ANNUAL REPORT AND ACCOUNTS
Registered Number: 10669766 (England and Wales)
For the year ended 31 December 2019
(Expressed in Canadian dollars)
Silver Bear Resources Plc
Directors’ Responsibility for Financial Reporting
For the Year Ended 31 December 2019
The consolidated financial statements of Silver Bear Resources Plc and its wholly-owned subsidiaries, Silver Bear
Resources Inc., Silver Bear Resources B.V. and ZAO Prognoz are collectively referred to as the “Group” 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 BDO LLP UK, Chartered Accountants and their report
outlines the scope of their examination and gives their opinion on the consolidated financial statements.
“Vadim Ilchuk”
_______________________________
Vadim Ilchuk
Director, President, Chief Executive Officer
and Interim Chief Financial Officer
“Maxim Matveev”
_______________________________
Maxim Matveev
Director
Toronto, Ontario, Canada
02 April 2020
Page | 2
Independent auditor’s report to the shareholders of Silver Bear Resources Plc
Report on the audit of the consolidated financial statements
Opinion
We have audited the financial statements of Silver Bear Resources Plc (the ‘parent company’) and its subsidiaries (the ‘Group’) for
the year ended 31 December 2019 and 31 December 2018 which comprise the consolidated statement of comprehensive loss,
consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows and
notes to the financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting
Standards (IFRSs). Our audit opinion does not cover the parent company financial statements.
In our opinion the financial statements:
•
•
present fairly, in all material respects, the financial position of the Group as at 31 December 2019 and 31 December 2018
its financial performance and its cash flows for the years then ended: and
have been properly prepared in accordance with IFRS as issued by the IAASB.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs) as issued by IAASB and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements
section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of
the financial statements, including the International Ethics Standards Board for Accountants’ Code of Ethics for Professional
Accountants as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty related to going concern
We draw attention to note 2 to the financial statements, which indicates the directors’ considerations over going concern, and in
particular the potential impact of the current COVID-19 pandemic. As stated in note 2, these events or conditions indicate that a
material uncertainty exists that may cast significant doubt on the Group and Parent Company’s ability to continue as a going
concern. Our opinion is not modified in respect of this matter.
We have highlighted going concern as a key audit matter based on our assessment of the significance of the risk and the effect on
our audit strategy.
Our audit procedures in response to this key audit matter included:
Assessing and sensitising revenues, costs and production assumptions, included in the Group cash flow forecast, based on past
performance in 2019, current performance in 2020 and in line with the original feasibility study.
Challenging and agreeing key Management assumptions in the cash flow forecast to the latest approved life of mine plans and
budget. Key estimates such as silver price and discount rate were agreed through to market benchmarks and empirical industry
data.
Agreeing post year end cash balances to supporting bank information.
Discussing with and challenging Management and the Directors, both on the current and potential future impact of the business
from COVID-19. We agreed these explanations to both our knowledge of the operations from our site visit and wider audit work and
to current public information regarding the impact of COVID-19 in Russia.
Reviewing the conditions attached to the shareholder’s loan facility, including future repayments and their inclusion within the cash
flow forecasts.
Page | 3
Reviewing and considering the adequacy of the disclosure within the financial statements relating to the Directors’ assessment of
the going concern basis of preparation.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition
to the matter referred to in the Material uncertainty related to going concern section above, the following matters were identified:
Key audit matter
Carrying value of Mineral Properties and Plant and Equipment
The Group’s project mining assets, including capitalised mineral property, intangible assets and property, plant and
equipment represent the Group’s most significant assets. Details regarding these assets have been disclosed within note
9 and 10.
The Mangazeisky silver mine declared commercial production during the 2019 financial year and is ramping up to full
production capacity. As at the year end, Management are required to assess whether there are any indicators that the
assets may be impaired in accordance with the requirements of applicable accounting standards. We considered there to
be a significant risk of material misstatement given the value attributed to these assets and the significant management
judgement involved in this assessment. This judgement is disclosed in note 2.
How our audit addressed the key audit matter:
Visited the Mangazeisky mine site to understand the operations, check the existence of the assets and discuss future mine
operating plans with technical management.
Obtained, reviewed and sensitised the key inputs in Management’s discounted cash flow forecast (life of mine model),
checking that key inputs such as the silver price, production and mining costs, recovery, capital expenditure and discount
rate were reasonable and within an acceptable range. For key inputs such as silver price and discount rate these have
been benchmarked against publically available third party information. The operational estimates have been compared to
historic and post year end performance and relevant information contained in the original pre-feasibility study.
Agreed the resources used in the life of mine model back to the current mineral resources statement included in the
original feasibility study. Discussed with both technical management and the group’s third party consultant the impact of
ongoing assessments of the reserves and resources and checked that these had been appropriately included in the
impairment assessment.
Assessed the independence and competency of the expert who prepared the original reserve statement included in the
feasibility study.
Tested the mathematical accuracy of the model and checked that the basis of preparation was in line with our
expectations and an accepted valuation methodology for a discounted cash flow.
Reviewed and assessed the adequacy of the disclosures in the financial statements to check that they were in accordance
with the requirements of applicable accounting standards.
Key Observations
Based on our procedures we consider that Management’s conclusion that no impairment charge was required as at 31
December 2019 is supported by the underlying models. We found the judgments and estimates applied by Management in
preparing the forecasts to be reasonable.
Page | 4
Key audit matter
Depletion of the Mineral Properties and Property, Plant and Equipment
The key judgements made by Management in assessing the depletion of Mineral Properties and Property, Plant and
Equipment are disclosed in note 2.
The Mangazeisky mine entered commercial production during the 2019 financial year and this is the first period in which
depletion has been calculated. We considered there to be a significant risk of material misstatement given the significant
value attached to the assets and the key judgments applied in calculating the depletion.
How our audit addressed the key audit matter:
Checked the mathematical accuracy of Management’s unit of production depletion calculation.
Agreed the reserves used in the calculation to the original reserve statement used in the feasibility study. We assessed
the competent person who performed the reserve assessment for independence and competency.
Production figures used in the calculation were agreed to production data and other areas of our audit work to check
consistency.
Agreed Management’s assessment of future capital spend to extract the reserves, included in the calculation, to current
budgets and the original feasibility plan.
Reviewed and assessed the adequacy of disclosure of the depletion accounting policy and key judgements applied.
Key Observations
Based on procedures performed we found Management’s depletion calculation to be reasonable and supported by reserve
and production data.
Key audit matter
Carrying value of Silver Inventory
The details of the Group’s Silver Inventory, including Run of Mine (ROM), Silver in Circuit and Finished Product, is
disclosed in note 5 and relevant accounting policies in note 2.
There are key judgements that Management applies in the valuation of Silver Inventory including the allocation of costs
and the use of survey and metallurgical experts to assess the silver content. We considered there to be a significant risk
of material misstatement given the judgements applied and the value attributed to these assets on the statement of
financial positon.
Page | 5
How our audit addressed the key audit matter:
Attended the year end stock count on the mine site which included the survey of ROM stockpiles and metallurgical
assessment of silver in circuit to observe the controls in place and whether procedures undertaken were in accordance
with the instructions issued.
Assessed the competency of the internal experts used by Management to survey the stockpiles and calculate the mineral
content within the silver in circuit.
Agreed the existence of finished product to statements from the third party refineries.
Assessed the reasonableness of the cost allocation into the inventory calculations, including the allocation of depreciation
through agreeing a sample of these costs to supporting documentation (invoices and mining/production data) as part of
our wider audit testing.
Undertaken cost verses Net Realisable Value testing, based on post year end pricing and appropriate costs to move the
product through to saleable material, to check that silver inventory has been recognized in accordance with applicable
accounting standards.
Key Observations
Based on procedures performed, we found Management’s judgement in determining the existence and valuation of Silver
inventory to be reasonable.
Other information
The Directors are responsible for the other information including the Management Discussion and Analysis (MDA). The other
information comprises the information included in the annual report and accounts, other than the financial statements and our
auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we
are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial statements
As explained more fully in the Directors responsibilities statement, the directors are responsible for the preparation and fair
presentation of the financial statements, and for such internal control as the directors determine are necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either
intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing
(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 financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the
audit. We also:
•
perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and
Page | 6
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in
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.
