Atalaya Mining plc Annual Report 2017

Plain-text annual report

Atalaya Mining Plc Annual Report For the year ended 31 December 2017 Atalaya Mining Plc Annual Report For the year ended 31 December 2017 Company Highlights Operational highlights 2017 first full year of production with copper production in line with guidance 2018 guidance targeting an improvement on 2017 production Expansion to 15Mtpa at Proyecto Riotinto approved and started in December 2017 Progress on permitting for Proyecto Touro GROUP PRODUCTION Unit 2018 guidance FY2017 Copper concentrate Copper contained in concentrate Payable copper contained in concentrate t t t * Commercial production declared in February 2016 37,000 – 40,000 165,965 37,164 35,504 FY2016* 122,468 26,179 25,353 Copper concentrate Copper contained in concentrate Payable copper contained in concentrate 165,965 122,468 7 1 0 2 6 1 0 2 37,164 26,179 7 1 0 2 6 1 0 2 35,504 25,353 7 1 0 2 6 1 0 2 6 Annual ReportCompany HighlightsAtalaya Mining PlcFinancial highlights GROUP FINANCIALS Unit FY2017 FY2016* Revenues EBITDA Cash cost €k €k 160,537 98,768 41,347 15,393 $/lb payable 1.91 1.95 All-in sustaining cost $/lb payable 2.30 not disclosed Working capital** Cash at bank** €k €k 22,137 (25,382) 42,856 1,135 * Commercial production declared in February 2016 ** Includes the proceeds of the equity raise in December 2017 Positive working capital of €22,137k, including €42,856k in cash at bank as a result of operational cash generated and the equity raise in December 2017 Positive EBITDA in line with 2017 expectations Additional information about Atalaya Mining Plc. is available at www.atalayamining.com 7 98,768 160,537 41,347 Revenues Ebitda 15,393 Cash cost 1.91 1.95 All-in sustaining cost not disclosed working capital (25,382) Cash at bank 1,135 2.30 22,137 42,856 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 7 1 0 2 6 1 0 2 Annual ReportCompany HighlightsAtalaya Mining PlcContents V. Contents 8 8 Atalaya Mining Plc Annual Report Annual ReportAtalaya Mining PlcStrategic report - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 10 Group at a glance - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 11 Letter from the Chairman - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 12 Our business model - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -14 Our strategy - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 15 Market overview - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 16 Corporate social responsibility - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 18 Principal risks and uncertainties - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 20 Performance review - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 22 Operational review - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 23 Operational guidance - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 25 Financial review - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 26 Liquidity and capital resources - - - - - - - - - - - - - - - - - - - - - - - - - - - - 29 Foreign exchange - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 30 Ruling on the Astor litigation and deferred consideration - - - - - - - -31 Critical accounting policies, estimates and accounting changes - - -31 Corporate governance - - - - - - - - - - - - - - - - - - - - - - - - - - 32 Board of Directors - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 33 Committee overview - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 39 Remuneration report - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 40 Other information - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -41 Directors’ responsibility statements - - - - - - - - - - - - - - - - - - - - - - - 42 Management report - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 44 Financial statements - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 48 Independent auditors’ report - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 49 Statements of comprehensive income - - - - - - - - - - - - - - - - - - - - - - - - - - - - 53 Statements of financial position - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 54 Consolidated statements of changes in equity - - - - - - - - - - - - - - - - - - - - - - - - - - 55 Company statements of changes in equity - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 55 Consolidated statements of cash flows - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 56 Company statements of cash flows - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 57 Notes to the consolidated and company financial statements - - - - - - - - - - - - - - - - - - - - - - - 58 Shareholder information - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -116 Glossary of terms - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -117 Shareholder enquiries - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -118 V. Contents 9 9 Atalaya Mining Plc Annual Report Annual ReportAtalaya Mining PlcI. Strategic Report I. Strategic Report 10 Atalaya Mining Plc Annual Report Group at a glance Atalaya is an AIM and TSX listed mining and development group which produces copper concen- trates including silver by-product at its wholly owned Proyecto Riotinto site in southwest Spain. In addition, the Group has a phased, earn-in agreement to acquire up to 80% of Proyecto Touro, a brownfield copper project in northwest Spain which is currently at the permitting stage. Strong pipeline of low risk growth projects Proven management team Supportive strategic shareholders Proyecto Riotinto Atalaya owns 100% of the Proyecto Riotinto copper mine in Huelva. This historic mining site restarted production in February 2016. » Reserves of 153Mt at 0.45% Cu. » 9.5Mtpa processing capacity. » Open pit with 14+ years. » Expansion to 15Mtpa started in December 2017. » Low capital intensity. » Located in the Iberian pyrite belt with access to modern infrastructure. Proyecto Touro Atalaya has a phased, earn-in agreement for up to 80% ownership of Proyecto Touro, a brown- field copper project in northwest Spain which is currently at the permitting stage. » Low risk, advanced stage project. » Excellent infrastructure and location. » In permitting stage with Government support. » An estimated €200m-€250m investment for production of ~30,000 tpa Cu in concentrates. I. Strategic Report 11 Atalaya Mining Plc Annual Report Letter from the Chairman Copper production 37,164 t Expansion Project Ongoing 15 Mtpa I. Strategic Report I. Strategic Report 12 12 Atalaya Mining Plc Annual Report Annual ReportAtalaya Mining PlcCompany´s continuous improvement programme, impro- vements to process and water supply systems are under way, together with essential additions to the tailings storage facilities. Whilst dust emission indicators remain below legal requirements, as a precautionary measure, civil works and structural fabrication are under way to install a dome covering the coarse-ore stockpile. The permitting of Proyecto Touro continues to progress according to plan. The Company has already engaged a number of consultants to address the recommendations received as part of the permitting process. The technical report is substantially completed at pre-feasibility level of detail and in compliance with NI 43-101 guidelines. The report will be released when the additional project improve- ments are incorporated to accommodate the final permit- ting process. In March 2017, judgment in the Astor Case was handed down in the High Court of Justice in London. The High Court found that the deferred consideration under the master agreement entered into between the Group, Astor and others, did not start to become payable when permit approval was granted for Proyecto Riotinto. Accordingly, the first instalment of the deferred consideration had not fallen due. While the Court confirmed that Atalaya was not in breach of any of its obligations, the Master Agreement and its provisions remain in place. In April 2017, Atalaya and Astor applied for permission to appeal to the Court of Appeal. In August 2017, the Court of Appeal granted permission to both parties to appeal with the Appeal scheduled to take place during May 2018. All of our successful activities to date are due not only to the continued commitment and efforts of our management, staff and associates, but also to the continued support and contributions of all the board members. For this, I offer my sincerest thanks to all of them. Last but not least, I extend my thanks to all of you, our valued shareholders, for your continued support and look to the year ahead with continued confidence and optimism. Dear Shareholder, 2017 has been a year of stabilisation and process improve- ments at the RioTinto Project and was the first full year of commercial production for your company. The ore processing throughput rate was steadily increased to achieve a cumulative plant throughput of 8.8 Mtpa (against a nameplate capacity 9.5 Mtpa). Copper grade was consistent with reserve estimates and the process recovery rate improved over the year to 85.45%, producing a total of 37,164 tonnes of copper, an increase of 40% over the 2016 production, from an average copper head grade of 0.49%. This year, to date, copper grades, recoveries and operating cash costs are within the forecast values and the estimated copper production guidance for 2018 remains in the range of 37,000 to 40,000 tonnes. An expansion project to 15 Mtpa throu- ghput was formally approved during Q4 2017 and launched at the beginning of December 2017. Process flowsheet, basic design criteria and preliminary layouts have been established. Finan- cing to initiate the expansion was raised through a placing of new shares and this allowed long-lead equipment to be identified and purchase orders issued according to the schedule. The expansion is on track to deliver the increased produc- tion by 2019. To facilitate the assessment of potential additional mining areas, the dewatering of the Atalaya pit continues as previously reported. An infill drilling campaign for reserve definition was initiated in the Cerro Colorado pit and is planned to last for most of 2018. Near-mine exploration also continued with drilling of the north-west extension of the Cerro Colorado pit. An updated resources and reserves statement is being prepared as part of the 15 Mtpa expan- sion Project. Mining operations continue to run well, with the mining fleet fully operational and preparing to meet the increased requirements of the expansion programme. As part of the Roger Davey Chairman of Atalaya Mining Plc 27 March 2018 I. Strategic Report I. Strategic Report 13 13 Atalaya Mining Plc Annual Report Annual ReportAtalaya Mining PlcOur business model The business model of Atalaya is founded upon creating value through operational and developmental excellence. Experience and an unceasing search for improvement are the pillars of our success Our Values Strategic Pillars IMPORTANCE OF PEOPLE Importance of Safety, Health, Environment & Security Strong work force with longstanding employees Working closely with communities OUR PEOPLE AND RELATIONSHIPS OPERATIONAL EXCELLENCE Importance of cost management Establishing stable performance Operating to a world-class standard Maximising production capacity CREATING VALUE Increasing asset value under management Focusing on generating free cash flows Focusing on creating value for shareholders Allocating capital efficiently Creating opportunities for growth OUR BUSINESS OUR FUTURE I. Strategic Report 14 Atalaya Mining Plc Annual Report Our strategy Key driver Achievements Principal Risks i s p h s n o i t a l e r d n a e l p o e p r u O s s e n i s u b r u O › Environmental matters are discussed across the group from the operating workforce to the board of directors. › Continuous communication with regulatory bodies and shareholders to ensure world-class operation. expenditures to reduce environmental impact › Experienced mining team to ensure proper safety, health and security policies. 373 employees 2017 achievements Stabilised the number of employees at Proyecto Riotinto. 2018 priorities Increase work capacity for Proyecto Touro. › Focused on creating a high-performance culture where our people are our core asset. › We have a flat management structure with accessible people. 99.9% based at mine site › Our people are primarily based at site. › Focused on improving our relationships with local government and communities. › Limited presence in the media, with efforts focused on direct contact with people. community support through Atalaya Foundation › World-class processing plant in Europe to maximise value of the Group, thereby increasing free cash flows from operations 2017 achievements Production at Proyecto Riotinto aligned with guidance. €41m EBITDA Working capital deficit eliminated through equity raise and cash generated by the operation. Approval and commencement in Q4 2017 of Proyecto Riotinto expansion to 15Mtpa. Raised funds to initiate expansion works in December 2017. 37k tonnes of Cu produced 2018 priorities Progress on expansion at Proyecto Riotinto and permitting at Proyecto Touro. e › Evaluation of existing capacity of each r u t u f project and investment in exploration to replace reserves deployed r u O › Searching and evaluating projects around the world Market capitalisation of £223.17m as of 31 December 2017 2017 achievements Acquisition of 10% of Cobre San Rafael, S.L., the holder of Proyecto Touro’s mining rights. Investment of €7.4 million (2016: €0.9 million) in sustaining capex in Proyecto Riotinto. Investment of €2.7 million (2016: €nil) in exploration at Proyecto Touro. 2018 priorities Release of pre-feasibility study for Proyecto Touro. Update reserves and resources at Proyecto Riotinto to provide support for plant expansion. s k s i r l a n o ti a r e p O s k s i r l a n r e t x E s k s i r l a i c n a n F i s k s i r l a n o ti a r e p O s k s i r c i g e t a r t S s k s i r l a n r e t x E I. Strategic Report 15 Atalaya Mining Plc Annual Report Copper market price ($/lb) 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 E M L : e c r u o S 6 1 6 1 6 1 6 1 6 1 6 1 6 1 6 1 6 1 6 1 6 1 6 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 . . n a j b e f . r a m . r p a . y a m . n u j . l u j . g u a . p e s . t c o . v o n . c e d . . n a j b e f . r a m . r p a . y a m . n u j . l u j . g u a . p e s . t c o . v o n . c e d Market overview Market price During 2017, copper traded between US$2.48 and US$3.27 per pound of copper. The spot price for copper was US$2.53 as of 3 January 2017 and US$3.22 as of 29 December 2017, reflecting an increase of 28% for the period. The market price of copper has a significant impact on Atalaya`s ability to generate positive operating cash flows. Realised copper prices The average prices of copper for 2017 and 2016 were: (USD) FY2017 FY2016 Realised copper price per lb 2.66 2.25 Market copper price per lb (period average) 2.80 2.21 Realised copper prices for the reporting period noted above have been calculated using payable copper and including both provisional invoices and final settle- ments of quotation periods (“QPs”) together. Lower than market average realised prices are mainly due to the final settlement of invoices Where the QP was fixed in the previous quarter due to a short open period when copper prices were lower. The realised price during the year, excluding the QP, was approxi- mately $2.72/lb. I. Strategic Report 16 Annual ReportAtalaya Mining Plc Market vs Realised Cu price Atalaya’s response The Group had no hedges on commodities prices during 2017 and the resultant increase in revenues is reflected in the income statement. As at the date of this report, the Group is fully exposed to the copper prices with no commodities hedging agreement in place. Foreign exchange Foreign exchange rate movements can have a signifi- cant effect on Atalaya’s operations, financial position and results. Atalaya’s sales are denominated in U.S. dollars (“USD”), while Atalaya’s operating expenses, income taxes and other expenses are denominated in Euros (“EUR”), and to a much lesser extent in British Pounds (“GBP”). Accordingly, fluctuations in the exchange rates can impact the results of operations and carrying value of assets and liabilities on the balance sheet. Atalaya’s response The Group was negatively impacted by unfavourable rate against USD, the currency where all sales of the Group are denominated. Management continuously monitor currency rates and evaluate currency hedging to minimise risk (Note 28.1). 3.0 2.5 2.0 1.5 1.0 0.5 0.0 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1.14 1.12 1.00 0.80 0.60 0.40 0.20 0.90 0.88 0.86 0.84 0.82 0.80 0.78 0.76 0.74 0.72 0.70 Realised price Market copper price YTD3 m YTD6 M YTD9 m FY2016 YTD3 m YTD6 M YTD9 m FY2017 Realised Cu price vs C1 Cash cost C1 Realised price YTD3 m YTD6 M YTD9 m FY2016 YTD3 m YTD6 M YTD9 m FY2017 FX USD/EUR 6 1 6 1 6 1 6 1 6 1 6 1 6 1 6 1 6 1 6 1 6 1 6 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 . n a j . b e f . r a m . r p a . y a m . n u j . l u j . g u a . p e s . t c o . v o n . c e d . n a j . b e f . r a m . r p a . y a m . n u j . l u j . g u a . p e s . t c o . v o n . c e d FX GBP/EUR 6 1 6 1 6 1 6 1 6 1 6 1 6 1 6 1 6 1 6 1 6 1 6 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 . n a j . b e f . r a m . r p a . y a m . n u j . l u j . g u a . p e s . t c o . v o n . c e d . n a j . b e f . r a m . r p a . y a m . n u j . l u j . g u a . p e s . t c o . v o n . c e d d e t a d i l o s n o C m i r e t n I : e c r u o S 7 1 0 2 d n a 6 1 0 2 s t r o p e r d e t a d i l o s n o C m i r e t n I : e c r u o S 7 1 0 2 d n a 6 1 0 2 s t r o p e r B C E : e c r u o S B C E : e c r u o S I. Strategic Report 17 Annual ReportAtalaya Mining Plc Corporate social responsibility Overview Atalaya has integrated Corporate Social Responsibility (“CSR”) into its activities at Proyecto Riotinto and strives for excellent standards in health and safety, looking after the environment and helping the community. The Group employs highly qualified people to oversee its CSR with the support of a specific CSR committee and the board of directors. I. Strategic Report 18 Annual ReportAtalaya Mining PlcOur communities Atalaya is committed to being a responsible corporate citizen by mana- ging the environmental and social impact of its mining operations in a conscientious and sensitive manner. Our strategy is to ensure that rela- tions with authorities, society and the environment are led by transparency in our commercial activities, the appropriate degree of interaction with stakeholders and maximum respon- sibility and accountability in all our operations. 2017 was particularly important to our communities. The Group launched a significant archaeological programme to study and document a number of archaeological sites, including Corta- lago, a Roman settlement of note. In June 2017, the discovery of a number of gold coins at the site was well covered by the media. The formal presentation of the discovery at the Minas de Riotinto town Foundation was closely followed by the local communities. Sustainable development Atalaya is committed to achieving development that provides benefits to those regions where it operates, without compromising the ability of future generations to meet their own needs both economically and environ- mentally. Atalaya will endeavour to achieve excellence in environmental performance, abiding by all expected environmental standards. The Group through its wholly owned entities and foundation, frequently organises site visits for engineering schools and other mining professionals to embed sustainability in its projects. I. Strategic Report 19 Our people Atalaya operates within a favou- rable framework for labour relations based on a non-discriminatory, equal opportunities employment system, that respects diversity and facilitates communication at all levels of the Group. The Group provides a healthy and safe working environment by implementing the best available inter- national practices and procedures. Communication Atalaya advocates the establishment of broad communication channels and seeks opportunities for conversation with its various stakeholders to ensure that business objectives remain in tune with social needs and expec- tations. The Group will always seek to provide relevant, transparent and accurate information about its activities and encourage continuous improvement in this area. Political and charitable donations The Group made no political or chari- table donations during the year ended 31 December 2017 (2016: €nil) and channelled its contribution to local communities through the foundation, by supporting cultural events during the year. Annual ReportAtalaya Mining PlcPrincipal risks and uncertainties Description Level s k s i r i c g e t a r t S s k s i r l a i c n a n i f d n a l a i c r e m m o C Single asset, single commodity and single country risk Our current production is from Proyecto Riotinto, our single producing asset. We produce and sell copper concentrates with silver by-product. Any interruption in the producing asset may impact the Group’s results Mineral resources and reserves We must continually replace and expand our mineral resources and mineral reserves. The depletion of our mineral reserves may not be offset by future discoveries or acquisitions Capital Projects Significant changes to commodity prices Limited number of customers Our capital expenditure requirements in Proyecto Touro and/or Proyecto Riotinto expansion may require more capital than anticipated and/or we may have difficulty obtaining required permitting and financing, which could delay project development A decline in the price of copper and other metals in world markets, which can fluctuate widely, could adversely affect our business, operating results and prospects. 100% of our concentrate production is sold to three offtakers. Offtakers’ business can significantly impact our business Control over certain key inputs We may be unable to control the cost and availability of key inputs, which are beyond management’s influence Insurance coverage Our insurance coverage does not cover all potential losses, liabilities and damage related to our business and certain risks are uninsured or uninsurable Changes in taxation and other financial conditions We are subject to laws and regulations relating to taxation, customs and excise and royalties that could have an adverse effect on our business, financial conditions and results of operations Due to the nature of Atalaya’s business in the mining industry, the Group is subject to various risks that could materially impact its future operating results and could cause actual events to differ materially from those described in forward-loo- king statements relating to Atalaya. Our principal risks have continued to fall within four categories: Strategic risks. Financial risks. External risks. Operational risks. I. Strategic Report 20 Annual ReportAtalaya Mining Plc High Medium Low Description Level Political, legal and regulatory developments We are subject to extensive regulation, concessions, authorisations, licences, and permits which are subject to expiration, to limitation on renewal and to various other risks and uncertainties s k s i r l a n r e t x E s k s i r l a n o i t a r e p O Economic conditions Dependence on key infrastructure Shortages of equipment, services and skilled personnel Operational risks and hazards General economic conditions or changes in consumption patterns may adversely affect our growth and profitability. In particular, the Chinese market, which has a significant impact on the world’s copper demand We are dependent on transportation facilities, infrastructure and certain suppliers, a lack of which could impact our production and development projects The industry has faced a worldwide shortage of mining and construction equipment, spare parts, contractors, and other skilled personnel during periods of high demand in commodities Operational risks and hazards may adversely impact our business, financial condition and result of operations, particularly: floods, natural disasters, industrial accidents, labour disputes, structural collapses, transportations delays and earthquakes. Labour disruptions We may be adversely affected by labour disruptions. Water, electricity and other key supplies Our mining operations depend on the availability of water, electricity and other key inputs Complexity of environmental laws Our operations are subject to complex and evolving environmental laws and regulations and changes may increase our running costs I. Strategic Report 21 Annual ReportAtalaya Mining Plc II. Performance Review II. Performance Review II. Performance Review 22 22 Atalaya Mining Plc Annual Report Annual ReportAtalaya Mining PlcOperational Review Proyecto Riotinto Mining and Processing The following table presents a summarised statement of operations of Proyecto Riotinto for the twelve months ended 31 December 2017 and 31 December 2016. Units expressed in accordance with the international system of units (SI) Unit FY2017 FY2016(1) t t % % % t t t 9,340,028 7,754,499 8,796,715 6,505,762 0.50 0.49 22.39 21.56 85.45 83.29 165,965 122,468 37,164 26,179 35,504 25,353 Ore mined Ore processed Copper ore grade Copper concentrate grade Copper recovery rate Copper concentrate Copper contained in concentrate Payable copper contained in concentrate Cash cost(2) All-in sustaining cost(2) $/lb payable $/lb payable 1.91 2.30 1.95 Not available Notes: The numbers in the above table may slightly differ between them due to rounding. (1) 2016 figures include pre-commissioning production for January 2016. (2) Refer to note (iii) of this Report. II. Performance Review II. Performance Review 23 23 Mining Mining operations are now stable quarter-on-quarter. Operations continued in the Cerro Colorado open pit and Proyecto Riotinto mined 9.3 million metric tonnes of ore during 2017. In anticipation of higher mining rates in the near future, additional mining equipment was delivered, assembled and commissioned during the second half of the year. Processing Ore processed during the year was 8.8 million tonnes representing an improvement over the previous year when 6.5 million tonnes were processed. Overall, hourly throughput rates were improved quarter- by-quarter as equipment availability and efficiency increased. Copper grade was consistent with estimates averaging 0.50% for 2017, in line with the previous year. Recovery rate was above estimates, increasing to approximately 85.5%, a material improvement on last year. The copper concentrate grade was 22.4% during 2017, in line with expectations and also slightly above last year’s grade. Concentrate production for 2017 was 165,965 tonnes compared with 122,468 tonnes in 2016 (including pre-commissioning production for January 2016). Contained copper was 37,164 tonnes compared with 26,179 tonnes in 2016. Copper payable amounted to 35,504 tonnes from 25,353 tonnes in 2016. As of the reporting date, all concentrate production was sold except for 7,374 tonnes of concentrate which were shipped during Q1 2018. Concentrate shipments were not impacted by disruptions reported at ports across Spain during Q1 2017. A number of initiatives were delivered during the year. In Q1 2017, process water supply systems were upgraded and the main incoming electrical substation Annual ReportAtalaya Mining Plcimmediately surrounding Proyecto Touro, where minera- lised copper occurrences are documented. An exploration campaign was initiated during the year over the newly optioned exploration concessions around Proyecto Touro. The campaign included an airborne VTEM geophysical survey, detailed assessment of struc- tural geology and a regional geochemical campaign. The first phase of an airborne VTEM geophysical survey was completed during the last quarter of 2017 with results still pending. went through yearly maintenance. With regards to the environment, rehabilitation of the south waste dump commenced. During Q2 2017, a new 300 m3 primary rougher flotation cell was commissioned and installation of plastic lining in one of the paddocks of the tailings storage facilities was completed. A cover dome over the coarse ore stockpile is under construction and the installation of an additional secondary cone crusher is under evaluation. Exploration and Geology During 2017, near-mine exploration and infill drilling were concentrated on the lateral extension of Filon Sur and the north-west extension of Cerro Colorado. Results will form part of a resource and reserve update due for completion during Q2 2018. An airborne VTEM geophysical survey was completed during Q4 2017 with results expected in Q1 2018. Expansion of Proyecto Riotinto In June 2017, the board of directors approved the commen- cement of a study to demonstrate the feasibility of increasing mining and processing capacity at Proyecto Riotinto beyond the existing 9.5Mtpa, to a maximum of 15Mtpa. Copper production is estimated to reach 50,000 – 55,000 tonnes per year once the expansion project is fully ramped up. The study was completed in the third quarter of 2017, concluding that the expansion was technically and finan- cially robust. The expansion project was then approved by the board of directors in Q4 2017 and launched in December 2017. The capital cost estimate is €80.4 million with commissio- ning scheduled for the second half of 2019. Proyecto Touro Permitting is progressing according to schedule. Reports were received as part of the permitting process and project improvements were suggested. Consultants have already been engaged in order to address these recommendations. A technical report is substantially completed at pre-fea- sibility level of detail and in compliance with NI 43-101 guidelines. The report will be released when the additional project improvements are incorporated to accommodate the final permitting process. During Q3 2017, the Group signed an option agreement to acquire exploration concessions that cover 122.7 km2 II. Performance Review 24 Annual ReportAtalaya Mining PlcOperational guidance The forward-looking information contained in this section is subject to the risk factors and assumptions contained in the cautionary statement on forward-looking statements included in the note of this report. Proyecto Riotinto operational guidance for 2018 is as follows: Copper head grade for 2018 is budgeted to average between 0.47% and 0.50% Cu, with a recovery rate of approximately 84% - 86%. Cash operating costs for 2018 are expected to be in the range of $2.15/lb – $2.30/lb. AISC for 2018 is expected to be in the range of $2.50/lb – $2.60/lb Cu payable. Guidance Actual Guidance Unit Ore processed million tonnes 2018 9.6 Contained copper tonnes 37,000 - 40,000 2017 8.8 37,164 2017 8.7 – 9.0 36,000 - 39,000 II. Performance Review 25 Annual ReportAtalaya