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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Atalaya Mining Plc | LSE:ATYM | London | Ordinary Share | CY0106002112 | ORD 7.5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 1.50 | 0.34% | 443.00 | 439.00 | 440.50 | 452.50 | 437.50 | 443.50 | 522,694 | 16:35:08 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Metal Mining Services | 341.98M | 38.77M | - | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMATYM
RNS Number : 0039J
Atalaya Mining PLC
27 March 2018
27 March 2018
Atalaya Mining Plc
("Atalaya" and/or the "Group")
Results for the year ended 31 December 2017
First full year of commercial production: EUR41 million EBITDA for 37,100 tonnes of Cu
Atalaya Mining Plc (AIM: ATYM; TSX: AYM) is pleased to announce its audited consolidated results for the year ended 31 December 2017.
Operational Highlights
Proyecto Riotinto
-- 2017 has been the first full year of commercial production with throughput reporting 8.8 million tonnes of ore processed and stable operations quarter-on-quarter.
-- Copper production was 37,164 tonnes, in line with 2017 guidance and 42% higher than 26,179 tonnes produced in 2016.
-- Copper grade was also consistent with estimates averaging 0.50% for 2017, in line with previous year.
-- Recovery rate was above estimates, increasing to approximately 85.5%, a material improvement on 2016 rate of 83.3%.
-- 2018 production guidance targeting an improvement on 2017, with contained copper estimated within 37,000 - 40,000 tonnes.
Expansion of Proyecto Riotinto
-- In June 2017, the Board of Directors approved a feasibility study to increase mining and processing capacity to 15.0 Mtpa.
-- The study was completed in Q3 2017, concluding that the expansion was technically and financially robust.
-- The expansion project was then approved for implementation in Q4 2017. The Group raised funds of EUR34.7 million to launch the expansion in December 2017.
-- The capital cost estimate is EUR80.4 million with commissioning scheduled for the second half of 2019. Total copper production is estimated to reach 50,000 - 55,000 tonnes per year once the expansion project is fully operational.
Proyecto Touro
-- Permitting is progressing according to schedule. Reports were received as part of the permitting process and project improvements were suggested. Consultants have already been engaged to address these recommendations.
-- A technical report is close to completion at pre-feasibility level of detail and in compliance with NI 43-101 guidelines. The report will be released in Q2 2018 once additional project improvements are incorporated to accommodate the final permitting process.
-- In Q3 2017, the Group signed an option agreement to acquire exploration concessions covering 122.7 km(2) immediately surrounding Proyecto Touro, where mineralised copper occurrences are documented.
-- An exploration campaign was initiated during the year over the newly optioned exploration concessions around Proyecto Touro. The campaign included an airborne VTEM geophysical survey, detailed assessment of structural geology and a regional geochemical campaign.
Financial Highlights
-- Sales amounted to EUR160.5 million in 2017. Inventory of 7,274 tonnes of copper concentrate as of 31 December 2017 were shipped during Q1 2018.
-- Group operating costs and corporate costs amounted to EUR114.7 million and EUR4.5 million, respectively, providing an EBITDA of EUR41.4 million for the twelve months ended 31 December 2017.
-- Cash costs for 2017 were US$1.91/lb of payable copper, providing healthy margins and positive cash flows at average market copper prices of $2.80/lb during the year. AISC averaged $2.30/lb of payable copper for the year. Increases over guidance of $2,20/lb were mainly due to unfavourable foreign exchange and one-off sustaining costs (construction of cover for the coarse ore stockpile). AISC costs were within guidance for the first three quarters of 2017.
-- Net income of EUR18.2 million (or 15.5 cents per outstanding share).
-- As at 31 December 2017, reported net assets totalled EUR246.9 million, comprising non-current assets of EUR283.5 million, non-current liabilities of EUR58.7 million and working capital of EUR22.1 million. Long term liabilities include the deferred consideration to Astor presented by the nominal amount of EUR53 million and the rehabilitation provisions of EUR5.5 million. Working capital includes EUR34.7 million of cash from the proceeds of the equity raised in December 2017.
-- During 2017, the Group fully repaid the Transamine Trading S.A. prepayment signed in September 2016 and the Social Security debt signed prior to the declaration of production.
-- Positive cash flows from operating activities for the twelve months ended 31 December 2017 amounted to EUR30.5 million. Cash used for investing activities was EUR22.7 million, mainly for deferred mining costs, sustaining capital expenditure at Proyecto Riotinto and capitalised costs at Proyecto Touro. Financing surplus cash flow of EUR33.9 million was from the equity raised in December 2017.
Corporate Highlights
-- On 25 April 2017, Atalaya and Astor applied for permission to appeal to the Court of Appeal. On 11 August 2017, the Court of Appeal granted permission to both parties to appeal (although it rejected three of Astor's seven grounds). The Appeal is anticipated to take place in May 2018.
Alberto Lavandeira, CEO commented:
"We are delighted to report that our first full year of production at Proyecto Riotinto has been a success, with incremental operating improvements each quarter. We remain positive on the outlook for copper and believe that our plans to expand Riotinto to 15Mtpa and to deliver Proyecto Touro will ensure that these two projects commence production when the fundamentals for copper are at their most robust. 2018 will be another year of exciting progress as we implement these plans to grow our business."
About Atalaya Mining Plc
Atalaya is an AIM and TSX listed operational and development group which produces copper concentrates and silver by-product at its fully owned Proyecto Riotinto site in southwest Spain. In addition, the Group has a phased, earn-in agreement for up to 80% ownership of Proyecto Touro, a brownfield copper project in the northwest of Spain which is currently in the permitting stage. For further information, visit www.atalayamining.com
This announcement contains information which, prior to its publication constituted inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.
Contacts:
Hot Features
Premium
Charlie Chichester
Newgate Communications / James Ash / James +44 20 7680
(Financial PR) Browne 6550
------------------------ ---------------------------- ------------
4C Communications +44 20 3170
(Investor Relations) Carina Corbett 7973
------------------------ ---------------------------- ------------
Canaccord Genuity Martin Davison /
(NOMAD and Joint Henry Fitzgerald-O'Connor +44 20 7523
Broker) / James Asensio 8000
------------------------ ---------------------------- ------------
BMO Capital Markets Jeffrey Couch / Neil +44 20 7236
(Joint Broker) Haycock / Tom Rider 1010
------------------------ ---------------------------- ------------
i. Operational review
Proyecto Riotinto
The following table presents a summarised statement of operations of Proyecto Riotinto for the twelve months ended 31 December 2017 and 31 December 2016.
Units expressed in accordance with the international system of units (SI)
Unit FY2017 FY2016(1)
Ore mined t 9,340,028 7,754,499
Ore processed t 8,796,715 6,505,762
Copper ore grade % 0.50 0.49
Copper concentrate grade % 22.39 21.56
Copper recovery rate % 85.45 83.29
Copper concentrate t 165,965 122,468
Copper contained in concentrate t 37,164 26,179
Payable copper contained in concentrate t 35,504 25,353
Cash cost(2) $/lb payable 1.91 1.95
All-in sustaining cost(2) $/lb payable 2.30 Not available
Notes:
The numbers in the above table may slightly differ between them due to rounding.
1) 2016 figures include pre-commissioning production for January 2016. 2) Refer to note (iii) of this Report
Mining and Processing
Mining
Mining operations are now stable quarter-on-quarter. Operations continued in the Cerro Colorado open pit and Proyecto Riotinto mined 9.3 million metric tonnes of ore during 2017. In anticipation of higher mining rates in the near future, additional mining equipment was delivered, assembled and commissioned during the second half of the year.
Processing
Ore processed during the year was 8.8 million tonnes representing an improvement over the previous year when 6.5 million tonnes were processed. Overall, hourly throughput rates were improved quarter-by-quarter as equipment availability and efficiency increased.
Copper grade was consistent with estimates averaging 0.50% for 2017, in line with the previous year. Recovery rate was above estimates, increasing to approximately 85.5%, a material improvement on last year. The copper concentrate grade was 22.4% during 2017, in line with expectations and also slightly above last year's grade.
Concentrate production for 2017 was 165,965 tonnes compared with 122,468 tonnes in 2016 (including pre-commissioning production for January 2016). Contained copper was 37,164 tonnes compared with 26,179 tonnes in 2016. Copper payable amounted to 35,504 tonnes from 25,353 tonnes in 2016.
As of the reporting date, all concentrate production was sold except for 7,374 tonnes of concentrate which were shipped during Q1 2018. Concentrate shipments were not impacted by disruptions reported at ports across Spain during Q1 2017.
A number of initiatives were delivered during the year. In Q1 2017, process water supply systems were upgraded and the main incoming electrical substation went through yearly maintenance. With regards to the environment, rehabilitation of the south waste dump commenced. During Q2 2017, a new 300 m3 primary rougher flotation cell was commissioned and installation of plastic lining in one of the paddocks of the tailings storage facilities was completed. A cover dome over the coarse ore stockpile is under construction and the installation of an additional secondary cone crusher is under evaluation.
i. Operational review (continued)
Exploration and Geology
During 2017, near-mine exploration and infill drilling were concentrated on the lateral extension of Filon Sur and the north-west extension of Cerro Colorado. Results will form part of a resource and reserve update due for completion during Q2 2018.
An airborne VTEM geophysical survey was completed during Q4 2017 with results expected in Q1 2018.
Expansion of Proyecto Riotinto
In June 2017, the board of directors approved the commencement of a study to demonstrate the feasibility of increasing mining and processing capacity at Proyecto Riotinto beyond the existing 9.5Mtpa, to a maximum of 15Mtpa. Copper production is estimated to reach 50,000 - 55,000 tonnes per year once the expansion project is fully ramped up.
The study was completed in the third quarter of 2017, concluding that the expansion was technically and financially robust. The expansion project was then approved by the board of directors in Q4 2017 and launched in December 2017.
The capital cost estimate is EUR80.4 million with commissioning scheduled for the second half of 2019.
Proyecto Touro
Permitting is progressing according to schedule. Reports were received as part of the permitting process and project improvements were suggested. Consultants have already been engaged in order to address these recommendations.
A technical report is substantially completed at pre-feasibility level of detail and in compliance with NI 43-101 guidelines. The report will be released when the additional project improvements are incorporated to accommodate the final permitting process.
During Q3 2017, the Group signed an option agreement to acquire exploration concessions that cover 122.7 km(2) immediately surrounding Proyecto Touro, where mineralised copper occurrences are documented.
An exploration campaign was initiated during the year over the newly optioned exploration concessions around Proyecto Touro. The campaign included an airborne VTEM geophysical survey, detailed assessment of structural geology and a regional geochemical campaign. The first phase of an airborne VTEM geophysical survey was completed during the last quarter of 2017 with results still pending.
ii. Operational guidance
The forward-looking information contained in this section is subject to the risk factors and assumptions contained in the cautionary statement on forward-looking statements included in the note of this report.
Proyecto Riotinto operational guidance for 2018 is as follows:
Guidance Actual Guidance
Unit 2018 2017 2017
million
Ore processed tonnes 9.6 8.8 8.7 - 9.0
Contained 37,000 36,000
copper tonnes - 40,000 37,164 - 39,000
Copper head grade for 2018 is budgeted to average between 0.47% and 0.50% Cu, with a recovery rate of approximately 84% - 86%. Cash operating costs for 2018 are expected to be in the range of $2.15/lb - $2.30/lb. AISC for 2018 is expected to be in the range of $2.50/lb - $2.60/lb Cu payable.
iii. Financial review
Results
The following table presents a summarised consolidated income statement for the twelve months ended 31 December 2017, with comparatives for twelve months ended 31 December 2016.
Twelve Twelve
months months
(Euro 000's) ended ended
31 Dec 31 Dec
2017 2016
Sales 160,537 98,768
Total operating
costs (114,687) (77,845)(1)
Corporate
expenses (4,508) (4,800)(1)
Exploration
expenses - (1,022)
Other income 5 292
----------- -------------
EBITDA 41,347 15,393
Depreciation/amortisation (16,671) (11,757)(1)
Impairment
of land options
not exercised - (903)
Net foreign
exchange
loss (2,212) (665)
Net finance
cost (557) (549)
Share of
result of
associate - (10)
Tax charge
/ (credit) (3,696) 12,187
----------- -------------
18,211 13,696
----------- -------------
(1) Include reclassifications on corporate expenses for comparative purposes
Revenues for the twelve month period ended 31 December 2017 amounted to EUR160.5 million (FY16: EUR98.8 million). Commercial production at Proyecto Riotinto was declared in February 2016. Revenue benefited from the increasing copper price.
Copper concentrate production during FY17 was 165,965 tonnes (FY16: 122,468 tonnes). Inventories of concentrates as at the reporting date were 7,374 tonnes with no inventories held as at 31 December 2016. All concentrate inventories held as of 31 December 2017 were shipped in Q1 2018.
The realised price for the twelve month period in 2017 was $2.66/lb copper compared with $2.25/lb copper in the same period of 2016. Concentrates were sold under offtake agreements in place.
Operating costs for the twelve month period ended 31 December 2017 amounted to EUR114.7 million, compared with EUR77.8 million in the twelve month period in 2016. The increase was mainly due to higher mining and processing variable costs directly attributable to an increase in copper production.
iii. Financial review (continued)
Cash costs of $1.91/lb payable copper during the twelve month period in 2017 compares with $1.95/lb payable copper in the same period last year. All-in sustaining costs for FY17 were $2.30/lb payable copper.
Sustaining capex for the twelve month period, included in capital expenditure, amounted to EUR7.4 million. Sustaining capex accounted for development programmes at the perimetric channel of tailings storage facility, optimisation of the flotation circuit and coarse ore stock pile, modifications to the processing flowsheet, upgrades at the main incoming substation and improvements to process and water supply systems.
Corporate costs for the twelve months period ended 31 December 2017 were EUR4.5 million, compared with EUR4.8 million in the twelve month period ended 31 December 2016.
Exploration costs related to Proyecto Touro were capitalised during 2017.
EBITDA for the twelve months ended 31 December 2017 amounted to EUR41.3 million, compared with EBITDA of EUR15.4 million in the same period last year.
Depreciation and amortisation amounted to EUR16.7 million in the twelve month period ended 31 December 2017 (FY16: EUR11.7 million). The increase in depreciation was mainly driven by higher production levels, as mining equipment is depreciated by using the unit of production method (Note 2.9).
Net finance costs for FY17 amounted to EUR0.6 million (FY16: EUR0.5 million) mainly related to the interest costs for the Transamine prepayment and the Social Security debt. Both the Transamine prepayment and the Social Security debt were fully repaid as of 31 December 2017.
Cash cost methodology
Following the first full year of production at Proyecto Riotinto, during the last quarter of 2017 Atalaya carried out an exhaustive analysis on the methodology applied to its operating costs reported through the year, with the main purpose of providing enough and consistent information to the market to assess the operating cash costs ("Cash Cost" or "C1") and All In Sustaining Cost ("AISC") of Proyecto Riotinto.
As a result of the analysis, management has changed the methodology used when calculating C1 and AISC in previous quarters. The following table provides a reconciliation between the C1 and AISC reported and the reclassifications and adjustments to make the information comparable.
Cash Cost C1 ($/lb) Q1 Q2 Q3 Q4 FY2017
2017 2017 2017 2017
Cash cost C1 reported $1.83 $2.07 $2.14 $2.35 $1.91
---------------------------- -------- -------- -------- ------ -------
Reclassification
from C1 to AISC
- Astor agency fee
and local corporate
costs ($0.03) ($0.06) ($0.07) - -
Ag credits ($0.09) ($0.07) ($0.07) - -
Exploration & geology
costs ($0.02) ($0.03) ($0.02) - -
Finalisation of
provision for concentrate
penalties ($0.02) ($0.04) ($0.07) - -
Finalisation of
provisions for freights,
TCs and RCs ($0.02) $0.01 ($0.07) - -
Other adjustments ($0.01) - - - -
Normalised cash
costs $1.64 $1.88 $1.84 $2.35 $1.91
---------------------------- -------- -------- -------- ------ -------
iii. Financial review (continued)
AISC ($/lb) Q1 Q2 Q3 Q4 FY2017
2017 2017 2017 2017
AISC reported $2.15 $2.30 $2.33 $2.94 $2.30
------------------- -------- -------- -------- ------ -------
Adjustments from
C1 ($0.15) ($0.13) ($0.23) - -
Reclassifications
from C1 $0.03 $0.06 $0.07 - -
Corporate costs ($0.03) ($0.02) ($0.02) - -
Other adjustments $0.01 $0.01 ($0.02) - -
------------------- -------- -------- -------- ------ -------
Normalised AISC
costs $2.01 $2.22 $2.13 $2.94 $2.30
------------------- -------- -------- -------- ------ -------
Non-GAAP Measures
Atalaya has included certain non-IFRS measures including "EBITDA", "Cash Cost per pound of payable copper" "All In Sustaining Costs" ("AISC") and "realised prices" in this report. Non-IFRS measures do not have any standardised meaning prescribed under IFRS, and therefore they may not be comparable to similar measures presented by other companies. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for indicators prepared in accordance with IFRS.
EBITDA includes gross sales net of penalties and discounts and all operating costs, excluding finance, tax, impairment, depreciation and amortisation expenses.
Cash Cost per pound of payable copper includes on-site cash operating costs, and off-site costs including treatment and refining charges ("TC/RC"), freight and distribution costs net of by-product credits. Cash Cost per pound of payable copper is consistent with the widely accepted industry standard established by Wood Mackenzie and is also known as the C1 cash cost.
AISC per pound of payable copper includes the C1 Cash Costs plus royalties and agency fees, expenditure on rehabilitations, stripping costs, exploration and geology costs, corporate costs, and sustaining capital expenditures.
Realised prices per pound of payable copper is the value of the copper payable included in the concentrate produced including the penalties, discounts, credits and other features governed by the offtake agreements of the Group and all discounts or premia provided in commodity hedge agreements with financial institutions, expressed in USD per pound of payable copper. Realised price is consistent with the widely accepted industry standard definition.
iv. Liquidity and capital resources
Atalaya monitors factors that could impact its liquidity as part of Atalaya's overall capital management strategy. Factors that are monitored include, but are not limited to, the market price of copper, foreign currency rates, production levels, operating costs, capital and administrative costs.
The following is a summary of Atalaya's cash position as at 31 December 2017 and 31 December 2016 and cash flows for the twelve months ended 31 December 2017 and 2016.
Liquidity information
(Euro 000's) 31 December 31 December
2017 2016
Unrestricted cash and
cash equivalents at Group
level 39,179 460
Unrestricted cash and
cash equivalents at Operation
level 3,427 425
Restricted cash 250 250
Working capital surplus/(deficit) 22,137 (25,382)
Unrestricted cash and cash equivalents as at 31 December 2017 increased to EUR42.6 million from EUR0.9 million at 31 December 2016. The increase in cash balances is the result of net cash flow generated by the Group in the period and the capital raised amounting to GBP31.0 million in December 2017. Cash balances are unrestricted and include balances at operational and corporate level.
iv. Liquidity and capital resources (continued)
Liquidity and capital resources (continued)
Restricted cash remains at EUR0.3 million as at 31 December 2017 and mainly relates to deposit bond guarantees.
