ANNUAL REPORT AND ACCOUNTS
Registered Number: 10669766 (England and Wales)
For the year ended 31 December 2017
(Expressed in Canadian dollars)
INDEX
Audited Consolidated Financial Statements
Management’s Responsibility for Financial Reporting
Independent Auditors’ Report
Consolidated Statement of Financial Position
Consolidated Statement of Comprehensive Loss
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Page 2
Page 3
Page 7
Page 8
Page 9
Page 10
Page 11
Silver Bear Resources Plc
Management’s Responsibility for Financial Reporting
For the Year Ended 31 December 2017
The consolidated financial statements of Silver Bear Resources Plc. have been prepared by, and are the responsibility
of the Group’s management.
The consolidated financial statements are prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board. In the opinion of management the accounting
practices utilized are appropriate in the circumstances and the consolidated financial statements fairly reflect the
financial position and results of operations of the Group within reasonable limits of materiality.
Management has developed and is maintaining a system of internal controls to obtain reasonable assurance that the
Group’s assets are safeguarded, transactions are authorized, and financial information is reliable. All internal control
systems have inherent limitations, including the possibility of circumvention and overriding controls, and, therefore, can
provide only reasonable assurance as to financial statement preparation and safeguarding of assets.
The Board of Directors is responsible for ensuring management fulfills its responsibilities. The Audit Committee meets
with the Group’s management and external auditors to discuss the results of the audit and to review the annual
consolidated financial statements prior to the Audit Committee’s submission to the Board of Directors for approval. The
Audit Committee also reviews the quarterly financial statements and recommends them for approval to the Board of
Directors, reviews with management the systems of internal control and security, approves the scope of the external
auditors audit and non-audit work. The Audit Committee is composed entirely of directors not involved in the daily
operations of the Group and thus is considered to be free from any relationship that could interfere with the exercise of
independent judgment as a Committee member.
The consolidated financial statements have been audited by PricewaterhouseCoopers LLP London, Chartered
Accountants and their report outlines the scope of their examination and gives their opinion on the consolidated
financial statements.
“Graham Hill”
_______________________________
Graham Hill
Director, President and
Chief Executive Officer
Toronto, Ontario, Canada
29 March 2018
“Vadim Ilchuk”
_______________________________
Vadim Ilchuk
Chief Financial Officer
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Independent auditors’ report to the shareholders of Silver
Bear Resources Plc
Report on the audit of the consolidated financial statements
Our opinion
In our opinion, the consolidated financial statements present fairly, in all material respects the consolidated financial position of
Silver Bear Resources Plc (the Company) and its subsidiaries (the Group) as at 31 December 2017, and of its consolidated financial
performance and its consolidated cash flows for the year then ended in accordance with IFRSs as issued by the International
Accounting Standards Board (IASB).
What we have audited
The Group’s consolidated financial statements comprise:
the consolidated statement of financial position as at 31 December 2017;
the consolidated statement of comprehensive loss for the year then ended;
the consolidated statement of changes in equity for the year then ended;
the consolidated statement of cash flows for the year then ended; and
the notes to the consolidated financial statements, which include a summary of significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards
are further described in the Auditor’s responsibilities for the audit of the consolidated 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 are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for
Professional Accountants (IESBA Code). We have fulfilled our other ethical responsibilities in accordance with the IESBA Code.
Our audit approach
Overview
Materiality
Group
scoping
Key audit
matters
Overall materiality: Canadian $1,342,000, based on 1% of total assets.
We focused our audit procedures on all of the major components of the
Group: AO Prognoz, Silver Bear Resources Inc and Silver Bear
Resources Plc which accounted for approximately 95% of the Group’s
loss before taxation and 98% of the Group’s total assets.
Our key audit matters comprised:
Going concern assessment;
Impairment of mineral properties and property, plant and equipment.
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated
financial statements. In particular, we considered 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 among other matters,
consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
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Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether
the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are
considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group
materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative
considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to
evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Overall group materiality
Canadian $ 1,342,000
How we determined it
1% of total assets
Rationale for the materiality
benchmark applied
Considering the pre-production stage of the Group’s operations, total assets is
considered to be most relevant to the users of the financial statements and
therefore it was used for the overall materiality calculations
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above Canadian
$67,100, as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated
financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Going concern assessment
As disclosed in Note 1 and Note 2 to the financial statements,
at 31 December 2017, the Group had no cash flows from
operating activities and reported a net loss for the year of
Canadian $8,824,740 and had a cumulative deficit of
Canadian $135,931,891. The Group is still in the pre-
production phase and fully financed through loans from
shareholders with commercial production expected to
commence in April 2018. Should there be further delays in
commencing production there may be a need to secure
additional financing.
As a result, management prepared a cash flow model through
to December 2019, which is aligned to their ten year technical
economic model for the Mangaziesky project, to assess their
ability to generate sufficient cash flows to support the going
concern status of the Group and Company.
The key assumptions which underpin this model include silver
prices, the Russian rouble : US dollar exchange rate, the date
when commercial production commences, capital expenditure
and operating expenditure budgets as well as production
volumes.
Based on these assumptions, management concluded that they
will have a positive cash flow balance at the end of each month
from the date of signing these financial statements through to
the end of December 2019 and accordingly are of the view that
it is appropriate to adopt the going concern basis of accounting
for the financial statements.
We obtained management’s cash flow forecast for 2018 and 2019,
which supports their use of the going concern basis of accounting
for the financial statements.
We tested the integrity of the forecast, including mathematical
accuracy.
The forecast includes a number of key assumptions such as silver
prices, the Russian rouble : US dollar exchange rate, the date
when commercial production commences, capital expenditure
and operating expenditure budgets as well as production volumes.
We held extensive discussions with management and assessed the
reasonableness of these key assumptions by benchmarking them
to market forecasts and comparing them to management’s mine
plans, supported by the competent person’s report. We
considered the historical accuracy of management’s forecasting
and performed sensitivity testing for reasonable possible changes
in the key assumptions such as a decrease in silver prices and an
increase in the discount rate and operating expenditure. We found
that these sensitivity analyses supported management’s use of the
going concern basis of accounting. We have also assessed the
competency and the objectivity of the competent person.
Based on our analysis, we did not identify any material
issues with management’s assessment and concur with their
adoption of the going concern basis of accounting for the
financial statements.
Page | 4
Impairment of mineral property and property, plant
and equipment
As the Group has not yet started the commercial production
of silver there is a risk that the capitalised mineral properties
and property, plant and equipment balances are not
recoverable and should therefore be impaired.
Management has performed an impairment trigger
assessment for all of the Group’s mineral properties and
property, plant and equipment as a sole cash generating unit.
Management determined that there were no triggers for
impairment.
Notwithstanding their conclusion that there were no triggers,
management nevertheless considered the carrying values of
the Group’s mineral properties and property, plant and
equipment to determine if these were supported by value in
use calculations, which are based on future cash flow
forecasts.
Management determined that the recoverable amount of the
mineral properties and property, plant and equipment was
higher than the carrying value and no impairment charge was
recognised.
As such, this was a key audit matter due to the material
nature of the balance.
How we tailored our group audit scope
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.
In assessing the valuation of the mineral properties and property,
plant and equipment we challenged management’s impairment
trigger assessment and in particular considered the potential
impact of changes in key assumptions such as a delay in the start
of commercial silver production, silver prices, foreign currency
exchange rates and discount rates.
We used independent data to assist us in evaluating the
appropriateness of key market related assumptions in
management’s valuation model, including silver prices and
discount rates. We have checked the consistency of assumptions
used for impairment testing and the going concern assessment.
We have also assessed the competency and the objectivity of the
competent person.
Based on our analysis, we did not identify any material issues with
management’s impairment conclusions and the associated
disclosures.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated
financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the
industry in which the Group operates. The Group consists of four entities: Silver Bear Resources plc, Silver Bear Resources Inc, AO
Prognoz and Silver Bear Holdings BV. We performed full scope audits for all components except for the Silver Bear Holdings BV.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at the
reporting unit level by us, as the Group engagement team, or through involvement of the component auditors of AO Prognoz in
Russia. The Group’s assets and operations are primarily located in Yakutsk in the Republic of Sakha within Russia. Financial
reporting is undertaken in offices in Yakutsk and London.
Where work was performed by our component auditors in Russia, we determined the level of involvement we needed to have in the
audit work 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 conference calls,
review of component auditor work papers and other forms of communication as considered necessary. The Group audit team
directly performed the work over liabilities at AO Prognoz, a full scope audit of the parent company and of selected intermediate
holding companies as well as over the consolidation. The above gave us coverage of approximately 95% of the consolidated loss
before taxation and 98% of the total assets. This gave us the evidence we needed for our opinion on the Group financial statements
as a whole.
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.
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Responsibilities of management and those charged with governance for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with
IFRSs as issued by the International Accounting Standards Board (IASB), and for such internal control as management determines
is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditors’ responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an 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 will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the
audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on
the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures
are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision
and performance of the Group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear
on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in
the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these
matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so
would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditors’ report is Timothy McAllister.
