BUILDING A SUSTAINABLE BUSINESS
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ANNUAL REPORT AND ACCOUNTS 2018
CENTRAL ASIA METALS
IS A DIVERSIFIED RESOURCES COMPANY
THAT OPERATES LOW COST MINERAL
ASSETS IN NORTH MACEDONIA AND
KAZAKHSTAN
01
STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
OPERATIONAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
Sasa, North Macedonia
¼¼ Zinc production of 22,532 tonnes
(2017: 3,625 tonnes, CAML attributable)
¼¼ Lead production of 29,388 tonnes
(2017: 4,951 tonnes, CAML attributable)
Kounrad, Kazakhstan
¼¼ Copper production of 14,049 tonnes
(2017: 14,103 tonnes)
¼¼ Copper sales of 14,081 tonnes
(2017: 14,181 tonnes)
EBITDA
$125.3m
$53.9m
$39.9m
2018
2017
2016
Dividend
14.5p
2018
2017
2016
Corporate
¼¼ Management changes successfully
Sasa C1 zinc equivalent cash cost
implemented
– Nigel Robinson appointed
Chief Executive Officer
– Gavin Ferrar appointed
Chief Financial Officer
– Scott Yelland appointed
Chief Operating Officer
¼¼ Successful integration of Sasa mine into
CAML business
¼¼ Full year dividend of 14.5 pence
¼¼ Group debt reduced by $37 million to
$145 million as of 31 December 2018
¼¼ Group total reportable incident frequency
rate (‘TRIFR’) of 3.76
$0.46/lb
2018
2017
Kounrad C1 copper cash cost
$0.54/lb
2018
2017
2016
$125.3m
14.5p
16.5p
15.5p
$0.46/lb
$0.44/lb
$0.54/lb
$0.52/lb
$0.43/lb
FOR MORE INFO, VISIT US ONLINE WWW.CENTRALASIAMETALS.COM
CONTENTS
STRATEGIC REPORT
Highlights
Company Overview
Chairman’s Statement
Chief Executive Officer’s Review
Strategy
Business Model
Our Markets
Operational Overview, Sasa
Operational Overview, Kounrad
People and Culture
Corporate Social Responsibility
Financial Review
Principal Risks and Uncertainties
01
02
04
06
09
10
12
18
22
26
28
32
36
GOVERNANCE
Introduction to Corporate Governance 40
42
Board of Directors
44
Board Report
46
Audit Committee
48
CSR Committee
49
Nomination Committee
50
Remuneration Committee
Directors’ Report
54
Statement of Directors’
Responsibilities
56
FINANCIAL STATEMENTS
Independent Auditors’ Report
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Statements of Financial Position
Consolidated Statement of
Changes in Equity
Company Statement of
Changes in Equity
Consolidated Statement of
Cash Flows
Notes to the Consolidated
Financial Statements
Glossary of Technical Terms
Directors, Secretary and
Advisors
57
63
64
65
66
67
68
69
103
104
02
02
COMPANY OVERVIEW
WHAT WE DO
Central Asia Metals (‘CAML’) is a diversified mining company
with two low cost operations producing
three base metals with attractive market fundamentals.
MOVING FORWARD AS A...
NORTH MACEDONIA
SASA
overview
Sasa is a zinc, lead and silver mine in North Macedonia,
approximately 150 kilometres from the capital city, Skopje.
The operation is an underground mine and the processing
plant uses froth flotation to produce a zinc concentrate
and a lead concentrate containing silver.
These products are then currently trucked to smelters
in Bulgaria and Poland. The mine typically produces
between 22,000 and 24,000 tonnes of zinc in concentrate
and between 28,000 and 30,000 tonnes of lead in
concentrate annually.
Life of mine (including
inferred resources)
19 years
Zinc grade
3.06%
Probable reserve
9.7mt
Lead grade
3.84%
For operations in North Macedonia see page 18
C EN T R A L ASI A ME TA L S PLC
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03
STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
KAZAKHSTAN
KOUNRAD
overview
In 2012, CAML completed construction and began
producing copper from the Kounrad in-situ dump
leach and solvent extraction electro-winning (‘SX-EW’)
operation close to Balkhash in central Kazakhstan.
Two self-funded expansions followed, and the Company
has now fully developed Kounrad, with copper production
expected until the end of the licence in 2034. Since
production commenced, over 80,000 tonnes of copper
have been produced at Kounrad, at costs that are amongst
the lowest in the world.
Life of operation, to
2018 copper sales
2034
2018 copper
production
14,081t
Estimated remaining
recoverable copper
resources
14,049t
170,000t
For operations in Kazakhstan see page 22
...LARGER AND DIVERSIFIED BUSINESS
Revenue by geography
Revenue by base metal
Locations
Kazakhstan
$92.6m
Copper
$92.6m
Lead
$61.4m
North Macedonia
$111.5m
Silver
$2.1m
Zinc
$48.0m
SKOPJE
SASA
NORTH
MACEDONIA
KAZAKHSTAN
ASTANA
KOUNRAD
ALMATY
C EN T R A L ASI A ME TA L S PLC
C EN T R A L ASI A ME TA L S PLC
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04
CHAIRMAN’S STATEMENT
BUILDING A SUSTAINABLE BUSINESS
2018 was the first full year that we have owned and operated two base metals operations
and we are pleased that both Sasa and Kounrad have delivered the production and
financial returns we expected. In parallel, we have maintained focus on our corporate and
social responsibilities in ensuring our performance is felt by all of our stakeholders.
Highlights
We propose a 2018 final dividend of 8 pence per share,
giving a 2018 full year dividend of 14.5 pence per share.
This represents 44% of our adjusted free cash flow and
is therefore in line with our policy of returning between
30% and 50% of free cash flow to our shareholders.
We are very proud of the dividends that we have paid to
shareholders since we commenced copper production at
Kounrad in 2012, and we believe that our commitment to
shareholder returns has made us unique as a resources
business listed on the AIM Market of the London Stock
Exchange (‘AIM’). Once this dividend has been distributed,
we will have made returns to our investors of $162 million
in less than seven years.
We were also delighted to once again win an award at the
prestigious Mines and Money Outstanding Achievement
Awards. In 2018, Central Asia Metals was named ‘Mining
Company of the Year – Asia’.
Finally, having successfully integrated Sasa into the CAML
group, we accelerated our business development activities
in H2 2018 as we are once again looking to grow by
acquisition when we find the right opportunity.
Recognising all our stakeholders
In the resources business, we firmly believe that companies
must give something back to the countries from which they
generate revenue, looking after their employees, the
environment in which they operate and the local and wider
communities.
At Sasa in 2018, as well as continuing to support the local
community in terms of infrastructure, sporting and
recreational facilities, we have sponsored 10 students
through their mining degrees at Stip University. We also
funded the purchase of new IT equipment and the
renovation of five classrooms used for mining studies in
the local secondary school.
C EN T R A L ASI A ME TA L S PLC
C EN T R A L ASI A ME TA L S PLC
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Nick Clarke
Chairman
Sasa has been a great addition to
our business and we are pleased
with its positive impact on our
financial results.
Gross revenue
$204.2m
+92%
(2017: $106.5m)
Dividend per share
14.5p
(2017: 16.5p)
05
STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
In Kazakhstan, we set up a charitable foundation at the end
of 2017 which became fully operational in 2018 and, through
this organisation, we have funded many of the worthy
causes that are presented to us. We are particularly proud
of our continued support of the Kind Heart Centre for
disabled children, purchasing new building facilities for
the centre in 2018, which recently opened post their
renovation. We have also continued to support the Balkhash
orphanage, and have re-generated the playgrounds and
recreational areas in Kounrad village that are now being
enjoyed by residents of all ages.
We are now a business with over 1,000 employees and,
while we strive for the highest health and safety standards,
we are disappointed to report eight lost time injuries on our
sites within the year. We have reinvigorated our efforts to
keep our team safe, having made additional hires and,
where appropriate, made adjustments to our procedures.
In accordance with local laws, we have paid taxes totalling
$43.3 million during the year in North Macedonia and
Kazakhstan and believe therefore that we have made a
meaningful contribution to the development of those
economies. We intend to be long-term operators so we
maintain and will always strive for strong relationships in
our host countries.
Board and management changes
During 2018, we made some significant changes to our
Board, reflective of the growth and direction of our
business. Non-Executive Director Kenges Rakishev retired
from the Board at our May 2018 AGM. Myself and my fellow
Directors very much appreciate Kenges’ input during his
tenure with the Company.
While I maintained my role as Chairman of the Company,
Nigel Robinson was appointed Chief Executive Officer and
Gavin Ferrar was appointed Chief Financial Officer, while
retaining his business development responsibilities.
These management changes have provided continuity to
the business, as both Nigel and Gavin have been with the
Company for 12 years and five years respectively. In order
to strengthen the technical team post our Sasa acquisition,
we appointed Scott Yelland as Chief Operating Officer
(‘COO’) in April 2018.
outlook
We fundamentally believe in the strong long-term demand
for copper, zinc and lead and are pleased to have seen an
increase in the prices of these commodities so far in 2019.
While there may once again be some challenges for the
market this year, we believe that the long-term future
demand for these metals remains compelling.
We look forward to another positive year of production
from our Sasa and Kounrad operations. We remain
confident that we have two low cost operations, which we
believe provide us with a solid platform from which to grow
once more by acquisition, and this will be an area of
increasing focus for us in 2019.
Finally, I would like to thank all of our employees and our
Directors for their hard work and dedication throughout
2018 – we have enjoyed an excellent year and we very
much look forward to the future, producing three base
metals with attractive market fundamentals, generating
profits and returns for our shareholders and helping to
develop the communities in which we operate.
Nick Clarke
Chairman
C EN T R A L ASI A ME TA L S PLC
C EN T R A L ASI A ME TA L S PLC
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06
CHIEF EXECUTIVE OFFICER’S REVIEW
MAKING PROGRESS
We have enjoyed another successful year at CAML, delivering production
in line with expectations at Sasa and above guidance at Kounrad while
maintaining our competitive cost base at both operations.
Key achievements
Sasa produced 22,532 tonnes of zinc and 29,388 tonnes
of lead in concentrate at a C1 zinc equivalent cash cost of
$0.46 per pound, which is comparable to prior years.
Our Kounrad operations continued to perform well and
produced 14,049 tonnes of copper cathode. Kounrad’s 2018
C1 copper cash cost was $0.54 per pound, demonstrating
once again that the operation is one of the lowest cost
copper producers in the world.
Despite challenging commodity prices, particularly in H2
2018, our strong operational performance ensured that we
delivered record annual gross revenue of $204.2 million and
record EBITDA of $125.3 million, maintaining our strong
margin of 61%. We ended 2018 with net debt of $110.3
million, having made repayments totalling $38.5 million
during the year.
The Group generated adjusted free cash flow of $73.8 million,
enabling us to recommend an 8 pence per share final dividend,
equating to a full year dividend of 14.5 pence per share, which
represents 44% of 2018 adjusted free cash flow.
In December 2018, we completed the refinancing of Sasa
debt that we inherited as part of the acquisition of the mine
in November 2017. The refinancing has the advantage of
consolidating all the Group debt into one facility with no
requirement for cash sweeps, as well as enabling us to
simplify the Sasa ownership structure in 2019.
Throughout 2018, we have spent considerable time
integrating the Sasa operation into our business processes
and made a number of key management changes at site. At
the corporate level, we strengthened our technical team
with the appointment of Scott Yelland in April 2018 as COO.
We are confident that we now have the management team
in place to ensure the steady and optimal operation of Sasa
and Kounrad.
C EN T R A L ASI A ME TA L S PLC
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Nigel Robinson
Chief Executive Officer
Our 2018 financial results reflect the
first full year of operations at Sasa
under CAML management and we
are pleased to report that its
contribution is in line with our
expectations at acquisition in
November 2017.
EBITDA
$125.3m
+132%
(2017: $53.9m)
EBITDA margin
61%
(2017: 51%)
07
STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
Corporate Social Responsibility (‘CSR’)
The welfare and health and safety of our employees is a key
priority for the Group. We also continue to focus on looking
after the local environment and ensuring that we have a
positive impact on the communities close to our operations.
As part of this study, a c.6,000 metre drilling programme has
been undertaken at Sasa, with drilling results incorporated
into an updated Mineral Resource Estimate (‘MRE’). This
further underscores our view of mineral prospectivity at
Sasa which will enable a long life operation.
We are disappointed to report that we incurred eight lost
time injuries during 2018 – six at Sasa and two at Kounrad.
Given the exemplary record in previous years at our
Kounrad operation, we have bolstered our health and safety
team in 2018 with the appointment of a Group Health and
Safety Manager and additional safety team members at
Sasa. We have also focussed our efforts on the learning
points from each incident.
During 2018, we spent $0.6 million at Sasa and Kounrad in
supporting the local communities. This is a vital aspect of
what we do in the areas close to the operations and, as a
result, we enjoy good relations with local residents.
Sasa
During the year, Sasa’s operational performance was strong
and we produced 22,532 tonnes of zinc and 29,388 tonnes
of lead in concentrates, which was at the upper end of
guidance for both metals. At $0.46 per pound, Sasa’s C1 zinc
equivalent cost of production has remained low by industry
standards and, despite some sector-wide headwinds for
treatment charges, our site-based costs should remain
competitive going forward. Sasa delivered 2018 EBITDA of
$71.2 million, at a margin of 64%.
We commenced a life of mine (‘LoM’) study for Sasa during
H2 2018, which is an in-depth review of the operation, from
geology and resources, through to underground operations
and eventual tailings disposal. This study will be ongoing
throughout 2019 and will ensure that zinc and lead are
produced optimally and as safely as possible for the future.
The construction of tailings storage facility 4 (‘TSF4’) continued
throughout the year and will be completed and ready for
utilisation within 2019, ensuring sufficient capacity for a
further seven years. Notwithstanding capex incurred due
to the tailings construction process, total 2018 Sasa capex
was slightly below our expectations at $13.6 million. 2019
capex is expected to reduce to below $10 million.
Kounrad
The Kounrad operation performed well and, in 2018,
produced 14,049 tonnes of high-quality copper cathode,
which was above our guidance range. We continued to
transition the leaching operation from the Eastern Dumps
to the Western Dumps as planned and, during the year, 64%
of the production was generated from the Western Dumps.
By 2023, it is expected that all copper will be leached from
the Western Dumps.
After almost seven years of continuous production, the
SX-EW plant continued to perform to a high standard and
we were pleased to achieve plant availability of 99.5%. As at
31 December 2018, Kounrad had produced 82,474 tonnes of
copper cathode, an average of 1,030 tonnes per month
since the commencement of operations.
Kounrad’s C1 cash cost of copper production was $0.54 per
pound, enabling the operation to deliver 2018 EBITDA of
$66.8 million, at a margin of 72%.
Having undertaken two self-funded expansions at Kounrad
during previous periods, we now only expect to incur
minimal sustaining capital expenditure going forward.
Indeed, 2018 capital expenditure was $1.4 million and is
expected to be at similar levels in future years.
C EN T R A L ASI A ME TA L S PLC
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08
CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED
Shuak
During 2018, we completed the second exploration season at
Shuak, undertaking both diamond and core hydrotransport
drilling. While the results received were encouraging, we
made the decision that this project is unlikely to be of
sufficient scale to warrant development and have impaired
the asset in full. Therefore, we plan to return Shuak to the
current 20% shareholders, while retaining a minority
interest for the future.
Market performance
2018 market conditions proved to be challenging for the
Company with a decline in the prices of all three
commodities over the course of the year, despite a positive
start in January 2018. The prices for both zinc and lead
peaked in mid-February 2018 at c.$3,618 and c.$2,640 per
tonne respectively whereas copper’s 2018 peak was in June
at c.$7,263 per tonne.
During the second half of the year, all three metal prices
declined further due to macro-economic headwinds caused
primarily by the US-China trade wars and finished the year
significantly below 2018 highs. Consequently, despite a
strong operational performance at both sites, the
depressed commodity prices impacted the CAML share
price which fell by 29% to £2.17 at the end of 2018.
outlook
We are enthusiastic about the future as we have two long
life, low cost base metals operations that can deliver cash
generative production throughout the mining cycle. These
assets provide us with a strong platform for growth and, to
date, we have been encouraged by some of the business
development opportunities that we have reviewed.
We have given production guidance for Sasa of between
22,000 and 24,000 tonnes of zinc and between 28,000 and
30,000 tonnes of lead at slightly higher throughput levels.
We look forward to the findings of the LoM study as this
may demonstrate other potential incremental
improvements that we can make at the mine and ensure
that the operation is optimised.
Our 2019 guidance for Kounrad copper production of
12,500 to 13,500 tonnes reflects the transition to
producing more of our copper from the Western Dumps.
Finally, we will continue to maintain strong health and safety
and environmental standards at both of our operations and
will continue to donate to and help with the many worthy
causes that we see in and around the local communities.
Nigel Robinson
Chief Executive Officer
CAML approach to M&A
Our strong operational and financial platform enabled us to once
again focus on our business development activities in H2 2018
and these efforts are continuing into 2019.
We intend to pursue business development opportunities, primarily
in the base metals sector, where we can add value for shareholders
through accretion in earnings and/or long-term growth. We believe
that, through our Sasa acquisition, we have demonstrated a track
record in appraising appropriate assets for CAML.
Actively looking to grow by acquisition again
¼¼ Currently reviewing opportunities
¼¼ Shuak to be divested
What we’re looking for
¼¼ Low cost producers or development projects
¼¼ Acquisition with manageable balance sheet implications
¼¼ Attractive commodity exposure, ideally copper
We are
¼¼ Geographically agnostic but with some no-go zones
¼¼ Mindful of our dividend
2018
3
site visits
4
due diligence projects
undertaken
7
signed NDAs
22
opportunities screened
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09
STRATEGY
STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
OUR STRATEGIC GOALS AND MEASURES
2018 has seen our team focused on ensuring the effective integration of the Sasa operation into our business and we
believe that we have achieved this. We have delivered accretive growth through this acquisition and have also repaid
$38.5 million of our debt during the course of the year.
Sustainable operations
Risks
Measures - 2018
¼¼ Safely extracting maximum value from
Operational
Sasa and Kounrad
– Sasa 2019 zinc production guidance of 22,000 to
24,000 tonnes and lead production guidance of
28,000 to 30,000 tonnes
– Kounrad 2019 copper production guidance of 12,500
to 13,500 tonnes
– Sasa life of mine to 2038 (Probable Reserves and
Indicated and Inferred Resources)
– Kounrad life of operation to end of licence in 2034
Maintain low production costs
¼¼ Continued focus on maintaining CAML’s Group position
Operational
firmly in the lowest quartile of the C1 copper equivalent
cost curve. Continued capital cost control at both
operations.
¼¼ 2018 achievements
– Sasa C1 zinc equivalent cash cost $0.46 per pound
– Kounrad C1 copper cash cost $0.54 per pound
– CAML C1 copper equivalent cash cost $0.87
per pound
Maintain high CSR standards
¼¼ Putting the safety of our employees above profits
Operational
¼¼ Looking after our operating environment
¼¼ Enhancing the local communities
– In 2018, we opened a community drop-in centre in
Sasa local town, Makedonska Kamenica
– In 2018, we established the Kounrad Foundation,
funded annually with 0.25% of Kounrad’s revenue
Increase shareholder value
2018 zinc production
22,532t
2018 lead production
29,388t
2018 copper production
14,049t
C1 zinc equivalent cash cost of
production
$0.46/lb
C1 copper cash cost of
production
$0.54/lb
Health and safety Group total
recordable incident frequency
rate (‘TRIFR’)
3.76
¼¼ 2017 Sasa acquisition demonstrated to be value
accretive
¼¼ 2018 debt repayments totalling $38.5 million
¼¼ CAML has a proven track record in rewarding
shareholders with attractive dividends, having shortly
returned over $160 million to shareholders in share buy
backs and dividends
¼¼ Continue to appraise business development
opportunities
Operational
External
Dividend to shareholders based
on free cash flow target
returning between
30% and
50%
For Principal Risks and Uncertainties see page 36-39
C EN T R A L ASI A ME TA L S PLC
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10
BUSINESS MODEL
HOW WE GENERATE VALUE
OUR KEY STRENGTHS
OPERATING WITH EXCELLENCE
People, knowledge and experience
We are proud of the teams that we have at
Sasa and Kounrad and now employ over
1,000 people, with less than 10 expatriates
at both of our sites. We provide
wide-ranging training programmes for our
operational teams and in some cases
tertiary education for key talent.
¼¼ Only 1% of our workforce at Sasa
are expatriates
¼¼ Kounrad workforce solely local
¼¼ Experienced and capable local teams
¼¼ Strong Board with complimentary
skills and London-based senior
management team
Proven processes
Sasa produces a zinc concentrate and a
lead concentrate through typical
underground mining techniques followed
by standard milling and froth flotation.
Seven years successfully leaching copper
at Kounrad.
SX-EW plant produces copper cathode in a
relatively simple and reliable processing
facility. Capacity to produce 50 tonnes of
cathode daily.
Reserves and resources
Sasa has reserves and resources to
support a 19 year mine life.
Kounrad, 170,000 tonnes of estimated
recoverable copper resources, which
should ensure a life of operation to the end
of the licence in 2034.
In-country knowledge
Sasa is viewed as an extremely important
North Macedonian company – a top 10 tax
paying business.
13 years’ operations in Kazakhstan,
with senior Board representation from
Nurlan Zhakupov, our in-country Director.
IDENTIFYING AND
ACQUIRING ASSETS
EFFICIENT EXTRACTION
¼¼ M&A
¼¼ Mining ore
In November 2017, we
demonstrated our ability
to complete complex
M&A transactions as,
following three years of
business development
efforts, we identified and
acquired the Sasa mine
in North Macedonia for
$402.5 million and have
met our production
guidance during 2018,
generating EBITDA of
$71.2 million.
At Sasa we operate an
underground mine in a
sub-level caving operation
to produce about 800,000
tonnes of ore annually that is
transported to surface by both
shaft and truck. The material is
then crushed and milled, and
then processed into separate
zinc and lead concentrates by
froth flotation. The concentrate
is then de-watered and
trucked to nearby smelters
for further treatment.
2017 Sasa acquisition
$402.5m
Sasa 2018 ore extraction
803,101t
¼¼ Further asset screening
We are once again looking
to grow by acquisition in
2019 and beyond.
¼¼ In-situ dump leaching
At Kounrad we produce copper
by in-situ dump leaching, which
extracts the copper from
waste dumps and leaches it
into a pregnant leach solution
that is transported through
pipelines to the SX-EW
processing plant where sheets
of copper cathode are
produced.
Remaining recoverable copper
170,000t
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STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
LOW COST OPERATION
ESTABLISHED SALES PIPELINE
¼¼ Processing
Sasa, on-site costs of
only $37.2 per tonne
C1 zinc equivalent cost
$0.46/lb
¼¼ SX-EW
Kounrad, one of the
lowest cost copper
producers globally
C1 copper cash cost
$0.54/lb
Group copper equivalent
C1 cash cost
$0.87/lb
¼¼ offtake agreement
with Traxys for 100%
of zinc and lead
concentrates from
Sasa until 2022
2018 zinc concentrate grade
48.9%
2018 lead concentrate grade
72.9%
¼¼ offtake agreement
with Traxys for 95%+
copper cathode from
Kounrad until 2022
Copper cathode purity
99.998%
C EN T R A L ASI A ME TA L S PLC
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DELIVERING VALUE FOR ALL
OF OUR STAKEHOLDERS
Investors
EBITDA/share 71.00 cents
(65% accretion)
EPS 31.33 cents
(8% accretion)
Dividend
14.5p
Employees
684 employees at Sasa
340 employees at Kounrad
Total number of employees
1,039
(including 15 in London head office)
Governments
Sasa is one of North Macedonia’s top
10 tax paying companies
Tax paid in North Macedonia in 2018
$22.5m
Tax paid in Kazakhstan since 2012
$123.5m
Communities
North Macedonia – development of
Makedonska Kamenica playground,
sponsorship of local sporting teams,
funding to improve classrooms for
mining studies in local secondary school.
Sasa local community receives c.80% of
the 2% revenue-based concession fee.
Kazakhstan – 2018 launch of Kounrad
Foundation, with funding delivered for
Balkhash orphanage, Kind Heart Centre
for disabled children and regeneration
of Kounrad recreational areas.
2018 social contributions in
North Macedonia and Kazakhstan
$0.6m
For CSR see pages 28-31
12
12
OUR M ARK E TS
2018 MARKET CONDITIONS
While commodity prices during H1 2018 remained strong, H2 was a
challenging period for copper, zinc and lead prices, resulting in an average
fall during the year for these metals of 20%. Despite CAML’s robust, low
cost operations, this led to a fall in the Company’s share price.
PRODUCING THREE BASE METALS
WITH ATTRACTIVE FUNDAMENTALS
ZINC
1 Jan 2018
$3,309
-24%
31 Dec 2018
$2,511
Commodity market zinc ($/t)
Average $2,923/t
During the year, zinc traded within the range
of $2,287 and $3,618 per tonne averaging
$2,923 (2017: $2,893 per tonne). Zinc started
the year at $3,309 per tonne and closed at
$2,511 per tonne which represented a
decrease of 24.1%.
According to International Lead and Zinc Study
Group (‘ILZSG’), global mine output grew in
2018 by 2.7% to 13.0 million tonnes and is
expected to grow by a further 7.1% to 13.9
million tonnes in 2019 as new operations such
as Gamsberg and Century tailings ramp up.
Glencore recently raised its 2019 zinc
production guidance to 1.195 million tonnes,
from 1.09 million tonnes in 2018, with the
re-start of Lady Loretta mine in H1 2018
expected to reach full capacity in 2019.
Despite the forecast of increased concentrate
supply, stocks of refined metal remain
depleted and are set to fall to very low levels
between 2019 and 2020, and this should
provide support to the zinc price. The primary
cause of the refined metal draw down is due
to constrained Chinese smelter capacity due
to cutbacks and closures on environmental
grounds. That said, Chinese smelter
production is forecast to grow by almost 10%
in 2019, supported by adequate supply of
concentrate from the new mines and
according to ILZSG, the 2018 market deficit
of 384,000 tonnes is expected to decline to
146,000 tonnes in 2019.
Spot treatment charges (‘TCs’) continue to
trend higher, reaching $210-230 per tonne
in December, their highest in more than five
years, reflecting the improved availability
of concentrate following the ramp-up of
production from new mines and constrained
Chinese smelter capacity.
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STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
COPPER
1 Jan 2018
$7,157
-17%
31 Dec 2018
$5,965
Commodity market copper ($/t)
Average $6,522/t
During the year, copper traded within the
range of $5,823 and $7,263 per tonne
averaging $6,522 (2017: $6,173 per tonne).
Copper started the year at $7,157 per tonne
and closed at $5,965 per tonne which
represented a decrease of 16.7%.
According to Wood Mackenzie, the copper
market has strong fundamentals with total
copper refined production in 2019 expected
to grow by 1.3% to 24.9 million tonnes whilst
consumption growth of 2.1% to 24.3 million
tonnes is forecast.
In 2018, despite initial fears, supply disruption
was below historical averages of around 5%.
The big supply risk from Escondida, which is a
1 million tonne per year copper producer, did
not materialise meaning supply was not as
scarce as had been expected.
The refined copper market deficit is expected
to widen from 94,000 tonnes in 2018 to
292,000 tonnes in 2019, with stocks
expected to fall to below average levels in the
order of 62 days of consumption (2018: 68
days). By 2020/2021, the market is expected
to be even tighter with stocks expected to fall
to around 59 days of consumption. This is
broadly forecast to generate a strong
recovery in prices.
Total global stocks of refined metal should
remain at historical lows until 2020, after
which the forecast increase in supply is not
expected to restore the market balance to
normal levels until around 2023.
Global lead demand is expected to increase
by 1.6% per year until 2021 from the 2018
13.2 million tonnes to 13.5 million tonnes,
while refined production is expected to
increase by a little more to 13.7 million tonnes.
LEAD
1 Jan 2018
$2,495
-20%
31 Dec 2018
$2,009
Commodity market lead ($/t)
Average $2,243/t
During the year, lead traded within the range
of $1,867 and $2,683 per tonne averaging
$2,243 (2017: $2,316 per tonne). Lead started
the year at $2,495 per tonne and closed at
$2,009 per tonne which represented a
decrease of 19.5%.
The lead concentrate tightness of the past
two years is expected to continue until 2020,
when increased mine production is expected
to switch the market into surplus. A similar
timeline is expected for refined lead.
Despite ramp-ups and re-starts of key global
zinc mines, total lead output fell to 4.7 million
tonnes in 2018 and indeed has contracted by
an annual average of 0.6% between 2015 and
2018. Wood Mackenzie estimates that it will
grow at an average of 2.9% from 2019 to
2021, with tightness persisting until 2022.
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14
OUR MARK E TS con tInued
Financial markets and CAML share price
Since the Company’s IPO in September 2010, CAML’s share
price has significantly outperformed the FTSE AIM All Share/
Basic Resources Index, primarily due to CAML’s strong
operational performance, low production costs and high
dividend yield.
Indeed, while the FTSE AIM All Share/Basic Resources Index
demonstrates a significant loss during the seven-year period
in which the shares have been publicly quoted, CAML can
demonstrate a compound annual growth rate (‘CAGR’) in
total shareholder returns, taking into account share price
appreciation and dividends to shareholders, of 16%.
During 2018, the CAML share price closed at £2.17, which
represents a 29.1% decrease (31 December 2017: £3.06).
The FTSE AIM All Share/Basic Resources Index performed
in a similar manner and lost 24.9% during 2018 (see graph 2).
The fall of the CAML share price and the FTSE AIM All Share/
Basic Resources index appears to be driven by an average of
a 20% reduction in copper, zinc and lead prices (as well as
other commodities), a strong US Dollar and the trade wars
between China and the USA. This is creating economic
headwinds, affecting business investment, consumer
confidence and resulting in risks of a global economic
slowdown. In addition, the weak GBP and 2018 uncertainty
over the Brexit outcome also contributed in temporarily
reducing international investors’ appetite in GBP
denominated assets and stocks.
The graphs below show CAML’s share price performance
against the FTSE AIM All Share/Basic Resources.
CAML versus AIM basic resources IPO – 2018
CAML versus AIM basic resources 2018
)
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CAML
FTSE AIM All Share / Basic Resources (Rebased)
CAML
FTSE AIM All Share / Basic Resources (Rebased)
C EN T R A L ASI A ME TA L S PLC
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STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
North Macedonia
The International Monetary Fund (‘IMF’) estimates 2018 GDP
growth to have been 2.0%, increasing to 2.6% in 2019, and
the European Bank for Reconstruction and Development
(‘EBRD’) is projecting similar figures. In the medium term,
GDP growth is expected to approach 3.5%, driven by
infrastructure investment and stronger exports, according
to the IMF. Political uncertainty remains a key risk to growth,
although structural reforms and the potential for
commencement of EU accession negotiations could boost
the country’s economy through higher capital inflows and
enhanced confidence.
Indeed, according to the World Bank, increasing the
productivity of North Macedonia’s economy, enhancing job
opportunities and achieving fiscal, social and environmental
sustainability would allow North Macedonia to maximise the
benefits from EU integration and close the income gap with
Europe, with more and better-paid jobs for its citizens.
Kazakhstan
According to the World Bank’s latest Kazakhstan Economic
Update, 2018 GDP growth is expected to have been 3.8%,
down marginally from 4.1% in 2017, and should stabilise at
around 3% in the medium term. This result reflects a
better-than-expected oil sector performance and a steady
increase in the service and agriculture sectors against a
decline in productivity growth due to a still dominant state
economy. Inflation eased to 5.3% in 2018, down from 7.1% in
2017, and the Kazakh Tenge weakened against the US Dollar
from 328 to 372 during the year.
In an attempt to grow the economy, Kazakhstan has initiated
a series of reforms including civil service reforms, fiscal
decentralisation, judicial modernisation and measures to
improve the business environment. The implementation of
these reforms could accelerate Kazakhstan’s transition
towards a new growth model with a diversified and
productive economy.
The IMF expects 2018 inflation to have been 1.8%, increasing
to 2.0% in 2019. The jobless rate is seen to drop below 20%
from the current 21% and net wages, which average around
€400 per month, to increase by 4.5% in 2019.
Looking to the future, Kazakhstan’s economic performance
is expected to improve due in large part to the oil industry.
However, analysis shows that productivity improvements
will be key for sustainable and long-term growth.
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16
OUR MARK E TS con tInued
COPPER
The automotive industry is expected to be one of the key
drivers for higher consumption of copper into the future,
as the world moves to increased usage of electric vehicles
(‘EVs’), which typically require approximately four times
more copper than internal combustion engines. In addition,
significant volumes of copper will also be required to ensure
that adequate infrastructure is available to supply electrical
power to EV charging points.
Automakers are preparing to phase out cars powered solely
by internal combustion engines (‘ICEs’) as governments look
to tackle fuel emissions. The growth in EVs and hybrid
electric vehicles (‘HEVs’) is rapid. Global electric car sales in
2018 grew sharply, and are expected to account for around
2% of total sales, or over 2 million units, compared to the
1.3 million units sold in 2017.