As of 31 December 2017, Atalaya reported a working capital surplus of EUR22.1 million, compared with a working capital deficit of EUR25.4 million at 31 December 2016. Like last year, the main liability of the working capital is trade payables related to the main contractor, where the Group has reached certain agreements to reduce its deficit progressively during 2018.
In June 2017, the Group completed repayment of EUR16.9 million to the Social Security's General Treasury in Spain. The debt liability was incurred by the former owners of the assets. Repayment was completed according to the agreed repayment schedule.
In 2016, the Group entered into a US$14 million copper concentrate prepayment agreement with Transamine Trading, S.A. an independent and privately owned commodity trader company based in Geneva. The duration of the prepayment was from 2016 to 31 December 2018 with terms at market conditions and the settlement was agreed to be paid through deductions from payments received for each shipment. On 15 December 2017, the Group fully settled the prepayment ahead of schedule and has decided not to extend the contract on the same terms before January 2018 as permitted under the original agreement.
Overview of the Group's cash flows
Twelve Twelve
(Euro 000's) months months
ended ended
31 Dec 31 Dec
2017 2016
Cash flows from operating
activities 30,500 13,789
Cash flows used in investing
activities (22,678) (31,272)
Cash flows from financing 33,899 -
activities
--------- ---------
Net increase/(decrease)
in cash and cash equivalents 41,721 (17,483)
========= =========
Cash and cash equivalents increased by EUR41.7 million during the twelve months ended 31 December 2017. This was due to cash from operating activities amounting to EUR30.5 million, cash used in investing activities amounting to EUR22.7 million and cash generated by financing activities totalling to EUR33.9 million.
Cash generated from operating activities before working capital changes was EUR39.5 million. Atalaya increased its trade receivables by EUR4.4 million, its trade payables balance in the period by EUR5.4 million and its inventory levels by EUR7.5 million.
Investing activities in 2017 amounted to EUR22.7 million, mainly relating to sustaining capex, the expansion of Proyecto Riotinto, capitalised stripping costs and the permits of Proyecto Touro.
Financing activities in 2017 related to the capital raised in Q4 2017.
v. Foreign exchange
During the twelve months ended 31 December 2017, Atalaya recognised a foreign exchange loss of EUR2.2 million. Foreign exchange losses mainly related to variances in EUR and USD conversion rates during the period, as all sales are settled and occasionally held in USD.
The following table summarises the movement in key currencies versus the EUR:
Twelve Twelve
months months
ended ended
31 Dec 31 Dec
2017 2016
Average rates for the
periods
GBP - EUR 0.8767 0.8195
USD - EUR 1.1297 1.1069
Spot rates as at
GBP - EUR 0.8872 0.8562
USD - EUR 1.1993 1.0541
In February 2017, the Group entered into certain foreign exchange hedging contracts to offset the agreements in force as at 31 December 2016. During the remainder of 2017, Atalaya did not have any currency hedging agreements.
Further information on the hedging agreements is disclosed in the audited, consolidated and company financial statements (hereinafter "financial statements") that follow (Note 28).
vi. Ruling on Astor litigation and deferred consideration
Astor Case
On 6 March 2017, judgment in the Astor Management AG ("Astor") case ("Astor Case") was handed down in the High Court of Justice in London (the "Judgment"). On 31 March 2017 declarations were made by the High Court which give effect to the Judgment.
In summary, the High Court found that the deferred consideration of EUR43.8 million (the "Deferred Consideration"), potentially payable to Astor under the master agreement entered into in 2008 between inter alia the Company and Astor (the "Master Agreement"), did not start to become payable when permit approval was granted for Proyecto Riotinto. In addition, the intra-group loans by which funding for the restart of mining operations was made available to the Company's subsidiary, Atalaya Riotinto Minera S.L. did not constitute a "Senior Debt Facility" so as to trigger payment of the Deferred Consideration. Accordingly, the first instalment of the Deferred Consideration has not fallen due.
Astor failed to show that there had been a breach of the all reasonable endeavours obligation contained in the Master Agreement to obtain a senior debt facility or that the Group had acted in bad faith in not obtaining a senior debt facility. While the Court confirmed that the Group was not in breach of any of its obligations, the Master Agreement and its provisions remain in place. Accordingly, other than up to US$10 million a year which may be required for non-Proyecto Riotinto related expenses, Atalaya Riotinto Minera S.L. cannot make any dividend, distribution or any repayment of the money lent to it by companies in the Group until the consideration under the Master Agreement (including the Deferred Consideration) has been paid in full.
vi. Ruling on Astor litigation and deferred consideration (continued)
As a consequence, the Judgment requires that, in accordance with the Master Agreement, Atalaya Riotinto Minera S.L. must apply any excess cash (after payment of operating expenses, sustaining capital expenditure, any senior debt service requirements and up to US$10 million (for non-Proyecto Riotinto related expenses)) to pay the consideration due to Astor (including the Deferred Consideration and the amount of EUR9.1 million payable under the loan assignment agreement between the parties) early. The Court confirmed that the obligation to pay consideration early out of excess cash does not apply to the up-tick payments of up to EUR15.9 million (the "Up-tick Payments") and the Judgment notes that the only situation in which the Up-tick Payments could ever become payable is in the unlikely event that mining operations stop at Proyecto Riotinto and a senior debt facility is then secured for a sum sufficient to restart mining operations. Accordingly, the Group has recorded the liability of EUR53 million.
On 25 April 2017, Atalaya and Astor applied for permission to appeal to the Court of Appeal. On 11 August 2017, the Court of Appeal granted permission to both parties to appeal (although it rejected three of Astor's seven grounds). The Appeal will take place during May 2018.
More details on the Astor Case are included in Note 27 of the audited financial statements that follow.
vii. Critical accounting policies, estimates and accounting changes
The preparation of Atalaya's Financial Statements in accordance with IFRS requires management to make estimates and assumptions that affect amounts reported in the Financial Statements and accompanying notes. There is a full discussion and description of Atalaya's critical accounting estimates and judgements in the audited financial statements for the year ended 31 December 2017 (Note 3.4).
Years ended
31 December
The The The
The Company Group Company
Group
(Euro 000's) Note 2017 2017 2016 2016
restated restated
(*) (*)
============ ========= =========== ==========
4 /
Gross sales 31.2 160,537 1,015 98,273 177
Realised gains on
derivative financial
instruments held for
trading 28 - - 495 -
Sales 160,537 1,015 98,768 177
Operating costs and
mine site administrative
expenses (114,687) - (77,845) -
Mine site depreciation
and amortization (16,664) - (11,743) -
============ ========= =========== ==========
Gross income 29,186 1,015 9,180 177
Corporate expenses (4,356) (4,001) (4,663) (3,620)
Corporate depreciation (7) (7) (14) (14)
Share based benefits (152) (34) (137) (137)
Exploration expenses - (1,022) -
Impairment charge - (903) 97,157
Operating profit 24,671 (3,027) 2,441 93,563
Other income 5 5 1 292 47
Net foreign exchange
loss 4 (2,212) 264 (665) (74)
Finance income 8 22 1,635 41 1,523
Finance costs 9 (579) - (590) -
Share of results of
associate - net 15 - - (10) -
Profit / (loss) before
tax 21,907 (1,127) 1,509 95,059
Tax credit/(charge) 10 (3,696) - 12,187 -
============ ========= =========== ==========
Profit / (loss) for
the year 18,211 (1,127) 13,696 95,059
============ ========= =========== ==========
Profit / (loss) for
the year attributable
to:
* Owners of the parent 18,239 (1,127) 13,696 95,059
(28) - - -
* Non-controlling interests
============ ========= =========== ==========
18,211 (1,127) 13,696 95,059
============ ========= =========== ==========
Earnings per share
from operations attributable
to equity holders
of the parent during
the year:
Basic earnings per
share (expressed in
cents per share) 11 15.5 11.7
============ ========= =========== ==========
Fully diluted earnings
per share (expressed
in cents per share) 11 15.3 11.7
============ ========= =========== ==========
Profit / (loss) for
the year 18,211 (1,127) 13,696 95,059
Other comprehensive
income:
Change in value of
available-for-sale
investments 20 (132) (132) (41) (41)
============ ========= =========== ==========
Total comprehensive
profit for the year 18,079 (1,259) 13,655 95,018
============ ========= =========== ==========
Total comprehensive
profit for the year
attributable to:
* Owners of the parent 18,107 (1,259) 13,655 95,018
(28) - - -
* Non-controlling interests
============ ========= =========== ==========
18,079 (1,259) 13,655 95,018
================================== ====== ============ ========= =========== ==========
(*) Refer to Note 2.1. (c)
The notes on pages 40 to 94 are an integral part of these consolidated and company financial statements.
As at 31 December As at 31 December
The The The The Company
Group Company Group 2016
Note 2017 2017 2016 restated
restated (*)
(Euro 000's) (*)
======== ========= ========== ===========
Assets
Non-current assets
Property, plant and
equipment 12 199,458 - 191,380 16
Intangible assets 13 73,700 - 70,011 -
Investment in subsidiaries 14 - 3,693 - 3,572
Investment in associate 15 - - - 4
Trade and other receivables 19 212 - 206 -
Deferred tax asset 17 10,130 - 12,196 -
======== ========= ========== ===========
283,500 3,693 273,793 3,592
======== ========= ========== ===========
Current assets
Inventories 18 13,674 - 6,195 -
Trade and other receivables 19 34,213 242,824 29,850 240,245
Available-for-sale
investments 20 129 129 261 261
Cash and cash equivalents 21 42,856 34,410 1,135 320
======== ========= ========== ===========
90,872 277,363 37,441 240,826
======== ========= ========== ===========
Total assets 374,372 281,056 311,234 244,418
======== ========= ========== ===========
Equity and liabilities
Equity attributable
to owners of the
parent
Share capital 22 13,192 13,192 11,632 11,632
Share premium 22 309,577 309,577 277,238 277,238
Other reserves 23 6,137 5,687 5,667 5,667
Accumulated losses (86,527) (62,417) (104,316) (61,290)
======== ========= ========== ===========
242,379 266,039 190,221 233,247
Non-controlling interests 24 4,474 - - -
======== ========= ========== ===========
Total equity 246,853 266,039 190,221 233,247
======== ========= ========== ===========
Liabilities
Non-current liabilities
Trade and other payables 25 74 - 115 -
Provisions 26 5,727 - 5,092 -
Deferred consideration 27 52,983 9,100 52,983 9,100
58,784 9,100 58,190 9,100
======== ========= ========== ===========
Current liabilities
Trade and other payables 25 67,983 5,917 62,592 2,071
Current tax liabilities 752 - 16 -
Derivative instruments 28 - - 215 -
68,735 5,917 62,823 2,071
======== ========= ========== ===========
Total liabilities 127,519 15,017 121,013 11,171
======== ========= ========== ===========
Total equity and
liabilities 374,372 281,056 311,234 244,418
======== ========= ========== ===========
(*) Refer to Note 2.1. (c)
The notes on pages 40 to 94 are an integral part of these consolidated and company financial statements.
Attributable to owners
of the parent
=============================================================
Non-
Note Share Share Other Accumulated controlling Total
capital Premium reserves(1) losses Total interest equity
(Euro 000's) (2)
========= ========== ============ ============ ========== ============ ==========
At 1 January
2016 11,632 277,238 5,508 (118,012) 176,366 - 176,366
Profit for
the year restated
(*) - - - 13,696 13,696 - 13,696
Bonus shares
issued in
escrow 23 - - 63 - 63 - 63
Change in
value of
available-for-sale
investments - - (41) - (41) - (41)
Recognition
of share based
payments - - 137 - 137 - 137
------------ ------------ ---------- ------------ ----------
At 31 December
2016/
1 January
2017 restated
(*) 11,632 277,238 5,667 (104,316) 190,221 - 190,221
Profit for
the year - - - 18,239 18,239 (28) 18,211
Issue of share
capital 22 1,560 33,182 - - 34,742 - 34,742
Share issue
costs - (843) - - (843) - (843)
Depletion
factor - - 450 (450) - - -
Change in
value of
available-for-sale
investments - - (132) - (132) - (132)
Recognition
of share based
payments - - 152 - 152 - 152
Non-controlling
interests - - - - - 4,502 4,502
At 31 December
2017 13,192 309,577 6,137 (86,527) 242,379 4,474 246,853
--------- ---------- ------------ ------------ ---------- ------------ ----------
(*) Refer to Note 2.1. (c)
(1) Refer to Note 23
(2) The share premium reserve is not available for distribution.
The notes on pages 40 to 94 are an integral part of these consolidated and company financial statements.
Share Share Other Accumulated
(Euro 000's) Note capital premium(2) reserves(1) losses Total
======== =========== ============ =========== ========
At 1 January 2016 11,632 277,238 5,508 (156,349) 138,029
Profit for the year
restated (*) - - - 95,059 95,059
Bonus shares issued
in escrow 23 - - 63 - 63
Change in value of
available-for-sale
investments (41) - (41)
Recognition of share
based payments - - 137 - 137
======== =========== ============ =========== ========
At 31 December 2016/1
January 2017 restated
(*) 11,632 277,238 5,667 (61,290) 233,247
Profit for the year - - - (1,127) (1,127)
Issue of share capital 22 1,560 33,182 - - 34,742
Share issue costs - (843) - - (843)
Change in value of
available-for-sale
investments - - (132) - (132)
Recognition of share
based payments - - 152 - 152
At 31 December 2017 13,192 309,577 5,687 (62,417) 266,039
======== =========== ============ =========== ========
(*) Refer to Note 2.1. (c)
(1) Refer to Note 23
(2) The share premium reserve is not available for distribution.
The notes on pages 40 to 94 are an integral part of these consolidated and company financial statements.
Note Restated
(*)
(Euro 000's) 2017 2016
========= =========
Cash flows from operating activities
Profit before tax 21,907 1,509
Adjustments for:
Depreciation of property, plant
and equipment 12 12,540 8,643
Amortisation of intangible assets 13 4,131 3,114
Share of result of associate 15 - 10
Recognition of share--based payments 23 152 137
Bonus share issued in escrow - 63
Hedging income 9 (205) -
Interest income 8 (22) (41)
Interest expense 9 671 395
Impairment charge 12 - 903
Gain on disposal of property,
plant and equipment - (4)
Unwinding of discounting 9 113 -
Legal provisions 26 213 -
Gain on disposal of associate 20 (49) -
Impairment on available-for-sale
investment 20 49 -
Net foreign exchange loss on
hedging expense - 195
Unrealised foreign exchange loss
on financing activities 11 (28)
Cash inflows from operating activities
before working capital changes 39,511 14,896
Changes in working capital:
Increase in inventories 18 (7,479) (6,195)
Increase in trade and other receivables 19 (2,653) (13,424)
Increase in trade and other payables 25 5,350 18,924
Decrease in derivative instruments 28 (215) -
Increase in provisions 26 (733) -
========= =========
Cash flows from operations 33,781 14,201
Interest paid (671) (395)
Tax paid (2,610) (17)
========= =========
Net cash from operating activities 30,500 13,789
========= =========
Cash flows from investing activities
Purchases of property, plant
and equipment 12 (20,220) (29,995)
Purchases of intangible assets 13 (2,694) (1,334)
Proceeds from sale of property,
plant and equipment 9 16
Hedging income/(expense) 9 205 -
Interest received 8 22 41
========= =========
Net cash used in investing activities (22,678) (31,272)
========= =========
Cash flows from financing activities
Proceeds from issue of share
capital 22 34,742 -
Listing and issue costs 22 (843) -
Net cash from financing activities 33,899 -
========= =========
Net increase / (decrease) in cash
and cash equivalents 41,721 (17,483)
Cash and cash equivalents:
At beginning of the year 21 1,135 18,618
========= =========
At end of the year 21 42,856 1,135
========= =========
(*) Refer to Note 2.1. (c)
The notes on pages 40 to 94 are an integral part of these consolidated and company financial statements.
Restated
(*)
(Euro 000's) Note 2017 2016
======== =========
Cash flows from operating activities
Profit / (loss) before tax (1,127) 95,059
Adjustments for:
Depreciation of property, plant
and equipment 12 7 14
Share--based payments 6 34 137
Bonus share issue - 63
Finance income from interest-bearing
intercompany loan 8 (1,635) (1,523)
Intercompany balances previously
impaired - (97,243)
Loss on available-for-sale investment 5 49 -
Profit on disposal of investment 5 (45) -
Profit on disposal of property,
plant and equipment - (4)
Unrealised foreign exchange loss (3) -
on financing activities
======== =========
Cash inflows used in operating
activities before working capital
changes (2,720) (3,497)
Changes in working capital:
Increase in trade and other receivables 19 (2,579) (12,921)
Increase in trade and other payables 25 3,846 1,854
Deferred consideration - 9,100
======== =========
Cash flows used in operations (1,453) (5,464)
Interest paid - -
Net cash used in operating activities (1,453) (5,464)
======== =========
Cash flows from investing activities
Purchases of property, plant and
equipment 12 - (1)
Proceeds from disposal of property,
plant and equipment 9 16
Finance income from interest-bearing
intercompany loan 1,635 1,523
Net cash from investing activities 1,644 1,538
======== =========
Cash flows from financing activities
Proceeds from issue of share capital 34,742 -
Listing and issue costs 22 (843) -
Net cash from financing activities 33,899 -
======== =========
Net decrease in cash and cash
equivalents 34,090 (3,926)
Cash and cash equivalents:
At beginning of the year 21 320 4,246
======== =========
At end of the year 21 34,410 320
======== =========
(*) Refer to Note 2.1. (c)
The notes on pages 40 to 94 are an integral part of these consolidated and company financial statements
1. Incorporation and summary of business
Country of incorporation
Atalaya Mining Plc (the "Company") was incorporated in Cyprus on 17 September 2004 as a private company with limited liability under the Companies Law, Cap. 113 and was converted to a public limited liability company on 26 January 2005. Its registered office is at 1 Lampousa Street, Nicosia, Cyprus.
The Company was listed on AIM of the London Stock Exchange in May 2005 under the symbol ATYM and on the TSX on 20 December 2010 under the symbol AYM. The Company continued to be listed on AIM and the TSX as at 31 December 2017.
Additional information about Atalaya Mining Plc is available at www.atalayamining.com as per requirement of AIM rule 26.
Changed on name and share consolidation
Following the Company's EGM on 13 October 2015, the change of the name Emed Mining Public Limited to Atalaya Mining Plc became effective on 21 October 2015. On the same day, the consolidation of ordinary shares came into effect, whereby all shareholders received one new ordinary share of nominal value Stg GBP0.075 for every 30 existing ordinary shares of nominal value of Stg GBP0.0025.
Summary of business
The Company owns and operates through a wholly-owned subsidiary, Proyecto Riotinto, an open-pit copper mine located in the Pyritic belt, in the Andalusia region of Spain, approximately 65 km northwest of Seville.
