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Avesoro Resources Inc. - Financial Results for the Quarter and Year Ended 31 December 2018

TSX: ASO
AIM: ASO

TORONTO , March 14, 2019 /CNW/ - Avesoro Resources Inc., ("Avesoro" or the "Company"), the TSX and AIM listed West African gold producer, is pleased to announce the release and publication of its audited annual Financial Statements ("FS") and Management's Discussion and Analysis ("MD&A") for the quarter and full year ended December 31, 2018 ("FY 2018").

Full Year 2018 Operational Highlights:

  • 2018 gold production of 220,458 ounces, in line with guidance for the year from the New Liberty Gold Mine in Liberia ("New Liberty") and Youga Gold Mine in Burkina Faso ("Youga"); and
  • Consolidated operating cash costs of US$774 per ounce sold1 and all-in sustaining costs ("AISC") of US$1,043 per ounce sold1;


Full Year 2018 Financial Highlights:

  • Company revenues of US$282.8 million , an increase of 189% year on year ("YoY"), driven by gold sales of 220,998 ounces, a 186% increase YoY at an average realised gold price of US$1,275 per ounce, a 1% increase YoY;
  • Company EBITDA of US$77.5 million , an increase of 348% YoY and EBITDA margin of 27%1;
  • Cash flow generated from operations of US$73.1 million in 2018, a 571% increase YoY;
  • Total capital expenditure of US$44.7 million , including US$6.5 million exploration expenditure and US$23.2 million on additional heavy mining equipment and US$15 million on capitalised waste stripping; and
  • Gross Debt of US$127.0million , a reduction of 5% YoY.


Q4 Financial Highlights:

  • Company revenues of US$57.7 million , a decrease of 3% quarter on quarter ("QoQ"), driven by gold sales of 46,186 ounces, a 6% decrease QoQ at an average realised gold price of US$1,226 per ounce, a 1% increase QoQ;
  • Consolidated operating cash costs of US$982 per ounce sold1, and AISC of US$1,226 per ounce sold1, an increase of 12% and 6% respectively QoQ;
  • Company EBITDA of US$4.7 million , a reduction of 43% QoQ and EBITDA margin of 8%1; and
  • Cash flow generated from operations of US$10.7 million , a 26% reduction QoQ.


Post Period Highlights:

  • Pre-Feasibility Study released for New Liberty resulting in a seven year life of mine extension, total forecast gold recovery of 1.26 million ounces and a post-tax NPV of US$286 million 2;
  • Consolidated FY 2019 gold production expected to be 210,000 to 230,000 ounces, at an operating cash cost of US$850 – US$910 and AISC of US$1,100 – US$1,190 per ounce sold; and
  • Full draw down of the US$10 million additional working capital facility announced on March 6, 2019 , with Avesoro Jersey for general working capital purposes.


Notes: 

1 

See "Non-GAAP Financial Measures"; and

2 

At a 5% discount rate and US$1,300 gold price, after debt repayment and associated finance charges.


Serhan Umurhan, Chief Executive Officer of Avesoro, commented: "2018 was a transformational year for Avesoro in which we achieved our 2018 annual production guidance of 220,458 ounces of gold and increased group gold production by 179% compared with the prior year. I am also pleased to see a strong increase in  group revenues to US$282.2 million and robust operational cash flows of US$73.1 million for the year.

Our focus remains on producing profitable ounces from our gold mines and delivering long term value by optimising the efficiency of our operations and increasing the Company's Mineral Reserves base and project pipeline. Since the change of management at the Company and New Liberty in July 2016 , we have transformed a troubled, loss making mine by driving down costs and increasing production into a solid cash flow generating asset in 2018. The Youga Gold Mine and Balogo satellite deposit, which we acquired in December 2017 , have also made a substantial contribution to the group's cash flow during the year.

The cash flow from operations enabled us to undertake an exceptional exploration drilling campaign during 2018 which has already resulted in Mineral Reserves almost doubling at New Liberty to 1,355koz and developing the underground mining plan for the deposit combined with first reserves from the Ndablama satellite deposit. I look forward to delivering on the New Liberty life of mine extension plan during 2019 with the preparations for the transition towards underground operations at New Liberty now underway. We also expect to announce an increase in reserves at Youga during Q2 2019.

We are consistently delivering on our plan to build a multi-asset gold producer and management is committed to continuing to do so. I would also like to take the opportunity to thank the members of our dedicated team for their contribution to the Company's multiple successes in 2018."

Table 1: Key Operational and Financial Highlights


Q4 2018

Q3 2018

Δ

FY-2018

FY-2017

Δ

Group

Gold production, oz

44,962

47,177

-5%

220,458

79,024

179%

Gold sold, oz

46,186

48,974

-6%

220,998

77,396

186%

Operating cash costs* US$/oz sold

982

877

12%

774

908

-15%

All in sustaining costs US$/oz sold

1,226

1,155

6%

1,043

1,404

-26%

Average realised gold price, US$/oz

1,226

1,210

1%

1,275

1,263

1%

Revenues, US$m

57.7

59.2

-3%

282.8

97.8

189%

EBITDA, US$m

4.7

8.2

-43%

77.5

17.3

348%

EBITDA margin

8%

14%

-42%

27%

18%

55%

Cash flow from operations, US$m

10.7

14.5

-26%

73.1

10.9

571%

Capital expenditure, US$m

9.8

8.1

21%

44.7

30.0

49%

Cash, US$m

3.5

8.6

-59%

3.5

17.8

-80%

Gross Debt, US$m

127.0

128.8

-1%

127.0

134.1

-5%

 

Table 2: Asset Level Financial Highlights


Q4 2018

Q3 2018

Δ

FY-2018

FY-2017

Δ



New Liberty








Gold production, oz

24,573

27,456

-11%

109,707

76,179

44%


Gold sold, oz

26,014

27,997

-7%

110,672

75,383

47%


Mining cost, US$/t

2.34

3.00

-22%

2.57

2.80

-8%


Processing cost, US$/t

24.11

23.29

4%

24.11

26.19

-8%


Operating cash costs* US$/oz sold

982

849

16%

862

918

-6%


All in sustaining costs US$/oz sold

1,246

1,113

12%

1,120

1,427

-22%


Average realised gold price, US$/oz

1,224

1,212

1%

1,268

1,264

0%


Youga








Gold production, oz

20,389

19,721

3%

110,751

2,845

-4%


Gold sold, oz

20,172

20,977

-4%

110,326

2,013

-1%


Mining cost, US$/t

2.14

1.93

11%

2.07

2.14

-3%


Processing cost, US$/t

17.14

20.71

-17%

18.94

20.51

-8%


Operating cash costs US$/oz sold

943

958

-2%

687

768

34%


All in sustaining costs US$/oz sold

1,069

1,113

-4%

888

913

17%


Average realised gold price, US$/oz

1,226

1,207

2%

1,282

1,262

2%


 

Analyst and Investor Call

The company will be hosting a conference call and webcast for investors and analysts on March 15, 2019 at 10:00 GMT .

The access details for the conference call are as follows:

Location

Phone Type

Phone Number

United Kingdom

Freephone

0800 358 9473

United Kingdom, Local

Local

+44 333 300 0804

United States

Freephone

+1 855 857 0686

United States, Local

Local

+1 631 913 1422

Canada

Freephone

+1 416 216 4189

Canada, Local

Local

+1 844 747 9618

 

Password:  65655176#

Webcast URL: https://event.on24.com/wcc/r/1959125-1/9AFAAEC1A7DFDC5836FE76852E5F2A17

The FS are appended to this announcement. The FS and the accompanying MD&A are available to review at the Company's website, www.avesoro.com and on www.sedar.com.

Non-GAAP Financial Measures

The Company has included certain non-GAAP financial measures in this press release, including operating cash costs, all-in sustaining costs ("AISC") per ounce of gold sold and net present value ("NPV"). These non-GAAP financial measures do not have any standardised meaning. Accordingly, these financial measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with International Financial Reporting Standards ("IFRS").

Operating cash costs and AISC are a common financial performance measure in the mining industry but have no standard definition under IFRS. Operating cash costs are reflective of the cost of production.

AISC include operating cash costs, net-smelter royalty, corporate costs, sustaining capital expenditure, sustaining exploration expenditure and capitalised stripping costs. The Company reports cash costs on an ounces of gold sold basis.

Other companies may calculate these measures differently and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Market Abuse Regulation (MAR) Disclosure

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

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 17Mt with 1,365,000 ounces of gold grading 2.49g/t and an estimated Measured and Indicated Mineral Resource of 20.47Mt with 1,748,200 ounces of gold grading 2.66g/t and an estimated Inferred Mineral Resource of 3.0Mt with 271,000 ounces of gold grading 2.8g/t. A supporting Technical Report summarising the PFS, prepared in accordance with the requirements of National Instrument 43-101 will be filed on SEDAR at www.sedar.com and on the Company's corporate website www.avesoro.com within 45 days of March 6, 2019 .

