4 June 2018

AIM: AAU

 

FINAL AUDITED RESULTS FOR THE YEAR 31 DECEMBER 2017

NOTICE OF ANNUAL GENERAL MEETING ("AGM")

Ariana Resources plc ("Ariana" or "the Company"), the exploration and development company operating in Turkey, announces its final audited results for the year ended 31 December 2017.

    

The Report and Accounts will be posted to shareholders as applicable, and are available on the Company's website www.arianaresources.com, together with the Notice of AGM, and extracts are set out below.

The AGM will be held at the East India Club, 16 St James's Square, London, SW1Y 4LH on 29 June 2018 at 10.00 am.

                               

 

 

Contacts:

 

Ariana Resources plc

Tel: +44 (0) 20 7407 3616

Michael de Villiers, Chairman


Kerim Sener, Managing Director




Beaumont Cornish Limited

Tel: +44 (0) 20 7628 3396

Roland Cornish / Felicity Geidt




Panmure Gordon (UK) Limited

Tel: +44 (0) 20 7886 2500

Adam James / James Stearns




Yellow Jersey PR Limited

Tel: +44 (0) 7544 275 882

Tim Thompson / Harriet Jackson

/ Henry Wilkinson

This email address is being protected from spambots. You need JavaScript enabled to view it.

 

 

 

The past year has opened a new chapter for Ariana Resources, having become one of only a handful of junior explorers on AIM to have transitioned successfully to producer status. 

 

Indeed, in a broader context, the percentage of exploration and development companies ever achieving operational status is probably only just in double figures, which reflects the challenges inherent to our industry. This has represented a landmark year for your Company and we remain committed to operational matters at the Kiziltepe Mine, whilst launching the next phase of our business strategy. 

 

It is worth recapping that the first phase of the strategy was to identify and develop gold resources in Turkey, with the goal of establishing a mine to generate sufficient free cash flow to enable the next phase of our development. With the dedicated Ariana team and our long-term partners, Proccea Construction Co., I am proud that we have been able to achieve these goals. This achievement is set against the backdrop of a precious-metals bear market and the complexities of mine permitting and stakeholder engagement in Turkey. Whilst such work occurs continuously and quietly in the background, the extensive effort to build trust with the Government, local authorities and communities, and our operational and financial partners in Turkey, should not be underestimated. It is safe to say that without this concerted effort, over many years, we would not be in production today. 

 

The second phase of our development links three strands of our current portfolio: bringing on stream additional resources identified at the Kiziltepe Sector, planning and permitting of the Tavşan Sector of the Red Rabbit project, and continuing the exploration and development of our wholly-owned Salinbaş Project. It has been our long-held view that Salinbaş, located within the 'Hot Gold Corridor', contains resources well in excess of the 1 Moz we have already identified. The potential of Salinbaş has not gone unnoticed. We have attracted attention from several quarters, including Turkish construction firms and international gold producers. However, given the potential significance of this resource, we believe it is important that we better define the resource potential and be discerning in terms of any future partnerships or agreements we might conclude. 

 

Before commenting in more detail about the forward strategy, it is necessary to emphasise our success in ensuring the Kiziltepe Mine achieves the targets we have set. I am pleased to report that since operational start-up, gold production has reached c.15,000 ounces and remains on trend above our feasibility target. Operating costs have been trending typically at less than US$600/oz. Meanwhile, debt repayments to Turkiye Finans Katilim Bankasi A.S. by the joint venture have been made on schedule. By the time this is in print, we will have already repaid approximately US$10 million, representing about a third of our total mine construction loan. This has increased our profile and credibility with the bank and provided a basis on which future project investments may be discussed with them. Achieving all of these targets during the initial operational period has required constant diligence and I would like to acknowledge the determination and dedication of our partners at Proccea and all of our staff within our joint venture company, Zenit Madencilik, for achieving such a flying start to our operations. We are also very proud to note the continuing positive stakeholder engagement from the local community in Sindirgi. We are pleased to witness the many local businesses that have been able to participate in the success of our mine and our approach to the careful cultivation of relationships in the local community remains very important to us.

