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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Avesoro Resources Inc. | LSE:ASO | London | Ordinary Share | CA05366A3029 | ORD NPV (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 99.50 | 97.00 | 102.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMASO
RNS Number : 2151Y
Avesoro Resources Inc.
17 August 2018
17 August 2018
Avesoro Resources Inc.
TSX: ASO
AIM: ASO
FILING OF AMED AND RESTATED FINANCIAL STATEMENTS AND MD&A
FOR THE YEARED DECEMBER 31, 2017 AND FOR THE QUARTERED MARCH 31, 2018
Avesoro Resources Inc., ("Avesoro" or the "Company"), the TSX and AIM listed West African gold producer, announces that the Company has today filed on SEDAR at www.sedar.com an Amended and Restated Audited Consolidated Financial Statements and Amended and Restated Management Discussion and Analysis as of and for the year ended December 31, 2017 and Amended and Restated Unaudited Interim Consolidated Financial Statements and Amended and Restated Management Discussion and Analysis as of and for the quarter ended March 31, 2018.
In preparing the Company's unaudited interim financial statements for the period ended June 30, 2018, Management identified an error in the calculation of the fair valuation of related party loans with Mapa Insaat ve Ticaret A.S. The error requires the restatement of the audited consolidated statement of financial position as at December 31, 2017 and unaudited interim consolidated statement of financial position as at March 31, 2018.
The impact of the restatement of the audited consolidated statement of financial position as at December 31, 2017 is set out in the table below.
Hot Features
Premium
As previously
stated at As restated
December 31, Increase/ at December
2017 (Decrease) 31, 2017
US$'000 US$'000 US$'000
Liabilities
Borrowings, current portion 35,999 1,965 37,964
Borrowings, non-current
portion 98,092 3,243 101,335
============= ============ =============
Equity
Capital contribution 59,230 (5,208) 54,022
============= ============ =============
The impact of the restatement of the unaudited interim consolidated statement of financial position as at March 31, 2018 is set out in the table below.
As previously
stated at
March 31, As restated
at March 31,
2018 Increase/ 2018
(Decrease)
US$'000 US$'000 US$'000
Liabilities
Borrowings, current portion 24,157 2,770 26,927
Borrowings, non-current
portion 103,018 4,879 107,897
============= ============ ==============
Equity
Capital contribution 60,852 (7,649) 53,203
============= ============ ==============
The adjustments have no impact on profit nor cash flows for the year ended December 31, 2017 nor for the three months ended March 31, 2018. The repayment terms, rates and amounts payable pursuant to the loan agreements are unchanged.
As previously announced on August 13, 2018, debt, which includes borrowings and finance lease liabilities, was US$134.5 million at June 30, 2018, a reduction of US$2.8 million compared to debt of US$137.3 million at March 31, 2018.
All amounts are in US dollars.
Contact Information
Avesoro Resources Inc.
Geoff Eyre / Nick Smith
Tel: +44(0) 20 3405 9160
Camarco finnCap
(IR / Financial PR) (Nominated Adviser and Joint Broker)
Gordon Poole / Nick Hennis Christopher Raggett / Scott Mathieson
/ Camille Gochez
Tel: +44(0) 20 3757 4980 Tel: +44(0) 20 7220 0500
Berenberg Hannam & Partners (Advisory) LLP
(Joint Broker) (Joint Broker)
Matthew Armitt / Sara MacGrath Rupert Fane / Ingo Hofmaier / Ernest
/ James Brooks Bell
Tel: +44(0) 20 3207 7800
Tel: +44(0) 20 7907 8500
About Avesoro Resources Inc.
Avesoro Resources is a West Africa focused gold producer and development company that operates two gold mines across West Africa and is listed on the Toronto Stock Exchange ("TSX") and the AIM market operated by the London Stock Exchange ("AIM"). The Company's assets include the New Liberty Gold Mine in Liberia ("New Liberty") and the Youga Gold Mine in Burkina Faso ("Youga").
New Liberty has an estimated Proven and Probable Mineral Reserve of 7.4Mt with 717,000 ounces of gold grading 3.03g/t and an estimated Measured and Indicated Mineral Resource of 9.6Mt with 985,000 ounces of gold grading 3.2g/t and an estimated Inferred Mineral Resource of 6.4Mt with 620,000 ounces of gold grading 3.0g/t. The foregoing Mineral Reserve and Mineral Resource estimates and additional information in connection therewith, prepared in accordance with CIM guidelines, is set out in an NI 43-101 compliant Technical Report dated November 1, 2017 and entitled "New Liberty Gold Mine, Bea Mountain Mining Licence Southern Block, Liberia, West Africa" and is available on SEDAR at www.sedar.com.
Youga has an estimated Proven and Probable Mineral Reserve of 11.2Mt with 660,100 ounces of gold grading 1.84g/t and a combined estimated Measured and Indicated Mineral Resource of 16.64Mt with 924,200 ounces of gold grading 1.73g/t and an Inferred Mineral Resource of 13Mt with 685,000 ounces of gold grading 1.70g/t. The foregoing Mineral Reserve and Mineral Resource estimates and additional information in connection therewith, prepared in accordance with CIM guidelines, is set out in an NI 43-101 compliant Technical Report dated July 31, 2018 and entitled "Mineral Resource and Mineral Reserve Update for the Youga Gold Mine, Burkina Faso" and is available on SEDAR at www.sedar.com.
For more information, please visit www.avesoro.com
Qualified Persons
The Company's Qualified Person is Mark J. Pryor, who holds a BSc (Hons) in Geology & Mineralogy from Aberdeen University, United Kingdom and is a Fellow of the Geological Society of London, a Fellow of the Society of Economic Geologists and a registered Professional Natural Scientist (Pr. Sci.Nat) of the South African Council for Natural Scientific Professions. Mark Pryor is an independent technical consultant with over 25 years of global experience in exploration, mining and mine development and is a "Qualified Person" as defined in National Instrument 43 -101 "Standards of Disclosure for Mineral Projects" of the Canadian Securities Administrators and has reviewed and approved this press release. Mr. Pryor has verified the underlying technical data disclosed in this press release.
Condensed Interim Consolidated Financial Statements (Unaudited)
Avesoro Resources Inc.
For the Three Months Ended March 31, 2018 and 2017
(stated in thousands of US dollars)
(Amended and Restated)
Registered office: 199 Bay Street
Suite 5300
Commerce West Street
Toronto
Ontario M5L 1B9
Canada
Company registration number: 776831-1
Company incorporated on: 1 February 2011
Three months Three months
ended ended
March 31, March 31,
2018 2017
$'000 $'000
--------------------- ---------------------
Gold sales (Note 2) 91,370 19,699
Cost of sales
- Production costs (Note 2) (48,986) (17,495)
- Depreciation (Note 2) (16,610) (6,751)
Gross profit/(loss) 25,774 (4,547)
Expenses
Administrative and other expenses (Note 3) (1,604) (1,586)
Exploration and evaluation costs (2,011) (496)
Loss on lease termination (566) -
Profit/(Loss) from operations 21,593 (6,629)
Derivative liability gain/(loss) 104 (163)
Foreign exchange (loss)/gain (1,095) 4
Finance costs (4,341) (2,770)
Finance income 175 3
Profit/(Loss) before tax 16,436 (9,555)
Tax for the period (Note 4) (6,589) -
Net profit/(loss) after tax 9,847 (9,555)
--------------------- ---------------------
Attributable to:
- Owners of the Company 8,019 (9,555)
- Non-controlling interest (Note 13) 1,828 -
--------------------- ---------------------
9,847 (9,555)
Other comprehensive income
Items that may be reclassified subsequently
to profit or loss
Available-for-sale investments 31 (18)
Currency translation differences (37) 52
Total comprehensive income/(loss) for the
period 9,841 (9,521)
--------------------- ---------------------
Attributable to:
- Owners of the Company 8,013 (9,521)
- Non-controlling interest 1,828 -
Earnings/(Loss) per share, basic and diluted
(US$) (Note 5) 0.10 (0.18)
--------------------- ---------------------
The accompanying notes are an integral part of these amended and restated condensed interim consolidated financial statements.
March 31, December 31,
2018 2017
(as restated (as restated
- -
see Note 15) see Note 15)
$'000 $'000
------------- -------------
Assets
Current assets
Cash and cash equivalents 23,012 17,787
Trade and other receivables (Note 6) 31,321 25,286
Inventories (Note 7) 30,969 36,932
Other assets 1,769 1,710
87,071 81,715
------------- -------------
Non-current assets
Intangible assets - Exploration and evaluation
assets (Note 8) 1,760 -
Property, plant and equipment (Note 9) 252,815 249,552
Available-for-sale investments 52 21
Deferred tax asset 2,295 4,554
Other assets 1,196 1,196
258,118 255,323
------------- -------------
Total assets 345,189 337,038
------------- -------------
Liabilities
Current liabilities
Borrowings (Note 10) 26,927 37,964
Trade and other payables 43,449 41,003
Income tax payable 16,750 12,358
Finance lease liability (Note 11) 436 1,913
Derivative liability 1 105
Provisions 1,590 523
------------- -------------
89,153 93,866
------------- -------------
Non-current liabilities
Borrowings (Note 10) 107,897 101,335
Trade and other payables 463 463
Finance lease liability (Note 11) 2,022 5,875
Provisions 11,276 10,439
------------- -------------
121,658 118,112
------------- -------------
210,811 211,978
------------- -------------
Equity
Share capital (Note 12) 353,653 353,653
Capital contribution 53,203 54,022
Share based payment reserve 8,136 7,840
Acquisition reserve (33,060) (33,060)
Available-for-sale investment reserve (456) (487)
Cumulative translation reserve (503) (466)
Deficit (252,137) (260,156)
------------- -------------
Equity attributable to owners 128,836 121,346
Non-controlling interest (Note 13) 5,542 3,714
Total equity 134,378 125,060
------------- -------------
Total liabilities and equity 345,189 337,038
------------- -------------
The accompanying notes are an integral part of these amended and restated condensed interim consolidated financial statements.
Three months Three months
ended ended
March 31, March 31,
2018 2017
$'000 $'000
Operating activities
Net profit/(loss) after tax 9,847 (9,555)
Tax for the period 6,589 -
------------- -------------
Profit/(Loss) before tax 16,436 (9,555)
Items not affecting cash:
Share-based payments (Note 3) 296 276
Depreciation (Note 6) 16,663 6,840
Unrealized foreign exchange loss 648 21
Derivative liability (gain)/loss (104) 163
Interest expense 4,341 2,770
Loss on lease termination 567 -
Changes in non-cash working capital
Increase in trade and other receivables (6,035) (1,037)
Increase in trade and other payables 597 1,216
Decrease in inventories 5,963 1,116
Cash flows from operating activities 39,372 1,810
------------- -------------
Investing activities
Payments to acquire property, plant and equipment (11,798) (4,992)
Payments to acquire intangible assets (1,761) -
Decrease in other assets (60) (261)
Cash flows used in investing activities (13,619) (5,253)
------------- -------------
Financing activities
Borrowings repayments (19,175) -
Finance charges (1,353) (3,277)
Cash flows used in financing activities (20,528) (3,277)
------------- -------------
Impact of foreign exchange on cash balance - 31
------------- -------------
Net increase/(decrease) in cash and cash equivalents 5,225 (6,689)
Cash and cash equivalents at beginning of period 17,787 13,429
------------- -------------
Cash and cash equivalents at end of period 23,012 6,740
------------- -------------
Significant non-cash transactions during the three months ended March 31, 2018 includes the acquisition of new heavy mining equipment for $10.3 million in exchange for new related party loans (Note 10c).
The accompanying notes are an integral part of these amended and restated condensed interim consolidated financial statements.
Total Equity Attributable to Owners
------------------------------------------------------------------------------------------------------------------
Capital
contribution
(as restated Share-based Available-for-sale Cumulative
Share - see payment Acquisition investment translation Deficit Total Non-controlling Total
capital Note 15) reserve reserve Reserve reserve Interest Equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
---------- ------------- ------------ ------------ ------------------- ------------ ------------ ---------- ---------------- ----------
Balance at
January 1,
2017 283,506 48,235 6,770 - (453) (400) (232,682) 104,976 - 104,976
---------- ------------- ------------ ------------ ------------------- ------------ ------------ ---------- ---------------- ----------
Loss for the
period - - - - - - (9,555) (9,555) - (9,555)
Other
comprehensive
loss
for period - - - - (18) 52 - 34 - 34
---------- ------------- ------------ ------------ ------------------- ------------ ------------ ---------- ---------------- ----------
Total
comprehensive
loss
for period - - - - (18) 52 (9,555) (9,521) - (9,521)
Share-based
payments - - 276 - - - - 276 - 276
Balance at
March 31,
2017 283,506 48,235 7,046 - (471) (348) (242,237) 95,731 - 95,731
---------- ------------- ------------ ------------ ------------------- ------------ ------------ ---------- ---------------- ----------
Balance at
January 1,
2018, as
previously
stated 353,653 59,230 7,840 (33,060) (487) (466) (260,156) 126,554 3,714 130,268
Restatement of
related
party loans
(Note 15) - (5,208) - - - - - (5,208) - (5,208)
Balance at
January 1,
2018, as
restated 353,653 54,022 7,840 (33,060) (487) (466) (260,156) 121,346 3,714 125,060
Profit for the
period - - - - - - 8,019 8,019 1,828 9,847
Other
comprehensive
income/(loss)
for period - - - - 31 (37) - (6) - (6)
---------- ------------- ------------ ------------ ------------------- ------------ ------------ ---------- ---------------- ----------
Total
comprehensive
income/(loss)
for period - - - - 31 (37) 8,019 8,013 1,828 9,841
Share-based
payments - - 296 - - - - 296 - 296
Related party
loans (Note
10c) (as
restated) - 409 - - - - - 409 - 409
Payment of
related party
loans (Note
10b) - (1,228) - - - - - (1,228) - (1,228)
Balance at
March 31,
2018 353,653 53,203 8,136 (33,060) (456) (503) (252,137) 128,836 5,542 134,378
---------- ------------- ------------ ------------ ------------------- ------------ ------------ ---------- ---------------- ----------
The accompanying notes are an integral part of these amended and restated condensed interim consolidated financial statements.
