Silver Bear Resources plc
Annual Report 2020

Plain-text annual report

ANNUAL REPORT AND ACCOUNTS Registered Number: 10669766 (England and Wales) For the year ended 31 December 2020 (Expressed in Canadian dollars) Mangazeisky Silver Project – Open Pit Silver Bear Resources Plc Directors’ Responsibility for Financial Reporting For the Year Ended 31 December 2020 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 “Maxim Matveev” _______________________________ Maxim Matveev Director Toronto, Ontario, Canada 31 March 2021 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 2020 and 31 December 2019 which comprise the Consolidated Statement of Comprehensive Profit/(Loss), the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flow 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). In our opinion the financial statements: · · present fairly, in all material respects, the financial position of the Group as at 31 December 2020 and 31 December 2019 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 IASB. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) as issued by IASB 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 in the financial statements which sets out the Directors’ considerations of its ability to continue to defer interest and capital repayments on its loans from its shareholders. These conditions and events, along with the other matters as set out in note 2, indicate that a material uncertainty exists that may cast significant doubt on the Group’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 evaluation of the Directors’ assessment of the Group’s ability to continue to adopt the going concern basis of accounting included: · We critically assessed management’s base case cash flow forecasts for the period to September 2022 and the underlying assumptions, which have been approved by the Board. Our testing included a comparison of forecast prices to spot prices together with consideration of broker consensus pricing ranges. · We evaluated the forecast production levels against 2020 actuals, the life of mine plan and considered the impact of plant upgrades on the achievability of forecasts. · We compared the forecast operational expenditure to 2020 actuals and confirmed that planned capital expenditure is consistent with the life of mine plan. · We compared the Group’s operational results to the budget for 2020 to assess the quality of management’s budgetary process. · We assessed the integrity of the cash flow forecast by performing a mathematical check on the model. · We reviewed the contractual terms attached to the shareholder’s loan facility, including future capital and interest repayments and confirmed their inclusion within the cash flow forecasts. · We reviewed and considered 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 and property, plant and equipment represent the Group’s most significant assets. Details regarding these assets have been disclosed within note 2, 9 and 10. At the year end, Management performed an impairment indicator review to assess whether there were any indicators of impairment for the mining assets. Following this assessment, management concluded that the reductions in the Group’s resource estimate was an indicator of impairment and therefore an impairment test was performed in accordance with the requirements of applicable accounting standards. We considered this area to be a significant risk of material misstatement and a key audit matter given the value attributed to these assets and the significant management judgement involved in this assessment. How our audit addressed the key audit matter: · We obtained and examined Management’s impairment indicator paper and agreed with their conclusion that a potential indicator of impairment was present. Accordingly, we obtained management’s impairment test assessments. · Our component team visited the Mangazeisky mine site to confirm their understanding of the operations, physically verify the existence of the assets and discuss future mine operating plans with technical management. · We obtained management’s discounted cash flow models and performed data integrity and mechanical checks on the models. · We determined whether the basis of preparation of the models was in line with the applicable accounting standards. · We compared the actual performance during 2020 to budgets for the period in order to assess the quality of management’s forecasting. · We critically challenged the NPV model, focusing on the appropriateness of estimates with reference to empirical data and external evidence with specific emphasis on the following assumptions: silver prices, foreign exchange rates, resources and production levels, operating and development costs and discount rates. · We benchmarked forecast silver prices and foreign exchange rates against publically available third party information. · We reconciled the production profiles and capital expenditure forecasts to the third party Competent Person’s report and approved budget for 2021. We obtained explanations for any differences. · We reconciled the resources used in the life of mine model to the updated mineral resources statement included in the third party Competent Person’s report and performed procedures to assess their independence and competence. We held discussions with the third party Competent Person as part of this process to obtain the explanations for any differences. · We reviewed management’s sensitivity analysis and performed our own sensitivity analysis on key inputs to assess the impact of changes in assumptions. · We involved our valuations specialists to support our assessment of the discount rate applied and discussed the judgments regarding the calculation with the Audit Committee. · We read the key licence agreements and confirmed that the Group holds valid licences. We considered management’s judgment that the exploration licence will be capable of being extended beyond 2023 including assessment of the legislative process and risks and uncertainties within the operating environments. We assessed the commitments and obligations associated with the licences to confirm compliance with the licences. Page | 4 · We reviewed the disclosures in the financial statements regarding key assumptions and sensitivity of the carrying value to reasonable changes in such assumptions to ensure they were in accordance with the requirements of the relevant accounting standard. Key Observations We noted no material issues arising from our work in relation to the carrying value of mining assets. We found the judgments and estimates applied by management in preparing the forecasts to be supportable, although the net present value remains sensitive to changes in key inputs including silver prices, foreign exchange rates, resources and production levels, operating and development costs and discount rates. We found management’s conclusion that no impairment charge was required as at 31 December 2020 to be supported by the underlying model. We found the disclosures in note 2, 9 and 10 to be appropriate. Key audit matter: Depletion of the Mineral Properties and Property, Plant and Equipment The key estimates made by Management in calculating the unit of production depletion of Mineral Properties and Property, Plant and Equipment are disclosed in note 2. This includes estimating mineral resources and future capital expenditure to be included in the calculation. We considered there to be a significant risk of material misstatement given the estimation applied by Management in calculating the depletion charge. How our audit addressed the key audit matter: We obtained and reviewed the Group’s unit of production depletion calculation. In doing so, we performed the following: · Checked the mathematical accuracy of