Anglo Asian Mining plc / Ticker: AAZ / Index: AIM / Sector: Mining

25 May 2016

Anglo Asian Mining plc

Full year results - 2015

Anglo Asian Mining plc (�Anglo Asian� or �the Company�), the AIM listed gold, copper and silver producer focused in Azerbaijan, is pleased to announce its final audited results for the year ended 31 December 2015 (�FY 2015�). Note that all references to �$� are to United States Dollars.

Highlights

�         Strong production performance in FY 2015 with record gold production

�         Total gold production in FY 2015 of 72,032 ounces (FY 2014: 60,285 ounces)

�         Gold sales in FY 2015 of 63,924 ounces (FY 2014: 50,615 ounces) completed at an average of $1,161 per ounce (FY 2014: $1,267 per ounce)

�         Gold produced at an average cash operating cost net of by-product credits of $724 per ounce (2014: $971 per ounce). Lower average cash operating cost due to increase in production and lower costs

�         Silver production in FY 2015 totalled 28,628 ounces (FY 2014: 31,177 ounces). FY 2015 lower due to changing mineralogy

�         Copper production for FY 2015 was 969 tonnes, a 24 per cent. increase on FY 2014 production of 784 tonnes

�         Production target of 73,000 to 77,000 ounces of gold and 1,700 to 2,100 tonnes of copper for FY 2016

�         Gadir underground mine commenced production in 2015 with 37,880 tonnes of ore mined with an average grade of 7.98 grammes of gold per tonne

�         Flotation plant commenced production in Q4 2015 with 578 dry metric tonnes of copper concentrate produced containing 130 tonnes of copper, 335 ounces of gold and 9,264 ounces of silver

Financials

�         Total revenues increased to $78.1 million (2014: $68.0 million)

�         Loss before tax reduced to $8.9 million (2014: $14.4 million)

�         Operating cash flow before movements in working capital increased to $18.6 million (2014: $10.6 million)

�         Net debt of $49.0 million at 31 December 2015 (31 December 2014: $52.4 million) calculated as aggregate of loans and borrowings less cash and cash equivalents

�         Cash position of $0.2 million as at 31 December 2015 (31 December 2014: $0.3 million)

Chairman's statement

2015 was another important year for Anglo Asian where we demonstrated our ability as a mid-tier gold, copper and silver producer. I believe it marks the first stage in turning around your Company. The performance of our assets in Azerbaijan improved and we delivered record gold production of 72,032 ounces. With production increasing at Gedabek, together with the successful launch of our flotation plant in the fourth quarter of 2015, Anglo Asian is now able to deliver long-term, sustainable value to shareholders even during periods of low metal prices such as seen during 2015. The increase in metal prices seen since the beginning of 2016, together with the cost reduction and efficiency initiatives and the devaluation of the Azerbaijan Manat, will further enhance Anglo Asian�s performance in the future.

Review of 2015 and 2016 to date

We reported total gold production for 2015 of 72,032 ounces, a 19 per cent. increase over 2014 of 60,285 ounces; copper production in 2015 was 969 tonnes, a 24 per cent. increase over 2014 of 784 tonnes.  Production of silver, however, totalled 28,628 ounces for 2015, which was an 8 per cent. decrease over 2014 of 31,177 ounces, due to changes in the mineralogy of the ore. Whilst our gold and copper production in 2015 increased substantially, the global environment for mining companies remained poor. The difficulties experienced by mining companies in 2015 resulting from the low prices of many commodities were often headline news. Average gold and copper prices in 2015 were $1,160 per ounce and $5,494 per tonne respectively which were 8 per cent. and 20 per cent. lower respectively than in 2014. 

The increased gold production beneficially impacted our financial results for the year. The impact of the first revenues from flotation was limited in 2015, but is expected to enhance the results from 2016 onwards. Revenues increased from $68.0 million to $78.1 million and our cash costs reduced from $971 to $724 per ounce which resulted in the operating loss reducing to $3.2 million from $8.9 million in 2014. Cash provided by operating activities increased in the year to $22.9 million from $14.8 million in 2014. We serviced our debts on time with net principal and interest payments made in the year totalling $23.1 million.

We continue to work on improving the efficiency of our production and to lower costs and in particular the management of mining contractors. Cyanide is now also being partially sourced from Georgia at lower prices and its shorter delivery lead time is enabling cyanide stocks to be reduced.  The ore mined at Gedabek was found to be noticeably harder in late 2015 and early 2016 and as a result the Company is planning to commission a second semi-autogenous (�SAG�) mill in the agitation leaching plant in the third quarter of 2016 to improve productivity. This new SAG mill will eventually be redeployed in an expanded flotation plant. In March 2016, a new contract was signed with Industrial Minerals S.A. for the sale of copper concentrate produced from the flotation plant. This contract is on the same terms as the Company�s existing contract with the exception of improved terms for any penalty due to the concentrate containing zinc.

We were very pleased to announce the completion of construction and first production and revenues from our flotation plant in the fourth quarter of 2015. The successful completion of this project to build a flotation plant in under two years and for $4.5 million is a remarkable achievement and a credit to the technical staff of Anglo Asian and its contractors. Commissioning encountered a few teething problems, which is usual for such projects, but these have now been largely overcome. Initial production of concentrate also contained zinc, which is treated as a contaminant by the buyer. We are working very hard to mitigate this problem and are making good progress in reducing the zinc content of the concentrate produced. The Company is expected to benefit from a full year of production from the flotation plant in 2016.

During 2015, we were also pleased to announce the first ore mined from Gadir, an underground mine co-located on the Gedabek site. During 2015, 37,880 tonnes of ore grading 7.98 grammes per tonne of gold was extracted and processed. This ore is very amenable to leaching by our agitation leaching plant and is therefore prolonging the useful life of the plant. In March and April 2016, we took delivery of an underground drill machine, loader and truck from Atlas Copco which is expected to increase the productivity of the Gadir mine.

The first quarter of 2016 unfortunately saw a slow-down in production. Ordinarily, the first quarter of the year has always had lower production due to the difficult winter weather conditions. However, the harder rock that has been encountered together with its lower gold grade also adversely affected production. On the other hand, we were very pleased to report the first full quarter of production from the flotation plant. In the three months to 31 March, 2016 the flotation plant produced 1,458 dry metric  tonnes of copper concentrate containing 251 metric tonnes of copper and 777 ounces and 24,595 ounces of gold and silver respectively.

We place our highest priority on our environmental responsibilities. A key responsibility is secure storage of tailings produced at Gedabek. In 2015, we approximately doubled the capacity of our tailings dam by raising the wall of the dam and increased security by building a reed bed biological treatment system immediately downstream of the dam to process any seepage. The pipes to the tailings dam were also relocated into fully lined trenches to capture any seepage should any pipe rupture.

We sell our products in US Dollars; however, a significant portion of our costs are denominated in Azerbaijan Manats. The recent devaluation of the Azerbaijan Manat against the US Dollar of 43 per cent. in addition to the previous devaluation of 34 per cent. is unwelcome for Azerbaijan and its people. However, we believe this will have a considerable beneficial effect for Anglo Asian in 2016. We estimate that the combined effect of the recent devaluation and the previous devaluation in February 2015 will reduce our operating costs by approximately $13 million in the 2016 financial year at the current US Dollar to Azerbaijan Manat exchange rate of approximately $1 equals AZN1.5

Outlook

It is with optimism that I look forward to 2016 and beyond. I believe that during the course of 2015, we have demonstrated that our strategy can deliver success, and we have built a strong platform for sustained growth and profitability.

The outlook for metal prices remains uncertain. However, the increase in prices during the first four months of 2016 is obviously beneficial to us and we hope marks the start of a sustained recovery in prices. 

Despite the production challenges in the first quarter of 2016 as noted above, we are confident that total gold production during the remainder of the year will improve and accordingly have announced a gold production target for 2016 of between 73,000 ounces to 77,000 ounces (which includes approximately 4,000 ounces to 5,000 ounces of production from the flotation plant). Furthermore, we have also announced a copper production target of between 1,700 tonnes and 2,100 tonnes for 2016 which is significantly higher than 2015�s production of 969 tonnes. Our forecast gold production for 2016 is slightly higher than that achieved in 2015, and there will be a full year�s contribution from our new flotation plant. We are also benefiting from lower costs due to the devaluation of the Azerbaijan Manat. Accordingly, we believe the outlook for 2016 represents a further improvement over 2015 and look forward to updating shareholders on our progress.

Appreciation

I would like to take this opportunity to thank our Anglo Asian senior management team and employees, partners, the Government of Azerbaijan, advisers and fellow directors for their continued support as we continue to build Anglo Asian into a leading and profitable mid-tier gold, copper and silver producer in Azerbaijan and Caucasia. I would also like to especially thank our shareholders for their invaluable support as we look forward to a successful 2016.

