Anglo Asian Mining PLC Annual Report 2017

FY2017 Annual Report · Anglo Asian Mining PLC

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Gold, copper and silver
production in Azerbaijan

Anglo Asian Mining PLC
Annual report and accounts 2017

Anglo Asian Mining PLC is building a long-term
and sustainable mining business in Azerbaijan
which is both growing and cash generative.

Gold, copper and silver are produced at Gedabek in north-western Azerbaijan.
Ore is mined from open pit and underground mines and processed by both
leaching and flotation. The Company anticipates production to increase
significantly in 2018.

The Company also has two other operating concessions in Azerbaijan, which
together with Gedabek, cover 1,062 square kilometres. These concessions
are all located on the Tethyan Tectonic Belt, one of the world’s most significant
gold and copper-bearing trends. All three concessions have extensive
exploration potential.

The Company’s properties are held under a Production Sharing Agreement
with the Government of Azerbaijan and the Company has been listed on AIM
since 2005.

Contents

Anglo Asian Mining PLC

1 Highlights
2 Anglo Asian Mining

Chairman’s statement

4 Chairman’s statement
7
8 The new Ugur open pit mine

Strategy and exploration in 2018

Strategic report

9
18 Corporate and social responsibility
Investment in our operations
19

Financial review

20 Financial review

Corporate governance

Company financial statements

23 Board of directors
24 Corporate governance
25 Directors’ report
28 Report on directors’ remuneration

30 Statement of directors’ responsibilities

Group financial statements

Independent auditor’s report

31
36 Group statement of income
36 Group statement of

comprehensive income

37 Group statement of financial position
38 Group statement of cash flows
39 Group statement of changes in equity
40 Notes to the Group financial statements

65 Company statement

of financial position

66 Company statement of changes

in equity

67 Notes to the Company
financial statements

Annual general meeting

70 Letter to shareholders
71 Notice of annual general meeting

of shareholders

Company information

73 Company information

Highlights
year ended 31 December 2017

Operational highlights

Financial highlights

• Total production for 2017 was 71,461 gold equivalent
ounces (“GEOs”) compared to 72,304 GEOs in 2016

• Gold production for 2017 of 59,617 ounces,

a 9 per cent. decrease compared to 65,394 ounces
produced in 2016

• Gold bullion sales in 2017 of 43,496 ounces

(2016: 53,281 ounces) completed at an average
of $1,265 per ounce (2016: $1,253 per ounce)

• Gold produced in 2017 at an all in sustaining

cost* net of by-product credits of $604 per ounce
(2016: $616 per ounce). Lower all in sustaining cost
due to a decrease in cash operating costs

• Copper production for 2017 was 1,991 tonnes,
compared to 1,941 tonnes produced in 2016

• Silver production for 2017 totalled 172,853 ounces
compared to 2016 production of 165,131 ounces

• Ugur open pit mine commenced production

in September 2017 – 238,818 tonnes of ore mined
containing 3.2 grammes of gold per tonne in 2017

• Total production target of between 78,000
and 84,000 gold equivalent ounces for 2018

Revenue ($m)

$71.8m

All in sustaining cost (“AISC”)*
($ per ounce)

$604 per oz

2017

2016

2015

2017

2016

2015

71.8

79.2

78.1

604

616

858

Profit before taxation ($m)

$5.7m

2017

5.7

2016

6.8

(8.9)

2015

Operating cash flow
before movements in
working capital ($m)

$32.2m

2017

2016

2015

32.2

33.9

18.6

Net debt calculated as aggregate
of loans and borrowings ($m)

2017

18.1

$18.1m

2016

2015

34.6

49.0

* See definition on page 17.

Discover more online

For the latest news and investor information, visit
the Company’s website at www.angloasianmining.com

www.angloasianmining.com

Annual report and accounts 2017

Anglo Asian Mining PLCChairman’s statementStrategic reportFinancial reviewCorporate governanceGroup financial statementsCompany financial statementsAnnual general meetingAnglo Asian Mining

Anglo Asian Mining has a portfolio of gold, copper and silver
production and exploration assets in Azerbaijan. It combines both
mature assets and a pipeline of highly prospective new mining targets.

• Established – produced first gold in May 2009

• Experienced – highly qualified team with decades of experience in the industry – directors own 40 per cent.

of the Company, fully aligning them with shareholders

• First mover advantage – only listed miner in Azerbaijan

• Cash generative – highly cash generative with fast reducing debt (47 per cent. reduction in 2017)

• Fast track ability – Ugur mine brought into production in one year from discovery

• Exploration potential – several high-grade targets under investigation

Azerbaijan

Azerbaijan is situated in south-western Asia,
bordering the Caspian Sea between Iran and
Russia, with a small European portion north
of the Caucasus range.

Azerbaijan borders Armenia, Georgia, Iran, Russia
and Turkey and is split into two parts by Armenia;
the smaller part is called the Autonomous
Republic of Nakhchivan.

The country has an established democratic
government, which is fully supportive of international
investment initiatives. Infrastructure is reasonably
extensive. Low cost labour is also available.

Gedabek village.

Anglo Asian Mining PLC Annual report and accounts 2017Gedabek contract area

Gosha contract area

Ordubad contract area

• 300 square kilometre contract area

• 462 square kilometre contract area

• Mining and exploration rights until

March 2022

• Currently the location of a small,
high grade, underground mine

• Gadir underground mine situated
700 metres from the existing main
open pit mine

• Ore mined at Gosha is transported

to Gedabek for processing

• Main target is copper-gold

• Non-JORC resource of about

• Notice of discovery disclosed

for one project area comprising
several targets

mineralisation of epithermal
and porphyry style

• Expanded exploration programme

planned in 2018

• New Ugur mine started in

40,000 ounces of gold

September 2017

• All processing of ore carried out

at Gedabek

Georgia

Russia

Armenia

Turkey

Azerbaijan

Baku

6
1
6

Nakhchivan

Caspian Sea

Iran

Contract area locations

Gosha

Gedabek

Ordubad

Occupied territories (grey area)

Gyzilbulakh

Soutely

Vejnali

www.angloasianmining.com Annual report and accounts 2017Anglo Asian Mining PLCChairman’s statementStrategic reportFinancial reviewCorporate governanceGroup financial statementsCompany financial statementsAnnual general meetingChairman’s statement
Khosrow Zamani

Our strategic review in early 2017 set down
clear objectives.......These objectives were successfully
executed during the year.

2017 has been another profitable year
for Anglo Asian during which time
your Company has also been
transitioning into a sustainable mining
business. Our strategic review in early
2017 set down clear objectives for the
year to ensure long-term production
at Gedabek. These included commencing
production from a new open pit at
Ugur in late 2017 together with other
production and optimisation initiatives.
These objectives were successfully
executed during the year. I am especially
pleased to report the publication of
the JORC resource for the Ugur deposit
in August 2017 and the commencement
of gold doré production from its open
pit mine the following month, less than
a year after the deposit’s discovery.

I am pleased to report that total
production in 2017 was broadly in
line with 2016. The reduction in mining
and resulting lower production, due
to the strategic review, was offset by
better than anticipated production
from Ugur. The Company is now
benefitting from those optimisation
initiatives and we have set a
production target for 2018
significantly higher than 2017. The
financial position of Anglo Asian has
also improved materially with net
debt almost halving in the year which
significantly lowered interest costs.
The progress achieved by the
Company during the year, together
with the recently started three-year
programme of geological exploration,
will all further advance the delivery
of long-term value to shareholders
and provide a sound basis for our
short term objective of paying a
maiden dividend.

Review of 2017 and 2018 to date
Anglo Asian produced a total of
71,461 gold equivalent ounces (“GEOs”)
of metal in 2017, marginally less than
72,304 GEOs ounces in 2016. Total gold
production was 59,617 ounces in 2017
compared to 65,394 ounces in 2016.
However, this was offset by a combination
of higher production and selling prices for
copper and also higher silver production.
Copper production in 2017 was 1,991 tonnes,
a 2.6 per cent. increase over 2016 of
1,941 tonnes and silver production in
2017 was 172,853 ounces compared to
165,131 ounces in 2016. Gold bullion
production in 2017 at 52,534 ounces
was lower by 8,398 ounces compared to
60,932 ounces in 2016. This was a result
of lower output in the first nine months
of the year following implementation of the
production optimisation strategy, which
was then partially offset by strong
production in the last quarter, due to
the commencement of mining at the
Ugur deposit.

Revenues in 2017 at $71.8 million were
$7.4 million lower than 2016. The lower
revenues in 2017 were due to an increase
in gold doré inventory at the end of 2017
compared to 2016 of just over two thousand
ounces and because a higher proportion
of our gold was sold as concentrate which
achieves a lower sales value. The average
gold price in 2017 was marginally higher
at $1,258 per ounce compared to
$1,253 per ounce in 2016 and the Company
also benefitted from higher copper prices
with an average price of $6,200 per metric
tonne in 2017, being 27 per cent. higher
than 2016. The Company continued to
be subject to an effective royalty on its
revenues in 2017 of 12.75 per cent. of the
value of its production under the terms
of its Production Sharing Agreement.
The basis of this royalty is explained on
pages 21 and 22 of the financial review.
The Company will continue to be subject
to this effective royalty of 12.75 per cent.
until all its unrecovered costs for Gedabek
are utilised in accordance with the
Production Sharing Agreement.

New civic centre in Gedabek.

Anglo Asian Mining PLC Annual report and accounts 2017The versatility of our processing facilities
also proved valuable in 2017 in helping to
maintain production whilst the strategic
review was implemented. Initially in 2017,
we used both crushed ore as feedstock
for the agitation leaching plant, with the
tailings treated by flotation and the reverse
configuration with crushed ore feedstock
initially treated by flotation followed by
leaching. Following the start of mining from
Ugur, the flotation plant was temporarily
placed on care and maintenance, as the
Ugur oxide-rich ores do not contain
copper and only require treatment by
agitation leaching. To increase the overall
utilisation of the Company’s processing
facilities, a dedicated independent
crusher line for the flotation plant is being
commissioned in the current quarter of
2018. This will enable the two main plants
to operate independently of each other
and will increase both the flexibility and
capacity of our processing facilities.

The Company continues to invest in
infrastructure and plant to reduce costs
and improve both the productivity and
sustainability of its operations especially
given the scarce water resources of the
region. During 2017, the construction and
commissioning of a water treatment plant
at a cost of $3 million was completed
which uses the latest reverse osmosis
technology. In the last few years, Gedabek
village has experienced water shortages
in the summer and this plant reduces to

the absolute minimum the consumption
of fresh water required by the Company.
The plant is now producing around
200,000 litres of purified water per day
which is being used in Gedabek’s
processing facilities. Additionally, the
tailings dam wall was raised by six metres,
which gives the tailings dam sufficient
capacity for the next two to three years.
We also completed a second pipeline
between our processing facilities and the
tailings dam to increase the volume of
tailings which can be discharged.

The Company’s main operation is located
at the village of Gedabek in north-west
Azerbaijan. The economy of the village
and the surrounding area has benefitted
enormously over the years from our
operations. Gedabek village has been
transformed with the construction of
much new infrastructure and many new
buildings including a new civic centre.
New shops and restaurants are opening
in the village. The Company takes its
corporate and social responsibilities very
seriously and on page 18 we describe
some of our initiatives to help the local
community. These include improving local
water supplies, agricultural initiatives,
sporting enterprises and education with
the construction of a kindergarten.
Including contractors, our operation now
employs over one thousand people in the
local area.

Unrecovered costs for Gedabek at the end
of 2017 totalled $95 million (2016: $100
million) and our current business plans
indicate that these costs will not be fully
recovered until at least 2023 and the
effective royalty of 12.75 per cent. will
therefore continue until then.

The Company’s all in sustaining cost
(“AISC”) per ounce of gold produced
marginally reduced to $604 in 2017
compared to $616 in 2016. This partially
offset the reduction in revenue and the
operating profit in 2017 was $9.2 million
compared to $11.7 million in 2016.

Cash from operations, despite the impact
of the optimisation initiatives in the year,
increased marginally to $29.8 million from
$29.6 million in 2016. We continued to
service our debt on time and net debt
reduced from $34.6 million at the end of
2016 to $18.1 million at the end of 2017.
The Company also refinanced $13.5 million
of its debt in early 2018 with a two-year
syndicated loan from banks primarily in
Azerbaijan. This is a sign of the confidence
that Azeri banks have in our business and
the new loan substantially reduced our
borrowing costs. It also resulted in the
release of $8.4 million in 2018 by extending
the repayment of debt principal into 2019.
The new loan has no financial covenants
and is unsecured. We were pleased to repay
in full the loan from our chief executive,
Reza Vaziri in March 2018 and I would
like to thank Reza for his confidence and
commitment to the Company which has
proved to be amply justified.

The start of production from the new Ugur
open pit mine in September 2017 was a
very significant milestone for the Company.
The discovery of the deposit, which is
located three kilometres north-west from
our processing facilities at Gedabek, was
announced in October 2016. That we were
able to bring the mine into production
in around one year was a tremendous
success and demonstrates our ability to
rapidly exploit any future opportunities
which may arise. The start of production
from Ugur required the construction of
a 4.6 kilometre access road through very
hilly terrain. The JORC (2012) resource
estimation for the Ugur gold deposit
released in August 2017 shows a mineral
resource of 199,000 ounces of gold which
is a valuable addition to our resources
and further advances the sustainability
of the Company.

Panoramic view of the Gedabek site.

Outlook
It is with continued optimism that I look
forward to 2018 and beyond. During the
course of 2017 and early 2018 we have
opened a new mine and added to the
Company’s resources. We have also
carried out several initiatives to maintain
and increase production from our existing
mines and have embarked on a three-year
exploration programme to further explore
and develop the potential of Gedabek.
This progress has enabled us to target
significantly higher production for 2018
compared to the previous two years
and we are on track to achieve this target.
It is also building on our strong platform
for sustained growth in production
and development.

The Group has a production target
for 2018 of between 78,000 ounces
and 84,000 GEOs, an increase of over
13 per cent. compared to total production
of 71,461 GEOs in 2017. This includes
between 64,000 ounces and 70,000 ounces
of gold and between 2,100 tonnes and
2,300 tonnes of copper. I look forward
to updating shareholders on our progress
over the remainder of 2018.

Appreciation
I would like to take this opportunity to
thank our Anglo Asian employees, our
partners, the Government of Azerbaijan,
advisers and fellow directors for their
continued support as we continue to
build the Company into a leading and
sustainable gold, copper and silver
producer in Azerbaijan and Caucasia.
I would also like to especially thank our
shareholders for their invaluable support
as we look forward to a successful 2018.

Khosrow Zamani
Non-executive chairman
23 May 2018

Review of 2017 and 2018 to date
continued
The Gedabek site is now connected to
the national electricity power grid, and
together with good road access, this
provides Gedabek with excellent
infrastructure. The financial benefits of our
investments in infrastructure were evident
in 2017 with fuel and electricity costs
$2 million lower in total than 2016 due
to the connection to the power grid.
The Company’s health and safety record
continues to improve with a reduction
in the lost time injury rate in 2017.
We also expanded the health, safety
and environmental (“HSE”) department
in 2017.

We undertook significant geological
exploration in 2017 as described in the
Strategic Report on pages 9 to 17 and
in March 2018 we announced a significant
three-year geological exploration
programme. This will build upon previous
geological work and includes near mine,
brownfield and greenfield exploration.
In 2018, it is anticipated that 12,000 metres
of reverse circulation, 17,500 metres
of surface core and 14,000 metres of
underground core drilling will be carried
out. A heli-borne electromagnetic survey
is also planned covering the entire Gedabek
contract area and the further potential
of Gosha and Ordubad will be investigated.
The expected cost of the programme in
2018 is around $6 million, which will be
funded from internal resources. Gedabek
has numerous known mineral occurrences
and our existing mines have further
development potential. We have also
previously made significant finds
of commercially exploitable minerals.
We therefore believe this programme
has the potential to significantly add
value to your Company.

Dividend
In order to reward shareholders following
the significant reduction in debt and
anticipated surplus cash generation, the
Company is currently preparing a plan
for the payment of dividends. There are
some legal and financial issues requiring
consideration before payment of a maiden
dividend and the board is currently working
on these. The board will announce a dividend
policy as soon as practical and, in any event,
an announcement is expected to be made
no later than the end of quarter three 2018.

Anglo Asian Mining PLC Annual report and accounts 2017Strategy and exploration in 2018
Strategy and exploration
Strategy and exploration

We undertook significant geological exploration in 2017 and in

March 2018 we announced a significant three-year geological exploration
programme. This will build upon previous geological work and includes
near mine, brownfield and greenfield exploration.

• Objectives are to replace existing mined ounces, extend mine life and increase the Company’s resources
• New mineral deposits similar to Ugur will be sought which can be brought quickly into production
• 43,500 metres in total of surface and underground drilling is planned
• Airborne geophysics programme planned for the entire Gedabek contract area

Gedabek main open pit
2,500 metres of core and 7,500 metres of reverse circulation
drilling are planned to identify the quantity and quality of the
feedstock for the processing plants.

Ordubad
An initial surface exploration programme is planned in 2018 to
identify porphyry-style mineralisation and its relationships with
the known gold vein deposits of the area.

Gedabek underground
The down dip continuity of the mineralisation was confirmed in
2017. Tunnelling and the construction of drill chambers will be
carried out and 5,750 metres of underground core drilling is
planned to assess the quantity and quality of mineralisation.

$6 million to be
spent on exploration
in 2018

Ugur open pit
4,500 metres of core and 4,500 metres of reverse circulation
drilling are planned for 2018. Targets to be assessed are
extensions to the known mineralisation and drilling areas
adjacent to the current mining area.

Gadir underground
7,500 metres of core surface and 8,400 metres of underground
drilling are planned in 2018 for both Gadir and between Gadir
and the main open pit. This is to further define the footprint
geology of Gadir and assess the geological relationship
between Gadir and Gedabek mineralisation.

Panoramic view of the Ugur mine
The discovery of the Ugur deposit was announced in October 2016 and the mine commenced production in September 2017. This is
extremely rapid in an industry which usually requires several years as a minimum to develop mines. It demonstrates the ability of the
Company to take extremely quick advantage of opportunities.

Mineral resource
of 199,000 ounces
of gold

Road between the Ugur mine and processing facilities
To commence production from the Ugur mine required the
construction of a 4.6 kilometre road through very hilly terrain.

Infrastructure at the Ugur mine
All of the necessary infrastructure at the Ugur mine has
now been built including the mine office, canteen and
washroom facilities.

Free digging of Ugur ore
Initial production of ore from Ugur was by free digging. The ore is
a “clean” oxide ore containing no copper or significant impurities
and is very amenable to agitation leaching. 238,818 tonnes of ore
grading 3.2 grammes per tonne of gold was mined between
September and December 2017.

Anglo Asian Mining PLC Annual report and accounts 2017Strategic report

The total production target for the year to 31 December 2018
expressed as gold equivalent ounces (“GEOs”) is between 78,000 GEOs
and 84,000 GEOs compared to total production for the year to
31 December 2017 of 71,461 GEOs.

The directors present their
strategic report for the year
ended 31 December 2017.

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

The Group has a 1,962 square kilometre
portfolio of gold, silver and copper
properties in western Azerbaijan, at
various stages of the development cycle.
The Group’s primary operating site is
Gedabek, which is the location of the
Group’s main gold, silver and copper
open pit mine, the Ugur open pit mine

and Gadir, an underground mine.
The Group’s processing facilities to produce
gold doré and copper, silver and gold
concentrates are also located at Gedabek.
Gosha, the Group’s second underground
gold and silver mine, is located 50 kilometres
away from Gedabek. Ordubad, the Group’s
early stage gold and copper exploration
project is located in Nakhchivan,
South West Azerbaijan.

Overview of 2017 and 2018
production target
In early 2017, a wide-ranging strategic
review of Gedabek was completed in
response to the discovery of the Ugur gold
deposit and the decreasing gold grade of
ore mined in the main open pit. As a result
of this strategic review, several initiatives
to ensure sustainable long-term production
at Gedabek were undertaken in 2017:

• A temporary reduction of ore production
from both the Gedabek main open pit
and the Gadir underground mine, in
order to carry out exploration, ore zone

definition and production optimisation.
Any ancillary ore mined during this time
was stockpiled for later processing.

• Development of the Ugur deposit so that
mining could commence from an open
pit before the end of the year.

• Processing of the Company’s extensive
stockpiles of ore whilst mining was
suspended, with the flotation and
agitation leaching plants reconfigured
to treat the high copper content of the
stockpiled ore to maintain production.

The Group has a production target for the
year to 31 December 2018 of 64,000 ounces
to 70,000 ounces of gold and 2,100 tonnes
to 2,300 tonnes of copper. The total
production target for the year to
31 December 2018 expressed as gold
equivalent ounces (“GEOs”) is between
78,000 GEOs and 84,000 GEOs,
compared to total production for the
year to 31 December 2017 of 71,461 GEOs.

New water treatment plant.