Wood Mackenzie estimates that copper demand from EVs will
become significant beyond 2025, when they are expected to
account for an estimated 12% of vehicle production although it
will not be until the early 2030s that it is assumed that copper
demand from EVs will exceed that from ICEs.
At present a key barrier to mass-market adoption of
EVs remains high vehicle costs relative to ICE powered
alternatives. Battery costs are a major contributor to higher EV
prices, although cost reductions are occurring. Mass-market
adoption is only likely to become reality once the full cost
benefit of EVs are at least as attractive as ICE alternatives.
On the flipside, potential changes in the form of more
aggressive legislation on emissions and fuel economy
would provide upside risks to the current outlook.
THE AUTOMOTIVE INDUSTRY UNDERPINS...
ZINC
While zinc demand is expected to continue to increase in
the future, the impact of EVs on zinc demand in the near to
medium term is likely to be minimal, as the reduced use of
zinc-coated steels in a bid to lighten EVs should be more
than offset by the increased use of these steels in
conventional ICE vehicles in developing world markets. In
these regions, domestic automakers are also moving to
improve corrosion resistance of their vehicles to levels
comparable to those produced in developed economies
and this would require additional zinc consumption.
In the long term (2030 and beyond), it is very difficult to
determine what the EV impact will be on zinc usage as the
various proposals for elimination of ICE, together with
autonomous vehicles, will allow for the radical redesign
of vehicles. Furthermore, the anticipated uptake of
ride-sharing schemes will see fewer vehicles required,
although these are likely to be more heavily utilised.
There is an upside risk to this outlook in the medium to
long-term in the form of a new zinc-based battery
technology that is being commercialised. This technology
has the potential to replace Li-ion based battery chemistries
and also both lead and nickel-metal hydride batteries.
C EN T R A L ASI A ME TA L S PLC
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STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
...LONG-TERM DEMAND FOR OUR METALS
LEAD
Approximately 85% of all lead consumption is for
lead-acid batteries, commonly used in the automotive
industry. Lead demand is expected to remain steady over
the coming decade, averaging around 1.5% growth per
annum and driven by continuing growth in batteries for
the automotive sector and industrial applications.
Despite the recent softening in Chinese auto demand,
global consumption of lead for automotive batteries
continues to increase, supported by strong growth in
India and parts of South East Asia.
The rapid expansion in EVs will have only a limited
impact on lead use. The adoption of EVs is likely to be
constrained – especially in developing countries – by their
affordability as insufficient availability of battery raw
materials keep prices for lithium-ion power packs high.
Another key mitigating factor is that EVs continue to
use lead batteries. The lithium-ion pack provides power
to drive the vehicle but the lead auxiliary battery
essentially does the job of the battery in a regular
internal combustion engine car, although these lead
batteries would typically be 35-60% smaller than those
in regular vehicles.
Start-stop (AKA ‘idle-stop’) technology is an effective way
for manufacturers to reduce vehicle emissions and their
adoption is quickly becoming commonplace, especially in
the key US and Chinese markets. The tougher duty cycle
for these batteries from making more frequent engine
starts requires larger batteries containing around 25%
more lead than a non start-stop unit. This technology is
expected to provide a significant offset for the reduction
in lead use from the growing population of EVs.
Source: Wood MacKenzie
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18
OPER ATIONAL OVERVIE W
SASA, NORTH MACEDONIA
We were pleased to deliver production
of zinc and lead from our Sasa mine
in North Macedonia that was at the
top end of our 2018 production
guidance range.
2018 zinc recovery
2018 lead recovery
84.6%
93.6%
How we produce zinc and lead
Scott Yelland
Chief Operating Officer
MINE
CRUSH AND SCREEN
MILL
FRoTH FLoTATIoN
REMovE MoISTURE
SToRAGE
To MARKET
Sub-level caving
underground mine
with ore transported
to surface by shaft
(70%) and
by truck (30%)
Jaw and cone
crushers
Rod mills, spiral
classifiers and ball
mills. Ore milled
to c.74 microns
Two concentrates
produced – lead
containing silver,
and zinc
Thickened and pressed
to de-water
Saleable concentrate
products stored in
sheds awaiting
loading
Concentrate trucked
to smelters in nearby
Poland and
Bulgaria
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STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
Zinc and lead production
In 2018, Sasa mined 803,101 tonnes of ore and processed
804,749 tonnes of ore. The average head grades for the
year were 3.31% zinc and 3.90% lead respectively, resulting
in a combined grade of 7.21%. Metallurgical recoveries for
zinc and lead averaged 84.6% and 93.6% respectively.
Sasa annual production
)
t
k
(
n
o
i
t
c
u
d
o
r
p
l
a
t
e
M
70
60
50
40
30
20
10
0
2011
2010
Zn production
2012
2013
2014
Pb production
2015
2016
Throughput
2017
900
800
700
600
500
400
300
200
100
0
)
t
k
(
t
u
p
h
g
u
o
r
h
t
t
n
a
P
l
2018
Sasa produces a zinc concentrate and a separate lead
concentrate that contains silver. Total 2018 production was
46,128 tonnes of zinc concentrate at an average grade of
48.9% and 40,317 tonnes of lead concentrate at an average
grade of 72.9%.
Sasa typically receives from smelters approximately 84%
of the value of its zinc in concentrate and approximately
95% of the value of its lead in concentrate. Accordingly,
total payable production for 2018 was 18,842 tonnes of
zinc and 27,919 tonnes of lead. Given the multiple daily
dispatches of concentrate, payable base metal in
concentrate sales for the year are very similar at 18,792
tonnes of zinc and 27,878 tonnes of lead.
During 2018, Sasa sold 375,366 ounces of payable silver
through its streaming agreement with Osisko Gold Royalties.
Production statistics
Units
2018
2017*
2016
Ore mined
Plant feed
Zinc grade
Zinc recovery
Lead grade
Lead recovery
Zinc concentrate
– Grade
– Contained zinc
Lead concentrate
– Grade
– Contained lead
t 803,101 792,068 782,823
779,231
t 804,749 793,332
3.41
3.18
84.6
85.5
3.95
3.98
94.1
94.6
45,548
43,676
49.4
49.4
22,515
21,585
39,507
40,757
73.3
73.3
28,955
29,881
3.31
84.6
3.90
93.6
46,128
48.9
22,532
40,317
72.9
29,388
%
%
%
%
t (dry)
%
t
t (dry)
%
t
* CAML acquired Sasa in November 2017
Mining
A total of 803,101 tonnes of ore were mined in 2018 from
between the XIVb and 830 metre levels (see diagram
below), using the sub level caving mining method. The
underground operations during the year performed well
and consistently produced over 2,200 tonnes of ore per
day, which is hoisted and trucked to surface for processing.
A total of 3,030 metres was developed during the year,
including 345 metres in the main ramp from the 830 metre
level down to the 750 metre level that was completed in
December. This will provide access for the exploration
drilling team to continue to explore the down dip extensions
of the Svinja Reka orebody.
The underground equipment fleet was supplemented during
the year with the purchase of a new Epiroc ST7 loader and
two Paus utility vehicles.
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20
OPER ATIONAL OVERVIE W con tInued
SASA MINE
Oleg Telnoi
General Director – Sasa
I became the General Director of Sasa
in May 2018, having moved from the
Kounrad operation where I was
previously General Director of Kounrad
Copper Company for three and a half
years. I am enjoying the new challenge
at Sasa and the opportunities that it
has presented, both personally and for
the mine. I will ensure that Sasa is
operated as safely as possible and is
optimised for the future, to ensure
a long and profitable life for CAML
and for our North Macedonian
and other stakeholders.
Processing
The Sasa processing facility has continued to perform well
with availability of 95.3% (2017: 95.1%) enabling throughput of
804,749 tonnes (2017: 793,332 tonnes) of ore against
guidance of between 780,000 tonnes and 800,000 tonnes.
This resulted in CAML achieving 2018 production guidance for
both base metals, delivering 22,532 tonnes of zinc in
concentrate and 29,388 tonnes of lead in concentrate.
The marginally lower lead recovery in 2018 was due to subtle
changes in mineralogy in the current area of production.
Sasa’s metallurgical team is investigating alternative flotation
reagents so as to ensure lead recoveries are maximised
during 2019 and beyond.
The lower than expected zinc recovery was related to
production disruptions associated with a mechanical failure of
the zinc regrind mill motor and subsequent installation and
fine-tuning of the new stirred media detritor mill (‘SMD’) in Q2.
In addition, power outages in June and a loss to tailings of zinc
over a small number of shifts in December also contributed.
The SMD mill, which was ordered prior to CAML’s acquisition
of Sasa, has been operating smoothly for the past six months,
although its installation has not resulted in increased zinc
recovery as envisaged by the previous management team.
The Sasa team is currently engaged in a programme of
metallurgical testing to ascertain whether minor
modifications to the SMD flowsheet could achieve improved
zinc recoveries. These investigations are being supported
by the newly-built on-site metallurgical test laboratory.
This laboratory will also be used to undertake testing of
mineralogy representing future ore production to ensure
continuity of plant performance for the life of the operation.
Additional technical staff were appointed in 2018, further
bolstering the production team and allowing for flexibility
in the mineral processing plant.
2019 production guidance
The 2019 production target for Sasa has been increased
to a mining and processing rate of between 800,000 and
825,000 tonnes, resulting in metal output of between
22,000 and 24,000 tonnes of zinc and between 28,000 and
30,000 tonnes of lead in concentrate.
Tailings storage facility
In Q2 2017, the Sasa team commenced construction of TSF4.
Construction of this facility is nearing completion and is now
expected to be concluded in 2019. TSF4 should provide
tailings storage for seven years.
Sasa’s current and future tailings storage facilities are of
downstream construction, which is widely viewed in the
industry as the safest design. Stip University technical
experts regularly review the TSFs and their construction has
been in line with North Macedonian standards. In 2016,
Golder Associates (global tailings dam experts) undertook
an audit and review of the facilities at Sasa, and in February
2019, CAML instructed the group to perform another review.
Development and exploration
During H2 2018, CAML commenced a LoM study at Sasa. This
work programme will entail an in-depth review of each aspect
of the Sasa operation, with the aim of working as safely as
possible while optimising production. The study is expected
to be completed during 2019.
In an effort to enhance future productivity, various studies
were initiated in 2018, including a study to potentially increase
production through the reinstatement of the currently
decommissioned tertiary crushing circuit.
Summary of Sasa Mineral Resources and ore
Reserves
During 2018, CAML undertook diamond drilling at both Svinja
Reka, the location of current Sasa mining operations, and
Golema Reka, which was mined between 1981 and 2010. The
assay results of these holes were released on 9 January 2019.
Approximately 3,000 metres of drilling were undertaken at
each deposit, with the aim of verifying previous exploration
programmes and converting a portion of the Inferred Mineral
Resources into the Indicated category.
An updated Mineral Resource Estimate (‘MRE’) for both the
Svinja Reka and Golema Reka deposit was completed by Guy
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STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
Dishaw, a Principal Consultant (Mining Geology) with SRK Consulting (UK) Ltd., who is a Member of the Association of
Professional Engineers and Geologists of Saskatchewan. Guy Dishaw has some twenty years’ experience in the exploration,
definition and mining of precious and base metal Mineral Resources. Guy Dishaw has sufficient experience which is relevant
to the style of mineralisation and type of deposit under consideration, and to the type of activity which he is undertaking to
qualify as a “Competent Person” as defined by JORC and as required by the June 2009 Edition of the AIM Note for Mining and
Oil & Gas Companies. Guy Dishaw has reviewed, and consents to, the inclusion in the announcement of the matters based
on their information in the form and context in which it appears and confirms that this information is accurate and not false
or misleading.
SRK Mineral Resource Statement for Combined Svinja Reka and Golema Reka deposits of the Sasa mine, as of 31 December
2018, reported at $35.0 and $40.0 per tonne net smelter return (‘NSR’) cut-off respectively.
Classification
Deposit
Indicated Mineral Resources Svinja Reka
Golema Reka
Total Indicated
Inferred Mineral Resources Svinja Reka
Golema Reka
Total Inferred
Total Indicated and Inferred mineral
resources
Tonnage
(mt)
Pb grade
(%)
Pb contained
(kt)
Zn grade
(%)
Zn contained
(kt)
Ag grade
(g/t)
Ag contained
(koz)
12.3
1.3
13.6
2.7
6.3
9.0
4.80
3.80
4.71
3.55
3.47
3.49
592
48
640
96
217
313
3.80
1.61
3.60
2.64
1.38
1.76
468
20
489
71
86
157
25
13
24
18
12
14
9,857
528
10,385
1,545
2,444
3,989
22.5
4.23
953
2.87
646
20
14,374
Notes:
• CAML owns 100% of the Sasa mine and is the operator. All Indicated Mineral Resources are reported within the Exploitation Licence, although
approximately 600kt (22%) of reported Inferred Resources at Svinja Reka exist outside the Exploitation Licence.
• Mineral Resources are reported as undiluted. No mining recovery has been applied in the Statement.
•
Tonnages are reported in metric units, grades in percent (%) or grams per tonne (g/t), and the contained metal in metric units. Tonnages, grades, and
contained metal totals are rounded appropriately.
Rounding, as required by reporting guidelines, may result in apparent summation differences between tonnes, grade and contained metal content.
•
Svinja Reka
The updated MRE has demonstrated a 4% increase in overall
zinc grade to 3.59% and a 7% increase in lead grade to 4.58%
when compared to the previous 1 July 2017 MRE. This
improvement in reported grades is largely a result of the
intersection of mineralisation that was both thicker and higher
grade than expected in the drilling between the 830 metre
and 750 metre levels. This increase in grade has resulted in
only a relatively small decrease in contained metal since the 1
July 2017 statement of approximately 7,000 tonnes of lead
and 6,000 tonnes of zinc, despite production during the
period of 33,378 tonnes of zinc and 44,390 tonnes of lead.
The total Svinja Reka combined Indicated and Inferred
Resources of 15.1 million tonnes reflects removal from the
model of 1.46 million tonnes of material that was mined or not
recovered, 0.45 million tonnes of Inferred Resources that
were converted to Indicated Resources and 0.45 million
tonnes of new Inferred Resources that were identified
through the drilling programme.
Golema Reka
At Golema Reka, combined Indicated and Inferred Mineral
Resources of 7.6 million tonnes reflect an increase of 0.2
million tonnes since the 1 July 2017 statement as a result of
the drilling programme. 1.3 million tonnes of the total have
been upgraded from the Inferred to Indicated category,
demonstrating an increased level of confidence in this
material, as a result of the 2018 drilling programme.
SRK Statement of ore Reserves
SRK also updated the Svinja Reka Ore Reserve estimate to
reflect depletion due to ore extraction since the previous
estimate dated 1 July 2017. The Competent Person who has
reviewed the Ore Reserves and the LoM plan is Chris Bray,
BEng, MAusIMM (CP), who is a full-time employee of and
Principal Consultant (Mining) at SRK. He is a Member of and
Chartered Professional in the Australasian Institute of Mining
and Metallurgy, a ROPO. Chris Bray is a Mining Engineer with
20 years’ experience in the mining and metals industry,
including operational experience in underground lead-zinc
mines, and as such qualifies as a Competent Person as
defined in the JORC Code (2012).
Statement of Ore Reserves for the Sasa mine at
1 January 2019
Quantity
Grade
Contained
Category
Mt
Pb
(%)
Zn
(%)
Ag
(g/t)
Pb
(kt)
Zn
(kt)
Ag
(t)
Svinja Reka, Reserves
Probable
9.7 3.84 3.06
18.1
373
298
Total
9.7 3.84 3.06 18.1
373
298
176
176
Notes:
• All figures are rounded to reflect the relative accuracy of the estimate
•
and have been used to derive sub-totals, totals and weighted
averages. Such calculations inherently involve a degree of rounding
and consequently introduce a margin of error. Where these occur, SRK
does not consider them to be material. The Concession is wholly
owned by and exploration is operated by Rudnik SASA DOOEL, a wholly
owned subsidiary of CAML.
The LOM plan (with effective date 1 January 2017) has been depleted
based on ore production to 31 December 2018.
The metal prices used to assess the Ore Reserve estimate in the
financial model are based on a Consensus Market Forecast from
January 2019.
The standard adopted in respect of the reporting of Mineral Resources
and Ore Reserves for the Project, following the completion of required
technical studies, is in accordance with the guidelines of the 2012
Edition of the Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves (the ‘JORC Code’).
• Ore Reserves are reported inclusive of Mineral Resources.
•
•
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22
OPER ATIONAL OVERVIE W con tInued
KOUNRAD, KAZAKHSTAN
Resources map
ESTIMATED REMAINING COPPER TO BE RECOVERED
Western
Dumps
c.
158,000t
original
pit
Eastern
Dumps
c.
12,000t
Kounrad
village
Plant
We have once again delivered above
guidance copper production from
our Kounrad facility in Kazakhstan.
Copper cathode purity
99.998%
How we produce copper
LEACHING AND SX-EW TECHNOLOGY OVERVIEW
IRRIGATIoN
LEACHING
EXTRACTIoN
STRIPPING
ELECTRo-WINNING
CoPPER CATHoDE
Irrigation of dumps
Leaching of copper into
PLS solution
Extraction of copper from PLS
Stripping of copper from
organic solution
Electro-winning of
copper from electrolyte
Production of copper cathode
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STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
2018 cathode production
During the year, the SX-EW plant produced 14,049 tonnes
of copper cathode, a slight reduction from the previous year
(2017: 14,103 tonnes) although slightly above the top end of
the 13,000 to 14,000 tonne guidance range. Total Kounrad
copper production since operations commenced in April 2012
is now 82,474 tonnes, averaging over 1,030 tonnes per month.
As reported in 2017, the major capital construction works for
the life of the operation have now been completed. Therefore,
2018 modification and construction expenditures have
predominantly been related to sustaining operational activities
at a cost of approximately $1.4 million.
During 2018, copper was leached from both the Eastern and
Western Dumps, with both areas performing in line with our
forecasts. This combined approach will continue into 2019,
with approximately 70% of copper production expected to
be leached from the Western Dumps. From 2020 onwards,
the contribution from the Eastern Dumps will decline to less
than 20% of total output.
Leaching operations
Both the Eastern and Western Dumps were simultaneously
leached during 2018. As well as leaching copper from fresh cells
in the Eastern Dumps, the team also focussed on irrigating
previously leached blocks in order to maximise the recovery of
copper, after having allowed them to rest for periods of in some
cases almost two years. This approach worked extremely well,
resulting in total 2018 output from the Eastern Dumps of 5,069
tonnes, taking the total quantity of copper recovered from this
area since operations commenced to 67,928 tonnes or 85% of
that initially estimated. The average area under irrigation at the
Eastern Dumps during the year was 30 hectares.
Kounrad quarterly copper production
)
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(
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t
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o
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e
t
r
a
u
Q
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
90
80
70
60
50
40
30
20
10
0
)
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k
(
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e
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C
l
2012
2013
2014
2015
2016
2017
2018
At the Western Dumps, the focus of irrigation remained on
parts of Dumps 16 and 22 within the initial leach area (‘ILA’).
During 2018, 8,980 tonnes of copper were recovered,
contributing 64% to the total Kounrad copper production.
The average area under irrigation on the Western Dumps
was 24 hectares of fresh, previously un-leached material.
With both dump areas simultaneously under active
irrigation, there was a significant year on year increase in
the volume of raffinate pumped around the site to an
average of 1,332 cubic metres per hour versus 989 cubic
metres per hour in 2017, equating to an increase of 34%.
During the course of the year, an intermediate leach
solution (‘ILS’) was successfully implemented, with
recycling of off-flow solutions at the Eastern Dumps and
also between Eastern and Western Dumps with the aim of
maintaining broadly stable PLS grades to the SX plant.
This will be continued in 2019 as and where appropriate.
The Eastern Dumps contributed 36% of overall copper
produced and is forecast in 2019 to contribute approximately
30% of total copper production from three fresh leach cells
in Dump 5, coupled with rested blocks. By the end of 2019,
over 90% of the expected recoverable copper from the
Eastern Dumps will have been extracted.
Application rates of solution to the dumps was maintained
at approximately 2.6 litres per square metre per hour
throughout the year. Direct field experience and further
detailed analysis of data has shown this rate to be a key and
optimal parameter for successful operations.
Boilers allow us to continue to
produce during the cold
winters
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24
OPER ATIONAL OVERVIE W con tInued
KOUNRAD
OPERATION
Pavel Semenchenko
General Director – Kounrad
I have been the General Director at
Kounrad for 10 years, having managed
the operation through the receipt of the
sub-soil use right, its initial construction
and subsequent expansions. I am
extremely proud of what we have
achieved to date, in terms of copper
output and also with regard to the
support we’ve been able to give to the
many worthy causes in the local
communities. I look forward to
overseeing reliable and cost effective
production for many years to come.
Kounrad’s external leaching advisor continued its valuable
technical oversight of the operation, making two visits to
Kounrad during the course of the year. With much more
additional field data for analysis, it has been possible to
confirm that leaching of the Western Dump material is
in line if not slightly better than expectations prior to
commencement of leaching in this area. The leaching rate
achieved to date is faster than expected over the first
180 days (with approximately 30-35% recovery achieved),
meaning that, overall, the 40% copper recovery rates
envisaged should be achieved in 400 days, rather than the
600 days originally foreseen.
This achievement will require the implementation of an ILS
circuit at the Western Dumps coupled with extended “rest”
periods, with these being more important than we have
seen at the Eastern Dumps. The site team is actively
planning for the implementation of such a scheme, which
is expected to be operational from 2020/21 onwards.
Solutions flowing from the Western Dumps contain
significantly higher levels of soluble iron than compared to
the Eastern Dumps (c.20 grammes per litre versus 12
grammes per litre). This is related to the higher sulphide
content of the material in the Western Dumps and is a
positive indicator of strong bacterial and chemical leaching
reactions within the dumps that greatly assist the recovery
of copper from non-oxidised copper minerals. This means
that no additional acid needs to be added to the raffinate
solution applied at the Western Dumps.
Whilst there were no major capital programmes at Kounrad
during 2018, there has been and will continue to be an
ongoing programme of maintaining and extending the
irrigation pipe network, maintaining and enhancing the
solution interception trench and pond system and
preparing the dump areas for future irrigation.
Kounrad site
20
13
Western
Dumps
21a
15
Kounrad
mine
2
Eastern
Dumps
5
7
6
9-10
SX-EW
plant
16
1a
Kounrad
village
22
Network of irrigation pipes
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STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
The SX-EW plant where copper
cathode is produced
SX-EW plant
The SX-EW plant continued to operate efficiently during
2018 and the overall availability throughout the year was
99.5% (2017: 99.5%).
As expected, the average PLS grade declined by 14% from
2.52 grammes per litre copper in 2017 to 2.16 grammes per
litre in 2018. In order to achieve a similar output to 2017, the
operations team made a number of adjustments, including
an increase in the PLS flow rate of 8% to 993 cubic metres
per hour and an improvement in extraction efficiency in the
mixer settler tanks from 77% to 80%.
The main focus for the operations team has been on
efficient plant operations and the tight control of operating
costs. Such initiatives have been the refurbishment of
old stainless-steel cathodes (rather than buying new
replacements) and the potential future sourcing of cheaper
locally fabricated cathodes, to replace purchased and
shipped cathodes from Chile.
Copper sales
Throughout the year, the quality of CAML’s copper cathode
product has once again been maintained at high levels both
chemically and visually and there have been no validated
quality claims. The quality has consistently been reported
at around 99.998% during the year. The Company continues
to sell the majority of its copper production through its
off-take arrangements with Traxys, which are fixed until
30 September 2022.
2019 production guidance
The 2019 target for Kounrad is for copper cathode production
of between 12,500 and 13,500 tonnes, which reflects the
transition to producing more copper from the Western Dumps.
Shuak
During 2018, CAML completed the second exploration season
at Shuak, undertaking both diamond and core hydrotransport
drilling. While the results received have been encouraging,
CAML is of the opinion that this project is unlikely to be of
sufficient scale to warrant development by the Company.
Therefore, CAML plans to return the asset to the current 20%
shareholders, while retaining a minority stake for the future.
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26
PEOPLE A ND CULTURE
DEVELOPING OUR EMPLOYEES
At both Sasa and Kounrad, we are aware of the importance of
our operations on people’s lives in the surrounding areas and
we are committed to making a positive impact on these individuals.
Sasa
At Sasa, we employ 684 people, which represents almost
0.1% of the North Macedonian workforce. Of the total
number of employees, only seven are expatriates and 93%
are from the local municipality of Makedonska Kamenica,
which has around 5,000 residents. Sasa is the biggest
employer in the East Region of North Macedonia and
employs 51 women.
During 2018, the following training was given to
Sasa employees
¼¼ 100% of our team received external occupational
health and safety training
¼¼ 11% attended additional training for their specific roles
¼¼ 7% received internal training on environmental
protection
¼¼ 4% of the employees, constituting all of the mine rescue
team, received training
¼¼ 4% of the team attended external seminars, lectures
and workshops on relevant topics
¼¼ 3% of the team undertook machine handling training
¼¼ Two Sasa employees attended the President Ivanov
School of Young Leaders
Since acquiring Sasa, we have made some
positive changes to improve working conditions
at the mine. We invested in three new buses
which transport mine workers to and from their
homes and we have made some improvements
to the canteen.
We have initiated a process of writing internal
newsletters which will result in a better
information flow and hopefully encourage more
two-way communication. A new Sasa safety
award was instigated, with 10 employees receiving
this for their hard work throughout the year.
Sasa employees
684
Employees received external
health and safety training
100%
The Sasa workshop
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Inspecting solution transfer pipes on the Eastern Dumps
27
STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
Kounrad
At Kounrad, we have a team of 340, with 100% of the
employees being from the local village of Kounrad or local
town of Balkhash. We have only one expatriate – our CSR
Director, Nick Shirley, who also now spends much of his
time in North Macedonia. 67 of our employees are female,
equating to 20% of the team.
During 2018, Kounrad employees attended 16 different
training courses.
¼¼ 100% of our production team received industrial
safety training
¼¼ 18% attended seminars on topics such as ecology,
subsoil use, accounting and legislation
¼¼ 7% of our team attended English courses
¼¼ 10 members of our team are in higher education,
ranging from metallurgy to logistics
We believe that, as a business, we have provided real
development opportunities for our team. Raulan
Kozgambayev joined us in 2013 as Kounrad’s lead
economist and has progressed significantly since, having
been in 2018 appointed Deputy General Director of the site.
Former Kounrad General Director, Oleg Telnoi, and former
Kounrad Engineer, Maxim Salamatov, have both transferred
to the Sasa mine, where they can broaden their experiences
and skills.
London
Our London office comprises three Directors, plus
an additional 12 employees forming the Group senior
management team that includes lawyers, accountants
and mining industry professionals. 50% of the head office
team is female.
Kounrad employees
340
Female employees
20%
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28
CORPORATE SOCIAL RESPONSIBILIT Y
PRODUCING FOR ALL
OF OUR STAKEHOLDERS
We take our corporate social responsibilities (‘CSR’) very seriously at
both Sasa and Kounrad and our ethos and approach is supported and
directed by our Chairman, CEO and Board of Directors.
CAML ensures that all employees and contractors are
sufficiently trained and understand what is expected of
them in terms of health and safety. Significant emphasis is
placed on ensuring the appropriate personal protective
equipment (‘PPE’) is provided to ensure they are
appropriately supplied for their specific tasks. Fully
equipped medical centres are present at both operations,
staffed with dedicated trained and qualified medical staff
and all staff undergo regular independent medical checks.
As a Group, and also as a regulatory requirement, all
operations need to have in place emergency response plans
and have comprehensively equipped teams that can
respond in the event of an emergency. Wherever practically
possible, safety issues that are identified in the workplace
are engineered out and/or additional safety measures taken
to mitigate the risk.
TRIFR (per 1 million hours worked)
for ICMM member companies – 2017
Nick Shirley
CSR Director
Nick Shirley, our CSR Director, splits his time between
the sites in North Macedonia and Kazakhstan and gives
hands-on direction to the CSR teams that report to him
at Sasa and Kounrad. CSR covers wide-ranging aspects,
primarily categorised into health and safety, the
environment and the local community, and our efforts
in these areas are fully integrated within our operations.
Health and safety
CAML has a Group approach to health and safety and
considers safety to be of the utmost importance to the
business. The Group targets zero lost time injuries (‘LTI’),
although has unfortunately fallen short of this in 2018 with
six LTIs at Sasa and two at Kounrad. CAML’s Total Recordable
Injury Frequency rate (‘TRIFR’) at 3.76 is below average, and
a particularly low score compared with other predominantly
underground miners.
Average
CAML 2018
10.02
7.49
6.22
5.74
5.23
5.06
4.58
4.29
4.17
3.94
3.80
3.76
3.57
3.17
3.10
3.09
2.94
CAML has fully integrated health and safety management
systems at both sites and safety teams report to both the
site General Directors and the CSR Director. Rigorous health
and safety monitoring is employed at our operations and
fed back to CAML’s CEO and the Board through the CSR
Committee. All relevant national health and safety
standards in the countries of operation are adhered to,
including, where possible, compliance with international
standards such as ISO.
2.42
2.31
2.09
1.89
1.79
1.74
1.20
1.17
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STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
Sasa
Sasa employees six full-time safety engineers. During 2018,
CAML appointed a new Health and Safety Manager, who is
predominantly based at Sasa. Sasa has one clinic on-site,
which is staffed 24 hours per day and one ambulance. There
is an emergency response and mine rescue team on-site
comprising employees from the operation. Regular drills
and practices are undertaken, and a new emergency
response coordinator was hired in 2018. Over $50,000 was
spent on new emergency response equipment during the
year. Three external health and safety inspections were
made during 2018.
Kounrad
Kounrad has two medical clinics with eight paramedics
providing 24 hour care. There are two ambulances on site
serving the Western Dumps and Eastern Dumps and a
dedicated fire team with a fire engine and full breathing
apparatus on site.
During 2018, two external official health and safety
inspections were conducted and in accordance with the last
unscheduled inspection in November, no non-compliances
were identified. Two external official fire safety inspections
were undertaken, again with no non-compliances identified.
Environment
The Group takes its environmental responsibilities very
seriously at both operations and ensures that its operations
adhere to and comply with all laws and regulations of the
countries of operation. In many cases, international
standards, such as ISO14001, the IFC and Equator Principles
are adhered to.
There are dedicated environmental departments and
teams at both operations, staffed by suitably qualified
environmental engineers, who have developed
comprehensive environmental management systems for
both operations and who report directly to the site General
Directors and the Group CSR Director. There is regular
reporting of environmental issues to the CEO and Board via
the CSR Committee and continual feedback Group-wide
with the aim of continuous improvement.
Sasa
At Sasa, the mine adheres to ISO 14001:2015 requirements,
confirmed by a 2018 external audit. The team completed a
biodiversity study of the catchment area within which Sasa
is located in November 2018, which revealed that the area
contained both rare and never previously encountered
species in North Macedonia.
The site works closely with industry experts at Stip
University, who have undertaken hydrogeological and air
quality monitoring studies at Sasa with positive results.
During the year, the mine was given the ‘Award for
Continuous 10-year Environmental Improvement’ by the
Association of Journalists of North Macedonia. One external
official environmental inspection was conducted during the
year, with no non-compliances outstanding.
Kounrad
Three environmental engineers are employed at Kounrad.
The environmental team undertook 192 internal inspections,
ensuring that the operation was being managed efficiently
from an environmental perspective. There is a fully
developed and integrated environmental management
system in place that helps to ensure that Kounrad adheres
to Kazakh and international standards. At Kounrad, there
were two unscheduled external environmental inspections
during 2018, with no major violations identified.
During 2018, 10 new boreholes were drilled around
the Eastern Dumps and 78 new holes drilled around
the Western Dumps for monitoring purposes. There are
now a total of 198 monitoring and technical abstraction
holes around the Western Dumps.
Drilling boreholes to
test water quality
around Kounrad dumps
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CORPORATE SOCIAL RESPONSIBILIT Y con tInued
Community
At both of CAML’s operations, the teams have developed
good relationships with members of the local community
and have engendered good two-way lines of
communication. At both Sasa and Kounrad, site teams
consult with members of the community regularly to
ascertain the needs of the local areas so that they can
address how CAML can appropriately help, in terms of
support, donations, time and skills.
CAML is very proud of the community support offered to
the areas surrounding both Sasa and Kounrad. Efforts are
focussed on education, help for underprivileged children
and encouraging sporting activity. During 2018, the Group
spent a total of $0.6 million on community support. Now
that it has operations in two countries, the CSR team sees
some similar areas of need in the two local community
areas and is trying wherever appropriate to align its
approach to community support.