the unit of production depletion calculation. · Agreed the resources used in the calculation to the third party Competent Person’s Resources Statement. In placing reliance on management’s expert we performed procedures to evaluate their competence and objectivity. · Agreed the production figures used in the calculation to production data and other areas of our audit work to check consistency. · Agreed and assessed the future capital expenditure required to access the resources, included in the calculation, to the life of mine 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 the calculation and estimates used in the unit of production depletion calculation to be reasonable. Key audit matter: Carrying value of Silver Inventory Details of the Group’s Silver Inventory, including Run of Mine (ROM), Silver in Circuit and Finished Product, are 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 in the statement of financial position. Page | 5 How our audit addressed the key audit matter: · We 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 to determine whether procedures undertaken were in accordance with the instructions issued. · We assessed the competency of the internal experts used by Management to survey the stockpiles and calculate the mineral content within the silver in circuit. · We agreed the existence of finished product to statements from the third party refineries. · We 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. · We undertook cost versus 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 recognised in accordance with applicable accounting standards. Key Observations We found Management’s judgement in determining the 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: (cid:127) Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a Page | 6 basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. (cid:127) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. (cid:127) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. (cid:127) Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or 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. (cid:127) Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. (cid:127) 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. 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 Peter Acloque. BDO LLP Chartered Accountants London, UK 31 March 2021 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) Note 31 December 2020 31 December 2019 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 Advances received 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 (deficiency) TOTAL EQUITY AND LIABILITIES 10 9 8 6 7 5 4 6 13 14 12 13 11 12 15 13 15 74,096,536 11,923,604 299,528 2,871,150 2,965,765 92,156,583 18,134,273 3,050,392 1,302,165 2,789,641 25,276,471 117,433,054 165,062,833 4,040,784 1,237,793 170,341,410 144 3,085,133 3,682,160 1,688,373 8,455,810 178,797,220 99,561,998 22,570,500 5,381,283 16,960,163 13,460,394 (219,298,504) (61,364,166) 117,433,054 The accompanying notes are an integral part of these consolidated financial statements 97,090,061 13,896,077 281,073 749,033 3,208,191 115,224,435 19,564,508 3,712,956 5,444,288 2,814,838 31,536,590 146,761,025 166,842,243 4,034,245 261,354 171,137,842 - - 5,328,156 626,946 5,955,102 177,092,944 99,559,336 22,410,054 5,381,283 16,975,267 (2,240,981) (172,416,878) (30,331,919) 146,761,025 Page | 8 The financial statements on pages 8 to 45 were approved by the Board of Directors on 31 March 2021, 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 2020 and 2019 (Canadian dollars) Note 18 5 18 17 17 19 19 25 Revenue: Metal Sales Cost of Sales: Production cost Depreciation and amortization Impairment of inventory Gross profit / (loss) Exploration and evaluation expenses General and administrative expenses Selling expenses Depreciation charged during pre-production stage Write-off of PPE 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 2020 2019 51,887,094 20,932,345 (30,190,696) (19,444,324) (347,057) 1,905,017 (122,568) (3,832,518) - - (9,495) 486,274 (2,083,075) (3,656,365) 8,069,035 (17,873,567) (33,539,947) (47,000,844) (10,782) (47,011,626) (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) 51,896 (13,970,686) 20,487,927 379,007 (916,798) (537,791) 15,701,375 (31,310,251) (3,754,883) (4,292,674) Basic and diluted profit (loss) per ordinary share, cents per ordinary share 15 (0.07) (0.00) 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 2020 and 2019 (Canadian dollars) Share capital Share premium Shareholder’s contribution Contributed surplus Cumulative translation adjustment Accumulated Deficit Total equity 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 Net loss for the period Other comprehensive profit/(loss): Cumulative translation adjustment Comprehensive loss for the period - - - - - (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) 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 2020 2,662 160,446 - - - - 99,561,998 - - - - 22,570,500 - - - - - - - - - - - - - - - (47,011,626) (47,011,626) 15,701,375 15,701,375 - (47,011,626) 15,701,375 (31,310,251) - - 163,108 - - - - 5,381,283 - 114,896 (130,000) - 16,960,163 - - - - 13,460,394 - - 130,000 - (219,298,504) - 114,896 - - (61,364,166) 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 2020 and 2019 (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 (Note 18) Accretion expenses Unrealized FX movement Impairment of inventory Non-substantive modification gain (Note13) Interest income (Note 19) Interest expense (Note 19) 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 options exercised Repayment of principal on lease obligations 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 2020 2019 (47,011,626) (537,791) 19,364,209 151,081 114,896 230,207 33,539,947 347,057 (8,050,595) (18,440) 17,643,360 (3,891,869) 12,418,227 (7,504,308) (168,645) 18,440 (7,654,513) - (3,082,029) (524,505) 2,351,454 - (6,855,421) (8,110,501) 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 (795,336) 568,671 (4,142,123) 4,302,625 5,444,288 1,302,165 1,141,663 5,444,288 1,302,165 5,444,288 Page | 12 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 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 Plc became the direct parent company of AO Prognoz on 16 November 2020. AO Prognoz was acquired from Silver Bear Resources B.V. following a plan of reorganization of the Group structure. 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 31 March 2020. The financial information for the year ended 31 December 2020 and the year ended 31 December 2019 does not constitute the company's statutory accounts for those years. Statutory accounts for the year ended 31 December 2019 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2020 will be delivered to the Registrar of Companies in due course. The auditors' reports on the accounts for 31 December 2020 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 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. Page | 13 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 2. BASIS OF PREPARATION (Continued) Basis of consolidation Following Silver Bear Resources Plc becoming the parent company of the Group (as detailed in note 1) and becoming direct parent of AO Prognoz, these transactions were 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. Going Concern These audited consolidated financial statements have been prepared on a going concern basis 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. The Directors have prepared a cash flow forecast for the 18 month period from the date of approval of these financial statements. Cash forecasts for the Group are regularly produced based on management's best estimate of: (cid:127) The Group's production and expenditure forecasts; (cid:127) Future