In addition, the Company has a phased earn-in agreement to up 80% ownership of Proyecto Touro, a brownfield copper project in northwest Spain, which is currently at the permitting stage.
The Company's and its subsidiaries' business is to explore for and develop metals production operations in Europe, with an initial focus on copper.
The strategy is to evaluate and prioritise metal production opportunities in several jurisdictions throughout the well-known belts of base and precious metal mineralisation in Spain and the Eastern European region.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated and company financial statements (hereinafter "financial statements") are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
2.1 Basis of preparation
(a) Overview
The financial statements of Atalaya Mining have been prepared in accordance with International Financial Reporting Standards ("IFRS"). IFRS comprise the standards issued by the International Accounting Standards Board ("IASB") and IFRS Interpretations Committee ("IFRICs") as issued by the IASB.
Additionally, the financial statements have also been prepared in accordance with the IFRS as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap.113. For the year ending 31 December 2017, the standards applicable for IFRS's as adopted by the EU are aligned with the IFRS's as issued by the IASB.
The financial statements have been prepared under the historical cost convention, except for derivative financial instruments that have been measured at fair value.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.4.
(b) Going concern
These financial statements have been prepared on the basis of accounting principles applicable to a going concern which assumes that the Group and the Company will realise its assets and discharge its liabilities in the normal course of business. Management has carried out an assessment of the going concern assumption and has concluded that the Group and the Company will generate sufficient cash and cash equivalents to continue operating for the next twelve months.
2. Summary of significant accounting policies (continued)
2.1 Basis of preparation (continued)
(c) 2016 restatement
Deferred consideration (Note 27)
In 2017 the discount rate used to value the liability for the deferred consideration was re-assessed to apply a risk free rate as required by IAS 37. The discounted amount, when applying this discount rate, was not considered significant and the Group has measured the liability for the deferred consideration on an undiscounted basis. The value of the liability is in line with the court ruling issued on 6 March 2017.
Years ended 31 December The Group The Company
-------------------------------------- --------------------------------------
2016 2016 2016 2016
(Euro 000's) as reported Adjustments restated as reported Adjustments restated
Statement of financial position
Intangible asset 59,715 10,296 (1) 70,011
Trade and other receivables 238,152 2,093 (1) 240,245
Total assets
Deferred consideration 44,346 8,637 (1) 52,983 7,359 1,741 (1) 9,100
Total liabilities
Retained earnings (105,975) 1,659 (104,316) (61,642) 352 (61,290)
Equity
-------------------------------- ------------ ------------- --------- ------------ ------------- ---------
(1) The Astor deferred consideration liability has been restated to remove the impact of discounting and is in line to the High Court ruling issued in March 2017
Years ended 31 December The Group The Company
-------------------------------------- --------------------------------------
2016 2016 2016 2016
(Euro 000's) as reported Adjustments restated as reported Adjustments restated
Income statement
Mine site depreciation and
amortization (11,278) (465)(1) (11,743) - - -
Gross margin 9,642 9,180 177 - 177
Finance costs (2,713) 2,124(1) (589) (352) 352(1) -
Operating profit 2,906 2,441 93,563 93,563
Loss before tax (150) 1,509 94,707 95,059
Tax credit / (charge) 12,187 12,187 - -
Earnings per share 10.3 11.7 - - -
------------------------------------ ------------ ------------- --------- ------------ ------------- ---------
(1) The discount rate was re-assessed considering a risk free rate for the relevant periods as required by IAS 37. Discounting the provision using the risk free rate would not result in a significant impact to the financial statements and the Group has measured the liability on an undiscounted basis. The amount of the provision is in line with the court ruling. Finance costs have been revised to exclude the unwinding of discount and amortisation charge revised based on the restated carrying amount of Intangible assets
2.2 Changes in accounting policy and disclosures
During the current year the Group and Company adopted all the new and revised International Financial Reporting Standards (IFRS) that are relevant to its operations and are effective for accounting periods beginning on 1 January 2017.
Up to the date of approval of the consolidated and company financial statements, certain new standards, interpretations and amendments to existing standards have been published that are not yet effective for the current reporting period and which the Group and Company has not early adopted, as follows:
2. Summary of significant accounting policies (continued)
2.2 Changes in accounting policy and disclosures (continued)
(i) Adoption of new standards and revised IFRSs
-- IAS 12: Recognition of Deferred Tax Assets for Unrealized Losses (Amendments)
The objective of the Amendments is to clarify the requirements of deferred tax assets for unrealized losses in order to address diversity in practice in the application of IAS 12 Income Taxes. The specific issues where diversity in practice existed relate to the existence of a deductible temporary difference upon a decrease in fair value, to recovering an asset for more than its carrying amount, to probable future taxable profit and to combine versus separate assessment. The standard has been endorsed by EU. The Group has assessed that these amendments have no material effect on the Group and Company financial statements.
-- IAS 7: Disclosure Initiative (Amendments)
The objective of the Amendments is to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The Amendments specify that one way to fulfil the disclosure requirement is by providing a tabular reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities, including changes from financing cash flows, changes arising from obtaining or losing control of subsidiaries or other businesses, the effect of changes in foreign exchange rates, changes in fair values and other changes. The standard has been endorsed by EU. The Group and Company is financed from equity and these amendments have no material impact on the current and the comparative period.
-- Annual Improvements Cycle - 2014-2016
IFRS 12 Disclosure of Interests in Other Entities:
The amendments clarify that the disclosure requirements in IFRS 12, other than those of summarized financial information for subsidiaries, joint ventures and associates, apply to an entity's interest in a subsidiary, a joint venture or an associate that is classified as held for sale, as held for distribution, or as discontinued operations in accordance with IFRS 5. The Group has assessed that these amendments have no affect the Group and Company financial statements.
(ii) Standard issued but not yet effective and not early adopted by the Group and Company
At the date of approval of these financial statements, standards and interpretations were issued by the International Accounting Standards Board which were not yet effective. Some of them were adopted by the European Union and others not yet.
At the date of approval of these financial statements the following accounting standards were issued by the International Accounting Standards Board but were not yet effective:
-- IFRS 15 - Revenue from Contracts with Customers and Clarifications to IFRS 15 - Revenue from Contracts with Customers. New standard for recognising revenue (replaces IAS 11, IAS 18, IFRIC 13, IFRIC 15, IFRIC 18 and SIC 31). Effective for annual periods beginning on or after 1 January 2018.
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised.
Provisional pricing sales
Some of Atalaya's sales contain provisional pricing features which are considered to be embedded (commodity) derivatives.
IFRS 15 will not change the assessment of the existence of embedded derivatives. IFRS 15 states that if a contract is partially within scope of the standard and partially in the scope of another standard, an entity will first apply the separation and measurement requirements of the other standard(s). Therefore, to the extent that provisional pricing features are considered to be in the scope of another standard, they will be outside the scope of IFRS 15 and entities will be required to account for these in accordance with IFRS 9. Any subsequent changes that arise due to differences between initial and final assay will still be considered within the scope of IFRS 15.
2. Summary of significant accounting policies (continued)
2.2 Changes in accounting policy and disclosures (continued)
Revenue in respect of the host contract will be recognised when control passes to the customer (which has been determined to be the same point in time) and will be measured at the amount Atalaya expects to be entitled - being the estimate of the price expected to be received at the end of the quotation period, and the estimated forward price (which is consistent with current practice). When considering the initial estimate, Atalaya has considered the requirements of IFRS 15 in relation to the constraint on estimates of variable consideration. It will only include amounts in the calculation of revenue where it is highly probable that a significant revenue reversal will not occur when the uncertainty relating to final price adjustment is subsequently resolved. The price adjustments are not usually material to Atalaya, hence, no change is expected when compared to the current approach. Consequently, at the time the goods are delivered to the destination agreed with the customer, Atalaya will recognise a receivable because from
that time it considers it has an unconditional right to consideration. This receivable will then be accounted for in accordance with IFRS 9.
As explained below in the discussion on the potential impact of IFRS 9, the embedded derivative will no longer be separated from the host contract, i.e., the trade receivable. This is because the existence of the provisional pricing features will mean the trade receivable will fail to meet the requirements to be measured at amortised cost. Instead, the entire receivable will be measured at fair value, with subsequent movements being recognised in the consolidated income statements.
Atalaya expects that changes in the fair value will continue to be classified as sales in the consolidated income statements.
a) Sales of goods
Under IFRS 15, revenue will be recognised when a customer obtains control of the goods, which will coincide with the current moment of the revenue recognition - upon delivery of the product to the destination agreed with the customer.
In order to assess the implications of adopting the new standard for existing contracts Atalaya has performed an analysis of its contracts with customers based on the five--step model of revenue recognition in accordance with IFRS 15.
Based on the analysis performed by Atalaya, there is a single performance obligation identified in the sales contracts. Atalaya does not expect material changes in the timing or measurement of revenue based on the analysis performed, as the performance obligation is satisfied on the delivery of the product to the destination point agreed with the customer, which is when the control is transferred and the revenue is recognised.
b) Significant financing component
Other issues in IFRS 15 include the existence of significant financing components in the contracts signed with customers.
As at 31 December 2016 there was a copper concentrate prepayment funding signed by Atalaya in September 2016 with Transamine Trading, S.A. of EUR8.7 million (EURnil at 31 December 2017). Atalaya's preliminary assessment indicates that the value of a deferred revenue that may be recognised and an increase in finance costs is not significant.
c) Disclosures
IFRS 15 requires that Atalaya presents different disaggregation of income beyond those presented with the previous standard.
d) Transition
Atalaya plans to adopt IFRS 15 using the cumulative effect method, with the effect of initially applying this standard recognised at the date of initial application (i.e. 1 January 2018). As a result Atalaya will not apply the requirements of IFRS 15 to the comparative period presented.
2. Summary of significant accounting policies (continued)
2.2 Changes in accounting policy and disclosures (continued)
-- IFRS 9 - Financial Instruments and subsequent amendments. This standard replaces the classification, measurement, recognition and derecognition in accounts of financial assets and liabilities, hedge accounting, and impairment set out in IAS 39 Financial instruments: Recognition and Measurement. Effective for annual periods beginning on or after 1 January 2018.
Atalaya has assessed the estimated impact that the initial application of IFRS 9 will have on its financial statements. From the analysis performed, it was concluded that the application of this rule would not have significant effects on the financial statements due to the following:
Classification - Financial assets
IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics.
IFRS 9 contains three principal classification categories for financial assets: measured at amortised costs, fair value through other comprehensive income ("FVOCI") and fair value through profit or loss ("FVTPL"). The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available-for-sale.
Based on the assessment, Atalaya does not believe that the new classification requirements will have a material impact on its accounting for trade receivables, loans, equity investment. Equity investments hold by Atalaya classified as available-for-sale are non-significant (of EUR129k). Atalaya does not have held to maturity financial assets.
Impairment - Financial assets and contract assets
IFRS 9 replaces the "incurred loss" model in IAS 39 with a forward-looking "expected credit loss" (ECL) model. This will require considerable judgement about how changes in economic factors effect ECLs, which will be determined on a probability-weighted basis.
The new impairment model will apply to financial assets measured at amortised cost or FVOCI, except for investments in equity instruments, and to contract assets. Under IFRS 9 loss allowance will be measured on either of the following basis:
-- 12-month ECLs: these are ECLs that result from possible events within the 12 months after the reporting date; applied if the credit risk of a financial asset at the reporting date has not increased significantly since initial recognition.
-- Lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument; applied if the credit risk of a financial asset at the reporting date has increased significantly since initial recognition.
Based on the analysis of the ECL performed, Atalaya believes that the adoption of the new impairment model will not have a significant impact on the financial statements due to the following reasons:
a) Trade and other receivables: Atalaya does not have significant credit risk and does not maintain a history of non-compliance of fulfilment of payments by customers.
b) Cash and cash equivalents: the cash and cash equivalents are held with banks which have strong credit ratings.
Classification - Financial liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities.
However, under IAS 39 all fair value changes of liabilities designated as at FVTPL are recognized in profit and loss, whereas under IFRS 9 these fair value changes are generally presented as follows:
-- The amount of change in fair value that is attributable to changes in the credit risk of the liability is presented in OCI; and
-- The remaining amount of changes in the fair value is presented in profit and loss.
The Group's assessment does not indicate any material impact regarding the classification of financial liabilities at 1 January 2018.
2. Summary of significant accounting policies (continued)
2.2 Changes in accounting policy and disclosures (continued)
Commodity derivative
As discussed in more detail in this note above and also within the discussion on the potential impact of IFRS 15, some of the Atalaya's sales contain provisional pricing features.
On adoption of IFRS 9, the embedded derivative will no longer be separated from the receivables as the receivables are not expected to give rise to cash flows that represent solely payments of principal and interest. Instead, the receivables will be accounted for as one instrument and measured at fair value through profit or loss with subsequent changes in fair value recognised in the statement of profit or loss and other comprehensive income each period until final settlement and presented as part of 'Other Income/Expense'. This will mean that the quantity of the fair value movements will be different because the current approach only calculates fair value movements based on changes in the relevant commodity price, whereas under IFRS 9, the fair value of the receivable will not only include commodity price changes, but it will also factor in the impact of credit and interest rates. However, based on the analysis performed, Atalaya does not expect these changes will have a significant impact.
Hedge accounting
The changes in IFRS 9 relating to hedge accounting will have no impact, as Atalaya does not currently apply hedge accounting.
Disclosures
IFRS 9 will require extensive new disclosures, in particular about hedge accounting, credit risk and ECLs. Atalaya's assessment included an analysis to identify data gaps against current processes and Atalaya is in the process of implementing the system and controls changes that it believes will be necessary to capture the required data.
Transition
Changes in accounting policies from the adoption of IFRS 9 will generally be applied retrospectively, except as described below.
-- Atalaya will take advantage of the exemption allowing it not to restate comparative information for prior periods with respect to classification and measurement (including impairment) changes.
-- The assessment have to be made based on the facts and circumstances that exist at the date of initial application in respect of the determination of the business model within which a financial assets is held.
-- IFRS 16 - Leases. The new standard on leases that replaces IAS 17, IFRIC 4, SIC-15 and SIC-27. Effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply IFRS 15 at or before the date of initial application of IFRS 16.
IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing it right to use the underlying asset and a lease liability representing its obligation to make lease payment. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard - i.e. lessor continue to classify leases as finance or operating leases.
Atalaya has completed an initial assessment of the potential impact of IFRS 16 on its consolidated financial statements but has not yet completed its detailed assessment. The actual impact of applying IFRS 16 on the consolidated financial statements in the period of initial application will depend on future economic conditions, including the Group's borrowing rate at 1 January 2019, the composition of Atalaya's borrowing rate at 1 January 2019 the composition of Atalaya's portfolio at that date, its latest assessment of whether it will exercise any lease renewal options and the extent to which Atalaya chooses to use practical expedients and recognition exemptions.
As at 31 December 2017, Atalaya does not possess lease payments under non-cancellable operating.
Considering the insignificant volume of commitments for leases held by Atalaya, it is expected that the implementation of IFRS 16 will not have a significant impact on the financial statements.
2. Summary of significant accounting policies (continued)
2.2 Changes in accounting policy and disclosures (continued)
-- Amendment in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. In December 2015 the IASB postponed the effective date of this amendment indefinitely pending the outcome of its research project on the equity method of accounting. The amendments have not yet been endorsed by the EU. Management is currently evaluating the effect of these standards or interpretations on its financial statements.
-- IFRS 2: Classification and Measurement of Share based Payment Transactions (Amendments)
The Amendments are effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. The Amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments, for share-based payment transactions with a net settlement feature for withholding tax obligations and for modifications to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. These Amendments have not yet been endorsed by the EU. Management is currently evaluating the effect of these standards or interpretations on its financial statements.
-- IAS 40: Transfers to Investment Property (Amendments)
The Amendments are effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. The Amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The Amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management's intentions for the use of a property does not provide evidence of a change in use. These Amendments have not yet been endorsed by the EU. No investments properties are held by the Group and Company and this amendment has no effect on the financial statements.
-- IFRS 9: Prepayment features with negative compensation (Amendment)
The Amendment is effective for annual reporting periods beginning on or after 1 January 2019 with earlier application permitted. The Amendment allows financial assets with prepayment features that permit or require a party to a contract either to pay or receive reasonable compensation for the early termination of the contract (so that, from the perspective of the holder of the asset there may be 'negative compensation'), to be measured at amortized cost or at fair value through other comprehensive income. These Amendments have not yet been endorsed by the EU. Management is currently evaluating the effect of these standards or interpretations on its financial statements.
-- IAS 28: Long-term Interests in Associates and Joint Ventures (Amendments)
The Amendments are effective for annual reporting periods beginning on or after 1 January 2019 with earlier application permitted. The Amendments relate to whether the measurement, in particular impairment requirements, of long term interests in associates and joint ventures that, in substance, form part of the 'net investment' in the associate or joint venture should be governed by IFRS 9, IAS 28 or a combination of both. The Amendments clarify that an entity applies IFRS 9 Financial Instruments, before it applies IAS 28, to such long-term interests for which the equity method is not applied. In applying IFRS 9, the entity does not take account of any adjustments to the carrying amount of long- term interests that arise from applying IAS 28. These Amendments have not yet been endorsed by the EU. Management is currently evaluating the effect of these standards or interpretations on its financial statements.
2. Summary of significant accounting policies (continued)
2.2 Changes in accounting policy and disclosures (continued)
-- IFRIC INTERPETATION 22: Foreign Currency Transactions and Advance Consideration
The Interpretation is effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. The Interpretation clarifies the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. The Interpretation covers foreign currency transactions when an entity recognizes a non-monetary asset or a non-monetary liability arising from the payment or receipt of advance consideration before the entity recognizes the related asset, expense or income. The Interpretation states that the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. This Interpretation has not yet been endorsed by the EU. Management is currently evaluating the effect of these standards or interpretations on its financial statements.
-- The IASB has issued the Annual Improvements to IFRSs 2014 - 2016 Cycle, which is a collection of amendments to IFRSs.
The amendments are effective for annual periods beginning on or after 1 January for IAS 28 Investments in Associates and Joint Ventures. Earlier application is permitted for IAS 28 Investments in Associates and Joint Ventures. These annual improvements have not yet been endorsed by the EU. The amendments clarify that the election to measure at fair value through profit or loss an investment in an associate or a joint venture that is held by an entity that is venture capital organization, or other qualifying entity, is available for each investment in an associate or joint venture on an investment-by-investment basis, upon initial recognition. Management is currently evaluating the effect of these standards or interpretations on its financial statements.
-- IFRIC INTERPETATION 23: Uncertainty over Income Tax Treatments
The Interpretation is effective for annual periods beginning on or after 1 January 2019 with earlier application permitted. The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12. The Interpretation provides guidance on considering uncertain tax treatments separately or together, examination by tax authorities, the appropriate method to reflect uncertainty and accounting for changes in facts and circumstances. This Interpretation has not yet been endorsed by the EU. Management is currently evaluating the effect of these standards or interpretations on its financial statements.
-- The IASB has issued the Annual Improvements to IFRSs 2015 - 2017 Cycle, which is a collection of amendments to IFRSs.