Khosrow Zamani

Non-executive chairman

Strategic report

Principal activities

The principal activity of Anglo Asian Mining PLC is that of a holding company and a provider of support and management services to its main operating subsidiary R.V. Investment Group Services LLC. The Company, together with its subsidiaries (the �Group�), owns and operates gold, silver and copper producing assets in the Republic of Azerbaijan (�Azerbaijan�). It also explores for and develops other potential gold and copper projects in Azerbaijan.

The Group has a 1,962 square kilometre portfolio of gold, silver and copper assets in western Azerbaijan, at various stages of the development cycle. These include our main Gedabek gold, silver and copper mine. Gadir, an underground mine, is also located at Gedabek. The Group�s processing facilities to produce gold dor� and copper, silver and gold concentrates, from mined ore are also located at Gedabek. Gosha, the Group�s second gold and silver mine, is located 50 kilometres away from Gedabek. Ordubad, the Group�s early stage gold and copper exploration project is located in the Nakhchivan region of Azerbaijan.

During the period under review, the Group�s main focus has been on several key areas to increase our gold, copper and silver production and ensure the future success of our operations as follows:

-             continued optimisation of the performance of the agitation leaching plant to ensure maximum production at lowest possible cost;

-             increasing production of ore from the Gadir underground mine, which is co-located on the Gedabek property, and which commenced production in 2015; and

-             production of a copper and precious metal concentrate from the flotation plant which was commissioned in the fourth quarter of 2015.

The Group has a target production for the full year to 31 December 2016 of 73,000 to 77,000 ounces of gold and 1,700 to 2,100 tonnes of copper.

Gedabek

Introduction

The Gedabek mining operation is located in a 300 square kilometre contract area in the lower Caucasus mountains in western Azerbaijan on the Tethyan Tectonic Belt, one of the world�s most significant copper and gold bearing geological structures. The mine, which first poured gold in 2009, is principally an open pit mining operation. In addition, in late 2014, the Group started to develop an underground mine, Gadir, co-located on the Gedabek property, which commenced production in June 2015.

Mineral resources

Key to the future development of the Gedabek site is our knowledge of the mineral resources and ore reserves within the contract area. The Group�s latest ore reserve estimate was carried out as of 1 September 2014. This ore reserve estimate showed an increase of approximately 3.9 million tonnes of ore, after allowing for depletion due to mining since the previous estimate. It also showed a significantly higher copper content than the previous estimate. Table 1 shows the ore reserve estimate as at 1 September 2014.

Table 1 - ore reserve estimate as at 1 September 2014

Mining operations

The principal mining operation at Gedabek is conventional open cast mining from several contiguous open pits. Ore is first drilled and blasted and then transported either to a processing facility or to a stockpile for storage. The major mining activities of drilling and blasting and subsequent transportation of ore are carried out by contractors. Table 2 summarises the ore mined from the open pit at Gedabek for the year ended 31 December 2015.

Table 2 � ore mined from the open pit at Gedabek for the year ended 31 December 2015

Ore is also mined at Gedabek from the Gadir underground mine which is situated approximately one kilometre from the main open pit at the Gedabek site. Development of the Gadir mine commenced in 2014 with the construction of a decline and the mine started producing ore in June 2015. Table 3 summarises the ore mined from the Gadir underground mine for the year ended 31 December 2015.

Table 3 � ore mined from the Gadir underground mine for the year ended 31 December 2015

Processing operations

Ore is processed at Gedabek to produce either gold dor� (an alloy of gold and silver with small amounts of impurities) or a copper and precious metal concentrate.

Gold dor� is produced by cyanide leaching. Initial processing is to leach (i.e. dissolve) the precious metal (and copper) in a cyanide solution. This is done by various methods:

1.      Heap leaching of crushed ore. Crushed ore is heaped into permeable �pads� onto which is sprayed a solution of cyanide. The solution dissolves the metals as it percolates through the ore by gravity and it is then collected.

2.      Heap leaching of run of mine (�ROM�) ore. The process is similar to heap leaching for crushed ore except the ore is not crushed and is heaped into pads as received from the mine (ROM) without further treatment or crushing.

3.      Agitation leaching. Ore is crushed and then processed through a grinding circuit. The

finely ground ore is then placed in stirred tanks containing a cyanide solution and the contained metal is dissolved in the solution.

Slurries produced by the above processes with dissolved metal in solution are then transferred to a resin in pulp (�RIP�) plant. A synthetic resin, in the form of small spherical plastic beads designed to absorb gold selectively over copper and silver, is placed in contact with the leach slurry, or �pulp�. After separation from the pulp, the gold-loaded resin is treated with a second solution, which �strips� (i.e. desorbs) the gold, plus the small amounts of absorbed copper and silver, transferring the metals from the resin back into solution.  The gold and silver dissolved in this final solution are recovered by electrolysis and are then smelted to produce the dor� metal, containing gold and silver.

Copper and precious metal concentrates are produced by two processes, SART processing and flotation.

1.      Sulphidisation, Acidification, Recycling and Thickening (�SART�). The cyanide solution after metal absorption by resin in pulp processing is transferred to the SART plant. The pH of the solution is then changed by the addition of reagents. This recovers the copper from the solution in the form of a precipitated copper sulphide concentrate containing silver and minor amounts of gold.

2        Flotation. Flotation is carried out in a separate flotation plant. Feedstock is mixed with water and other chemicals including flocculants to produce a slurry called �pulp�. This pulp is processed in flotation cells (tanks). The flotation cells are agitated and air introduced as small bubbles. The sulphide minerals attach to the air bubbles and float to the surface where they form a froth which is collected. This froth is dewatered to form a concentrate containing copper, gold and silver. Feedstock can be either tailings from the agitation leaching plant or freshly crushed and milled ore.

Initially, gold dor� was produced at Gedabek by heap leaching crushed ore. Heap leaching is a low capital cost method of production traditionally used by mines when they first move into production. However, heap leaching has limitations with regards to the minimum size of the ore being leached limited to around 25 millimetres. This limitation results in only approximately 60 to 70 per cent. of the gold within the ore being recovered with leaching cycles typically extending up to one year, depending on the detailed composition of the ore.

To increase gold recoveries and production, the Group constructed and commissioned in July 2013 an agitation leaching plant. Compared to heap leaching, agitation leaching can deliver higher recoveries of gold without long leaching cycles. Heap leach pads also require considerable space for their construction and due to the topology of the Gedabek site, this was a constraint.

The agitation leaching plant�s initial performance was not as planned due to the mineralogical variation of the ore. Due to very high copper values in the ore, recoveries of gold were not as high as anticipated and the plant�s usage of cyanide was higher than planned. Throughout 2014 and 2015, the Group has therefore expended considerable effort in improving the performance of the plant. This has been focused on both increasing metal recoveries to increase production and lowering cyanide consumption to decrease costs.

During the year ended 31 December 2015, ore has been processed by three methods at Gedabek: whole ore heap leaching; crushed ore heap leaching; and agitation leaching. Table 4 shows the amounts of ore and its grade processed at Gedabek for the year ended 31 December 2015.

Table 4 � amount of ore and its grade processed at Gedabek for the year ended 31 December 2015

The Group�s experience of processing has shown the ore at Gedabek to be poly-metallic containing significant amounts of copper. Initially, the SART processing plant was constructed to produce a copper and precious metal concentrate. However, to further exploit the high copper content of the Group�s ore reserves, the Group commenced construction of a flotation plant in the fourth quarter of 2014 whose function is primarily to produce copper with gold and silver as by-products.

The flotation plant has the flexibility to be configured for various methods of operation. It is able to process the Company�s stockpiles of high copper content ore. It can also treat ore feed to, or tailings from, the agitation leaching plant. In such configurations, the plant will be an integral part of the agitation leaching plant.

The flotation plant was commissioned in the fourth quarter of 2015 and is now producing a copper and precious metal concentrate from the tailings of the agitation leaching plant. Commissioning took longer than anticipated due to some minor delays in final installation of equipment and the time required for the optimisation of the quality of the concentrate due to the presence of zinc, which is an impurity. These teething problems have been largely overcome and the plant is currently producing at around 75 to 80 per cent. of its design capacity which equates to approximately 1,000 wet tonnes of mineral concentrate per month.

Production and sales

For the year ended 31 December 2015, total gold production as dor� bars and as a constituent of the copper and precious metal concentrate totalled 72,032 ounces, which was an increase of 11,747 ounces in comparison to the production of 60,285 ounces in the year ended 31 December 2014. 

Table 5 summarises the gold and silver produced as dor� bars and sales of gold bullion for the year ended 31 December 2015.

Table 5 � gold and silver produced as dor� bars and sales of gold bullion for the year ended 31 December 2015.