Mining PlcFinancial review Results The following table presents a summarised consolidated income statement for the twelve months ended 31 December 2017, with comparatives for twelve months ended 31 December 2016. Revenues for the twelve month period ended 31 December 2017 amounted to €160.5 million Sales Total operating costs Corporate expenses Exploration expenses Other income EBITDA Depreciation/amortisation Impairment of land options not exercised Net foreign exchange loss Net finance cost Share of result of associate Tax charge / (credit) Twelve months ended Twelve months ended 31 Dec 2017 (Euro 000’s) 31 Dec 2016 (Euro 000’s) 160,537 (114,687) (4,508) - 5 41,347 (16,671) - (2,212) (557) - (3,696) 18,211 98,768 (77,845)(1) (4,800)(1) (1,022) 292 15,393 (11,757)(1) (903) (665) (549) (10) 12,187 13,696 (1) Include reclassifications on corporate expenses for comparative purposes. II. Performance Review 26 Annual ReportAtalaya Mining PlcRevenues for the twelve month period ended 31 December 2017 amounted to €160.5 million (FY16: €98.8 million). Commercial production at Proyecto Riotinto was declared in February 2016. Revenue benefited from the increasing copper price. Copper concentrate production during FY17 was 165,965 tonnes (FY16: 122,468 tonnes). Inventories of concentrates as at the reporting date were 7,374 tonnes with no invento- ries held as at 31 December 2016. All concentrate invento- ries held as of 31 December 2017 were shipped in Q1 2018. The realised price for the twelve month period in 2017 was $2.66/lb copper compared with $2.25/lb copper in the same period of 2016. Concentrates were sold under offtake agree- ments in place. Operating costs for the twelve month period ended 31 December 2017 amounted to €114.7 million, compared with €77.8 million in the twelve month period in 2016. The increase was mainly due to higher mining and processing variable costs directly attributable to an increase in copper production. Cash costs of $1.91/lb payable copper during the twelve month period in 2017 compares with $1.95/lb payable copper in the same period last year. All-in sustaining costs for FY17 were $2.30/lb payable copper. Sustaining capex for the twelve month period, included in capital expenditure, amounted to €7.4 million. Sustaining capex accounted for development programmes at the peri- metric channel of tailings storage facility, optimisation of the flotation circuit and coarse ore stock pile, modifications to the processing flowsheet, upgrades at the main incoming substation and improvements to process and water supply systems. Corporate costs for the twelve months period ended 31 December 2017 were €4.5 million, compared with €4.8 million in the twelve month period ended 31 December 2016. Exploration costs related to Proyecto Touro were capitalised during 2017. EBITDA for the twelve months ended 31 December 2017 amounted to €41.3 million, compared with EBITDA of €15.4 million in the same period last year. Depreciation and amortisation amounted to €16.7 million in the twelve month period ended 31 December 2017 (FY16: €11.7 million). The increase in depreciation was mainly driven by higher production levels, as mining equipment is depreciated by using the unit of production method (Note 2.9). Net finance costs for FY17 amounted to €0.6 million (FY16: €0.5 million) mainly related to the interest costs for the Transamine prepayment and the Social Security debt. Both the Transamine prepayment and the Social Security debt were fully repaid as of 31 December 2017. Cash cost methodology Following the first full year of production at Proyecto Riotinto, during the last quarter of 2017 Atalaya carried out an exhaustive analysis on the methodology applied to its operating costs reported through the year, with the main purpose of providing enough and consistent information to the market to assess the operating cash costs (“Cash Cost” or “C1”) and All In Sustaining Cost (“AISC”) of Proyecto Riotinto. As a result of the analysis, management has changed the methodology used when calculating C1 and AISC in previous quarters. The following table provides a reconciliation between the C1 and AISC reported and the reclassifications and adjustments to make the information comparable. Cash Cost C1 ($/lb) Cash cost C1 reported Q1 2017 Q2 2017 Q3 2017 Q4 2017 FY2017 $1.83 $2.07 $2.14 $2.35 $1.91 Reclassification from C1 to AISC – Astor agency fee and local corporate costs ($0.03) ($0.06) ($0.07) Ag credits Exploration & geology costs Finalisation of provision for concentrate penalties Finalisation of provisions for freights, TCs and RCs Other adjustments Normalised cash costs II. Performance Review 27 ($0.09) ($0.02) ($0.02) ($0.02) ($0.01) $1.64 ($0.07) ($0.03) ($0.04) $0.01 - ($0.07) ($0.02) ($0.07) ($0.07) - - - - - - - - - - - - - $1.88 $1.84 $2.35 $1.91 Annual ReportAtalaya Mining PlcAISC ($/lb) AISC reported Adjustments from C1 Reclassifications from C1 Corporate costs Other adjustments Normalised AISC costs Q1 2017 Q2 2017 Q3 2017 Q4 2017 FY2017 $2.15 ($0.15) $0.03 ($0.03) $0.01 $2.01 $2.30 ($0.13) $0.06 ($0.02) $0.01 $2.22 $2.33 ($0.23) $0.07 ($0.02) ($0.02) $2.13 $2.94 $2.30 - - - - - - - - $2.94 $2.30 Realised Cu price vs C1 Cash cost C1 Realised price 3.0 2.5 2.0 1.5 1.0 0.5 0.0 YTD3m YTD6M YTD9m FY2016 YTD3m YTD6M YTD9m FY2017 Source: Interim Consolidated reports 2016 and 2017 Non-GAAP Measures Atalaya has included certain non-IFRS measures including “EBITDA”, “Cash Cost per pound of payable copper” “All In Sustaining Costs” (“AISC”) and “realised prices” in this report. Non-IFRS measures do not have any standardised meaning prescribed under IFRS, and therefore they may not be comparable to similar measures presented by other companies. These measures are intended to provide addi- tional information and should not be considered in isolation or as a substitute for indicators prepared in accordance with IFRS. EBITDA includes gross sales net of penalties and discounts and all operating costs, excluding finance, tax, impairment, depreciation and amortisation expenses. Cash Cost per pound of payable copper includes on-site cash operating costs, and off-site costs including treatment and refining charges (“TC/RC”), freight and distribution costs net of by-product credits. Cash Cost per pound of payable copper is consistent with the widely accepted industry standard established by Wood Mackenzie and is also known as the C1 cash cost. AISC per pound of payable copper includes the C1 Cash Costs plus royalties and agency fees, expenditure on reha- bilitations, stripping costs, exploration and geology costs, corporate costs, and sustaining capital expenditures. Realised prices per pound of payable copper is the value of the copper payable included in the concentrate produced including the penalties, discounts, credits and other features governed by the offtake agreements of the Group and all discounts or premia provided in commodity hedge agree- ments with financial institutions, expressed in USD per pound of payable copper. Realised price is consistent with the widely accepted industry standard definition. II. Performance Review 28 Annual ReportAtalaya Mining PlcLiquidity and capital resources Atalaya monitors factors that could impact its liquidity as part of Atalaya’s overall capital management strategy. Factors that are monitored include, but are not limited to, the market price of copper, foreign currency rates, produc- tion levels, operating costs, capital and administrative costs. The following is a summary of Atalaya’s cash position as at 31 December 2017 and 31 December 2016 and cash flows for the twelve months ended 31 December 2017 and 2016. Liquidity information (Euro 000’s) Unrestricted cash and cash equivalents at Group level Unrestricted cash and cash equivalents at Operation level Restricted cash Working capital surplus/ (deficit) 31 Dec. 2017 31 Dec. 2016 39,179 3,427 250 460 425 250 22,137 (25,382) Unrestricted cash and cash equivalents as at 31 December 2017 increased to €42.6 million from €0.9 million at 31 December 2016. The increase in cash balances is the result of net cash flow generated by the Group in the period and the capital raised amounting to £31.0 million in December 2017. Cash balances are unrestricted and include balances at operational and corporate level. Restricted cash remains at €0.3 million as at 31 December 2017 and mainly relates to deposit bond guarantees. As of 31 December 2017, Atalaya reported a working capital surplus of €22.1 million, compared with a working capital deficit of €25.4 million at 31 December 2016. Like last year, the main liability of the working capital is trade payables related to the main contractor, where the Group has reached certain agreements to reduce its deficit progressively during 2018. In June 2017, the Group completed repayment of €16.9 million to the Social Security’s General Treasury in Spain. The debt liability was incurred by the former owners of the assets. Repayment was completed according to the agreed repayment schedule. In 2016, the Group entered into a US$14 million copper concentrate prepayment agreement with Transamine Trading, S.A. an independent and privately owned commo- dity trader company based in Geneva. The duration of the prepayment was from 2016 to 31 December 2018 with terms at market conditions and the settlement was agreed to be paid through deductions from payments received for each shipment. On 15 December 2017, the Group fully settled the prepayment ahead of schedule and has decided not to extend the contract on the same terms before January 2018 as permitted under the original agreement. Overview of the Group’s cash flows (Euro 000’s) Cash flows from operating activities Cash flows used in investing activities Cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Twelve months ended 31 Dec. 2017 31 Dec. 2016 30,500 13,789 (22,678) (31,272) 33,899 - 41,721 (17,483) Cash and cash equivalents increased by €41.7 million during the twelve months ended 31 December 2017. This was due to cash from operating activities amounting to €30.5 million, cash used in investing activities amounting to €22.7 million and cash generated by financing activities totalling to €33.9 million. Cash generated from operating activities before working capital changes was €39.5 million. Atalaya increased its trade receivables by €4.4 million, its trade payables balance in the period by €5.4 million and its inventory levels by €7.5 million. Investing activities in 2017 amounted to €22.7 million, mainly relating to sustaining capex, the expansion of Proyecto Riotinto, capitalised stripping costs and the permits of Proyecto Touro. Financing activities in 2017 related to the capital raised in Q4 2017. II. Performance Review 29 Annual ReportAtalaya Mining PlcForeign exchange During the twelve months ended 31 December 2017, Atalaya recognised a foreign exchange loss of €2.2 million. Foreign exchange losses mainly related to variances in EUR and USD conversion rates during the period, as all sales are settled and occasionally held in USD. The following table summarises the movement in key currencies versus the EUR: Twelve months ended 31 Dec 2017 31 Dec 2016 Average rates for the periods GBP – EUR USD – EUR Spot rates as at GBP – EUR USD – EUR 0.8767 1.1297 0.8872 1.1993 0.8195 1.1069 0.8562 1.0541 In February 2017, the Group entered into certain foreign exchange hedging contracts to offset the agreements in force as at 31 December 2016. During the remainder of 2017, Atalaya did not have any currency hedging agreements. Further information on the hedging agreements is disclosed in the audited, consolidated and company financial statements (hereinafter “financial statements”) that follow (Note 28). II. Performance Review 30 Atalaya Mining Plc Annual Report Ruling on Astor litigation and deferred consideration On 6 March 2017, judgment in the Astor Management AG (“Astor”) case (“Astor Case”) was handed down in the High Court of Justice in London (the “Judgment”). On 31 March 2017 declarations were made by the High Court which give effect to the Judgment. In summary, the High Court found that the deferred consi- deration of €43.8 million (the “Deferred Consideration”), potentially payable to Astor under the master agreement entered into in 2008 between inter alia the Company and Astor (the “Master Agreement”), did not start to become payable when permit approval was granted for Proyecto Riotinto. In addition, the intra-group loans by which funding for the restart of mining operations was made available to the Company’s subsidiary, Atalaya Riotinto Minera S.L. did not constitute a “Senior Debt Facility” so as to trigger payment of the Deferred Consideration. Accordingly, the first instalment of the Deferred Consideration has not fallen due. Astor failed to show that there had been a breach of the all reasonable endeavours obligation contained in the Master Agreement to obtain a senior debt facility or that the Group had acted in bad faith in not obtaining a senior debt facility. While the Court confirmed that the Group was not in breach of any of its obligations, the Master Agreement and its provisions remain in place. Accordingly, other than up to US$10 million a year which may be required for non-Pro- yecto Riotinto related expenses, Atalaya Riotinto Minera S.L. cannot make any dividend, distribution or any repayment of the money lent to it by companies in the Group until the consideration under the Master Agreement (including the Deferred Consideration) has been paid in full. As a consequence, the Judgment requires that, in accor- dance with the Master Agreement, Atalaya Riotinto Minera S.L. must apply any excess cash (after payment of operating expenses, sustaining capital expenditure, any senior debt II. Performance Review 31 service requirements and up to US$10 million (for non-Pro- yecto Riotinto related expenses)) to pay the consideration due to Astor (including the Deferred Consideration and the amount of €9.1 million payable under the loan assignment agreement between the parties) early. The Court confirmed that the obligation to pay consideration early out of excess cash does not apply to the up-tick payments of up to €15.9 million (the “Up-tick Payments”) and the Judgment notes that the only situation in which the Up-tick Payments could ever become payable is in the unlikely event that mining operations stop at Proyecto Riotinto and a senior debt facility is then secured for a sum sufficient to restart mining operations. Accordingly, the Group has recorded the liability of €53 million. On 25 April 2017, Atalaya and Astor applied for permission to appeal to the Court of Appeal. On 11 August 2017, the Court of Appeal granted permission to both parties to appeal (although it rejected three of Astor’s seven grounds). The Appeal will take place during May 2018. More details on the Astor Case are included in Note 27 of the audited financial statements that follow. Critical accounting policies, estimates and accounting changes The preparation of Atalaya’s Financial Statements in accor- dance with IFRS requires management to make estimates and assumptions that affect amounts reported in the Finan- cial Statements and accompanying notes. There is a full discussion and description of Atalaya’s critical accounting estimates and judgements in the audited financial state- ments for the year ended 31 December 2017 (Note 3.4). Annual ReportAtalaya Mining PlcIII. Corporate Governance III. Corporate Governance III. Corporate Governance 32 32 Atalaya Mining Plc Annual Report Annual ReportAtalaya Mining PlcBoard of Directors Board Structure Audit and Financial Risk Committee (“AFRC”) Board of Directors Committees Corporate Governance Nominating Compensation Committee (“CGNCC”) Physical Risk Committee (“PRC”) Summary of Committee responsibilities Summary of Committee responsibilities Summary of Committee responsibilities › Reviews and monitors financial › Reviews Directors’ compensation › Oversees safety, health, statements. and performance. › Reviews Company’s public › Reviews Corporate Governance disclosure of financial information. › Reviews estimates and judgements that are material to reported financial information. › Oversees the auditors arrangements and performance. › Reviews internal and external risks of the Company. of Atalaya and practices, independence, charters’ review, and structure. › Compensation and performance of officers of Atalaya. environment and security matters of the Company. › Oversees enterprise-wide physical risk management. › Reviews compliance with legal and regulatory obligations relating to safety, health, and environment. Dr. Hussein Barma (Chairman) Stephen Scott (Chairman) Dr. Jose Sierra (Chairman) Mr. Roger Davey Mr. Stephen Scott Mr. Roger Davey Dr. Hussein Barma Mr. Damon Barber Mr. Roger Davey Mr. Stephen Scott III. Corporate Governance 33 Atalaya Mining Plc Annual Report Directors Roger Davey Non-executive Chairman of the Board Mr. Davey has over forty years’ experience in the mining industry. Previous employment included assistant director and senior mining engineer at NM Rothschild & Sons; director, vice-president and general manager of AngloGold’s sub- sidiaries in Argentina; opera- tions director of Greenwich Resources Plc, London; production manager for Blue Circle Industries in Chile; and various production roles from graduate trainee to mine manager, in Gold Fields of South Africa (1971 to 1978). Mr. Davey is currently a director of Orosur Mining inc., Central Asia Metals plc and Tharisa plc. Mr. Davey is a graduate of the Camborne School of Mines, England (1970), with a Master of Science degree in Mineral Production Manage- ment from Imperial College, London University, (1979) and a Master of Science degree from Bournemouth University (1994). He is a Chartered Engineer (C.Eng.), a European Engineer (Eur. Ing.) and a Member of the Institute of Materials, Mine- rals and Mining (MIMMM). Mr. Davey is the Chair of the Board of Directors and a member of the Audit and Financial Risk Committee, the Physical Risk Committee and the Corporate Governance Nominating Compensation Committee. Alberto Lavandeira Damon Barber Dr. Hussein Barma Jesús Fernández Non-executive Director Non-executive Director Non-executive Director Mr. Fernandez is head of the M&A team for Trafi- gura. He joined Trafigura in 2004 and has fifteen years of experience in mining investments and financing. He is currently a director of Mawson West Limited. Previously, he was a director of Tiger Resources Limited, Cadilac Ventures, Anvil Mining Limited and Iberian Minerals Corp. plc. Mr. Barber is currently the Senior Managing Director of Liberty Metals & Mining. Mr. Barber has more than 20 years’ experience in natural-resources finance, mining project development and mining operations. Mr. Barber graduated from the University of Kentucky with a B.S. in Mining Engineering and began his career as a section foreman at CONSOL Energy Inc.’s Loveridge Mine. Mr. Barber holds an MBA from the Wharton School of the University of Pennsylvania. Mr. Barber is a member of the Corporate Governance Nominating Compensation Committee. Dr. Barma is a principal of Barma Advisory. He was formerly CFO (UK) of Antofagasta Plc from 1998 to 2014 and possesses a deep knowledge of governance practices at board level, as well as accounting and reporting, investor relations and regulatory requirements of the London market. He previously worked as an auditor at Price Waterhouse (now PwC) and is a steering group member of the UK Financial Reporting Council’s Financial Reporting Lab. Dr. Barma is the Chair of the Audit and Financial Risk Committee, and a member of the Corporate Gover- nance Nominating Compen- sation Committee. Managing Director and Chief Executive Officer Mr. Lavandeira brings close to forty years of experience operating and developing mining projects. Formerly, he was President, CEO and COO of Rio Narcea Gold Mines which built three mines including Aguablanca, El Vallés-Boinas y Tasiast. He is a director of Black Dragon Gold Corp. and Samref Overseas S.A, and he was involved in the develop- ment of the Mutanda Mine in the Democratic Republic of Congo. He is a graduate of the University of Oviedo, Spain with a degree in Mining Engineering. III. Corporate Governance 34 Annual ReportAtalaya Mining PlcHarry Liu Jonathan Lamb Dr. José Sierra López Stephen Scott BSc. Economics - non-executive Director Harry Liu, BSc. Economics - non-executive Director Mr. Liu is a vice president of Yanggu Xiangguang Copper (Shandong, China), one of the world’s largest copper smelting, refining and processing groups. Mr. Liu has held a number of senior management and marketing positions in the mineral and financial industries in Shanghai and Hong Kong, including roles as marketing manager at BHP Billiton Marketing AG and Director at BNP Paribas Asia. Mr. Liu graduated with a Bachelor´s Degree in Economics from Zhejiang University in Zhejiang Province, China. Non-executive Director Non-executive Director Non-executive Director Mr. Lamb is portfolio manager at Orion Mine Finance and a director at Minera la Negra and former director at Lynx Resources. He was formerly invest- ment manager for Red Kite Group’s Mine Finance business. He was previously with Deutsche Bank’s Metals & Mining Invest- ment Banking group in New York, where he worked on a variety of debt and equity financings and M&A transactions. Mr. Scott is president and CEO of Entree Resources Limited. Previously, he was president and CEO of Minenet advisors advising on strategy, corporate development, business restructuring and project management. He held various global executive positions with Rio Tinto (2000-2014) and currently serves on the boards of a number of public and private mining companies. Mr. Scott is the Chair of the Corporate Governance Nominating Compensation Committee and a member of the Audit and Financial Risk Committee. Dr. Sierra has an extensive experience as a mining and energy leader in the business and government sectors. His experience includes being Spain’s national Director General of Mines and Construction Industries and EU Director for Fossil Fuels for the Euro- pean Commission. Most recently he was Commis- sioner at the National Energy Commission of Spain. He was a member of the Board of Transport et Infrastructures Gaz France. Dr. Sierra holds a Ph.D. in Mining Engineering from the University of Madrid. He obtained a DIC at the Royal School of Mines (Imperial College) and is an elected member of the Royal Academy of Doctors of Spain. Dr. Sierra is the Chair of the Physical Risk Committee. III. Corporate Governance 35 Annual ReportAtalaya Mining PlcBoard of directors The Board is responsible for approving Company policy and strategy. The Board is supplied with appropriate and timely information and the Directors are free to seek any further information they consider necessary. All Directors have access to advice from the Company Secretary and indepen- dent professionals at the Company’s expense. Training is available for new Directors and other Directors as necessary. A number of the Group’s key strategic and operational deci- sions are reserved exclusively for the decision of the Board. The Company has adopted a model code for Directors’ dealings which is appropriate for a TSX and AIM listed company. The Directors intend to comply with Rules 21 and 31 of the AIM Rules relating to Directors’ dealings and will take all reasonable steps to ensure compliance by the Group’s applicable employees as well. Board Composition As of 31 December 2017, the Board of Directors of Atalaya comprised a non-executive independent Chairman, one executive Director and seven other non-executive directors. Non-executive directors bring a breadth of experience and knowledge, all of whom are independent of management and four of whom (including the Chairman) are independent of any business or other relationship which could interfere with the exercise of their independent judgment. The Board regularly reviews key business risks including the financial risks facing the Group in the operation of its business. III. Corporate Governance 36 Indemnification of directors and officers During the year, the Company held insurance to indemnify Directors, the Company Secretary and executive officers of the Company against liabilities incurred in the conduct of their duties to the extent permitted under applicable legislation. Board changes during 2017 All directors held office from the start of the financial year to the date of this report. In accordance with the Company’s Articles of Association, one-third of the board of directors must resign each year. All the directors will retire at the AGM and offer themselves for re-election. 2018 Annual General Meeting Atalaya’s AGM will be held in London on 27 of June 2018 at 11 hours (UK time). The business of the meeting will be conducted in accordance with regulatory requirements and standards. The Chairman of the Board and the Chairmen of the Committees will be available to answer questions put to them by shareholders at the meeting. The AGM Notice is included in the documentation that has been provided with this Annual Report and is also available on the Company’s website. Annual ReportAtalaya Mining PlcBoD AFRC CGNCC PRC Held Attended Held Attended Held Attended Held Attended 12 12 12 12 12 12 12 12 12 12 12 10 12 8 11 12 10 10 6 - - 6 - - - - 6 6 - - 6 - - - - 5 2 - 2 2 - - - - 2 2 - 2 2 - - - - 2 3 - - - - - - 3 3 3 - - - - - - 3 3 R. Davey A. Lavandeira D. Barber H. Barma J. Fernández H. Liu J. Lamb J. Sierra Lopez S. Scott Board meetings and attendance Atalaya’s decisions are predominantly made by achieving a consensus at Board meetings. In exceptional circumstances, decisions may be taken by the majority of Board members. Questions arising at any meeting are determined by a majority of votes. All Directors are required to take deci- sions objectively and in the best interests of the Company. As part of their duties as directors, non-executive directors are expected to apply independent judgement to contribute to issues of strategy and performance and to scrutinise the performance of management. The Board is scheduled to meet at least 8 times a year, and at such other times as are necessary to discharge its duties. The Board met a total of 12 times in 2017. Meetings occu- rred in person and by teleconference. Directors’ interests The interests of the Directors and their immediate families, (all of which are beneficial unless otherwise stated) and of persons connected with them, in Ordinary Shares, as at 31 December 2017 and 2016, are as follows: 2017 2016 No of existing ordinary shares % of issued share capital No of existing ordinary shares % of issued share capital R. Davey A. Lavandeira D. Barber(1) H. Barma J. Fernández(2) H. Liu(3) J. Lamb (4) J. Sierra Lopez S. Scott - 160,000* 19,578,947** - 30,821,213** 31,150,943*** 18,786,609** 26,666 - - 0.12% 14.48% - 22.79% 23.03% 13.89% 0.02% - - 100,000* 16,315,789** - 25,684,344** 26,033,238*** 16,986,609** 26,666 - - 0.09% 13.98% - 22.01% 22.31% 14.56% 0.02% - (1) Liberty Metals & Mining Holdings LLC * 66,666 shares held in escrow (2) Urion Holdings (Malta) Ltd ** Shares held by the companies the directors represent (3) Yanggu Xiangguang Copper Co. Ltd *** includes 444,711 shares held personally by Mr. Liu. No movements during 2017. (4) Orion Mine Finance (Master) Fund I LP III. Corporate Governance 37 Annual ReportAtalaya Mining PlcDirectors’ share options Substantial share interests The Directors to whom options over ordinary shares have been granted and the number of ordinary shares subject to such options (post share consolidation figures) as at the date of this report are as follows: The Shareholders holding more than 3% of the share capital of the Company as at the date of this report were: Grant date Expiration date Exercise price A. Lavandeira 20 Mar. 14 19 Mar. 19 23 Feb. 17 22 Feb. 22 360 p 144 p 200,000 150,000 350,000 Options expire five years after grant date and are exercisable at the exercise price in whole or in part up to one third in the first year from the grant date, two thirds in the second year from the grant date and the balance thereafter. Urion Holdings (Malta) Ltd (subsidiary of Trafigura) Yanggu Xiangguang Copper Co. Ltd Orion Mine Finance (Master) Fund I LP Liberty Metals & Mining Holdings LLC Majedie Asset Management Limited Ordinary shares 000’s % 30,821 22.79 30,706 22.70 18,787 13.89 19,579 14.48 9,067 6.70 Corporate governance The Directors comply with TSX and AIM regulations and Cyprus Company Law. The Board remains accountable to the Company’s shareholders for good corporate governance. Substantial share interests (000´s) 19,579 9,067 30,821 30,706 6.70 14.48 22.79 13.89 22.70 Majedie Asset Management Limited Liberty Metals & Mining Holdings LLC Urion Holdings (Malta) Ltd (subsidiary of Trafigura) Orion Mine Finance (Master) Fund I LP Yanggu Xiangguang Copper Co. Ltd 18,787 III. Corporate Governance 38 Atalaya Mining Plc Annual Report Committee overview Audit and Financial Risk Committee The Company’s Audit and Financial Risk Committee (“AFRC”) is responsible for ensuring that appropriate financial repor- ting procedures are properly maintained and reported on, for meeting with the Group’s auditors and reviewing their reports on the Group’s financial statements and the internal controls and for reviewing key financial risks. The AFRC comprises three members all of whom are non-executive and Independent. The current membership of the committee is Dr. H. Barma (Chairman), Mr. R. Davey and Mr. S. Scott. Corporate Governance, Nominating and Compensation Committee The Company’s Corporate Governance, Nominating and Compensation Committee (“CGNCC”) is, among other things, responsible for reviewing the performance of the executives, setting their remuneration, determining the payment of bonuses, considering the grant of options under any share option scheme and, in particular, the price per share and the application of performance standards which may apply to any such grant. The CGNCC comprises four members all of whom are non-executive and three are Independent. The current membership of the committee is Mr. S. Scott (Chairman), Mr. R. Davey, Dr. H. Barma and Mr. D. Barber. Physical Risks Committee The Company’s Physical Risks Committee (“PRC”) is responsible for reviewing the compliance with regulatory and industry standards for environmental performance and occupational health and safety of personnel and the communities affected by the Company. The PRC comprises three members all of whom are non-executive and Independent. The current membership of the committee is Dr. J. Sierra (Chairman), Mr. R. Davey and Mr. S. Scott. III. Corporate Governance 39 Atalaya Mining Plc Annual Report Remuneration reports Directors’ emoluments In compliance with the disclosure requirements of the listing requirements of AIM and