•
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
•
disclosures made by the directors.
•
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 auditor’s report to the related disclosures in the 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.
•
the 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 financial statements. We are responsible for the direction, supervision and performance of
the Group audit. We remain solely responsible for the audit opinion.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether
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 financial statements of the current period and are therefore the key audit matters. We describe these matters in our
auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditors’ report is Matt Crane.
BDO LLP
Chartered Accountants
London, UK
2 April 2020
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Page | 7
Silver Bear Resources Plc
Consolidated Statement of Financial Position
(Canadian dollars)
ASSETS
Non-current assets
Property, plant and equipment
Mineral property
Intangible assets
Prepaid non-current assets
Other non-current assets
Total non-current assets
Current assets
Inventories
Receivables
Cash and cash equivalents
Prepaid expenses
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Non-current liabilities
Long-term loans
Asset retirement obligation
Lease obligation
Total non-current liabilities
Current liabilities
Short-term loans
Account payable and accrued liabilities
Lease obligation
Total current liabilities
Total liabilities
Equity
Share Capital
Share Premium
Shareholders Contribution
Contributed surplus
Cumulative translation adjustment
Retained earnings/ (Accumulated deficit)
Total equity
TOTAL EQUITY AND LIABILITIES
Note
31 December
2019
31 December
2018
10
9
8
6
7
5
4
6
13
14
12
13
11
12
15
13
15
97,090,061
13,896,077
281,073
749,033
3,208,191
115,224,435
96,924,301
12,027,009
172,495
634,005
3,404,404
113,162,214
19,564,508
3,712,956
5,444,288
2,814,838
31,536,590
146,761,025
19,134,628
4,166,445
1,141,663
2,049,093
26,491,829
139,654,043
166,842,243
4,034,245
261,354
171,137,842
163,102,592
1,109,391
690,681
164,902,664
-
5,328,156
626,946
5,955,102
177,092,944
-
3,148,788
1,655,056
4,803,844
169,706,508
99,559,336
22,410,054
5,381,283
16,975,267
(2,240,981)
(172,416,878)
(30,331,919)
146,761,025
99,559,086
22,383,855
1,807,077
17,178,582
1,513,902
(172,494,967)
(30,052,465)
139,654,043
The accompanying notes are an integral part of these consolidated financial statements
Page | 8
The financial statements on pages 8 to 41 were approved by the Board of Directors on 2 April 2020, and
signed on its behalf by:
“Vadim Ilchuk”
_______________________________
Vadim Ilchuk
Director, President, CEO
“Maxim Matveev”
_______________________________
Maxim Matveev
Director
Page | 9
Silver Bear Resources Plc
Consolidated Statement of Comprehensive Profit/(Loss)
For the years ended 31 December 2019 and 2018
(Canadian dollars)
Note
2019
2018
Revenue:
Metal Sales
Cost of Sales:
Production cost
Depreciation and amortization
Impairment of inventory
Gross loss
Exploration and evaluation expenses
General and administrative expenses
Selling expenses
Depreciation charged during pre-production stage
Amortization charged during pre-production stage
Impairment of inventory
Other income
Other expenses
Operating loss
Finance income
Finance expenses
Foreign exchange (loss) /gain
Profit / (loss) before tax
Tax charge
Loss for the year
Other comprehensive loss
Items, that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations
Total comprehensive loss for the year
18
5
18
5
17
17
19
20,932,345
(11,157,002)
(9,165,048)
(1,698,015)
(1,087,720)
-
-
-
-
-
(123,324)
(3,497,871)
(184,514)
(1,017,590)
-
-
1,244,048
(1,523,159)
(6,190,130)
(188,111)
(4,593,271)
-
(1,920,182)
(40,528)
(1,050,146)
1,361,853
-
(6,430,385)
51,896
(13,970,686)
854
(3,556,100)
20,487,927 (26,616,552)
(36,602,183)
379,007
(916,798)
(537,791)
(14,563)
(36,616,746)
(3,754,883)
(4,292,674)
3,432,543
(33,184,203)
Basic profit (loss) per share, cents per ordinary share
15
(0.00)
(0.05)
The accompanying notes are an integral part of these consolidated financial statements
Page | 10
Silver Bear Resources Plc
Consolidated Statement of Changes in Equity
For the years ended 31 December 2019 and 2018
(Canadian dollars)
Share capital
Share
premium
Shareholders
contribution
Contributed
surplus
Cumulative
translation
adjustment
Accumulated
Deficit
Total equity
Balance - 31 December 2017
99,552,335
21,960,054
-
16,696,454
(1,918,641)
(135,931,891)
358,311
Net loss for the period
Other comprehensive profit/(loss):
Cumulative translation adjustment
Comprehensive profit/(loss) for the period
Shares issued under bonus plan, Note 15
Shares issued under stock option plan,
Note 15
Shares issued in the year, Note 15
Share-based payments, Note 18
Gain on modification of loans, Note 13
-
-
-
-
-
(36,616,746)
(36,616,746)
-
-
-
-
-
-
-
-
3,432,543
3,432,543
-
(36,616,746)
3,432,543
(33,184,203)
2,737
-
-
-
-
-
2,737
1,557
2,457
-
152,893
270,908
-
-
-
(53,670)
-
53,670
-
1,807,077
535,798
-
-
-
-
-
154,450
273,365
535,798
1,807,077
Balance - 31 December 2018
99,559,086
22,383,855
1,807,077
17,178,582
1,513,902
(172,494,967)
(30,052,465)
Net loss for the period
Other comprehensive profit/(loss):
Cumulative translation adjustment
Comprehensive loss for the period
Shares issued under bonus plan, Note 15
Shares issued under stock option plan,
Note 15
Share-based payments, Note 15
Cancelled and expired options, Note 15
Gain on modification of loans Note 13
Balance - 31 December 2019
-
-
-
-
-
(537,791)
(537,791)
-
-
-
-
-
-
-
-
(3,754,883)
(3,754,883)
-
(537,791)
(3,754,883)
(4,292,674)
8
-
-
-
-
-
8
242
-
-
-
99,559,336
26,199
-
-
-
22,410,054
-
-
-
3,574,206
5,381,283
(8,773)
421,338
(615,880)
-
16,975,267
-
-
-
-
(2,240,981)
-
-
615,880
-
(172,416,878)
17,668
421,338
-
3,574,206
(30,331,919)
The accompanying notes are an integral part of these consolidated financial statements.
Page | 11
Silver Bear Resources Plc
Consolidated Statement of Cash Flow
For the years ended 31 December 2019 and 2018
(Canadian dollars)
Cash provided by (used in)
Operating activities
Total loss for the year
Adjustments for items not affecting cash:
Depreciation
Amortization
Share-based payments
Accretion expenses
Unrealized FX movement
Impairment of inventory
Interest income
Interest expense
Net change in non-cash working capital (Note 20)
Net cash generated/ (used in) operations
Purchases of property, plant and equipment
Purchases of intangible assets
Interest income
Net cash used in investing activities
Proceeds from share issue
Proceeds from share options exercised
Repayment of principal on lease obligations (2018: finance lease
repayment)
Repayment of interest on lease obligations
Short-term and long-term loans drawn
Short-term and long-term loans principal repayment
Short-term and long-term loans Interest repayment
Net cash generated from financing activities
Effect of exchange rate changes on cash and cash equivalents
and translation differences
Increase/(Decrease) in cash and cash equivalents during the
year
Cash and cash equivalents - beginning of the year
Cash and cash equivalents - end of the year
Cash and cash equivalents consist of:
Cash
2019
2018
(537,791)
(36,616,746)
10,149,338
46,336
421,338
100,348
(20,487,927)
1,698,015
(51,896)
13,970,686
(136,019)
5,172,428
(1,995,747)
(153,654)
51,896
(2,097,505)
-
190
(1,441,409)
(367,382)
5,290,156
(2,655,350)
(167,174)
659,031
1,920,182
40,528
535,798
104,519
26,616,552
1,050,146
-
3,451,581
(7,969,922)
(10,867,362)
(22,091,060)
-
(22,091,060)
-
154,450
(1,382,796)
(311,931)
8,185,200
-
-
6,644,923
568,670
3,140,760
4,302,625
(23,172,739)
1,141,663
5,444,288
24,314,402
1,141,663
5,444,288
1,141,663
The accompanying notes are an integral part of these consolidated financial statements.