For and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
March 2018
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Silver Bear Resources Plc
Consolidated Statement of Financial Position
(Canadian dollars)
The accompanying notes are an integral part of these consolidated financial statements
The financial statements on pages 7 to 36 were approved by the Board of Directors on 29 March 2018, and
signed on its behalf by:
“Graham Hill”
_______________________________
Graham Hill
Director, President & CEO
“Boris Granovsky”
_______________________________
Boris Granovsky
Director
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31 December31 December20172016ASSETSCurrent assetsCash and cash equivalents24,314,402 15,759,123 Receivables (note 4)5,264,349 5,691,897 Inventories (note 5)9,226,581 4,219,346 Prepaid expenses (note 6)4,535,619 5,305,839 Total current assets43,340,951 30,976,205 Non-current assetsIntangible assets (note 7)19,553 - Prepaid long-term assets (note 6)5,474,478 6,805,868 Mineral property (note 8)12,434,405 11,586,996 Property, plant and equipment (note 9)74,442,027 42,031,187 92,370,463 60,424,051 Total assets135,711,414 91,400,256 LIABILITIESCurrent liabilitiesAccounts payable and accrued liabilities (note 10)2,931,429 2,675,964 Short-term loans (note 11)- 20,923,779 Finance leases (note 12)1,429,492 1,525,369 Total current liabilities4,360,921 25,125,112 Non-current liabilitiesLong-term loans (note 13)128,147,211 76,282,337 Asset retirement obligation (note 14)1,426,397 1,172,643 Finance leases (note 12)1,334,994 2,735,911 Preference shares83,580 - 130,992,182 80,190,891 Total liabilities135,353,103 105,316,003 EQUITYShare capital (note 15)99,552,335 98,684,330 Share premium21,960,054 - Contributed surplus (note 15)16,696,454 14,578,157 Cumulative translation adjustment(1,918,641) (73,421) Accumulated deficit(135,931,891) (127,104,813) Total equity/(deficit)358,311 (13,915,747) Total liabilities and shareholders' equity135,711,414 91,400,256
Silver Bear Resources Plc
Consolidated Statement of Comprehensive Loss
For the years ended 31 December 2017 and 2016
(Canadian dollars)
The accompanying notes are an integral part of these consolidated financial statements
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20172016IncomeInterest income73,2391,731Other income541,689 - 614,9281,731Expenses (Note 17)Exploration and evaluation expenses334,3663,192,766General and administrative expenses5,396,3153,984,195Depreciation589,434363,373Amortization7,985 - Share-based payments2,169,972527,762Accretion expense144,43579,524Interest expense5,988,6474,670,909Amounts written off439,650 - Foreign exchange gain(5,631,136)(2,968,587)Expenses from operations9,439,6689,849,942Net loss for the year before tax(8,824,740)(9,848,211)Tax charge (Note 22)(2,338)(44,718)Net loss for the year after tax(8,827,078)(9,892,929)Other comprehensive lossItems that may be reclassified subsequently to profit or loss:Exchange differences on translating foreign operations(1,845,220)3,080,549Total comprehensive loss for the year(10,672,298)(6,812,380)Weighted average number of common shares outstanding331,796,154161,835,587Basic and diluted loss per share(Note 15)(0.03)(0.06)
Silver Bear Resources Plc
Consolidated Statement of Changes in Equity
For the years ended 31 December 2017 and 2016
(Canadian dollars)
The accompanying notes are an integral part of these consolidated financial statements.
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Share capitalShare premiumContributed surplusCumulative translation adjustmentAccumulated DeficitTotal equityBalance - 31 December 201598,277,254 - 14,173,136 (3,153,970) (117,211,884) (7,915,464) Net loss for the year- - - - (9,892,929) (9,892,929) Other comprehensive loss:Cumulative translation adjustment- - - 3,080,549 - 3,080,549 Comprehensive loss for the year- - - 3,080,549 (9,892,929) (6,812,380) Shares issued under stock option plan407,076 - (122,741) - - 284,335 Share-based payments- - 527,762 - - 527,762 Balance - 31 December 201698,684,330 - 14,578,157 (73,421) (127,104,813) (13,915,747) Balance - 31 December 201698,684,330 - 14,578,157 (73,421) (127,104,813) (13,915,747) Net loss for the year- - - - (8,827,078) (8,827,078) Other comprehensive loss:Cumulative translation adjustment- - - (1,845,220) - (1,845,220) Comprehensive loss for the year- - - (1,845,220) (8,827,078) (10,672,298) Shares issued on incorporation2 - - - - 2 Shares issued under stock option plan52,198 59,897 (51,675) - - 60,420 Share-based payments- - 2,169,972 - - 2,169,972 Shares issued upon conversion of loan note815,806 21,900,156 - - - 22,715,962 Balance - 31 December 201799,552,335 21,960,054 16,696,454 (1,918,641) (135,931,891) 358,311
Silver Bear Resources Plc
Consolidated Statement of Cash Flows
For the years ended 31 December 2017 and 2016
(Canadian dollars)
___________________________
In August 2017, the convertible loan notes were exercised so that the full value of the loans and accrued interest was converted into
share capital. At the date of conversion the total value of the principal and interest was $22,715,962 which was converted at $0.045
per share resulting in the issue of 504,799,162 shares. No cash was exchanged during these transactions.
The accompanying notes are an integral part of these consolidated financial statements.1
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20172016Cash provided by (used in)Operating activitiesTotal loss for the year(8,827,078) (9,892,929) Adjustments for items not affecting cash:Depreciation589,434 363,373 Amortization7,985 - Share-based payments2,169,972 527,762 Accretion expense144,435 79,524 Unrealised FX movement(5,674,870) (883,084) Interest expense5,988,647 4,670,909 Net change in non-cash working capital (note 18)(3,465,623) (9,940,947) Net cash used in operations(9,067,098) (15,075,392) Investing activitiesPurchases of property, plant and equipment(24,651,898) (31,760,696) Net cash used in investing activities(24,651,898) (31,760,696) Financing activitiesProceeds from share options exercised60,420 284,335 Finance lease repayment(1,666,751) (2,073,994) Loans drawn44,992,000 55,818,500 Net cash generated from financing activities43,385,669 54,028,841 Effect of exchange rate changes on cash and cash equivalents(1,111,394) (1,399,734) Increase in cash and cash equivalents during the year8,555,279 5,793,019 Cash and cash equivalents - beginning of the year15,759,123 9,966,104 Cash and cash equivalents - end of the year24,314,402 15,759,123 Cash and cash equivalents consist of:Cash24,314,402 15,759,123 24,314,402 15,759,123
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
1. NATURE OF OPERATIONS AND GOING CONCERN
Silver Bear Resources Plc (the “Company”) was incorporated on 14 March 2017 under the Companies Act 2006. Silver Bear
Resources Plc became the parent company of Silver Bear Resources Inc. on 30 June 2017 following a plan of arrangement
transaction involving a one-for-one share exchange of all then outstanding common shares of Silver Bear Resources Inc. for
ordinary shares of Silver Bear Resources Plc. Silver Bear Resources Inc. was incorporated under the Business Corporations Act of
the Province of Ontario, Canada, on 8 April 2004 and continued under Articles of Continuance dated 30 August 2004 under the
Business Corporations Act (Yukon) and 1 February 2005 under the Business Corporations Act (Ontario). The primary business of
the Company and its subsidiaries (the “Group”) is the acquisition, exploration, evaluation and development of precious metal
properties. The head office of the Group is registered in London, United Kingdom. The strategy of the Group is to focus on the
exploration and development of precious metal deposits. The principal asset of the Group is its right to explore and develop the
Mangazeisky project (“Mangazeisky”), located approximately 400 kilometres north of Yakutsk in the Republic of Sakha (Yaktutia), in
the Russian Federation. To date, the Group has not earned revenue from its primary business and its Mangazeisky project is
considered to be in the development stage.
Under the license No. YAKU 12692 BP registered on September 28, 2004, the Group carries out a geological study of the Endybal
area - prospecting and evaluation of silver and gold deposits. According to Supplement No. 1, registered on September 12, 2016,
the expiry date of the above license is December 31, 2023. The license area is located on the territory of the Kobyai region of the
Republic of Sakha (Yakutia).
In 2013, the Group obtained a subsoil license No. YAKU 03626 BE, registered on August 28, 2013, for the exploration and
production of silver, copper, lead, zinc at the Vertikalnoye mine. The license area is located on the territory of the Kobyai region of
the Republic of Sakha (Yakutia). The license expires on September 1, 2033.In 2015 the Group commenced the development of
Mangazeisky that includes the construction of a silver mine with associated processing facilities and infrastructure. It has been
determined that development costs incurred from 1 July 2015 have future economic benefits and are economically recoverable. In
making this judgement, management assessed various sources of information including the geological and metallurgical
information, scoping and feasibility studies, proximity of operating facilities, operating management expertise and existing permits.
These audited consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) applicable to a going concern which contemplates that the Group will be able to realize its assets and settle its
liabilities in the normal course as they come due for the foreseeable future. As at 31 December 2017, the Group had no material
cash inflows from operating activities and has reported a total comprehensive loss for the year of $10,672,298 and an accumulated
deficit of $135,931,891. In order to fund development operations and maintain rights under licenses and agreements, the Group has
secured funding in the form of long-term loans of $114,531,923 and the Group may be dependent on securing additional financing
until such time that it generates sufficient operating cash flow to meet its liabilities.
2. BASIS OF PREPARATION
Following Silver Bear Resources Plc becoming the parent company of the Group (as detailed in note 1), this transaction was not
treated as a business combination under IFRS 3 "Business combinations" but was considered as a capital reorganisation, as these
entities are under common control.
The consolidated financial statements of Silver Bear Resources Plc are presented using the values from the consolidated financial
statements of Silver Bear Resources Inc. The equity structure (that is, the issued share capital) reflects that of Silver Bear
Resources Inc, with other amounts in equity being those from the consolidated financial statements of the previous group holding
entity, Silver Bear Resources Inc. The resulting difference that will arise was recognised as a component of equity.
These audited consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRS IC) applicable to companies reporting
under IFRS. The financial statements comply with IFRS as issued by the International Accounting Standards Board (IASB). The
Group has consistently applied the accounting policies used in the preparation of its IFRS financial statements throughout all
periods presented, as if these policies had always been in effect.
These audited consolidated financial statements comprise the financial statements of Silver Bear Resources Plc and its 100%
owned subsidiaries: Silver Bear Resources Inc. (a Canadian corporation), Silver Bear Holdings Limited (a Barbados corporation,
dissolved on 21 December 2017) (“Holdings”), Silver Bear Resources B.V. (a Netherlands corporation) and AO Prognoz (a Russian
Federation corporation). All significant inter-company accounts and transactions have been eliminated on consolidation.
These audited consolidated financial statements were reviewed, approved and authorized for issue by the Board of Directors on 29
March 2018.
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Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
2. BASIS OF PREPARATION (Continued)
Significant Accounting Policies
Foreign currency translation
Items included in the financial statements of each entity are measured using the currency of the primary economic environment in
which it operates (“functional currency”). The consolidated financial statements are presented in Canadian dollars which is Silver
Bear’s Inc functional currency, as well as the functional currency of Silver Bear Holdings Ltd, Silver Bear Resources Plc and Silver
Resources Bear B.V. The financial statements of AO Prognoz have the Russian rouble as their functional currency and are
translated into the Canadian dollar presentation currency for consolidation purposes as follows: assets and liabilities – at the closing
rate at the date of the statements of financial position, and income and expenses at the average rate for each quarter (as this is
considered a reasonable approximation to actual rates). All resulting changes are recognized in other comprehensive income as
cumulative translation adjustments.