TSX, the aggregate remunera- tion paid to the directors of Atalaya Mining Plc for the year ended 31 December 2017 is set out below: 31 Dec 2017 31 Dec 2016 m r e t t r o h S s t fi e n e b d e s a b e r a h S s t n e m y a p m r e t t r o h S s t fi e n e b d e s a b e r a h S s t n e m y a p ’ ) s 0 0 0 o r u E ( s e e f & y r a l a S s u n o B * s n o i t p o e v i t n e c n I * * s e r a h s s u n o B l a t o T ’ ) s 0 0 0 o r u E ( s e e f & y r a l a S s u n o B * s n o i t p o e v i t n e c n I * * s e r a h s s u n o B l a t o T Executive directors Executive directors A. Lavandeira 385 245*** 23 Non-executive directors R. Davey D. Barber H. Barma J. Fernández J. Lamb H. Liu J. Sierra Lopez S. Scott 71 37 55 34 34 34 43 49 - - - - - - - - - - - - - - - - 742 245 23 - - - - - - - - - - 653 A. Lavandeira 350 500* 56 63 969 Non-executive directors 71 R. Davey 37 55 34 34 34 43 49 D. Barber H. Barma J. Fernández J. Lamb H. Liu J. Sierra Lopez S. Scott 75 38 42 37 37 37 39 41 75 38 42 37 37 37 39 41 1,010 696 500 56 63 1,315 * 150,000 new options granted during 2017. ** There were no new shares granted during 2017. * The bonus relates to the Group’s performance for 2016. The bonus for 2017 performance will be determined during 2018. *** The bonus in related to the completion of construction for the period up to the declaration of commercial production in early 2016. III. Corporate Governance 40 Annual ReportAtalaya Mining Plc Other information Internal controls The Directors have overall responsibility for the Group’s internal control and effectiveness in safeguarding the assets of the Group. Internal control systems are designed to reflect the particular type of business, operations and safety risks and to identify and manage risks, but not entirely all risks to which the business is exposed. As a result, internal controls can only provide a reasonable, but not absolute, assurance against material misstatements or loss. The processes used by the Board to review the effectiveness of the internal controls are through the AFRC and the execu- tive management reporting to the Board on a regular basis where business plans and budgets, including investments are appraised and agreed. The Board also seeks to ensure that there is a proper organisational and management struc- ture with clear responsibilities and accountability. It is the Board’s policy to ensure that the management structure and the quality and integrity of the personnel are compatible with the requirements of the Group. The Board attaches importance to maintaining good relationships with all its shareholders and ensures that all price sensitive information is released to all shareholders at the same time in accordance with AIM and TSX rules. The Company’s principal communication with its investors is through the annual report and accounts, the quarterly state- ments and press releases issued as material events unfold. III. Corporate Governance 41 Going concern Operations at Proyecto Riotinto started in February 2016 and the Group has generated significant operational cash flows during the year and also carried out an equity raise to initiate the plant expansion project. Accordingly, the Direc- tors have a reasonable expectation that the mining opera- tion and the Group have adequate resources to continue in operational existence for the foreseeable future. Creditors’ payment terms The Group does not have a specific policy towards our suppliers and does not follow any code or standard practice. However, terms of payment with suppliers are settled when agreeing overall terms of business, and the Group seeks to abide by the terms of the contracts to which it is bound. Capital structure At 31 December 2017, the Company had the following weighted average number of shares outstanding and commitments to issue shares: Ordinary shares Warrants Options Fully diluted No. of shares 117,904,251 311,771 1,268,956 119,484,978 Details of share options granted after year end are set out in Note 23 to the financial statements. Annual ReportAtalaya Mining PlcDirectors’ responsibility statements Directors’ responsibilities for the financial statements Cyprus company law states that the Direc- tors are responsible for the preparation of the financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the Group and of the profit or loss of the Group for that period. In the preparation of these financial statements, the Directors are required to: » Select suitable accounting policies and then apply them consistently; » Make judgments and estimates that are reasonable and prudent; and » State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements. The Directors are responsible for maintaining proper accounting records, for safeguarding the assets of the Group and for taking reaso- nable steps for the prevention and detection of fraud and other irregularities. Legislation in Cyprus governing the preparation and dissemi- nation of the financial statements may differ from legislation in other jurisdictions. III. Corporate Governance 42 IV. Management Report IV. Management Report IV. Management Report 44 44 Atalaya Mining Plc Annual Report Annual ReportAtalaya Mining PlcΤhe Board of Directors of Atalaya Mining PLC (the “Company”) presents to the members, its management report and the audited consolidated financial statements of the Company and its subsidiaries (“the Group”) and the individual financial statements of the Company for the year ended 31 December 2017. Profit after tax € 18.2 million IV. Management Report IV. Management Report 45 45 Review of developments, current position and performance of the Group’s business and principal risks and uncertainties During the year, the Group recorded a profit after tax of € 18.2 million (15.5 cents per share), compared to the profit of €13.70 million (11.7 cents per share) in 2016. For details on the develop- ments, current position and performance of the Group and the Company, refer to the Performance Review Report. Principal risks and uncertainties For details on the principal risks that both the Group and the Company face are disclosed in the Strategic Report. Additionally, these risks and the risk management policy adopted by the Group and the Company are explained in Note 3 of the finan- cial statements. Principal activities of the Company and its subsidiaries The Company owns and operates through a wholly-owned subsidiary, Proyecto Riotinto, an open-pit copper mine located in the Pyritic belt, in the Andalusia region of Spain, approximately 65 km northwest of Seville. In addition, the Company has a phased earn-in agreement up to 80% ownership of Proyecto Touro, a brownfield copper project in northwest Spain, which is currently at the permi- tting stage. The Group’s business is to explore for and develop metals production operations in Europe, with an initial focus on copper. The stra- tegy is to evaluate and prioritise metal production opportunities in several jurisdictions throughout the well-known belts of base and precious metal mineralisation in Spain and the Eastern European region. For further details on the principal activities of the Group and the Company, refer to Note 1 of the financial statements, the Performance review report and the Strategic report. Annual ReportAtalaya Mining PlcFuture developments of the Group and the Company For details on the future develop- ments of the Group and the Company refer to the Strategic Report. The Board of Directors does not anticipate any significant changes in the activities of the Group and the Company in the foreseeable future. Research and development activities For details on research and develo- pment activities carried out by the Group, refer to the Strategic Report. Existence of branches The Company and the Group do not maintain any branches. Share capital The changes to the Company’s share capital during the year ended 31 December 2017 are disclosed in Note 22 of the financial statements. Proposed dividend The Directors do not recommend the payment of a dividend for the year (2016: €nil). Composition, responsibilities and remuneration of Board of Directors The members of the Board of Direc- tors as at 31 December 2017 and on the date of this report are presented in the Corporate Governance report. There were no significant changes in the assignment of responsibili- ties of the members of the Board of Directors. For further details on the composition, responsibilities and remuneration of the Board of Directors, refer to the Corporate Governance report. Events after the reporting period Material events after the reporting period, which have a bearing on the understanding of the financial statements have been disclosed in the Corporate Governance Report and Note 34 of the financial statements. Suggestion in relation to the distribution of profits, absorption of losses and creation of provisions. The results of the Group and the Company are set out on page 34-39. The Board of Directors does not suggest the payment of any dividend (2016: € nil). IV. Management Report 46 Atalaya Mining Plc Annual Report Statement of Corporate Governance Substantial share interests The Company gives special attention to the application of sound corporate governance policies, practices and procedures. Corporate Governance is the set of procedures followed for the proper management and administra- tion of the Group. Corporate Gover- nance rules the relationship between the shareholders, the board of directors and the management team of a company. Refer to the Corporate Governance Report for further details. Directors’ interests in the Company’s capital Directors’ interests in the Company’s capital are listed in the Corporate Governance Report. The shareholders holding more than 3% of the share capital of the Company on 31 December 2017 and as at the date of this report, are listed in the Corporate Governance Report. Auditors During the year the independent audi- tors of the Company, Moore Stephens Stylianou & Co and MNP LLP, resigned and Ernst & Young Cyprus Limited was appointed in their place. The auditors, Ernst & Young Cyprus Ltd., have expressed their willingness to continue in office and a resolution approving their reappointment and giving authority to the board of direc- tors to fix their remuneration will be proposed at the next Annual General Meeting. By Order of the Board of Directors Roger Davey Chairman Nicosia, 27 March 2018 IV. Management Report 47 Atalaya Mining Plc Annual Report V. Financial Statements V. Financial Statements V. Financial Statements 48 48 Atalaya Mining Plc Annual Report Annual ReportAtalaya Mining PlcIndependent Auditors’ Report To the Members of Atalaya Mining PLC Report on the Audit of the Financial Statements Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated and Parent Company Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accoun- tants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical responsi- bilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion Key Audit Matters We have audited the accompanying consolidated and parent company financial statements of Atalaya Mining PLC (the “Company” and together with its subsidiaries the “Group”), which comprise the consolidated and parent company statements of financial position as at 31 December 2017, and the consolidated and parent company statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes to the consolidated and parent company financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated and parent company financial statements give a true and fair view of the consolidated and parent company financial position of the Group and the Company as at 31 December 2017, and of the consolidated and parent company financial performance and cash flows of the Group and the Company for the year then ended in accor- dance with International Financial Reporting Standards (IFRSs) as issued by the IASB and as adopted by the Euro- pean Union and the requirements of the Cyprus Compa- nies Law, Cap. 113. Key audit matters are those matters that, in our profes- sional judgment, were of most significance in our audit of the consolidated and parent company financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and parent company financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated and parent company financial statements section of our report, including in relation to these matters. Accor- dingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated and parent company financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated and parent company financial statements. V. Financial Statements 49 Atalaya Mining Plc Annual Report Risk Our response to the risk Astor deferred consideration As of 31 December 2017, the deferred consideration liability in respect of Astor amounts to €53m for the Group and €9.1m for the Company (Note 27). The valuation of the Astor contingent consideration has been identified as a key audit matter considering it is a highly judgemental matter with a range of possible outcomes. The liability for the Astor deferred consideration as at 31 December 2016 has been restated in the financial statements as a result of discount rate re-assessment. Refer to Note 2.1(c) for details on the restatement. IAS 37 requires the provision to be made using management’s best estimate and discounted, where the impact of doing so is material to the financial statements. In order to determine the best estimate and assess if discounting the liability is needed, management has applied significant judgments and assumptions. Revenue recognition During the year ended 31 December 2017 the Group recognised revenue from operations of €160.5m (2016: €98.8m). Refer to Note 4 and 31.4. The significant number of sales transactions and complex terms under which title, risks and rewards pass to the customer increases the risk of cut-off errors. We have also identified risks in relation to the calculation of the adjustment for provisional pricing. In particular: › Cut-off: the complexity of terms that define when the title, risks and rewards are transferred to the customer, as well as the high value of transactions, give rise to the risk that revenue is not recognised in the correct period. Measurement: at each reporting period there are a number of open invoices that are provisionally priced using the concentrate sold and the forward pricing of those sales. Estimation is used in the valuation of the embedded derivative and the income statement impact of the mark to market movement which is recorded in revenue. This calculation is based on estimations and susceptible to potential manipulation. Our approach focused on the following procedures: › We obtained an understanding of the issue through discussions with management and from reading the Master Agreement, Final Court Judgment, explanation from the Group’s external lawyers on the definition of excess of cash and the accounting paper prepared by management; › We obtained an update on the status of the legal proceedings through discussions with management and the Group’s external lawyers. Furthermore, we have obtained a letter of representation from the lawyers; › We reviewed and assessed management’s judgements and assumptions made to determine the best estimate of the liability for the Astor deferred consideration, considering the timing of cash outflows, and management’s conclusion not to discount the liability as the effect of discounting, when applying the risk free rate, was not considered significant; › We have assessed the valuation of the liability for the Astor deferred consideration to ascertain that the IAS 37 requirements, specifically for the measurement of provisions, have appropriately been considered. This assessment has additionally been performed for the liability as at 31 December 2016 as restated in the financial statements; and We assessed whether the consolidated and parent company financial statements include complete and adequate disclosures in respect of the Astor deferred consideration and related management judgements (Notes 27, 3.4(j) and 2.1(c).). Our approach focused on the following procedures: › We obtained an understanding of the key controls around the revenue recognition process in order to assess whether it is designed to prevent, detect or correct material misstatements in the reported revenue figures; › We analysed the terms and conditions of the sales contracts and evaluated whether they have been accounted for in line with the Group’s revenue recognition policy; › We performed detailed substantive testing procedures over the revenue transactions. This included: agreeing the main inputs to supporting evidence (such as provisional and final invoices, shipments confirmation, market prices, agreements and bank statements), recalculating the amounts invoiced and recorded as revenue, performing cut off testing over the revenue recognition in the correct period; › For open sales where provisional pricing applied, we compared to external sources the inputs used and recalculated the provisional price adjustment to evaluate whether it was correctly measured; › We considered and analysed the nature of any significant credits raised post year-end to evaluate that revenue transactions were recorded at the correct value in the relevant period; and We assessed whether the consolidated and parent company financial statements include disclosures in respect of revenue and the provisional pricing in accordance with the applicable IFRS (Notes 2.24(a), 4 and 31.4). V. Financial Statements 50 Annual ReportAtalaya Mining PlcOther information The Board of Directors is responsible for the other infor- mation. The other information comprises the information included in the Management report, Strategic report, Performance Review report and the Corporate Governance report but does not include the consolidated and parent company financial statements and our auditor’s report thereon. Our opinion on the consolidated and parent company financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consoli- dated and parent company financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the conso- lidated and parent company financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Board of Directors and those charged with governance for the Consolidated and Parent Company Financial Statements The Board of Directors is responsible for the preparation of consolidated and parent company financial statements that give a true and fair view in accordance with International Financial Reporting Standards as issued by the IASB and as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated and parent company financial statements that are free from material misstate- ment, whether due to fraud or error. In preparing the consolidated and parent company financial statements, the Board of Directors is responsible for asses- sing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accoun- ting unless the Board of Directors either intends to liquidate V. Financial Statements 51 the Group or Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for over- seeing the Group’s and the Company’s financial reporting process. Auditor’s Responsibilities for the Audit of the Consolidated and Parent Company Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated and parent company financial statements as a whole are free from material miss- tatement, 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 will always detect a material missta- tement when it exists. Missta- tements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and parent company financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: » Identify and assess the risks of material misstatement of the consolidated and parent company financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collu- sion, forgery, intentional omissions, misrepresentations, or the override of internal control. » Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Company’s internal control. » Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors. Annual ReportAtalaya Mining Plc » Conclude on the appropriateness of the Board of Report on Other Legal Requirements Pursuant to the additional requirements of the Auditors Law of 2017, we report the following: » In our opinion, the management report has been prepared in accordance with the requirements of the Cyprus Companies Law, Cap. 113, and the information given is consistent with the consolidated and parent company financial statements. » In our opinion, and in the light of the knowledge and understanding of the Group and the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the management report. Other Matters (i) This report, including the opinion, has been prepared for and only for the Company’s members as a body in accordance with Section 69 of the Auditors Law of 2017 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to. (ii) Comparative figures The corresponding consolidated and parent company financial statements of the Group and the Company for the year ended 31 December 2016 were audited by another auditor who expressed an unmodified opinion on those consolidated and parent company financial statements on 5 April 2017. The engagement partner on the audit resulting in this inde- pendent auditor’s report is Stavros Pantzaris. Stavros Pantzaris Certified Public Accountant and Registered Auditor for and on behalf of Ernst & Young Cyprus Limited Certified Public Accountants and Registered Auditors Nicosia, 27 March 2018 Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or condi- tions that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated and parent company financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or condi- tions may cause the Group and the Company to cease to continue as a going concern. » Evaluate the overall presentation, structure and content of the consolidated and parent company financial statements, including the disclosures, and whether the consolidated and parent company financial statements represent the underlying transactions and events in a manner that achieves a true and fair view. » Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we iden- tify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communi- cate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated and parent company financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. V. Financial Statements 52 Annual ReportAtalaya Mining PlcStatements of comprehensive income Years ended 31 December 2017 and 2016 Realised gains on derivative financial instruments held for trading 28 - - 495 Sales 160,537 1,015 98,768 ’ ) s 0 0 0 o r u E ( Gross sales Operating costs and mine site administrative expenses Mine site depreciation and amortization Gross income Corporate expenses Corporate depreciation Share based benefits Exploration expenses Impairment charge Operating profit Other income Net foreign exchange loss Finance income Finance costs Share of results of associate – net Profit / (loss) before tax Tax credit/(charge) Profit / (loss) for the year Profit / (loss) for the year attributable to: › Owners of the parent › Non-controlling interests p u o r G e h T 7 1 0 2 y n a p m o C 7 1 0 2 e h T p u o r G e h T 6 1 0 2 ) * ( d e t a t s e r y n a p m o C 6 1 0 2 ) * ( d e t a t s e r e h T e t o N 4 / 31.2 160,537 1,015 98,273 - - 1,015 (4,001) (7) (34) (114,687) (16,664) 29,186 (4,356) (7) (152) - - 5 4 8 9 15 10 24,671 (3,027) 5 (2,212) 22 (579) - 21,907 (3,696) 18,211 1 264 1,635 - - (1,127) - (1,127) (77,845) (11,743) 9,180 (4,663) (14) (137) (1,022) (903) 2,441 292 (665) 41 (590) (10) 1,509 12,187 13,696 177 - 177 - - 177 (3,620) (14) (137) - 97,157 93,563 47 (74) 1,523 - - 95,059 - 95,059 18,239 (1,127) 13,696 95,059 (28) - - - 18,211 (1,127) 13,696 95,059 Earnings per share from operations attributable to equity holders of the parent during the year: › Basic earnings per share (expressed in cents per share) › Fully diluted earnings per share (expressed in cents per share) 11 11 15.5 15.3 11.7 11.7 Profit / (loss) for the year Other comprehensive income: 18,211 (1,127) 13,696 95,059 › Change in value of available-for-sale investments 20 (132) (132) (41) (41) › Total comprehensive profit for the year 18,079 (1,259) 13,655 95,018 Total comprehensive profit for the year attributable to: › Owners of the parent › Non-controlling interests (*) Refer to Note 2.1. (c) 18,107 (1,259) 13,655 95,018 (28) - - - 18,079 (1,259) 13,655 95,018 The notes on pages 58 to 115 are an integral part of these consolidated and company financial statements. V. Financial Statements 53 Annual ReportAtalaya Mining Plc Statements of financial position Years ended 31 December 2017 and 2016 (Euro 000’s) Note The Group 2017 The Company 2017 The Group 2016 restated (*) The Company 2016 restated (*) Non-current assets Property, plant and equipment Intangible assets Investment in subsidiaries Investment in associate Trade and other receivables Deferred tax asset Current assets Inventories Trade and other receivables Available-for-sale investments Cash and cash equivalents Total assets Equity attributable to owners of the parent Share capital Share premium Other reserves Accumulated losses Non-controlling interests Total equity Non-current liabilities Trade and other payables Provisions Deferred consideration Current liabilities Trade and other payables Current tax liabilities Derivative instruments 12 13 14 15 19 17 18 19 20 21 22 22 23 24 25 26 27 25 28 s t e s s A y t i u q E s e i t i l i b a L i Total liabilities Total equity and liabilities (*) Refer to Note 2.1. (c) The notes on pages 58 to 115 are an integral part of these consolidated and company financial statements. The consolidated and company financial statements were authorised for issue by the board of directors on 27 March 2018 and were signed on its behalf. V. Financial Statements 54 199,458 73,700 - - 212 10,130 283,500 13,674 34,213 129 42,856 90,872 374,372 13,192 309,577 6,137 (86,527) 242,379 4,474 246,853 74 5,727 52,983 58,784 67,983 752 - 68,735 127,519 374,372 - - 3,693 - - - 3,693 - 242,824 129 34,410 277,363 281,056 13,192 309,577 5,687 (62,417) 266,039 - 266,039 - - 9,100 9,100 5,917 - - 5,917 15,017 281,056 191,380 70,011 - - 206 12,196 273,793 6,195 29,850 261 1,135 37,441 311,234 11,632 277,238 5,667 (104,316) 190,221 - 190,221 115 5,092 52,983 58,190 62,592 16 215 62,823 121,013 311,234 16 - 3,572 4 - - 3,592 - 240,245 261 320 240,826 244,418 11,632 277,238 5,667 (61,290) 233,247 - 233,247 - - 9,100 9,100 2,071 - - 2,071 11,171 244,418 Roger Davey Chairman Alberto Lavandeira Managing Director Annual ReportAtalaya Mining PlcConsolidated statements of changes in equity Years ended 31 December 2017 and 2016 (Euro 000’s) At 1 January 2016 Profit for the year restated(*) Bonus shares issued in escrow Change in value of available-for-sale investments Recognition of share based payments Profit for the year Issue of share capital Share issue costs Depletion factor Change in value of available-for-sale investments Recognition of share based payments Non-controlling interests At 31 December 2017 Attributable to owners of the parent Note Share capital Share Premium(2) Other reserves(1) Accu- mulated losses Total Non- contro- lling interest 11,632 277,238 5,508 (118,012) 176,366 23 - - - - - - - - - 63 (41) 137 13,696 13,696 - - - 63 (41) 137 - 22 1,560 - - - - - - 33,182 (843) - - - - - - - 450 (132) 152 - - - 34,742 (843) - (132) 152 (450) - - - Total equity 176,366 13,696 63 (41) 137 190,221 - - - - - - - - - - - 34,742 (843) - (132) 152 At 31 December 2016/ 1 January 2017 restated(*) 11,632 277,238 5,667 (104,316) 190,221 18,239 18,239 (28) 18,211 13,192 309,577 6,137 (86,527) 242,379 4,474 246,853 - 4,502 4,502 (*) Refer to Note 2.1. (c) The notes on pages 58 to 115 are an integral part of these consolidated and company financial statements. (1) Refer to Note 23 (2) The share premium reserve is not available for distribution. Company statements of changes in equity Years ended 31 December 2017 and 2016 (Euro 000’s) At 1 January 2016 Profit for the year restated (*) Bonus shares issued in escrow Change in value of available-for-sale investments Recognition of share based payments At 31 December 2016/1 January 2017 restated (*) Profit for the year Issue of share capital Share issue costs Change in value of available-for-sale investments Recognition of share based payments At 31 December 2017 Note 23 22 Share capital 11,632 - - - Share Premium(2) Other reserves(1) Accumulated losses Total 277,238 5,508 (156,349) 138,029 - - - - 63 (41) 137 95,059 95,059 - - - 63 (41) 137 11,632 277,238 5,667 (61,290) 233,247 - 1,56 - - - - 33,182 (843) - - 13,192 309,577 - - - (132) 152 5,687 (1,127) (1,127) - - - - 34,742 (843) (132) 152 (62,417) 266,039 (*) Refer to Note 2.1. (c) The notes on pages 58 to 115 are an integral part of these consolidated and company financial statements. (1) Refer to Note 23 (2) The share premium reserve is not available for distribution. V. Financial Statements 55 Annual ReportAtalaya Mining PlcConsolidated statements of cash flows Years ended 31 December 2017 and 2016 (Euro 000’s) Note 2017 Restated(*) 2016 Profit before tax Depreciation of property, plant and equipment Amortisation of intangible assets Share of result of associate Recognition of share-based payments Bonus share issued in escrow Hedging income Interest income Interest expense Impairment charge Gain on disposal of property, plant and equipment Unwinding of discounting Legal provisions Gain on disposal of associate Impairment on available-for-sale investment Net foreign exchange loss on hedging expense Unrealised foreign exchange loss on financing activities : r o f s t n e m t s u d A j Cash inflows from operating activities before working capital changes l : Increase in inventories a t i Increase in trade and other receivables Increase in trade and other payables Decrease in derivative instruments Increase in provisions Cash flows from operations Interest paid Tax paid Net cash from operating activities Purchases of property, plant and equipment Purchases of intangible assets Proceeds from sale of property, plant and equipment Hedging income/(expense) Interest received Net cash used in investing activities s Proceeds from issue of share capital e i t i v i t c a Net cash from financing activities Listing and issue costs Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents: At beginning of the year At end of the year s e i t i v i t c a g n i t a r e p o m o r f s w o fl h s a C n i s e g n a h C p a c g n i k r o w s w o fl h s a C g n i t s e v n i m o r f h s a C s w o fl m o r f s e i t i v i t c a i g n c n a n fi 12 13 15 23 9 8 9 12 9 26 20 20 18 19 25 28 26 12 13 9 8 22 22 21,907 12,540 4,131 - 152 - (205) (22) 671 - - 113 213 (49) 49 - 11 39,511 (7,479) (2,653) 5,350 (215) (733) 33,781 (671) (2,610) 30,500 (20,220) (2,694) 9 205 22 (22,678) 34,742 (843) 33,899 41,721 21 21 1,135 42,856 1,509 8,643 3,114 10 137 63 - (41) 395 903 (4) - - - - 195 (28) 14,896 (6,195) (13,424) 18,924 - - 14,201 (395) (17) 13,789 (29,995) (1,334) 16 - 41 (31,272) (17,483) 18,618 1,135 (*) Refer to Note 2.1. (c) The notes on pages 58 to 115 are an integral part of these consolidated and company financial statements. V. Financial Statements 56 Annual ReportAtalaya Mining Plc Company statements of cash flows Years ended 31 December 2017 and 2016 (Euro 000’s) s e i t i v i t c a g n i t a r e p o m o r f s w o fl h s a C : r o f s t n e m t s u d A j s e g n a h C n i g n i k r o w Profit / (loss) before tax Depreciation of property, plant and equipment Share-based payments Bonus share issue Finance income from interest-bearing intercompany loan Intercompany balances previously impaired Loss on available-for-sale investment Profit on disposal of investment Profit on disposal of property, plant and equipment Unrealised foreign exchange loss on financing activities Cash inflows used in operating activities before working capital changes l : Increase in trade and other receivables a t i Increase in trade and other payables p a c Deferred consideration Cash flows used in operations Interest paid h s a C m o r f s w o fl g n i t s e v n i s e i t i v i t c a Net cash used in operating activities Purchases of property, plant and equipment Proceeds from disposal of property, plant and equipment Finance income from interest-bearing intercompany loan Net cash from investing activities h s a C s w o fl m o r f i g n c n a n fi s Proceeds from issue of share capital e i t i v i t c a Listing and issue costs Net cash from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents: At beginning of the year At end of the year Note 2017 Restated(*) 2016 (1,127) 95,059 12 6 8 5 5 19 25 12 7 34 - (1,635) - 49 (45) - (3) (2,720) (2,579) 3,846 - (1,453) - (1,453) - 9 1,635 1,644 34,742 22 (843) 33,899 34,090 21 21 320 34,410 14 137 63 (1,523) (97,243) - - (4) - (3,497) (12,921) 1,854 9,100 (5,464) - (5,464) (1) 16 1,523 1,538 - - - (3,926) 4,246 320 (*) Refer to Note 2.1. (c) The notes on pages 58 to 115 are an integral part of these consolidated and company financial statements. V. Financial Statements 57 Annual ReportAtalaya Mining Plc Notes to the consolidated and company financial statements Years ended 31 December 2017 and 2016 1. Incorporation and summary of business The Company’s and its subsidiaries’ business is to explore for and develop metals production operations in Europe, with an initial focus on copper. Country of incorporation Atalaya Mining Plc (the “Company”) was incorporated in Cyprus on 17 September 2004 as a private company with limited liability under the Companies Law, Cap. 113 and was converted to a public limited liability company on 26 January 2005. Its registered office is at 1 Lampousa Street, Nicosia, Cyprus. The Company was listed on AIM of the London Stock Exchange in May 2005 under the symbol ATYM and on the TSX on 20 December 2010 under the symbol AYM. The Company continued to be listed on AIM and the TSX as at 31 December 2017. Additional information about Atalaya Mining Plc is available at www.atalayamining.com as per requirement of AIM rule 26. Changed on name and share consolidation Following the Company’s EGM on 13 October 2015, the change of the name Emed Mining Public Limited to Atalaya Mining Plc became effective on 21 October 2015. On the same day, the consolidation of ordinary shares came into effect, whereby all shareholders received one new ordinary share of nominal value Stg £0.075 for every 30 existing ordi- nary shares of nominal value of Stg £0.0025. Summary of business The Company owns and operates through a wholly-owned subsidiary, Proyecto Riotinto, an open-pit copper mine located in the Pyritic belt, in the Andalusia region of Spain, approximately 65 km northwest of Seville. In addition, the Company has a phased earn-in agreement to up 80% ownership of Proyecto Touro, a brownfield copper project in northwest Spain, which is currently at the permitting stage. The strategy is to evaluate and prioritise metal production opportunities in several jurisdictions throughout the well- known belts of base and precious metal mineralisation in Spain and the Eastern European region. 