Group's production 
                                                                                          facilities. 
 
                                                                                          The Company maintains 
                                                                                          a continuous dialogue 
                                                                                          with its customers regarding 
                                                                                          the technical specifications 
                                                                                          of its products to ensure 
                                                                                          the most beneficial sales 
                                                                                          terms are obtained for 
                                                                                          both parties. 
 
                                                                                          The Company also assisted 
                                                                                          its customers in fulfilling 
                                                                                          their responsibilities 
                                                                                          under the LBMA Responsible 
                                                                                          Sourcing Programme. 
                           ------------------------------------------------------------  ----------------------------- 
 Suppliers                  The Board has ensured                                         All significant purchases 
                             an appropriately qualified                                   are discussed with suppliers 
                             and professional procurement                                 and prices and delivery 
                             department is in place                                       terms agreed which are 
                             which maintains close                                        mutually beneficial to 
                             contact with all suppliers.                                  both parties. 
                             All procurement is carried 
                             out via a transparent                                        Technical staff work 
                             tender process.                                              in close collaboration 
                                                                                          with suppliers of specialist 
                             For specialised goods                                        services to ensure the 
                             and services, senior                                         supplier provides the 
                             management will maintain                                     highest quality service 
                             a dialogue with the supplier                                 to the Company within 
                             and report their engagement                                  the commercial terms 
                             to the Board.                                                of the contract. 
                           ------------------------------------------------------------  ----------------------------- 
 Employees                  The Board has mandated                                        The results of the employee 
                            a mainly informal approach                                    survey have been reviewed 
                            to engage with employees                                      and action taken to 
                            in light of their number                                      implement 
                            and to ensure appropriate                                     suggestions where 
                            upward communication                                          appropriate. 
                            channels exist for employees. 
                                                                                          The health and safety 
                            Directors and senior                                          committee considered 
                            management regularly                                          all reportable safety 
                            visit Gedabek where the                                       incidents during the 
                            majority of the employees                                     year in consultation 
                            are located.                                                  with employee 
                                                                                          representatives 
                            There are also two formal                                     and all appropriate actions 
                            mechanisms for engaging                                       were taken to prevent 
                            with employees:                                               further occurrences in 
                                                                                          the future. 
                             *    An employee survey is carried out once a year and the 
                                  results are circulated to directors. 
 
 
                             *    The health and safety committee meet twice a year at 
                                  Gedabek and the meetings are attended by directors. 
                           ------------------------------------------------------------  ----------------------------- 
 Community                  Board members regularly                                       The Group has carried 
                             visit Gedabek and meet                                        out significant community 
                             with the local administration                                 and social development 
                             and other community leaders                                   in the region. 
                             to hear their views on 
                             community relations. 
                           ------------------------------------------------------------  ----------------------------- 
 Government of Azerbaijan   The Board has set up                                          The Company has promptly 
                             a formal mechanism for                                       complied with all requests 
                             engaging with the Government                                 from the Government for 
                             of Azerbaijan as set                                         information about the 
                             out in the Corporate                                         Company's business. 
                             Governance section of 
                             the annual report.                                           An open relationship 
                                                                                          based on trust has been 
                             Directors also meet with                                     formed with the Government. 
                             high level Government                                        This enabled the Company 
                             officials on a regular                                       to quickly obtain a new 
                             basis.                                                       protocol from the Government 
                                                                                          regarding export of gold 
                                                                                          dor é following 
                                                                                          a Government reorganisation. 
                           ------------------------------------------------------------  ----------------------------- 
 

Principal risks and uncertainties

Country risk in Azerbaijan

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

Operational risk

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

Commodity price risk

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

The Group actively monitors all changes in commodity prices to understand the impact on the business. The Group has previously hedged against the future movement in the price of gold. The directors keep under review the potential benefit of hedging.

Foreign currency risk

The Group reports in United States Dollars and a large proportion of its costs are incurred in United States Dollars. It also conducts business in Australian Dollars, Azerbaijan Manats and United Kingdom Sterling. The Group does not currently hedge its exposure to other currencies, although it will review this periodically if the volume of non-United States Dollar transactions increases significantly. Information on the carrying value of monetary assets and liabilities denominated in foreign currency and the sensitivity analysis of foreign currency is disclosed in note 24 to the financial statements below.

Liquidity and interest rate risk

During 2019, the only material borrowing of the Group has been the Pasha Bank refinancing loan which had a fixed rate of interest. The Group has not therefore used any interest rate swaps or other instruments to manage its interest rate profile during 2019, but this recourse is reviewed on a periodic basis. The approval of the board of directors is required for all new borrowing facilities. The Group occasionally has minor borrowings in connection with providing letters of credit to suppliers.

The Group's surplus cash deposits have steadily increased since the beginning of 2019. The Group places these on deposit in United States dollars with a range of banks to both ensure it obtains the best return on these deposits and to minimise counterparty risk. The amount of interest received on these deposits is not material to the financial results of the Company and therefore any decrease in interest rates would not have any adverse effect.

COVID-19 pandemic in 2020

The COVID-19 pandemic has resulted in restrictions being put in place on the ability of the Group to operate since early March 2020. International travel generally and domestic travel in Azerbaijan has been either temporarily suspended or curtailed. The operations of many businesses in Azerbaijan have also been temporarily suspended and the Group's gold refiners in Switzerland were closed for a period in March and April 2020 but have now reopened with initially limited operations.

The measures taken by the board of directors (the "Board") to manage the risk of the COVID-19 pandemic are set out in the Corporate Governance section of the Group's annual report . These include informally convening weekly Board meetings during the pandemic to ensure all possible actions are put in place to protect the health and safety of its staff and to maintain production .

Despite the restrictions, the Company has continued in operation and to sell its products. It has also put in place actions to safeguard the health of its employees at Gedabek. These include many hygiene measures such as the provision of hand disinfectants, deep cleaning of work areas and key employee homes and the provision of take away food to avoid the close gathering of people in canteens. An education progamme for employees was carried out and the Gosha accommodation camp has been redeployed as a quarantine facility. It has also chartered aircraft to ship its gold dor é to Switzerland.

The main risk to the Group from the COVID-19 pandemic would be a lower level, or a complete cessation, of production. This could occur due to an outbreak of COVID-19 at Gedabek or further action by the Government of Azerbaijan to prevent the spread of the Coronavirus. The Group may also be required to operate at a lower level of production or cease production altogether due to its inability to obtain necessary supplies and services or to adequately staff or maintain its operations. There is also the risk that the Group can continue in production but will be unable to ship and sell its finished products. However, given that the future evolution and duration of the COVID-19 pandemic is currently unknown, it is not possible to quantify at this time its long-term effect on the Group.

Key performance indicators

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

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

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

3 Free cash flow ("FCF"). FCF is calculated as net cash flow from operating activities less capital expenditure. This is a measure of the amount of cash generated which can either be distributed to investors or used for expansion of the business.

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

Reza Vaziri

President and chief executive

12 May 2020

Financial review

Group statement of income

The Group generated revenues in 2019 of $92.1m (2018: $90.4m) from the sales of gold and silver bullion and copper and precious metal concentrate.

The revenues in 2019 included $76.4m (2018: $75.5m) generated from the sales of gold and silver bullion from the Group's share of the production of doré bars. Bullion sales in 2019 were 53,992 ounces of gold and 16,471 ounces of silver (2018: 59,481 ounces of gold and 25,394 ounces of silver) at an average price of $1,410 per ounce and $16 per ounce respectively (2018: $1,265 per ounce and $16 per ounce respectively). In addition, the Group generated revenue in 2019 of $15.7m (2018: $14.9m) from the sale of 10,281 (2018: 7,675) dry metric tonnes of copper and precious metal concentrate. The Group's revenue benefited in the year from a higher average price of gold at $1,404 per ounce (2018: $1,269 per ounce) offset by a lower average price of copper at $6,015 per metric tonne (2018: $6,527 per metric tonne).

The Group did not hedge any metal sales during 2018 or 2019.

The Group incurred lower cost of sales in 2019 of $54.6m (2018: $56.5m) due to lower depreciation. Cash costs were higher at $48.0m (2018: $40.5m). Reagent costs were higher due to the independent operation of the flotation plant throughout 2019 and mining costs were higher due to increased mining from the open pit in 2019. Stripping costs were $1.4m (2018: credit of $4.7m). The higher cash and stripping costs were offset by lower depreciation of $3.8m and a credit of $9.2m (2018: cost of $1.4m) in respect of an increase of inventory.

Depreciation and amortisation in 2019 was lower at $19.2m compared to $22.9m in 2018. Accumulated mine development costs within producing mines are depreciated and amortised on a unit-of-production basis over the economically recoverable reserves of the mine concerned, except in the case of assets whose useful life is shorter than the life of the mine, in which case the straight line method is applied. The depreciation and amortisation were lower in 2019 due to the lower amount of gold produced. Amortisation of $0.8m was incurred in 2019 (2018: $nil) in respect of depreciation on right of use assets due to the adoption in 2019 of IFRS 16 - "Leases".

The Group incurred administration expenses in 2019 of $5.2m (2018: $5.3m). The Group's administration expenses comprise the cost of the administrative staff and associated costs at the Gedabek mine site, the Baku office and maintaining the Group's listing on AIM. The majority of the administration costs are incurred in either Azerbaijan New Manats, the United States dollar or United Kingdom pounds sterling. United Kingdom pounds sterling weakened against the US dollar in 2019 compared to 2018 whilst the Azerbaijan New Manat was stable. Administration costs in 2019 were similar to 2018 as a marginally higher level of sterling denominated costs were offset by the weaker exchange rate. Finance costs in 2019 were $1.3m compared to $1.6m in 2018. The costs reduced in the year due to both a significant reduction in the average bank debt in 2019 and a reduction in the average interest rate on the bank debt. In the 2019, the finance costs included $0.4m (2018: $nil) interest expense on lease liabilities due to the adoption in 2019 of IFRS 16 - "Leases".

The Group recorded a profit before taxation in 2019 of $30.1m compared to $25.2m in 2018. This was due to higher revenues and lower cost of sales and finance costs.

The Group had a taxation charge in 2019 of $10.8m (2018: $8.9m). This comprised a current income tax charge of $7.2m (2018: $7.3m) and a deferred tax charge of $3.6m (2018: $1.6m). The current income tax charge of $7.2m was incurred by R.V. Investment Group Services ("RVIG") in Azerbaijan. RVIG generated taxable profits in 2019 of $22.6m which were taxed at 32 per cent. (the corporation tax rate stipulated in the Group's production sharing agreement). RVIG had no tax losses carried forward at 1 January 2019 or 31 December 2019.