Page | 12
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
1. NATURE OF OPERATIONS
Silver Bear Resources Plc was incorporated in United Kingdom on 14 March 2017 under the Companies Act 2006, registered office
address 2nd Floor Regis House, 45 King William Street, London, United Kingdom, EC4R 9AN. 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 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 kilometers
north of Yakutsk in the Republic of Sakha (Yaktutia), in the Russian Federation. On June 22, 2018, the Group announced that it had
achieved first silver production in April 2018 as a result of its commissioning activities.
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 12 September 2016, the
expiry date of the above license is 31 December 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 Vertikalny deposit. 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.
2. BASIS OF PREPARATION
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 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 2
April 2020.
The financial information for the year ended 31 December 2019 and the year ended 31 December 2018 does not constitute the
company's statutory accounts for those years. Statutory accounts for the year ended 31 December 2018 have been delivered to the
Registrar of Companies. The statutory accounts for the year ended 31 December 2019 will be delivered to the Registrar of Companies
in due course. The auditors' reports on the accounts for 31 December 2019 is unqualified but draw attention to matters by way of
emphasis in relation to going concern and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. The auditors'
reports on the accounts for 31 December 2018 was unqualified but draw attention to matters by way of emphasis in relation to going
concern and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.
Basis of consolidation
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
Plc, 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.
Page | 13
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
2. BASIS OF PREPARATION (Continued)
Going Concern
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.
Starting from 1 July 2019 the commissioning activities was completed with the successful installation and implementation of equipment
to implement Merrill–Crowe process. This allow the Group to achieve sustainable commercial production in line with the life of mine
plans. In 2020 the Group has acquired XRT equipment, which is currently being installed on site, which will help increase recoveries
in the production process. This equipment will need to go through a commissioning period before the results of this are seen.
The Group has reported $5,444,288 cash and cash equivalents, total operating cash inflow of $5,172,428. The Group has reported a
total net loss for the period of $537,791 and net current assets of $25,581,488. The Group is in an overall net liability position of
$30,331,919 due to the significant funding from the Group’s major shareholders.
Management have prepared cash flow forecasts for the 12 month period from the date of approval of these financial statements,
which are based on the Group's principal asset, the Mangazeisky silver asset in Russia, achieving sustainable production levels to
generate sufficient cash flows to fund its operations and repay debt obligations and other liabilities as they fall due.
Management has assessed the impact of the current COVID-19 pandemic. Due to the remote location of the mine site, operations
are currently unaffected by the pandemic, but given the uncertainty in the global economic market, Management note it could cause
issues with production and sale of silver in the future. Management has extended the rotation of the current employees on the mine
staff to provide continuity of operations over the next 3 months. Management continue to monitor Government and local legislation
on a daily basis. The directors and Management continue to assess the Group’s funding position to ensure sufficient facilities are in
place to manage any short term impact on working capital.
The Group’s cash flow forecast is reliant on sustained production from the mine. Given the mine is in the first 12 months of commercial
production and the current issues with the COVID-19 pandemic, these events indicate the existence of a material uncertainty, which
may cast significant doubt over the Group’s ability to continue as a going concern, and, therefore, it may be unable to realise its assets
and discharge its liabilities in the normal course of business. If consistent sustained production is not realized then additional funds
will be needed within twelve months from the date of the approval of these financial statements to fund both working capital and meet
the Group’s liabilities as and when they fall due. The financial statements do not include the adjustments that would result if the Group
was unable to continue as a going concern.
The Directors are confident that production in 2020-2021 will be in line with budget. Accordingly, the Directors continue to adopt the
going concern basis for the preparation of these financial statements.
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 the
functional currency of Silver Bear Resources Inc, and Silver Bear Resources B.V. Silver Bear Resources Plc has changed its functional
currency as of 1 January 2018 from Canadian dollars to Russian roubles when it was deemed that the majority of underlying
transactions now took place in roubles. Silver Bear Resources Plc functional currency is different to presentation currency, because
the group is listed on TSX and presentation of financial statements in Canadian dollars is considered to be beneficial for potential and
current shareholders in Canada. The financial statements of AO Prognoz have the Russian rouble as their functional currency. The
results of both Silver Bear Resources Plc and AO Prognoz 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 profit or loss.
Page | 14
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
2. BASIS OF PREPARATION (Continued)
Significant Accounting Policies (Continued)
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.
Once a mine development phase was ceased and the production phase was commenced the processing plant equipment and
buildings depreciated using a unit-of production method based on estimated economically recoverable reserves, which results in a
depreciation charge proportional to the depletion of reserves.
Other property, plant and equipment, with the exception of leasehold improvements, are depreciated on a straight-line basis
Leased equipment 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. Depreciation of
underlying property, plant and equipment which directly contributed the developing the mining properties are capitalized as additions
in mineral properties.
Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the location and
condition necessary for it to be capable of operating in the manner intended by management.
In order to determine whether the project is ready to operate as intended by management, judgement was applied taking into account
commercial production indicators such as pre-production output has reached a nominated percentage, the internal project
management team has transferred the mine to the operational team, the majority of the assets necessary for the mining project are
substantially complete and ready for use and the project’s ability to sustain commercial levels of production. These indicators provided
guidance to recognize that the mine development phase was ceased and the production phase is commence starting from 1 July
2019.
During the mine development phase from 1 July 2015 to 1 July 2019, all costs that was directly attributable to developing the mine
was capitalized and the incidental revenue generated was credited against the capital cost up to the date when the commercial
production indicators are met.
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 and other non-
current assets 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 | 15
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
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 IFRS 9 are initially recognized at fair value and are classified financial assets at amortised cost.
The Group determines the classification of its financial assets at initial recognition.
The Group’s financial assets include cash and cash equivalents, accounts. 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.
Under IFRS 9, impairment provisions are recognized based on a forward-looking expected credit loss model. The methodology used
to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition
of the financial asset.
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 IFRS 9 are initially recognized at fair value and are classified as financial liabilities at fair value
through profit or loss, financial liabilities, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
The Group’s current financial liabilities include accounts payable, accrued liabilities, and short-term 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.
Financial instruments are initially recorded at fair value. The fair values of cash and cash equivalents, miscellaneous receivables,
short-term loans, lease liabilities 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 lease liabilities 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.
Page | 16
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
2. BASIS OF PREPARATION (Continued)
Significant Accounting Policies (Continued)
Revenue recognition
Timing of recognition is governed by IFRS 15. Entity recognizes revenues when a performance obligation is satisfied, which is when
“control” of the goods has transferred to the customer. Control of goods is transferred at the point of time, when silver is passed to
the buyer at the refinery site. Payments terms allows 80% prepayment in advance and the remaining payment based on the final
Price, dependent on silver weight per Act of Acceptance and London price on London Market of metals, adjusted for the prepaid
amount under provisional price. Pre-commercial production silver sales that were generated from 1 April 2018 to 1 July 2019 was
excluded from operating activities and was reflected within non-current assets on the consolidated statement of financial position.
Current and deferred income Taxes
Current income tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable or receivable in respect of previous years.
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.
The Group did not recognized deferred taxes raised during pre-production stage.
Earnings per share
Basic earnings per share is computed by dividing the profit/(loss) for the period by the weighted average number of common shares
outstanding.
Diluted earnings per share is computed by dividing the profit/(loss) for the period by the diluted weighted average number of common
shares outstanding.
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 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, using the average exchange rate prevailing for that period. Translation differences associated
with borrowings costs are expensed.
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
Costs incurred in bringing each product to its present location and conditions are accounted for as follows:
Raw materials: purchase price plus transportation cost plus any applicable customs duties and taxes;
Ore stockpiles comprises direct labour, other direct costs and related production overheads (based on normal operating capacity) but
excludes borrowing costs.