Foreign currency transactions are translated into the functional currency of the entity in which they occur using the exchange rates
prevailing at the dates of transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency
transactions and from the translation of monetary assets and liabilities denominated in currencies other than functional currency at
period-end exchange rates are recognized in the statement of comprehensive loss.
Mineral properties
Mineral properties include the costs of acquiring exploration and mining licenses, as well as the cost of assets associated with the
obligation for environmental rehabilitation and costs of developing the mining properties. Licenses are valued at cost at the date of
acquisition less impairment. Mining properties under development are accounted for at cost and are not amortised until production
has commenced. Cost includes expenditure that is directly attributable to the development of mining properties and preparing them
for production.
Intangible assets
Intangible assets are carried at cost, less accumulated amortization. All intangible assets are amortized on a straight line basis over
one to eleven years.
Property, plant and equipment
Property, plant and equipment are carried at cost, less accumulated depreciation and impairment losses. All property, plant and
equipment, with the exception of leasehold improvements, are depreciated on a straight line basis over eleven years which is
considered to be the life of the mine.
Leasehold improvements are amortized over the remaining life of the lease. Significant components of property, plant and
equipment are recorded and depreciated separately. Residual values, the method of depreciation and the useful lives of assets are
revised annually and adjusted prospectively, if appropriate, if there is an indicator of a significant change since the last reporting
date.
Exploration costs
Field exploration, supervisory costs and costs associated with maintaining the mineral property are expensed until the Group has a
reasonable expectation that the property is technically feasible and commercially viable.
Impairment of non-financial assets
The Group reviews and evaluates the recoverable amount of its mineral properties, property, plant and equipment annually and
when events or changes in circumstances indicate that the carrying amounts of related assets or groups of assets might not be
recoverable.
For the purpose of measuring recoverable amounts, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units).The recoverable amount is the higher of an asset’s fair value less costs of disposal
and its value in use (being the present value of the expected future cash flows of the relevant asset). Any resulting write-down of the
excess of carrying value over the recoverable amount is charged to the consolidated statement of operations.
Page | 12
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
2. BASIS OF PREPARATION (Continued)
Significant Accounting Policies (Continued)
Provision for decommissioning and restoration liability
Mining and exploration activities normally give rise to obligations for environmental rehabilitation. Rehabilitation work may include
facility decommissioning and dismantling; removal or treatment of waste materials; site and land rehabilitation, including compliance
with and monitoring of environmental regulations; security and other site-related costs required to perform the rehabilitation work;
and operation of equipment designed to reduce or eliminate environmental effects. The extent of work required and the associated
costs are dependent on the requirements of relevant authorities and our environmental policies. Routine operating costs that may
impact the ultimate closure and rehabilitation activities, such as waste material handling conducted as an integral part of a mining or
exploration process, are not included in the provision. The timing of the actual rehabilitation expenditure is dependent upon a
number of factors such as the life and nature of the asset, the license conditions and the operating environment. Expenditures may
occur before and after the site closure and can continue for an extended period of time depending on rehabilitation requirements.
Rehabilitation provisions are measured at the expected value of future cash flows associated with the settlement of the obligation
and discounted to their present value using a pre-tax discount rate which reflects current assessments of the time value of money.
The expected future cash flows exclude the effect of inflation. The unwinding of the discount in subsequent periods is presented as
interest expense. The asset associated with retirement obligations represents the part of the cost of acquiring the future economic
benefits of the operation and is capitalized to mineral properties as part of the carrying amount of the long-lived asset and amortized
over the expected economic life of the operation to which it relates. The Group re-measures the liability at each reporting date.
Changes in estimates are recorded using current discount rate assumptions. Adjustments are also accounted for as a change in the
corresponding value of the related assets.
Financial instruments
Financial assets:
Financial assets within the scope of IAS 39 are initially recognised at fair value and are classified as financial assets at fair value
through profit and loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or derivatives. The
Group determines the classification of its financial assets at initial recognition.
The Group’s financial assets include cash and amounts receivable. Initially they are recognized at fair value and subsequently
measured at amortized cost using the effective interest method. Amortized cost approximates fair value due to the short-term
maturity of these assets. They are included in current assets, except for maturities greater than twelve months after the year-end.
Regular purchases and sales of financial assets are recognized on the trade-date, being the date on which the Group commits to
purchase or sell assets.
Financial assets are derecognized when the rights to receive cash flows from investments and the Group has transferred
substantially all risks and rewards of ownership.
Financial liabilities:
Financial liabilities within the scope of IAS 39 are initially recognised at fair value and are classified as financial liabilities at fair value
through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as
appropriate.
The Group’s current financial liabilities include accounts payable, accrued liabilities, finance leases and loans. Initially they are
recognized at fair value, and subsequently measured at amortized cost using the effective interest method. Amortized cost
approximates fair value due to the short-term maturity of these liabilities. The Group’s non-current financial liabilities include long-
term loans, preference shares and non-current finance leases shown at their carrying values as any differences are not material.
Financial instruments are initially recorded at fair value. The fair values of cash and cash equivalents, miscellaneous receivables,
short-term loans, finance lease and accounts payable and accrued liabilities approximate their recorded amounts because of their
short-term nature. The fair value of long-term loans and non-current finance leases is shown at their carrying values as any
differences are not material.
Cash and cash equivalents
Cash represents cash on hand and demand deposits. Cash equivalents represent short-term, highly liquid investments that are
readily convertible to known amounts of cash and subject to insignificant risk of change in value. Such short-term investments
include treasury bills with original maturities of less than 90 days. Treasury bills with original maturities in excess of 90 days are
classified under short-term investments. Monies held within foreign exchange trading accounts are also recognised as cash
equivalent. Equity investments are excluded from cash equivalents.
Page | 13
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
2. BASIS OF PREPARATION (Continued)
Significant Accounting Policies (Continued)
Income Taxes
The Group uses the asset and liability method of accounting for income taxes, under which deferred income tax assets and
liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement
carrying value of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are
measured using tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The
effect on deferred income tax assets and liabilities of a change in tax rates or laws is recognized as part of the provision for income
tax in the year the changes are considered substantively enacted. Deferred tax benefits attributable to these differences, if any, are
recognized to the extent that the realization of such benefits is more likely than not.
Loss per share
Basic loss per share is computed by dividing loss for the period by the weighted average number of common shares outstanding for
the year.
Share-based payments
The fair value of any stock options granted to directors, officers, consultants and employees is recognized as an expense over the
vesting period with a corresponding increase recorded to contributed surplus. The fair value of share-based compensation is
determined using the Black-Scholes option pricing model and management's assumptions as disclosed in Note 15. An estimate for
forfeitures is made when determining the number of equity instruments expected to vest. Upon exercise of the stock options,
consideration paid by the option holder together with the amount previously recognized in contributed surplus is recorded as an
increase to share capital.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until
such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognized in profit or
loss in the period in which they are incurred.
Prepaid expenses
Prepaid expenses represent payments made or obligations incurred in advance of the receipt of goods or rendering of services.
Prepaid expenses are typically included in other current assets on the consolidated statement of financial position.
Inventories
Inventories consist of fuel, supplies and spare parts to be consumed in exploration activities and are stated at the lower of weighted
average cost and net realizable value.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the agreement at the inception
date.
Finance leases
Finance leases which transfer substantially all the risks and rewards incidental to ownership of the leased item to the Group as a
lessee are capitalized at the commencement of the lease at the fair value of the leased asset or, if lower, at the present value of the
minimum lease payments. Lease payments are apportioned between finance charges and the reduction of the lease liability.
Finance charges are recognized in finance cost in the consolidated statements of earnings. Capitalized leased assets are
depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the
Group will obtain ownership by the end of the term of the lease.
Operating leases
Leases that do not transfer substantially all the risks and rewards incidental to ownership to the Group as a lessee are classified as
operating leases. Operating lease payments are recognized as an expense in the consolidated statements of earnings on a straight-
line basis over the lease term.
Page | 14
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
2. BASIS OF PREPARATION (Continued)
Accounting estimates and management judgments
The preparation of consolidated financial statements in accordance with IFRS requires management to make judgments, estimates
and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results may
differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the
period in which the estimates are revised and in any future periods affected.
The significant areas of estimation and uncertainties considered by management in preparing the consolidated financial statements
include:
Critical judgements in applying accounting policies:
Going concern
Management consider the Group to be a going concern. Although the Group currently has no material cash inflows from
operating activities and has reported a net loss for the year, it has received sufficient funding in order to fund development
and production ramp-up operations and maintain rights under licences and agreements. The Group has secured funding in
the form of long-term loans with a first interest payment due in October 2018 and the first principal repayment due in
September 2020. Management has prepared a cash flow model to December 2019 reflecting the expected cash flows after
the commencement of production expected in April 2018. The key assumptions which underpin this model include silver
prices, the Russian rouble: US dollar exchange rate, the date when commercial production commences, capital
expenditure and operating expenditure budgets as well as production volumes.
Having assessed their cash flow forecast management are of the view that it is appropriate to adopt the going concern
basis of accounting for the financial statements. The cash flow forecast is most sensitive to the date of commercial
production commencement and the production volumes. If the start of commercial production is delayed for more than
three months the Group may be dependent on securing additional financing until such time that it generates sufficient
operating cash flow to meet its liabilities.
Determination of functional currency
Based on the primary indicators in IAS 21 – The Effects of Change in Foreign Exchange Rates – the Russian rouble has
been determined as the functional currency of AO Prognoz, an operating subsidiary of the Group, because the Russian
rouble is the currency that mainly influences labour, material and other costs of providing goods or services, and is the
currency in which these costs are denominated and settled.
Significant management judgment was exercised, since the second primary indicator related to the currency influencing
the sales price is not applicable, as AO Prognoz does not yet generate any revenue. Effects of changes in foreign
exchange rates on the consolidation of the financial statements are recorded in other comprehensive income and carried in
the form of a cumulative translation adjustment in the accumulated other comprehensive income section of the Statement
of financial position of the Group.
The functional currency of Silver Bear Resources Plc, Silver Bear Holdings Ltd, Silver Bear Resources Inc. and Silver Bear
Resources BV has been determined to be the Canadian Dollar reflecting the current principal equity and financing
structure.
Contingencies
Refer to Note 19.
Capitalization of development costs
Management has determined that development costs incurred from 1 July 2015 have future economic benefits and are
economically recoverable. In making this judgement, management assessed various sources of information including the
geological and metallurgical information, scoping and feasibility studies, proximity of operating facilities, operating
management expertise and existing permits.