silver prices; and (cid:127) Foreign exchange rate. The ability of the Group to operate as a going concern is dependent upon future production volumes and silver prices as they impact cash flows required to both fund working capital and meet the Group’s liabilities as and when they fall due. The Group’s base case going concern model was run with average silver price of $US 25/ ounce. Having assessed the impact of the current Covid-19 pandemic, the Directors are confident that production in 2021-2022 will be in line with budget. To date Covid-19’s impact on operations has been minimal due to the remote location of the mine site and following the implementation of extended rotation of mine staff to provide continuity of operations over 3 month periods. The Directors have analysed the Group’s expected liquidity position over the forecast period and believes that it is reasonable to apply the going concern principle for the preparation of the Group’s and Company’s financial statements. When assessing the going concern status, management has taken into consideration the following factors: - - - - As at 31 December 2020, the Group had $1,302,165 cash and cash equivalents, and net current assets of $16,820,661. In 2020 the group generated total operating cash inflow of $12,418,227. In the fist quarter 2021, the Group entered into a loan agreement with SKA ASSETS MANAGEMENT LIMITED, a company under common control with Inflection, a major shareholder, for RUB 750,000,000 (equivalent to approximately CAD$12,000,000) with an interest rate of 8.27% per annum accruing interest on a monthly basis. The Principal is payable on 31 December 2021. In addition, the Group has long term debt of $168,147,966 with its major shareholders Inflection and Aterra for which interest accrues monthly. Assuming that the Group is able to defer interest repayments on its loans from its shareholders, Management’s cash flow forecast shows cash remains positive for the 18 month period from the date of approval of these financial statements. While there is currently no contracted written agreement to defer interest repayments to the Group’s shareholders, the Group’s management notes that in the past they have been successful in both securing financing from its Shareholders and deferring interest repayments to them. For this reason and based on the Group’s long-term relationships with their shareholders, management believes that they will be able to continue deferring interest repayments in the forecast period. In light of the instability in the global economy and commodity prices as a result of the COVID-19 pandemic, together with the other factors described above, the Group’s management has identified a material uncertainty relating to the Group’s ability to maintain working capital liquidity to service the Group’s financing arrangements. Page | 14 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 2. BASIS OF PREPARATION (Continued) These material uncertainties may cast significant doubt upon the Group’s ability to continue as a going concern. Notwithstanding these material uncertainties, the Directors have a reasonable expectation that the Group has adequate resources to continue in existence for the foreseeable future and have concluded it is appropriate to adopt the going concern basis of accounting in the preparation of the financial statements. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern. 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. 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. Developing costs and licenses depreciated through unit of production basis calculated based on the ratio of silver ore mined during a period to the total volume of silver ore to be mined based on the estimated commercial resources. Asset associated with the obligation for environmental rehabilitation depreciated on straight line basis during life of mine. 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. Mining properties are depleted on ‘unit of production basis’ calculated based on the ratio of silver ore mined during a period to the total volume of silver ore to be mined based on the estimated commercial resources. Commercial resources are mineral resources that are considered probable of economic extraction and include measured, indicated and inferred resources. While inferred resources have a lower degree of geological certainty, they are included in the depletion calculation due to the nature of the ore body which enables their presence being able to be inferred without a high concentration of drilling 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. Page | 15 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 2. BASIS OF PREPARATION (Continued) Property, plant and equipment (Continued) 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 were 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. 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 include 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 and the Company financial assets include cash and cash equivalents, accounts receivable and amount owned from group undertakings. 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. Page | 16 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 2. BASIS OF PREPARATION (Continued) Significant Accounting Policies (Continued) The Group recognises a loss allowance for expected credit losses (‘ECL’) on financial assets that are measured at amortised cost which comprise mainly trade receivables. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. The Group always recognises lifetime ECL on trade receivables. The expected credit losses on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate 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. In determining if a modification of a financial liability is substantial, which includes a comparison of the cash flows before and after the modification, discounted at the original effective interest rate (EIR), referred to as the ‘10% test’. If the difference between these discounted cash flows is more than 10%, the financial liability is derecognized and a new financial liability recognized at fair value. If, a modified financial liability does not result in derecognition, the original EIRs retained and the Group recalculates carrying amount based on revied cash flow of financial liability and recognized modification gain or loss. Gain on modification of shareholder loans is recognised either as finance income in the Consolidated Statement of Comprehensive Profit / (Loss) or as an increase in shareholder contribution in Equity. Management makes assessment of each modification and if change in terms, for example, reduction of interest rate, represents terms which are more favourable at the time than market and indicative of the lender acting in capacity of shareholder, then it is recognised through shareholder contribution, otherwise, it is recognised as finance income. 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. 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. Page | 17 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 2. BASIS OF PREPARATION (Continued) Significant Accounting Policies (Continued) 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. 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. Page | 18 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 2. BASIS OF PREPARATION (Continued) Significant Accounting Policies (Continued) 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. 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 related to mining equipment under leased contracts are disclosed 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. 