Action
Kounrad
Sasa
new year activities
Gifts for employees’ children and food baskets for
employees
presents for employees and for children in the local
schools
presents and aid packs for socially vulnerable groups
Presents for disabled people
playground construction
three in Kazakhstan
one in north Macedonia
Aid for disabled people
Building the ‘Kind Heart centre’
School
new equipment, renovate flooring and roof repairs
computer equipment previously acquired for It
classrooms
sport clubs
support for Balkhash city Hockey Association
Bought new office equipment for local
disabled centre
new equipment for mining department in local
secondary school
10 scholarships for university students focussed on
mining
sponsorship of F.c. Kamenica sasa, F.c. sasa – ladies,
local basketball club
Internal newsletter
commenced in Q4 2018. to be produced biannually
commenced in Q4 2018. to be produced quarterly
International Women’s day
Celebrated
Celebrated
Awarding employees
Quarterly awards for safety suggestions
110 employees awarded for safety in 2018,
the best miner chosen and given larger award
Safety award
Given on ‘Metallurgist day’ as well as on a quarterly
basis for safety suggestions
10 safety awards given on ‘Miners day’
Sasa bought Christmas
presents for local children
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STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
Sasa
During 2018, Sasa appointed a Social Affairs Coordinator and
opened a Community Liaison Centre in the local town,
Makedonska Kamenica, which is a resource for members of
the community to drop-in on a weekly basis, and is staffed by
Sasa mine personnel. Support for the local football teams
continued, along with other sporting activities and the main
playground of Makedonska Kamenica was reconstructed.
Sasa was the main sponsor of the Kamenica Cultural
Summer festival that draws in visitors from other parts of
North Macedonia, and the Miner’s Day celebrations. Sasa also
bought a tractor and ancillary equipment for the local
community to aid waste collection and snow clearance.
North Macedonia suffers from significant emigration of its
young people primarily to the European Union so, during
2018, the mine has played its part in promoting the North
Macedonian mining industry and economy. Sasa funded the
purchase of new IT equipment and the renovation of five
classrooms used for mining studies in the local secondary
school and sponsored 10 students of mining related subjects
through their degrees at Stip University. Two young and
aspiring Sasa employees were enrolled on a two-week
course at the President Ivanov School of Young Leaders.
Kounrad
During 2017, CAML began forming the Kounrad Foundation,
and this charity was activated on 1 January 2018. This is now
the vehicle through which Kounrad donates to the community,
and it is funded by CAML on an annual basis equating to
0.25% of Kounrad revenue. During 2018, the Kounrad
Foundation acquired a building in which to house the Kind
Heart Centre for disabled children that Kounrad has for some
years now supported. Renovation works have commenced,
and this building should be complete and ready to re-home
the group in mid-2019.
In 2017, Kounrad funded and helped to develop recreational
areas in the local town, Balkhash and, during 2018, the team
has done the same in the nearby village of Kounrad, which
have already proved popular with residents of varying ages.
In addition, the site team has made roof repairs to one of the
schools in Kounrad village. As in previous years, the operation
hosted a school visit for 24 senior school pupils who received
a site induction and then a tour of the facilities, with an
explanation of how copper is produced. CAML continued
supporting the Balkhash orphanage, providing funding and
aid where possible.
On 1 December 2018 in a celebration for Day of the First
President of the Republic of Kazakhstan, one of CAML’s
Kazakh subsidiaries, Sary Kazna, was named ‘Sponsor of the
Year’ by the mayor of Balkhash in recognition of the significant
contribution to the socio-economic development of the town.
Foundation spending, 2018 % breakdown
Schools
2%
Medical
assistance
1%
Sport competitions
3%
Kind Heart project
9%
Veterans of the Great
Patriotic War (WWII)
1%
Recreational areas
63%
Supporting the F.C. Sasa – Ladies team
Social assistance
21%
C EN T R A L ASI A ME TA L S PLC
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32
FINA NCIA L RE VIE W
DELIVERING SHAREHOLDER VALUE
CAML has reported considerable growth in 2018 with a strong set of
financial results as the Group generated EBITDA of $125.3 million
(2017: $53.9 million), representing an increase of 132% from the prior year.
Revenue
The Group generated 2018 gross revenue of $204.2 million
(2017: $106.5 million), which is reported after deduction of
treatment charges but before deductions of off-taker’s fees,
penalties, assay adjustments, silver purchases from the silver
stream and distribution & selling costs. Net revenue post these
deductions was $192.3 million (2017: $102.1 million).
Sasa
Sasa typically receives from smelters approximately 84% of
the value of its zinc in concentrate and approximately 95% of
the value of its lead in concentrate. A total of 18,792 tonnes
(2017: 2,906 tonnes) of payable zinc in concentrate and 27,878
tonnes (2017: 4,559 tonnes) of payable lead in concentrate
were sold from Sasa during the year.
The average zinc price received was $2,819 per tonne
(2017: $3,239 per tonne) and for lead was $2,170 per tonne
(2017: $2,401 per tonne). After deduction of treatment
charges, this generated gross revenue of $111.6 million
(2017: $20.0 million).
A zinc and lead concentrate off-take arrangement has been
agreed with Traxys for 100% of the Sasa concentrate
production through to 31 December 2022.
Kounrad
CAML’s copper off-take arrangement with commodity trader,
Traxys Europe S.A., has been fixed through to approximately
October 2022 and the commitment is for a minimum of 95%
of the Kounrad copper cathode production. During 2018 the
off-taker’s fee for Kounrad was $2.5 million (2017: $2.6 million).
A total of 13,695 tonnes (2017: 14,001 tonnes) of copper
cathode from Kounrad was sold as part of the Company’s
off-take arrangements with Traxys and a further 386 tonnes
(2017: 180 tonnes) were sold locally. The increase in local sales
during 2019 has in part offset the local payable VAT. Total
Kounrad copper sales were similar to 2017 levels at 14,081
tonnes (2017: 14,181 tonnes).
Copper revenue benefitted from a 6.7% increase in the
average copper price received, which was $6,518 per
tonne in 2018 compared to $6,107 per tonne in 2017.
This generated gross revenue for Kounrad of $92.6 million
(2017: $86.4 million).
Cost of sales
Group 2018 cost of sales was $76.4 million (2017: $31.4
million), consisting $53.3 million (2017: $8.7 million) of
Sasa-related costs and $23.1 million of Kounrad-related costs
(2017: $22.7 million). This includes depreciation and
amortisation charges during the period of $33.4 million (2017:
$10.8 million), which increased significantly as a result of the
Sasa acquisition fair value uplift. Cost of sales have also
increased due to payroll costs of $12.1 million (2017: $5.1
million) and the costs of reagents, electricity and materials of
$19.7 million (2017: $7.6 million). These reflect the acquisition
of Sasa with a significant increase in number of staff and the
associated costs with the mining operation.
Gavin Ferrar
Chief Financial Officer
overview
CAML’s 2018 growth reflects the acquisition of Sasa on
6 November 2017 as the Group became a diversified base
metals producer adding sales of zinc and lead to its copper
output from Kounrad. Throughout this Financial Review, all
comparative data for 2017 relating to Sasa is presented for the
two-month period of CAML ownership.
Sasa’s 2018 EBITDA was $71.2 million (2017: $14.5 million), with
an EBITDA margin of 64%. Zinc and lead prices declined during
H2 2018, although management integration of the Sasa asset
combined with cost control has ensured that this mine
continues to operate at approximately the lower quartile of
global producers on a C1 zinc equivalent cash cost basis.
Kounrad’s 2018 EBITDA was $66.8 million (2017: $63.6 million),
with an EBITDA margin of 72%. The EBITDA has increased as a
result of higher copper prices during the year and effective
cost control, and this has enabled the project to continue
producing copper at costs well within the lowest industry
quartile.
Notwithstanding weakening commodity prices during H2
2018, the Group maintained a strong EBITDA margin during the
year of 61% (2017: 62%, adjusted).
Income Statement
Profit before tax for the year was $72.7 million (2017: $49.8
million), an increase of 46% which primarily reflects the
growth of the Group following the acquisition of Sasa in
November 2017. Earnings per share from continuing
operations increased by 7.7% to 31.33 cents (2017: 29.08
cents) which highlights the accretive nature of the Sasa
acquisition.
C EN T R A L ASI A ME TA L S PLC
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STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
Sasa
CAML acquired Sasa in November 2017 so only incurred costs
for two months of that year, therefore Sasa cost of sales has
increased to $53.3 million (2017: $8.7 million) due to
significantly higher sales volumes of base metals.
Concession fees of $2.8 million (2017: $0.5 million) were
charged by the North Macedonian authorities at the rate of 2%
on the value of metal recovered during the period.
There is also a significant increase in the Sasa depreciation
charge as a result of the Group accounting for a full year of
depreciation for the mine, and due to the fair value uplift. Total
2018 Sasa depreciation was $27.7 million (2017: $4.1 million).
Other significant items included in cost of sales are labour
costs of $10.7 million (2017: $1.5 million) and cost of reagents
and materials of $13.8 million (2017: $2.0 million).
Kounrad
Kounrad cost of sales for the year was $23.1 million (2017:
$22.7 million). The increase compared with 2017 was due to
increased mineral extraction tax (‘MET’) resulting from the
higher average copper price received during the year.
MET for the year was $5.2 million (2017: $5.0 million) and is
charged by the Kazakhstan authorities at the rate of 5.7% on
the value of metal recovered during the year. Copper
production from the Western Dumps, which commenced in
April 2017, has resulted in slightly higher electricity
consumption, due to higher iron content as well as additional
labour costs of approximately 5 cents per pound.
Over the coming years, the proportion of copper that Kounrad
produces from the Eastern Dumps will fall as production from
the Western Dumps gradually increases, resulting in a
sustained increase in electricity consumption. Kounrad
depreciation and amortisation charges were $6.3 million
(2017: $6.6 million).
During the year, the Kazakhstan Tenge significantly
depreciated against the US Dollar, which resulted in a benefit
for the cost base. The average exchange rate for the year was
345 KZT/USD (2017: 326 KZT/USD), resulting in the Kazakhstan
Tenge being worth on average 5.8% less in US Dollar terms in
2018 compared to 2017.
C1 cash cost of production
C1 cash cost of production is a standard metric used in the
mining industry to allow comparison across the sector. In line
with the Wood Mackenzie approach, CAML calculates C1 cash
cost by including all direct costs of production at Sasa and
Kounrad (realisation charges such as freight and treatment
charges, reagents, power, production labour and materials)
as well as local administrative expenses. Royalties and
depreciation and amortisation charges are excluded from
the C1 cash cost.
C1 cash costs
2018
2017
Sasa zinc equivalent C1 cash cost ($/t)
Kounrad copper C1 cash cost ($/t)
Cu equivalent production (t)
Cu equivalent C1 costs ($/lb)
Fully inclusive ($/lb)
0.46
0.54
0.44
0.52
31,459 35,263
0.76
1.30
0.87
1.64
Sasa
Sasa’s C1 cash cost of zinc equivalent production was $0.46
per pound (2017: $0.44 per pound) which is at the lower end of
the second quartile of the zinc industry cost curve. This
broadly similar C1 cash cost figure reflects lower treatment
charges during the year compared to 2017 against an increase
in payroll costs, as the Group awarded an average 16% pay rise
to the Sasa team during the year.
Kounrad
Kounrad’s 2018 C1 cash cost of production remains firmly in
the lowest quartile of the industry cost curve for copper
production at $0.54 per pound (2017: $0.52 per pound). This
has increased due to an average 4.8% increase in payroll costs
at Kounrad and as a result of an increase in power
consumption due predominantly to pumping costs associated
with leaching the Western Dumps as well as high iron content
but was mitigated by the benefits of the weaker Kazakhstan
Tenge. The average C1 cash cost since production commenced
in 2012 is $0.57 per pound. Approximately 70% of the C1 cash
cost base in Kazakhstan is denominated in Tenge.
Group
CAML reports its Group C1 cash cost on a copper equivalent
basis incorporating the production costs at Sasa. The Group’s
2018 C1 copper equivalent cash cost was $0.87 per pound
(2017: $0.76 per pound). This number is calculated based on
Sasa’s annual zinc and lead production, which equates to 17,410
copper equivalent tonnes (2017: 21,161 copper equivalent
tonnes), based on 2018 average commodity prices achieved,
added to Kounrad’s copper production of 14,049 tonnes (2017:
14,103 tonnes).
The Group C1 cash cost on a copper equivalent basis has
increased largely as a result of the decline in the zinc and lead
prices which reduce the copper equivalent tonnes. The
marginal increases in both operations C1 cash costs as
described above have also increased the Group C1 cash cost.
In addition to the Group C1 cash cost of copper equivalent
production, CAML also reports a fully inclusive cost that
includes capital expenditure, local taxes including MET and
concession fees, interest on loans and corporate overheads
associated with the Sasa and Kounrad projects. In prior
periods, CAML reported its fully inclusive unit cost to include
depreciation but exclude capital expenditure. In 2018, this
methodology was adopted as the Group believes that this is a
better representation of the cost to the Company of operating
its two assets. This is primarily due to the significant fair value
uplift depreciation charge for the acquisition of Sasa.
The Group’s fully inclusive copper equivalent unit cost for the
year was $1.64 per pound (2017: $1.30 per pound). As
expected, the Group’s fully inclusive unit cost post the Sasa
acquisition increased when compared to 2017. This is primarily
due to the decline in zinc and lead prices during 2018 which
decreases the volume of copper equivalent tonnes calculated.
It also increased due to the inclusion of capital expenditure
incurred during the period at Sasa, including the construction
of TSF4, additional finance costs that have arisen with interest
payments and the debt refinance in December 2018, and the
concession fee recognised on sales of zinc and lead payable in
North Macedonia.
Note: The copper C1 cash cost and zinc C1 cash cost have been calculated
according to Wood Mackenzie methodology. 2017 Sasa calculation has been
based on full year production
C EN T R A L ASI A ME TA L S PLC
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34
FINA NCIAL RE VIE W con tInued
Administrative expenses
During the year, administrative expenses were $24.0 million
(2017: $15.2 million). The increase was largely as a result of the
enlarged size of the Group following the Sasa acquisition in
2017 for which the operation incurs administrative expenses
of $4.8 million (2017: $1.1 million). The Group costs have also
increased as a result of the recognition of share-based
payment costs of $4.9 million (2017: $2.8 million). Payroll
costs have also increased in 2018, totalling $9.7 million
(2017: $8.0 million).
Discontinued operations
During the year the Group completed the second exploration
season at Shuak. The results from this meant CAML is of the
opinion that this project is unlikely to be of sufficient scale to
warrant development by the Company. Although there is
expected to be some value retained in these assets as it
plans to retain a minority shareholding, it has been classified
as held for sale and impaired in full amounting to $2.2 million.
The results of Shuak have been included in discontinued
operations.
The assets and liabilities of the Copper Bay entities presented
as held for sale in the consolidated balance sheet have now
been impaired in full amounting to $4.0 million. The financial
results of the Copper Bay entities for 2018 and the
comparative period for 2017 are shown within discontinued
operations in the Consolidated Income Statement.
The Group exited its position in Zuunmod UUL LLC in April
2018, which was previously held for sale in the comparative
period ending 31 December 2017.
Acquisition accounting
The acquisition accounting of CMK Resources Limited
(previously Lynx Resources Limited) was finalised during the
year with no changes made to the consideration paid.
However, the silver streaming commitment was reviewed
and revalued to a fair value of $28.1 million and an
adjustment was made in relation to tax liabilities arising
pre-ownership. These amendments reduced the fair value
of the net assets of Sasa and consequently increased the
goodwill recognised on consolidation to $22.4 million.
There was also an adjustment recognised in relation to
the withholding tax payment (‘WTP’) for $5.9 million on
acquisition, however, this balance was considered
recoverable under the tax indemnity so there was no
impact on goodwill. (Note 6 of the Financial Statements).
Post year end $5.5m of this balance was recovered (see
note 38 for details).
Balance sheet
During the year, there were additions to property, plant and
equipment of $15.0 million (2017: $4.1 million). The additions
were a combination of $1.4 million Kounrad sustaining capital
expenditure, $6.8 million Sasa sustaining capital expenditure,
and costs associated with the construction of TSF4
amounting to $6.6 million. There was a further $0.2 million
incurred in relation to head office assets.
During the year, there were additions to intangible assets of
$0.9 million (2017: $2.0 million) capitalised in relation to
exploration and evaluation costs incurred on the Shuak
exploration project. This asset however has been classified as
held for sale following the decision by the Board to transfer
the majority of the Group’s holding to the minority
shareholder and therefore the exploration and evaluation
assets have been impaired in full.
As at 31 December 2018, current trade and other receivables
were $10.1 million (31 December 2017: $19.7 million) and
non-current trade and other receivables were $2.1 million
(31 December 2017: $2.5 million). Current trade and other
receivables as at 31 December 2018, include trade
receivables from customers of $3.8 million (2017: $6.3
million) and $1.5 million in relation to prepayments. In the
prior period the $5.9 million withholding tax that arose before
ownership was included in other receivables. An agreement
with the previous owners post year end in relation to this
balance was reached for $5.5 million and this has been offset
against the deferred consideration balance of $12.0 million so
therefore has been reclassified to other payables.
As at 31 December 2018, a total of $2.7 million (2017: $2.5
million) of VAT receivable was still owed to the Group by the
Kazakhstan authorities. During 2018, a final appeal was
rejected by the Upper Court for the amount to be refunded,
60.8
(99.3)
(39.6)
Cash flow
141.5
(43.3)
180
150
120
90
60
30
–
m
$
45.8
(14.5)
(15.9)
3.3
(0.2)
(39.0)
Cash at
1 Jan 18
Generated
from
operations
Taxes paid
Dividends
Proceeds
from
borrowings
Repayment
of
borrowings
Interest
paid
Capex
Aquisition
cash
adjustment
Other
Cash at
31 Dec 18
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STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
however, recovery is still expected through the local sales of
cathode to offset these liabilities and a decision has been
taken not to write off this balance. (See note 23 of the
Financial Statements.)
As at 31 December 2018, current trade and other payables
were $20.9 million (31 December 2017: $28.4 million). During
2018, installments of $25.7 million (2017: $12.3 million) were
paid towards the Group’s 2018 corporate income tax liability
and approximately $5.6 million (2017: $6.0 million) of 2018
corporate income tax will become payable by the end of
March. There was also an amount of $12.0 million outstanding
in relation to deferred consideration payable for the Sasa
acquisition. In accordance with the SPA, $4.0 million was due
prior to year-end, however, due to the WTP being related to
the period prior to ownership of the asset this amount was
withheld. Post year-end an agreement was reached with the
previous owners which settled the amount of the deferred
consideration and the WTP as a full and final payment to the
previous owners of $6.5 million.
On 31 December 2018, the Group had cash of $39.0 million
(31 December 2017: $45.8 million) including restricted cash
of $4.4 million (31 December 2017: $2.8 million).
Cash flows
The strong operational performance of Sasa and Kounrad and
the associated low costs of production resulted in robust
cash flows for the Group during the year, with cash
generated from operations increasing to $130.1 million (2017:
$60.4 million). During the period, $39.6 million (2017: $23.1
million) was returned to shareholders as dividends.
Tax
$11.1 million of North Macedonia corporate income tax
was paid during the period. Payments made during 2018
included $6.4 million towards the 2018 corporate income tax
liability and $4.7 million of 2017 corporate income tax paid in
April 2018.
$14.7 million of Kazakhstan corporate income tax was paid
during 2018 (2017: $12.3 million). Payments made during
2018 included $13.6 million towards the 2018 corporate
income tax liability and the final $1.3 million of 2017 corporate
income tax paid in April 2018.
In July 2018, the WTP of $5.9 million including interest and
penalties was made to the North Macedonian Public Revenue
Office relating to financial transactions made during 2016
and 2017 prior to CAML ownership. This was paid in full by the
Group; however $5.5 million of this liability has been
recovered from the previous owners in April 2019.
Debt
During the year, $38.5 million of Group debt was repaid. As at
31 December 2018, current and non-current borrowings
were $38.4 million and $106.5 million respectively (2017:
$40.1 million and $141.8 million).
In December 2018, CAML consolidated its borrowings into
one corporate debt package, increasing and amending the
size of its Traxys Europe S.A. facility by $60 million to $151
million. The Group used these funds to fully repay outstanding
balances of the inherited Société Générale and Investec Sasa
debt facility of $57 million and Ohridska Bank working capital
facility of $1.7 million. The consolidation of the three debt
facilities resulted in a 0.25% reduction of margin for the
refinanced portion of the Sasa debt to 4.75%. The Group has
also simplified the repayment schedule and will now repay
$3.2 million each month as well as the removal of quarterly
cash sweeps.
While some aspects of Sasa commercial arrangements were
added to the security package of the Company’s corporate
facility, the key terms and covenants have remained the same:
¼ Remaining debt life of four years
¼ Interest rate 4.75% + 1 Month US Dollar LIBOR
¼ Removal of all cash sweeps
The debt is subject to financial covenants which include the
monitoring of gearing and leverage ratios and these are all
currently complied with.
The refinance has also lifted the security granted in Bermuda,
enabling the Group to restructure the CMK Mining entity and
this process was completed in Q1 2019. It is intended to
liquidate CMK Resources Limited in 2019.
According to IFRS 9, due to the amendment to the
borrowings, the financial liability is considered modified and a
gain is recognised through the Income Statement amounting
to $0.8 million which reduces the finance cost.
Dividend
The Company’s dividend policy is to return to shareholders a
target range of between 30% and 50% of free cash flow,
defined as net cash generated from operating activities less
capital expenditure. The dividends will only be paid provided
there is sufficient cash remaining in the Group to meet the
ongoing contractual debt repayments and that banking
covenants are not breached.
The final dividend for the year ended 31 December 2017 of
10 pence per Ordinary Share was paid to shareholders on
25 May 2018.
Dividend
162
140
120
100
m
$
80
60
40
20
0
9.0p
10.7p
2012
2013
15.5p
12.5p
12.5p
2014
2015
Cumulative shareholder returns
2016
14.5p
16.5p
2017
2018
On 19 September 2018 the Company announced an interim
dividend for the year ended 31 December 2018 of 6.5 pence
per Ordinary Share and this was paid to shareholders on 26
October 2018.
In conjunction with CAML’s 2018 annual results, the Board
proposes a final 2018 dividend of 8 pence per Ordinary Share
which is 44% of adjusted free cash flow. The adjustment
excludes $5.5 million WTP which is within Corporate income
tax paid and has been recovered after the year end. This
brings total dividends (proposed and declared) for the year to
14.5 pence (2017: 16.5 pence) payable on 20 May 2019 to
shareholders registered on 26 April 2019. This latest dividend
will increase the amount returned to shareholders in
dividends and share buy-backs since the 2010 IPO listing to
$162.0 million.
Gavin Ferrar
Chief Financial Officer
C EN T R A L ASI A ME TA L S PLC
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36
PRINCIPAL RISKS A ND UNCER TAINTIES
IDENTIFYING AND MANAGING RISKS
Operating in the mining sector brings with it inherent risk in
the extraction and processing of natural resources.
The risks and uncertainties described are material risk factors
which could impact CAML’s ability to meet its strategic objectives.
2018 saw CAML operate the Sasa mine that it acquired in
November 2017 for a full 12 month period. With this mine
came another workforce, extraction techniques that are
new to the Company and an additional country of operation,
all resulting in some additional risks for the Group.
The list below is based on the Board’s current understanding
and should not be considered exhaustive. There may be
other risks, unknown or currently considered immaterial,
which may become material. The principal risks and
uncertainties are not in order of materiality or likelihood
of occurrence.
The focus of the management team for much of the year
has been in integrating and therefore de-risking the Sasa
mine. The Company has made significant progress in this
regard so, in H2 2018, began looking to grow once more by
acquisition. This approach may also bring some additional
future risks depending on the opportunity/(ies) selected.
The Board and Committees have played an important part
in managing this risk and overseeing major decisions and
setting strategy. The Company continues to implement
risk-based software management to enable the effective
assessment and mitigation of risks.
Due to the potential consequences of risks to the Company,
the team regularly reviews and assesses risks and puts
initiatives in place to manage them. Once identified, each
risk is analysed and monitored by our professionals
internally and by the Risk Management Committee as well
as the Board.
Risk and impact of risk
OPERATIONAL
Leaching
The nature of in-situ leaching means that
grades and flows of copper-bearing solution
from dumps vary. Should the flow and/or grade
drop, this could lead to a reduction in copper
cathode produced. Geological challenges and
technical incidents may also reduce quality or
volume of solutions recovered.
Mineral Resources
Estimates of mineral resources and ore reserve
tonnages and grades are not guaranteed as
they are based on certain assumptions. Mined
ore tonnage and grades achieved may
therefore fall below target levels and could lead
to a reduction in base metal output.
Strategic
goals
Risk
trend
Mitigating the risk
Both in-house experts and external consultants are
used to identify and manage operational risks and
advise on strategy. Historically, the Company has
experienced results which are consistently in line
with projections and leaching operations are in
accordance with expectations.
CAML employs a strong technical team at both Sasa
and Kounrad and has a highly-qualified management
team at both sites. Technical work programmes are
outsourced to external experts wherever appropriate.
Both the Kounrad and Sasa operations have a track
record of meeting production targets.
Strategic goals key:
Risk trends key:
Sustainable operations
Maintain low production costs
Increase
No change
Decrease
Maintain high CSR standards
Increase shareholder value
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STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
Strategic
goals
Risk
trend
Mitigating the risk
CAML has an experienced workforce at Sasa,
managed by skilled team leaders and in 2018 made
some key hires to bolster the technical team,
including a Chief Operating Officer, Technical Services
Manager and Chief Metallurgist. Technical work
programmes are outsourced to external experts
wherever appropriate. Sasa has a track record of
meeting production targets.
The construction of current and future tailings
storage facilities are of downstream construction,
which are widely viewed by industry experts as the
safest design. They have been constructed to North
Macedonian and international standards and are
regularly reviewed internally, and by external
consultants. A Chief Operating Officer has been
appointed to oversee all operations and advise on
overall strategy.
CAML regularly reviews its supply chains - extensive
assessment of the infrastructure through risk
surveys has identified key risk areas which are now
being actioned. CAML sells the majority of its base
metals through offtake agreements with metal
trader, Traxys, which takes responsibility for the sale
of CAML’s metal products.
Equipment and facilities are properly maintained and
regularly inspected. Across the Group, CAML reviews
its critical spare parts to ensure minimal impact on
operations. The Group has service agreements with
external equipment providers and employs
experienced maintenance teams.
Business interruption insurance has been taken out to
mitigate the majority of loss from significant and
unexpected events. Generator capability has been
installed at Kounrad to ensure that no damage occurs
in the event of a power shortage. Sasa also has
generator capability to protect critical systems in the
processing plant.
Comprehensive fire detection systems have been
installed on the sites and are reviewed regularly.
Recommended improvements to fire detection have
been implemented and the control infrastructure has
been improved.
Risk and impact of risk
Mining operations
The Sasa mine is an underground operation,
which are typically viewed as potentially
dangerous working environments. In addition,
operational risks relate to inability to reach
production targets, extract ore of the required
metal content and process it effectively.
Encountering these challenges could result in
lower production leading to reduced financial
margins for the Group.
operating tailings storage facilities
The Group manages tailings storage facilities at
Sasa. There is a risk that the facilities may fail
which could cause damage to the local
community, property and the environment.
Logistics
Poor or failed transport links may cause delays
in the supply of key inputs, such as explosives,
reagents and services from suppliers. Logistical
issues may also result in an inability to transport
finished copper cathode and/or base metal
concentrates to customers.
Critical operational equipment
There may be a failure of processing or mining
equipment, requiring significant capital for
repairs and other maintenance. Due to this, the
Group may experience unplanned stoppages or
incur expenditures which could in turn
negatively impact cash flows.
External incidents
External incidents could cause delays to
production. Physical circumstances, including
weather related disruptions and natural
disasters, could cause property damage and
plant failure. Energy supply (electricity)
shortages could result in shortfalls in output
and outage-related lost time.
Fire
A fire event could cause significant damage to
the Group’s property. In particular, the SX
operations at Kounrad have a significant risk of
fire due to the materials used in the copper
extraction process.
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PRINCIPAL RISKS A ND UNCER TAINTIES con tInued
Risk and impact of risk
OPERATIONAL CONTINUED
Health and safety
The Company’s operations, by their nature, are
carried out under potentially hazardous
conditions, involving explosives and other
chemicals, as well as heavy machinery, which
could result in accidents and fatalities.
Labour and community relations
The Group is an important employer in the
areas in which it operates and where it relies
upon the local community for its workforce. At
Sasa some employees are represented by
labour unions, and this may impact the Group’s
flexibility in respect of operating decisions and
wages, which in turn may impact the cost of
production.
Further, labour disputes as a result of
challenges with workforce relations may affect
the Group’s reputation, social licence to operate
and production.
Changes to key personnel
The core of highly experienced and skilled
senior management team is responsible for the
development and execution of the business
strategy. Any change to such key personnel
may impact on the prosperity of the business.
STRATEGIC
Transactions and ventures
The Group may dispose of or acquire assets or
part of a business which fails to achieve
expected benefits. Incorrect assumptions,
inaccuracies in estimates and deficiencies in
due diligence could result in a worsening
outlook for the Group.
Liquidity
The Group borrowed funds to acquire the Sasa
mine in 2017. Non-compliance with financial
covenants within loan facilities could result in
facilities becoming immediately repayable and
a decrease in the Group’s borrowing capacity.
Failure to manage such liquidity could affect
cash flows, earnings, financial position and,
ultimately, solvency.
Strategic
goals
Risk
trend
Mitigating the risk
Safety policies and performance reports are
reviewed regularly. Any reported accidents or
interruptions are investigated by the appropriate
members of staff. Safety briefings as well as training
are provided to employees to instill an understanding
of procedures and the importance of safe practices.
The Group’s CSR Director divides time between sites
implementing strategies and overseeing operations.
CAML has in 2018 recruited a Group Health and
Safety Manager, who will be based predominantly at
Sasa, and has also bolstered the Sasa health and
safety team. Further details on our approach are
contained on pages 28-31.
The Group engages actively with employees, union
leaders and representatives to address any concerns
in a timely manner. The Company promotes a positive
work atmosphere through responsible and
transparent behaviours and clear policies, as well as
keeping wages fair and reflective of production
potential. The Company places a strong emphasis on
engagement with local communities. Further details
on our approach are contained on pages 28-31.
The Company sets high standards for recruitment of
staff in the countries in which it operates. The Board
and the Remuneration Committee sets competitive
remuneration packages and incentivises staff with
performance-related rewards. The Company also
trains the team so that staff are able to engage in
upward progression.
Potential acquisitions are initially assessed internally
and supported by legal, financial, technical and other
advisory firms as appropriate. Material transactions
are subject to Board review and approval.
The Company maintains standards for evaluating
resources and reserves enabling thorough review of
opportunities and viability of exploration projects. The
Company practices a policy of divesting projects
which prove to be of insufficient value to the Group.
Cash flow forecasts are diligently produced and
closely monitored. The Group has a successful record
keeping to schedules of repayment. The Company
has strong balance sheet metrics enabling it to
attract alternative funding, should additional capital
be required. The Company maintains sustainable,
low cost operations making the need for excess
funding unlikely.
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STRATEGIC REPoRT
GovERNANCE
GovERNANCE
FINANCIAL STATEMENTS
Strategic
goals
Risk
trend
Mitigating the risk
The Group has found Kazakhstan politically stable
during its lengthy period of operation. The Company
contributes to local communities in regions in which
it operates, demonstrating meaningful commitment.
The Company monitors its commitments under the
mining licences to ensure conditions are met and
engages in regular and ongoing contact with
authorities regarding the process of obtaining
required permits. It also cultivates an extensive
network of business contacts.
The Company invests in the countries in which it
operates through strong community relations
programmes, such as the Kounrad Foundation and
youth development efforts in Sasa. The Company
looks to continue its engagement with the
communities within both of its operations. More
information regarding its endeavours can be found in
the CSR section on pages 28-31.
The Company manages exposure associated with
material commercial transactions and working capital
requirements by maintaining its financial assets and
liabilities in US Dollars and keeping only limited funds
in other currencies.
The Company has low cost production which should
ensure it remains profitable throughout the
commodity cycle. Although the Group currently has a
policy of not engaging in commodity hedging
arrangements, it is under periodic review.
Tax rates in Kazakhstan have remained stable
throughout CAML’s operation in-country and both
countries are currently relatively low tax
environments. The Company complies locally with all
tax regulations and engages in dialogue with local,
regional and national tax authorities. It ensures that
its tax strategy is compliant with international
standards and that staff are cognisant of updates to
tax standards and accounting systems. The Company
also receives tax advice from local tax advisers in
both Kazakhstan and North Macedonia.
Risk and impact of risk
EXTERNAL
Political and country risk
The Group’s operational assets are located in
North Macedonia and Kazakhstan. The
Company is therefore susceptible to any
adverse changes in the political and business
environment of those jurisdictions. Any political
instability or social change could impact the
status of the numerous state level
authorisations and consents required
for operations.
Foreign exchange/inflation
Fluctuations of these rates in the foreign
jurisdictions in which the Company operates
could result in increased costs as well as gains
and losses in the Income Statement and net
assets.
Commodity prices
Operations are dependent upon market prices
for copper, zinc, and lead which are largely a
product of global supply and demand and other
factors that are out of the Company’s control.