1 Nature of operations and basis of preparation
Avesoro Resources Inc. ("Avesoro" or the "Company"), was incorporated under the Canada Business Corporations Act on February 1, 2011. The focus of Avesoro's business is the exploration, development and operation of gold assets in West Africa, specifically the New Liberty Gold Mine in Liberia and the Youga and Balogo Gold Mines in Burkina Faso.
These amended and restated condensed interim consolidated financial statements ("interim financial statements") have been prepared in accordance with International Accounting Standard ("IAS") 34, "Interim Financial Reporting", they do not include all disclosures that would otherwise be required in a complete set of financial statements. They follow accounting policies and methods of their application consistent with the amended and restated audited consolidated financial statements for the year ended December 31, 2017. Accordingly, they should be read in conjunction with the Company's amended and restated audited consolidated financial statements for the year ended December 31, 2017.
These interim financial statements were authorised by the Board of Directors on August 17, 2018.
Going concern
The amended and restated condensed interim consolidated financial statements have been prepared on a going concern basis. As at March 31, 2018, the Company has net current liabilities of $2.1 million and has approximately $24.2 million of debt repayments due in the next twelve months.
The cash generation of the Company significantly improved following the acquisition of the Youga and Balogo Gold Mines in December 2017 and the continuing improvement of operations at New Liberty. In addition, the Company has an undrawn facility of $21.3 million with the Company's majority shareholder, Avesoro Jersey Limited ("AJL") as at March 31, 2018 which it can call upon for general working capital purposes.
The Company's forecasts and projections show that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus, it continues to adopt the going concern basis of accounting in preparing the amended and restated consolidated financial statements.
2 Segment information
The Company is engaged in the exploration, development and operation of gold projects in the West African countries of Liberia, Burkina Faso and Cameroon. Information presented to the Chief Executive Officer for the purposes of resource allocation and assessment of segment performance is focused on the geographical location of mining operations. The reportable segments under IFRS 8 are as follows:
-- New Liberty operations; -- Burkina operations which include the Youga and Balogo Gold Mines; -- Exploration; and -- Corporate.
Following is an analysis of the Group's results, assets and liabilities by reportable segment for the three months ended March 31, 2018:
New Liberty Burkina
operations operations Exploration Corporate Total
$'000 $'000 $'000 $'000 $'000
------------- ------------ -------------- ---------- ---------
Profit/(Loss) for
the period (6,036) 18,280 (1,037) (1,360) 9,847
------------- ------------ -------------- ---------- ---------
Gold sales 37,323 54,047 - - 91,370
------------- ------------ -------------- ---------- ---------
Production costs
- Mine operating
costs (23,261) (20,687) - - (43,948)
- Change in inventories (1,752) (3,286) - - (5,038)
(25,013) (23,973) - - (48,986)
------------ -------------- ---------- ---------
Depreciation (12,546) (4,064) (52) (1) (16,663)
------------- ------------ -------------- ---------- ---------
Segment assets 237,445 99,346 4,000 4,398 345,189
Segment liabilities (156,097) (49,467) (4,049) (1,198) (210,811)
Capital additions
- property, plant
and equipment 25,399
- intangible assets 16,448 8,911 40 - 1,760
- 1,760 - -
---------- --------- -------- -------- ----------
2 Segment information (continued)
Following is an analysis of the Group's results, assets and liabilities by reportable segment for the three months ended March 31, 2017:
New Liberty Liberia Cameroon
operations exploration exploration Corporate Total
$'000 $'000 $'000 $'000 $'000
------------- ------------- ------------- ---------- ---------
Loss for the period (7,631) (517) (63) (1,344) (9,555)
------------- ------------- ------------- ---------- ---------
Gold sales 19,699 - - - 19,699
------------- ------------- ------------- ---------- ---------
Production costs
- Mine operating
costs (16,145) - - - (16,145)
- Change in inventories (1,350) - - - (1,350)
(17,495) - - - (17,495)
------------- ------------- ---------- ---------
Depreciation (6,751) (80) (3) (6) (6,840)
------------- ------------- ------------- ---------- ---------
Segment assets 215,629 246 70 5,147 221,092
Segment liabilities (125,043) (95) - (223) (125,361)
Capital additions
- property, plant
and equipment 7,180 - - 27 7,207
---------- ----- ---- ------ ----------
3 Administrative expenses
Three months Three months
ended ended
March 31, March 31,
2018 2017
$'000 $'000
------------ ------------
Wages and salaries 536 378
Legal and professional 302 542
Depreciation 53 89
Share based payments 296 276
Other expenses 417 301
------------ ------------
1,604 1,586
------------ ------------
Foreign exchange gains and losses have been reclassified as financing items rather than operational items. The above table has been restated to exclude the foreign exchange gain of US$4 thousand for the three months ended March 31, 2017.
4 Income taxes
Tax for period comprises of:
Three months Three months
ended ended
March 31, March 31,
2018
2017
$'000 $'000
------------ ------------
Current tax 4,330 -
Deferred tax 2,259 -
6,589 -
------------ ------------
5 Earnings per share ("EPS")
Three months Three months
ended ended
March 31, March 31,
2018
2017
$'000 $'000
------------ ------------
Net profit/(loss) after tax attributable to Owners
of the Company 8,019 (9,555)
------------ ------------
Weighted average number of outstanding shares
for basic EPS 81,560,260 53,247,590
Dilutive share options 402,715 -
------------ ------------
Weighted average number of outstanding shares
for diluted EPS 81,962,975 53,247,590
------------ ------------
Basic EPS (US$) 0.10 (0.18)
Diluted EPS (US$) 0.10 (0.18)
------------ ------------
6 Trade and other receivables
March 31, December 31,
2018
2017
$'000 $'000
--------- ------------
Trade receivable 1,427 416
Other receivables 13,020 10,690
Due from related parties (Note 14) 2,225 1,015
Pre-payments 14,649 13,165
--------- ------------
31,321 25,286
--------- ------------
Other receivables include a VAT receivable from the Burkina Faso Government amounting to $11.2 million as at March 31, 2018 (December 31, 2017: $8.9 million).
7 Inventories
March 31, December 31,
2018
2017
$'000 $'000
--------- ------------
Gold doré - 3,986
Gold in circuit 3,442 2,561
Ore stockpiles 4,756 6,688
Consumables 22,771 23,697
--------- ------------
30,969 36,932
--------- ------------
Ore stockpiles as at March 31, 2018 are stated at their net realisable values after cumulative write-down of $1.8 million.
8 Intangible assets - Exploration and evaluation assets
March 31, December 31,
2018
2017
$'000 $'000
--------- ------------
Gassore East 1,327 -
Ouare 433 -
1,760 -
--------- ------------
Gassore East is a new minable mineralisation located 2 kilometres from the Youga processing plant. Internal resource modelling and pit design shows it will add further mine life to the Youga Gold Mine beyond that reported in the National Instrument NI 43-101 - Standards of Disclosure of Mineral Projects ("NI 43-101") Technical Report dated June 19, 2017.
Ouaré, located 36 kilometres north east of the Youga processing plant, is the subject of an infill drilling campaign to upgrade the confidence level and classification of the existing mineral resources reported in the NI 43-101 Technical Report dated June 19, 2017.
9. Property, plant and equipment
Assets
Mine closure held under
Mining Stripping and finance Machinery Leasehold
assets asset rehabilitation lease and equipment Vehicles improvement Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
Cost
At January 1,
2017 175,290 - 2,223 13,629 16,392 1,884 83 209,501
Additions 8,322 16,229 544 2,025 27,752 996 - 55,868
Acquisitions 24,895 - 3,445 - 30,639 204 - 59,183
Impairment - - - (3,896) - - - (3,896)
Foreign exchange - - - - 10 8 3 21
At December 31,
2017 208,507 16,229 6,212 11,758 74,793 3,092 86 320,677
Additions 2,448 3,739 - - 19,212 - - 25,399
Disposals - - - (7,000) - - - (7,000)
At March 31, 2018 210,955 19,968 6,212 4,758 94,005 3,092 86 339,076
------- --------- --------------- ----------- -------------- -------- ------------ -------
Accumulated
depreciation
At January 1,
2017 14,909 - 116 651 1,622 1,020 66 18,384
Charge for the
period 23,754 1,838 296 2,933 3,622 303 19 32,765
Acquisitions 13,442 - 1,878 - 5,633 39 - 20,992
Impairment - - - (1,020) - - - (1,020)
Foreign exchange - - - - 3 - 1 4
At December 31,
2017 52,105 1,838 2,290 2,564 10,880 1,362 86 71,125
Charge for the
period 10,622 1,839 449 293 3,305 155 - 16,663
Disposals - - - (1,527) - - - (1,527)
At March 31, 2018 62,727 3,677 2,739 1,330 14,185 1,517 86 86,261
------- --------- --------------- ----------- -------------- -------- ------------ -------
Net book value
At December 31,
2017 156,402 14,391 3,922 9,194 63,913 1,730 - 249,552
------- --------- --------------- ----------- -------------- -------- ------------ -------
At March 31, 2018 148,228 16,291 3,473 3,428 79,820 1,575 - 252,815
------- --------- --------------- ----------- -------------- -------- ------------ -------
10 Borrowings
March 31, December 31,
2018 2017
(as restated (as restated
- Note 15) - Note 15)
$'000 $'000
------------- -------------
Current
Bank loan - Senior Facility Tranche A 15,040 14,741
Bank loan - Senior Facility Tranche B - 9,737
Shareholder loan 4,046 8,106
Related party loan 7,841 5,380
------------- -------------
26,927 37,964
------------- -------------
Non-current
Bank loan - Senior Facility Tranche A 59,856 58,668
Bank loan - Subordinated Facility 10,675 10,846
Shareholder loan 11,354 14,938
Related party loan 26,012 16,883
------------- -------------
107,897 101,335
------------- -------------
(a) Bank loans
On December 17, 2013 the Company entered into an agreement for an $88 million project finance loan facility with Nedbank Limited and FirstRand Bank Limited (collectively the "Lenders"), (the "Senior Facility"), and also entered into a subordinated loan facility agreement for $12 million with RMB Resources (the "Subordinated Facility"). On December 9, 2015 the Company entered into an agreement for an additional $10 million Tranche B Senior Facility ("Tranche B Facility", together with the Senior Facility and the Subordinated Facility the "Loan Facilities") provided by the Lenders. These Loan Facilities, which have been fully drawn, financed the development of the Company's New Liberty Gold Mine. $22.4 million of the Senior Facility principal has been repaid to date including $10 million during the three months ended March 31, 2018.
(b) Shareholder loan
Current
The current shareholder loan payable to AJL was assumed on acquisition of the Youga and Balogo Gold Mines of which $4.1 million was repaid during the three months ended March 31, 2018.
Non-current
In 2017, the Group borrowed $18.8 million from AJL through a working capital facility to meet liabilities arising on the termination of legacy procurement contracts, make advanced payments to suppliers to secure lower unit cost pricing and to accelerate the acquisition of capital items that will increase process plant throughput at New Liberty.
The loan payable to AJL was initially recognised at fair value calculated as its present value at a market rate of interest and subsequently measured at amortised cost. The difference between fair value and loan amount of $4.5 million has been credited to equity as a capital contribution as the loan is from its majority shareholder.
10 Borrowings (continued)
Principal repayments totalling $5.1 million were made during the three months ended March 31, 2018 of which $3.9 million was allocated as a reduction to the loan payable and $1.2 million as a reduction to capital contribution.
Interest expense on the non-current loan payable to AJL for the three months ended March 31, 2018 was US$0.3 million (three months ended March 31, 2017: US$nil).
(c) Related party loan
In 2017 the Company entered into equipment and finance facility agreements with Mapa İn aat ve Ticaret A. . ("Mapa"), a company controlled by Mehmet Nazif Gűnal, Non-Executive Chairman of the Company, to facilitate the purchase of heavy mining equipment. The loan principal of these agreements includes a mark-up of 2.5% over the cost incurred by Mapa in procuring the equipment. The equipment finance loans are unsecured, with interest charged at 6.5% per annum on the US$ denominated loan and 5.5% per annum on the Euro denominated loan amount. The loans are repayable in cash in eight equal semi-annual instalments, the first of which will fall due six months after utilisation of the loan.
During the three months ended March 31, 2018, the Company entered into further equipment and finance facility agreements with Mapa amounting to $10.3 million. Similar to the loans entered into in 2017, these loans were initially recognised at fair value calculated as its present value at a market rate of interest and subsequently measured at amortised cost. The difference of $0.5 million between the loan amount of $10.3 million and fair value of $9.8 million has been credited to equity as a capital contribution from a related party.
Interest expense on the related party loan to Mapa for the three months ended March 31, 2018 was US$1.2 million (three months ended March 31, 2017: US$nil). Interest repayment was $0.1 million during the three months ended March 31, 2018 (three months ended March 31, 2017: US$nil).