The taxable profits of the operating company in Azerbaijan are taxed at 32 per cent. However, the Group's overall tax rate in 2019 was 36 per cent. (2018: 35 per cent.). The overall tax rate is higher than 32 per cent. because the UK administrative costs and depreciation of mining rights in Azerbaijan cannot be offset against the taxable profits arising in Azerbaijan. These costs in 2019 totalled $3.6m (2018: $3.3m).

All-in sustaining cost of gold production

The Group produced gold at an all-in sustaining cost ("AISC") per ounce of $591 in 2019 compared to $541 in 2018. The Group reports its cash cost as an AISC calculated in accordance with the World Gold Council's guidance which is a standardised metric in the industry. The reason for the increase in 2019 compared to 2018 was the independent operation of the flotation plant throughout 2019 and increased mining from the Gedabek open pit. Production also decreased which increases the AISC as many of the costs are fixed or semi-fixed.

Group statement of financial position

Non-current assets decreased from $98.6m at the end of 2018 to $93.4m at the end of 2019. The main reason for the decrease was property, plant and equipment being lower by $11.4m due to depreciation in the year. Non-current assets at 31 December 2019 included $3.6m (2018: $nil) in respect of right of use assets due to the adoption in 2019 of IFRS 16 - "Leases". Intangible assets increased from $17.0m at the end of 2018 to $20.0m at the end of 2019 due to expenditure on geological exploration and evaluation of $4.5m offset by amortisation.

Net current assets were $55.5m at the end of 2019 compared to $33.5m at the end of 2018. The main reason for the increase in net current assets was an increase in cash and cash in transit of $8.3m and a decrease in the current portion of bank loans payable of $5.0m. The Group's cash balances at 31 December 2019 including cash in transit were $22.9m (2018: $14.5m). Surplus cash is maintained in US dollars and was placed on fixed deposit with several banks at tenors of between one to three months at interest rates of around 1.5 to 2.2 per cent.

Net assets of the Group at the end of 2019 were $109.0m (2018: $98.4m). The net assets were higher due to the increase in retained earnings. There were no shares issued in 2019.

The Group is financed by a mixture of equity and debt. The Group's bank borrowings continued to reduce during 2019 and at 31 December 2019 were $1.7m, a significant reduction from $8.4m at 31 December 2018. The Group refinanced $13.5m of its outstanding debt during 2018 with a 3-year refinancing loan which was the only outstanding bank borrowing at 31 December 2019. The interest rate on the refinancing loan was 7 per cent. (2018: 7 per cent.). Total Group debt at 31 December 2019 was $5.5m which also includes $3.8m (2018: $nil) of lease liabilities due to the adoption in 2019 of IFRS 16 - "Leases".

There were no movements of the Group's share capital or share premium account in 2019. The Group's holding company, Anglo Asian Mining PLC received in 2019 an intercompany dividend of $10m (2018: $nil) which gives it the capacity to pay dividends of $9.1m at 31 December 2019.

Group cash flow statement

Operating cash inflow before movements in working capital for 2019 was $50.5m (2018: $50.1m). The main source of operating cash flow was operating profit before the non-cash charges of depreciation and amortisation in 2019 of $49.4m (2018: $49.8m) after adding back finance cost net of finance income.

Working capital movements excluding cash in transit absorbed cash of $7.6m (2018: generated cash of $0.6m) largely due to an increase in inventories of $9.7m (2018: $0.4m). This was due to increased stockpiles of ore and increased heap leaching at the end of 2019.

Net cash from operating activities excluding cash in transit of $5.1m in 2019 was $34.8m compared to $47.1m in 2018 due to cash absorbed by working capital and higher tax payments.

The Company paid corporation tax in 2019 of $8.2m (2018: $3.6m) in Azerbaijan in accordance with local requirements. This was the final payment of its liability for 2018 and payments on account of its liability for the year ended 31 December 2019.

Expenditure on property, plant and equipment and mine development was $4.7m (2018: $15.3m). The main items of expenditure in 2019 were mine development of $2.2m and heap leach pad expansion of $0.5m.

Exploration and evaluation expenditure in 2019 of $4.5m (2018: $2.9m) was incurred and capitalised. This arose on exploration at the Gedabek, Gosha and Ordubad contract areas.

COVID-19 pandemic in 2020

The Group has operated since early 2020 under restrictions imposed by governments around the world to combat the spread of the coronavirus. The Group has managed to maintain production and ship and sell its products. It is estimated that the Group is incurring additional operating costs of approximately $0.1m per month during the restrictions. These include the cost of chartering aircraft to ship its gold doré to Switzerland, staff overtime due to reorganisation of staff shifts to prevent the spread of the coronavirus and additional logistical costs.

The evolution and duration of the emergency is not known but should the Group be required to temporarily suspend its operations it would incur costs of approximately $1.0m per month to place the operation on care and maintenance. It currently costs approximately $4.0m to $5.0m million a month to maintain full production.

The Group has agreed terms for a $15m standby credit facility as a precautionary measure. It is for 3 years at an interest rate of 4.5 per cent. The documentation for the loan is currently being processed.

Dividends

In respect of 2019, the Group paid an interim dividend of $0.035 per share and has proposed a final dividend of $0.045 per share giving a total for the year of $0.08 per share (2018: total for the year of $0.07 per share). Dividends are declared in United States dollars but paid in United Kingdom pounds sterling. The total cost of the 2018 dividends was $8.0m (GBP6.3m) and the estimated total cost of the dividends for 2019 is $9.2m (GBP7.5m). The proposed final dividend for 2019 is subject to the approval of the shareholders and has not been accrued in the 2019 financial statements.

The directors have announced a policy to target a distribution to shareholders each year comprising approximately 25 per cent. of the Group's free cash flow. This distribution will be made in two approximately equal instalments comprising an interim and final dividend. The amounts and timing of payment of the interim and final dividends will be announced each year along with the Group's interim and final results respectively. The board will review this policy each year taking into account the financing needs of the business at that time. Free cash flow is defined as net cash flow from operating activities less capital expenditure and for 2019 was $25.5m (2018: $28.9m) including cash in transit of $5.1m (2018: $nil).

Production Sharing Agreement

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

Profit Production for the Group has been subject to the minimum 25 per cent. for all years since commencement of production including 2019. The Government's share of production in 2019 (as in all previous years) was therefore 12.75 per cent. being 51 per cent. of 25 per cent. with the Group entitled to the remaining 87.25 per cent. The Group was therefore subject to an effective royalty on its revenues in 2019 of 12.75 per cent. (2018: 12.75 per cent.) of the value of its production.

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

   --    all direct operating expenses of the Gedabek mine; 
   --    all exploration expenses incurred on the Gedabek contract area; 
   --    all capital expenditure incurred on the Gedabek mine; 

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

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

Unrecovered costs are calculated separately for the three contract areas of Gedabek, Gosha and Ordubad and can only be recovered against production from their respective contract areas. The total unrecovered costs for the Gedabek and Gosha contract areas at 31 December 2019 were $59.0m and $25.5m respectively (2018: $76.9m and $23.3m respectively). The Group's current business plans indicate that these costs will not be fully recovered until at least 2023 and the effective royalty of 12.75 per cent. will therefore continue until then.

Going concern

The directors have prepared the Group financial statements on a going concern basis after reviewing the Group's forecast cash position for the period to 30 June 2021 and satisfying themselves that the Group will have sufficient funds on hand to meet its obligations as and when they fall due over the period of their assessment. Appropriate rigour and diligence has been applied by the directors who believe the assumptions are prepared on a realistic basis using the best available information.

The Group had cash balances of $26.0 million and no bank debt at 31 March 2020. The Group is able to fund its working capital requirements from cash generated from its operations at Gedabek provided production is maintained and finished products sold. The Group has access to local sources of both short and long term finance should this be required and has agreed terms for a $15 million standby credit facility with Pasha Bank as a contingency measure.

From early March 2020, the Government of Azerbaijan gradually implemented restrictions to prevent the spread of the coronavirus. These included closing the country's international borders to passengers, temporarily suspending all scheduled air traffic and restricting domestic travel. Despite these restrictions, the Company has continued production at Gedabek and to ship and sell gold doré and copper concentrate. The Company estimates the restrictions are increasing operating costs by approximately $0.1 million per month which is not significant. Given the uncertain effect of the COVID-19 pandemic, various scenarios are possible under which the business may in future be required to operate. However, the directors believe the most likely scenarios would be a period of continuing production but having to stockpile finished product for later sale or alternatively a period where production is either disrupted or shut down and the business placed on care and maintenance. It is currently costing between $4.0 million to $5.0 million per month to continue in production and estimated it would cost approximately $1.0 million per month to place the business on care and maintenance. The directors will manage any disruption to, or cessation of, production or inability to sell the Company's products as circumstances dictate. The Group has the financial resources to continue as a going concern in the unlikely event of a very prolonged cessation of production of at least one year or more.

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

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

Reza Vaziri

President and chief executive

William Morgan

Chief Financial Officer

12 May 2020

Group statement of income

year ended 31 December 2019

 
                                                            2019       2018 
 Continuing operations                          Notes       $000       $000 
---------------------------------------------  ------  ---------  --------- 
 Revenue                                            6     92,052     90,354 
 Cost of sales                                      8   (54,576)   (56,530) 
---------------------------------------------  ------  ---------  --------- 
 Gross profit                                             37,476     33,824 
 Other income                                       7          1         68 
 Administrative expenses                                 (5,208)    (5,291) 
 Other operating expenses                           7      (943)    (1,777) 
---------------------------------------------  ------  ---------  --------- 
 Operating profit                                   8     31,326     26,824 
 Finance costs                                     11    (1,269)    (1,642) 
 Finance income                                               73         64 
---------------------------------------------  ------  ---------  --------- 
 Profit before tax                                        30,130     25,246 
 Income tax expense                                12   (10,787)    (8,911) 
---------------------------------------------  ------  ---------  --------- 
 Profit attributable to the equity holders 
  of the parent                                           19,343     16,335 
---------------------------------------------  ------  ---------  --------- 
 
 Profit per share attributable to the equity 
  holders of the parent 
 Basic (US cents per share)                        13      16.91      14.32 
 Diluted (US cents per share)                      13      16.91      14.32 
---------------------------------------------  ------  ---------  --------- 
 

Group statement of comprehensive income

year ended 31 December 2019

 
                                                       2019     2018 
                                                       $000     $000 
 Profit for the year                                 19,343   16,335 
--------------------------------------------------  -------  ------- 
 Total comprehensive profit                          19,343   16,335 
--------------------------------------------------  -------  ------- 
 Attributable to the equity holders of the parent    19,343   16,335 
--------------------------------------------------  -------  ------- 
 