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. Page | 19 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 2. BASIS OF PREPARATION (Continued) Significant Accounting Policies (Continued) · Modification gain on shareholder contribution On 26 May 2020, 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 9% to 7% per annum and capitalize accrued interest to the principals of loans effectively from 1 April 2020. As this reduction of interest rate was reflective of market conditions having been benchmarked against Russian bank lending rates offered to the Group it has been recognized through finance income. · 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. Page | 20 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 2. BASIS OF PREPARATION (Continued) Significant Accounting Policies (Continued) Key sources of estimation uncertainty: · Mineral resource estimate Mineral resource estimates are estimates of the amount of silver that can be economically and legally extracted from the Group’s mining properties. Such resource estimates and their changes may impact the Group’s reported financial position and results in the following ways: (a) The carrying value of exploration and evaluation assets, mining properties and property, plant and equipment may be affected due to changes in estimated future cash flows; (b) Depreciation and amortisation charges in the statement comprehensive income may change where such charges are determined using the unit of production method; (c) Provisions for rehabilitation and environmental provisions may change where resource estimate changes affect expectations about when such activities will occur and the associated cost of these activities. The Group estimates mineral resources based on information compiled by appropriately qualified Competent Persons relating to the geological and technical data on the size, depth, shape and grade of the ore body and suitable production techniques and recovery rates. Such an analysis requires complex geological judgements to interpret the data. The estimation of recoverable resources is based upon factors such as estimates of foreign exchange rates, commodity prices, future capital requirements and production costs, along with geological assumptions and judgements made in estimating the size and grade of the ore body. The Group reviews its mineral resource estimates on regular basis and as at 1 April 2020 the Group obtained a mineral resource (not reserve) estimate from a third party, Wardell Armstrong. Wardell Armstrong has issued their report on 25 March 2021 the delay in issuing report due to COVID-19 travel restrictions. This report has superseded the Companies previous estimate of recoverable reserves and resources that was prepared in 2017. The difference between a resource statement (as obtained in 2020) and reserves and resources statement (as obtained previously in 2017) is the level of confidence of the presence of economically viable minerals. · Impairment of mineral properties and property, plant and equipment The carrying value of mineral properties and property, plant and equipment is $11,923,604 and $74,096,536 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. On 22 June 2020, the Group announced that it has received a draft report from Wardell Armstrong (Moscow) that provides a review of the Company’s current mineral resources, as well as draft revised mine and processing plans, for its Vertikalny and Mangazeisky North deposits. The Group had previously disclosed that it had engaged Wardell Armstrong (Moscow) to conduct this review of the mineral resources as well as reassessing mine and processing plans for these deposits. Wardell Armstrong (Moscow) have issued their final report on 25 March 2021.Following additional exploration activities, this included a material change in the mineral resource estimates of both Vertikalny and Mangazeisky North deposits. In accordance with IAS 36, the impairment review was undertaken. Page | 21 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 3. BASIS OF PREPARATION (Continued) Significant Accounting Policies (Continued) · Impairment of mineral properties and property, plant and equipment (continued) Key Assumption used in the impairment test: · · · · · · The economic life of the Vertikalny and Mangazeisky North deposits is currently expected to be around 2026 as per management’s current expectation; For the following six years Silver price is US$25/ounce as per management’s current expectation For the following six years RUB/USD foreign exchange rate 75 as per management’s current expectation For the following six years Annual inflation of costs expressed in USD is 2% as per management’s current expectation For the following six years Annual inflation of costs expressed in RUB is 4% as per management’s current expectation Post tax nominal discount rate of 12.7% (pre-tax of 15.9%). This was based on a Capital Asset Pricing Model analysis. Based on the key assumptions set out above: The recoverable amount of Vertikalny and Mangazeisky North deposits ($95.6 mln) exceeds its carrying value of the mining assets less asset retirement obligation of ($82.3mln) by $13.3mln and therefore assets were not impaired. Sensitivity analysis: Impact if silver prices Impact if RUB/USD exchange rate Impact if future capex Impact if post-tax discount rate: Increased by 20% Decreased by 20% Increased by 20% Decreased by 20% Increased by 20% Decreased by 20% Increased by 20% Decreased by 20% In millions of CAD 49 (53) 21 (33) (9) 9 (8) 9 · Depreciation rates Once a mine development phase ceases and the production phase commences mining assets are depreciated using a unit- of production method based on estimated economically recoverable resources, which results in a depreciation charge proportional to the depletion of reserves. The Group proven and probable mineral reserves at the beginning of commercial production was 717 thousand tonnes, depletion for the period 1 July 2019- 31 March 2020 was 95 thousand tonnes. Page | 22 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 2. BASIS OF PREPARATION (Continued) Significant Accounting Policies (Continued) · Depreciation rates (continued) Starting from 1 April 2020 management of the group has changed its depreciation base for the unit of production method from mineral reserves to mineral resources. In making this change, the UoP calculation has been adjusted to include the estimated future costs to access and process resources expected to be converted to reserves. The most material impact of this is in respect of costs required to enable the processing facility to process sulphide ores that will be mined in the future, in addition to the oxide ores currently being processed. Management believes that this change in accounting estimate represent the most accurate and fair view for the depreciation charge calculation. At 1 April 2020, the date the change in accounting estimate occurred, resources were 810 thousand tonnes and depletion for the period 1 April 2020- 31 December 2020 was 79 thousand tonnes. The effect of changing in estimate is decreasing depreciation charge for the year from $21,893,493 to $19,444,324. · Rehabilitation provisions and asset retirement obligations The carrying value of the asset retirement obligation is $4,040,784 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 7-year zero coupon year bond is used in discounting future cash flows as a pre-tax discount rate. The expected life of the mine is used as the discounting period. If the estimated discount rate used in the calculation had been higher for 20% than the management estimate, the carrying amount of the provision would have been lower for $258,716 and the interest expense higher for $17,742. 