Anglo Asian Mining PLCChairman’s statementStrategic reportFinancial reviewCorporate governanceGroup financial statementsCompany financial statementsAnnual general meetingwww.angloasianmining.com Annual report and accounts 2017Strategic report continued

Gedabek
Introduction
The Gedabek mining operation is located
in a 300 square kilometre contract area in
the Lower Caucasus mountains in western
Azerbaijan on the Tethyan Tectonic Belt,
one of the world’s most significant copper
and gold-bearing geological structures.
Gedabek is the location of the Group’s
open pits and underground mines and
its processing facilities.

Gold was first poured from ore mined
from the main open pit mine and processed

by heap leaching in May 2009. Copper
and precious metal concentrate production
began in 2010 when the Sulphidisation,
Acidification, Recycling and Thickening
(SART) plant was commissioned. The Group’s
agitation leaching plant commenced
production in 2013 and its flotation plant
in 2015. Underground extraction of ore
started in June 2015 when the Gadir mine
was opened. During 2017, the Group
brought Ugur, a newly discovered gold
deposit three kilometres north-west of its
processing facilities, into production as an
open pit mine.

Mineral resources
Key to the future development of the
Gedabek site is our knowledge of the
mineral resources and ore reserves within
the contract area. The Group’s most recent
ore reserve estimate for its main open pit
was carried out as of 1 September 2014.
This ore reserve estimate showed an
increase of approximately 3.9 million
tonnes of ore, after allowing for depletion
due to mining, since the previous estimate.
It also showed a significantly higher copper
content than the previous estimate.
Table 1 shows the main open pit ore
reserve estimate as at 1 September 2014.

Table 1 – Main open pit ore reserve estimate at 1 September 2014

In situ grades

Ore reserve

Contained metal

Recoverable metal

Reserve
category

In situ
(tonnes)

Au
(g/t)

Cu
(per cent.)

Ag
(g/t)

Au
(ounces)

Cu
(tonnes)

Ag
(ounces)

Au
(ounces)

Cu
(tonnes)

Ag
(ounces)

Proven

16,733,000

Probable

3,761,000

1.12

0.68

0.61

0.40

7.63

603,000

87,000 4,105,000

447,000

65,000 1,346,000

6.12

82,000

15,000

740,000

58,000

11,000

268,000

Total

20,494,000

1.03

0.50

7.35

685,000

102,000 4,845,000

505,000

76,000 1,614,000

During 2017, the Group completed the JORC (2012) mineral resource and ore reserve statements for the Ugur deposit. Table 2 shows
the mineral resource estimate for the Ugur deposit and Table 3 shows the ore reserve estimate for the Ugur deposit.

Table 2 – Ugur mineral resource estimate at 1 August 2017

Mineral resource

In situ grades

Contained metal

Au
(g/t)

1.2

0.8

1.2

0.3

0.9

Ag
(g/t)

6.3

3.9

Au
(ounces)

Ag*

(ounces)

164,000

841,000

8,000

44,000

6.2

172,000

884,000

2.1

27,000

165,000

4.7

199,000 1,049,000

Ore reserves

In situ grades

Contained metal

Au
(g/t)

1.3

0.8

1.3

Ag
(g/t)

7.2

4.1

Au
(ounces)

Ag
(ounces)

142,000

779,000

5,000

29,000

7.0

147,000

808,000

In situ
(tonnes)

4,120,000

340,000

4,460,000

2,500,000

6,960,000

In situ
(tonnes)

3,370,000

220,000

3,590,000

Resource category

Measured

Indicated

Measured and indicated

Inferred

Total

* does not add due to rounding

Table 3 – Ugur ore reserves estimate at 1 August 2017

Reserve category

Proved

Probable

Proved and probable

Anglo Asian Mining PLC Annual report and accounts 2017Mining operations
The principal mining operation at Gedabek
is conventional open cast mining from the
main open pit (which comprises several
contiguous smaller open pits) and the
new Ugur open pit. Ore is first drilled
and blasted and then transported either
to a processing facility or to a stockpile
for storage. The major mining activities of
blast-hole drilling and haulage of ore and
waste rock are carried out by contractors,
while blasting and mining activities are
carried out by the Company.

Production commenced from the new
Ugur open pit mine in September 2017.
To enable production, a 4.6 kilometre
road was constructed between the mine
and the Company’s processing facilities.
All necessary surface infrastructure,
including geology and medical and HSE
offices, hygiene facilities, mechanical
workshop, lubricants and spares stores,
a weighbridge and diesel store was also
constructed at the minesite. Due to the
composition of the Ugur ore, initial mining
of ore in the first few months of operation,
was by free digging with drill and blast
not required.

Ore is also mined from the Gadir
underground mine which is situated
approximately one kilometre from the
main open pit at the Gedabek site.
Table 4 shows the total amount of ore
mined in 2017 from all the Company’s
mines at Gedabek (including Gosha).

Mining activities were reduced in 2017
in the main open pit from April and
suspended from August to December.
During this time, the mining fleet was
redeployed to develop and start production

in the Ugur open pit mine, where
exploration, ore zone definition and
production optimisation was carried
out. Mining was also significantly
reduced in 2017 in the Gadir underground
mine to allow further mine development,
exploration and ore zone definition to
be carried out.

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

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

1 Heap leaching of crushed ore.

Crushed ore is heaped into permeable
“pads” onto which is sprayed a solution
of cyanide. The solution dissolves the
metals as it percolates through the ore
by gravity and it is then collected.

2 Heap leaching of run of mine

(“ROM”) ore. The process is similar to
heap leaching for crushed ore, except
the ore is not crushed, instead it is
heaped into pads as received from the
mine (ROM) without further treatment
or crushing.

3 Agitation leaching. Prior to the

construction of the flotation plant,
ore was crushed and then processed
through a grinding circuit. The finely
ground ore is then placed in stirred
(agitation) tanks containing a cyanide
solution and the contained metal is
dissolved in the solution. Subsequent

to the construction of the flotation plant,
a further option is available to treat ore
in the agitation leaching plant. This is to
process the finely ground ore through the
flotation plant prior to, or after treatment
by the agitation leaching plant.

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

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

1 Sulphidisation, Acidification,

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

Table 4 – Ore mined at Gedabek from all mines (including Gosha) for the year ended 31 December 2017

Mine

Main open pit

Ugur – open pit

Gadir – underground

Gosha – underground

Total

Total ore mined

12 months to
31 December 2017

Ore
mined
(tonnes)

Average
gold grade
(g/t)

712,444

238,818

80,614

28,284

1.18

3.20

3.56

3.99

1,060,160

1.89

is primarily to produce a copper-rich mineral
concentrate, containing gold and silver as
by-products. The flotation plant commenced
production in November 2015.

The flotation plant has the flexibility
to be configured for various methods
of operation. Initially in 2017, gold doré
and copper concentrate was produced
by using ground ore as feedstock for the
agitation leaching plant, with the leached
tailings being treated by flotation. This
configuration was reversed from early
February with ground ore feedstock
initially treated by flotation, prior to
agitation leaching. This was to treat the
high copper-content ore stockpiles whilst
production optimisation was carried out.
With commencement of mining from the
Ugur open pit in September 2017, the
Ugur ore, which is copper free, was
treated by agitation leaching only and
the flotation plant was temporarily put
on care and maintenance. To improve the
total processing capacity of the plants
and enable their independent operation,
a second, dedicated crusher line for
the flotation plant was procured for
$3.0 million, including site works, and
which is being commissioned in the
current quarter of 2018.

Production and sales
For the year ended 31 December 2017,
total gold production as doré bars and
as a constituent of the copper and
precious metal concentrate totalled
59,617 ounces, which was a decrease
of 5,777 ounces in comparison to the
production of 65,394 ounces for the
year ended 31 December 2016.

Table 5 summarises the amount of ore
and its gold grade processed by heap
and agitation leaching for the year
ended 31 December 2017.

Waste water evaporator deployed in the tailings dam.

Gedabek continued
Processing operations continued
2 Flotation. Flotation is carried out in

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

Initially, gold doré was produced at
Gedabek only by heap leaching crushed
and agglomerated ore. Heap leaching is
a low capital cost method of production
commonly used by mines when they first
move into production. Ore at Gedabek
is being crushed to less than 25mm in

size and the resultant gold recovery is
approximately 60 per cent. to 70 per cent.
of the contained gold over leaching cycles
which extend typically beyond one year.

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

The ore at Gedabek is polymetallic
containing significant amounts of
copper. Initially, the SART processing
plant was constructed to recover some
of the copper as a copper and precious
metal chemical concentrate. However,
to further exploit the high copper content
of the Group’s ore reserves, the Group
constructed a flotation plant whose function

Table 5 – Amount of ore and its gold grade processed at Gedabek for the year ended 31 December 2017

Amount of ore processed (tonnes)

Gold grade of ore processed (g/t)

Heap
leach pad
(crushed ore)

Heap
leach pad
(ROM ore)

Agitation
leaching
plant

Heap
leach pad
(crushed ore)

Heap
leach pad
(ROM ore)

Agitation
leaching
plant

110,348

102,622

184,074

162,147

115,559

179,454

173,616

87,979

176,997

201,097

99,046

211,421

1.00

1.05

1.02

0.86

0.87

0.89

0.95

0.68

1.52

1.77

2.04

2.92

647,208

405,206

751,946

0.97

0.85

2.10

Quarter ended

31 March 2017

30 June 2017

30 September 2017

31 December 2017

Total for the year

Anglo Asian Mining PLC Annual report and accounts 2017Table 6 summarises the gold and silver bullion produced as doré bars and sales of gold bullion for the year ended 31 December 2017.

Table 6 – Gold and silver bullion produced as doré bars and sales of gold bullion for the year ended 31 December 2017

Quarter ended

31 March 2017

30 June 2017

30 September 2017

31 December 2017

Total for the year

* Including Government of Azerbaijan’s share.

** Excluding Government of Azerbaijan’s share.

Gold
produced*
(ounces)

Silver
produced*
(ounces)

Gold
sales**

(ounces)

Gold
sales price
($ per ounce)

9,258

9,131

12,221

21,924

2,447

3,266

4,381

8,283

7,406

9,287

12,634

18,520

1,220

1,258

1,286

1,278

52,534

22,728

43,496

1,265

Table 7 summarises the total copper, gold and silver produced as concentrate by both SART processing and flotation processing for
the year ended 31 December 2017.

Table 7 – Total copper and precious metal produced as concentrate for the year ended 31 December 2017

Copper (tonnes)

Gold (ounces)

Silver (ounces)

Quarter ended

SART

Flotation

Total

SART

Flotation

Total

SART

Flotation

Total

31 March 2017

30 June 2017

30 September 2017

31 December 2017

210

187

165

119

396

529

385

—

606

716

550

119

1,815

3,005

2,243

—

1,820

3,009

2,247

5,523

4,717

9,097

34,844

31,399

37,735

26,810

—

36,922

42,452

35,907

34,844

Total for the year

681

1,310

1,991

7,063

7,083

54,181

95,944

150,125

Table 8 summarises the total copper and precious metal concentrate production and sales from both SART processing and flotation
processing for the year ended 31 December 2017.

Table 8 – Total copper concentrate production and sales during the year ended 31 December 2017

Quarter ended

31 March 2017

30 June 2017

30 September 2017

31 December 2017

Total for the year

Concentrate
production*
(dmt)

Copper
content*
(tonnes)

Gold
content*
(ounces)

Silver
content*
(ounces)

Concentrate
sales
(dmt)

Concentrate
sales
($000)

2,740

3,622

2,712

256

606

716

550

119

1,820

3,009

2,247

36,922

42,452

35,907

34,844

2,230

3,166

2,905

196

4,220

6,104

5,480

977

9,330

1,991

7,083

150,125

8,497

16,781

* Including Government of Azerbaijan’s share.

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

Water management
During 2017, the construction and
commissioning of a water treatment
plant at a cost of $3 million was completed
which uses the latest reverse osmosis
technology. In the last few years, Gedabek
village has experienced water shortages
in the summer and this plant reduces to
the absolute minimum the consumption
of fresh water required by the Company.
The plant is now producing around
200,000 litres of pure water per day
which is being used in Gedabek’s
processing facilities.

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

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

During 2017, the wall of the tailings dam
was raised by six metres. This has increased
the capacity of the tailings dam from
3.2 million cubic metres to 4.3 million
cubic metres. A second pipeline from
the Company’s processing facilities to
the tailings dam was also completed.

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

During 2017, there were 45 (2016: 58)
reportable safety incidents, of which two
(2016: five) were lost time incidents (“LTI”),
where the casualty had to take time off
work. Both staff injured in 2017 made a
full recovery.

Company employee refurbishing excavator bucket.

During 2017, the Health and Safety
department was expanded to cover the
Company’s growing operations. Three new
HSE officers were recruited and the number
of staff in the department totalled 11 at
the end of 2017. The Company’s growing
experience of mining is resulting in increased
safety with fewer incidents occurring.

Exploration at Gedabek site
A significant exploration programme
was carried out in 2017.

Gedabek open pit
During the temporary reduction
and suspension of mining in 2017,
ore zone definition activity to define the
gold and the copper-gold distribution
was carried out. 48 surface core drill holes
with a total length of 4,219 metres and
75 reverse circulation drill holes with a
total length of 4,170 metres were completed.
All the core and reverse circulation cuttings
were geologically logged, sampled and
assayed. In addition, production and grade
control drilling was carried out, which
included 61 reverse circulation drill holes
with a total length of 2,135 metres and
7,480 bench drill holes with a total length
of 20,903 metres. Database development
continued and the results confirm the
presence of copper mineralisation.

Areas adjacent to the Gedabek open pit
A mineral occurrence adjacent to the main
open pit is located at a south-west corner
of the prospecting area at a distance of
2.8 kilometres. Structural mapping has
defined one quartz vein with pyrite
phenocrysts at a north-east strike with
a dip to the north-west at an angle of
70 degrees. Based on the geology of the
area, 30 trench and grab samples were
taken and analysed. The results show
the presence of gold at around 0.15 to
0.8 grammes per tonne and silver at 1.0
to 10.0 grammes per tonne. Although
these grades are not high, they do
indicate the presence of gold on the
surface which warrants further exploratory
work and possible follow-up drilling.

Gedabek open pit – underground
As part of investigating the future potential
of the Gedabek mine, exploration activity
commenced to ascertain whether sufficient
mineralisation exists under the pit to
consider underground mining beneath
the pit. This will allow for planning
simultaneous open pit and underground
mining or estimating the timing of an
open pit to underground mining transition.

Anglo Asian Mining PLC Annual report and accounts 2017Push-back of the back wall as part of the development of the main open pit.

To access the area beneath the pit, a
tunnel was constructed from the existing
Gadir underground mine to a point at
the northern end of the Gedabek main
open pit (“Pit Four”). Some 606 metres
of tunnelling was completed to access
the target area. The tunnelling intersected
mineralisation between the target and
Gadir, as well as at the target destination.
At the end of the tunnel at the Pit Four
location, initial drilling was carried out
using BQ underground core drilling to
assess mineralisation adjacent to the
main drive. Over 271 metres of drilling
was completed which showed significant
mineralisation. The tunnelling will provide
access for further drill chambers to assess
the mineralisation between Gadir and
the main open pit. The intersections have
been modelled independently and show
continuous zones that can be considered
for mining.

Gadir underground mine
During 2017, ten surface core drill holes with a total length of 4,407 metres and
63 underground core drill holes (HQ/NQ diameter) with a total length of 5,043 metres
were completed. 3,340 metres of underground sidewall and tunnel roof mapping
was also completed. This work resulted in defining zones for the continuation
of mining and extended the down dip footprint of the mineralisation.

In addition, underground mine work continued in 2017 for both exploration and
development and for production activities as follows:

Development

Spiral ramp development

Tunnelling to access “Pit 4” Gedabek

Tunnelling to exploration drill sites

Production

Tunnelling

Raise work

As part of the mining activity, the following geological work was also conducted:

• 64 drill holes of BQ size core with a total length of 1,816 metres were drilled for

ore definition;

• 3,340 metres of sidewall and roof geological mapping was completed; and

• 2,761 metres of channel sampling for zone definition was completed.

Metres

386

606

441

1,554

150

The presence of gold was first discovered
at Shakardara around 1956 to 1958. Soviet
geologists estimated resources for the
main vein zone of 2.6 million tonnes of ore
containing 3.7 tonnes of gold, 8.8 tonnes of
silver and 4.01 tonnes of copper, but these
estimates have never been substantiated.
Based on recent understanding of porphyry
style mineralisations, a reassessment of the
deposit is currently being carried out.

Exploration in 2017 included resampling
from existing adits and surface trenching.
Table 9 summarises the exploration work
completed in 2017 at Ordubad.

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

The Group ships all of its gold doré
to MKS Finance SA in Switzerland. The
logistics of transport and sale are well
established and gold doré shipped from
Gedabek arrives in Switzerland within three
to five days. The proceeds of the estimated
90 per cent. of the gold content of the doré
is settled within one to two days of receipt
of the doré. The Group has not experienced

any disruptions to its sale of metal due to
logistics or delays in customs clearance.
MKS Finance SA both refines and then
purchases our precious metal; all assays
and a full accounting of all metal are
agreed with them.

The Gedabek mine site has good road
transportation links and our copper and
precious metal concentrate is collected
from the Gedabek site by the purchaser.
The Group was pleased to announce in
May 2014 that it had signed an exclusive
three year contract with Industrial Minerals
SA, a Swiss-based integrated trading,
mining and logistics group, for the sale
of its SART copper concentrate. The Group
has again experienced no delays in the
sale of its copper concentrate in the period
under review. In March 2016, the Group
signed an additional contract with Industrial
Minerals SA for the sale of the concentrate
produced by its flotation plant, which had
improved terms. The second contract is
valid for the period to 31 December 2018.
Prior to March 2016, sales of concentrate
produced by the flotation plant were
made under the original contract.

Table 9 – Exploration work at Ordubad in 2017

Activity

Unit of measurement

Geological outcrop sampling

Number of samples

Surface geochemical sampling

Area in square kilometres

Trenching

Trench samples

Underground mapping

Channel sampling

Road cleaning

Underground rehabilitation

Linear in metres

Volume in cubic metres

Number of samples

Linear in metres

Number of samples

Linear in metres

Result

140

1,797

449

1,160

1,374

470

458

11,750

1,130

Gedabek continued
Ugur
Exploration activity in 2017 continued
that of 2016 with the purpose of completing
the JORC (2012) resource and reserve
statements for the deposit and to bring the
deposit into production. The exploration
activity in 2017 included the following:

• 48 core drill holes with a total length

of 5,054 metres;

• 40 reverse circulation drill holes with

a total length of 3,700 metres;

• 435 outcrop samples; and

• 100,000 square-metres of detailed

lithological-alteration-structural mapping
was completed (over the central part of
the deposit).

Soyudlu
The Soyudlu mineralisation area is located
about two kilometres to the south from the
village of Soyudlu at the confluence of the
Missu and Parakendsu rivers. 150 outcrop
and 8 stream samples were collected.
All samples were prepared and assayed,
and the results imported to the geological
database. The samples showed sufficient
mineralisation to indicate that the area
warrants follow-up exploration work.

Gosha
The Group’s second mining project,
the 300 square kilometre Gosha contract
area, is located in western Azerbaijan,
50 kilometres north-west of Gedabek.
Gosha is being operated as a small,
high grade, underground gold mine.

A total of 28,284 tonnes of ore of average
gold grade 3.99 grammes per tonne
were mined at Gosha in the year ended
31 December 2017.

Ordubad
Our 462 square kilometre Ordubad
contract area is located in Nakhchivan,
South West Azerbaijan and contains
numerous targets including Shakardara,
Piyazbashi, Misdag, Agyurt, Shalala and
Diakchay, all of which are located within
a five kilometre radius of each other. The
Group’s efforts in 2017 were focused on
Shakardara which is located in the central
area of the Ordubad contract area.

Anglo Asian Mining PLC Annual report and accounts 2017Principal risks and uncertainties
Country risk in Azerbaijan
The Group currently operates solely in
Azerbaijan and is therefore naturally at
risk of adverse changes to the regulatory
or fiscal regime within the country. However,
Azerbaijan is outward looking and desirous
of attracting direct foreign investment
and the Company believes the country
will be sensitive to the adverse effect of
any proposed changes in the future.
In addition, Azerbaijan has historically
had a stable operating environment and
the Company maintains very close links
with all relevant authorities.

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

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

The Group actively monitors all changes
in commodity prices to understand the
impact on the business. The Group
hedges future sales of gold bullion when
the directors believe it is beneficial to the
Company. The directors periodically
review the requirement for hedging.

Foreign currency risk
The Group reports in United States Dollars
and a large proportion of its costs are
incurred in United States Dollars. It also
conducts business in Australian Dollars,
Azerbaijan Manats and United Kingdom
Sterling. The Group does not currently
hedge its exposure to other currencies,
although it will review this periodically if
the volume of non-United States Dollar
transactions increases significantly. Also,
the fact that both revenue of the Group
and the Group’s interest bearing debt are
settled in United States Dollars is a key
mitigating factor that helps to avoid
significant exposure to foreign currency
risk. Information on the carrying value of
monetary assets and liabilities denominated
in foreign currency and the sensitivity
analysis of foreign currency is disclosed in
note 23 to the financial statements.