*Including Government of Azerbaijan�s share.

** Excludes Government of Azerbaijan�s share.

Table 6 summarises the total copper and precious metal production as concentrate from both SART processing and flotation for the year ended 31 December 2015.

Table 6 � total copper and precious metal production as concentrate for the year ended 31 December 2015

Table 7 summarises the total copper concentrate sales from both SART processing and flotation for the year ended 31 December 2015.

Table 7 � total copper concentrate sales for the year ended 31 December 2015

Tailings (waste) storage

The Company is very mindful of the importance of proper storage of tailings both for efficient operation of the plant and to fulfil its environmental responsibilities. The Company stores its tailings in a purpose built dam approximately seven kilometres from its processing operations. The project to approximately double the capacity of the tailings dam by raising its wall 14 metres to 64 metres is now complete. The tailings dam now has a capacity of approximately 3.2 million cubic metres. The tailings dam seepage water return pumping system has been greatly improved with many failsafe features added. The reed bed biological treatment system immediately downstream of the dam to process any seepage has also been completed. This will enable seepage water to be purified before discharge into the Shamkir river. The new dam construction and pumping system has now been inspected and approved by third-party consultant engineers. Work has also been carried out to relocate the pipes from the agitation leaching plant to the tailings dam into a fully lined trench designed to capture any seepage should any pipe rupture.

Due to the high rainfall in the Gedabek region, there is a positive water balance over the mine property, which accumulates water at a rate of about 300,000 cubic metres per year.  To date, all excess water is stored in the tailings dam, but in 2015 a project was initiated to design and construct a water detoxification system that will enable clean water to be discharged from the site into local water courses.  The treatment system will involve reverse osmosis and ion exchange and the first phase of this project is expected to start operation during 2016.

Personnel and health and safety

The health and safety of our employees and the protection of the environment in and around our mine properties are prime concerns for the Company�s board and management team.  The Health, Safety and Environmental (�HSE�) department at Gedabek has a qualified HSE manager, who is assisted by four HSE officers.  Overall strategy for HSE matters in the Company is overseen by the HSE and Technical committee, which is chaired by a board director, Professor John Monhemius.

During 2015, there were 78 (2014: 65) reportable safety incidents, of which ten (2014: four) were lost time incidents (�LTI�), where the casualty had to take time off from work. The increased number of incidents is partly explained by the increasing size and complexity of the mining and processing operations across our properties as the Company�s activities progress. However, the Company is actively monitoring the situation and taking action to reduce the number of incidents.

To improve medical coverage over all the operations, 85 managers and supervisors have undergone first aid training, so that they can provide first responder help in the event of accidents or other emergencies, before professional medical assistance arrives from the local hospital.

A geotechnical inspection of the new Gadir underground mine was carried out in August 2015 by AMC Consultancy, United Kingdom.  Their report identified a number of short and medium term issues that are in the process of being addressed.

Exploration at Gedabek site

The main exploration activities in the year have been at the Gadir mine and surrounding area at Gedabek and at the Ordubud site.

Gosha

The Group�s second mining project, the 300 square kilometre Gosha contract area, is located in western Azerbaijan, 50 kilometres north-west of Gedabek. Gosha is currently being developed as a small, high grade, underground gold mine.

During the development and early production of the Gosha mine, it became evident that the initial estimated ore vein thickness was not as expected. This not only affected the resource estimate but also resulted in changes in mining method to decrease dilution during mining. Currently based on a non-JORC report by the consultants SRK, the Gosha resource is about 40,000 ounces of gold (140,000 tonnes of ore grading 9 grammes per tonne � all figures in situ and before dilution). We are also planning for further exploration at Gosha.

A total of 14,981 tonnes of ore of average grade 6.15 grammes per tonne were mined at Gosha in the year ended 31 December 2015.

Ordubad

Our 462 square kilometre Ordubad contract area is located in the Nakhchivan region of Azerbaijan and contains numerous targets including Shakardara, Piyazbashi, Misdag, Agyurt, Shalala and Diakchay, which are all located within a 5 kilometre radius of each other. Development at Ordubad forms part of the Group�s longer-term development portfolio as a mid-tier gold, copper and silver mining company.

Sale of the Group�s products

Important to the Group�s success is the ability to transport its products to market and sell them without disruption.

The Group ships all of its gold dor� to MKS Finance SA in Switzerland. The logistics of transport and sale are well established and gold dor� shipped from Gedabek arrives in Switzerland within three to five days. The proceeds of the estimated 90 per cent. of the gold content of the dor� is settled within one to two days of receipt of the dor�. The Group has not experienced any disruptions to its sale of metal due to logistics or delays in customs clearance. MKS Finance SA both refines and then purchases our precious metal; all assays and a full accounting of all metal is agreed with them.

The Gedabek mine site has good road transportation links and our copper and precious metal concentrate is collected from the Gedabek site by the purchaser. The Group was pleased to announce in May 2014 that it had signed an exclusive three year contract with Industrial Minerals SA, a Swiss based integrated trading, mining and logistics group, for the sale of its copper concentrate. The Group has again experienced no delays in the sale of its copper concentrate in the period under review. In March 2016, the Group signed an additional contract with Industrial Minerals SA for the sale of the concentrate produced by its flotation plant which had improved terms. The contract is valid for the period to 31 December 2018. Until this date, sales of concentrate produced by the flotation plant were made under the original contract.

Principal risks and uncertainties

Country risk in Azerbaijan

The Group currently operates solely in Azerbaijan and is therefore naturally at risk of adverse changes to the regulatory or fiscal regime within the country.  However, Azerbaijan is outward looking and desirous of attracting direct foreign investment and the Company believes the country will be sensitive to the adverse effect of any proposed changes in the future. In addition, Azerbaijan has historically had a stable operating environment and the Company maintains very close links with all relevant authorities.

Operational risk

The Company currently produces all its products for sale at Gedabek. Planned production may not be achieved as a result of unforeseen operational problems, machinery malfunction or other disruptions. Operating costs and profits for commercial production therefore remain subject to variation.  The Group monitors production on a daily basis and has robust procedures in place to effectively manage these risks.

Commodity price risk

The Group�s revenues are exposed to fluctuations in the price of gold, silver and copper and all fluctuations have a direct impact on the operating profit and cash flow of the Group. Whilst the Group has no control over the selling price of its commodities, it has very robust cost controls to minimise costs to ensure it can withstand any prolonged period of commodity price weakness.

The Group does not hedge this commodity price exposure and actively monitors all changes in commodity prices to understand the impact on the business. The Group remains open to the possibility of hedging, which is reviewed periodically.

Foreign currency risk

The Group reports in United States Dollars and a large proportion of its costs are incurred in United States Dollars. It also conducts business in Australian dollars, Azerbaijan Manats and United Kingdom Sterling. The Group does not currently hedge its exposure to other currencies, although it will review this periodically if the volume of non-United States dollar transactions increases significantly. Also, the fact that both revenue of the Group and the Group�s interest-bearing debt are settled in United States dollars is a key mitigating factor that helps to avoid significant exposure to foreign currency risk. Information on the carrying value of monetary assets and liabilities denominated in foreign currency and the sensitivity analysis of foreign currency is disclosed in note 23 to the following financial statements.

Liquidity and interest rate risk

Interest rates on current loans are fixed except for three month LIBOR embedded in the terms of the Amsterdam Trade Bank loan. The Group has not used any interest rate swaps or other instruments to manage its interest rate profile during 2015, but this requirement is reviewed on a periodic basis. Information on the exposure to changing interest rates is disclosed in note 23 to the following financial statements.  The approval of the board of directors is required for all new borrowing facilities.  At the year end, the Group�s only interest rate exposure was on the interest rate charged on the Amsterdam Trade Bank loan.

The levels of deposits held by the Group have also been low, therefore any impact of changing rates on interest receivable is minimal. 

Key performance indicators

The Group has adopted certain key performance indicators (�KPIs�) which enable it to measure its financial performance. These KPIs are as follows:

1.      Profit before taxation. This is the key performance indicator used by the Group. It gives insight into cost management, production growth and performance efficiency.

2.      Net cash provided by operating activities. This is a complementary measure to profit before taxation and demonstrates conversion of underlying earnings into cash. It provides additional insight into how we are managing costs and increasing efficiency and productivity across the business in order to deliver increasing returns. 

3.      Cash cost per ounce. Cash cost per ounce of gold produced is a widely used industry metric and is a measure of how our operation compares to other producers in the industry.

The Group�s performance against these indicators is discussed in the financial review.

Financial review

Group income statement

The Group generated revenues of $78,057k (2014: $67,964k) from sales of gold and silver bullion and copper and precious metal concentrates.