Page | 15
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
2. BASIS OF PREPARATION (Continued)
Accounting estimates and management judgments (Continued)
Impairment of mineral properties and property, plant and equipment
While assessing whether any indications of impairment exist for mineral properties, consideration is given to both external
and internal sources of information. Information the Group considers includes changes in the market, economic and legal
environment in which the Group operates that are not within its control that could affect the recoverable amount of mineral
properties. Internal sources of information include the manner in which mineral properties are being used or are expected
to be used and indications of expected economic performance of the assets. Estimates include but are not limited to
estimates of the discounted future after-tax cash flows expected to be derived from the Group’s mineral properties, costs to
sell the properties and the appropriate discount rate. Reductions in metal price forecasts, reductions in the amount of
recoverable mineral reserves and mineral resources, and/or adverse current economics can result in a write-down of the
carrying amounts of the Group’s mineral properties.
Management has reviewed and evaluated the existence of impairment triggers and concluded that no impairment triggers
existed as at 31 December 2017. Management have nevertheless assessed the recoverable amount of its mineral
properties and property, plant and equipment by performing a value in use calculation. As at 31 December 2017 the
carrying value of mineral properties and property, plant and equipment was C$86,856,432. Mineral properties and
property, plant and equipment relate to a sole cash generating unit, the Vertikalny silver mine development. The Vertikalny
silver mine development is part of the Mangaseizky combined mine plan for Vertikalny and Mangazeisky North deposits.
The Group currently holds an exploration licence for a number of deposits within the Mangazeisky licence area which
expires in 2023 and a mining licence for the Vertikalny deposit expiring in 2033. The key assumptions used to determine
the value in use are as follows:
Key assumptions
Silver price per ounce (USD)
Discount rate (USD real)
Life of mine (years)
Russian ruble : US dollar exchange rate
17 USD/oz
10%
11
60 Rubles/USD
Management have performed a sensitivity analysis of the value in use future cash flows relating to the reasonably possible
change in silver price, discount and exchange rate. The following sensitivities were calculated:
Key assumptions
Change
Silver price per ounce (USD) aligned with
consensus forecast prices
2018-2019: 18 USD/oz
2020-2021: 19 USD/oz
2022: 20 USD/oz
2023-2028: 19 USD/oz
Net present value
121,509,550
Discount rate (USD real) and silver price
per ounce (USD) aligned with consensus
forecast prices
Russian ruble : US dollar exchange rate
aligned with long-term market forecasts
12%
106,792,829
102,237,450
2018: 58.6
2019: 60.5
2020: 62.8
2021: 64.6
2022-2028: 71.9 on
average
Page | 16
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
2. BASIS OF PREPARATION (Continued)
Accounting estimates and management judgments (Continued)
Key sources of estimation uncertainty:
Depreciation rates
All property, plant and equipment, with the exception of leasehold improvements, are depreciated on a straight line basis
over eleven years (2016: on a straight line basis over three to five years), which the Group believes is the best
approximation of the useful life. As the Group is expecting to go into production next year management have reassessed
the estimated useful life of property, plant and equipment in the current period to align it with the expected term of the life
of the mine. If the useful economic life had been longer than management’s estimate, the carrying amount of the asset
would have been higher.
Rehabilitation provisions and asset retirement obligations
Exploration and development activities carried out by the Group give rise to obligations for environmental rehabilitation.
Significant uncertainty exists as to the amount and timing of associated cash flows and regulatory requirements. A Russian
Central Bank borrowing rate for an 11 year zero coupon year bond is used in discounting future cash flows as a pre-tax
discount rate.
The expected life of the mine is used as the discounting period. If the estimated discount rate used in the calculation had
been higher than the management estimate, the carrying amount of the provision would have been lower and the interest
expense higher.
If the estimated period over which the cash flows associated with the asset retirement obligations are calculated had been
longer than management’s estimates, the carrying amount of the provision would have been lower as would have been the
interest expense.
Share-based payment transactions
The Group records share-based compensation at fair value. The fair value of the grant is determined using the Black-
Scholes options pricing model and management assumptions regarding dividend yield, expected volatility, forfeiture rate,
risk free rate and expected life. Should the underlying assumptions change, it will impact the fair value of the share-based
compensation.
Assets’ carrying values and impairment charges
Subsequent to the identification of an impairment trigger, in the determination of carrying values and impairment charges,
management looks at the recoverable amount of the asset, which is the higher of value in use or fair value less costs to
sell in the case of assets, and at objective evidence of significant or prolonged decline in fair value on financial assets
indicating impairment. These determinations and their individual assumptions require that management make a decision
based on the best available information at each reporting period.
New and amended standards adopted by the Group
The Group has adopted the following annual improvements to IFRS.
IAS 7 – Statement of Cash Flows (“IAS 7”)
The objective of the amendments is to enable users of financial statements to evaluate changes in liabilities arising from financing
activities. The amendments require entities to provide disclosures that enable investors to evaluate changes in liabilities arising from
financing activities, including changes arising from cash flows and non-cash changes. The additional disclosure is provided in Note
11 and Note 13.
IAS 12 – Recognition of Deferred Tax Assets for Unrealized Losses (“IAS 12”)
The IASB published amendments to IAS 12 on 19 January 2016. The amendments, Recognition of Deferred Tax Assets for
Unrealised Losses (Amendments to IAS 12), clarify how to account for deferred tax assets related to debt instruments measured at
fair value. The application of this amendment has had no impact on these financial statements.
Page | 17
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
2. BASIS OF PREPARATION (Continued)
New standards and interpretations not yet adopted
The following new accounting standards and amendments to existing standards and interpretations that have been issued by the
IASB are not yet effective and have not been adopted early by the Group in preparing these financial statements.
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration
IFRIC 22 addresses how to determine the date of transaction for the purpose of determining the spot exchange rate used to
translate foreign currency transactions on initial recognition in circumstances when an entity pays or receives some or all of the
foreign currency consideration in advance of the recognition of the related asset, expense or income.
The interpretation states that the date of the transaction, for the purpose of determining the spot exchange rate used to translate the
related asset, expense or income on initial recognition, is the earlier of the date of initial recognition of the non-monetary
prepayment asset or the non-monetary deferred income liability; and the date that the asset, expense or income is recognized in the
financial statements.
The IFRIC is effective for accounting periods beginning on or after 1 January 2018. The interpretation is not expected to have any
effect on the Group’s consolidated financial statements as this is the same as the policy already being applied.
IFRIC Interpretation 23 Uncertainty over Income Tax Treatments
Issued on 7 June 2017 this IFRIC clarifies how to apply the recognition and measurement requirements in IAS 12 when there is
uncertainty over income tax treatments. The Group does not expect the IFRIC to have a material impact on the Group’s results.
IFRS 9 – Financial Instruments (“IFRS 9”)
IFRS 9 was issued in November 2009 and contained requirements for financial assets. This standard addresses classification and
measurement of financial assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a
new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also
replaces the models for measuring equity instruments, and such instruments are either recognized at fair value through profit or loss
or at fair value through other comprehensive income. Where such equity instruments are measured at fair value through other
comprehensive income, dividends are recognized in profit or loss to the extent not clearly representing a return of investment;
however, other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive
income indefinitely.
Requirements for financial liabilities were added in October 2010 and they largely carried forward existing requirements in IAS 39,
Financial Instruments – Recognition and Measurement, except that fair value changes due to credit risk for liabilities designated at
fair value through profit and loss would generally be recorded in other comprehensive income.
The effective date of the standard is 1 January 2018.
The IASB has also issued an amendment to IFRS 9. The amendment permits more assets to be measured at amortised cost, in
particular some prepayable financial assets. The amendment also confirms that most modifications to a financial liability will result in
immediate recognition of a gain or loss. This is a change from common practice under IAS 39.
The amendment is effective for annual periods beginning on or after 1 January 2019.
The Group does not anticipate any material impact on the Group's results, financial position or disclosures on applying the
classification and measurement requirements of IFRS 9. Application of the expected credit loss model is not expected to have a
material impact on trade receivables measured at amortized cost. The changes in IFRS 9 relating to hedge accounting will have no
impact as the Group does not currently apply hedge accounting.
IFRS 15 – Revenue from Contracts with Customers (“IFRS 15”)
IFRS 15 was issued on 28 May 2014. It provides a principles based five step model to be applied to all contracts with customers.
New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized.
New disclosures about revenue are also introduced. This standard is effective for annual periods beginning on or after 1 January
2018. The Group does not currently have any contracts with customers so there will be no initial impact upon adopting this
standard.
On 12 April 2016, the IASB issued Clarifications to IFRS 15. These amendments do not change the underlying principles; they
clarify and offer additional transitional relief and are applicable for periods beginning on or after 1 January 2018.
Page | 18
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
2. BASIS OF PREPARATION (Continued)
New standards and interpretations not yet adopted (Continued)
IFRS 16 – Leases (“IFRS 16”)
On 13 January 2016, IFRS 16 was issued. This standard sets out the principles for the recognition, measurement, presentation and
disclosure of leases for both parties to a contract. IFRS 16 is effective from 1 January 2019. The Group has completed its
preliminary assessment of the impact and has not identified any material impact. However when the Group completes its
assessments, it may identify other matters in advance of adoption of the standard.
IFRS 2 – Share based payment (“IFRS 2”)
On 20 June 2016, the IASB published final amendments to IFRS 2 that clarify the classification and measurement of share-based
payment transactions. These amendments deal with variations in the final settlement arrangements including: (a) accounting for
cash-settled share-based payment transactions that include a performance condition, (b) classification of share-based payment
transactions with net settlement features, as well as (c) accounting for modifications of share-based payment transactions from
cash-settled to equity.
These changes are effective for annual periods beginning on or after 1 January 2018. The application of this amendment to IFRS 2
is not expected to have any impact on the financial statements.
3. CAPITAL MANAGEMENT AND FINANCIAL RISK FACTORS
The Group manages its capital structure and makes adjustments to it, based on the funds available to the Group, in order to support
the acquisition, exploration and development of precious metal properties.
The Group considers excess cash balances, all the components of shareholders’ equity and loans as capital. The Board of
Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Group’s
management to sustain the future development of the business.
The property in which the Group currently has an interest is in the exploration and development stage; as such the Group is
dependent on external financing to fund ongoing activities.