Liquidity and interest rate risk
During 2017, interest rates on loans
payable were fixed except for the three
month LIBOR embedded in the terms of
the Amsterdam Trade Bank (“ATB”) and
Gazprombank (Switzerland) Ltd (“GPBS”)
loans. The loans from ATB and GPBS were
repaid in March 2018 and since then the
interest rates on all loans have been fixed.
The Group has not used any interest rate
swaps or other instruments to manage its
interest rate profile during 2017, but this
requirement is reviewed on a periodic
basis. Information on the exposure to
changing interest rates is disclosed in
note 23 to the financial statements. The
approval of the board of directors is
required for all new borrowing facilities.

The levels of deposits held by the Group
have also been low; therefore, any impact
of changing rates on interest receivable
is minimal.

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

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

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

3. All in sustaining cost (“AISC”)

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

Reza Vaziri
President and chief executive
23 May 2018

The Group is fully committed to developing a truly sustainable

mining operation in Azerbaijan. This involves minimising the risks
to the environment from extraction and processing and preventing
work related injuries. The Company also contributes to the economic
and social development of the local communities.

New kindergarten at Gedabek
The Company contributed approximately two thirds of the
$300,000 cost of a new kindergarten which opened in 2017.
It accommodates 130 children.

Arikhdam school repair
The building of the elementary school in the village of Arikhdam
had deteriorated so that it was unsafe for children. The
Company undertook repairs to the building at a cost
of $300,000.

Beekeeping assistance programme
Beekeeping and the production of honey is widely practiced
in the local area with an estimated 800 families keeping bees.
The Company has been actively assisting bee keeping in various
ways such as micro-loans to purchase new hives and equipment
and holding training programmes.

Over $400 million
contributed to the
Azerbaijan economy

Construction of infrastructure
The Company has constructed two bridges in the local area.
The Gumlu village bridge for pedestrians and the Soyudlu
village bridge which was widened for vehicles. Pictured is the
Gumlu pedestrian bridge.

English and computer training
The Company has opened an internet resource facility to
provide free internet services and basic computer skills to young
people in Gedabek. Classes teaching basic computer skills are
carried out and there are now English language courses.
Students receive a certificate upon successful completion
of their courses.

Anglo Asian Mining PLC Annual report and accounts 2017Investment in our operations

The Company continues to invest in infrastructure
and plant to reduce costs and improve both the productivity
and the sustainability of its operations.

Waste management and water treatment
The Company’s new water treatment plant was commissioned during 2017. The plant uses the latest reverse osmosis technology and
is now producing around 200,000 litres of pure water per day which is being used in Gedabek’s processing facilities. The Company
also raised the wall of its tailings dam by six metres and completed a second pipeline between our processing facilities and the
tailings dam.

New water treatment plant.

Tailings dam showing the wall raised by six metres.

New second crusher line for flotation plant
The Company’s new crusher line has been purchased at a total cost of $3 million. This will both increase the flexibility and capacity
of the processing facilities. A new thickener is also being constructed.

Delivery of the new jaw crusher.

Construction of the foundations for the new jaw crusher.

Additional thickener being constructed for the new second crusher line.

The Group recorded a profit before taxation in 2017

of $5.7m compared to $6.8m in 2016. Lower revenues were
offset by a lower all in sustaining cost of gold production
and finance costs.

Bullion sales in 2017 were

43,496 ounces

of gold

18,442 ounces

of silver

The Group had a taxation charge in 2017
of $3.2m (2016: $2.8m). This comprised a
current income tax charge of $nil (2016: $nil)
and a deferred tax charge of $3.2m
(2016: $2.8m). The Group had no current
taxation charge in 2017 or 2016 as the
taxable profits incurred by its operating
company in Azerbaijan were offset against
taxable losses brought forward from previous
years. Tax losses carried forward at end 2017
were $4.7m (2016: $19.2m). The taxable
profits of the operating company in
Azerbaijan are taxed at 32 per cent.
However, the Group’s overall tax rate in
2017 was 56 per cent. (2016: 41 per cent.).
The overall tax rate is higher than 32 per cent.
because the UK administrative costs and
depreciation of mining rights in Azerbaijan
cannot be offset against the taxable
profits arising in Azerbaijan. These costs
in 2017 totalled $3.1m (2016: $2.9m).

All in sustaining cost (“AISC”)
per ounce in 2017 of

$604

The directors present their
financial review for the year ended
31 December 2017. This financial
review forms part of the strategic
report on pages 9 to 17.

Group statement of income
The Group generated revenues in 2017
of $71.8m (2016: $79.2m) from the sales
of gold and silver bullion and copper
and precious metal concentrate.

The revenues in 2017 included $55.4m
(2016: $66.9m) generated from the sales
of gold and silver bullion from the Group’s
share of the production of doré bars. Bullion
sales in 2017 were 43,496 ounces of gold and
18,442 ounces of silver (2016: 53,281 ounces
of gold and 9,512 ounces of silver) at an
average price of $1,265 per ounce and
$17 per ounce respectively (2016: $1,253 per
ounce and $17 per ounce respectively).
In addition, the Group generated revenue
of $16.4m (2016: $12.3m) from the sale of
8,497 (2016: 6,830) dry metric tonnes of
copper and precious metal concentrate.

The Group did not hedge any metal sales
during 2017.

The Group incurred cost of sales in 2017
of $56.8m (2016: $62.8m). The cash cost of
mining and processing in 2017 decreased
by $7.5m from $46.6m in 2016 to $39.1m
in 2017. Reagents cost decreased by $4.4m
due to improving operational efficiency and
the processing of Ugur ores which do not
contain copper. Fuel costs were lower by
$3.9m as the Gedabek site did not generate
its own electrical power in 2017. The lower
fuel cost was partially offset by electricity
and other utility costs which increased by
$1.8m as the Group purchased electricity
for Gedabek.

The Group generated revenues
in 2017 of

$71.8m

Depreciation and amortisation in
2017 was higher at $22.8m compared
to $22.0m in 2016. Accumulated mine
development costs within producing
mines are depreciated and amortised
on a unit-of-production basis over the
economically recoverable reserves of
the mine concerned, except in the case
of assets whose useful life is shorter than
the life of the mine, in which case the
straight line method is applied. The unit
of account for run of mine (“ROM”) costs
and for post-ROM costs is recoverable
ounces of gold.

The Group had other income in 2017
of $0.6m (2016: $1.4m) which was interest
receivable on a loan to a former employee
and other miscellaneous income. The
Group incurred administration expenses
in 2017 of $4.7m (2016: $4.9m). The Group’s
administration expenses comprise the cost
of the administrative staff and associated
costs at the Gedabek mine site, the Baku
office and maintaining the Group’s listing on
AIM. The majority of the administration costs
are incurred in either Azerbaijan New Manats
or UK Sterling, both of which were weaker
against the United States dollar in 2017
compared to 2016. This resulted in lower
administration costs when the costs were
translated into United States dollars. Finance
costs in 2017 were $3.5m (2016: $4.9m) and
comprise interest on the credit facilities
and loans, interest on letters of credit and
accretion expenses on the rehabilitation
provision. The costs reduced in the year
due to both a reduction in the average
debt in 2017 and a reduction in the
average interest rate on the debt.

The Group recorded a profit before
taxation in 2017 of $5.7m compared
to $6.8m in 2016. This was due to lower
revenues and higher depreciation in
2017 partially offset by a lower all in
sustaining cost of gold production
and finance costs.

Anglo Asian Mining PLC Annual report and accounts 2017The Group recorded a profit
before taxation in 2017 of

$5.7m

Amsterdam Trade Bank and Gazprombank
(Switzerland) (“ATB/GPBS”). Principal
repayments were made totalling $13.7m.
The only material new borrowing in 2017
was a $3.0m loan from Pasha Bank OJSC.

Cash from operations in 2017 was $29.8m
compared to $29.6m in 2016. The lower
operating cash inflow before movements
in working capital was offset by a lower
absorption by working capital.

All in sustaining cost of gold production
The Group produced gold at an all in
sustaining cost (“AISC”) per ounce of
$604 in 2017 compared to $616 in 2016.
The Group reports its cash cost as an
AISC calculated in accordance with the
World Gold Council’s guidance which
is a standardised metric in the industry.
The reason for the marginal decrease
in 2017 compared to 2016 was due to
the decrease in cash operating costs
partially offset by a higher sustaining
capital charge, lower by-product
credits and lower gold production.

Group statement of financial position
Non-current assets decreased from
$116.4m at the end of 2016 to $104.4m
at the end of 2017. The main reasons
for the decrease were intangible assets
lower by $0.7m and property, plant and
equipment lower by $11.1m. These
decreases were due to depreciation
and amortisation in the year.

There were net current assets of $12.6m
at the end of 2017 compared to $3.6m at
the end of 2016. The main reason for the
increase in current assets was a decrease
in trade and other payables of $6.7m
and current portion of loans payable
of $6.1m. The Group’s cash balances
at 31 December 2017 were $2.5m
(2016: $1.4m).

Net assets of the Group at the end of 2017
were $85.4m (2016: $82.6m). The increase
was due to the profit earned in 2017 and
the issue of shares during the year. During
2017, 1,100,000 ordinary shares were issued
at 12 pence per share. This increased the
net assets of the Group by $0.2m.

The Group is financed by a mixture
of equity and debt. The Group’s total
debt at 31 December 2017 was $20.7m,
a significant reduction from $35.9m
in 2016. The significant reduction of
debt in 2017 was mainly due to cash
generation resulting in the repayment
of loans made for the construction of
the agitation leaching plant from the
International Bank of Azerbaijan, the

The Group continues to reduce the
weighted average interest rate payable
on its borrowings through either refinancing
debt at lower interest rates or negotiating
lower interest rates with banks in respect
of existing loans. The weighted average
interest rate on its debt at end 2017 was
8 per cent. (2016: 10 per cent.).

As set out in note 28 to the accounts –
“Post Balance Sheet Event” on page 64,
the Group refinanced a significant portion
of its debt and repaid the loan from the
chief executive in February and March 2018.
The only covenant contained within the
Group’s loan facilities at end 2017 was the
debt service coverage ratio covenant in
the loan from ATB/GPBS. This loan was
repaid in 2018 from the refinancing and
the Group does not currently have any
borrowings which are subject to financial
covenants or that are secured.

Operating cash inflow before
movements in working capital
in 2017 was

$32.2m

Group cash flow statement
Operating cash inflow before movements
in working capital was $32.2m (2016: $33.9m).
The main source of operating cash flow
was the profit before taxation before the
non-cash charges of depreciation and
amortisation in 2017 of $28.4m (2016: $28.7m)
after adding back the finance costs of
$3.5m (2016: $4.9m).

Working capital movements absorbed
cash of $2.4m (2016: $4.3m) largely due
to a decrease in trade and other payables
of $4.6m (2016: increase of $3.8m).

Income tax paid was $nil (2016: $nil).
The Group generated taxable profits
in 2017 due to its profitability but these
were relieved by taxable losses brought
forward from previous years.

Expenditure on property, plant and
equipment and mine development was
$9.4m (2016: $10.7m). The main items of
expenditure in 2017 were capitalisation
of deferred stripping and development
costs of the main open pit of $3.7m, the
raise of the tailings dam wall and second
tailings pipeline of $1.7m, Ugur and Gadir
development of $1.4m and the water
treatment plant of $1.2m.

Exploration and evaluation expenditure in
2017 of $1.0m (2016: $0.4m) was incurred and
capitalised. This arose on exploration at the
Gedabek and Ordubad mining properties.

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

Profit Production for the Group has been
subject to the minimum 25 per cent. for all
years since commencement of production
including 2017. The Government’s share
of production in 2017 (as in all previous
years) was therefore 12.75 per cent. being
51 per cent. of 25 per cent. with the Group
entitled to the remaining 87.25 per cent.
The Group was therefore subject to an
effective royalty on its revenues in 2017 of
12.75 per cent. of the value of its production.

$18.1m

The Group’s business activities, together
with the factors likely to affect its future
development, performance and position,
can be found in the Group’s annual report
and accounts within the chairman’s
statement on pages 4 to 6 and within the
strategic report on pages 9 to 17. The
financial position of the Group, its cash
flow, liquidity position and borrowing
facilities are discussed in the financial
review. In addition, note 23 to the Group
financial statements includes the Group’s
objectives, details of its financial
instrument exposures to credit risk
and liquidity risk.

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

Reza Vaziri
President and chief executive
23 May 2018

William Morgan
Chief financial officer
23 May 2018

Financial review continued

Production Sharing Agreement
continued
The Group can recover the following
costs in accordance with the PSA:

• all direct operating expenses of the

Gedabek mine;

• all exploration expenses incurred on the

Gedabek contract area;

• all capital expenditure incurred on the

Gedabek mine;

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

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

Unrecovered costs are calculated separately
for the three contract areas of Gedabek,
Gosha and Ordubad and can only be
recovered against production from their
respective contract areas. The total
unrecovered costs for the Gedabek
and Gosha contract areas at end 2017
were $94.6m and $21.8m respectively
(2016: $99.8m and $21.8m respectively).

Going concern
The directors have prepared the Group
financial statements on a going concern
basis after reviewing the Group’s forecast
cash position for the period to 30 June 2019
and satisfying themselves that the Group
will have sufficient funds on hand to realise
its assets and meet its obligations as and
when they fall due.

In making this assessment, the directors
have acknowledged the uncertain market
conditions in which the Group is operating.
In 2017, the price of gold averaged $1,258
per ounce with a high of $1,346 per ounce
and a low of $1,151 per ounce and the price
of copper averaged $6,200 per tonne
with a high of $7,289 per tonne and a
low of $5,486 per tonne. The Group has
substantially, though, reduced its net
debt during 2017 from $34.6 million at
1 January to $18.1 million at 31 December
and is also forecasting higher production
in 2018 compared to 2017.

In early 2018, the Group refinanced a
significant amount of its existing debt
with a syndicated loan from Pasha Bank
and other banks (the “Refinancing Loan”).
The Refinancing Loan has a lower interest
rate and a later maturity date than the
loans repaid. The Group also renegotiated
a lower rate of interest on certain of its
loans which were not refinanced.

The Group has made all payments of
interest and principal of its debt in line
with agreement of its lenders.

Key to achieving the Group’s forecast
cash position, and therefore its going
concern assumption are the following:

• achieving the forecast production of
gold doré from its heap and agitation
leaching facilities.

• achieving its forecast production of copper
and precious metal concentrates from its
SART and flotation processing facilities

• its metal (principally gold and copper)

price assumptions being met or bettered.

The Group repaid its loans
from Amsterdam Trade Bank and
Gazprombank (Switzerland) Ltd. in
February 2018 from the proceeds of the
Refinancing Loan. The Refinancing Loan
does not contain any financial covenants.
The Group no longer has any borrowings
which are subject to financial covenants.

Should there be a sustained decrease
in either the production or metal price
assumptions, there would be an impact
on the Group’s short term cash position,
although the Group is forecasting to
maintain reasonable cash headroom
during the period of the cash forecast.
Under this circumstance, the Group could
also look to defer all non-essential capital
expenditure and administrative costs in
order to further preserve cash. The Group
also has access to local sources of short
term finance should this be required. The
Group’s assumptions are neither overly
aggressive or overly conservative and
appropriate rigour and diligence has been
performed by the directors in approving
the assumptions. The directors believe all
assumptions are prepared on a realistic
basis using the best available information.

Anglo Asian Mining PLC Annual report and accounts 2017Board of directors

Mr Khosrow Zamani*
Non-executive chairman, age 75
Khosrow Zamani was director of the southern Europe and
central Asia department of the International Finance Corporation
(“IFC”), the private sector lending arm of the World Bank,
from March 2000 to July 2005. He was responsible for the IFC
investment programme and strategy in 15 countries across the
region. Whilst a director at IFC, Khosrow was instrumental in
building the IFC investment portfolio in the region with several
new initiatives, particularly in central Asia and Caucasia. He oversaw
the IFC portfolio of more than $2 billion, diversified across the
financial, oil and gas, mining and manufacturing sectors.
Khosrow has over 30 years of experience in investment and
project finance and banking in emerging markets. He holds
an MSc in Engineering from the United States of America and
a master of business operations and management from the
United Kingdom. He is currently a non-executive board member
and chairman of the corporate governance committee of
Sekerbank A.S., a publicly listed commercial bank in Turkey, a
non-executive board member and a member of the compensation
committee of Komercijalna Bank, Serbia.

Mr Reza Vaziri
President and chief executive, age 65
Reza Vaziri has been actively involved in business in the
Republic of Azerbaijan since just after its independence.
Since R.V. Investment Group Services LLC, now Anglo Asian’s
subsidiary, signed a Production Sharing Agreement with the
Government of the Republic of Azerbaijan, Reza has been
focused on developing Anglo Asian Mining PLC into a significant
gold producer in the Caucasia and central Asia region. Prior to
his business career, Reza held a number of high-ranking positions
in the pre-revolutionary Iranian government. He was the head of
the Foreign Relations Office at the Ministry of the Imperial Court
of Iran. At the time of the revolution, he was chief of the office
of political and international affairs. Reza holds a law degree
from the national university of Iran. As founder and co-chairman
for life of the board of directors of the US–Azerbaijan Chamber
of Commerce with James A Baker IV, Reza dedicates much of his
time furthering business relations between the two countries.
Reza serves alongside such directors as James Baker III,
Zbigniew Brzezinski, Governor John Sununu and Henry Kissinger.
Reza resides in Baku, London and Washington, DC.

Governor John Sununu
Non-executive director, age 78
Governor John Sununu received a PhD from Massachusetts
Institute of Technology and taught engineering at Tufts University
for 16 years. He served three terms as the Governor of New
Hampshire before President George H W Bush appointed him
chief of staff in 1989, a position that he held until March 1992.
After his tenure as chief of staff, he co-hosted CNN’s Crossfire,
ran an engineering firm and then, in 2004, served as the visiting
Roy M and Barbara Goodman family professor of practice in public
service at the Kennedy School of Government at Harvard University.
John is a former partner in Trinity International Partners, a private
financial firm, and currently serves as president of JHS Associates Ltd.

Mr Richard Round*
Non-executive director, age 60
Richard Round has held senior finance and leadership roles in
a range of quoted and private companies. Richard now maintains
a portfolio of non-executive director and board advisory positions
in the energy, mining and technology development sectors.
Most recently, Richard led the strategy and ultimate sale of hydro
developer Green Highland Renewables prior to which he successfully
secured around £70 million of funding for the development of the
Oyster wave power technology for Aquamarine Power. Prior to
joining Aquamarine Power, Richard was acting chief executive
at the quoted group, Novera Energy plc where he led the sale
of the landfill gas, wind and hydro group. Richard has also held a
number of finance director roles in the renewable, oil and gas service,
coal and mining sectors with companies including Mining Scotland,
Consolidated Supply Management and Cambrian Mining plc.
Richard was also finance director of Anglo Asian Mining PLC
where he stepped down in July 2008 and was appointed a
non-executive director.

Professor John Monhemius*
Non-executive director, age 75
Emeritus professor John Monhemius held the Roy Wright Chair
in mineral and environmental engineering at the Royal School of
Mines, Imperial College, London until 2004, when he retired
from full-time academic work. From 2000 to 2004, he was dean
of the Royal School of Mines. He has more than 40 years of
experience of academic and industrial research and development
in hydrometallurgy and environmental control in mining and
metallurgical processes, particularly in the management of toxic
wastes and effluents, and he has acted as a consultant to many
large mining and chemical companies. John has published over
130 papers of scientific literature and he has supervised more
than 30 PhD students. From 1986 to 1996, he was a co-founder
and director of Consort Research Ltd, a consultancy specialising
in gold and base metal ore processing, and he is a former
director of Obtala Resources plc.

* Independent non-executive director.

Remuneration committee
The Board has a remuneration committee
which comprises Khosrow Zamani and
John Sununu and meets as required. It
is the remuneration committee’s role
to establish a formal and transparent
policy on executive remuneration and
to set remuneration packages for
individual directors.

Nomination committee
The Board has a nomination committee
which comprises Khosrow Zamani and
John Sununu. It is the role of the nomination
committee to review and consider the
Board structure and composition and it
meets as required to consider and make
recommendations on the appointment
of directors to the Board.

Health, safety, environment and
technology committee
The Board has a health, safety, environment
and technology committee which comprises
John Monhemius and Reza Vaziri and meets
as required. The committee’s primary
function is to assist the Board in fulfilling
its oversight responsibilities in the
following areas:

• health, safety, environmental and
technological issues relating to
the Company;

• the Company’s compliance with
corporate policies that provide
processes, procedures and standards
to follow in accomplishing the Company’s
goals and objectives relating to health,
safety and environmental issues, to
ensure that the Company’s operations
and work practices comply as far as is
practicable with the best international
standards; and

• the management of risk related to
health, safety, environmental and
technological issues.