 

We acknowledge the continuing disconnect between our share price and the value of our assets when assessed in terms of the in-situ value of our resource and reserve ounces. On this basis alone, irrespective of any cash flow from Kiziltepe, we believe the share price should be multiples of the current level. However, whilst general market sentiment is not something we can control, we remain confident that true value will be recognised in the long term. We also believe that after a long bear run in gold stocks since early 2013, the outlook for the commodity is now more positive. It appears likely that the new Chairman of the Federal Reserve will slowly rein in the quantitative easing policy of the past decade and support resolving their significant debt burden with quietly inflationary measures. This augurs well for commodities and tangible assets. Over recent months the position for stocks generally has weakened and the froth has come off both cryptocurrencies and technology stocks. 

 

Meanwhile, increasing political uncertainty around the world, is establishing the conditions for another global-level economic reset. With that in mind, we are deeply cognisant of the evolving position of China as the world's largest gold producer and importer. Significantly, it is worth noting that as of March 2018 China is permitting future contracts for oil to be sold in Chinese Yuan, which are convertible to gold on the Shanghai or Hong Kong exchanges, thus bypassing the US dollar. We also note Chinese efforts on their gigantic Belt and Road Initiative (BRI) primarily to link trade across the world's largest continental landmass. Whilst naval strategic dominance has been important for the projection of power by the United States, and the British Empire before that, the BRI represents a paradigm shift that will transform future international relations by largely bypassing the importance of the world's oceans for trade. A significant part of the BRI passes right through Turkey along the routes that formed the ancient Silk Road, establishing a critical bridge between Moscow and Tehran as part of the new Silk Road Economic Belt. When looked at from this perspective, the long-term strategic logic behind much of the saga we have seen unfold recently between the West, Russia and Iran starts to come in to sharp focus. Recognising that Turkey represents a pivot between the strategic interests of the East and West, the presidents of China and Turkey agreed last year to strengthen cooperation as part of the BRI. Consequently, we expect the BRI to have a significant positive impact on trade and resource demand in Turkey over the foreseeable future. 

 

No commentary on China would be complete without mentioning the increasing demand for technology-metals and the desire to secure these from stable jurisdictions untainted by conflict issues. Commodities such as antimony, cobalt, copper, lithium, silver and tantalum, among others, are being sought globally to satisfy Chinese technological demand in particular. The common thread to each of these elements is their use in power generation, distribution and storage in a world that is slowly transitioning from fossil fuels as its primary source of grid-scale energy to decentralised networks of green-energy sources powering individual homes, offices and vehicles. It was with this broad-brush observation that the Company opportunistically acquired and then commercialised several lithium exploration projects in Australia in recent years. Following the successful vend of these projects in to two ASX-listed companies, the Company has since added A$3.5 million to the balance sheet from these deals, representing more than a 100-fold increase in value over our original investment. The Company continues to appraise opportunities in such technology-metals and will acquire projects of merit accordingly, particularly in the context of the BRI. 

 

Spurred in part by our highly successful foray into technology-metals, we are now transitioning into a period in which we are no longer totally beholden to the market for funding. Since February 2018, we have started to receive regular repayments against our loans in the JV, the remaining balance of which amounts to approximately £2.5million. While this cash-flow is not yet sufficient to satisfy the higher demands on capital required for the next round of exploration and development of Salinbaş, it will enable us to proceed with our current work programmes and at a minimum meet our non-discretionary exploration spend. We will continue to appraise opportunities to undertake equity capital raises in the future, but since entering commercial production, we are expecting these to be conducted via the open offer route to existing shareholders. Alternatively, we will structure our capital requirements possibly utilising convertible debt facilities coupled to operational cash-flow. In addition to this, as an emerging growth company, we are making preparations to buy-back Ariana shares from the market in the longer term and a resolution is proposed for our Annual General Meeting to help us achieve this aim. We fully expect our shareholders to be supportive of such initiatives to enhance company value and specifically to advance our project pipeline through focused exploration and development activity. It is important to reiterate here, that it is only through successful exploration and development that we have reached this point in our evolution and we continue to see these activities as pivotal to our business model going forward.

 

To a large degree your Company now represents a free option on future exploration and development success, augmented by our exceptional track-record of delivery. This is clearly recognised by our brokers at Panmure Gordon, who have been highly supportive of our strategy and will be instrumental for our future development, as the Company continues to mature and as we begin to attract larger institutional interest. In line with this, we are continually implementing enhancements in investor communications, to ensure that shareholders and potential new investors are fully briefed on our wider and longer-term strategy. Consequently, during early 2018 we appointed Yellow Jersey to assist the Company with its investor relations and we are very pleased to be working with their proactive and energetic team. In the meantime, we will not lose sight of Ariana's core strengths and continue to capitalise upon them: efficient exploration, in-country expertise and financial frugality.