The amendments are effective for annual periods beginning on or after 1 January 2019 with earlier application permitted. These annual improvements have not yet been endorsed by the EU. Management is currently evaluating the effect of these standards or interpretations on its financial statements.
(i) IFRS 3 Business Combinations and IFRS 11 Joint Arrangements: The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business. The amendments to IFRS 11 clarify that when an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business.
(ii) IAS 12 Income Taxes: The amendments clarify that the income tax consequences of payments on financial instruments classified as equity should be recognized according to where the past transactions or events that generated distributable profits has been recognized.
(iii) IAS 23 Borrowing Costs: The amendments clarify paragraph 14 of the standard that, when a qualifying asset is ready for its intended use or sale, and some of the specific borrowing related to that qualifying asset remains outstanding at that point, that borrowing is to be included in the funds that an entity borrows generally.
2. Summary of significant accounting policies (continued)
2.3 Consolidation
(a) Basis of consolidation
The consolidated financial statements comprise the financial statements of Atalaya Mining Plc and its subsidiaries.
(b) Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which the Group and Company has control. Control exists when the Group is exposed, or has rights, to variable returns for its involvement with the investee and has the ability to affect those returns through its power over the investee. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control.
De-facto control may arise in circumstances where the size of the Group's voting rights relative to the size and dispersion of holdings of other shareholders give the Group the power to govern the financial and operating policies, etc.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The only operating subsidiary of Atalaya Mining Plc is the 100% owned Atalaya Riotionto Minera, S.L.U. which operates Proyecto Minero Riotinto, in the historical site of Huelva, Spain.
The name and shareholding of the entities include in the Group in these financial statements are:
Entity name Business %(2) Country
Atalaya Mining, Plc Holding n.a. Cyprus
Eastern Mediterranean Resources Dormant 100% Georgia
(Caucasus) Ltd
Georgian Minerals Development Dormant 100% Georgia
Company Ltd.
EMED Marketing Ltd. Marketing 100% Cyprus
EMED Mining Spain, S.L. Dormant 100% Spain
Atalaya Riotinto Minera, Operating 100% Spain
S.L.U.
Recursos Cuenca Minera, Operating 50% Spain
S.L.
Atalaya Minasderiotinto Holding 100% United
Project (UK), Ltd. Kingdom
Eastern Mediterranean Exploration Operating 100% Spain
& Development, S.L.U.
Atalaya Touro (UK), Ltd. Holding 100% United
Kingdom
Fundación Emed Tartessus Trust 100% Spain
Cobre San Rafael, S.L. Operating 10% Spain
(1)
Notes
(1) Cobre San Rafael, S.L. is the entity which holds the mining rights of Proyecto Touro. The Group has a significant influence in the management of the Cobre San Rafael, S.L., including one of the two directors, management of the financial books and the capacity to appoint the key personnel. Refer to Note 29 for details on the acquisition of Cobre San Rafael, S.L..
(2) The effective proportion of shares held as at 31 December 2017 and 31 December 2016 remained unchanged other than Atalaya Touro Project (UK) Ltd which was incorporated in the year 2017 and Cobre San Rafael, S.L. which was acquired during 2017.
2. Summary of significant accounting policies (continued)
2.3 Consolidation (continued)
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets.
(c) Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 in profit or loss. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.
Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.
(d) Changes in ownership interests in subsidiaries without change of control
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions - that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
(e) Disposal of subsidiaries.
When the Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
(f) Associates
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition. The Group's investment in associates includes goodwill identified on acquisition.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.
The Group's share of post-acquisition profit or loss is recognised in the income statement, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income, with a corresponding adjustment to the carrying amount of the investment. When the Group share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
2. Summary of significant accounting policies (continued)
2.3 Consolidation (continued)
The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to 'share of profit/(loss) of associates' in the income statement.
Profits and losses resulting from upstream and downstream transactions between the Group and its associate are recognised in the Group's consolidated financial statements only to the extent of unrelated investors' interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the group. Dilution gains and losses arising in investments in associates are recognised in the income statement.
(g) Functional currency
Functional and presentation currency items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The financial statements are presented in Euro which is the Group and Company functional and presentation currency.
Determination of functional currency may involve certain judgements to determine the primary economic environment and the parent entity reconsiders the functional currency of its entities if there is a change in events and conditions which determined the primary economic environment.
Foreign currency transactions are translated into the functional currency using the spot exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in the income statement.
Monetary assets and liabilities denominated in foreign currencies are retranslated at year-end spot exchange rates.
Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
Gains or losses of monetary and non-monetary items are recognised in the income statement.
Balance sheet items are translated at period-end exchange rates. Exchange differences on translation of the net assets of such entities are taken to equity and recorded in a separate currency translation reserve.
2.4 Investments in subsidiary companies
Investments in subsidiary companies are stated at cost less provision for impairment in value, which is recognised as an expense in the period in which the impairment is identified.
2.5 Interest in joint arrangements
A joint arrangement is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control that is when the strategic, financial and operating policy decisions relating to the activities the joint arrangement require the unanimous consent of the parties sharing control.
Where a Group entity undertakes its activities under joint arrangements directly, the Group's share of jointly controlled assets and any liabilities incurred jointly with other ventures are recognised in the financial statements of the relevant entity and classified according to their nature. Liabilities and expenses incurred directly in respect of interests in jointly controlled assets are accounted for on an accrual basis. Income from the sale or use of the Group's share of the output of jointly controlled assets, and its share of joint arrangement expenses, are recognised when it is probable that the economic benefits associated with the transactions will flow to/from the Group and their amount can be measured reliably.
The Group undertakes joint arrangements that involve the establishment of a separate entity in which each acquiree has an interest (jointly controlled entity). The Group reports its interests in jointly controlled entities using the equity method of accounting.
Where the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Group's interest in the joint arrangement.
2. Summary of significant accounting policies (continued)
2.6 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the CEO who makes strategic decisions.
The Group has only one distinct business segment, being that of mining operations, mineral exploration and development.
2.7 Inventory
Inventory consists in copper concentrates, ore stockpiles and metal in circuit and spare parts. Inventory is physically measured or estimated and valued at the lower of cost or net realisable value. Net realisable value is the estimated future sales price of the product the entity expects to realise when the product is processed and sold, less estimated costs to complete production and bring the product to sale. Where the time value of money is material, these future prices and costs to complete are discounted.
Cost is determined by using the FIFO method and comprises direct purchase costs and an appropriate portion of fixed and variable overhead costs, including depreciation and amortisation, incurred in converting materials into finished goods, based on the normal production capacity. The cost of production is allocated to joint products using a ratio of spot prices by volume at each month end. Separately identifiable costs of conversion of each metal are specifically allocated.
Materials and supplies are valued at the lower of cost or net realisable value. Any provision for obsolescence is determined by reference to specific items of stock. A regular review is undertaken to determine the extent of any provision for obsolescence.
2.8 Assets under construction
All subsequent expenditure on the construction, installation or completion of infrastructure facilities including mine plants and other necessary works for mining, are capitalised in "Assets under construction". Any costs incurred in testing the assets to determine if they are functioning as intended, are capitalised, net of any proceeds received from selling any product produced while testing. Where these proceeds exceed the cost of testing, any excess is recognised in the statement of profit or loss and other comprehensive income. After production starts, all assets included in "Assets under construction" are then transferred to the relevant asset categories.
Once a project has been established as commercially viable, related development expenditure is capitalised. A development decision is made based upon consideration of project economics, including future metal prices, reserves and resources, and estimated operating and capital costs. Capitalization of costs incurred and proceeds received during the development phase ceases when the property is capable of operating at levels intended by management.
Capitalisation ceases when the mine is capable of commercial production, with the exception of development costs which give rise to a future benefit.
Pre-commissioning sales are offset against the cost of constructing the asset. No depreciation is recorded until the assets are substantially complete and ready for productive use.
2.9 Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses.
Subsequent costs are included in the assets' carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Property, plant and equipment are depreciated to their estimated residual value over the estimated useful life of the specific asset concerned, or the estimated remaining life of the associated mine ("LOM"), field or lease. Depreciation commences when the asset is available for use.
2. Summary of significant accounting policies (continued)
2.9 Property, plant and equipment (continued)
The major categories of property, plant and equipment are depreciated/amortised on a Unit of Production ("UOP") and/or straight-line basis as follows:
Buildings UOP Mineral rights UOP Deferred mining UOP costs Plant and machinery UOP Motor vehicles 5 years Furniture/fixtures/office 5 - 10 equipment years
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within "Other (losses)/gains - net" in the income statement.
(a) Mineral rights
Mineral reserves and resources which can be reasonably valued are recognised in the assessment of fair values on acquisition. Mineral rights for which values cannot be reasonably determined are not recognised. Exploitable mineral rights are amortised using the UOP basis over the commercially recoverable reserves and, in certain circumstances, other mineral resources. Mineral resources are included in amortisation calculations where there is a high degree of confidence that they will be extracted in an economic manner.
(b) Deferred mining costs - stripping costs
Mainly comprises of certain capitalised costs related to pre-production and in-production stripping activities as outlined below.
Stripping costs incurred in the development phase of a mine (or pit) before production commences are capitalised as part of the cost of constructing the mine (or pit) and subsequently amortised over the life of the mine (or pit) on a UOP basis.
In-production stripping costs related to accessing an identifiable component of the ore body to realise benefits in the form of improved access to ore to be mined in the future (stripping activity asset), are capitalised within deferred mining costs provided all the following conditions are met:
i. it is probable that the future economic benefit associated with the stripping activity will be realised;
ii. the component of the ore body for which access has been improved can be identified; and
iii. the costs relating to the stripping activity associated with the improved access can be reliably measured.
If all of the criteria are not met, the production stripping costs are charged to the consolidated statement of income as they are incurred.
The stripping activity asset is initially measured at cost, which is the accumulation of costs directly incurred to perform the stripping activity that improves access to the identified component of ore, plus an allocation of directly attributable overhead costs.
(c) Exploration costs
Under the Group's accounting policy, exploration expenditure is not capitalised until the management determines a property will be developed and point is reached at which there is a high degree of confidence in the project's viability and it is considered probable that future economic benefits will flow to the Group. A development decision is made based upon consideration of project economics, including future metal prices, reserves and resources, and estimated operating and capital costs.
Subsequent recovery of the resulting carrying value depends on successful development or sale of the undeveloped project. If a project does not prove viable, all irrecoverable costs associated with the project net of any related impairment provisions are written off.
2. Summary of significant accounting policies (continued)
2.9 Property, plant and equipment (continued)
(d) 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 and therefore not depreciated separately, the replacement value is used to estimate the carrying amount of the replaced asset(s) which is immediately written off. All other day-to-day maintenance and repairs costs are expensed as incurred.
(e) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale (a qualifying asset) are capitalised as part of the cost of the respective asset. Where funds are borrowed specifically to finance a project, the amount capitalised represents the actual borrowing costs incurred.
(f) Restoration, rehabilitation and decommissioning
Restoration, rehabilitation and decommissioning costs arising from the installation of plant and other site preparation work, discounted using a risk adjusted discount rate to their net present value, are provided for and capitalised at the time such an obligation arises.
The costs are charged to the consolidated statement of income over the life of the operation through depreciation of the asset and the unwinding of the discount on the provision. Costs for restoration of subsequent site disturbance, which are created on an ongoing basis during production, are provided for at their net present values and charged to the consolidated statement of income as extraction progresses.
Changes in the estimated timing of the rehabilitation or changes to the estimated future costs are accounted for prospectively by recognising an adjustment to the rehabilitation liability and a corresponding adjustment to the asset to which it relates, provided the reduction in the provision is not greater than the depreciated capitalised cost of the related asset, in which case the capitalised cost is reduced to nil and the remaining adjustment recognised in the consolidated statement of income. In the case of closed sites, changes to estimated costs are recognised immediately in the consolidated statement of income.
2.10 Intangible assets
(a) Business combination and goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the acquired interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree.
The results of businesses acquired during the year are brought into the consolidated financial statements from the effective date of acquisition. The identifiable assets, liabilities and contingent liabilities of a business which can be measured reliably are recorded at their provisional fair values at the date of acquisition. Provisional fair values are finalised within 12 months of the acquisition date. Acquisition-related costs are expensed as incurred.
Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed.
(b) Permits
Permits are capitalised as intangible assets which relate to projects that are at the pre-development stage. No amortisation charge is recognised in respect of these intangible assets. Once the Group receives those permits, the intangible assets relating to permits will be depreciated on a UOP basis.
Other intangible assets include computer software.
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation (calculated on a straight-line basis over their useful lives) and accumulated impairment losses, if any.
2. Summary of significant accounting policies (continued)
2.10 Intangible assets (continued)
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortised over their useful economic lives 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 are reviewed at least at the end of each reporting period.
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 statement of profit or loss and other comprehensive income when the asset is derecognised.
2.11 Impairment of non-financial assets
Assets that have an indefinite useful life - for example, goodwill or intangible assets not ready to use - are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
2.12 Financial assets
2.12.1 Classification
The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. The Group's financial assets include cash and short-term deposits, trade and other receivables and derivative financial assets.
(a) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months, otherwise they are classified as non-current.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Group's loans and receivables comprise "trade and other receivables" and "cash and cash equivalents" in the statement of financial position (Notes 2.18).
(c) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period.
2.12.2 Recognition and measurement
Regular purchases and sales of financial assets are recognised on the trade-date - the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method.
2. Summary of significant accounting policies (continued)
2.12 Financial assets (continued)
Gains or losses arising from changes in the fair value of the "financial assets at fair value through profit or loss" category are presented in the income statement within "other (losses)/gains - net" in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the income statement as part of other income when the Group's right to receive payments is established.
Changes in the fair value of monetary securities classified as available for sale are recognised in other comprehensive income.
When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as "gains and losses from investment securities". Interest on available-for-sale securities calculated using the effective interest method is recognised in the income statement as part of finance income. Dividends on available-for-sale equity instruments are recognised in the income statement as part of other income when the Group's right to receive payments is established.
2.13 Financial liabilities
The Group classifies its financial liabilities in the following categories: trade and other payables, provisions, Interest-bearing loans and borrowings, deferred consideration and derivatives. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
(a) Trade and other payables
Trade and other payables are obligations to pay for goods, assets or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
(b) Provisions
Provisions for environmental restoration, restructuring costs and legal claims are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.
(c) Interest-bearing loans and borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings, using the effective interest method, unless they are directly attributable to the acquisition, construction or production of a qualifying asset, in which case they are capitalised as part of the cost of that asset.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment and amortised over the period of the facility to which it relates.
Borrowing costs are interest and other costs that the Group incurs in connection with the borrowing of funds, including interest on borrowings, amortisation of discounts or premium relating to borrowings, amortisation of ancillary costs incurred in connection with the arrangement of borrowings, finance lease charges and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.
2. Summary of significant accounting policies (continued)
2.13 Financial liabilities (continued)
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, being an asset that necessarily takes a substantial period of time to get ready for its intended use or sale, are capitalised as part of the cost of that asset, when it is probable that they will result in future economic benefits to the Group and the costs can be measured reliably.
(d) Deferred consideration
Deferred consideration arises when settlement of all or any part of the cost of an agreement is deferred. It is stated at fair value at the date of recognition, which is determined by discounting the amount due to present value at that date. Interest is imputed on the fair value of non-interest bearing deferred consideration at the discount rate and expensed within interest pay able and similar charges. At each balance sheet date deferred consideration comprises the remaining deferred consideration valued at acquisition plus interest imputed on such amounts from recognition to the balance sheet date.
(e) Derivatives
Derivative financial instruments are initially accounted for at cost and subsequently measured at fair value. Fair value is calculated using the Black Scholes valuation method. Derivatives are recorded as assets when their fair value is positive and as liabilities when their fair value is negative. The adjustments on the fair value of derivatives held at fair value through profit or loss are transferred to profit or loss.
In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand and in bank net of outstanding bank overdrafts and short-term deposits with an original maturity of three months or less.
Sales of the Group's copper are sold on a provisional basis whereby sales are recognised at prevailing metal prices when title transfers to the customer and final pricing is not determined until a subsequent date. The Group uses derivative financial instruments to reduce exposure to foreign exchange, interest rate and commodity price movements.
The Group does not use such derivative instruments for trading purposes. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to the statement of profit or loss and other comprehensive income. Realised gains and losses on commodity derivatives recognised in profit or loss are recorded within revenue.
2.14 Current versus non-current classification
The Group presents assets and liabilities in statement of financial position based on current/non-current classification.
(a) An asset is current when it is either: -- Expected to be realised or intended to be sold or consumed in normal operating cycle; -- Held primarily for the purpose of trading; -- Expected to be realised within 12 months after the reporting period
Or
-- Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period
All other assets are classified as non-current.
(b) A liability is current when either: -- It is expected to be settled in the normal operating cycle; -- It is held primarily for the purpose of trading -- It is due to be settled within 12 months after the reporting period
Or
-- There is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period
The Group classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
2. Summary of significant accounting policies (continued)
2.15 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.
2.16 Impairment of financial assets
(a) Assets carried at amortised cost
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a "loss event") and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that the debtors or a group of debtors are experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
For the loans and receivables category, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate.
The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument's fair value using an observable market price.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated income statement.
(b) Assets classified as available-for-sale
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For debt securities, the Group uses the criteria referred to in (a) above. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised in profit or loss. Impairment losses recognised in the consolidated income statement on equity instruments are not subsequently reversed. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed through the income statement.
2.17 Trade and other receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.
At Company level, other receivables include intercompany balances.
2. Summary of significant accounting policies (continued)
2.18 Cash and cash equivalents
In the consolidated statements of cash flows, cash and cash equivalents includes cash in hand and in bank including deposits held at call with banks.
2.19 Share capital
Ordinary shares are classified as equity. The difference between the fair value of the consideration received by the Company and the nominal value of the share capital being issued is taken to the share premium account.
Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net of tax, from the proceeds in the share premium account.
2.20 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is also not recognised if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period date and are expected to apply when the related deferred tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred income tax liabilities where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
2.21 Share-based payments
The Group operates a share-based compensation plan, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The fair value is measured using the Black Scholes pricing model. The inputs used in the model are based on management's best estimates for the effects of non-transferability, exercise restrictions and behavioural considerations. Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest.
Vesting conditions are: (i) the personnel should be an employee that provides services to the Group; and (ii) should be in continuous employment for the whole vesting period of 3 years. Specific arrangements may exist with senior managers and board members, whereby their options stay in use until the end.
The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. (Note 23)
2. Summary of significant accounting policies (continued)
2.22 Rehabilitation provisions
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 re-vegetation of affected areas. The obligation generally arises when the asset is installed or the ground/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 consolidated 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. For closed sites, changes to estimated costs are recognised immediately in the consolidated income statement.
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 consolidated statement of financial position date represents management's best estimate of the present value of the future rehabilitation costs required.
2.23 Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.
The Group leases certain property, plant and equipment. Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.
Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in other long term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term.