$74,279k of the revenues (2014: $64,280k) were generated from sales of gold and silver bullion from the Group�s share of the production of dor� bars in 2015. Bullion sales in 2015 were 63,924 ounces of gold and 3,754 ounces of silver (2014: 50,615 ounces of gold and 6,802 ounces of silver) at an average price of $1,161 per ounce and $15 per ounce respectively (2014: $1,267 per ounce and $20 per ounce respectively). In addition, the Group generated revenue from the sale of copper concentrate of $3,778k (2014: $3,684k).

The Group incurred cost of sales of $75,234k (2014: $68,500k). The cash cost of mining and processing in 2015 decreased by $6,160k from $61,697k in 2014 to $55,537k in 2015. This was due to improving operational efficiency, cost control and the devaluation of the Azerbaijan Manat. However, this was offset by higher depreciation and amortisation of $2,819k ($21,857k in 2015 compared to $19,038k in 2014), a net charge in respect of opening and closing inventory in 2015 of $6,828k and a decrease in capitalised deferred stripping costs in 2015 of $3,289k.

Depreciation and amortisation in 2015 was $21,857k compared to $19,038k in 2014. The higher depreciation was due to increased production of gold. Accumulated mine development costs within producing mines are depreciated and amortised on a unit-of-production basis over the economically recoverable reserves of the mine concerned, except in the case of assets whose useful life is shorter than the life of the mine, in which case the straight line method is applied. The unit of account for run of mine (�ROM�) costs and for post-ROM costs is recoverable ounces of gold.

The Group had other income in 2015 of $714k (2014: $632k) which was interest receivable on employee loans, consultancy and exchange gains. The Group incurred administration expenses in 2015 of $5,415k (2014: $7,202k) and finance costs of $5,721k (2014: $5,462k). The Group�s administration expenses comprise the cost of the administrative staff and associated costs at the Gedabek mine site, the cost of the Baku office and the cost of maintaining the Group�s listing on AIM. The Group�s administration costs reduced in 2015 compared to 2014 due to the devaluation of the Azerbaijan Manat and cost reduction measures. The finance costs for the year comprise interest on the credit facilities and loans, interest on letters of credit and accretion expenses on the rehabilitation provision. 

The Group recorded a reduced loss before taxation in 2015 of $8,910k (2014: $14,364k) due to higher revenues in 2015 and average cash costs reducing to $724 per ounce compared to $971 per ounce in 2014.

The Group had a taxation credit for the year of $1,529k (2014: $3,436k). This comprised a current income tax charge of $nil and a deferred tax credit of $1,529k (2014: taxation credit of $3,436k comprising a current income taxation charge of $nil and a deferred taxation credit of $3,436k). The Group had no current taxation charge in 2015 as its main operating companies incurred a taxable loss for the year. The deferred taxation credit in 2015 arose primarily due to an increase in carry forward losses partially offset by lower taxation depreciation compared to accounting depreciation.

Cash cost of total gold production

The Group produced gold at an average cash operating cost net of by-product credits in 2015 of $724 per ounce compared to $971 per ounce in 2014. Cash operating cost is defined as the cash cost of mining and processing (before adjustment for inventory movements and deferred stripping costs capitalised or released) plus metal selling costs. By-product credits are the sale proceeds (including Government of Azerbaijan share) of copper and silver. The reason for the decrease in 2015 compared to 2014 was the both the decrease in cash operating costs and the increase in production.

Group statement of financial position

Non-current assets decreased from $137,451k at the end of 2014 to $129,464k at the end of 2015. The main reasons for the decrease were intangible assets lower by $1,672k and property, plant and equipment lower by $6,003k. These decreases were mainly driven by depreciation and amortisation in the year. Non-current inventory increased by $873k due to an increase in ore stockpiles.

Net current assets decreased from $10,136k at the end of 2014 to net current liabilities of $4,243k at the end of 2015. The main reason for the decrease was an increase in the current portion of interest-bearing loans and borrowings. The current portion of interest-bearing loans and borrowings increased by $10,033k from $16,675k to $26,708k. This was mainly due to $2,007k of existing loans from the International Bank of Azerbaijan now maturing within one year, an increase in the loan of $3,379k due to Pasha Bank which was drawn down in the year to finance the flotation plant construction and the loan from director of $3,860k which is repayable within one year. The Group�s cash balances at 31 December 2015 were $249k (2014: $322k).

Net assets of the Group were $78,644k (2014: $85,916k). The decrease was mainly due to the loss incurred in the year.

The Group is financed by a mixture of equity and debt. The Group�s total debt at 31 December 2015 was $49,296k and comprised the following:

a          $27.1m term loan from the Amsterdam Trade Bank (�ATB�). The loan has a quarterly interest rate of LIBOR plus 8.25 per cent. The term of the loan is 58 months and repayment is by quarterly instalments of $2.5m which commence in February 2015, 16 months after drawdown. The final repayment is due on 25 August 2018. The Group has pledged to ATB its present and future rights against MKS Finance SA, the sole buyer of the Group�s gold and silver bullion until the loan is repaid. The actual rate of interest the loan incurred in 2015 was 8.73 per cent. The loan has a debt service coverage ratio (�DSCR�) covenant of 1:1.25 calculated half and full yearly from the Group�s published half and annual financial statements. The Group met this DSCR for both the six months ended 30 June 2015 and 12 months ended 31 December 2015.

b          $11.7m of loans from the International Bank of Azerbaijan. $10.2m of these loans is the remaining balance of the loans obtained for the construction of the agitation leaching plant. Repayment started on 31 March 2015 and ends on 31 March 2018. $1.5m is a working capital facility and carries an interest rate of 12 per cent. It is repayable in full on 30 June 2016.

c          $0.4m due to Atlas Copco for equipment financing.

d          $1.7m due to Yapi Kredi Bank for working capital financing.

e          $4.6m due to Pasha Bank. $1.4m is payable in respect of the credit line for financing letters of credit for cyanide purchases. $3.3m is in respect of the credit facility obtained for the financing of the flotation plant. The total amount outstanding under the two facilities is repayable in two equal instalments in May and November 2016.

f           $3.9m from a director. This carries interest at 10 per cent. Repayment date is 8 July 2016.

The Group had a deferred taxation liability at 31 December 2015 of $15,435k (2014: $16,964k). 

Group cash flow statement

Operating cash inflow before movements in working capital was $18,581k (2014: $10,567k). The main source of operating cash flow was the profit before taxation, finance costs and amortisation and depreciation of $18,668k (2014: $10,129k).

Working capital movements generated cash of $4,631k (2014: $4,254k) due to a decrease in inventories of $6,285k (2014: increase of $3,342k) mainly driven by a decrease in metal in circuit of $6,660k partially offset by a decrease in trade and other payables of $793k (2014: increase of $3,902k) and an increase in trade and other receivables of $1,110k (2014: decrease of $3,694k).

Income tax paid was $nil (2014: $nil) as the Group incurred taxable losses for the year.

Net cash provided by operating activities in 2015 was $22,963k compared to $14,821k in 2014. This higher cash generated from operating activities in the year was due to the decreased loss of the Group partially offset by less cash generated from working capital.

Expenditure on property, plant and equipment and mine development was $14,279k (2014: $16,270k). The main items of expenditure in 2015 were capitalisation of deferred stripping costs of $6,627k, the raise of the wall of the tailings dam and construction of a reed bed for the tailings dam of $2,983k, construction of the flotation plant of $3,188k and development of the Gadir mine of $894k.

Exploration and evaluation expenditure of $377k (2014: $608k) was incurred and capitalised. This arose due to exploration at the Gedabek and Ordubad mining properties.

Production Sharing Agreement (�PSA�)

Under the terms of the PSA in place with the Government of Azerbaijan, the Group and the Government of Azerbaijan share commercial products of each mine.  Until the time the Group has recovered all its carried forward, unrecovered costs, the Government of Azerbaijan effectively takes 12.75 per cent. of commercial products of each mine, with the Group taking 87.25 per cent. (being 75 per cent. for capital and operating costs plus 49 per cent. of the remaining 25 per cent. balance).  The Group will not have recovered all its costs incurred by the end of 2016 and the ratio of sharing commercial products for the Gedabek mine of 87.25 per cent. for the Group and 12.75 per cent. for the Government of Azerbaijan will continue throughout 2016.

Once all prior year costs are recovered, the Group can continue with cost recovery of up to 75 per cent. of the value of commercial products, before the remaining product revenues are shared between the Company and the Government of Azerbaijan in a 49 per cent. to 51 per cent. ratio.  The Group can recover the following costs:

�         all direct operating expenses of the Gedabek mine;

�         all exploration expenses incurred on the Gedabek contract area;

�         all capital expenditure incurred on the Gedabek mine;

�         an allocation of corporate overheads - currently, overheads are apportioned to Gedabek according to the ratio of direct capital and operating expenditure at the Gedabek contract area compared with direct capital and operational expenditure at the Gosha and Ordubad contract areas; and

�         an imputed interest rate of US dollar LIBOR + 4 per cent. per annum on any unrecovered costs.