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.

Forward Looking Statements

Certain information contained in this press release constitutes forward looking information or forward-looking statements within the meaning of applicable securities laws. This information or statements may relate to future events, facts, or circumstances or the Company's future financial or operating performance or other future events or circumstances. All information other than historical fact is forward looking information and involves known and unknown risks, uncertainties and other factors which may cause the actual results or performance to be materially different from any future results, performance, events or circumstances expressed or implied by such forward-looking statements or information. Such statements can be identified by the use of words such as "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "would", "project", "should", "believe", "target", "predict" and "potential". No assurance can be given that this information will prove to be correct and such forward looking information included in this press release should not be unduly relied upon. Forward looking information and statements speak only as of the date of this press release.

Forward looking statements or information in this press release include, among other things, statements regarding 2019 production of 210,000 to 230,000 ounces of gold and operating cost guidance of US$850 to US$910 per ounce sold, all-in-sustaining cash costs of US$1,100 to US$1,190 per ounce sold, a seven year life of mine extension at New Liberty, total forecast gold recovery of 1.26 million ounces and a post-tax NPV of US$286 million at New Liberty, and an announcement of new mineral reserves at Youga in Q2 2019.

This release also contains references to estimates of Mineral Resources and Mineral Reserves. The estimation of Mineral Resources and Mineral Reserves is inherently uncertain and involves subjective judgments about many relevant factors. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. The accuracy of any such estimates is a function of the quantity and quality of available data, and of the assumptions made and judgments used in engineering and geological interpretation (including estimated future production, the anticipated tonnages and grades that will be mined and the estimated level of recovery that will be realized), which may prove to be unreliable and depend, to a certain extent, upon the analysis of drilling results and statistical inferences that may ultimately prove to be inaccurate. Mineral Resource or Mineral Reserve estimates may have to be re-estimated based on: (i) fluctuations in the gold price; (ii) results of drilling, (iii) the results of metallurgical testing and other studies, including their subsequent refinement and updating; (iv) proposed mining operations, including dilution; (v) the evaluation of mine plans subsequent to the date of any estimates; (vi) changes in mining or other costs, and (vii) the possible failure to receive required permits, approvals and licenses or changes to existing mining licences.

In making the forward looking information or statements contained in this press release, assumptions have been made regarding, among other things: general business, economic and mining industry conditions; interest rates and foreign exchange rates; the continuing accuracy of Mineral Resource and Reserve estimates; geological and metallurgical conditions (including with respect to the size, grade and recoverability of Mineral Resources and Reserves) and cost estimates on which the Mineral Resource and Reserve estimates are based; the supply and demand for commodities and precious and base metals and the level and volatility of the prices of gold; market competition; the ability of the Company to raise sufficient funds from capital markets and/or debt to meet its future obligations and planned activities and that unforeseen events do not impact the ability of the Company to use existing funds to fund future plans and projects as currently contemplated; the stability and predictability of the political environments and legal and regulatory frameworks including with respect to, among other things, the ability of the Company to obtain, maintain, renew and/or extend required permits, licences, authorizations and/or approvals from the appropriate regulatory authorities; that contractual counterparties perform as agreed; and the ability of the Company to continue to obtain qualified staff and equipment in a timely and cost-efficient manner to meet its demand.

Actual results could differ materially from those anticipated in the forward-looking information or statements contained in this press release as a result of risks and uncertainties (both foreseen and unforeseen) and should not be read as guarantees of future performance or results and will not necessarily be accurate indicators of whether or not such results will be achieved. These risks and uncertainties include the risks normally incidental to exploration and development of mineral projects and the conduct of mining operations (including exploration failure, cost overruns or increases, and operational difficulties resulting from plant or equipment failure, among others); the inability of the Company to obtain required financing when needed and/or on acceptable terms or at all; risks related to operating in West Africa , including potentially more limited infrastructure and/or less developed legal and regulatory regimes; health risks associated with the mining workforce in West Africa ; risks related to the Company's title to its mineral properties; the risk of adverse changes in commodity prices; the risk that the Company's exploration for and development of mineral deposits may not be successful; the inability of the Company to obtain, maintain, renew and/or extend required licences, permits, authorizations and/or approvals from the appropriate regulatory authorities and other risks relating to the legal and regulatory frameworks in jurisdictions where the Company operates, including adverse or arbitrary changes in applicable laws or regulations or in their enforcement; competitive conditions in the mineral exploration and mining industry; risks related to obtaining insurance or adequate levels of insurance for the Company's operations; that Mineral Resource and Reserve estimates are only estimates and actual metal produced may be less than estimated in a Mineral Resource or Reserve estimate; the risk that the Company will be unable to delineate additional Mineral Resources; risks related to environmental regulations and cost of compliance, as well as costs associated with possible breaches of such regulations; uncertainties in the interpretation of results from drilling; risks related to the tax residency of the Company; the possibility that future exploration, development or mining results will not be consistent with expectations; the risk of delays in construction resulting from, among others, the failure to obtain materials in a timely manner or on a delayed schedule; inflation pressures which may increase the cost of production or of consumables beyond what is estimated in studies and forecasts; changes in exchange and interest rates; risks related to the activities of artisanal miners, whose activities could delay or hinder exploration or mining operations; the risk that third parties to contracts may not perform as contracted or may breach their agreements; the risk that plant, equipment or labour may not be available at a reasonable cost or at all, or cease to be available, or in the case of labour, may undertake strike or other labour actions; the inability to attract and retain key management and personnel; and the risk of political uncertainty, terrorism, civil strife, or war in the jurisdictions in which the Company operates, or in neighbouring jurisdictions which could impact on the Company's exploration, development and operating activities.

Although the forward-looking statements contained in this press release are based upon what management believes are reasonable assumptions, the Company cannot provide assurance that actual results or performance will be consistent with these forward-looking statements. The forward looking information and statements included in this press release are expressly qualified by this cautionary statement and are made only as of the date of this press release. The Company does not undertake any obligation to publicly update or revise any forward looking information except as required by applicable securities laws.


Avesoro Resources Inc.
C
onsolidated Financial Statements
Years ended December 31, 2018 and 2017

Registered office:

Suite 3800


Royal Bank Plaza, South Tower


200 Bay Street


Toronto


Ontario M5J 2Z4


Canada



Company registration number:

776831-1

 

Independent Auditor's Report

To the Shareholders of Avesoro Resources Inc.

Opinion

We have audited the consolidated financial statements of Avesoro Resources Inc and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2018 and 2017, and the consolidated statement of income and comprehensive income, consolidated statement of cash flows and consolidated statement of changes in equity for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRSs) as issued by IASB.

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada , and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Information

Management is responsible for the other information. The other information comprises the information included in the Management's Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained the Management Discussion and Analysis prior to the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor's report. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

  • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
  • Obtain an understanding of internal control relevant to the audit 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 Group's internal control.
  • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
  • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
  • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
  • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.


We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement partner on the audit resulting in this independent auditor's report is Matt Crane .

BDO LLP
Chartered Accountants

London, UK
March 13, 2019

Avesoro Resources Inc.
Consolidated Statement of Income and Comprehensive Income
For the years ended December 31, 2018 and 2017
(stated in US dollars)



Year ended
December 31,
2018

Year ended
December 31,
2017


$'000

$'000





Revenues (Note 5)


282,798

97,786





Cost of sales




- Production costs (Note 5)


(185,261)

(73,494)

- Depreciation (Note 5)


(74,567)

(32,248)





Gross profit/(loss)


22,970

(7,956)





Expenses




Administrative and other expenses (Note 6)


(8,868)

(5,588)

Exploration and evaluation costs (Note 12)


(12,958)

(2,958)

(Loss)/gain on lease termination (Note11)


(566)

3,988

Impairment of property, plant and equipment (Note 11)


-

(2,876)





Profit/(Loss) from operations


578

(15,390)





Derivative liability gain


105

-

Foreign exchange loss


(2,108)

(78)

Finance costs


(15,504)

(11,812)

Finance income


500

16





Loss before tax


(16,429)

(27,264)





Tax for the year (Note 7)


(10,433)

(143)





Net loss for the year


(26,862)

(27,407)

Attributable to:




- Owners of the Company


(29,860)

(27,474)

- Non-controlling interest (Note 20)


2,998

67





Other comprehensive income/(loss)

Items that may be reclassified subsequently to profit or loss:




- Currency translation differences


10

(66)

Items that will not be reclassified to profit or loss:




- Change in fair value through other comprehensive income (Note 13)


22

(34)





Total comprehensive loss for the year


(26,830)

(27,507)

Attributable to:




- Owners of the Company


(29,828)

(27,574)

- Non-controlling interest


2,998

67





Loss per share, basic and diluted (US$) (Note 19)


(0.37)

(0.51)

 

The accompanying notes are an integral part of these consolidated financial statements.