Downturn in market prices could reduce
revenue streams and over the long term, could
impact liquidity and balance sheet strength.
Tax
The Group operates and therefore pays taxes in
Kazakhstan and North Macedonia. There can be
no guarantee that tax rates in any jurisdiction
will remain stable for the future. There are
growing complexities regarding tax and the
regulations are constantly developing in both
Kazakhstan and North Macedonia.
Legislation and regulations are open to review
and interpretations by the authorities whilst at
the same time may be ambiguous or unclear.
Such authorities may levy penalties, interest
and other fees.
The Kazakhstan and North Macedonian tax
systems do not have established or utilised
practices of tax authorities giving legally
binding rulings on tax issues put before them.
The Strategic Report on pages 1 to 39 was approved by the Board of Directors on 10 April 2019 and was signed on its behalf by
Gavin Ferrar
Chief Financial Officer
10 April 2019
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INTRoDUCTIoN T o CoRPoRATE GovERNANCE
THE KEY TO DRIVING PERFORMANCE
AND CREATING VALUE
The Group believes that strong corporate governance is essential for
effective performance. This belief is the cornerstone of our commitment
to long-term value creation for our stakeholders.
Nick Clarke
Chairman
GOVERNANCE
Introduction to corporate Governance
Board of directors
Board Report
Audit committee
csR committee
nomination committee
Remuneration committee
directors’ Report
40
42
44
46
48
49
50
54
2018 has been a milestone year for everyone here at CAML.
Although our acquisition of the Sasa mine completed at the
end of 2017, the real challenge began shortly afterwards, as
we sought to effectively integrate this new asset into our
Company. The acquisition has resulted in diversification as
well as rapid growth in terms of people, operations, and
compliance obligations.
The past 12 months have proven that the Board’s collective
knowledge and skills transform challenges into
opportunities. A large component of our success is
attributable to our strong corporate governance systems
and processes. But our governance focus extends beyond
dynamic integration of our teams and assets; it centres on
broadening and fortifying our current governance
arrangements in a meaningful way so that they remain
robust and keep up with the high standards we set for
ourselves. After all, a rapidly expanding business requires a
governance system which evolves with it, enabling it to
accommodate its growth and vision.
Over the past year, CAML has adopted the Quoted
Companies Alliance Corporate Governance Code for small
and mid-sized companies (the ‘QCA Code’) and has
developed a set of principles based on its guidelines. The
Directors believe this reinforces our ethos of maximising
value whilst providing a solid foundation for continued
success in building the business. This Governance Report
summarises our corporate governance in line with the QCA
Code. In addition, further details of how we have applied and
comply with each of the 10 principles of the QCA Code can
be found on our website at https://www.centralasiametals.
com/corporate-governance/.
The Board is comprised of a group of talented and
accomplished Directors, both from the UK and abroad, each
with a unique set of skills. Many have worked across
jurisdictions and have extensive business and financial
experience in the markets and industry in which the Group
operates. This ensures that each member of the Board has
sufficient knowledge and breadth of experience to
participate fully in its decision-making which safeguards
shareholder interests and value.
Our commitment to excellence at Board level includes our
proactive approach to succession planning, balanced with
a policy of retaining talent. Therefore, we are pleased to
announce the establishment of our newly-formed
Nomination Committee, led by myself as Chairman, whose
primary goal will be to make recommendations to the Board
in respect of the appointment and re-election of Directors
as well as membership of the Board’s Committees.
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STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
In line with the QCA Code, the Board has considered the
independence of each Non-Executive Director, including
assessment of their character, judgement, any business and
other relationships which could materially interfere with the
fulfilment of their roles, and consideration of their length of
tenure. As such, after full consideration the Board continues
to consider Robert Cathery, Roger Davey, David Swan and
Nigel Hurst-Brown to be independent Directors. The Board
believes the independent Directors along with our Executive
Directors and our other Non-Executive Director, Nurlan
Zhakupov, provide an excellent balance of views as well as
skills and depth of experience within the Board.
Of course, commitment to good corporate governance in
the boardroom is just one part of setting and maintaining an
appropriate culture across the Group. The Board, and its
Committees seek to promote its pledge to good practice in
the culture throughout the Group and with all of its
stakeholders. The Board encourages dialogue with these
stakeholders be they investors, employees, governmental
authorities and local communities. Decisions made by the
Board and by management are taken in the context of this
culture. We also highlight the importance of maintaining
strong internal policies relating to anti-bribery, share-
dealing, sanctions and whistleblowing which are
implemented by our teams.
We believe these arrangements protect the interests of
shareholders and other stakeholders and promote the
generation and preservation of value over the long term.
Nick Clarke
Chairman
10 April 2019
Another part of our commitment to Board effectiveness is
our strong belief in the importance of continual evaluation
and improvement. This is most recently demonstrated by
our engagement in a self-assessment of Board and
Committee performance led by myself as Chairman of the
Board and facilitated by the Company Secretary. This
included completion of a comprehensive questionnaire on
key governance areas and careful consideration of the
results. Further details of this evaluation process are set out
in the report of the Nomination Committee on page 49.
The continuity we have been able to achieve at Board level
has also contributed to our success because it enables
valuable contributions from our Executive and Non-
Executive Directors. One of the ways this can be
accomplished is through proper succession planning within
the Board. As reported last year, in Q2 2018 we welcomed
changes within our existing leadership team. In their
previous roles of Chief Financial Officer and Business
Development Director, respectively, Nigel Robinson and
Gavin Ferrar were instrumental in the success and growth
of our business. Their new roles as Chief Executive Officer
and Chief Financial Officer, respectively, have positioned the
Company for its next stage of development. We also
recruited Scott Yelland, for a new role of Chief Operating
Officer created to strengthen the technical capabilities of
the management team, given the increased operations
which accompanied the Sasa acquisition.
The Board draws from the principles of the QCA Code for
guidance in structuring its governance framework. We
maintain:
1. A strong independent representation on the Board with
four independent Non-Executive Directors.
2. An Audit Committee consisting of three independent
Non-Executive Directors led by David Swan as its
Chairman.
3. A Remuneration Committee led by Robert Cathery
comprised solely of independent Non-Executive
Directors.
Although not a QCA Code requirement, we also have a
Corporate Social Responsibility (‘CSR’) Committee, chaired
by Roger Davey, comprising both Executive and Non-
Executive Directors. This enables us to maintain our strong
focus on health and safety, environmental matters and the
communities in which we operate. Not only do we seek to
advance the economic environment of these developing
countries, we also seek to advance the interests of all our
stakeholders.
These standing Committees of the Board help in ensuring the
appropriate level of focus on these areas of responsibility.
Each Committee reports to the Board through its respective
Chair, providing invaluable contributions to the business
through their work. On the following pages are further details
of our individual Directors and separate reports of our Board,
and its Audit, Remuneration, Nomination, and CSR
Committees. These provide insight both to the governance of
the Company and the value that we continue to place on this.
These form part of our ongoing commitment to shareholders
to generate shareholder value through the long-term
success of the business.
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Bo ARD oF DIRECT oRS
Committees
A
Audit
N Nomination
R Remuneration
CSR
Corporate Social
Responsiblity
Chair of
Committee
Nick Clarke
Chairman
N
CSR
Nigel Hurst-Brown
Deputy Chairman
A
N
R
Nigel is currently chief executive of Hotchkis
and Wiley Ltd. Previously he was chairman of
Lloyds Investment Managers between 1986 and
1990 before becoming a director of Mercury
Asset Management and later a managing
director of Merrill Lynch Investment Managers.
He is also a director of Borders & Southern
Petroleum plc and a Fellow of The Institute of
Chartered Accountants in England and Wales.
Nick has over 40 years of mining experience,
including 16 years spent within senior
management positions in production and
technical services in South Africa, Ghana and
Saudi Arabia. Nick served as the managing
director of Oriel Resources plc until its
acquisition by OAO Mechel for $1.5 billion in
2008. In addition, Nick was managing director
at Wardell Armstrong International Ltd, where
he managed numerous multidisciplinary
consulting projects in the resource sector. He
is a graduate of Camborne School of Mines
and a Chartered Engineer. In 2013, Nick was
named CEO of the year at the Mining Journal
outstanding achievements awards. He joined
the Company in 2009 as Chief Executive
Officer prior to the Company’s IPO in 2010,
and assumed the role of Chairman in June
2016. In January 2019, he was appointed
Non-Executive Chairman of Toro Gold Ltd.
Nigel Robinson
Chief Executive Officer
CSR
Gavin Ferrar
Chief Financial Officer
Nigel is a member of the Institute of Chartered
Accountants in England and Wales and formerly
a Royal Naval Officer in the Fleet Air Arm. Upon
leaving the Royal Navy, he qualified with KPMG
where he stayed for a further three years
before leaving to work in commerce. He worked
for six years in management with British
Airways plc before leaving in 2002 to become
more involved with smaller enterprises. He
joined CAML in November 2007 as Group
Financial Controller. Prior to his appointment as
CEO in April 2018, he had been the CFO of the
Group since he joined the Board in April 2009
and was instrumental in growing the business.
Gavin holds post-graduate degrees in geology
and finance and has been involved in the
mining sector for over 20 years. His career in
industry began at Anglo American in the New
Mining Business Division. He spent 10 years
in the investment banking sector focusing on
equity and debt financing for mining clients
of Barclays Capital and Investec. Since 2011,
he has worked with junior mining companies
arranging finance and providing corporate
advisory services before joining the Company
in June 2014 as Business Development
Director. He was appointed CFO on 16 April
2018. Gavin continues to serve as the Business
Development Director for the Company.
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STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
Robert Cathery
Non-Executive Director
N
R
David Swan
Non-Executive Director
A
N
R
Robert became a member of the London
Stock Exchange in 1967 and was managing
director and head of oil and gas at Canaccord
Europe. During his career in the city of London,
he was a director of Vickers da Costa and
Schroders Securities and Head of Corporate
Sales at SG Securities (London) Limited. He is
a co-founder of Salamander Energy and has
previously served as a non-executive director
of that company. He has also served as non-
executive director of SOCO International. He
is a founder shareholder of the company.
David is a chartered accountant. He has
extensive experience across the natural
resources sector. He also has wide experience
geographically in Europe, Asia and Africa and on
international as well as UK stock exchanges. He
also serves as chief financial officer
of Scotgold Resources Limited, and as a
non-executive director of Sunrise Resources
Plc. David joined the Company in June 2014.
Roger Davey
Non-Executive Director
A
N
CSR
Nurlan Zhakupov
Non-Executive Director
N
CSR
Roger, a Chartered Mining Engineer, has over
45 years of experience in the international
mining industry. He is also a non-executive
director of a number of other companies in
the mining sector quoted on AIM, namely
Atalaya Mining plc where he serves as
chairman, Tharisa plc, and Highfield Resources
Limited. Until 2010, he was senior mining
engineer at N M Rothschild in the Mining and
Metals Project Finance Team. Previously, he
held senior management and director level
roles in mining companies in South America
and Africa as well as the UK, covering the
financing, development and operation of
underground and surface mining operations.
Roger joined the Company in December 2015.
Nurlan is a Kazakh national. He has extensive
experience in capital markets and has held
positions at UBS and RBS. He is currently
the CEO of SPK Astana, a Kazakh regional
development institution, and is an independent
non-executive director of Zerde National
Infocommunication Holding. Most recently,
he was chief business development and
investment officer, member of the executive
board of JSC Kazatomprom. He has previously
held a number of positions in the Kazakhstan
resource sector for Tau-Ken Samruk (the
national mining company), Chambishi Metals
and ENRC. He holds bachelor and master’s
degrees in economics from the Moscow
State Institute for International Relations.
Nurlan joined the Company in October 2011.
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BOA RD REPOR T
The role of our Board
The Board of Directors leads the Company in making key
decisions about strategy, financial planning, investments
and its Directors. We consider this role to be critical to
leading the Group to maximise success in its business, and
to the Company in delivering long-term value to
shareholders and other stakeholders.
We have a diverse Board, constituted as follows:
¼ Myself as Chairman: Nick Clarke.
¼ Two Executive Directors: Nigel Robinson and Gavin Ferrar.
¼ Five Non-Executive Directors:
– Four are considered fully independent: Nigel Hurst-
Brown, Robert Cathery, David Swan and Roger Davey.
– One is based in Kazakhstan: Nurlan Zhakupov. Nurlan
Zhakupov has received share awards from the Company
and is therefore not considered to be fully independent.
Our Board offers a wealth of expertise and wide range of
experience in the mining industry, financial and operational
aspects of businesses, public markets and by operating
across different geographies around the world.
All Directors devote ample time in order to discharge their
duties both at and outside of Board meetings. Details of
Directors’ attendance at each of the scheduled meetings of
the Board and its Committees for the 2018 financial year
are shown in the table below. We meet at least four times
per year and at other times where required for arising
matters. Board and Committee meetings normally take
place over the course of a whole day in London and, where
appropriate, at one of our overseas locations. In March 2018,
we held our Board meeting in North Macedonia.
Some of the key matters considered by the Board during
the year are discussed further below. The Board receives
comprehensive reports in advance of meetings to ensure
matters can be given due consideration. The Board is not
dominated by one person or a group of individuals. The
independent Non-Executive Directors constructively
challenge the Executive Directors and the resulting Board
debates are always robust and sometimes lively. The open
and direct forum for discussion allows debate on an
informed basis during the meetings and ensures decisions
reached are done so by the Board collectively in alignment
with the core values of the Company.
Whilst most engagement with the Company’s institutional
investors is through the Executive Directors and the Head
of Investor Relations, the other Board members receive
reports of views expressed by shareholders. In addition, the
other Directors are available to meet with investors where
requested. Material information in relation to the Company
is made publicly available via the London Stock Exchange’s
Regulatory News Service (‘RNS’). The Company recognises
that this ongoing dialogue and opportunity for feedback
from our shareholders and other stakeholders plays an
important part in ensuring our long-term success. All
shareholders also have the opportunity to attend and ask
questions at the Company’s Annual General Meeting.
All Directors on the Board have access to the Company
Secretary who acts as secretary to the Board and its
Committees, reporting directly to their Chairmen to ensure
appropriate governance procedures are followed. All
Directors are also able to seek advice from the Company’s
external advisors if they wish. The roles of the Auditors and
remuneration advisors are explained in more detail in the
Audit and Remuneration Committee Reports on pages
46-47 and pages 50-53, respectively.
In line with the QCA Code, the Board is supported by
Committees, specifically, Audit, CSR, Nomination and
Remuneration Committees covering four of the areas of the
Group’s operation which the Board views as having key
importance to the Group’s stakeholders. Each of these
Committees has their own terms of reference which
provide the necessary authorities for them to operate as
they consider appropriate. Each of these Committees
reports to the Board and provides great value to its
effectiveness. Further details of the activities of our
Committees follow later in this report.
Attendance at Board and Committee meetings
The attendance of current Board and Committee members at the scheduled meetings, along with the number of meetings
they were invited to attend, during 2018 are shown below:
Director
Nick Clarke
Nigel Robinson
Gavin Ferrar
Nigel Hurst-Brown
Robert Cathery
Roger Davey
David Swan
Nurlan Zhakupov
Board
6/61
6/6
6/6
6/6
6/6
6/6
5/63
5/64
Audit
Committee
CSR
Committee
Remuneration
Committee
1/1
2/2
1/1
3/3
-/-
2/32
3/31
-/-
3/3
3/3
-/-
-/-
-/-
3/31
-/-
1/34
1/1
3/3
-/-
3/3
3/31
-/-
3/3
-/-
1 Denotes Chairman status.
2 Roger Davey was unable to attend one Audit Committee meeting. Full documentation was issued to him and he received briefings before and after the
meeting.
3 David Swan was unable to attend one Board meeting as he was on medical leave.
4 Nurlan Zhakupov was unable to attend one Board, and two CSR Committee meetings due to international travel.
Kenges Rakishev resigned with effect from 23 May 2018 and did not attend any Board meetings during 2018.
As the Nomination Committee is a newly-formed Committee, there were no meetings of the Nomination Committee during the year.
Directors do not attend meetings (or parts of meetings) of the Remuneration Committee when the Committee is deciding matters in relation to their
own remuneration.
All Directors (other than Kenges Rakishev) attended the AGM.
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FINANCIAL STATEMENTS
Integration of CMK Resources (Previously Lynx
Resources)
In light of the acquisition last year of Sasa, the Board has
paid special attention throughout the year to the process of
its smooth integration into the Company. Throughout the
year, the Board has:
¼ Reviewed the operational performance.
¼ Reviewed health and safety performance.
¼ Made changes to senior management.
Conclusion
Continued supervision and oversight of Sasa’s integration
into the rest of the Group has been a priority of the Board
over the past 12 months. We continue monitoring our
Group’s operations and assets and reporting to our
stakeholders.
[Si
Nick Clarke
Chairman
10 April 2019
During the year, our Board:
¼ Reviewed the Group, its operations and its financial
performance at each of its main Board meetings
including:
– strategic matters and performance;
– operational performance; and
– financial performance.
¼ Approved the annual budget for the year, regularly
monitoring performance against this, reviewing
variances, the reasons for these and monitoring
consensus in line with any adjustments.
¼ Reviewed and agreed management changes,
including:
– to the roles of the existing Executive Directors;
and
– appointment of a Chief Operating Officer.
¼ Reviewed and considered strategy and business
development opportunities.
¼ Reviewed and approved the Group’s
charitable donations.
¼ Continued to review risk management in the Group
noting the ongoing process of continuing
improvement by introducing the use of specialist
software.
¼ Considered the Group’s current insurance
arrangements.
¼ Reviewed plans relating to refinancing
including different sources of funding and
corporate restructuring.
¼ Reviewed Lost Time Injuries and appointment of a
new Health and Safety Manager to assist in the
policy targeting zero incidents and to support the
CSR Director.
¼ Reviewed, considered and agreed a change to the
Group’s external joint brokers and completed the
tender process for this.
¼ Reviewed and approved the Company’s annual and
half year accounts for the year including:
– Reports from the Audit Committee;
– Annual Report;
– Results announcement; and
– Dividends.
¼ Reviewed and approved the Company’s Notice of
Annual General Meeting.
¼ Reviewed CSR matters with the assistance of the
CSR Committee including reports on health and
safety and environmental matters at each main
Board meeting.
¼ Proposed the reappointment of Directors at the
2018 AGM.
¼ Monitored performance of actions agreed at
previous meetings.
¼ Approved the Group’s annual Modern Slavery Act
Statement for the year for 2018 publication.
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AUDIT COMMITTEE
Our primary responsibilities as a Committee are:
¼ to evaluate and, when appropriate, recommend the
selection of external auditors and ensure their
independence and objectivity;
¼ to review with the external auditor the nature, scope
and results of their audit of the annual Financial
Statements and their review of half year results and
outcomes from these;
¼ to review the effectiveness of the Company’s systems
of internal controls;
¼ to monitor the accounting procedures and financial
reporting of the Group; and
¼ to monitor the effectiveness of risk management of
the Group.
We consider these roles to be key to the long-term
sustainability of the Group and achievement of its ongoing
success in continuing to generate and preserve value for
our shareholders and other stakeholders over the long term.
Further details of our activities during the year are included
in the table on page 47.
Systems of internal control
The Committee is responsible for monitoring and reviewing
the effectiveness of the Group’s internal control systems.
Key elements within the internal control structure are
summarised as follows:
¼ The Board and management – the executive members of
the Board are responsible for overseeing the day-to-day
management of the Company.
¼ Budgeting – there is an annual process whereby budgets
for the following financial year are reviewed by the Audit
Committee and recommended to the full Board.
¼ The Audit Committee ensures that long-term forecasts
are reviewed by the Board on a regular basis.
¼ Management reporting – the financial performance of
the Group is monitored against budget on a monthly
basis and formerly reported to the Board on a
quarterly basis.
¼ Operating controls – such controls are in accordance
with Group policies and include management
authorisation processes.
¼ Monitoring – the effectiveness of the system of internal
control is monitored regularly through internal reviews
and external audits.
David Swan
Chairman of the Audit Committee
The Audit Committee assists the
Board in its oversight and monitoring
of the Group’s financial reporting,
internal control, and risk management.
The role of our Audit Committee
The Audit Committee assists the Board in its oversight of
the Company’s financial reporting, internal control and risk
management. Our Committee is made up of Nigel Hurst-
Brown, our Deputy Chairman, Roger Davey, and myself as
Committee Chairman.
C EN T R A L ASI A ME TA L S PLC
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STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
Significant issues considered by the Committee in
relation to the 2018 Financial Statements
¼ Review of carrying values of cash-generating units:
– The Committee assessed management’s
determination of cash-generating units and review of
impairment triggers as at 31 December 2018. The
Committee considered the key judgements made by
management in relation to discount rates, commodity
price forecasts, operating and capital expenditure and
the mineral reserves and resources estimates. The
Committee reviewed disclosures related to
impairment assessments in note 20 of the Financial
Statements.
– The Committee reviewed Shuak as a cash-generating
unit and has decided that it will not itself be pursuing
the licenses, therefore impairment in full will be
processed.
¼ Finalising the acquisition accounting with the final fair
value assessments of the assets and liabilities acquired.
Consideration was made for the fair value of the silver
stream commitment and the Withholding tax accounting.
See note 6 for details.
David Swan
Chairman of the Audit Committee
10 April 2019
During the year, the Audit Committee:
¼ Reviewed the completion accounts in relation to the
Sasa acquisition.
¼ Reviewed the ongoing integration of Sasa, including:
– progress against the pre-acquisition plans;
– recruitment requirements;
– procurement procedures; and
– improvements and reinforcement of controls
including review of policies and tightening of
procedures.
¼ Reviewed and recommended to the Board for
approval the Group’s annual accounts, including:
– Report from the CFO;
– Report from the Auditors;
– Annual Report and Accounts; and
– Letter of Representation to the Auditors.
¼ Reviewed and recommended to the Board for
approval the Group’s half year results, including:
– Report from the CFO; and
– Report from the Auditors.
¼ Met with the Auditors and with management and
agreed plans for the preparation and audit of the
Company’s accounts, including:
– review of audit plans;
– review of audit scope; and
– review of audit and reporting timetables.
¼ Discussed matters with the Auditors in the absence
of management.
¼ Reviewed the independence of the Auditors
including in the context of any non-audit work.
¼ Reviewed monthly reports from the Group’s
external whistleblowing hotline.
Risk management
Whilst the Board of Directors has ultimate responsibility for
risk management, Group staff have a role to play in the
implementation of policies and procedures aligned to
mitigate and manage risk. Risk Committees consist of
senior staff and are responsible for the development of risk
management policies and procedures as well as the
identification, analysis, mitigation and review of the risks of
the business. To ensure a consistent approach to risk
management, an individual chairs the Risk Committee and
also reports to the Audit Committee and Board as
appropriate.
The criteria against which a risk is assessed has
been established by the Group, so that a standardised
assessment can be obtained. Risks are assessed against the
likelihood of the risk event occurring and the impact and
severity of the risk event. Using this assessment risks are
then categorised into a priority level, so that the appropriate
actions can be taken. See page 36 for futher details.
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48
CSR COMMITTEE
The CSR Committee receives and reviews regular reports in
relation to health and safety, environmental matters and
local community projects and the Board is in turn updated.
The CSR Committee liaises closely with the CSR Director to
ensure that information is fed through to the Board. Given
the importance which the Board places in this area, and the
significance of this to the Group’s continued operations, the
CSR Committee meets on a regular basis throughout the
year, usually on the same day as Board meetings. Further
details of the Committees’ activities in the year are given in
the table below. A summary of CSR matters in the Group is
given in the CSR Report on pages 28 to 31. The Group CSR
policy can be found on the Group’s website at:
www.centralasiametals.com.
We are particularly proud of the Group’s achievements
in terms of corporate social responsibility both in terms
of our contributions to the communities in which we work
and with minimal impact to the environment in which
we operate.
CAML continues to believe that the health and safety of
our employees, protecting the environment in which we
operate and helping to develop the local communities are
extremely important matters. These areas will continue to
receive the appropriate attention from the CSR Committee
and from the Group as a whole.
During the year, the CSR Committee:
¼ Reviewed and considered regular reports on Sasa
and Kounrad:
– health and safety;
– environmental matters; and
– local community projects focused on health and
education, particularly with regard to children and
local charitable organisations.
¼ Considered specific CSR aspects of the Group’s
operations as they arose, determining appropriate
action.
¼ Reviewed reports on Lost Time Injuries and remedial
measures to avoid reoccurrence.
¼ Focussed on the improvements to health and safety
at Sasa which had recently been acquired. This
included monthly health and safety meetings being
held on site, review of procedures and consideration
of employee feedback and suggestions.
¼ Considered stakeholder engagement plans to
ensure our CSR activities continue to align with the
Company’s commitment to local communities and
for building and maintaining long-term value and
success.
Roger Davey
Chairman of the Corporate Social Responsibility Committee
10 April 2019
Roger Davey
Chairman of the CSR Committee
We are particularly proud of the
Group’s achievements in terms of
corporate social responsibility both in
terms of our contributions to the
communities in which we work, and
with minimal impact to the
environment in which we operate.
The role of our CSR Committee
Our Board has always considered the Group’s corporate and
social responsibilities to be at the core of its activities. As an
international and expanding Company we view these as
fundamental to operating an ethical and sustainable
business. It was in this context that our CSR Committee was
established in June 2012.
Our Committee comprises Directors from the UK, our
Chairman, Nick Clarke, myself as Committee Chairman, our
CEO, Nigel Robinson, and, from Kazakhstan, Nurlan
Zhakupov. This ensures that a depth of experience and a
wide range of perspectives are brought to the Committee’s
important and varied activities.
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NOMINATION COMMITTEE
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
Effectiveness review
This year we undertook our first internal evaluation of the
Board’s effectiveness. I led this as Chairman and it was
facilitated by our Company Secretary. This process,
commenced with completion of a comprehensive
confidential questionnaire by each Director as set out
below. The assessment of my performance as Chairman of
the Board was led by Nigel Hurst-Brown as Deputy
Chairman. As well as the Directors, the Company’s Auditors
(PwC) provided responses on the performance of the Audit
Committee. In line with the QCA Code, the Board’s review of
performance was based on clear and relevant objectives,
seeking continuous improvement.
Comprehensive questionnaire
The questionnaire was structured to encourage
comprehensive responses which were then reported to the
Board, on an unattributed basis, covering the following areas:
¼ Strategy
¼ Shareholders
¼ Wider Stakeholder and Social Responsibilities
¼ Risk Management
¼ Board Dynamics
¼ Succession Planning and Talent Development
¼ Corporate Culture
¼ Communication
¼ Board Effectiveness
¼ Audit Committee
¼ Remuneration Committee
¼ Corporate Social Responsibility Committee
¼ The Chairman
¼ Any other matters Directors wished to raise
Board discussion
The report on the responses received was reviewed and
discussed by the Board. The responses in relation to my
performance as Chairman were provided to Nigel Hurst-
Brown as Deputy Chairman to discuss with the other
Non-Executive Directors. The Auditors’ comments were also
included in the report to the Board.
As a result of the assessment, areas identified for focus
over the coming year included:
¼ continued development of long-term strategy;
¼ a two-day meeting involving operational management
and including a specific strategy review;
¼ ongoing monitoring of risk management; and
¼ succession planning for the Board over the
coming years.
Nick Clarke
Chairman of the Nomination Committee
10 April 2019
Nick Clarke
Chairman of the Nomination Committee
This year we undertook our first
internal evaluation of the Board’s
effectiveness. In line with the QCA
Code, the Board’s review of
performance was based on clear
and relevant objectives, seeking
continuous improvement.
The role of our Nomination Committee
Our newly-formed Nomination Committee’s main duties
include making recommendations to the Board in relation to
the appointment and re-election of Directors, and the
membership of the Board’s Committees. I chair the
Committee and its other members are our five Non-
Executive Directors, David Swan, Nigel Hurst-Brown, Roger
Davey, Robert Cathery and Nurlan Zhakupov.
In making recommendations for appointment, the
Nomination Committee would consider suitably qualified
candidates of any ethnic background or gender. After a new
Director is appointed, they receive a comprehensive
induction. All Directors have unrestricted access to
management and receive regular updates from
management to keep them abreast of the latest
developments.
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50
REMUNERATION COMMITTEE
In determining the remuneration of Executive Directors, the
Remuneration Committee seeks to enable the Company to
attract and retain executives of the highest calibre. The
Remuneration Committee also reviews the remuneration of
other senior management. In addition, it decides whether to
grant share option awards in the Company and, if these are
to be granted, who the recipients should be.
The Company’s policy is to remunerate executives and
senior management appropriately so as to attract talent as
well as encourage retention and meaningful progress. As
such, the Committee agrees with the Board an appropriate
remuneration framework. The principal objectives of the
Committee are to ensure that Executive Directors and
members of the senior management of the Company are
properly incentivised to encourage enhanced performance
and are, in a fair and responsible manner, rewarded for their
individual contributions to the ongoing success of the
Company. We believe this is essential to the Company
achieving its strategic aims and generating shareholder
value over the long term.
Non-Executive Director fees are considered and agreed by
the Board (excluding the Non-Executive Directors) with no
Director participating in any decision relating to his own
remuneration.
The last full review of Executive and Non-Executive Director
remuneration took place with effect from 1 January 2018.
Executive Director service contracts and salaries
The Executive Directors have service contracts with the
Company at the following salaries with effect from 1 June 2018:
Nick Clarke: £250,000
Nigel Robinson: £350,000
Gavin Ferrar: £285,000
These reflect the new roles that they took on during the
year. The Executive Directors’ service contracts are subject
to notice periods of six months and the Company has the
discretion to pay them in lieu of their notice period and also
to place them on gardening leave. In the event of a change
of control of the Company as defined in the service
contracts, the Executive Directors shall be entitled to
receive a compensation payment of 12 months basic salary.
Other fixed elements of the Executive Directors’ remuneration
comprise private medical insurance and Company pension
contributions. The service contracts also contain customary
post-termination restrictions.
Annual bonuses
The Executive Directors’ are currently entitled to earn an
annual cash bonus of up to 100% of their salary subject to
the achievement of agreed performance targets and at the
sole discretion of the Remuneration Committee. The
challenging targets comprising the elements set out in the
table on page 52 were substantially met resulting in
payment of 80% of salary to each Executive Director.
Robert Cathery
Chairman of the Remuneration Committee
The Company’s policy is to remunerate
executives and senior management
appropriately so as to attract talent as
well as encourage retention and
meaningful progress.
The role of the Remuneration Committee
The Remuneration Committee determines the
remuneration of our Executive Directors, oversees the
remuneration of our senior management and approves
awards under the Company’s Long-Term Incentive Plan
(‘LTIP’). Our Committee is made up solely of independent
Non-Executive Directors: David Swan, Nigel Hurst-Brown,
our Deputy Chairman and myself as Committee Chairman.
The Remuneration Committee reviews the performance of the
Executive Directors and sets the scale and structure of their
remuneration and the basis of their service agreements. In
doing so, it has due regard to the interests of the workforce as
a whole, the shareholders and other stakeholders.
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STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
Long-Term Incentive Plan (‘LTIP’)
Under the Company’s share option schemes, nominal priced
share options were granted to the Executive Directors
during 2018 as shown in the table on page 53. These were
equivalent in value to 100% of salary based on the share
price as determined at the date of grant. The share options
generally vest at the rate of one-third each year after the
date of grant subject to the achievement of performance
conditions measurable over the first financial year to which
the grant relates. The performance conditions, as set out in
the table to the right, are the same as those used for annual
cash bonus mentioned under ‘annual bonuses’ on page 50.
The performance conditions for the awards granted in 2018
were substantially achieved at a level of 80%.
Performance conditions measurable over one year were
used because the Committee considered this, combined
with share price performance, to be the best way of
incentivising the desired performance. It considered that
seeking to set three-year targets would have been
inappropriate and counter-productive in that the rapidly
changing nature of the Group made determining
appropriate targets over that period impractical.
As disclosed in last year’s report, in addition to the annual
LTIP awards, the Remuneration Committee decided to grant
an exceptional additional award equivalent to 100% of salary
for 2018 only. This was to recognise the significant phase the
Group entered in terms of integration of the Sasa mine into
the rest of the Group and the ongoing development of this
alongside the Group’s Kounrad asset. These awards were
designed to motivate, retain and reward the key senior
management resource required to navigate this pivotal time
in the Group’s development. The awards will vest over three
years from grant at the rate of one third per annum
commencing on 31 March 2019. Given their specifically
targeted purpose, they are not subject to performance
conditions and are instead directly and fully aligned with
shareholder value through share price performance over
three years. These awards are also set out in the table on
page 53.
The arrangements as set out above were arrived at after full
and careful consideration, and consultation with an external
remuneration advisor, h2glenfern Limited. The Committee
believes these arrangements to be in the interests of
shareholders.
The ongoing remuneration structure is currently being
reviewed. In particular, the Committee is considering
whether the LTIP awards to be granted during 2019 could
now be made subject to performance conditions to be
measured over a period of three years. It is also considering
what transition arrangements may be appropriate if such a
change is made. An outline of the terms of the grants
ultimately made will be included in the announcement of
those grants and reported more fully in our Annual Report
next year.