11 Finance lease liability
The remaining finance lease liability relates to the fuel storage facility at New Liberty Gold Mine following termination of the lease arrangement on the generators at nil consideration. Such assets have been classified as finance leases as the rental period amounts to a major portion of the estimated useful economic life of the lease assets and the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased assets.
March 31, December 31,
2018 2017
$'000 $'000
--------- ------------
Gross finance lease liability
* Within one year 707 2,820
* Between two and five years 2,541 7,191
3,248 10,011
Future finance cost (790) (2,223)
--------- ------------
Present value of lease liability 2,458 7,788
--------- ------------
Current portion 436 1,913
Non-current portion 2,022 5,875
--------- ------------
12 Equity
(a) Authorised
Unlimited number of common shares without par value.
(b) Issued
Shares $'000
---------- -------
Balance at January 1, 2017 53,247,590 283,506
Issued to AJL on acquisition of Youga and
Balogo Gold Mines (i) 20,334,928 51,459
Equity financing (i) 7,974,490 20,248
Share issuance costs (i) - (1,568)
Exercise of stock options (ii) 3,750 8
Share consolidation adjustment (498) -
Balance at December 31, 2017 and March 31,
2018 81,560,260 353,653
---------- -------
The Company's number of outstanding and issued shares, stock options and warrants are retrospectively presented to reflect a 100:1 share consolidation which became effective on January 16, 2018.
(i) The company acquired Youga and Balogo Gold Mines on December 18, 2017 for a total consideration of US$70.2 million which comprises of the issuance of 20,334,928 new common shares in the Company at a price of GBPGBP1.90 per share and a cash component of US$18.7 million. The cash component was funded through the issuance of 7,974,490 new common shares at a price of GBPGBP1.90 per share through a private placing. The directly attributable costs of issuance of these new common shares amounted to $1.6 million.
(ii) In 2017, the Company issued 3,750 new common shares on exercise of 3,750 stock options at a price of GBPGBP1.575 per stock option.
(c) Stock options
Information relating to stock options outstanding at March 31, 2018 is as follows:
Three months Year ended
ended
March 31, 2018 December 31,
2017
--------- ---------------- --------- ----------------
Weighted average Weighted
exercise price average
Number of per share Number of exercise price
options options per share
Cdn$ Cdn$
--------- ---------------- --------- ----------------
Beginning of the period 2,829,428 4.96 1,242,695 9.12
Options granted 11,000 3.19 1,745,000 3.41
Options exercised - - (3,750) 2.66
Options expired (10,862) 72.00 (5,570) 105.00
Options forfeited (85,967) 3.61 (148,947) 17.86
Share consolidation
adjustment (5) - - -
--------- ---------------- --------- ----------------
End of the period 2,743,594 4.73 2,829,428 4.96
--------- ---------------- --------- ----------------
13 Non-controlling interest
Non-controlling interest represents the Government of Burkina Faso's 10% share of Burkina Mining Company and Netiana Mining Company, the subsidiaries which respectively holds the Youga Gold Mine and Balogo Gold Mine.
14 Related party transactions
(a) Borrowings
Principal repayments of the shareholder loan to AJL, new equipment finance loans with Mapa and interest repayments to Mapa in relation to the equipment finance loans during the three months ended March 31, 2018 are disclosed in Note 10.
(b) Acquisition of heavy mining equipment
In addition to the heavy mining equipment financed by Mapa, the Company also acquired five mining trucks from Mapa for US$0.4 million during the three months ended March 31, 2018 to supplement the hauling capacity at Balogo.
(c) Provision/(purchases) of goods and services
The Company also provided/(purchased) the following services from related parties:
Three months Three months
ended ended
March 31, March 31,
2018 2017
$'000 $'000
Technical and managerial services provided
to:
Avesoro Services (Jersey) Limited, a subsidiary
of Company's parent company - 105
Drilling services provided to the Company
by:
Zwedru Mining Inc., a subsidiary of Company's
parent company (887) (143)
Drilling services provided to the Company (1,450)
by: -
Faso Drilling Company SA., a subsidiary of
Company's parent company
Charter plane services provided to the Company -
by: (90)
MNG Gold Liberia Inc., a subsidiary of Company's
parent company
Travel services provided to the Company by:
MNG Turizm ve Ticaret A.S., an entity controlled
by the Company's Chairman - (8)
------------- -------------
Included in trade and other receivables is a receivable from related parties of $2.2 million as at March 31, 2018 (December 31, 2017: $1 million).
Included in trade and other payables is $2.1 million payable to related parties as at March 31, 2018 (December 31, 2017: $0.5 million).
15 Restatement of related party loans and capital contribution as at December 31, 2017 and March 31, 2018
In preparing the Company's unaudited interim financial statements for the period ended June 30, 2018, Management identified an error in the calculation of the fair valuation of related party loans with Mapa Insaat ve Ticaret A.S. that requires the restatement of the audited consolidated statement of financial position as at December 31, 2017 and unaudited interim consolidated statement of financial position as at March 31, 2018.
The impact of the restatement of the audited consolidated statement of financial position as at December 31, 2017 is to increase the current portion of borrowings by US$2.0 million, increase the non-current portion of borrowings by US$3.2 million and reduce the capital contribution in equity by US$5.2 million.
As previously
stated at As restated
December 31, Increase/ at December
2017 (Decrease) 31, 2017
$'000 $'000 $'000
Liabilities
Borrowings, current portion 35,999 1,965 37,964
Borrowings, non-current
portion 98,092 3,243 101,335
Equity
Capital contribution 59,230 (5,208) 54,022
------------- ------------ -------------
The impact of the restatement of the unaudited interim consolidated statement of financial position as at March 31, 2018 is to increase the current portion of borrowings by US$2.8 million, increase the non-current portion of borrowings by US$4.9 million and reduce the capital contribution in equity by US$7.6 million.
As previously
stated at
March 31, As restated
at March 31,
2018 Increase/ 2018
(Decrease)
$'000 $'000 $'000
Liabilities
Borrowings, current portion 24,157 2,770 26,927
Borrowings, non-current
portion 103,018 4,879 107,897
Equity
Capital contribution 60,852 (7,649) 53,203
------------- ------------ --------------
The adjustments have no impact on profit nor cash flows for the year ended December 31, 2017 nor for the three months ended March 31, 2018. The repayment terms, rates and amounts payable pursuant to the loan agreements are unchanged.
Avesoro Resources Inc.
Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Amended and Restated)
Registered office: Suite 3800
Royal Bank Plaza, South Tower
200 Bay Street
Toronto
Ontario M5J 2Z4
Canada
Company registration number: 776831-1
INDEPENT AUDITOR'S REPORT
To the Shareholders of Avesoro Resources Inc.
We have audited the accompanying amended and restated consolidated financial statements of Avesoro Resources Inc. for the year ended December 31, 2017 and the year ended December 31, 2016 which comprise the amended and restated consolidated statements of financial position, income and comprehensive income, changes in equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. The financial reporting framework that has been applied in their preparation is International Financial Reporting Standards as issued by the IASB.
Management's Responsibility for the amended and restated Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these amended and restated consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of the amended and restated consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these amended and restated consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the amended and restated consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the amended and restated consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the amended and restated consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the amended and restated consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the amended and restated consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the amended and restated consolidated financial statements present fairly, in all material respects, the financial position of Avesoro Resources Inc. as at December 31, 2017 and December 31, 2016 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.
Restatement of consolidated financial statements
Without modifying our opinion, we draw attention to note 25 to the amended and restated consolidated financial statements which explains that the amended and restated consolidated financial statements for the year ended December 31, 2017 have been restated from those which were originally reported on March 20, 2018.
"BDO LLP" (signed)
London
August 17, 2018
Year ended Year ended
December December
31, 31,
2017 2016
$'000 $'000
--------------------- ---------------------
Gold sales (Note 5) 97,786 63,612
Cost of sales
- Production costs (Note 5) (73,494) (87,017)
- Depreciation (Note 5) (32,248) (15,948)
- Other costs (Note 5) - (8,883)
Gross loss (7,956) (48,236)
Expenses
Administrative and other expenses (Note 6) (5,666) (12,049)
Exploration and evaluation costs (2,958) (2,715)
Impairment of property, plant and equipment
(Note 11) (2,876) (42,473)
Gain on lease settlement (Note11) 3,988 -
Loss from operations (15,468) (105,473)
Derivative liability gain (Note 16) - 1,054
Finance costs (11,812) (8,576)
Finance income 16 5
Loss before tax (27,264) (112,990)
Tax for the year (Note 7) (143) -
Net loss for the year (27,407) (112,990)
--------------------- ---------------------
Attributable to:
- Owners of the Company (27,474) (112,990)
- Non-controlling interest 67 -
--------------------- ---------------------
Other comprehensive (loss)/income
Items that may be reclassified subsequently
to profit or loss
Available-for-sale investments (Note 12) (34) (28)
Currency translation differences (66) 110
Total comprehensive loss for the year (27,507) (112,908)
--------------------- ---------------------
Attributable to:
- Owners of the Company (27,574) (112,908)
- Non-controlling interest 67 -
--------------------- ---------------------
Loss per share, basic and diluted (US$) (Note
19) (0.51) (9.97)
--------------------- ---------------------
The accompanying notes are an integral part of these amended and restated consolidated financial statements.
December 31,
2017
$'000 December 31,
(as restated
- 2016
see Note 25) $'000
------------- ------------
Assets
Current assets
Cash and cash equivalents 17,787 13,429
Trade and other receivables (Note
8) 25,286 5,775
Inventories (Note 9) 36,932 16,351
Other assets (Note 10) 1,710 516
81,715 36,071
------------- ------------
Non-current assets
Property, plant and equipment (Note
11) 249,552 191,117
Available-for-sale investments (Note
12) 21 55
Deferred tax asset (Note 7) 4,554 -
Other assets (Note 10) 1,196 -
255,323 191,172
------------- ------------
Total assets 337,038 227,243
------------- ------------
Liabilities
Current liabilities
Borrowings (Note 13) 37,964 20,312
Trade and other payables (Note 14) 41,003 14,227
Income tax payable 12,358 -
Finance lease liability (Note 15) 1,913 2,370
Derivative liability (Note 16) 105 105
Provision (Note 17) 523 -
------------- ------------
93,866 37,014
------------- ------------
Non-current liabilities
Borrowings (Note 13) 101,335 73,159
Trade and other payables (Note 14) 463 -
Finance lease liability (Note 15) 5,875 9,790
Provision (Note 17) 10,439 2,304
------------- ------------
118,112 85,253
------------- ------------
Total liabilities 211,978 122,267
------------- ------------
Equity
Share capital (Note 18b) 353,653 283,506
Capital contribution 54,022 48,235
Share based payment reserve (Note
18c) 7,840 6,770
Acquisition reserve (Note 4) (33,060) -
Available-for-sale investment reserve
(Note 12) (487) (453)
Cumulative translation reserve (466) (400)
Deficit (260,156) (232,682)
------------- ------------
Equity attributable to owners 121,346 104,976
Non-controlling interest 3,714 -
------------- ------------
Total equity 125,060 104,976
------------- ------------
Total liabilities and equity 337,038 227,243
------------- ------------
The accompanying notes are an integral part of these amended and restated consolidated financial statements.
Approved by the board of directors on August 17, 2018
"Geoffrey Eyre" (signed)
Director
Year ended Year ended
December December
31, 31,
2017 2016
$'000 $'000
Operating activities
Loss for the year (27,407) (112,990)
Income tax 143 -
----------- -----------
Loss before tax (27,264) (112,990)
Items not affecting cash:
Share-based payments (Note 6) 1,070 768
Depreciation (Note 11) 32,765 16,359
Unrealized foreign exchange loss/(gain) (31) 240
Derivative liability gain (Note 16) - (1,054)
Interest expense 11,812 8,576
Write-down of inventories (Note 9) 2,900 7,431
Gain on lease settlement (Note 11) (3,988) -
Impairment of property, plant and equipment (Note
11) 2,876 42,473
Impairment of inventories (Note 9) - 4,933
Exploration acquisition costs settled through issuance
of shares (Note 18b) - 531
Services settled through issuance of shares (Note
18b) - 100
Changes in non-cash working capital
Increase in trade and other receivables 655 (4,970)
Increase in trade and other payables (2,036) 11,983
Increase in inventories (7,791) (14,446)
Cash flows from/(used in) operating activities 10,968 (40,066)
----------- -----------
Investing activities
Acquisition of Youga and Balogo Gold Mines (Note (4,336)
4) -
Payments to acquire property, plant and equipment (30,061) (54,126)
Decrease in other assets (546) 328
Proceeds from pre-production gold sales - 14,793
Finance charges - (153)
Cash flows used in investing activities (34,943) (39,158)
----------- -----------
Financing activities
Net proceeds from issue of common shares (Note 18b) 18,680 92,695
Proceeds from shareholder loan (Note 13b) 18,800 -
Exercise of stock options 8 -
Net repayment of borrowings (168) (12,430)
Finance charges (8,987) (6,897)
Proceeds from issue of promissory note (Note 18b) - 12,303
Cash flows from financing activities 28,333 85,671
----------- -----------
Impact of foreign exchange on cash balance - (146)
----------- -----------
Net increase in cash and cash equivalents 4,358 6,301
Cash and cash equivalents at beginning of year 13,429 7,128
----------- -----------
Cash and cash equivalents at end of year 17,787 13,429
----------- -----------
The significant non-cash transactions during the year ended December 31, 2017 and 2016 are disclosed in Note 24.
The accompanying notes are an integral part of these amended and restated consolidated financial statements.
Total Equity Attributable to Owners
---------------------------------------------------------------------------------------------------------------
Capital
contribution
(as restated Share-based Available-for-sale Cumulative
Share - see payment Acquisition investment translation Deficit Total Non-controlling Total
capital Note 25) reserve reserve Reserve reserve Interest Equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
--------- ------------- ------------ ------------ ------------------- ------------ ---------- ---------- ---------------- ----------
Balance at
January
1, 2016 177,877 48,235 6,002 - (425) (510) (119,692) 111,487 - 111,487
--------- ------------- ------------ ------------ ------------------- ------------ ---------- ---------- ---------------- ----------
Loss for the
year - - - - - - (112,990) (112,990) - (112,990)
Other
comprehensive
loss for year - - - - (28) 110 - 82 - 82
--------- ------------- ------------ ------------ ------------------- ------------ ---------- ---------- ---------------- ----------
Total
comprehensive
loss for year - - - - (28) 110 (112,990) (112,908) - (112,908)
Share-based
payments
(Note 6) - - 768 - - - - 768 - 768
Issue of common
shares
(net of costs) 105,629 - - - - - - 105,629 - 105,629
Balance at
December
31, 2016 283,506 48,235 6,770 - (453) (400) (232,682) 104,976 - 104,976
--------- ------------- ------------ ------------ ------------------- ------------ ---------- ---------- ---------------- ----------
Loss for the
year - - - - - - (27,474) (27,474) 67 (27,407)
Other
comprehensive
loss for year - - - - (34) (66) - (100) - (100)
--------- ------------- ------------ ------------ ------------------- ------------ ---------- ---------- ---------------- ----------
Total
comprehensive
loss for year - - - - (34) (66) (27,474) (27,574) 67 (27,507)
Share-based
payments
(Note 6) - - 1,070 - - - - 1,070 - 1,070
Acquisition of
Youga
and Balogo
(Note 4) 51,459 - - (33,060) - - - 18,399 3,647 22,046
Other issue of
common
shares
(net of costs) 18,688 - - - - - - 18,688 - 18,688
Related party
loans
(Note 13b,c) - 5,787 - - - - - 5,787 - 5,787
Balance at
December
31, 2017 353,653 54,022 7,840 (33,060) (487) (466) (260,156) 121,346 3,714 125,060
--------- ------------- ------------ ------------ ------------------- ------------ ---------- ---------- ---------------- ----------
The accompanying notes are an integral part of these amended and restated consolidated financial statements.
1. Nature of operations
Avesoro Resources Inc. ("Avesoro" or the "Company"), was incorporated under the Canada Business Corporations Act on February 1, 2011. The focus of Avesoro's business is the exploration, development and operation of gold assets in West Africa, specifically the New Liberty Gold Mine in Liberia and the Youga and Balogo Gold Mines in Burkina Faso.
The Company's parent company is Avesoro Jersey Limited ("AJL"), a company incorporated in Jersey and Mr. Murathan Doruk Gűnal is the ultimate beneficial owner.
2. Going concern
As at December 31, 2017, the Company had cash and cash equivalents of $17.8 million, net current liabilities of $12.1 million and debt and interest repayments of $39.5 million due within the next 12 months.
The cash generation profile of the Company significantly increased as a result of the acquisition of the Youga and Balogo Gold Mines (Note 4) and the turnaround of operations at New Liberty. In addition, the Company has an undrawn facility of $16.2 million with AJL which it can call upon for general working capital purposes.
The Company's forecasts and projections show that the Company has adequate resources to continue in operational existence for the foreseeable future. The Company continues to adopt the going concern basis of accounting in preparing the amended and restated consolidated financial statements.
3. Summary of significant accounting policies
The accounting policies set out below have been applied consistently in these financial statements, unless otherwise stated.
3. Summary of significant accounting policies (continued) 3.1 Basis of preparation
The accompanying amended and restated consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB"). The amended and restated consolidated financial statements have been prepared on a historical cost basis, as adjusted for certain financial instruments carried at fair value.
3.2 New accounting standards adopted
No new accounting standards or interpretations were adopted during the year.
3.3 Standards in issue but not yet effective
The following standards and interpretations which have been recently issued or revised and are mandatory for the Group's accounting periods beginning on or after January 1, 2018 or later periods have not been adopted early:
Standard Detail Effective
date
--------- ---------------------------------------------- -----------
IFRS 9 Financial instruments January 1,
2018
IFRS 15 Revenue with contracts with customers January 1,
2018
IFRS 16 Leases January 1,
2019
IFRS 2 Amendment - Classification and measurement of January 1,
share based payment transactions 2018
--------- ---------------------------------------------- -----------
IFRS 15 is intended to introduce a single framework for revenue recognition and clarify principles of revenue recognition. Management have assessed the point of revenue recognition and do not expect there to be any material impact on the amended and restated consolidated financial statements.
IFRS 16 introduces a single lease accounting model, in which leases are capitalised as assets with an associated lease liability with the exception of certain low value leases and leases with a term under 12 months. Management are currently assessing the impact of this standard but there are no material operating leases in the Group.
IFRS 9 introduces significant changes to the classification and measurement requirements for financial instruments. Management are currently assessing the impact of this standard.
3.4 Basis of consolidation 3.4.1 Subsidiaries
Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.
De-facto control exists in situations where the Company has the practical ability to direct the relevant activities of the investee without holding the majority of the voting rights.
3. Summary of significant accounting policies (continued)
The amended and restated consolidated financial statements present the results of the Company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.
These financial statements include the accounts of Avesoro and its subsidiaries. The significant subsidiaries at December 31, 2017 are set out below:
Company Place of incorporation % of equity ownership
Bea Mountain Mining Corporation
("BMMC") Liberia 100%
Burkina Mining Company ("BMC") Burkina Faso 90%
Netiana Mining Company ("NMC") Burkina Faso 90%
-------------------------------- ----------------------- ---------------------
3.4.2 Transactions eliminated on consolidation
Intra-group balances and any unrealized gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the amended and restated consolidated financial statements.
3.5 Foreign currency translation 3.5.1 Functional and presentation currency
Items included in the financial statements of each of the Company's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The amended and restated consolidated financial statements are presented in U.S. dollars ("$"), ("the presentation currency") which is the functional currency of most of the subsidiary entities.
In the amended and restated consolidated financial statements, all separate financial statements of subsidiary entities, originally presented in a currency different from the Company's presentation currency, have been converted into US dollars. Assets and liabilities have been translated into US dollars at the closing rate at the balance sheet date. Income and expenses have been translated at the average rates over the reporting period. Any differences arising from this procedure have been charged/credited to the "Cumulative translation reserve" in equity. Equity has been translated into US dollars at historical rates.
3.5.2 Foreign currency transactions
In preparing the financial statements of the group entities, foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the loss from operations.
3. Summary of significant accounting policies (continued) 3.6 Equity
The following describes the nature and purpose of each reserve within equity.
Reserve Description and purpose
------------------------------ -----------------------------------------------------
Share capital Amount subscribed for share capital at share
issue price less direct issue costs
Capital contribution Includes the net assets transferred to Avesoro
on April 13, 2011 pursuant to the Plan of
Arrangement and the equity portion of the
loans payable to AJL (majority shareholder)
and Mapa Insaat ve Ticaret A.S. (a related
party)
Share-based payment Fair value of share-based payments vested
reserve
Acquisition reserve The difference between the consideration
and the aggregate carrying value of the
assets and liabilities of the acquired entity
as of the date of acquisition where the
business combination includes entities under
common control
Available-for-sale investment Gains and losses arising on available-for-sale
reserve investments
Cumulative translation Exchange differences arising on translation
reserve of non-US dollar functional currency subsidiaries
Cumulative deficit Amount of cumulative net gains and losses
recognised on the amended and restated consolidated
statement of income
Non-controlling interest Represents the share in subsidiaries that
is not owned by the Group
------------------------------ -----------------------------------------------------
3.7 Property, plant and equipment
All property, plant and equipment are stated at historical cost less depreciation and applicable impairment charges. Historical cost includes expenditures that are directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amounts of any replaced parts are derecognized. All other repairs and maintenance are charged to the consolidated statement of comprehensive loss/income during the financial period in which they are incurred.
Depreciation is provided to write off the cost using the straight-line method over their estimated useful life of the assets as follows:
Machinery and equipment 3-4 years Vehicles 5 years Mining equipment 5-10 years Leasehold improvements Term of the lease
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.
Mining and development costs include costs incurred after the completion of a mining property's feasibility study. Mining and development costs are not amortized during the development phase but are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable, at least at each balance sheet date.
A mining and development property is considered to be capable of operating in a manner intended by management when it commences commercial production. Upon commencement of commercial production a development property is transferred to a mining property and is depreciated on a units-of-production method. Only proven and probable reserves are used in the tonnes mined units of production depreciation calculation.
3. Summary of significant accounting policies (continued) 3.8 Exploration costs
Exploration and evaluation costs are expensed as incurred until a decision is taken that a mining property is economically feasible, after which subsequent expenditures are capitalised as intangible assets.
Exploration and evaluation costs include acquisition of rights to explore, studies, exploration drilling, trenching, sampling and associated activities.
3.9 Impairment
At each balance sheet date, the Company reviews the carrying amounts of its non-current assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense in the statement of comprehensive income.
In assessing whether there is any indication that an asset(s) may be impaired, an entity shall consider, as a minimum, the following indications:
External
-- Significant changes with an adverse effect on the entity have taken place during the period or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated;
-- Market interest rates or other market rates of return on investment have increased during the period, and those increases are likely to affect the discount rate used in calculating an assets value in use and decrease the assets recoverable amount; and
-- The carrying amount of the net assets of the entity is more than its market capitalisation. 3. Summary of significant accounting policies (continued)
Internal
-- Evidence of physical damage of an asset; -- Evidence from internal reporting that indicates the economic performance of an asset
is or will be worse than expected; and
-- Significant changes with an adverse effect on the entity have taken place during the period or are expected to take place in the near future to the extent and manner in which an asset is used.
An impairment loss recognised in prior periods shall be reversed if there has been a change in the
estimates used to determine the assets recoverable amount since the last impairment loss was recognised.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior periods. A reversal of an impairment loss is recognised as income immediately.
3.10 Financial instruments
Financial assets
All financial assets are recognised and derecognised on trade date when the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned. Financial assets are initially measured at fair value, plus transaction costs, except for those financial assets classified as fair value through profit or loss ("FVTPL"), which are initially measured at fair value.
Available-for-sale financial assets
Available-for-sale financial assets include non-derivative financial assets that are either designated as such or do not qualify for inclusion in any of the other categories of financial assets. All financial assets within this category are measured subsequently at fair value, with changes in value recognised in other comprehensive income. Gains and losses arising from investments classified as available for sale are recognised in the profit or loss when they are sold or when the investment is impaired. In the case of impairment of available for sale assets, any loss previously recognised in other comprehensive income is transferred to the profit or loss. Impairments are assessed when a decline in fair value is significant or prolonged based on an analysis of indicators such as market price of the investment and significant adverse changes in the environment in which the investee operates. Impairment losses recognised in the profit or loss on equity instruments are not reversed through the profit or loss. Impairment losses recognised previously on debt securities are reversed through the profit or loss when the increase can be related objectively to an event occurring after the impairment loss was recognised in the profit or loss.
3. Summary of significant accounting policies (continued)
Loans and receivables
Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
Impairment of financial assets at amortised cost
Financial assets that are measured at amortised cost are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial asset have been affected.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Derecognition of financial assets
The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Warrants issued alongside the raising of finance are recorded as a reduction of capital stock based on the fair value of the warrants.
Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.
3. Summary of significant accounting policies (continued)
Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the Company's obligations are discharged, cancelled or they expire.
Derivative financial instruments:
The Company has issued warrants that are exercisable in a currency other than the functional currency of the entity issuing. As such these warrants are treated as derivative liabilities which are measured initially at fair value and gains and losses on subsequent re-measurement are recorded in profit or loss.
3.11 Income tax
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company's 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 and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the amended and restated consolidated financial statements. However, the deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.
3.12 Gold sales
Revenue from sales of gold is recognised when:
- the Company has passed the significant risks and rewards of ownership of the product to the buyer, usually when gold doré leaves the gold room, unless a return of physical metal is requested in advance;
- it is probable that the economic benefits associated with the sale will flow to the Company; - the sales price can be measured reliably; - the Company has no significant continuing involvement; and - the costs incurred or to be incurred in respect of the sale can be measured reliably.
Revenue earned while the mine is ramping up to commercial production is accounted for as a credit to the capitalised mining development asset. Revenue earned after commencement of commercial production is recognised in the statement of income. Commercial production at New Liberty was declared on March 1, 2016.
3. Summary of significant accounting policies (continued) 3.13 Cost of sales
Cost of sales consists of production costs, depreciation of mining assets and costs during temporary plant shutdown.
Production costs include mine operating expenses (such as hire of mining equipment, staff costs, fuel, consumables, maintenance and repair costs, general and administrative costs), third-party smelting, refining and transport fees, royalty expense, changes in inventories for the period including write-down to reduce inventories to net realisable value and permanent impairment of inventories. Cost of sales is based on average costing for contained or recoverable ounces sold for the period.
Costs during temporary plant shutdown are mine operating expenses that were incurred during the temporary suspension of plant processing operations from May 7 to June 30, 2016 as a consequence of operating problems with the detoxification circuit in the process plant.
3.14 Stripping costs
Stripping costs incurred during the development phase of the mine as part of initial pit stripping are capitalised as mining and development costs as part of property, plant and equipment.
Stripping costs incurred during the production stage of the mine are treated as either part of the cost of inventory or are capitalised as a stripping activity asset if all of the following are met:
-- it is probable that the future economic benefit (improved access to the ore body) associated with the stripping activity will flow;
-- the component of the ore body for which access has been improved can be identified; and
-- the costs relating to the stripping activity associated with that component or components can be measured reliably.
Once determined that any portion of the stripping costs should be capitalised, the average stripping ratio for the life of the mine to which the stripping cost related is typically used to determine the amount of the stripping costs that should be capitalised.
Costs capitalised as stripping assets are depreciated on a units of production basis, with reference to the estimated ounces of gold reserves based on the life of mine plan in the components of the ore body that have been made more accessible through the stripping activity.
3.15 Inventories
Inventories are stated at the lower of cost or net realisable value. The cost of ore stockpiles and gold in circuit is determined principally by the weighted average cost method using related production costs.
Costs of gold inventories include all costs incurred up until production of an ounce of gold such as mining costs, processing costs, directly attributable mine general and administration costs and depreciation but exclude transport costs, refining costs and royalties. Net realisable value is determined with reference to estimated contained gold, market gold prices and an estimate of the remaining costs of completion to bring inventories into its saleable form. When the net realisable value is lower than cost the difference is included in change in inventories under cost of sales.
Impairment of inventories are recognised when stocks are determined to be uneconomic to process. Reversals of impairments are recognised when previously impaired inventories are determined to be economic to process.
3. Summary of significant accounting policies (continued)
3.16 Leases
Determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether fulfilment of the arrangement is dependent on the use of a specific asset or assets and whether the arrangement conveys a right to use the asset. Leases of plant and equipment where the group assumes a significant portion of risks and rewards of ownership are classified as a finance lease. Finance leases are capitalised at the estimated present value of the underlying lease payments. Each lease payment is allocated between the liability and the finance charges to achieve a constant rate on the balance outstanding. The interest portion of the finance payment is capitalised as development costs until declaration of commercial production at which time, interest will be charged to the statement of comprehensive income over the lease period. The plant and equipment acquired under the finance lease are depreciated over the useful lives of the assets, or over the lease term if shorter. 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 are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.
3.17 Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
The net present value of estimated future rehabilitation costs is provided for in the amended and restated consolidated financial statements and capitalised within property, plant and equipment on initial recognition. Rehabilitation will generally occur on closure or after closure of a mine and can include facility decommissioning and dismantling, removal or treatment of waste materials, site and land rehabilitation. Initial recognition is at the time of the construction or disturbance occurring and thereafter as and when additional construction or disturbances take place. The estimates are reviewed annually to take into account the effects of inflation and changes in estimated risk adjusted rehabilitation works cost and are discounted using rates that reflect the time value of money. Annual increases in the provision due to the unwinding of the discount are recognised in the statement of comprehensive income as a finance cost.
The present value of additional disturbances and changes in the estimate of the rehabilitation liability are recorded to mining assets against an increase/decrease in the rehabilitation provision. Rehabilitation projects undertaken are charged to the provision as incurred. Environmental liabilities, other than rehabilitation costs, which relate to liabilities arising from specific events, are expensed when they are known, probable and may be reasonably estimated.
3.18 Borrowing costs
Borrowing costs are generally expensed as incurred except where they relate to the financing of qualifying assets that require a substantial period of time to get ready for their intended use. Qualifying assets include mining and development properties. Borrowing costs related to qualifying assets are capitalised up to the date when the asset is ready for its intended use.
3. Summary of significant accounting policies (continued) 3.19 Share-based payments
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Fair value is measured by use of a Black-Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. When equity-settled stock options granted to employees vest over a period of time and the charge is recognised in the statement of comprehensive income over the corresponding period.
Equity-settled share-based payment transactions with other parties are measured at the fair value of the goods and services received, except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.
3.20 Promissory note
Promissory note is initially recognised at the fair value of the proceeds, net of transaction costs incurred. These transaction costs are subsequently amortised under the effective interest rate method through the income statement. Promissory note is classified as a current liability unless the Company has an unconditional right to defer settlement of the liability for at least one year after the balance sheet date.
3.21 Segments
Information presented to the Chief Executive Officer for the purposes of resource allocation and assessment of segment performance is focused on the geographical location.
3.22 Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of identifiable assets acquired and the liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a gain on a bargain purchase.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation are measured at the proportionate share of net assets of the acquiree.
3. Summary of significant accounting policies (continued) 3.23 Common control business combinations
Where business combinations include transactions among entities under common control and outside the scope of IFRS 3 - Business Combinations, the Company considered the guidance provided by IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors and applied predecessor accounting.
Assets acquired or liabilities assumed are not restated to their fair values. Instead, the acquirer incorporates the carrying amounts of assets and liabilities of the acquired entity and no new goodwill arises.
The difference between the consideration given and the aggregate carrying value of the assets and liabilities of the acquired entity as of the date of acquisition is included as acquisition reserve in equity.
Management believes this policy gives a true and fair view as all entities are under the same ultimate controlling party, therefore under common control.
3.24 Critical accounting judgements and sources of estimation uncertainty
In the application of the Company's accounting policies, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
Key sources of estimation uncertainty and judgements made in applying specific accounting policies are as follows:
Carrying value of New Liberty and Burkina Faso cash generating units
The ability of the Company to realise the carrying value of a cash generating unit is contingent upon future profitable production or proceeds from the gold mines and influenced by operational, legal and political risks and future gold prices.
Management makes the judgements necessary when considering impairment at least annually with reference to indicators in IAS 36. If an indication exists, an assessment is made of the recoverable amount. The recoverable amount is the higher of value in use (being the net present value of expected future cash flows) and fair value less costs to sell. Value in use is estimated based on operational forecasts with key inputs that include gold reserves, gold prices, production levels including grade and tonnes processed, production costs and capital expenditure. Because of the above-mentioned uncertainties, actual future cash flows could materially differ from those estimated. Note 11 outlines the significant inputs used when performing impairment test on the New Liberty cash generating unit.
3. Summary of significant accounting policies (continued)
Reserve estimates
The Group estimates its ore reserves and mineral resources in accordance with the National Instrument 43-101 "Standards of Disclosure for Mineral Projects" of the Canadian Securities Administrators. Reserves determined in this way are used in the calculation of depreciation of mining assets, as well as the assessment of the carrying value of the cash generating units and timing of mine closure provision. Uncertainties inherent in estimating ore reserves and assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may, ultimately, result in the reserves being restated. The failure of the Company to achieve production estimates could have a material and adverse effect on any or all of its future cash flows, profitability, results of operations and/or financial condition.
Declaration of commercial production
Management used its judgement to declare commercial production at New Liberty effective March 1, 2016 following a 60-day period of process plant operations in line with both design specifications and management expectations in terms of throughput capacity and gold recovery.
Provisions for mine closure and rehabilitation costs
Management uses its judgement and experience to provide for and amortise the estimated mine closure and site rehabilitation over the life of the mine. Provisions are discounted at a risk-free rate and cost base inflated at an appropriate rate. The ultimate closure and site rehabilitation costs are uncertain and cost estimates can vary in response to many factors including changes to relevant legal requirements or the emergence of new restoration techniques. The expected timing and extent of expenditure can also change, for example in response to changes in ore reserves or processing levels. As a result, there could be significant adjustments to the provisions established which could affect future financial results.
Capitalisation of exploration and evaluation costs
Exploration and evaluation costs are expensed as incurred until a decision is taken that a mining property is economically feasible, after which subsequent expenditures are capitalised as intangible assets. Management estimates the economic feasibility of a property using key inputs such as gold resources, future gold prices, production levels, production costs and capital expenditure.
Inventories
Valuations of ore stockpile and gold in circuit require estimations of the amount of gold contained in, and recovery rates from, the various work in progress. These estimations are based on analysis of samples and prior experience. Judgement is also required regarding the timing of utilisation of stockpiles and the gold price to be applied in calculating net realisable value.
Share-based payments and warrants
The amounts used to estimate fair values of stock options and warrants issued are based on estimates of future volatility of the Company's share price, expected lives of the options, expected dividends to be paid by the Company and other relevant assumptions.
By their nature, these estimates are subject to measurement uncertainty and the effect of changes in such estimates on the amended and restated consolidated financial statements of future periods could be significant.
4. Acquisition of Youga and Balogo Gold Mines
On December 18, 2017 the Company completed the acquisition of the Youga Gold Mine and Balogo Gold Mine in Burkina Faso (the "Youga and Balogo Gold Mines") through the acquisition of the entire issued share capital of MNG Gold Burkina SARL, Cayman Burkina Mines Ltd., MNG Gold Exploration Ltd., AAA Exploration Burkina Ltd. and Jersey Netiana Mining Ltd. and their subsidiaries from AJL for a total consideration of $70.2 million which comprises of the issuance of $51.5 million of new common shares in the Company and a cash component of $18.7 million.
The Youga and Balogo Gold Mines provide the Company with geographic diversity within West Africa and are highly complementary to New Liberty Gold Mine, significantly increasing Avesoro's gold production, in addition to adding high quality exploration upside that will provide for further future organic growth.
This transaction has been accounted for in accordance with Note 3.23 Common control business combinations as the Company and AJL are both owned by Avesoro Holdings Limited. The following table summarises the carrying value of the assets acquired and liabilities assumed on the date of acquisition.
$'000
Recognised amounts of identifiable assets and liabilities
assumed
Cash and cash equivalents 14,394
Trade and other receivables 20,166
Inventories 15,690
Property, plant and equipment (Note 11) 38,191
Deferred tax asset (Note 7) 4,554
Other assets 1,844
Trade and other payables (25,742)
Loans payable to AJL (Note 13(b)) (8,106)
Income tax payable (12,215)
Provisions (Note 17) (8,000)
Total identifiable net assets 40,776
Non-controlling interest (3,647)
Acquisition reserve 33,060
---------
70,189
---------
Fair value of consideration
Cash paid 18,730
Shares issued (Note 18b) 51,459
70,189
---------
The net cash outflow from the acquisition amounted to $4.3 million. Acquisition-related costs of $0.7 million have been charged to administrative and other expenses in the statement of comprehensive income for the year ended December 31, 2017.
The results of Youga and Balogo Gold Mines are included within the consolidated statement of income from the date of acquisition. Youga and Balogo Gold Mines contributed revenues of $2.5 million and a net income after tax of of $0.5 million to the Group's net loss for the period from December 18 to 31, 2017.
Had the acquisition completed on January 1, 2017, the Company would have reported revenues of $236.6 million and a net income after tax of $13.7 million for the year ended December 31, 2017.
5. Segment information
The Company is engaged in the exploration, development and operation of gold projects in the West African countries of Liberia, Burkina Faso and Cameroon. Information presented to the Chief Executive Officer for the purposes of resource allocation and assessment of segment performance is focused on the geographical location of mining operations. The reportable segments under IFRS 8 are as follows:
-- New Liberty operations; -- Burkina operations which include the Youga and Balogo Gold Mines; -- Exploration; and -- Corporate.
.
Gold sales from New Liberty operations and Burkina operations are each sold to a single but different customer, both located in Switzerland.
Following is an analysis of the Company's results, assets and liabilities by reportable segment for the year ended December 31, 2017:
New Liberty Burkina
operations operations Exploration Corporate Total
$'000 $'000 $'000 $'000 $'000
Net income/(loss)
for the year (20,770) 1,319 (2,458) (5,498) (27,407)
------------- ------------ -------------- ---------- ------------
Gold sales 95,246 2,540 - - 97,786
------------- ------------ -------------- ---------- ------------
Production costs
- Mine operating costs (70,433) (3,187) - - (73,620)
- Change in inventories (1,983) 2,109 - - 126
(72,416) (1,078) - - (73,494)
------------- ------------ -------------- ---------- ------------
Depreciation (32,248) - (500) (17) (32,765)
Segment assets 241,451 90,818 4,197 572 337,038
Segment liabilities
(amended and restated) (157,617) (49,388) (4,196) (777) (211,978)
------------- ------------ -------------- ---------- ------------
Capital additions
and acquisitions
- property, plant
and equipment 55,868 38,191 - - 94,059
------------- ------------ -------------- ---------- ------------
5. Segment information (continued)
Following is an analysis of the Company's results, assets and liabilities by reportable segment for the year ended December 31, 2016:
New Liberty Burkina
operations operations Exploration Corporate Total
$'000 $'000 $'000 $'000 $'000
Loss for the year (103,015) - (3,105) (6,870) (112,990)
------------- ------------ -------------- ---------- ----------
Gold sales 63,612 - - - 63,612
------------- ------------ -------------- ---------- ----------
Production costs
- Mine operating
costs (80,209) - - - (80,209)
- Change in inventories (1,875) - - - (1,875)
- Impairment of
inventories (4,933) - - - (4,933)
------------- ------------ -------------- ---------- ----------
(87,017) - - - (87,017)
------------- ------------ -------------- ---------- ----------
Depreciation (15,948) - (389) (22) (16,359)
Other costs
- Termination fee
(Note 20) (4,500) - - - (4,500)
- Shutdown costs (4,383) - - - (4,383)
(8,883) - - - (8,883)
------------- ------------ -------------- ---------- ----------
Segment assets 216,567 - 575 10,101 227,243
Segment liabilities (121,483) - (69) (715) (122,267)
------------- ------------ -------------- ---------- ----------
Capital additions
- property, plant
and equipment 27,714 - 30 - 27,744
------------- ------------ -------------- ---------- ----------
6. Administrative expenses
Year ended Year ended
December 31, December 31,
2017 2016
$'000 $'000
---------------- ----------------
Wages, salaries and contractual termination/change
of control payments 1,693 4,046
Legal and professional 1,548 5,412
Depreciation of non-mining assets 17 411
Share based payments 1,070 768
Foreign exchange 78 250
Other expenses 1,260 1,162
---------------- ----------------
5,666 12,049
---------------- ----------------
7. Income taxes
Year ended Year ended
December December
31, 31,
2017 2016
$'000 $'000
----------- -----------
Current taxation 143 -
----------- -----------
The analysis of the Company's taxation charge for the year based on the company's statutory tax rate of 26.5% is as follows:
Year ended Year ended
December December
31, 31,
2017 2016
$'000 $'000
----------- -----------
Loss before tax (27,264) (112,990)
Tax recovery at the Canadian corporation
tax rate of 26.5% (7,225) (29,942)
Effect of different tax rates of subsidiaries
operating in
other jurisdictions 345 1,895
Non-deductible expenses 1,048 10,822
Non-taxable gains (997) (279)
Tax losses not utilised and carried forward 7,219 17,957
Other (247) (453)
----------- -----------
143 -
----------- -----------
Deferred tax balances in Burkina Faso for which there is a right of offset within the same tax jurisdiction are presented net on the face of the balance sheet as permitted by IAS 12. The closing deferred tax assets, after this offsetting of balances, are shown below:
December December
31, 31,
2017 2016
$'000 $'000
--------- ---------
Deferred tax assets arising from:
Capital allowances 3,203 -
Other temporary differences 1,351 -
--------- ---------
4,554 -
--------- ---------
Deferred tax balances in Liberia for which there is a right of offset within the same tax jurisdiction are presented net as permitted by IAS 12. A deferred tax asset of $4.8 million (2016: $2.9 million) in respect of losses has been recognised and off set against a deferred tax liability of $4.8 million (2016: $2.9 million) with respect to accelerated tax depreciation in Liberia. The Group has only recognised an asset up to the value of the deferred tax liability.
The Group has further carried forward losses and capital allowances in Liberia and Canada in which it does not recognise a deferred tax asset due to uncertainty over the utilisation of these assets. The unrecognised deferred taxation asset at December 31, 2017 is $107.9 million (2016: US$81.3 million) based on a carried forward tax losses asset of $51.1 million (2016: US$26.6 million) which expires between 2031 and 2037 and capital allowances of $56.8 million (2016: US$54.7 million) which have no expiry date.
8. Trade and other receivables
December December
31, 31,
2017 2016
$'000 $'000
---------
Trade receivable 416 760
Other receivables 10,690 1,940
Due from related parties (Note 20(e)) 1,015 122
Pre-payments 13,165 2,953
--------- ---------
25,286 5,775
--------- ---------
Other receivables include a VAT receivable from the Burkina Faso Government amounting to $8.9 million as at December 31, 2017 (2016: $nil).
9. Inventories
December December
31, 2017 31, 2016
$'000 $'000
---------- ----------
Gold dore 3,986 1,720
Gold in circuit 2,561 1,492
Ore stockpiles 6,688 3,737
Consumables 23,697 9,402
---------- ----------
36,932 16,351
---------- ----------
Consumables at New Liberty as at December 31, 2016 include inventories acquired from a related party (Note 20(d)).
Production costs for the year ended December 31, 2017 include a write-down of ore stockpiles at New Liberty of $2.9 million to net realisable value. Production costs for the year ended December 31, 2016 include an impairment of the low grade oxide stockpiles which was not planned to be fed through the processing plant at New Liberty as at December 31, 2016 of $4.9 million.
10. Other assets
December December
31, 31,
2017 2016
$'000 $'000
---------
Current
Surety deposit 400 400
Deposit to supplier 662 -
Other deposits 648 -
Amounts in escrow in respect of an operating
lease - 116
1,710 516
--------- ---------
Non-current
Asset retirement obligation deposit 517 -
Other deposits 679 -
--------- ---------
1,196 -
--------- ---------
11. Property, plant and equipment
Assets
held
Mine closure under Machinery
Development Mining Stripping and finance and Leasehold
assets assets asset rehabilitation lease equipment Vehicles improvement Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
Cost
At January 1,
2016 221,275 - - - - 1,645 1,233 94 224,247
Transfers (221,275) 210,746 - 1,369 9,160 - - - -
Additions - 7,017 - 854 4,469 30 - - 12,370
Acquired from
a related
party (Note
20) - - - - - 14,717 657 - 15,374
Impairment - (42,473) - - - - - - (42,473)
Foreign
exchange - - - - - - (6) (11) (17)
At December
31, 2016 - 175,290 - 2,223 13,629 16,392 1,884 83 209,501
Additions - 8,322 16,229 544 2,025 27,752 996 - 55,868
Acquisitions
(Note
4) - 24,895 - 3,445 - 30,639 204 - 59,183
Impairment - - - - (3,896) - - - (3,896)
Foreign
exchange - - - - - 10 8 3 21
At December
31, 2017 - 208,507 16,229 6,212 11,758 74,793 3,092 86 320,677
----------- -------- --------- -------------- --------- --------- -------- ----------- --------
Accumulated
depreciation
At January 1,
2016 - - - - - 1,120 876 62 2,058
Charge for
the period - 14,909 - 116 651 518 148 17 16,359
Foreign
exchange - - - - - (16) (4) (13) (33)
At December
31, 2016 - 14,909 - 116 651 1,622 1,020 66 18,384
Charge for
the period - 23,754 1,838 296 2,933 3,622 303 19 32,765
Acquisitions
(Note
4) - 13,442 - 1,878 - 5,633 39 - 20,992
Impairment - - - - (1,020) - - - (1,020)
Foreign
exchange - - - - - 3 - 1 4
At December
31, 2017 - 52,105 1,838 2,290 2,564 10,880 1,362 86 71,125
-------- --------- -------------- --------- --------- -------- ----------- --------
Net book
value
At December
31, 2016 - 160,381 - 2,107 12,978 14,770 864 17 191,117
----------- -------- --------- -------------- --------- --------- -------- ----------- --------
At December
31, 2017 - 156,402 14,391 3,922 9,194 63,913 1,730 - 249,552
----------- -------- --------- -------------- --------- --------- -------- ----------- --------
11. Property, plant and equipment (continued)
The additions to development assets for the year ended December 31, 2017 include capitalized borrowing costs of $nil (2016: $1.7 million). It also includes pre-production costs of $nil for the year ended December 31, 2017 (2016: $2.1 million), net of pre-production revenues of $nil (2016: $14.8 million).
Impairment of assets held under finance leases
During the year ended December 31, 2017, the Company agreed to cancel poor performing heavy mining equipment held as finance leases and fully acquire those with acceptable performance for a cash consideration of $2.7 million. The derecognition of the finance lease liabilities resulted in a gain of $4 million and an impairment of $2.9 million was recognised on those equipment with low availabilities.
Impairment of New Liberty Gold Mine
In accordance with IAS 36, Impairment of Assets, the Company assesses annually whether there are any indicators of impairment of non-current assets. When circumstances or events indicate that non-current assets may be impaired, these assets are reviewed in detail to determine whether their carrying value is higher than their recoverable value, and, where this is the result, an impairment is recognised. Recoverable value is the higher of value in use ("VIU") and fair value less costs to sell. VIU is estimated by calculating the present value of the future cash flows expected to be derived from the asset cash generating unit ("CGU"). Fair value less costs to sell is based on the most reliable information available, including market statistics and recent transactions. The New Liberty Gold Mine has been identified as the CGU. This includes the mining and development property and associated working capital.
The mine operations falling below expectations during the year represented an impairment trigger, and as a result, Management performed impairment testing in order to ensure that the recoverable value calculated exceeded the carrying value as presented. The results of this test did not result in any impairment for the year ended December 31, 2017 (2016: $42.5 million).
The recoverable amount of the CGU was determined by calculating its VIU, which has been determined to be greater than its fair value less cost to dispose. The key assumptions used in determining the VIU for the CGU is life-of-mine ("LOM") plan, long-term gold prices and discount rate. The estimates of future cash flows were derived from the latest LOM plan as at December 31, 2017 which showed an estimated life of 4 years (2016: seven years) and was based on management's current best estimates of optimized mine and processing plans, future operating costs and the assessment of capital expenditure of the New Liberty Gold Mine. The Company also used the following assumptions:
-- estimated gold price of $1,300 per ounce (2016: a range from $1,200 to $1,300 (LOM average $1,300) per ounce) based on observable market data including spot price and industry consensus; and
-- a pre-tax discount rate of 8.5% (2016: 8.5%) was applied to present value the net future cash flows based on the weighted average cost of capital applicable to the CGU.
12. Available-for-sale investments
December December
31, 31,
2017 2016
$'000 $'000
--------- ---------
Beginning of the year 55 83
Loss recognised in statement of comprehensive
income (34) (28)
--------- ---------
End of the year 21 55
--------- ---------
As at December 31, 2017 and 2016, the Company holds 615,855 shares in Stellar Diamonds plc, a diamond mining and exploration company listed on the AIM market operated by the London Stock Exchange. The Company's available-for-sale investments are classified as Level 1 where the fair value is determined by reference to quoted prices (unadjusted) in active markets.
13. Borrowings
December December
31, 2017 31, 2016
(as restated
- see Note
25)
$'000 $'000
-------------- ----------
Current
Bank loan - Senior Facility Tranche A 14,741 11,222
Bank loan - Senior Facility Tranche B 9,737 9,090
Shareholder loan 8,106 -
Related party loan (amended and restated -
see Note 25) 5,380 -
-------------- ----------
37,964 20,312
-------------- ----------
Non-current
Bank loan - Senior Facility Tranche A 58,668 62,636
Bank loan - Subordinated Facility 10,846 10,523
Shareholder loan 14,938 -
Related party loan (amended and restated -
see Note 25) 16,883 -
-------------- ----------
101,335 73,159
-------------- ----------
(d) Bank loans
On December 17, 2013 the Company entered into an agreement for an $88 million project finance loan facility (the "Senior Facility") with the Nedbank Limited and FirstRand Bank Limited (collectively the "Lenders"), and also entered into a subordinated loan facility agreement for $12 million with RMB Resources (the "Subordinated Facility"). On December 9, 2015 the Company entered into an agreement for an additional $10 million Tranche B Senior Facility ("Tranche B Facility", together with the Senior Facility and the Subordinated Facility the "Loan Facilities") provided by the Lenders. These Loan Facilities, which have been fully drawn, financed the development of the Company's New Liberty Gold Mine. $12.4 million of the Senior Facility has been repaid to date.
13. Borrowings (continued)
On March 31, 2017, the Company finalised an amendment to its Loan Facilities. The revisions include improved conditions and rescheduled repayment terms of the Loan Facilities in exchange for the provision of a personal guarantee from Mehmet Nazif Gűnal, Non-Executive Chairman of the Company, and corporate guarantees from the Avesoro Holdings Limited group, the beneficial owner of 72.9% of the Company's issued equity.
The rescheduled repayment structure provides no further capital repayments until March 31, 2018 and the Senior Facility loan tenor has been extended by two years until January 31, 2022, and the tenor on the Subordinated Facility has been extended to the earlier of 12 months following the repayment of the senior facility or January 31, 2023. The Senior Facility interest rate remains at LIBOR plus 1.8% until 2020, following which it will increase to LIBOR plus 4.3% and the Subordinated Facility interest rate remains the same at LIBOR plus 7.5%.
The Senior Facility is secured by charges over the assets of BMMC and charges over the shares in BMMC.
(e) Shareholder loan
Current
The current shareholder loan payable to AJL of $8.1 million was assumed on acquisition of Youga and Balogo Gold Mines (see Note 4).
Non-current
During the year ended December 31, 2017, BMMC borrowed $18.8 million from AJL to meet liabilities arising on the termination of legacy procurement contracts, make advanced payments to suppliers to secure lower unit cost pricing and to accelerate the acquisition of capital items that will increase process plant throughput at New Liberty.
The loan is unsecured and ranks subordinated to the Company's bank loans. Interest is charged on the loan at a fixed rate of 3.75% per annum. The amount undrawn from this loan facility as at December 31, 2017 is $16.2 million. BMMC may draw down in multiple tranches at the Company's discretion before December 31, 2020, with funds available for general working capital purposes. The facility is due to repaid in full no later than December 31, 2022 and has no early repayment penalty.
The loan payable to AJL was initially recognised at fair value calculated as its present value at a market rate of interest and subsequently measured at amortised cost. The difference between fair value and loan amount of $4.5 million has been credited to equity as a capital contribution as the loan is from its majority shareholder.
13. Borrowings (continued) (f) Related party loan
During the year ended December 31, 2017 the Company entered into equipment and finance facility agreements with Mapa İn aat ve Ticaret A. . ("Mapa"), a company controlled by Mehmet Nazif Gűnal, Non-Executive Chairman of the Company, to facilitate the purchase of heavy mining equipment totaling $23.2 million. The loan principal of these agreements includes a mark-up of 2.5% over the cost incurred by Mapa in procuring the equipment. The equipment finance loans are unsecured, with interest charged at 6.5% per annum on the US$ denominated loan amount of approximately $11 million and 5.5% per annum on the Euro denominated loan amount of approximately EUR10.3 million (equivalent to approximately $12.2 million). The loans are repayable in cash in eight equal semi-annual instalments, the first of which will fall due six months after utilisation of the loan.
The loan payable to Mapa was initially recognised at fair value calculated as its present value at a market rate of interest and subsequently measured at amortised cost. The difference between fair value and loan amount of $1.3 million has been credited to equity as a capital contribution from a related party.
14. Trade and other payables
December December
31, 31,
2017 2016
$'000 $'000
---------
Current
Trade payables 27,649 7,368
Due to related parties (Note 20(e)) 464 1,342
Accruals and other payables 12,890 5,517
--------- ---------
41,003 14,227
--------- ---------
Non-current
Trade payables 463 -
--------- ---------
15. Finance lease liability
The finance lease liability relates to diesel-powered generators and related equipment and the fuel storage facility, all at New Liberty Gold Mine. Such assets have been classified as finance leases as the rental period amounts to a major portion of the estimated useful economic life of the lease assets and the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased assets.
December December
31, 2017 31, 2016
$'000 $'000
---------- ----------
Gross finance lease liability
* Within one year 2,820 3,902
* Between two and five years 7,191 11,842
* After five years - 420
---------- ----------
10,011 16,164
Future finance cost (2,223) (4,004)
---------- ----------
Present value of lease liability 7,788 12,160
---------- ----------
Current portion 1,913 2,370
Non-current portion 5,875 9,790
---------- ----------
As discussed in Note 11, the Company cancelled certain finance leases of heavy mining equipment. The derecognition of those finance leases resulted in a gain of $4 million recognised in the consolidated statement of comprehensive income.
16. Derivative liability
Year ended Year ended
December December
31, 31,
2017 2016
$'000 $'000
Beginning of the year 105 1,159
Change in fair value - (1,054)
----------- -----------
End of the year 105 105
----------- -----------
On April 22, 2014 and July 29, 2014 the Company issued 16,687,499 and 12,260,148 warrants, respectively, with an exercise price of GBP0.378 (or the prevailing C$ equivalent thereof) and a term of three and a half years.
On December 22, 2015 the Company issued 20,400,000 Financier Options and re-issued 11,124,528 warrants with an exercise price of 7p and a term of 3.3 years.
The Company's derivative liability is classified as Level 3 where the fair value is based on inputs that are not observable and significant to the overall fair value measurement. These are treated as a derivative liability and were fair valued at inception using the Black-Scholes option pricing model and the following assumptions:
16. Derivative liability (continued)
December 22, April 22,
2015
July 29, 2014 2014
------------ ------------------ ----------
Number of warrants 31,524,528 12,260,148 16,687,499
Exercise price 7 GBp 37.8 GBp 37.8 GBp
Dividend yield 0% 0% 0%
Risk free interest rate 1.29% 1.93% 1.99%
Expected life 3.3 years 3.5 years 3.5 years
Expected volatility (based on historical
volatility) 60% 43% 46%
------------ ------------------ ----------
The changes in fair value at each reporting date are taken directly to the statement of comprehensive income. The following assumptions were used at each date.
December 31, December 31,
2017 2016
------------ -------------
Exercise price 7 GBp 7-37.8 GBp
Dividend yield 0% 0%
Risk free interest rate 0.73% 0.55%
Expected life 1.3 years 0.8-2.3 years
Expected volatility (based on historical volatility) 103% 92-115%
------------ -------------
The weighted average exercise price of the outstanding 31,524,528 warrants which are accounted for as derivative liability as at December 31, 2017 is 7 GBp (2016: 22 GBp).
17. Provision
December December
31, 2017 31, 2016
$'000 $'000
---------- ----------
Current
Legal provisions 395 -
Others 128 -
---------- ----------
523 -
---------- ----------
Non-current
Mine closure and rehabilitation provision 8,529 2,304
Provision for employee benefits 1,910 -
---------- ----------
10,439 2,304
---------- ----------
17. Provision (continued)
December December
31, 2017 31, 2016
$'000 $'000
---------- ----------
Current
Beginning of the year - -
Assumed during the year (Note 4) 523 -
End of the year 523 -
---------- ----------
December December
31, 2017 31, 2016
$'000 $'000
---------- ----------
Non-current
Beginning of the year 2,304 1,369
Additions during the year 543 854
Assumed during the year (Note 4) 7,477 -
Unwinding of discount 115 81
End of the year 10,439 2,304
---------- ----------
The estimated mine closure and rehabilitation costs are expected to be incurred at the end of the life of each mine, 2022 for New Liberty, 2024 for Youga and 2018 for Balogo. Mine closure and rehabilitation costs are estimated based on a formal closure plan and are subject to regular reviews. The principal factors that can cause expected cash flows to change include change in the LOM plan, changes in ore reserves and changes in law and regulation governing the protection of the environment.
18. Equity (a) Authorised
Unlimited number of common shares without par value.
(b) Issued
Shares $'000
------------- -------
Balance at January 1, 2016 536,168,262 177,877
Issued to Sarama Investments Liberia Limited
(i) 5,648,310 531
Equity financing with AJL (ii) 390,644,883 17,462
Conversion of Promissory Note (ii) 271,577,546 12,303
Other equity financing (iii) 4,110,000,000 75,132
Share subscription (iv) 5,300,000 101
Shares issued for services to the Company
(iv) 5,420,000 100
Balance at December 31, 2016 5,324,759,001 283,506
Issued to AJL on acquisition of Youga and
Balogo Gold Mines (v) 2,033,492,822 51,459
Equity financing (v) 797,449,000 20,248
Share issuance costs (v) - (1,568)
Exercise of stock options (vi) 375,000 8
Balance at December 31, 2017 8,156,075,823 353,653
------------- -------
(iii) On January 6, 2016, the Company completed the acquisition of Sarama Investments Liberia Limited which holds the Cape Mount, Cape Mount East and Cape Mount West licences, for a total consideration of 5,648,310 shares at a price of 6.38p per share ($0.094).
(iv) On June 21, 2016 the Company issued 59,533,674 new common shares at a price of $0.045302 per Share and a promissory note for the aggregate principal amount of US$12,303,006 to AJL ("the Promissory Note"), raising gross proceeds of $15 million.
On July 15, 2016 the Company issued a further 331,111,209 new shares at a price of $0.045302 per share to AJL, raising gross proceeds of $15 million. Further, the Promissory Note issued by the Company to AJL also converted into 271,577,546 Shares (also at a price of $0.045302 per Share).
These transactions resulted in AJL becoming the majority shareholder of the Company.
(v) On December 6, 2016, the Company issued 4,110,000,000 shares at a price of 1.5 pence per share raising net proceeds of $75 million, with AJL subscribing for $60 million of new shares, via an equity fundraising to finance the Company's transition to an owner-operator mining model at New Liberty, repay amounts due to the Lenders and to strengthen its balance sheet.
18. Equity (continued)
(vi) In addition, Serhan Umurhan, the Company's Chief Executive Officer, subscribed for 5,300,000 shares at a price of 1.5 pence per share. Serhan Umurhan and Geoff Eyre, the Company's Chief Financial Officer, have been issued 2,710,000 shares each at a price of 1.5 pence per share in consideration for an aggregate of $100,000 for services rendered to the Company.
(vii) As discussed in Note 4, the company acquired Youga and Balogo Gold Mines on December 18, 2017 for a total consideration of US$70.2 million which comprises of the issuance of 2,033,492,822 new common shares in the Company at a price of 1.90p per share and a cash component of US$18.7 million. The cash component was funded through the issuance of 797,449,000 at a price of 1.90p per share through a private placing. The directly attributable costs of issuance of these new shares amounted to $1.6 million.
(viii) During the year ended December 31, 2017 the Company issued 375,000 shares on exercise of 375,000 stock options at a price of 1.575 pence per stock option.
(c) Stock options
Information relating to stock options outstanding at December 31, 2016 is as follows:
December 31, December 31,
2017 2016
------------ ---------------- ----------- ----------------
Weighted average Weighted average
exercise price exercise price
Number of per share Number of per share
options Cdn$ options Cdn$
Beginning of the year 124,269,550 0.09 18,096,864 0.54
Options granted 174,500,000 0.03 113,046,000 0.04
Options exercised (375,000) 0.03 - -
Options expired (557,000) 1.05 (6,592,187) 0.39
Options forfeited (14,894,696) 0.18 (281,127) 0.35
------------ ---------------- ----------- ----------------
End of the year 282,942,854 0.05 124,269,550 0.09
------------ ---------------- ----------- ----------------
There were 51,202,500 stock options that have vested as at December 31, 2017 (2016: 24,952,550) with a weighted average exercise price of Cdn$0.04 (2016: Cdn$0.25).
The weighted average fair value of the 174,500,000 stock options granted in year ended December 31, 2017 (2016: 113,046,000 options) was estimated at US$0.01 per option (2016: US$0.02) at the grant date based on the Black-Scholes option-pricing model using the following assumptions:
Year ended Year ended
December 31, December 31,
2017 2016
------------- -------------
Share price at grant date GBP0.02-0.03 GBP0.02-0.06
Exercise price GBP0.02-0.03 GBP0.02-0.06
Dividend yield 0% 0%
Risk free interest rate 0.40-0.72% 0.17-1.30%
Expected life 5 years 5 years
Expected volatility (based on historical volatility) 34-90% 84-129%
------------- -------------
19. Loss per share
Year ended Year ended
December December
31, 31,
2017 2016
Loss for the year attributable to owners of
equity ($'000) (27,474) (112,990)
Weighted average number of common shares for
the purposes of basic and diluted loss per
share 54,256,004 11,328,935
----------- -----------
Basic and diluted loss per share ($) (0.51) (9.97)
----------- -----------
The weighted average number of common shares has been restated for the 100:1 share consolidation that became effective on January 16, 2018 (Note 25).
Where there is a loss, the impact of warrants and stock options is anti-dilutive, hence, basic and diluted earnings per share are the same.
20. Related party transactions
Following are the Company's related party transactions in addition to the acquisition of Youga and Balogo Gold Mines as discussed in Note 4.
(a) AJL loan facility
As discussed in Note 13(b), the Company borrowed US$18.8 million from its majority shareholder, AJL, during the year ended December 31, 2017. Interest charged on the loan for the year ended December 31, 2017 amounted to US$0.7 million.
(b) Loans payable to Mapa
As discussed in Note 13(c), the Company borrowed US$23.2 million from Mapa during the year ended December 31, 2017. Interest charged on the loans for the year ended December 31, 2017 amounted to US$0.4 million.
(c) Guarantee on the Loan Facilities
In exchange for the revised and improved conditions and rescheduled repayment terms of the Loan Facilities (see Note 13(a)) a personal guarantee was provided by Mehmet Nazif Gűnal, Non-Executive Chairman of the Company and corporate guarantees were provided by the Avesoro Holdings Limited group, the beneficial owner of 72.9% of the Company's issued equity.
(d) Termination of mining services contract and acquisition of mining assets
On September 6, 2016 the mining services contract (the "Contract") between BMMC, the Company's wholly owned subsidiary, and MonuRent (Liberia) Limited ("MonuRent") together with all underlying supplier contracts was novated to Atmaca Services (Liberia) Inc. ("ASLI"), a Liberian company that is wholly owned by AJL. All terms of the Contract remained the same.
20. Related party transactions (continued)
As part of the novation agreement with MonuRent, ASLI paid to MonuRent cash of $15.4 million to acquire mining equipment leased to BMMC, $7.1 million cash for inventory, $9.7 million cash for invoiced receivables and $4.5 million cash as a contract novation fee.
On December 6, 2016 BMMC terminated the mining services contract with ASLI and completed the acquisition of mining equipment and inventory from ASLI in exchange for a payment of $36.7 million, equal to the amount paid by ASLI to MonuRent.
ASLI invoiced BMMC a total of $7.4 million for the lease and maintenance of mining equipment in accordance with the Contract from September 6 to December 6, 2016 of which $6.1 million was paid in 2016 leaving an outstanding payable as at December 31, 2016 of $1.3 million.
During the year ended December 31, 2017, BMMC charged $2 million for management, procurement and operational assistance provided to ASLI and an additional $0.3 million for payments made on behalf of ASLI. The outstanding receivable from ASLI as at December 31, 2017 is $1 million.
(e) Other provision/(purchases) of goods and services
The Company also provided/(purchased) the following services from related parties:
Year ended Year ended
December December
31, 31,
2017 2016
$'000 $'000
Technical and managerial services provided to:
Avesoro Services (Jersey) Limited, a subsidiary
of Company's parent company 486 122
Drilling services provided to the Company by:
Zwedru Mining Inc., a subsidiary of Company's
parent company (899) (66)
Drilling services provided to the Company by:
Faso Drilling Company SA., a subsidiary of Company's (742) -
parent company
Travel services provided to the Company by:
MNG Turizm ve Ticaret A.S., an entity controlled
by the Company's Chairman (38) (20)
Administration services provided to the Company
by: (120) -
Avesoro Services (Jersey) Limited, a subsidiary
of Company's parent company
Charter plane services provided to the Company
by: (180) -
MNG Gold Liberia Inc., a subsidiary of Company's
parent company
Technical and procurement services provided
to the Company by: (350) -
MNG Orko Madencilik A.S., an entity controlled
by the Company's Chairman
Environmental services provided by:
Digby Wells Environmental, an entity that shared
a common director with the Company - (70)
----------- -----------
Included in trade and other receivables is a receivable from a related party of $1 million as at December 31, 2017 (2016: $0.1 million) which represents management, procurement and operational assistance services.
Included in trade and other payables is $0.5 million payable to related parties as at December 31, 2017 (2016: $1.3 million) which represents mainly drilling and charter jet services.
20. Related party transactions (continued)
(f) Key management compensation
The Company's directors and officers are considered the Company's key management personnel. The compensation paid or payable to key management for services is shown below.
Year ended Year ended
December 31, December 31,
2017 2016
$ $
------------- -------------
Salaries and other short-term employee benefits 1,263,198 1,099,122
Contractual termination/change of control payments - 1,243,797
Share-based payments * 576,529 487,388
------------- -------------
1,839,727 2,830,307
------------- -------------
The remuneration earned by each director is as follows:
Year ended December 31, 2017 Year ended December 31, 2016
----------------------------------------------------- -----------------------------------------------------
Salaries Contractual Salaries Contractual
and other termination/ Share-based Total and other termination/ Share-based Total
short-term change payments short-term change payments
benefits of control * benefits of control *
$ $ $ $ $ $ $ $
----------- -------------- ------------ ---------- ----------- -------------- ------------ ----------
Geoffrey
Eyre(1) 413,488 - 177,614 591,102 164,671 - 50,000 214,671
Karin
Ireton(2) - - - - 25,701 94,897 16,740 137,338
Jean-Guy
Martin 90,226 - 61,379 151,605 86,989 94,897 67,420 249,306
David
Netherway 90,226 - 61,379 151,605 98,004 135,567 95,320 328,891
Loudon Owen 90,226 - 61,379 151,605 86,989 94,897 61,840 243,726
David
Reading(2) - - - - 263,147 350,000 38,138 651,285
Adrian
Reynolds(2) - - - - 25,701 94,897 22,320 142,918
Serhan
Umurhan(1) 579,032 - 214,778 793,810 239,814 - 50,000 289,814
1,263,198 - 576,529 1,839,727 991,016 865,155 401,778 2,257,949
----------- -------------- ------------ ---------- ----------- -------------- ------------ ----------
* Share-based payments for the year ended December 31, 2016 include fair value of vested stock options and
shares issued in exchange for services to the Company.
(1) Geoffrey Eyre and Serhan Umurhan were appointed as directors on July 15, 2016.
(2) Karin Ireton, David Reading and Adrian Reynolds ceased to be directors of the Company on July 15, 2016.
(g) Equity financing
AJL's participation in the financing of the Company are disclosed in Note 18b.
21. Financial instruments by category
The Company's financial instruments consist of cash and cash equivalents, trade and other receivables, available for sale investments, borrowings, trade payables and accruals, finance lease liability and derivative liability. Financial instruments are initially recognized at fair value with subsequent measurement depending on classification as described below. Classification of financial instruments depends on the purpose for which the financial instruments were acquired or issued, their characteristics, and the Company's designation of such instruments.
The Company has made the following classifications for its financial instruments:
Cash and
Receivables
Available at amortised
for sale cost Total
$'000 $'000 $'000
----------- ------------- ------
December 31, 2017
Assets as per statement of financial
position
Cash and cash equivalents - 17,787 17,787
Trade and other receivables - 11,106 11,106
Due from related parties - 1,015 1,015
Available-for- sale investments 21 - 21
----------- ------------- ------
Total 21 29,908 29,929
----------- ------------- ------
Cash and
Receivables
Available at amortised
for sale cost Total
$'000 $'000 $'000
----------- ------------- ------
December 31, 2016
Assets as per statement of financial
position
Cash and cash equivalents - 13,429 13,429
Trade and other receivables - 2,700 2,700
Due from related parties - 122 122
Available-for- sale investments 55 - 55
----------- ------------- ------
Total 55 16,251 16,306
----------- ------------- ------
Other
financial
liabilities
Liabilities at amortised
at fair value cost
through the (as restated
profit and - see Note
loss 25) Total
$'000 $'000 $'000
-------------- ------------- -------
December 31, 2017
Liabilities as per statement of financial
position
Trade payables and accruals - 41,002 41,002
Due to related parties - 464 464
Derivative liability 105 - 105
Finance lease liability - 7,788 7,788
Borrowings - 139,299 139,299
-------------- ------------- -------
Total 105 188,553 188,658
-------------- ------------- -------
21. Financial instruments by category (continued)
Other
Liabilities financial
at fair value liabilities
through the at
profit and amortised
loss cost Total
$'000 $'000 $'000
-------------- ------------ -------
December 31, 2016
Liabilities as per statement of financial
position
Trade payables and accruals - 11,801 11,801
Due to related parties - 1,342 1,342
Derivative liability 105 - 105
Finance lease liability - 12,160 12,160
Borrowings - 93,471 93,471
-------------- ------------ -------
Total 105 118,774 118,879
-------------- ------------ -------
22. Financial and capital risk management
(a) Financial risk management
The Company's activities expose it to a variety of financial risks, which include interest rate and liquidity risk, foreign exchange risk and credit risk.
Interest rate and liquidity risk
Fluctuations in interest rates impact on the value of short term cash investments, finance lease liability and borrowings giving rise to interest rate risk. The Company has in the past been able to actively source financing through public offerings and debt financing. This cash is managed to ensure surplus funds are invested in a manner to achieve maximum returns while minimising risks. In the ordinary course of business, the Company is required to fund working capital and capital expenditure requirements. The Company typically holds cash and cash equivalents with a maturity of less than 30 days.
The Directors consider there to be minimal interest rate risk from fluctuations in market interest rates since the interest on the borrowings are largely fixed. If USD LIBOR, which is the variable component of the interest increased by 100% during the year ended December 31, 2017, finance cost would have increased by $1 million.
The Company ensures that its liquidity risk is mitigated by a combination of cash flow forecasts, budgeting, monitoring of operational performance and placing financial assets on short term maturity, thus all financial liabilities are met as they become due.
22. Financial and capital risk management (continued)
The Company's liabilities, stated at their gross, contractual and undiscounted amounts, fall due as indicated in the following table:
30 days Over
Within 30 to 6 to 12 12 months
days 6 months months $'000
At December 31, 2017 $'000 $'000 $'000
---------- ---------- -------- -----------
Trade and other payables 28,673 12,322 8 463
Finance lease liability 594 880 1,346 7,191
Borrowings and finance
costs 199 25,345 21,329 130,034
---------- ---------- -------- -----------
At December 31, 2016
Trade and other payables 8,421 5,806 - -
Finance lease liability 325 1,626 1,951 12,262
Borrowings and finance
costs 9,082 1,832 17,135 84,609
---------- ---------- -------- -----------
Foreign exchange risk
Foreign exchange risk to the Group arises from transactions denominated in currencies other than US dollars. In the normal course of business the Company enters into transactions denominated in foreign currencies, primarily Pounds Sterling, Canadian Dollars, Euros, Australian Dollars and South African Rand. As a result, the Company is subject to exposure from fluctuations in foreign currency exchange rates. The Company does not enter into derivatives to manage these risks.
December December
31, 2017 31, 2016
Carrying value of foreign currency balances $'000 $'000
---------- ----------
Cash and cash equivalents, include balances
denominated in:
Canadian Dollar (CAD) - 17
Pound Sterling (GBP) 133 2,746
West African CFA Franc (XOF) 13,999 -
Others 5 53
Investments, include balances denominated
in:
Pounds Sterling (GBP) 21 55
Receivables and other assets, include balances
denominated in:
Canadian Dollar (CAD) 259 225
Pounds Sterling (GBP) 136 406
West African CFA Franc (XOF) 20,334 -
Others - 29
Trade and other payables, include balances
denominated in:
Canadian Dollar (CAD) 175 198
Euro (EUR) 2,985 186
Pound Sterling (GBP) 517 1,082
South African Rand (ZAR) 972 1,146
West African CFA Franc (XOF) 36,510 -
Others 36 65
---------- ----------
22. Financial and capital risk management (continued)
The sensitivities below are based on financial assets and liabilities held at December 31, 2017 and 2016 where balances were not denominated in the functional currency of the Company. The sensitivities do not take into account the Company's income and expenses and the results of the sensitivities could change due to other factors such as changes in the value of financial assets and liabilities as a result of non-foreign exchange influenced factors.
Effect on net assets
of USD strengthening
10%
December December
31, 2017 31, 2016
$'000 $'000
---------------------- ----------
Canadian Dollar (CAD) (8) (4)
Pound Sterling (GBP) 23 (212)
South African Rand (ZAR) 97 115
Euro (EUR) 299 19
West African CFA Franc (XOF) 218 -
---------------------- ----------
Credit risk
Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents. The Company has an investment policy requiring that cash and cash equivalents only are deposited in permitted investments with certain minimum credit ratings.
December December
31, 2017 31, 2016
$'000 $'000
----------- -----------
Financial institutions with Standards & Poor's
A rating 2,784 13,457
Financial institutions regulated by the Central
Bank of the 13,999 -
West African States
Financial institutions un-rated 1,004 -
----------- -----------
(b) Capital risk management
The Company's objectives when managing capital is to maintain its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to ensure sufficient resources are available to meet day to day operating requirements. The Company defines capital as 'equity' as shown in the consolidated statement of financial position.
The Company's board of directors takes responsibility for managing the Company's capital and does so through board meetings, review of financial information, and regular communication with officers and senior management.
The Company does not currently pay out dividends.
The Company's investment policy is to invest its cash in deposits with high credit worthy financial institutions with short term maturity.
The Company is not subject to externally imposed capital requirements and there has been no change in the overall capital risk management as at December 31, 2017.
23. Commitments
Operating expenditure contracted for at December 31, 2017 but not yet incurred is as follows:
Less than Between Over five
one year one and years
five years
$'000 $'000 $'000
Operating lease expenditure 65 461 -
Other operating expenditure 4,652 - -
Capital expenditure 1,698 - -
---------- ------------ ----------
Operating expenditure commitments comprises of operating leases as at December 31, 2017.
Commitments in respect of finance leases are disclosed in Note 15.
24. Notes to the statement of cash flows
Finance
lease Share Capital
Borrowings liabilities capital contribution Total
$'000 $'000 $'000 $'000 $'000
-------------
As at January 1, 2017 93,471 12,160 283,506 48,235 437,372
Cash flows from/(used in)
financing activities 5,999 (877) 18,688 4,523 28,333
Cash flows used in investing
activities - (866) - - (866)
Non-cash flows
Finance costs 9,689 1,695 - - 11,384
Acquisition of Youga and
Balogo Gold Mines 8,106 - 51,459 - 59,565
Non-cash acquisition of assets
held under
finance leases - 2,002 - - 2,002
Related party loans 16,772 - - 6,472 23,244
Unrealised foreign exchange 54 - - - 54
Gain on lease settlement - (3,988) - - (3,988)
Changes in non-cash working
capital - (2,338) - - (2,338)
As at December 31, 2017 134,091 7,788 353,653 59,230 554,762
------------- ------------- ---------- --------------- --------
Finance
lease Share Promissory
Borrowings liabilities capital note Total
$'000 $'000 $'000 $'000 $'000
-------------
As at January 1, 2016 102,809 8,865 177,877 - 289,551
Cash flows from/(used in)
financing activities (18,357) (970) 92,695 12,303 85,671
Cash flows used in investing
activities - (1,061) - - (1,061)
Non-cash flows
Finance costs 7,548 948 - - 8,496
Capitalised interest 1,471 - - - 1,471
Conversion of promissory
note into shares - - 12,303 (12,303) -
Shares issued for exploration
licences - - 531 - 531
Shares issued in lieu of
services - - 100 - 100
Non-cash acquisition of assets
held under
finance leases - 4,378 - - 4,378
------------- ------------- ---------- ------------- --------
As at December 31, 2016 93,471 12,160 283,506 - 389,137
------------- ------------- ---------- ------------- --------
25. Restatement of related party loans and capital contribution as at December 31, 2017
In preparing the Company's unaudited interim financial statements for the period ended June 30, 2018, Management identified an error in the calculation of the fair valuation of related party loans with Mapa Insaat ve Ticaret A.S. The error requires the restatement of the audited consolidated statement of financial position as at December 31, 2017. The impact of the restatement of the audited consolidated statement of financial position is to increase the current portion of borrowings by $2.0 million, increase the non-current portion of borrowings by $3.2 million and reduce the capital contribution in equity by $5.2 million. The impact of the restatement of the audited consolidated statement of changes in equity is to reduce capital contribution by $5.2 million. The adjustment has no impact on profit nor cash flows for the year ended December 31, 2017. The repayment terms, rates and amounts payable pursuant to the loan agreements are unchanged.
As previously
stated at Increase/ As restated
December 31, (Decrease) at December
2017 31, 2017
$'000 $'000 $'000
Liabilities
Borrowings, current portion 35,999 1,965 37,964
Borrowings, non-current
portion 98,092 3,243 101,335
Equity
Capital contribution 59,230 (5,208) 54,022
------------- ------------ -------------
26. Subsequent events
On January 16, 2018 a 100:1 share consolidation became effective and the Company's previously issued share capital of 8,156,075,823 common shares of nil par value was reduced to 81,560,260 new common shares of nil par value.
On February 21, 2018 the Company entered into further equipment and finance facility agreements with Mapa to facilitate the purchase of heavy mining equipment totaling approximately $10.3 million. The equipment finance loans are unsecured, with interest charged at 6.5% per annum and have similar terms as those entered into with Mapa during the year ended December 31, 2017 as discussed in Note 18(c). The loan principal of these agreements includes a mark-up of 2.5% over the cost incurred by Mapa in procuring the equipment.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
MSCGGUQPRUPRGQM
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