2.24 Revenue recognition
(a) Sales of goods
Revenue is recognised when Atalaya has transferred to the buyer all significant risks and rewards of ownership of the goods sold. Revenue excludes any applicable sales taxes and is recognised at the fair value of the consideration received or receivable to the extent that it is probable that economic benefits will flow to Atalaya and the revenues and costs can be reliably measured. In most instances sales revenue is recognised when the product is delivered to the destination specified by the customer, which is typically the vessel on which it is shipped, the destination port or the customer's premises.
For certain commodities, the sales price is determined on a provisional basis at the date of sale as the final selling price is subject to movements in market prices up to the date of final pricing, normally ranging from 30 to 90 days after initial booking. Revenue on provisionally priced sales is recognised based on the estimated fair value of the total consideration receivable. The revenue adjustment mechanism embedded within provisionally priced sales arrangements has the character of a commodity derivative. Accordingly, the fair value of the final sales price adjustment is re-estimated continuously and changes in fair value are recognised as an adjustment to revenue.
Pre-commissioning sales are offset against the cost of constructing the asset.
(b) Sales of services
The Group sells services in relation to maintenance of accounting records, management, technical, administrative support and other services to other companies. Revenue is recognised in the accounting period in which the services are rendered.
2. Summary of significant accounting policies (continued)
2.25 Interest income
Interest income is recognised using the effective interest method. When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loan and receivables is recognised using the original effective interest rate.
2.26 Dividend income
Dividend income is recognised when the right to receive payment is established.
2.27 Dividend distribution
Dividend distributions to the Company's shareholders are recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's shareholders. No dividend has been paid by the Company since its incorporation.
2.28 Earnings per share
Basic earnings per share is calculated by dividing the net profit for the year by the weighted average number of ordinary shares outstanding during the year. The basic and diluted earnings per share are the same as there are no instruments that have a dilutive effect on earnings.
2.29 Reclassification from prior year presentation
Certain prior year amounts have been reclassified for consistency with the financial statements for the year ended 31 December 2016.These reclassifications had no effect on the reported results of the operation.
2.30 Amendment of financial statements after issue
The board of directors has the power to amend the consolidated financial statements after issue.
3. Financial Risk Management
3.1 Financial risk factors
Risk management is overseen by the AFRC under the board of directors. The AFRC oversees the risk management policies employed by the Group to identify, evaluate and hedge financial risks, in close co-operation with the Group's operating units. The Group is exposed to liquidity risk, currency risk, commodity price risk, credit risk, interest rate risk, operational risk, compliance risk and litigation risk arising from the financial instruments it holds. The risk management policies employed by the Group to manage these risks are discussed below:
(a) Liquidity risk
Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Group has procedures with the object of minimising such losses such as maintaining sufficient cash to meet liabilities when due. Cash flow forecasting is performed in the operating entities of the Group and aggregated by Group finance. Group finance monitors rolling forecasts of the Group's liquidity requirements to ensure it has sufficient cash to meet operational needs.
The following tables detail the Group's remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes principal cash flows.
Between
Carrying Contractual Less than Between 1 - 2 Between Over
(Euro 000's) amounts cash flows 3 months 3 - 12 months years 2 - 5 years 5 years
============== ============== ========== =============== ======== ============= ===========
31 December
2017
Land options
and mortgages 74 74 10 32 32 - -
Provisions 5,727 5,727 - 228 373 165 4,961
Deferred
consideration 52,983 52,983 - - 35,220 17,763 -
Trade and
other
payables 67,983 67,983 67,983 - - - -
============== ============== ========== =============== ======== ============= ===========
126,767 126,767 67,993 260 35,625 17,928 4,961
============== ============== ========== =============== ======== ============= ===========
31 December
2016
Social
security 1,741 1,741 578 1,163 - - -
Land options
and mortgages 905 905 760 30 83 32 -
Provisions 5,092 6,577 - 54 170 209 6,144
Deferred
consideration 52,983 52,983 - - 52,983
Derivative
instrument 215 215 215 - - - -
Trade and
other
payables 60,061 60,061 60,061 - - -
============== ============== ========== =============== ======== ============= ===========
120,997 120,997 61,614 1,247 253 53,224 6,144
============== ============== ========== =============== ======== ============= ===========
(b) Currency risk
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates.
Currency risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the Group's measurement currency. The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the US Dollar and the British Pound. The Group's management monitors the exchange rate fluctuations on a continuous basis and acts accordingly. The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows:
Liabilities Assets
(Euro 000's) 2017 2016 2017 2016
====== ====== ======= ======
United States dollar 1,554 8,684 21,660 2,143
Great Britain pound 139 172 34,346 233
Australian dollar 416 - - -
South African rand 5 - - -
Sensitivity analysis
A 10% strengthening of the Euro against the following currencies at 31 December 2017 would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. For a 10% weakening of the Euro against the relevant currency, there would be an equal and opposite impact on profit or loss and other equity.
3. Financial Risk Management (continued)
3.1 Financial risk factors (continued)
Equity (Profit) or loss
(Euro 000's) 2017 2016 2017 2016
====== ===== ========== =======
United States dollar 2,011 654 2,011 654
Great Britain pound 3,421 6 3,421 6
Australian dollar 42 - 42 -
South African rand 1 - 1 -
(c) Commodity price risk
Commodity price is the risk that the Group's future earnings will be adversely impacted by changes in the market prices of commodities, primarily copper. Management is aware of this impact on its primary revenue stream but knows that there is little it can do to influence the price earned apart from a hedging scheme.
Commodity price hedging is governed by the Group's policy which allows to limit the exposure to prices. The Group may decide to hedged part of its production during the year (Note 28).
(d) Credit risk
Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the reporting date. The Group has no significant concentration of credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history and monitors on a continuous basis the ageing profile of its receivables. The Group has policies to limit the amount of credit exposure to any financial institution.
Except as detailed in the following table, the carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the maximum credit exposure without taking account of the value of any collateral obtained:
(Euro 000's) 2017 2016
======= =====
Unrestricted cash and cash equivalent at Group 39,179 460
Unrestricted cash and cash equivalent at operating entity 3,427 425
Restricted cash at the operating entity 250 250
======= =====
Cash and cash equivalents 42,856 1,135
======= =====
Restricted cash held as of 31 December 2017 is a collateral of a bank guarantee provided to a contractor.
Other than the above, there are no collaterals held in respect of these financial instruments and there are no financial assets that are past due or impaired as at 31 December 2017.
(e) Interest rate risk
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group's management monitors the interest rate fluctuations on a continuous basis and acts accordingly.
At the reporting date the interest rate profile of interest-- bearing financial instruments was
(Euro 000's) 2017 2016
======= =====
Variable rate instruments
Financial assets 42,856 1,135
======= =====
An increase of 100 basis points in interest rates at 31 December 2017 would have increased / (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. For a decrease of 100 basis points there would be an equal and opposite impact on the profit and other equity.
3. Financial Risk Management (continued)
3.1 Financial risk factors (continued)
Equity Profit or loss
(Euro 000's) 2017 2016 2017 2016
==== ===== ======== =======
Variable rate instruments 429 11 429 11
(f) Operational risk
Operational risk is the risk that derives from the deficiencies relating to the Group's information technology and control systems as well as the risk of human error and natural disasters. The Group's systems are evaluated, maintained and upgraded continuously.
(g) Compliance risk
Compliance risk is the risk of financial loss, including fines and other penalties, which arises from non--compliance with laws and regulations. The Group has systems in place to mitigate this risk, including seeking advice from external legal and regulatory advisors in each jurisdiction.
(h) Litigation risk
Litigation risk is the risk of financial loss, interruption of the Group's operations or any other undesirable situation that arises from the possibility of non--execution or violation of legal contracts and consequentially of lawsuits. The risk is restricted through the contracts used by the Group to execute its operations.
3.2 Capital risk management
The Group considers its capital structure to consist of share capital, share premium and share options reserve. The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group is not subject to any externally imposed capital requirements.
In order to maintain or adjust the capital structure, the Group issues new shares. The Group manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to shareholders through the optimisation of the debt and equity balance. The AFRC reviews the capital structure on a continuing basis.
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern and to maintain an optimal capital structure so as to maximise shareholder value. In order to maintain or achieve an optimal capital structure, the Group may adjust the amount of dividend payment, return capital to shareholders, issue new shares, buy back issued shares, obtain new borrowings or sell assets to reduce borrowings.
The Group monitors capital on the basis of the gearing ratio. The gearing ratio is calculated as net debt divided by total capital. Net debt is calculated as provisions plus deferred consideration plus trade and other payables less cash and cash equivalents.
(Euro 000's) 2017 2016
======== =======
Net debt 84,663 119,878
Total equity 246,853 190,221
======== =======
Total capital 331,516 310,099
======== =======
Gearing ratio 25.5% 38.7%
The decrease in the gearing ratio during 2017 was mainly due to the capital increase executed in December 2017.
Net debt includes non-current and current all liabilities net of cash and cash equivalent.
3. Financial Risk Management (continued)
3.3 Fair value estimation
The fair values of the Group's financial assets and liabilities approximate their carrying amounts at the reporting date.
The fair value of financial instruments traded in active markets, such as publicly traded and available--for--sale financial assets is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the Group is the current bid price. The appropriate quoted market price for financial liabilities is the current ask price.
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses a variety of methods, such as estimated discounted cash flows, and makes assumptions that are based on market conditions existing at the reporting date.
Fair value measurements recognised in the consolidated statement of financial position
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
-- Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
-- Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
(Euro 000's) Level 1 Level 2 Level 3 Total
31 December 2017
Financial assets
Available for sale financial assets 129 - - 129
Total 129 - - 129
======== ======== ======== ======
31 December 2016
Financial assets
Available for sale financial assets 261 - - 261
======== ======== ======== ======
Total 261 - - 261
======== ======== ======== ======
3.4 Critical accounting estimates and judgements
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities at the date of the consolidated financial statements. Estimates and assumptions are continually 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. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
In particular, the Group has identified a number of areas where significant judgements, estimates and assumptions are required.
3. Financial Risk Management (continued)
3.4 Critical accounting estimates and judgements (continued)
(a) Capitalisation of exploration and evaluation costs
Under the Group's accounting policy, exploration and evaluation expenditure is not capitalised until the point is reached at which there is a high degree of confidence in the project's viability and it is considered probable that future economic benefits will flow to the Group. Subsequent recovery of the resulting carrying value depends on successful development or sale of the undeveloped project. If a project does not prove viable, all irrecoverable costs associated with the project net of any related impairment provisions are written off.
(b) Production start date
The Group assesses the stage of each mine under development/construction to determine when a mine moves into the production phase, this being when the mine is substantially complete and ready for its intended use. The criteria used to assess the start date are determined based on the unique nature of each mine development/construction project, such as the complexity of the project and its location. The Group considers various relevant criteria to assess when the production phase is considered to have commenced. At this point, all related amounts are reclassified from "Mines under construction" to "Property, plant and equipment". Some of the criteria used to identify the production start date include, but are not limited to:
-- Level of capital expenditure incurred compared with the original construction cost estimate;
-- 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 development project moves into the production phase, the capitalisation of certain mine development costs ceases and costs are either regarded as forming part of the cost of inventory or expensed, except for costs that qualify for capitalisation relating to mining asset additions or improvements or mineable reserve development. It is also at this point that depreciation/amortisation commences.
(c) Stripping costs
The Group incurs waste removal costs (stripping costs) during the development and production phases of its surface mining operations. Furthermore, during the production phase, stripping costs are incurred in the production of inventory as well as in the creation of future benefits by improving access and mining flexibility in respect of the orebodies to be mined, the latter being referred to as a stripping activity asset. Judgement is required to distinguish between the development and production activities at surface mining operations.
The Group is required to identify the separately identifiable components or phases of the orebodies for each of its surface mining operations. Judgement is required to identify and define these components, and also to determine the expected volumes (tonnes) of waste to be stripped and ore to be mined in each of these components. These assessments may vary between mines because the assessments are undertaken for each individual mine and are based on a combination of information available in the mine plans, specific characteristics of the orebody, the milestones relating to major capital investment decisions and the type and grade of minerals being mined.
Judgement is also required to identify a suitable production measure that can be applied in the calculation and allocation of production stripping costs between inventory and the stripping activity asset. The Group considers the ratio of expected volume of waste to be stripped for an expected volume of ore to be mined for a specific component of the orebody, compared to the current period ratio of actual volume of waste to the volume of ore to be the most suitable measure of production.
These judgements and estimates are used to calculate and allocate the production stripping costs to inventory and/or the stripping activity asset(s). Furthermore, judgements and estimates are also used to apply the units of production method in determining the depreciable lives of the stripping activity asset(s).
3. Financial Risk Management (continued)
3.4 Critical accounting estimates and judgements (continued)
(d) Ore reserve and mineral resource estimates
The Group estimates its ore reserves and mineral resources based on information compiled by appropriately qualified persons relating to the geological and technical data on the size, depth, shape and grade of the ore body and suitable production techniques and recovery rates.
Such an analysis 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.
The Group uses qualified persons (as defined by the Canadian Securities Administrators' National Instrument 43-101) to compile this data. Changes in the judgments surrounding proven and probable reserves may impact as follows:
-- The carrying value of exploration and evaluation assets, mine properties, property, plant and equipment, and goodwill may be affected due to changes in estimated future cash flows;
-- Depreciation and amortisation charges in the statement of profit or loss and other comprehensive income may change where such charges are determined using the UOP method, or where the useful life of the related assets change;
-- Capitalised stripping costs recognised in the statement of financial position as either part of mine properties or inventory or charged to profit or loss may change due to changes in stripping ratios;
-- Provisions for rehabilitation and environmental provisions may change where reserve estimate changes affect expectations about when such activities will occur and the associated cost of these activities;
-- The recognition and carrying value of deferred income tax assets may change due to changes in the judgements regarding the existence of such assets and in estimates of the likely recovery of such assets.
(e) Impairment of assets
Events or changes in circumstances can give rise to significant impairment charges or impairment reversals in a particular year. The Group assesses each Cash Generating Unit ("CGU") annually to determine whether any indications of impairment exist. If it was necessary management could contract independent expert to value the assets. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered the higher of the fair value less cost to sell and value-in-use. An impairment loss is recognised immediately in net earnings. The Group has determined that each mine location is a CGU.
These assessments require the use of estimates and assumptions such as commodity prices, discount rates, future capital requirements, exploration potential and operating performance. Fair value is determined as 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. Fair value for mineral assets is generally determined as the present value of estimated future cash flows arising from the continued use of the asset, which includes estimates such as the cost of future expansion plans and eventual disposal, using assumptions that an independent market participant may take into account. Cash flows are discounted at an appropriate discount rate to determine the net present value. For the purpose of calculating the impairment of any asset, management regards an individual mine or works site as a CGU.
Although management has made its best estimate of these factors, it is possible that changes could occur in the near term that could adversely affect management's estimate of the net cash flow to be generated from its projects.
(f) Provisions for decommissioning and site restoration costs
Accounting for restoration provisions requires management to make estimates of the future costs the Group will incur to complete the restoration and remediation work required to comply with existing laws, regulations and agreements in place at each mining operation and any environmental and social principles the Group is in compliance with. The calculation of the present value of these costs also includes assumptions regarding the timing of restoration and remediation work, applicable risk-free interest rate for discounting those future cash outflows, inflation and foreign exchange rates and assumptions relating to probabilities of alternative estimates of future cash outflows.
3. Financial Risk Management (continued)
3.4 Critical accounting estimates and judgements (continued)
Management uses its judgement and experience to provide for and (in the case of capitalised decommissioning costs) amortise these estimated costs over the life of the mine. The ultimate cost of decommissioning and timing is uncertain and cost estimates can vary in response to many factors including changes to relevant environmental laws and regulations requirements, the emergence of new restoration techniques or experience at other mine sites. As a result, there could be significant adjustments to the provisions established which would affect future financial results.
(g) Income tax
Significant judgment is required in determining the provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group and Company recognise liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
Judgement is also required to determine whether deferred tax assets are recognised in the consolidated statements of financial position. Deferred tax assets, including those arising from unutilised tax losses, require the Group to assess the probability that the Group will generate sufficient taxable earnings in future periods, in order to utilise recognised deferred tax assets.
Assumptions about the generation of future taxable profits depend on management's estimates of future cash flows. These estimates of future taxable income are based on forecast cash flows from operations (which are impacted by production and sales volumes, commodity prices, reserves, operating costs, closure and rehabilitation costs, capital expenditure, dividends and other capital management transactions). 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 could be impacted.
In addition, future changes in tax laws in the jurisdictions in which the Group operates could limit the ability of the Group to obtain tax deductions in future periods.
(h) Inventory
Net realisable value tests are performed at each reporting date and represent the estimated future sales price of the product the entity expects to realise when the product is processed and sold, less estimated costs to complete production and bring the product to sale. Where the time value of money is material, these future prices and costs to complete are discounted.
(i) Contingent liabilities
A contingent liability arises where a past event has taken place for which the outcome will be confirmed only by the occurrence or non-occurrence of one or more uncertain events outside of the control of the Group, or a present obligation exists but is not recognised because it is not probable that an outflow of resources will be required to settle the obligation.
A provision is made when a loss to the Group is likely to crystallise. The assessment of the existence of a contingency and its likely outcome, particularly if it is considered that a provision might be necessary, involves significant judgment taking all relevant factors into account.
(j) Deferred consideration
As disclosed in Note 27, the Group has recorded a deferred consideration liability in relation to the obligation to pay Astor up to EUR53.0 million out of excess cash from operations at Proyecto Riontinto.
The actual timing of any payments to Astor of the consideration involves significant judgment as it depends on certain factors which are out of control of management.
(k) Share-based compensation benefits
Share based compensation benefits are accounted for in accordance with the fair value recognition provisions of IFRS 2 "Share-based Payment". As such, share-based compensation expense for equity-settled share-based payments is measured at the grant date based on the fair value of the award and is recognised as an expense over the vesting period. The fair value of such share-based awards at the grant date is measured using the Black Scholes pricing model. The inputs used in the model are based on management's best estimates for the effects of non-transferability, exercise restrictions, behavioural considerations and expected volatility.
4. Business and geographical segments
Business segments
The Group has only one distinct business segment, being that of mining operations, which include mineral exploration and development.
Copper concentrates produced by the Group are sold to three offtakers as per the relevant offtake agreement (Note 31.2)
Geographical segments
The Group's mining activities are located in Spain. The commercialisation of the copper concentrates produced in Spain is carried out in Cyprus. Corporate costs and administration costs are based in Cyprus. Intercompany transactions within the Group are on arm's length basis in a manner similar to transaction with third parties. Accounting policies used by the Group in different locations are the same as those contained in Note 2.