 

I am pleased to report that the Group generated a profit before tax of £0.4 million during the year showing an increase in share of profits from the Zenit joint venture following the commencement of commercial production. The Group's financial position remains strong with net current assets of £3.3 million and total net assets of £19.7 million.

 

In summary, I am very proud of the record of the Ariana team and our joint venture partners. We have delivered the first phase of our business strategy, despite market headwinds and often challenging circumstances. During 2017 we set out and achieved our production targets for Kiziltepe and I am pleased to note that our joint venture mining operations are continuing very much on track. I believe the Company's steadfast approach to driving our strategy and our consistent achievements provide our teams with the confidence to pursue the next phase of the Company's development successfully. Lastly, I again wish to thank all of our long-term shareholders for their unwavering support and their recognition of our strategic aims. It has been a long and, at times, tortuous journey for us all, but as a business we have truly turned a corner and, at every level, the future is very bright indeed. 

 

 

 

The Company enjoyed a successful year operationally, recording a profit before tax of £0.4 million, as against a profit before tax of £12.1 million (as restated) last year, and there were several components to this swing in financial performance. The principal reason for the reduced profit this year was the combination of one-off factors last year, where we recorded a gain on the acquisition of Greater Pontides Exploration BV which holds our Salinbaş project, a gain on the sale of our remaining shares in Zenit bringing us into our final equilibrium shareholding with our joint venture partners, and gains on disposal of our Australian lithium interests. In addition, administrative costs were nearly £0.4 million higher this year, largely due to foreign exchange losses and increased wage costs. The Company also decided to write down £0.4 million of historical intangible asset expenditure which was no longer considered appropriate to carry forward in our books. 

 

A key development this year was the commencement of commercial production with effect from 1 July 2017 at our Joint Venture company Zenit. The accounting rules on joint ventures require us to record this as an equity investment, which means that we only record in our Income Statement our share of Zenit profits rather than line by line accounting, our share of profits this year amounting to £1.8 million. Further details of Zenit's financial performance are given in note 6 to the accounts, where you will note six months operational activity gave rise to turnover of £8.9 million and a profit before tax of £3.7 million. During the period we estimate the cash cost of our joint venture production was under US$600 per ounce, which is highly creditable in this first review period. 

 

As far as the Statement of Financial Position is concerned, there has been no material change beyond foreign exchange movements in the valuation of our Salinbaş asset recorded at £17.5 million. Our share of the Zenit joint venture is carried in these accounts at our 50% shareholding of that company's net assets, amounting to £2.5 million at the year end (2016: £1.3 million (as restated)). Otherwise of note were our two share placements undertaken during the period, which raised £2.9 million, before associated costs. Decisions around fundraising are taken very seriously, but our primary responsibility was to ensure we had the necessary funds to ensure we could bring the mine into commercial production, given the initial delays due to permitting and weather, as well as carry out the necessary exploration work at Salinbaş. It is pleasing to see that as of February 2018, we are now receiving funds back from Zenit, which is the realisation of a plan set several years ago, to put ourselves in a position where we could become self-financing, and that seems a much closer proposition now. 

Consolidated Statement of Comprehensive Income 

For the year ended 31 December 2017

 




Restated


Note

2017

£'000

2016

£'000

Administrative costs


(1,311)

(930) 

General exploration expenditure


(40)

(118)

Exploration costs - written off


(352)

-

Operating loss


(1,703)

(1,048)

Other income


-

1,215

Gain on acquisition of remaining interest in Joint Venture


-

12,435

Profit on disposal of available for sale investments


117

810

Share of profit/(loss) of Joint Venture

6

 1,834 

(2,125)

Share of profit on dilution of interest in Joint Venture

6

-

677

Investment income


176

103

Profit on ordinary activities before tax


424

12,067 

Taxation


-

(486)

Profit for the year


424

               11,581

 

Other comprehensive income

 

Items that may be reclassified subsequently to profit or loss when specific conditions are met:




Exchange differences on translating foreign operations


(1,363)

(136)

Fair value adjustment on available for sale investments


(53)

 23

Other comprehensive (loss) for the year net of tax


(1,416)

                      (113)

Total comprehensive (loss)/income for the year


(992) 

  11,468

Profit attributable to: Owners of the parent Company


424

11,581 

Total comprehensive (loss)/income attributable to: Owners of the parent Company


(992)

11,468  

Total comprehensive (loss)/income for the year


(992)

  11,468

Profit per share (pence)




Basic and diluted


0.04

   1.41

 

Continuing operations

None of the Group's activities discontinued during the current or previous year. 