Avesoro Resources Inc.
Consolidated Statement of Financial Position
As at December 31, 2018 and 2017
(stated in US dollars)



December 31,

2018

$'000

December 31,

2017

$'000

Assets




Current assets




Cash and cash equivalents


3,522

17,787

Trade and other receivables (Note 8)


23,759

25,286

Inventories (Note 9)


45,850

36,932

Other assets (Note 10)


1,731

1,710



74,862

81,715

Non-current assets




Property, plant and equipment (Note 11)


224,953

249,552

Intangible assets – exploration and evaluation (Note 12)


6,452

-

Fair value through other comprehensive income investments (Note 13)


-

21

Deferred tax asset (Note 7)


2,585

4,554

Other assets (Note 10)


1,236

1,196



235,226

255,323

Total assets


310,088

337,038





Liabilities




Current liabilities




Borrowings (Note 14)


17,663

37,964

Trade and other payables (Note 15)


65,909

41,003

Income tax payable (Note 7)


4,333

12,358

Finance lease liability (Note 16)


975

1,913

Derivative liability


-

105

Provision (Note 17)


3,276

523



92,156

93,866

Non-current liabilities




Borrowings (Note 14)


106,137

101,335

Trade and other payables (Note 15)


-

463

Finance lease liability (Note 16)


2,259

5,875

Provision (Note 17)


10,939

10,439



119,335

118,112



211,491

211,978





Equity




Share capital (Note 18b)


353,686

353,653

Capital contribution


55,434

54,022

Share based payment reserve (Note 18c)


8,987

7,840

Acquisition reserve (Note 4)


(33,060)

(33,060)

Equity investment reserve (Note 13)


-

(487)

Cumulative translation reserve


(456)

(466)

Deficit


(289,631)

(260,156)

Equity attributable to owners


94,960

121,346

Non-controlling interest


3,637

3,714

Total equity


98,597

125,060

Total liabilities and equity


310,088

337,038

       

The accompanying notes are an integral part of these consolidated financial statements.
Approved by the board of directors on March 13, 2019
"Geoffrey Eyre" (signed)
Director  

Avesoro Resources Inc.
Consolidated Statement of Cash Flows
For the years ended December 31, 2018 and 2017
(stated in US dollars)


Year ended
December 31,

2018

Year ended
December 31,

2017


$'000

$'000

Operating activities



Loss for the year

(26,862)

(27,407)

Income tax

10,433

143

Loss before tax

(16,429)

(27,264)

   Items not affecting cash:



     Share-based payments (Note 6)

1,147

1,070

     Depreciation (Note 11)

74,813

32,765

     Unrealized foreign exchange loss/(gain)

642

(31)

     Derivative liability gain

(105)

-

     Finance cost

15,504

11,812

     Loss/(gain) on lease termination (Note 11)

566

(3,988)

     Increase in legal and provisions (Note 17)

2,753

-

     Provision for inventory obsolescence (Note 9)

714

-

     (Reversal of) write-down of inventories (Note 9)

(1,286)

2,900

     Impairment of property, plant and equipment (Note 11)

-

2,876

   Decrease in trade and other receivables

1,527

655

   Increase/(decrease) in trade and other payables

18,645

(2,036)

   Increase in inventories

(8,346)

(7,791)

Income tax paid

(16,995)

-

Cash flows from operating activities

73,150

10,968




Investing activities



Payments to acquire property, plant and equipment

(38,238)

(30,061)

Payments for intangible - exploration and evaluation assets

(6,452)

-

Payments in respect of other assets

(60)

(546)

Proceeds from sale of investment

44

-

Acquisition of Youga Gold Mine and Balogo satellite deposit (Note 4)

-

(4,336)

Cash flows used in investing activities

(44,706)

(34,943)




Financing activities



Proceeds from shareholder loan (Note 14b)

21,850

18,800

Repayments of shareholder loan (Note 14b)

(17,815)

-

Net repayment of bank borrowings (Note 14a)

(26,000)

(168)

Repayment of related party loans

(4,790)

-

Repayment of finance leases

(942)

-

Finance costs paid

(11,693)

(8,987)

Dividend payments to non-controlling interest (Note 20)

(3,075)

-

Exercise of stock options (Note 18b)

33

8

Net proceeds from issue of common shares (Note 18b)

-

18,680

Cash flows from financing activities

(42,432)

28,333




Impact of foreign exchange on cash balance

(277)

-

Net increase in cash and cash equivalents

(14,265)

4,358

Cash and cash equivalents at beginning of year

17,787

13,429

Cash and cash equivalents at end of year

3,522

17,787

 

The significant non-cash transactions during the year ended December 31, 2018 and 2017 are disclosed in Note 25.
The accompanying notes are an integral part of these consolidated financial statements.

Avesoro Resources Inc.
Consolidated Statement of Changes in Equity
As at December 31, 2018 and 2017
(stated in US dollars)


Total Equity Attributable to Owners




Share
capital

Capital
contribution

Share-
based
payment
reserve

Acquisition

reserve

Equity
investment

reserve

Cumulative
translation
reserve

Deficit

Total

Non-
controlling interest

Total 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 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 14b,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

Change in accounting policy (Note 3.2)

-

-

-

-

-

-

850

850

-

850

Balance at January 1, 2018

353,653

54,022

7,840

(33,060)

(487)

(466)

(259,306)

122,196

3,714

125,910

Loss for the year

-

-

-

-

-

-

(29,860)

(29,860)

2,998

(26,862)

Other comprehensive loss for year

-

-

-

-

22

10

-

32

-

32

Total comprehensive loss for year

-

-

-

-

22

10

(29,860)

(29,828)

2,998

(26,830)

Share-based payments (Note 6)

-

-

1,147

-

-

-

-

1,147

-

1,147

Exercise of stock options

33

-

-

-

-

-

-

33

-

33

Related party loans (Note 14b,c)

-

4,276

-

-

-

-

-

4,276

-

4,276

Repayment of related party loans (Note 14b,c)

-

(2,864)

-

-

-

-

-

(2,864)

-

(2,864)

Reserve transfer on sale of investment (Note 13)

-

-

-

-

465

-

(465)

-

-

-

Dividends paid to non-controlling interest

-

-

-

-

-

-

-

-

(3,075)

(3,075)

Balance at December 31, 2018

353,686

55,434

8,987

(33,060)

-

(456)

(289,631)

94,960

3,637

98,597


The accompanying notes are an integral part of these consolidated financial statements.

 


Avesoro Resources Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(in US dollars unless otherwise stated)

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 Gold Mine 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, 2018 , the Company had cash and cash equivalents of $3.5 million , net current liabilities of $17.2 million and debt and interest repayments of $24.6 million during 2019.   

The free cash flow generation of the Company significantly improved following the acquisition of the Youga Gold Mine and the Balogo satellite deposit in December 2017 (Note 4) and the continuing improvement of mining operations at New Liberty.  Accordingly, the Company expects to meet its current liabilities through its cash generation capacity. 

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 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.

3.1        Basis of preparation

The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB").  The consolidated financial statements have been prepared on a historical cost basis, as adjusted for certain financial instruments carried at fair value through profit and loss and other comprehensive income.

3.2        New accounting standards adopted

The Company adopted the following revised or new IFRS standards that have been issued effective January 1 , 2018.  The impact of the standards on the Company's accounting policies and financial statements is discussed below:

IFRS 9, Financial Instruments introduced new requirements for the recognition, classification and measurement of financial assets and liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.  IFRS 9 replaced the multiple classification and measurement models for financial assets that existed under IAS 39 Financial Instruments, and the basis on which financial assets are measured will determine their classification as either, at amortized cost, fair value through profit and loss, or fair value through other comprehensive income.

The Company's principal financial assets comprise long and short-term loans, cash, restricted cash as well as trade and other receivables. All of these financial assets continue to be classified and measured at amortised cost. The Company's principal financial liabilities comprise trade and other payables, loans and borrowings and finance leases.  All of these financial liabilities continue to be classified and measured at amortised cost.

As discussed in Note 14(a), the Company renegotiated some of the terms and conditions of its bank loans which did not result in derecognition of the loans as the revised terms were neither qualitatively nor quantitatively different from the original terms. The Company accounted for this under IAS 39 by calculating a new effective interest rate so as to spread the revised cash flows of the modified loans over its revised term such that no gain or loss was recognised as part of the modification. 

In accordance with the requirements of IFRS 9, it is not appropriate to revise the original effective interest rate and instead the modified cash flows must be discounted at the original effective interest rate of the pre-modified loans.  This would have resulted in the recognition of an immediate gain in the profit or loss at the date of the modification of $0.9 million . As the Company has chosen not to restate comparatives in adopting IFRS 9, it has recognised an adjustment of $0.9 million to reduce non-current borrowings and a corresponding credit to the deficit account in equity of $0.9 million as at January 1, 2018 .