Going concern

The directors have prepared the Group financial statements on a going concern basis after reviewing the Group�s forecast cash position for the period to 30 June 2017 and satisfying themselves that the Group will have sufficient funds on hand to realise its assets and meet its obligations as and when they fall due.

In making this assessment the directors have acknowledged the challenging and uncertain market conditions in which the Group is operating. In 2015, the price of gold averaged $1,160 per ounce with a high of $1,298 per ounce and a low of $1,060 per ounce. This resulted in a continuation of the depressed margins seen in 2014. However, 2016 has seen a small but significant increase in the price of gold and during the period 1 January to 20 May 2016, the price of gold averaged $1,206 per ounce. In addition, the Group received its first revenues from its flotation plant in the fourth quarter of 2015 after the plant commenced production. 2016 and 2017 will see the benefit of a full years� contribution of revenues from the flotation plant.

The Group commenced making payments on the principal of its debt in 2015. At the date of this release, the Group has made all payments of interest and principal on time.

The Group�s loan agreement with the Amsterdam Trade Bank contains a debt service cover ratio (�DSCR�) covenant of at least 1.25. This ratio is calculated twice a year from its published financial statements. The Group has so far met the DSCR of 1.25 for all reporting periods subsequent to loan drawdown. For the full year to 31 December 2016 and for the six month period to 30 June 2017, the Group�s cash flow forecasts show the Group is able meet the debt service cover ratio of 1.25 as specified.

Key to achieving the Group�s forecast cash position, and therefore its going concern assumption are the following:

-           achieving the forecast production of gold dor� from its heap and agitation leaching facilities.

-           achieving its forecast production of precious metal concentrates from its SART and flotation processing.

-           its metal (principally gold and copper) price assumptions being met or bettered.

Should there be a moderate and sustained decrease in either the production or metal price assumptions, significant doubt would be cast over the Group�s short term cash position. Under this circumstance, the Group would seek to defer all non-essential capital expenditure and administrative costs in order to preserve cash. The Group also has access to local sources of short term finance to meet any shortfalls.

The Group�s assumptions are based on best estimates and appropriate sensitivities have been applied.  Appropriate rigour and diligence has been performed by the directors in approving the assumptions. The directors believe all assumptions are prepared on a realistic basis using the best available information.

The Group�s business activities, together with the factors likely to affect its future development, performance and position, can be found in the Group�s annual report and accounts and within the chairman�s statement and the strategic report above. The financial position of the Group, its cash flow, liquidity position and borrowing facilities are discussed in the financial review. In addition, note 23 to the following financial statements includes the Group�s objectives and details of its financial instrument exposures to credit risk and liquidity risk. 

After making due enquiry, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing the financial statements.

Reza Vaziri

President and chief executive

Group income statement

year ended 31 December 2015

Group statement of comprehensive income

year ended 31 December 2015

Group statement of financial position

31 December 2015

Group cash flow statement

year ended 31 December 2015

Group statement of changes in equity

year ended 31 December 2015

 Notes

1.    General information

Anglo Asian Mining PLC (the �Company�) is a company incorporated in England and Wales under the Companies Act 2006. The Company�s ordinary shares are traded on the Alternative Investment Market (�AIM�) of the London Stock Exchange. The Company is a holding company. The principal activities and place of business of the Company and its subsidiaries (the �Group�) are set out in note 16, and the chairman�s statement and strategic report above.

2.   Basis of preparation

The financial information set out above, which was approved by the board of directors on 24  May 2015, has been prepared in accordance with International Financial Reporting Standards (�IFRS�) adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.

The financial information set out above has been prepared using accounting policies set out in note 4 which are consistent with all applicable IFRSs and with those parts of the Companies Act 2006 applicable to companies reporting under IFRSs. For these purposes, IFRSs comprises the standards issued by the International Accounting Standards Board and interpretations issued by the International Financial Reporting Interpretations Committee that have been endorsed by the European Union.

The financial information set out above has been prepared under the historical cost convention except for the treatment of share-based payments. The Group financial statements are presented in United States Dollars (�$�) and all values are rounded to the nearest thousand except where otherwise stated. In the Group financial statements ��� and �pence� are references to the United Kingdom pound sterling.

The board of directors assessed the ability of the Group to continue as a going concern and these financial statements have been prepared on a going concern basis.

Going concern

The directors have prepared the Group financial statements on a going concern basis after reviewing the Group�s forecast cash position for the period to 30 June 2017 and satisfying themselves that the Group will have sufficient funds on hand to realise its assets and meet its obligations as and when they fall due.

In making this assessment the directors have acknowledged the challenging and uncertain market conditions in which the Group is operating. In 2015, the price of gold averaged $1,160 per ounce with a high of $1,298 per ounce and a low of $1,060 per ounce. This resulted in a continuation of the depressed margins seen in 2014. However, 2016 has seen a small but significant increase in the price of gold and during the period 1 January to 20 May 2016, the price of gold averaged $1,206 per ounce. In addition, the Group received its first revenues from its flotation plant in the fourth quarter of 2015 after the plant commenced production. 2016 and 2017 will see the benefit of a full years� contribution of revenues from the flotation plant.

The Group commenced making payments on the principal of its debt in 2015. At the date of this release, the Group has made all payments of interest and principal on time. The Group�s loan agreement with the Amsterdam Trade Bank contains a debt service cover ratio (�DSCR�) covenant of at least 1.25. This ratio is calculated twice a year from its published financial statements. The Group has so far met the DSCR of 1.25 for all reporting periods subsequent to loan drawdown. For the full year to 31 December 2016 and for the six month period to 30 June 2017, the Group�s cash flow forecasts show the Group is able meet the debt service cover ratio of 1.25 as specified.

Key to achieving the Group�s forecast cash position, and therefore its going concern assumption are the following:

-        achieving the forecast production of gold dor� from its heap and agitation leaching facilities.

-        achieving its forecast production of precious metal concentrates from its SART and flotation processing.

-        its metal (principally gold and copper) price assumptions being met or bettered.

Should there be a moderate and sustained decrease in either the production or metal price assumptions, significant doubt would be cast over the Group�s short term cash position. Under this circumstance, the Group would seek to defer all non-essential capital expenditure and administrative costs in order to preserve cash. The Group also has access to local sources of short term finance to meet any shortfalls.

The Group�s assumptions are based on best estimates and appropriate sensitivities have been applied.  Appropriate rigour and diligence has been performed by the directors in approving the assumptions. The directors believe all assumptions are prepared on a realistic basis using the best available information.

The Group�s business activities, together with the factors likely to affect its future development, performance and position, can be found in the Group�s annual report and accounts and within the chairman�s statement and the strategic report above. The financial position of the Group, its cash flow, liquidity position and borrowing facilities are discussed in the financial review. In addition, note 23 to the following financial statements includes the Group�s objectives and details of its financial instrument exposures to credit risk and liquidity risk. 

After making due enquiry, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing the financial statements.

3    Adoption of new and revised standards

a) New and amended standards and interpretations

The Group applied those minor amendments, including annual improvements, which are effective for annual periods beginning on or after 1 January 2015. However, they do not impact the annual consolidated financial statements of the Group or the interim financial statements and, hence, have not been disclosed.

b) Standards issued but not yet effective

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the financial statements that the Group reasonably expects will have an impact on its disclosures, financial position or performance when applied at a future date, are disclosed below. The Group intends to adopt these standards when they become effective. The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the financial statements that are not expected to impact the Group have not been listed below.

�          IFRS 9 �Financial Instruments�

In July 2014, the IASB issued the final version of IFRS 9 �Financial Instruments� that replaces IAS 39 and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for the financial instruments project; classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. Except for hedge accounting, retrospective application is required, but the provision of comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.

The Group plans to adopt the new standard on the required effective date. The Group is in the process of assessing the impact of the changes required by the final version of IFRS 9, but these are not expected to be materially significant.

�          IFRS 15 �Revenue from Contracts with Customers�

IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted.

The Group plans to adopt the new standard on the required effective date using the full retrospective method. The Group is currently assessing the impact of the changes of IFRS 15, but these are not expected to be materially significant.

�          IAS 7 Statement of cash flows

An exposure draft proposing amendments to IAS 7 �Statement of cash flows� was issued in December 2014. The exposure draft includes a proposal to require a reconciliation of the amounts in the opening and closing statements of financial position for each item classified as financing in the statement of cash flows. It also includes a proposal to require extended disclosures about the restrictions on cash and cash equivalent balances to provide the users with additional information about the entity�s liquidity.