In order to fund the ongoing development activities, the Group will spend existing working capital and plans to raise additional
amounts as needed through equity and/or debt. The Group will continue to assess new properties and seek to acquire an interest in
additional properties where sufficient geologic or economic potential are noted and if financial resources exist to do so.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size
of the Group, is reasonable.
There were no changes in the Group’s approach to capital management during the year ended 31 December 2017 compared to the
year ended 31 December 2016. The Group is not subject to externally imposed capital requirements.
FINANCIAL RISK FACTORS
The Group’s risk exposures and the impact on the Group’s financial instruments are summarized below:
Credit risk
The Group has no significant concentration of credit risk arising from operations. Cash equivalents consist of interest earning bank
accounts held in banks in Canada and Russia which in the presentational currency total $186,809 and $24,127,593 respectively.
The Group’s Canadian chartered banks have a credit rating of at least A1 (Moody’s) and the Group’s Russian banks have a credit
rating of at least Ba2 (Moody’s).
Miscellaneous receivables and prepaid expenses other than tax refunds due from the Canadian and Russian tax authorities are
insignificant. Management believes that the credit risk concentration with respect to accounts receivable is not higher than the
country credit risk.
Page | 19
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
3. CAPITAL MANAGEMENT AND FINANCIAL RISK FACTORS (Continued)
Liquidity risk
The Group’s approach to managing liquidity risk is to ensure it will have sufficient liquidity to meet liabilities when due by continual
review of budgets and forecasts and discussions with shareholders and other providers of finance as appropriate. The Group’s
current assets and current liabilities are show in the table below:
At 31 December 2017 the Group had total current assets of $43,340,951 (31 December 2016 – $30,976,205) to settle total current
liabilities of $4,360,921 (31 December 2016 – $25,125,112), as well as its commitments outlined in Note 19. Total liabilities of
$135,353,103 include long-term loans totalling $114,531,923 and accrued interest of $13,615,288.
During the year, the Group received an additional US$35m loans from existing shareholders and has increased its long term loans
to $114,531,923 (31 December 2016 – $73,747,793). As at 31 December 2017, the Group had cash balances of $24,314,402 (31
December 2016 – $15,759,123).
The Group had total obligations of $2,764,486 at 31 December 2017 (31 December 2016 – $4,261,280) under a combination of
three and five year leases for equipment in relation to the development of Mangazeisky, as outlined in Note 12.
The contractual maturities of the Group’s financial liabilities (which are all carried at amortised cost) are shown in the table below:
Page | 20
31 December31 December20172016Total current assets43,340,951 30,976,205 Total current liabilities4,360,921 25,125,112 Group CarryingContractual2017amountcash flowsCurrent liabilitiesAccounts payable and accrued liabilities2,931,429 2,931,429 2,931,429 - - - Finance leases1,429,492 1,486,771 743,386 743,385 - - Non-current liabilitiesLong-term loans principal114,531,923 136,784,827 - - - 136,784,827 Long-term loans interest13,615,288 77,055,453 - 10,372,849 41,491,398 25,191,206 Finance leases1,334,994 1,679,939 - - 1,630,690 49,249 Preference shares83,580 83,580 - - - 83,580 133,926,706$ 220,021,999$ 3,674,815$ 11,116,234$ 43,122,088$ 162,108,861$ 6 to 12 months6 months or less 12 to 36 months36 to 72 monthsGroup CarryingContractual2016amountcash flowsCurrent liabilitiesAccounts payable and accrued liabilities2,675,964 2,675,964 2,675,964 - - - Short-term loans principal18,020,577 - - - - - Short-term loans interest2,903,202 - - - - - Finance leases1,525,369 1,570,663 785,331 785,332 - - Non-current liabilitiesLong-term loans principal73,747,793 92,830,129 - - - 92,830,129 Long-term loans interest2,534,544 53,360,350 - 6,943,185 27,772,739 18,644,426 Finance leases2,735,911 3,348,910 - - 1,725,654 1,623,256 104,143,360$ 153,786,016.15$ 3,461,295.44$ 7,728,517.24$ 29,498,393.37$ 113,097,811.10$ 6 months or less 6 to 12 months12 to 36 months36 to 72 months
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
3. CAPITAL MANAGEMENT AND FINANCIAL RISK FACTORS (Continued)
Interest rate risk
The Group has cash balances and interest-bearing debt on short term loans and long term loans at commercial rates. The Group’s
current policy is to invest excess cash in interest-earning bank accounts with Canadian and Russian financial institutions. The
Group periodically monitors the investments it makes and is satisfied with the credit ratings of its banks.
Foreign currency risk
The Group has funded certain exploration, project construction and administrative expenses on a transaction by transaction basis
using U.S. dollar and Russian rouble currency converted from its Canadian dollar bank accounts held in Canada. Recently USD
funding has been provided directly to AO Prognoz in Russia and converted to Russian rouble. This exposes the Group to changes
in foreign exchange rates for both U.S. dollar and Russian rouble.
Group companies have current assets and liabilities in currencies other than their functional currency. Foreign exchange differences
on retranslation of these assets and liabilities are taken to profit or loss. All amounts are shown in their Canadian dollar equivalents.
As the Group’s construction work for the project is still ongoing, management believes it is not appropriate to hedge its foreign
exchange risk at this stage. As the Group’s proportion of project expenditure that is denominated in Russian rouble is increasing,
the effect of changes in foreign exchange rates, in particular the Russian rouble, on the net loss is deemed to be significant as the
number and amount of foreign currency transactions are relatively large. Had the Russian rouble foreign exchange rates been
higher by 5%, the cumulative translation adjustment in the other comprehensive income section of the Statement of Financial
Position would have been higher by $856,039.
4. RECEIVABLES
Deferred Russian Value Added Tax relates to the VAT paid on the costs incurred on the construction of both building and
technological equipment. This VAT can be claimed once the asset the VAT relates to are ready for use. The VAT recognised here is
on assets that are expected to be available for use in 2018 and therefore the asset has been recognised as current.
Page | 21
USDRUBUSDRUBEURGBPCurrent assets:Cash and cash equivalents21,610,586 2,593,561 14,330,326 1,194,530 33- Receivables- 5,174,654 - 5,659,093 - - Inventories- 9,226,581 - 4,219,346 - - Prepaid expenses 32,613 4,456,907 34,233 4,822,745 - 18,220 Total current assets21,643,199 21,451,703 14,364,559 15,895,714 33 18,220 Current liabilities:Accounts payable and accrued liabilities- 2,513,384 6,714 2,239,499 - - Finance leases1,022,360 407,132 1,109,252 416,117 - - Total current liabilities1,022,360 2,920,516 1,115,966 2,655,616 - - 31 December 201631 December 201731 December31 December20172016Russian Value Added Tax1,744,7111,955,847Deferred Russian Value Added Tax3,058,7153,652,007Canadian Harmonized Sales Tax6,11332,804Other454,81051,239Amounts owed from group undertakings - - 5,264,349$ 5,691,897$
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
5.
INVENTORIES
Material and supplies inventories are stated at the lower of weighted average costs and net realizable value. Inventories consist of
the following:
6. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses consist of the following:
Prepaid and other long-term assets consist of the following:
7.
INTANGIBLE ASSETS
Page | 22
31 December31 December20172016Fuel and lubricants3,561,799738,483Parts and supplies5,664,7823,480,8639,226,581$ 4,219,346$ 31 December31 December20172016Insurance16,22342,950Exploration and construction services and goods4,480,2775,144,895Rent and administrative costs39,119117,9944,535,619$ 5,305,839$ 31 December31 December20172016Construction supplies5,474,4786,805,8685,474,478$ 6,805,868$ 31 December31 DecemberSoftware20172016Balance at the beginning of the year - - Additions27,538 - Amortization (7,985) - Balance at the end of the year19,553$ -$
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
8. MINERAL PROPERTY
Mineral property includes the cost of acquiring exploration and mining licenses, as well as the value of assets associated with asset
retirement obligations and capitalised project development costs.
Mineral property consists of the following:
The Group acquired the exploration licence in respect of the Mangazeisky property when it acquired all the shares of AO Prognoz
on 21 October 2004. In September, 2016, the Mangazeisky exploration license was extended by the Federal Subsoil Use Agency in
the Russian Federation (“Rosnedra”) through to 31 December 2023.
In September 2013, the Group acquired the mining license in respect of the Mangazeisky property which is valid for a period of 20
years from the grant date.
The cumulative exploration costs incurred and expensed from inception to date are as follows:
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost, less accumulated depreciation and consist of the following:
Page | 23
31 December31 DecemberMangazeisky20172016Balance at the beginning of the year11,586,9965,640,690Development costs capitalised746,3275,688,903Impact of adjustment to ARO137,9333,876Translation adjustment(36,851)253,527Balance at the end of the year12,434,405$ 11,586,996$ 31 December31 December20172016Mangazeisky $ 66,523,580 $ 66,397,442 CostAccumulated depreciationNet book valueCostAccumulated depreciationNet book valueProperty, plant and equipment: Mangazeisky site79,510,0675,068,04074,442,02745,989,3343,958,14742,031,187 Yakutsk office83,33683,336 - 85,17585,175 - Other office furniture, equipment and leasehold improvements59,62059,620 - 59,62059,620 - 79,653,023$ 5,210,996$ 74,442,027$ 46,134,129$ 4,102,942$ 42,031,187$ 31 December 2017December 31, 2016
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
9. PROPERTY, PLANT AND EQUIPMENT (Continued)
Reconciliation of the carrying amount at the beginning and end of the years ended 31 December 2017 and 2016:
The carrying value of equipment held under finance leases as at 31 December 2017 was $5,070,908 (31 December 2016 -
$5,885,506). The Group acquired capital assets of $34,632,224 during the year ended 31 December 2017.
The additions in the year ended 31 December 2017 include $34,632,224 of assets that are not yet ready for use and as such no
depreciation has been charged on them. In the year ended 31 December 2016 additions included $25,959,241 of assets that were
not yet ready for use, during the year ended 31 December 2017, $5,238,377 of these assets became available for use and
depreciation was charged on them. Leased assets are pledged as security for the related finance lease obligations.