The Company's equity investment in Stellar Diamonds plc classified as available-for-sale was reclassified as an investment held at fair value with gains or losses recognised in other comprehensive income.  Upon disposal the cumulative change in fair value on disposal of the investment is to be reclassified to retained earnings and not recycled to the income statement. 

The adoption of IFRS 9 has changed the Company's accounting for impairment losses for financial assets by replacing IAS 39's incurred loss approach with a forward-looking expected credit loss approach.  IFRS 9 requires the Company to measure and recognise expected credit losses on all applicable financial assets. The level of credit risk that the Company is exposed to has not given rise to material allowances within the expected credit loss model. The adoption of the new standard has not had a material impact on the modification of the loans in the prior period.

The adoption of IFRS 9 has no other material impact on the consolidated financial statements. 

IFRS 15, Revenue from Contracts with Customers provides that an entity should recognize revenue to depict the transfer of goods to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods.  Specifically, IFRS 15 introduces a five-step approach to revenue recognition with an entity recognising revenues when a performance obligation is satisfied, which is when "control" of the goods has transferred to the customer. Upon evaluating the transfer of control, the Company concluded there is no material change in the timing of revenue recognised under the new standard. The point of transfer of risks and rewards for goods and services under IAS 18 compared to the transfer of control under IFRS 15 occur at the same time based on contractual terms, the delivery of gold doré. For the purposes of evaluating variable consideration, the Company reviewed historical assay results and adjustments.  

These factors were considered in concluding that the adoption of this standard has not had a material effect on the Company's existing revenue recognition policy.

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 Company's accounting periods beginning on or after January 1, 2019 or later periods have not been adopted early: 

Standard

Detail

Effective date

IFRS 16

Leases

January 1, 2019

 

The new standard was issued in January 2016 replacing the previous leases standard, IAS 17 Leases, and related Interpretations. IFRS 16 establishes the principles for the recognition, measurement, presentation and disclosure of leases for the customer ('lessee') and the supplier ('lessor'). IFRS 16 eliminates the classification of leases as either operating or finance as is required by IAS 17 and, instead, introduces a single lessee accounting model requiring a lessee to recognise assets and liabilities for all leases unless the underlying asset has a low value or the lease term is twelve months or less. This new standard applies to annual reporting periods beginning on or after 1 January 2019 . The Company has reviewed its arrangements in place and has concluded that the adoption of this standard is not expected to have a material impact in the future periods.

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.

The 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, 2018 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 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 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 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 profit/loss from operations.

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 reserve

Fair value of share-based payments vested

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

Equity investment reserve

Cumulative changes in fair value through other comprehensive income investments

Cumulative translation reserve

Exchange differences arising on translation of non-US dollar functional currency subsidiaries

Cumulative deficit

Amount of cumulative net gains and losses recognised on the consolidated statement of income

Non-controlling interest

Represents the 10% share in BMC and NMC owned by the Government of Burkina Faso

 

3.7  Exploration costs

Exploration and evaluation costs include acquisition of rights to explore, studies, exploration drilling, trenching, sampling and associated activities.

Exploration and evaluation costs are expensed as incurred until a decision is taken that an exploration property is economically recoverable, after which subsequent expenditures are capitalised as intangible assets.

Capitalised exploration and evaluation costs are transferred to mining and development costs on completion of the property's feasibility study.

3.8  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:

 Mining properties

Units-of-production

 Machinery and equipment

3-4 years

 Vehicles

5 years

 Mining equipment

5-10 years

 Leasehold improvements

Term of the lease


Only proven and probable reserves are used in the units-of-production depreciation calculation.  The unit of production can be on a tonne or an ounce depleted basis.

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. 

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.


 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.

All recognised financial assets are measured subsequently in their entirety at either amortised cost, fair value through other comprehensive income and fair value through profit and loss, depending on the classification of the financial assets.

Classification of financial assets

Financial assets that meet the following conditions are measured subsequently at amortised cost using effective interest rate method:

  • The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and,
  • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.


The Company held financial assets that meet conditions for subsequent recognition at fair value through other comprehensive income ("FVTOCI").

Financial assets at fair value through other comprehensive income

Financial assets at FVTOCI include equity securities which are not held for trading, and which the Company has irrevocably elected at initial recognition to recognise in this category.

On disposal of these equity investments, any related balance within the FVTOCI or equity investment reserve is reclassified to retained earnings. In the prior financial year, the Company had designated equity investments as available-for-sale where management intended to hold them for the medium to long-term. Note 3.2 explains the change of accounting policy and the reclassification of equity investments from available-for-sale investments to FVTOCI investments.

Impairment of financial assets at amortised cost

The Company recognises a loss allowance for expected credit losses ("ECL") on financial assets that are measured at amortised cost which comprise mainly trade receivables, related party and other receivables. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. The Company always recognises lifetime ECL on financial assets. The expected credit losses on these financial assets are estimated using a provision matrix based on the Company's historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate.

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.

Restricted cash are those amounts held by third parties on behalf of the Company and are not available for the Company's use; these are accounted for separately from cash and cash equivalents.

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

Financial liabilities are classified according to the substance of the contractual arrangements entered into.

The classification of financial liabilities at initial recognition depends on the purpose for which the financial liability was issued and its characteristics. All purchases of financial liabilities are recorded on trade date, being the date on which the Company becomes party to the contractual requirements of the financial liability.

The Company's financial liabilities consist of financial liabilities measured at amortised cost and financial liabilities at fair value through profit or loss.

Financial liabilities measured at amortised cost

The Company's financial liabilities measured at amortised cost comprise of borrowings, finance leases, trade and other payables and accruals.  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.

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.

Derecognition of financial liabilities

The Company derecognises financial liabilities when, and only when, the Company's obligations are discharged, cancelled or they expire.

When the Company determines a non-substantial modification of a financial liability, a gain or loss is recognised in the profit or loss equal to the difference between the present value of the cash flows under the original and modified terms discounted at the original effective interest rate ("OEIR").  At the point of modification, the carrying amount of the financial liability is revised to reflect the new cash flows discounted by the OEIR as well as directly attributable transaction costs and any cash paid or received from the counterparty.  The effective interest rate is then adjusted to amortise the difference between the revised carrying amount and the expected cash flows over the life of the modified instrument.

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.

3.11      Non-financial assets

The Company recognises certain assets which do not result from contractual arrangement, but by statute, such as value added tax ("VAT").  The Company derecognises its asset where the rights under statute expire, or the Company transfers substantially all the risks and rewards of ownership of the asset.  Any interests in transferred financial assets that are created or continuously retained by the Company are recognised as a separate asset or liability.

3.12      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 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.

3.13      Revenues

Gold sales

Revenue from sales of gold is recognised when the Company has transferred control to the customer at an amount that reflects the consideration to which the Company expects to receive in exchange for the product.  Control is transferred when gold doré leaves the gold room with the appropriate required documentation, unless a return of physical metal is requested in advance.  When the performance obligation is satisfied, gold sales is recognised based on the gold spot price at the time of sale and the most recently determined estimate of product specifications.  There are no significant judgments applied to the determination of gold sales.

Other revenues

The Company provides technical and support services to MNG Gold Liberia Inc., a subsidiary of AJL, with revenue billed on a cost-plus basis and recognized typically on an over time basis.

The Company acts as an agent to MNG Gold Liberia Inc. and Faso Drilling Company, subsidiaries of AJL, for the procurement, shipping and handling of plant and mining consumables.  Revenues are presented as amounts billed, net of the relevant costs.

3.14      Cost of sales

Cost of sales consists of production costs and depreciation of mining assets.

Production costs include mine operating expenses (such as staff costs, fuel, consumables, maintenance and repairs, general and administrative costs), third-party smelting, refining and transport fees, royalties, changes in inventories for the period including any write-down to reduce inventories to net realisable value.  Cost of sales is based on average costing for contained or recoverable ounces sold for the period.

3.15      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.

3.16      Inventories

Consumables are stated at the lower of cost or net realisable value.  The cost of consumables includes expenditure incurred in acquiring inventories and bringing them to their existing location and condition.

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. 

Reversals of impairments are recognised when previously impaired inventories are determined to be economic to process.

3.17      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.

3.18      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 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.

3.19      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.

3.20      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, the charge is recognised in profit or loss 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.

3.21      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.

3.23      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 Youga 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.

Capitalisation of waste stripping

Capitalisation of waste stripping requires the Company to make judgments and rely on estimates in determining the amounts to be capitalised, which include the expected stripping ratio during the life of an ore body, the determination of the lowest level of components of an ore body and the expected number of ounces to be extracted from an ore body.