Group statement of financial position

31 December 2019

 
                                                      2019       2018 
                                          Notes       $000       $000 
---------------------------------------  ------  ---------  --------- 
 Non-current assets 
 Intangible assets                           14     19,965     17,031 
 Property, plant and equipment               15     69,728     81,150 
 Leased assets                               16      3,622          - 
 Other receivables                           17         67        436 
---------------------------------------  ------  ---------  --------- 
                                                    93,382     98,617 
---------------------------------------  ------  ---------  --------- 
 Current assets 
 Inventory                                   18     43,881     34,159 
 Trade and other receivables                 17     26,783      8,496 
 Cash and cash equivalents                   19     17,801     14,540 
---------------------------------------  ------  ---------  --------- 
                                                    88,465     57,195 
---------------------------------------  ------  ---------  --------- 
 Total assets                                      181,847    155,812 
---------------------------------------  ------  ---------  --------- 
 Current liabilities 
 Trade and other payables                    20   (27,510)   (13,224) 
 Income tax payable                                (2,760)    (3,700) 
 Interest-bearing loans and borrowings       21    (1,688)    (6,750) 
 Lease liabilities                           16    (1,015)          - 
---------------------------------------  ------  ---------  --------- 
                                                  (32,973)   (23,674) 
---------------------------------------  ------  ---------  --------- 
 Net current assets                                 55,492     33,521 
---------------------------------------  ------  ---------  --------- 
 Non-current liabilities 
 Provision for rehabilitation                23   (10,485)    (9,028) 
 Interest-bearing loans and borrowings       21          -    (1,688) 
 Lease liabilities                           16    (2,741)          - 
 Deferred tax liability                      12   (26,596)   (23,017) 
---------------------------------------  ------  ---------  --------- 
                                                  (39,822)   (33,733) 
---------------------------------------  ------  ---------  --------- 
 Total liabilities                                (72,795)   (57,407) 
---------------------------------------  ------  ---------  --------- 
 Net assets                                        109,052     98,405 
---------------------------------------  ------  ---------  --------- 
 
 Equity 
 Share capital                               25      2,016      2,016 
 Share premium account                       27         33         33 
 Merger reserve                              25     46,206     46,206 
 Retained earnings                                  60,797     50,150 
---------------------------------------  ------  ---------  --------- 
 Total equity                                      109,052     98,405 
---------------------------------------  ------  ---------  --------- 
 
 

Group statement of cash flows

year ended 31 December 2019

 
                                                           2019       2018 
                                               Notes       $000       $000 
--------------------------------------------  ------  ---------  --------- 
 Cash flows from operating activities 
 Profit before tax                                       30,130     25,246 
 Adjustments to reconcile profit before 
  tax to net cash flows: 
 Finance costs                                    11      1,269      1,642 
 Finance income                                            (73)       (64) 
 Depreciation of owned assets                     15     16,767     20,957 
 Depreciation of leased assets                    16        795          - 
 Amortisation of mining rights and other 
  intangible assets                               14      1,600      1,990 
 Disposal of obsolete equipment                    7          -        209 
 Write down of irrecoverable inventory                        -        136 
--------------------------------------------  ------  ---------  --------- 
 Operating cash flow before movement 
  in working capital                                     50,488     50,116 
 Increase in trade and other receivables                (2,502)    (1,767) 
 Increase in inventories                                (9,722)      (314) 
 (Decrease) / increase in trade and 
  other payables                                          (462)      2,670 
--------------------------------------------  ------  ---------  --------- 
 Cash from operations                                    37,802     50,705 
 Income taxes paid                                      (8,148)    (3,588) 
--------------------------------------------  ------  ---------  --------- 
 Net cash flow from operating activities                 29,654     47,117 
--------------------------------------------  ------  ---------  --------- 
 Cash flows from investing activities 
 Expenditure on property, plant and 
  equipment and mine development                        (4,703)   (15,324) 
 Investment in exploration and evaluation 
  assets including other 
   intangible assets                                    (4,499)    (2,875) 
 Interest received                                           73         64 
 Net cash used in investing activities                  (9,129)   (18,135) 
--------------------------------------------  ------  ---------  --------- 
 Cash flows from financing activities 
 Proceeds from issue of shares                    25          -        149 
 Dividends paid                                   28    (8,696)    (3,432) 
 Proceeds from borrowings                         22        537     13,995 
 Repayments of borrowings                         22    (7,287)   (26,208) 
 Interest paid - borrowings                               (804)    (1,480) 
 Interest paid - lease liabilities                16      (353)          - 
 Repayment of lease liabilities                   16      (661)          - 
--------------------------------------------  ------  ---------  --------- 
 Net cash used in financing activities                 (17,264)   (16,976) 
--------------------------------------------  ------  ---------  --------- 
 Net increase in cash and cash equivalents                3,261     12,006 
 Cash and cash equivalents at the beginning 
  of the year                                     19     14,540      2,534 
--------------------------------------------  ------  ---------  --------- 
 Cash and cash equivalents at the end 
  of the year                                     19     17,801     14,540 
--------------------------------------------  ------  ---------  --------- 
 

Group statement of changes in equity

year ended 31 December 2019

 
 
                                                 Share-based 
                              Share      Share       payment     Merger     Retained     Total 
                            capital    premium       reserve    reserve     earnings    equity 
                   Notes       $000       $000          $000       $000         $000      $000 
----------------  ------  ---------  ---------  ------------  ---------  -----------  -------- 
 1 January 2018               2,008     32,484            74     46,206        4,581    85,353 
 Profit for the 
  year                            -          -             -          -       16,335    16,335 
 Shares issued     25&27          8        141             -          -            -       149 
 Share options 
  exercised           26          -          -          (74)          -           74         - 
 Share premium 
    reduction         27          -   (32,592)             -          -       32,592         - 
 Cash dividends 
  paid                28          -          -             -          -      (3,432)   (3,432) 
                          ---------  ---------  ------------  ---------  -----------  -------- 
 31 December 
  2018                        2,016         33             -     46,206       50,150    98,405 
 Profit for the 
  year                            -          -             -          -       19,343    19,343 
 Cash dividends 
  paid                28          -          -             -          -      (8,696)   (8,696) 
----------------  ------  ---------  ---------  ------------  ---------  -----------  -------- 
 31 December 
  2019                        2,016         33             -     46,206       60,797   109,052 
----------------  ------  ---------  ---------  ------------  ---------  -----------  -------- 
 

Notes

   1      General information 

Anglo Asian Mining PLC (the "Company") is a company incorporated and limited by shares in England and Wales under the Companies Act 2006. The Company's ordinary shares are traded on the AIM market of the London Stock Exchange. The Company is a holding company. The principal activities and place of business of the Company and its subsidiaries (the "Group") are set out in note 29, the chairman's statement and the strategic report above.

   2      Basis of preparation 

The financial information for the year ended 31 December 2019 set out above, which was approved by the board of directors on 12 May 2020, has been prepared in accordance with International Financial Reporting Standards ("IFRS") adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.

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

issued by the International Financial Reporting Interpretations Committee that have been endorsed by the European Union.

The financial information shown in this publication is unaudited and does not constitute statutory financial statements. Audited financial information will be published in the Anglo Asian Mining Annual report and accounts 2019. The Company expects an unqualified audit report to be issued for the Group financial statements for the year ended 31 December 2019 which will not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and will not contain a statement under section 498(2) or section 498(3) of the UK Companies Act 2006. Anglo Asian Mining Annual report and accounts 2018 has been filed with the Registrar of Companies in England and Wales. The report of the auditor on those accounts was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain a statement under section 498(2) or section 498(3) of the UK Companies Act 2006.

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

The directors have prepared the Group financial statements on a going concern basis after reviewing the Group's forecast cash position for the period to 30 June 2021 and satisfying themselves that the Group will have sufficient funds on hand to meet its obligations as and when they fall due over the period of their assessment. Appropriate rigour and diligence has been applied by the directors who believe the assumptions are prepared on a realistic basis using the best available information.

The Group had cash balances of $26.0 million and no bank debt at 31 March 2020. The Group is able to fund its working capital requirements from cash generated from its operations at Gedabek provided production is maintained and finished products sold. The Group has access to local sources of both short and long term finance should this be required and has agreed terms for a $15 million standby credit facility with Pasha Bank as a contingency measure.

From early March 2020, the Government of Azerbaijan gradually implemented restrictions to prevent the spread of the coronavirus. These included closing the country's international borders to passengers, temporarily suspending all scheduled air traffic and restricting domestic travel. Despite these restrictions, the Company has continued production at Gedabek and to ship and sell gold doré and copper concentrate. The Company estimates the restrictions are increasing operating costs by approximately $0.1 million per month which is not significant. Given the uncertain effect of the COVID-19 pandemic, various scenarios are possible under which the business may in future be required to operate. However, the directors believe the most likely scenarios would be a period of continuing production but having to stockpile finished product for later sale or alternatively a period where production is either disrupted or shut down and the business placed on care and maintenance. It is currently costing between $4.0 million to $5.0 million per month to continue in production and estimated it would cost approximately $1.0 million per month to place the business on care and maintenance. The directors will manage any disruption to, or cessation of, production or inability to sell the Company's products as circumstances dictate. The Group has the financial resources to continue as a going concern in the unlikely event of a very prolonged cessation of production of at least one year or more.

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

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

   3    Adoption of new and revised standards 

3.1 New and amended standards and interpretations - IFRS 16 "Leases"

Overview

 
    IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an 
     Arrangement contains a Lease, SIC-15 Operating Leases - Incentives 
     and SIC-27 Evaluating the Substance of Transactions Involving the 
     Legal Form of a Lease. The standard sets out the principles for 
     the recognition, measurement, presentation and disclosure of leases 
     and requires lessees to recognise most leases on the balance sheet 
     under a single on-balance sheet model. 
 
     Lessor accounting under IFRS 16 is substantially unchanged from 
     IAS 17 other than the requirements applying to subleases. Lessors 
     will continue to classify all leases as either operating leases 
     or finance leases using similar principles as in IAS 17. IFRS 16 
     does not have any impact for leases where the Group is the lessor. 
 
     IFRS 16 also requires lessees and lessors to make more extensive 
     disclosures than under IAS 17. 
 
     Adoption of IFRS 16 
     The Group's operations are entirely within Azerbaijan which is a 
     developing country with a limited and immature marketplace for the 
     lease financing of assets. The Group has lease contracts for mining 
     equipment, motor vehicles, warehouses, office accommodation and 
     miscellaneous assets. Lease contracts in Azerbaijan are typically 
     short term (one year or less) and there is usually the right for 
     either party to terminate the lease contract at short notice (typically 
     one to six months) without penalty. The Group has leased its office 
     space in Baku on a three year lease. It has also leased various 
     vehicles and mining equipment on short term leases which are routinely 
     renewed or leases which are of greater duration than 12 months. 
     For these leases, right of use assets and corresponding lease liabilities 
     have been recognised in accordance with IFRS 16. For short term 
     leases which are routinely renewed, the length of the lease has 
     been determined by reference to the broader economics of the lease. 
 