During the year, the Remuneration Committee:
¼ Reviewed and considered a comparator
remuneration report in respect of Director salaries
prepared by the Company’s remuneration advisors,
h2glenfern Limited.
¼ Determined annual salary levels for the Executive
and Non-Executive Directors. This included
consideration of the Executive salaries in light of the
management changes in Q2, as appropriate to the
new roles of the Executive Directors.
¼ Reviewed, considered and approved the:
– annual bonus plans and targets for the year; and
– LTIP grants and targets, including the one-off
exceptional LTIP award in relation to the
successful integration of Sasa.
¼ Determined corporate performance targets
including:
– copper production;
– zinc and lead production;
– production costs; and
– health and safety.
¼ Received and approved the outcomes against
targets resulting in 80 % pay-out of annual
bonuses, and release, subject to time vesting, of
the 2018 LTIP awards for the Executive Directors.
Non-Executive Director appointment letters
and fees
The Non-Executive Directors have each signed a letter of
appointment. Under the terms of these letters, the
Non-Executive Directors are entitled to an annual fee for
2019 as set out below:
Nigel Hurst-Brown: £100,000
David Swan2: £80,000
Robert Cathery1: £80,000
Nurlan Zhakupov: £75,000
Roger Davey3: £80,000
1
2
3
This comprises a base fee of £75,000 and £5,000 Committee Chair fee
for the role of Chairman of the Remuneration Committee.
This comprises a base fee of £75,000 and £5,000 Committee Chair fee
for the role of Chairman of the Audit Committee.
This comprises a base fee of £75,000 and £5,000 Committee Chair fee
for the role of Chairman of the CSR Committee.
The appointments are terminable by either party with
one months’ written notice. The Company may pay the
Non-Executive Directors in lieu of notice.
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52
REMUNERATION COMMITTEE cont Inued
Directors’ remuneration
Directors’ remuneration, including Non-Executive Directors, during the year was as follows:
Executive Directors:
Nick Clarke
Nigel Robinson
Gavin Ferrar
Non-Executive Directors:
Nigel Hurst-Brown
Robert Cathery
Kenges Rakishev
Nurlan Zhakupov
David Swan
Roger Davey
2018
Basic salary/
fees
$’000
430
428
358
133
107
40*
100
107
107
2018
Annual
bonus
$’000
344
343
287
–
–
–
–
–
–
2018
Pension
$’000
2018
Benefits
in kind
$’000
23
24
20
–
–
–
–
–
–
11
12
–
–
–
–
–
–
–
2018
Total
$’000
808
807
665
133
107
40*
100
107
107
2017
Total
$’000
1,315
874
759
129
84
152
152
84
84
Directors’ aggregate emoluments
1,810
974
67
23
2,874
3,558
* Kenges Rakishev retired from the Board on 23 May 2018.
The aggregate emoluments of the highest paid Director totalled $808,000 (2017: $1,315,000). No Director has a service
agreement with the Company that is terminable on more than 12 months’ notice.
Directors’ EBT share awards
Nick Clarke
Nigel Robinson
Total Directors’ interests
As at 31 Dec
2018
Number
As at 31 Dec
2017
Number
1,342,887
646,715
1,342,887
646,715
1,989,602
1,989,602
The above shares were awarded to the Directors of the Company as part of the EBT incentive scheme. All the share
awards were made prior to the 2010 IPO and vested upon its successful completion.
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STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
Directors’ options awards
During 2018 the Company awarded the following New Scheme options to the Directors of the Company:
Nick Clarke
Nigel Robinson
Gavin Ferrar
Nurlan Zhakupov
Total
2018
options
147,2731
97,2551
85,0981
–
2018
Additional
options
147,2732
97,2552
85,0982
–
2017
Options
168,2791
111,4851
221,7601
16,8273
329,626
329,626
518,351
The Options in the table above have been made under the following plans:
1 Options to the Executive Directors have been granted under the Central Asia Metals Employee Share Plan 2011. The performance conditions to which
these awards were subject have been met in full for the 2017 options and substantially met to the extent of 80% of the total for the 2018 options. The
awards therefore vest at the rate of one-third per annum commencing on the 31st March on the first, second and third years after grant.
2 Additional options to the Executive Directors have been granted under the Central Asia Metals Employee Share Plan 2011 and are not subject to performance
conditions. The additional awards granted in 2018 therefore vest at the rate of one-third per annum commencing on the 31st March 2019.
3 Options to the Non-Executive Director granted in 2017 were granted under the Central Asia Metals Non-Executive Director Share Plan 2012 and are not
subject to performance conditions. The awards granted in 2017 therefore vest at a rate of one-third per annum commencing on the 31st March 2018.
During 2018 the Directors exercised the following new scheme options:
Nick Clarke
Nigel Robinson
Gavin Ferrar
Nurlan Zhakupov
Total
2018
Number
2017
Number
–
–
100,000
–
100,000
–
–
–
–
–
The number of options exercised in the table above includes the number of shares covered by such awards increased by
up to the value of dividends as if these were reinvested in Company shares at the dates of payment (see note 28 to the
Financial Statements).
Robert Cathery
Chairman of the Remuneration Committee
10 April 2019
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54
DIRECTORS’ REPORT
The Directors present their report and the audited Consolidated Financial Statements for the year ended
31 December 2018.
Details of significant events since the balance sheet date are contained in note 38 to the Financial Statements.
Principal activities
Central Asia Metals plc (‘CAML’ or the ‘Company’) is the holding Company for a group of companies (the ‘Group’). CAML
owns 100% of the Kounrad SX-EW copper project in Kazakhstan and 100% of the Sasa zinc-lead mine in North Macedonia.
The Company also owns 80% of the Shuak copper exploration property in northern Kazakhstan.
CAML is domiciled and incorporated in the UK with the registration number 5559627 and the registered office is: Masters
House, 107 Hammersmith Road, London, W14 0QH.
Review of business
A review of the current and future development of the Group’s business is given in the Strategic Report on pages 1 to 39
which forms part of, and by reference is incorporated in, this Directors’ Report.
Financial risk management has been assessed within note 3 to the Financial Statements.
Dividends
The Company’s dividend policy is to return to shareholders a target range of between 30% and 50% of free cash flow,
defined as net cash generated from operating activities less capital expenditure. The dividends will only be paid provided
there is sufficient cash remaining in the Group to meet the ongoing contractual debt repayments and that banking
covenants are not breached.
The final 2017 dividend of 10 pence per Ordinary Share of $0.01 each (‘share’) was paid on 25 May 2018 and a 2018 interim
dividend of 6.5 pence per share was paid on 26 October 2018.
The Directors recommend a final dividend for the year ended 31 December 2018 of 8 pence per share payable, subject to
the approval of shareholders, on 20 May 2019, to those shareholders on the Company’s register on 26 April 2019. This will
take the total dividend for 2018 to 14.5 pence per share.
Directors and Directors’ interests
The Directors of the Company who were in office during the year and up to the date of signing the Financial Statements
and their interest in the issued Share Capital of the Company during the year were as follows:
Director
Nick Clarke (Chairman)1
Nigel Robinson (Chief Executive Officer)1
Gavin Ferrar (Chief Financial Officer)
Nigel Hurst-Brown (Deputy Chairman)
Robert Cathery2
Roger Davey
David Swan
Nurlan Zhakupov
Total Directors’ interests
Shares held as
at date of this
report
Shares held as
at 31 Dec
2018
Shares held as
at 31 Dec
2017
1,342,887
646,715
–
909,065
2,105,254
–
3,000
–
1,342,887
646,715
–
909,065
2,105,254
–
3,000
–
1,342,887
646,715
–
909,065
2,105,254
–
3,000
–
5,006,921 5,006,921
5,006,921
These shares are held jointly with the Company’s EBT under a joint share ownership plan in terms of which the shares have vested.
1
2 250,000 (2017: 250,000) shares held by Elizabeth Cathery, the wife of Robert Cathery; 1,355,254 (2017: 1,355,254) shares held by Robert Cathery; and
500,000 (2017: 500,000) shares held by Robert and Elizabeth Cathery are included in the above amounts.
At every Annual General Meeting (‘AGM’), any Director who has been a Director at each of the two last AGMs and was not
appointed or reappointed at either of those meetings, is required to retire and is eligible for reappointment. This year,
Roger Davey is required to retire and be reappointed in this manner.
Directors’ indemnity insurance
During the year, Directors’ and Officers’ liability insurance was maintained for Directors and other Officers of the Group.
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STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
Substantial shareholding
At the date of this report the Company has been notified or is aware of the following interests in the shares of the
Company of 3% or more of the Company’s total issued share capital (excluding treasury shares).
JO Hambro Capital Management
Orion Mine Finance
Blackrock Investment Management
FIL Investment International
Canaccord Genuity Wealth Management
Majedie Asset Management
No. of Shares
%
17,219,091
15,278,528
14,124,902
14,934,049
13,150,008
8,276,038
9.78%
8.68%
8.03%
8.49%
7.47%
4.70%
The Company received no notifications of interests indicating a different whole percentage holding at 31 December 2018.
Changes in share capital
There have been no changes in the share capital during the year ended 31 December 2018.
As at 31 December 2018, 176,498,266 shares were in issue including treasury shares totalling 511,647.
The treasury shares may either be cancelled or possibly used in the Company employee share option schemes.
AGM notice
Resolutions will be proposed at the forthcoming AGM, as set out in the formal Notice of Meeting which accompanies this
Annual Report to shareholders.
Auditors and disclosure of information to Auditors
Each Director in office at the date of approval of this report has confirmed that:
¼ so far as he is aware, there is no relevant audit information of which the Company’s Auditors are unaware; and
¼ he has taken all reasonable steps that he ought to have taken as a Director in order to make himself aware of any
relevant audit information and to establish that the Company’s Auditors are aware of that information.
The Auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in office, and a resolution that they
be reappointed will be proposed at the AGM.
Political donations
During the year the Group did not make any political donations.
Corporate governance
The Governance Report can be found on pages 40 to 41. The Governance Report forms part of this Directors’ Report and is
incorporated by cross reference.
Approved by the Board of Directors and signed on its behalf
Gavin Ferrar
Chief Financial Officer
10 April 2019
C EN T R A L ASI A ME TA L S PLC
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
A nnuA l Rep oR t A nd Accoun ts 2018
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
56
56
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable
law and regulation.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors
have prepared the Group Financial Statements in accordance with International Financial Reporting Standards (‘IFRS’) as
adopted by the European Union and Company Financial Statements in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law). Under company law the Directors must not approve the Financial Statements unless they
are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of
the Group and Company for that period. In preparing the Financial Statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
¼ state whether applicable IFRS as adopted by the European Union have been followed for the Group Financial
Statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the Company
Financial Statements, subject to any material departures disclosed and explained in the Financial Statements;
¼ make judgements and accounting estimates that are reasonable and prudent; and
¼ prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Group and
Company will continue in business.
The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group
and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and
Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United
Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other
jurisdictions.
On behalf of the Board
Gavin Ferrar
Chief Financial Officer
10 April 2019
C EN T R A L ASI A ME TA L S PLC
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
A nnuA l Rep oR t A nd Accoun ts 2018
57
INDEPENDENT AUDITORS’ REPORT
to tHe M eMBeRs oF centR Al A sIA Me tAls plc
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
Report on the audit of the financial statements
Opinion
In our opinion:
¼ Central Asia Metals plc’s Group financial statements and Company financial statements (the “financial statements”) give
a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2018 and of the Group’s
profit and cash flows for the year then ended;
¼ the consolidated financial statements have been properly prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union;
¼ the Company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law); and
¼ the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual report and Accounts 2018 (the “Annual Report”),
which comprise: the Group and Company statements of financial position as at 31 December 2018; the Consolidated
income statement and Consolidated statement of comprehensive income, the Consolidated statement of cash flows and
the Consolidated and Company statements of changes in equity for the year then ended; and the notes to the financial
statements, which include a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with these requirements.
Our audit approach
Overview
Materiality
Audit scope
Key audit
matters
¼ Overall Group materiality: $3,600,000 (2017: $2,200,000), based on 5% of profit
before tax (2017: 5% of a three year average profit before tax).
¼ Overall Company materiality: $2,599,000 (2017: $945,151), based on 5% of profit
before tax (2017: 5% of a three year average profit before tax).
¼ We conducted full scope audits at four significant components based on their size
and risk characteristics; two operating entities in Kazakhstan, one operating entity in
North Macedonia and the head office in London. Our audit work enabled us to obtain
coverage of 99% of consolidated profit before tax, 99% of consolidated revenue and
98% of total assets for the Group.
¼ Specific audit procedures were performed on certain balances and transactions at
one reporting unit relating to exploration and evaluation assets.
¼ The Group audit team visited the Kazakhstani and North Macedonian operations as
part of our audit in order to have sufficient oversight of the work of our component
auditors in Kazakhstan and North Macedonia. This included a site visit to the Kounrad
plant and the SASA mine.
Our key audit matters comprised:
¼ Finalisation of the accounting for the acquisition of CMK Resources. (Group)
¼ Impairment of goodwill and non-current assets. (Group and Company)
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of
our audits we also addressed the risk of management override of internal controls, including evaluating whether there was
evidence of bias by the directors that represented a risk of material misstatement due to fraud.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
58
INDEPENDENT AUDITORS’ REPORT CONTINUED
to tHe M eMBeRs oF centR Al A sIA Me tAls plc
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of
the financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and
any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Finalisation of the accounting for the acquisition of
CMK Resources
As disclosed in Note 6 to the financial statements, on
6 November 2017, CAML MK Limited, a wholly owned
subsidiary of CAML, acquired 100% of the issued share
capital of CMK Resources Limited (formerly called Lynx
Resources Limited), a holding company for a group of
companies that owns the SASA mine.
The transaction is considered to be a business combination
under IFRS 3.
Management finalised the fair value exercise within the
permitted 12-month measurement period to reflect new
information obtained about facts and circumstances that
were in existence at the acquisition date.
The final fair value adjustments relate to the valuation of
the silver streaming commitment, which was valued at
$28.0m, and the recognition of a withholding tax payable
liability of $5.9m with a corresponding indemnification
asset of $5.9m. Management used the future production
volumes from the competent person’s report to calculate
the silver streaming commitment.
Given the size and complexity around these transactions,
there is a risk that the accounting treatment may be
incorrect and as such this was a key audit matter.
Silver streaming commitment
We reviewed management’s valuation of the silver
streaming commitment.
We used our valuation experts to evaluate the key
assumptions, including silver prices and the discount rate
used by management to value the silver streaming
commitment. We benchmarked these to external data
and critically assessed the assumptions based on our
knowledge of the Group and the industry within which
it operates.
We reconciled the key assumptions around silver
production volumes to the competent person’s report as
well as against historic performance. There were no
material differences. We also assessed the competence
and objectivity of the competent person.
Withholding tax liability
We reviewed the correspondence with the Public Revenue
Office (PRO) of the Republic of North Macedonia and agreed
that the final adjustment is in line with the PRO’s
assessment. We examined the Share Purchase Agreement
to check the inclusion of an indemnity clause.
Management concluded that the withholding tax payable
liability relates to the period prior to acquisition and
accordingly that the Group has a tax indemnity, provided by
the seller in accordance with the Share Purchase
Agreement. Therefore, the liability has been accounted for
as a fair value adjustment on acquisition with the
recognition of a corresponding indemnification asset of
$5.9m. This treatment is consistent with the evidence
we obtained.
We note that a full and final settlement has been agreed
with the seller and that the tax liability has been settled
with the PRO in the period after 31 December 2018.
Based on the results of our work, we concur with the final
fair value adjustments and the associated disclosure in
Note 6.
C en t r a l asi a Me ta l s pl C
A nnuA l Rep oR t A nd Accoun ts 2018
59
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
Key audit matter
How our audit addressed the key audit matter
Impairment of goodwill and non-current assets
As disclosed in note 20, the Group has goodwill of $22.3m
within the Sasa cash generating unit (Sasa CGU) and $8.9m
within the Kounrad cash generating unit (Kounrad CGU)
which must be tested for impairment on an annual basis.
We assessed the competence and objectivity of the
experts by considering factors including professional
qualifications and fee arrangements. We held discussions
with the experts regarding the key judgements and
estimates taken during the preparation of the reserves and
resources statements.
Sasa CGU
Management undertook an impairment assessment using a
discounted cash flow model under the fair value less costs
to dispose method, which was higher than value-in-use.
The estimate of the recoverable amount requires
significant judgements on the part of management in
valuing the Sasa CGU. Management considered the key
assumptions to be long-term zinc and lead prices,
short-term production volumes and the discount rate.
Management used external experts to prepare the reserves
and resources statements for Sasa. Management
sensitised the forecast 2019 production volumes, zinc and
lead price forecasts and the discount rate and concluded
that any reasonably possible changes in these assumptions
do not lead to an impairment of the carrying value. Given
the sensitivity of the recoverable amount to a reasonable
possible change in assumptions management concluded
that a sensitivity analysis should be disclosed in the
financial statements.
Kounrad CGU
Management undertook an impairment assessment of the
goodwill balance and determined that the recoverable
amount of the goodwill balance exceeded the carrying
value. The carrying value of Kounrad is supported by a
value-in-use calculation, based on future cash flow
forecasts. Management used external experts to prepare
the reserves and resources statements for Kounrad.
In addition, management determined that there are no
triggers for impairment of non-current assets, having
considered key factors such as commodity prices, reserves
estimates and discount rates.
Company (CAML Plc)
Management also considered the recoverability of the
investments and intercompany balances in subsidiaries
held in the company financial statements. They did not
identify any differences between the carrying amount of
the individual investments and the relevant recoverable
amount, other than in respect of the intercompany loans to
Shuak and Copper Bay, where management determined
that these loans should be written down to nil based on the
analysis of the recoverable amounts.
Impairment assessments require significant judgement
and there is the risk that the valuation of the assets may
be incorrect and any potential impairment charge
miscalculated. As such, this was a key audit matter due
to the material nature of the respective balances.
We used our valuation experts to evaluate the key
assumptions, including the commodity prices and discount
rates used by management. We benchmarked these to
external data and critically assessed the assumptions
based on our knowledge of the Group and the industry
within which it operates.
We evaluated management’s future cash flow forecasts,
and the process by which they were drawn up, including
checking the mathematical accuracy of the cash flow
models and agreeing future capital and operating
expenditure to the latest Board approved budgets and the
latest approved life of mine plans. We assessed the
reasonableness of management’s future forecasts included
in the cash flow forecasts in light of the historical accuracy
of such forecasts and the current operational results.
Sasa CGU
We performed sensitivity analysis around the key
assumptions within the cash flow forecasts using a lower
production profile, lower commodity prices and higher
discount rate, based on what, in our view, a market
participant may apply.
We did not identify any material issues with management’s
impairment conclusions and the disclosures made by
management.
Our sensitivity analysis highlighted that the estimate of the
recoverable amount of Sasa is sensitive to changes in key
assumptions and accordingly we note that management
has included a sensitivity analysis in note 20.
Kounrad CGU
Kounrad had significant headroom between the
recoverable amount and the carrying value and no
reasonable possible change in key assumptions would
reduce the recoverable amount below the carrying value.
We agree with management’s conclusions.
Company (CAML Plc)
We compared the fair value of the underlying CGUs against
the carrying values of the investments and intercompany
balances, and agree with management’s conclusions that
there is no impairment except for in respect of
intercompany loans due from Shuak and Copper Bay.
Other than in relation to the recoverability of the investments and intercompany balances referred above, we determined
that there were no other key audit matters applicable to the Company to communicate in our report.
C EN T R A L ASI A ME TA L S PLC
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60
INDEPENDENT AUDITORS’ REPORT CONTINUED
to tHe M eMBeRs oF centR Al A sIA Me tAls plc
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and
controls, and the industry in which they operate.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at
the statutory reporting unit level by us, as the Group audit team, or through involvement of our component auditors in
Kazakhstan and North Macedonia. The Group’s assets and operations are primarily located within two locations in
Kazakhstan and North Macedonia. Financial reporting is undertaken in offices in Balkhash, Skopje and London.
We identified four units, which, in our view, required an audit of their complete financial information, either due to their size
or risk characteristics. This included two main operating subsidiaries in Kazakhstan, one operating subsidiary in North
Macedonia as well as the head office in London. Specific audit procedures on certain balances and transactions were also
performed on a further one reporting unit. This gave us coverage of 99% of consolidated profit before tax, 99% of
consolidated revenue and 98% of consolidated total assets. This, together with additional procedures performed at the
Group level, gave us the evidence we needed for our opinion on the Group financial statements as a whole.
Where work was performed by our component auditors in Kazakhstan and North Macedonia, we determined the level of
involvement we needed to have in the audit work for each reporting unit to be able to conclude whether sufficient
appropriate audit evidence had been obtained as a basis for our opinion on the Group financial statements as a whole. As
part of our year end audits, the Group team’s involvement comprised of site visits, conference calls, review of component
auditor work papers, attendance at component audit clearance meetings and other forms of communication as
considered necessary. In addition, senior members of the Group audit team performed site visits to the operating assets
at Kounrad and the SASA mine.
The Group audit team directly performed the work over the company and the intermediate holding companies, as well as
the consolidation.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
overall materiality
$3,600,000 (2017: $2,200,000).
$2,599,000 (2017: $945,151).
Group financial statements
Company financial statements
How we determined it 5% of profit before tax (2017: 5% of a three
year average profit before tax).
5% of profit before tax (2017: 5% of a three
year average profit before tax).
Rationale for
benchmark applied
In assessing the most appropriate benchmark
to use as a basis for materiality we considered
the nature of the legacy business and the full
year results of the newly acquired CMK
Resources. Since the Group and its significant
components are profit-oriented entities, we
believe that a PBT-based benchmark is the
most appropriate. Due to one off exceptionals
(e.g. impairment), we considered that a PBT
before exceptionals was more appropriate.
We have assessed that the most appropriate
benchmark for the Company is profit before tax.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group
materiality. The range of materiality allocated across components was between $400,000 and $3,200,000. Certain
components were audited to a local statutory audit materiality that was also less than our overall group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
$180,000 (Group audit) (2017: $110,000) and $129,000 (Company audit) (2017: $47,250) as well as misstatements below
those amounts that, in our view, warranted reporting for qualitative reasons.
C EN T R A L ASI A ME TA L S PLC
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61
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
Conclusions relating to going concern
ISAs (UK) require us to report to you when:
¼ the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not
appropriate; or
¼ the directors have not disclosed in the financial statements any identified material uncertainties that may cast
significant doubt about the Group’s and Company’s ability to continue to adopt the going concern basis of accounting
for a period of at least twelve months from the date when the financial statements are authorised for issue.
We have nothing to report in respect of the above matters.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s
and Company’s ability to continue as a going concern. For example, the terms on which the United Kingdom may withdraw
from the European Union are not clear, and it is difficult to evaluate all of the potential implications on the group’s trade,
customers, suppliers and the wider economy.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements
does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent
otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the
financial statements or a material misstatement of the other information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact. We have
nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the
Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also
to report certain opinions and matters as described below.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and
Directors’ Report for the year ended 31 December 2018 is consistent with the financial statements and has been prepared
in accordance with applicable legal requirements.
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of
the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 56, the directors are responsible for
the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they
give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’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 accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no
realistic alternative but to do so.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
62
INDEPENDENT AUDITORS’ REPORT CONTINUED
to tHe M eMBeRs oF centR Al A sIA Me tAls plc
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance
with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept
or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it
may come save where expressly agreed by our prior consent in writing.
other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
¼ we have not received all the information and explanations we require for our audit; or
¼ adequate accounting records have not been kept by the company, or returns adequate for our audit have not been
received from branches not visited by us; or
¼ certain disclosures of directors’ remuneration specified by law are not made; or
¼ the company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
other voluntary reporting
Directors’ remuneration
The company voluntarily prepares a Directors’ Remuneration Report in accordance with the provisions of the Companies
Act 2006. The directors requested that we audit the part of the Directors’ Remuneration Report specified by the
Companies Act 2006 to be audited as if the company were a quoted company.
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006.
Timothy McAllister
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
10 April 2019
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
63
CONSOLIDATED INCOME STATEMENT
FoR tHe Y e AR ended 31 deceMBeR
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
Continuing operations
Revenue
Presented as:
Gross revenue
Less:
Silver purchases from Silver Stream
Distribution and selling costs
Off-take buyers’ fees
Revenue
Cost of sales
Gross profit
Administrative expenses
Other expenses
Other income
Foreign exchange (loss)/gain
operating profit
Finance income
Finance costs
Profit before income tax
Income tax
Profit for the year from continuing operations
Discontinued operations
Loss for the year from discontinued operations
Profit for the year
Profit attributable to:
– Non-controlling interests
– Owners of the parent
Group
Note
2018
$’000
2017
$’000
(restated)*
7
7
7
9
7
8
10
11
15
16
17
192,334
102,123
204,152
106,479
(6,023)
(2,045)
(3,750)
(1,120)
(646)
(2,590)
192,334
102,123
(76,418)
(31,425)
115,916
70,698
(23,950)
(1,030)
359
(3,879)
(15,202)
(12,600)
252
3,362
87,416
46,510
264
(14,999)
72,681
(18,822)
5,597
(2,319)
49,788
(13,433)
53,859
36,355
22
(7,274)
(76)
46,585
36,279
(1,439)
48,024
(36)
36,315
46,585
36,279
Earnings/(loss) per share from continuing and discontinued operations
attributable to owners of the parent during the year (expressed in cents per share)
$ cents
$ cents
Basic earnings/(loss) per share
From continuing operations
From discontinued operations
From profit for the year
Diluted earnings/(loss) per share
From continuing operations
From discontinued operations
From profit for the year
18
18
31.33
(4.12)
27.21
30.65
(4.12)
26.53
29.08
(0.06)
29.02
28.38
(0.06)
28.32
*
The comparatives have been restated to reflect the finalisation of acquisition accounting under IFRS 3 (see note 6).
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the parent
company Income Statement or Statement of Comprehensive Income. The profit for the parent company for the year was
$42,830,000 (2017: $26,826,000).
The above Consolidated Income Statement should be read in conjunction with the accompanying notes.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
64
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FoR tHe Y e AR ended 31 deceMBeR
Profit for the year
other comprehensive (expense)/income:
Items that may be subsequently reclassified to profit or loss:
Currency translation differences
Foreign exchange on intercompany loan
other comprehensive (expense)/income for the year, net of tax
Total comprehensive income for the year
Attributable to:
– Non-controlling interests
– Owners of the parent
Total comprehensive income for the year
Total comprehensive income/(expense) attributable to equity shareholders arises
from:
– Continuing operations
– Discontinued operations
Note
27
Group
2018
$’000
2017
$’000
(restated*)
46,585
36,279
(10,288)
(13,020)
(23,308)
8,269
–
8,269
23,277
44,548
(1,439)
24,716
(36)
44,584
23,277
44,548
30,551
(7,274)
44,624
(76)
23,277
44,548
*
The comparatives have been restated to reflect the finalisation of acquisition accounting under IFRS 3 (see note 6).
The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
65
STATEMENTS OF FINANCIAL POSITION
As At 31 deceMBeR
StrateGic report
Governance
Financial StatementS
Group
Company
Note
2018
$’000
assets
non-current assets
Property, plant and equipment
Intangible assets
Investments
Other non-current receivables
current assets
Inventories
Trade and other receivables
Restricted cash
Cash and cash equivalents
Assets of disposal group classified as held for sale
total assets
equity attributable to owners of the parent
Ordinary shares
Share premium
Treasury shares
Currency translation reserve
Retained earnings:
At 1 January
Profit for the year attributable to the owners
Other changes in retained earnings
non-controlling interests
total equity
liabilities
non-current liabilities
Borrowings
Silver streaming commitment
Other non-current payables
Deferred income tax liability
Provisions for other liabilities and charges
current liabilities
Borrowings
Silver streaming commitment
Trade and other payables
Provisions for other liabilities and charges
Liabilities of disposal group classified as held for sale
total liabilities
total equity and liabilities
19
20
21
23
24
23
25
25
22
26
26
26
27
31
30
29
37
32
31
30
29
32
22
2017
$’000
(restated)*
469,261
69,915
–
2,519
541,695
6,998
19,705
2,812
43,022
72,537
5,760
78,297
2018
$’000
2017
$’000
290
3
5,491
–
5,784
37
8
11,821
1,531
13,397
–
374,192
4,222
15,297
–
328,902
2,672
15,083
393,711
346,657
–
–
393,711
346,657
429,601
61,311
–
2,120
493,032
7,529
10,078
4,376
34,649
56,632
61
56,693
549,725
619,992
399,495
360,054
1,765
191,184
(6,526)
(89,454)
231,241
48,024
(48,984)
1,765
191,184
(7,780)
(79,166)
215,479
36,315
(20,553)
1,765
191,184
(6,526)
–
56,195
42,830
(35,898)
230,281
231,241
63,127
1,765
191,184
(7,780)
–
51,184
26,826
(21,815)
56,195
327,250
337,244
249,550
241,364
(1,384)
55
–
–
325,866
337,299
249,550
241,364
106,549
22,905
–
27,670
5,069
141,839
25,711
8,000
31,196
5,319
106,549
–
–
–
–
162,193
212,065
106,549
38,400
2,263
20,916
47
61,626
40
40,075
2,056
28,361
46
70,538
90
38,400
–
4,996
–
43,396
–
89,711
–
–
–
–
89,711
24,000
–
4,979
–
28,979
–
61,666
70,628
43,396
28,979
223,859
282,693
149,945
118,690
549,725
619,992
399,495
360,054
*
The comparatives have been restated to reflect the finalisation of acquisition accounting under IFRS 3 (see note 6).
The above Statements of Financial Position should be read in conjunction with the accompanying notes.
The financial statements on pages 63 to 102 were authorised for issue by the Board of Directors on 10 April 2019 and were
signed on its behalf by
Gavin Ferrar
Chief Financial Officer
Registered no. 5559627
C en t r a l asi a Me ta l s pl C
A nnuA l Rep oR t A nd Accoun ts 2018
66
CONSOLIDATED STATEMENT OF CHANGES IN EQUIT Y
FoR tHe Y e AR ended 31 deceMBeR
Attributable to owners of the parent
Note
Balance as at 1 January 2017
Profit/(loss) for the year
(restated*)
Other comprehensive expense –
currency translation differences
(restated*)
Total comprehensive income/
(expense)
Transactions with owners
Issue of shares
Share based payments
Disposal of subsidiaries
Exercise of options
Dividends
Total transactions with owners,
recognised directly in equity
Balance as at 31 December 2017
(restated*)
Profit/(loss) for the year
Other comprehensive expense –
currency translation differences
Total comprehensive income/
(expense)
Transactions with owners
Share based payments
Disposal of Zuunmod UUL LLC
Sales of EBT shares
Exercise of options
Foreign exchange on
intercompany loan
Dividends
Total transactions with owners,
recognised directly in equity
27
26
10
21
35
27
10
21
28
28
35
Ordinary
Shares
$’000
1,121
–
–
–
Share
premium
$’000
Treasury
shares
$’000
Currency
translation
reserve
$’000
Retained
earnings
$’000
Non-
controlling
interests
$’000
Total
$’000
Total
equity
$’000
–
–
–
–
(7,780)
(87,435) 215,479 121,385
91 121,476
–
–
–
–
–
–
–
–
–
–
36,315
36,315
(36) 36,279
8,269
–
8,269
–
8,269
8,269
36,315 44,584
(36) 44,548
–
–
–
–
–
– 191,828
2,823
1,262
(1,492)
(23,146)
2,823
1,262
(1,492)
(23,146)
– 191,828
2,823
–
1,262
–
(1,492)
–
(23,146)
–
– (20,553)
171,275
–
171,275
644 191,184
–
–
–
–
–
–
–
–
644 191,184
1,765 191,184
(7,780)
(79,166) 231,241 337,244
55 337,299
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
48,024
48,024
(1,439) 46,585
(10,288)
–
(10,288)
–
(10,288)
– (10,288) 48,024
37,736
(1,439) 36,297
–
–
55
1,199
–
–
–
–
–
4,904
(66)
–
(1,199)
4,904
(66)
55
–
–
–
–
–
4,904
(66)
55
–
(13,020)
– (39,603)
(13,020)
(39,603)
–
(13,020)
– (39,603)
1,254
– (48,984)
(47,730)
–
(47,730)
Balance as at 31 December 2018
1,765 191,184
(6,526) (89,454) 230,281 327,250
(1,384) 325,866
*
The comparatives have been restated to reflect the finalisation of acquisition accounting under IFRS 3 (see note 6).