During the year ended December 31, 2018 , Management considered the commencement of the pre-feasibility studies on the underground mine at New Liberty and the viability of transporting ore from the Ndablama satellite deposit to New Liberty processing plant as a trigger to change the level at which to capitalise waste stripping.  The change in estimate was accounted for prospectively from October 1 , 2018.  Previously, the Company allocated waste stripping between production costs and capital based on the various pits at New Liberty only.

The impact of the change in estimate on the three months ended December 31, 2018 was to reduce the stripping asset by $3.6 million and reduce depreciation charge by $5.0 million , resulting in a net credit to the profit and loss of $1.4 million .  It is expected that the overall capitalisation of waste stripping will reduce in the future, assuming all other things remain constant, but this cannot be reliably estimated as it is dependent on actual ore and waste mined.

Reserve estimates

The Company 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 capitalised stripping costs, 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.     

Fair value measurement

A number of assets and liabilities included in the consolidated financial statements require measurement at, and/or disclosure of, fair value. The fair value measurement of  financial  and  non-financial  assets  and  liabilities utilises market observable inputs and data as far as possible.  Inputs used in determining fair  value  measurements  are  categorised  into  different  levels  based  on  how observable the inputs used in the valuation technique utilised are (the 'fair value hierarchy'):

  • Level 1: Quoted prices in active markets for identical items (unadjusted);
  • Level 2: Observable direct or indirect inputs other than Level 1 inputs; and
  • Level 3: Unobservable inputs (i.e. not derived from market data).


The fair value measurement of equity investments, certain borrowings and derivative liability are disclosed in Notes 13, 14 and 17, respectively.

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 recoverable, 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.

Capitalised exploration and evaluation costs are transferred to mining and development costs on completion of the property's feasibility study.

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 consolidated financial statements of future periods could be significant.

4.         Acquisition of Youga Gold Mine and Balogo satellite deposit

On December 18, 2017 the Company completed the acquisition of the Youga Gold Mine and the Balogo satellite deposit in Burkina Faso 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 comprised of the issuance of $51.5 million of new common shares in the Company and a cash component of $18.7 million .

The acquisition of the Youga Gold Mine and the Balogo satellite deposit provided 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 14(b))

(8,106)

Income tax payable (Note 7)

(12,215)

Provisions (Note 18)

(8,000)

Total identifiable net assets

40,776

Non-controlling interest (Note 20)

(3,647)

Acquisition reserve

33,060


70,189

Fair value of consideration


Cash paid

18,730

Shares issued (Note 19b)

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 consolidated statement of comprehensive income for the year ended December 31, 2017 .

The results of Youga Gold Mine and Balogo satellite deposit are included within the consolidated statement of comprehensive 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 Gold Mine and Balogo satellite deposit;
  • Exploration; and
  • Corporate.


Following is an analysis of the Company's results, assets and liabilities by reportable segment for the year ended December 31, 2018 :


 New Liberty
operations

Burkina
operations

 

Exploration

Corporate

Total


$'000

$'000

$'000

$'000

$'000

Net income/(loss) for the year

(40,279)

33,352

(12,596)

(7,339)

(26,862)

Revenues

140,279

141,436

-

1,083

282,798

Production costs






- Mine operating costs

98,315

82,523

-

300

181,138

- Change in inventories

1,680

2,443

-

-

4,123


99,995

84,966

-

300

185,261

Depreciation

64,700

9,867

-

246

74,813







Segment assets

215,535

79,010

9,707

5,836

310,088

Segment liabilities

(160,181)

(42,103)

(5,759)

(3,450)

(211,493)

Capital additions and acquisitions

– property, plant and equipment

 

 

41,447

 

 

12,457

 

 

-

 

 

-

 

 

53,904

– intangible assets

-

-

8,234

-

8,234

 

The Group derived revenues at a point in time in the following revenue streams and geographical markets for the year ended December 31, 2018 :


 New Liberty
operations

Burkina
operations

 

Exploration

Corporate

Total


$'000

$'000

$'000

$'000

$'000

Gold sales (Switzerland)

140,279

141,436

-

-

281,715

Agency sales (Turkey)

-

-

-

627

627

Services fee (Liberia)

-

-

-

456

456


140,279

141,436

-

1,083

282,798

 

Following is an analysis of the Company's results, assets and liabilities by reportable segment for the year ended December 31, 2017 :


 New Liberty
operations

Burkina
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)

Revenues

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

(152,409)

(49,388)

(4,196)

(777)

(206,770)

Capital additions and acquisitions

– property, plant and equipment

 

 

 

55,868

 

 

 

38,191

 

 

 

-

 

 

 

-

 

 

 

94,059

 

The Group derived revenues at a point in time in the following revenue streams and geographical markets for the year ended December 31, 2017 :


 New Liberty
operations

Burkina
operations

 

Exploration

Corporate

Total


$'000

$'000

$'000

$'000

$'000

Gold sales (Switzerland)

95,246

2,540

-

-

97,786

 

6.     Administrative and other expenses


  Year ended
December 31,
2018

  Year ended
December 31,
2017


$'000

$'000

Wages and salaries

2,557

1,693

Legal and professional

1,788

1,548

Depreciation of non-mining assets

246

17

Share based payments

1,147

1,070

Withholding taxes on dividends received

1,758

-

Other expenses

1,372

1,260


8,868

5,588

 

7.     Income taxes


Year ended

December 31,

2018

Year ended

December 31,

2017


$'000

$'000

Current tax

8,448

143

Deferred tax

1,985

-


10,433

143

 

The analysis of the Company's income tax charge for the year based on the Company's statutory tax rate of 26.5% is as follows:


Year ended

December 31,

                2018

Year ended

December 31,

               2017


$'000

$'000

Loss before tax

(16,429)

(27,264)




Tax recovery at the Canadian corporation tax rate of 26.5%

(4,354)

(7,225)

Effect of different tax rates of subsidiaries operating in  other jurisdictions

(922)

345

Non-deductible expenses

2,187

1,048

Non-taxable gains

-

(997)

Tax losses not utilised and carried forward

11,454

7,219

Adjustment to prior year taxes

218

-

Other

(135)

(247)


8,448

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 31,

2018

December 31,

2017


$'000

$'000

Deferred tax assets arising from:



Capital allowances

1,061

3,203

Other temporary differences

1,524

1,351


2,585

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. 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 tax asset at December 31, 2018 is $137.5 million (2017: $107.9 million ) based on a carried forward tax losses asset of $82.2 million (2017: $51.1 million ) which expires between 2022 and 2038 and capital allowances of $55.3 million (2017: $56.8 million ) which have no expiry date.

The movement in income tax payable during the year comprises of:


December 31,

2018

December 31,

2017


$'000

$'000

Opening balance

12,358

-

Current tax charge for the year

8,448

143

Payments

(16,995)

-

Assumed during the year (Note 4)

-

12,215

Foreign exchange

522

-

Closing balance

4,333

12,358

 

8.   Trade and other receivables


December 31,

2018

December 31,

2017


$'000

$'000

Trade receivable

165

416

Other receivables

11,557

10,690

Due from related parties (Note 21)

3,350

1,015

Pre-payments

8,687

13,165


23,759

25,286

 

In December 2018 , the Company entered into a factoring agreement with a regional bank in Burkina Faso ("Regional Bank") whereby the Regional Bank advances to the Company 93% of the face value of a portion of the Company's VAT receivable from the Burkina Faso Government.  The face value of the factored VAT receivable was $6.9 million . 

Other receivables include the financial asset as described above of $6.4 million (2017: $nil) and VAT receivable from the Burkina Faso Government of $3.1 million as at December 31, 2018 (2017: $8.9 million ).

9.   Inventories


  December 31,
2018

  December 31
, 2017


$'000

$'000

Gold dore

2,299

3,986

Gold in circuit

3,969

2,561

Ore stockpiles

3,849

6,688

Consumables

35,733

23,697


45,850

36,932

 

Ore stockpiles as at December 31, 2018 are stated at their net realisable values after cumulative write-down at New Liberty of $1.6 million (2017: $2.9 million ) and a provision for obsolescence of consumables at Youga of $0.7 million (2017: $nil).    