Consolidated Statement of Financial Position 

For the year ended 31 December 2017

 




Restated


Note

2017

£'000

2016

£'000

Assets




Non-current assets




Trade and other receivables


93

120

Intangible exploration assets

11

17,527

17,965

Land, property, plant and equipment


289

319

Investment in Joint Venture

6

2,467 

1,251 

Total non-current assets


20,376

19,655 

Current assets




Trade and other receivables

16

2,547

1,689

Available for sale investments


218

866

Cash and cash equivalents


773

440

Total current assets


3,538

2,995

Total assets


23,914 

22,650 

Equity




Called up share capital


6,054

5,836

Share premium

18

11,821

9,241

Other reserves


720

720

Share based payments 


93

571

Translation reserve


(2,034)

(671) 

Retained earnings


3,071 

2,222 

Total equity attributable to equity holders of the parent 


19,725 

17,919 

Non-controlling interest


-

-

Total equity


19,725 

17,919 

Liabilities




Non-current liabilities




Deferred tax liabilities

19

2,273

2,273

Other financial liabilities

20

1,651

1,651

Total non-current liabilities


3,924

3,924

Current liabilities




Trade and other payables

17

265

807

Total current liabilities


265

807 

Total equity and liabilities


23,914 

22,650 

 

 

Company Statement of Financial Position 

For the year ended 31 December 2017

 

 


Note

2017

£'000

2016

£'000

Assets




Non-current assets




Investments in group undertakings


274

274

Total non-current assets


274

274

 

Current assets




Trade and other receivables

16

10,441

  8,527

Available for sale investments


63

46

Cash and cash equivalents


-

-

Total current assets


10,504

  8,573

Total assets


10,778

8,847

 

Equity




Called up share capital


6,054

  5,836

Share premium

18

11,821

9,241

Share based payments reserve


93

 571

Retained earnings


(7,196)

(6,815)

Total equity


10,772

  8,833

 

Liabilities




Current liabilities




Trade and other payables

17

6

14

Total current liabilities


6

14

Total equity and liabilities


10,778

  8,847

Company's loss for the financial year


876

614

 

 

Consolidated Statement of Changes in Equity 

For the year ended 31 December 2017


Share capital £'000

Share premium £'000

Other reserves £'000

Share based payments reserve £'000

Translation reserve £'000

Retained earnings £'000

Total attributable to equity holders of parent 

£'000

Non- controlling Interest

£'000

Total

£'000

Changes in equity to
31 December 2016










Balance at 1 January 2016 

5,797

8,764

720

578

(535)

(9,274)

6,050

3

6,053

Profit for the year (restated)

-

-

-

-

-

11,581 

11,581 

-

11,581 

Other comprehensive income

-

-

-

-

(136) 

23

(113) 

-

(113) 

Total comprehensive income

-

-

-

-

(136) 

11,604 

11,468 

-

11,468 

Issue of share capital

39

524

-

-

-

-

563

-

563

Share issue costs

-

(47)

-

-

-

-

(47)

-

(47)

Cancellation of share options

-

-

-

(7)

-

7

-

-

-

Non-controlling Interest - 










share of net assets in subsidiary

-

-

-

-

-

(115)

(115)

(3)

(118)

Transactions with owners 

39

477

-

(7)

-

(108)

401

(3)

398

Balance at 31 December 2016 (restated)

5,836 

9,241 

720 

571 

(671) 

2,222 

17,919 

-

17,919 

 

Changes in equity to
31 December 2017










Profit for the year

-

-

-

-

-

424 

424 

-

424

Other comprehensive income

-

-

-

-

(1,363) 

(53)

(1,416) 

-

(1,416)

Total comprehensive income

-

-

-

-

(1,363) 

371   

(992)   

-

(992) 