Page | 17
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
2. BASIS OF PREPARATION (Continued)
Significant Accounting Policies (Continued)
The cost of silver for sale and silver in circuit comprises raw materials, direct labour, other direct costs and related production
overheads (based on normal operating capacity) but excludes borrowing costs
Inventories are accounted for using weighted average basis. Net realizable value is the estimated selling price in the ordinary course
of business, less estimated costs of completion and the estimated costs necessary to make the sale.
Inventory measured at lower of cost and net realisable value.
Leases
All leases are accounted for by recognising a right-of-use asset and a lease liability except for:
Leases of low value assets; and leases with a duration of 12 months or less.
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount
rate determined by reference to the rate inherent in the lease unless.
On initial recognition, the carrying value of the lease liability also includes amounts expected to be payable under any residual value
guarantee, the exercise price of any purchase option granted in favour of the group if it is reasonably certain to assess that option;
any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being
exercised.
Lease liabilities accounted under a separate line in financial statement.
Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased
for lease payments made at or before commencement of the lease, initial direct costs incurred and the amount of any provision
recognised where the group is contractually required to dismantle, remove or restore the leased asset.
Right of the use assets represent by mining equipment under leased contracts, leased equipment accounted in property plant and
equipment.
Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance
outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining
term of the lease.
Amounts payable for leases covered by the short-term exemption are charged to the income statement on a straight-line basis over
the term of the relevant lease
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:
• 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.
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.
Page | 18
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
2. BASIS OF PREPARATION (Continued)
Significant Accounting Policies (Continued)
The functional currency of Silver Bear Resources Plc changed from Canadian dollars to Russian rouble in 2018 as it is now
deemed that the majority of underlying transactions for this entity are undertaken in roubles and therefore it is appropriate
for this to be its functional currency.
The functional currency of 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.
• Commercial production
In order to determine whether the project is ready to operate as intended by management, judgement was applied taking
into account commercial production indicators such as pre-production output has reached a nominated percentage, the
internal project management team has transferred the mine to the operational team, the majority of the assets necessary for
the mining project are substantially complete and ready for use and the project’s ability to sustain commercial levels of
production. These indicators provided guidance to recognize that the mine development phase was ceased and the
production phase is commence starting from 1 July 2019. The commercial production was announced by the Group during
2019 Far East Economic forum in Vladivostok.
• Capitalization of development costs (note 9 and 10)
Management has determined that development costs incurred from 1 July 2015 to 1 July 2019 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. In order to determine whether the project is ready to operate as intended by
management, judgement was applied taking into account commercial production indicators such as pre-production output
has reached a nominated percentage, the internal project management team has transferred the mine to the operational
team, the majority of the assets necessary for the mining project are substantially complete and ready for use and the
project’s ability to sustain commercial levels of production. These indicators have provided guidance to recognize that the
mine development phase was ceased and the production phase was commenced starting from 1 July 2019.
•
Impairment of mineral properties and property, plant and equipment
The carrying value of mineral properties and property, plant and equipment is $13,896,077 and $97,060,061 respectively,
as disclosed in Note 9 and note 10. While assessing whether any indications of impairment exist for mineral properties,
consideration is given to both external and internal sources of information. Information that management considers includes,
changes in the market, and changes in the 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.
Key sources of estimation uncertainty:
• Depreciation rates
Once a mine development phase was ceased and the production phase was commenced the processing plant equipment
and buildings depreciated using a unit-of production method based on estimated economically recoverable reserves, which
results in a depreciation charge proportional to the depletion of reserves.
The groups uses proven and probable mineral reserves, that at the beginning of commercial production was 717 tonnes,
depletion for the period 1 July 2019- 31 December 2019 was 58 tonnes.
• Rehabilitation provisions and asset retirement obligations
The carrying value of the asset retirement obligation is $4,034,245, as disclosed in Note 14. 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 a
10-year zero coupon year bond is used in discounting future cash flows as a pre-tax discount rate.
Page | 19
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
2. BASIS OF PREPARATION (Continued)
Significant Accounting Policies (Continued)
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.
Management has reviewed and evaluated the existence of impairment triggers and concluded that no impairment triggers
existed as at 31 December 2019. Management have assessed the recoverable amount of its mineral properties and property,
plant and equipment by performing a value in use calculation, expected future economic benefits and future cash flows
exceed carrying value of mineral properties and property, plant and equipment.
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 Mangazeisky combined mine plan for Vertikalny and
Mangazeisky North deposits. The Group currently holds an exploration license for a number of deposits within the
Mangazeisky license area which expires in 2023 and a mining license for the Vertikalny deposit expiring in 2033.
New standards and interpretations adopted by the Group
The following new accounting standards and amendments to existing standards and interpretations that have been issued by the
IASB and have been adopted by the Group in preparing these financial statements.
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 Interpretation is effective for annual periods beginning on or after 1 January 2019. The
IFRIC does not have a material impact on the Group’s results.
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 new standard was issued in January 2016 replacing the previous leases standard, IAS 17 Leases, and related Interpretations.
IFRS 16 establishes the principles for the recognition, measurement, presentation and disclosure of leases for the customer (‘lessee’)
and the supplier (‘lessor’). IFRS 16 eliminates the classification of leases as either operating or finance as is required by IAS 17 and,
instead, introduces a single lessee accounting model requiring a lessee to recognize assets and liabilities for all leases unless the
underlying asset has a low value or the lease term is twelve months or less. This new standard applies to annual reporting periods
beginning on or after 1 January 2019.
The Group has reviewed its arrangements in place and has concluded that the adoption of this standard does not have a material
impact on the financial results of the Group as all leases of the Group are already was accounted as financial lease under property
plant and equipment and leased liabilities
The Group applied retrospective modified approach without adjustment in accounts, finance lease was transferred to right of the used
assets accounted in property plant and equipment, finance lease liabilities was transferred to lease liabilities accounted in lease
obligations.
Accounting developments not yet adopted
There are a number of standards and interpretations which have been issued by the International Accounting Standards Board that
are effective in future accounting periods that the Group has decided not to adopt early. The Group is currently assessing the impact
of these new accounting standards and amendments.
Page | 20
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
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 current production operations, 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 production stage.
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 period ended 31 December 2019 compared to
the year ended 31 December 2018. The Group is not subject to externally imposed capital requirements.
FINANCIAL RISK FACTORS
The Group is exposed to credit and liquidity risks and market risk. The risk management policies employed by the Group to manage
these risks are discussed below
Market risk
The Group takes on exposure to market risks. Market risks arise from open positions in (a) silver prices (b) foreign currencies,
(c) interest bearing assets and liabilities and (d) equity products, all of which are exposed to general and specific market movements.
Management sets limits on the value of risk that may be accepted, which is monitored on a daily basis. However, the use of this
approach does not prevent losses outside of these limits in the event of more significant market movements.
Sensitivities to market risks included below are based on a change in a factor while holding all other factors constant. In practice this
is unlikely to occur and changes in some of the factors may be correlated – for example, changes in interest rate and changes in
foreign currency rates.
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 the United Kingdom, Canada and Russia which in the presentational currency total $1,910, $23,338 and
$5,419,040 respectively. The Group’s United Kingdom bank has a credit rating of at least baa3 (Moody’s), Canadian chartered banks
have a credit rating of at least A2 (Moody’s) and the Group’s Russian banks have a credit rating of at least ba1 (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.
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:
Total current assets
Total current liabilities
31 December 31 December
2018
2019
31,536,590
5,955,102
26,491,829
4,803,844
As at 31 December 2019 the Group had total current assets of $31,536,590 (31 December 2018 – $26,491,829) to settle total current
liabilities of $5,955,102 (31 December 2018 – $4,803,844), as well as its commitments outlined in Note 21. Total liabilities of
$177,092,944 include long-term loans totaling $128,473,156 accrued interest of $41,999,355 and fair value gain on modification of
loans of $3,630,267.
As at 31 December 2019, the Group had cash balances of $5,444,288 (31 December 2018 – $1,141,663).