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. · Ore stocks Stock is valued at the lower of cost or net realisable value. Costs that are incurred in or benefit the production process are accumulated as ore stockpiles, silver in process and silver bullion. Although the quantities of recoverable metal are reconciled by comparing the grades of ore to the quantities of silver actually recovered (metallurgical balancing), the nature of the process inherently limits the ability to precisely monitor recoverability levels. Net realisable value tests are performed at least annually and represent the estimated future sales price of the product based on contained silver and metals prices, less estimated costs to complete production and bring the product to sale. These net realisable tests take into account management’s estimate of the maximum values to be realised from ore stockpiles, in some instances through blending of different ore stockpile grades, prior to these being added to future processing plant feeds. Judgement is required in assessing whether stockpiles of different grades should be tested individually, or tested as inputs to the silver production process. 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. COVID-19-Related Rent Concessions (Amendments to IFRS 16) Effective 1 June 2020, IFRS 16 was amended to provide a practical expedient for lessees accounting for rent concessions that arise as a direct consequence of the COVID-19 pandemic and satisfy the following criteria: Page | 23 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 2. BASIS OF PREPARATION (Continued) New standards and interpretations adopted by the Group (Continued) COVID-19-Related Rent Concessions (Amendments to IFRS 16) (continued) (a) The change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; (b) The reduction is lease payments affects only payments originally due on or before 30 June 2021; and (c) There is no substantive change to other terms and conditions of the lease. Rent concessions that satisfy these criteria may be accounted for in accordance with the practical expedient, which means the lessee does not assess whether the rent concession meets the definition of a lease modification. Lessees apply other requirements in IFRS 16 in accounting for the concession. This amendment has no impact to the Group’s financial statement. Other standards New standards that have been adopted in the annual financial statements for the year ended 31 December 2020, but have not had a significant effect on the Group are: (cid:127) IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment – Disclosure Initiative - Definition of Material); and (cid:127) Revisions to the Conceptual Framework for Financial Reporting. 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 | 24 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 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 2020 compared to the year ended 31 December 2019. 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 Russia and Canada which in the presentational currency total $1,275,402 and $26,763, respectively. The Group’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 other than tax refunds due from the Canadian and Russian tax authorities are insignificant. The Group maximum exposure to credit risk by class of individual financial instrument is shown in the table below: Receivables from customers Cash and cash equivalents 31 December 31 December 2020 1,350,634 1,302,165 2,652,799 2019 2,281,016 5,444,288 7,725,304 Management believes that the credit risk concentration with respect to accounts receivable is not higher than the country credit risk. Page | 25 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 3. CAPITAL MANAGEMENT AND FINANCIAL RISK FACTORS (Continued) Liquidity risk The Group’s approach to managing liquidity risk is to ensure it will have sufficient liquidity to meet liabilities when due by continual review of budgets and forecasts and discussions with shareholders and other providers of finance as appropriate. The Group’s current assets and current liabilities are show in the table below: Total current assets Total current liabilities 31 December 2020 31 December 2019 25,276,471 31,536,590 8,455,810 5,955,102 As at 31 December 2020 the Group had total current assets of $25,276,471 (31 December 2019 – $31,536,590) to settle total current liabilities of $8,455,810 (31 December 2019 – $5,955,102), as well as its commitments outlined in Note 21. Total liabilities of $178,797,220 include long-term loans totaling $172,460,849 accrued interest of $3,085,133 and fair value gain on modification of loans of $7,398,016. As at 31 December 2020, the Group had cash balances of $1,302,165 (31 December 2019 – $5,444,288) The Group had total obligations of $2,926,166 at 31 December 2020 (31 December 2019 – $888,300) 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 2020 Current liabilities Accounts payable & accrued liabilities Loans interest Lease liabilities Non-current liabilities Long-term loans 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 3,682,160 3,085,133 1,688,373 3,682,160 18,139,540 1,973,324 3,682,160 12,059,986 1,081,516 - 6,079,554 891,808 - - - - 165,062,833 - 1,237,793 174,756,292 172,460,849 11,696,534 1,321,378 209,273,785 - - 16,823,662 - 6,971,362 - 11,696,534 1,321,378 13,017,912 172,460,849 - - 172,460,849 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 Page | 26 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 3. CAPITAL MANAGEMENT AND FINANCIAL RISK FACTORS (Continued) Liquidity risk (continued) The contractual maturities of the Company’s financial liabilities (which are all carried at amortised cost) are shown in the table below: 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 ruble. USD funding has been provided directly to AO Prognoz in Russia and converted to Russian ruble. This exposes the Group to changes in foreign exchange rates for U.S. dollar and Russian ruble. 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 2020 31 December 2019 GBP USD CAD EUR GBP USD CAD EUR Current assets: Cash and cash equivalents Receivables Total current assets Current liabilities: 49 - 49 Accounts payable and accrued liabilities 215,442 7,792 - 7,792 739,781 778,864 Lease liabilities Total current liabilities Non-current liabilities: Long-term loans Lease liabilities Total non-current liabilities - 60,346 13,451 199,255 - - 215,442 1,518,645 60,346 13,451 199,255 373,325 311,380 684,705 59,450 - 59,450 - - - 168,147,966 943,451 169,091,417 - - - - - - - - 166,842,243 170,452 167,012,695 - - - 22,282 - 22,282 - - - 1,910 2,606,566 31,257 - - - 1,910 2,606,566 31,257 - - - - - - - - - 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: 31 December 2020 31 December 2019 Impact on profit or loss Impact on profit or loss US Dollar strengthening by 20% (2019: strengthening by 20%) US Dollar weakening by 20% (2019: weakening by 20%) CAD strengthening by 20% (2019: strengthening by 20%) CAD weakening by 20% (2019: weakening by 20%) GBP strengthening by 20% (2019: strengthening by 20%) GBP weakening by 20% (2019: weakening by 20%) EUR strengthening by 20% (2019: strengthening by 20%) (38,059,125) 38,059,125 (1,321) 1,321 (49,738) 49,738 (2,906) (33,009,566) 33,009,566 1,206 (1,206) (37,997) 37,997 7 Page | 27 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 EUR weakening by 20% (2019: weakening by 20%) 2,906 (7) 4. RECEIVABLES Russian Value Added Tax Deferred Russian Value Added Tax Receivables from customers Amounts owed from group undertakings 31 December 2020 1,411,585 288,173 1,350,634 - 3,050,392 31 December 2019 1,130,031 301,909 2,281,016 - 3,712,956 Deferred Russian Value Added Tax relates to the VAT paid on acquisition of materials and services and 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 the first quarter of 2021 therefore the asset has been recognized as current. The amount of VAT recovered in cash during the period was RUB 240,440,124 (CAD: $4,455,097). 