Issue of share capital

218

2,782

-

-

-

-

3,000

-

3,000

Share issue costs

-

(202)

-

-

-

-

(202)

-

(202)

Cancellation of share options

-

-

-

(478)

-

478

-

-

-

Transactions with owners

218

2,580

-

(478)

-

478

2,798

-

2,798

Balance at 31 December 2017

6,054

11,821

720

93

(2,034) 

3,071 

19,725

-

19,725

 

 

Company Statement of Changes in Equity 

For the year ended 31 December 2017

 


Share

 capital

£'000

Share premium £'000

Share based  payments reserve

£'000

Retained earnings 

£'000

Total

£'000

Changes in equity to 31 December 2016






Balance at 1 January 2016 

5,797

8,764

578

(6,232)

8,907

Loss for the year

-

-

-

(614)

(614)

Other comprehensive income

-

-

-

24

24

Total comprehensive income

-

-

-

(590)

(590)

Issue of share capital

39

524

-

-

563

Share issue costs

-

(47)

-

-

(47)

Cancellation of share options

-

-

(7)

7

-

Transactions with owners

39

477

(7)

7

516

Balance at 31 December 2016

5,836

9,241

571

(6,815)

8,833

 

Changes in equity to 31 December 2017






Loss for the year

-

-

-

(876)

(876)

Other comprehensive income

-

-

-

17

17

Total comprehensive income

-

-

-

(859)

(859)

Issue of share capital

218

2,782

-

-

3,000

Share issue costs

-

(202)

-

-

(202)

Cancellation of share options

-

-

(478)

478

-

Transactions with owners

218

2,580

(478)

478

2,798

Balance at 31 December 2017

6,054

11,821

93

(7,196)

10,772

 

 

 

Consolidated Statement of Cash Flows

For the year ended 31 December 2017

 

 



Restated


2017

£'000

2016

£'000

Cash flows from operating activities



Profit before tax

424 

12,067 

Adjustments for:



Profit on disposal of available for sale investments

(117)

(810)

Other income - non cash consideration received in shares

-

(1,148)

Depreciation of non-current assets

1

1

Directors and staff remuneration paid in shares

191

-

Write down of intangible exploration assets

352

-

Disposal of intangible exploration assets - Australian tenements and licences

-

51

Gain on acquisition of remaining interest in Joint Venture (excluding cash acquired)

-

(12,386)

Fair value adjustments

53

(23)

Share of (profit)/loss in Joint Venture

(1,834) 

2,125

Share of (profit) on dilution of interest in Joint Venture

-

(677)

Investment income

(176)

(103)

Movement in working capital

(1,106)

(903)

(Increase) in trade and other receivables

(950)

(660)

(Decrease)/increase in trade and other payables

(112)

237

Foreign exchange differences on retranslation of assets and liabilities

(170)

46

Cash outflow from operating activities

(2,338)

(1,280)

Taxation paid

(403)

(77)

Net cash used in operating activities

(2,741)

(1,357)

Cash flows from investing activities



Purchase of land, property, plant and equipment

(20)

(19)

Payments for intangible assets

(390)

(149)

Proceeds from disposal of available for sale investments

700

1,103

Investment income

176

103

Net cash used in investing activities

466

1,038

Cash flows from financing activities



Proceeds from issue of share capital.

2,608

440

Net cash proceeds from financing activities

2,608

440

Net increase in cash and cash equivalents

333

121

Cash and cash equivalents at beginning of year

440

319

Cash and cash equivalents at end of year

773

440

 

In the current year the proceeds from disposal of available for sale investments has been classified as cash flows from investing activities.  In the prior year this was reported as cash flows from financing activities rather than investing activities, and comparatives have been reclassified for consistency.

 

Company statement of cash flows

All bank transactions are undertaken by Ariana Exploration & Development Limited on behalf of Ariana Resources PLC and recharged accordingly. As such the Company had no cash transactions directly.

 

 

 

1. General information

 

Ariana Resources PLC (the "Company") is a public limited company incorporated and domiciled in Great Britain. The Company's shares are listed on the Alternative Investment Market of the London Stock Exchange. The principal activities of the Company and its subsidiaries (together the "Group") are related to the exploration for and development of gold and technology-metals, principally in Turkey.

 

The Company's registered office address is Bridge House, London Bridge, London, SE1 9QR, United Kingdom.