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated and company financial statements (hereinafter “financial statements”) are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation (a) Overview The financial statements of Atalaya Mining have been prepared in accordance with International Financial Repor- ting Standards (“IFRS”). IFRS comprise the standards issued by the International Accounting Standards Board (“IASB”) and IFRS Interpretations Committee (“IFRICs”) as issued by the IASB. Additionally, the financial statements have also been prepared in accordance with the IFRS as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap.113. For the year ending 31 December 2017, the standards applicable for IFRS’s as adopted by the EU are aligned with the IFRS’s as issued by the IASB. The financial statements have been prepared under the historical cost convention, except for derivative financial instruments that have been measured at fair value. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting V. Financial Statements 58 Annual ReportAtalaya Mining Plcpolicies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.4. (b) Going concern and the Company will generate sufficient cash and cash equi- valents to continue operating for the next twelve months. c) 2016 restatement Deferred consideration (Note 27) These financial statements have been prepared on the basis of accounting principles applicable to a going concern which assumes that the Group and the Company will realise its assets and discharge its liabilities in the normal course of business. Management has carried out an assessment of the going concern assumption and has concluded that the Group In 2017 the discount rate used to value the liability for the deferred consideration was re-assessed to apply a risk free rate as required by IAS 37. The discounted amount, when applying this discount rate, was not considered significant and the Group has measured the liability for the deferred conside- ration on an undiscounted basis. The value of the liability is in line with the court ruling issued on 6 March 2017. Years ended 31 December The Group The Company 2016 2016 2016 2016 (Euro 000’s) As reported Adjustments Restated As reported Adjustments Restated Statement of financial position Intangible asset Trade and other receivables Total assets 59,715 10,296(1) 70,011 238,152 2,093(1) 240,245 Deferred consideration 44,346 8,637(1) 52,983 7,359 1,741(1) 9,100 Total liabilities Retained earnings Equity (105,975) 1,659 (104,316) (61,642) 352 (61,290) (1) The Astor deferred consideration liability has been restated to remove the impact of discounting and is in line to the High Court ruling issued in March 2017 Years ended 31 December The Group The Company 2016 2016 2016 2016 (Euro 000’s) As reported Adjustments Restated As reported Adjustments Restated Income statement Mine site depreciation and amortization (11,278) (465)(1) (11,743) Gross margin Finance costs Operating profit Loss before tax Tax credit / (charge) Earnings per share 9,642 (2,713) 2,906 (150) 12,187 10.3 2,124(1) 9,180 (589) 2,441 1,509 12,187 11.7 - 177 (352) 93,563 94,707 - - - - 352(1) - - 177 - 93,563 95,059 - - (1) The discount rate was re-assessed considering a risk free rate for the relevant periods as required by IAS 37. Discounting the provision using the risk free rate would not result in a significant impact to the financial statements and the Group has measured the liability on an undiscounted basis. The amount of the provision is in line with the court ruling. Finance costs have been revised to exclude the unwinding of discount and amortisation charge revised based on the restated carrying amount of Intangible assets V. Financial Statements 59 Annual ReportAtalaya Mining Plc2.2 Changes in accounting policy and disclosures » Annual Improvements Cycle - 2014-2016 IFRS 12 Disclosure of Interests in Other Entities: During the current year the Group and Company adopted all the new and revised International Financial Reporting Standards (IFRS) that are relevant to its operations and are effective for accounting periods beginning on 1 January 2017. Up to the date of approval of the consolidated and company financial statements, certain new standards, interpretations and amendments to existing standards have been published that are not yet effective for the current reporting period and which the Group and Company has not early adopted, as follows: (i) Adoption of new standards and revised IFRSs » IAS 12: Recognition of Deferred Tax Assets for Unrealized Losses (Amendments) The objective of the Amendments is to clarify the requi- rements of deferred tax assets for unrealized losses in order to address diversity in practice in the application of IAS 12 Income Taxes. The specific issues where diversity in practice existed relate to the existence of a deductible temporary difference upon a decrease in fair value, to recovering an asset for more than its carrying amount, to probable future taxable profit and to combine versus separate assessment. The standard has been endorsed by EU. The Group has assessed that these amendments have no material effect on the Group and Company financial statements. » IAS 7: Disclosure Initiative (Amendments) The objective of the Amendments is to provide disclo- sures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The Amendments specify that one way to fulfil the disclosure requirement is by providing a tabular reconciliation between the opening and closing balances in the statement of financial position for liabi- lities arising from financing activities, including changes from financing cash flows, changes arising from obtaining or losing control of subsidiaries or other businesses, the effect of changes in foreign exchange rates, changes in fair values and other changes. The standard has been endorsed by EU. The Group and Company is financed from equity and these amendments have no material impact on the current and the comparative period. The amendments clarify that the disclosure requirements in IFRS 12, other than those of summarized financial infor- mation for subsidiaries, joint ventures and associates, apply to an entity’s interest in a subsidiary, a joint venture or an associate that is classified as held for sale, as held for distribution, or as discontinued operations in accor- dance with IFRS 5. The Group has assessed that these amendments have no affect the Group and Company financial statements. (ii) Standard issued but not yet effective and not early adopted by the Group and Company At the date of approval of these financial statements, stan- dards and interpretations were issued by the International Accounting Standards Board which were not yet effective. Some of them were adopted by the European Union and others not yet. At the date of approval of these financial statements the following accounting standards were issued by the Interna- tional Accounting Standards Board but were not yet effective: » IFRS 15 – Revenue from Contracts with Customers and Clarifications to IFRS 15 – Revenue from Contracts with Customers. New standard for recognising revenue (replaces IAS 11, IAS 18, IFRIC 13, IFRIC 15, IFRIC 18 and SIC 31). Effective for annual periods beginning on or after 1 January 2018. IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. Provisional pricing sales Some of Atalaya´s sales contain provisional pricing features which are considered to be embedded (commo- dity) derivatives. IFRS 15 will not change the assessment of the existence of embedded derivatives. IFRS 15 states that if a contract is partially within scope of the standard and partially in the scope of another standard, an entity will first apply the separation and measurement requirements of the other standard(s). Therefore, to the extent that provi- sional pricing features are considered to be in the scope of another standard, they will be outside the scope of IFRS 15 and entities will be required to account for these in accordance with IFRS 9. Any subsequent changes that arise due to differences between initial and final assay will still be considered within the scope of IFRS 15. V. Financial Statements 60 Annual ReportAtalaya Mining PlcRevenue in respect of the host contract will be recog- nised when control passes to the customer (which has been determined to be the same point in time) and will be measured at the amount Atalaya expects to be entitled – being the estimate of the price expected to be received at the end of the quotation period, and the estimated forward price (which is consistent with current practice). When considering the initial estimate, Atalaya has considered the requirements of IFRS 15 in relation to the constraint on estimates of variable consideration. It will only include amounts in the calculation of revenue where it is highly probable that a significant revenue reversal will not occur when the uncertainty relating to final price adjustment is subsequently resolved. The price adjustments are not usually material to Atalaya, hence, no change is expected when compared to the current approach. Consequently, at the time the goods are delivered to the destination agreed with the customer, Atalaya will recognise a receivable because from that time it considers it has an unconditional right to consi- deration. This receivable will then be accounted for in accordance with IFRS 9. As explained below in the discussion on the potential impact of IFRS 9, the embedded derivative will no longer be separated from the host contract, i.e., the trade recei- vable. This is because the existence of the provisional pricing features will mean the trade receivable will fail to meet the requirements to be measured at amortised cost. Instead, the entire receivable will be measured at fair value, with subsequent movements being recognised in the consolidated income statements. Atalaya expects that changes in the fair value will continue to be classified as sales in the consolidated income statements. a) Sales of goods Under IFRS 15, revenue will be recognised when a customer obtains control of the goods, which will coin- cide with the current moment of the revenue recognition – upon delivery of the product to the destination agreed with the customer. In order to assess the implications of adopting the new standard for existing contracts Atalaya has performed an analysis of its contracts with customers based on the five-step model of revenue recognition in accordance with IFRS 15. Based on the analysis performed by Atalaya, there is a single performance obligation identified in the sales contracts. Atalaya does not expect material changes in the timing or measurement of revenue based on the analysis performed, as the performance obligation is satisfied on the delivery of the product to the destina- tion point agreed with the customer, which is when the control is transferred and the revenue is recognised. b) Significant financing component Other issues in IFRS 15 include the existence of signifi- cant financing components in the contracts signed with customers. As at 31 December 2016 there was a copper concentrate prepayment funding signed by Atalaya in September 2016 with Transamine Trading, S.A. of €8.7 million (€nil at 31 December 2017). Atalaya´s preliminary assessment indicates that the value of a deferred revenue that may be recognised and an increase in finance costs is not significant. c) Disclosures IFRS 15 requires that Atalaya presents different disag- gregation of income beyond those presented with the previous standard. d) Transition Atalaya plans to adopt IFRS 15 using the cumulative effect method, with the effect of initially applying this standard recognised at the date of initial application (i.e. 1 January 2018). As a result Atalaya will not apply the requirements of IFRS 15 to the comparative period presented. » IFRS 9 – Financial Instruments and subsequent amend- ments. This standard replaces the classification, measu- rement, recognition and derecognition in accounts of financial assets and liabilities, hedge accounting, and impairment set out in IAS 39 Financial instruments: Recognition and Measurement. Effective for annual periods beginning on or after 1 January 2018. Atalaya has assessed the estimated impact that the initial application of IFRS 9 will have on its financial statements. From the analysis performed, it was concluded that the application of this rule would not have significant effects on the financial statements due to the following: Classification – Financial assets IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics. IFRS 9 contains three principal classification categories for financial assets: measured at amortised costs, fair value through other comprehensive income (“FVOCI”) and fair V. Financial Statements 61 Annual ReportAtalaya Mining Plcvalue through profit or loss (“FVTPL”). The standard elimi- nates the existing IAS 39 categories of held to maturity, loans and receivables and available-for-sale. Based on the assessment, Atalaya does not believe that the new classification requirements will have a material impact on its accounting for trade receivables, loans, equity investment. Equity investments hold by Atalaya classified as available-for-sale are non-significant (of €129k). Atalaya does not have held to maturity financial assets. Impairment – Financial assets and contract assets IFRS 9 replaces the “incurred loss” model in IAS 39 with a forward-looking “expected credit loss” (ECL) model. This will require considerable judgement about how changes in economic factors effect ECLs, which will be determined on a probability-weighted basis. The new impairment model will apply to financial assets measured at amortised cost or FVOCI, except for invest- ments in equity instruments, and to contract assets. Under IFRS 9 loss allowance will be measured on either of the following basis: » 12-month ECLs: these are ECLs that result from possible events within the 12 months after the repor- ting date; applied if the credit risk of a financial asset at the reporting date has not increased significantly since initial recognition. » Lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument; applied if the credit risk of a finan- cial asset at the reporting date has increased signifi- cantly since initial recognition. Based on the analysis of the ECL performed, Atalaya believes that the adoption of the new impairment model will not have a significant impact on the financial state- ments due to the following reasons: a) Trade and other receivables: Atalaya does not have significant credit risk and does not maintain a history of non-compliance of fulfilment of payments by customers. b) Cash and cash equivalents: the cash and cash equi- valents are held with banks which have strong credit ratings. Classification – Financial liabilities IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. However, under IAS 39 all fair value changes of liabilities designated as at FVTPL are recognized in profit and loss, whereas under IFRS 9 these fair value changes are gene- rally presented as follows: » The amount of change in fair value that is attributable to changes in the credit risk of the liability is presented in OCI; and » The remaining amount of changes in the fair value is presented in profit and loss. The Group´s assessment does not indicate any material impact regarding the classification of financial liabilities at 1 January 2018. Commodity derivative As discussed in more detail in this note above and also within the discussion on the potential impact of IFRS 15, some of the Atalaya’s sales contain provisional pricing features. On adoption of IFRS 9, the embedded derivative will no longer be separated from the receivables as the receiva- bles are not expected to give rise to cash flows that repre- sent solely payments of principal and interest. Instead, the receivables will be accounted for as one instrument and measured at fair value through profit or loss with subse- quent changes in fair value recognised in the statement of profit or loss and other comprehensive income each period until final settlement and presented as part of ‘Other Income/Expense’. This will mean that the quantity of the fair value movements will be different because the current approach only calculates fair value movements based on changes in the relevant commodity price, whereas under IFRS 9, the fair value of the receivable will not only include commodity price changes, but it will also factor in the impact of credit and interest rates. However, based on the analysis performed, Atalaya does not expect these changes will have a significant impact. Hedge accounting The changes in IFRS 9 relating to hedge accounting will have no impact, as Atalaya does not currently apply hedge accounting. Disclosures IFRS 9 will require extensive new disclosures, in particular about hedge accounting, credit risk and ECLs. Atalaya´s assessment included an analysis to identify data gaps against current processes and Atalaya is in the process of implementing the system and controls changes that it believes will be necessary to capture the required data. V. Financial Statements 62 Annual ReportAtalaya Mining PlcTransition Changes in accounting policies from the adoption of IFRS 9 will generally be applied retrospectively, except as described below. » Atalaya will take advantage of the exemption allowing it not to restate comparative information for prior periods with respect to classification and measurement (including impairment) changes. » The assessment have to be made based on the facts and circumstances that exist at the date of initial appli- cation in respect of the determination of the business model within which a financial assets is held. » IFRS 16 – Leases. The new standard on leases that replaces IAS 17, IFRIC 4, SIC-15 and SIC-27. Effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply IFRS 15 at or before the date of initial application of IFRS 16. IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right- of-use asset representing it right to use the underlying asset and a lease liability representing its obligation to make lease payment. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current stan- dard – i.e. lessor continue to classify leases as finance or operating leases. Atalaya has completed an initial assessment of the poten- tial impact of IFRS 16 on its consolidated financial state- ments but has not yet completed its detailed assessment. The actual impact of applying IFRS 16 on the consolidated financial statements in the period of initial application will depend on future economic conditions, including the Group´s borrowing rate at 1 January 2019, the compo- sition of Atalaya´s borrowing rate at 1 January 2019 the composition of Atalaya´s portfolio at that date, its latest assessment of whether it will exercise any lease renewal options and the extent to which Atalaya chooses to use practical expedients and recognition exemptions. As at 31 December 2017, Atalaya does not possess lease payments under non-cancellable operating. Considering the insignificant volume of commitments for leases held by Atalaya, it is expected that the implemen- tation of IFRS 16 will not have a significant impact on the financial statements. » Amendment in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture. The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. In December 2015 the IASB postponed the effective date of this amendment indefi- nitely pending the outcome of its research project on the equity method of accounting. The amendments have not yet been endorsed by the EU. Management is currently evaluating the effect of these standards or interpreta- tions on its financial statements. » IFRS 2: Classification and Measurement of Share based Payment Transactions (Amendments) The Amendments are effective for annual periods begin- ning on or after 1 January 2018 with earlier application permitted. The Amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share- based payments, for share-based payment transactions with a net settlement feature for withholding tax obliga- tions and for modifications to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. These Amendments have not yet been endorsed by the EU. Management is currently evaluating the effect of these standards or interpretations on its financial statements. » IAS 40: Transfers to Investment Property (Amendments). The Amendments are effective for annual periods beginning on or after 1 January 2018 with earlier appli- cation permitted. The Amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The Amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s inten- tions for the use of a property does not provide evidence of a change in use. These Amendments have not yet been endorsed by the EU. No investments properties are held by the Group and Company and this amendment has no effect on the financial statements. V. Financial Statements 63 Annual ReportAtalaya Mining Plcdeferred income liability. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. This Interpretation has not yet been endorsed by the EU. Management is currently evaluating the effect of these standards or interpreta- tions on its financial statements. » The IASB has issued the Annual Improvements to IFRSs 2014 – 2016 Cycle, which is a collection of amendments to IFRSs. The amendments are effective for annual periods begin- ning on or after 1 January for IAS 28 Investments in Asso- ciates and Joint Ventures. Earlier application is permitted for IAS 28 Investments in Associates and Joint Ventures. These annual improvements have not yet been endorsed by the EU. The amendments clarify that the election to measure at fair value through profit or loss an investment in an associate or a joint venture that is held by an entity that is venture capital organization, or other qualifying entity, is available for each investment in an associate or joint venture on an investment-by-investment basis, upon initial recognition. Management is currently evaluating the effect of these standards or interpretations on its financial statements. » IFRS 9: Prepayment features with negative compensation (Amendment) The Amendment is effective for annual reporting periods beginning on or after 1 January 2019 with earlier applica- tion permitted. The Amendment allows financial assets with prepayment features that permit or require a party to a contract either to pay or receive reasonable compen- sation for the early termination of the contract (so that, from the perspective of the holder of the asset there may be ‘negative compensation’), to be measured at amor- tized cost or at fair value through other comprehensive income. These Amendments have not yet been endorsed by the EU. Management is currently evaluating the effect of these standards or interpretations on its financial statements. » IAS 28: Long-term Interests in Associates and Joint Ventures (Amendments) The Amendments are effective for annual reporting periods beginning on or after 1 January 2019 with earlier application permitted. The Amendments relate to whether the measurement, in particular impairment requirements, of long term interests in associates and joint ventures that, in substance, form part of the ‘net investment’ in the associate or joint venture should be governed by IFRS 9, IAS 28 or a combination of both. The Amendments clarify that an entity applies IFRS 9 Financial Instruments, before it applies IAS 28, to such long-term interests for which the equity method is not applied. In applying IFRS 9, the entity does not take account of any adjustments to the carrying amount of long- term inte- rests that arise from applying IAS 28. These Amendments have not yet been endorsed by the EU. Management is currently evaluating the effect of these standards or interpretations on its financial statements. » IFRIC INTERPETATION 22: Foreign Currency Transactions and Advance Consideration The Interpretation is effective for annual periods begin- ning on or after 1 January 2018 with earlier application permitted. The Interpretation clarifies the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. The Interpretation covers foreign currency transactions when an entity recognizes a non-monetary asset or a non-mo- netary liability arising from the payment or receipt of advance consideration before the entity recognizes the related asset, expense or income. The Interpretation states that the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or V. Financial Statements 64 Annual ReportAtalaya Mining Plc » IFRIC INTERPETATION 23: Uncertainty over Income Tax Treatments The Interpretation is effective for annual periods begin- ning on or after 1 January 2019 with earlier application permitted. The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12. The Interpretation provides guidance on considering uncertain tax treat- ments separately or together, examination by tax autho- rities, the appropriate method to reflect uncertainty and accounting for changes in facts and circumstances. This Interpretation has not yet been endorsed by the EU. Management is currently evaluating the effect of these standards or interpretations on its financial statements. » The IASB has issued the Annual Improvements to IFRSs 2015 – 2017 Cycle, which is a collection of amendments to IFRSs. The amendments are effective for annual periods begin- ning on or after 1 January 2019 with earlier application permitted. These annual improvements have not yet been endorsed by the EU. Management is currently evaluating the effect of these standards or interpreta- tions on its financial statements. (i) IFRS 3 Business Combinations and IFRS 11 Joint Arran- gements The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business. The amendments to IFRS 11 clarify that when an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business. (ii) IAS 12 Income Taxes: The amendments clarify that the income tax consequences of payments on financial instruments classified as equity should be recognized according to where the past transactions or events that generated distributable profits has been recognized. (iii) IAS 23 Borrowing Costs: The amendments clarify paragraph 14 of the standard that, when a qualifying asset is ready for its intended use or sale, and some of the specific borrowing related to that qualifying asset remains outstanding at that point, that borrowing is to be included in the funds that an entity borrows generally. V. Financial Statements 65 Annual ReportAtalaya Mining Plc2.3 Consolidation (a) Basis of consolidation The consolidated financial statements comprise the financial statements of Atalaya Mining Plc and its subsidiaries. (b) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group and Company has control. Control exists when the Group is exposed, or has rights, to variable returns for its involvement with the investee and has the ability to affect those returns through its power over the investee. The existence and effect of potential voting rights that are currently exercisable or convertible are consi- dered when assessing whether the Group controls another entity. The Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may arise in circumstances where the size of the Group’s voting rights relative to the size and disper- sion of holdings of other shareholders give the Group the power to govern the financial and operating policies, etc. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consoli- dated from the date that control ceases. The only operating subsidiary of Atalaya Mining Plc is the 100% owned Atalaya Riotionto Minera, S.L.U. which operates Proyecto Minero Riotinto, in the historical site of Huelva, Spain. The name and shareholding of the entities include in the Group in these financial statements are: Entity name Atalaya Mining, Plc Eastern Mediterranean Resources (Caucasus) Ltd Georgian Minerals Development Company Ltd. EMED Marketing Ltd. EMED Mining Spain, S.L. Atalaya Riotinto Minera, S.L.U. Recursos Cuenca Minera, S.L. Atalaya Minasderiotinto Project (UK), Ltd. Eastern Mediterranean Exploration & Development, S.L.U. Atalaya Touro (UK), Ltd. Fundación Emed Tartessus Cobre San Rafael, S.L. (1) Notes Business %(2) Country Holding Dormant Dormant Marketing Dormant Operating Operating Holding Operating Holding Trust Operating n.a. 100% 100% 100% 100% 100% 50% 100% 100% 100% 100% 10% Cyprus Georgia Georgia Cyprus Spain Spain Spain United Kingdom Spain United Kingdom Spain Spain (1) Cobre San Rafael, S.L. is the entity which holds the mining rights of Proyecto Touro. The Group has a significant influence in the management of the Cobre San Rafael, S.L., including one of the two directors, management of the financial books and the capacity to appoint the key personnel. Refer to Note 29 for details on the acquisition of Cobre San Rafael, S.L.. (2) The effective proportion of shares held as at 31 December 2017 and 31 December 2016 remained unchanged other than Atalaya Touro Project (UK) Ltd which was incorporated in the year 2017 and Cobre San Rafael, S.L. which was acquired during 2017. V. Financial Statements 66 Annual ReportAtalaya Mining PlcThe Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets. (c) Acquisition-related costs are expensed as incurred. If the business combination is achieved in stages, the acqui- sition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss. Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 in profit or loss. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity. Goodwill is initially measured as the excess of the aggre- gate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group. (d) Changes in ownership interests in subsidiaries without change of control Transactions with non-controlling interests that do not result in loss of control are accounted for as equity tran- sactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of V. Financial Statements 67 the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. (e) Disposal of subsidiaries. When the Group ceases to have control any retained inte- rest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accoun- ting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. (f) Associates Associates are all entities over which the Group has signi- ficant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the invest- ment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisi- tion. The Group’s investment in associates includes goodwill identified on acquisition. If the ownership interest in an associate is reduced but signi- ficant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate. The Group’s share of post-acquisition profit or loss is recog- nised in the income statement, and its share of post-acquisi- tion movements in other comprehensive income is recog- nised in other comprehensive income, with a corresponding adjustment to the carrying amount of the investment. When the Group share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to ‘share of profit/(loss) of associates’ in the income statement. Annual ReportAtalaya Mining PlcProfits and losses resulting from upstream and downstream transactions between the Group and its associate are recognised in the Group’s consolidated financial state- ments only to the extent of unrelated investors’ interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the group. Dilution gains and losses arising in investments in associates are recognised in the income statement. (g) Functional currency Functional and presentation currency items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The financial statements are presented in Euro which is the Group and Company functional and presenta- tion currency. Determination of functional currency may involve certain judgements to determine the primary economic environ- ment and the parent entity reconsiders the functional currency of its entities if there is a change in events and conditions which determined the primary economic environment. Foreign currency transactions are translated into the func- tional currency using the spot exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in the income statement. Monetary assets and liabilities denominated in foreign currencies are retranslated at year-end spot exchange rates. Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Gains or losses of monetary and non-monetary items are recognised in the income statement. Balance sheet items are translated at period-end exchange rates. Exchange differences on translation of the net assets of such entities are taken to equity and recorded in a sepa- rate currency translation reserve. V. Financial Statements 68 Annual ReportAtalaya Mining Plc2.4 Investments in subsidiary companies Investments in subsidiary companies are stated at cost less provision for impairment in value, which is recognised as an expense in the period in which the impairment is identified. 2.5 Interest in joint arrangements A joint arrangement is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control that is when the strategic, financial and operating policy decisions relating to the acti- vities the joint arrangement require the unanimous consent of the parties sharing control. Where a Group entity undertakes its activities under joint arrangements directly, the Group’s share of jointly contro- lled assets and any liabilities incurred jointly with other ventures are recognised in the financial statements of the relevant entity and classified according to their nature. Liabilities and expenses incurred directly in respect of interests in jointly controlled assets are accounted for on an accrual basis. Income from the sale or use of the Group’s share of the output of jointly controlled assets, and its share of joint arrangement expenses, are recognised when it is probable that the economic benefits associated with the transactions will flow to/from the Group and their amount can be measured reliably. The Group undertakes joint arrangements that involve the establishment of a separate entity in which each acquiree has an interest (jointly controlled entity). The Group reports its interests in jointly controlled entities using the equity method of accounting. Where the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Group’s interest in the joint arrangement. 2.6 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing perfor- mance of the operating segments, has been identified as the CEO who makes strategic decisions. The Group has only one distinct business segment, being that of mining operations, mineral exploration and development. V. Financial Statements 69 Annual ReportAtalaya Mining Plc2.7 Inventory Inventory consists in copper concentrates, ore stockpiles and metal in circuit and spare parts. Inventory is physically measured or estimated and valued at the lower of cost or net realisable value. Net realisable value is the estimated future sales price of the product the entity expects to realise when the product is processed and sold, less esti- mated costs to complete production and bring the product to sale. Where the time value of money is material, these future prices and costs to complete are discounted. Cost is determined by using the FIFO method and comprises direct purchase costs and an appropriate portion of fixed and variable overhead costs, including depreciation and amortisation, incurred in converting materials into finished goods, based on the normal production capacity. The cost of production is allocated to joint products using a ratio of spot prices by volume at each month end. Separately iden- tifiable costs of conversion of each metal are specifically allocated. Materials and supplies are valued at the lower of cost or net realisable value. Any provision for obsolescence is deter- mined by reference to specific items of stock. A regular review is undertaken to determine the extent of any provi- sion for obsolescence. 2.8 Assets under construction All subsequent expenditure on the construction, installation or completion of infrastructure facilities including mine plants and other necessary works for mining, are capita- lised in “Assets under construction”. Any costs incurred in testing the assets to determine if they are functioning as intended, are capitalised, net of any proceeds received from selling any product produced while testing. Where these proceeds exceed the cost of testing, any excess is recog- nised in the statement of profit or loss and other compre- hensive income. After production starts, all assets included in “Assets under construction” are then transferred to the relevant asset categories. Once a project has been established as commercially viable, related development expenditure is capitalised. A deve- lopment decision is made based upon consideration of project economics, including future metal prices, reserves and resources, and estimated operating and capital costs. Capitalization of costs incurred and proceeds received during the development phase ceases when the property is capable of operating at levels intended by management. Capitalisation ceases when the mine is capable of commer- cial production, with the exception of development costs which give rise to a future benefit. V. Financial Statements 70 Pre-commissioning sales are offset against the cost of constructing the asset. No depreciation is recorded until the assets are substantially complete and ready for productive use. 2.9 Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impair- ment losses. Subsequent costs are included in the assets’ carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Property, plant and equipment are depreciated to their estimated residual value over the estimated useful life of the specific asset concerned, or the estimated remaining life of the associated mine (“LOM”), field or lease. Depreciation commences when the asset is available for use. The major categories of property, plant and equipment are depreciated/amortised on a Unit of Production (“UOP”) and/or straight-line basis as follows: Buildings Mineral rights Deferred mining costs Plant and machinery Motor vehicles UOP UOP UOP UOP 5 years Furniture/fixtures/office equipment 5 – 10 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within “Other (losses)/gains – net” in the income statement. Annual ReportAtalaya Mining Plc(a) Mineral rights Mineral reserves and resources which can be reasonably valued are recognised in the assessment of fair values on acquisition. Mineral rights for which values cannot be reaso- nably determined are not recognised. Exploitable mineral rights are amortised using the UOP basis over the commer- cially recoverable reserves and, in certain circumstances, other mineral resources. Mineral resources are included in amortisation calculations where there is a high degree of confidence that they will be extracted in an economic manner. (b) Deferred mining costs – stripping costs Mainly comprises of certain capitalised costs related to pre-production and in-production stripping activities as outlined below. Stripping costs incurred in the development phase of a mine (or pit) before production commences are capitalised as part of the cost of constructing the mine (or pit) and subsequently amortised over the life of the mine (or pit) on a UOP basis. In-production stripping costs related to accessing an identi- fiable component of the ore body to realise benefits in the form of improved access to ore to be mined in the future (stripping activity asset), are capitalised within deferred mining costs provided all the following conditions are met: i. ii. it is probable that the future economic benefit asso- ciated with the stripping activity will be realised; the component of the ore body for which access has been improved can be identified; and iii. the costs relating to the stripping activity associated with the improved access can be reliably measured. If all of the criteria are not met, the production stripping costs are charged to the consolidated statement of income as they are incurred. The stripping activity asset is initially measured at cost, which is the accumulation of costs directly incurred to perform the stripping activity that improves access to the identified component of ore, plus an allocation of directly attributable overhead costs. (c) Exploration costs Under the Group’s accounting policy, exploration expendi- ture is not capitalised until the management determines a property will be developed and point is reached at which there is a high degree of confidence in the project’s viability V. Financial Statements 71 and it is considered probable that future economic benefits will flow to the Group. A development decision is made based upon consideration of project economics, including future metal prices, reserves and resources, and estimated operating and capital costs. Subsequent recovery of the resulting carrying value depends on successful development or sale of the undeve- loped project. If a project does not prove viable, all irreco- verable costs associated with the project net of any related impairment provisions are written off. (d) Major maintenance and repairs Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets and overhaul costs. Where an asset, or part of an asset, that was separately depreciated and is now written off is replaced, and it is probable that future economic benefits associated with the item will flow to the Group through an extended life, the expenditure is capitalised. Where part of the asset was not separately considered as a component and therefore not depreciated separately, the replacement value is used to estimate the carrying amount of the replaced asset(s) which is immediately written off. All other day-to-day maintenance and repairs costs are expensed as incurred. (e) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale (a qualifying asset) are capitalised as part of the cost of the respective asset. Where funds are borrowed specifi- cally to finance a project, the amount capitalised represents the actual borrowing costs incurred. (f) Restoration, rehabilitation and decommissioning Restoration, rehabilitation and decommissioning costs arising from the installation of plant and other site prepara- tion work, discounted using a risk adjusted discount rate to their net present value, are provided for and capitalised at the time such an obligation arises. The costs are charged to the consolidated statement of income over the life of the operation through depreciation of the asset and the unwinding of the discount on the provi- sion. Costs for restoration of subsequent site disturbance, which are created on an ongoing basis during production, are provided for at their net present values and charged to the consolidated statement of income as extraction progresses. Annual ReportAtalaya Mining Plcare carried at cost less any accumulated amortisation (calcu- lated on a straight-line basis over their useful lives) and accumulated impairment losses, if any. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over their useful economic lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amorti- sation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of profit or loss and other comprehensive income when the asset is derecognised. 2.11 Impairment of non-financial assets Assets that have an indefinite useful life – for example, goodwill or intangible assets not ready to use – are not subject to amortisation and are tested annually for impair- ment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circum- stances indicate that the carrying amount may not be reco- verable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. 2.12 Financial assets 2.12.1 Classification The Group classifies its financial assets in the following cate- gories: at fair value through profit or loss, loans and recei- vables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. The Group’s financial assets include cash and short-term deposits, trade and other recei- vables and derivative financial assets. Changes in the estimated timing of the rehabilitation or changes to the estimated future costs are accounted for prospectively by recognising an adjustment to the rehabili- tation liability and a corresponding adjustment to the asset to which it relates, provided the reduction in the provision is not greater than the depreciated capitalised cost of the related asset, in which case the capitalised cost is reduced to nil and the remaining adjustment recognised in the consolidated statement of income. In the case of closed sites, changes to estimated costs are recognised immedia- tely in the consolidated statement of income. 2.10 Intangible assets (a) Business combination and goodwill Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the acquired interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree. The results of businesses acquired during the year are brought into the consolidated financial statements from the effective date of acquisition. The identifiable assets, liabilities and contingent liabilities of a business which can be measured reliably are recorded at their provisional fair values at the date of acquisition. Provisional fair values are finalised within 12 months of the acquisition date. Acquisi- tion-related costs are expensed as incurred. Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indi- cate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed. (b) Permits Permits are capitalised as intangible assets which relate to projects that are at the pre-development stage. No amor- tisation charge is recognised in respect of these intangible assets. Once the Group receives those permits, the intangible assets relating to permits will be depreciated on a UOP basis. Other intangible assets include computer software. Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets V. Financial Statements 72 Annual ReportAtalaya Mining Plc(a) Financial assets at fair value through profit or loss 2.12.2 Recognition and measurement Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months, otherwise they are classified as non-current. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Group’s loans and receivables comprise “trade and other receivables” and “cash and cash equivalents” in the statement of financial position (Notes 2.18). (c) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-cu- rrent assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period. Regular purchases and sales of financial assets are recog- nised on the trade-date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effec- tive interest method. Gains or losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” category are presented in the income statement within “other (losses)/gains – net” in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the income statement as part of other income when the Group’s right to receive payments is established. Changes in the fair value of monetary securities classified as available for sale are recognised in other comprehensive income. V. Financial Statements 73 Annual ReportAtalaya Mining PlcWhen securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recog- nised in equity are included in the income statement as “gains and losses from investment securities”. Interest on available-for-sale securities calculated using the effective interest method is recognised in the income statement as part of finance income. Dividends on available-for-sale equity instruments are recognised in the income statement as part of other income when the Group’s right to receive payments is established. 2.13 Financial liabilities The Group classifies its financial liabilities in the following categories: trade and other payables, provisions, Inte- rest-bearing loans and borrowings, deferred consideration and derivatives. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. (a) Trade and other payables Trade and other payables are obligations to pay for goods, assets or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabili- ties. Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. (b) Provisions Provisions for environmental restoration, restructuring costs and legal claims are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likeli- hood that an outflow will be required in settlement is deter- mined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. (c) Interest-bearing loans and borrowings Borrowings are recognised initially at fair value, net of tran- saction costs incurred. Borrowings are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recog- nised in profit or loss over the period of the borrowings, using the effective interest method, unless they are directly attributable to the acquisition, construction or production of a qualifying asset, in which case they are capitalised as part of the cost of that asset. Fees paid on the establishment of loan facilities are recog- nised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment and amortised over the period of the facility to which it relates. Borrowing costs are interest and other costs that the Group incurs in connection with the borrowing of funds, inclu- ding interest on borrowings, amortisation of discounts or premium relating to borrowings, amortisation of ancillary costs incurred in connection with the arrangement of borrowings, finance lease charges and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Borrowing costs that are directly attributable to the acquisi- tion, construction or production of a qualifying asset, being an asset that necessarily takes a substantial period of time to get ready for its intended use or sale, are capitalised as part of the cost of that asset, when it is probable that they will result in future economic benefits to the Group and the costs can be measured reliably. (d) Deferred consideration Deferred consideration arises when settlement of all or any part of the cost of an agreement is deferred. It is stated at fair value at the date of recognition, which is determined by discounting the amount due to present value at that date. Interest is imputed on the fair value of non-interest bearing deferred consideration at the discount rate and expensed within interest pay able and similar charges. At each balance sheet date deferred consideration comprises the remaining deferred consideration valued at acquisition plus interest imputed on such amounts from recognition to the balance sheet date. (e) Derivatives Derivative financial instruments are initially accounted for at cost and subsequently measured at fair value. Fair value V. Financial Statements 74 Annual ReportAtalaya Mining Plcis calculated using the Black Scholes valuation method. Derivatives are recorded as assets when their fair value is positive and as liabilities when their fair value is negative. The adjustments on the fair value of derivatives held at fair value through profit or loss are transferred to profit or loss. In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand and in bank net of outs- tanding bank overdrafts and short-term deposits with an original maturity of three months or less. Sales of the Group’s copper are sold on a provisional basis whereby sales are recognised at prevailing metal prices when title transfers to the customer and final pricing is not determined until a subsequent date. The Group uses deri- vative financial instruments to reduce exposure to foreign exchange, interest rate and commodity price movements. The Group does not use such derivative instruments for trading purposes. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as finan- cial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to the statement of profit or loss and other comprehensive income. Realised gains and losses on commodity derivatives recognised in profit or loss are recorded within revenue. 2.14 Current versus non-current classification The Group presents assets and liabilities in statement of financial position based on current/non-current classification. (a) An asset is current when it is either: » Expected to be realised or intended to be sold or consumed in normal operating cycle; » Held primarily for the purpose of trading; » Expected to be realised within 12 months after the repor- ting period. Or » Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period; » All other assets are classified as non-current. V. Financial Statements 75 (b) A liability is current when either: » It is expected to be settled in the normal operating cycle; » It is held primarily for the purpose of trading; » It is due to be settled within 12 months after the repor- ting period. Or » There is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-cu- rrent assets and liabilities. 2.15 Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. 2.16 Impairment of financial assets (a) Assets carried at amortised cost The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impair- ment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors are experiencing signifi- cant financial difficulty, default or delinquency in inte- rest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measu- rable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. For the loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future Annual ReportAtalaya Mining Plccash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate deter- mined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instru- ment’s fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated income statement. (b) Assets classified as available-for-sale The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For debt securities, the Group uses the criteria referred to in (a) above. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in profit or loss. Impairment losses recognised in the consolidated income statement on equity instruments are not subsequently reversed. If, in a subse- quent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objec- tively related to an event occurring after the impairment loss was recognised in the income statement, the impair- ment loss is reversed through the income statement. 2.17 Trade and other receivables Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. V. Financial Statements 76 At Company level, other receivables include intercompany balances. 2.18 Cash and cash equivalents In the consolidated statements of cash flows, cash and cash equivalents includes cash in hand and in bank including deposits held at call with banks. 2.19 Share capital Ordinary shares are classified as equity. The difference between the fair value of the consideration received by the Company and the nominal value of the share capital being issued is taken to the share premium account. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net of tax, from the proceeds in the share premium account. 2.20 Current and deferred income tax The tax expense for the period comprises current and defe- rred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is also not recognised if it arises from initial recognition of an asset or liability in a transaction other than a business combi- nation that at the time of the transaction affects neither accounting nor taxable profit or loss. Income tax is deter- mined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period date and are expected to apply when the related deferred tax asset is realised or the deferred income tax liability Annual ReportAtalaya Mining Plcis settled. Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred income tax liabilities where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 2.21 Share-based payments The Group operates a share-based compensation plan, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The fair value is measured using the Black Scholes pricing model. The inputs used in the model are based on management’s best estimates for the effects of non-trans- ferability, exercise restrictions and behavioural considera- tions. Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest. Vesting conditions are: (i) the personnel should be an employee that provides services to the Group; and (ii) should be in continuous employment for the whole vesting period of 3 years. Specific arrangements may exist with senior managers and board members, whereby their options stay in use until the end. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied (Note 23). of affected areas. The obligation generally arises when the asset is installed or the ground/environment is disturbed at the production location. When the liability is initially recog- nised, the present value of the estimated cost is capi- talised 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 liabi- lity. The periodic unwinding of the discount is recognised in the consolidated income statement as a finance cost. Additional disturbances or changes in rehabilitation costs will be recog- nised as additions or charges to the corresponding assets and rehabilitation liability when they occur. For closed sites, changes to estimated costs are recognised immediately in the consolidated income statement. The Group assesses its mine rehabilitation provision annually. Significant estimates and assumptions are made in determining the provision for mine rehabilitation as there are numerous factors that will affect the ultimate liability payable. These factors include estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes and changes in discount rates. Those uncertainties may result in future actual expenditure diffe- ring from the amounts currently provided. The provision at the consolidated statement of financial position date repre- sents management’s best estimate of the present value of the future rehabilitation costs required. 