     The Group has no leases under which the payments are variable, it 
     does not generate income from sub-leasing right of use assets and 
     it does not undertake any sale and leaseback transactions. It does 
     not have any leases which it regards as onerous. There are no restrictions 
     or covenants imposed by any of its leases. 
 
     The Group adopted IFRS 16 using the modified retrospective transition 
     method, with the date of initial application of 1 January 2019. 
     The standard has been applied retrospectively with the cumulative 
     effect of initially applying the standard recognised as an adjustment 
     to the opening balance of retained earnings at the date of initial 
     application and prior year comparatives have not been adjusted. 
     The Group has applied the IFRS 16 definition of a lease to all contracts 
     still effective at the date of initial application. 
 
     Upon adoption of IFRS 16, The Group applied a single recognition 
     and measurement approach for all leases except short term leases. 
 
     The Group elected to apply the recognition exemptions for short-term 
     leases. It also elected to apply the transition practical expedient 
     that permits the Company not to reassess if a contract is, or contains, 
     a lease at the date of initial application. The entity also elected 
     to apply the practical expedient for short term leases to leases 
     for which the lease term ends within 12 months of the date of initial 
     application. 
 
     Effect on the Group financial statements of adopting IFRS 16 
     Prior to the implementation of IFRS 16 the Group accounted for all 
     leases as operating leases and did not recognise any right of use 
     asset or lease liability in respect of any lease. All lease payments 
     were expensed as incurred on a straight-line basis. 
 
     The transition method used consisted of recognising each right of 
     use asset at 1 January 2019 at the discounted value of the estimated 
     remaining future lease payments at 1 January 2019. The remaining 
     future lease payments were discounted at rates between 7.9 and 8.1 
     per cent. which equates to the Group's estimated incremental cost 
     of borrowing at that date. The contractual lease payments corresponding 
     to short term leases (less than 12 months) are recognised as an 
     expense. 
 
     The Group used the following practical expedients when applying 
     IFRS 16 retrospectively to leases previously classified as operating 
     leases: 
 
      *    Applied a single discount rate to a portfolio of 
           leases with reasonably similar characteristics; and 
 
 
      *    Used hindsight to determine lease term in relation to 
           options to extend or terminate. 
 
 
 
     The Group has elected to present right of use assets and lease liabilities 
     separately in the statement of financial position. Depreciation 
     of right to use assets and finance expense relating to lease liabilities 
     are presented separately in the income statement. The cash outflows 
     related to the principle portion of the lease liability and the 
     related interest are also presented separately within financing 
     activities in the Group statement of cash flows. 
 
     The implementation of IFRS 16 at 1 January 2019 on the Group accounts 
     was to include the following additional assets and liabilities in 
     its statement of financial position at 1 January 2019: 
                              $000 
     ---------------------  ------ 
      Assets 
      Right of use assets    4,417 
     ---------------------  ------ 
 
      Liabilities 
      Lease liabilities 
       - current             1,014 
      Lease liabilities 
       - non-current         3,403 
     ---------------------  ------ 
      Total liabilities      4,417 
     ---------------------  ------ 
 
 
     The operating lease commitments at 31 December 2018 can be reconciled 
     to the lease liabilities at 1 January 2019 as follows:                                                $000 
     --------------------------------------------  ------ 
      Operating lease commitments at 31 December        - 
       2018 (undiscounted) 
      Add: 
      Lease payments relating to renewal periods 
       not included in operating lease 
      commitments as at 31 December 2018            4,417 
     --------------------------------------------  ------ 
      Discounted recognised lease liabilities at 
       1 January 2019                               4,417 
     --------------------------------------------  ------ 
 

3.2 New and amended standards and interpretations - Other

The amendments and interpretations listed below also apply for the first time from 1 January 2019. None of the standards have an impact on the Group financial statements or interim Group condensed financial statements.

   --      IFRIC Interpretation 23 - "Uncertainty over Income Tax Treatments" 
   --      Amendments to IFRS 9 - "Prepayment Features with Negative Compensation" 
   --      Amendments to IAS 28 - "Long-term Interests in Associates and Joint Ventures" 
   --      Amendments to IAS 19 - "Plan Amendment, Curtailment or Settlement" 
   --      Annual IFRS Improvement Process 
   --      IFRS 3 Business Combinations - "Previously held Interests in a joint operation" 
   --      IFRS 11 Joint Arrangements - "Previously held Interests in a joint operation" 

-- IAS 12 Income Taxes - "Income tax consequences of payments on financial instruments classified as equity"

   --      IAS 23 Borrowing Costs - "Borrowing costs eligible for capitalisation" 

3.3 Standards issued but not yet effective

The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's financial statements are disclosed below. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective.

   --      IFRS 17 - "Insurance Contracts". 
   --      Amendments to IFRS 3 - "Definition of a Business". 
   --      Amendments to IAS 1 and IAS 8 - "Definition of Material". 

IFRS 17 - "Insurance Contracts" is not applicable to the Group as it does not issue insurance contracts.

Since the amendments to the definition of a business in Amendments to IFRS 3 - "Definition of a Business" apply prospectively to transactions or other events that occur on or after the date of first application, the Group will not be affected by these amendments on the date of transition.

In October 2018, the IASB issued amendments to IAS 1 - "Presentation of Financial Statements and

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors" to align the definition of 'material' across the standards and to clarify certain aspects of the definition. The new definition states that, 'Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.' The amendments to the definition of material is not expected to have a significant impact on the Group financial statements.

   4      Significant accounting policies 

4.1 Basis of consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2019. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

-- power over the investee (i.e. existing rights that give it the current ability to direct the relevant

activities of the    investee); 
   --   exposure, or rights, to variable returns from its involvement with the investee; and 
   --   the ability to use its power over the investee to affect its returns. 

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

   --   the contractual arrangement with the other vote holders of the investee; 
   --   rights arising from other contractual arrangements; and 
   --   the Group's voting rights and potential voting rights. 

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

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

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

4.2 Revenue

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

The Group has generally concluded that it is the principal in its revenue contracts because it typically

controls   the goods before transferring them to 

the customer.

i Contract balances

a Contract assets

A contract asset is the right to consideration in exchange for goods transferred to the customer. If the Group performs by transferring goods to a

customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is

conditional.

The Group does not have any contract assets as performance and a right to consideration occurs within a short period of time and all rights to

consideration are unconditional.

b Trade receivables

A trade receivable represents the Group's right to an amount of consideration that is unconditional (i.e., only

 the   passage of time is required  before 

payment of the consideration is due). Refer to accounting policy 4.12 for the accounting policies for financial assets and accounting policy 4.13 for the accounting policy for trade receivables.

c Contract liabilities

A contract liability is the obligation to transfer goods to a customer for which the Group has received consideration (or an amount of

consideration is due) from the customer. If a customer pays consideration before the Group transfers goods to the customer, a contract liability is

recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are

recognised as revenue   w hen the Group performs 

under the contract.

ii Gold and silver sales to the refiner

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

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

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

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

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

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

With these arrangements, there are no advance payments received from the refiner, no conditional rights to consideration, i.e., no contract assets are recognised. A trade receivable is recognised at the date of sale

and   there are only several days  between recognition of revenue and payment. The 

contract is entered into and the transaction price is determined at outturn by virtue of the deal confirmation

 and there are no further   adjustments to 

this price. Also, given each spot sale represents the enforceable contract and all performance obligations are satisfied at that time, there are no

remaining performance obligations (unsatisfied or partially unsatisfied) requiring disclosure. Refer to note 17 - 'Trade and other receivables' f or details of payment terms.

iii) Gold and copper in concentrate (metal in concentrate) sal es

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

The Group's sales of metal in concentrate allow for price adjustments based on the market price at the end of the relevant quotational period ("QP") stipulated in the contract. These are referred to as provisional

pricing   arrangements and are such that the selling price  for metal in concentrate is 

based on prevailing spot prices on a specified future date (or average of future spot prices over a defined period, usually a week) after shipment to the customer. Adjustments to the sales price occur based on movements in quoted market prices up to the end of the QP.

The period between provisional invoicing and the end of the QP can be bet ween one and four months.

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

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

As noted above, as the enforceable contract for most arrangements is the purchase order, the transaction price is determined at the date of each

sale (i.e., for each separate contract) and, therefore, there is no future variability within scope of IFRS 15 and no further remaining performance obligations under those contracts.

Iv Interest revenue

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

4.3 Leases

Accounting policy applicable prior to 1 January 2019

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

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

The Group had no finance leases during 2018 and 2017.

Accounting policy applicable from 1 January 2019

The Group assesses at contract inception, all arrangements to determine whether they are, or contain, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group is not a lessor in any transactions, it is only a lessee.

i) Group as a lessee

The Group applies a single recognition and measurement approach for all leases, except for short term leases. The Group recognises lease liabilities to make lease payments and right of use assets representing the right to use the underlying assets.

a) Right of use assets

The Group recognises right of use assets at the commencement date of the lease (i.e., the date when the underlying asset is available for use). Right of use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right of use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right of use assets are depreciated on a straight line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows:

   --      Plant and equipment - 6 years 
   --      Motor vehicles - 4 years 
   --      Land and buildings - 8 years 

If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.

The right of use assets are also subject to impairment. Refer to the accounting policies in note 4.9 - "Impairment of tangible and intangible assets".

b) Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees.

In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is generally not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term or a change in the lease payments.

The Group's lease liabilities are separately disclosed in the Group statement of financial position.

(c) Short-term leases

The Group applies the short term lease recognition exemption to its short term leases of equipment and other assets (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). Lease payments on short term leases are recognised as an expense on a straight line basis over the lease term.

4.4 Taxation

i) Current and deferred income taxes

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

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

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

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

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

ii) Value-added taxes ("VAT")

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

4.5 Transactions with related parties

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

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

   --   entities under common control; and 
   --   key management personnel 

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

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

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

4.6 Borrowing costs

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

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

4.7 Intangible assets

i) Exploration and evaluation assets

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

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

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

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

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

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

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

ii) Mining rights

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

iii) Other intangible assets

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

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

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

4.8 Property, plant and equipment and mine properties

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

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

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

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

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

i) Depreciation and amortisation

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

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

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

   --   Temporary buildings                 -              eight years (2018: eight years) 
   --   Plant and equipment                 -              eight years (2018: eight years) 
   --   Motor vehicles                           -              four years (2018: four years) 
   --   Office equipment                       -              four years (2018: four years) 
   --   Leasehold improvements         -              eight years (2018: eight years) 

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

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

ii) Major maintenance and repairs

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

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

4.9 Impairment of tangible and intangible assets

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

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

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

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

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

4.10 Fair value measurement

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

   --   Note 17 - 'Trade and other receivables' 
   --   Note 19 - 'Cash and cash equivalents' 
   --   Note 20 - 'Trade and other payables'; and 
   --   Note 21 - 'Interest-bearing loans and borrowings' 

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

   --   in the principal market place for the asset or the liability; or 
   --   in the absence of a principal market, the most advantageous market for the asset or liability. 