 

The consolidated financial statements are presented in Pounds Sterling (£), which is the parent company's functional and presentation currency, and all values are rounded to the nearest thousand except where otherwise indicated.

 

Basis of preparation

The Group consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, effective for the Group's reporting for the year ended 31 December 2017.

 

The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the separate financial statements have been prepared in accordance with IFRS. These financial statements have been prepared under the historical cost convention (except for available for sale financial assets) and the accounting policies have been applied consistently throughout the Group.

 

Restatement

During the period it was identified that during the year ended 31 December 2016 the exchange loss recognised on the revaluation of US$ borrowings held by the equity accounted joint venture, Zenit, was incorrectly capitalised as part of its assets in construction. However, as it is a monetary liability as defined under IAS 21 The Effects of Changes in Foreign Exchange Rates, it was appropriate for the exchange loss to be recognised as a finance expense in the income statement of the joint venture with a consequential effect on the Group's share of profit/(loss) in the equity accounted investment in the joint venture.  As at 31 December 2016 the Investment in Joint Venture and the Group's net assets was overstated by £2,276,000, which has resulted in a restated Share of loss of Joint Venture of £2,125,000 (previously reported as a share of profit of £20,000) with a restated exchange loss on translating foreign operations within other comprehensive income of £136,000 (previously reported as an exchange loss of £5,000).  The consolidated profit for the year has reduced to £11,581,000 from £13,726,000.  The adjustment has no impact on the 1 January 2016 opening
balance sheet.

 

Going concern

These financial statements have been prepared on the going concern basis. 

 

The Directors are mindful that there is an ongoing need to monitor overheads and costs associated with delivering the exploration programme and to raise additional working capital to support the Group's specific activities on occasion. The Group has no bank facilities and has been meeting its working capital requirements from cash resources. At the year end the Group had cash and cash equivalents amounting to £773,000 (2016: £440,000), together with available for sale investments with a market value of £218,000 

(2016: £866,000). 

 

The Directors have prepared cash flow forecasts for the Group for the period to 30 June 2019 based on their assessment of the prospects of the Group's operations. The cash flow forecasts include the normal operating costs for the Group over the period together with the discretionary and non-discretionary exploration and development expenditure. The forecasts indicate that on the basis of existing cash and other resources, and forecast future repayment of loans made to Zenit, the Group may require additional funds in the foreseeable future.  In the event that additional funding is not obtained as needed, the Group has flexibility to reduce its operating expenditure and discretionary exploration expenditure, along with the ability to liquidate the available for sale investments in order to meet its financial obligations as they fall due.

 

The Directors are obliged to consider a variety of options as regards to the financing of the Group going forward, and this may include an equity raise via an open-offer if thought appropriate. Despite challenging capital markets for junior exploration and mining companies, the Company and Group have been successful historically in raising equity finance and in light of this, the directors have a reasonable expectation of securing sufficient funding to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the consolidated financial statements.

 

In preparing these financial statements the Directors have given consideration to the above matters and on this basis they believe that it remains appropriate to prepare the financial statements on a going concern basis.

 

6.  Share of profit/(loss) of interest in Joint Venture

 

In July 2010 the Group entered into an agreement with Proccea Construction Co. ("Proccea") such that Galata Madencilik San. ve Tic. Ltd. ("Galata") would transfer its principal assets at Kiziltepe and Tavşan, collectively known as the "Red Rabbit Gold Project" into a new wholly owned subsidiary, Zenit Madencilik San. ve Tic. A.S. ("Zenit"). Proccea earned their 50% share in Zenit by investing US$8 million in the capital of Zenit, US$1.4 million of such funds having been spent on a Feasibility Study and an Environmental Impact Assessment ("EIA"), with the balance on initial mine construction, once the Feasibility Study and EIA were completed satisfactorily. Ultimately profits from Zenit will be shared in the ratio of 51% the Group and 49% to Proccea, but key decisions require approval from both the Group and Proccea.

 

Zenit entered production during the period, commencing from March 2017, with commercial production declared from 1 July 2017.  Operational revenues and costs arising from pre-commercial production have been capitalised.  While total revenue for the year exceeded US$14 million in gold and silver sales, only part of this revenue relates to the period following the declaration of commercial production, and this is reflected in the financial information of the Joint Venture presented below.