The Group plans to implement the new standard on the effective date for implementation which is for annual periods beginning on or after 1 January 2017. Comparative information for preceding annual periods is not required to be restated. The Group does not expect these additional disclosures to be materially significant.

�          Amendments to IAS 1 Disclosure initiative

The amendments to IAS 1 �Presentation of Financial Statements� clarify rather than significantly change, existing IAS 1 requirements. The amendments clarify:

o    the materiality requirements in IAS 1;

o    that specific line items in the statement(s) of profit or loss and other comprehensive income and the statement of financial position may be disaggregated;

o    that entities have flexibility as to the order in which they present the notes to the financial statements; and

o    that the share of other comprehensive income of associates and joint ventures accounted for using the equity method must be restated in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit and loss.

Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and other comprehensive income. These amendments are effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. These amendments are not currently expected to have any material impact on the Group.

4    Significant accounting policies

a) Basis of consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2015. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

�     power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

�     exposure, or rights, to variable returns from its involvement with the investee; and

�     the ability to use its power over the investee to affect its returns.

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

�     the contractual arrangement with the other vote holders of the investee;

�     rights arising from other contractual arrangements; and

�     the Group's voting rights and potential voting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary beings when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

b) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership have been transferred, which is considered to occur when title passes to the customer. This generally occurs when product is physically transferred to the buyer.

The following criteria are also met in specific revenue transactions:

Gold bullion and copper concentrate sales

Revenue from gold bullion sales is recognised when the significant risks and rewards of ownership have transferred to the buyer and selling prices and assay results are known or can be reasonably estimated. Assay results determine the content of gold and silver in dor�, the price of which is determined based on market quotations of each metal. Silver in dor� which is produced together with gold, is treated as a by-product and recognised in sales revenue.

Contractual terms for the Group�s sale of gold, silver and copper in concentrate (metal in concentrate) allow for a price adjustment based on final assay results of the metal in concentrate to determine the final content. Recognition of sales revenue for these commodities is based on the most recently determined estimate of metal in concentrate (based on initial assay results) and the spot price at the date of shipment, with a subsequent adjustment made upon final determination.

Contractual terms with third parties for the sale of metal in concentrate specify a provisional selling price based on the average prevailing spot prices at date of shipment to the customer. Final selling price is based on average prevailing spot prices during a specified future period after shipment to the customer (the �quotation period�). Sales revenue for the sale of metal in concentrate is recognised at final selling price.

Interest revenue

Interest revenue is recognised as it accrues, using the effective interest rate method.

c) Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date and whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

Operating lease payments are recognised as an expense in the Group income statement on a straight line basis over the lease term.

The Group had no finance leases during 2015 and 2014.

d) Taxation

i) Current and deferred income taxes

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the Group financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax assets and unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilised.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax is charged or credited in the Group income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets are not recognised in respect of temporary differences relating to tax losses where there is insufficient evidence that the asset will be recovered. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Group income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group�s liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the reporting date.

ii) Value-added taxes (�VAT�)

The Group pays VAT on purchases made in both the Republic of Azerbaijan and the United Kingdom. Under both jurisdictions, VAT paid is refundable. Azerbaijani jurisdiction permits offset of an Azerbaijani VAT credit against other taxes payable to the state budget.

e) Transactions with related parties

For the purposes of these Group financial statements, parties are considered to be related:

-     where one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions;

-     entities under common control; and

-     key management personnel

In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

Related parties may enter into transactions which unrelated parties might not and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties.

It is the nature of transactions with related parties that they cannot be presumed to be carried out on an arm�s length basis.

f) Borrowing costs

Borrowing costs directly relating to the acquisition, construction or production of a qualifying capital project under construction are capitalised and added to the project cost during construction until such time the assets are considered substantially ready for their intended use i.e. when they are capable of commercial production. Where funds are borrowed specifically to finance a project, the amount capitalised represents the actual borrowing costs incurred. Where surplus funds are available for a short term out of money borrowed specifically to finance a project, the income generated from the temporary investment of such amounts is also capitalised and deducted from the total capitalised borrowing cost. Where the funds used to finance a project form part of general borrowings, the amount capitalised is calculated using a weighted average of rates applicable to relevant general borrowings of the Group during the period. All other borrowing costs are recognised in the Group income statement in the period in which they are incurred.

Even though exploration and evaluation assets can be qualifying assets, they generally do not meet the �probable economic benefits� test. Any related borrowing costs are therefore generally recognised in the Group income statement in the period they are incurred.

g) Intangible assets

i) Exploration and evaluation assets

The costs of exploration properties and leases, which include the cost of acquiring prospective properties and exploration rights and costs incurred in exploration and evaluation activities, are capitalised as intangible assets as part of exploration and evaluation assets.

Exploration and evaluation assets are carried forward during the exploration and evaluation stage and are assessed for impairment in accordance with the indicators of impairment as set out in IFRS 6 �Exploration for and Evaluation of Mineral Resources�.

In circumstances where a property is abandoned, the cumulative capitalised costs relating to the property are written off in the period. No amortisation is charged prior to the commencement of production.

Once commercially viable reserves are established and development is sanctioned, exploration and evaluation assets are tested for impairment and transferred to assets under construction.

Upon transfer of Exploration and evaluation costs into Assets under construction, all subsequent expenditure on the construction, installation or completion of infrastructure facilities is capitalised within Assets under construction.

When commercial production commences, exploration, evaluation and development costs previously capitalised are amortised over the commercial reserves of the mining property on a units-of-production basis.

Exploration and evaluation costs incurred after commercial production start date in relation to evaluation of potential mineral reserves and resources that is expected to result in increase of reserves are capitalised as Evaluation and exploration assets within intangible assets. Once there is evidence that reserves are increased, such costs are tested for impairment and transferred to Producing mines.

ii) Mining rights

Mining rights are carried at cost to the Group less any provisions for impairments which result from evaluations and assessments of potential mineral recoveries and accumulated depletion. Mining rights are depleted on the units-of-production basis over the total reserves of the relevant area.

iii) Other intangible assets

Other intangible assets mainly represent the cost paid to landowners for the use of land ancillary to our mining operations. They are depreciated over the respective terms of right to use the land.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each reporting date. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the Group income statement in the expense category consistent with the function of the intangible asset.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the Group income statement when the asset is derecognised.

h) Property, plant and equipment and mine properties

Development expenditure is net of proceeds from all but the incidental sale of ore extracted during the development phase.

Upon completion of mine construction, the assets initially charged to assets in the course of construction are transferred into �Plant and equipment, motor vehicles and leasehold improvements� or �Producing mines�. Items of �Plant and equipment, motor vehicles and leasehold improvements� and �Producing mines� are stated at cost, less accumulated depreciation and accumulated impairment losses.

During the production period expenditures directly attributable to the construction of each individual asset are capitalised as �Assets� in the course of construction up to the period when asset is ready to be put into operation. When an asset is put into operation it is transferred to �Plant and equipment, motor vehicles and leasehold improvements� or �Producing mines�. Additional capitalised costs performed subsequent to the date of commencement of operation of the asset are charged directly to �Plant and equipment, motor vehicles and leasehold improvements� or �Producing mines�, i.e. where the asset itself was transferred.

The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the rehabilitation obligation and, for qualifying assets, borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset.

When a mine construction project moves into the production stage, the capitalisation of certain mine construction costs ceases and costs are either regarded as inventory or expensed, except for costs which qualify for capitalisation relating to mining asset additions or improvements, underground mine development or mineable reserve development.

i) Depreciation and amortisation

Accumulated mine development costs within producing mines are depreciated and amortised on a units-of-production basis over the economically recoverable reserves of the mine concerned, except in the case of assets whose useful life is shorter than the life of the mine, in which case the straight line method is applied. The unit of account for run of mine (�ROM�) costs and for post-ROM costs is recoverable ounces of gold. The units-of-production rate for the depreciation and amortisation of mine development costs takes into account expenditures incurred to date.

The premium paid in excess of the intrinsic value of land to gain access is amortised over the life of the mine.

Other plant and equipment such as mobile mine equipment is generally depreciated on a straight line basis over their estimated useful lives as follows:

�     Temporary buildings       � eight years (2014: eight years)

�     Plant and equipment       � eight years (2014: eight years)

�     Motor vehicles                 �  four years (2014: four years)

�     Office equipment              � four years (2014: four years)

�     Leasehold improvements   �    eight years (2014: eight years)

An item of property, plant and equipment, and any significant part initially recognised, is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Group income statement when the asset is derecognised.

The asset�s residual values, useful lives and methods of depreciation and amortisation are reviewed at each reporting date and adjusted prospectively if appropriate.

ii) Major maintenance and repairs

Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets and overhaul costs. Where an asset or part of an asset that was separately depreciated and is now written off is replaced, and it is probable that future economic benefits associated with the item will flow to the Group through an extended life, the expenditure is capitalised.