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

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

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

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

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

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

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

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

4.11 Provisions

i) General

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

ii) Rehabilitation provision

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

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

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

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

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

4.12 Financial instruments - initial recognition and subsequent measurement

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

a) Financial assets

i) Initial recognition and measurement

Financial assets are classified, at initial recognition, a nd subsequently measured at amortised cost, fair

value   through other comprehensive income ("OCI"),  or fair value through profit or loss. 

The classification of financial assets at initial recognition that are debt instruments depends on the

financial   asset's contractual cash  flow 

characteristics and the Group's business model for managing them. With the exception of trade receivables that do not contain a significant financing

component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case

of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do

not contain   a significant  financing  component 

or for which the Group has applied the practical expedient for contracts that have a maturity of one year or less, are measured at the transaction price determined under IFRS 15. Refer to the accounting policy 4.2 - 'Revenue from contracts with customers'

In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it

needs   to give rise to cash  flows that are 

'solely payments of principal and interest ("SPPI") on the principal amount outstanding. This assessment is referred to as the SPPI test and is

performed at an instrument level.

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

contractual   cash  flows, selling the  financial 

assets, or both.

Purchases or sales of financial assets that require delivery of assets within a time frame established by

regulation   or convention in the market place 

(regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

ii) Subsequent measurement

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

   --   Financial assets at amortised cost (debt instruments). 

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

-- Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses

upon   derecognition  (equity instruments). 
   --   Financial assets at fair value  through profit or loss. 

iii) Financial assets at amortised cost (debt instruments)

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

-- The financial asset is held within a business model with the objective to hold financial assets in order

to   collect contractual cash  flows; and 

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

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

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

iv) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for tradin g, e.g., derivative instruments, financial assets designated upon initial recognition at fair value through profit or

loss,  e .g., debt or   equity instruments, or financial 

assets mandatorily required to be measured at fair value, i.e., where they fail the SPPI test. Financial assets are classified as held for trading if they

are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified

as held for trading unless they are designated as effective hedging instruments. Financial assets with cash

flows that do   not pass the  SPPI test are 

required to be classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt

instruments to be classified at amortised cost or at fair value through OCI, as described above, debt instruments may be designated at fair value

through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.

Financial assets at fair value through profit or loss are carried in the statement of financial position at

fair value   w ith net changes in  fair value 

recognised in the profit or loss account.

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

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

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

v) Derecognition of financial assets

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

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

-- The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation

to pay   the received cash  flows in  full 

without material delay to a third party under a 'pass -through' arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pas s -through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership.

 When it has   neither transferred nor 

retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

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

vi) Impairment of financial assets

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

   --      Disclosure of significant assumptions:                accounting policy 4.20 

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

The Group recognises an allo wance for expected credit loss ("ECL") for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due

in

accordance with the contract and all the cash flo ws that the Group expects to receive, discounted at an approximation of the original E IR. The

expected cash flows will include cash flows from the sale of collateral held or other credit enhancements

that   are integral to the contractual terms. 

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has

been a   significant increase in credit  risk since initial recognition, a loss allowance  is 

required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

For trade receivables (not subject to provisional pricing) and other receivables due in less than 12 months,

the   Group applies  the simplified  approach 

in calculating ECLs, as permitted by IFRS 9. Therefore, the Group does not track changes in credit risk, but instead, recognises a loss allowance based on the financial asset's lifetime ECL at each reporting date.

For any   other financial assets carried at amortised  cost (which are due in  more than 12 

months), the ECL is based on the 12-month ECL. The 12-month ECL is the proportion of lifetime ECLs that results from default events on a financial instrument that are possible within 12 months after the reporting date. However, when there has been a significant increase in credit risk since origination, t he allowance will be based on the lifetime ECL. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and informed credit assessment including forward -looking information.

The Group considers a financial asset in def ault when contractual payments are 90 days past due. However, in certain cases, the Group may also

consider a financial asset to be in def ault when internal or external information indicates that the Group is un likely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows and usually occurs when past due for more than one year and not subject to enforcement

activity.

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

   b)   Financial liabilities 

i) Initial recognition and measurement

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

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and

payables,   net of directly attributable 

transaction costs.

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

ii) Subsequent measurement

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

Financial liabilities at fair value through p rofit or loss

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

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

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

Loans and borrowings and trade and other payables

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

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

This category generally applies to interest-bearing loans and borrowings and trade and other payab l es

iii) Derecognition of financial liabilities

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

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

c) Offsetting of financial instruments

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

d) Cash and cash equivalents

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

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

4.13 Trade and other receivables

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

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

-- held primarily for the purpose of trading; and

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

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

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

4.14 Inventories

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

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

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

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

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

4.15 Equity instruments

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

4.16 Deferred stripping costs

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

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

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

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

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

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

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

4.17 Employee leave benefits

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

4.18 Retirement benefit costs

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

4.19 Share-based payments

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

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

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

4.20 Significant accounting judgements

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

i) Recovery of deferred tax assets (note 12)

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

ii) Exploration and evaluation expenditure (note 14)

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

iii) Impairment of intangible and tangible assets (notes 14,15 and 16)

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

iv) Production start date (note 15)

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

   --   the level of capital expenditure compared to the construction cost estimates; 
   --   completion of a reasonable period of testing of the mine plant and equipment; 
   --   ability to produce metal in saleable form (within specifications); and 
   --   ability to sustain ongoing production of metal. 

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

v) Leases (note 16)

The implementation of IFRS 16 requires the Group to make judgments as to whether any contract entered into by the Group contains a lease. In making this judgement, the Group looks at a number of factors including the broader economics of each contract. Once a contract has been determined to contain a lease, the Group is required to make judgements and estimates that affect the measurement of right to use assets and lease liabilities. In determining the lease term, the Group considers all facts and circumstances that determine the likely total length of time the asset will be leased. Estimates are required to determine the appropriate discount rates used to measure lease liabilities.

vi) Renewal of Production Sharing Agreement ("PSA") (note 30)

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

4.21) Significant accounting estimates

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

i) Impairment of intangible and tangible assets (notes 14,15 and 16)

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

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

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

iii) Inventory (note 18)

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

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

iv) Mine rehabilitation provision (note 23)

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

.

   5    Segment information 

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

   6    Revenue 

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

   --      gold contained within doré and gold and silver bullion to the Group's refiners; and 
   --      gold and copper concentrate. 
 
                                             2019     2018 
                                             $000     $000 
----------------------------------------  -------  ------- 
 Gold within doré and gold bullion    76,123   75,078 
 Silver bullion                               264      403 
 Gold and copper concentrate               15,665   14,873 
----------------------------------------  -------  ------- 
                                           92,052   90,354 
----------------------------------------  -------  ------- 
 

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

Sales of gold within doré and gold and silver bullion were made to two customers, the Group's gold refiners, MKS Finance S.A., and Argor-Heraeus SA, both based in Switzerland.

The gold and copper concentrate was sold in 2019 and 2018 to Industrial Minerals SA and Trafigura PTE Ltd.

   7    Other income and operating expenses 

Other income

 
                                   2019    2018 
                                   $000    $000 
-------------------------------  ------  ------ 
 Interest receivable                  1       5 
 Provisions no longer required        -      63 
-------------------------------  ------  ------ 
                                      1      68 
-------------------------------  ------  ------ 
 

Other operating expenses

 
                                        2019    2018 
                                        $000    $000 
------------------------------------  ------  ------ 
 Transportation and refining costs       399     647 
 Foreign exchange loss                   139     704 
 Advances and inventory written off      405     217 
 Disposal of obsolete equipment            -     209 
------------------------------------  ------  ------ 
                                         943   1,777 
------------------------------------  ------  ------ 
 

8 Operating profit

 
                                                            2019                    2018 
                                                  Notes     $000                    $000 
-----------------------------------------------  ------  -------  ---------------------- 
 Operating profit is stated after charging: 
 Depreciation on property, plant and equipment 
  - owned                                            15   16,767                  20,957 
 Depreciation on property plant and equipment 
  - right of use assets                              16      795                       - 
 Amortisation of mining rights and other 
  intangible assets                                  14    1,600                   1,990 
 Employee benefits and expenses                      10    8,026                   8,708 
 Foreign currency exchange net loss                          139                     704 
 Inventory expensed during the year                       24,470                  19,270 
 Operating lease expenses                                      -                   1,058 
 Fees payable to the Company's auditor 
  for: 
 The audit of the Group's annual accounts                    155                     135 
 The audit of the Group's subsidiaries 
  pursuant to legislation                                    119                     119 
 Audit related assurance services - half 
  year review                                                  2                       2 
 
 Total audit services                                        276                     256 
-----------------------------------------------  ------  -------  ---------------------- 
 Amounts paid to auditor for other services: 
 Tax compliance services                                      13                      13 
 Tax advice regarding dividend and share 
  premium reduction                                           48                      39 
 Total non-audit services                                     61                      52 
-----------------------------------------------  ------  -------  ---------------------- 
 Total                                                       337                     308 
-----------------------------------------------  ------  -------  ---------------------- 
 

The audit fees for the parent company were $107,000 (2018: $107,000).

9 Remuneration of the directors

 
                                Consultancy      Fees   Benefits     Total 
 Year ended 31 December 2019              $         $          $         $ 
-----------------------------  ------------  --------  ---------  -------- 
 John Monhemius                       8,452    51,134          -    59,586 
 Richard Round                            -    51,134          -    51,134 
 John Sununu                         19,344    75,129          -    94,473 
 Reza Vaziri                        578,962    51,134     32,891   662,987 
 Khosrow Zamani                           -   125,726          -   125,726 
-----------------------------  ------------  --------  ---------  -------- 
                                    606,758   354,257     32,891   993,906 
-----------------------------  ------------  --------  ---------  -------- 
 
 
                                Consultancy      Fees   Benefits     Total 
 Year ended 31 December 2018              $         $          $         $ 
-----------------------------  ------------  --------  ---------  -------- 
 John Monhemius                      10,329    53,183          -    63,512 
 Richard Round                            -    53,183          -    53,183 
 John Sununu                              -    78,224          -    78,224 
 Reza Vaziri                        576,913    53,183     33,095   663,191 
 Khosrow Zamani                           -   130,906          -   130,906 
-----------------------------  ------------  --------  ---------  -------- 
                                    587,242   368,679     33,095   989,016 
-----------------------------  ------------  --------  ---------  -------- 
 

Directors' fees and consultancy fees for 2018 and 2019 were paid in cash.