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
67
COMPANY STATEMENT OF CHANGES IN EQUIT Y
FoR tHe Y e AR ended 31 deceMBeR
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
Company
Balance as at 1 January 2017
Profit for the year
Total comprehensive income
Transactions with owners
Issue of shares
Share based payments
Exercise of options
Dividends
Ordinary
Shares
$’000
1,121
–
–
644
–
–
–
Share
premium
$’000
–
–
–
191,184
–
–
–
Note
26
10
35
Total transactions with owners, recognised
directly in equity
644
191,184
Treasury
shares
$’000
(7,780)
–
–
–
–
–
–
–
Retained
earnings
$’000
51,184
26,826
26,826
–
2,823
(1,492)
(23,146)
Total
equity
$’000
44,525
26,826
26,826
191,828
2,823
(1,492)
(23,146)
(21,815)
170,013
Balance as at 31 December 2017
1,765
191,184
(7,780)
56,195
241,364
Profit for the year
Total comprehensive income
Transactions with owners
Share based payments
Sale of EBT shares
Exercise of options
Dividends
Total transactions with owners, recognised
directly in equity
10
28
35
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
42,830
42,830
42,830
42,830
–
55
1,199
–
4,904
–
(1,199)
(39,603)
4,904
55
–
(39,603)
1,254
(35,898)
(34,644)
Balance as at 31 December 2018
1,765
191,184
(6,526)
63,127
249,550
The above Company Statement of Changes in Equity should be read in conjunction with the accompanying notes.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
68
CONSOLIDATED STATEMENT OF CASH FLOWS
FoR tHe Y e AR ended 31 deceMBeR
Cash flows from operating activities
Cash generated from operations
Interest paid
Corporate income tax paid
Net cash generated from operating activities
Cash flows from investing activities
Payment for acquisition of subsidiary, net of cash acquired
Balancing receipt from acquisition
Purchase of property, plant and equipment
Purchase of intangible assets
Interest received
Increase in restricted cash
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issues of shares (net)
Gain on currency hedge
Proceeds from borrowings
Repayment of borrowings
Dividends paid to owners of the parent
Settlement on exercise of share options
Net cash (used in)/received from financing activities
Effect of foreign exchange (loss)/gain on cash and cash equivalents
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Note
33
6
19
22
15
25
26
15
31
31
35
28
25
25
2018
$’000
2017
$’000
130,131
(14,510)
(31,833)
60,412
(2,127)
(12,294)
83,788
45,991
–
3,300
(15,019)
(907)
264
(1,564)
(268,008)
–
(4,082)
(2,025)
323
(2,694)
(13,926)
(276,486)
–
–
60,809
(99,265)
(39,603)
(21)
142,945
2,977
120,000
(8,362)
(23,146)
(1,491)
(78,080)
232,923
(248)
(8,466)
43,173
34,707
487
2,915
40,258
43,173
Cash and cash equivalents at 31 December 2018 includes cash at bank and on hand included in assets held for sale of
$58,000 (31 December 2017: $151,000) (note 22). The Consolidated Statement of Cash Flows does not include the
restricted cash balance of $4,376,000 (2017: $2,812,000).
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FoR tHe Y e AR ended 31 deceMBeR 2018
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
1. General information
Central Asia Metals plc (‘CAML’ or the ‘Company’) and its subsidiaries (the ‘Group’) are a mining and exploration
organisation with operations primarily in Kazakhstan and North Macedonia and a parent holding company based in the
United Kingdom (‘UK’).
CAML owns 100% of the Kounrad SX-EW copper project in Kazakhstan and 100% of the Sasa zinc-lead mine in North
Macedonia. The Company also owns 80% of the Shuak copper exploration property in northern Kazakhstan and a 75%
equity interest in Copper Bay Limited. At the year end the decision was taken to impair the Shuak and Copper Bay assets in
full. See note 22 for details.
CAML is a public limited company, which is listed on the AIM Market of the London Stock Exchange and incorporated and
domiciled in England, UK. The address of its registered office is Masters House, 107 Hammersmith Road, London, W14 0QH.
The Company’s registered number is 5559627.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below.
These policies have been consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
The Group’s Consolidated Financial Statements have been prepared in accordance with International Financial Reporting
standards (‘IFRS’) and IFRS Interpretations Committee (‘IFRSIC’) interpretations as adopted by the European Union, and the
Companies Act 2006 applicable to companies reporting under IFRS. The Consolidated Financial Statements have been prepared
under the historical cost convention with the exception of assets held for sale which have been held at fair value. The accounting
policies which follow set out those policies which apply in preparing the Financial Statements for the year ended 31 December
2018. The Group Financial Statements are presented in US Dollars ($) and rounded to the nearest thousand.
The parent company meets the definition of a qualifying entity under FRS 100 (Financial Reporting Standard 100) issued by
the Financial Reporting Council. The parent Company Financial Statements have therefore been prepared in accordance
with FRS 101 (Financial Reporting Standard 101) ‘Reduced Disclosure Framework’ as issued by the Financial Reporting
Council. As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that
standard in relation to share-based payments, financial instruments, fair value measurements, capital management,
presentation of a cash flow statement, new standards not yet effective, impairment of assets and related party
transactions. Where relevant, equivalent disclosures have been given in the Group Financial Statements of Central Asia
Metals plc.
The preparation of Financial Statements in conformity with IFRS requires the use of certain critical accounting estimates.
It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The
areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to
the Consolidated Financial Statements are explained in note 4.
Going concern
The Group meets its day to day working capital requirements through its profitable operations at Kounrad and Sasa. The
Group manages liquidity risk by maintaining adequate committed borrowing facilities and the Group has substantial cash
balances as at 31 December 2018. The Directors have a reasonable expectation that the Group has adequate resources to
continue in operational existence over a period of at least 12 months from the date of approval of the Financial Statements.
The Group sells and distributes its copper cathode product primarily through an off-take arrangement with Traxys Europe
S.A. with a minimum of 95% of the SX-EW plant’s forecasted output committed as sales for the period up until
approximately October 2022. During the year, 100% of Sasa’s zinc and lead concentrate was sold to credit-worthy
customers and on 1 January 2018, CMK Mining Limited (previously named Lynx Mining Limited) entered into a zinc and lead
concentrate off-take arrangement with Traxys, which has been fixed through to 31 December 2022. The commitment is
for 100% of the Sasa concentrate production.
The Group therefore continues to adopt the going concern basis in preparing its Consolidated Financial Statements. Please
refer to notes 7, 25 and 29 for information on the Group’s revenues, cash balances and trade and other payables.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FoR tHe Y e AR ended 31 deceMBeR 2018
2. Summary of significant accounting policies continued
New and amended standards and interpretations adopted by the Group
The Group has adopted the following standards and amendments for the first time for their annual reporting period
commencing 1 January 2018:
¼ IFRS 9 “Financial Instruments” - In the current period the Company has adopted IFRS 9 Financial Instruments on its
effective date of 1 January 2018. IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement and
introduces new requirements for classification and measurement, impairment and hedge accounting. IFRS 9 is not
applicable to items that have already been derecognised at 1 January 2018, the date of initial application. Receivables
that were previously measured at amortised cost under IAS 39 are held to collect contractual cash flows and give rise
to cash flows representing solely payments of principal and interest. Therefore, such instruments continue to be
measured at amortised cost under IFRS 9. The classification of financial liabilities under IFRS 9 remains broadly the
same as under IAS 39.
The main impact on measurement from the classification of liabilities under IFRS 9 relates to the element of gains or
losses for financial liabilities designated at fair value through profit or loss attributable to changes in credit risk. The
Company has not designated any financial liabilities at fair value through profit or loss therefore this requirement has
not had an impact on the Company. IFRS 9 requires the Company to record expected credit losses on all of its
receivables, either on a 12 month or lifetime basis. An assessment of its intercompany loans advanced to subsidiaries
repayable on demand (see note 23) was made and it was concluded that the subsidiaries have sufficient cashflows to
repay these loans over the next five years and there was no reasonable expectation that these intercompany loans
would be demanded before this, as a result expected credit loss is extremely immaterial.
Aside from this the Company only holds receivables with no financing component that have maturities of 12 months or
less. This requirement has not significantly changed the carrying amounts of the Company’s financial assets under IFRS
9. Comparative figures for the year ended 31 December 2017 have not been restated and are still accounted for in
accordance with IAS 39 Financial Instruments: Recognition and Measurement.
¼ IFRS 15 “Revenue from contracts with customers” - which is based on the principle that revenue is recognised when
control of a good or service transfers to a customer. IFRS 15 replaces IAS 18 Revenue and establishes a five-step model
to account for revenue arising from contracts with customers: identification of the customer contract; identification of
the contract performance obligations; determination of the contract price; allocation of the contract price to the
contract performance obligations; and revenue recognition as performance obligations are satisfied. In addition,
guidance on interest and dividend income has been moved from IAS 18 to IFRS 9 without any significant changes to the
requirements. Management has reviewed the agreements with Traxys and is comfortable that there is no significant
change to revenue recognition. The Silver Stream agreement is not impacted by the new standard due to the fact that
the Group did not recognise the original deposit in the agreement as it was received prior to ownership and therefore
the Group does not recognise any deferred revenue. See note 6 – Business combinations for more details. In summary,
there was no impact of adopting IFRS 15 for the Company in the current year or comparative year.
The adoption of these amendments did not have any impact on the amounts recognised in prior periods or the current period.
The following standards, amendments and interpretations to existing standards relevant to the Group are not yet effective
and have not been early adopted by the Group. The items disclosed are those that could have an impact on the Group.
¼ IFRS 16 “Leases” was issued in January 2016. It will result in lease contracts generally being recognised on the balance
sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right
to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and
low-value leases. The standard will affect primarily the accounting for the Group’s operating leases. The Group has
reviewed all of its contracts and agreements which could be considered a Lease per IFRS 16. As at the reporting date,
the Group has non-cancellable operating lease commitments of $969,536, of which the London office lease is of the
most significant value alongside some apartments and vehicles leased. Aside from this, all of these relate to payments
for short-term and low value leases which will be recognised on a straight-line basis as an expense in profit or loss. The
standard must be applied for financial years commencing on or after 1 January 2019. Due to the immaterial impact the
Group will not adopt the standard before its effective date. The Group intends to apply the simplified transition
approach and will not restate comparative amounts for the year prior to first adoption.
There are no other standards that are not yet effective that would be expected to have a material impact on the Group.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
71
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
Basis of consolidation
The Group Financial Statements consolidate the Financial Statements of CAML and the entities it controls drawn up to
31 December 2018.
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity
when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are deconsolidated from the date that control ceases.
Intercompany transactions, balances and unrealised losses/gains on transactions between Group companies are
eliminated. Unrealised losses/gains are also eliminated but considered an impairment indicator of the asset transferred.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted
by the Group.
Business combinations
The Group applies the acquisition method to account for business combinations. The consideration transferred for the
acquisition of a subsidiary is the fair value 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 the acquiree’s identifiable net assets.
Acquisition-related costs are expensed as incurred and reported within other expense.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquired entity, and
acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable
assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the
business acquired, the difference is recognised directly in profit or loss as a bargain purchase.
After initial recognition, goodwill is stated at cost less any accumulated impairment losses, with the carrying value being
reviewed for impairment, at least annually and whenever events or changes in circumstances indicate that the carrying
value may be impaired.
For the purpose of impairment testing, goodwill is allocated to the cash-generating unit expected to benefit from the
business combination in which the goodwill arose. Where the recoverable amount is less than the carrying amount,
including goodwill, an impairment loss is recognised in the Income Statement. The carrying amount of goodwill allocated
to an entity is taken into account when determining the gain or loss on disposal of the unit.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their
present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate
at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
Non-controlling interests
Non-controlling interests represent the portion of profit or loss and net assets in subsidiaries that are not held by the
Group and are presented separately within equity in the Consolidated Statement of Financial Position distinct from parent
shareholder’s equity.
Where losses are incurred by a partially owned subsidiary, they are consolidated such that the non-controlling interests’
share in the losses is apportioned in the same way as profits.
Where profits are then made in future periods, such profits are then allocated to the parent company until all unrecognised
losses attributable to the non-controlling interests but absorbed by the parent are recovered at which point, profits are
allocated as normal.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision maker which is considered to be the Board.
Foreign currency translation
The functional currency for each entity in the Group is determined as the currency of the primary economic
environment in which it operates. The Consolidated Financial Statements are presented in US Dollars, which is the Group’s
presentation currency.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FoR tHe Y e AR ended 31 deceMBeR 2018
2. Summary of significant accounting policies continued
Transactions in currencies other than the functional currency are initially recorded at the rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency
rate of exchange ruling at the reporting date. All differences are taken to the Income Statement.
The results and financial position of all the Group entities that have a functional currency different from the US Dollar
presentation currency are translated into the US Dollar presentation currency as follows:
¼ assets and liabilities for each Statement of Financial Position presented are translated at the closing rate at the
reporting date;
¼ income and expenses for each Income Statement are translated at average exchange rates; and
¼ all resulting exchange differences are recognised in other comprehensive income.
On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign
operation is recognised in the Income Statement.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the closing rate.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost
comprises the aggregate amount paid and the fair value of any other consideration given to acquire the asset and includes
costs directly attributable to making the asset capable of operating as intended.
The cost of the item also includes the cost of decommissioning any buildings or plant and equipment and making good the
site, where a present obligation exists to undertake the restoration work.
Development costs relating to specific mining properties are capitalised once management determines a property will be
developed. A development decision is made based upon consideration of project economics, including future metal prices,
reserves and resources, and estimated operating and capital costs. Capitalisation of costs incurred and proceeds received
during the development phase ceases when the property is capable of operating at levels intended by management and is
considered commercially viable. Costs incurred during the production phase to increase future output by providing access
to additional reserves, are deferred and depreciated on a units-of-production basis over the component of the reserves to
which they relate. Ore reserves may be declared for an undeveloped mining project before its commercial viability has
been fully determined. Development costs incurred after the commencement of production are capitalised to the extent
they are expected to give rise to a future economic benefit. Development costs expenditures are not depreciated.
Depreciation is provided on all property, plant and equipment on a straight-line basis over its total expected useful life.
As at 31 December 2018 the remaining useful lives were as follows:
¼ Construction in progress
¼ Land
¼ Plant and equipment
¼ Mining assets
¼ Motor vehicles
¼ Office equipment
– not depreciated
– not depreciated
– over 5 to 21 years
– over 2 to 21 years
– over 2 to 10 years
– over 2 to 10 years
Mineral rights are depreciated on a Unit of Production basis (‘UoP’), in proportion to the volume of ore extracted in the year
compared with total proven and probable reserves at the beginning of the year. Assets within operations for which
production is not expected to fluctuate significantly from one year to another or which have a physical life shorter than the
related mine are depreciated on a straight-line basis.
Construction in progress is not depreciated until transferred to other classes of property, plant and equipment.
The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstances
indicate the carrying value may not be recoverable, and are written down immediately to their recoverable amount. Useful
lives and residual values are reviewed annually and where adjustments are required, these are made prospectively.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Any gain or loss arising on de-recognition of the asset is included in
the Income Statement.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
73
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
Intangible assets
a) Exploration and evaluation expenditure
Capitalised costs include costs directly related to any Group exploration and evaluation activities in the relevant area of
interest. Exploration and evaluation expenditure capitalised includes acquisition of rights to explore, topographical,
geological, geochemical and geophysical studies, exploration drilling, trenching, sampling and activities in relation to the
evaluation of the technical feasibility and commercial viability of extracting a mineral resource.
Exploration and evaluation assets are measured at cost less provision for impairment, where required.
b) Mining licences, permits and computer software
The historical cost model is applied, with intangible assets being carried at cost less accumulated amortisation and
accumulated impairment losses. Intangible assets with a finite life have no residual value and are amortised on a
straight-line basis over their expected useful lives with charges included in either cost of sales or administrative expenses:
¼ Computer software
¼ Mining licences and permits
– over 2 to 5 years
– over the duration of the legal agreement
The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate
the carrying value may not be recoverable.
Impairment of non-financial assets
The Group carries out impairment testing on all assets when there exists an indication of an impairment. If any such
indication exists, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the
higher of an asset’s or cash-generating unit’s fair value less costs to sell or its value in use.
Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written
down to its recoverable amount. Impairment losses are recognised in the Income Statement.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and risks specific to the asset.
The best evidence of an asset’s fair value is the value obtained from an active market or binding sale agreement. Where
neither exists, fair value less costs to sell is based on the best available information to reflect the amount the Group
could receive for the cash-generating unit in an arm’s length sale. In some cases, this is estimated using a discounted
cash flow analysis.
A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a reversal of the
conditions that originally resulted in the impairment. This reversal is recognised in the Income Statement and is limited to
the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised in
prior years.
Goodwill is also reviewed annually, as well as whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. Non-financial assets other than goodwill which have suffered an impairment are reviewed
for possible reversal of the impairment at each reporting date.
Revenue
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It
replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations and establishes a five-step model to
account for revenue arising from contracts with customers. These steps are as follows: identification of the customer
contract; identification of the contract performance obligations; determination of the contract price; allocation of the
contract price to the contract performance obligations; and revenue recognition as performance obligations are satisfied.
Under IFRS 15, revenue is recognised when a customer obtains control of the goods or services. Determining the timing of
the transfer of control – at a point in time or over time – requires judgement. The Group has adopted 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). Accordingly, the information presented for 2017 has not been restated – i.e. it is presented, as previously
reported, under IAS 18, IAS 11 and related interpretations. Additionally, the disclosure requirements in IFRS 15 have not
been applied to comparative information.
Revenue is measured at the fair value of consideration received or receivable from sales of metal to an end user, net of any
buyers discount, treatment charges, freight costs and value added tax. The Group recognises revenue when the amount of
revenue can be reliably measured and when it is probable that future economic benefits will flow to the entity.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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2. Summary of significant accounting policies continued
Revenue is recognised when all significant risks and rewards of ownership are transferred to the buyer, usually when title
has passed to the buyer and the goods have been delivered in accordance with the contractual delivery terms.
The value of consideration is fair value which equates to the contractually agreed price. The off-take agreements provide
for provisional pricing i.e. the selling price is subject to final adjustment at the end of the quotation period based on the
average price for the month following delivery to the buyer. Such a provisional sale contains an embedded derivative
which is not required to be separated from the underlying host contract, being the sale of the commodity. At each
reporting date, if any sales are provisionally priced, the provisionally priced copper cathode, zinc and lead sales are
marked-to-market using forward prices, with adjustments (both gains and losses) being recorded in revenue in the Income
Statement and in trade receivables in the Statement of Financial Position.
The Company may mitigate commodity price risk by fixing the price in advance for its copper cathode, zinc and lead sales
with the off-take partner. The price fixing arrangements are outside the scope of IAS 39 Financial Instruments: Recognition
and Measurement and do not meet the criteria for hedge accounting.
The Group reports both a gross revenue and revenue line. Gross revenue is reported after deductions of treatment
charges but before deductions of off-takers fees, silver purchases from Silver Stream and freight.
The only changes to the new accounting policy under IFRS 15 compared with IAS 18 are the performance obligation under
IFRS 15 and control of the items sold under IFRS 15 compared to risk and rewards of the ownership being transfer under
IAS 18. Otherwise the application of the new policy is identical to that in the comparative data.
Inventory
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average method.
The cost of finished goods and work in progress comprises raw materials, direct labour and all other direct costs associated
with mining the ore and processing it to a saleable product.
Net realisable value is the estimated selling price in the ordinary course of business, less any further costs expected to be
incurred to completion. Provision is made, if necessary, for slow-moving, obsolete and defective inventory.
Non-current assets (or disposal groups) held for sale and discontinued operations
Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured
at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets
arising from employee benefits, financial assets and investment property that are carried at fair value and contractual
rights under insurance contracts, which are specifically exempt from this requirement.
An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less
costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal
group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised
by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition.
Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are
classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for
sale continue to be recognised.
Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented
separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are
presented separately from other liabilities in the balance sheet.
A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that
represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to
dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The
results of discontinued operations are presented separately in the Statement of Comprehensive Income.
Current and deferred income tax
The current income tax charge is calculated based on the tax laws enacted or substantively enacted at the reporting date
in the countries where the Group’s subsidiaries operate and generate taxable income.
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Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the Consolidated Financial Statements. However, the deferred
income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a
business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred
income tax is determined using tax rates that have been enacted or substantially enacted by the Statement of Financial
Position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax
liability is settled.
Deferred tax assets are only recognised when they arise from timing differences where their recoverability in the short
term is regarded as being probable.
Leases
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are
classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are
charged to profit or loss on a straight-line basis over the period of the lease.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid
investments with original maturities of three months or less.
Restricted cash
Restricted cash is cash with banks that is not available for immediate use by the Group. Restricted cash is shown
separately from cash and cash equivalents on the Statement of Financial Position.
Investments
Investments in subsidiaries are recorded at cost less provision for impairment.
Share capital
Ordinary Shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in
equity as a deduction, net of tax, from the proceeds.
Treasury shares
Where any Group company purchases the Company’s equity share capital (treasury shares), the consideration paid,
including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the
Company’s equity holders until the shares are cancelled or reissued. Where such Ordinary Shares are subsequently
reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income
tax effects, is included in equity attributable to the Company’s equity holders.
Share based compensation
The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The
total amount to be expensed is determined by reference to the fair value of the options granted, excluding the impact of
any non-market service and performance vesting conditions. Non-market vesting conditions are included in assumptions
about the number of options that are expected to vest. The total amount expensed is recognised over the vesting period,
which is the period over which all of the specified vesting conditions are to be satisfied. At each reporting date, the entity
revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It
recognises the impact of the revision to original estimates, if any, in the Income Statement, with a corresponding
adjustment to equity.
Trade and other receivables
Trade and other receivables are accounted for under IFRS 9 using the expected credit loss model and are initially
recognised at fair value and subsequently measured at amortised cost less any allowance for expected credit losses.
The allowance for expected credit losses for trade receivables is established by considering on a discounted basis the cash
shortfalls it would incur in various defaults scenarios for prescribed future periods and multiplying the shortfalls by the
probability of each scenario occurring. The historical loss rates are adjusted to reflect current and forward-looking
information on macroeconomic factors affecting the ability of the customers to settle the receivables. The allowance is
the sum of these probability weighted outcomes. The allowance and any changes to it are recognised in the Statement of
Comprehensive Income within net operating expenses. A provision matrix is used to calculate the allowance for expected
credit losses on trade receivables which is based on historical default rates over the expected life of the trade receivables
and is adjusted for forward looking estimates. When a trade receivable is uncollectible, it is written off against the
allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against
net operating expenses in the Statement of Comprehensive Income.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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2. Summary of significant accounting policies continued
Trade and other payables
Trade and other payables are not interest bearing and are initially recognised at fair value and subsequently measured at
amortised cost using the effective interest method.
Silver Stream commitment
The Silver Stream arrangement has been accounted for as a commitment as the Group has obligations to deliver silver to a
third party at a price below market value. Management has determined that the agreement is not a derivative as it will be
satisfied through the delivery of non-financial items (i.e. silver commodity from the Company’s production), rather than
cash or financial assets. The commitment is amortised via cost of sales based on a unit of production method.
Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured
at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is
recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the
establishment of loan facilities are recognised 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 for
liquidity services and amortised over the period of the facility to which it relates.
Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or
expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to
another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in
profit or loss as other income or finance costs.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period.
Provisions
a) Asset retirement obligation
Provisions for environmental restoration of mining operations 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 can be reliably estimated. Provisions are not recognised for future operating losses.
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.
b) Employee benefits – pension
The Group, in the normal course of business, makes payments on behalf of its employees for pensions, health care,
employment and personnel tax, which are calculated based on gross salaries and wages according to legislation. The cost
of these payments is charged to the Consolidated Statement of Comprehensive Income in the same period as the related
salary cost.
c) Employee benefits – retirement benefits and jubilee awards
Pursuant to the labour law prevailing in the North Macedonian subsidiaries, the Group is obliged to pay retirement benefits
for an amount equal to two average monthly salaries, at their retirement date. According to the collective labour
agreement, the Group is also obliged to pay jubilee anniversary awards for each 10 years of continuous service of the
employee. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. In addition,
the Group is not obligated to provide further benefits to current and former employees.
Retirement benefit obligations arising on severance pay are stated at the present value of expected future cash payments
towards the qualifying employees. These benefits have been calculated by an independent actuary in accordance with the
prevailing rules of actuarial mathematics. Actuarial gains and losses arising from experience adjustments and changes in
actuarial assumptions are charged or credited to profit and loss over the employees’ expected average remaining
working lives.
Impairment of financial assets
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 impairment 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.
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Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial
difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other
financial reorganisation, and where observable data indicates that there is a measurable decrease in the estimated future
cash flows, such as changes in arrears or economic conditions that correlate with defaults.
For 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 cash 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, 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.
3. Financial risk management
The Group’s activities expose it to a variety of financial risks, market risk (including foreign currency exchange risk,
commodity price risk and interest rate risk), liquidity risk, capital risk and credit risk. These risks are mitigated wherever
possible by the Group’s financial management policies and practices described below. The Group’s risk management is
carried out by a central treasury department (Group treasury) under policies approved by the Board. Group treasury
identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units.
Foreign currency exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures. The
primary Group currency requirements are US Dollar, British Pound, Kazakhstan Tenge, Euro and North Macedonian Denar.
The following table highlights the major currencies the Group operates in and the movements against the US Dollar during
the course of the year:
Average rate
Reporting date spot rate
Kazakhstan Tenge
Macedonian Denar
British Pound
2018
2017
Movement
2018
2017
Movement
344.71
52.12
0.75
326.00
51.69*
0.78
18.71
0.43
0.03
384.20
53.69
0.79
332.33
51.27
0.74
51.87
2.42
0.05
*
for the 2 month period ended 31 December 2017 (note 6)
Foreign exchange risk does not arise from financial instruments that are non-monetary items or financial instruments
denominated in the functional currency. Kazakhstan Tenge and North Macedonian Denar denominated monetary items are
therefore not reported in the tables below, as the functional currency of the Group’s Kazakhstan-based and North
Macedonian-based subsidiaries is the Tenge and Denar respectively.
The Group’s exposure to foreign currency risk based on US Dollar equivalent carrying amounts at the reported date:
In $’000 equivalent
Cash and cash equivalents
Trade and other payables
Net exposure
In $’000 equivalent
Cash and cash equivalents
Trade and other payables
Net exposure
Group
2018
EUR
6
(452)
(446)
2017
EUR
48
(42)
6
USD
12,792
–
12,792
USD
4,895
–
4,895
GBP
774
(2,522)
(1,748)
GBP
3,473
(3,781)
(308)
Trade and other receivables excludes prepayments and VAT receivable and trade and other payables excludes corporation
tax, social security and other taxes as they are not considered financial instruments.
At 31 December 2018, if the foreign currencies had weakened/strengthened by 10% against the US Dollar, post-tax Group
profit for the year would have been $231,000 lower/higher (2017: $1,114,000 lower/higher).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FoR tHe Y e AR ended 31 deceMBeR 2018
3. Financial risk management continued
Commodity price risk
During the year and prior to re-financing, the Group’s Treasury policy allowed limited hedging up to a maximum of 50% of
the Group’s rolling 12-month copper production by fixing the price in advance for its copper cathode sales and zinc and
lead prices hedging up to 75% of annual production. The current debt facility limits copper, zinc and lead price hedging in
2019 up to a maximum 50% of the next 12 months production.
The Group’s hedging policy for 2019 is not to hedge commodity prices, however a hedging program can be put in place on
the approval of the Board of Directors.
During the year ended 31 December 2018, the Group fixed the price of 3,000 tonnes of copper cathode with the Group’s
off-take partner at $7,325/t and 1,875 tonnes at $6,002/t (2017: 5,125 tonnes).
The following table details the Group’s sensitivity to a 10% increase and decrease in the copper, zinc and lead price against
the invoiced price. 10% is the sensitivity used when reporting commodity price internally to management and represents
management’s assessment of the possible change in price. A positive number below indicates an increase in profit for the
year and other equity where the price increases.
Estimated effect on
earnings and equity
10% increase in copper, zinc and lead price
10% decrease in copper, zinc and lead price
2018
$’000
2017
$’000
20,526
(20,526)
10,648
(10,648)
Liquidity risk
Liquidity risk relates to the ability of the Group to meet future obligations and financial liabilities as and when they fall due.
The Group currently has sufficient cash resources to facilitate the debt and a material income stream from the Kounrad
and Sasa projects. The Group has no undrawn borrowings as at 31 December 2018 (2017: nil).
Capital risk
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 structure to reduce the
cost of capital.
The Group manages its capital in order to provide sufficient funds for the Group’s activities. Future capital requirements
are regularly assessed and Board decisions taken as to the most appropriate source for obtaining the required funds, be it
through internal revenue streams, external fund raising, issuing new shares or selling assets. In order to maintain or adjust
the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders,
issue new shares or sell assets to reduce debt.
The debt is subject to financial covenants which include the monitoring of gearing and leverage ratios and these are all
currently complied with. The refinance has also lifted the security granted in Bermuda, enabling the Group to restructure
CMK Mining Limited (now known as CMK Mining B.V.) and this process was completed in Q1 2019.
Consistent with others in the industry, the Group monitors capital on the basis of the following gearing ratio:
Net debt
Cash and cash equivalents
Borrowings variable interest rates – repayable within one year
Borrowings variable interest rates – repayable after one year
Net debt
Total equity
Net debt to equity ratio
Note
25
31
31
2018
$’000
34,649
(38,400)
(106,549)
2017
$’000
(restated)
43,022
(40,075)
(141,839)
(110,300)
(138,892)
325,866
337,299
34%
41%
Changes in liabilities arising from cash flows
The total borrowings as at 1 January 2018 were $181,914,000 (2017: $nil). During the year, total repayments of
$99,265,000 (2017: $8,362,000) were made including the repayment of the SG Loan and the agreed principal repayments
on its borrowings, there was also total drawdowns on the Traxys loan and working capital facility amounting to
$60,809,000 (2017: $120,000,000). Other changes amounted to $1,491,000 leading to a closing debt balance of
$144,949,000. See note 31 for more details. The cash and cash equivalents brought forward were $43,022,000
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(2017: $40,258,000) with a $8,623,000 outflow (2017: 2,277,000 inflow) during the year and also foreign exchange losses
of $248,000 ($487,000 gain) and so therefore a closing balance of $34,649,000 (2017: $43,022,000). The Group has
substantial cash balances as at 31 December 2018. The Group will continue to monitor any such risks and take appropriate
actions.
Credit risk
Credit risk refers to the risk that the Group’s financial assets will be impaired by the default of a third party. The Group is
exposed to credit risk primarily on its cash and cash equivalents as set out in note 25 and on its trade and other
receivables as set out in note 23. The Group sells a minimum of 95% of Kounrad’s copper cathode production to a
credit-worthy off-taker and during the year 100% of Sasa’s zinc and lead concentrate was sold to credit-worthy
customers. On 1 January 2018, CMK Mining Limited (now known as CMK Mining B.V.) entered into a zinc and lead
concentrate off-take arrangement with Traxys, which has been fixed through to 2022. The commitment is for 100% of the
Sasa concentrate production. As of January 2019 this arrangement is now with CAML MK.
For banks and financial institutions, only parties with a minimum rating of BBB- are accepted. 15% of the Group’s cash and
cash equivalents including restricted cash at the year-end were held by an A+ rated bank (2017: 37% by an A+ bank). The
rest of the Group’s cash was held with a mix of institutions with credit ratings between A to BBB- (2017: A to BBB-).
The Directors have considered the credit exposures and do not consider that they pose a material risk at the present time.
The credit risk for cash and cash equivalents is managed by ensuring that all surplus funds are deposited only with
financial institutions with high quality credit ratings.
Interest rate risk
The Group’s main interest rate risk arises from long-term borrowings with variable rates, which expose the Group to cash
flow interest rate risk. During 2018, the Group’s borrowings at variable rates were denominated in North Macedonian
Denars and US Dollars. The Group’s borrowings are carried at amortised cost. The Group has borrowings at variable
interest rates and a 1% point rise in market interest rate would have caused the interest paid to increase by $1,065,000
(2017: $293,000) while a similar decrease would have caused the same decrease in interest paid. The Group does not
hedge its exposure to interest rate risk.
The Group had $13,044,000 of cash balances on short-term deposit as at 31 December 2018 (2017: $7,814,000). The
average fixed interest rate on short-term deposits during the year was 1.2% (2017: 0.98%).
Categories of financial instruments
Financial assets
Cash and receivables:
Cash and cash equivalents including restricted cash (note 25)
Trade and other receivables
Group
31 Dec 18
$’000
39,025
6,609
45,634
31 Dec 17
$’000
45,834
9,792
55,626
Trade and other receivables excludes prepayments and VAT receivable as they are not considered financial instruments.
All trade and others receivables are receivable within one year for both reporting years.
Financial liabilities
Measured at amortised cost:
Trade and other payables within one year
Borrowings payable within one year (note 31)
Borrowings payable later than one year but not later than five years (note 31)
Borrowings payable later than five years
Group
31 Dec 18
$’000
17,637
38,400
106,549
–
31 Dec 17
$’000
(restated)
14,622
40,538
108,400
37,600
162,586
201,160
Trade and other payables excludes the Silver Streaming commitment, corporation tax, social security and other taxes as
they are not considered financial instruments.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FoR tHe Y e AR ended 31 deceMBeR 2018
4. Critical accounting estimates and judgements
The Group has the following key areas where critical accounting estimates and judgements are required that could have a
material impact on the Financial Statements:
Mineral reserves and resources
The major value associated with the Group is the value of its mineral reserves and resources. The value of the reserves
and resources have an impact on the Group’s accounting judgements in relation to depreciation and amortisation,
impairment of assets and the assessment of going concern. These resources are the Group’s best estimate of product
that can be economically and legally extracted from the relevant mining property. The Group’s estimates are supported by
geological studies and drilling samples to determine the quantity and grade of each deposit.