Shareholder relations
The Company meets with its shareholders
and analysts as appropriate and
encourages communication with private
shareholders via the annual general
meeting. In addition, the Company uses
the annual report and financial statements,
the interim statements and its website
(www.angloasianmining.com) to provide
further information to shareholders.

Internal control and risk management
The Board is responsible for the system
of internal control and for reviewing its
effectiveness. Such systems are designed
to manage rather than eliminate risks
and can provide only reasonable and
not absolute assurance against material
misstatement or loss. For each year, on
behalf of the Board, the audit committee
reviews the effectiveness of these systems.
This is achieved primarily by considering
the risks potentially affecting the Group
and discussions with the external auditor.

The Group does not currently have an
internal audit function due to the small size
of the Group and limited resources available.

A comprehensive budgeting process is
completed once a year and is reviewed by
the Board and where appropriate revised
forecasts are prepared and also reviewed
by the Board. The Group’s results, as
compared against budget, are reported
to the Board on a monthly basis and
discussed in detail at each meeting of
the Board.

The Group maintains appropriate
insurance cover in respect of legal actions
against the directors as well as against
material loss or claims against the Group
and the Board reviews the adequacy of
the cover regularly.

Introduction
Although the rules of AIM do not require
the Company to comply with the United
Kingdom Corporate Governance Code
(the “Code”), the Company fully supports
the principles set out in the Code and
will attempt to comply wherever possible,
given both the size and resources available
to the Company. The principal constituents
of the Group’s corporate governance are
detailed below. However, this is not a
statement of compliance with the Code.

The board of directors
The board of directors (the “Board”)
currently comprises one executive director
and four non-executive directors, one of
whom is the chairman. The roles of chairman
and chief executive are split in line with
the recommended policy.

The Board meets regularly throughout the
year and receives a board pack comprising
individual reports from the executive director
together with any other material deemed
necessary for the Board to discharge its
duties. The Board also conducts telephone
board meetings as issues arise which
require board attention. It is the Board’s
responsibility to formulate, review and
approve the Group’s strategy, budgets and
major items of expenditure. The Board sets
the Group’s objectives and policies and
monitors the implementation by the
executive team.

The Board considers two of the
non-executive directors other than
the chairman to be independent.

Audit committee
The Board has an audit committee which
comprises Richard Round and John Sununu
and is scheduled to meet at least twice
a year. The external auditor attends the
meetings and the chief executive and
the chief financial officer are invited. It
is the audit committee’s role to provide
formal and transparent arrangements for
considering how to apply the financial
reporting and internal control requirements
of the Code, whilst maintaining an
appropriate relationship with the
independent auditor of the Group.

Anglo Asian Mining PLC Annual report and accounts 2017Directors’ report
year ended 31 December 2017

Annual report and financial statements
The directors present their annual report together with the audited Group financial statements on pages 36 to 64.

Principal activities
The Group’s principal activity during the year was the production of gold and silver doré and precious metal concentrate from the
Gedabek and Gosha contract areas in western Azerbaijan.

Business review and future prospects
A review of the activities of the business throughout the year and up to 23 May 2018 is set out in the chairman’s statement
on pages 4 to 6 and the strategic report on pages 9 to 17 which includes information on the Group’s risks, uncertainties and key
performance indicators. These sections are incorporated in this directors’ report by reference.

Dividends
The directors do not recommend a dividend for the year (2016: $nil).

Capital structure
Details of the Company’s authorised and issued share capital, together with the movements for the years ended 31 December 2016
and 2017 are disclosed in note 24 – ‘Equity’ to the Group financial statements. The Company has one class of ordinary share and
they carry no right to fixed income. Each ordinary share carries the right to one vote at general meetings of the Company. All issued
ordinary shares are fully paid.

There are no specific restrictions on the size of a holding or on the transfer of the ordinary shares, which are both governed by the
general provisions of the articles of association and prevailing legislation. The directors are not aware of any agreements between
holders of the Company’s ordinary shares that may result in restrictions on the transfer of securities or on voting rights.

Certain directors own ordinary shares in the Company and certain parties own 3 per cent. or more of the ordinary shares in the
Company. These holdings are set out in the ‘Directors’ interests’ and ‘Substantial shareholders’ sections of this directors’ report.
No person has any special rights of control over the Company’s share capital.

There is no scheme in place for employees to acquire ordinary shares in the Company. Certain employees and directors have been
granted options to acquire ordinary shares. Details of the share options granted are disclosed in note 25 – ‘Share-based payment’
to the Group financial statements.

With regard to the appointment and replacement of directors, the Company is governed by its articles of association, the
Companies Act 2006 and related legislation. It also complies with the United Kingdom Corporate Governance Code as far as
practicable. The articles of association themselves may be amended by special resolution of the shareholders. The powers
of the directors are described in the corporate governance report on page 24.

Under its articles of association, the Company has authority to issue 600 million ordinary shares.

There are no agreements to which the Company is a party that take effect, alter or terminate upon a change of control of the
Company following a takeover bid. There are also no agreements to which the Company is a party which provide for compensation
for loss of office or employment that occurs because of a takeover bid.

Directors
The directors who served throughout the year and up to 23 May 2018 are set out on page 23.

Reza Vaziri retires by rotation at the next annual general meeting and, being eligible, offers himself for re-election.

Secretary
Fisher Secretaries Limited
Acre House
11/15 William Road
London NW1 3ER
United Kingdom

Registered office
7 Devonshire Square
Cutlers Gardens
London EC2M 4YH
United Kingdom

Registration of the Company
The Company is registered
in England and Wales.
Its registered number is 5227012.

Directors’ interests
The beneficial interests of the directors who held office at 31 December 2017 and their connected parties in the share capital
of the Company at 31 December were as follows:

John Monhemius
Richard Round
John Sununu
Reza Vaziri
Khosrow Zamani

All directors’ interests are beneficially held.

2017
Number of
ordinary shares

2016
Number of
ordinary shares

341,890
361,680
10,734,540
32,796,830
1,418,352

341,890
306,759
10,734,540
32,796,830
1,259,590

Directors’ insurance
The Company has made qualifying third-party provision for the benefit of its directors during the year which remains in force at the
date of this report.

Substantial shareholders
The Company has been notified of the following interests of 3 per cent. or more in its issued share capital as at 22 May 2018:

Reza Vaziri
John Sununu
Limelight Industrial Developments

Number of
ordinary shares

32,796,830
10,734,540
4,038,600

Per cent.

28.8
9.4
3.6

Going concern
The directors have prepared the Group financial statements on a going concern basis after reviewing the Group’s forecast cash
position for the period to 30 June 2019 and satisfying them-selves that the Group will have sufficient funds on hand to realise its
assets and meet its obligations as and when they fall due.

In making this assessment, the directors have acknowledged the uncertain market conditions in which the Group is operating.
In 2017, the price of gold averaged $1,258 per ounce with a high of $1,346 per ounce and a low of $1,151 per ounce and the price of
copper averaged $6,200 per tonne with a high of $7,289 per tonne and a low of $5,486 per tonne. The Group has substantially, though,
reduced its net debt during 2017 from $34.6 million at 1 January to $18.1 million at 31 December and is also forecasting higher
production in 2018 compared to 2017.

In early 2018, the Group refinanced a significant amount of its existing debt with a syndicated loan from Pasha Bank and other banks
(the “Refinancing Loan”). The Refinancing Loan has a lower interest rate and a later maturity date than the loans repaid. The Group
also renegotiated a lower rate of interest on certain of its loans which were not refinanced.

The Group has made all payments of interest and principal of its debt in line with agreement of its lenders.

Key to achieving the Group’s forecast cash position, and therefore its going concern assumption are the following:

• achieving the forecast production of gold doré from its heap and agitation leaching facilities.

• achieving its forecast production of copper and precious metal concentrates from its SART and flotation processing facilities.

• its metal (principally gold and copper) price assumptions being met or bettered.

The Group repaid its loans from Amsterdam Trade Bank and Gazprombank (Switzerland) Ltd. in February 2018 from the proceeds
of the Refinancing Loan. The Refinancing Loan does not contain any financial covenants. The Group no longer has any borrowings
which are subject to financial covenants.

Should there be a sustained decrease in either the production or metal price assumptions, there would be an impact on the Group’s
short term cash position, although the Group is forecasting to maintain reasonable cash headroom during the period of the cash
forecast. Under this circumstance, the Group could also look to defer all non-essential capital expenditure and administrative costs
in order to further preserve cash. The Group also has access to local sources of short term finance should this be required. The Group’s
assumptions are neither overly aggressive or overly conservative and appropriate rigour and diligence has been performed by the
directors in approving the assumptions. The directors believe all assumptions are prepared on a realistic basis using the best
available information.

The Group’s business activities, together with the factors likely to affect its future development, performance and position, can be
found in the Group’s annual report and accounts within the chairman’s statement on pages 4 to 6 and within the strategic report
on pages 9 to 17. The financial position of the Group, its cash flow, liquidity position and borrowing facilities are discussed in the
financial review. In addition, note 23 to the Group financial statements includes the Group’s objectives, details of its financial
instrument exposures to credit risk and liquidity risk.

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

Anglo Asian Mining PLC Annual report and accounts 2017
Auditors
Each of the persons who is a director at the date of approval of this report confirms that:

1 so far as the director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and

the director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant
audit information and to establish that the Company’s auditors are aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of s418(2) of the Companies Act 2006.

Ernst & Young LLP have expressed their willingness to continue in office as auditors and a resolution to reappoint them
will be proposed at the forthcoming annual general meeting.

Corporate governance
A report on corporate governance is set out on page 24.

Annual general meeting
The Company will hold its annual general meeting for 2018 on 29 June 2018. Notification of the meeting has been included
in this annual report.

Listing
The Company’s ordinary shares have been traded on London’s AIM since 29 July 2005. SP Angel Corporate Finance LLP is the Company’s
nominated adviser and broker. The closing mid-market share price at 30 December 2017 was 32.00 pence (2016: 24.00 pence).

Relations with shareholders
Communications with shareholders are considered important by the directors. The directors regularly speak to investors and analysts
during the year. Press releases have been issued throughout the year and since the balance sheet date in relation to the progress
of the Group. A website, www.angloasianmining.com, is regularly updated and contains a wide range of information about the Group.

Employee consultation
The Group places considerable value on the involvement of its employees and has continued to keep them informed on matters
affecting them as employees and on the relevant matters affecting the performance of the Group. This is mainly achieved through
informal meetings which the directors believe is the most appropriate method given the current number of Group employees.

Internal controls
The board of directors acknowledges that it is responsible for establishing and maintaining the Group’s system of internal controls
and for reviewing its effectiveness. The procedures which include, inter alia, financial, operational and compliance matters and risk
management are reviewed on an ongoing basis. The internal control system can only provide reasonable and not absolute assurance
against material misstatement or loss. The directors do not believe an internal audit function is practicable in a company of this size.

Donations
The Group has made charitable donations during the year of $nil (2016: $nil). Political donations of $nil (2016: $nil) were made.

Research and development
There was no expenditure on research and development during the year (2016: $nil).

Related party transactions
Related party transactions are disclosed in note 27 – ‘Related party transactions’ to the Group financial statements.

Financial risk management
The Group’s operations expose it to financial risks that include liquidity risk, credit risk, foreign exchange risk and interest rate risk.
The Group does not enter into any derivative transactions, and it is the Group’s policy that no trading in such financial instruments
shall be undertaken.

The main risks arising from the Group’s financial instruments are liquidity risk, credit risk, foreign exchange risk and interest rate risk.
Further details are disclosed in note 23 – ‘Financial instruments’ to the Group financial statements.

By order of the board of directors

Fisher Secretaries Limited
Company secretary
23 May 2018

Policy on the executive director’s remuneration
The Company operates within a competitive environment and its performance depends on the individual contributions of the
directors and employees.

The executive director’s remuneration package may include:

i) basic annual salary; and

ii) health insurance for the executive and his family.

The Group does not make any contribution to any pension plan of any of the directors.

The executive director’s remuneration is reviewed once per year. In deciding upon appropriate levels of remuneration the remuneration
committee has regard to rates of pay for similar jobs in comparable companies as well as internal factors such as performance.

Directors’ contracts
The executive director currently has an employment contract which may be terminated by the Company with up to 12 months’ notice.
No other payments are made for compensation for loss of office.

The remuneration of the non-executive directors is determined by the board of directors within the limits set out in the articles of
association. Non-executive directors currently have employment contracts which may be terminated by the director or the Company
with three months’ notice. No other payments are made for compensation for loss of office.

Directors’ emoluments
Amounts paid by the Group in respect of directors’ services are as follows:

Year ended 31 December 2017

John Monhemius
Richard Round
John Sununu
Reza Vaziri
Khosrow Zamani

Year ended 31 December 2016

John Monhemius
Richard Round
John Sununu
Reza Vaziri
Khosrow Zamani

Directors’ fees and consultancy fees for 2016 and 2017 were paid in cash.

Consultancy
$

13,750
—
—
578,126
—

591,876

Consultancy
$

6,422
—
—
586,392
—

592,814

Fees
$

51,970
51,970
76,342
51,970
127,761

360,013

Fees
$

43,704
43,704
64,007
43,704
107,801

302,920

Benefits
$

—
—
—
32,471
—

32,471

Benefits
$

—
—
—
40,862
—

40,862

Total
$

65,720
51,970
76,342
662,567
127,761

984,360

Total
$

50,126
43,704
64,007
670,958
107,801

936,596

Anglo Asian Mining PLC Annual report and accounts 2017
Share option scheme
The Group has initiated a share option scheme for its employees. This was set up in order to reward employees for the performance
of the Company on a long-term basis and to enable the Company to continue to attract a high calibre of management and
operational personnel. Details of share options issued under the scheme are disclosed in note 25 – ‘Share-based payment’ to the
Group financial statements.

Details of share options for directors who served during the year are as follows:

Khosrow Zamani

Richard Round

Exercise
price
(pence)

16.5
12.0
12.0

1 January
2017

100,000
500,000
600,000

Exercised
during
the year

—
(500,000)
(600,000)

Lapsed
during
the year

(100,000)
—
—

31 December
2017

—
—
—

The Company’s share price has ranged from 24.00 pence at 30 December 2016 to a high of 37.5 pence and a low of 15.13 pence
during the year ended 31 December 2017 with a closing price of 32.00 pence at 29 December 2017.

Exercise of options and sale of shares by directors
On 26 July 2017, Khosrow Zamani and Richard Round exercised 500,00 and 600,000 options respectively over ordinary shares
of the Company at an exercise price of 12 pence per ordinary share. The closing mid-market price of the Company’s ordinary shares
on 26 July 2017 was 21.5 pence. On 27 July 2017, Khosrow Zamani and Richard Round sold 341,238 and 545,079 respectively of the
ordinary shares acquired at 17.72 pence per share.

By order of the board of directors

Fisher Secretaries Limited
Company secretary
23 May 2018

The directors are responsible for
preparing the annual report and the
financial statements in accordance
with applicable law and regulations.
Company law requires the directors
to prepare financial statements
for each financial year. Under that
law the directors have, as required
by the rules of AIM of the London
Stock Exchange, elected to prepare
the Group financial statements
in accordance with International
Financial Reporting Standards
(“IFRS”) as adopted by the European
Union. The directors have also elected
to prepare the financial statements of
the parent company (the “Company”)
in accordance with United Kingdom
Generally Accepted Accounting Practice
(United Kingdom Accounting Standards
and applicable law), including FRS 101
‘Reduced Disclosure Framework’.
The directors are also responsible
for preparing the directors’ report
in accordance with the Companies
Act 2006 and applicable regulations.

In the case of the Group’s IFRS financial
statements, the directors are required to
prepare Group financial statements for
each financial year which present fairly
the financial position of the Group and
the financial performance and cash flows
of the Group for that period. In preparing
the Group financial statements the
directors are required to:

• select suitable accounting policies
in accordance with International
Accounting Standard (“IAS”) 8
‘Accounting Policies, Changes in
Accounting Estimates and Errors’
and then apply them consistently;

• present information, including

accounting policies, in a manner that
provides relevant, reliable, comparable
and understandable information;

• provide additional disclosures

when compliance with the specific
requirements in IFRS is insufficient to
enable users to understand the impact
of particular transactions, other events
and conditions on the entity’s financial
position and financial performance;

• state whether they have been

prepared in accordance with IFRS;

• prepare the accounts on a going

concern basis unless, having assessed
the ability of the Group to continue as
a going concern, management either
intends to liquidate the entity or to
cease trading, or has no realistic
alternative but to do so; and

• make judgements and estimates that

are reasonable and prudent.

In the case of the Company’s UK GAAP
financial statements, the directors are
required to prepare financial statements
for each financial year which give a true
and fair view of the state of affairs of the
Company. In preparing these financial
statements, the directors are required to:

The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Company’s
transactions and disclose with reasonable
accuracy at any time the financial position
of the Company and the Group and enable
them to ensure that the financial statements
comply with the Companies Act 2006 and
Article 4 of the IAS Regulation. They are also
responsible for safeguarding the assets of
the Company and the Group and hence
for taking reasonable steps for the
prevention and detection of fraud and
other irregularities.

The directors are responsible for the
maintenance and integrity of the corporate
and financial information included on
the Company’s website. Legislation in
the United Kingdom governing the
preparation and dissemination of the
financial statements and other information
included in annual reports may differ
from legislation in other jurisdictions.

Responsibility statement
We confirm that to the best of
our knowledge:

• the financial statements, prepared
in accordance with the applicable
accounting frameworks, give a true
and fair view of the assets, liabilities,
financial position and profit or loss of
the Company and the undertakings
included in the consolidation taken
as a whole; and

• the management report, which is

incorporated into the strategic report
and the directors’ report, includes
a fair review of the development
and performance of the business
and the position of the Company and
the undertakings included in the
consolidation taken as a whole,
together with a description of the
principal risks and uncertainties that
they face.

• select suitable accounting policies and

By order of the board of directors

then apply them consistently;

• make judgements and estimates that

are reasonable and prudent;

• state whether applicable UK Accounting
Standards have been followed, subject
to any material departures disclosed
and explained in the financial
statements; and

• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Company will continue in business.

Khosrow Zamani
Non-executive chairman
23 May 2018

Anglo Asian Mining PLC Annual report and accounts 2017Independent auditor’s report
to the members of Anglo Asian Mining PLC

Our opinion on the financial statements
In our opinion:

• Anglo Asian Mining plc’s Group financial statements and Parent company financial statements (the “financial statements”) give a
true and fair view of the state of the Group’s and of the Parent company’s affairs as at 31 December 2017 and of the Group’s profit
and loss for the year then ended;

• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

• the Parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted

Accounting Practice, including FRS 101 “Reduced Disclosure Framework”; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements of Anglo Asian Mining PLC which comprise:

Group

Parent company

Consolidated statement of financial position as at 31 December 2017

Statement of financial position as at 31 December 2017

Consolidated income statement for the year ended 31 December 2017

Statement of changes in equity for the year ended 31
December 2017

Consolidated statement of comprehensive income for the year ended
31 December 2017

Related notes 1 to 13 to the financial statements
including a summary of significant accounting policies

Consolidated statement of changes in equity for the year ended
31 December 2017

Consolidated statement of cash flows for the year ended 31 December 2017

Related notes 1 to 28 to the financial statements, including a summary
of significant accounting policies

The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has
been applied in the preparation of the Parent company financial statements is applicable law and United Kingdom Accounting
Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our
report below. We are independent of the Group and Parent company in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, 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.

Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions
we have formed.

Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

• the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt
about the Group’s or the Parent company’s ability to continue to adopt the going concern basis of accounting for a period of at
least twelve months from the date when the financial statements are authorised for issue.

Overview of our audit approach

Key audit matters

• Improper revenue recognition

• Impairment of mining assets

Audit scope

• We performed an audit of the complete financial information of 2 components.

Materiality

• Overall Group materiality of $540k which represents 0.75% of Revenue.

• The components where we performed full audit procedures accounted for 99% of Profit

before tax, 100% of Revenue and 100% of Total assets.

Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit
of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.

Key observations communicated
to the Audit Committee

As a result of the procedures performed,
we concluded that the Group’s revenue
transactions have been properly recognised
and accounted for in accordance with IFRS.

Risk

Our response to the risk

Improper revenue recognition

Our approach focused on the following procedures:

Refer to the accounting policies (page 43);
and note 6 of the consolidated financial
statements (page 52)

For the year ended 31 December 2017 the
Group recognised revenue from operations
of US$71.8m (2016: US$79.2m).

In accordance with ISAs (UK) there is a presumed
fraud risk relating to revenue recognition and
management override. We consider the fraud
risk relating to revenue recognition to relate to:

• Sales cut-off; and

• Accounting for government portion

of production

The risk relating to revenue recognition has
remained stable in comparison to the prior
year as no significant changes were noted
in sales agreements.