2017
(Euro 000's) Cyprus Spain Other Total
========= =========== ====== ==========
Sales 160,537 - - 160,537
========= =========== ====== ==========
Earnings/(loss)before Interest,Tax,Depreciation
and Amortisation 151,331 (109,957) (27) 41,347
Depreciation/amortisation
charge (7) (16,664) - (16,671)
Net foreign exchange loss (1,510) (701) (1) (2,212)
Finance income - 22 - 22
Finance cost (366) (213) - (579)
(Loss)/profit before tax
before share of loss of
associate 149,448 (127,513) (28) 21,907
========= =========== ======
Tax (3,696)
==========
Profit for the year 18,211
==========
Total assets 53,034 321,136 202 374,372
========= =========== ====== ==========
Total liabilities (11,836) (115,624) (59) (127,519)
========= =========== ====== ==========
Depreciation of property,
plant and equipment 7 12,533 - 12,540
========= =========== ====== ==========
Amortisation of intangible
assets - 4,131 - 4,131
========= =========== ====== ==========
Total additions of non-current
assets - 26,079 - 26,079
========= =========== ====== ==========
2016
(Euro 000's) Cyprus Spain Other Total
========= =========== ====== ==========
Sales 98,768 - - 98,768
========= =========== ====== ==========
Earnings/(loss) before Interest,
Impairment, Tax, Depreciation
and Amortisation 94,318 (78,917) (9) 15,393
Depreciation/amortisation
charge restated (*) (14) (11,743) - (11,757)
Impairment of land options
not exercised - (903) - (903)
Net foreign exchange gain/(loss) 377 (1,041) (1) (665)
Finance income - 41 - 41
Finance costs restated (*) (142) (448) - (590)
(Loss)/profit before tax
and share of loss of associate 94,540 (93,011) (10) 1,519
========= =========== ======
Share of loss of associate (10)
Tax 12,187
==========
Profit for the year restated
(*) 13,696
==========
Total assets 18,687 292,850 4 311,541
========= =========== ====== ==========
Total liabilities (19,484) (101,501) (28) (121,013)
========= =========== ====== ==========
Depreciation of property,
plant and equipment 14 8,629 - 8,643
========= =========== ====== ==========
Amortisation of intangible
assets restated (*) - 3,114 - 3,114
========= =========== ====== ==========
Total additions of non-current
assets 2 87,402 - 87,404
========= =========== ====== ==========
(*) Refer to Note 2.1. (c)
5. Other income
THE GROUP(Euro 000's) 2017 2016
===== ====
Other income - 235
Gain on disposal of associate 49 -
Loss on available-for-sale investments (49) -
Gain on sale of property, plant and equipment - 4
Sales of services 5 53
===== ====
5 292
===== ====
THE COMPANY
(Euro 000's) 2017 2016
===== ====
Loss on available-for-sale investments (49) -
Gain on disposal of associate 45 -
Gain on sale of property, plant and equipment - 4
Sales of services 5 43
===== ====
1 47
===== ====
6. Expenses by nature
THE GROUP
(Euro 000's) 2017 2016
restated
(*)
======== =========
Operating costs 97,786 64,223
Impairment charge on land options
not exercised - 903
Employee benefit expense (Note 7) 15,420 13,542
Compensation of key management personnel
(Note 31.1) 2,804 2,375
Auditors' remuneration - audit 180 204
- prior year audit 27 17
- other - 38
Other accountants' remuneration 13 8
Consultants' remuneration 157 698
Depreciation of property, plant and
equipment (Note 12) 12,540 8,643
Amortisation of intangible assets
(Note 13) 4,131 3,114
Travel costs 298 101
Share option-based employee benefits 87 56
Shareholders' communication expense 288 264
On-going listing costs 157 163
Legal costs 413 981
Royalties 500 -
Provision for impairment 283 -
Other expenses 782 997
======== =========
Total cost of operation, corporate,
share based benefits, exploration
and impairment 135,866 96,327
======== =========
THE COMPANY
(Euro 000's) 2017 2016
====== =====
Employee benefit expense (Note 7) 180 289
Key management remuneration (Note
31.1) 1,854 1,309
Auditors' remuneration - audit 104 145
- prior year audit 8 58
Other accountants' remuneration 12 8
Consultants' remuneration 95 11
Depreciation of property, plant and
equipment (Note 12) 7 14
Travel costs 67 94
Share option-based employee benefits 9 103
Shareholders' communication expense 288 264
On-going listing costs 157 164
Legal costs 410 965
Provision for impairment 583 -
Other expenses 268 347
====== =====
Total cost of corporate, share based
benefits and impairment 4,042 3,771
====== =====
7. Employee benefit expense
THE GROUP
(Euro 000's) 2017 2016
======= ======
Wages and salaries 11,101 10,154
Social security and social contributions 3,250 2,890
Employees' other allowances 31 22
Bonus to employees 1,038 476
======= ======
15,420 13,542
======= ======
The average number of employees and the number of employees at year end by office are:
Average At year end
========== =============
Number of employees 2017 2016 2017 2016
==== ==== ======= ====
Spain - Full time 339 307 363 325
Spain - Part time 6 7 7 -
Cyprus - Full time 3 4 3 4
==== ==== ======= ====
Total 348 318 373 329
==== ==== ======= ====
THE COMPANY
(Euro 000's) 2017 2016
==== ====
Wages and salaries 164 264
Social security and social contributions 16 25
180 289
==== ====
The average number of employees and the number of employees at year end by office are:
Average At year end
========== =============
Number of employees 2017 2016 2017 2016
==== ==== ======= ====
Cyprus - Full time 3 4 3 4
==== ==== ======= ====
Total 3 4 3 4
==== ==== ======= ====
8. Finance income
THE GROUP
(Euro 000's) 2017 2016
====== ====
Interest income 22 41
22 41
====== ====
Interest income relates to interest received on bank balances.
THE COMPANY
(Euro 000's) 2017 2016
========= =====
Finance income from interest-bearing
intercompany loan 1,635 1,523
1,635 1,523
========= =====
9. Finance costs
THE GROUP
(Euro 000's) 2017 2016
====== ====
Interest expense:
Debt to department of social security
(Note 25) and other interest 306 252
Interest on copper concentrate prepayment
(1) 109 143
Unwinding of discount on mine rehabilitation
provision (Note 26) 113 -
Interest paid on early payment on
receivable from trading 256 -
Hedging income (Note 28.1) (205) -
Net foreign exchange hedging expense
(Note 28.1) - 195
579 590
====== ====
(1) Interest rate US$ 3 months LIBOR + 2.75%
10. Tax
THE GROUP
(Euro 000's) 2017 2016
======= ========
Income tax 1,622 16
(Over)/under provision previous years 8 (7)
Deferred tax asset due to losses available
against future taxable income (Note 17) - (8,276)
Deferred tax asset due to losses available
against future taxable income overprovision 1,459 -
previous years (Note 17)
Deferred tax related to utilization of
losses for the year (Note 17) 345 475
Deferred tax income relating to the origination
of temporary differences (Note 17) - (4,593)
Deferred tax expense relating to reversal
of temporary differences (Note 17) 262 198
3,696 (12,187)
======= ========
The tax on the Group's results before tax differs from the theoretical amount that would arise using the applicable tax rates as follows:
(Euro 000's) 2017 2016
======== ========
Profit before tax 21,907 1,509
======== ========
Tax calculated at the applicable tax
rates 4,739 (18)
Tax effect of expenses not deductible
for tax purposes 1,449 31
Tax effect of tax loss for the year 9 318
Tax effect of allowances and income not
subject to tax (4,212) (191)
Over provision for prior year taxes 8 (7)
Tax effect of tax losses brought forward (363) (124)
Deferred tax (Note 17) 2,066 (12,196)
Tax (credit)/charge 3,696 (12,187)
======== ========
10. Tax (continued)
THE COMPANY
(Euro 000's) 2017 2016
==== ====
Income tax - -
(Over)/under provision previous years - -
- -
==== ====
The tax on the Company's results before tax differs from the theoretical amount that would arise using the applicable tax rates as follows:
(Euro 000's) 2017 2016
======== ========
Loss before tax (1,127) 95,059
======== ========
Tax calculated at the applicable tax
rates (141) 11,882
Tax effect of expenses not deductible
for tax purposes 140 65
Tax effect of tax loss for the year - 199
Tax effect of allowances and income not
subject to tax (39) (12,146)
Tax effect of group tax relief 40 -
Tax (credit)/charge - -
======== ========
10. Tax (continued)
(Euro 000's)
Tax losses carried forward
============================ ======= ======= =======
Tax year Cyprus Spain Total
============================ ======= ======= =======
2007 - - -
2008 - 3,794 3,794
2009 - 3,498 3,498
2010 - 5,642 5,642
2011 - 6,576 6,576
2012 - 1,967 1,967
2013 5,167 2,381 7,548
2014 4,100 3,509 7,609
2015 4,051 640 4,691
2016 1,584 - 1,584
2017 - - -
14,902 28,007 42,909
======= ======= =======
Cyprus
The corporation tax rate is 12.5%. Under certain conditions interest income may be subject to defence contribution at the rate of 30%. In such cases this interest will be exempt from corporation tax. In certain cases, dividends received from abroad may be subject to defence contribution at the rate of 17% for 2014 and thereafter. Due to tax losses sustained in the year and previous years, no tax liability arises on the Company. Under current legislation, tax losses may be carried forward and be set off against taxable income of the five succeeding years.
Companies which do not distribute 70% of their profits after tax, as defined by the relevant tax law, within two years after the end of the relevant tax year, will be deemed to have distributed as dividends 70% of these profits. Special contribution for defence at 20% for the tax years 2012 and 2013 and 17% for 2014 and thereafter will be payable on such deemed dividends to the extent that the shareholders (companies and individuals) are Cyprus tax residents. The amount of deemed distribution is reduced by any actual dividends paid out of the profits of the relevant year at any time. This special contribution for defence is payable by the Company for the account of the shareholders.
Spain
The corporation tax rate for 2017 and 2016 is 25%. The recent Spanish tax reform approved in 2014 reduces the general corporation tax rate from 30% to 28% in 2015 and to 25% in 2016, and introduces, among other changes, a 10% reduction in the tax base subject to equity increase and other requirements. Due to tax losses sustained in the current and previous years, no tax liability arises in the subsidiaries in Spain. Under current legislation, tax losses may be carried forward and be set off against taxable income with no limitation.
11. Earnings per share
The calculation of the basic and diluted earnings per share attributable to the ordinary equity holders of the Company is based on the following data:
(Euro 000's) 2017 2016 restated (*)
========== ==================
Parent company (3,477) (3,798)
Subsidiaries 21,716 17,494
========== ==================
Profit attributable to equity holders of the parent 18,239 13,696
========== ==================
Weighted number of ordinary shares for the purposes of basic earnings per share
('000) 117,904 116,680
========== ==================
Basic profit per share (cents) 15.5 11.7
========== ==================
Weighted number of ordinary shares for the purposes of fully diluted earnings per share
('000) 119,485 117,545
========== ==========
Fully diluted profit per share (cents) 15.3 11.7
========== ==========
(*) Refer to Note 2.1. (c)
There are 262,569 warrants (Note 22) and 1,400,000 options (Note 23) (2016: 365,354 warrants and 500,000 options) which have been included when calculating the weighted average number of shares for 2017.
12. Property, plant and equipment
Deferred
Land and Plant and Mineral Assets under mining Other
(Euro 000's) buildings equipment rights construction(4) costs(3) assets(2) Total
============ =========== ============ ================ ============ ============ ==========
2017
Cost
At 1 January 2017 40,188 144,930 - 566 13,848 838 200,370
Additions 407(1) - - 11,751 8,469 - 20,627
Reclassifications 400 472 - (872) - - -
Disposals - - - - - (53) (53)
At 31 December
2017 40,995 145,402 - 11,445 22,317 785 220,944
============ =========== ============ ================ ============ ============ ==========
Depreciation
At 1 January 2017 1,736 5,073 - - 1,758 423 8,990
Charge for the
year 2,340 8,392 - - 1,711 97 12,540
Disposals - - - - - (44) (44)
At 31 December
2017 4,076 13,465 - - 3,469 476 21,486
============ =========== ============ ================ ============ ============ ==========
Net book value at
31 December 2017 36,919 131,937 - 11,445 18,848 309 199,458
============ =========== ============ ================ ============ ============ ==========
2016
Cost
At 1 January 2016 39,061 23,046 950 94,525 10,334 1,026 168,942
Additions 1,121(1) 15,983 - - 13,848 164 31,116
Reclassifications 6 104,287 - (93,959) (10,334) - -
Reclassifications
- intangibles - 1,614 (50) - - (247) 1,317
Disposals - - - - (37) (37)
Written off - - (900) - (68) (968)
============ =========== ============ ================ ============ ============ ==========
At 31 December
2016 40,188 144,930 - 566 13,848 838 200,370
============ =========== ============ ================ ============ ============ ==========
Depreciation
At 1 January 2016 - - - - - 518 518
Charge for the
year 1,736 4,932 - - 1,758 217 8,643
Reclassifications - 141 - - - (141) -
Reclassifications
- intangibles - - - - - (81) (81)
Disposals - - - - - (25) (25)
Impairment - - 900 - - 3 903
Written off - - (900) - - (68) (968)
============ =========== ============ ================ ============ ============ ==========
At 31 December
2016 1,736 5,073 - - 1,758 423 8,990
============ =========== ============ ================ ============ ============ ==========
Net book value at
31 December 2016 38,452 139,857 - 566 12,090 415 191,380
============ =========== ============ ================ ============ ============ ==========
THE GROUP
(1) Mine rehabilitation asset (Note 26).
(2) Includes motor vehicles, furniture, fixtures and office equipment which are depreciated over 5-10 years.
(3) Stripping costs
(4) Net of pre-commissioning sales
The above fixed assets are located mainly in Spain.
12. Property, plant and equipment (continued)
THE COMPANY
Other
(Euro 000's) assets(1) Total
========== =======
2017
Cost
At 1 January 2017 68 68
Disposals (53) (53)
At 31 December 2017 15 15
========== =======
Depreciation
At 1 January 2017 52 52
Charge for the year 7 7
Disposals (44) (44)
At 31 December 2017 15 15
========== =======
Net book value at 31 December 2017 - -
========== =======
2016
Cost
At 1 January 2016 109 109
Additions 1 1
Disposals (37) (37)
Written off (5) (5)
At 31 December 2016 68 68
========== =======
Depreciation
At 1 January 2016 68 68
Charge for the year 14 14
Disposals (25) (25)
Written off (5) (5)
At 31 December 2016 52 52
========== =======
Net book value at 31 December 2016 16 16
========== =======
(1) Includes motor vehicles, furniture, fixtures and office equipment which are depreciated over 5-10 years.
The Group
Certain land plots required for Proyecto Riotinto (the "Project Lands") are affected by pre-existing liens and embargos derived from unpaid obligations of former Project operators or owners (the "Pre-Existing Debt").
a) In May 2010 the Group signed an agreement with the Department of Social Security in which it undertook to repay, over a period of 5 years, the EUR16.9 million Pre-Existing Debt to the Department of Social Security in exchange for a stay of execution proceedings for recovery of this debt against these Project Lands (the "Social Security Agreement"). The Group granted a mortgage to guarantee the payment of a total debt of EUR6,436,661 and two embargos to guarantee the two payments of a total debt of EUR6,742,039 and EUR10,472,612 respectively in favour of Social Security's General Treasury. Originally payable over 5 years, the repayment schedule was subsequently extended until June 2017. The Group repaid the Department of Social Security on 30 June 2017.
b) The Project Lands are also subject to a lien in the amount of EUR5.0 million created in 1979 to secure the repayment of certain government grants that were in all likelihood paid at the relevant time by former operators. Relevant court proceedings have been followed to strike this lien from title, given that in the opinion of the Group the right of the government to reclaim this Pre-Existing Debt has expired due to the relevant statute of limitations.
c) The Project Lands are also affected by the following Pre-Existing Debt liens: A EUR400k mortgage to Oxiana Limited (that will be paid in due course) and a mortgage of EUR222k pre--existing on lands acquired by the Group in August 2012 which has been paid in full.
12. Property, plant and equipment (continued)
d) Other land plots owned by the Group, but not required for Proyecto Riotinto (the "Non-Project Lands"), are affected by a Pre-Existing Debt lien of EUR10.5 million registered by the Junta de Andalucía. In the event execution proceedings were commenced against the Non-Project Lands, the Group would either negotiate a settlement or allow the execution to proceed in total satisfaction of the Pre-Existing Debt in question
e) During 2016, an option expired which was previously granted to Inland Trading 2006, S.L. and Construcciones Zeitung, S.L. for the acquisition of certain mining rights and recorded EUR900k as an impairment charge in the profit and loss account.
During 2017, the Group capitalised personnel costs amounting to EUR259k (2016: EUR916k). No borrowing costs were capitalised in the same period.
13. Intangible assets
The Group
Permits Licences,
of Projects R&D and Goodwill Total
(Euro 000's) Software
============= ========= ========== ========
2017
Cost
On 1 January 2017 71,521 1,685 9,333 82,539
Additions from acquisition
of subsidiary 5,000 126 5,126
Additions - 2,694 - 2,694
At 31 December 2017 76,521 4,505 9,333 90,359
============= ========= ========== ==========
Amortisation
On 1 January 2017 3,072 123 9,333 12,528
Charge for the year 4,073 58 - 4,131
At 31 December 2017 7,145 181 9,333 16,659
============= ========= ========== ==========
Net book value at 31
December 2017 69,376 4,324 - 73,700
============= ========= ========== ==========
2016
Cost
On 1 January 2016 20,158 - 9,333 29,491
Additions restated (*) 53,005(1) 1,334 - 54,339
Reclassifications -
Property, plant and
equipment (1,614) 297 - (1,317)
Other reclassifications (28) 54 - 26
============= ========= ========== ==========
At 31 December 2016 71,521 1,685 9,333 82,539
============= ========= ========== ==========
Amortisation
On 1 January 2016 - - 9,333 9,333
Charge for the year
restated (*) 3,072 42 - 3,114
Reclassifications -
Property, plant and
equipment - 81 - 81
============= ========= ========== ==========
At 31 December 2016 3,072 123 9,333 12,528
============= ========= ========== ==========
Net book value at 31
December 2016 restated
(*) 68,449 1,562 - 70,011
============= ========= ========== ==========
(1) These additions relate to the deferred consideration as at 1.2.2016 (Note 27)
(*) Refer to Note 2.1. (c)
The useful life of the intangible assets is estimated to be not less than fourteen years from the start of production (the revised Reserves and Resources statement which was announced in July 2016 has increased the life of mine to 16 1/2 years).
13. Intangible assets (continued)
The ultimate recovery of balances carried forward in relation to areas of interest or all such assets including intangibles is dependent on successful development, and commercial exploitation, or alternatively sale of the respective areas.
The Group conducts impairment testing on an annual basis unless indicators of impairment are not present at the reporting date. In considering the carrying value of the assets at Proyecto Riotinto, including the intangible assets and any impairment thereof, the Group assessed that no indicators were present as at 31 December 2017 and thus no impairment has been recognised.
Goodwill of EUR9,333,000 arose on the acquisition of the remaining 49% of the issued share capital of Atalaya Riotinto Minera S.L.U. ("ARM") back in September 2008. This amount was fully impaired on acquisition, in the absence of the mining licence back in 2008.