Significant judgement is required to generate an estimate based on the geological data available. Ore resource estimates
may vary from period to period. This judgement has a significant impact on impairment consideration and the period over
which capitalised assets are depreciated within the Financial Statements.
The Kounrad resources were classified as JORC Compliant in 2013 and mineral resources were estimated in June 2017 and
the Sasa JORC ore reserves and mineral resources were estimated in December 2018.
Impairment of non-current assets
Estimates are required periodically to assess assets for impairment. The critical accounting estimates are future
commodity prices, ore reserves, discount rates and projected future costs of development and production. This includes
an assessment of the carrying values of assets held for sale.
The carrying value of the goodwill generated by accounting for the business combination of the Group acquiring an
additional 40% in the Kounrad project in May 2014 (the “Kounrad Transaction”) and the CMK Resources Limited (previously
named Lynx Resources Limited) acquisition in November 2017 requires an annual impairment review. This review will
determine whether the value of the goodwill can be justified by reference to the carrying value of the business assets and
the future discounted cash flows of the business. The key assumptions used in the Group’s impairment assessments are
disclosed in note 20.
Functional currency
The functional currency of the Kazakhstan subsidiaries is Kazakhstan Tenge and the functional currency of the North
Macedonian subsidiaries is North Macedonian Denar, which reflects the currency of the primary economic environment in
which these entities operate. Determination of functional currency may involve certain judgments to determine the
primary economic environment and this is re-evaluated for each new entity, or if conditions change.
Decommissioning and site rehabilitation estimates
Provision is made for the costs of decommissioning and site rehabilitation costs when the related environmental disturbance
takes place. The discounted provision recognised represents management’s best estimate of the costs that will be incurred, but
significant judgement is required, as many of these costs will not crystallise until the end of the life of the mine. Estimates are
reviewed annually and are based on current contractual and regulatory requirements and the estimated useful life of mines.
Engineering and feasibility studies are undertaken periodically; however significant changes in the estimates of contamination,
restoration standards and techniques will result in changes to provisions from period to period.
Business combinations
All business combinations in the Group are accounted for under IFRS 3 “Business Combinations” using the acquisition
method. When the Group acquires a business, it assesses the fair value of assets and liabilities acquired for the purpose of
purchase price allocation as at the acquisition date. When discounted cash flow calculations are undertaken, management
estimates the expected future cash flows from the cash generating unit (‘CGU’) by considering the future metal price,
expected ore reserve, grade, mine life, moisture content and discount rate in order to estimate the expected present value
of cash flows from the mine. The inputs to these factors are taken from observable markets where possible, but where
this is not feasible, a degree of judgement is required in establishing fair values. The consideration transferred for the
acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the
acquiree and the equity interests issued by the Group. Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair values at the acquisition date. In the prior year, the
Group completed the acquisition of CMK Resources Limited which has been accounted for under IFRS 3 “Business
Combinations” using the acquisition method. The key assumptions used to determine the fair values of assets acquired
and liabilities assumed are disclosed in note 6.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
81
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
5. Segmental information
The segmental results for the year ended 31 December 2018 are as follows:
Kounrad
$’000
92,644
–
(275)
(2,535)
111,508
(6,023)
(1,770)
(1,215)
89,834
102,500
Sasa
$’000
Unallocated
$’000
Total
$’000
–
–
–
–
–
204,152
(6,023)
(2,045)
(3,750)
192,334
66,833
71,221
(12,746)
125,308
(6,335)
276
359
–
10
(140)
(26,951)
(4,165)
–
(561)
3
(8,555)
(56)
10
–
(469)
251
(6,304)
(33,342)
(3,879)
359
(1,030)
264
(14,999)
61,003
30,992
(19,314)
72,681
(18,822)
53,859
(7,274)
46,585
Total
$’000
(restated)
106,479
(1,120)
(646)
(2,590)
102,123
53,885
12,600
Unallocated
$’000
–
–
–
–
–
(24,227)
12,600
(11,627)
66,485
(56)
708
–
(12,600)
3,293
(1,364)
(10,989)
3,362
252
(12,600)
5,597
(2,319)
Kounrad
$’000
86,443
–
–
(2,590)
83,853
63,565
–
63,565
(6,695)
(29)
268
–
8
(172)
Sasa
$’000
(restated)
20,036
(1,120)
(646)
–
18,270
14,547
–
14,547
(4,238)
2,683
(16)
–
2,296
(783)
56,945
14,489
(21,646)
49,788
(13,433)
36,355
(76)
36,279
Gross revenue
Silver purchases from Silver Stream
Freight cost
Off-take buyers’ fees
Revenue
EBITDA
Depreciation and amortisation
Foreign exchange (loss)/gain
Other income
Other expenses (note 11)
Finance income (note 15)
Finance costs (note 16)
Profit/(loss) before income tax
Income tax
Profit for the year after tax from continuing operations
Loss from discontinued operations
Profit for the year
The segmental results for the year ended 31 December 2017 are as follows:
Gross revenue
Silver purchases from Silver Stream
Freight cost
Off-take buyers’ fees
Revenue
EBITDA
CMK Resources Limited acquisition costs (note 6)
Adjusted EBITDA
Depreciation and amortisation
Foreign exchange (loss)/gain
Other income
Other expenses (note 11)
Finance income (note 15)
Finance costs (note 16)
Profit/(loss) before income tax
Income tax
Profit for the year after tax from continuing operations
Profit from discontinued operations
Profit for the year
EBITDA excludes the following items:
¼ Income tax expense;
¼ Finance income and expense;
¼ Other income/(expense);
¼ Foreign exchange;
¼ Depreciation and amortisation; and
¼ Discontinuing operations.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FoR tHe Y e AR ended 31 deceMBeR 2018
5. Segmental information continued
A reconciliation between profit for the year and EBITDA is presented below:
Profit for the year
Plus/(less):
Income tax expense
Depreciation and amortisation
Foreign exchange loss/(gain)
Other income
Other expenses
Finance income
Finance costs
Loss from discontinued operations
Group continuing operations EBITDA
CMK Resources Limited acquisition costs
Group continuing operations adjusted EBITDA
2018
$’000
46,585
18,822
33,342
3,879
(359)
1,030
(264)
14,999
7,274
125,308
–
125,308
2017
$’000
(restated)
36,279
13,433
10,989
(3,362)
(252)
–
(5,597)
2,319
76
53,885
12,600
66,485
Group segmental assets and liabilities for the year ended 31 December 2018 are as follows:
Kounrad
Sasa
Assets held for sale (note 22)
Unallocated including corporate
Segmental assets
Additions to non-current assets
Segmental liabilities
31 Dec 18
$’000
80,384
450,495
61
18,785
31 Dec 17
$’000
(restated)
99,872
492,777
5,760
21,583
31 Dec 18
$’000
1,395
13,352
907
296
31 Dec 17
$’000
(restated)
1,050
3,043
2,002
–
31 Dec 18
$’000
(11,666)
(78,720)
(40)
(133,433)
31 Dec 17
$’000
(restated)
(13,953)
(137,864)
(90)
(130,786)
549,725
619,992
15,950
6,095
(223,859)
(282,693)
The assets and liabilities of the Copper Bay entities and Shuak have been classified as assets held for sale during the year
ended 31 December 2018 (note 22).
6. Business combination
a) Summary of acquisition
In the prior year on 6 November 2017, CAML MK Limited, a wholly owned subsidiary of CAML, acquired 100% of the issued
share capital of CMK Resources Limited, a holding company for a group of companies that owns the SASA mine. The
acquisition has been accounted for under IFRS 3 “Business Combinations” using the acquisition method. The acquisition
was classified as a reverse takeover under the AIM Rules for Companies.
Purchase consideration:
Cash consideration
Ordinary shares issued
Deferred consideration
Less: net debt acquired
Total purchase consideration
Provisionall
fair value
$’000
340,178
48,883
12,000
401,061
(67,000)
334,061
Fair value
adjustment
$’000
–
–
–
–
–
–
Finall
fair value
$’000
340,178
48,883
12,000
401,061
(67,000)
334,061
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
83
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
The final assets and liabilities recognised as a result of the acquisition are as follows:
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Borrowings
Silver streaming commitment
Provisions for other liabilities and charges
Trade and other payables
Deferred tax liability
Net assets acquired
Purchase consideration
Goodwill
Provisional
fair value
$’000
10,842
402,567
2,420
13,127
8,470
(70,276)
(19,981)
(3,493)
(9,615)
(21,558)
312,503
334,061
21,558
Fair value
adjustment
$’000
–
8,090
–
5,969
–
–
(8,090)
–
(5,969)
(810)
Final
fair value
$’000
10,842
410,657
2,420
19,096
8,470
(70,276)
(28,071)
(3,493)
(15,584)
(22,368)
(810)
311,693
–
334,061
810
22,368
The fair value assessment process has been finalised during the year and within the permitted 12-month period. The
provisional fair values reported as part of the 31 December 2017 Financial Statements have been revised to reflect new
information obtained about facts and circumstances that were in existence at the acquisition date. There were two
amendments to these provisional fair values:
¼ The fair value of the Silver Stream (note 30) which was originally reported as “deferred revenue” of $19,981,000 has
been revised to $28,071,411 and is referred to as a Silver Streaming commitment. The Group acquired this as part of
the acquisition and inherited Silver Streaming commitment related to the production of silver during the life of the
mine. The net present value of the future cash flows of the Silver Streaming agreement over the life of the mine was
calculated comparing the present value of selling the silver at market value compared to the present value of selling at
the agreed contractual price. As a result of this fair value uplift there has been a corresponding increase in the fair value
of mineral reserves in plant, property and equipment on acquisition.
¼ A withholding tax liability which was due on income from payments relating to 2016 and 2017 pre the Group’s
ownership of the CMK Resources Group has been recognised as a payable as at acquisition date and a corresponding
receivable as this balance is considered fully recoverable as it relates to a period prior to ownership. This has no overall
impact on the net assets acquired.
The goodwill arising on the completion of the transaction, amounting to $22,368,000, is equal to the deferred tax liability
which arises on the difference between the assigned fair value of the acquired assets and liabilities and their tax base.
C EN T R A L ASI A ME TA L S PLC
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84
7. Revenue
Group
International customers (Europe) – copper cathode
International customers (Europe) – zinc and lead concentrate
Domestic customers (Kazakhstan) – copper cathode
International customers (Europe) – silver
Total gross revenue
Less:
Silver purchases from silver stream
Off-take buyers’ fees
Distribution and selling costs (note 9)
Revenue
2018
$’000
90,376
109,451
2,269
2,056
2017
$’000
85,342
19,373
1,100
664
204,152
106,479
(6,023)
(3,750)
(2,045)
(1,120)
(2,590)
(646)
192,334
102,123
Kounrad
The Group sells and distributes its copper cathode product primarily through an off-take arrangement with Traxys, which
has been retained as CAML’s off-take partner through to October 2022. The off-take arrangements are for a minimum of
95% of the SX-EW plant’s output. The copper cathodes are delivered from the Kounrad site by rail or road under an FCA
(Incoterms 2010) contractual basis and delivered to the end customers.
The off-take agreement provides for the option of provisional pricing i.e. the selling price is subject to final adjustment at
the end of the quotation period based on the average price for the month following delivery to the buyer. The Company
may mitigate commodity price risk by fixing the price in advance for its copper cathode sales with the off-take partner
(see note 3).
The costs of delivery to the end customers have been effectively borne by the Group through means of an annually agreed
buyer’s fee which is deducted from the selling price.
During 2018, the Group sold 13,696 tonnes (2017: 14,001 tonnes) of copper through the off-take arrangements. Some of
the copper cathodes are also sold locally and during 2018, 386 tonnes (2017: 180 tonnes) were sold to local customers.
CMK Resources Group
During the year ended 31 December 2018, the CMK Resources Group sold its zinc and lead concentrate to two European
smelters. The agreements with the smelters provides for provisional pricing i.e. the selling price is subject to final
adjustment at the end of the quotation period based on the average price for the month following delivery to the buyer
and subject to final adjustment for assaying results.
The Group sold 18,792 tonnes (two-month period ended 31 December 2017: 2,906 tonnes) of zinc in concentrate and
27,878 tonnes (two-month period ended 31 December 2017: 4,559 tonnes) of lead in concentrate.
On 1 January 2018, the CMK Resources Group entered into a zinc and lead concentrate off-take arrangement with Traxys,
which has been fixed through to 31 December 2022. The commitment is for 100% of the Sasa concentrate production.
The revenue arising from silver relates to a contract with Osisko Bermuda Limited where the Group has agreed to sell all of
its silver at a fixed price of $5.48/oz, significantly below market value and arising from the silver stream commitment
inherited on acquisition (note 30).
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
FOR THE YEAR ENDED 31 DECEMBER 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 85
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
8. Cost of sales
Group
Reagents, electricity and materials
Depreciation and amortisation
Silver Stream commitment
Royalties
Employee benefit expense
Consulting and other services
Taxes and duties
9. Distribution and selling costs
Group
Freight costs
Transportation costs
Employee benefit expense
Taxes and duties
Depreciation and amortisation
Materials and other expenses
2018
$’000
19,676
33,407
(2,627)
7,995
12,053
5,412
502
76,418
2018
$’000
1,670
184
76
–
15
100
2,045
2017
$’000
(restated)
7,600
10,798
-
5,459
5,079
1,995
494
31,425
2017
$’000
(restated)
252
108
72
32
18
164
646
The above distribution and selling costs are those incurred at Kounrad and Sasa in addition to the costs associated with
the off-take arrangements.
10. Administrative expenses
Group
Employee benefit expense
Share based payments
Consulting and other services
Office-related costs
Taxes and duties
Depreciation and amortisation
Total from continuing operations
Total from discontinued operations (note 22)
11. other expenses
Group
CMK Resources Limited acquisition costs (note 6)
Loss on disposal of fixed assets
Impairment of recievable from previous owners
2018
$’000
9,709
4,904
6,754
1,783
45
755
2017
$’000
(restated)
7,982
2,823
3,321
876
27
173
23,950
15,202
153
533
24,103
15,735
2018
$’000
–
561
469
1,030
2017
$’000
12,600
–
–
12,600
The impairment of receivable from he previous owners relates to the $5.9 million withholding tax payable relating to
income from payments in 2016 and 2017. This tax relates to a period pre the Group’s ownership and so due to the tax
indemnity in place on acquisition was considered fully recoverable as per the acquisition accounting. A settlement was
reached in April 2019 where previous owners would pay $5.5 million of the withholding tax payable and therefore the
Group has recognised a $469,000 write off.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
86
12. Auditors’ remuneration
During the year, the Group obtained the following services from the Company’s auditors and its associates:
Fees payable to the Company’s auditors for the audit of the parent company and Consolidated
Financial Statements
Fees payable to the Company’s auditors and its associates for other services:
– The audit of Company’s subsidiaries
– Tax compliance services
– Acquisition of CMK Resources Limited including Reporting Accountant fees
– Other assurance services
13. Employee benefit expense
The aggregate remuneration of staff, including Directors, was as follows:
Group
Wages and salaries
Social security costs
Staff healthcare and other benefits
Other pension costs
Share based payments (note 28)
Total for continuing operations
Total for discontinuing operations
2018
$’000
146
179
26
–
58
409
2018
$’000
18,133
1,775
2,557
509
4,904
27,878
75
2017
$’000
(restated)
147
188
53
2,382
34
2,804
2017
$’000
11,661
1,833
684
350
2,823
17,351
175
27,953
17,526
The total employee benefit expense includes an amount of $1,137,000 (2017: $1,314,000) which has been capitalised
within property, plant and equipment.
Company
Wages and salaries
Social security costs
Staff healthcare and other benefits
Other pension costs
Share based payments (note 28)
Key management remuneration is disclosed in note 36.
14. Monthly average number of people employed
Group
Operational
Construction
Management and administrative
2018
$’000
4,778
1,325
479
146
4,904
11,632
2018
Number
885
8
146
1,039
2017
$’000
5,348
1,257
85
70
2,823
9,583
2017
Number
375
9
81
465
The monthly average number of staff employed by the Company during the year was 15 (2017: 13).
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
FOR THE YEAR ENDED 31 DECEMBER 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
87
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
15. Finance income
Group
Gain on currency hedge
Foreign exchange gain on intercompany borrowings
Bank interest received
16. Finance costs
Group
Provisions: unwinding of discount (note 32)
Interest on borrowings (note 31)
Bank charges
Gain on modification of the debt facility (note 31)
17. Income tax
Group
Current tax on profits for the year
Deferred tax credit (note 37)
Income tax expense
2018
$’000
–
3
261
264
2018
$’000
489
15,225
117
(832)
14,999
2018
$’000
20,391
(1,569)
18,822
2017
$’000
2,977
2,297
323
5,597
2017
$’000
192
2,106
21
–
2,319
2017
$’000
(restated)
13,953
(520)
13,433
Taxation for each jurisdiction is calculated at the rates prevailing in the respective jurisdictions.
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average
tax rate applicable to profits of the consolidated entities as follows:
Group
Profit before taxation including loss from discontinued operations
Tax calculated at domestic tax rates applicable to profits in the respective countries
Tax effects of:
Expenses not deductible for tax purposes
Profit/(loss) not subject to tax – Group operations in Bermuda
Movement on unrecognised deferred tax – tax losses
Movement on recognised deferred tax (note 37)
Income tax expense
2018
$’000
65,407
27,410
2,982
-
(10,001)
(1,569)
2017
$’000
(restated)
49,712
9,006
3,582
180
1,185
(520)
18,822
13,433
Corporate income tax is calculated at 19% (2017: 19.25%) of the assessable profit for the year for the UK company’s, 20%
for the operating subsidiaries in Kazakhstan (2017: 20%) and 10% (2017: 10%) for the operating subsidiaries in
North Macedonia.
Expenses not deductible for tax purposes includes share based payment charges and transfer pricing adjustments in
accordance with local tax legislation.
Deferred tax assets have not been recognised on tax losses primarily at the parent company as it remains uncertain
whether this entity will have sufficient taxable profits in the future to utilise these losses.
C EN T R A L ASI A ME TA L S PLC
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88
18. Earnings/(loss) per share
(a) Basic
Basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to owners of the Company by the
weighted average number of Ordinary Shares in issue during the year excluding Ordinary Shares purchased by the
Company and held as treasury shares (note 26).
Profit from continuing operations attributable to owners of the parent
Loss from discontinued operations attributable to owners of the parent
Profitable attributable to owners of the parent
2018
$’000
55,302
(7,274)
48,028
2018
No.
2017
$’000
(restated)
36,391
(76)
36,315
2017
No.
Weighted average number of Ordinary Shares in issue
176,498,266
125,144,585
Earnings/(loss) per share from continuing and discontinued operations attributable to
owners of the parent during the year (expressed in $ cents per share)
From continuing operations
From discontinued operations
From profit for the year
2018
$ cents
2017
$ cents
31.33
(4.12)
27.21
29.08
(0.06)
29.02
(b) Diluted
The diluted earnings/(loss) per share is calculated by adjusting the weighted average number of Ordinary Shares
outstanding after assuming the conversion of all outstanding granted share options.
Profit from continuing operations attributable to owners of the parent
Loss from discontinued operations attributable to owners of the parent
Profitable attributable to owners of the parent
2018
$’000
55,302
(7,274)
48,028
2018
No.
2017
$’000
(restated)
36,391
(76)
36,315
2017
No.
Weighted average number of Ordinary Shares in issue
176,498,266
125,144,585
Adjusted for
– Share options
3,937,283
3,115,417
Weighted average number of Ordinary Shares for diluted earnings per share
180,435,549 128,260,002
Diluted earnings/(loss) per share
From continuing operations
From discontinued operations
From profit for the year
2018
$ cents
30.65
(4.12)
26.53
2017
$ cents
28.38
(0.06)
28.32
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
FOR THE YEAR ENDED 31 DECEMBER 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
89
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
19. Property, plant and equipment
Group
Cost
Construction
in
progress
$’000
Plant and
equipment
$’000
Mining
assets
$’000
Motor
vehicles and
office
equipment
$’000
Land
$’000
Mineral
rights
$’000
Total
$’000
At 1 January 2017
3,199
61,109
1,631
1,542
–
–
67,481
Acquisition of subsidiary (note 6)
(restated)
Additions
Disposals
Change in estimate – asset retirement
obligation (note 32)
Transfers
Exchange differences
8,722
3,903
(28)
–
(5,129)
371
48,216
26
(396)
(477)
5,057
1,648
–
–
–
–
–
5
–
132
(46)
–
72
3
643
21
–
353,076
–
–
410,657
4,082
(470)
–
–
–
–
–
11,934
(477)
–
13,961
At 31 December 2017 (restated)
11,038
115,183
1,636
1,703
664
365,010 495,234
Additions
Disposals
Change in estimate – asset retirement
obligation (note 32)
Transfers
Transfer from stock
Exchange differences
Impairment
At 31 December 2018
Accumulated depreciation
At 1 January 2017
Provided during the year
Disposals
Exchange differences
At 31 December 2017 (restated)
Provided during the year
Disposals
Impairment
Exchange differences
At 31 December 2018
14,398
(24)
108
(596)
–
(7,439)
35
(691)
–
(159)
7,432
116
(8,809)
(43)
–
–
–
–
–
(221)
–
513
(60)
–
7
–
(216)
–
–
–
–
–
–
(30)
–
–
–
15,019
(680)
–
–
–
(14,677)
–
(159)
–
151
(24,644)
(43)
17,317
113,232
1,415
1,947
634
350,333
484,878
–
–
–
–
–
–
–
–
–
–
16,365
6,321
(435)
(40)
22,211
13,086
(66)
(6)
(2,229)
32,996
100
69
–
(1)
168
89
–
–
(32)
225
1,468
1,190
692
142
(19)
(26)
789
201
(30)
–
(108)
852
914
–
–
–
–
–
–
–
–
–
–
–
2,805
–
–
17,157
9,337
(454)
(67)
2,805
25,973
18,399
–
–
–
31,775
(96)
(6)
(2,369)
21,204
55,277
664
362,205
469,261
1,095
634
329,129
429,601
Net book value at 31 December 2017
11,038
92,972
Net book value at 31 December 2018
17,317
80,236
The Company had $290,000 of office equipment at net book value as at 31 December 2017 (2017: $37,000).
The CMK Resources Group no longer has any pledged building and equipment as security for the borrowings as the SG loan
was repaid in full during the year. In the prior year $8,836,000 was held as security for the borrowings in relation to the SG
loan (see note 31).
The reduction in estimate in relation to the asset retirement obligation of $159,000 (2017: $477,000) is due to a
combination of adjusting the provision recognised at the net present value of future expected costs using latest
assumptions on inflation rates and discount rates as well as updating the provision for management’s best estimate of the
costs that will be incurred based on current contractual and regulatory requirements and the estimated useful life of mine
(note 32).
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
90
Exploration
and evaluation
costs
$’000
Mining licences
and permits
$’000
Computer
software and
website
$’000
Goodwill
$’000
10,293
22,368
–
–
803
33,464
–
–
(2,285)
31,179
–
–
–
–
–
–
–
–
3,600
30,951
–
2,002
(5,602)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10,412
–
–
367
41,730
–
–
(4,096)
37,634
4,108
1,628
(8)
5,728
2,134
–
(325)
7,537
36,002
30,097
Total
$’000
44,902
33,210
2,025
(5,602)
1,173
75,708
28
(6)
(6,398)
58
430
23
–
3
514
28
(6)
(17)
519
69,332
35
30
–
65
433
(6)
(8)
484
449
35
4,143
1,658
(8)
5,793
2,567
(6)
(333)
8,021
69,915
61,311
20. Intangible assets
Group
Cost
At 1 January 2017
Acquisition of subsidiary (note 6)
Additions
Assets classified as held for sale (note 22)
Exchange differences
At 31 December 2017
Additions
Disposals
Exchange differences
At 31 December 2018
Accumulated amortisation
At 1 January 2017
Provided during the year
Exchange differences
At 31 December 2017
Provided during the year
Disposals
Exchange differences
At 31 December 2018
Net book value at 31 December 2017
Net book value at 31 December 2018
33,464
31,179
The Company had $3,000 of computer software and website costs at net book value as at 31 December 2018
(2017: $8,000).
Impairment assessment
Kounrad project
The Kounrad project located in Kazakhstan has an associated goodwill balance. In accordance with IAS 36 “Impairment of
assets” and IAS 38 “Intangible Assets”, a review for impairment of goodwill is undertaken annually or at any time an
indicator of impairment is considered to exist and in accordance with IAS 16 “Property, plant and equipment”, a review for
impairment of long-lived assets is undertaken at any time an indicator of impairment is considered to exist. The discount
rate applied to calculate the present value is based upon the real weighted average cost of capital applicable to the cash
generating unit (‘CGU’). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of assets.
The discount rate reflects equity risk premiums over the risk-free rate, the impact of the remaining economic life of the
CGU and the risks associated with the relevant cash flows based on the country in which the CGU is located. These risk
adjustments are based on observed equity risk premiums, historical country risk premiums and average credit default
swap spreads for the period.
The key economic assumptions used in the review were a five-year forecast average nominal copper price of $6,985 per
tonne and a long-term price of $7,472 per tonne and a discount rate of 8%. Assumptions in relation to operational and
capital expenditure are based on the latest budget approved by the Board. The carrying value of the net assets is not
currently sensitive to any reasonable changes in key assumptions. Management concluded and the net present value of
the asset is significantly in excess of the net book value of assets, so no impairment identified.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
FOR THE YEAR ENDED 31 DECEMBER 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 91
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
Sasa project
The SASA project located in North Macedonia has an associated goodwill balance. In accordance with IAS 36 “Impairment
of assets” and IAS 38 “Intangible Assets”, a review for impairment of goodwill is undertaken annually or at any time an
indicator of impairment is considered to exist and in accordance with IAS 16 “Property, plant and equipment”, a review for
impairment of long-lived assets is undertaken at any time an indicator of impairment is considered to exist.
The assessment compared the recoverable amount of the SASA Cash Generating Unit (‘CGU’) with its carrying value for
the year ended 31 December 2018. The recoverable amount of the CGU is assessed by reference to the higher of value in
use (‘VIU’), being the net present value (‘NPV’) of future cash flows expected to be generated by the asset, and fair value
less costs to dispose (‘FVLCD’). The FVLCD is derived using discounted cash flow techniques (NPV of expected future cash
flows of a CGU), which incorporate market participant assumptions. Cost to dispose is based on management’s best
estimates of future selling costs at the time of calculating FVLCD. Costs attributable to the disposal of the CGU are not
considered significant. The expected future cash flows utilised in the FVLCD model are derived from estimates of
projected future revenues based on broker consensus commodity prices, future cash costs of production and capital
expenditures contained in the life of mine (‘LOM’) plan, and as a result FVLCD is considered to be higher than VIU. The
Group’s discounted cash flow analysis reflects probable reserves as well as resources, and is based on detailed research,
analysis and modelling.
At 31 December 2018, the Group has reviewed the indicators for impairment, including forecasted commodity prices,
discount rates, operating and capital expenditure, and the mineral reserves and resources’ estimates and has not
identified any impairment indicators. For the purposes of the impairment review a conservative discount rate of 12% was
applied to calculate the present value of the CGU. The key economic assumptions used in the review were a five-year
forecast average nominal zinc and lead price of $2,441 and $2,200 per tonne respectively and a long-term price of $2,604
and $2,264 per tonne respectively.
Management then performed sensitivity analyses whereby certain parameters were flexed downwards by reasonable
amounts for the CGU to assess whether the recoverable value for the CGU would result in an impairment charge. The
following sensitivities were applied:
Long-term zinc price
Long-term lead price
Discount rate
Production
reduced by US$100/t
reduced by US$100/t
increased to 12.5%
decreased by 2.5%
In isolation, none of the changes set out above would result in an impairment. This sensitivity analysis also does not take
into account any of management’s mitigation factors should these changes occur or the planned production optimisation
in future years.
21. Investments
Shares in Group undertakings:
At 1 January
Investment in Shuak BV
Impairment of investment in Shuak BV
Impairment of investment in Copper Bay
At 31 December
Company
31 Dec 18
$’000
11,821
35
(143)
(6,222)
5,491
31 Dec 17
$’000
11,771
50
–
–
11,821
Investments in Group undertakings are recorded at cost, which is the fair value of the consideration paid less impairment.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
92
21. Investments continued
Details of the Group holdings are included in the table below:
Subsidiary
Registered office address
Activity
CAML %
2018
CAML %
2017
Date of
incorporation
Shuak BV
Ken Shuak LLP
Sary Kazna LLP
Copper Bay Limited
Copper Bay (UK) Ltd
CAML Kazakhstan BV
Herikerbergweg 238, 1101 CM
Amsterdam, The Netherlands
Herikerbergweg 238, 1101 CM
Amsterdam, The Netherlands
Business Centre No. 2, 4 Mira
Street, Balkhash, Kazakhstan
Kounrad Copper Company LLP Business Centre No. 2, 4 Mira
Street, Balkhash, Kazakhstan
Business Centre No. 2, 4 Mira
Street, Balkhash, Kazakhstan
Masters House, 107
Hammersmith Road, London,
W14 0QH, United Kingdom
Masters House, 107
Hammersmith Road, London,
W14 0QH, United Kingdom
Ebro 2740, Oficina 603, Las
Condes, Santiago, Chile
Ebro 2740, Oficina 603, Las
Condes, Santiago, Chile
Bodi Tower, Chinggis Square,
1st Khoroo, District Chingeltei,
Ulaanbaatar 15160, Mongolia
Masters House, 107
Hammersmith Road, London,
W14 0QH, United Kingdom
Masters House, 107
Hammersmith Road, London,
W14 0QH, United Kingdom
Cannon’s Court, 22 Victoria St,
Hamilton HM12, Bermuda
Minera Playa Verde Limitada
Copper Bay Chile Limitada
Zuunmod UUL LLC
CAML MK Limited
ZMLUK Limited
CMK Resources Limited
(previously Lynx Resources
Limited)
CMK Mining B.V. (previously
Lynx Mining Limited)
CMK Europe SPLLC Skopje
(previously Lynx Europe
SPLLC Skopje)
Rudnik SASA DOOEL
Makedonska Kamenica
* Fully diluted basis
Prins Bernhardplein 200
1097 JB Amsterham,
The Netherlands
str. Vasil Glavinov no. 7-b/4
Skopje
Republic of North Macedonia
28 Rudarska Str, Makedonska
Kamenica, 2304, North
Macedonia
Holding Company
100
100
23 Jun 08
Holding Company
Kounrad project
(SUC operations)
Kounrad project
(SX-EW plant)
Shuak project
(exploration)
Holding Company
80
100
100
100
75*
80
20 Sep 16
100
6 Feb 06
100
29 Apr 08
100
5 Oct 16
75*
29 Oct 10
Holding Company
75*
75*
9 Nov 11
Holding Company
Exploration – Copper
Exploration – Gold
Holding Company
75*
75*
–
–
75*
12 Oct 11
75*
20 Oct 11
85
3 May 07
100
10 April 17
Holding Company
100
100
5 Sep 17
Holding Company
100
100
Seller of zinc and lead
concentrate
100
100
Holding Company
100
100
Sasa project
100
100
19 June
2015
30 June
2015
10 July
2015
22 June
2005
CAML MK
For the period ended 31 December 2018, CAML MK Limited (registered number: 10946728) has opted to take advantage of
a statutory exemption from audit under section 479A of the Companies Act 2006 relating to subsidiary companies. The
members of CAML MK Limited have not required it to obtain an audit of their Financial Statements for the period ended 31
December 2018. In order to facilitate the adoption of this exemption, Central Asia Metals plc, the parent company of the
subsidiaries concerned, undertakes to provide a guarantee under Section 479C of the Companies Act 2006 in respect of
CAML MK Limited.
Copper Bay
At the year end the investment held in Copper Bay was impaired in full as although the Group is confident of making a sale
in the near future, it is not clear of the cash generative abilities of these assets.
C EN T R A L ASI A ME TA L S PLC
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FOR THE YEAR ENDED 31 DECEMBER 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 93
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
Shuak
On 22 November 2016, CAML signed a framework agreement to acquire an 80% effective interest in the subsoil use
contract (‘SUC’) for the Shuak exploration property in northern Kazakhstan with 20% effectively being held by local
partners. At the year end, this Company has impaired the investment in full and the Group has impaired the exploration and
evaluation assets in full as a result of the Boards decision to no longer develop this asset. However, the Group still believe
there is some value in these assets and expects to retain either a minority shareholding or royalty to future income from
the asset.
Mongolia
In December 2016, CAML Mongolia BV signed an agreement with a third party to sell its entire interest in Monresources
LLC for cash consideration of $100 with deferred consideration dependent on the outcome of future events. Confirmation
of the transfer of shares to the third party was received in February 2017.