No director held or exercised any share options during the years ended 31 December 2018 and 31 December 2019.

10 Staff numbers and costs

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

 
                                  2019   2018 
-------------------------------  -----  ----- 
 Management and administration      44     47 
 Exploration                        29     42 
 Mine operations                   705    656 
-------------------------------  -----  ----- 
                                   778    745 
-------------------------------  -----  ----- 
 

The aggregate payroll costs of these persons were as follows:

 
                                      2019    2018 
                                      $000    $000 
----------------------------------  ------  ------ 
 Wages and salaries                  6,750   7,559 
 Social security costs               1,701   1,580 
 Costs capitalised as exploration    (425)   (431) 
----------------------------------  ------  ------ 
                                     8,026   8,708 
----------------------------------  ------  ------ 
 

Remuneration of key management personnel

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

 
                                      2019        2018 
                                         $           $ 
------------------------------  ----------  ---------- 
 Short-term employee benefits    1,674,133   1,943,329 
------------------------------  ----------  ---------- 
 

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

11 Finance costs

 
                                                2019    2018 
                                                $000    $000 
--------------------------------------------  ------  ------ 
 Interest charged on interest-bearing loans 
  and borrowings                                 466   1,150 
 Finance charges on letters of credit             12       3 
 Interest expense on lease liabilities           353       - 
 Unwinding of discount on provisions             438     489 
--------------------------------------------  ------  ------ 
                                               1,269   1,642 
--------------------------------------------  ------  ------ 
 

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

Where a portion of the loans has been used to finance the construction and purchase of assets of the Group ('qualifying assets'), the interest on that portion of the loans has been capitalised up until the time the assets were substantially ready for use. For the year ended 31 December 2019, $nil (2018: $nil) interest was capitalised.

12 Taxation

Corporation tax is calculated at 32 per cent. (as stipulated in the production sharing agreement for R.V. Investment Group Services LLC ("RVIG")) in the Republic of Azerbaijan, the entity that contributes the most significant portion of profit before tax in the Group financial statements) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. Deferred income taxes arising in RVIG are recognised and fully disclosed in these Group financial statements. RVIG's unutilised tax losses at 31 December 2019 were $nil (2018: $nil).

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

 
                                                  2019    2018 
                                                  $000    $000 
---------------------------------------------  -------  ------ 
 Current income tax 
 Current income tax charge                       7,208   7,288 
 Deferred tax 
 Charge relating to origination and reversal 
  of temporary differences                       3,579   1,623 
---------------------------------------------  -------  ------ 
 Income tax charge for the year                 10,787   8,911 
---------------------------------------------  -------  ------ 
 

Deferred income tax at 31 December relates to the following:

 
                                           Statement 
                                          of financial 
                                            position              Income statement 
                                     --------------------       ------------------- 
 
                                          2019       2018            2019      2018 
                                          $000       $000            $000      $000 
-----------------------------------  ---------  ---------  ---  ---------  -------- 
 Deferred income tax liability 
 Property, plant and equipment 
  - accelerated depreciation          (18,072)   (18,165)              93     (331) 
 Right of use assets - accelerated 
  depreciation                         (1,159)          -         (1,159)         - 
 Non-current prepayments                  (21)      (139)             118       141 
 Trade and other receivables           (2,062)    (1,280)           (782)     (484) 
 Inventories                          (12,604)    (9,493)         (3,111)      (58) 
-----------------------------------  ---------  ---------  --- 
 Deferred tax liability               (33,918)   (29,077) 
-----------------------------------  ---------  ---------  --- 
 Deferred income tax asset 
 Trade and other payables 
  and provisions *                       2,765      3,171           (406)       804 
 Lease liabilities                       1,202          -           1,202         - 
 Asset retirement obligation 
  *                                      3,355      2,889             466     (192) 
 Carry forward losses **                     -          -               -   (1,503) 
-----------------------------------  ---------  ---------  --- 
 Deferred tax asset                      7,322      6,060 
-----------------------------------  ---------  ---------  ---  ---------  -------- 
 Deferred income tax charge                                       (3,579)   (1,623) 
-----------------------------------  ---------  ---------  ---  ---------  -------- 
 Net deferred income tax 
  liability                           (26,596)   (23,017) 
-----------------------------------  ---------  ---------  ---  ---------  -------- 
 

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

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

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

 
                                                   2019     2018 
                                                   $000     $000 
----------------------------------------------  -------  ------- 
 Profit before tax                               30,130   25,246 
----------------------------------------------  -------  ------- 
 
 Theoretical tax charge at statutory rate 
  of 32 per cent. for RVIG*                       9,642    8,079 
 Effects of different tax rates for certain 
  Group entities (20 per cent.)                     198      161 
 Tax effect of items which are not deductible 
  or assessable for taxation purposes: 
 - non-deductible expenses                          947      732 
 - non-taxable income                                 -     (61) 
----------------------------------------------  -------  ------- 
 Income tax charge for the year                  10,787    8,911 
----------------------------------------------  -------  ------- 
 

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

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

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

At 31 December 2019, the Group had unused tax losses available for offset against future profits of $20,181,000 (2018: $18,648,000). Unused tax losses in the Republic of Azerbaijan at 31 December 2019 were $nil (2018: $nil). No deferred tax assets have been recognised in respect of jurisdictions other than the Republic of Azerbaijan due to the uncertainty of future profit streams.

13 Profit per share

The calculation of basic and diluted profit per share is based upon the retained profit for the financial year of $19,343,000 (2018: $16,335,000).

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

 
                   2019         2018 
---------  ------------  ----------- 
 Basic      114,392,024  114,047,503 
---------  ------------  ----------- 
 Diluted    114,392,024  114,047,503 
---------  ------------  ----------- 
 

At 31 December 2019 there were no unexercised share options that could potentially dilute basic earnings per share (2018: nil).

14 Intangible assets

 
                           Exploration      Exploration      Exploration                    Other 
                        and evaluation   and evaluation   and evaluation     Mining    intangible 
                               Gedabek            Gosha          Ordubad     rights        assets     Total 
                                  $000             $000             $000       $000          $000      $000 
---------------------  ---------------  ---------------  ---------------  ---------  ------------  -------- 
 Cost 
 1 January 2018                  1,110                -            4,153     41,925           529    47,717 
 Additions                       2,326              350              192          -             8     2,876 
                       ---------------  ---------------  ---------------  ---------  ------------  -------- 
 31 December 2018                3,436              350            4,345     41,925           537    50,593 
 Additions                       2,838              480            1,191          -            25     4,534 
---------------------  ---------------  ---------------  ---------------  ---------  ------------  -------- 
 31 December 2019                6,274              830            5,536     41,925           562    55,127 
---------------------  ---------------  ---------------  ---------------  ---------  ------------  -------- 
 
 Amortisation and 
  impairment* 
 1 January 2018                      -                -                -     31,207           365    31,572 
 Charge for the year                 -                -                -      1,948            42     1,990 
---------------------  ---------------  ---------------  ---------------  ---------  ------------  -------- 
 31 December 2018                    -                -                -     33,155           407    33,562 
 Charge for the year                 -                -                -      1,578            22     1,600 
---------------------  ---------------  ---------------  ---------------  ---------  ------------  -------- 
 31 December 2019                    -                -                -     34,733           429    35,162 
---------------------  ---------------  ---------------  ---------------  ---------  ------------  -------- 
 
 Net book value 
 31 December 2018                3,436              350            4,345      8,770           130    17,031 
---------------------  ---------------  ---------------  ---------------  ---------  ------------  -------- 
 31 December 2019                6,274              830            5,536      7,192           133    19,965 
---------------------  ---------------  ---------------  ---------------  ---------  ------------  -------- 
 

*355,000 ounces of gold at 1 January 2019 were used to determine depreciation of producing mines, mining rights and other intangible assets (2018: 367,000 ounces). A 5 per cent. increase or decrease in the ounces of gold used to compute the amortisation of intangible assets would result in a decrease in amortisation of $76,000 and an increase in amortisation of $84,000 respectively.

15 Property, plant and equipment

 
 
                                Plant and 
                                equipment     Producing           Assets     Total 
                                      and         mines            under 
                           motor vehicles                   construction 
                                     $000          $000             $000      $000 
-----------------------  ----------------  ------------  ---------------  -------- 
 Cost 
 1 January 2018                    21,899       188,972            4,381   215,252 
 Additions                          2,205        10,091            3,722    16,018 
 Transfer to producing 
  mines                                 -         7,581          (7,581)         - 
 Disposal                               -             -            (209)     (209) 
 Decrease in provision 
  for rehabilitation                    -       (1,089)                -   (1,089) 
-----------------------  ----------------  ------------  ---------------  -------- 
 31 December 2018                  24,104       205,555              313   229,972 
 Additions                            484         3,835                8     4,327 
 Transfer to producing 
  mines                                 -           241            (241)         - 
 Increase in provision 
  for rehabilitation                    -         1,018                -     1,018 
-----------------------  ----------------  ------------  ---------------  -------- 
 31 December 2019                  24,588       210,649               80   235,317 
-----------------------  ----------------  ------------  ---------------  -------- 
 
 Depreciation and 
  impairment* 
 1 January 2018                    16,421       111,444                -   127,865 
 Charge for the 
  year                              1,751        19,206                -    20,957 
-----------------------  ----------------  ------------  ---------------  -------- 
 31 December 2018                  18,172       130,650                -   148,822 
 Charge for the 
  year                              1,851        14,916                -    16,767 
-----------------------  ----------------  ------------  ---------------  -------- 
 31 December 2019                  20,023       145,566                -   165,589 
-----------------------  ----------------  ------------  ---------------  -------- 
 
 Net book value 
 31 December 2018                   5,932        74,905              313    81,150 
-----------------------  ----------------  ------------  ---------------  -------- 
 31 December 2019                   4,565        60,083               80    69,728 
-----------------------  ----------------  ------------  ---------------  -------- 
 

*355,000 ounces of gold at 1 January 2019 were used to determine depreciation of producing mines, mining rights and other intangible assets (2018: 367,000 ounces). A 5 per cent. increase or decrease in the ounces of gold used to compute the depreciation of property plant and equipment would result in a decrease in depreciation of $512,000 and an increase in depreciation of $556,000 respectively.

No impairment losses were recognised by the Group at 31 December 2019 or 31 December 2018.

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

   -    Production volumes; 
   -    Commodity prices; 
   -    Discount rates; 
   -    Foreign exchange rates; and 
   -    Capital and operating costs. 