2.23 Leases 2.22 Rehabilitation provisions The Group records the present value of estimated costs of legal and constructive obligations required to restore opera- ting locations in the period in which the obligation is incurred. The nature of these restoration activities includes dismantling and removing structures, rehabilitating mines and tailings dams, dismantling operating facilities, closure of plant and waste sites and restoration, reclamation and re-vegetation Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classi- fied as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. The Group leases certain property, plant and equipment. Leases of property, plant and equipment where the Group V. Financial Statements 77 Annual ReportAtalaya Mining Plc2.25 Interest income Interest income is recognised using the effective interest method. When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and conti- nues unwinding the discount as interest income. Interest income on impaired loan and receivables is recognised using the original effective interest rate. 2.26 Dividend income Dividend income is recognised when the right to receive payment is established. 2.27 Dividend distribution Dividend distributions to the Company’s shareholders are recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders. No dividend has been paid by the Company since its incorporation. 2.28 Earnings per share Basic earnings per share is calculated by dividing the net profit for the year by the weighted average number of ordinary shares outstanding during the year. The basic and diluted earnings per share are the same as there are no instruments that have a dilutive effect on earnings. 2.29 Reclassification from prior year presentation Certain prior year amounts have been reclassified for consistency with the financial statements for the year ended 31 December 2016.These reclassifications had no effect on the reported results of the operation. 2.30 Amendment of financial statements after issue The board of directors has the power to amend the consoli- dated financial statements after issue. has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in other long term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equi- pment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term. 2.24 Revenue recognition (a) Sales of goods Revenue is recognised when Atalaya has transferred to the buyer all significant risks and rewards of ownership of the goods sold. Revenue excludes any applicable sales taxes and is recognised at the fair value of the consideration received or receivable to the extent that it is probable that economic benefits will flow to Atalaya and the revenues and costs can be reliably measured. In most instances sales revenue is recognised when the product is delivered to the destination specified by the customer, which is typically the vessel on which it is shipped, the destination port or the customer’s premises. For certain commodities, the sales price is determined on a provisional basis at the date of sale as the final selling price is subject to movements in market prices up to the date of final pricing, normally ranging from 30 to 90 days after initial booking. Revenue on provisionally priced sales is recognised based on the estimated fair value of the total consideration receivable. The revenue adjustment mechanism embedded within provisionally priced sales arrangements has the character of a commodity derivative. Accordingly, the fair value of the final sales price adjustment is re-estimated continuously and changes in fair value are recognised as an adjustment to revenue. Pre-commissioning sales are offset against the cost of cons- tructing the asset. (b) Sales of services The Group sells services in relation to maintenance of accounting records, management, technical, administrative support and other services to other companies. Revenue is recognised in the accounting period in which the services are rendered. V. Financial Statements 78 Annual ReportAtalaya Mining Plcfinancial risks, in close co-operation with the Group’s opera- ting units. The Group is exposed to liquidity risk, currency risk, commodity price risk, credit risk, interest rate risk, operational risk, compliance risk and litigation risk arising from the financial instruments it holds. The risk manage- ment policies employed by the Group to manage these risks are discussed below: (a) Liquidity risk Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Group has procedures with the object of minimising such losses such as maintaining sufficient cash to meet liabilities when due. Cash flow forecasting is performed in the operating entities of the Group and aggre- gated by Group finance. Group finance monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs. The following tables detail the Group’s remaining contrac- tual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes principal cash flows. 3. Financial Risk Management 3.1 Financial risk factors Risk management is overseen by the AFRC under the board of directors. The AFRC oversees the risk management poli- cies employed by the Group to identify, evaluate and hedge i g n y r r a C s t n u o m a 74 5,727 52,983 67,983 l a u t c a r t n o C s w o fl h s a c 74 5,727 52,983 67,983 126,767 126,767 1,741 905 5,092 1,741 905 6,577 52,983 52,983 215 215 60,061 60,061 120,997 120,997 n a h t s s e L s h t n o m 3 10 - - 67,983 67,993 578 760 - - 215 60,061 61,614 s h t n o m 2 1 - 3 n e e w t e B 32 228 - - n e e w t e B s r a e y 2 - 1 32 373 s r a e y 5 – 2 n e e w t e B - 165 35,220 17,763 - - s r a e y 5 r e v O - 4,961 - - 260 35,625 17,928 4,961 1,163 30 54 - - - - 83 170 - - - 32 209 52,983 - - - - 6,144 - 1,247 253 53,224 6,144 (Euro 000’s) 31 December 2017 Land options and mortgages Provisions Deferred consideration Trade and other payables 31 December 2016 Social security Land options and mortgages Provisions Deferred consideration Derivative instrument Trade and other payables V. Financial Statements 79 Annual ReportAtalaya Mining Plc (b) Currency risk Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the Group’s measurement currency. The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the US Dollar and the British Pound. The Group’s management monitors the exchange rate fluctuations on a continuous basis and acts accordingly. The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabili- ties at the end of the reporting period are as follows: (Euro 000’s) Liabilities Assets 2017 2016 2017 2016 United States dollar 1,554 8,684 21,660 2,143 Great Britain pound Australian dollar South African rand 139 416 5 172 34,346 233 - - - - - - Sensitivity analysis A 10% strengthening of the Euro against the following currencies at 31 December 2017 would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in parti- cular interest rates, remain constant. For a 10% weakening of the Euro against the relevant currency, there would be an equal and opposite impact on profit or loss and other equity. (Euro 000’s) United States dollar Great Britain pound Australian dollar South African rand Equity (Profit) or loss 2017 2016 2017 2016 2,011 3,421 42 1 654 6 - - 2,011 3,421 42 1 6 - - (c) Commodity price risk Commodity price is the risk that the Group’s future earnings will be adversely impacted by changes in the market prices of commodities, primarily copper. Management is aware of this impact on its primary revenue stream but knows that there is little it can do to influence the price earned apart from a hedging scheme. decide to hedged part of its production during the year (Note 28). (d) Credit risk Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the reporting date. The Group has no significant concentration of credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history and monitors on a continuous basis the ageing profile of its receivables. The Group has policies to limit the amount of credit exposure to any financial institution. Except as detailed in the following table, the carrying amount of financial assets recorded in the financial state- ments, which is net of impairment losses, represents the maximum credit exposure without taking account of the value of any collateral obtained: (Euro 000’s) Unrestricted cash and cash equivalent at Group Unrestricted cash and cash equivalent at operating entity Restricted cash at the operating entity 2017 2016 39,179 460 3,427 250 425 250 Cash and cash equivalents 42,856 1,135 Restricted cash held as of 31 December 2017 is a collateral of a bank guarantee provided to a contractor. Other than the above, there are no collaterals held in respect of these financial instruments and there are no financial assets that are past due or impaired as at 31 December 2017. Interest rate risk is the risk that the value of financial instru- ments will fluctuate due to changes in market interest rates. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group’s management monitors the interest rate fluctuations on a continuous basis and acts accordingly. At the reporting date the interest rate profile of interest bearing financial instruments was: (Euro 000’s) 2017 2016 654 (e) Interest rate risk Commodity price hedging is governed by the Group´s policy which allows to limit the exposure to prices. The Group may Variable rate instruments Financial assets 42,856 1,135 V. Financial Statements 80 Annual ReportAtalaya Mining PlcAn increase of 100 basis points in interest rates at 31 December 2017 would have increased / (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. For a decrease of 100 basis points there would be an equal and opposite impact on the profit and other equity. Equity Profit or loss 2017 2016 2017 2016 429 11 429 11 (Euro 000’s) Variable rate instruments (f) Operational risk Operational risk is the risk that derives from the deficiencies relating to the Group’s information technology and control systems as well as the risk of human error and natural disas- ters. The Group’s systems are evaluated, maintained and upgraded continuously. (g) Compliance risk Compliance risk is the risk of financial loss, including fines and other penalties, which arises from non compliance with laws and regulations. The Group has systems in place to mitigate this risk, including seeking advice from external legal and regulatory advisors in each jurisdiction. (h) Litigation risk Litigation risk is the risk of financial loss, interruption of the Group’s operations or any other undesirable situation that arises from the possibility of non execution or violation of legal contracts and consequentially of lawsuits. The risk is restricted through the contracts used by the Group to execute its operations. 3.2 Capital risk management The Group considers its capital structure to consist of share capital, share premium and share options reserve. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group is not subject to any externally imposed capital requirements. In order to maintain or adjust the capital structure, the Group issues new shares. The Group manages its capital to ensure that it will be able to continue as a going concern V. Financial Statements 81 while maximizing the return to shareholders through the optimisation of the debt and equity balance. The AFRC reviews the capital structure on a continuing basis. The Group’s objectives when managing capital are to safe- guard the Group’s ability to continue as a going concern and to maintain an optimal capital structure so as to maximise shareholder value. In order to maintain or achieve an optimal capital structure, the Group may adjust the amount of dividend payment, return capital to shareholders, issue new shares, buy back issued shares, obtain new borrowings or sell assets to reduce borrowings. The Group monitors capital on the basis of the gearing ratio. The gearing ratio is calculated as net debt divided by total capital. Net debt is calculated as provisions plus deferred consideration plus trade and other payables less cash and cash equivalents. (Euro 000’s) Net debt Total equity Total capital Gearing ratio 2017 2016 84,663 119,878 246,853 190,221 331,516 310,099 25.5% 38.7% The decrease in the gearing ratio during 2017 was mainly due to the capital increase executed in December 2017. Net debt includes non-current and current all liabilities net of cash and cash equivalent. 3.3 Fair value estimation The fair values of the Group’s financial assets and liabilities approximate their carrying amounts at the reporting date. The fair value of financial instruments traded in active markets, such as publicly traded and available for sale finan- cial assets is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the Group is the current bid price. The appropriate quoted market price for financial liabilities is the current ask price. The fair value of financial instruments that are not traded in an active market is determined by using valuation techni- ques. The Group uses a variety of methods, such as esti- mated discounted cash flows, and makes assumptions that are based on market conditions existing at the reporting date. Annual ReportAtalaya Mining PlcFair value measurements recognised in the consolidated statement of financial position The following table provides an analysis of financial instru- ments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. » Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. » Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). » Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). (Euro 000’s) 31 December 2017 Financial assets Available for sale financial assets Total 31 December 2016 Financial assets Available for sale financial assets Total Level 1 Level 2 Level 3 Total 129 129 261 261 - - - - - - - - 129 129 261 261 3.4 Critical accounting estimates and judgements The preparation of the financial statements requires mana- gement to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities at the date of the consolidated financial statements. Estimates and assump- tions are continually evaluated and are based on manage- ment’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Uncertainty about these assumptions and estimates could result in outcomes that require a mate- rial adjustment to the carrying amount of assets or liabilities affected in future periods. In particular, the Group has identified a number of areas where significant judgements, estimates and assumptions are required. (a) Capitalisation of exploration and evaluation costs Under the Group’s accounting policy, exploration and evaluation expenditure is not capitalised until the point is reached at which there is a high degree of confidence in the project’s viability and it is considered probable that future economic benefits will flow to the Group. Subsequent reco- very of the resulting carrying value depends on successful development or sale of the undeveloped project. If a project does not prove viable, all irrecoverable costs associated with the project net of any related impairment provisions are written off. V. Financial Statements 82 Annual ReportAtalaya Mining Plcimprovements or mineable reserve development. It is also at this point that depreciation/amortisation commences. (c) Stripping costs The Group incurs waste removal costs (stripping costs) during the development and production phases of its surface mining operations. Furthermore, during the produc- tion phase, stripping costs are incurred in the production of inventory as well as in the creation of future benefits by improving access and mining flexibility in respect of the orebodies to be mined, the latter being referred to as a stripping activity asset. Judgement is required to distinguish between the development and production activities at surface mining operations. The Group is required to identify the separately identifiable components or phases of the orebodies for each of its surface mining operations. Judgement is required to identify and define these components, and also to determine the expected volumes (tonnes) of waste to be stripped and ore to be mined in each of these components. These assess- ments may vary between mines because the assessments are undertaken for each individual mine and are based on a combination of information available in the mine plans, specific characteristics of the orebody, the milestones rela- ting to major capital investment decisions and the type and grade of minerals being mined. Judgement is also required to identify a suitable production measure that can be applied in the calculation and alloca- tion of production stripping costs between inventory and the stripping activity asset. The Group considers the ratio of expected volume of waste to be stripped for an expected volume of ore to be mined for a specific component of the orebody, compared to the current period ratio of actual volume of waste to the volume of ore to be the most suitable measure of production. These judgements and estimates are used to calculate and allocate the production stripping costs to inventory and/ or the stripping activity asset(s). Furthermore, judgements and estimates are also used to apply the units of production method in determining the depreciable lives of the stripping activity asset(s). (d) Ore reserve and mineral resource estimates The Group estimates its ore reserves and mineral resources based on information compiled by appropriately qualified persons relating to the geological and technical data on the size, depth, shape and grade of the ore body and suitable production techniques and recovery rates. (b) Production start date The Group assesses the stage of each mine under deve- lopment/construction to determine when a mine moves into the production phase, this being when the mine is substantially complete and ready for its intended use. The criteria used to assess the start date are determined based on the unique nature of each mine development/construc- tion project, such as the complexity of the project and its location. The Group considers various relevant criteria to assess when the production phase is considered to have commenced. At this point, all related amounts are reclas- sified from “Mines under construction” to “Property, plant and equipment”. Some of the criteria used to identify the production start date include, but are not limited to: » Level of capital expenditure incurred compared with the original construction cost estimate; » Completion of a reasonable period of testing of the mine plant and equipment; » Ability to produce metal in saleable form (within specifi- cations); and » Ability to sustain ongoing production of metal. When a mine development project moves into the produc- tion phase, the capitalisation of certain mine development costs ceases and costs are either regarded as forming part of the cost of inventory or expensed, except for costs that qualify for capitalisation relating to mining asset additions or V. Financial Statements 83 Annual ReportAtalaya Mining PlcSuch an analysis requires complex geological judgements to interpret the data. The estimation of recoverable reserves is based upon factors such as estimates of foreign exchange rates, commodity prices, future capital requirements and production costs, along with geological assumptions and judgements made in estimating the size and grade of the ore body. The Group uses qualified persons (as defined by the Cana- dian Securities Administrators’ National Instrument 43-101) to compile this data. Changes in the judgments surrounding proven and probable reserves may impact as follows: » The carrying value of exploration and evaluation assets, mine properties, property, plant and equipment, and goodwill may be affected due to changes in estimated future cash flows; » Depreciation and amortisation charges in the statement of profit or loss and other comprehensive income may change where such charges are determined using the UOP method, or where the useful life of the related assets change; » Capitalised stripping costs recognised in the statement of financial position as either part of mine properties or inventory or charged to profit or loss may change due to changes in stripping ratios; » Provisions for rehabilitation and environmental provi- sions may change where reserve estimate changes affect expectations about when such activities will occur and the associated cost of these activities; » The recognition and carrying value of deferred income tax assets may change due to changes in the judge- ments regarding the existence of such assets and in estimates of the likely recovery of such assets. (e) Impairment of assets Events or changes in circum- stances can give rise to significant impairment charges or impairment reversals in a particular year. The Group assesses each Cash Genera- ting Unit (“CGU”) annually to determine whether any indications of impairment exist. If it was necessary management could contract independent expert to value the assets. Where an indicator of impair- ment exists, a formal estimate of the recoverable amount is made, which is considered the higher of the fair value less cost to sell and value-in-use. An impairment loss is V. Financial Statements 84 recognised immediately in net earnings. The Group has determined that each mine location is a CGU. These assessments require the use of estimates and assumptions such as commodity prices, discount rates, future capital requirements, exploration potential and operating performance. Fair value is determined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value for mineral assets is generally determined as the present value of estimated future cash flows arising from the continued use of the asset, which includes estimates such as the cost of future expansion plans and eventual disposal, using assump- tions that an independent market participant may take into account. Cash flows are discounted at an appropriate discount rate to determine the net present value. For the purpose of calculating the impairment of any asset, mana- gement regards an individual mine or works site as a CGU. Although management has made its best estimate of these factors, it is possible that changes could occur in the near term that could adversely affect management’s estimate of the net cash flow to be generated from its projects. (f) Provisions for decommissioning and site restoration costs Accounting for restoration provisions requires management to make estimates of the future costs the Group will incur to complete the restoration and remediation work required to comply with existing laws, regulations and agreements in place at each mining operation and any envi- ronmental and social principles the Group is in compliance with. The calculation of the present value of these costs also includes assumptions regar- ding the timing of restoration and remediation work, appli- cable risk-free interest rate for discounting those future cash outflows, inflation and foreign exchange rates and assump- tions relating to probabilities of alternative estimates of future cash outflows. Management uses its judgement and experience to provide for and (in the case of capitalised decommissioning costs) amortise these estimated costs over the life of the mine. The ultimate cost of decommissioning and timing is uncertain and cost estimates can vary in response to many factors including changes to relevant environmental laws and regulations requirements, the emergence of new Annual ReportAtalaya Mining Plcrestoration techniques or experience at other mine sites. As a result, there could be significant adjustments to the provi- sions established which would affect future financial results. (g) Income tax Significant judgment is required in determining the provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group and Company recognise liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Judgement is also required to determine whether deferred tax assets are recognised in the consolidated statements of financial position. Deferred tax assets, including those arising from unutilised tax losses, require the Group to assess the probability that the Group will generate sufficient taxable earnings in future periods, in order to utilise recog- nised deferred tax assets. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. These estimates of future taxable income are based on forecast cash flows from operations (which are impacted by production and sales volumes, commodity prices, reserves, operating costs, closure and rehabilitation costs, capital expenditure, dividends and other capital management transactions). To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred tax assets could be impacted. occurrence or non-occurrence of one or more uncertain events outside of the control of the Group, or a present obli- gation exists but is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A provision is made when a loss to the Group is likely to crystallise. The assessment of the existence of a contingency and its likely outcome, particularly if it is considered that a provision might be necessary, involves significant judgment taking all relevant factors into account. (j) Deferred consideration As disclosed in Note 27, the Group has recorded a deferred consideration liability in relation to the obligation to pay Astor up to €53.0 million out of excess cash from operations at Proyecto Riontinto. In addition, future changes in tax laws in the jurisdictions in which the Group operates could limit the ability of the Group to obtain tax deductions in future periods. The actual timing of any payments to Astor of the conside- ration involves significant judgment as it depends on certain factors which are out of control of management. (h) Inventory (k) Share-based compensation benefits Net realisable value tests are performed at each reporting date and represent the estimated future sales price of the product the entity expects to realise when the product is processed and sold, less estimated costs to complete production and bring the product to sale. Where the time value of money is material, these future prices and costs to complete are discounted. (i) Contingent liabilities A contingent liability arises where a past event has taken place for which the outcome will be confirmed only by the Share based compensation benefits are accounted for in accordance with the fair value recognition provisions of IFRS 2 “Share-based Payment”. As such, share-based compen- sation expense for equity-settled share-based payments is measured at the grant date based on the fair value of the award and is recognised as an expense over the vesting period. The fair value of such share-based awards at the grant date is measured using the Black Scholes pricing model. The inputs used in the model are based on mana- gement’s best estimates for the effects of non-transfera- bility, exercise restrictions, behavioural considerations and expected volatility. V. Financial Statements 85 Annual ReportAtalaya Mining Plc4. Business and geographical segments Business segments The Group has only one distinct business segment, being that of mining operations, which include mineral exploration and development. Copper concentrates produced by the Group are sold to three offtakers as per the relevant offtake agreement (Note 31.2) Geographical segments The Group’s mining activities are located in Spain. The commercialisation of the copper concentrates produced in Spain is carried out in Cyprus. Corporate costs and admi- nistration costs are based in Cyprus. Intercompany transac- tions within the Group are on arm’s length basis in a manner similar to transaction with third parties. Accounting policies used by the Group in different locations are the same as those contained in Note 2. Spain Other (Euro 000’s) 2017 Sales Earnings/(loss)before Interest,Tax,Depreciation and Amortisation Depreciation/amortisation charge Net foreign exchange loss Finance income Finance cost Cyprus 160,537 151,331 (7) (1,510) - (366) - (109,957) (16,664) (701) 22 (213) (Loss)/profit before tax before share of loss of associate 149,448 (127,513) Tax Profit for the year Total assets Total liabilities Depreciation of property, plant and equipment Amortisation of intangible assets Total additions of non-current assets 53,034 321,136 (11,836) (115,624) 7 - - 12,533 4,131 26,079 - (27) - (1) - - (28) 202 (59) - - - (Euro 000’s) 2016 Sales Earnings/(loss)before Interest,Tax,Depreciation and Amortisation Depreciation/amortisation charge restated (*) Impairment of land options not exercised Net foreign exchange gain/(loss) Finance income Finance costs restated (*) (Loss)/profit before tax and share of loss of associate Cyprus Spain Other 98,768 94,318 (14) - 377 - (142) 94,540 - (78,917) (11,743) (903) (1,041) 41 (448) - (9) - - (1) - - (93,011) (10) Share of loss of associate Tax Profit for the year restated (*) Total assets Total liabilities Depreciation of property, plant and equipment Amortisation of intangible assets restated (*) Total additions of non-current assets (*) Refer to Note 2.1. (c) V. Financial Statements 86 18,687 292,850 (19,484) (101,501) 14 - 2 8,629 3,114 87,402 4 (28) - - - Total 160,537 41,347 (16,671) (2,212) 22 (579) 21,907 (3,696) 18,211 374,372 (127,519) 12,540 4,131 26,079 Total 98,768 15,393 (11,757) (903) (665) 41 (590) 1,519 (10) 12,187 13,696 311,541 (121,013) 8,643 3,114 87,404 Annual ReportAtalaya Mining Plc5. Other income THE GROUP (Euro 000’s) Other income Gain on disposal of associate Loss on available-for-sale investments Gain on sale of property, plant and equipment Sales of services 2017 - 49 (49) - 5 5 2016 235 - - 4 53 292 THE COMPANY (Euro 000’s) Loss on available-for-sale investments Gain on disposal of associate Gain on sale of property, plant and equipment Sales of services 2017 2016 (49) 45 - 5 1 - - 4 43 47 6. Expenses by nature THE GROUP (Euro 000’s) Operating costs Impairment charge on land options not exercised Employee benefit expense (Note 7) Compensation of key management personnel (Note 31.1) Auditors’ remuneration – audit › prior year audit › other Other accountants’ remuneration Consultants’ remuneration Depreciation of property, plant and equipment (Note 12) Amortisation of intangible assets (Note 13) Travel costs Share option-based employee benefits Shareholders’ communication expense On-going listing costs Legal costs Royalties Provision for impairment Other expenses 2017 2016 restated (*) 97,786 - 15,420 2,804 180 27 - 13 157 12,540 4,131 298 87 288 157 413 500 283 782 64,223 903 13,542 2,375 204 17 38 8 698 8,643 3,114 101 56 264 163 981 - - 997 96,327 Total cost of operation, corporate, share based benefits, exploration and impairment 135,866 V. Financial Statements 87 Atalaya Mining Plc Annual Report THE COMPANY (Euro 000’s) Employee benefit expense (Note 7) Key management remuneration (Note 31.1) Auditors’ remuneration – audit › prior year audit Other accountants’ remuneration Consultants’ remuneration Depreciation of property, plant and equipment (Note 12) Travel costs Share option-based employee benefits Shareholders’ communication expense On-going listing costs Legal costs Provision for impairment Other expenses 2017 180 1,854 104 8 12 95 7 67 9 288 157 410 583 268 2016 289 1,309 145 58 8 11 14 94 103 264 164 965 - 347 Total cost of corporate, share based benefits and impairment 4,042 3,771 V. Financial Statements V. Financial Statements 88 88 Atalaya Mining Plc Annual Report Annual ReportAtalaya Mining Plc7. Employee benefit expense THE GROUP (Euro 000’s) Wages and salaries Social security and social contributions Employees’ other allowances Bonus to employees 2017 11,101 3,250 31 1,038 15,420 2016 10,154 2,890 22 476 13,542 The average number of employees and the number of employees at year end by office are: Number of employees 2017 2016 2017 2016 Average At year end Spain – Full time Spain – Part time Cyprus – Full time Total THE COMPANY (Euro 000’s) Wages and salaries Social security and social contributions 339 307 363 325 6 3 7 4 7 3 - 4 348 318 373 329 2017 164 16 180 2016 264 25 289 The average number of employees and the number of employees at year end by office are: Number of employees 2017 2016 2017 2016 Average At year end Cyprus – Full time Total V. Financial Statements 89 3 3 4 4 3 3 4 4 Atalaya Mining Plc Annual Report 8. Finance income THE GROUP (Euro 000’s) Interest income THE COMPANY 2017 2016 (Euro 000’s) 22 22 41 41 Finance income from interest- bearing intercompany loan 2017 1,635 2016 1,523 1,635 1,523 Interest income relates to interest received on bank balances. 