10.    Other assets


December 31,

2018

December 31,

2017


$'000

$'000

Current



Deposit to supplier

1,255

662

Surety deposit

-

400

Other deposits

476

648


1,731

1,710

Non-current



Asset retirement obligation deposit (Note 17)

560

517

Other deposits

676

679


1,236

1,196


 

11.          Property, plant and equipment


Mining assets

Stripping asset

Mine closure
and rehabilitation

Assets held
under finance lease

Machinery and equipment

Vehicles

Leasehold 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 (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

Additions

6,736

14,957

756

1,232

29,707

516

-

53,904

Transfer from intangible assets (Note 12)

1,782

-

-

-

-

-

-

1,782

Disposals

-

-

-

(7,000)

(1,034)

(335)

-

(8,369)

At December 31, 2018

217,025

31,186

6,968

5,990

103,466

3,273

86

367,994

Accumulated depreciation









At January 1, 2017

14,909

-

116

651

1,622

1,020

66

18,384

Charge for the year

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

Charge for the year

37,618

17,017

1,026

1,265

17,343

544

-

74,813

Disposals

-

-

-

(1,528)

(1,034)

(335)

-

(2,897)

At December 31, 2018

89,723

18,855

3,316

2,301

27,189

1,571

86

143,041










Net book value









At December 31, 2017

156,402

14,391

3,922

9,194

63,913

1,730

-

249,552

At December 31, 2018

127,302

12,331

3,652

3,689

76,277

1,702

-

224,953


 

Stripping asset

During the year ended December 31, 2018 , Management considered the commencement of the pre-feasibility studies on the underground mine at New Liberty and the viability of transporting ore from the Ndablama satellite deposit to New Liberty processing plant as a trigger to change the level at which to capitalise waste stripping.  The change in estimate was accounted for prospectively from October 1 , 2018.  Previously, the Company allocated waste stripping between production costs and capital based on the various pits at New Liberty only.

The impact of the change in estimate on the three months ended December 31, 2018 was to reduce the stripping asset by $3.6 million and reduce the depreciation charge by $5.0 million , resulting in a net credit to the profit and loss of $1.4 million .  It is expected that the overall capitalisation of waste stripping will reduce in the future, assuming all other things remain constant, but this cannot be reliably estimated as it is dependent on actual ore and waste mined.

Impairment of non-current assets

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.

Mining operations at New Liberty falling below plan 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.  Management determined that the recoverable amount of New Liberty exceeds the carrying value.

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, 2018 which showed an estimated life of eleven years (2017:four years) and was based on management's current best estimates, 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 (2017: $1,300 per ounce) based on observable market data including spot price and industry consensus; and
  • a pre-tax discount rate of 8.5% (2017: 8.5%) was applied to present value the net future cash flows. This rate reflects the current market rate assessment of the time value of money and the risks specific to CGU.


Management did not identify any indicator of impairment on the Burkina Faso CGU.

Termination of finance leases

During the year ended December 31, 2018 , the Company terminated the lease arrangement on the supply and maintenance of generators at New Liberty for no consideration.  The derecognition of the finance lease liability resulted in a loss of $0.6 million .

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.

12.       Intangible assets - Exploration and evaluation assets


December 31,

2018

December 31,

2017


$'000

$'000

Beginning of the year

-

-

Additions in the year

8,234

-

Transfer to property, plant and equipment (Note 11)

(1,782)

-

End of the year

6,452

-

 

Intangible assets as at December 31, 2018 are in respect of capitalised exploration and evaluation assets of Ouaré, located 36 kilometres north east of the Youga processing plant.  It is the subject of an infill drilling campaign to upgrade the confidence level and classification of the existing mineral resources.  Resource modelling and pit design shows that this satellite deposit will add further mine life to Youga.

The amounts transferred during the year ended December 31, 2018 relate to the exploration and evaluation costs on the Gassore East prospect following commencement of mining operations.

Exploration and evaluation costs charged to profit and loss arose from the following licence areas:


December 31,

2018

December 31,

2017


$'000

$'000

New Liberty Mineral Development Agreement licence

5,489

1,435

Youga exploitation permit

2,809

645

Balogo exploitation permit

2,606

97

Zerbogo/Songo

1,226

-

Others

828

781


12,958

2,958

 

13.       Fair value through other comprehensive income investments


December 31,

2018

December 31,

2017


$'000

$'000

Beginning of the year

21

55

Gain/(Loss) recognised in other comprehensive income

22

(34)

Sale of investment

(43)


End of the year

-

21

 

During the year ended December 31, 2018 , the Company fully sold its investment in shares of Stellar Diamonds plc for a consideration of $43,000 .  The cumulative change in fair value held as an equity investment reserve of $465,000 was transferred to the deficit account following the sale.

14.       Borrowings


  December 31,
2018

  December 31,
2017


$'000

$'000

Current



Bank loan - Senior Facility Tranche A

6,676

14,741

Bank loan - Senior Facility Tranche B

-

9,737

Shareholder loan

-

8,106

Related party loans

10,987

5,380


17,663

37,964

Non-current



Bank loan - Senior Facility Tranche A

51,801

58,668

Bank loan - Subordinated Facility

10,528

10,846

Working Capital Facility

23,142

14,938

Shareholder loan

3,985

-

Related party loans

16,681

16,883


106,137

101,335

 

(a)     Bank loans

On December 17, 2013 the Company entered into an agreement for an $88 million project finance loan facility (the "Senior Facility Tranche A") 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 ("Senior Facility Tranche B", together with Senior Facility Tranche A and the Subordinated Facility the "Loan Facilities") provided by the Lenders. 

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 extends the tenor of the Senior Facility Tranche A loan until January 31 , 2022.  Senior Facility Tranche A is charged an interest rate of LIBOR plus 1.8% until 2020, following which it will increase to LIBOR plus 4.3% and the Subordinated Facility is charged an interest rate of LIBOR plus 7.5%.

As discussed in Note 3.2, the Company adopted the requirements of IFRS 9 effective January 1, 2018 which would have resulted in the recognition of an immediate gain in the profit or loss at the date of the modification of $0.9 million . As the Company has chosen not to restate comparatives in adopting IFRS 9, it has recognised an adjustment of $0.9 million to reduce non-current borrowings and a corresponding credit to the deficit account in equity of $0.9 million as at January 1, 2018 .

Senior Facility Tranche A is secured by charges over the assets of BMMC and charges over the shares in BMMC.

These Loan Facilities, which have been fully drawn, financed the development of the Company's New Liberty Gold Mine.  $38.4 million of the Senior Facility has been repaid to date including $16 million of Senior Facility Tranche A and $10 million of Senior Facility Tranche B during the year ended December 31, 2018 .

(b)    Shareholder loan

Working Capital Facility


  December 31,
2018

  December 31,
2017


$'000

$'000

Beginning of the year

14,938

-

Fair value of new loans

17,947

14,277

Repayments

(10,801)

-

Interest charged

1,058

661

End of the year

23,142

14,938

 

During the year ended December 31, 2017 , AJL provided a $35 million Working Capital Facility to the Group 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 increased the 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 Group may draw down in multiple tranches at the Company's discretion before December 31, 2020 , with funds available for general working capital purposes.  The Working Capital Facility is due to be repaid in full no later than December 31, 2022 and has no early repayment penalty.    

The loan payable to AJL arising from the Working Capital Facility is recognised at fair value calculated as its present value at a market rate of interest of 8.95% and subsequently measured at amortised cost. The difference between fair value on initial recognition and loan amount is credited to equity as a capital contribution as the loan is from the Company's majority shareholder.

Gross proceeds of new tranches during the year ended December 31, 2018 was $21.9 million (2017: $18.8 million ) of which $3.9 million (2017: $4.5 million ) has been credited to capital contribution. Gross repayments during the year ended December 31, 2018 amounted to $13.7 million (2017: $nil) of which $2.9 million (2017: $nil) has been charged to capital contribution.

Shareholder loan

A loan payable to AJL of $8.1 million was assumed on acquisition of Youga Gold Mine and Balogo satellite deposit (see Note 4) of which $4.2 million was repaid during the year ended December 31, 2018 .

(c)     Related party loans


  December 31,
2018

  December 31,
2017


$'000

$'000

Beginning of the year

22,263

-

Fair value of new loans

9,916

21,981

Repayments

(6,466)

(168)

Interest charged

2,439

397

Unrealised foreign exchange

(484)

53

End of the year

27,668

22,263

 

Related party loans are in relation to finance facility agreements with Mapa İnşaat ve Ticaret A.Ş. ("Mapa"), a company controlled by Mehmet Nazif Gűnal, Non-Executive Chairman of the Company, to facilitate the purchase of heavy mining equipment at New Liberty. 

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 loans and 5.5% per annum on the Euro denominated loans. The loans are repayable in cash in eight equal semi-annual instalments, the first of which was due six months after utilisation of the loan.

Loans payable to Mapa are 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 on initial recognition and loan amount is credited to equity as a capital contribution from a related party.

Gross proceeds of new loans during the year ended December 31, 2018 was $10.3 million (2017: $23.3 million ) of which $0.4 million (2017: $1.3 million ) has been credited to capital contribution.  Principal repayments during the year ended December 31, 2018 amounted to $4.8 million (2017: $nil). 