The management assessed that there were no indicators of impairment at 31 December 2018 and 31 December 2019. Accordingly, no impairment analysis was performed for the balance sheet at 31 December 2018 and 31 December 2019.

The capital commitments by the Group have been disclosed in note 30.

16 Leases

Right of use assets

 
                                        Plant and 
                                        equipment      Land and     Total 
                                              and     buildings 
                                   motor vehicles 
                                             $000          $000      $000 
--------------------------------  ---------------  ------------  -------- 
 Cost 
 1 January and 31 December 2019             3,934           483     4,417 
--------------------------------  ---------------  ------------  -------- 
 
   Depreciation 
 1 January 2019                                 -             -         - 
 Charge for the year                          657           138       795 
--------------------------------  ---------------  ------------  -------- 
 31 December 2019                             657           138       795 
--------------------------------  ---------------  ------------  -------- 
 Net book value 
 31 December 2018                               -             -         - 
--------------------------------  ---------------  ------------  -------- 
 31 December 2019                           3,277           345     3,622 
--------------------------------  ---------------  ------------  -------- 
 

Lease liabilities

 
                                Total 
                                 $000 
  -------------------------  -------- 
 1 January 2019                 4,417 
 Interest expense                 353 
 Repayment                    (1,014) 
 31 December 2019               3,756 
---------------------------  -------- 
 Current liabilities            1,015 
 Non-current liabilities        2,741 
---------------------------  -------- 
                                3,756 
  -------------------------  -------- 
 

Amount recognised in the profit and loss account

 
                                                 2019   2018 
                                                 $000   $000 
---------------------------------------------  ------  ----- 
 Depreciation expense of right of use assets      795      - 
 Interest expense                                 353      - 
 Expenses relating to short term leases           200      - 
 Operating leases                                   -  1,058 
                                                1,348  1,058 
---------------------------------------------  ------  ----- 
 

The amount of future lease commitments for short-term leases at 31 December 2018 and 2019 are similar to the amounts expensed in 2018 and 2019 respectively as the level of leasing activity has not changed. As these amounts are not dissimilar to the expense for the respective years, the amounts of the lease commitments have not been disclosed.

17 Trade and other receivables

 
                                                        1 January 
                                         2019    2018        2018 
 Non-current assets                      $000    $000        $000 
-------------------------------------  ------  ------  ---------- 
 Advances for fixed asset purchases        67     436         860 
 Loans                                      -       -          15 
-------------------------------------  ------  ------  ---------- 
                                           67     436         875 
-------------------------------------  ------  ------  ---------- 
 
 Current assets 
-------------------------------------  ------  ------  ---------- 
 Gold held due to the Government of 
  Azerbaijan                           18,684   2,898       7,445 
 VAT refund due                           735     312         206 
 Other tax receivable                     207   1,016         891 
 Trade receivables - amortised cost*        -     250         440 
 Trade receivables - fair value**           -   1,988           - 
 Prepayments and advances               2,012   1,927       2,187 
 Loans                                     60     105         107 
 Cash in transit***                     5,085       -           - 
-------------------------------------  ------  ------  ---------- 
                                       26,783   8,496      11,276 
-------------------------------------  ------  ------  ---------- 
 

* Trade receivables not subject to provisional pricing.

**Trade receivables subject to provisional pricing

*** This was a payment from a customer prior to the year end which was not received until early January due to a delay by the bank.

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

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

The Group does not consider any trade or other receivable as past due or impaired. All receivables at amortised cost have been received shortly after the balance sheet date and therefore the Group does not consider that there is any credit risk exposure. No provision for any expected credit loss has therefore been established in 2018 or 2019.

The VAT refund due at 31 December 2019, 2018 and 2017 relates to VAT paid on purchases.

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

18 Inventory

 
                                                 2019     2018 
 Current assets                                  $000     $000 
--------------------------------------------  -------  ------- 
 Cost 
 Finished goods - bullion                       1,973      319 
 Finished goods - metal in concentrate            863      458 
 Metal in circuit                              17,041   14,105 
 Ore stockpiles                                10,615    6,371 
 Spare parts and consumables                   13,389   12,906 
--------------------------------------------  -------  ------- 
 Total current inventories                     43,881   34,159 
--------------------------------------------  -------  ------- 
 Total inventories at the lower of cost and 
  net realisable value                         43,881   34,159 
--------------------------------------------  -------  ------- 
 

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

19 Cash and cash equivalents

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

The Group's cash on hand and cash held within financial institutions at 31 December 2019 (including short-term cash deposits) comprised $8,000 and $17,793,000 respectively (2018: $39,000 and $14,501,000).

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

20 Trade and other payables

 
                                                    2019     2018 
                                                    $000     $000 
-----------------------------------------------  -------  ------- 
 Accruals and other payables                       4,950    5,581 
 Trade creditors                                   2,544    3,065 
 Gold held due to the Government of Azerbaijan    18,684    2,898 
 Payable to the Government of Azerbaijan 
  from copper concentrate joint sale               1,332    1,680 
                                                  27,510   13,224 
-----------------------------------------------  -------  ------- 
 

Trade creditors primarily comprise amounts outstanding for trade purchases and ongoing costs. Trade creditors are non interest--bearing and the creditor days were 16 (2018: 18). Accruals and other payables mainly consist of accruals made for accrued but not paid salaries, bonuses, related payroll taxes and social contributions, accrued interest on borrowings and services provided but not billed to the Group by the end of the reporting period. The directors consider that the carrying amount of trade and other payables approximates to their fair value.

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

21 Interest-bearing loans and borrowings

 
                                           2019    2018 
                                           $000    $000 
---------------------------------------  ------  ------ 
 
   Pasha Bank - refinancing loan          1,688   8,438 
---------------------------------------  ------  ------ 
 
 Loans repayable in less than one year    1,688   6,750 
 Loans repayable in more than one year        -   1,688 
---------------------------------------  ------  ------ 
                                          1,688   8,438 
---------------------------------------  ------  ------ 
 

The directors consider that the carrying amount of interest-bearing loans and borrowings approximates to their fait value.

Pasha Bank - refinancing loan

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

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

   --   $2.2 million to Yapi Credit Bank; 
   --   $3.7 million to Amsterdam Trade Bank N. V.; 
   --   $3.7 million to Gazprombank (Switzerland) Ltd; and 
   --   $3.9 million to the Chief Executive. 

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

Unused credit facilities

The Group had a $2 million credit facility from Yapi Credit Bank at 31 December 2019 which was not utilised (2018: $2 million).

22 Changes in liabilities arising from financing activities

 
 
 
                                                       2019 
                                 --------------------------------------------- 
                                  1 January   Cash flows   Other   31 December 
                                       $000         $000    $000          $000 
-------------------------------  ----------  -----------  ------  ------------ 
 Current interest-bearing 
  loans and borrowings                6,750      (5,062)       -         1,688 
 Non-current interest- 
  bearing loans and borrowings        1,688      (1,688)       -             - 
 Lease liabilities                        -      (1,014)   4,770         3,756 
-------------------------------  ----------  -----------  ------  ------------ 
 Total liabilities from 
  financing activities                8,438      (7,764)   4,770         5,444 
-------------------------------  ----------  -----------  ------  ------------ 
 
 
 
 
                                                       2018 
                                 --------------------------------------------- 
                                  1 January   Cash flows   Other   31 December 
                                       $000         $000    $000          $000 
-------------------------------  ----------  -----------  ------  ------------ 
 Current interest-bearing 
  loans and borrowings               20,051     (13,301)       -         6,750 
 Non-current interest- 
  bearing loans and borrowings          600        1,088       -         1,688 
-------------------------------  ----------  -----------  ------  ------------ 
 Total liabilities from 
  financing activities               20,651     (12,213)       -         8,438 
-------------------------------  ----------  -----------  ------  ------------ 
 

Other in 2019 results from the implementation of IFRS 16 - "Leases" (note 16).

23 Provision for rehabilitation

 
                                              2019      2018 
                                              $000      $000 
-----------------------------------------  -------  -------- 
 1 January                                   9,028     9,629 
 Additions                                     292       654 
 Accretion expense                             438       489 
 Effect of passage of time and change in 
  discount rate                                727   (1,744) 
-----------------------------------------  -------  -------- 
 31 December                                10,485     9,028 
-----------------------------------------  -------  -------- 
 

The Group has a liability for restoration, rehabilitation and environmental costs arising from its mining operations. Estimates of the cost of this work including reclamation costs, close down and pollution control are made on an ongoing basis, based on the estimated life of the mine. This provision represents the net present value of the best estimate of the expenditure required to settle the obligation to rehabilitate any environmental disturbances caused by mining operations. The undiscounted liability for rehabilitation at 31 December 2019 was $12,211,000 (2017: $12,100,000). The undiscounted liability was discounted using a risk-free rate of 2.94 per cent. (2018: 4.83 per cent.). Expenditures on restoration and rehabilitation works are expected between 2023 and 2025 (2018: between 2023 and 2025).

24 Financial instruments

Financial risk management objectives and policies

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

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

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

The sensitivity has been prepared for the years ended 31 December 2019 and 2018 using the amounts of debt and other financial assets and liabilities held as at those reporting dates.

Capital risk management

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

The Group is not subject to externally imposed capital requirements and monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group's policy is to keep the gearing ratio below 70 per cent.

Interest rate risk

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

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

The Group has not used any interest rate swaps or other instruments to manage its interest rate profile during 2019 and 2018.

Liquidity risk

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

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

Year ended 31 December 2019

 
                                   On        Less      3 to     1 to    Total 
                               demand        than        12        5     $000 
                                 $000    3 months    months    years 
                                             $000      $000     $000 
--------------------------  ---------  ----------  --------  -------  ------- 
 Interest-bearing loans 
  and borrowings                    -       1,688         -        -    1,688 
 Lease liabilities                  -         170       846    2,740    3,756 
 Trade and other payables           -      27,510         -        -   27,510 
--------------------------  ---------  ----------  --------  -------  ------- 
                                    -      29,368       846    2,740   32,954 
 ------------------------------------  ----------  --------  -------  ------- 
 

Year ended 31 December 2018

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

Credit risk

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

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

Foreign currency risk

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

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

 
                       Liabilities            Assets 
                     --------------       -------------- 
                       2019    2018         2019    2018 
                       $000    $000         $000    $000 
-------------------  ------  ------  ---  ------  ------ 
 UK Sterling              -       1          130     334 
 Azerbaijan Manats    5,226   3,228        1,044   1,784 
 Other                  139     297            -       3 
-------------------  ------  ------  ---  ------  ------ 
 

Foreign currency sensitivity analysis

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

The following table details the Group's sensitivity to an 9 per cent., 8 per cent. and 10 per cent. (2018: 8 per cent., 7 per cent. and 12 per cent.) increase and a 9 per cent., 8 per cent., and 3 per cent. (2018: 11 per cent., 11 per cent., and 3 per cent.) decrease in the United States Dollar against United Kingdom Sterling, Euro and Azerbaijan Manat, respectively. These are the sensitivity rates used when reporting foreign currency risk internally to key management personnel and represents management's assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for respective change in foreign currency rates. A positive number below indicates an increase in profit and other equity where the United States Dollar strengthens by the mentioned rates against the relevant currency. Weakening of the United States Dollar against the relevant currency, there would be an equal and opposite impact on the profit and other equity, and the balances below would be reversed.