Page | 21
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
3. CAPITAL MANAGEMENT AND FINANCIAL RISK FACTORS (Continued)
Liquidity risk
The Group had total obligations of $888,300 at 31 December 2019 (31 December 2018 – $2,345,737) 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:
31 December
2019
Current liabilities
Accounts payable & accrued
liabilities
Lease liabilities
Non-current liabilities
Long-term loans principal
Interest to be capitalized to principal
Long-term loans interest
Lease liabilities
Carrying
amount
Contractual
cash flows
6 months
or less
6 to 12
months
12 to 36
months
36 to 72
months
5,328,156
626,946
5,328,156
738,291
5,328,156
369,146
-
369,146
-
-
-
-
124,842,888
41,999,355
-
261,354
173,058,699
128,473,156
41,999,355
50,076,300
283,686
226,898,944
-
-
7,756,499
-
13,453,801
-
-
7,841,735
-
8,210,881
-
-
31,111,233
283,686
31,394,919
128,473,156
41,999,355
3,366,832
-
173,839,343
Group
31 December
2018
Current liabilities
Accounts payable & accrued liabilities
Finance leases
Non-current liabilities
Long-term loans principal
Interest to be capitalized to principal
Long-term loans interest
Finance leases
Carrying
amount
Contractual cash
flows
6 months
or less
6 to 12
months
12 to 36
months
36 to 72
months
3,148,788
1,655,056
130,925,313
32,177,279
690,681
168,597,117
3,148,788 3,148,788
938,379
1,740,401
-
802,022
-
-
132,732,390
38,183,420
58,068,646
824,087
- 3,931,064
-
-
234,697,732 4,087,167 4,733,086
-
-
-
31,234,864
824,087
32,058,952
-
-
132,732,390
38,183,420
22,902,719
-
193,818,529
Page | 22
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
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 fixed 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. 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 Great British pound, U.S. dollar and Russian rouble.
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s
borrowings (when borrowing is denominated in a different currency from functional currencies of the Group companies).
31 December 2019
31 December 2018
GBP
USD
RUB
EUR
GBP
USD
RUB
EUR
Current assets:
Cash and cash equivalents
1,910
2,606,566
2,804,519
Receivables
Total current assets
Current liabilities:
-
-
2,286,670
1,910
2,606,566
5,091,189
Accounts payable and accrued liabilities
199,255
-
199,255
373,325
311,380
684,705
2,561,461
315,566
2,877,027
Finance leases
Total current liabilities
Non-current liabilities:
Long-term loans
Finance leases
Total non-current liabilities
-
-
-
166,842,243
-
170,452
167,012,695
90,902
90,902
-
-
-
-
-
-
-
-
-
2,281
5,815
1,111,980
-
-
296,849
2,281
5,815
1,408,829
-
-
-
143,824
646,833
1,889,871
16,947
-
969,793
685,263
-
143,824
1,616,626
2,575,134
16,947
-
-
163,102,592
-
200,953
489,728
163,303,545
489,728
-
-
-
The following table presents sensitivities of profit and loss to reasonably possible changes in exchange rates applied at the end of the
reporting period relative to the functional currency of the respective Group entities, with all other variables held constant:
Group
31 December
2019
31 December
2018
Impact on profit or loss
Impact on profit or loss
US Dollar strengthening by 20% (2018: strengthening by 20%)
US Dollar weakening by 20% (2018: weakening by 20%)
CAD strengthening by 20% (2018: strengthening by 20%)
CAD weakening by 20% (2018: weakening by 20%)
GBP strengthening by 20% (2018: strengthening by 20%)
GBP weakening by 20% (2018: weakening by 20%)
EUR strengthening by 20% (2018: strengthening by 20%)
EUR weakening by 20% (2018: weakening by 20%)
(33,009,566)
33,009,566
1,206
(1,206)
(37,997)
37,997
7
(7)
(34,772,437)
34,772,437
(11,046)
11,046
(36,403)
36,403
(904)
904
Page | 23
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
4. RECEIVABLES
Russian Value Added Tax
Deferred Russian Value Added Tax
Other receivables
31 December
2019
1,130,031
301,909
2,281,016
3,712,956
31 December
2018
3,090,346
782,079
294,020
4,166,445
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 assets the VAT relates to are ready for use. The VAT recognized here is on assets
that are expected to be available for use in 2019 and first quarter of 2020 therefore the asset has been recognized as current.
The amount of VAT recovered in cash during the period was RUB 274,001,441 (CAD: $5,618,793). All VAT is expected to be received.
Other receivables mainly consist of receivables from fuel sales. Sales of fuel was accounted on net basis in other income.
5.
INVENTORIES
Material and supplies inventories are stated at the lower of weighted average costs and net realizable value. Inventories consist of
the following:
Fuel and lubricants
Parts and supplies
Reagents
Silver for sale
Ore stockpile
Silver in circuit
31 December
2019
1,641,989
2,168,065
6,550,178
989,754
5,470,799
2,743,723
19,564,508
31 December
2018
5,285,668
2,885,520
4,996,639
2,958,192
2,194,729
813,880
19,134,628
The total cost of inventory recognized in cost of sales is $20,322,050 (2018: nil).
Impairment provision charged to profit and loss for the period was $1,698,015 (2018: $1,050,146). Impairment provision was
accrued based on result of the year-end stock count.
Page | 24
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
6. PREPAID EXPENSES AND NON-CURRENT ASSETS
Prepaid expenses consist of the following:
Insurance
Prepayments to suppliers
Taxes
Prepaid non-current assets consist of the following:
Prepayments for property, plant and equipment
31 December
2019
-
2,676,818
138,020
2,814,838
31 December
2019
749,033
749,033
31 December
2018
-
2,049,093
-
2,049,093
31 December
2018
634,005
634,005
Non-current prepayments consist of prepayments that will be converted to non-current assets – property, plant and equipment. The
equipment will be delivered and transferred to construction in progress within next twelve months.
7. OTHER NON-CURRENT ASSETS
Construction supplies
Non-current inventory
.
8.
INTANGIBLE ASSETS
Software
Balance at the beginning of the year
Additions
Disposal
Amortization
Translation adjustment
Balance at the end of the period
31 December
2019
2,217,895
990,296
3,208,191
31 December
2018
2,584,850
819,554
3,404,404
31 December
2019
172,495
141,234
-
(46,336)
13,680
281,073
31 December
2018
19,553
219,327
-
(40,528)
(25,857)
172,495
Page | 25
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
9. 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 capitalized project development costs.
Mineral property consists of the following:
Mangazeisky
Balance at the beginning of the year
Development costs capitalized
Depreciation of license
Impact of adjustment to ARO
Translation adjustment
Balance at the end of the year
Licenses and
Development
costs
11,444,620
-
(888,238)
(177,388)
39,179
10,418,173
Asset
Retirement
Obligation
582,389
-
(79,531)
2,882,612
92,434
3,477,904
31 December
2019
31 December
2018
2019 Total
2018 Total
12,027,009
-
(967,770)
2,705,224
131,613
13,896,077
12,434,405
46,391
-
(274,272)
(179,515)
12,027,009
Mineral property is made up of the following classes of assets; licenses $668,455 (2018: $930,948), asset retirement obligation
$3,477,904 (2018: $582,389) and development costs of $9,749,718 (2018: $10,513,671).