The additions in the year ended 31 December 2017 include capitalised borrowing costs of $9,542,210 (31 December 2016 -
$4,087,105)
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
Page | 24
Property, plant and equipment Assets under construction TotalCarrying amount at 1 January 20161,154,4794,088,5985,243,077Additions8,230,75225,959,24134,189,993Transfers1,785,311(1,785,311) - Disposals(26,152) - (26,152)Depreciation(1,347,556) - (1,347,556)Exchange differences1,014,8262,956,9993,971,825Carrying amount at 31 December 201610,811,660$ 31,219,526$ 42,031,187$ Additions - 34,632,22434,632,224Transfers5,238,377(5,238,377) - Disposal at cost(11,963) - (11,963)Depreciation(1,113,125) - (1,113,125)Depreciation eliminated on disposal3,233 - 3,233Exchange differences(217,246)(882,283)(1,099,529)Carrying amount at 31 December 201714,710,936$ 59,731,091$ 74,442,027$ Mangazeisky site 31 December31 December20172016Trade and other payables1,849,9162,060,302Accrued liabilities414,239453,552Tax and other liabilities667,274162,1102,931,429$ 2,675,964$
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
11. SHORT-TERM LOANS
Movement in short term loans is analysed as follows:
Unifirm are indirectly wholly-owned by Alexey Mordashov, who is also the owner of Aterra Investments Limited, an insider and
related party to the Group. Mr. Boris Granovsky, a director of the Group, is a managing partner of Aterra Capital, a management
company for Aterra Investments Limited. Unifirm Ltd (‘’Unifirm’’) is an affiliate of Aterra. Inflection Management Corp (“Inflection”) is
an insider and related party of the Group. Mr. Alexey Sotskov, a director of the Group, is also a director of Inflection.
(a) Unsecured non-convertible promissory notes
On 2 March 2015, the Group entered into unsecured non-convertible promissory notes with Aterra and with Inflection, pursuant to
which Aterra and Inflection each agreed to lend the Group US$3,500,000 respectively for a total of US$7,000,000. The promissory
notes bear interest at a rate of 15% per year and the principal and accrued interest are payable on the maturity date.
In the second quarter of 2016, the Group obtained waivers from Inflection and Aterra in respect of the default caused by the Group’s
failure to repay on the 31 March 2016 maturity date the principal amounts and accrued interest on these notes. Such waivers
terminated on the earlier of 30 September 2016 and the date on which the notes were repaid in full. Subsequently, on 19
September 2016, the Group replaced all the existing non-convertible loans, including interest, with funds received in accordance
with the Facilities Agreement, the detail of which is in Note 13.
(b) Contingent convertible promissory notes
In October 2015, Aterra and Inflection provided additional loans to the Group of C$2,310,000 and C$3,300,000 respectively. These
additional loans were made under contingent convertible promissory notes that bore interest at 15% per year and had a maturity
date of 31 December 2015 and were contingently convertible into Common Shares of the Group at a price of C$0.075 per Common
Share. These loan notes were consolidated into new convertible loan notes as detailed below (Note 11 (d)).
(c) Convertible promissory note
In November 2015, Inflection advanced a further C$5,610,000 under a convertible promissory note with a maturity date of 31
December 2015 and which was convertible into Common Shares at a price of C$0.045 per Common Share. This note also bore
interest at 15% per year. This loan note was consolidated into the new convertible loan notes as detailed below (Note 11 (d)).
Page | 25
31 December 2017LenderPrincipal Interest Total Unifirm Ltd (formerly A.B. Aterra Resources Ltd)- - - Inflection Management Corp.- - - -$ -$ -$ December 31, 2016LenderPrincipal Interest Total Unifirm Ltd (formerly A.B. Aterra Resources Ltd)4,505,144 723,223 5,228,367 Inflection Management Corp.13,515,433 2,179,979 15,695,412 18,020,577$ 2,903,202$ 20,923,779$ TotalPrincipalInterestPrincipalInterestCAD$CAD$CAD$CAD$CAD$Principal amounts received5,610,00012,210,000- 17,820,000Interest accrued in period - 59,807 - 140,770200,577Consolidation of convertible loan notes59,807(59,807)140,770(140,770) - Revised Convertible loan Principal5,669,807 - 12,350,770 - 18,020,577Interest accrued- 674,854- 1,480,3712,155,225Reassignment of loan(1,164,663)(138,625)1,164,663138,625 - Interest accrued - 635,040 - 1,905,1202,540,160Conversion into Share capital(4,505,144)(1,171,269)(13,515,433)(3,524,116)(22,715,962)As at December 31 2017-$ -$ -$ -$ -$ Unifirm (formerly Aterra)Inflection
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
11. SHORT-TERM LOANS (Continued)
(d) Consolidated convertible loan notes
In December 2015 loan notes from Aterra of C$2,310,000 originally issued in October 2015 (Note 11 (b)), accrued interest thereon
of C$59,807 and an additional loan of C$3,300,000, were consolidated into a new convertible loan note for C$5,669,807 in favour of
Aterra. In September 2016, Aterra reassigned C$1,164,663 of this new convertible loan note, plus interest of C$138,625, to
Inflection.
In December 2015 all convertible loan notes from Inflection with a combined principal amount of C$8,910,000 (Note 11 (b), Note 11
(c)), accrued interest thereon of C$140,770 and an additional loan of C$3,300,000, were also consolidated into a new convertible
loan note with a value of C$12,350,770.
Both these convertible loan notes bore interest at 15% per year, were due to mature on 31 December 2017 and gave the holder the
right to convert the principal and any accrued interest into fully paid Common Shares of the Group at a conversion price of C$0.045
per Common Share. Management considered 15% per year to be the prevailing market rate on loans that do not have an
associated equity conversion option; accordingly all of the principal is recognised as a liability.
In August 2017, both Aterra and Inflection exercised their right to convert the full value of these loan notes and interest. At the date
of conversion the total value of the principal and interest was $22,715,962 which was converted at $0.045 per share resulting in the
issue of 504,799,162 shares
(e) Contingent non-convertible loan note
In December 2015, Inflection also paid C$3,300,000 as consideration for the Group issuing a contingent non-convertible loan note
bearing interest at 15% and maturing on 31 December 2016; the loan note was issued on 11 January 2016. This loan was replaced
on 19 September 2016 along with all interest of C$377,014 incurred up to that date and by new loans (Note 13).
(f) Unsecured contingent non-convertible promissory notes
In March 2016, Aterra and Inflection provided additional loans to the Group of US$5,500,000 and US$14,500,000 respectively.
These additional loans were made under unsecured contingent non-convertible promissory notes that bore interest at 15% per year
and had a maturity date of 31 December 2016. These loans were replaced on 19 September 2016 along with interest of
US$1,543,356 incurred up to that date by new loans (Note 13).
12. FINANCE LEASES
In 2016, the Group entered into long term lease agreements for the purchase of equipment in relation to the development of the
Mangazeisky project payable in monthly instalments of circa US$85,000. The lease payments have been discounted at rates of
between 9.5% and 21.9%. The Group made down payments of between 0.4% and 33.6% of the cost of the equipment.
Future minimum lease payments under finance leases, together with the present value of the net minimum lease payments, are as
follows:
Page | 26
31 December31 December20172016Within one year1,425,9991,376,996Within two to five years1,740,7113,736,0053,166,7105,113,001Future finance charges on finance leases(402,224)(851,721)Present value of the net lease payments2,764,4864,261,280Current portion1,429,4921,525,369Long-term portion1,334,9942,735,911Total obligations under finance leases2,764,486$ 4,261,280$
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
13. LONG-TERM LOANS
Movement in long term loans is analysed as follows:
On 5 September 2016, the Group entered into a Facilities Agreement (the “Facilities Agreement”) and certain related security
documents with the Lenders, to provide financing for the final development, construction and commissioning of the Group’s
Mangazeisky Silver Project (the “Project”).
Pursuant to the Facilities Agreement, the Lenders have made available to Silver Bear Resources Inc secured loans in the aggregate
principal amount of US$54.9 million comprising three tranches (”Secured Loan Funding”). Tranche A consisted of a term loan facility
of US$42.9 million, of which Inflection has provided US$30.4 million and Aterra has provided US$12.5 million (the “Term Loan
Facility”). Of the US$42.9 million total Tranche A commitment, US$32.9 million was made available to Silver Bear Resources Inc
with the remaining US$10.0 million being made available to Prognoz (collectively “Tranche A”). On 28 December 2016, a set off
agreement was entered into resulting in the amounts due to the Lenders by the Silver Bear Resources Inc under the Facilities
Agreement, plus the accrued interest, becoming due by Prognoz instead.
The Lenders have also made available to Prognoz, the Tranche B working capital facility of US$10.0 million (the “Working Capital
Facility”) and the Tranche C contingent facility of US$2.0 million (the “Contingent Facility”, and together with the Working Capital
Facility, the “Additional Facilities”).
A portion of the Term Loan Facility (US$32,924,995) has been used by the Group to replace the principal and accrued interest for
all outstanding non-convertible notes previously issued by the Group to the Lenders described above (Note 11 (a), Note 11 (e),
Note 11 (f)).
On 28 March 2017, the Group concluded formal agreements with the Lenders to increase the Facilities Agreement by a further
US$15 million (“Facilities Agreement Increase”). Under the Facilities Agreement Increase, the lenders have agreed to provide an
additional working capital tranche of US$10 million to meet expenses during the rescheduled ramp-up plus a discretionary US$5
million cost over-run tranche, should that be required. No other principal terms of the existing project facilities have been changed.
On 19 April 2017, the Group received US$10 million of this additional working capital. On 8 August 2017, the Group received the
remaining US$5 million of the additional working capital.
On 7 November 2017, the Group entered into an amended Facility Agreement relating to the above. Under this agreement, the
lenders have agreed to provide an additional US$20 million of working capital which was drawn down on 15 November 2017.