9. Finance costs THE GROUP (Euro 000’s) Interest expense: › Debt to department of social security (Note 25) and other interest › Interest on copper concentrate prepayment (1) › Unwinding of discount on mine rehabilitation provision (Note 26) › Interest paid on early payment on receivable from trading Hedging income (Note 28.1) Net foreign exchange hedging expense (Note 28.1) (1) Interest rate US$ 3 months LIBOR + 2.75% 2017 2016 306 109 113 256 (205) - 579 252 143 - - - 195 590 V. Financial Statements V. Financial Statements 90 90 Atalaya Mining Plc Annual Report Annual ReportAtalaya Mining Plc10. Tax THE GROUP (Euro 000’s) Income tax (Over)/under provision previous years Deferred tax asset due to losses available against future taxable income (Note 17) Deferred tax asset due to losses available against future taxable income overprovision previous years (Note 17) Deferred tax related to utilization of losses for the year (Note 17) Deferred tax income relating to the origination of temporary differences (Note 17) Deferred tax expense relating to reversal of temporary differences (Note 17) 2017 1,622 8 - 1,459 345 2016 16 (7) (8,276) - 475 - (4,593) 262 198 3,696 (12,187) The tax on the Group’s results before tax differs from the theoretical amount that would arise using the applicable tax rates as follows: (Euro 000’s) Profit before tax Tax calculated at the applicable tax rates Tax effect of expenses not deductible for tax purposes Tax effect of tax loss for the year Tax effect of allowances and income not subject to tax Over provision for prior year taxes Tax effect of tax losses brought forward Deferred tax (Note 17) Tax (credit)/charge THE COMPANY (Euro 000’s) Income tax (Over)/under provision previous years 2017 21,907 4,739 1,449 9 (4,212) 8 (363) 2,066 3,696 2016 1,509 (18) 31 318 (191) (7) (124) (12,196) (12,187) 2017 2016 - - - - - - The tax on the Group’s results before tax differs from the theoretical amount that would arise using the applicable tax rates as follows: (Euro 000’s) Loss before tax Tax calculated at the applicable tax rates Tax effect of expenses not deductible for tax purposes Tax effect of tax loss for the year Tax effect of allowances and income not subject to tax Tax effect of group tax relief Tax (credit)/charge V. Financial Statements 91 2017 (1,127) (141) 140 - (39) 40 - 2016 95,059 11,882 65 199 (12,146) - - Annual ReportAtalaya Mining Plcsustained in the year and previous years, no tax liability arises on the Company. Under current legislation, tax losses may be carried forward and be set off against taxable income of the five succeeding years. Companies which do not distribute 70% of their profits after tax, as defined by the relevant tax law, within two years after the end of the relevant tax year, will be deemed to have distributed as dividends 70% of these profits. Special contribution for defence at 20% for the tax years 2012 and 2013 and 17% for 2014 and thereafter will be payable on such deemed dividends to the extent that the shareholders (companies and individuals) are Cyprus tax residents. The amount of deemed distribution is reduced by any actual dividends paid out of the profits of the relevant year at any time. This special contribution for defence is payable by the Company for the account of the shareholders. Spain The corporation tax rate for 2017 and 2016 is 25%. The recent Spanish tax reform approved in 2014 reduces the general corporation tax rate from 30% to 28% in 2015 and to 25% in 2016, and introduces, among other changes, a 10% reduction in the tax base subject to equity increase and other requirements. Due to tax losses sustained in the current and previous years, no tax liability arises in the subsidiaries in Spain. Under current legislation, tax losses may be carried forward and be set off against taxable income with no limitation. TAX LOSSES CARRIED FORWARD (Euro 000’s) Tax year Cyprus Spain - - - - - - 5,167 4,100 4,051 1,584 - - 3,794 3,498 5,642 6,576 1,967 2,381 3,509 640 - - Total - 3,794 3,498 5,642 6,576 1,967 7,548 7,609 4,691 1,584 - 14,902 28,007 42,909 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Cyprus The corporation tax rate is 12.5%. Under certain conditions interest income may be subject to defence contribution at the rate of 30%. In such cases this interest will be exempt from corporation tax. In certain cases, dividends received from abroad may be subject to defence contribution at the rate of 17% for 2014 and thereafter. Due to tax losses 11. Earnings per share The calculation of the basic and diluted earnings per share attributable to the ordinary equity holders of the Company is based on the following data: (Euro 000’s) Parent company Subsidiaries Profit attributable to equity holders of the parent Weighted number of ordinary shares for the purposes of basic earnings per share (‘000) Basic profit per share (cents) (3,477) 21,716 18,239 117,904 15.5 Weighted number of ordinary shares for the purposes of fully diluted earnings per share (‘000) 119,485 Fully diluted profit per share (cents) 15.3 (3,798) 17,494 13,696 116,680 11.7 117,545 11.7 2017 2016 restated (*) (*) Refer to Note 2.1. (c) There are 262,569 warrants (Note 22) and 1,400,000 options (Note 23) (2016: 365,354 warrants and 500,000 options) which have been included when calculating the weighted average number of shares for 2017. V. Financial Statements 92 Annual ReportAtalaya Mining Plc12. Property, plant and equipment THE GROUP (Euro 000’s) 2017 Cost At 1 January 2017 Additions Reclassifications Disposals d n a d n a L s g n d i l i u b t n e m p u q e i d n a t n a l P 40,188 144,930 407(1) 400 - - 472 - At 31 December 2017 40,995 145,402 Depreciation At 1 January 2017 Charge for the year Disposals 1,736 2,340 - 5,073 8,392 - At 31 December 2017 4,076 13,465 Net book value at 31 December 2017 36,919 131,937 2016 Cost At 1 January 2016 Additions Reclassifications Reclassifications - intangibles Disposals Written off 39,061 1,121(1) 6 - - - 23,046 15,983 104,287 1,614 - - At 31 December 2016 40,188 144,930 Depreciation At 1 January 2016 Charge for the year Reclassifications Reclassifications - intangibles Disposals Impairment Written off - 1,736 - - - - - - 4,932 141 - - - - At 31 December 2016 1,736 5,073 Net book value at 31 December 2016 38,452 139,857 ) 4 ( n o i t c u r t s n o c r e d n u s t e s s A d e r r e f e D ) 3 ( s t s o c g n n m i i ) 2 ( s t e s s a r e h t O l a t o T 566 13,848 838 200,370 s t h g i r l a r e n M i - - - - - - - - - - - - (50) - (900) - - - - - - 900 (900) - - 950 94,525 10,334 13,848 - 11,751 (872) - 8,469 - - 11,445 22,317 - - - - 1,758 1,711 - 3,469 11,445 18,848 (93,959) (10,334) - - - - 566 13,848 - - - - - - - - - 1,758 - - - - - 1,758 566 12,090 - - (53) 785 423 97 (44) 476 309 20,627 - (53) 220,944 8,990 12,540 (44) 21,486 199,458 1,026 168,942 164 - (247) (37) (68) 838 518 217 (141) (81) (25) 3 (68) 423 415 31,116 - 1,317 (37) (968) 200,370 518 8,643 - (81) (25) 903 (968) 8,990 191,380 (1) Mine rehabilitation asset (Note 26). (3) Stripping costs (2) Includes motor vehicles, furniture, fixtures and office equipment which are depreciated over 5-10 years. (4) Net of pre-commissioning sales The above fixed assets are located mainly in Spain. V. Financial Statements 93 Annual ReportAtalaya Mining Plc THE COMPANY (Euro 000’s) 2017 Cost At 1 January 2017 Disposals At 31 December 2017 Depreciation At 1 January 2017 Charge for the year Disposals At 31 December 2017 Net book value at 31 December 2017 2016 Cost At 1 January 2016 Additions Disposals Written off At 31 December 2016 Depreciation At 1 January 2016 Charge for the year Disposals Written off At 31 December 2016 Net book value at 31 December 2016 Other assets(1) Total 68 (53) 15 52 7 (44) 15 - 109 1 (37) (5) 68 68 14 (25) (5) 52 16 68 (53) 15 52 7 (44) 15 - 109 1 (37) (5) 68 68 14 (25) (5) 52 16 (1) Includes motor vehicles, furniture, fixtures and office equipment which are depreciated over 5-10 years. The Group Certain land plots required for Proyecto Riotinto (the “Project Lands”) are affected by pre-existing liens and embargos derived from unpaid obligations of former Project operators or owners (the “Pre-Existing Debt”). a). In May 2010 the Group signed an agreement with the Department of Social Security in which it undertook to repay, over a period of 5 years, the €16.9 million Pre-Existing Debt to the Department of Social Security in exchange for a stay of execution proceedings for reco- very of this debt against these Project Lands (the “Social Security Agreement”). The Group granted a mortgage to guarantee the payment of a total debt of €6,436,661 and two embargos to guarantee the two payments of a total debt of €6,742,039 and €10,472,612 respectively in favour of Social Security’s General Treasury. Originally payable over 5 years, the repayment schedule was subse- quently extended until June 2017. The Group repaid the Department of Social Security on 30 June 2017. b). The Project Lands are also subject to a lien in the amount of €5.0 million created in 1979 to secure the repayment of certain government grants that were in all likelihood paid at the relevant time by former operators. Relevant court proceedings have been followed to strike this lien from title, given that in the opinion of the Group the right of the government to reclaim this Pre-Existing Debt has expired due to the relevant statute of limitations. c). The Project Lands are also affected by the following Pre-Existing Debt liens: A €400k mortgage to Oxiana Limited (that will be paid in due course) and a mortgage V. Financial Statements 94 Annual ReportAtalaya Mining Plcof €222k pre¬-existing on lands acquired by the Group in August 2012 which has been paid in full. d). Other land plots owned by the Group, but not required for Proyecto Riotinto (the “Non-Project Lands”), are affected by a Pre-Existing Debt lien of €10.5 million regis- tered by the Junta de Andalucía. In the event execution proceedings were commenced against the Non-Project Lands, the Group would either negotiate a settlement or allow the execution to proceed in total satisfaction of the Pre-Existing Debt in question. e). During 2016, an option expired which was previously granted to Inland Trading 2006, S.L. and Construcciones Zeitung, S.L. for the acquisition of certain mining rights and recorded €900k as an impairment charge in the profit and loss account. During 2017, the Group capitalised personnel costs amoun- ting to €259k (2016: €916k). No borrowing costs were capitalised in the same period. V. Financial Statements 95 Annual ReportAtalaya Mining Plc13. Intangible assets THE GROUP (Euro 000’s) 2017 Cost On 1 January 2017 Additions from acquisition of subsidiary Additions At 31 December 2017 Amortisation On 1 January 2017 Charge for the year At 31 December 2017 Net book value at 31 December 2017 2016 Cost On 1 January 2016 Additions restated (*) Reclassifications – Property, plant and equipment Other reclassifications At 31 December 2016 Amortisation On 1 January 2016 Charge for the year restated (*) Reclassifications – Property, plant and equipment At 31 December 2016 Net book value at 31 December 2016 restated (*) Permits of Projects Licences, R&D and Software Goodwill Total 71,521 5,000 - 76,521 3,072 4,073 7,145 69,376 20,158 53,005(1) (1,614) (28) 71,521 - 3,072 - 3,072 68,449 1,685 126 2,694 4,505 123 58 181 4,324 - 1,334 297 54 1,685 - 42 81 123 1,562 9,333 - 9,333 9,333 - 9,333 - 9,333 - - - 9,333 9,333 - - 9,333 - 82,539 5,126 2,694 90,359 12,528 4,131 16,659 73,700 29,491 54,339 (1,317) 26 82,539 9,333 3,114 81 12,528 70,011 (1) These additions relate to the deferred consideration as at 1.2.2016 (Note 27) (*) Refer to Note 2.1. (c) The useful life of the intangible assets is estimated to be not less than fourteen years from the start of production (the revised Reserves and Resources statement which was announced in July 2016 has increased the life of mine to 16 ½ years). The ultimate recovery of balances carried forward in relation to areas of interest or all such assets including intangibles is dependent on successful development, and commercial exploitation, or alternatively sale of the respec- tive areas. The Group conducts impairment testing on an annual basis unless indicators of impairment are not present at the reporting date. In considering the carrying value of the assets at Proyecto Riotinto, including the intangible assets and any impairment thereof, the Group assessed that no indicators were present as at 31 December 2017 and thus no impairment has been recognised. Goodwill of €9,333,000 arose on the acquisition of the remaining 49% of the issued share capital of Atalaya Riotinto Minera S.L.U. (“ARM”) back in September 2008. This amount was fully impaired on acquisition, in the absence of the mining licence back in 2008. Permits include additions in 2017 amounting to €5,000,000 related to the Touro Project mining rights. V. Financial Statements 96 Annual ReportAtalaya Mining Plc14. Investment in subsidiaries THE COMPANY (Euro 000’s) Opening amount at cost less provision for impairment Incorporation (1) Increase of investment (2) Closing amount at cost less provision for impairment 2017 3,572 3 118 2016 3,572 - - 3,693 3,572 Subsidiary companies Date of incorporation/ acquisition Principal activity Country of incorporation Effective proportion of shares held(5) Atalaya Touro Project (UK) Ltd(1) 10 March 2017 Holding United Kingdom Atalaya Minasderiotinto Project (UK) Ltd(2) EMED Marketing Ltd EMED Mining Spain SLU(3) 10 Sep 2008 08 Sep 2008 12 April 2007 Eastern Mediterranean Resources (Caucasus) Ltd(4) 11 Nov 2005 Holding United Kingdom Trading Exploration Exploration Cyprus Spain Georgia 100% 100% 100% 100% 100% As security for the obligation on ARM to pay consideration to Astor under the Master Agreement and the Loan Assignment Agreement, Atalaya Minasderiotinto Project (UK) Ltd has granted pledges to Astor Resources AG over the issued capital of ARM and granted a pledge to Astor over the issued share capital of Eastern Mediterranean Exploration and Development S.L.U. and the Company has provided a parent company guarantee (Note 27). (1) On 10 March 2017, Atalaya Touro Project (UK) Limited was incorporated. Atalaya Mining Plc is its sole shareholder. (2) On 16 February 2017, Emed Holdings (UK) Ltd changed its name to Atalaya Riotinto Project (UK) Ltd and changed again to Atalaya Minasderiotinto Project (UK) Limited on 30 June 2017. During the year there was an increase amounting to €118k in the investment of ARM related to employee benefit expenses. (3) In December 2017, EMED Mining Spain SLU increased its capital by €300k from its sole shareholder. This investment increase was fully impaired in the year. (4) The Group started the liquidation process of this subsidiary in 2017. In 2018, the Group has reached an agreement with a third party to dispose Eastern Mediterranean Resources (Caucasus) Ltd by transferring all issued shares. The liquidation process was halted in 2018 and the Group is expecting to transfer the shares during 2018. (5) The effective proportion of shares held as at 31 December 2017 and 31 December 2016 remained unchanged other than Atalaya Touro Project (UK) Ltd which was incorporated in the year. 15. Investment in associate (Euro 000’s) THE GROUP At 1 January Profit on disposals from subsidiary/associate Share of results of associate before tax At 31 December THE COMPANY At 1 January Disposal At 31 December V. Financial Statements 97 2017 2016 - - - - 4 (4) - 10 303 (313) - 4 - 4 Annual ReportAtalaya Mining PlcIn December 2014, the Company entered into a condi- tional Earn-in Agreement with Prospech Ltd (“Prospech”), a private Australian exploration company, in relation with two exploration licences held by Atalaya’s 100% owned Slovak subsidiary, Slovenske Kovy s.r.o. (“SLOK”). The agreement became effective in March 2015. On 10 October 2017, the Company entered into a share and rights sale and purchase agreement with Prospech Limited. According to this agreement the Company agreed to sell its 19% of the share capital of Slovenske Kovy,s.r.o. to Pros- pech Limited. The sale consideration was 937,500 fully paid ordinary Prospech shares at A$0.16 per share, and 468,750 options, each with a right to convert to one fully paid ordi- nary Prospech share at any time up to 30 September 2019 for A$0.25. The sale consideration was €99,010 resulting in a consolidated profit of €99,010. Further to the Sales and Purchase agreement with Pros- pech Limited, the Company agreed to transfer 50% of its Prospech shares and rights to the advisor for his services provided for this agreement. Thus, the Group owned 468,500 fully paid Prospech shares and 234,375 options at a cost of €49,505. 16. Investment in joint venture Company name Recursos Cuenca Minera S.L. Principal activities Exploitation of tailing dams and waste areas resources paid by ARM in connection with the feasibility study can be deducted from any royalty which may fall due to be paid. Country of incorporation Effective proportion of shares held at 31 December 2015 Spain 50% ARM entered into a 50/50 joint venture with Rumbo to evaluate and exploit the potential of the class B resources in the tailings dam and waste areas at Proyecto Riotinto. Under the joint venture agreement, ARM will be the operator of the joint venture, will reimburse Rumbo for the costs associated with the application for classification of the Class B resources and will fund the initial expenditure of a feasibility study up to a maximum of €2.0 million. Costs are then borne by the joint venture partners in accordance with their respective ownership interests. Half of the costs V. Financial Statements 98 The Group’s significant aggregate amounts in respect of the joint venture are as follows: (Euro 000’s) Intangible assets Trade and other receivables Cash and cash equivalents 2017 2016 94 2 22 94 1 20 Trade and other payables (115) (114) Net assets Revenue Expenses Net loss after tax 3 - - - 1 - (1) (1) Annual ReportAtalaya Mining Plc17. Deferred tax Deferred tax assets are recognised for the carry-forward of unused tax losses and unused tax credits to the extent that it is probable that taxable profits will be available in the future against which the unused tax losses/credits can be utilised. During 2016, the Group recognised €12.2 million in net deferred tax assets as it was determined that it is probable that sufficient future taxable profits will be available to the Group to benefit from the losses carried forward. In addition to recognised deferred income tax asset, the Group has unrecognised tax losses in Cyprus of €14.9million (2016: €17.9) that are available to carry forward for 5 years against future taxable income of the group companies in which the losses arose, and in Spain €28million (2016: €30.6million) which are available to carry forward indefini- tely against future losses. Deferred tax assets have not been recognised in respect of losses in Cyprus as they may not be used to offset taxable profits elsewhere in the Group, they have arisen in compa- nies that have been loss-making for some time, and there are no other tax planning opportunities or other evidence of recoverability in the near future to support (either partially or in full) the recognition of the losses as deferred income tax assets. Consolidated statement of financial position Consolidated income statement 2017 2016 Restated 2017 2016 Restated 12,196 - - 8,276 (475) - 345 (8,276) 475 (Euro 000’s) Deferred tax asset At 1 January Deferred tax asset due to losses available against future taxable income (Note 10) Deferred tax related to utilization of losses for the year (Note 10) (345) Deferred tax asset due to losses available against future taxable income overprovision previous years (Note 10) (1,459) - 1,459 Deferred tax income relating to the origination of temporary differences (Note 10) Deferred tax expense relating to reversal of temporary differences (Note 10) At 31 December Deferred tax income (Note 10) - 4,593 - (4,593) (262) (198) 262 198 10,130 12,196 2,066 (12,196) V. Financial Statements 99 Annual ReportAtalaya Mining Plc18. Inventories THE GROUP (Euro 000’s) Finished products Materials and supplies Work in progress 2017 4,797 8,003 874 13,674 2016 - 5,647 548 6,195 Materials and supplies relate mainly to machinery spare parts. Work in progress represents ore stockpiles, which is ore that has been extracted and is available for further processing. As of 31 December 2017, copper concentrate produced and not sold amounted to 7,274 tonnes. Accordingly, the inven- tory for copper concentrate was €4.8 million (2016:€ nil). During the year the Group recorded cost of sales amounting to €130.7 million (2016: €88.8 million). 19. Trade and other receivables THE GROUP (Euro 000’s) Non-current trade and other receivables Deposits Current trade and other receivables Trade receivables Receivables from related parties (Note 31.3 and 31.4) Deposits and prepayments VAT receivable Tax advances Other receivables THE COMPANY (Euro 000’s) Receivables from own subsidiaries (Note 31.3) Deposits and prepayments VAT receivable Other receivables 2017 2016 212 212 12,113 1,612 221 17,804 1,716 747 34,213 206 206 15,082 2,092 522 11,187 - 967 29,850 2017 Restated 2016 242,416 239,335 6 389 13 506 352 52 242,824 240,245 Trade receivables are shown net of any interest applied to prepayments. Payment terms are aligned with offtake agreements and market standards and generally are 7 days on 90% of the invoice and the remaining 10% at the settle- ment date which can vary between 1 to 5 months. The fair values of trade and other receivables approximate to their carrying amounts as presented above. V. Financial Statements 100 Annual ReportAtalaya Mining Plc20. Available-for-sale investments THE GROUP & THE COMPANY (Euro 000’s) At 1 January Addition Impairment Loss transferred to reserves (Note 23) At 31 December 2017 261 49 (49) (132) 129 2016 302 - (41) 261 Company name Principal activities Eastern Mediterranean Minerals Ltd Holder of exploration licences in Cyprus KEFI Minerals Plc Prospech Limited Exploration and development mining company listed on AIM Exploration company Country of incorporation Cyprus Effective proportion of shares held at 31 December 2017 10% UK 1.8% Australia 0.65% On 10 October 2017, the Company entered into a share and rights sale and purchase agreement with Prospech Limited. According to this agreement the Company agreed to sell its 19% of the share capital of Slovenske Kovy,s.r.o. to Prospech Limited. The sale consideration is 937,500 fully paid ordinary Prospech shares at A$0.16 per share, and 468,750 options, each with a right to convert to one fully paid ordinary Pros- pech share at any time up to 30 September 2019 for A$0.25. The sale consideration was €99,010 resulting in a consoli- dated profit of €99,010 (Note 15). Further to the Sales and Purchase agreement with Pros- pech Limited, the Company agrees to transfer 50% of its Prospech shares and rights to the advisor for his services provided for this agreement. Thus, the Group has 468,500 fully paid Prospech shares and 234,375 options at a cost of €49,505 (Note 15). V. Financial Statements V. Financial Statements 101 101 Atalaya Mining Plc Annual Report Annual ReportAtalaya Mining Plc21. Cash and cash equivalents (Euro 000’s) THE GROUP Cash at bank and in hand 2017 2016 42,856 1,135 As of 31 December 2017, the Group’s operating subsidiary held €250k (2016: €250k) as a collateral for bank guarantees, which has been classified as restricted cash. Cash and cash equivalents denominated in the following currencies: Euro – functional and presentation currency Great Britain Pound United States Dollar THE COMPANY Cash at bank and in hand Cash and cash equivalents denominated in the following currencies: Euro – functional and presentation currency Great Britain Pound United States Dollar 517 34,346 7,993 42,856 34,410 64 34,345 1 34,410 783 233 119 1,135 320 86 229 5 320 V. Financial Statements V. Financial Statements 102 102 Atalaya Mining Plc Annual Report Annual ReportAtalaya Mining Plc22. Share capital Authorised Ordinary shares of Stg £0.075 each Issued and fully paid 1 January 2016 Issue Date Price (Stg£) Details 7 Dec 2017 1.67 Share placement Share issue costs 31 December 2017 No. of Shares* Share capital Share Premium Total ’000’s 200,000 000’s 116,679 18,575 - 135,254 Stg£ 000’s Stg£ 000’s Stg£ 000’s 15,000 - 15,000 Euro 000’s Euro 000’s Euro 000’s 11,632 277,238 288,870 1,560 - 13,192 33,182 (843) 309,577 34,742 (843) 322,769 Authorised capital Issued capital The Company’s authorised share capital is 200,000,000 ordinary shares of Stg £0.075 each. 2017 2016 There was no share capital issue during 2016. On 7 December 2017, 18,574,555 ordinary shares at Stg £0.075 were issued at a price of £1.67. Upon the issue an amount of €32,338,512 was credited to the Company’s share premium reserve. Warrants No warrants were issued in 2017 and in 2016. Details of share warrants outstanding as at 31 December 2017: Grant date 24 June 2015 Expiry date Exercise price – Stg £ Number of warrants 24 June 2018 1.425 262,569 262,569 At 1 January 2017 Less warrants expired during the year Outstanding warrants at 31 December 2017 Weig hted average exercise price Stg £ Number of warrants 1.80 2.75 1.425 365,354 (102,785) 262,569 The estimated fair values of the warrants were calculated using the Black Scholes option pricing model. The inputs into the model and the results are as follows: Grant date Weighted average share price Stg£ Weighted average exercise price Stg£ Expected volatility Expected life (years) Risk free rate Expected dividend yield Estimated fair value Stg£ 24 June 2015 1.425 1.425 64.40% 3 2.0% Nil 0.330 The volatility has been estimated based on the underlying volatility of the price of the Company’s shares in the preceding twelve months. On 20 February 2018, the Company received the notification from one of the warrants holders to exercise 233,184 warrants at an exercise price of 142.5 pence per share. As of the date of this Report, the shares are yet to be allotted, as the holder did not transfer the exercise price to the Group. The expiration date of the warrants is 24 June 2018. V. Financial Statements 103 Annual ReportAtalaya Mining Plc23. Other reserves THE GROUP (Euro 000’s) At 1 January 2016 Bonus shares issued in escrow Recognition of share based payments Change in value of available-for-sale investments (Note 20) At 31 December 2016 Recognition of depletion factor Recognition of share based payments Change in value of available-for-sale investments (Note 20) At 31 December 2017 THE COMPANY (Euro 000’s) Share option Bonus share Depletion factor Available- for-sale investments Total 6,247 - 137 - 6,384 - 152 - 6,536 145 63 - - 208 - - - - - - - - 450 - - (884) 5,508 - - (41) 63 137 (41) (925) 5,667 - - 450 152 (132) (132) 208 450 (1,057) 6,137 Share option Bonus share Available- for-sale investments At 1 January 2016 Bonus shares issued in escrow Recognition of share based payments Change in value of available-for-sale investments (Note20) At 31 December 2016 Recognition of share based payments Change in value of available-for-sale investments (Note20) At 31 December 2017 6,247 - 137 - 6,384 152 - 6,536 145 63 - - 208 - - 208 (884) - - (41) (925) - (132) (1,057) Total 5,508 63 137 (41) 5,667 152 (132) 5,687 Details of share options outstanding as at 31 December 2017: Grant date Expiry date Exercise price – Stg £ Share options 20 Mar 2014 1 June 2014 23 Feb 2017 Total 19 Mar 2019 31 May 2019 22 Feb 2022 At 1 January 2017 Add options granted during the year 31 December 2017 V. Financial Statements 104 3.60 2.70 1.44 Weighted average exercise price Stg £ 3.42 1.44 2.15 400,000 100,000 900,000 1,400,000 Share options 500,000 900,000 1,400,000 Annual ReportAtalaya Mining PlcOn 23 February 2017, the Group announced that 900,000 share options were granted to Persons Discharging Mana- gerial Responsibilities and management, of which 800,000 were in accordance with the incentive share option plan and 100,000 were under a contractual entitlement. These included 150,000 share options granted to a Director, as disclosed in the Corporate Governance Report. In general, option agreements contain provisions adjusting the exercise price in certain circumstances including the allotment of fully paid ordinary shares by way of a capitali- sation of the Company’s reserves, a sub division or conso- lidation of the ordinary shares, a reduction of share capital and offers or invitations (whether by way of rights issue or otherwise) to the holders of ordinary shares. The estimated fair values of the options were calculated using the Black Scholes option pricing model. The inputs into the model and the results are as follows: Grant date 23 Feb 2017 1 June 2014 20 Mar 2014 Weighted average share price Stg£ Weighted average exercise price Stg£ Expected volatility Expected life (years) Risk free rate Expected dividend yield Estimated fair value Stg£ 1.440 2.700 3.600 1.440 2.700 3.600 51.8% 62.9% 64.2% 5 5 5 0.6% 2.0% 2.0% Nil Nil Nil 0.666 0.597 0.705 The volatility has been estimated based on the underlying volatility of the price of the Company’s shares in the preceding twelve months. 