The Group acquired the exploration license 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:
Mangazeisky
31 December
2019
66,711,691
31 December
2018
66,711,691
10. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost, less accumulated depreciation and consist of the following:
31 December
2019
31 December
2018
Cost
Accumulated
depreciation
Net book
value
Cost
Accumulated
depreciation
Net book
value
Property, plant and equipment:
Mangazeisky site
115,207,480
18,117,419
97,090,061 105,258,756
8,334,455
96,924,301
Yakutsk office
Other office furniture,
equipment
and leasehold improvements
83,336
83,336
59,620
59,620
-
-
83,336
83,336
59,620
59,620
-
-
115,350,436
18,260,375
97,090,061 105,401,712
8,477,411
96,924,301
Page | 26
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
10. PROPERTY, PLANT AND EQUIPMENT (Continued)
Reconciliation of the carrying amount at the beginning and end of the periods ended 31 December 2019 and 31 December 2018:
Carrying amount at 1 January 2018
Additions
Transfers
Disposals at cost
Depreciation
Depreciation eliminated on disposal
Translations adjustment
Carrying amount at 31 December 2018
Property plant
and equipment
Assets under
construction
14,710,936
-
5,830,539
(1,018,671)
(3,326,852)
60,437
(1,384,512)
14,871,877
59,731,091
33,852,228
(5,830,539)
-
-
-
(5,700,356)
82,052,424
Total
74,442,027
33,852,228
-
(1,018,671)
(3,326,852)
60,437
(7,084,868)
96,924,301
Mining vehicles
1,864,029
Infrastructure
and other
Assets under
construction
11,260,046
82,052,424
Total
96,924,301
Carrying amount at 31 December 2018
Additions
Transfers
Disposal at cost
Depreciation
Processing plant
1,747,802
227,816
72,034,222
(1,474)
-
656
(91,760)
Depreciation eliminated on disposal
Translation adjustment
Carrying amount at 31 December 2019
1,474
994,482
68,207,834
98,287
104,486
907,297
(6,796,488)
(1,068,401)
(2,173,249)
-
4,347,312
4,575,128
8,076,980
(168,439)
155,415
842,805
(80,111,859)
(1)
-
-
-
(261,673)
(10,038,138)
255,176
3,693,495
5,635,268
17,993,558
9,981,372
97,090,061
The Group capital asset additions were $4,575,128 during the period ended 31 December 2019. Capitalised borrowing costs of $nil
(31 December 2018 - $13,406,024), capitalised costs of $14,327,368 (31 December 2018 - $14,540,873), capitalised pre-production
revenue of $12,773,554 (31 December 2018 - $8,349,634) and acquisition of new assets of $3,021,314 (31 December 2018 -
$14,254,965) were part of additions during the period.
The property, plant and equipmentas of the period ended 31 December 2019 include $9,981,372 of assets that are not yet ready for
use and as such no depreciation has been charged on them. During the period ended 31 December 2019, $69,012,980 of these
assets became available for use, they were transferred into property, plant and equipment and depreciation was charged on them.
Leased assets are pledged as security for the related lease obligations.
Group acquires property, plant and equipment on prepayment terms. Cash paid to suppliers of property, plant and equipment and
capitalized expenses paid by cash during the period was $1,995,747 (31 December 2018 - $22,091,060).
All the property plant and equipment of the Group is pledged to shareholders under borrowings agreements.
Page | 27
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
Trade and other payables
Accrued liabilities
Property tax liabilities
Income tax liabilities
Other taxes and other liabilities
Amounts owed to group undertakings
12. LEASES
31 December
2019
2,506,742
686,750
985,583
724,601
424,480
-
5,328,156
31 December
2018
2,082,357
733,895
-
-
332,536
-
3,148,788
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.
Right of use assets consist of the following:
Processing plant
Mining vehicles
Infrastructure and other
Total
Carrying amount at 31 December 2018
Additions
Depreciation
Translation adjustment
Carrying amount at 31 December 2019
863,497
227,816
(375,921)
54,226
769,618
1,835,879
-
(1,044,063)
102,908
894,724
992,710
3,692,086
-
(635,653)
54,292
227,816
(2,055,637)
211,426
411,349
2,075,691
Interest expenses on lease liabilites were $368,684, total cash outflow for leases was $1,808,791,
Future minimum lease payments under finance leases, together with the present value of the ne minimum lease payments, are as
follows:
Within one year
Within two to five years
Over 5 years
Future finance charges on finance leases
Present value of the net lease payments
Current portion
Long-term portion
Total obligations under finance leases
31 December
2019
738,291
283,686
-
1,021,977
(133,677)
888,300
626,946
261,354
888,300
31 December
2018
1,740,401
824,087
-
2,564,488
(218,751)
2,345,737
1,655,056
690,681
2,345,737
Page | 28
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
13. LONG-TERM LOANS
Lender
Unifirm Ltd
(formerly A.B. Aterra Resources Ltd)
Inflection Management Corp.
Fair value gain on modification of loans
Principal
Interest
Total
Principal
Interest
Total
31 December 2019
31 December 2018
25,360,652
103,112,503
(3,630,267)
124,842,888
9,440,938
34,801,590
32,558,417 135,670,920
(3,630,267)
41,999,355 166,842,243
-
26,740,014
105,992,376
(1,807,077)
130,925,313
7,514,149
24,663,130
-
32,177,279
34,254,163
130,655,506
(1,807,077)
163,102,592
Movement in long term loans is analyzed as follows in USD:
Unifirm (formerly Aterra)
Principal
USD
Interest
USD
Inflection
Principal
USD
Interest
USD
Gain on
modification
of loans
USD
Total
USD
As at 31 December 2017 (CAD)
24,589,758
3,504,807
89,942,165 10,110,481
128,147,211
Principal amounts received
Interest accrued to 31 December
2018
Gain on modification of loans
As at 31 December 2018 (USD)
As at 31 December 2018 (CAD)
Principal amounts received
Interest accrued to 31 December
2019
Principal and interest repayment
Gain on modification of loans
As at 31 December 2019 (USD)
As at 31 December 2019 (CAD)
-
-
-
-
6,000,000
-
-
6,000,000
2,714,311
-
- 10,019,452
-
-
-
(1,324,642)
19,601,242
5,508,099
77,695,628 18,078,823
(1,324,642)
26,740,014
7,514,149 105,992,376 24,663,130
(1,807,077)
12,733,763
(1,324,642)
119,559,150
163,102,592
-
-
4,000,000
-
-
4,000,000
-
-
-
19,601,242
1,788,799
-
-
7,296,898
-
(2,000,000)
-
7,212,562
(126,993)
-
79,695,628 25,164,392
1,211,226
-
(2,692,416)
(2,805,832)
25,360,652
9,440,938 103,112,504 32,558,417
(3,630,267)
10,212,587
(2,126,993)
(2,692,416)
128,952,328
166,842,244
Page | 29
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
13. LONG-TERM LOANS (Continued)
Movement in long term loans is analyzed as follows in CAD:
As at 31 December 2017
Principal amounts received
Interest accrued to 31 December
2018
Principal and interest repayment
Foreign exchange loss
Gain on modification of loans
Translation adjustment
As at 31 December 2018
Principal amounts received
Interest accrued to 31 December
2019
Principal and interest repayment
Foreign exchange loss
Gain on modification of loans
Translation adjustment
As at 31 December 2019
Unifirm (formerly Aterra)
Interest
Principal
CAD$
CAD$
3,504,807
24,589,758
-
-
-
-
4,592,300
-
(2,442,044)
3,702,864
-
654,546
-
(348,068)
Inflection
FV gain
Total
Principal
CAD$
89,942,165
8,185,200
-
-
16,797,294
-
(8,932,283)
Interest
CAD$
10,110,481
-
13,668,536
-
1,888,199
-
(1,004,086)
CAD$
-
-
CAD$
128,147,211
8,185,200
-
-
-
(1,807,077)
-
17,371,400
-
23,932,339
(1,807,077)
(12,726,481)
26,740,014
-
7,514,149 105,992,376
5,290,156
-
24,663,130
-
(1,807,077)
-
163,102,592
5,290,156
-
-
(3,040,724)
-
1,661,362
25,360,652
2,363,127
-
(947,042)
-
510,703
-
(2,655,350)
(12,148,731)
-
6,634,053
9,440,937 103,112,504
9,530,614
(167,174)
(3,172,841)
-
1,704,689
32,558,418
1,607,913
-
-
(3,574,206)
143,103
(3,630,267)
13,501,654
(2,822,524)
(19,309,338)
(3,574,206)
10,653,910
166,842,244
On 18 September 2018, the Group entered into a third amendment and restatement deed relating to the Facilities Agreement. Under
this agreement, the lenders have agreed to provide an additional US$8 million of working capital of which US$2.5 million was drawn
down in September 2018, US$3.5 million in November 2018 and US$2.0 million in January 2019.
The Secured Loan Funding accrued interest at a rate of 15% per annum to the 17 September 2018 and 28 September 2018 and 10%
per annum between 18 September 2018 and 29 September 2018 to 31 December 2018. The modification of the loan interest from
15% to 10% in 2018 was considered to be substantive and resulted in a de-recognition of the loan carrying value, recognition of the
loan at fair value as of modification date and recognition of shareholders contribution reserve of $1,807,077.