 

The liability of the Joint Venture includes current and non-current portions of a bank loan repayable to Turkiye Finans Katilim Bankasi A.S. Management does not foresee any significant restrictions on the ability of the Joint Venture to repay this loan.

 

The Group accounts for its Joint Venture with Proccea in Zenit using the equity method in accordance with IAS 28 (revised).  At 31December 2017 the Group has a 50% (2016: 50%) interest in Zenit.

 

Financial information of the Joint Venture, based on its translated financial statements, and reconciliations with the carrying amount of the investment in the consolidated financial statements are set out below:

 



Restated

Statement of Comprehensive Income

2017

£'000

2016

£'000

Revenue

8,854

-

Cost of sales

(4,808)

-

Gross Profit

4,046

-

Administrative expenses 

(423) 

(83)

Operating profit/(loss)

3,623

(83)

Finance expenses

(2,646) 

(4,587) 

Finance income

2,690

503

Profit/(loss) on ordinary activities before tax

3,667

(4,167) 

Taxation

-

(82)

Profit/(loss) for the year

3,667 

(4,249) 

Proportion of the Group's ownership

50%

50%

Group's share of profit/(loss) for the year

1,834

(2,125) 

 

 

 



Restated

Statement of financial position 

2017

£'000

2016

£'000

Assets



Non-current assets



Other receivables

-

68

Intangible exploration assets

94 

6,712

Kiziltepe Gold Mine property, plant and equipment

31,085

-

Assets in construction

-

14,922 

Advances to contractors

915

11,096 

Total non-current assets

32,094 

32,798 

Current assets



Cash and cash equivalents

505

116

Trade and other receivable

127

85

Inventories

941

34

Other receivables, VAT and prepayments

936

1,002 

Total current assets

2,509

1,237

Total assets

34,603 

34,035 

Liabilities



Non-current liabilities



Borrowings

15,977

20,364

Asset retirement obligation 

1,088

1,088

Total non-current liabilities

17,065 

21,452

Current liabilities



Borrowings

6,615 

6,665

Trade payable

2,484 

453

Other payable (including shareholder loans)

3,504 

2,886

Current income tax

-

76

Total current liabilities

12,603 

10,080

Total liabilities

29,668 

31,532

Equity

4,935 

2,503 

Proportion of the Group's ownership

50%

50%

Carrying amount of investment in Joint Venture

2,467

1,251 

Movement in Equity - our share



Opening balance

1,251 

2,830

Profit/(loss) for the year

1,834 

(2,125) 

Translation reserve

(618) 

(131)

Issue of share capital and premium

-

677

Closing balance

2,467 

1,251

 

 

11.  Intangible exploration assets

 

Group

Deferred exploration expenditure

£'000

 

Cost


At 1 January 2016

1,654

Additions through acquisition of remaining interest in Joint Venture

16,210

Additions and capitalised depreciation

149

Exchange movements

3

Disposal of Australian tenements and licences

(51)

At 31 December 2016

17,965

Additions and capitalised depreciation

412

Exchange movements

(498)

Expenditure written off

(352)

At 31 December 2017

17,527



Net book value


At 1 January 2016

1,654

At 31 December 2016

17,965

At 31 December 2017

17,527

 

None of the Group's intangible assets are owned by the Company.

 

In the year, management has reviewed the recovery of the costs capitalised as intangible exploration assets and determined that £352,000 is not recoverable, hence management had taken the decision to write off these costs.

 

The technical feasibility and commercial viability of extracting a mineral resource are not yet demonstrable in the above intangible exploration assets. These assets are not amortised, until technical feasibility and commercial viability is established. Intangible exploration costs written off represent costs relating to certain projects that are no longer considered economically viable or where exploration licences have been relinquished.

 

16.  Trade and other receivables

 


Group

Company


2017

£'000

2016

£'000

2017

£'000

2016

£'000

Amounts owed by Group undertakings

-

-

10,421

8,518

Amounts owed by Joint Venture Company 

2,029

1,261

-

-

Other receivables

474

384

-

-

Prepayments

44

44

20

9


2,547

1,689

10,441

8,527

 

The fair value of trade and other receivables is not materially different to the carrying values presented. The amounts owed to the Company by Group undertakings are interest free and repayable on demand. 