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 2020 3,515,118 3,800,097 3,037,333 174,086 1,719,479 5,888,160 18,134,273 31 December 2019 1,641,989 2,168,065 6,550,178 989,754 5,470,799 2,743,723 19,564,508 The total cost of inventory recognized in cost of sales is $49,635,020 (2019: $20,322,050). An impairment provision was charged to profit and loss for the period for $347,057 (2019: $1,698,015). The impairment provision was accrued based on result of the year-end stock count. Page | 28 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 6. PREPAID EXPENSES AND NON-CURRENT ASSETS Prepaid expenses consist of the following: Prepayments to suppliers Taxes Prepaid non-current assets consist of the following: Prepayments for property, plant and equipment 31 December 2020 2,639,357 150,284 2,789,641 31 December 2020 2,871,150 2,871,150 31 December 2019 2,676,818 138,020 2,814,838 31 December 2019 749,033 749,033 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 2020 2,152,680 813,085 2,965,765 31 December 2019 2,217,895 990,296 3,208,191 31 December 2020 281,073 115,933 - (47,572) (49,906) 299,528 31 December 2019 172,495 141,234 - (46,336) 13,680 281,073 Page | 29 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 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 Depreciation Change in estimate Translation adjustment Balance at the end of the year Licenses and Development costs 10,418,173 (1,446,297) - (102,663) 8,869,213 Asset Retirement Obligation 3,477,904 (342,595) 514,682 (595,600) 3,054,391 31 December 2020 31 December 2019 2020 Total 2019 Total 13,896,077 (1,788,892) 514,682 (698,263) 11,923,604 12,027,009 (967,770) 2,705,224 131,614 13,896,077 Mineral property is made up of the following classes of assets; licenses $584,553 (2019: $668,455), asset retirement obligation $3,054,391 (2019: $3,477,904) and development costs of $8,284,660 (2019: $9,749,718). 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 licenses and development cost are depreciated on unit of production basis in proportion of depletion of resources. Asset retirement obligation depreciated on straight line basis during life of mine. 10. PROPERTY, PLANT AND EQUIPMENT Reconciliation of the carrying amount at the beginning and end of the periods ended 31 December 2020 and 31 December 2019: Carrying amount at 31 December 2018 Additions Transfers Disposal at cost Depreciation Depreciation eliminated on disposal Translation adjustment Carrying amount at 31 December 2019 Additions Transfers Disposal at cost Depreciation Depreciation eliminated on disposal Translation adjustment Carrying amount at 31 December 2020 Right of the use assets Mining Assets 3,692,086 227,816 - - (2,055,637) - 211,426 2,075,691 5,523,849 - - (2,915,927) - (1,026,366) 3,657,247 11,179,791 - 80,111,858 (261,673) (7,982,501) 255,176 1,730,347 85,032,998 - 9,850,731 - (14,709,308) - (12,399,635) 67,774,786 Assets under construction 82,052,424 4,347,312 (80,111,859) - - - 3,693,495 9,981,372 4,578,092 (9,850,731) (52,814) - - (1,991,416) 2,664,503 Total 96,924,301 4,575,128 (1) (261,673) (10,038,138) 255,176 5,635,268 97,090,061 10,101,941 - (52,814) (17,625,235) - (15,417,417) 74,096,536 Page | 30 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 10. PROPERTY, PLANT AND EQUIPMENT Continued) Capitalised costs nil (31 December 2019 - $14,327,368), capitalised pre-production nil (31 December 2019 - $12,773,554) and acquisition of new assets of $10,101,941 (31 December 2019 - $3,021,314). The property, plant and equipment as of the period ended 31 December 2020 include $2,664,503 of assets that are not yet ready for use. During the period ended 31 December 2020, $8,178,857 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 $7,504,308 (31 December 2019 - $1,995,747). All the property plant and equipment of the Group is pledged to shareholders under borrowings agreements. Mining assets depricated on unit of production basis in proportion of depletion of resources. Right of the use assets depreciated on straigh line basis in accordance with lease agreements and consist from the following classes of underlaying assets: Carrying amount at 31 December 2018 Additions Depreciation Translation adjustment Carrying amount at 31 December 2019 Additions Depreciation Translation adjustment Carrying amount at 31 December 2020 Processing plant Mining vehicles Infrastructure and other Total 863,497 227,816 (375,921) 54,226 769,618 1,420,191 (678,505) (311,779) 1,199,525 1,835,879 - (1,044,063) 102,908 894,724 4,103,658 (1,913,050) (666,838) 2,418,494 992,710 - (635,653) 54,292 411,349 - (324,372) (47,749) 39,228 3,692,086 227,816 (2,055,637) 211,426 2,075,691 5,523,849 (2,915,927) (1,026,366) 3,657,247 Page | 31 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities consist of the following: Trade and other payables Accrued liabilities Property tax liabilities Income tax liabilities Other taxes and other liabilities Amounts owed to group undertakings 12. LEASES Group 31 December 2020 1,817,224 1,060,010 397,214 - 407,712 - 3,682,160 31 December 2019 2,506,742 686,750 985,583 724,601 424,480 - 5,328,156 In 2016, the Group entered into long term lease agreements for the purchase of equipment in relation to the development of the Mangazeisky project payable in monthly instalments of circa US$ 268,000. The lease payments have been discounted at rates of between 11.02% and 19.23%. The Group made down payments of 20% of the cost of the equipment. Interest expenses on lease liabilites were $524,505, total cash outflow for leases was $3,606,534, Future minimum lease payments under leases, together with the present value of the 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 leases 31 December 2020 1,973,324 1,321,378 - 3,294,702 (368,536) 2,926,166 1,688,373 1,237,793 2,926,166 31 December 2019 738,291 283,686 - 1,021,977 (133,677) 888,300 626,946 261,354 888,300 Page | 32 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 13. LONG-TERM LOANS Lender 31 December 2020 Interest Principal Total Principal 31 December 2019 Interest Total Unifirm Ltd (formerly A.B. Aterra Resources Ltd) Inflection Management Corp. Fair value gain on modification of loans 34,664,242 137,796,607 (7,398,016) 620,105 2,465,028 - 35,284,347 140,261,635 (7,398,016) 25,360,652 103,112,503 (3,630,267) 9,440,938 32,558,417 - 34,801,590 135,670,920 (3,630,267) 165,062,833 3,085,133 168,147,966 124,842,888 41,999,355 166,842,243 Movement in long term loans is analyzed as follows in USD: Unifirm (formerly Aterra) Principal USD 19,601,242 Interest USD 5,508,099 Inflection Principal USD 77,695,628 Interest USD 18,078,823 Gain on modification of loans USD Total USD (1,324,642) 119,559,150 26,740,014 7,514,149 105,992,376 24,663,130 (1,807,077) 163,102,592 - - - - - 4,000,000 - - 4,000,000 1,788,799 - - (2,000,000) 7,212,562 (126,993) 1,211,226 - 10,212,587 (2,126,993) - - - (2,692,416) (2,692,416) 19,601,242 7,296,898 79,695,628 25,164,392 (2,805,832) 128,952,328 25,360,652 9,440,938 103,112,504 32,558,417 (3,630,267) 166,842,244 - - - 2,000,000 - - 2,000,000 1,908,076 - 7,649,878 2,992,392 12,550,346 - 7,742,827 (972,993) (7,742,827) - 27,001,968 (3,867,823) (27,001,968) - - (4,840,816) - - - - - (5,847,969) (5,847,969) 27,344,069 34,664,242 489,155 620,105 108,697,596 137,796,607 1,944,479 2,465,028 (5,661,408) (7,398,016) 132,813,890 168,147,966 As at 31 December 2019 (USD) As at 31 December 2019 (CAD) Principal amounts received Interest accrued to 31 December 2019 Principal and interest repayment Gain on modification of loans recognized through shareholder contribution As at 31 December 2019 (USD) As at 31 December 2019 (CAD) Principal amounts received