Permits include additions in 2017 amounting to EUR5,000,000 related to the Touro Project mining rights.
14. Investment in subsidiaries
(Euro 000's) 2017 2016
====== ======
The Company
Opening amount at cost less provision for impairment 3,572 3,572
Incorporation(1) 3 -
Increase of investment (2) 118 -
Closing amount at cost less provision for impairment 3,693 3,572
====== ======
Effective proportion
of shares held(5)
Date of incorporation/ Principal activity Country of
Subsidiary companies acquisition incorporation
====================== ======================= ====================== ====================== =====================
Atalaya Touro Project
(UK) Ltd(1) 10 March 2017 Holding United Kingdom 100%
Atalaya
Minasderiotinto
Project (UK) Ltd(2) 10 Sep 2008 Holding United Kingdom 100%
EMED Marketing Ltd 08 Sep 2008 Trading Cyprus 100%
EMED Mining Spain
SLU(3) 12 April 2007 Exploration Spain 100%
Eastern Mediterranean
Resources (Caucasus)
Ltd(4) 11 Nov 2005 Exploration Georgia 100%
As security for the obligation on ARM to pay consideration to Astor under the Master Agreement and the Loan Assignment Agreement, Atalaya Minasderiotinto Project (UK) Ltd has granted pledges to Astor Resources AG over the issued capital of ARM and granted a pledge to Astor over the issued share capital of Eastern Mediterranean Exploration and Development S.L.U. and the Company has provided a parent company guarantee (Note 27).
(1) On 10 March 2017, Atalaya Touro Project (UK) Limited was incorporated. Atalaya Mining Plc is its sole shareholder.
(2) On 16 February 2017, Emed Holdings (UK) Ltd changed its name to Atalaya Riotinto Project (UK) Ltd and changed again to Atalaya Minasderiotinto Project (UK) Limited on 30 June 2017. During the year there was an increase amounting to EUR118k in the investment of ARM related to employee benefit expenses.
(3) In December 2017, EMED Mining Spain SLU increased its capital by EUR300k from its sole shareholder. This investment increase was fully impaired in the year.
(4) The Group started the liquidation process of this subsidiary in 2017. In 2018, the Group has reached an agreement with a third party to dispose Eastern Mediterranean Resources (Caucasus) Ltd by transferring all issued shares. The liquidation process was halted in 2018 and the Group is expecting to transfer the shares during 2018.
(5) The effective proportion of shares held as at 31 December 2017 and 31 December 2016 remained unchanged other than Atalaya Touro Project (UK) Ltd which was incorporated in the year.
15. Investment in associate
(Euro 000's) 2017 2016
==== ======
The GROUP
At 1 January - 10
Profit on disposals from subsidiary/associate - 303
Share of results of associate
before tax - (313)
==== ======
At 31 December - -
==== ======
The Company
At 1 January 4 4
Disposal (4) -
At 31 December - 4
==== ======
In December 2014, the Company entered into a conditional Earn-in Agreement with Prospech Ltd ("Prospech"), a private Australian exploration company, in relation with two exploration licences held by Atalaya's 100% owned Slovak subsidiary, Slovenske Kovy s.r.o. ("SLOK"). The agreement became effective in March 2015.
On 10 October 2017, the Company entered into a share and rights sale and purchase agreement with Prospech Limited. According to this agreement the Company agreed to sell its 19% of the share capital of Slovenske Kovy, s.r.o. to Prospech Limited. The sale consideration was 937,500 fully paid ordinary Prospech shares at A$0.16 per share, and 468,750 options, each with a right to convert to one fully paid ordinary Prospech share at any time up to 30 September 2019 for A$0.25. The sale consideration was EUR99,010 resulting in a consolidated profit of EUR99,010.
Further to the Sales and Purchase agreement with Prospech Limited, the Company agreed to transfer 50% of its Prospech shares and rights to the advisor for his services provided for this agreement. Thus, the Group owned 468,500 fully paid Prospech shares and 234,375 options at a cost of EUR49,505.
16. Investment in joint venture
Effective proportion
Company name Principal Country of of shares
activities incorporation held at 31 December
2015
================ ================== ================= ====================
Exploitation
Recursos of tailing
Cuenca Minera dams and waste
S.L. areas resources Spain 50%
ARM entered into a 50/50 joint venture with Rumbo to evaluate and exploit the potential of the class B resources in the tailings dam and waste areas at Proyecto Riotinto. Under the joint venture agreement, ARM will be the operator of the joint venture, will reimburse Rumbo for the costs associated with the application for classification of the Class B resources and will fund the initial expenditure of a feasibility study up to a maximum of EUR2.0 million. Costs are then borne by the joint venture partners in accordance with their respective ownership interests. Half of the costs paid by ARM in connection with the feasibility study can be deducted from any royalty which may fall due to be paid.
The Group's significant aggregate amounts in respect of the joint venture are as follows:
(Euro 000's) 2017 2016
====== =====
Intangible assets 94 94
Trade and other receivables 2 1
Cash and cash equivalents 22 20
Trade and other payables (115) (114)
====== =====
Net assets 3 1
====== =====
Revenue - -
Expenses - (1)
====== =====
Net loss after tax - (1)
====== =====
17. Deferred tax
Consolidated Consolidated
statement income statement
of financial
position
(Euro 000's) 2017 2016 2017 2016
Restated Restated
---------- --------- -------- -----------
The Group
Deferred tax asset
At 1 January 12,196 -
Deferred tax asset due to
losses available against
future taxable income (Note
10) - 8,276 - (8,276)
Deferred tax related to
utilization of losses for
the year (Note 10) (345) (475) 345 475
Deferred tax asset due to
losses available against
future taxable income overprovision
previous years (Note 10) (1,459) - 1,459
Deferred tax income relating
to the origination of temporary
differences (Note 10) - 4,593 - (4,593)-
Deferred tax expense relating
to reversal of temporary
differences (Note 10) (262) (198) 262 198
========== =========
At 31 December 10,130 12,196
Deferred tax income (Note
10)
======== ===========
2,066 (12,196)
-------- -----------
Deferred tax assets are recognised for the carry-forward of unused tax losses and unused tax credits to the extent that it is probable that taxable profits will be available in the future against which the unused tax losses/credits can be utilised.
During 2016, the Group recognised EUR12.2 million in net deferred tax assets as it was determined that it is probable that sufficient future taxable profits will be available to the Group to benefit from the losses carried forward.
In addition to recognised deferred income tax asset, the Group has unrecognised tax losses in Cyprus of EUR14.9million (2016: EUR17.9) that are available to carry forward for 5 years against future taxable income of the group companies in which the losses arose, and in Spain EUR28million (2016: EUR30.6million) which are available to carry forward indefinitely against future losses. Deferred tax assets have not been recognised in respect of losses in Cyprus as they may not be used to offset taxable profits elsewhere in the Group, they have arisen in companies that have been loss-making for some time, and there are no other tax planning opportunities or other evidence of recoverability in the near future to support (either partially or in full) the recognition of the losses as deferred income tax assets.
18. Inventories
(Euro 000's) 2017 2016
======= =====
The Group
Finished products 4,797 -
Materials and supplies 8,003 5,647
Work in progress 874 548
13,674 6,195
======= =====
Materials and supplies relate mainly to machinery spare parts. Work in progress represents ore stockpiles, which is ore that has been extracted and is available for further processing.
As of 31 December 2017, copper concentrate produced and not sold amounted to 7,274 tonnes. Accordingly, the inventory for copper concentrate was EUR4.8 million (2016:EUR nil). During the year the Group recorded cost of sales amounting to EUR130.7 million (2016: EUR88.8 million).
19. Trade and other receivables
(Euro 000's) 2017 2016
======== =========
The Group
Non-current trade and other receivables
Deposits 212 206
212 206
======== =========
Current trade and other receivables
Trade receivables 12,113 15,082
Receivables from related parties
(Note 31.3 and 31.4) 1,612 2,092
Deposits and prepayments 221 522
VAT receivable 17,804 11,187
Tax advances 1,716 -
Other receivables 747 967
======== =========
34,213 29,850
======== =========
The Company
(Euro 000's) 2017 2016
Restated
======== ===========
Receivables from own subsidiaries
(Note 31.3) 242,416 239,335
Deposits and prepayments 6 506
VAT receivable 389 352
Other receivables 13 52
======== ==========
242,824 240,245
======== ==========
Trade receivables are shown net of any interest applied to prepayments. Payment terms are aligned with offtake agreements and market standards and generally are 7 days on 90% of the invoice and the remaining 10% at the settlement date which can vary between 1 to 5 months.
The fair values of trade and other receivables approximate to their carrying amounts as presented above.
20. Available-for-sale investments
(Euro 000's) 2017 2016
====== ====
The Group & The Company
At 1 January 261 302
Addition 49 -
Impairment (49)
Loss transferred to reserves (Note
23) (132) (41)
At 31 December 129 261
====== ====
Country Effective proportion
Company name Principal activities of incorporation of shares
held at 31 December
2017
======================= ======================== =================== ====================
Eastern Mediterranean Holder of exploration
Minerals Ltd licences in Cyprus Cyprus 10%
Exploration and
development mining
KEFI Minerals company listed
Plc on AIM UK 1.8%
Prospech Limited Exploration company Australia 0.65%
20. Available-for-sale investments (continued)
On 10 October 2017, the Company entered into a share and rights sale and purchase agreement with Prospech Limited. According to this agreement the Company agreed to sell its 19% of the share capital of Slovenske Kovy, s.r.o. to Prospech Limited . The sale consideration is 937,500 fully paid ordinary Prospech shares at A$0.16 per share, and 468,750 options, each with a right to convert to one fully paid ordinary Prospech share at any time up to 30 September 2019 for A$0.25. The sale consideration was EUR99,010 resulting in a consolidated profit of EUR99,010 (Note 15)
Further to the Sales and Purchase agreement with Prospech Limited, the Company agrees to transfer 50% of its Prospech shares and rights to the advisor for his services provided for this agreement. Thus, the Group has 468,500 fully paid Prospech shares and 234,375 options at a cost of EUR49,505 (Note 15)
21. Cash and cash equivalents
(Euro 000's) 2017 2016
====== =====
The Group
Cash at bank and in hand 42,856 1,135
====== =====
As of 31 December 2017, the Group's operating subsidiary held EUR250k (2016: EUR250k) as a collateral for bank guarantees, which has been classified as restricted cash.
Cash and cash equivalents denominated in the following currencies:
Euro - functional and presentation
currency 517 783
Great Britain Pound 34,346 233
United States Dollar 7,993 119
======= =====
42,856 1,135
======= =====
The Company
Cash at bank and on hand 34,410 320
====== ===
Cash and cash equivalents denominated in the following currencies:
Euro - functional and presentation
currency 64 86
Great Britain Pound 34,345 229
United States Dollar 1 5
======= ===
34,410 320
======= ===
22. Share capital
No. Share Share
Authorised of Shares* capital Premium Total
'000's StgGBP StgGBP StgGBP
000's 000's 000's
Ordinary shares
of Stg GBP0.075
each 200,000 15,000 - 15,000
============ ========= ========= =========
Issued and fully 000's Euro Euro Euro
paid 000's 000's 000's
1 January 2016 116,679 11,632 277,238 288,870
Issue Price Details
Date (StgGBP)
7 Dec
2017 1.67 Share placement 18,575 1,560 33,182 34,742
Share issue
costs - - (843) (843)
============ ========= ========= =========
31 December 2017 135,254 13,192 309,577 322,769
============ ========= ========= =========
Authorised capital
The Company's authorised share capital is 200,000,000 ordinary shares of Stg GBP0.075 each.
Issued capital
2017
On 7 December 2017, 18,574,555 ordinary shares at Stg GBP0.075 were issued at a price of GBP1.67. Upon the issue an amount of EUR32,338,512 was credited to the Company's share premium reserve.
2016
There was no share capital issue during 2016.
Warrants
No warrants were issued in 2017 and in 2016.
Details of share warrants outstanding as at 31 December 2017:
Number of
Grant date Expiry date Exercise price - Stg GBP warrants
============= ============== ==========
24 June 2015 24 June 2018 1.425 262,569
262,569
Weighted average
exercise price Number of
Stg GBP warrants
================= ==========
At 1 January 2017 1.80 365,354
Less warrants expired during the year 2.75 (102,785)
Outstanding warrants at 31 December 2017 1.425 262,569
The estimated fair values of the warrants were calculated using the Black Scholes option pricing model. The inputs into the model and the results are as follows:
Weighted
Weighted average Expected Estimated
average share exercise Expected Expected life Risk free dividend fair value
Grant date price StgGBP price StgGBP volatility (years) rate yield StgGBP
24 June 2015 1.425 1.425 64.40% 3 2.0% Nil 0.330
The volatility has been estimated based on the underlying volatility of the price of the Company's shares in the preceding twelve months.
On 20 February 2018, the Company received the notification from one of the warrants holders to exercise 233,184 warrants at an exercise price of 142.5 pence per share. As of the date of this Report, the shares are yet to be allotted, as the holder did not transfer the exercise price to the Group. The expiration date of the warrants is 24 June 2018.
23. Other reserves
THE GROUP
Depletion factor Available-for-sale
(Euro 000's) Share option Bonus share investments Total
At 1 January 2016 6,247 145 - (884) 5,508
Bonus shares issued in escrow - 63 - - 63
Recognition of share based
payments 137 - - - 137
Change in value of
available-for-sale
investments (Note 20) - - - (41) (41)
At 31 December 2016 6,384 208 - (925) 5,667
Recognition of depletion
factor - - 450 - 450
Recognition of share based
payments 152 - - - 152
Change in value of
available-for-sale
investments (Note 20) - - - (132) (132)
At 31 December 2017 6,536 208 450 (1,057) 6,137
============ =========== ========
the company
Available-for-sale investments
(Euro 000's) Share option Bonus share Total
At 1 January 2016 6,247 145 (884) 5,508
Bonus shares issued in escrow - 63 - 63
Recognition of share based payments 137 - - 137
Change in value of available-for-sale investments
(Note20) - - (41) (41)
At 31 December 2016 6,384 208 (925) 5,667
Recognition of share based payments 152 - - 152
Change in value of available-for-sale investments
(Note20) - - (132) (132)
At 31 December 2017 6,536 208 (1,057) 5,687
============ =========== ======
Details of share options outstanding as at 31 December 2017:
Grant date Expiry date Exercise price - Stg GBP Share options
20 Mar 2014 19 Mar 2019 3.60 400,000
1 June 2014 31 May 2019 2.70 100,000
23 Feb 2017 22 Feb 2022 1.44 900,000
Total 1,400,000
Weighted average
exercise price Stg GBP Share options
At 1 January 2017 3.42 500,000
Add options granted during the year 1.44 900,000
31 December 2017 2.15 1,400,000
On 23 February 2017, the Group announced that 900,000 share options were granted to Persons Discharging Managerial Responsibilities and management, of which 800,000 were in accordance with the incentive share option plan and 100,000 were under a contractual entitlement. These included 150,000 share options granted to a Director, as disclosed in the Corporate Governance Report.
In general, option agreements contain provisions adjusting the exercise price in certain circumstances including the allotment of fully paid ordinary shares by way of a capitalisation of the Company's reserves, a sub division or consolidation of the ordinary shares, a reduction of share capital and offers or invitations (whether by way of rights issue or otherwise) to the holders of ordinary shares.
The estimated fair values of the options were calculated using the Black Scholes option pricing model. The inputs into the model and the results are as follows:
23. Other reserves (continued)
Weighted
Weighted average Risk
Grant average share exercise Expected Expected life Free Expected Estimated Fair
Date price StgGBP price StgGBP volatility (years) rate dividend yield Value StgGBP
23 Feb 2017 1.440 1.440 51.8% 5 0.6% Nil 0.666
1 June 2014 2.700 2.700 62.9% 5 2.0% Nil 0.597
20 Mar 2014 3.600 3.600 64.2% 5 2.0% Nil 0.705
The volatility has been estimated based on the underlying volatility of the price of the Company's shares in the preceding twelve months.
24. Non-controlling interest
(Euro 000's) 2017 2016 Opening balance - - On acquisition of a subsidiary 4,502 - Share of results for the year (28) - Closing balance 4,474 -
The Group has a 10% interest in Cobre San Rafael, S.L., while the remaining 90% is held by a non-controlling interest (Note 2.3.). The significant financial information in respect of the subsidiary before intercompany eliminations as at and for the year ended 31 December 2017 is as follows:
(Euro 000's) 2017(*) 2016(1) Non-current assets 5,127 - Current assets 1,087 3 Non-current liabilities - - Current liabilities 1,242 - Equity 4,972 3 Revenue - - Loss for the year and total comprehensive income (31) -
(1) Cobre San Rafael, S.L. was established on 13 June 2016.
(*) 10% interest in Cobre San Rafael, S.L. was acquired by the Group in July 2017.
25. Trade and other payables
THE GROUP
(Euro 000's) 2017 2016
Non-current trade and other payables
Land options 74 115
74 115
Current trade and other payables
Trade payables 64,234 49,309
Payable to related parties (Note 31.3) - 12
Social security payable(1) - 1,741
Copper concentrate advance payment by customer (2) - 8,684
Land options and mortgage 791 790
Accruals 2,660 1,826
VAT payable 7 -
Other 291 230
67,983 62,592
THE COMPANY
(Euro 000's) 2017 2016
Current trade and other payables
Accruals 1,287 649
Payable to own subsidiaries (Note 31.3) 4,614 1,193
Other 16 229
5,917 2,071
The fair values of trade and other payables due within one year approximate to their carrying amounts as presented above.
(1) On 25 May 2010 ARM recognised a debt with the Social Security's General Treasury in Spain amounting to EUR16.9 million that was incurred by a previous owner in order to stop the execution process by Public Auction of the land over which Social Security had a lien. This debt was repaid in June 2017.
(2) In September 2016, the Group signed a $14.0 million prepayment funding with Transamine Trading, S.A. ("Transamine"). The funding will be settled by 31 December 2018 via deductions from payments received from sales. Terms of the funding are market conditions bearing an interest of LIBOR 3 month + 2.75% interest.
26. Provisions
THE GROUP
(Euro 000's) Legal Rehabilitation Total 1 January 2016 - 3,971 3,971 Revision of discount rate - 732 732 Revision of estimates - 296 296 Accretion expense - 93 93 31 December 2016/1 January 2017 - 5,092 5,092 Additions 213 407 620 Revision of discount rate - (98) (98) Finance cost (Note 9) - 113 113 31 December 2017 213 5,514 5,727 (Euro 000's) 2017 2016 Non-Current 5,727 5,092 Current - - Total 5,727 5,092
Rehabilitation provision
Rehabilitation provision represents the accrued cost required to provide adequate restoration and rehabilitation upon the completion of production activities. These amounts will be settled when rehabilitation is undertaken, generally over the project's life.
The discount rate used in the calculation of the net present value of the provision as at 31 December 2017 was1.87%, which is the 15-year Spain Government Bond rate (2016: 1.87%, which is the 15-year Spain Government Bond rate). An inflation rate of 1.5% is applied on annual basis.