 

The loan repayable by the Joint Venture Company has no scheduled repayment terms and is repayable on demand. The loan is subject to quarterly interest charges by Galata Madencilik San. ve Tic. Ltd at a rate of 9.75% p.a.

 

17.  Trade and other payables

 


Group

Company


2017

£'000

2016

£'000

2017

£'000

2016

£'000

Trade and other payables

113

157

-

-

 

Social security and other taxes

28

438

-

-

 

Other creditors

25

12

-

-

 

Accruals and deferred income

99

200

6

14

 


265

807

6

14

 

 

 

The above listed payables were all unsecured. The fair value of trade and other payables is not materially different to the carrying values presented.

 

18.  Share capital and premium

 

Allotted, issued and fully paid ordinary 0.1p shares

Number

Ordinary Shares

£'000

Deferred shares

£'000

Share Premium

£'000

In issue at 1 January 2017

841,541,799

841

4,995

9,241

Shares issued in the year

218,136,154

218

-

2,782

Less expenses on issue


-

-

(202)

In issue at 31 December 2017

1,059,677,953

1,059

4,995

11,821

 

During 2013 the existing ordinary shares were sub-divided into one new ordinary share of 0.1 pence ("New Ordinary Share") and one deferred share of 0.9 pence ("Deferred Share"). The New Ordinary Shares have a nominal value of 0.1 pence. The percentage of New Ordinary Shares held by each shareholder following the subdivision is the same as the percentage of existing ordinary shares held by the shareholder before the change.

 

Fully paid Ordinary Shares carry one vote per share and carry the right to dividends. Deferred Shares have attached to them the following rights and restrictions:

-           they do not entitle the holders to receive any dividends and distributions;

-           they do not entitle the holders to receive notice or to attend or vote at General Meetings of the Company;

-           on return of capital on a winding up the holders of the Deferred Shares are only entitled to receive the amount paid up on such shares after the holders of the Ordinary Shares have received the sum of 0.1p for each ordinary share held by them and do not have any other right to participate in the assets of the Company.

 

During 2017 the Company issued 218,136,154 ordinary shares for a total net consideration of £2,798,000.

 

Potential issue of ordinary shares

Share options and warrants

In December 2017 the Company cancelled the share options issued in March 2011.  

 

The Company issued 64,000,000 new options to directors and staff at an exercise price of 1.55 pence, vesting over 3 years, commencing on 1 January 2018.  At 31 December 2017 the Company had no options (2016: 12,500,000) and 32,777,777 warrants (2016: 32,777,777) outstanding for the issue of ordinary shares as follows:

 

Date of grant

Exercisable from

Exercisable to

Exercise price

Number granted

Options cancelled during the year

Number at 31 December 2017

Options







22 March 2011

22 March 2011

21 March 2018

5p

12,500,000

(12,500,000)

-

Total




12,500,000

(12,500,000)

-

 

Date of grant

Exercisable from

Exercisable to

Exercise price

Number granted

Warrants exercised
during the year

Number at 31 December 2017

Warrants







19 April 2013

19 April 2013

19 April 2018

2p

5,000,000

-

5,000,000

4 February 2015

4 February 2015

4 February 2018

1.8p

8,333,333

-

8,333,333

7 April 2015

7 April 2015

7 April 2018

1.8p

11,111,111

-

11,111,111

30 June 2015

30 June 2015

30 June 2018

1.8p

8,333,333

-

8,333,333

Total




32,777,777

-

32,777,777

 

19.  Deferred tax liabilities

 




 


Group

Company


2017

£'000

2016

£'000

2017

£'000

2016

£'000

Opening and closing deferred tax liability

2,273

2,273

-

-

 

 

Deferred tax has been provided at 17% of the fair value uplift of intangible exploration assets that resulted from the business combination that happened in 2016 as set out in note 28.

 

 

20.  Other financial liabilities

 


Group


Company



2017

£'000

2016

£'000

2017

£'000

2016

£'000

Contingent consideration payable

1,651

1,651 

-

 

The contingent consideration is calculated on a 2% net smelter returns royalty on the production revenue.  This liability will be remeasured at each reporting date and any gain or loss will go through the income statement.

 

 

Note to the announcement

 

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2017 or 2016.  The financial information for the year ended 31 December 2016 is derived from the statutory accounts for that year.  The audit of statutory accounts for the year ended 31 December 2017 is complete.