Page | 27
31 December 2017LenderPrincipal Interest Total Unifirm Ltd (formerly A.B. Aterra Resources Ltd)24,589,758 3,504,807 28,094,564 Inflection Management Corp.89,942,165 10,110,481 100,052,647 114,531,923$ 13,615,288$ 128,147,211$ December 31, 2016LenderPrincipal Interest Total Unifirm Ltd (formerly A.B. Aterra Resources Ltd)19,035,716 721,610 19,757,326 Inflection Management Corp.54,712,077 1,812,934 56,525,011 73,747,793$ 2,534,544$ 76,282,337$ TotalPrincipalInterestPrincipalInterestUSDUSDUSDUSDUSDPrincipal amounts received9,000,000 - 20,502,085 - 29,502,085 Interest accrued in period- 1,177,192 - 2,245,718 3,422,910 Consolidation of individual loans into Facilities Agreement1,177,192 (1,177,192) 2,245,718 (2,245,718) - Initial principal amount of Facilities Agreement10,177,192 - 22,747,803 - 32,924,995 Interest accrued- 424,050 - 947,825 1,371,875 Reassignment of loan to subsidiary424,050 (424,050) 947,825 (947,825) - Additional principal received9,000,000 - 48,000,000 - 57,000,000Interest accrued - 2,793,788 - 8,059,37110,853,159As at December 31 2017 (USD)19,601,2422,793,78871,695,6288,059,371102,150,029As at December 31 2017 (CAD)24,589,758$ 3,504,807$ 89,942,165$ 10,110,481$ 128,147,211$ Unifirm (formerly Aterra)Inflection
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
13. LONG-TERM LOANS (Continued)
The Secured Loan Funding accrues interest at a rate of 15% per annum, calculated and accrued quarterly, and is payable on 1
January, 1 April, 1 July and 1 October in each calendar year and on the maturity date, being 20 March 2022. Pursuant to the terms
of the Facilities Agreement, all interest accrued before 1 July 2018 will be capitalized and added to the principal amount of the Term
Loan Facility such that the first interest payment under the Facilities Agreement would therefore be in respect of the quarterly period
ending 1 October 2018.
The Secured Loan Funding is secured and the parent and subsidiaries of the Group will act as guarantor of each other’s obligations
under the Facilities Agreement and all related security documents.
As at 31 December 2017 this Secured Loan Funding has accrued interest of C$13,615,288.
14. PROVISION FOR DECOMMISSIONING AND RESTORATION LIABILITY
The Group’s mining, exploration and development activities are subject to various governmental laws and regulations relating to the
protection of the environment. These environmental regulations are continually changing and are generally becoming more
restrictive. The Group has made, and intends to make in the future, expenditures to comply with such laws and regulations. The
Group has recorded a liability and corresponding asset for the estimated future cost of reclamation and closure, including site
rehabilitation and long-term treatment and monitoring costs, discounted to net present value. Such estimates are, however, subject
to change based on negotiations with regulatory authorities, or changes in laws and regulations.
The Group’s provision for decommissioning and restoration liability consists of management’s best estimate of reclamation and
closure costs for the Mangazeisky project.
Significant reclamation and closure activities include land rehabilitation, demolition of buildings and site facilities and other costs
defined by the license requirements.
Asset retirement obligation consists of the following:
At 31 December 2017, the expected life of the Mangazeisky project has been assessed to be 11 years. The projected cost for
reclamation and closure of the Mangazeisky project in 2028 has been estimated to be $3,226,000. A Russian Government 11 year
zero coupon year bond of 7.70% (2016: 8.35%) has been used in discounting of future cash flows.
15. SHAREHOLDERS’ EQUITY
Common shares
Authorized: Unlimited number of common shares and preferred shares issued with a par value of £0.001 and £1 respectively. As of
31 December 2017 1,000 preference shares were held in treasury (2016: nil).
All issued shares are fully paid. Reconciliation of the number and value of common shares at the beginning and end of the year
ended 31 December 2017 and 2016:
Page | 28
31 December31 December20172016Balance at the beginning of the year1,172,643 918,910 Accretion expense144,435 79,524 Impact of change to underlying cost estimate610,998 14,754 Impact of rates adjustment(473,066) (10,878) Translation adjustment(28,613) 170,333 Balance at the end of the year1,426,397$ 1,172,643$ Number of common shares$Number of common shares$Balance - Beginning of the year162,930,351 98,684,330 161,327,017 98,277,254 Issued upon conversion of loan note504,799,162 815,806 - - Issued under stock option plan318,000 52,198 1,603,334 407,076 Shares issued on incorporation1,000 2 - - Balance - End of the year668,048,513 99,552,335 162,930,351 98,684,330
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
15. SHAREHOLDERS’ EQUITY (Continued)
Convertible loans
On 30 August 2017, the Group was notified by its major shareholders, Aterra and Inflection, of their intention to convert their
respective outstanding convertible promissory notes (the “Notes”). The Aterra and Inflection Notes represented C$4,505,144 and
C$13,515,432 principal amount respectively, in addition to their respective accrued and unpaid interest.
Prior to the conversion, Aterra held 40,468,579 common shares of the Group, representing 24.8% of the Group’s then shares
outstanding and Inflection held 41,176,471 common shares of the Group representing 25.2% of the Group’s then shares
outstanding. After the conversion of the principal amount of the Notes and accrued and unpaid interest thereon, the Group now has
an aggregate of 668,048,513 common shares outstanding. Of these, Aterra holds 166,611,092 common shares, representing
24.94% of the total issued and outstanding common shares and Inflection holds 419,833,120, representing 62.84% of the total
issued and outstanding common shares.
Share Bonus Plan
In June 2013, the shareholders of the Group approved a share bonus plan whereby an aggregate of up to 2,500,000 common
shares of the Group have been reserved for issuance to officers, directors and employees of the Group.
On 8 June 2016, the board of directors resolved, and the Group obtained approval from the TSX and the shareholders, an
amendment to the Share Bonus Plan to increase the maximum number of Common Shares available for issuance under such plan
from 2,500,000 to 5,400,000.
On 22 August 2013, the board approved the issuance of up to 1,100,000 common shares and on 21 February 2014 the allocation
issuance of up to a further 1,375,000 common shares pursuant to the share bonus plan, subject to the terms of the share bonus
plan and final approval by the President and Chief Executive Officer (“CEO”) prior to issuance on or about the following dates:
1 October 2013
1 January 2014
1 April, 2014
1 July 2014
1 October 2014
1 January 2015
Total
-
-
-
-
-
-
275,000 common shares
275,000 common shares
618,750 common shares
618,750 common shares
293,750 common shares
237,500 common shares
2,318,750
The total number of bonus shares that are currently issued under the share bonus plan is 2,318,750. As shareholders approved an
aggregate of up to 5,400,000 common shares for issuance, a further 3,081,250 common shares may be issued under the share
bonus plan as at 31 December 2017.
Stock options and warrants
The Group has a stock option plan which is intended to provide an incentive to officers, employees, directors and consultants of the
Group. Stock options are granted from time to time and the option price is determined by the Compensation Committee of the Board
of Directors at its sole discretion but shall not be less than the closing price of the Group’s common stock on the Toronto Stock
Exchange (“TSX”) on the last trading date preceding the date of the grant. The term of each option is granted for a period not
exceeding five years from the date of the grant. Except as expressly provided for in the option holder’s employment, consulting or
termination contract, the option holder may exercise the option to the extent exercisable on the date of such termination at any time
within twelve months after the date of termination.
The maximum aggregate number of Shares reserved by the Group for issuance and which may be purchased upon the exercise of
all options granted under its option plan together will all shares reserved for issuance under the share bonus plan must not exceed
10% of the outstanding Shares (on a non-diluted basis) issued and outstanding at the time of the granting of the options.
On 18 May 2016, 2,900,000 options were granted to directors, officers and consultants of the Group. The exercise price of the
options is $0.19 per option. Granted stock options vest immediately on the day of grant and expire on 18 May 2021.
As at 31 December 2017, the total number of options available for issue was 66,804,751. A total of 55,957,335 options or shares for
issuance under the share bonus plan (subject to a maximum of 3,081,250 common shares that can be issued under the share
bonus plan as at 31 December 2017) are available for future issue as at 31 December 2017.
Page | 29
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
15. SHAREHOLDERS’ EQUITY (Continued)
Stock options and warrants (Continued)
During the year ended 31 December 2017, options generated a share based payments expense of $2,169,972 (31 December
2016: $527,762). The fair value of options is estimated on the date of grant using the Black-Scholes option pricing model. Where
relevant, the expected life used in the model has been adjusted based on management’s best estimate for the effects of non-
transferability and exercise restrictions (including the probability of meeting market conditions attached to the option). Expected
volatility is based on the historical share price volatility over the past 4 years. The expected life of the option was calculated based
on the history of option exercises.
Reconciliation of the number of options at the beginning and end of the year ended 31 December 2017 and 2016 follows:
As at 31 December 2017, the Group had share options outstanding and exercisable as follows:
Contributed surplus consists of the following:
Page | 30
Weighted averageWeighted averageexercise price,$exercise price, $Balance - Beginning of the year9,221,666 0.2410,140,000 0.33Granted18,000,000 0.242,900,000 0.19Exercised(318,000) 0.19(1,603,334) 0.18Expired / Cancelled / Forfeited (375,000) 0.65(2,215,000) 0.64Balance - End of the year26,528,666 0.24 9,221,666 0.24 31 December 201731 December 2016NumberNumberWeighted averageWeighted averageexercise price,$exercise price, $2018300,000 0.24 300,000 0.24 20195,746,666 0.24 5,746,666 0.24 20212,482,000 0.19 2,482,000 0.19 202218,000,000 0.24 18,000,000 0.24 26,528,666 0.24 26,528,666 0.24 Expiry yearOutstandingExercisableNumberNumber31 December31 December20172016Balance - Beginning of the year14,578,15714,173,136Share-based payments2,169,972527,762Exercised options(51,675)(122,741)Balance - End of the year16,696,454$ 14,578,157$ Group
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
15. SHAREHOLDERS’ EQUITY (Continued)
Stock options and warrants (Continued)
Share purchase warrant transactions are summarized as follows:
At 31 December 2017, there were no warrants outstanding.
The fair value of warrants had been estimated on the date of grant using the Black-Scholes pricing model with the following
assumptions: risk free rate of return 1.17%, volatility of 116.2% and expected life of 3 years.
Loss per share
The calculation of the basic and diluted loss per share attributable to the owners of the Group is based on the following data. As a
result of net losses in each of the periods, the potential effect of stock options and convertible loan notes has not been included in
the calculation of loss per share because to do so would be anti-dilutive.
16. RELATED PARTY DISCLOSURES
(a) Goods and services
The Group has appointed TechnoNICOL Corporation (“TechnoNICOL”), a company controlled by the same beneficial owner of
Inflection, a major shareholder of the Group, to provide services specific to the Mangazeisky Project. In accordance with contracts
entered into as at 31 December 2017, TechnoNICOL has provided goods to the value of RUB 13,236,185 (C$287,960) excluding
VAT.
During the year ended 31 December 2017 and 2016 the Group entered into transactions for goods and services with the following
related parties:
At the end of the reporting period, the Group was owed from TechnoNICOL C$2,146 (31 December 2016: C$Nil) for services
provided. There were no other balances outstanding at the end of the reporting period related to goods and services received from
related parties.