• Obtained an understanding of the key controls
over revenue recognition and assessed their
design effectiveness in supporting the prevention,
detection or correction of material errors in the
financial statements;

• Performed detailed substantive audit procedures
on sales revenues to ensure appropriate cut off,
including testing underlying evidence to ensure
revenue is recognised in the correct period;

• For all the sales transactions taking place during

the year, we agreed the main inputs to supporting
evidence, such as bill of lading, invoices and
cash receipts;

• We reconciled the Group’s records with the
amount of revenue recalculated based on
approved gold alloys shipment documentation,
lab results of gold content in those alloys and
respective market prices for each date of sale;

• Obtained confirmation of outstanding receivables
with the counterparty, which includes the portion
related to the government’s gold; and

• Read the disclosures in the financial statements to
ensure that all disclosure requirements in respect
of revenue have been met.

We performed audit procedures in one full scope
audit component covering 100% of the risk amount.

Anglo Asian Mining PLC Annual report and accounts 2017Key audit matters continued

Risk

Our response to the risk

Impairment of mining assets

Our approach focused on the following procedures:

Refer to the accounting policies (page 46);
and notes 13 and 14 of the consolidated
financial statements (pages 55 and 56)

• Obtained an understanding of management’s
process and key controls over the impairment
evaluation for mining assets;

Key observations communicated
to the Audit Committee

As a result of the audit procedures performed,
we concur with management’s assessment
and conclusion that no impairment indicators
were noted as of 31 December 2017.

At 31 December 2017 the carrying value of the
Group’s mining assets were:

• Property, plant and equipment: US$87.4m

(2016: US$98.5m);

•

Intangible assets: US$16.1m (2016: US$16.8m).

IFRS requires impairment testing to be undertaken
when there are indicators that an impairment
may exist.

Consistent with prior year, the Group’s CGUs are:

• Operating mines (property, plant and
equipment): one CGU that combines
Gedabek, Gosha and Ugur; and

• Exploration asset (intangible asset): Ordubad

This risk has decreased as compared to the
prior year as the commodity price outlook
has strengthened in 2017 and the Group has
added further reserves and production from
the Ugur deposit.

• Verified through discussions with management and
review of supporting evidence, the appropriateness
of management’s determination of CGUs;

• Searched for any indicators of impairment for

operating mines and exploration assets during
2017, following the requirements of IAS 36 and
IFRS 6 respectively. Our work included the
following procedures:

• We examined macro-economic factors

including market interest rates and both spot
and future gold, silver and copper prices to
identify potential impairment indicators;

• For the operating mines, we evaluated the
performance of the CGU during 2017 by
comparing against management’s budget and
prior year actuals, and evaluated the existence
of any significant changes to the expected
performance through studying the updated
mine plans; and

• For Ordubad we assessed the project for
impairment indicators through inquiries of
management and obtained supporting
evidence for management’s plans to develop
the asset in future periods.

The audit procedures over this risk area were
performed by the primary and component teams,
covering 100% of the risk amounts.

As part of our audit, we also addressed the risk of management override of internal controls, including evaluating whether there is
evidence of bias by the Directors that may represent a risk of material misstatement due to fraud. The above is not a complete list
of all risks identified by our audit.

An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope
for each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements.
We take into account size, risk profile, the organisation of the Group and effectiveness of Group-wide controls, changes in the
business environment and any other relevant factors when assessing the level of work to be performed at each entity.

In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage
of significant accounts in the financial statements, of the 6 reporting components of the Group, we selected 2 components covering
entities within the United Kingdom and Azerbaijan, which represent the principal business units within the Group.

We performed an audit of the complete financial information of those 2 components (“full scope components”) which were selected
based on their size or risk characteristics.

The reporting components where we performed audit procedures accounted for 99% (2016: 99%) of the Group’s Profit before tax,
100% (2016: 100%) of the Group’s Revenue and 100% (2016: 100%) of the Group’s Total assets.

The remaining 4 components together and individually represent less than 1% of the Group’s Revenue. For these components, we
performed other procedures, including analytical reviews, testing of consolidation journals and intercompany eliminations and
inquiries of management about unusual transactions in these components, to respond to any potential risks of material misstatement
to the Group financial statements.

Changes from the prior year
The scoping is consistent with the prior year audit.

An overview of the scope of our audit continued
Involvement with component teams
In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each
of the components by us, as the primary audit engagement team, or by component auditors from other EY global network firms
operating under our instruction. Of the two full scope components, audit procedures were performed on one of these directly
by the primary audit team.

The primary audit team continued to follow a programme of planned visits that has been designed to ensure that the Senior Statutory
Auditor visits the client site once a year. During the current year’s audit cycle, a visit was undertaken by the primary audit team to
the component team in Baku, Azerbaijan. This visit involved discussing the audit approach with the component team and any issues
arising from their work, meeting with local management and reviewing key audit working papers on risk areas. The primary team
interacted regularly with the component team where appropriate during various stages of the audit, reviewed key working papers
and were responsible for the scope and direction of the audit process. This, together with the additional procedures performed
at Group level, gave us appropriate evidence for our opinion on the Group financial statements.

Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the
audit and in forming our audit opinion.

Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence
the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent
of our audit procedures.

We determined materiality for the Group to be $540k (2016: $593k), which is 0.75% (2016: 0.75%) of the Group’s Revenue. We
believe that Revenue provides us with a reliable measure that is significant to users since it is more representative of the business
activities of the Group at a time when the operations are focused on future growth priorities, which can significantly distort the
group’s profitability in a given period.

We determined materiality for the Parent Company to be $160k (2016: $172k), which is 1% (2016: 1%) of Equity.

During the course of our audit, we reassessed initial materiality and no changes were required to our initial assessment.

Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that
performance materiality was 50% (2016: 50%) of our planning materiality, namely $270k (2016: $297k). We have set performance materiality
at this percentage based on our assessment of the likelihood of misstatements based on our review of prior year audit adjustments.

Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken
based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative
scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the
current year, the range of performance materiality allocated to components was $105k to $270k (2016: $119k to $297k).

Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of $27k (2016: $30k),
which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on
qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our opinion.

Other information
The other information comprises the information included in the annual report set out on pages 1 to 30, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are
required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information,
we are required to report that fact.

We have nothing to report in this regard.

Anglo Asian Mining PLC Annual report and accounts 2017Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:

• the information given in the strategic report and the directors’ report for the financial year for which the financial statements are

prepared is consistent with the financial statements; and

• the strategic report and directors’ report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent company and its environment obtained in the course
of the audit, we have not identified material misstatements in the strategic report or the directors’ report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:

• adequate accounting records have not been kept by the Parent company, or returns adequate for our audit have not been

received from branches not visited by us; or

• the Parent company financial are not in agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 30, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to
fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group and Parent company’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 the directors either intend to liquidate the Group or the Parent company or to cease operations, or have no realistic
alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the 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 ISAs (UK) 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 financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Andrew Smyth (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
23 May 2018

Revenue

Cost of sales

Gross profit

Other income

Administrative expenses

Other operating expense

Operating profit

Finance costs

Profit before tax

Income tax

Profit attributable to the equity holders of the parent

Profit per share attributable to the equity holders of the parent

Basic (US cents per share)

Diluted (US cents per share)

Notes

2017
$000

71,806

(56,825)

14,981

584

(4,745)

(1,598)

9,222

(3,538)

5,684

(3,164)

2,520

2.23

2.22

2016
$000

79,184

(62,770)

16,414

1,375

(4,931)

(1,144)

11,714

(4,935)

6,779

(2,795)

3,984

3.55

Group statement of comprehensive income
year ended 31 December 2017

Profit for the year

Total comprehensive profit

Attributable to the equity holders of the parent

2017
$000

2,520

2016
$000

3,984

Anglo Asian Mining PLC Annual report and accounts 2017Group statement of financial position
31 December 2017

Non-current assets

Intangible assets

Property, plant and equipment

Other receivables

Current assets

Inventory

Trade and other receivables

Cash and cash equivalents

Total assets

Current liabilities

Trade and other payables

Interest-bearing loans and borrowings

Net current assets

Non-current liabilities

Provision for rehabilitation

Interest-bearing loans and borrowings

Deferred tax liability

Total liabilities

Net assets

Equity

Share capital

Share premium account

Share-based payment reserve

Merger reserve

Retained earnings

Total equity

Notes

2017
$000

16,145

87,387

875

2016
$000

16,848

98,476

1,084

104,407

116,408

33,980

11,276

2,534

47,790

34,018

16,250

1,379

51,647

152,197

168,055

(15,170)

(20,051)

(21,833)

(26,165)

(35,221)

(47,998)

12,569

3,649

(9,629)

(600)

(9,416)

(9,765)

(21,394)

(18,230)

(31,623)

(37,411)

(66,844)

(85,409)

85,353

82,646

2,008

32,484

46,206

4,581

85,353

1,993

32,325

154

46,206

1,968

82,646

The Group financial statements were approved by the board of directors and authorised for issue on 23 May 2018. They were signed
on its behalf by:

Reza Vaziri
Chief executive

Cash flows from operating activities

Profit before tax

Adjustments to reconcile profit before tax to net cash flows:

Finance costs

Depreciation of property, plant and equipment

Amortisation of mining rights and other intangible assets

Share-based payment expense

Foreign exchange gain, net

Write down of advances paid

Write down of unrecoverable inventory

Operating cash flow before movements in working capital

Decrease/(increase) in trade and other receivables

Increase in inventories

(Decrease)/increase in trade and other payables

Cash from operations

Income taxes paid

Net cash flow from operating activities

Cash flows from investing activities

Expenditure on property, plant and equipment and mine development

Investment in exploration and evaluation assets including other intangible assets

Net cash used in investing activities

Cash flows from financing activities

Proceeds from issue of shares

Proceeds from borrowings

Repayments of borrowings

Interest paid

Net cash used in financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

Notes

2017
$000

2016
$000

5,684

6,779

3,538

21,008

1,778

—

179

32,200

2,342

(142)

(4,565)

29,835

—

29,835

4,935

20,080

1,884

(138)

353

—

33,911

(2,805)

(5,278)

3,751

29,579

—

29,579

(9,397)

(1,075)

(10,679)

(359)

(10,472)

(11,038)

174

8,796

(24,116)

(3,062)

—

14,083

(27,544)

(3,950)

(18,208)

(17,411)

1,155

1,379

2,534

1,130

249

1,379

Anglo Asian Mining PLC Annual report and accounts 2017Group statement of changes in equity
year ended 31 December 2017

1 January 2016

Profit for the year

Fair value of expired options

Share-based payment

31 December 2016

Profit for the year

Shares issued

Share options exercised

Fair value of expired options

Share-based payment

Notes

Share
capital
$000

1,993

—

Share
premium
$000

32,325

—

1,993

32,325

—

159

—

31 December 2017

2,008

32,484

Share-based
payment
reserve
$000

283

—

(147)

154

—

(82)

(11)

Merger
reserve
$000

46,206

—

46,206

—

Retained
earnings/
(loss)
$000

(2,163)

3,984

147

—

1,968

2,520

—

Total
equity
$000

78,644

3,984

—

82,646

2,520

174

—

46,206

4,581

85,353

General information
Anglo Asian Mining PLC (the “Company”) is a company incorporated and limited by shares in England and Wales under the
Companies Act 2006. The address of its registered office is set out in Company information on page 73 of this annual report.
The Company’s ordinary shares are traded on the AIM exchange of the London Stock Exchange. The Company is a holding
company. The principal activities and place of business of the Company and its subsidiaries (the “Group”) are set out in note
15, the chairman’s statement on pages 4 to 6 and the strategic report on pages 9 to 17 of this annual report.

Basis of preparation
The Group’s annual report is for the year ended 31 December 2017 and includes the consolidated financial statements of the
Group prepared in accordance with International Financial Reporting Standards (“IFRS”) adopted by the European Union and
therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.

The Group financial statements have been prepared using accounting policies set out in note 4 which are consistent with
all applicable IFRSs and with those parts of the Companies Act 2006 applicable to companies reporting under IFRSs. For these
purposes, IFRSs comprises the standards issued by the International Accounting Standards Board and interpretations issued
by the International Financial Reporting Interpretations Committee that have been endorsed by the European Union.

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

As set out in the directors’ report on page 26, the board of directors assessed the ability of the Group to continue as a going
concern and these financial statements have been prepared on a going concern basis.

The directors have prepared the Group financial statements on a going concern basis after reviewing the Group’s forecast cash
position for the period to 30 June 2019 and satisfying themselves that the Group will have sufficient funds on hand to realise its
assets and meet its obligations as and when they fall due.

In making this assessment, the directors have acknowledged the uncertain market conditions in which the Group is operating.
In 2017, the price of gold averaged $1,258 per ounce with a high of $1,346 per ounce and a low of $1,151 per ounce and the
price of copper averaged $6,200 per tonne with a high of $7,289 per tonne and a low of $5,486 per tonne. The Group has
substantially, though, reduced its net debt during 2017 from $34.6 million at 1 January to $18.1 million at 31 December and
is also forecasting higher production in 2018 compared to 2017.

In early 2018, the Group refinanced a significant amount of its existing debt with a syndicated loan from Pasha Bank and other
banks (the “Refinancing Loan”). The Refinancing Loan has a lower interest rate and a later maturity date than the loans repaid.
The Group also renegotiated a lower rate of interest on certain of its loans which were not refinanced.

The Group has made all payments of interest and principal of its debt in line with agreement of its lenders.

Key to achieving the Group’s forecast cash position, and therefore its going concern assumption are the following:

• achieving the forecast production of gold doré from its heap and agitation leaching facilities.

• achieving its forecast production of copper and precious metal concentrates from its SART and flotation processing facilities.

• its metal (principally gold and copper) price assumptions being met or bettered.

The Group repaid its loans from Amsterdam Trade Bank and Gazprombank (Switzerland) Ltd. in February 2018 from the
proceeds of the Refinancing Loan. The Refinancing Loan does not contain any financial covenants. The Group no longer has
any borrowings which are subject to financial covenants.

Should there be a sustained decrease in either the production or metal price assumptions, there would be an impact on the
Group’s short term cash position, although the Group is forecasting to maintain reasonable cash headroom during the period
of the cash forecast. Under this circumstance, the Group could also look to defer all non-essential capital expenditure and
administrative costs in order to further preserve cash. The Group also has access to local sources of short term finance should
this be required. The Group’s assumptions are neither overly aggressive or overly conservative and appropriate rigour and
diligence has been performed by the directors in approving the assumptions. The directors believe all assumptions are
prepared on a realistic basis using the best available information.

The Group’s business activities, together with the factors likely to affect its future development, performance and position, can
be found in the Group’s annual report and accounts within the chairman’s statement on pages 4 to 6 and within the strategic
report on pages 9 to 17. The financial position of the Group, its cash flow, liquidity position and borrowing facilities are discussed
in the financial review. In addition, note 23 to the Group financial statements includes the Group’s objectives, details of its
financial instrument exposures to credit risk and liquidity risk.

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

Anglo Asian Mining PLC Annual report and accounts 20173

Adoption of new and revised standards
a) New and amended standards and interpretations
The Group applied, for the first time, certain amendments to the standards, which are effective for annual periods beginning
on or after 1 January 2017. The Group has not early adopted any standards, interpretations or amendments that have been
issued but are not yet effective.

Several other amendments apply for the first time in 2017. However, they do not impact the annual consolidated financial statements
of the Group or the interim condensed consolidated financial statements of the Group and, hence, have not been disclosed.

The nature and the effect of these changes are disclosed below. Although these new standards and amendments applied for
the first time in 2017, they did not have a material impact on the annual consolidated financial statements of the Group. Other
than the changes described below, the accounting policies adopted are consistent with those of the previous financial year.

Amendments to IAS 7 ‘Statement of Cash Flows’
The amendments require entities to provide disclosure of changes in their liabilities arising from financing activities, including
both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses). The Group has
provided the information for both the current and the comparative period in note 21.

b) Standards issued but not yet effective
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the financial statements
that the Group reasonably expects will have an impact on its disclosures, financial position or performance when applied at a
future date are disclosed below. The Group intends to adopt these standards when they become effective. The standards and
interpretations that are issued, but not yet effective, up to the date of issuance of the financial statements that are not expected
to impact the Group have not been listed below.

• IFRS 9 ‘Financial Instruments’

In July 2014, the IASB issued the final version of IFRS 9 ‘Financial Instruments’ that replaces IAS 39 and all previous versions
of IFRS 9. IFRS 9 brings together all three aspects of the accounting for the financial instruments project: classification and
measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018,
with early adoption permitted. Except for hedge accounting, retrospective application is required, but the provision of
comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively,
with some limited exceptions.

The Group plans to adopt the new standard on the required effective date. The Group has assessed the impacts
of implementing IFRS 9 but these are not expected to be significant. The Group’s only significant financial instruments
are cash and cash equivalents, trade and other debtors, interest bearing loans payable and trade creditors. The Group
does not have any long term loans, equity instruments or “non-vanilla” financial assets or liabilities or currently carry out
any hedging activity. All financial instruments are included in the Group’s statement of financial position at values which
approximate to their fair value. It is not expected that IFRS 9 will have any effect on the classification, initial recognition
or subsequent measurement of the Group’s financial instruments.

IFRS 9 requires the Group to use an expected credit loss model for its trade receivables measured at amortised cost.
The Group will apply the simplified approach and record lifetime expected losses on all trade receivables measured
at amortised cost, however considering the short term nature of these receivables, the Group does not expect these
changes will have a significant impact.

• IFRS 15 ‘Revenue from Contracts with Customers’

IFRS 15 was issued in May 2014, and amended in April 2016, and establishes a five-step model to account for revenue arising
from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which
an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will
supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified
retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted.

The Group plans to adopt the new standard on the required effective date using the modified retrospective method.
The Group has assessed the impacts of implementing IFRS 15 and the changes required but these are not expected to
be significant. The only significant revenues of the Group are sales of gold and silver bullion to its gold refiner and sales
of copper concentrate to its off-taker. In both cases, sales are only recognised when the buyer takes physical possession
of the goods and priced at the current market price as follows:

• Sales of gold and silver bullion are only made when the precious metals are physically at the refinery and at the spot

metal price on date of sale.

Notes to the Group financial statements continued
year ended 31 December 2017

Adoption of new and revised standards continued
b) Standards issued but not yet effective continued

• Sales of each shipment of copper concentrate are invoiced when the off-taker takes physical delivery of each shipment
at the Group’s factory gate and provisionally priced using a recent prior period average metal price. A final invoice for
each shipment is issued within the next one to two months and is again priced using a recent prior period average metal
price. The Group does not separately account for the embedded derivative in each transaction as the short one to two
month transaction cycle would result in any change to the Group’s financial statements being immaterial.

• IFRS 16 ‘Leases’

IFRS 16 was issued in January 2016 and it replaces IAS 17 ‘Leases’, IFRIC 4 ‘Determining whether an Arrangement contains
a Lease,’ SIC-15 ‘Operating Leases-Incentives’ and SIC-27 ‘Evaluating the Substance of Transactions Involving the Legal
Form of a Lease.’ IFRS 16 sets out the principles for the recognition measurement, presentation and disclosure of leases
and requires lessees to account for all leases under a single on balance sheet model similar to the accounting for finance
leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ‘low-value’ assets (e.g.
personal computers) and short-term leases (i.e. leases with a lease term of 12 months or less). At the commencement date
of a lease, a lessee will recognise a liability to make lease payments (i.e. the lease liability) and an asset representing the
right to use the underlying asset during the lease term (i.e. the right-of-use asset). Lessees will be required to separately
recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g. a change in the
lease term or a change in future lease payments resulting from a change in an index or rate used to determine those
payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to
the right-of-use asset.

Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to
classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating
and finance leases.

IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17.

IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before
an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified
retrospective approach. The standard’s transition provisions permit certain reliefs.

As disclosed in note 26, the Group has no significant leases and therefore IFRS 16 is not expected to have any materially
significant effect on its financial statements.

Significant accounting policies

4
4.1 Basis of consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2017.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has
the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if,
the Group has:

• power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

• exposure, or rights, to variable returns from its involvement with the investee; and

• the ability to use its power over the investee to affect its returns.

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

• the contractual arrangement with the other vote holders of the investee;

• rights arising from other contractual arrangements; and

• the Group’s voting rights and potential voting rights.

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

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

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

Anglo Asian Mining PLC Annual report and accounts 2017

Significant accounting policies continued

4
4.2 Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue
can be reliably measured.

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership have been transferred, which
is considered to occur when title passes to the customer. This generally occurs when product is physically transferred to the buyer.

The following criteria are also met in specific revenue transactions:

i) Gold bullion and copper concentrate sales
Revenue from gold bullion sales is recognised when the significant risks and rewards of ownership have transferred to the
buyer and selling prices and assay results are known or can be reasonably estimated. Assay results determine the content
of gold and silver in doré, the price of which is determined based on market quotations of each metal. Silver in doré, which
is produced together with gold, is treated as a by-product and recognised in sales revenue.