 
                                 UK Sterling      Azerbaijan       Euro Impact 
                                    impact        Manat impact 
                               --------------  ----------------  -------------- 
                                 2019    2018      2019    2018    2019    2018 
                                 $000    $000      $000    $000    $000    $000 
-----------------------------  ------  ------  --------  ------  ------  ------ 
 Increase - effect on profit 
  before tax                     (12)    (27)       418     173      11      21 
 Decrease - effect on profit 
  before tax                       12      37     (125)    (43)    (11)    (32) 
-----------------------------  ------  ------  --------  ------  ------  ------ 
 

Market risk

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

A 10 per cent. decrease in gold price in the year ended 31 December 2019 would result in a reduction in revenue of $8.5 million and a 10 per cent. increase in gold price would have the equal and opposite effect. A 10 per cent. decrease in silver price would result in a reduction in revenue of $0.3 million and a 10 per cent. increase in silver price would have an equal and opposite effect. A 10 per cent. decrease in copper price would result in a reduction in revenue of $1.2 million and a 10 per cent. increase in copper price would have an equal and opposite effect.

25 Equity

 
                                           2019                          2018 
                               ----------------------------  ---------------------------- 
                                       Number           GBP          Number           GBP 
-----------------------------  --------------  ------------  --------------  ------------ 
 Authorised 
  Ordinary shares of 1 pence 
  each                            600,000,000     6,000,000     600,000,000     6,000,000 
-----------------------------  --------------  ------------  --------------  ------------ 
 
                                       Shares          $000          Shares          $000 
-----------------------------  --------------  ------------  --------------  ------------ 
 Ordinary shares issued and 
  fully paid 
  1 January and 31 December       114,392,024         2,016     114,392,024         2,016 
-----------------------------  --------------  ------------  --------------  ------------ 
 

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

Share options

The Group has share option scheme under which options to subscribe for the Company's shares have been granted to certain executives and senior employees. There were no share options outstanding at 31 December 2018 and 2019 (note 26).

Merger reserve

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

26 Share-based payment

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

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

 
                                      2019                   2018 
                              --------------------   -------------------- 
                                              WAEP                   WAEP 
                                  Number     pence       Number     pence 
----------------------------  ----------  --------   ----------  -------- 
 I January                             -          -     631,000        17 
 Exercised during the year             -          -   (631,000)        17 
 Outstanding at 31 December            -          -           -         - 
----------------------------  ----------  ---------  ----------  -------- 
 

There were no share options issued in 2018 or 2019.

   27   Share premium account 
 
                              2019       2018 
                              $000       $000 
--------------------------  ------  --------- 
 1 January                      33     32,484 
 Issue of shares                 -        141 
 Court approved reduction        -   (32,592) 
--------------------------  ------  --------- 
 31 December                    33         33 
--------------------------  ------  --------- 
 

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

The reduction in the share premium account to $nil was approved by the court on 28 August 2018. The share premium account of $33,000 at 31 December 2018 and 31 December 2019 is the share premium on shares issued subsequent to the court approved reduction.

28 Distributions made and proposed

 
                                                2019    2018 
                                                $000    $000 
--------------------------------------------  ------  ------ 
 Cash dividends on ordinary shares declared 
  and paid 
 Interim dividend for 2018: 3.0 US cents 
  per share                                        -   3,432 
 Final dividend for 2018: 4.0 US cents per     4,592       - 
  share 
 Interim dividend for 2019: 3.5 US cents       4,104       - 
  per share 
--------------------------------------------  ------  ------ 
                                               8,696   3,432 
--------------------------------------------  ------  ------ 
 Proposed dividends on ordinary shares 
 Final dividend for 2019: 4.5 US cents per     5,148       - 
  share* 
--------------------------------------------  ------  ------ 
 

Cash dividends are declared in US dollars but paid in pounds Sterling. Dividends are converted into pounds Sterling using a five day average of the sterling closing mid-price published by the Bank of England at 4pm each day for a specified week prior to payment of the dividend.

The rates used to convert the dividends from US dollars into pounds Sterling for the dividends above which have been paid and the corresponding sterling amount of dividend are as follows:

 
                                              Conversion   Dividend 
                                                    rate      pence 
-------------------------------------------  -----------  --------- 
 Interim dividend for 2018: 3 US cents per 
  share                                           1.3121     2.2864 
 Final dividend for 2018: 4.0 US cents per 
  share                                           1.2580     3.1797 
 Interim dividend for 2019: 3.5 US cents 
  per share                                       1.2344     2.8533 
-------------------------------------------  -----------  --------- 
 

*The proposed final dividend for the year ending 31 December 2019 is subject to approval by shareholders at the annual general meeting for 2020 at a rate to be announced. It has not been recognised as a liability in the Group statement of financial position at 31 December 2019.

29 Subsidiary undertakings

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

The Company's subsidiaries at 31 December 2019 are as follows:

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

There has been no change in subsidiary undertakings since 1 January 2019.

30 Contingencies and commitments

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

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

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

31 Related party transactions

Trading transactions

During the years ended 31 December 2018 and 2019, there were no trading transactions between Group companies.

Other related party transactions

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

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

b) During the year ended 31 December 2019, total payments of $887,000 (2018: $2,563,000) were made for processing equipment and supplies purchased from Proses Muhendislik Danismanlik Inshaat ve Tasarim Anonim Shirket, an entity in which the chief technical officer of Azerbaijan International Mining Company has a direct ownership interest.

At 31 December 2019 there is a payable in relation to the above related party transaction of $nil (2018: $51,000).

c) During the year ended 31 December 2019, total payments of $1,865,000 (2018: $nil) were made for processing equipment and supplies purchased from F&H Group LLC "F&H"), an entity in which the chief technical officer of Azerbaijan International Mining Company has a direct ownership interest.

At 31 December 2019 there is a payable in relation to the above related party transaction of $134,000 (2018: $nil).

d) On 20 May 2015, the chief executive of the Company made a $4 million loan facility available to the Group. The principal amount of the loan was fully repaid during the year ended 31 December 2018. The interest accrued and unpaid at 31 December 2018 was $325,000 (2017: $655,000). The Group made a payment of $333,000 in April 2019 to the chief executive to settle the interest outstanding at 31 December 2018 together with the additional interest accrued in 2019.

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

32 Subsequent event

Between September and December 2019, an outbreak of a respiratory illness caused by the COVID-19 coronavirus started in Wuhan, Hubei Province, China. To contain the spread of the virus in Azerbaijan, the Government of Azerbaijan (the "Government") implemented various restrictions starting from early March 2020. These included the closure of all land borders to passengers (but not to freight) and the temporary suspension of all scheduled domestic and international flights on 3 April 2020. Domestic travel around the country and the movement of people was also severely curtailed.

The Company produces gold doré and copper concentrate at its Gedabek facility. In response to the COVID-19 outbreak, the Company implemented strict health measures to prevent an occurrence of the Coronavirus at its Gedabek production facilities. These included many hygiene measures such as the provision of hand disinfectants, deep cleaning of work areas and key employee homes and the provision of take away food to avoid the close gathering of people in canteens. An education progamme for employees was carried out and the Gosha accommodation camp redeployed as a quarantine facility. The Company has been able to continue in operation without serious disruption and maintain production of gold doré and copper concentrate. The Company also agreed terms for a $15 million standby credit facility with Pasha Bank as a contingency measure.

The majority of the Group's revenue is generated from the sale of gold bullion produced by refining gold doré at refiners located in Switzerland. In March 2020, the refiners announced suspension of their operations after the Swiss authorities announced the closure of all non-essential industry. The Company consigns its gold doré to Switzerland by scheduled air flights which was no longer possible from March 2020. The Company shipped one consignment of gold doré in early April 2020 by air-charter and the refiners announced that from mid-April 2020 they have resumed limited operations. The Company continues to ship copper concentrate by road.

The Company has implemented many measures to mitigate the effects of COVID-19 as set out above. However, the duration and intensity of this global health emergency and related disruption is uncertain, including the effect it will have on the ability of the Company to continue its operations and sell its products. No adjustments were made to the Group's statement of income or cash flows for the year ended 31 December 2019 or its statement of financial position at 31 December 2019. The COVID-19 pandemic has not affected the ability of the Company to continue as a going concern as set out in note 2 above and the Company does not expect any resultant impairment to assets in the financial statements for the year ending 31 December 2020. Given the dynamic nature of these circumstances, the final impact on the Group's statement of income, financial position and cash flows cannot be reasonably estimated at the time of signing these financial statements.

Market Abuse Regulation (MAR) Disclosure

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

**S**

Notes:

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

The Company's main operating location is the Gedabek contract area ("Gedabek") which is a 300 square kilometre area in the Lesser Caucasus mountains in western Azerbaijan. The Company developed Azerbaijan's first operating gold/copper/silver mine at Gedabek which commenced gold production in May 2009. Mining at Gedabek was initially from its main open pit which is an open cast mine with a series of interconnected pits. The Company also operates the high grade Gadir underground mine which is co-located at the Gedabek site. In September 2017, production commenced at the Ugur open pit mine, a recently discovered gold ore deposit at Gedabek. The Company has a second underground mine, Gosha, which is 50 kilometres from Gedabek. Ore mined at Gosha is processed at Anglo Asian's Gedabek plant.

The Company produced 81,399 gold equivalent ounces ("GEOs") for the year ended 31 December 2019. Gedabek is a polymetallic ore deposit that has gold together with significant concentrations of copper in the main open pit mine, and an oxide gold-rich zone at Ugur. The Company therefore employs a series of flexible processing routes to optimise metal recoveries and efficiencies. The Company produces gold doré through agitation and heap leaching operations, copper concentrate from its Sulphidisation, Acidification, Recycling, and Thickening (SART) plant and also a copper and precious metal concentrate from its flotation plant.

The Company has a production target for the year to 31 December 2020 of 65,000 ounces to 67,000 ounces of gold and 2,200 tonnes to 2,400 tonnes of copper. This total production target expressed as gold equivalent ounces ("GEOs") is between 75,000 GEOs and 80,000 GEOS.

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

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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