24. Non-controlling interest (Euro 000’s) Opening balance On acquisition of a subsidiary Share of results for the year Closing balance 2017 - 4,502 (28) 4,474 2016 - - - - The Group has a 10% interest in Cobre San Rafael, S.L., while the remaining 90% is held by a non-controlling interest (Note 2.3.). The significant financial information in respect of the subsidiary before intercompany eliminations as at and for the year ended 31 December 2017 is as follows: (Euro 000’s) Non-current assets Current assets Non-current liabilities Current liabilities Equity Revenue Loss for the year and total comprehensive income Loss for the year and total comprehensive income (31) - (1) Cobre San Rafael, S.L. was established on 13 June 2016. (*) 10% interest in Cobre San Rafael, S.L. was acquired by the Group in July 2017. V. Financial Statements 105 2017(*) 2016(1) 5,127 1,087 - 1,242 4,972 - (31) - 3 - - 3 - - Annual ReportAtalaya Mining Plc 2017 2016 74 74 115 115 64,234 49,309 - - - 791 2,660 7 291 12 1,741 8,684 790 1,826 - 230 67,983 62,592 2017 2016 1,287 4,614 16 5,917 649 1,193 229 2,071 (1) On 25 May 2010 ARM recognised a debt with the Social Security’s General Treasury in Spain amounting to €16.9 million that was incurred by a previous owner in order to stop the execution process by Public Auction of the land over which Social Security had a lien. This debt was repaid in June 2017. (2) In September 2016, the Group signed a $14.0 million prepayment funding with Transamine Trading, S.A. (“Transamine”). The funding will be settled by 31 December 2018 via deductions from payments received from sales. Terms of the funding are market conditions bearing an interest of LIBOR 3 month + 2.75% interest. 25. Trade and other payables THE GROUP (Euro 000’s) Non-current trade and other payables Land options Current trade and other payables Trade payables Payable to related parties (Note 31.3) Social security payable (1) Copper concentrate advance payment by customer (2) Land options and mortgage Accruals VAT payable Other THE COMPANY (Euro 000’s) Current trade and other payables Accruals Payable to own subsidiaries (Note 31.3) Other The fair values of trade and other payables due within one year approximate to their carrying amounts as presented above. V. Financial Statements 106 Annual ReportAtalaya Mining Plc26. Provisions THE GROUP (Euro 000’s) 1 January 2016 Revision of discount rate Revision of estimates Accretion expense 31 December 2016/1 January 2017 Additions Revision of discount rate Finance cost (Note 9) 31 December 2017 (Euro 000’s) Non-Current Current Total Rehabilitation provision Rehabilitation provision represents the accrued cost required to provide adequate restoration and rehabilita- tion upon the completion of produc- tion activities. These amounts will be settled when rehabilitation is under- taken, generally over the project’s life. The discount rate used in the calcu- lation of the net present value of the provision as at 31 December 2017 was1.87%, which is the 15-year Spain Government Bond rate (2016: 1.87%, which is the 15-year Spain Govern- ment Bond rate). An inflation rate of 1.5% is applied on annual basis. (Euro 000’s) Between 1 – 5 Years Between 6 – 10 Years Between 10 – 15 Years The expected payments for the reha- bilitation work are as follows: More than 15 Years Expected payments for rehabilitation of the mining site 553 1,579 2,692 690 Legal Rehabilitation - - - - - 213 - - 213 3,971 732 296 93 5,092 407 (98) 113 5,514 2017 5,727 - 5,727 Total 3,971 732 296 93 5,092 620 (98) 113 5,727 2016 5,092 - 5,092 The Group has been named a defen- dant in several legal actions in Spain, the outcome of which is not determi- nable as at 31 December 2017. Mana- gement has reviewed individually each case and made a provision of €213 thousand for these claims, which has been reflected in these consolidated financial statements. V. Financial Statements 107 Atalaya Mining Plc Annual Report 27. Deferred consideration In September 2008, the Group moved to 100% ownership of ARM (and thus full ownership of Proyecto Riotinto) by acquiring the remaining 49% of the issued capital of ARM. At the time of the acquisition, the Group signed a Master Agreement (the “Master Agreement”) which included deferred consideration of €43.8 million (the “Deferred Consideration”) and potential up-tick payments of up to €15.9 million depending on the price of copper (the “Up-tick Payment”), in consideration of (a) all parties accepting the legal structure of ARM (formerly Emed Tartessus); (b) the validity of various agreements entered into prior to the Master Agreement; and (c) the provision of indemnities by Astor and its agreement not to pursue litigation. The obligation to pay the Deferred Consideration and the Up-tick Payments is subject to the satisfaction of the following conditions (the “Conditions”): (a) all authorisations to restart mining activities in Proyecto Riotinto having been granted by the Junta de Andalucía (“Permit Approval”); and (b) the Group securing a senior debt finance facility for a sum sufficient to restart mining operations at Proyecto Riotinto (“Senior Debt Facility”) and being able to draw down funds under the Senior Debt Facility. At the time of acquisition, the possible outcome for the obligation to pay the deferred consideration could not be determined. Subject to satisfaction of the Conditions, the Deferred Consideration and the Up-tick Payments are payable over a period of six or seven years (the “Payment Period”). In addition to satisfaction of the Conditions, the Up-tick Payments are only be payable if, during the relevant period, the average price of copper per tonne is US$6,614 or more (US$3.00/lb). The Company also entered into a credit assignment agreement with a related company of Astor, Shorthorn AG, pursuant to which the benefit of outstanding loans were assigned to the Company in consideration for the payment of €9.1 million to Shorthorn (the “Loan Assignment”). Payment under the Loan Assignment is also subject to satis- faction of the Conditions and is payable in instalments over the Payment Period. As security, inter alia, for the obligation to pay the Deferred Consideration, the Up-tick Payments and the Loan Assign- ment to Astor, Atalaya Minasderiotinto Project (UK) Limited has granted pledges over the issued capital of ARM and the Company has provided a parent company guarantee. As at the date of this report, the Permit Approval condition has been satisfied. However, the Group has not entered into arrangements in connection with a Senior Debt Facility and, in the absence of drawdown of funds by the Group pursuant V. Financial Statements 108 Annual ReportAtalaya Mining Plcto a Senior Debt Facility, the Conditions have not been satisfied. Assignment pursuant to the terms of the credit assignment agreement. Previously, the Group had not recognised the Deferred Consideration in the initial purchase price allocation on the basis that the payment of the amounts was not consi- dered probable. The High Court judgment of 6 March 2017 required the Group to revisit its estimates and assumption to book the liability. As at 31 December 2017, the Group has not generated any excess cash and, consequently, no consideration has been paid. As at the reporting date, the Group has presented the deferred consideration in the consolidated and standalone financial statements to reflect the Company’s best estimate of the liability and the excess cash flows in the future years in the view of the High Court ruling of March 2017 and in line with IAS 37. The nominal amount of the liability recognised is €53 million. In 2017 the discount rate used to measure the liability for the deferred consideration was re-assessed to apply a risk free rate for the relevant periods, as required by IAS 37. The effect of discounting, when applying this risk free rate, was considered insignificant and the Group has measured the liability for the deferred consideration on an undiscounted basis. The value of the liability for the Group and Company is in line with the court ruling issued on 6 March 2017 amounting to €53 million and €9.1 million respectively. For details on the restatement of the deferred consideration liability as at 31 December 2016, refer to Note 2.1(c). On 25 April 2017, Atalaya and Astor applied for permis- sion to appeal to the Court of Appeal. On 11 August 2017 the Court of Appeal granted permission to both parties to appeal (although it rejected three of Astor’s seven grounds). The Appeal will take place in May 2018. On 6 March 2017, judgment in the case brought by (“Astor Case”) was handed down in the High Court of Justice in London (the “Judgment”). On 31 March 2017, declarations were made by the High Court which give effect to the Judgment. In summary, the High Court found that the Deferred Consideration did not start to become payable when Permit Approval was granted. In addition, the intra-group loans by which funding for the restart of mining operations was made available to ARM did not constitute a Senior Debt Facility so as to trigger payment of the Deferred Conside- ration. Accordingly, the first instalment of the Deferred Consideration has not fallen due. Astor failed to show that there had been a breach of the all reasonable endeavours obligation contained in the Master Agreement to obtain a Senior Debt Facility or that the Group had acted in bad faith in not obtaining a Senior Debt Facility. While the Court confirmed that the Group was not in breach of any of its obligations, the Master Agreement and its provisions remain in place. Accordingly, other than up to US$10.0 million a year which may be required for non-Proyecto Riotinto related expenses, ARM cannot make any dividend, distribution or any repayment of the money lent to it by companies in the Group until the consideration under the Master Agreement (including the Deferred Consi- deration) has been paid in full. As a consequence, the Judgment requires that, in accor- dance with the Master Agreement, ARM must apply any excess cash (after payment of operating expenses, sustai- ning capital expenditure, any senior debt service require- ments and up to US$10.0 million (for non-Proyecto Riotinto related expenses)) to pay the consideration due to Astor (including the Deferred Consideration and the amount of €9.1 million payable under the Loan Assignment) early. The Court confirmed that the obligation to pay considera- tion early out of excess cash does not apply to the Up-tick Payments and the Judgment notes that the only situation in which the Up-tick Payments could ever become payable is in the unlikely event that mining operations cease at Proyecto Riotinto and a Senior Debt Facility is then secured for a sum sufficient to restart mining operations. While the Judgment confirms that the cash sweep provi- sions of the Master Agreement require ARM to repay the Loan Assignment early, it does not extend to the credit assignment agreement which is governed by Spanish law. The Judgment therefore does not provide any clarity on whether the Conditions have been met in respect of payment of the Loan Assignment and there remains signifi- cant doubts concerning the legal obligation to pay the Loan V. Financial Statements 109 Annual ReportAtalaya Mining Plc28. Derivative instruments 29. Acquisition, incorporation and disposals of subsidiaries 28.1. Foreign exchange contract As at 31 December 2017, Atalaya has no foreign exchange contracts (Atalaya had certain short term foreign exchange contracts as at 31 December 2016). The contracts were in an unrealised loss position which was recorded as a finance cost in the income statements (2016: €0.2 million), the corresponding receivable amount recorded in other receivables. The relevant information of the contracts was as follows: Foreign exchange contracts – Euro/USD Period June 2016 - March 2017 Contract type FX Forward - Put FX Forward – Call Amount in USD 5,000,000 10,000,000 Contract rate Strike 1.0955 n/a 1.0955 1.0450 The counter parties of the foreign exchange agreements are third parties. 28.2. Commodity contract In 2016, Atalaya signed the following short term commodity contracts, for copper, with a third party: Period August 2016 September 2016 Commodity Copper Copper Contract type Forward Forward FMT (Fine metric tonnes) Strike price US$/FMT 2,113 4,960 1,090 4,845 In the twelve months ended 31 December 2016 the agree- ments were closed at the maturity date with a gain of €0.5 million, which was recorded as revenue during the year. The Group did not recognise any gain or loss for the twelve months ended 31 December 2017. As at 31 December 2016 and 2017, the Group had no open positions. V. Financial Statements 110 Incorporation of Atalaya Touro (UK) Limited On 10 March 2017, Atalaya Touro (UK) Limited was incor- porated. Atalaya Mining Plc is its sole shareholder. In July 2017, Atalaya Touro (UK) Limited executed the option and acquired 10% of Cobre San Rafael, S.L. a company which owns the mining rights of Proyecto Touro. Acquisition of Cobre San Rafael, S.L. - Proyecto Touro In July 2017, the Group announced that it had executed the option to acquire 10% of the share capital of Cobre San Rafael S.L., (“CSR”), a wholly owned subsidiary of Explota- ciones Gallegas S.L. (“EG”), part of the F. GOMEZ company. This is part of an earn-in agreement (the “Agreement”), which will enable the Group to acquire up to 80% of CSR. Following the acquisition of the initial 10% of CSR’s share capital, the agreement included the following four phases: » Phase 1 – The Group paid €0.5 million to secure the exclusivity agreement and will continue to fund up to a maximum of €5.0 million to get the project through the permitting and financing stages. » Phase 2 – When permits are granted, the Group will pay €2.0 million to earn-in an additional 30% interest in the project (cumulative 40%). » Phase 3 – Once development capital is in place and cons- truction is under way, the Group will pay €5.0 million to earn-in an additional 30% interest in the project (cumula- tive 70%). » Phase 4 – Once commercial production is declared, the Group will purchase an additional 10% interest in the project (cumulative 80%) in return for a 0.75% Net Smelter Return (NSR) royalty, with a buyback option. The Agreement has been structured so that the various phases and payments will only occur once the project is de-risked, permitted and in operation. In July 2017, the Group executed the acquisition of 10% of CSR, which has been accounted for as a subsidiary with a corresponding non-controlling interest of 90% as the Company has control over the entity (Note 2.3 (b)). The amount of €500.000 paid during the year for the acquisi- tion of the initial 10% of CSR share capital, represents the fair value of the net assets of CSR on the date of acquisition giving rise to no goodwill. The non-controlling interest is set out in Note 24. Annual ReportAtalaya Mining PlcDisposals of subsidiaries There were no disposals of subsidiaries during the twelve month period ended 31 December 2017. 30. Wind-up of subsidiaries There were no operations wound-up during 2017 and 2016. 31. Group information and related party disclosures 31.0 Information about subsidiaries These audited consolidated financial statements include: Subsidiary companies Parent Principal activity Country of incorporation Effective proportion of shares held Atalaya Touro Project (UK) Ltd Atalaya Mining Plc Holding United Kingdom 100% Atalaya Minasderiotinto Project (UK) Ltd Atalaya Mining Plc Holding United Kingdom 100% EMED Marketing Ltd Atalaya Mining Plc Trading Cyprus 100% EMED Mining Spain S.L.U. Atalaya Mining Plc Exploration Spain 100% Eastern Mediterranean Resources (Caucasus) Ltd Atalaya Mining Plc Exploration Georgia 100% Atalaya Riotinto Minera S.L.U. Atalaya Minasderiotinto Project (UK) Limited Production Spain 100% Eastern Mediterranean Exploration and Development S.L.U. Atalaya Minasderiotinto Project (UK) Limited Exploration Spain 100% Cobre San Rafael, S.L. (1) Atalaya Touro (UK) Limited Exploration Spain Recursos Cuena Minera S.L.U. Atalaya Riotinto Minera SLU Exploration Spain 10% J-V Fundacion Emed Tartessus Atalaya Riotinto Minera SLU Trust Spain 100% Georgian Mineral Development Company Limited Eastern Mediterranean Resources (Caucasus) Ltd Exploration Georgia 100% (1) Cobre San Rafael, S.L. is the entity which hold the mining rights of Proyecto Touro. The Group has a significant influence in the management of the Cobre San Rafael, S.L., including one of the two directors, management of the financial books and the capacity of appointment the key personnel. V. Financial Statements 111 Annual ReportAtalaya Mining Plc31.1 Compensation of key management Share-based benefits personnel The total remuneration and fees of Directors (including executive Directors) and other key management personnel was as follows: In February 2017, the directors and key management personnel have been granted 345,000 options (2016: nil) (Note 23). During 2017 the directors and key management personnel have not been granted any bonus shares (2016: nil). (Euro 000’s) Directors' remuneration and fees Director’s bonus Directors’ bonus shares Contractual entitlements upon resignation Share option-based benefits to directors Key management personnel fees Key management bonus Share option-based and other benefits to key management personnel THE GROUP THE COMPANY 2017 2016 742 245 - - 23 467 1,270 57 2,804 696 500 63 83 56 444 500 33 2,375 2017 357 - - - - 232 1,232 34 1,854 2016 346 - - 83 - 347 500 33 1,309 31.2 Transactions with shareholders and related parties THE GROUP (Euro 000’s) Sales of goods Trafigura PTE LTD (“Trafigura”) – Sales of goods (pre-commissioning sales offset against the cost of constructing assets) Trafigura– Sales of goods Orion Mine Finance (Master) Fund I LP (“Orion”) – Sales of goods 2017 2016 - 28,119 (4) 28,115 2,452 26,351 3,526 32,329 XGC was granted an offtake over 49.12% of life of mine reserves as per the NI 43-101 report issued in September 2016. Similarly, Orion was granted an offtake over 31.54% and Trafigura 19.34% respectively of life of mine reserves as per the same NI 43-101 report. In November 2016, the Group was notified and consented the novation of the Orion offtake agreement as Orion reached an agree- ment with a third party to transfer the rights over the concentrates. V. Financial Statements 112 Annual ReportAtalaya Mining PlcTHE COMPANY (Euro 000’s) Sales of services: › EMED Marketing Limited › Atalaya Riotinto Minera SLU › Atalaya Minasderiotinto Project (UK)Limited Finance income: › Atalaya Minasderiotinto Project (UK)Limited – Finance income from interest- bearing loan (zero coupon note) 31.3 Year-end balances with related parties THE GROUP (Euro 000’s) Receivable from related party (Note 19): › Fundacion Atalaya Riotinto › Recursos Cuenca Minera S.L. The above balances bear no interest and are repayable on demand. THE COMPANY (Euro 000’s) Receivable from related party (Note 20): › Atalaya Minasderiotinto Project (UK)Limited › Atalaya Minasderiotinto Project (UK)Limited – Zero coupon Note › Atalaya Riotinto Minera SLU › Atalaya Touro (UK) Limited › EMED Mining Spain SL 2017 2016 565 450 - 1,015 1,635 1,635 - - 177 177 1,523 1,523 2017 2016 - 56 56 12 56 68 2017 2016 209,293 23,038 9,350 697 38 208,794 21,403 9,100 - 38 242,416 239,335 The above balances bear no interest and are repayable on demand, other than the zero coupon note bearing interest between 7.5% and 8% (2016: 7.5%-8%. THE COMPANY (Euro 000’s) Payable to related party (Note 25): › EMED Marketing Limited The above balances bear no interest and are repayable on demand. V. Financial Statements 113 2017 2016 4,614 4,614 1,193 1,193 Annual ReportAtalaya Mining Plc31.4 Year-end balances with shareholders (Euro 000’s) Trafigura – Debtor balance (Note 19) Orion – Creditor balance (Note 25) 2017 1,556 - 2016 2,024 (12) 32. Contingent liabilities Judicial and administrative cases In the normal course of business, the Group may be involved in legal proceedings, claims and assessments. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Legal fees for such matters are expensed as incurred and the Group accrues for adverse outcomes as they become probable and estimable. The Junta de Andalucía notified the Group of another disciplinary proceeding for unauthorised discharge in 2014. The Group submitted the relevant defence arguments on 10 March 2015 but has had no response or feedback from the Junta de Andalucía since the submissions. Based on the time that has lapsed without a response, it is expected that the outcome of this proceedings will also be favourable for the Group. Once the necessary time has lapsed, the Group will ask for the Administrative File to be dismissed. 33. Commitments There are no minimum exploration requirements at Proyecto Riotinto. However, the Group is obliged to pay municipal land taxes which currently are approximately €235,000 per year in Spain and the Group is required to maintain the Riotinto site in compliance with all applicable regulatory requirements. As part of the consideration for the purchase of land from Rumbo, the Group has agreed to pay a royalty to Rumbo subject to commencement of production of $250,000 in each quarter where the average price of LME copper or the average copper sale price achieved by the Group is at least $2.60/lb. No royalty is payable in respect of any quarter where the average copper price for that quarter is below this amount and in certain circumstances any quar- terly royalty payment can be deferred until the following quarter. The royalty obligation terminates 10 years after commencement of production. Commencement of produc- tion is defined as being the first to occur of processing of ore at a rate of nine million metric tonnes per annum for a continuous period of six months or the date that is 18 months after the first product sales from Proyecto Riotinto. The commencement of the Rumbo royalty was in July 2017. As average copper prices for Q3 2017 and Q4 2017 were above the threshold identified in the agreement, the Group has recognised the cost of US$500,000. The payment of the royalty was settled during Q1 2018 by the issue of shares of the Group (Note 34). ARM has entered into a 50/50 joint venture with Rumbo to evaluate and exploit the potential of the class B resources in the tailings dam and waste areas at Proyecto Riotinto (mainly residual gold and silver in the old gossan tailings). Under the joint venture agreement, ARM will be the operator of the joint venture, will reimburse Rumbo for the costs associated with the application for classification of the Class B resources and will fund the initial expenditure of a feasibility study up to a maximum of €2.0 million. Costs are then borne by the joint venture partners in accordance with their respective ownership interests. Half of the costs paid by ARM in connection with the feasibility study can be deducted from any royalty which may fall due. 34. Events after the reporting period Equity issuance January 2018 In accordance with the royalty agreement signed in July 2012 between the Company and Rumbo, Rumbo is entitled to receive a royalty payment of up to US$250,000 per quarter if the average copper sales price or LME price for the period is equal to or above $2.60/lb. As of 31 December 2017, the Group recognised a $500,000 debt to Rumbo, given the fact that the average copper price for the third and fourth quarter of 2017 was above $2.60/lb. After discussions with Rumbo, both parties agreed to satisfy the payment through the issuance of 192,540 new ordinary shares of 7.5p in the Company. The Rumbo Shares were issued at the volume weighted average price for the period between 5 February 2018 and V. Financial Statements 114 Annual ReportAtalaya Mining Plc9 February 2018 of 186.7p per share and using the average US$ to GBP exchange rate of 1.3909. In addition, the Company issued 29,000 ordinary shares of 7.5 pence in the Company as certain employees exercised their options at a price of 144 pence per share. Exercise of warrants On 20 February 2018, the Company received notification from one of the warrants holders to exercise 233,184 warrants at an exercise price of 142.5 pence per share. As of the date of this Report, the shares are yet to be allo- tted, as the holder did not transfer the exercise price to the Group. The expiration date of the warrants is 24 June 2018. Incorporation of Atalaya Servicios Mineros, S.L. On 14 February 2018, the Group incorporated a fully owned subsidiary named Atalaya Servicios Mineros, S.L.U. V. Financial Statements 115 Annual ReportAtalaya Mining PlcVI. Shareholder Information VI. Shareholder Information VI. Shareholder Information 116 116 Atalaya Mining Plc Annual Report Annual ReportAtalaya Mining PlcGlossary of terms Atalaya or the Company o Atalaya Mining Plc, a company incorporated in Cyprus under the Companies law, cap. 113 Atalaya Group or Group o Atalaya Mining Plc and its subsidiaries CSR o Corporate Social Responsibility Cu o Copper Directors o The Directors of Atalaya for the reporting period AGM o Annual General Meeting Dollar or US$ or $ o United States dollars AIM o Alternative Investment Market of the London Stock Exchange AISC o All In Sustaining Cost EBITDA o Earnings Before interest Tax Depreciation and Amortisation Articles o The articles of association of Atalaya Mining Plc. Financial statements o Consolidated and company financial statements of Atalaya Mining Plc. London Stock Exchange or LSE o London Stock Exchange plc NI 43-101 o Canadian National Instrument 43-101 Open pit o A mine where the minerals are mined entirely from the surface. Also referred to as open-cut or open-cast mine Ordinary Shares o Ordinary Shares of 10 pence each in the capital of the Company Ore body o A sufficiently large amount of ore that can be mined economically Average head grade o Average ore grade fed into the mill, expressed in % of weight BoD or Board of Directors o The Board of Directors of the Company Code of Conduct o Atalaya’s Code of Business Conduct and Ethics Concentrate Contained copper o Fine, powdery product of the milling process containing a high percentage of valuable metal o Represents total copper in a mineral reserve before reduction to account for tonnes not able to be recovered by the applicable metallurgical process Grade o The amount of metal in each tonne of ore, expressed as a percentage of copper metal IAS o International Accounting Standards IFR S o International Financial Reporting Standards IPO o Initial public offering Shareholders o Holders of Ordinary Shares Stripping o Removal of overburden or waste rock overlying an ore body in preparation for mining by open pit methods TSX o Toronto Stock Exchange KPI s o Key performance indicators United Kingdom or UK o the United Kingdom of Great Britain and Northern Ireland LIBOR o The British Bankers’ Association Interest Settlement Rate for the relevant currency and period displayed on the appropriate page of the Reuters’ screen United States or US o the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia VI. Shareholder Information VI. Shareholder Information 117 117 Atalaya Mining Plc Annual Report Annual ReportAtalaya Mining PlcShareholder enquires Board of directors: Corporate brokers - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Roger Davey Chairman. Non-executive chairman - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Alberto Lavandeira Managing director and CEO - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Hui (Harry) Liu Non-executive director - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dr. Jose Sierra Lopez Non-executive director - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Jesus Fernandez Non-executive director - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Damon Barber Non-executive director - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dr. Hussein Barma Non-executive director - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Jonathan Lamb Non-executive director - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Stephen Scott Non-executive director BMO Capital Markets 95 Queen Victoria Street London, EC4V 4HG Canaccord Genuity Limited 41 Lothbury London EC2R 7AE Investor Relations Carina Corbett 4C Communications Ltd. Hudson House 8 Tavistock Street London WC2E 7PP +44 (0) 203 170 7973 Public Relations Charles Chichester Newgate Communications Sky Light City Tower 50 Basinghall Street London EC2V 5DE +44 (0) 207 680 6550 Registrars Cymain registrars Ltd. 26 Vyronos Avenue 1096 Nicosia, Cyprus Depositary / transfer agent United Kingdom Computershare Investor Services Plc. The Pavilions Bridgwater Bristol BS13 8AE Canada Computershare Investor Services Inc. 100 Universtity Avenue 8th Floor, North Tower Toronto, Ontario M5J 2Y1 Company secretary: Inter Jura CY (Services) Limited 1 Lampousa Street, 1095 Nicosia, Cyprus Group Auditor: Ernst & Young Cyprus Ltd Jean Nouvel Tower, 6 Stasinos Avenue, P.O.Box 21656, 1511, Nicosia, Cyprus Registered office: 1 Lampousa Street, 1095 Nicosia, Cyprus V. Shareholder Information 118 Atalaya Mining Plc Annual Report Forward looking statements This report may include certain “forward-looking statements” and “forward-looking information” under applicable securities laws. Except for statements of historical fact, certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterised by words such as “plan”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate”, and other similar words, or statements that certain events or conditions “may” or “will” occur. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made, and are based on a number of assumptions and subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ mate- rially from those projected in the forward-looking statements. Assump- tions upon which such forward-looking statements are based include that all required third party regulatory and governmental approvals will be obtained. Many of these assumptions are based on factors and events that are not within the control of Atalaya and there is no assurance they will prove to be correct. Factors that could cause actual results to vary mate- rially from results anticipated by such forward-looking statements include changes in market conditions and other risk factors discussed or referred to in this report and other documents filed with the applicable securities regulatory authorities. Although Atalaya has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Atalaya undertakes no obligation to update forward-looking statements if circumstances or mana- gement’s estimates or opinions should change except as required by appli- cable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements. V. Shareholder Information 119 Atalaya Mining Plc Annual Report V. Shareholder Information 120 Annual ReportAtalaya Mining PlcV. Shareholder Information 121 Annual ReportAtalaya Mining Plc

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