Contractual terms for the Group’s sale of gold, silver and copper in concentrate (metal in concentrate) allow for a price
adjustment based on final assay results of the metal in concentrate to determine the final content. Recognition of sales
revenue for these commodities is based on the most recently determined estimate of metal in concentrate (based on initial
assay results) and the spot price at the date of shipment, with a subsequent adjustment made upon final determination.

Contractual terms with third parties for the sale of metal in concentrate specify a provisional selling price based on the average
prevailing spot prices at date of shipment to the customer. Final selling price is based on average prevailing spot prices during
a specified future period after shipment to the customer (the “quotation period”). Sales revenue for the sale of metal in
concentrate is recognised at final selling price.

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

4.3 Leases

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

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

The Group had no finance leases during 2017 and 2016.

4.4 Taxation

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

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset
is realised, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred
tax relating to items recognised in the Group income statement is charged or credited in the Group income statement.
Deferred tax relating to items recognised outside the Group income statement is recognised outside the Group income
statement and items are recognised in correlation to the underlying transaction either in the Group statement of
comprehensive income or directly in equity.

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

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

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

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

Significant accounting policies continued

4
4.5 Transactions with related parties

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

• where one party has the ability to control the other party or exercise significant influence over the other party in making

financial or operational decisions;

• entities under common control; and

• key management personnel.

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

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

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

4.6 Borrowing costs

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

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

4.7

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

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

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

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

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

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

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

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

Anglo Asian Mining PLC Annual report and accounts 20174
4.7

Significant accounting policies continued
Intangible assets continued
iii) Other intangible assets
Other intangible assets are mainly the costs of agricultural compensation paid to landowners for the use of land ancillary to
the Group’s mining operations. These costs are depreciated over the respective terms of right to use the land.

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

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

4.8 Property, plant and equipment and mine properties

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

Upon completion of mine construction, the assets initially charged to assets in the course of construction are transferred into
‘Plant and equipment, motor vehicles and leasehold improvements’ or ‘Producing mines’. Items of ‘Plant and equipment,
motor vehicles and leasehold improvements’ and ‘Producing mines’ are stated at cost, less accumulated depreciation and
accumulated impairment losses.

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

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

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

i) Depreciation and amortisation
Accumulated mine development costs within producing mines are depreciated and amortised on a units-of-production basis
over the economically recoverable reserves of the mine concerned, except in the case of assets whose useful life is shorter
than the life of the mine, in which case the straight line method is applied. The unit of account for run of mine (“ROM”) costs
and for post-ROM costs is recoverable ounces of gold. The units-of-production rate for the depreciation and amortisation of
mine development costs takes into account expenditures incurred to date.

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

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

• Temporary buildings

• Plant and equipment

• Motor vehicles

• Office equipment

• Leasehold improvements

–

eight years (2016: eight years)

four years (2016: four years)

eight years (2016: eight years)

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

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

Significant accounting policies continued

4
4.8 Property, plant and equipment and mine properties continued

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

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

4.9

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

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

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

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

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

4.10 Fair value measurement

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

• Note 16 – ‘Trade and other receivables’;

• Note 18 – ‘Cash and cash equivalents’;

• Note 19 – ‘Trade and other payables’; and

• Note 20 – ‘Interest-bearing loans and borrowings’.

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

• in the principal marketplace for the asset or the liability; or

• in the absence of a principal market, the most advantageous market for the asset or liability.

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

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

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

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

• Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly

or indirectly observable.

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

Anglo Asian Mining PLC Annual report and accounts 2017Significant accounting policies continued

4
4.10 Fair value measurement continued

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

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

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

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

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

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

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

For closed sites, changes to estimated costs are recognised immediately in the Group income statement. Rehabilitation
obligations that arise as a result of the standard production activities of a mine are expensed as incurred.

4.12 Financial instruments – initial recognition and subsequent measurement

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

a) Financial assets
i) Initial recognition and measurement
Financial assets are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity
investments, available-for-sale financial assets, or derivatives designated as hedging instruments in an effective hedge, as
appropriate. The Group determines the classification of its financial assets at initial recognition. All financial assets are
recognised initially at fair value.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in
the marketplace (regular way trades) are recognised on the trade date, i.e. the date that the Group commits to purchase or sell
the asset.

The Group’s financial assets include cash and short-term deposits and trade and other receivables.

ii) Subsequent measurement
The subsequent measurement of financial assets depends on their classification:

• financial assets at fair value through profit and loss;

• loans and receivables;

• held-to-maturity investments; and

• available for sale financial assets.

The only category of financial assets of the Group is currently loans and receivables.

4
4.12 Financial instruments – initial recognition and subsequent measurement continued

a) Financial assets continued
ii) Subsequent measurement continued
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest
rate method, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and
fees or costs that are an integral part of the effective interest rate method. The effective interest rate method amortisation is
included in finance income in the Group income statement. The losses arising from impairment are recognised in the Group
income statement.

iii) Derecognition
A financial asset (or, where applicable, a part of a financial asset) is derecognised when:

• the rights to receive cash flows from the asset have expired; and

• the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has
transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained
substantially all the risks and rewards of the asset, but has transferred control of the asset.

iv) Impairment of financial assets
The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial
assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective
evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an
incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of
financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of
debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability
that they will enter bankruptcy or other financial reorganisation and where observable data indicates that there is a measurable
decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

v) Financial assets carried at amortised cost
For financial assets carried at amortised cost, the Group first assesses individually whether objective evidence of impairment
exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually
significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset,
whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and
collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment
loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has incurred, the amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit
losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial
asset’s original effective interest rate.

b) Financial liabilities
i) Initial recognition and measurement
Financial liabilities are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or derivatives
designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its
financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and in the case of loans and
borrowings, plus directly attributable transaction costs. The Group’s financial liabilities include trade and other payables,
contractual provisions and loans and borrowings.

ii) Subsequent measurement
The measurement of financial liabilities depends on their classification:

Trade and other payables and contractual provisions
Trade and other payables are initially measured at fair value and are subsequently measured at amortised cost using the
effective interest rate method.

Loans and borrowings
Interest-bearing loans and overdrafts are recorded at the proceeds received, net of direct transaction costs. Finance charges,
including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis and
charged to the Group income statement using the effective interest method. They are added to the carrying amount of the
instrument to the extent that they are not settled in the period in which they arise.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective
interest rate method. Gains and losses are recognised in the Group income statement when the liabilities are derecognised
as well as through the effective interest rate method amortisation process.

Notes to the Group financial statements continuedyear ended 31 December 2017Anglo Asian Mining PLC Annual report and accounts 2017Significant accounting policies continued

4
4.12 Financial instruments – initial recognition and subsequent measurement continued

b) Financial liabilities continued
ii) Subsequent measurement continued
Loans and borrowings continued
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral
part of the effective interest rate method. The effective interest rate method amortisation is included in finance costs in the
Group income statement.

iii) Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

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

c) Derivative financial instruments
The Group uses derivative financial instruments such as forward commodity and option contracts to hedge its commodity
price risks. Such contracts are not designated as hedges or accounted for as such in accordance with IAS 39. Such derivative
financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into and are
subsequently remeasured at fair value. Derivative financial instruments are accounted for as financial assets when their fair
value is positive and as financial liabilities when their fair value is negative. Any gains or losses arising from changes in the fair
value of derivative financial instruments are included in the Group income statement.

4.13 Trade and other receivables

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

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

• held primarily for the purpose of trading; and

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

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

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

4.14 Inventories

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

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

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

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

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

4.15 Equity instruments

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

4.16 Deferred stripping costs

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

4
4.16 Deferred stripping costs continued

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

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

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

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

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

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

4.17 Employee leave benefits

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

4.18 Retirement benefit costs

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

4.19 Share-based payments

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

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

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

4.20 Significant accounting judgements

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

4.20i) Recovery of deferred tax assets (note 11)
Judgement is required in determining whether deferred tax assets are recognised within the Group statement of financial position.
Deferred tax assets, including those arising from unutilised tax losses, require management to assess the likelihood that the Group
will generate taxable earnings in future periods, in order to utilise recognised deferred tax assets. Estimates of future taxable
income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent
that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred
tax assets recorded at the reporting date could be impacted.

4.20ii) Exploration and evaluation expenditure (note 13)
The application of the Group’s accounting policy for exploration and evaluation expenditure requires judgement in determining
whether it is likely that future economic benefits are likely from future exploitation. This deferral policy requires management
to make certain judgements about future events or circumstances, in particular whether an economically viable extraction operation
can be established. Judgements made may change if new information becomes available. If, after expenditure is capitalised,
information becomes available suggesting that the recovery of expenditure is unlikely, the amount capitalised is written off in
the consolidated statement of profit or loss in the period when the new information becomes available.

4.20iii) Impairment of intangible and tangible assets (notes 13 and 14)
The assessment of tangible and intangible assets for any internal and external indications of impairment involves judgement.
Each reporting period, the Group assesses whether there are indicators of impairment, if indicated then a formal estimate of the
recoverable amount is performed and an impairment loss recognised to the extent that the carrying amount exceeds recoverable
amount. Recoverable amount is determined as the higher of fair value less costs to sell and value in use. Determining whether
the projects are impaired requires an estimation of the recoverable value of the individual areas to which value has been ascribed.
The value in use calculation requires the entity to estimate the future cash flows expected to arise from the projects and a suitable
discount rate in order to calculate present value.

Notes to the Group financial statements continuedyear ended 31 December 2017Anglo Asian Mining PLC Annual report and accounts 20174
Significant accounting policies continued
4.20 Significant accounting judgements continued
4.20iv) Production start date (note 14)
The Group assesses the stage of each mine under construction to determine when a mine moves into the production stage.
The criteria used to assess the start date are determined based on the unique nature of each mine construction project, such
as the complexity of a plant and its location. The Group considers various relevant criteria to assess when the mine is substantially
complete, ready for its intended use and is reclassified from Assets under construction to Producing mines and Property, plant
and equipment. Some of the criteria will include, but are not limited to, the following:

• the level of capital expenditure compared to the construction cost estimates;

• completion of a reasonable period of testing of the mine plant and equipment;

• ability to produce metal in saleable form (within specifications); and

• ability to sustain ongoing production of metal.

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

4.20v) Renewal of Production Sharing Agreement (“PSA”) (note 26)
The Group operates its mines and processing facilities on contract areas licenced under a PSA with the Government of Azerbaijan.
The majority of the Group’s fixed assets, including its processing facilities and its main producing mines, are located on the Gedabek
contract area which has a mining licence expiring in March 2022. The Group depreciates each tangible fixed asset over its estimated
useful life regardless of whether or not the end of its useful life is later than March 2022. There is an option to extend the Gedabek
licence for a further ten years conditional upon satisfaction of certain requirements stipulated in the PSA. The directors have
judged that the requirements to renew the licence for a further 10 years will be satisfied and therefore it is valid to depreciate
assets over useful lives which end later than the end date of the current Gedabek licence.

4.21 Significant accounting estimates

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

4.21i) Ore reserves and resources (notes 13 and 14)
Ore reserves are estimates of the amount of ore that can be economically and legally extracted from the Group’s mining properties.
The Group estimates its ore reserves and mineral resources, based on information compiled by appropriately qualified persons
relating to the geological data on the size, depth and shape of the ore body and requires complex geological judgements to
interpret the data. The estimation of recoverable reserves is based upon factors such as estimates of foreign exchange rates,
commodity prices, future capital requirements and production costs along with geological assumptions and judgements made
in estimating the size and grade of the ore body. Changes in the reserve or resource estimates may impact upon the carrying
value of exploration and evaluation assets, mine properties, property, plant and equipment, provision for rehabilitation and
depreciation and amortisation charges.

4.21ii) Inventory (note 17)
Net realisable value tests are performed at least annually and represent the estimated future sales price of the product based
on prevailing spot metals prices at the reporting date, less estimated costs to complete production and bring the product to sale.

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

4.22ii) Mine rehabilitation provision (note 22)
The Group assesses its mine rehabilitation provision annually. Significant estimates and assumptions are made in determining the
provision for mine rehabilitation as there are numerous factors that will affect the ultimate liability payable. These factors include
estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes and changes in discount
rates. Those uncertainties may result in future actual expenditure differing from the amounts currently provided. The provision
at the reporting date represents management’s best estimate of the present value of the future rehabilitation costs required.
Changes to estimated future costs are recognised in the Group statement of financial position by either increasing or decreasing
the rehabilitation liability and rehabilitation asset if the initial estimate was originally recognised as part of an asset measured
in accordance with IAS 16 ‘Property, Plant and Equipment’. Expenditure on mine rehabilitation is expected to take place between
2023 and 2025. Given that the expenditure will not occur until between 6 to 8 years after the balance sheet date, it is not expected
that there is a significant risk that a change in estimate will result in a material adjustment to the carrying amount of the mine
rehabilitation provision within the financial year ended 31 December 2017.

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

All sales of gold and silver bullion are made to one customer, the Group’s gold refinery, MKS Finance SA, based in Switzerland.
Copper concentrate is sold to Industrial Minerals SA.

Revenue
The Group’s revenue consists of gold and silver bullion and copper concentrate sold to third-party customers. Revenue from
sales of gold and silver bullion was $55,099,000 and $311,000 respectively (2016: $66,766,000 and $164,000). Revenue from sales
of precious metal concentrate was $16,396,000 (2016: $12,254,000).

Other income and operating expense
Other income
Other income comprises loan interest receivable in respect of a loan to a former employee, release of provisions no longer
required and foreign exchange gains for the years ended 31 December 2016 and 2017.

Other operating expense
Other operating expense comprises metal refining costs, foreign currency exchange losses, write down of advances paid
and other miscellaneous operating expenses for the years ended 31 December 2016 and 2017.

Operating profit

Operating profit is stated after charging:
Depreciation on property, plant and equipment – owned
Amortisation of mining rights and other intangible assets
Employee benefits and expenses
Foreign currency exchange net (loss)/gain
Inventory expensed during the year
Operating lease expenses

Fees payable to the Company’s auditor for:
The audit of the Group’s annual accounts
The audit of the Group’s subsidiaries pursuant to legislation
Audit related assurance services – half year review

Total audit services

Amounts paid to auditor for other services:
Tax compliance services

Total non-audit services

Total

Notes

14
13
9

2017
$000

21,008
1,778
7,305
(28)
21,502
591

135
119
2

256

270

2016
$000

20,080
1,884
7,471
138
28,520
730

132
114
2

248

257

There were no non-cancellable operating lease and sublease arrangements during 2017 and 2016.

The audit fees for the parent company were $107,000 (2016: $107,000).

Staff numbers and costs
The average number of staff employed by the Group (including directors) during the year, analysed by category, was as follows:
2016

2017

Management and administration
Exploration
Mine operations

49
19
626

694

51
20
580

651

Notes to the Group financial statements continuedyear ended 31 December 2017Anglo Asian Mining PLC Annual report and accounts 2017

Staff numbers and costs continued
The aggregate payroll costs of these persons were as follows:

Wages and salaries
Share-based payments
Social security costs

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

Short-term employee benefits
Share-based payment

2017
$000

6,043
13
1,249

7,305

2016
$000

6,109
18
1,343

7,470

2017
$

2016
$

1,861,343
13,399

1,750,094
18,705

1,874,742

1,768,799

The key management personnel of the Group comprise the chief executive officer, the vice president of government affairs,
the senior vice president, Azerbaijan International Mining Company Limited, the vice president of technical services, the
director of geology and the chief financial officer. The disclosure of the remuneration of the directors as required by the
Companies Act 2006 is given in the report on directors’ remuneration on pages 28 and 29.

Finance costs

Interest charged on interest-bearing loans and borrowings
Finance charges on letters of credit
Unwinding of discount on provisions

2017
$000

3,043
33
462

3,538

2016
$000

4,344
98
493

4,935

Interest on interest-bearing loans and borrowings represents charges incurred on those credit facilities as set out in note 20
– ”Interest-bearing loans and borrowings”.

Where a portion of the loans has been used to finance the construction and purchase of assets of the Group (‘qualifying
assets’), the interest on that portion of the loans has been capitalised up until the time the assets were substantially ready for
use. For the year ended 31 December 2017, $nil (2016: $nil) interest was capitalised.

Taxation
Corporation tax is calculated at 32 per cent. (as stipulated in the production sharing agreement for R.V. Investment Group
Services LLC (“RVIG”) in the Republic of Azerbaijan, the entity that contributes the most significant portion of profit or loss
before tax in the Group financial statements) of the estimated assessable profit or loss for the year. Taxation for other
jurisdictions is calculated at the rates prevailing in the respective jurisdictions. Deferred income taxes arising in RVIG are
recognised and fully disclosed in these Group financial statements. RVIG’s unutilised tax losses at 31 December 2017 were
$4,697,000 (2016: $19,162,000).

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

Current income tax
Current income tax charge
Deferred tax
(Charge) relating to origination and reversal of temporary differences

Income tax (charge) for the year

2017
$000

—

(3,164)

2016
$000

—

(2,795)

Taxation continued
Deferred income tax at 31 December relates to the following:

Statement of financial position

Income statement

Deferred income tax liability
Property, plant and equipment – accelerated depreciation
Non-current prepayments
Trade and other receivables
Inventories

Deferred income tax liability

Deferred income tax asset
Trade and other payables and provisions*
Asset retirement obligation*
Interest-bearing loans and borrowings*
Carry forward losses**

Deferred income tax asset

Deferred income tax charge

2017
$000

2016
$000

(17,834)
(280)
(796)
(9,435)

(28,345)

2,367
3,081
—
1,503

6,951

(19,453)
(347)
(1,466)
(9,447)

(30,713)

3,489
3,013
(151)
6,132

12,483

2017
$000

1,619
67
670
12

(1,122)
68
151
(4,629)

2016
$000

1,338
(189)
(772)
(1,688)

1,191
276
(126)
(2,825)

(3,164)

(2,795)

Net deferred income tax liability

(21,394)

(18,230)

* Deferred income tax assets have been recognised for the trade and other payables and provisions, asset retirement obligation and interest-bearing

loans and borrowings based on local tax basis differences expected to be utilised against future taxable profits.

** Deferred income tax assets have been recognised for the carry forward of unused tax losses to the extent that it is probable that taxable profits will

be available in the future against which the unused tax losses can be utilised. The probability that taxable profits will be available in the future is based
on forward looking budgets and business plans of the Group.

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

Profit before tax

Theoretical tax charge at statutory rate of 32 per cent. for RVIG*
Effects of different tax rates for certain Group entities (20 per cent.)
Tax effect of items which are not deductible or assessable for taxation purposes:
– losses in jurisdictions that are exempt from taxation
– non-deductible expenses
– non-taxable income

Income tax charge for the year

* This is the local tax rate applicable in accordance with local legislation.

2017
$000

5,684

1,819
164

1
1,231
(51)

3,164

2016
$000

6,779

2,169
127

2
867
(370)

2,795

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

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

At 31 December 2017, the Group had unused tax losses available for offset against future profits of $22,032,000 (2016: 34,717,000).
Unused tax losses in the Republic of Azerbaijan at 31 December 2017 were $4,697,000 (2016: $19,162,000). No deferred tax assets
have been recognised in respect of jurisdictions other than the Republic of Azerbaijan due to the uncertainty of future profit streams.

12 Profit per share

The calculation of basic and diluted profit per share is based upon the retained profit for the financial year of $2,520,000
(2016: $3,984,000).

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

2017

2016

Basic

Diluted

113,134,175

112,117,622

113,322,046

112,295,664

At 31 December 2017 there were 545,000 unexercised share options that could potentially dilute basic earnings per share
(2016: 1,100,000).

Notes to the Group financial statements continuedyear ended 31 December 2017Anglo Asian Mining PLC Annual report and accounts 2017

Intangible assets

Cost
1 January 2016
Additions

31 December 2016
Additions

31 December 2017

Amortisation and impairment*
1 January 2016
Charge for the year

31 December 2016
Charge for the year

31 December 2017

Net book value
31 December 2016

31 December 2017

Exploration and
evaluation
Gedabek
$000

Exploration and
evaluation
Ordubad
$000

—
191

191
919

3,860
168

4,028
125

Mining
rights
$000

41,925
—

1,110

4,153

41,925

—
—

—

—
—

—

191

1,110

4,028

4,153

27,626
1,843

29,469
1,738

31,207

12,456

10,718

Other
intangible
assets
$000

498
—

498
31

529

284
41

325
40

365

173

164

Total
$000

46,283
359

46,642
1,075

47,717

27,910
1,884

29,794
1,778

31,572

16,848

16,145

* 427,000 ounces of gold at 1 January 2017 were used to determine amortisation of producing mines, mining rights and other intangible assets
(2016: 507,000 ounces). A 5 per cent. increase or decreased in the ounces of gold used to compute the amortisation of intangible assets would result
in a decrease in amortisation of $82,000 and an increase in amortisation of $91,000 respectively.