Interest accrued to 31 December 2020 Principal and interest repayment Capitalization of interest Gain on modification of loans recognized through finance income As at 31 December 2020 (USD) As at 31 December 2020 (CAD) Gain on modification of shareholder loans is recognised either as finance income in the Consolidated Statement of Comprehensive Profit / (Loss) or as an increase in shareholder contribution in Equity. Management makes assessment of each modification and if change in terms, for example, reduction of interest rate, represents terms which are more favourable at the time than market and indicative of the lender acting in capacity of shareholder, then it is recognised through shareholder contribution, otherwise, it is recognised as finance income. Page | 33 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 13. LONG-TERM LOANS (Continued) Movement in long term loans is analyzed as follows in CAD: Unifirm (formerly Aterra) Inflection Principal CAD$ 26,740,014 - - - (3,040,724) Interest CAD$ 7,514,149 - 2,363,127 - (947,042) Principal CAD$ 105,992,376 5,290,156 - (2,655,350) (12,148,731) Interest CAD$ 24,663,130 - 9,530,614 (167,174) (3,172,841) Gain on modificatio n of loans FV gain CAD$ (1,807,077) - 1,607,913 - - CAD$ 163,102,592 5,290,156 13,501,654 (2,822,524) (19,309,338) - - - - (3,574,206) (3,574,206) 1,661,362 25,360,652 - - - 11,151,990 4,198,677 510,703 9,440,937 6,634,053 103,112,504 - 2,607,065 (1,380,091) (11,151,990) 2,461,964 2,351,454 - - 38,890,925 17,852,811 1,704,689 32,558,418 - 10,448,965 (5,475,330) (38,890,925) 8,536,927 143,103 (3,630,267) - 4,000,216 - - - 10,653,910 166,842,244 2,351,454 17,056,246 (6,855,421) - 33,050,379 - - - - (8,050,595) (8,050,595) (6,047,077) 34,664,242 (1,357,780) 620,105 (24,411,087) 137,796,607 (4,713,027) 2,465,028 282,630 (7,398,016) (36,246,341) 168,147,966 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 recognized through shareholder contribution Translation adjustment As at 31 December 2019 Principal amounts received Interest accrued to 31 December 2020 Principal and interest repayment Capitalization of interest Foreign exchange loss Gain on modification of loans recognized through finance income Translation adjustment As at 31 December 2020 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. On 26 May 2020, 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 9% to 7% 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 1 April 2020 and on the maturity date, being 20 March 2023. Accrued interest at 1 April 2020 was capitalized to the loan principal. The modification of the loan interest from 9% to 7% in 2020 was considered to be non-substantive. As this reduction of interest rate was reflective of market conditions having been benchmarked against Russian bank lending rates offered to the Group it has been recognized through finance income in amount of $7,817,537. 31 December 2020, the Group further amended its existing Facilities Agreement major shareholders Aterra and Inflection, extending the maturity dates of certain components of Tranches F, G, H and I, issued by Inflection from 31 July 2021 and 20 September 2022, as applicable, to 1 January 2023. The modification of the loan in 31 December 2020 was considered to be non-substantive and has been recognized through finance income in amount of $233,058. 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. Page | 34 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 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 2020 4,034,245 230,207 - 514,682 (738,350) 4,040,784 31 December 2019 1,109,391 100,348 1,978,457 726,768 119,281 4,034,245 At 31 December 2020, the expected life of the Mangazeisky project has been assessed to be 6 years. The projected cost for reclamation and closure of the Mangazeisky project in 2026 has been estimated to be $4.4m. A Russian Government 7-year zero coupon year bond of 5.87% (2019: 6.41%) has been used in discounting of future cash flows. Page | 35 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 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 2020 and 31 December 2019: Common shares 31 December 2020 Balance - Beginning of the year Issued under stock option plan Issued under share subscription plan Issued under share bonus plan Shares issued during the period Balance - End of the year Share Bonus Plan Number of common shares 672,140,902 - 1,304,521 245,000 - 673,690,423 $ 99,559,336 - 2,234 428 - 99,561,998 31 December 2019 Number of common shares 671,984,902 151,000 5,000 $ 99,559,086 242 8 - 672,140,902 - 99,559,336 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. The number of the Bonus Shares issued to insiders of the Group, within any one-year period, and issuable to insiders of the Group, at any time, under the Share Bonus Plan, or when combined with all of the Group’s other security based compensation arrangements, shall not exceed 10% of the Group’s total issued and outstanding Shares, respectively. On 26 September 2019, the Group issued 5,000 common shares under the share bonus plan for the nominal fee of £0.001 On 30 January 2020, the Group issued 205,668 common shares under the non-executive director subscription plan for the nominal fee of £0.001. On 9 April 2020, the Group issued 399,714 common shares under the non-executive director subscription plan for the nominal fee of £0.001. On 17 July 2020, the Group issued 328,800 common shares under the non-executive director subscription plan for the nominal fee of £0.001. On 2 October 2020, the Group issued 167,250 common shares under the non-executive director subscription plan for the nominal fee of £0.001. On 6 October 2020, the Group issued 119,464 common shares under the non-executive director subscription plan for the nominal fee of £0.001. On 16 October 2020, the Group issued 83,625 common shares under the non-executive director subscription plan for the nominal fee of £0.001. On 4 December 2020, the Group issued 245,000 common shares under the share bonus plan for the nominal fee of £0.001. Page | 36 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 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 2020, options generated a share-based payments expense of $114,896 (31 December 2019: $421,338). 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 | 37 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 15. SHAREHOLDERS’ EQUITY (Continued) Stock options (Continued) Reconciliation of the number of options at the beginning and end of the periods ended 31 December 2020 and 31 December 2019 follows: Number Balance - Beginning of the year Granted Exercised Expired / Cancelled / Forfeited Balance - End of the year 25,051,000 - - (800,000) 24,251,000 31 December 2020 Weighted average exercise price, $ 0.25 - - 0.19 0.25 Number 30,948,666 500,000 (151,000) (6,246,666) 25,051,000 31 December 2019 Weighted average exercise price, $ 0.25 0.22 0.18 0.26 0.25 As at 31 December 2020, the Group had share options outstanding and exercisable as follows: Expiry year Number 2021 2022 2023 2024 1,651,000 18,000,000 4,100,000 500,000 24,251,000 Outstanding Weighted average exercise price, $ 0.19 0.24 0.26 0.22 0.25 Exercisable Number 1,651,000 18,000,000 3,100,000 166,667 22,917,667 Weighted average exercise price, $ 0.19 0.24 0.24 0.11 0.24 The weighted average remaining contractual life of share options outstanding at the end of the period was 782 days (2019: 1122 days). 