On 1 January 2019, the Group’s major shareholders Aterra and Inflection agreed to further reduce the interest rate applicable to all
funds drawn under the Facilities Agreement, as amended, from 10% to 9% per annum. The accrued interest accrued quarterly, and
is payable on 1 January, 1 April, 1 July and 1 October in each calendar year starting from 31 December 2019 and on the maturity
date, being 20 March 2023. The modification of the loan interest from 10% to 9% in 2019 was considered to be non-substantive and
resulted recognition of shareholders contribution reserve of $3,574,206
On 24 December 2019, the Group entered into an amendment and restatement deed relating to the Facilities Agreement. Under this
agreement, the lenders have agreed to provide an additional US$4 million of working capital of which US$2 million was drawn down
in December 2019.
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 2019 this Secured Loan Funding has a principal of totaling $128,473,156, accrued interest of $41,999,355 and
fair value gain on modification of loans of ($3,630,267).
Page | 30
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
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:
Balance at the beginning of the year
Accretion expense
Impact of change to underlying cost estimate
Impact of rates adjustment
Translation adjustment
Balance at the end of the year
31 December
2019
1,109,391
100,348
1,978,457
726,768
119,281
4,034,245
31 December
2018
1,426,397
104,519
-
(277,858)
(143,667)
1,109,391
At 31 December 2019, the expected life of the Mangazeisky project has been assessed to be 8 years. The projected cost for
reclamation and closure of the Mangazeisky project in 2028 has been estimated to be $7.05m. A Russian Government 10-year zero
coupon year bond of 6.41% (2018: 8.64%) has been used in discounting of future cash flows.
Page | 31
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
15. SHAREHOLDERS’ EQUITY
Common shares
Authorized: Unlimited number of common shares with a par value of GBP 0.001.
All issued shares are fully paid. Reconciliation of the number and value of common shares at the beginning and end of the period
ended 31 December 2019 and 31 December 2018:
Common shares
31 December
2019
Number of
common shares
671,984,902
151,000
5,000
-
672,140,902
$
Number of
common
99,559,086
242
8
-
99,559,336
shares
668,048,513
880,000
1,600,000
1,456,389
671,984,902
Balance - Beginning of the year
Issued under stock option plan
Issued under share bonus plan
Shares issued during the period
Balance - End of the year
Share Bonus Plan
31 December
2018
$
99,552,335
1,557
2,737
2,457
99,559,086
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 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 dates in the table below.
On 8 June 2016, the board of directors resolved, and the Group obtained approval from the Toronto Stock Exchange (“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 16 January 2018, the Group issued 1,600,000 common shares under the share bonus plan for the nominal fee of £0.001.
On 27 June 2019, the board of directors resolved, and the Group obtained approval from the TSX and the shareholders an amendment
to the Share Bonus Plan, in particular the Share Bonus Plan has a fixed maximum of 5,400,000 shares, but in any event awards
granted under the Share Bonus Plan and all other security based compensation plans cannot exceed 10% of the Group’s issued and
outstanding shares.
On 26 September 2019, the Group issued 5,000 common shares under the share bonus plan for the nominal fee of £0.001
1 October 2013
1 January 2014
1 April, 2014
1 July 2014
1 October 2014
1 January 2015
16 January 2018
26 September 2019
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
1,600,000 common shares
5000 common shares
3,923,750
Page | 32
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
15. SHAREHOLDERS’ EQUITY (Continued)
Stock options
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 “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.
On 21 December 2017, 18,000,000 options were grated to directors of the Group. 6,000,000 of these options have an exercise price
of $0.17 per option, 6,000,000 have an exercise price of $0.25 per share and the remaining 6,000,000 have an exercise price of $0.30
per share.
On 4 April 2018, 2,600,000 options were granted to directors, officers and consultants of the Group. 866,667 of these options have
an exercise price of $0.22 per option, 866,667 have an exercise price of $0.30 per share and the remaining 866,666 have an exercise
price of $0.35 per share.
On 14 November 2018, 3,000,000 options were granted to directors, officers and consultants of the Group. 1,000,000 of these options
have an exercise price of $0.18 per option and will fully invest on 14 November 2019, 1,000,000 have an exercise price of $0.25 per
share and will be fully vested on 14 November 2020, and the remaining 1,000,000 have an exercise price of $0.30 per share and will
be fully vested on 14 November 2021.
On 24 May 2019, 500,000 options were granted to officer of the Group 166,667 of these options have an exercise price of $0.11 per
option and will fully vested on 24 May 2020, 166,667 have an exercise price of $0.25 per share and will be fully vested on 24 May
2021, and the remaining 166,666 have an exercise price of $0.30 per share and will be fully vested on 24 May 2022.
During the period ended 31 December 2019, options generated a share-based payments expense of $421,338 (31 December 2018:
$535,798). 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.
Page | 33
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
15. SHAREHOLDERS’ EQUITY (Continued)
Stock options (Continued)
Reconciliation of the number of options at the beginning and end of the periods ended 31 December 2019 and 31 December 2018
follows:
Number
Balance - Beginning of the year
Granted
Exercised
Expired / Cancelled / Forfeited
30,948,666
500,000
(151,000)
(6,246,666)
31 December
2019
Weighted average
exercise price,
$
0.25
0.22
0.18
0.26
Number
26,528,666
5,600,000
(880,000)
(300,000)
31 December
2018
Weighted
average
exercise price, $
0.24
0.26
0.18
0.24
Balance - End of the year
25,051,000
0.25
30,948,666
0.25
As at 31 December 2019, the Group had share options outstanding and exercisable as follows:
Outstanding
Exercisable
Expiry year
Number
2019
2020
2021
2022
2023
2024
-
800,000
1,651,000
18,000,000
4,100,000
500,000
25,051,000
Weighted average
exercise price,
$
-
0.19
0.28
0.24
0.26
0.22
0.24
Number
-
800,000
1,651,000
18,000,000
2,733,334
-
23,184,334
Weighted average
exercise price, $
-
0.19
0.19
0.24
0.23
-
0.23
Contributed surplus consists of the following:
Balance - Beginning of the year
Share-based payments
Exercised options
Expired / Cancelled / Forfeited options
Balance - End of the year
31 December
2019
17,178,582
421,338
(8,773)
(615,880)
16,975,267
31 December
2019
16,696,454
535,798
(53,670)
-
17,178,582
Page | 34
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
15. SHAREHOLDERS’ EQUITY (Continued)
Earnings per share
The calculation of the basic and diluted profit/(loss) per share attributable to the owners of the Group is based on the following data
Net Loss
Weighted average number of shares used in basic EPS
Basic and diluted profit/ (loss) , cents per ordinary share
16. RELATED PARTY DISCLOSURES
(a) Goods and services
31 December
2019
(537,791)
672,048,891
(0.00)
31 December
2018
(36,616,746)
670,472,459
(0.05)
During the years ended 2019 and 2018 the Group entered into transactions for goods and services with the following related parties:
Goods and services received from:
TechnoNICOL Corporation
2019
-
-
2018
116,000
116,000
At the end of the reporting period, the Group was owed from TechnoNICOL nil (31 December 2018: $357) for services provided.
There were no other balances outstanding at the end of the reporting period related to goods and services received from related
parties.
Financing transactions
The Group has entered into a series of financing transactions with major shareholders. As set out in note 13.
The Group was required to reimburse Aterra for legal fees incurred in relation to the lending agreements in the period of C$ nil (31
December 2018: C$19,349).
(b) Compensation of key management
Key management are the Group’s directors. Compensation awarded to key management comprised:
Salaries, fees and short-term employee benefits
Share-based payments
2019
504,332
382,575
886,907
2018
1,026,153
535,798
1,561,951
The amounts set out in the above table includes employee costs and remuneration in respect of the highest paid director as shown
in the table below:
Emoluments
Termination payments
Share issue
Share option exercise
2019
132,751
-
-
-
132,751
2018
149,325
271,995
273,364
148,750
843,434
Page | 35
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
16. RELATED PARTY DISCLOSURES (Continued)
(c) Interest in other entities
Name of subsidiary
undertaking
Registered address/ Principal place of
business
Description of
shares held
Proportion of
nominal value of
issued shares held by:
Group
%
Company
%
Silver Bear Resources Inc.
Suite 2500, 120 Adelaide Street West,
Toronto, Ontario, Canada, M5H 1T1
Ordinary CAD
120,863,139 shares
100
100
Silver Bear Resources B.V.