14 Property, plant and equipment

Cost
1 January 2016
Additions
Transfer to producing mines
Decrease in provision for rehabilitation

31 December 2016
Additions
Transfer to producing mines
Decrease in provision for rehabilitation

31 December 2017

Depreciation and impairment*
1 January 2016
Charge for the year

31 December 2016
Charge for the year

31 December 2017

Net book value
31 December 2016

31 December 2017

Plant and
equipment and
motor vehicles
$000

Producing
mines
$000

Assets under
construction
$000

19,666
1,799
—
—

21,465
434
—
—

175,062
4,404
3,598
369

183,433
4,559
1,229
(249)

477
3,556
(3,598)
—

435
5,175
(1,229)
—

Total
$000

195,205
9,759
—
369

205,333
10,168
—
(249)

21,899

188,972

4,381

215,252

12,642
2,014

14,656
1,765

74,135
18,066

92,201
19,243

16,421

111,444

—
—

—

6,809

5,478

91,232

77,528

435

4,381

86,777
20,080

106,857
21,008

127,865

98,476

87,387

* 427,000 ounces of gold at 1 January 2017 were used to determine depreciation of producing mines, mining rights and other intangible assets

(2016: 507,000 ounces). A 5 per cent. increase or decreased in the ounces of gold used to compute the depreciation of property plant and equipment
would result in a decrease in depreciation of $628,000 and an increase in depreciation of $694,000 respectively.

The Ugur new open pit commenced production in 2017 with the development cost transferred to producing mines on
1 September 2017 with depreciation commencing from this date. Initial mining from the Ugur open pit was by free digging and
September 2017 was the first month in which significant amounts of ore were extracted from the Ugur open pit. Gold doré from
Ugur ore also commenced in September 2017. The development cost of Ugur was $1.1 million and the cost will be amortised
using the unit of production method with 137,000 ounces of gold as the total resource to determine the amortisation.

No impairment losses were recognised by the Group at 31 December 2017 or 31 December 2016.

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

• production volumes;

• commodity prices;

• discount rates;

• foreign exchange rates; and

• capital and operating costs.

The management assessed that there were no indicators of impairment at 31 December 2017. Accordingly, no impairment
analysis was performed for the balance sheet at 31 December 2017. The management did assess that there were indicators
of impairment at 31 December 2016 and performed an impairment analysis at that date. The assumptions used and the
result of that analysis is as follows:

Production volumes: In calculating the FVLCD, the production volumes incorporated into the cash flow models were
453,000 ounces of gold and 58,000 tonnes of copper. Estimated production volumes are based on detailed life of mine plans.
Production volumes are dependent on a number of variables such as the recoverable quantities, the cost of the necessary
infrastructure to recover the reserves, the production costs, the contractual duration of the mining rights and the selling prices
of the quantities extracted. These production volumes are based on the mine being operational until the end of 2027.

Commodity prices: Forecast precious metal and commodity prices are based on management estimates. Estimated long-term
gold prices of between $1,400 and $1,535 per ounce and estimated long-term copper prices of between $6,146 and $6,739 per tonne
have been used to estimate future revenue.

Discount rates: In calculating the FVLCD, a post-tax discount rate of 10.53 per cent. was applied to the post-tax cash flows
expressed in real terms. This discount rate is derived from the Group’s post-tax weighted average cost of capital (“WACC”),
which takes into account both equity and debt, and is then adjusted to reflect the Group’s assessment of a discount rate
that other market participants would consider when evaluating the assets.

Foreign exchange rates: The only significant foreign exchange rate in the cash flow model is the United States Dollar
to Azerbaijan Manat rate. A rate of $1 equals 1.84 Manat has been used in the cash flow model.

Capital and operating costs: In calculating the cash flow model, the significant capital and operating costs are the additional
future capital cost to be incurred over the life of the mine of $459 million and the cash cost per ounce of producing gold.
Cash costs per ounce of producing gold were used of $650 to $750 per ounce.

Management believes that, other than the volume of gold production, there are no changes which are reasonably possible
in any of the other assumptions discussed above, which would lead to impairment. At 31 December 2016, the recoverable
amount of the Group’s assets exceeded its carrying amount by $29 million. It is estimated that a 10 per cent. reduction in
gold production and copper production, after incorporating any consequential effects of changes on the other variables used
to measure the recoverable amount, would result in the recoverable amount of the Group’s assets still exceeding its carrying
amount by approximately $8 million.

The capital commitments by the Group have been disclosed in note 26.

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

The Company’s subsidiaries included in the Group financial statements at 31 December 2017 are as follows:

Name

Anglo Asian Operations Limited
Holance Holdings Limited
Anglo Asian Cayman Limited
R.V. Investment Group Services LLC
Azerbaijan International Mining Company Limited

Registered address*

England and Wales
British Virgin Islands
Cayman Islands
Delaware, USA
Cayman Islands

There has been no change in subsidiary undertakings since 1 January 2017.

* see note 5 – “Subsidiaries” of notes to the Company financial statements.

Primary place
of business

Percentage
of holding
per cent.

United Kingdom
Azerbaijan
Azerbaijan
Azerbaijan
Azerbaijan

100
100
100
100
100

Notes to the Group financial statements continuedyear ended 31 December 2017Anglo Asian Mining PLC Annual report and accounts 201716

Trade and other receivables

Non-current assets

Advances for fixed asset purchases
Loans

Current assets

Gold held due to the Government of Azerbaijan
VAT refund due
Other tax receivable
Trade receivables
Prepayments and advances
Loans

2017
$000

860
15

875

7,445
206
891
440
2,187
107

11,276

2016
$000

989
95

1,084

10,078
339
926
639
4,218
50

16,250

The carrying amount of trade and other receivables approximates to their fair value.

The VAT refund due at 31 December 2017 and 2016 relates to VAT paid on purchases.

Gold bullion held and transferable to the Government is bullion held by the Group due to the Government of Azerbaijan.
The Group holds the Government’s share of the product from its mining activities and from time to time transfers that product
to the Government. A corresponding liability to the Government is included in trade and other payables as disclosed in note 19.

The Group does not consider any stated trade and other receivables as past due or impaired.

Inventory

Current assets

Cost
Finished goods – bullion
Finished goods – metal in concentrate
Metal in circuit
Ore stockpiles
Spare parts and consumables

Total current inventories

Total inventories at the lower of cost and net realisable value

2017
$000

2,059
489
13,476
6,753
11,203

33,980

2016
$000

903
240
12,119
9,784
10,972

34,018

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

18 Cash and cash equivalents

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

The Group’s cash on hand and cash held within financial institutions at 31 December 2017 (including short-term cash deposits)
comprised $117,000 and $2,417,000, respectively (2016: $118,000 and $1,261,000).

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

Trade and other payables

Accruals and other payables
Trade creditors
Gold held due to the Government of Azerbaijan
Payable to the Government of Azerbaijan from copper concentrate joint sale

2017
$000

3,979
3,431
7,445
315

15,170

2016
$000

3,111
7,815
10,078
829

21,833

Trade and other payables continued
Trade creditors primarily comprise amounts outstanding for trade purchases and ongoing costs. Trade creditors are non-interest
bearing and the creditor days were 22 (2016: 42). Accruals and other payables mainly consist of accruals made for accrued but
not paid salaries, bonuses, related payroll taxes and social contributions, accrued interest on borrowings and services provided
but not billed to the Group by the end of the reporting period. The directors consider that the carrying amount of trade and
other payables approximates to their fair value.

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

Interest-bearing loans and borrowings

International Bank of Azerbaijan – agitation leaching plant loan
International Bank of Azerbaijan – loan facilities
Amsterdam Trade Bank
Gazprombank (Switzerland)
Atlas Copco
Yapi Kredi Bank
Pasha Bank – loans
Kapital Bank
Director

Loans repayable in less than one year
Loans repayable in more than one year

2017
$000

1,640
481
3,700
3,700
303
2,254
3,713
1,000
3,860

20,651

20,051
600

20,651

2016
$000

5,385
970
17,307
—
801
672
5,935
1,000
3,860

35,930

26,165
9,765

35,930

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

International Bank of Azerbaijan (“IBA”)
Agitation leaching plant loan
In 2012 and 2013, the Group borrowed $49.5 million under a series of loan agreements to finance the construction of its agitation
leaching plant. The annual interest rate for each agreement was 12 per cent. The repayment of principal begins two years from
the withdrawal date for each agreement. The loans were partially repaid by the proceeds of a refinancing loan from Amsterdam
Trade Bank. The loans are repayable commencing from 31 March 2015 and finishing on 30 June 2018. The interest rate on the
outstanding loan agreements at 6 November 2017 was reduced to 7 per cent. from that date.

Loan facilities
During 2016, the Group entered into three credit facilities with IBA:

• AZN1 million at an annual interest rate of 18 per cent. The interest and principal are repayable on a reducing balance basis

in 12 equal monthly instalments of AZN92,000 and the final instalment was payable in January 2017.

• $1.5 million at an annual interest rate of 12 per cent. The interest and principal are repayable on a reducing balance basis in

24 equal monthly instalments of $71,000 and the final instalment was payable in February 2018.

• $1.4 million at an annual interest rate of 12 per cent. for the purchase of the water treatment plant. $1.1 million of the loan was
drawn down in 2017 and the amount of the loan outstanding at 31 December 2017 was $0.4 million. The balance of the loan at
31 December 2017 together with interest is repayable in equal monthly instalments on an annuity basis with the final payment
in June 2018. The interest rate was reduced to 10 per cent. in September 2017 and to 7 per cent. on 6 November 2017.

Amsterdam Trade Bank (“ATB”) and Gazprombank (Switzerland) Ltd
During 2013, the Group entered into a loan agreement for $37.0 million to refinance its agitation leaching plant loan from IBA.
The annual interest rate was 8.25 per cent. plus LIBOR. Principal was repayable in 15 equal quarterly instalments of $2,467,000.
The first payment of principal commenced in February 2015 with the final instalment payable in August 2018. The Group
pledged to ATB its present and future claims against MKS Finance SA, the Group’s sole buyer of gold doré until termination of
the loan agreement. In February 2017, a transaction was finalised to transfer 50 per cent. of the balance of the loan with ATB,
being $8.6 million, to Gazprombank (Switzerland) Ltd (“GPBS”). The terms of the loan and security remained unchanged and
ATB acted as agent to administer the loan on behalf of ATB and GPBS. In February 2018, the loans from ATB and GPBS were
repaid from the proceeds of the Pasha Bank OJSC refinancing loan (note 28 – Post balance sheet event – Loan refinancing by
Pasha Bank on page 64).

Notes to the Group financial statements continuedyear ended 31 December 2017Anglo Asian Mining PLC Annual report and accounts 2017
20

Interest-bearing loans and borrowings continued
Atlas Copco
The amounts outstanding are in respect of vendor equipment financing. During 2016, the Group entered into a vendor
equipment financing for Euro 1.1 million at an annual interest rate of 8.14 per cent. The principal is repayable quarterly in eight
equal instalments which commenced on 31 August 2016 with the final instalment payable on 31 May 2018. Interest is payable
quarterly with the principal.

Yapi Credit Bank, Azerbaijan (“YCBA”)
In 2016 and 2017, the Group entered into several credit facilities with YCBA. The annual interest rate for each facility was 10
to 11 per cent. and each facility is repayable in 12 equal monthly instalments on a reducing balance basis starting one month
after drawdown. In February 2018, the total outstanding balance of the loans of $2.2 million was repaid from the proceeds of
the Pasha Bank refinancing loan (note 28 – Post balance sheet event – Loan refinancing by Pasha Bank on page 64).

Pasha Bank
The Group entered into loans with Pasha Bank in 2016 at annual interest rates and maturities as in the following table.
No principal repayment had been made in respect of any of these loans in 2016.

Loan value
$000

Term
(months)

Interest rate
(per cent.)

1,000
1,500
916
2,100
419

18
12
24
2
2

7
9
7
14
18

Principal repayment

2 equal instalments in March and September 2017
November 2017
7 equal instalments, 2017 – $525,000; 2018 – $391,000
2 equal instalments January and February 2017
2 equal instalments January and February 2017

All of the above loans were repaid in 2017 with the exception of the loan for $916,000 of which $713,000 was outstanding at
31 December 2017.

In 2017, the Group entered into a $3.0 million loan agreement with Pasha Bank at an interest rate of 8.5 per cent. The interest
is payable monthly and the principal is repayable in 5 equal instalments of $600,000 payable in April, July, August and
October 2018 and January 2019.

Kapital Bank
In December 2016, the Group entered into a working capital credit facility for $1 million with Kapital Bank. The facility is for
one year with an annual interest rate of 7 per cent. Interest is payable monthly and the principal is repayable by four equal
quarterly monthly instalments commencing March 2017. The loan was fully repaid by 31 December 2017. On 17 May 2017,
the Group entered into a further $1 million loan facility with Kapital Bank. The term of the loan was for 18 months at an interest
rate of 8 per cent. with the principal repayable at the end of the term.

Director
On 20 May 2015, the chief executive of Anglo Asian Mining PLC provided a $4 million loan facility to the Group. Any loan from the
facility was repayable on 8 January 2016 at an interest rate of 10 per cent. The loan was extended during 2016 and 2017 on the same
terms until 8 January 2018. On 8 January 2018, the term of the loan was extended for one year until 8 January 2019. The interest rate on
the loan was reduced to 7 per cent., and all other terms of the loan remained unchanged. In March 2018, the loan was repaid from the
proceeds of the Pasha Bank OJSC refinancing loan (note 28 – Post balance sheet event – Loan refinancing by Pasha Bank on page 64).

Unused credit facilities
The Group had no credit facilities at 31 December 2017 which were not utilised (2016: $nil).

21 Changes in liabilities arising from financing activities

Current interest-bearing loans and borrowings
Non-current interest-bearing loans and borrowings

Total liabilities from financing activities

Current interest-bearing loans and borrowings
Non-current interest-bearing loans and borrowings

Total liabilities from financing activities

1 January
$000

26,165
9,765

35,930

1 January
$000

26,708
22,588

49,296

2017

Cash flows
$000

(15,879)
600

(15,279)

2016

Cash flows
$000

881
(14,247)

(13,366)

Other
$000

31 December
$000

9,765
(9,765)

—

Other
$000

(1,424)
1,424

—

20,051
600

20,651

31 December
$000

26,165
9,765

35,930

Other is the effect of reclassification of the non-current portion of interest bearing loans and borrowings to current at the end
of the year due to the passage of time.

22 Provision for rehabilitation

1 January
Additions
Accretion expense
Effect of passage of time and change in discount rate

31 December

2017
$000

9,416
557
462
(806)

9,629

2016
$000

8,554
—
493
369

9,416

The Group has a liability for restoration, rehabilitation and environmental costs arising from its mining operations. Estimates
of the cost of this work including reclamation costs, close down and pollution control are made on an ongoing basis, based
on the estimated life of the mine. The provision represents the net present value of the best estimate of the expenditure
required to settle the obligation to rehabilitate any environmental disturbances caused by mining operations. The undiscounted
liability for rehabilitation at 31 December 2017 was $13,736,000 (2016: $15,314,000). The undiscounted liability was discounted
using a risk-free rate of 5.05 per cent. (2016: 4.88 per cent.). Expenditures on restoration and rehabilitation works are expected
between 2023 and 2025 (2016: between 2025 and 2027).

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

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

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

The sensitivity has been prepared for the years ended 31 December 2017 and 2016 using the amounts of debt and other
financial assets and liabilities held as at those reporting dates.

Capital risk management
The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 20, cash and cash equivalents
and equity attributable to equity holders of the parent, comprising issued share capital, reserves and retained earnings as
disclosed in the consolidated statement of changes in equity. The Group has sufficient capital to fund ongoing production and
exploration activities, with capital requirements reviewed by the board on a regular basis. Capital has been sourced through share
issues on AIM, part of the London Stock Exchange, and loans from the International Bank of Azerbaijan, Amsterdam Trade Bank
(“ATB”) and other banks in Azerbaijan. In managing its capital, the Group’s primary objective is to ensure its continued ability to
provide a consistent return for its equity shareholders through capital growth. In order to achieve this objective, the Group seeks
to maintain a gearing ratio that balances risk and returns at an acceptable level and also to maintain a sufficient funding base to
enable the Group to meet its working capital and strategic investment needs.

The Group is not subject to externally imposed capital requirements and monitors capital using a gearing ratio, which is net
debt divided by total capital plus net debt. The Group’s policy is to keep the gearing ratio below 70 per cent. The Group defines
net debt as interest-bearing loans and borrowings less cash and cash equivalents.

Interest-bearing loans and borrowings (note 20)
Less cash and cash equivalents (note 18)

Net debt
Equity

Capital and net debt

Gearing ratio (per cent.)

2017
$000

20,651
(2,534)

18,117
85,353

2016
$000

35,930
(1,379)

34,551
82,646

103,470

117,197

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

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

The Group has not used any interest rate swaps or other instruments to manage its interest rate profile during 2017 and 2016.

Notes to the Group financial statements continuedyear ended 31 December 2017Anglo Asian Mining PLC Annual report and accounts 2017

23 Financial instruments continued
Interest rate sensitivity analysis
The Group had no sensitivity to any movement in LIBOR rates in 2017. Interest rate sensitivity of the Group in 2016 from a
reasonable possible movement in the three month LIBOR rate was limited to a negative $137,000 or a positive $18,000 impact
on the Group’s profit before taxation based on a 0.6 per cent. increase or a 0.08 per cent. decrease respectively on interest
bearing loans from ATB.

Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity
risk management framework for the management of the Group’s short, medium and long-term funding and liquidity
management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve
borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial
liabilities. Included in note 20 is a description of additional undrawn facilities that the Group has at its disposal to further
reduce liquidity risk.

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

Year ended 31 December 2017

Interest-bearing loans and borrowings
Trade and other payables

Year ended 31 December 2016

Interest-bearing loans and borrowings
Trade and other payables

On
demand
$000

—
—

—

On
demand
$000

—
—

—

Less than
3 months
$000

9,962
15,170

25,132

Less than
3 months
$000

7,319
21,833

29,152

3 to 12
months
$000

10,089
—

10,089

3 to 12
months
$000

20,575
—

20,575

1 to 5
years
$000

600
—

600

1 to 5
years
$000

10,142
—

10,142

Total
$000

20,651
15,170

35,821

Total
$000

38,036
21,833

59,869

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

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

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

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

UK Sterling
Azerbaijan Manats
Other

Liabilities

Assets

2017
$000

1
3,909
151

2016
$000

33
4,379
434

2017
$000

2
1,342
4

2016
$000

2
1,390
152

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

The following table details the Group’s sensitivity to a 11 per cent., 12.5 per cent. and 11.3 per cent. (2016: 6 per cent., 10 per cent.
and 20 per cent.) increase and a 7 per cent., 7.5 per cent. and 11.3 per cent. (2016: 18 per cent., 10 per cent. and 20 per cent.)
decrease in the United States Dollar against United Kingdom Sterling, Euro and Azerbaijan Manat, respectively. These are the
sensitivity rates used when reporting foreign currency risk internally to key management personnel and represents management’s
assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign
currency denominated monetary items and adjusts their translation at the period end for respective change in foreign currency
rates. A positive number below indicates an increase in profit and other equity where the United States Dollar strengthens
by the mentioned rates against the relevant currency. Weakening of the United States Dollar against the relevant currency,
there would be an equal and opposite impact on the profit and other equity, and the balances below would be reversed.

Increase – effect on profit
before tax
Decrease – effect on profit
before tax

UK Sterling impact

Azerbaijan Manat impact

Euro impact

2017
$000

—

2016
$000

(6)

2017
$000

290

(290)

2016
$000

598

(598)

2017
$000

(11)

2016
$000

(28)

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

A 10 per cent. decrease in gold price in the year ended 31 December 2017 would result in a reduction in revenue of $6.1 million
and a 10 per cent. increase in gold price would have the equal and opposite effect. A 10 per cent. decrease in silver price would
result in a reduction in revenue of $0.04 million and a 10 per cent. increase in silver price would have an equal and opposite
effect. A 10 per cent. decrease in copper price would result in a reduction in revenue of $0.8 million and a 10 per cent.
increase in copper price would have an equal and opposite effect.

24 Equity

Authorised
Ordinary shares of 1 pence each

Ordinary shares issued and fully paid
1 January
Exercise of share options

31 December

2017

2016

Number

600,000,000

6,000,000

600,000,000

6,000,000

$000

112,661,024
1,100,000

1,993
15

112,661,024
—

113,761,024

2,008

112,661,024

1,993
—

1,993

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

Share options
The Group has a share option scheme under which options to subscribe for the Company’s shares have been granted to
certain executives and senior employees (note 25).

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

Retained earnings/(loss)
Retained earnings/(loss) represent the cumulative earnings/(loss) of the Group attributable to the equity shareholders.