15.       Trade and other payables


December 31,

2018

December 31,

2017


$'000

$'000

Current



Trade payables

48,662

27,649

Due to related parties (Note 21)

3,255

464

Accruals and other payables

13,992

12,890


65,909

41,003

Non-current



Trade payables

-

463

 

16.       Finance lease liability

Finance lease liability as at December 31, 2018 relates to heavy mining equipment and the fuel storage facility at New Liberty.  These 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 31,
2018

  December 31,
2017


$'000

$'000

Gross finance lease liability



-       Within one year

1,266

2,820

-       Between two and five years

2,539

7,191

-       After five years

-

-


3,805

10,011

Future finance cost

(571)

(2,223)

Present value of lease liability

3,234

7,788




Current portion

975

1,913

Non-current portion

2,259

5,875

 

As discussed in Note 11, the Company terminated the lease arrangement on the supply and maintenance of power generators at New Liberty during the year ended December 31 , 2018.  The derecognition of this finance lease resulted in a loss of $0.6 million recognised in the consolidated statement of comprehensive income.  The Company also cancelled certain finance leases of heavy mining equipment during the year ended December 31 , 2017.  The derecognition of those finance leases resulted in a gain of $4 million recognised in the consolidated statement of comprehensive income.

17.       Provision


  December 31,
2018

  December 31,
2017


$'000

$'000

Current



Legal provisions

1,931

395

Others

1,345

128


3,276

523

Non-current



Mine closure and rehabilitation provision

9,287

8,529

Provision for employee benefits

1,652

1,910


10,939

10,439

 


  December 31,
2018

  December 31,
2017


$'000

$'000

Current



Beginning of the year

523

-

Additions during the year

2,753

-

Assumed during the year (Note 4)

-

523

End of the year

3,276

523

 


  December 31,
2018

  December 31,
2017


$'000

$'000

Non-current



Beginning of the year

10,439

2,304

Change in estimates  

435

543

Assumed during the year (Note 4)

-

7,477

Accretion

65

115

End of the year

10,939

10,439

 

The estimated mine closure and rehabilitation costs are expected to be incurred at the end of the life of each mine.  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.

As at December 31, 2018 , a deposit of $0.6 million (2017: $0.5 million ) is held in escrow and accounted for other non-current assets to fund the rehabilitation costs of the Youga Gold Mine (see Note 10).

18.       Equity

(a)        Authorised

Unlimited number of common shares without par value.

 (b)       Issued


 Shares

 $'000

Balance at January 1, 2017

5,324,759,001

283,506

Issued to AJL on acquisition of Youga and Balogo (i)

2,033,492,822

51,459

Equity financing (i)

797,449,000

20,248

Share issuance costs (i)

-

(1,568)

Exercise of stock options (ii)

375,000

8

Balance at December 31, 2017

8,156,075,823

353,653

Effect of 100:1 share consolidation

(8,074,515,563)

-

Exercise of stock options (ii)

15,000

33

Balance at December 31, 2018

81,575,260

353,686

 

In December 2017 , the shareholders of the Company approved the 100:1 consolidation of the Company's issued and outstanding common shares which became effective on January 24, 2018 .

(i)   As discussed in Note 4, the Company acquired Youga Gold Mine and Balogo satellite deposit on December 18, 2017 for a total consideration of $70.2 million which comprises of the issuance of 2,033,492,822 new common shares in the Company at a price of GBP£1.90 per share and a cash component of $18.7 million .  The cash component was funded through the issuance of 797,449,000 at a price of GBP£1.90 per share through a private placing.  The directly attributable costs of issuance of these new shares amounted to $1.6 million .

(ii)  During the year ended December 31, 2018 the Company issued 15,000 new common shares (2017: 3,750) on exercise of 15,000 stock options (2017: 375,000) at a price of GBP£1.575 per stock option (2017: GBP£0.01575).

(c)         Stock options

Information relating to stock options outstanding at December 31, 2018 is as follows:



December 31,

2018


December 31,

2017


Number of

options

Weighted
average
exercise price
per share
Cdn$

Number of

options

Weighted
average
exercise price
per share

Cdn$

Beginning of the year

2,829,428

4.96

1,242,695

9.12

Options granted

1,681,000

2.68

1,745,000

3.41

Options exercised

(15,000)

2.66

(3,750)

2.66

Options expired

(13,362)

70.32

(5,570)

105.00

Options forfeited

(272,828)

3.55

(148,947)

17.86

Share consolidation adjustment

(5)

4.96

-

-

End of the year

4,209,233

3.94

2,829,428

4.96

 

The number of stock options and their respective exercise prices has been adjusted to reflect the 100:1 share consolidation as discussed in Note 18(b).

There were 1,183,660 stock options that have vested as at December 31, 2018 (2017: 512,025) with a weighted average exercise price of Cdn$3.31 (2017: Cdn$4.00 ).  The stock options have an expected life of five years with no performance obligations.  

The weighted average fair value of the 1,681,000 stock options granted in year ended December 31, 2018 (2017: 1,745,000 options) was estimated at US$0.45 per option (2017: US$0.95 ) at the grant date based on the Black-Scholes option-pricing model using the following assumptions:


Year ended

December 31,

2018

Year ended

December 31,

2017

Share price at grant date

GBP1.53-2.83

GBP1.95-2.53

Exercise price

GBP1.53-2.83

GBP1.95-2.53

Dividend yield

0%

0%

Risk free interest rate

0.90-1.10%

0.40-0.72%

Expected life

5 years

5 years

Expected volatility (based on historical volatility)

29-42%

34-90%

 

19.    Loss per share


Year ended
   December 31,

2018

Year ended
   December 31,

2017

Loss for the year attributable to owners of equity ($'000)

(29,860)

(27,474)

Weighted average number of common shares for the purposes of basic and diluted loss per share

81,564,000

54,256,004

Basic and diluted loss per share ($)

(0.37)

(0.51)

 

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.    Non-controlling interest

The composition of the non-controlling interests held by the Government of Burkina Faso is as follows:


Burkina Mining
Company

$'000

Netiana Mining
Company

$'000

 

Total

$'000

At January 1, 2017

-

-

-

Acquisition of Youga and Balogo (Note 4)

2,354

1,293

3,647

Share in net income/(loss)

(152)

219

67

At December 31, 2017

2,202

1,512

3,714

Share in net income

1,140

1,858

2,998

Dividend distribution

(1,673)

(1,402)

(3,075)

At December 31, 2018

1,669

1,968

3,637

 

The summarised information related to these subsidiaries before intra-group eliminations is as follows:


December 31, 2018

December 31, 2017


Burkina Mining
Company

$'000

Netiana Mining
Company

$'000

Burkina Mining
Company

$'000

Netiana Mining
Company

$'000

Statement of Financial Position





Current assets

40,318

26,672

40,522

30,958

Non-current assets

42,093

2,506

33,794

7,482

Total assets

82,411

29,178

74,316

38,440

Current liabilities

(56,467)

(11,275)

(40,488)

(17,758)

Non-current liabilities

(6,137)

(1,166)

(6,745)

(1,235)

Total liabilities

(62,604)

(12,441)

(47,233)

(18,993)






Statement of Comprehensive Income





Revenues

90,597

50,838

-

2,540

Net income/(loss) and total comprehensive income/(loss)

 

11,400

 

18,580

 

(1,520)

 

2,190

 

21.    Related party transactions

The following are the Company's related party transactions:

(a) Acquisition of Youga Gold Mine and Balogo satellite deposit (Note 4).

(b) Guarantee on the Loan Facilities (Note 14(a))

In exchange for the revised and improved conditions and rescheduled repayment terms of the Loan Facilities 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.

(c) Working Capital Facility with AJL (Note 14(b))

(d) Loans payable to Mapa (Note 14(c))

(e) Termination of mining services contract and acquisition of mining assets

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, 2018 is $1 million (2017: $1 million ). 

(f) Other provision/(purchases) of goods and services


Year ended

December 31,

2018

$'000

Year ended

December 31,

2017

$'000

 

Sale of consumables* by the Company to:

MNG Gold Liberia Inc., a subsidiary of Company's parent company

 

 

2,731

 

 

-

 

Technical and support staff services provided to:

MNG Gold Liberia Inc., a subsidiary of Company's parent company

 

 

454

 

 

-

 

Sale of consumables* by the Company to:

Faso Drilling Company SA., a subsidiary of Company's parent company

 

 

433

 

 

-

 

Drilling services provided to the Company by:

Faso Drilling Company SA., a subsidiary of Company's parent company

 

 

(6,822)

 

 

(742)

 

Drilling services provided to the Company by:

Zwedru Mining Inc., a subsidiary of Company's parent company

 

 

(3,302)

 

 

(899)

 

Charter plane services provided to the Company by:

MNG Gold Liberia Inc., a subsidiary of Company's parent company

 

 

(360)

 

 

(180)

 

Travel services provided to the Company by:

MNG Turizm ve Ticaret A.S., an entity controlled by the Company's Chairman

 

 

(20)

 

 

(38)

 

Technical and managerial services provided to:

Avesoro Services (Jersey) Limited, a subsidiary of Company's parent company

 

 

-

 

 

486

 

Administration services provided to the Company by:

Avesoro Services (Jersey) Limited, a subsidiary of Company's parent company

 

 

-

 

 

(120)

 

Technical and procurement services provided to the Company by:

MNG Orko Madencilik A.S., an entity controlled by the Company's Chairman

 

 

-

 

 

(350)

 

* Company's gross billings as agents in the procurement, shipping and handling of consumables

Included in trade and other receivables is a receivable from a related party of $3.4 million as at December 31, 2018 (2017: $1 million ) which represents mainly management, procurement, operational, technical and support services. 