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 2020 16,975,267 114,896 - (130,000) 16,960,163 31 December 2019 17,178,582 421,338 (8,773) (615,880) 16,975,267 Page | 38 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 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 Profit/(Loss) Weighted average number of shares used in basic EPS Basic profit/ (loss) per share Exercisable stock options Weighted average number of shares used in diluted EPS Diluted profit/ (loss) per share 16. RELATED PARTY DISCLOSURES (a) Financing transactions 31 December 2020 31 December 2019 (47,011,626) 672,872,643 (0.07) 22,917,667 695,790,310 (0.07) (537,791) 672,048,891 (0.00) 23,184,334 695,233,225 (0.00) The Group has entered into a series of financing transactions with major shareholders. As set out in note 13. (b) Purchases from related parties During the year ended 31 December 2020 the Group has made prepayments for construction materials to TechnoNicol the company under common control with Inflection in amount of $9,469 outstanding balance as at 31 December 2020 was $454 (2019: $383) (c) 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 (d) Interest in other entities 2020 538,116 81,187 619,303 2019 504,332 382,575 886,907 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 100 - 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. Page | 39 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 16. RELATED PARTY DISCLOSURES (Continued) 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 Other expenses 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 2020 64,449 123,197 212,510 62,942 23,176 486,274 2020 - (1,794,249) - (288,826) (2,083,075) 2020 (8,472,345) (3,884,044) (3,315,320) (3,337,644) (3,274,267) (2,627,575) (1,339,515) (360,964) (4,092,750) 513,728 (30,190,696) 2019 272,904 130,244 363,010 268,176 209,714 1,244,048 2019 (211,507) (1,177,226) (134,426) - (1,523,159) 2019 (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) Page | 40 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 18. PRODUCTION COST, GENERAL AND ADMINISTRATIVE EXPENSES (Continued) 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 Amortisation Rent IT and communications Other expenses 2020 (2,301,506) (240,947) (293,604) - (24,833) (17,593) (306,094) (100,601) (26,287) (44,680) (180,785) (63,305) (232,283) (3,832,518) 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) 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 354 (2019: 268). The following table provides the breakdown of Group’s employee compensation charged to the income statement: Salaries, fees and short-term employee benefits Share-based payments 2020 (10,658,955) (114,896) (10,773,851) 2019 (5,088,006) (421,338) (5,509,344) Total employee benefits relating to the construction of the Mangazeisky Project are capitalized within property, plant and equipment totaling nil (31 December 2019: $3,555,469). The following table provides the breakdown of Group’s total staff costs including those that have been capitalized during pre- production stage: Salaries, fees and short-term employee benefits Share-based payments 2020 (10,658,955) (114,896) (10,773,851) 2019 (8,643,475) (421,339) (9,064,814) Page | 41 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 19. FINANCE INCOME AND EXPENSE Finance Expense Interest accrued from loans Interest accrued from prepayments Interest accrued from lease obligations Accretion expenses Finance Income Non-substantive modification gain Interest from deposits 20. NET CHANGE IN NON-CASH WORKING CAPITAL Net change in non-cash working capital consists of the following: Receivables Advances received Inventories Prepaid expenses Accounts payable and accrued liabilities 2020 (17,056,246) (48,417) (538,697) (230,207) (17,873,567) 2019 (13,501,654) - (368,684) (100,348) (13,970,686) 2020 8,050,595 18,440 8,069,035 2019 - 51,896 51,896 2020 (105,316) (48,262) (2,504,658) (405,252) (828,381) (3,891,869) 2019 219,517 - (2,025,182) (313,823) 1,983,469 (136,019) Net changes in non-cash working capital for cash flow statement calculated for each company of the Group in their functional currencies. Then translated to the reporting currency using the average rates and consolidated. 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 2020. Page | 42 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 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 2020 Country/Property Russia - Mangazeisky Cash Inventories Prepaid Receivables Mineral Properties Property plant and equipment Depreciation Interest expense Profit / (loss) before tax 1,193,504 18,134,273 5,437,388 3,050,392 11,923,604 74,096,536 (19,364,209) (17,873,567) (46,668,221) Corporate 108,661 - 223,403 - - - - - (332,623) 1,302,165 18,134,273 5,660,791 3,050,392 11,923,604 74,096,536 (19,364,209) (17,873,567) (47,000,844) As at 31 December 2019 Country/Property Russia - Mangazeisky Cash Inventories Prepaid Receivables Mineral Properties Property plant and equipment Depreciation Interest expense Profit / (loss) before tax 5,308,151 19,564,508 3,563,871 3,712,956 13,896,077 97,090,061 (10,149,338) (13,970,686) 5,139,359 Corporate 136,137 - - - - - - - (4,760,350) 5,444,288 19,564,508 3,563,871 3,712,956 13,896,077 97,090,061 (10,149,338) (13,970,686) 379,009 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 2020 and 31 December 2019 were as follows: 31 December 2020 Cash and cash equivalents Accounts receivable Short-term loans Long-term loans Advances received Accounts payables and accrued liabilities Lease liabilities Cash and receivables 1,302,165 1,350,634 - - - - - 2,652,799 Loans and other liabilities - - (3,085,133) (165,062,833) (144) (2,877,234) (2,926,166) (173,951,510) TOTAL 1,302,165 1,350,634 (3,085,133) (165,062,833) (144) (2,877,234) (2,926,166) (171,298,711) Page | 43 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 23. FINANCIAL INSTRUMENTS (Continued) 31 December 2019 Cash and cash equivalents Accounts receivable Long-term loans Accounts payables and accrued liabilities Lease liabilities Cash and receivables 5,444,288 2,281,016 - - - 7,725,304 Loans and other liabilities - - (166,842,243) (3,193,492) (888,300) (170,924,035) TOTAL 5,444,288 2,281,016 (166,842,243) (3,193,492) (888,300) (163,198,731) 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. DEBT RECONCILIATION Long and short-term loans Long and short-term lease obligation Total net debt 25. INCOME TAXES Current tax expense Total tax expense Non-cash changes 31 December 2019 166,842,243 888,300 167,730,543 Cash flow Accrual of interest Modification gain New leases FX differences Translation differences 31 December 2020 (4,503,967) (3,606,534) (8,110,501) 17,056,246 538,697 17,594,943 (8,050,595) (8,050,595) 4,507,822 4,507,822 33,050,379 433,932 33,484,311 (36,246,340) 163,949 (36,082,391) 168,147,966 2,926,166 171,074,132 2020 (10,782) (10,782) 2019 (916,798) (916,798) 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 Total tax expense 2020 (47,000,844) 20.00% 9,400,169 (2,466,633) - (516,856) (6,427,462) (10,782) 2019 379,007 20.00% (75,801) (1,208,259) 924,382 (557,120) - (916,798) 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 $33,894,607 (2019: $34,571,789) of non-capital losses for Russian income tax purposes. Silver Bear PLC has approximately $2,192,837 (2019: $2,528,728) in non-capital losses that can be carried forward indefinitely. 26. CONTROLLING AND ULTIMATE CONTROLLING PARTY The controlling and ultimate controlling party is Kolesnikov Sergei Anatolievich. Page | 44 Silver Bear Resources Plc Notes to Consolidated Financial Statements For the years ended 31 December 2020 and 2019 27. SUBSEQUENT EVENTS In the fist quarter 2021, the Group entered into a loan agreement with SKA ASSETS MANAGEMENT LIMITED, a company under common control with Inflection, in the amount of RUB 750,000,000 (equivalent to approximately C$12,000,000) with an interest rate of 8.27% per annum, which interest shall accrue on a monthly basis. The Principal will be due and payable on 31 December 2021. Page | 45 

Continue reading text version or see original annual report in PDF format above