(b) Financing transactions
The Group has entered into a series of financing transactions with major shareholders. Refer to notes 11 and 13.
The Group was required to reimburse Aterra for legal fees incurred in relation to the lending agreements in the year of C$142,259
(31 December 2016: C$183,045).
Page | 31
Weighted averageWeighted averageexercise price,$exercise price, $Balance - Beginning of the year- - 3,522,498 0.33 Expired / Cancelled / Forfeited - - (3,522,498) - Balance - End of the year- - - - Number of share purchase warrantsNumber of share purchase warrants31 December 201731 December 201631 December 31 December 20172016Net loss(8,824,740)(9,848,211)Weighted average number of common shares outstanding331,796,154161,835,587Basic and diluted loss per share(0.03)$ (0.06)$ 31 December31 DecemberGoods and services received from (provided to):20172016TechnoNICOL Corporation287,960283,418287,960$ 283,418$ Goods and services received
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
16. RELATED PARTY DISCLOSURES (Continued)
(c) Compensation of key management
Key management includes the Group’s directors and officers. Compensation awarded to key management comprised:
As at 31 December 2017 the Group owed key management $85,797 (31 December 2016: $290,554) for fees and bonuses payable
in accordance with contracts and agreements.
The amounts set out in the above table includes employee costs relating to Silver Bear Plc for $112,671 (31 December 2016: $nil)
and remuneration in respect of the highest paid director as shown in the table below:
(d) Interest in other entities
All subsidiary undertakings have been included in the consolidation. The voting rights in the subsidiary undertakings are in
proportion to the amount of shares held.
The prinicipal activites of the company’s subsidaries are as follows:
Silver Bear Resources Inc. – holding company;
Silver Bear Holdings Limited – holding company;
Silver Bear Resources B.V. – holdings company;
AO Prognoz - acquisition, exploration, evaluation and development of precious metal properties.
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-
-
-
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31 December31 December20172016Salaries, fees and short-term employee benefits785,2381,164,624Termination payments126,25230,000Share-based payments2,169,972527,7623,081,462$ 1,722,386$ 31 December31 December20172016Emoluments297,867 648,675 Share options exercised - 219,333 297,867$ 868,009$ GroupCompany%%Ordinary RUB 10,000 shares-100100-100100100-Ordinary CAD 120,863,139 sharesAO Prognoz Description of shares heldProportion ofnominal value ofissued shares held by:Name of subsidiary undertaking Registered address/ Principal place of businessSilver Bear Resources B.V.Whitepark House, White Park Road, Bridgetown, BB11135, BarbadosSilver Bear Holdings LimitedSuite 2500, 120 Adelaide Street West, Toronto, Ontario, Canada, M5H 1T1Silver Bear Resources Inc.Zekeringstraat 21 B, 1014 BM, Amsterdam36/1 Ordzhonikidze Street, Yakutsk, Republic of Saha (Yakutia), 677000, Russian FederationOrdinary USD 58,442,152 sharesOrdinary CAD 2,833,801 shares
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
17. EXPENSES BY NATURE
The following table provides the breakdown of Group’s expenses by nature.
Expenses relating to the development and construction of the Mangazeisky Project have been capitalised from 1 July 2015. This
means that certain categories of expenses are no longer charged to the income statement.
As at 31 December 2017 depreciation of property, plant and equipment totalling $523,690 has been capitalised on the basis that the
equipment being depreciated is being used in the construction of the Mangazeisky Project.
Compensation of key management personnel is presented in Note 16. Employee benefits relating to the construction of the
Mangazeisky Project are capitalised within mineral properties. Employee benefits expensed for the year ended 31 December 2017
and 2016 consisted of the following:
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31 December31 December20172016Employee compensation3,558,1881,772,879Exploration & evaluation334,3662,658,561Depreciation589,434363,373Amortisation7,985 - Geological & environmental studies - 534,204Professional fees1,385,4621,373,405Auditors' remuneration - Audit fees205,034171,354Auditors' remuneration - Non-audit fees235,406165,579Office expenses118,26875,986Travel expenses268,201218,723Accretion expense144,43579,524Interest expense5,988,6464,670,910Foreign exchange(5,631,136)(2,968,587)Loss on disposal of fixed assets2,84026,152Amounts written off439,650 - Investor relations expenses444,954432,347Other expenses1,347,936275,5319,439,668$ 9,849,942$ 31 December31 December20172016Salaries, fees and short-term employee benefits1,863,8711,456,922Employee compensation costs capitalised(601,907)(241,805)Termination payments126,25230,000Share-based payments2,169,972527,7623,558,188$ 1,772,879$
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
18. NET CHANGE IN NON-CASH WORKING CAPITAL
Net change in non-cash working capital consists of the following:
19. CAPITAL COMMITMENTS AND CONTINGENCIES
As at 31 December 2017 the Group entered into long-term lease agreements for the purchase of additional necessary equipment.
Minimum lease payments under finance lease agreements are presented in Note 12.
The Group is party to certain management contracts and severance obligations. These contracts contain clauses requiring that
additional payments of up to $430,000 be made upon the occurrence of certain events such as a change of control. As the
likelihood of these events taking place is not determinable, the contingent payments have not been reflected in these consolidated
financial statements.
The Group may be involved in legal proceedings from time to time, arising in the ordinary course of its business. The amount of
ultimate liability with respect to these actions will not, in the opinion of management, materially affect the Group’s financial position,
results of operations or cash flows. There were no material outstanding legal proceedings as of 31 December 2017.
20. SEGMENTED INFORMATION
The Group has one operating segment based on geographical location being the property in the Russian Federation (Mangazeisky).
The Corporate balances are provided below to allow reconciliation back to the primary statements.
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31 December31 December20172016Receivables1,536,707(4,561,998)Inventories(5,098,336)(3,034,323)Prepaid expenses312,513(2,961,432)Accounts payable and accrued liabilities(216,507)616,807(3,465,623)$ (9,940,947)$ As at 31 December 2017Country/PropertyCashInventoriesPrepaidReceivablesMineral PropertiesProperty plant and equipmentDepreciationInterest expenseNet (profit)/loss for the yearRussia - Mangazeisky24,127,5939,226,5819,931,3845,174,65412,434,40574,442,027589,4345,035,033(1,288,525)Corporate186,809 - 78,71389,695 - - - 953,61410,113,26524,314,402$ 9,226,581$ 10,010,097$ 5,264,349$ 12,434,405$ 74,442,027$ 589,434$ 5,988,647$ 8,824,740$ As at 31 December 2016Country/PropertyCashInventoriesPrepaidReceivablesMineral PropertiesProperty plant and equipmentDepreciationInterest expenseNet loss for the yearRussia - Mangazeisky10,407,4984,219,34611,982,1905,659,09311,586,99642,031,187363,373875,7074,502,269Corporate5,351,625 - 129,51732,804 - - - 3,795,2025,345,94215,759,123$ 4,219,346$ 12,111,707$ 5,691,897$ 11,586,996$ 42,031,187$ 363,373$ 4,670,909$ 9,848,211$
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
21. FINANCIAL INSTRUMENTS
Financial instruments measured at fair value on the consolidated statements of financial position are classified into one of three
levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of
the fair value hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
Level 3 – Inputs that are not based on observable market data.
The Group’s current financial instruments consist of cash, restricted cash, accounts receivable, short-term loans, finance leases and
accounts payable and accrued liabilities. The fair value of these financial instruments approximates their carrying values due to the
short-term nature of these instruments. The Group’s non-current financial instruments consist of long-term loans, finance leases and
preference shares. The fair value of these instruments approximates their carrying values as any differences are not material.
Financial assets and financial liabilities as at 31 December 2017 and 2016 were as follows:
The carrying value of cash equivalents, amounts receivable, short-term loans, long-term loans, accounts payable and accrued
liabilities and finance leases reflected in the consolidated statement of financial position approximate fair value.
22. INCOME TAXES
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As at 31 December 2017Loans and receivablesOther liabilitiesTOTALCash and cash equivalents24,314,402 - 24,314,402 Accounts receivable454,810 - 454,810 Short-term loans- - - Long-term loans- 128,147,211 128,147,211 Accounts payables and accrued liabilities- 2,350,666 2,350,666 Finance leases- 2,764,486 2,764,486 Preference shares- 83,580 83,580 As at 31 December 2016Loans and receivablesOther liabilitiesTOTALCash and cash equivalents15,759,123 - 15,759,123 Accounts receivable51,239 - 51,239 Short-term loans- 20,923,779 20,923,779 Long-term loans- 73,747,793 73,747,793 Accounts payables and accrued liabilities- 2,675,506 2,675,506 Finance leases- 4,261,280 4,261,280 20172016Current tax expense2,33844,718Total tax expense2,33844,718
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2017 and 2016
22. INCOME TAXES (Continued)
Reconciliation between tax expense and the product of accounting loss multiplied by the Corporation's domestic tax rate is as
follows:
The 2017 statutory tax rate of 20% changed from 26.5% as a result of Silver Bear Resources Plc becoming the parent the company
of Silver Bear Resources Inc. Silver Bear Resources Plc is a corporate tax resident in Russia.
The Group offsets tax assets and liabilities if and only if it has a legally enforceable right to set off the current tax assets and current
tax liabilities or deferred tax assets and liabilities and they relate to taxes levied by the same tax authority.
At 31 December 2017, Silver Bear Resources Inc. has the unclaimed non-capital losses that expire as follows:
In addition, AO Prognoz has approximately $8,647,278 (2016 – $625,482) of non-capital losses for Russian income tax purposes
that expire at the end of the years 2017 through 2027 (2017 through 2026).
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20172016Loss before taxation(8,824,740)(9,848,211)Statutory tax rate20.00%26.50%Tax benefit of statutory rate(1,764,948)(2,609,776)Expenses not deductible for income tax purposes618,164834,588Tax effect of unrecognized temporary difference1,158,4502,218,213Losses not previously recognized - 1,317,559Foreign tax rate differential(11,666)(1,715,866)Silver Bear Holdings Ltd final tax obligation2,338 - Total tax expense2,33844,718Expiry DateAmount20262,104,195$ 20272,934,330$ 20283,240,724$ 20293,527,150$ 20302,401,498$ 20313,109,109$ 20322,484,534$ 20332,076,956$ 20342,669,955$ 20354,888,144$ 203610,844,222$ 20374,871,278$ 45,152,095$