Notes to the Group financial statements continuedyear ended 31 December 2017Anglo Asian Mining PLC Annual report and accounts 2017

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

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

1 January
Granted during the year
Exercised during the year
Expired during the year

31 December

The following share options were exercisable at 31 December:

2017

2016

Number

1,745,000
—
(1,100,000)
(100,000)

545,000

WAEP
pence

14
—
12
16

Number

2,120,859
120,000
—
(495,859)

1,745,000

2017

2016

Number

545,000

WAEP
pence

Number

1,665,000

WAEP
pence

21
10
—
42

WAEP
pence

The weighted average remaining contractual life of the share options outstanding at 31 December 2017 was 7 years (2016: 3 years)
and the range of their exercise prices was 10 pence to 35 pence (2016: 10 pence to 35 pence).

There were no share options issued in 2017.

Share options are valued using the Black-Scholes model. The assumptions used to value the share options issued in the year
ended 31 December are as follows:

Weighted average share price (pence)
Weighted average exercise price (pence)
Expected volatility for six months’ vesting period option (per cent.)
Expected volatility for one year’s vesting period option (per cent.)
Expected volatility for two years’ vesting period option (per cent.)
Expected life for six months’ vesting period option (years)
Risk-free rate (per cent.)

* Not applicable as no options issued in 2017.

2017*

n/a
n/a
n/a
n/a
n/a
n/a
n/a

2016

26
9.88
—
70
70
2
2.23

Expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous
one and two years for share options with one and two year vesting periods, respectively. 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.

The Group recognised total expense related to equity-settled share-based payment transactions for the year ended
31 December 2017 of $13,000 (2016: $18,000).

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

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

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

In accordance with a pledge agreement signed on 24 July 2013, the Group is a guarantor for one of its suppliers,
Azerinterpartlayish-X MMC, for a loan from the International Bank of Azerbaijan in the amount of Azerbaijan New Manat
(“AZN”) 500,000 for an initial 36 months. The pledge agreement was extended in 2016 till 1 July 2018. The amount of the
loan outstanding at 31 December 2017 was AZN125,750.

There were no significant operating lease and no capital lease commitments at 31 December 2017 (2016: $nil).

27 Related party transactions
Trading transactions
During the years ended 31 December 2016 and 2017, there were no trading transactions between Group companies.

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

a Shares issued to directors are disclosed in the report on directors’ remuneration on pages 28 and 29.

b Remuneration paid to directors is disclosed in the report on directors’ remuneration on pages 28 and 29.

c During the year ended 31 December 2017, total payments of $1,400,000 (2016: $1,522,000) were made for equipment

and spare parts purchased from Proses Muhendislik Danismanlik Inshaat ve Tasarim Anonim Shirket, the entity in which
the chief technical officer of Azerbaijan International Mining Company has a direct ownership interest.

At 31 December 2017 there is a payable in relation to the above related party transaction of $267,000 (2016: advanced
payment of $34,000).

d On 20 May 2015, the chief executive made a $4 million loan facility available to the Group. The interest accrued and unpaid
at 31 December 2017 was $655,000 (2016: $385,000). Details of the loan facility are disclosed in note 20 – ‘Interest-bearing
loans and borrowings’.

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

28 Post balance sheet event

Loan refinancing by Pasha Bank
On 8 February 2018 a subsidiary of the Group, Azerbaijan International Mining Company Limited, entered into a refinancing
agreement with Pasha Bank OJSC, as arranger, for a syndicated loan facility for up to $15 million to refinance the majority
of the Group’s existing loans. The significant terms of the loan were as follows:

• Two-year term loan facility for up to $15 million at 7 per cent. per annum fixed interest rate;
• The loan facility is unsecured and there are no financial covenants;
• Total arrangement fee of 0.25 per cent. of the amount borrowed; and
• Early repayment is permitted.

A total of $13.5 million of the facility was drawn-down on the 9 and 12 of February 2018 and used to repay the following loans:

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

The transaction was completed by the end of March 2018.

Notes to the Group financial statements continuedyear ended 31 December 2017Anglo Asian Mining PLC Annual report and accounts 2017

Company statement of financial position
31 December 2017

Non-current assets

Property, plant and equipment

Investments

Other receivables

Current assets

Other receivables

Cash and cash equivalents

Total assets

Current liabilities

Trade and other payables

Net current assets

Total liabilities

Net assets

Equity

Share capital

Share premium account

Retained loss

Total equity

Notes

2017
$000

193

1,325

1,534

14,768

14,847

16,381

2016
$000

219

1,325

1,614

15,500

424

15,924

17,538

(389)

(355)

14,458

15,569

(389)

(355)

15,992

17,183

2,008

32,484

1,993

32,325

(18,500)

(17,135)

15,992

17,183

The loss dealt with in the financial statements of the Company is $1,378,000 (2016: $1,058,000).

These Company financial statements were approved by the board of directors and authorised for issue on 23 May 2018. They were
signed on its behalf by:

Reza Vaziri
Chief executive

Company statement of changes in equity
year ended 31 December 2017

1 January 2016

Loss for the year

Share-based payment

31 December 2016

Loss for the year

Shares issued

Share-based payment

31 December 2017

Share
capital
$000

1,993

—

Share
premium
$000

32,325

—

1,993

32,325

—

159

—

Accumulated
loss
$000

(16,096)

(1,058)

(17,135)

(1,378)

—

Total
equity
$000

18,222

(1,058)

17,183

(1,378)

174

2,008

32,484

(18,500)

15,992

Anglo Asian Mining PLC Annual report and accounts 2017Notes to the Company financial statements
year ended 31 December 2017

Basis of preparation
The parent company financial statements of Anglo Asian Mining PLC are presented as required by the Companies Act 2006
and were approved for issue on 23 May 2018.

The parent company financial statements have been prepared using the accounting policies set out in note 2 which are
consistent with all applicable International Financial Reporting Standards (“IFRS”) and with those parts of the Companies
Act 2006 applicable to companies reporting under IFRSs and in accordance with Financial Reporting Standard 101, ‘Reduced
Disclosure Framework’, (“FRS 101”). FRS 101 enables the financial statements of the parent company to be prepared in
accordance with EU-adopted IFRS but with certain disclosure exemptions. The main areas of reduced disclosure are in respect
of equity settled share-based payments, financial instruments, the cash flow statement and related party transactions with
Group companies.

The parent company financial statements have been prepared under the historical cost convention except for the treatment
of share based payments. The parent company financial statements are presented in United States Dollars (“$”) and all values
are rounded to the nearest thousand except where otherwise stated. In the parent company financial statements “£” and “pence”
are references to the United Kingdom pound sterling. As permitted by section 408 of the Companies Act 2006, the income
statement of the parent company is not presented as part of the parent company financial statements.

2
Significant accounting policies
2.1 Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. The initial
cost includes costs directly attributable to making the asset capable of operating as intended.

Depreciation is provided on cost in annual instalments over the estimated useful lives of assets which are reviewed annually.
Property, plant and equipment is mainly office and computer equipment which are depreciated on a straight line basis over
four years.

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances
indicate that the carrying amount may not be recoverable.

2.2

Investments
Investments in subsidiaries are stated at cost, and where appropriate, less any provision for impairment. Impairment is tested
annually by comparing the recoverable amount of the underlying subsidiary to the carrying value of the investment, with any
shortfall provided for during the period.

2.3 Other receivables

Other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
After initial measurement, such financial assets are measured at amortised cost using the effective interest rate method, less
impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs
that are an integral part of the effective interest rate method. The losses arising from impairment are recognised in the profit
and loss account.

2.4 Deferred taxation

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax assets are not recognised in respect of temporary differences where there is insufficient evidence that the asset
will be recovered.

2.5 Share-based payments

The Company has applied the requirements of IFRS 2 ‘Share-based Payment’. IFRS 2 has been applied to all grants
of equity instruments.

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

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

Property, plant and equipment

Cost
1 January 2016
Additions

31 December 2016 and 2017

Depreciation
1 January 2016
Charge for the year

31 December 2016
Charge for the year

31 December 2017

Net book value
31 December 2016

31 December 2017

Investments

Shares in subsidiary undertakings
Anglo Asian Operations Limited

Office
equipment
$000

349
3

352

108
25

133
26

159

219

193

2016
$000

2017
$000

1,325

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

The Company’s subsidiaries at 31 December 2017 are set out in the table below. All subsidiaries are 100 per cent. owned and
their financial statements are included in the consolidated group financial statements:
Registered office address
Name

Primary activity

Anglo Asian Operations Limited

Holance Holdings Limited

Anglo Asian Cayman Limited

R.V. Investment Group Services LLC

Azerbaijan International Mining Company Limited

7 Devonshire Square
Cutlers Gardens
London EC2 4YH
United Kingdom

P.O. Box 3136
Akara Building
Main Street
Road Town
British Virgin Islands

Zephyr House
P.O. Box 709
122 Mary Street
Grand Cayman KY1 1107
Cayman Islands

15 East North Street
Dover
Kent
Delaware
United States of America

Zephyr House
P.O. Box 709
122 Mary Street
Grand Cayman KY1 1107
Cayman Islands

Holding company

Mineral development

Mining

There has been no change in subsidiary undertakings since 1 January 2017.

Anglo Asian Mining PLC Annual report and accounts 2017

Other receivables

Non-current assets
Loans

Current assets
Prepayments
Loans
Advances
Amounts owed by subsidiary undertakings

2017
$000

35
107
91
14,535

14,768

Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Company and short-term bank deposits with an original maturity
of three months or less.

There are no restrictions over the access to, and use of, the Company’s bank and cash balances, other than those that
customarily relate to periodic short-term deposits.

Trade and other payables

Trade creditors
Accruals
HMRC

Deferred taxation

2017
$000

48
310
31

389

2017
$000

2016
$000

33
68
51
15,348

15,500

2016
$000

75
272
8

355

2016
$000

The elements of unrecognised deferred taxation are as follows:
Tax losses

Unrecognised deferred tax asset

17,335

3,467

15,555

3,111

A deferred tax asset has not been recognised in respect of temporary differences relating to tax losses as there is insufficient
evidence that the asset will be recovered. None of the assets are recognised. The asset would be recovered if suitable
taxable profits were generated in future periods.

Share capital

Authorised
Ordinary shares of 1 pence each

Ordinary shares issued and fully paid
1 January 2017
Exercise of share options

31 December 2017

2017

2016

Number

600,000,000

6,000,000

600,000,000

6,000,000

$000

112,661,024
1,100,000

113,761,024

1,993
15

2,008

112,661,024
—

112,661,024

1,993
—

1,993

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

Share-based payments
Equity-settled share option scheme
Details of the Company’s equity-settled share option scheme are given in note 25 to the Group financial statements.

Subsequent events
No significant events took place during the period after the balance sheet date.

13 Auditor’s remuneration

The Company paid $107,000 (2016: $107,000) to its auditor in respect of the audit of the financial statements of the Company.
Fees paid to Ernst & Young LLP and its associates for non-audit services to the Company itself are not disclosed in the individual
accounts of Anglo Asian Mining PLC because Group financial statements are prepared which are required to disclose such
fees on a consolidated basis.

Letter to shareholders

Anglo Asian Mining PLC
(Incorporated and registered in England and Wales under the Companies Act 1985 with registered number 5227012)

Directors
Khosrow Zamani
John Monhemius
Richard Round
John Sununu
Reza Vaziri

31 May 2018

Registered office
7 Devonshire Square
Cutlers Gardens
London EC2M 4YH

To the holders of ordinary shares and, for information only, to the holders of share options of Anglo Asian Mining PLC (the “Company”).

Dear shareholder
Accompanying this letter you will find the Company’s annual report and accounts for the year to 31 December 2017 together with
the attached notice of the annual general meeting to be held on 29 June 2018 (the “Meeting”) and a form of proxy. This letter
is to explain the background to some of the resolutions to be put to shareholders at the Meeting.

Resolution 3 – Re-election of the Director retiring by rotation
Under the Company’s articles of association, one third of the directors of the board of directors (or, if the number of directors is not
three or a multiple of three, the number nearest to and not exceeding one third) must retire at each annual general meeting and
may offer themselves for re-election to the board of directors. This year Reza Vaziri is retiring in accordance with the Company’s
articles of association and is seeking re-election at the Meeting.

Resolution 4 – Authority to allot shares
This ordinary resolution deals with the renewal of the directors’ authority to allot new ordinary shares during the course of the year
in order to facilitate the business of the Company and renews the equivalent authority granted at last year’s annual general meeting
which expires at the end of the Meeting.

The current Investment Association guidelines state that Investment Association members will permit, and treat as routine,
resolutions seeking authority to allot shares representing up to two-thirds of the Company’s issued share capital, but on the basis
that any authority to allot shares exceeding one-third of the Company’s issued share capital can only be used to allot shares pursuant
to a fully pre-emptive rights issue.

In accordance with these guidelines, resolution 4 proposes that directors be granted authority to allot shares in the capital of
the Company up to a maximum amount representing the guideline limit of two-thirds of the Company’s issued ordinary share capital
as at 23 May 2018 (the latest practicable date prior to publication of this letter). Of this amount, half can only be allotted pursuant
to a rights issue.

The authority will expire on the earlier of: (i) the conclusion of the next annual general meeting; or (ii) 30 June 2019 (being six months
after the Company’s accounting reference date).

Resolution 5 – Disapplication of statutory pre-emption rights
This resolution is a special resolution that renews the authority given at last year’s Annual General Meeting and which seeks to give
the directors the authority to allot securities for cash on a pre-emptive basis within the limits of the authority set out in resolution 4
and on a non pre-emptive basis up to a maximum of 10 per cent. of the issued ordinary share capital of the Company. The directors
believe that it is in the best interests of the shareholders that the directors should have the right to allot relevant securities for cash
on a pre-emptive basis and a limited authority to allot relevant securities for cash on a non-pre-emptive basis.

Action to be taken
Whether or not you intend to be present at the Meeting, you are requested to complete the reply-paid form of proxy in accordance
with its instructions and return it to the address given on the form of proxy.

Recommendation
The directors consider all the resolutions to be put to the Meeting to be in the best interests of the Company and its shareholders
as a whole and are most likely to promote the success of the Company for the benefit of its shareholders as a whole. Accordingly
the directors unanimously recommend that you vote in favour of the proposed resolutions, as they intend to do in respect of
their own beneficial shareholdings.

We look forward to as many of you as possible attending the Meeting.

Yours faithfully

Khosrow Zamani
Non-executive chairman

Anglo Asian Mining PLC Annual report and accounts 2017
Notice of annual general meeting of shareholders

NOTICE IS HEREBY GIVEN that the annual general meeting (“AGM”) of the shareholders of Anglo Asian Mining PLC (the “Company”)
will be held on 29 June 2018 at 10.30am at The Washington Mayfair Hotel, 5 Curzon Street, Mayfair, London W1J 5HE for the purpose
of considering and, if thought fit, passing the following resolutions, of which resolutions 1 to 4 (inclusive) will be proposed as ordinary
resolutions and resolution 5 will be proposed as a special resolution:

Ordinary resolutions
1

THAT the consolidated financial statements and the reports of the board of directors and of the auditors for the year ended
31 December 2017 be received.

THAT Ernst & Young LLP be re-appointed as the auditors of the Company and that the board of directors be authorised
to fix their remuneration.

THAT Reza Vaziri be re-elected as a director, having retired by rotation in accordance with the Company’s articles of association.

THAT the directors be hereby authorised generally and unconditionally pursuant to Section 551 of the Companies Act 2006
(the “Act”) to exercise all powers of the Company to allot equity securities (as defined in Section 560 of the Act):

(a) up to an aggregate nominal amount of £379,203*; and

(b) up to an aggregate nominal amount of £758,407** (including within such limit any equity securities issued under paragraph

(a) above) in connection with an offer by way of a rights issue:

(i) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and

(ii) to holders of other equity securities as required by the rights of those securities or as the directors otherwise consider necessary,
and so that the directors may impose any limits or restrictions and make any arrangements which they consider necessary
or appropriate to deal with any treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems
in, or under the laws of, any territory or any matter.

The authority granted by this resolution shall (unless previously revoked, varied or extended by the Company in general meeting)
expire on the conclusion of the next AGM of the Company after the passing of this resolution or, if earlier, on 30 June 2019, save
that the Company may at any time before such expiry make an offer or agreement which would or might require equity securities
to be allotted after such expiry and the directors may allot equity securities in pursuance of such an offer or agreement as if this
authority had not expired.

Special resolution
5

THAT subject to the passing of resolution 4 above the directors be hereby empowered pursuant to Section 570 and Section 573
of the Act to allot equity securities (as defined by Section 560 of the Act) wholly for cash and/or to sell or transfer shares held by
the Company in treasury (“Treasury Shares”) as the directors deem appropriate (in the case of allotments, pursuant to the
authority conferred by resolution 4 above) as if Section 561(1) of the Act did not apply to any such allotment, provided that
this power shall be limited to the allotment (or, in the case of Treasury Shares, the sale or transfer) of equity securities:

(a) in connection with an offer of such securities by way of rights to holders of ordinary shares in proportion (as nearly as may be
practicable) to their respective holdings of such shares, but subject to such exclusions or other arrangements as the directors
may deem necessary or expedient in relation to fractional entitlements or any legal or practical problems under the laws of
any territory, or the requirements of any regulatory body or stock exchange or otherwise; and

(b) otherwise than pursuant to sub-paragraph (a) of this resolution up to an aggregate nominal amount of £113,761†,

and provided that this authority shall (unless previously revoked, varied or extended by the Company in general meeting)
expire on the conclusion of the Company’s next annual general meeting or, if earlier, 30 June 2019 save that the Company may,
at any time before such expiry make an offer or agreement which would or might require equity securities to be allotted (or in
the case of Treasury Shares, sold or transferred) after such expiry and the directors may allot (or in the case of Treasury Shares,
sell or transfer) equity securities in pursuance of any such offer or agreement notwithstanding that the power conferred hereby
has expired.

By order of the board of directors

Fisher Secretaries Limited
Acre House
11/15 William Road
London NW1 3ER
United Kingdom
31 May 2018

* Calculated as one third of the nominal value of the total issued ordinary share capital (i.e. 113,761,024 shares of nominal value £1,137,610.24).
** Calculated as two thirds of the nominal value of the total issued ordinary share capital (£1,137,610.24).
† 10 per cent. of the ordinary issued share capital of the Company (£1,137,610.24).

Notice of annual general meeting of shareholders
continued

Notes
1

A member entitled to attend and vote at the meeting is entitled to appoint a proxy or proxies to exercise any of their rights to
attend, speak and vote on their behalf at the AGM. A proxy need not be a member of the Company. Where more than one proxy
is appointed, each proxy must be appointed for different shares. A proxy form is enclosed. Completion and return of a proxy form
will not preclude a member from attending and voting at the AGM should he subsequently decide to do so. To be effective, the
proxy form and any power of attorney or other such instrument (if any) under which it is signed or a notarially certified copy of
such power of attorney must be deposited at the offices Link Asset Services, PXS, 34 Beckenham Road, Kent BR3 4TU not later
than 10.30am on 27 June 2018.

In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, only those members entered on the register
of members of the Company at close of business on 27 June 2018 shall be entitled to vote in respect of shares registered in their
name at that time. Changes to the register of members after close of business on 27 June 2018 shall be disregarded in
determining the rights of any person to attend or vote at the AGM.

Anglo Asian Mining PLC Annual report and accounts 2017Company information

Azerbaijan office (principal place of business)
20, Block 520
Huseyn Javid Avenue
Baku, AZ 1073
The Republic of Azerbaijan
Tel +994 12 596 3350
Fax +994 12 596 3354

Secretary
Fisher Secretaries Limited
Acre House
11/15 William Road
London NW1 3ER
United Kingdom

Registered office
7 Devonshire Square
Cutlers Gardens
London EC2M 4YH
United Kingdom

Website
www.angloasianmining.com

Company number
5227012
Registered in England and Wales

VAT registration number
872 3197 09

Bankers – Azerbaijan
Pasha Bank OJSC
13 Yusif Mammadaliyeu Street
Baku
The Republic of Azerbaijan

International Bank of Azerbaijan
67 Nizami Street
Baku
The Republic of Azerbaijan

Yapi Kredi Bank Azerbaijan JSC
32 J. Jabbarly Street
Baku
The Republic of Azerbaijan

Solicitors – United Kingdom
Squire Patton Boggs (UK) LLP
7 Devonshire Square
Cutlers Gardens
London EC2M 4YH
United Kingdom

Solicitors – Azerbaijan
Nazal Consulting LLC
36 Islam Safarly Str.
Baku
The Republic of Azerbaijan

Auditor
Ernst & Young LLP
1 More London Place
London SE1 2AF
United Kingdom

Nominated adviser and broker
SP Angel Corporate Finance LLP
Prince Frederick House
35–39 Maddox Street
London W1S 2PP
United Kingdom

Financial PR advisers
St Brides Partners Limited
3 St. Michael’s Alley
London EC3V 9DS
United Kingdom

Registrar
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
United Kingdom

Anglo Asian Mining PLC
20, Block 520
Huseyn Javid Avenue
Baku, AZ 1073
The Republic of Azerbaijan
Tel +994 12 596 3350
Fax +994 12 596 3354
www.angloasianmining.com