Following unsuccessful attempts to dispose of the Ereen project, CAML disposed of its interest in Zuunmod UUL LLC in
April 2018 when ZMLUK Limited was dissolved in April 2018.
22. Assets held for sale
The assets and liabilities of Shuak entities have been presented as held for sale in the Statement of Financial Position as
the Group plan to transfer the shareholding to the minority shareholding in 2019 retaining either a 10% holding or
alternatively a royalty. The exploration assets held in Shuak have been impaired in full following the decision not to develop
this asset and the plan to transfer the shareholding to the minority shareholding in 2019.
The assets and liabilities of the Copper Bay entities continued to have been presented as held for sale in the Statement of
Financial Position following the decision of the CAML Board to sell the project in August 2017 and the Company progresses
it sales process. The results of the Copper Bay entities for the year ended 31 December 2018 and the comparative year
ended 31 December 2017 are shown within discontinued operations in the Consolidated Income Statement. At the year
end the exploration assets and PPE held in Copper Bay have been impaired in full as although the Group is confident of
making a sale in the near future, it is not clear of the cash generative abilities of these assets.
In the prior year, 2017, the Group continued to hold for sale the assets it owns in Mongolia. The Group disposed of its
interest in Monresources LLC in February 2017 and its interest in Zuunmod UUL LLC in April 2018 (see note 21). The
Mongolian assets were fully written-down.
Assets of disposal group classified as held for sale:
Cash and cash equivalents
Intangible assets*
Trade and other receivables
31 Dec 18
$’000
31 Dec 17
$’000
58
–
3
61
151
5,602
7
5,760
* During the year there were additions of $907,000 in intangible assets in relation to Shuak as the Group completed the second exploration season at
Shuak, undertaking both diamond and core hydrotransport drilling. It was then decided as the Group will not develop the project to recognise an
impairment for the entire balance of intangible assets.
Liabilities of disposal group classified as held for sale:
Trade and other payables
31 Dec 18
$’000
31 Dec 17
$’000
40
40
90
90
C EN T R A L ASI A ME TA L S PLC
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94
22. Assets held for sale continued
Loss from discontinued operations:
General and administrative expenses
Other income
Foreign exchange (loss)/gain
Impairment of exploration and evaluation assets
Income tax
Loss from discontinued operations
Cash flows of disposal group classified as held for sale:
Operating cash flows
Total cash flows
2018
$’000
(153)
–
(927)
(6,194)
–
(7,274)
2018
$’000
(93)
(93)
2017
$’000
(533)
100
386
–
(29)
(76)
2017
$’000
151
151
Copper Bay
The Group has reviewed the indicators for impairment under IFRS 6 Exploration and Evaluation of Mineral Resources as
although the Group is confident of making a sale in the near future, it is not clear of the cash generative abilities of these
assets. An impairment of its exploration and evaluation assets amounting to $4,018,000 has been recognised through
discontinued operations.
Shuak
At the year end the Group has impaired the exploration and evaluation assets in full as a result of the Boards decision to no
longer develop this asset amounting to $2,176,000. However, the Group still believe there is some value in these assets
and expects to retain either a minority shareholding or royalty to future income from the asset.
23. Trade and other receivables
Current receivables
Receivable from subsidiary
Loan due from subsidiary
Trade receivables
Prepayments
VAT receivable
Other receivables
Non-current receivables
Loan due from subsidiary
Prepayments
VAT receivable
Group
Company
31 Dec 18
$’000
–
–
3,746
1,463
2,006
2,863
31 Dec 17
$’000
(restated)
–
–
6,254
2,367
1,563
9,521
31 Dec 18
$’000
31 Dec 17
$’000
215
373,182
–
395
189
211
122
327,891
–
331
547
11
10,078
19,705
374,192
328,902
–
71
2,049
2,120
–
39
2,480
2,519
–
–
–
–
1,531
–
–
1,531
The carrying value of all the above receivables is a reasonable approximation of fair value. There are no amounts past due at the
end of the reporting period that have not been impaired apart from the VAT receivable balance as explained below.
Management’s policy is to assess all trade and other receivables for recoverability on a regular basis. A provision is made where
doubt exists and amounts are fully written-off when information becomes known that the amounts due will not be recovered.
There are two loans due from subsidiaries. One loan is owed by CAML MK, a directly owned subsidiary for $315,116,000 (2017:
$327,891,000), accrues interest at a rate of 5% per annum and is repayable on demand. There is another loan which is owed by
CMK Mining, a subsidiary, for $58,067,000 (2017: $nil) which accrues interest at a rate of 4.75% per annum and is repayable on
demand. These loans have been assessed for expected credit loss under IFRS 9, however, as the Group’s strategies are aligned
there is no realistic expectation that repayment would be demanded. Also, the expected future cash flows arising from the asset
also significantly exceed the intercompany loan values so it is believed these loans can be repaid without any significant issue. It
has been concluded that the expected credit loss is immaterial, and no adjustment recognised.
C EN T R A L ASI A ME TA L S PLC
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FOR THE YEAR ENDED 31 DECEMBER 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 95
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
As at 31 December 2018, the total Group VAT receivable was $4,055,000 (2017: $4,043,000) which includes an amount of
$2,813,000 (2017: $2,703,000) of VAT owed to the Group by the Kazakhstan authorities. In 2018, the Kazakhstan
authorities refunded $223,000 and a further $700,000 is expected in June 2019 and this has been classified as current
trade and other receivables as at 31 December 2018. The Group is working closely with its advisors to recover the
remaining portion. The planned means of recovery will be through a combination of the local sales of cathode copper to
offset VAT liabilities and by a continued dialogue with the authorities.
24. Inventories
Group
Raw materials
Finished goods
31 Dec 18
$’000
6,901
628
7,529
31 Dec 17
$’000
6,440
558
6,998
The Group did not have any slow-moving, obsolete or defective inventory as at 31 December 2018 (2017: nil). The total
inventory recognised through the Income Statement was $1,007,000 (2018: $772,000).
25. Cash and cash equivalents
Cash at bank and on hand
Short-term deposits
Cash at bank and on hand included in assets held for sale
Total cash and cash equivalent
Restricted cash
Group
Company
31 Dec 18
$’000
21,605
13,044
34,649
58
34,707
4,376
31 Dec 17
$’000
35,208
7,814
43,022
151
43,173
2,812
31 Dec 18
$’000
2,253
13,044
15,297
–
15,297
4,222
19,519
31 Dec 17
$’000
7,269
7,814
15,083
–
15,083
2,672
17,755
Total cash and cash equivalent including restricted cash
39,083
45,985
The restricted cash amount of $4,376,000 (2017: $2,812,000) is held at bank to cover debt compliance and Kounrad SUC
licence requirements. Short-term deposits are held at call with banks.
26. Share capital and premium
At 1 January 2017
Issue of shares
At 31 December 2017
Treasury shares
At 31 December 2018
Number of
shares
112,069,738
64,428,528
Ordinary
Shares
$’000
1,121
644
Share
premium
$’000
–
191,184
176,498,266
1,765
191,184
–
–
–
176,498,266
1,765
191,184
Treasury
shares
$’000
(7,780)
–
(7,780)
1,254
(6,526)
The par value of Ordinary Shares is $0.01 per share and all shares are fully paid.
Employee Benefit Trust shares
During the year there was an exercise of share options by senior management that were satisfied by employee benefit
trust shares reducing the trust shares by 459,253 and a movement of $1,199,000 (2017: $nil). A further 30,000 trust
shares were satisfied as part of the EBT loan repayment with a movement of $55,000 (2017: $nil).
C EN T R A L ASI A ME TA L S PLC
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96
27. Currency translation reserve
Currency translation differences arose primarily on the translation on consolidation of the Group’s Kazakhstan-based and
North Macedonian-based subsidiaries whose functional currency is the Kazakhstan Tenge and North Macedonian Denar. In
addition, currency translation differences arose on the goodwill and fair value uplift adjustments to the carrying amounts
of assets and liabilities arising on the Kounrad Transaction and CMK Resources acquisition which are denominated in Tenge
and Denar. During 2018, a non-cash currency translation loss of $10,288,000 (2017: gain of $8,269,000) was recognised
within equity.
28. Share based payments
The Company provides rewards to staff in addition to their salaries and annual discretionary bonuses, through the granting
of share options in the Company. The Company effectively has two such option schemes in place, the Old Scheme and the
New Scheme.
Old Scheme
The first share option plan was introduced by the Company in February 2008 and initially had an exercise price of $6.42.
On the recommendation of the Remuneration Committee, the exercise price for the participants was reduced to $0.68 in
February 2010 to reflect the changed economic circumstances of the Company and maintain some form of incentive for
staff. Only those staff still employed by the Group at this time benefited from this decision and those participants who had
left the Group maintained an exercise price of $6.42 on their options. The vesting of share options in the plan is purely
conditional upon time served by the participant and as at 31 December 2018, all options have fully vested.
New Scheme
The Company introduced the second share option plan in October 2011. This scheme has an exercise price of effectively nil
for the participants. The nil-cost share options granted under this scheme vest on the basis of a third annually depending
on the achievement by the Group and the participant of the performance targets as determined by the CAML
Remuneration Committee.
As at 31 December 2018, 16,000 (2017: 180,000) Old Scheme options and 3,314,006 (2017: 2,596,043) New Scheme
options (including those issued to Nurlan Zhakupov) were outstanding. Share options are granted to Directors and selected
employees. The exercise price of the granted options is presented in the table below for every grant. In general, options
vest in one-third tranches over a three-year period. The Company has the option but not the legal or constructive
obligation to repurchase or settle the options in cash.
Movements in the number of share options outstanding and their related weighted average price are as following:
At 1 January
Granted
Exercised
Expired
At 31 December
2018
2017
(restated)
Average
exercise price
in $ per
share option
Average
exercise price
in $ per
share option
Options
(number)
Options
(number)
0.39 2,772,260
0.44
2,491,537
0.01
0.01
6.42
1,067,414
(364,074)
(164,000)
0.01
0.01
–
714,836
(434,113)
–
0.01
3,311,600
0.39
2,772,260
The related weighted average share price at the time of exercise was $3.71 (2017: $2.97) per share. Out of the outstanding
options of 3,311,600 (2017: 2,772,260), 1,976,450 options (2017: 1,641,618) were exercisable as at 31 December 2018.
An amount of $4,904,000 (2017: $2,823,000) has been credited to retained earnings and expensed within employee
benefits expense from continuing operations for the grant of stock options for the year ended 31 December 2018. Included
in this amount is an additional dividend related share option charge of $699,232 (2017: $620,000). The number of shares
covered by such awards is increased by up to the value of dividends declared as if these were reinvested in Company
shares at the dates of payment. The outstanding share options included in the calculation of diluted earnings/(loss) per
share (note 18) includes these additional awards but they are excluded from the disclosures in this note.
Share options exercised by the Directors during the year are disclosed in the Remuneration Committee Report on page 50.
C en t r a l asi a Me ta l s pl C
A nnuA l Rep oR t A nd Accoun ts 2018
FOR THE YEAR ENDED 31 DECEMBER 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
97
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
Share options outstanding at the end of the year have the following expiry date and exercise prices:
Grant – vest
old Scheme:
21 Feb 08
21 Feb 10
New Scheme:
8 May 12
24 Jul 13
3 Jun 14
8 Oct 14
22 Apr 15
18 Apr 16
21 Apr 17
2 May 18
Expiry date
of option
Option exercise
price $
2018
2017
(restated)
Share options (number)
21 Feb 18
21 Feb 20
7 May 22
23 Jul 23
2 Jun 24
7 Oct 24
21 Apr 25
18 Apr 26
21 Apr 27
2 May 28
6.42
0.68
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
–
16,000
164,000
16,000
100,000
60,155
196,355
214,354
358,948
621,790
676,583
1,067,415
100,000
60,155
223,001
289,755
507,195
697,318
714,836
–
3,311,600
2,772,260
Employee Benefit Trust
The Company set up an Employee Benefit Trust (‘EBT’) during 2009 as a means of incentivising certain Directors and
senior management of CAML prior to the Initial Public Offering (‘IPO’). All of the shares awarded as part of the EBT scheme
vested on the successful completion of the IPO on 30 September 2010.
2,534,688 Ordinary Shares were initially issued as part of the arrangements in December 2009 followed by a further issue
of 853,258 in September 2010. The shares were issued at the exercise price of $0.68, which was the best estimate of the
Company’s valuation at the time. Details of the awards to Directors of the Company are contained in the Remuneration
Committee Report on page 50.
29. Trade and other payables
Trade and other payables including accruals
Deferred consideration (note 6)
Corporation tax, social security and other taxes
Other non-current payables:
Deferred consideration (note 6)
Group
Company
31 Dec 18
$’000
11,137
6,500
3,279
20,916
–
–
31 Dec 17
$’000
(restated)
10,622
4,000
13,739
28,361
8,000
8,000
31 Dec 18
$’000
4,805
–
191
4,996
–
–
31 Dec 17
$’000
4,825
–
154
4,979
–
–
The carrying value of all the above payables is equivalent to fair value.
The Group made a provision for the 2018 Kazakhstan corporate income tax liability of $773,000 (2017: $1,331,000) having
paid an amount of $13,588,000 in advance during the year (2017: $11,367,000). $1,259,000 was also paid during the year
in relation to 2017 corporate income tax (2017: $927,000 in relation to 2016).
The Group made a provision for the 2018 North Macedonian corporate income tax liability of $4,677,000 having paid an
amount of $6,372,000 in advance during the year. $4,651,000 was also paid during the year in relation to 2017 corporate
income tax.
The prior year balance of corporation tax, social security and other taxes has been restated due to the North Macedonian
withholding tax payable which was incurred in relation to the period prior to our ownership of CMK Resources and
therefore treated as fully recoverable. This has since been negotiated with the prior owners and a settlement reached
which is to be offset against deferred consideration.
All Group and Company trade and other payables are payable within less than one year for both reporting periods.
C EN T R A L ASI A ME TA L S PLC
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98
30. Silver Streaming commitment
The carrying amounts of the Silver Streaming commitment are received advances for silver delivery are as follows:
Current
Non-current
Group
Company
31 Dec 18
$’000
2,263
22,905
25,168
31 Dec 17
$’000
(restated)
2,056
25,711
27,767
31 Dec 18
$’000
31 Dec 17
$’000
–
–
–
–
–
–
On 1 September 2016, the CMK Group entered into a Silver Purchase Agreement with Lynx Metals Limited which was
subsequently transferred to Osisko. The Group acquired this agreement as part of the acquisition and inherited a Silver
Streaming commitment related to the production of silver during the life of the mine. The Silver Streaming commitment is
recognised in the Income Statement as the silver is delivered based on the units of production. As part of the review of the
fair value of acquisition accounting the Silver Streaming commitment balance was fair valued and was revised to
$28,071,411 by considering the future cash flows arising from the contractual obligation. See note 6 for more details.
31. Borrowings
Secured: Non-current
Bank loans
Secured: Current
Bank loans
The carrying value of loans approximates fair value:
Ohridska Banka AD Skopje
SG Facility
Traxys
Group
Company
31 Dec 18
$’000
31 Dec 17
$’000
31 Dec 18
$‘000
31 Dec 17
$’000
106,549
141,839
106,549
89,711
38,400
40,075
38,400
24,000
144,949
181,914
144,949
113,711
Carrying amount
Fair value
31 Dec 18
$’000
–
–
144,949
31 Dec 17
$’000
5,539
62,664
113,711
31 Dec 18
$’000
–
–
144,949
144,949
181,914
144,949
31 Dec 17
$’000
5,539
62,664
113,711
181,914
During the year, $38.5 million of the principal amount of Group debt was repaid as well as a further $12.1 million interest.
As at 31 December 2018, non-current and current borrowings were $106.5 million and $38.4 million respectively
(2017: $141.8 million and $40.1 million).
In December 2018, CAML consolidated its borrowings into one corporate debt package, increasing and amending the size
of its Traxys Europe S.A. facility by $60 million to $151 million. The Group used these funds to fully repay the outstanding
balances of the inherited Société Générale and Investec Sasa debt facility of $57 million and Ohridska Bank working capital
facility of $1.7 million. The consolidation of the three debt facilities resulted in a 0.25% reduction of margin for the
refinanced portion of the Sasa debt to 4.75%. The Group has also simplified the repayment schedule and will now repay
$3,200,000 each month and has removed the requirement for cash sweeps based on free cash-flow.
The debt financing agreement with Traxys Europe S.A. remains repayable on 4 November 2022. Interest is payable at
LIBOR plus 4.75%. Security is provided over the shares in CAML Kazakhstan BV, certain bank accounts, the Traxys Kounrad
off-take agreement as well as over the off-take agreement between CAML MK and Traxys Europe S.A.
The fair value of borrowings has been calculated by discounting the expected future cash flows at contracted
interest rates.
As at 31 December 2018, the Group measured the fair value using techniques for which all inputs which have a significant
effect on the recorded fair value are observable, either directly or indirectly (Level 2).
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
FOR THE YEAR ENDED 31 DECEMBER 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 99
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
The different levels have been defined as follows:
¼ Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).
¼ Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (Level 2).
¼ Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
The debt is subject to financial covenants which include the monitoring of gearing and leverage ratios and these are all
currently complied with. The refinance has also lifted the security over Bermuda holding companies, enabling the Group to
restructure its CMK Resources entities and this process was completed in Q1 2019.
32. Provisions for other liabilities and charges
Group
At 1 January 2017
Acquisition of subsidiary (note 6)
Change in estimate
Unwinding of discount (note 16)
Exchange rate difference
At 31 December 2017
Change in estimate
Unwinding of discount (note 16)
Exchange rate difference
At 31 December 2018
Non-current
Current
At 31 December 2018
Asset
retirement
obligation
$’000
Employee
retirement
benefits
$’000
Other
employee
benefits
$’000
2,087
2,746
(477)
192
28
4,576
(159)
489
(478)
4,428
4,428
–
4,428
–
123
57
–
–
180
24
–
(8)
196
159
37
196
–
184
(30)
–
–
154
18
–
(7)
165
155
10
165
Legal
claims
$’000
–
440
–
–
15
455
(108)
–
(20)
327
327
–
327
Total
$’000
2,087
3,493
(450)
192
43
5,365
(225)
489
(513)
5,116
5,069
47
5,116
a) Asset retirement obligation
The Group provides for the asset retirement obligation associated with the mining activities at Kounrad, estimated to be
required in 2034. The provision is recognised at the net present value of future expected costs using a discount rate of
8.07% (2017: 8.07%). The reduction in estimate in relation to the asset retirement obligation of $159,000 (2017: $477,000)
is due to a combination of adjusting the provision recognised at the net present value of future expected costs using an
inflation rate of 5.59% (2017: 5.59%) as well as updating the provision for management’s best estimate of the costs that
will be incurred based on current contractual and regulatory requirements and the estimated useful life of mine to 2034.
Under current legislation entities operating mining and related activities in North Macedonia are required to take remedial
action for the land where such activities have occurred based on a plan approved by the Ministry of the Environment as
well as in accordance with international best practices. After the ceasing of mining activities the Group is obliged to
restore the mining area and to return it to its initial condition. The Group has engaged an independent expert to conduct an
independent assessment on the environment of the mining activities of the Group and to prepare an assessment of the
restoration and the relevant costs connected with the mine, TSF4 and the mining properties. The calculation was
performed on a basis of this independent assessment performed by an environmental technical expert. The expected
current cash flows were projected over the useful life of the mining sites and discounted to 2018 terms using a discount
rate of 7.87% (2017: 7.98%). The cost of the related assets are depreciated over the useful life of the assets and are
included in property, plant and equipment.
b) Employee retirement benefit
All employers in North Macedonia are obliged to pay employees minimum severance pay on retirement equal to two
months of the average monthly salary applicable in the country at the time of retirement. The retirement benefit
obligation is stated at the present value of expected future payments to employees with respect to employment
retirement pay. The present value of expected future payments to employees is determined by an independent authorised
actuary in accordance with the prevailing rules of actuarial mathematics.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
100
32. Provisions for other liabilities and charges continued
c) Other employee benefit
The Group is also obliged to pay jubilee anniversary awards in North Macedonia for each ten years of continuous service of
the employee. Provisions for termination and retirement obligations are recognised in accordance with actuary
calculations. Basic 2017 actuary assumptions are used as follows:
¼ Discount rate: 3.8%
¼ Expected rate of salary increase: 2.5%
d) Legal claims
The Group is party to certain legal claims and the recognised provision reflects management’s best estimate of the most
likely outcome.
33. Cash generated from operations
Group
Profit before income tax including discontinued operations
Adjustments for:
Depreciation and amortisation
Silver stream commitment
Loss on disposal of property, plant and equipment
Foreign exchange loss/(gain)
Share based payments
Finance income
Finance costs
Other expenses
Impairment
Changes in working capital:
Inventories
Trade and other receivables
Trade and other payables
Provisions for other liabilities and charges
Note
2018
$’000
2017
$’000
65,407
49,801
33,342
(1,599)
561
3,879
4,904
(264)
14,999
576
6,194
(683)
(386)
3,549
(348)
10,927
(304)
–
(3,349)
2,823
(5,597)
2,319
–
–
(1,259)
3,868
1,113
70
11
28
15
16
11
22
24
23
29
31
Cash generated from operations
130,131
60,412
34. Commitments
Significant expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows:
Group
Property, plant and equipment
Other
31 Dec 18
$’000
475
570
1,045
31 Dec 17
$’000
762
154
916
35. Dividend per share
In line with the Company dividend policy, the Company paid $39,603,000 in 2018 (2017: $23,146,000) which consisted of
a 2018 interim dividend of 6.5 pence per share and a final dividend for 2017 of 10.0 pence per share (2017: interim dividend
of 6.5 pence per share and a final dividend for 2016 of 10.0 pence per share).
The Directors will propose a final dividend in respect of the year ended 31 December 2018 of 8 pence per share at the
forthcoming Annual General meeting (‘AGM’).
36. Related party transactions
Key management remuneration
Key management remuneration comprises the Directors’ remuneration, including Non-Executive Directors, disclosed in
the Remuneration Committee Report on page 50.
Non-Executive Directors
Mr Kenges Rakishev became a major shareholder of CAML on 23 May 2014 following completion of the Kounrad
Transaction. He was appointed to the CAML Board on 9 December 2013 following the completion of the first part of the
transaction. As part of the obligations on Kenges Rakishev for completing the Kounrad Transaction, he signed a
relationship agreement with CAML setting out the terms of the relationship between himself and the Group.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
FOR THE YEAR ENDED 31 DECEMBER 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 101
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
In June 2017, Kenges Rakishev sold his 86.09% interest in JSC Kazkommertsbank (‘KKB’) to JSC Halyk Bank and resigned
as Chairman of KKB in July 2017. The Groupthen used the facilities of KKB and JSC Halyk Bank within Kazakhstan for its
normal day-to-day banking.
Kenges Rakishev has an interest in other finance and insurance entities in Kazakhstan. The Group has insurance
relationships with such entities and has made an insurance claim under which a syndicate of insurers, including some
related to Kenges Rakishev, have a potential liability.
In September 2017, Kenges Rakishev sold 10,605,875 Ordinary CAML Shares of $0.01 each at a price of 230 pence per
share. In February 2018, he sold his remaining shareholding of 10,605,876 Ordinary Shares at a price of 275 pence per
share. Kenges Rakishev resigned as Non-Executive Director on 23 May 2018.
During the year, the Group paid consultancy fees of $13,261 (2017: $75,000) to Nurlan Zhakupov, a Non-Executive Director
of the Company, under a consultancy agreement in terms of which Mr Zhakupov provides services over and above his
normal duties.
The Kounrad foundation, a charitable foundation set up in the prior period, was advanced $226,000 to formalise charitable
donations to assist local causes. This is a related party by virtue of common Directors.
37. Deferred income tax liability
Group
The movements in the Group’s deferred tax assets and liabilities are as follows:
Other timing differences
Deferred tax liability on fair value adjustment on Kounrad Transaction
Deferred tax liability on fair value adjustment on CMK acquisition
(note 6)
Deferred tax liability, net
At
1 Jan 2018
$’000
(121)
(8,103)
(22,972)
(31,196)
Currency
translation
differences
$’000
(Debit)/credit to
income
statement
$’000
10
1,056
891
1,957
34
366
1,169
1,569
At
31 Dec 2018
$’000
(77)
(6,681)
(20,912)
(27,670)
A taxable temporary difference arose as a result of the Kounrad Transaction and CMK Resources Limited acquisition,
where the carrying amount of the assets acquired were increased to fair value at the date of acquisition but the tax base
remained at cost. The deferred tax liability arising from these taxable temporary differences has been reduced by
$1,535,000 during the year (2017: $557,000) to reflect the tax consequences of depreciating and amortising the
recognised fair values of the assets during the year.
Other timing differences
Deferred tax liability on fair value adjustment on Kounrad
Transaction
Deferred tax liability on fair value adjustment on CMK
acquisition (note 6)
Deferred tax liability, net
At
1 Jan 2017
$’000
CMK Resources
acquisition
$’000
(82)
(8,459)
–
–
–
(22,368)
(8,541)
(22,368)
Deferred tax liability due within 12 months
Deferred tax liability due after 12 months
Deferred tax liability, net
Currency
translation
differences
$’000
(Debit)/credit to
income
statement
$’000
At
31 Dec 2017
$’000
(restated)
(2)
(31)
(774)
(790)
(37)
(121)
387
170
520
At
31 Dec 2018
$’000
(1,017)
(26,653)
(8,103)
(22,972)
(31,196)
At
31 Dec 2017
$’000
(1,597)
(29,599)
(27,670)
(31,196)
Where the realisation of deferred tax assets is dependent on future profits, the Group recognises losses carried forward
and other deferred tax assets only to the extent that the realisation of the related tax benefit through future taxable
profits is probable.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
102
37. Deferred income tax liability continued
The Group did not recognise other potential deferred tax assets arising from losses of $8,465,000 (2017: $8,758,000) as
there is insufficient evidence of future taxable profits within the entities concerned. Unrecognised losses can be carried
forward indefinitely.
At 31 December 2018, the Group had other deferred tax assets of $2,085,000 (2017: $2,195,000) in respect of share-
based payments and other temporary differences which had not been recognised because of insufficient evidence of
future taxable profits within the entities concerned.
There are no significant unrecognised temporary differences associated with undistributed profits of subsidiaries at 31
December 2018 and 2017, respectively.
Company
At 31 December 2018 and 2017 respectively, the Company had no recognised deferred tax assets or liabilities.
At 31 December 2018, the Company had not recognised potential deferred tax assets arising from losses of $8,465,000
(2017: $8,218,000) as there is insufficient evidence of future taxable profits. The losses can be carried forward indefinitely.
At 31 December 2018, the Company had other deferred tax assets of $2,085,000 (2017: $2,195,000) in respect of share
based payments and other temporary differences which had not been recognised because of insufficient evidence of
future taxable profits.
38. Events after the reporting period
In January 2019 there was a change to the structure in the Group with the entity CMK Mining Limited, now known as CMK
Mining B.V., and its subsidiaries being transferred from CMK Resources Limited to CAML MK Limited. During Q1 2019 CMK
Mining Limited was an entity in Bermuda and eventually continued as an entity in the Netherlands in order to simplify the
structure within the Group. CMK Resources Limited remains a wholly owned subsidiary of CAML MK Limited but with no
subsidiary companies of its own and is expected to be liquidated in 2019.
In April 2019, an agreement with the previous owners of CMK Resources Limited was finalised in respect of the $5.9
million withholding tax liability in North Macedonia that relates to activities of CMK Europe prior to our ownership. This tax
liability had been accounted for as part of the acquisition accounting and was considered fully recoverable though the tax
indemnity. The settlement amounted to $5.5 million, with an impairment of $469,000 recognised during the year, and as
part of this CAML paid the outstanding $12.0 million deferred consideration.
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
FOR THE YEAR ENDED 31 DECEMBER 2018NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 103
GLOSSARY OF TECHNICAL TERMS
STRATEGIC REPoRT
GovERNANCE
FINANCIAL STATEMENTS
Ag
Assay
Grade
g/t
Indicated Mineral Resource
Inferred Mineral Resource
JoRC
Mineral Resource
NSR cut off
ore Reserve
Chemical symbol for silver
Laboratory test conducted to determine the proportion of a mineral within a rock or
other material
The proportion of a mineral within a rock or other material. For zinc and lead
mineralisation this is usually reported as a percentage of zinc and lead per tonne of rock
Grammes per tonne
An Indicated Mineral Resource is that part of a Mineral Resource for which quantity,
grade or quality, densities, shape and physical characteristics are estimated with
sufficient confidence to allow the application of Modifying Factors in sufficient detail to
support mine planning and evaluation of the economic viability of the deposit.
Geological evidence is derived from adequately detailed and reliable exploration,
sampling and testing and is sufficient to assume geological and grade or quality
continuity between points of observation. An Indicated Mineral Resource has a lower
level of confidence than that applying to a Measured Mineral Resource and may only be
converted to a Probable Ore Reserve
An Inferred Mineral Resource is that part of a Mineral Resource for which quantity and
grade or quality are estimated on the basis of limited geological evidence and sampling.
Geological evidence is sufficient to imply but not verify geological and grade or quality
continuity. An Inferred Mineral Resource has a lower level of confidence than that
applying to an Indicated Mineral Resource and must not be converted to an Ore
Reserve. It is reasonably expected that the majority of Inferred Mineral Resources
could be upgraded to Indicated Mineral Resources with continued exploration
The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore
Reserves, as published by the Joint Ore Reserves Committee of The Australasian
Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals
Council of Australia
A Mineral Resource is a concentration or occurrence of solid material of economic
interest in or on the Earth’s crust in such form, grade or quality and quantity that there
are reasonable prospects for eventual economic extraction. The location, quantity,
grade or quality, continuity and other geological characteristics of a Mineral Resource
are known, estimated or interpreted from specific geological evidence and knowledge,
including sampling
The lowest net smelter return (‘NSR’) value of mineralised material that qualifies as
potentially economically mineable
An Ore Reserve is the economically mineable part of a Measured and/or Indicated
Mineral Resource. It includes diluting materials and allowances for losses, which may
occur when the material is mined or extracted and is defined by studies at Pre-
Feasibility or Feasibility level as appropriate that include application of Modifying
Factors. Such studies demonstrate that, at the time of reporting, extraction could
reasonably be justified. The reference point at which Reserves are defined, usually the
point where the ore is delivered to the processing plant, must be stated. It is important
that, in all situations where the reference point is different, such as for a saleable
product, a clarifying statement is included to ensure that the reader is fully informed as
to what is being reported
Pb
Chemical symbol for lead
Probable ore Reserve
A Probable Ore Reserve is the economically mineable part of an Indicated, and in some
circumstances, a Measured Mineral Resource. The confidence in the Modifying Factors
applying to a Probable Ore Reserve is lower than that applying to a Proved Ore Reserve
Zn
Chemical symbol for zinc
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
104
DIRECTORS, SECRETARY AND ADVISORS
Legal Advisors
As to English Law
Fieldfisher LLP
Riverbank House
2 Swan Lane
London EC4R 3TT
United Kingdom
As to Kazakh Law
Haller Lomax LLP
6/1 Kabanbai Batyr Ave.
16th floor
Kaskad Business Center
Astana
Kazakhstan
As to North Macedonian Law
Karanovic Partners
Bulevar Partizanski Odredi 14
“Aura” Business Center III/5
Skopje
North Macedonia
Independent Auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
1 Embankment Place
London WC2N 6RH
United Kingdom
Public Relations
Blytheweigh
4-5 Castle Court
London EC3V 9DL
United Kingdom
Registrars
Computershare Investor Services
The Pavilions
Bridge Road
Bristol BS13 8AE
United Kingdom
Board of Directors
Nick Clarke, Chairman
Nigel Robinson, Chief Executive Officer
Gavin Ferrar, Chief Financial Officer
Nigel Hurst-Brown, Deputy Chairman
Robert Cathery, Non-Executive Director
Roger Davey, Non-Executive Director
David Swan, Non-Executive Director
Nurlan Zhakupov, Non-Executive Director
Principal Places of Business
UK
Sackville House
40 Piccadilly
London W1J 0DR
United Kingdom
Kazakhstan
Business Centre No.2
4 Mira Street
Balkhash
Kazakhstan
North Macedonia
Sasa Dooel
28 Rudarska Street
Makedonska Kamenica
North Macedonia
Company Secretary
Tony Hunter
Registered Address
Masters House
107 Hammersmith Road
London W14 0QH
United Kingdom
Registered number
5559627
Company website
www.centralasiametals.com
Nominated Advisor and Joint Broker
Peel Hunt LLP
Moor House
120 London Wall
London EC2Y 5ET
United Kingdom
Joint Broker
BMO Capital Markets
95 Queen Victoria Street
London EC4V 4HG
United Kingdom
C EN T R A L ASI A ME TA L S PLC
A nnuA l Rep oR t A nd Accoun ts 2018
www.centralasiametals.com
Sackville House
40 Piccadilly
London W1J 0DR
United Kingdom
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