Zekeringstraat 21 B, 1014 BM, Amsterdam
Ordinary CAD
2,833,801 shares
AO Prognoz
36/1 Ordzhonikidze Street, Yakutsk, Republic
of Sakha (Yakutia), 677000, Russian
Federation
Ordinary RUB 10,000
shares
100
100
-
-
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 Group’s subsidaries are as follows:
Silver Bear Resources Inc. – holding company;
Silver Bear Resources B.V. – holding company;
AO Prognoz - acquisition, exploration, evaluation and development of precious metal properties.
-
-
-
17. OTHER INCOME AND EXPENSES
OTHER INCOME
Meals distribution
Winter road maintenance
Rent
Income from fuel sales
Other income
OTHER EXPENSES
VAT write-off
Property tax
Penalties
2019
272,904
130,244
363,010
268,176
209,714
2018
600,161
455,313
119,388
1,287
185,704
1,244,048
1,361,853
2019
(211,507)
(1,177,226)
(134,426)
(1,523,159)
2018
-
-
-
-
Page | 36
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
18. PRODUCTION COST, GENERAL AND ADMINISTRATIVE EXPENSES
Production cost:
Employee compensation
Process reagents
Repair and maintenance
Fuel
Mining tax
Blasting
Energy
Refinery
Other
Change in finished goods and work in progress
The following table provides the breakdown of Group’s expenses by nature.
General and administrative expenses:
Employee compensation
Professional fees
Auditors' remuneration - Audit fees
Auditors' remuneration - Non-audit fees
Office expenses
Travel expenses
Legal fees
Investor relations expenses
Depreciation
Amortization
Rent
IT and communications
Other expenses
2019
2018
(3,480,100)
(2,057,974)
(748,464)
(2,899,042)
(1,365,949)
(698,672)
(574,591)
(214,272)
(2,096,927)
2,978,989
(11,157,002)
-
-
-
-
-
-
-
-
-
-
-
2019
(2,029,245)
(301,010)
(290,439)
(30,543)
(62,496)
(45,022)
(90,611)
(97,802)
(13,036)
(3,751)
(73,794)
(137,676)
(322,446)
(3,497,871)
2018
(1,871,000)
(971,901)
(87,195)
-
(97,100)
(45,024)
(153,614)
(248,733)
-
-
-
-
(1,118,704)
(4,593,271)
Expenses relating to the development and construction of the Mangazeisky Project have been capitalized from 1 July 2015 to 1 July
2019. This means that certain categories of expenses were not charged to the income statement during this period.
The average number of employees during the period was 268 (2018: 201).
Page | 37
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
18. PRODUCTION COST, GENERAL AND ADMINISTRATIVE EXPENSES (Continued)
The following table provides the breakdown of Group’s employee compensation charged to the income statement:
Salaries, fees and short-term employee benefits
Termination payments
Share-based payments
2019
(5,088,006)
-
(421,338)
(5,509,344)
2018
(1,063,207)
(271,995)
(535,798)
(1,871,000)
Total employee benefits relating to the construction of the Mangazeisky Project are capitalized within property, plant and equipment
totaling $3,555,469 (31 December 2018: $5,669,440).
The following table provides the breakdown of Group’s total staff costs including those that have been capitalized:
Salaries, fees and short-term employee benefits
Share-based payments
19. FINANCE EXPENSE
Interest accrued from loans
Interest accrued from lease obligations
Accretion expenses
20. NET CHANGE IN NON-CASH WORKING CAPITAL
Net change in non-cash working capital consists of the following:
Receivables
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
2019
(8,643,475)
(421,339)
(9,064,814)
2018
(6,732,647)
(535,798)
(7,268,445)
2019
(13,501,654)
(368,684)
(100,348)
(13,970,686)
2018
(3,139,650)
(311,931)
(104,519)
(3,556,100)
2019
219,517
(2,025,182)
(313,823)
1,983,469
(139,019)
2018
627,369
(10,824,351)
2,000,385
226,675
(7,969,922)
Page | 38
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
21. CAPITAL COMMITMENTS AND CONTINGENCIES
The Group is party to certain management contracts and severance obligations. These contracts contain clauses requiring that
additional payments of up to $70,000 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 2019.
22. 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.
As at 31 December 2019
Country/Property
Russia -
Mangazeisky
Cash
Inventories
Prepaid
Receivable
s
Mineral
Properties
Property
plant and
equipment
Depreciation
Interest
expense
Profit /
(loss)
before tax
5,308,151
19,564,508
3,563,870
3,712,956
13,896,077
97,090,061
(10,149,338)
(13,970,686)
5,139,359
Corporate
136,137
-
(0)
-
-
-
-
-
(4,760,350)
5,444,288
19,564,508
3,563,870
3,712,956
13,896,077
97,090,061
(10,149,338)
(13,970,686)
379,009
-
As at 31 December 2018
Country/Property
Cash
Inventories
Prepaid
Receivables
Mineral
Properties
Property
plant and
equipment
Depreciation
Interest
expense
Profit /
(loss)
before tax
Russia - Mangazeisky
1,117,720
19,134,628
2,647,904
4,166,445
12,027,009
96,924,301
(1,920,182)
(3,451,581)
(34,183,004)
Corporate
23,943
-
35,194
-
-
-
-
-
(2,419,179)
1,141,663
19,134,628
2,683,098
4,166,445
12,027,009
96,924,301
(1,920,182)
(3,451,581)
(36,602,183)
23. 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, accounts receivable, short-term loans, lease liabilities 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 and lease liabilities. 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 2019 and 31 December 2018 were as follows:
Page | 39
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
23. FINANCIAL INSTRUMENTS (Continued)
31 December 2019
Cash and cash equivalents
Accounts receivable
Long-term loans
Accounts payables and accrued liabilities
Lease liabilities
31 December 2018
Cash and cash equivalents
Accounts receivable
Long-term loans
Accounts payables and accrued liabilities
Finance leases
Cash and receivables
5,444,288
2,281,016
-
-
-
7,725,304
Cash and receivables
1,141,663
294,020
-
-
-
1,435,683
Loans and other
liabilities
-
-
(166,842,243)
(3,193,492)
(888,300)
(170,924,035)
Loans and other
liabilities
-
-
(163,102,592)
(2,914,448)
(2,345,737)
(168,362,777)
TOTAL
5,444,288
2,281,016
(166,842,243)
(3,193,492)
(888,300)
(163,198,731)
TOTAL
1,141,663
294,020
(163,102,592)
(2,914,448)
(2,345,737)
(166,927,094)
The carrying value of cash equivalents, amounts receivable, short-term loans, long-term loans, accounts payable and accrued
liabilities and lease liabilities reflected in the consolidated statement of financial position approximate fair value.
24. INCOME TAXES
Current tax expense
Total tax expense
2019
(916,798)
(916,798)
2018
(14,563)
(14,563)
Reconciliation between tax expense and the product of accounting loss multiplied by the Corporation's domestic tax rate is as follows:
Profit/(Loss) before taxation
Statutory tax rate
Tax benefit of statutory rate
Expenses not deductible for income tax purposes
Recognition of previously written off deferred tax asset
Deferred taxes not recognized for the period
Tax losses carried forward not recognized
Foreign tax rate differential
Silver Bear Plc Moscow branch tax obligation
Total tax expense
2019
379,007
20.00%
(75,801)
(1,208,259)
924,382
(557,120)
-
-
-
(916,798)
2018
(36,602,183)
20.00%
7,320,437
(3,551,074)
-
-
(6,913,757)
3,144,395
(14,563)
(14,562)
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.
In addition, ZAO Prognoz has approximately $34,571,789 (2018: $36,820,178) of non-capital losses for Russian income tax purposes.
Silver Bear PLC has approximately $2,528,728 (2018: $1,514,368) in non-capital losses that can be carried forward indefinitely.
Page | 40
Silver Bear Resources Plc
Notes to Consolidated Financial Statements
For the years ended 31 December 2019 and 2018
25. CONTROLLING AND ULTIMATE CONTROLLING PARTY
The controlling and ultimate controlling party is Kolesnikov Sergei Anatolievich.
Page | 41