The expected payments for the rehabilitation work are as follows:
(Euro 000's) Between Between Between More than 15 Years
1 - 5 Years 6 - 10 Years 10 - 15 Years
Expected payments for rehabilitation of the mining
site 553 1,579 2,692 690
Legal provision
The Group has been named a defendant in several legal actions in Spain, the outcome of which is not determinable as at 31 December 2017. Management has reviewed individually each case and made a provision of EUR213 thousand for these claims, which has been reflected in these consolidated financial statements.
27. Deferred consideration
In September 2008, the Group moved to 100% ownership of ARM (and thus full ownership of Proyecto Riotinto) by acquiring the remaining 49% of the issued capital of ARM. At the time of the acquisition, the Group signed a Master Agreement (the "Master Agreement") which included deferred consideration of EUR43.8 million (the "Deferred Consideration") and potential up-tick payments of up to EUR15.9 million depending on the price of copper (the "Up-tick Payment"), in consideration of (a) all parties accepting the legal structure of ARM (formerly Emed Tartessus); (b) the validity of various agreements entered into prior to the Master Agreement; and (c) the provision of indemnities by Astor and its agreement not to pursue litigation.
The obligation to pay the Deferred Consideration and the Up-tick Payments is subject to the satisfaction of the following conditions (the "Conditions"): (a) all authorisations to restart mining activities in Proyecto Riotinto having been granted by the Junta de Andalucía ("Permit Approval"); and (b) the Group securing a senior debt finance facility for a sum sufficient to restart mining operations at Proyecto Riotinto ("Senior Debt Facility") and being able to draw down funds under the Senior Debt Facility. At the time of acquisition, the possible outcome for the obligation to pay the deferred consideration could not be determined.
Subject to satisfaction of the Conditions, the Deferred Consideration and the Up-tick Payments are payable over a period of six or seven years (the "Payment Period"). In addition to satisfaction of the Conditions, the Up-tick Payments are only be payable if, during the relevant period, the average price of copper per tonne is US$6,614 or more (US$3.00/lb).
27. Deferred consideration (continued)
The Company also entered into a credit assignment agreement with a related company of Astor, Shorthorn AG, pursuant to which the benefit of outstanding loans were assigned to the Company in consideration for the payment of EUR9.1 million to Shorthorn (the "Loan Assignment"). Payment under the Loan Assignment is also subject to satisfaction of the Conditions and is payable in instalments over the Payment Period.
As security, inter alia, for the obligation to pay the Deferred Consideration, the Up-tick Payments and the Loan Assignment to Astor, Atalaya Minasderiotinto Project (UK) Limited has granted pledges over the issued capital of ARM and the Company has provided a parent company guarantee.
As at the date of this report, the Permit Approval condition has been satisfied. However, the Group has not entered into arrangements in connection with a Senior Debt Facility and, in the absence of drawdown of funds by the Group pursuant to a Senior Debt Facility, the Conditions have not been satisfied.
On 6 March 2017, judgment in the case brought by ("Astor Case") was handed down in the High Court of Justice in London (the "Judgment"). On 31 March 2017, declarations were made by the High Court which give effect to the Judgment.
In summary, the High Court found that the Deferred Consideration did not start to become payable when Permit Approval was granted. In addition, the intra-group loans by which funding for the restart of mining operations was made available to ARM did not constitute a Senior Debt Facility so as to trigger payment of the Deferred Consideration. Accordingly, the first instalment of the Deferred Consideration has not fallen due.
Astor failed to show that there had been a breach of the all reasonable endeavours obligation contained in the Master Agreement to obtain a Senior Debt Facility or that the Group had acted in bad faith in not obtaining a Senior Debt Facility. While the Court confirmed that the Group was not in breach of any of its obligations, the Master Agreement and its provisions remain in place. Accordingly, other than up to US$10.0 million a year which may be required for non-Proyecto Riotinto related expenses, ARM cannot make any dividend, distribution or any repayment of the money lent to it by companies in the Group until the consideration under the Master Agreement (including the Deferred Consideration) has been paid in full.
As a consequence, the Judgment requires that, in accordance with the Master Agreement, ARM must apply any excess cash (after payment of operating expenses, sustaining capital expenditure, any senior debt service requirements and up to US$10.0 million (for non-Proyecto Riotinto related expenses)) to pay the consideration due to Astor (including the Deferred Consideration and the amount of EUR9.1 million payable under the Loan Assignment) early. The Court confirmed that the obligation to pay consideration early out of excess cash does not apply to the Up-tick Payments and the Judgment notes that the only situation in which the Up-tick Payments could ever become payable is in the unlikely event that mining operations cease at Proyecto Riotinto and a Senior Debt Facility is then secured for a sum sufficient to restart mining operations.
While the Judgment confirms that the cash sweep provisions of the Master Agreement require ARM to repay the Loan Assignment early, it does not extend to the credit assignment agreement which is governed by Spanish law. The Judgment therefore does not provide any clarity on whether the Conditions have been met in respect of payment of the Loan Assignment and there remains significant doubts concerning the legal obligation to pay the Loan Assignment pursuant to the terms of the credit assignment agreement.
Previously, the Group had not recognised the Deferred Consideration in the initial purchase price allocation on the basis that the payment of the amounts was not considered probable. The High Court judgment of 6 March 2017 required the Group to revisit its estimates and assumption to book the liability.
As at 31 December 2017, the Group has not generated any excess cash and, consequently, no consideration has been paid.
As at the reporting date, the Group has presented the deferred consideration in the consolidated and standalone financial statements to reflect the Company's best estimate of the liability and the excess cash flows in the future years in the view of the High Court ruling of March 2017 and in line with IAS 37.
27. Deferred consideration (continued)
THE GROUP and the company
The nominal amount of the liability recognised is EUR53 million. In 2017 the discount rate used to measure the liability for the deferred consideration was re-assessed to apply a risk free rate for the relevant periods, as required by IAS 37. The effect of discounting, when applying this risk free rate, was considered insignificant and the Group has measured the liability for the deferred consideration on an undiscounted basis. The value of the liability for the Group and Company is in line with the court ruling issued on 6 March 2017 amounting to EUR53 million and EUR9.1 million respectively. For details on the restatement of the deferred consideration liability as at 31 December 2016, refer to Note 2.1(c).
On 25 April 2017, Atalaya and Astor applied for permission to appeal to the Court of Appeal. On 11 August 2017 the Court of Appeal granted permission to both parties to appeal (although it rejected three of Astor's seven grounds). The Appeal will take place in May 2018.
28. Derivative instruments
28.1. Foreign exchange contract
As at 31 December 2017, Atalaya has no foreign exchange contracts (Atalaya had certain short term foreign exchange contracts as at 31 December 2016). The contracts were in an unrealised loss position which was recorded as a finance cost in the income statements (2016: EUR0.2 million), the corresponding receivable amount recorded in other receivables. The relevant information of the contracts was as follows:
Foreign exchange contracts - Euro/USD
Period Contract type Amount in USD Contract rate Strike ======================= ================== ============= ============= ======= June 2016 - March 2017 FX Forward - Put 5,000,000 1.0955 n/a FX Forward - Call 10,000,000 1.0955 1.0450
The counter parties of the foreign exchange agreements are third parties.
28.2. Commodity contract
In 2016, Atalaya signed the following short term commodity contracts, for copper, with a third party:
Period Commodity Contract type FMT (Fine metric tonnes) Strike price US$/FMT August 2016 Copper Forward 2,113 4,960 September 2016 Copper Forward 1,090 4.845
In the twelve months ended 31 December 2016 the agreements were closed at the maturity date with a gain of EUR0.5 million, which was recorded as revenue during the year.
The Group did not recognise any gain or loss for the twelve months ended 31 December 2017. As at 31 December 2016 and 2017, the Group had no open positions.
29. Acquisition, incorporation and disposals of subsidiaries
Incorporation of Atalaya Touro (UK) Limited
On 10 March 2017, Atalaya Touro (UK) Limited was incorporated. Atalaya Mining Plc is its sole shareholder. In July 2017, Atalaya Touro (UK) Limited executed the option and acquired 10% of Cobre San Rafael, S.L. a company which owns the mining rights of Proyecto Touro.
Acquisition of Cobre San Rafael, S.L. - Proyecto Touro
In July 2017, the Group announced that it had executed the option to acquire 10% of the share capital of Cobre San Rafael S.L., ("CSR"), a wholly owned subsidiary of Explotaciones Gallegas S.L. ("EG"), part of the F. GOMEZ company. This is part of an earn-in agreement (the "Agreement"), which will enable the Group to acquire up to 80% of CSR.
Following the acquisition of the initial 10% of CSR's share capital, the agreement included the following four phases:
-- Phase 1 - The Group paid EUR0.5 million to secure the exclusivity agreement and will continue to fund up to a maximum of EUR5.0 million to get the project through the permitting and financing stages.
-- Phase 2 - When permits are granted, the Group will pay EUR2.0 million to earn-in an additional 30% interest in the project (cumulative 40%).
-- Phase 3 - Once development capital is in place and construction is under way, the Group will pay EUR5.0 million to earn-in an additional 30% interest in the project (cumulative 70%).
-- Phase 4 - Once commercial production is declared, the Group will purchase an additional 10% interest in the project (cumulative 80%) in return for a 0.75% Net Smelter Return (NSR) royalty, with a buyback option.
The Agreement has been structured so that the various phases and payments will only occur once the project is de-risked, permitted and in operation.
In July 2017, the Group executed the acquisition of 10% of CSR, which has been accounted for as a subsidiary with a corresponding non-controlling interest of 90% as the Company has control over the entity (Note 2.3 (b)).
The amount of EUR500.000 paid during the year for the acquisition of the initial 10% of CSR share capital, represents the fair value of the net assets of CSR on the date of acquisition giving rise to no goodwill. The non-controlling interest is set out in Note 24.
Disposals of subsidiaries
There were no disposals of subsidiaries during the twelve month period ended 31 December 2017.
30. Wind-up of subsidiaries
There were no operations wound-up during 2017 and 2016.
31. Group information and related party disclosures
31.0 Information about subsidiaries
These audited consolidated financial statements include:
Effective proportion
of shares held
Parent Principal activity Country of
Subsidiary companies incorporation
====================== ====================== ====================== ======================= =====================
Atalaya Touro Project
(UK) Ltd Atalaya Mining Plc Holding United Kingdom 100%
Atalaya
Minasderiotinto
Project (UK) Ltd Atalaya Mining Plc Holding United Kingdom 100%
EMED Marketing Ltd Atalaya Mining Plc Trading Cyprus 100%
EMED Mining Spain
S.L.U. Atalaya Mining Plc Exploration Spain 100%
Eastern Mediterranean
Resources (Caucasus)
Ltd Atalaya Mining Plc Exploration Georgia 100%
Atalaya
Atalaya Riotinto Minasderiotinto
Minera S.L.U. Project (UK) Limited Production Spain 100%
Eastern Mediterranean Atalaya
Exploration and Minasderiotinto
Development S.L.U. Project (UK) Limited Exploration Spain 100%
Cobre San Rafael, Atalaya Touro (UK)
S.L. (1) Limited Exploration Spain 10%
Recursos Cuena Minera Atalaya Riotinto Exploration Spain J-V
S.L.U. Minera SLU
Fundacion Emed Atalaya Riotinto
Tartessus Minera SLU Trust Spain 100%
Georgian Mineral Eastern Mediterranean
Development Company Resources (Caucasus)
Limited Ltd Exploration Georgia 100%
(1) Cobre San Rafael, S.L. is the entity which hold the mining rights of Proyecto Touro. The Group has a significant influence in the management of the Cobre San Rafael, S.L., including one of the two directors, management of the financial books and the capacity of appointment the key personnel.
The following transactions were carried out with related parties:
31.1 Compensation of key management personnel
The total remuneration and fees of Directors (including executive Directors) and other key management personnel was as follows:
The group The Company
(Euro 000's) 2017 2016 2017 2016
Directors' remuneration and fees 742 696 357 346
Director's bonus 245 500 - -
Directors' bonus shares - 63 - -
Contractual entitlements upon resignation - 83 - 83
Share option-based benefits to directors 23 56 - -
Key management personnel fees 467 444 232 347
Key management bonus 1,270 500 1,232 500
Share option-based and other benefits to key management personnel 57 33 34 33
======
2,804 2,375 1,854 1,309
======
31. Related party transactions (continued)
31.1 Compensation of key management personnel (continued)
Share-based benefits
In February 2017, the directors and key management personnel have been granted 345,000 options (2016: nil) (Note 23).
During 2017 the directors and key management personnel have not been granted any bonus shares (2016: nil)
31.2 Transactions with shareholders and related parties
THE GROUP
(Euro 000's) 2017 2016
Sales of goods
Trafigura PTE LTD ("Trafigura") - Sales of goods
(pre-commissioning sales offset against the cost
of constructing assets) - 2,452
Trafigura- Sales of goods 28,119 26,351
Orion Mine Finance (Master) Fund I LP ("Orion") -
Sales of goods (4) 3,526
28,115 32,329
XGC was granted an offtake over 49.12% of life of mine reserves as per the NI 43-101 report issued in September 2016. Similarly, Orion was granted an offtake over 31.54% and Trafigura 19.34% respectively of life of mine reserves as per the same NI 43-101 report. In November 2016, the Group was notified and consented the novation of the Orion offtake agreement as Orion reached an agreement with a third party to transfer the rights over the concentrates.
THE COMPANY
(Euro 000's) 2017 2016
Sales of services:
* EMED Marketing Limited 565 -
* Atalaya Riotinto Minera SLU 450 -
* Atalaya Minasderiotinto Project (UK)Limited - 177
1,015 177
=====
Finance income:
* Atalaya Minasderiotinto Project (UK)Limited - Finance
income from interest-bearing loan (zero coupon note) 1,635 1,523
1,635 1,523
=====
31.3 Year-end balances with related parties
THE GROUP
(Euro 000's) 2017 2016
Receivable from related party (Note 19):
Fundacion Atalaya Riotinto - 12
Recursos Cuenca Minera S.L. 56 56
56 68
The above balances bear no interest and are repayable on demand.
THE COMPANY
(Euro 000's) 2017 2016
Receivable from related party (Note 20):
Atalaya Minasderiotinto Project (UK)Limited 209,293 208,794
Atalaya Minasderiotinto Project (UK)Limited - Zero coupon Note 23,038 21,403
Atalaya Riotinto Minera SLU 9,350 9,100
Atalaya Touro (UK) Limited 697 -
EMED Mining Spain SL 38 38
242,416 239,335
The above balances bear no interest and are repayable on demand, other than the zero coupon note bearing interest between 7.5% and 8% (2016: 7.5%-8%.
31. Related party transactions (continued)
31.3 Year-end balances with related parties (continued)
THE COMPANY
(Euro 000's) 2017 2016
Payable to related party (Note 25):
EMED Marketing Limited 4,614 1,193
4,614 1,193
The above balances bear no interest and are repayable on demand.
31.4 Year-end balances with shareholders
(Euro 000's) 2017 2016 Trafigura - Debtor balance (Note 19) 1,556 2,024 Orion - Creditor balance (Note 25) - (12)
The above debtor balance arising from the pre-commissioning sales of goods bear no interest and is repayable on demand.
32. Contingent liabilities
Judicial and administrative cases
In the normal course of business, the Group may be involved in legal proceedings, claims and assessments. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Legal fees for such matters are expensed as incurred and the Group accrues for adverse outcomes as they become probable and estimable.
The Junta de Andalucía notified the Group of another disciplinary proceeding for unauthorised discharge in 2014. The Group submitted the relevant defence arguments on 10 March 2015 but has had no response or feedback from the Junta de Andalucía since the submissions. Based on the time that has lapsed without a response, it is expected that the outcome of this proceedings will also be favourable for the Group. Once the necessary time has lapsed, the Group will ask for the Administrative File to be dismissed.
33. Commitments
There are no minimum exploration requirements at Proyecto Riotinto. However, the Group is obliged to pay municipal land taxes which currently are approximately EUR235,000 per year in Spain and the Group is required to maintain the Riotinto site in compliance with all applicable regulatory requirements.
As part of the consideration for the purchase of land from Rumbo, the Group has agreed to pay a royalty to Rumbo subject to commencement of production of $250,000 in each quarter where the average price of LME copper or the average copper sale price achieved by the Group is at least $2.60/lb. No royalty is payable in respect of any quarter where the average copper price for that quarter is below this amount and in certain circumstances any quarterly royalty payment can be deferred until the following quarter. The royalty obligation terminates 10 years after commencement of production. Commencement of production is defined as being the first to occur of processing of ore at a rate of nine million metric tonnes per annum for a continuous period of six months or the date that is 18 months after the first product sales from Proyecto Riotinto. The commencement of the Rumbo royalty was in July 2017.
As average copper prices for Q3 2017 and Q4 2017 were above the threshold identified in the agreement, the Group has recognised the cost of US$500,000. The payment of the royalty was settled during Q1 2018 by the issue of shares of the Group (Note 34).
ARM has entered into a 50/50 joint venture with Rumbo to evaluate and exploit the potential of the class B resources in the tailings dam and waste areas at Proyecto Riotinto (mainly residual gold and silver in the old gossan tailings). Under the joint venture agreement, ARM will be the operator of the joint venture, will reimburse Rumbo for the costs associated with the application for classification of the Class B resources and will fund the initial expenditure of a feasibility study up to a maximum of EUR2.0 million. Costs are then borne by the joint venture partners in accordance with their respective ownership interests. Half of the costs paid by ARM in connection with the feasibility study can be deducted from any royalty which may fall due.
34. Events after the reporting period
Equity issuance January 2018
In accordance with the royalty agreement signed in July 2012 between the Company and Rumbo, Rumbo is entitled to receive a royalty payment of up to US$250,000 per quarter if the average copper sales price or LME price for the period is equal to or above $2.60/lb. As of 31 December 2017, the Group recognised a $500,000 debt to Rumbo, given the fact that the average copper price for the third and fourth quarter of 2017 was above $2.60/lb.
After discussions with Rumbo, both parties agreed to satisfy the payment through the issuance of 192,540 new ordinary shares of 7.5p in the Company.
The Rumbo Shares were issued at the volume weighted average price for the period between 5 February 2018 and 9 February 2018 of 186.7p per share and using the average US$ to GBP exchange rate of 1.3909.
In addition, the Company issued 29,000 ordinary shares of 7.5 pence in the Company as certain employees exercised their options at a price of 144 pence per share.
Exercise of warrants
On 20 February 2018, the Company received notification from one of the warrants holders to exercise 233,184 warrants at an exercise price of 142.5 pence per share.
As of the date of this Report, the shares are yet to be allotted, as the holder did not transfer the exercise price to the Group. The expiration date of the warrants is 24 June 2018.
Incorporation of Atalaya Servicios Mineros, S.L.
On 14 February 2018, the Group incorporated a fully owned subsidiary named Atalaya Servicios Mineros, S.L.U.
This information is provided by RNS
The company news service from the London Stock Exchange
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March 27, 2018 02:01 ET (06:01 GMT)
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