Where part of the asset was not separately considered as a component, the replacement value is used to estimate the carrying amount of the replaced assets which is immediately written off. All other day-to-day maintenance costs are expensed as incurred.

i) Impairment of tangible and intangible assets

The Group conducts annual internal assessments of the carrying values of tangible and intangible assets. The carrying values of capitalised exploration and evaluation expenditure, mine properties and property, plant and equipment are assessed for impairment when indicators of such impairment exist or at least annually. In such cases an estimate of the asset�s recoverable amount is calculated. The recoverable amount is determined as the higher of the fair value less costs to sell for the asset and the asset�s value in use. This is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, the individual assets are grouped together into cash-generating units (�CGUs�) for impairment purposes. Such CGUs represent the lowest level for which there are separately identifiable cash inflows that are largely independent of the cash flows from other assets or other groups of assets. This generally results in the Group evaluating its non-financial assets on a geographical or licence basis.

If the carrying amount of the asset exceeds its recoverable amount, the asset is impaired and an impairment loss is charged to the Group income statement so as to reduce the carrying amount to its recoverable amount (i.e. the higher of fair value less cost to sell and value in use).

Impairment losses related to continuing operations are recognised in the Group income statement in those expense categories consistent with the function of the impaired asset.

For assets excluding the intangibles referred to above, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of the recoverable amount.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset�s recoverable amount since the last impairment loss was recognised. If this is the case, the carrying amount of the asset is increased to its recoverable amount. The increased amount cannot exceed the carrying amount that would have been determined, net of depreciation or amortisation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the consolidated statement of other comprehensive income. Impairment losses recognised in relation to indefinite life intangibles are not reversed for subsequent increases in its recoverable amount.

j) Fair value measurement

The Group measures financial instruments such as bank borrowings at fair value at each balance sheet date. Fair value disclosures for financial instruments measured at fair value or where fair value is disclosed, are summarised in the following notes:

�     Note 18 � �Trade and other receivables�

�     Note 19 � �Cash and cash equivalents�

�     Note 20 � �Trade and other payables�

�     Note 21 � �Interest bearing loans and borrowings�

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

�     in the principal market place for the asset or the liability; or

�     in the absence of a principal market, the most advantageous market for the asset or liability.

The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole.

�     Level 1 � Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

�     Level 2 � Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

�     Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the financial statements on a re-occurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as set out above.

k) Provisions

i) General

Provisions are recognised when (a) the Group has a present obligation (legal or constructive) as a result of a past event and (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

ii) Rehabilitation provision

The Group records the present value of estimated costs of legal and constructive obligations required to restore operating locations in the period in which the obligation is incurred. The nature of these restoration activities includes dismantling and removing structures, rehabilitating mines and tailings dams, dismantling operating facilities, closure of plant and waste sites and restoration, reclamation and revegetation of affected areas.

The obligation generally arises when the asset is installed or the ground or environment is disturbed at the production location. When the liability is initially recognised, the present value of the estimated cost is capitalised by increasing the carrying amount of the related mining assets to the extent that it was incurred prior to the production of related ore. Over time, the discounted liability is increased for the change in present value based on the discount rates that reflect current market assessments and the risks specific to the liability.

The periodic unwinding of the discount is recognised in the Group income statement as a finance cost. Additional disturbances or changes in rehabilitation costs will be recognised as additions or charges to the corresponding assets and rehabilitation liability when they occur. Any reduction in the rehabilitation liability and therefore any deduction from the rehabilitation asset may not exceed the carrying amount of that asset. If it does, any excess over the carrying value is taken immediately to the Group income statement.

If the change in estimate results in an increase in the rehabilitation liability and therefore an addition to the carrying value of the asset, the Group is required to consider whether this is an indication of impairment of the asset as a whole and test for impairment in accordance with IAS 36. If, for mature mines, the revised mine assets net of rehabilitation provisions exceeds the recoverable value, that portion of the increase is charged directly to expense.

For closed sites, changes to estimated costs are recognised immediately in the Group income statement. Also, rehabilitation obligations that arose as a result of the production phase of a mine should be expensed as incurred.

l) Financial assets

i) Initial recognition and measurement

Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition. All financial assets are recognised initially at fair value.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e. the date that the Group commits to purchase or sell the asset.

The Group�s financial assets include cash and short-term deposits as well as trade and other receivables.

ii) Subsequent measurement

The subsequent measurement of financial assets depends on their classification:

Trade and other receivables

Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate method. The effective interest rate method amortisation is included in finance income in the consolidated statement of profit or loss. The losses arising from impairment are recognised in the consolidated statement of profit or loss.

Derecognition

A financial asset (or, where applicable a part of a financial asset) is derecognised when:

�     the rights to receive cash flows from the asset have expired; and

�     the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third-party under a �pass-through� arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred �loss event�) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial re-organisation and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Group first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has incurred, the amount of the loss is measured as the difference between the asset�s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset�s original effective interest rate.

m) Financial liabilities

i) Initial recognition and measurement

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs. The Group�s financial liabilities include trade and other payables, contractual provisions and loans and borrowings.

ii) Subsequent measurement

The measurement of financial liabilities depends on their classification as follows:

Trade and other payables and contractual provisions

Trade and other payables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method.

Loans and borrowings

Interest-bearing loans and overdrafts are recorded at the proceeds received, net of direct transaction costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis and charged to the Group income statement using the effective interest method. They are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the Group income statement when the liabilities are derecognised as well as through the effective interest rate method amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the effective interest rate method. The effective interest rate method amortisation is included in finance costs in the Group income statement.

iii) Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability and the difference in the respective carrying amounts is recognised in the Group income statement.

n) Non-current prepayments

Advances made to suppliers for fixed asset purchases are recognised as non-current prepayments until the time when fixed assets are supplied.

o) Inventories

Metal in circuit consists of in-circuit material at properties with milling or processing operations and dor� awaiting refinement, all valued at the lower of average cost and net realisable value. In-process inventory costs consist of direct production costs (including mining, crushing and processing and site administration costs) and allocated indirect costs (including depreciation, depletion and amortisation of producing mines and mining interests).

Ore stockpiles consist of stockpiled ore, ore on surface and crushed ore, all valued at the lower of average cost and net realisable value. Ore stockpile costs consist of direct production costs (including mining, crushing and site administration costs) and allocated indirect costs (including depreciation, depletion and amortisation of producing mines and mining interests).

Inventory costs are charged to operations on the basis of ounces of gold sold. The Group regularly evaluates and refines estimates used in determining the costs charged to operations and costs absorbed into inventory carrying values based upon actual gold recoveries and operating plans.

Finished goods consist of dor� bars that have been refined and assayed and are in a form that allows them to be sold on international bullion markets and metal in concentrate. Finished goods are valued at the lower of average cost and net realisable value. Finished goods costs consist of direct production costs (including mining, crushing and processing; site administration costs; and allocated indirect costs, including depreciation, depletion and amortisation of producing mines and mining interests).

Spare parts and consumables consist of consumables used in operations, such as fuel, chemicals, reagents and spare parts, valued at the lower of average cost and replacement cost and, where appropriate, less a provision for obsolescence.

p) Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs, or value of services received net of any issue costs.

q) Deferred stripping costs

The removal of overburden and other mine waste materials is often necessary during the initial development of a mine site, in order to access the mineral ore deposit. The directly attributable cost of this activity is capitalised in full within mining properties and leases, until the point at which the mine is considered to be capable of commercial production. This is classified as expansionary capital expenditure, within investing cash flows.

The removal of waste material after the point at which a mine is capable of commercial production is referred to as production stripping.

When the waste removal activity improves access to ore extracted in the current period, the costs of production stripping are charged to the Group income statement as operating costs in accordance with the principles of IAS 2 �Inventories�.

Where production stripping activity both produces inventory and improves access to ore in future periods the associated costs of waste removal are allocated between the two elements. The portion which benefits future ore extraction is capitalised within stripping and development capital expenditure. If the amount to be capitalised cannot be specifically identified it is determined based on the volume of waste extracted compared with expected volume for the identified component of the orebody. Components are specific volumes of a mine�s orebody that are determined by reference to the life of mine plan.

In certain instances significant levels of waste removal may occur during the production phase with little or no associated production.

All amounts capitalised in respect of waste removal are depreciated using the unit of production method based on the ore reserves of the component of the orebody to which they relate.

The effects of changes to the life of mine plan on the expected cost of waste removal or remaining reserves for a component are accounted for prospectively as a change in estimate.

r) Employee leave benefits

Liabilities for wages and salaries, including non-monetary benefits and accrued but unused annual leave, are recognised in respect of employees� services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled.

s) Retirement benefit costs

The Group does not operate a pension scheme for the benefit of its employees but instead makes contributions to their personal pension policies. The contributions due for the period are charged to the Group income statement.

t) Share-based payments

The Group has applied the requirements of IFRS 2 �Share-based Payment�. IFRS 2 has been applied to all grants of equity instruments.