Included in trade and other payables is $3.3 million payable to related parties as at December 31, 2018 (2017: $0.5 million ) which represents mainly drilling services.                

(g) 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 December 31, 2018

Year ended December 31, 2017


Salaries and
other short-
term benefits 

Share-
based
payments

 

 

Total

Salaries and
other short-
term benefits 

Share-
based
payments

 

 

Total


$

$

$

$

$

$

Geoffrey Eyre

381,875

228,353

610,228

413,488

177,614

591,102

Jean-Guy Martin

55,000

30,702

85,702

90,226

61,379

151,605

David Netherway

55,000

30,702

85,702

90,226

61,379

151,605

Loudon Owen

55,000

30,702

85,702

90,226

61,379

151,605

Serhan Umurhan

567,370

269,576

836,946

579,032

214,778

793,810


1,114,245

590,035

1,704,280

1,263,198

576,529

1,839,727

 

 

22.  Financial instruments

The Company's financial instruments consist of cash and cash equivalents, trade and other receivables, 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:



 

Fair value
through other
comprehensive
income

$'000

Amortised
cost

$'000

Total

$'000

December 31, 2018





Assets as per statement of financial position





Cash and cash equivalents


-

3,522

3,522

Trade and other receivables


-

11,722

11,722

Due from related parties


-

3,350

3,350

Total


-

18,594

18,594

 



Fair value
through other
comprehensive
income

$'000

Amortised
cost

$'000

Total

$'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

Investment


21

-

21

Total


21

29,908

29,929

 


Fair value
through the profit
and loss

$'000

Amortised

cost

$'000

Total

$'000

December 31, 2018




Liabilities as per statement of financial position




Trade payables and accruals

-

62,654

62,654

Due to related parties

-

3,255

3,255

Finance lease liability

-

3,234

3,234

Borrowings

-

123,800

123,800

Total

-

192,943

192,943

 


Fair value
through the profit
and loss
$'000

Amortised

cost

$'000

Total

$'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

 

23.  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 and EUR LIBOR , which are the variable components of the bank borrowings increased by 1% during the year ended December 31, 2018 , interest payable would have increased by $0.8 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.

The Company's liabilities as at December 31, 2018 , stated at their gross, contractual and undiscounted amounts, fall due as indicated in the following table:


 

Less than
one year

$'000

Between one
and five
years

$'000

Over five
years

$'000

 

 

Total

$'000

Trade and other payables

65,909

-

-

65,909

Income tax payable

4,333

-

-

4,333

Finance lease liabilities

1,266

2,539

-

3,805

Principal borrowings

15,981

112,707

-

128,688

Operating and capital commitments

101

311

-

412


87,590

115,557

-

203,147

 

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, West African Franc 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.

Carrying value of foreign currency balances

December 31,
2018

$'000

December 31,
2017

$'000

Cash and cash equivalents, include balances denominated in:



Pound Sterling (GBP)

86

133

West African Franc (XOF)

2,836

13,999

Turkish Lira (TRY)

38

-

Others

4

5




Investments, include balances denominated in:



Pounds Sterling (GBP)

-

21




Receivables and other assets, include balances denominated in:



Canadian Dollar (CAD)

175

259

Pounds Sterling (GBP)

78

136

West African Franc (XOF)

9,821

20,334

Turkish Lira (TRY)

877

-




Borrowings, include balances denominated in:



Euro (EUR)

9,735

11,513




Trade and other payables, include balances denominated in:



Canadian Dollar (CAD)

29

175

Euro (EUR)

6,232

2,985

Pound Sterling (GBP)

305

517

South African Rand (ZAR)

42

972

West African Franc (XOF)

24,980

36,510

Turkish Lira (TRY)

1,453

-

Others

-

36


 

The sensitivities below are based on financial assets and liabilities held at December 31, 2018 and 2017 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 31,
2018

$'000

December 31,
2017

$'000

Canadian Dollar (CAD)

(15)

(8)

Pound Sterling (GBP)

14

23

South African Rand (ZAR)

4

97

Euro (EUR)

1,597

1,450

West African Franc (XOF)

1,232

218

Turkish Lira (TRY)

54

-





 

Credit risk

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, trade and other receivables.

Where allowed, the Company has an investment policy requiring that cash and cash equivalents only are deposited in permitted investments with certain minimum credit ratings.  The operating subsidiaries in Burkina Faso are restricted from holding their cash balances outside of Burkina Faso .  


December 31,
2018

$'000

 December 31,
2017

$'000

   Financial institutions with Standards & Poor's A rating

539

2,784

   Financial institutions regulated by the Central Bank of the

   West African States

 

2,833

 

13,999

   Financial institutions un-rated

150

1,004


 

Impairment of financial assets

The Company's financial assets that are subject to the expected credit loss model are the trade and other receivables.

The Company's credit risk on the trade receivables is concentrated on the refiners of the Company's gold dore which are large international organizations with strong credit ratings and the historical level of customer defaults is nil. As a result, the credit risk associated with trade receivable at December 31, 2018 is considered to be negligible. 

The other receivables subject to impairment assessment include amounts under the factoring agreement with a regional bank, owned by a leading pan-African bank and one of the largest operating in Burkina Faso , as described in Note 7.  The factoring agreement, which was settled in January 2019 , reduced the risk of default of the other receivables. 

While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.

(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'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, 2018 .

24.  Commitments

Operating expenditure contracted for at December 31, 2018 but not yet incurred is as follows:


Less than
one year

$'000

Between one
and five
years

$'000

 

Over five
years

$'000

Operating lease expenditure

264

316

-

 

Operating expenditure commitments comprises of operating leases as at December 31, 2018 .

Commitments in respect of finance leases are disclosed in Note 16.

25.  Notes to the statement of cash flows

The table below reconciles the changes in the Company's financial liabilities to the Company's cash flows from financing activities.


 

 

Borrowings

$'000

Finance
lease
liabilities

$'000

 

Share
capital

$'000

 

Capital
contribution

$'000

Non-
controlling
interest

$'000

 

 

Total

$'000

As at January 1, 2018

139,299

7,788

353,653

54,022

3,714

558,476

Cash flows from/(used in) financing activities

(39,182)

(1,246)

33

1,039

(3,075)

(42,431)

Non-cash flows:







Change in accounting policy

(850)

-

-

-

-

(850)

New finance leases

-

1,233

-

-

-

1,233

Finance costs

15,138

366

-

-

-

15,504

Related party loans

9,916

-

-

373

-

10,289

Unrealised foreign exchange

(521)

-

-

-

-

(521)

Lease termination

-

(4,907)

-

-

-

(4,907)

Share in net income of subsidiaries

-

-

-

-

2,998

2,998

As at December 31, 2018

123,800

3,234

353,686

55,434

3,637

539,791

 


 

 

Borrowings

$'000

Finance
lease
liabilities

$'000

 

Share
capital

$'000

 

Capital
contribution

$'000

 

Non-
controlling
interest

$'000

 

 

Total

$'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

8,106

-

51,459

-

3,647

63,212

Non-cash acquisition of assets held under

finance leases

-

2,002

-

-

-

2,002

Related party loans

21,980

-

-

1,264

-

23,244

Unrealised foreign exchange

54

-

-

-

-

54

Gain on lease settlement

-

(3,988)

-

-

-

(3,988)

Share in net income of subsidiaries

-

-

-

-

67

67

Changes in non-cash working capital

-

(2,338)

-

-

-

(2,338)

As at December 31, 2017

139,299

7,788

353,653

54,022

3,714

558,476













 

26.  Events after the balance sheet date

In March 2019 , the Company entered into and had fully drawn down on an additional working capital facility of $10 million with AJL (the "New Facility"). The New Facility is unsecured, and ranks subordinated to the Company's existing facilities. Interest is charged on drawn amounts at a fixed rate of 8.0 per cent. per annum. The New Facility is due to repaid in full no later than twelve months following the drawdown and has no early repayment penalty. Following full draw down of the New Facility, the balance of working capital loans provided by AJL was $37.2 million .

 

SOURCE Avesoro Resources Inc.


View original content: http://www.newswire.ca/en/releases/archive/March2019/14/c7214.html