The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight line basis over the vesting period, based on the Group�s estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions.

Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been applied based on management�s best-estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The vesting conditions assumptions are reviewed during each reporting period to ensure they reflect current expectations.

u) Significant accounting judgements, estimates and assumptions

The preparation of the Group financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the Group financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management�s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates. In particular, information about significant areas of estimation uncertainty considered by management in preparing the Group financial statements is described below.

i) Ore reserves and resources

Ore reserves are estimates of the amount of ore that can be economically and legally extracted from the Group�s mining properties. The Group estimates its ore reserves and mineral resources, based on information compiled by appropriately qualified persons relating to the geological data on the size, depth and shape of the ore body and requires complex geological judgements to interpret the data. The estimation of recoverable reserves is based upon factors such as estimates of foreign exchange rates, commodity prices, future capital requirements and production costs along with geological assumptions and judgements made in estimating the size and grade of the ore body. Changes in the reserve or resource estimates may impact upon the carrying value of exploration and evaluation assets, mine properties, property, plant and equipment, provision for rehabilitation and depreciation and amortisation charges.

ii) Exploration and evaluation expenditure (note 14)

The application of the Group�s accounting policy for exploration and evaluation expenditure requires judgement in determining whether it is likely that future economic benefits are likely either from future exploitation or sale or where activities have not reached a stage which permits a reasonable assessment of the existence of reserves. The determination of a Joint Ore Reserves Committee (�JORC�) resource is itself an estimation process that requires varying degrees of uncertainty depending on sub-classification and these estimates directly impact the point of deferral of exploration and evaluation expenditure. The deferral policy requires management to make certain estimates and assumptions about future events or circumstances, in particular whether an economically viable extraction operation can be established. Estimates and assumptions made may change if new information becomes available. If, after expenditure is capitalised, information becomes available suggesting that the recovery of expenditure is unlikely, the amount capitalised is written off in the consolidated statement of profit or loss in the period when the new information becomes available.

iii) Inventory (note 17)

Net realisable value tests are performed at least annually and represent the estimated future sales price of the product based on prevailing spot metals prices at the reporting date, less estimated costs to complete production and bring the product to sale.

Stockpiles are measured by estimating the number of tonnes added and removed from the stockpile, the number of contained gold ounces based on assay data and the estimated recovery percentage based on the expected processing method. Stockpile tonnages are verified by periodic surveys.

The ounces of gold sold are compared to the remaining reserves of gold for the purpose of charging inventory costs to operations.

iv) Impairment of tangible and intangible assets (notes 14 and 15)

The assessment of tangible and intangible assets for any internal and external indications of impairment involves judgement. Each reporting period, the Group assesses whether there are indicators of impairment, if indicated then a formal estimate of the recoverable amount is performed and an impairment loss recognised to the extent that the carrying amount exceeds recoverable amount. Recoverable amount is determined as the higher of fair value less costs to sell and value in use. Determining whether the projects are impaired requires an estimation of the recoverable value of the individual areas to which value has been ascribed. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the projects and a suitable discount rate in order to calculate present value.

v) Production start date

The Group assesses the stage of each mine under construction to determine when a mine moves into the production stage. The criteria used to assess the start date are determined based on the unique nature of each mine construction project, such as the complexity of a plant and its location. The Group considers various relevant criteria to assess when the mine is substantially complete, ready for its intended use and is reclassified from Assets under construction to Producing mines and Property, plant and equipment. Some of the criteria will include, but are not limited to, the following:

�     the level of capital expenditure compared to the construction cost estimates;

�     completion of a reasonable period of testing of the mine plant and equipment;

�     ability to produce metal in saleable form (within specifications); and

�     ability to sustain ongoing production of metal.

When a mine construction project moves into the production stage, the capitalisation of certain mine construction costs ceases and costs are either regarded as inventory or expensed, except for costs that qualify for capitalisation relating to mining asset additions or improvements, underground mine development or mineable reserve development. This is also the point at which the depreciation/amortisation recognition commences.

vi) Mine rehabilitation provision (note 22)

The Group assesses its mine rehabilitation provision annually. Significant estimates and assumptions are made in determining the provision for mine rehabilitation as there are numerous factors that will affect the ultimate liability payable. These factors include estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes and changes in discount rates. Those uncertainties may result in future actual expenditure differing from the amounts currently provided. The provision at the reporting date represents management�s best estimate of the present value of the future rehabilitation costs required. Changes to estimated future costs are recognised in the Group statement of financial position by either increasing or decreasing the rehabilitation liability and rehabilitation asset if the initial estimate was originally recognised as part of an asset measured in accordance with IAS 16 �Property, Plant and Equipment�.

vii) Recovery of deferred tax assets (note 12)

Judgement is required in determining whether deferred tax assets are recognised within the Group statement of financial position. Deferred tax assets, including those arising from unutilised tax losses, require management to assess the likelihood that the Group will generate taxable earnings in future periods, in order to utilise recognised deferred tax assets. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred tax assets recorded at the reporting date could be impacted.

5. Segment information

The Group determines operating segments based on the information that is internally provided to the Group�s chief operating decision maker. The chief operating decision maker has been identified as the board of directors. The board of directors currently considers consolidated financial information for the entire Group and reviews the business based on the Group income statement and Group statement of financial position on this basis. Accordingly, the Group has only one operating segment, mining operations. The mining operations comprise the Group�s major producing asset, the Gedabek mine which accounts for all the Group�s revenues and the majority of its cost of sales, depreciation and amortisation. The Group�s mining operations are all located within Azerbaijan and therefore all within one geographic segment.

All sales of gold and silver bullion are made to one customer, the Group�s gold refinery, MKS Finance SA, based in Switzerland. Copper concentrate is sold to Industrial Minerals SA.

6. Revenue

The Group's revenue consists of gold and silver bullion and copper concentrate sold to the third-party customers. Revenue from sales of gold and silver bullion was $74,221,000 and $58,000 respectively (2014: $64,145,000 and $135,000). Revenue from sales of precious metals concentrate was $3,778,000 (2014: $3,684,000).

Finance income of $nil was received in 2015. Finance income of $7,000 in 2014 was interest received on cash deposits during the year.

7. Other operating expenses and income

Other income

Other income comprises interest receivable from employee loans, consulting income and foreign exchange gains for the years ended 31 December 2014 and 2015. Foreign exchange gain for the year ended 31 December 2015 was $629,000 (2014: $nil).

Other operating expense

Other operating expenses consist of metal refining costs, foreign currency exchange loss and miscellaneous operating expenses for the years ended 31 December 2014 and 2015. Foreign currency exchange loss for the year ended 31 December 2015 was $249,000 (2014: $137,000).

8. Operating loss

There were no non-cancellable operating lease and sublease arrangements during 2015 and 2014.

The audit fees for the parent company were $107,000 (2014:$107,000).

9. Remuneration of the directors

Certain fees and expenses of the directors for the year ended 31 December 2015 were settled by issuing shares to those directors. The number of shares issued and the gross fees (before deduction of taxes) and expenses in which they were in respect of, are as follows:

The shares were issued on 22 July 2015 at a price of 6.19 pence per share.

* restated to reflect the effect of taxation

Directors� fees and consultancy fees for 2014 were paid in cash

10. Staff numbers and costs

The average number employed by the Group (including directors) during the year, analysed by category, was as follows:

The aggregate payroll costs of these persons were as follows:

Remuneration of key management personnel

The remuneration of the key management personnel of the Group, is set out below in aggregate:

11. Finance costs

Interest on interest-bearing loans and borrowings represents charges incurred on credit facilities with the International Bank of Azerbaijan, the Amsterdam Trade Bank, Yapi Kredi Bank Azerbaijan, Pasha Bank, Atlas Copco Customer Finance AB and a director.

Where a portion of the loans has been used to finance the construction and purchase of assets of the Group ('qualifying assets'), the interest on that portion of the loans has been capitalised up until the time the assets were substantially ready for use. For the year ended 31 December 2015, $nil (2014:$nil) interest was capitalised.

12. Taxation

Corporation tax is calculated at 32 per cent. (as stipulated in the production sharing agreement for R.V. Investment Group Services LLC (�RVIG�) in the Republic of Azerbaijan, the entity that contributes most significant portion of profit before tax in the Group financial statements) of the estimated assessable profit or loss for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. Deferred income taxes arising in RVIG are recognised and fully disclosed in these Group financial statements. RVIG's unutilised tax losses at 31 December 2015 were $27,990,000 (2014: $24,888,000).

The major components of the income tax expenses for the year ended 31 December are:

Deferred income tax at 31 December relates to the following: