Avesoro Resources Inc. - Filing of Amended and Restated Financial Statements and MD&A for the Year Ended December 31, 2017 and for the Quarter Ended March 31, 2018

TSX: ASO
AIM: ASO

TORONTO, Aug. 17, 2018 /CNW/ - Avesoro Resources Inc., ("Avesoro" or the "Company"), the TSX and AIM listed West African gold producer, announces that the Company has today filed on SEDAR at www.sedar.com an Amended and Restated Audited Consolidated Financial Statements and Amended and Restated Management Discussion and Analysis as of and for the year ended December 31, 2017 and Amended and Restated Unaudited Interim Consolidated Financial Statements and Amended and Restated Management Discussion and Analysis as of and for the quarter ended March 31, 2018.

In preparing the Company's unaudited interim financial statements for the period ended June 30, 2018, Management identified an error in the calculation of the fair valuation of related party loans with Mapa Insaat ve Ticaret A.S.  The error requires the restatement of the audited consolidated statement of financial position as at December 31, 2017 and unaudited interim consolidated statement of financial position as at March 31, 2018. 

The impact of the restatement of the audited consolidated statement of financial position as at December 31, 2017 is set out in the table below. 

 

The impact of the restatement of the unaudited interim consolidated statement of financial position as at March 31, 2018 is set out in the table below.

 

The adjustments have no impact on profit nor cash flows for the year ended December 31, 2017 nor for the three months ended March 31, 2018.  The repayment terms, rates and amounts payable pursuant to the loan agreements are unchanged.

As previously announced on August 13, 2018, debt, which includes borrowings and finance lease liabilities, was US$134.5 million at June 30, 2018, a reduction of US$2.8 million compared to debt of US$137.3 million at March 31, 2018.

All amounts are in US dollars.

About Avesoro Resources Inc.
Avesoro Resources is a West Africa focused gold producer and development company that operates two gold mines across West Africa and is listed on the Toronto Stock Exchange ("TSX") and the AIM market operated by the London Stock Exchange ("AIM"). The Company's assets include the New Liberty Gold Mine in Liberia ("New Liberty") and the Youga Gold Mine in Burkina Faso ("Youga").

New Liberty has an estimated Proven and Probable Mineral Reserve of 7.4Mt with 717,000 ounces of gold grading 3.03g/t and an estimated Measured and Indicated Mineral Resource of 9.6Mt with 985,000 ounces of gold grading 3.2g/t and an estimated Inferred Mineral Resource of 6.4Mt with 620,000 ounces of gold grading 3.0g/t. The foregoing Mineral Reserve and Mineral Resource estimates and additional information in connection therewith, prepared in accordance with CIM guidelines, is set out in an NI 43-101 compliant Technical Report dated November 1, 2017 and entitled "New Liberty Gold Mine, Bea Mountain Mining Licence Southern Block, Liberia, West Africa" and is available on SEDAR at www.sedar.com.

Youga has an estimated Proven and Probable Mineral Reserve of 11.2Mt with 660,100 ounces of gold grading 1.84g/t and a combined estimated Measured and Indicated Mineral Resource of 16.64Mt with 924,200 ounces of gold grading 1.73g/t and an Inferred Mineral Resource of 13Mt with 685,000 ounces of gold grading 1.70g/t. The foregoing Mineral Reserve and Mineral Resource estimates and additional information in connection therewith, prepared in accordance with CIM guidelines, is set out in an NI 43-101 compliant Technical Report dated July 31, 2018 and entitled "Mineral Resource and Mineral Reserve Update for the Youga Gold Mine, Burkina Faso" and is available on SEDAR at www.sedar.com.

For more information, please visit www.avesoro.com

Qualified Persons

The Company's Qualified Person is Mark J. Pryor, who holds a BSc (Hons) in Geology & Mineralogy from Aberdeen University, United Kingdom and is a Fellow of the Geological Society of London, a Fellow of the Society of Economic Geologists and a registered Professional Natural Scientist (Pr. Sci.Nat) of the South African Council for Natural Scientific Professions.  Mark Pryor is an independent technical consultant with over 25 years of global experience in exploration, mining and mine development and is a "Qualified Person" as defined in National Instrument 43 -101 "Standards of Disclosure for Mineral Projects" of the Canadian Securities Administrators and has reviewed and approved this press release. Mr. Pryor has verified the underlying technical data disclosed in this press release.

Condensed Interim Consolidated Financial Statements (Unaudited)

Avesoro Resources Inc.

For the Three Months Ended March 31, 2018 and 2017
(stated in thousands of US dollars)

(Amended and Restated)

 

Avesoro Resources Inc.
Interim Consolidated Statements of Income and Comprehensive Income
(stated in thousands of US dollars)
Unaudited

 

The accompanying notes are an integral part of these amended and restated condensed interim consolidated financial statements.

Avesoro Resources Inc.
Amended and Restated Interim Consolidated Statements of Financial Position
(stated in thousands of US dollars)
Unaudited

 

The accompanying notes are an integral part of these amended and restated condensed interim consolidated financial statements.

Avesoro Resources Inc. 
Amended and Restated Interim Consolidated Statements of Cash Flows
(stated in thousands of US dollars)
Unaudited

 

Significant non-cash transactions during the three months ended March 31, 2018 includes the acquisition of new heavy mining equipment for $10.3 million in exchange for new related party loans (Note 10c).

The accompanying notes are an integral part of these amended and restated condensed interim consolidated financial statements.

Avesoro Resources Inc.
Interim Consolidated Statements of Changes in Equity
(stated in thousands of US dollars)
Unaudited

 

The accompanying notes are an integral part of these amended and restated condensed interim consolidated financial statements.

Avesoro Resources Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
For the three months ended March 31, 2018 and 2017
(in thousands of US dollars unless otherwise stated)

1        Nature of operations and basis of preparation

Avesoro Resources Inc. ("Avesoro" or the "Company"), was incorporated under the Canada Business Corporations Act on February 1, 2011. The focus of Avesoro's business is the exploration, development and operation of gold assets in West Africa, specifically the New Liberty Gold Mine in Liberia and the Youga and Balogo Gold Mines in Burkina Faso. 

These amended and restated condensed interim consolidated financial statements ("interim financial statements") have been prepared in accordance with International Accounting Standard ("IAS") 34, "Interim Financial Reporting", they do not include all disclosures that would otherwise be required in a complete set of financial statements.  They follow accounting policies and methods of their application consistent with the amended and restated audited consolidated financial statements for the year ended December 31, 2017.  Accordingly, they should be read in conjunction with the Company's amended and restated audited consolidated financial statements for the year ended December 31, 2017. 

These interim financial statements were authorised by the Board of Directors on August 17, 2018.

Going concern

The amended and restated condensed interim consolidated financial statements have been prepared on a going concern basis.  As at March 31, 2018, the Company has net current liabilities of $2.1 million and has approximately $24.2 million of debt repayments due in the next twelve months. 

The cash generation of the Company significantly improved following the acquisition of the Youga and Balogo Gold Mines in December 2017 and the continuing improvement of operations at New Liberty.  In addition, the Company has an undrawn facility of $21.3 million with the Company's majority shareholder, Avesoro Jersey Limited ("AJL") as at March 31, 2018 which it can call upon for general working capital purposes. 

The Company's forecasts and projections show that the Company has adequate resources to continue in operational existence for the foreseeable future.  Thus, it continues to adopt the going concern basis of accounting in preparing the amended and restated consolidated financial statements.

2        Segment information

The Company is engaged in the exploration, development and operation of gold projects in the West African countries of Liberia, Burkina Faso and Cameroon. Information presented to the Chief Executive Officer for the purposes of resource allocation and assessment of segment performance is focused on the geographical location of mining operations.  The reportable segments under IFRS 8 are as follows:

• New Liberty operations;
• Burkina operations which include the Youga and Balogo Gold Mines;
• Exploration; and
• Corporate.

Following is an analysis of the Group's results, assets and liabilities by reportable segment for the three months ended March 31, 2018:

 

Following is an analysis of the Group's results, assets and liabilities by reportable segment for the three months ended March 31, 2017:

 

3        Administrative expenses

 

Foreign exchange gains and losses have been reclassified as financing items rather than operational items.  The above table has been restated to exclude the foreign exchange gain of US$4 thousand for the three months ended March 31, 2017. 

4        Income taxes

Tax for period comprises of:

 

5        Earnings per share ("EPS")

 

6        Trade and other receivables

 

Other receivables include a VAT receivable from the Burkina Faso Government amounting to $11.2 million as at March 31, 2018 (December 31, 2017: $8.9 million).

7        Inventories

 

Ore stockpiles as at March 31, 2018 are stated at their net realisable values after cumulative write-down of $1.8 million.

8        Intangible assets - Exploration and evaluation assets

 

Gassore East is a new minable mineralisation located 2 kilometres from the Youga processing plant.  Internal resource modelling and pit design shows it will add further mine life to the Youga Gold Mine beyond that reported in the National Instrument NI 43-101 - Standards of Disclosure of Mineral Projects ("NI 43-101") Technical Report dated June 19, 2017. 

Ouaré, located 36 kilometres north east of the Youga processing plant, is the subject of an infill drilling campaign to upgrade the confidence level and classification of the existing mineral resources reported in the NI 43-101 Technical Report dated June 19, 2017. 

9.           Property, plant and equipment

 

10     Borrowings

 

(a)    Bank loans

On December 17, 2013 the Company entered into an agreement for an $88 million project finance loan facility with Nedbank Limited and FirstRand Bank Limited (collectively the "Lenders"), (the "Senior Facility"), and also entered into a subordinated loan facility agreement for $12 million with RMB Resources (the "Subordinated Facility").  On December 9, 2015 the Company entered into an agreement for an additional $10 million Tranche B Senior Facility ("Tranche B Facility", together with the Senior Facility and the Subordinated Facility the "Loan Facilities") provided by the Lenders.  These Loan Facilities, which have been fully drawn, financed the development of the Company's New Liberty Gold Mine.  $22.4 million of the Senior Facility principal has been repaid to date including $10 million during the three months ended March 31, 2018.

(b)    Shareholder loan

Current

The current shareholder loan payable to AJL was assumed on acquisition of the Youga and Balogo Gold Mines of which $4.1 million was repaid during the three months ended March 31, 2018.

Non-current

In 2017, the Group borrowed $18.8 million from AJL through a working capital facility to meet liabilities arising on the termination of legacy procurement contracts, make advanced payments to suppliers to secure lower unit cost pricing and to accelerate the acquisition of capital items that will increase process plant throughput at New Liberty. 

The loan payable to AJL was initially recognised at fair value calculated as its present value at a market rate of interest and subsequently measured at amortised cost.  The difference between fair value and loan amount of $4.5 million has been credited to equity as a capital contribution as the loan is from its majority shareholder.

Principal repayments totalling $5.1 million were made during the three months ended March 31, 2018 of which $3.9 million was allocated as a reduction to the loan payable and $1.2 million as a reduction to capital contribution.

Interest expense on the non-current loan payable to AJL for the three months ended March 31, 2018 was US$0.3 million (three months ended March 31, 2017: US$nil).

(c)    Related party loan

In 2017 the Company entered into equipment and finance facility agreements with Mapa ?n?aat ve Ticaret A.?. ("Mapa"), a company controlled by Mehmet Nazif G?nal, Non-Executive Chairman of the Company, to facilitate the purchase of heavy mining equipment.  The loan principal of these agreements includes a mark-up of 2.5% over the cost incurred by Mapa in procuring the equipment. The equipment finance loans are unsecured, with interest charged at 6.5% per annum on the US$ denominated loan and 5.5% per annum on the Euro denominated loan amount. The loans are repayable in cash in eight equal semi-annual instalments, the first of which will fall due six months after utilisation of the loan.

During the three months ended March 31, 2018, the Company entered into further equipment and finance facility agreements with Mapa amounting to $10.3 million.  Similar to the loans entered into in 2017, these loans were initially recognised at fair value calculated as its present value at a market rate of interest and subsequently measured at amortised cost.  The difference of $0.5 million between the loan amount of $10.3 million and fair value of $9.8 million has been credited to equity as a capital contribution from a related party.

Interest expense on the related party loan to Mapa for the three months ended March 31, 2018 was US$1.2 million (three months ended March 31, 2017: US$nil).  Interest repayment was $0.1 million during the three months ended March 31, 2018 (three months ended March 31, 2017: US$nil).

11     Finance lease liability

The remaining finance lease liability relates to the fuel storage facility at New Liberty Gold Mine following termination of the lease arrangement on the generators at nil consideration.  Such assets have been classified as finance leases as the rental period amounts to a major portion of the estimated useful economic life of the lease assets and the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased assets.

 

12     Equity

(a)      Authorised

Unlimited number of common shares without par value.                                                                   

(b)      Issued

 

The Company's number of outstanding and issued shares, stock options and warrants are retrospectively presented to reflect a 100:1 share consolidation which became effective on January 16, 2018.

 

 (c)     Stock options

Information relating to stock options outstanding at March 31, 2018 is as follows:

 

13     Non-controlling interest

Non-controlling interest represents the Government of Burkina Faso's 10% share of Burkina Mining Company and Netiana Mining Company, the subsidiaries which respectively holds the Youga Gold Mine and Balogo Gold Mine.

14     Related party transactions

(a) Borrowings

Principal repayments of the shareholder loan to AJL, new equipment finance loans with Mapa and interest repayments to Mapa in relation to the equipment finance loans during the three months ended March 31, 2018 are disclosed in Note 10.

(b) Acquisition of heavy mining equipment

In addition to the heavy mining equipment financed by Mapa, the Company also acquired five mining trucks from Mapa for US$0.4 million during the three months ended March 31, 2018 to supplement the hauling capacity at Balogo.

(c) Provision/(purchases) of goods and services

The Company also provided/(purchased) the following services from related parties:

 

Included in trade and other receivables is a receivable from related parties of $2.2 million as at March 31, 2018 (December 31, 2017: $1 million). 

Included in trade and other payables is $2.1 million payable to related parties as at March 31, 2018 (December 31, 2017: $0.5 million).  

15     Restatement of related party loans and capital contribution as at December 31, 2017 and March 31, 2018

In preparing the Company's unaudited interim financial statements for the period ended June 30, 2018, Management identified an error in the calculation of the fair valuation of related party loans with Mapa Insaat ve Ticaret A.S.  that requires the restatement of the audited consolidated statement of financial position as at December 31, 2017 and unaudited interim consolidated statement of financial position as at March 31, 2018. 

The impact of the restatement of the audited consolidated statement of financial position as at December 31, 2017 is to increase the current portion of borrowings by US$2.0 million, increase the non-current portion of borrowings by US$3.2 million and reduce the capital contribution in equity by US$5.2 million. 

 

The impact of the restatement of the unaudited interim consolidated statement of financial position as at March 31, 2018 is to increase the current portion of borrowings by US$2.8 million, increase the non-current portion of borrowings by US$4.9 million and reduce the capital contribution in equity by US$7.6 million. 

 

The adjustments have no impact on profit nor cash flows for the year ended December 31, 2017 nor for the three months ended March 31, 2018.  The repayment terms, rates and amounts payable pursuant to the loan agreements are unchanged.

 

Avesoro Resources Inc.

Consolidated Financial Statements

Years ended December 31, 2017 and 2016

(Amended and Restated)

 

INDEPENDENT AUDITOR'S REPORT

To the Shareholders of Avesoro Resources Inc.

We have audited the accompanying amended and restated consolidated financial statements of Avesoro Resources Inc. for the year ended December 31, 2017 and the year ended December 31, 2016 which comprise the amended and restated consolidated statements of financial position, income and comprehensive income, changes in equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.  The financial reporting framework that has been applied in their preparation is International Financial Reporting Standards as issued by the IASB.       

Management's Responsibility for the amended and restated Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these amended and restated consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of the amended and restated consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these amended and restated consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the amended and restated consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the amended and restated consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the amended and restated consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the amended and restated consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the amended and restated consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the amended and restated consolidated financial statements present fairly, in all material respects, the financial position of Avesoro Resources Inc. as at December 31, 2017 and December 31, 2016 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.

Restatement of consolidated financial statements

Without modifying our opinion, we draw attention to note 25 to the amended and restated consolidated financial statements which explains that the amended and restated consolidated financial statements for the year ended December 31, 2017 have been restated from those which were originally reported on March 20, 2018.

"BDO LLP" (signed)
London
August 17, 2018

Avesoro Resources Inc.
Consolidated Statement of Income and Comprehensive Income
For the years ended December 31, 2017 and 2016
(stated in US dollars)

 

The accompanying notes are an integral part of these amended and restated consolidated financial statements.

Avesoro Resources Inc.
Amended and Restated Consolidated Statement of Financial Position
As at December 31, 2017 and 2016
(stated in US dollars)

 

The accompanying notes are an integral part of these amended and restated consolidated financial statements.

 

Avesoro Resources Inc.
Consolidated Statement of Cash Flows
For the years ended December 31, 2017 and 2016
(stated in US dollars)

 

The significant non-cash transactions during the year ended December 31, 2017 and 2016 are disclosed in Note 24.

The accompanying notes are an integral part of these amended and restated consolidated financial statements. 

Avesoro Resources Inc.
Amended and Restated Consolidated Statement of Changes in Equity
As at December 31, 2017 and 2016
(stated in US dollars)

 

The accompanying notes are an integral part of these amended and restated consolidated financial statements.

Avesoro Resources Inc.
Amended and Restated Notes to the Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(in US dollars unless otherwise stated)

1.     Nature of operations

Avesoro Resources Inc. ("Avesoro" or the "Company"), was incorporated under the Canada Business Corporations Act on February 1, 2011. The focus of Avesoro's business is the exploration, development and operation of gold assets in West Africa, specifically the New Liberty Gold Mine in Liberia and the Youga and Balogo Gold Mines in Burkina Faso. 

The Company's parent company is Avesoro Jersey Limited ("AJL"), a company incorporated in Jersey and Mr. Murathan Doruk G?nal is the ultimate beneficial owner.

2.     Going concern

As at December 31, 2017, the Company had cash and cash equivalents of $17.8 million, net current liabilities of $12.1 million and debt and interest repayments of $39.5 million due within the next 12 months.  

The cash generation profile of the Company significantly increased as a result of the acquisition of the Youga and Balogo Gold Mines (Note 4) and the turnaround of operations at New Liberty.  In addition, the Company has an undrawn facility of $16.2 million with AJL which it can call upon for general working capital purposes.

The Company's forecasts and projections show that the Company has adequate resources to continue in operational existence for the foreseeable future.  The Company continues to adopt the going concern basis of accounting in preparing the amended and restated consolidated financial statements.

3.     Summary of significant accounting policies

The accounting policies set out below have been applied consistently in these financial statements, unless otherwise stated.

3.1        Basis of preparation

The accompanying amended and restated consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB").  The amended and restated consolidated financial statements have been prepared on a historical cost basis, as adjusted for certain financial instruments carried at fair value.

3.2        New accounting standards adopted

No new accounting standards or interpretations were adopted during the year. 

3.3        Standards in issue but not yet effective

The following standards and interpretations which have been recently issued or revised and are mandatory for the Group's accounting periods beginning on or after January 1, 2018 or later periods have not been adopted early: 

 

IFRS 15 is intended to introduce a single framework for revenue recognition and clarify principles of revenue recognition. Management have assessed the point of revenue recognition and do not expect there to be any material impact on the amended and restated consolidated financial statements.

IFRS 16 introduces a single lease accounting model, in which leases are capitalised as assets with an associated lease liability with the exception of certain low value leases and leases with a term under 12 months. Management are currently assessing the impact of this standard but there are no material operating leases in the Group.

IFRS 9 introduces significant changes to the classification and measurement requirements for financial instruments. Management are currently assessing the impact of this standard.

3.4        Basis of consolidation

3.4.1            Subsidiaries

Where  the  Company  has  control  over  an  investee, it  is  classified  as  a  subsidiary.  The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

De-facto control exists in situations where the Company has the practical ability to direct the relevant  activities  of  the  investee  without  holding  the  majority  of  the  voting  rights.

The amended and restated consolidated financial statements present the results of the Company and its subsidiaries ("the Group") as if they formed a single entity.  Intercompany transactions and balances between group companies are therefore eliminated in full.

These financial statements include the accounts of Avesoro and its subsidiaries.  The significant subsidiaries at December 31, 2017 are set out below:

 

3.4.2            Transactions eliminated on consolidation

Intra-group balances and any unrealized gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the amended and restated consolidated financial statements.

3.5        Foreign currency translation

3.5.1            Functional and presentation currency

Items included in the financial statements of each of the Company's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The amended and restated consolidated financial statements are presented in U.S. dollars ("$"), ("the presentation currency") which is the functional currency of most of the subsidiary entities.

In the amended and restated consolidated financial statements, all separate financial statements of subsidiary entities, originally presented in a currency different from the Company's presentation currency, have been converted into US dollars. Assets and liabilities have been translated into US dollars at the closing rate at the balance sheet date. Income and expenses have been translated at the average rates over the reporting period. Any differences arising from this procedure have been charged/credited to the "Cumulative translation reserve" in equity.  Equity has been translated into US dollars at historical rates.

3.5.2            Foreign currency transactions

In preparing the financial statements of the group entities, foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the loss from operations.

3.6        Equity

The following describes the nature and purpose of each reserve within equity.

 

3.7        Property, plant and equipment

All property, plant and equipment are stated at historical cost less depreciation and applicable impairment charges. Historical cost includes expenditures that are directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amounts of any replaced parts are derecognized. All other repairs and maintenance are charged to the consolidated statement of comprehensive loss/income during the financial period in which they are incurred.

Depreciation is provided to write off the cost using the straight-line method over their estimated useful life of the assets as follows:

 

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Mining and development costs include costs incurred after the completion of a mining property's feasibility study.  Mining and development costs are not amortized during the development phase but are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable, at least at each balance sheet date.

A mining and development property is considered to be capable of operating in a manner intended by management when it commences commercial production.  Upon commencement of commercial production a development property is transferred to a mining property and is depreciated on a units-of-production method.  Only proven and probable reserves are used in the tonnes mined units of production depreciation calculation.

3.8        Exploration costs

Exploration and evaluation costs are expensed as incurred until a decision is taken that a mining property is economically feasible, after which subsequent expenditures are capitalised as intangible assets. 

Exploration and evaluation costs include acquisition of rights to explore, studies, exploration drilling, trenching, sampling and associated activities.

3.9        Impairment

At each balance sheet date, the Company reviews the carrying amounts of its non-current assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.  If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense in the statement of comprehensive income.

In assessing whether there is any indication that an asset(s) may be impaired, an entity shall consider, as a minimum, the following indications:

External

• Significant changes with an adverse effect on the entity have taken place during the period or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated;
• Market interest rates or other market rates of return on investment have increased during the period, and those increases are likely to affect the discount rate used in calculating an assets value in use and decrease the assets recoverable amount; and
• The carrying amount of the net assets of the entity is more than its market capitalisation.

Internal

• Evidence of physical damage of an asset;
• Evidence from internal reporting that indicates the economic performance of an asset
  is or will be worse than expected; and
• Significant changes with an adverse effect on the entity have taken place during the period or are expected to take place in the near future to the extent and manner in which an asset is used.

An impairment loss recognised in prior periods shall be reversed if there has been a change in the                 estimates used to determine the assets recoverable amount since the last impairment loss was recognised.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior periods. A reversal of an impairment loss is recognised as income immediately.

3.10      Financial instruments

Financial assets

All financial assets are recognised and derecognised on trade date when the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned.  Financial assets are initially measured at fair value, plus transaction costs, except for those financial assets classified as fair value through profit or loss ("FVTPL"), which are initially measured at fair value.

Available-for-sale financial assets

Available-for-sale financial assets include non-derivative financial assets that are either designated as such or do not qualify for inclusion in any of the other categories of financial assets. All financial assets within this category are measured subsequently at fair value, with changes in value recognised in other comprehensive income. Gains and losses arising from investments classified as available for sale are recognised in the profit or loss when they are sold or when the investment is impaired. In the case of impairment of available for sale assets, any loss previously recognised in other comprehensive income is transferred to the profit or loss.  Impairments are assessed when a decline in fair value is significant or prolonged based on an analysis of indicators such as market price of the investment and significant adverse changes in the environment in which the investee operates. Impairment losses recognised in the profit or loss on equity instruments are not reversed through the profit or loss. Impairment losses recognised previously on debt securities are reversed through the profit or loss when the increase can be related objectively to an event occurring after the impairment loss was recognised in the profit or loss.

Loans and receivables

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables.  Loans and receivables are measured at amortised cost using the effective interest method, less any impairment.  Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Impairment of financial assets at amortised cost

Financial assets that are measured at amortised cost are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial asset have been affected.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Derecognition of financial assets

The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.  Warrants issued alongside the raising of finance are recorded as a reduction of capital stock based on the fair value of the warrants.

Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Derecognition of financial liabilities

The Company derecognises financial liabilities when, and only when, the Company's obligations are discharged, cancelled or they expire.

Derivative financial instruments:

The Company has issued warrants that are exercisable in a currency other than the functional currency of the entity issuing.  As such these warrants are treated as derivative liabilities which are measured initially at fair value and gains and losses on subsequent re-measurement are recorded in profit or loss.

3.11      Income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company's subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the amended and restated consolidated financial statements. However, the deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.  Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.

3.12      Gold sales

Revenue from sales of gold is recognised when:

• the Company has passed the significant risks and rewards of ownership of the product to the buyer, usually when gold doré leaves the gold room, unless a return of physical metal is requested in advance;
• it is probable that the economic benefits associated with the sale will flow to the Company;
• the sales price can be measured reliably;
• the Company has no significant continuing involvement; and
• the costs incurred or to be incurred in respect of the sale can be measured reliably.

Revenue earned while the mine is ramping up to commercial production is accounted for as a credit to the capitalised mining development asset.  Revenue earned after commencement of commercial production is recognised in the statement of income.  Commercial production at New Liberty was declared on March 1, 2016.

3.13      Cost of sales

Cost of sales consists of production costs, depreciation of mining assets and costs during temporary plant shutdown.

Production costs include mine operating expenses (such as hire of mining equipment, staff costs, fuel, consumables, maintenance and repair costs, general and administrative costs), third-party smelting, refining and transport fees, royalty expense, changes in inventories for the period including write-down to reduce inventories to net realisable value and permanent impairment of inventories.  Cost of sales is based on average costing for contained or recoverable ounces sold for the period.

Costs during temporary plant shutdown are mine operating expenses that were incurred during the temporary suspension of plant processing operations from May 7 to June 30, 2016 as a consequence of operating problems with the detoxification circuit in the process plant.

3.14      Stripping costs

Stripping costs incurred during the development phase of the mine as part of initial pit stripping are capitalised as mining and development costs as part of property, plant and equipment.

Stripping costs incurred during the production stage of the mine are treated as either part of the cost of inventory or are capitalised as a stripping activity asset if all of the following are met:

• it is probable that the future economic benefit (improved access to the ore body) associated with the stripping activity will flow;
• the component of the ore body for which access has been improved can be identified; and
• the costs relating to the stripping activity associated with that component or components can be measured reliably.

Once determined that any portion of the stripping costs should be capitalised, the average stripping ratio for the life of the mine to which the stripping cost related is typically used to determine the amount of the stripping costs that should be capitalised.

Costs capitalised as stripping assets are depreciated on a units of production basis, with reference to the estimated ounces of gold reserves based on the life of mine plan in the components of the ore body that have been made more accessible through the stripping activity.

3.15      Inventories

Inventories are stated at the lower of cost or net realisable value.  The cost of ore stockpiles and gold in circuit is determined principally by the weighted average cost method using related production costs. 

Costs of gold inventories include all costs incurred up until production of an ounce of gold such as mining costs, processing costs, directly attributable mine general and administration costs and depreciation but exclude transport costs, refining costs and royalties.  Net realisable value is determined with reference to estimated contained gold, market gold prices and an estimate of the remaining costs of completion to bring inventories into its saleable form.  When the net realisable value is lower than cost the difference is included in change in inventories under cost of sales. 

Impairment of inventories are recognised when stocks are determined to be uneconomic to process. Reversals of impairments are recognised when previously impaired inventories are determined to be economic to process.

3.16      Leases

Determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether fulfilment of the arrangement is dependent on the use of a specific asset or assets and whether the arrangement conveys a right to use the asset. Leases of plant and equipment where the group assumes a significant portion of risks and rewards of ownership are classified as a finance lease. Finance leases are capitalised at the estimated present value of the underlying lease payments. Each lease payment is allocated between the liability and the finance charges to achieve a constant rate on the balance outstanding. The interest portion of the finance payment is capitalised as development costs until declaration of commercial production at which time, interest will be charged to the statement of comprehensive income over the lease period. The plant and equipment acquired under the finance lease are depreciated over the useful lives of the assets, or over the lease term if shorter. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.

3.17      Provisions

Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources 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 determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

The net present value of estimated future rehabilitation costs is provided for in the amended and restated consolidated financial statements and capitalised within property, plant and equipment on initial recognition. Rehabilitation will generally occur on closure or after closure of a mine and can include facility decommissioning and dismantling, removal or treatment of waste materials, site and land rehabilitation. Initial recognition is at the time of the construction or disturbance occurring and thereafter as and when additional construction or disturbances take place. The estimates are reviewed annually to take into account the effects of inflation and changes in estimated risk adjusted rehabilitation works cost and are discounted using rates that reflect the time value of money. Annual increases in the provision due to the unwinding of the discount are recognised in the statement of comprehensive income as a finance cost.

The present value of additional disturbances and changes in the estimate of the rehabilitation liability are recorded to mining assets against an increase/decrease in the rehabilitation provision. Rehabilitation projects undertaken are charged to the provision as incurred. Environmental liabilities, other than rehabilitation costs, which relate to liabilities arising from specific events, are expensed when they are known, probable and may be reasonably estimated.

3.18      Borrowing costs

Borrowing costs are generally expensed as incurred except where they relate to the financing of qualifying assets that require a substantial period of time to get ready for their intended use.  Qualifying assets include mining and development properties.  Borrowing costs related to qualifying assets are capitalised up to the date when the asset is ready for its intended use.

3.19      Share-based payments

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Fair value is measured by use of a Black-Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. When equity-settled stock options granted to employees vest over a period of time and the charge is recognised in the statement of comprehensive income over the corresponding period.

Equity-settled share-based payment transactions with other parties are measured at the fair value of the goods and services received, except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

3.20      Promissory note

Promissory note is initially recognised at the fair value of the proceeds, net of transaction costs incurred.  These transaction costs are subsequently amortised under the effective interest rate method through the income statement.  Promissory note is classified as a current liability unless the Company has an unconditional right to defer settlement of the liability for at least one year after the balance sheet date.

3.21      Segments

Information presented to the Chief Executive Officer for the purposes of resource allocation and assessment of segment performance is focused on the geographical location.

3.22      Business combinations

Acquisitions of businesses are accounted for using the acquisition method.  The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree.  Acquisition-related costs are recognised in profit or loss as incurred.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed.  If, after reassessment, the net of the acquisition-date amounts of identifiable assets acquired and the liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a gain on a bargain purchase.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation are measured at the proportionate share of net assets of the acquiree.

3.23      Common control business combinations

Where business combinations include transactions among entities under common control and outside the scope of IFRS 3 – Business Combinations, the Company considered the guidance provided by IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors and applied predecessor accounting. 

Assets acquired or liabilities assumed are not restated to their fair values. Instead, the acquirer incorporates the carrying amounts of assets and liabilities of the acquired entity and no new goodwill arises.

The difference between the consideration given and the aggregate carrying value of the assets and liabilities of the acquired entity as of the date of acquisition is included as acquisition reserve in equity.

Management believes this policy gives a true and fair view as all entities are under the same ultimate controlling party, therefore under common control. 

3.24      Critical accounting judgements and sources of estimation uncertainty

In the application of the Company's accounting policies, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Key sources of estimation uncertainty and judgements made in applying specific accounting policies are as follows:

Carrying value of New Liberty and Burkina Faso cash generating units

The ability of the Company to realise the carrying value of a cash generating unit is contingent upon future profitable production or proceeds from the gold mines and influenced by operational, legal and political risks and future gold prices. 

Management makes the judgements necessary when considering impairment at least annually with reference to indicators in IAS 36. If an indication exists, an assessment is made of the recoverable amount. The recoverable amount is the higher of value in use (being the net present value of expected future cash flows) and fair value less costs to sell. Value in use is estimated based on operational forecasts with key inputs that include gold reserves, gold prices, production levels including grade and tonnes processed, production costs and capital expenditure. Because of the above-mentioned uncertainties, actual future cash flows could materially differ from those estimated.  Note 11 outlines the significant inputs used when performing impairment test on the New Liberty cash generating unit.

Reserve estimates

The Group estimates its ore reserves  and  mineral  resources  in  accordance  with  the  National Instrument 43-101 "Standards of Disclosure for Mineral Projects" of the Canadian Securities Administrators.    Reserves determined in this way are used in the calculation of depreciation of mining assets, as well as the assessment  of  the  carrying  value  of  the cash generating units and timing of mine closure provision.    Uncertainties  inherent  in  estimating  ore  reserves  and  assumptions  that  are  valid  at  the  time  of  estimation  may  change  significantly  when  new  information  becomes  available.    Changes  in  the  forecast  prices  of  commodities,  exchange  rates,  production  costs  or recovery rates may change the economic status of reserves and may, ultimately,  result  in  the  reserves  being  restated.  The failure of the Company to achieve production estimates could have a material and adverse effect on any or all of its future cash flows, profitability, results of operations and/or financial condition.    

Declaration of commercial production

Management used its judgement to declare commercial production at New Liberty effective March 1, 2016 following a 60-day period of process plant operations in line with both design specifications and management expectations in terms of throughput capacity and gold recovery.

Provisions for mine closure and rehabilitation costs

Management uses its judgement and experience to provide for and amortise the estimated mine closure and site rehabilitation over the life of the mine. Provisions are discounted at a risk-free rate and cost base inflated at an appropriate rate. The ultimate closure and site rehabilitation costs are uncertain and cost estimates can vary in response to many factors including changes to relevant legal requirements or the emergence of new restoration techniques. The expected timing and extent of expenditure can also change, for example in response to changes in ore reserves or processing levels.  As a result, there could be significant adjustments to the provisions established which could affect future financial results.

Capitalisation of exploration and evaluation costs

Exploration and evaluation costs are expensed as incurred until a decision is taken that a mining property is economically feasible, after which subsequent expenditures are capitalised as intangible assets.  Management estimates the economic feasibility of a property using key inputs such as gold resources, future gold prices, production levels, production costs and capital expenditure.

Inventories

Valuations of ore stockpile and gold in circuit require estimations of the amount of gold contained in, and recovery rates from, the various work in progress. These estimations are based on analysis of samples and prior experience. Judgement is also required regarding the timing of utilisation of stockpiles and the gold price to be applied in calculating net realisable value.

Share-based payments and warrants

The amounts used to estimate fair values of stock options and warrants issued are based on estimates of future volatility of the Company's share price, expected lives of the options, expected dividends to be paid by the Company and other relevant assumptions.

By their nature, these estimates are subject to measurement uncertainty and the effect of changes in such estimates on the amended and restated consolidated financial statements of future periods could be significant.

4.         Acquisition of Youga and Balogo Gold Mines

On December 18, 2017 the Company completed the acquisition of the Youga Gold Mine and Balogo Gold Mine in Burkina Faso (the "Youga and Balogo Gold Mines") through the acquisition of the entire issued share capital of MNG Gold Burkina SARL, Cayman Burkina Mines Ltd., MNG Gold Exploration Ltd., AAA Exploration Burkina Ltd. and Jersey Netiana Mining Ltd. and their subsidiaries from AJL for a total consideration of $70.2 million which comprises of the issuance of $51.5 million of new common shares in the Company and a cash component of $18.7 million.

The Youga and Balogo Gold Mines provide the Company with geographic diversity within West Africa and are highly complementary to New Liberty Gold Mine, significantly increasing Avesoro's gold production, in addition to adding high quality exploration upside that will provide for further future organic growth.

This transaction has been accounted for in accordance with Note 3.23 Common control business combinations as the Company and AJL are both owned by Avesoro Holdings Limited.  The following table summarises the carrying value of the assets acquired and liabilities assumed on the date of acquisition.     

 

The net cash outflow from the acquisition amounted to $4.3 million.  Acquisition-related costs of $0.7 million have been charged to administrative and other expenses in the statement of comprehensive income for the year ended December 31, 2017.

The results of Youga and Balogo Gold Mines are included within the consolidated statement of income from the date of acquisition.  Youga and Balogo Gold Mines contributed revenues of $2.5 million and a net income after tax of of $0.5 million to the Group's net loss for the period from December 18 to 31, 2017. 

Had the acquisition completed on January 1, 2017, the Company would have reported revenues of $236.6 million and a net income after tax of $13.7 million for the year ended December 31, 2017.

5.         Segment information

The Company is engaged in the exploration, development and operation of gold projects in the West African countries of Liberia, Burkina Faso and Cameroon. Information presented to the Chief Executive Officer for the purposes of resource allocation and assessment of segment performance is focused on the geographical location of mining operations.  The reportable segments under IFRS 8 are as follows:

• New Liberty operations;
• Burkina operations which include the Youga and Balogo Gold Mines;
• Exploration; and
• Corporate.

Gold sales from New Liberty operations and Burkina operations are each sold to a single but different customer, both located in Switzerland.

Following is an analysis of the Company's results, assets and liabilities by reportable segment for the year ended December 31, 2017:

 

Following is an analysis of the Company's results, assets and liabilities by reportable segment for the year ended December 31, 2016:

 

6.     Administrative expenses

 

7.     Income taxes

 

The analysis of the Company's taxation charge for the year based on the company's statutory tax rate of 26.5% is as follows:

 

Deferred tax balances in Burkina Faso for which there is a right of offset within the same tax jurisdiction are presented net on the face of the balance sheet as permitted by IAS 12. The closing deferred tax assets, after this offsetting of balances, are shown below:

 

Deferred tax balances in Liberia for which there is a right of offset within the same tax jurisdiction are presented net as permitted by IAS 12. A deferred tax asset of $4.8 million (2016: $2.9 million) in respect of losses has been recognised and off set against a deferred tax liability of $4.8 million (2016: $2.9 million) with respect to accelerated tax depreciation in Liberia.  The Group has only recognised an asset up to the value of the deferred tax liability. 

The Group has further carried forward losses and capital allowances in Liberia and Canada in which it does not recognise a deferred tax asset due to uncertainty over the utilisation of these assets.  The unrecognised deferred taxation asset at December 31, 2017 is $107.9 million (2016: US$81.3 million) based on a carried forward tax losses asset of $51.1 million (2016: US$26.6 million) which expires between 2031 and 2037 and capital allowances of $56.8 million (2016: US$54.7 million) which have no expiry date.

8.         Trade and other receivables

 

Other receivables include a VAT receivable from the Burkina Faso Government amounting to $8.9 million as at December 31, 2017 (2016: $nil).

9.         Inventories

 

Consumables at New Liberty as at December 31, 2016 include inventories acquired from a related party (Note 20(d)). 

Production costs for the year ended December 31, 2017 include a write-down of ore stockpiles at New Liberty of $2.9 million to net realisable value.  Production costs for the year ended December 31, 2016  include an impairment of the low grade oxide stockpiles which was not planned to be fed through the processing plant at New Liberty as at December 31, 2016 of $4.9 million.

10.       Other assets

 

11.       Property, plant and equipment

 

The additions to development assets for the year ended December 31, 2017 include capitalized borrowing costs of $nil (2016: $1.7 million).  It also includes pre-production costs of $nil for the year ended December 31, 2017 (2016: $2.1 million), net of pre-production revenues of $nil (2016: $14.8 million).

Impairment of assets held under finance leases

During the year ended December 31, 2017, the Company agreed to cancel poor performing heavy mining equipment held as finance leases and fully acquire those with acceptable performance for a cash consideration of $2.7 million.  The derecognition of the finance lease liabilities resulted in a gain of $4 million and an impairment of $2.9 million was recognised on those equipment with low availabilities.

Impairment of New Liberty Gold Mine

In accordance with IAS 36, Impairment of Assets, the Company assesses annually whether there are any indicators of impairment of non-current assets. When circumstances or events indicate that non-current assets may be impaired, these assets are reviewed in detail to determine whether their carrying value is higher than their recoverable value, and, where this is the result, an impairment is recognised. Recoverable value is the higher of value in use ("VIU") and fair value less costs to sell. VIU is estimated by calculating the present value of the future cash flows expected to be derived from the asset cash generating unit ("CGU"). Fair value less costs to sell is based on the most reliable information available, including market statistics and recent transactions. The New Liberty Gold Mine has been identified as the CGU. This includes the mining and development property and associated working capital.

The mine operations falling below expectations during the year represented an impairment trigger, and as a result, Management performed impairment testing in order to ensure that the recoverable value calculated exceeded the carrying value as presented.  The results of this test did not result in any impairment for the year ended December 31, 2017 (2016: $42.5 million). 

The recoverable amount of the CGU was determined by calculating its VIU, which has been determined to be greater than its fair value less cost to dispose. The key assumptions used in determining the VIU for the CGU is life-of-mine ("LOM") plan, long-term gold prices and discount rate. The estimates of future cash flows were derived from the latest LOM plan as at December 31, 2017 which showed an estimated life of 4 years (2016: seven years) and was based on management's current best estimates of optimized mine and processing plans, future operating costs and the assessment of capital expenditure of the New Liberty Gold Mine.  The Company also used the following assumptions:

• estimated gold price of $1,300 per ounce (2016: a range from $1,200 to $1,300 (LOM average $1,300) per ounce) based on observable market data including spot price and industry consensus; and
• a pre-tax discount rate of 8.5% (2016: 8.5%) was applied to present value the net future cash flows based on the weighted average cost of capital applicable to the CGU. 

12.       Available-for-sale investments

 

As at December 31, 2017 and 2016, the Company holds 615,855 shares in Stellar Diamonds Plc, a diamond mining and exploration company listed on the AIM market operated by the London Stock Exchange. The Company's available-for-sale investments are classified as Level 1 where the fair value is determined by reference to quoted prices (unadjusted) in active markets. 

13.       Borrowings

 

(d)    Bank loans

On December 17, 2013 the Company entered into an agreement for an $88 million project finance loan facility (the "Senior Facility") with the Nedbank Limited and FirstRand Bank Limited (collectively the "Lenders"), and also entered into a subordinated loan facility agreement for $12 million with RMB Resources (the "Subordinated Facility").  On December 9, 2015 the Company entered into an agreement for an additional $10 million Tranche B Senior Facility ("Tranche B Facility", together with the Senior Facility and the Subordinated Facility the "Loan Facilities") provided by the Lenders.  These Loan Facilities, which have been fully drawn, financed the development of the Company's New Liberty Gold Mine.  $12.4 million of the Senior Facility has been repaid to date.

On March 31, 2017, the Company finalised an amendment to its Loan Facilities.  The revisions include improved conditions and rescheduled repayment terms of the Loan Facilities in exchange for the provision of a personal guarantee from Mehmet Nazif G?nal, Non-Executive Chairman of the Company, and corporate guarantees from the Avesoro Holdings Limited group, the beneficial owner of 72.9% of the Company's issued equity.

The rescheduled repayment structure provides no further capital repayments until March 31, 2018 and the Senior Facility loan tenor has been extended by two years until January 31, 2022, and the tenor on the Subordinated Facility has been extended to the earlier of 12 months following the repayment of the senior facility or January 31, 2023.  The Senior Facility interest rate remains at LIBOR plus 1.8% until 2020, following which it will increase to LIBOR plus 4.3% and the Subordinated Facility interest rate remains the same at LIBOR plus 7.5%.

The Senior Facility is secured by charges over the assets of BMMC and charges over the shares in BMMC.

(e)     Shareholder loan

Current
The current shareholder loan payable to AJL of $8.1 million was assumed on acquisition of Youga and Balogo Gold Mines (see Note 4).

Non-current
During the year ended December 31, 2017, BMMC borrowed $18.8 million from AJL to meet liabilities arising on the termination of legacy procurement contracts, make advanced payments to suppliers to secure lower unit cost pricing and to accelerate the acquisition of capital items that will increase process plant throughput at New Liberty. 

The loan is unsecured and ranks subordinated to the Company's bank loans.  Interest is charged on the loan at a fixed rate of 3.75% per annum.  The amount undrawn from this loan facility as at December 31, 2017 is $16.2 million.  BMMC may draw down in multiple tranches at the Company's discretion before December 31, 2020, with funds available for general working capital purposes.  The facility is due to repaid in full no later than December 31, 2022 and has no early repayment penalty. 

The loan payable to AJL was initially recognised at fair value calculated as its present value at a market rate of interest and subsequently measured at amortised cost.  The difference between fair value and loan amount of $4.5 million has been credited to equity as a capital contribution as the loan is from its majority shareholder.

(f)      Related party loan

During the year ended December 31, 2017 the Company entered into equipment and finance facility agreements with Mapa ?n?aat ve Ticaret A.?. ("Mapa"), a company controlled by Mehmet Nazif G?nal, Non-Executive Chairman of the Company, to facilitate the purchase of heavy mining equipment totaling $23.2 million.  The loan principal of these agreements includes a mark-up of 2.5% over the cost incurred by Mapa in procuring the equipment. The equipment finance loans are unsecured, with interest charged at 6.5% per annum on the US$ denominated loan amount of approximately $11 million and 5.5% per annum on the Euro denominated loan amount of approximately €10.3 million (equivalent to approximately $12.2 million). The loans are repayable in cash in eight equal semi-annual instalments, the first of which will fall due six months after utilisation of the loan.

The loan payable to Mapa was initially recognised at fair value calculated as its present value at a market rate of interest and subsequently measured at amortised cost.  The difference between fair value and loan amount of $1.3 million has been credited to equity as a capital contribution from a related party.

14.       Trade and other payables

 

15.       Finance lease liability

The finance lease liability relates to diesel-powered generators and related equipment and the fuel storage facility, all at New Liberty Gold Mine.  Such assets have been classified as finance leases as the rental period amounts to a major portion of the estimated useful economic life of the lease assets and the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased assets.

 

As discussed in Note 11, the Company cancelled certain finance leases of heavy mining equipment.  The derecognition of those finance leases resulted in a gain of $4 million recognised in the consolidated statement of comprehensive income.

16.       Derivative liability

 

On April 22, 2014 and July 29, 2014 the Company issued 16,687,499 and 12,260,148 warrants, respectively, with an exercise price of £0.378 (or the prevailing C$ equivalent thereof) and a term of three and a half years.

On December 22, 2015 the Company issued 20,400,000 Financier Options and re-issued 11,124,528 warrants with an exercise price of 7p and a term of 3.3 years.

The Company's derivative liability is classified as Level 3 where the fair value is based on inputs that are not observable and significant to the overall fair value measurement.  These are treated as a derivative liability and were fair valued at inception using the Black-Scholes option pricing model and the following assumptions:

 

The changes in fair value at each reporting date are taken directly to the statement of comprehensive income.  The following assumptions were used at each date.

 

The weighted average exercise price of the outstanding 31,524,528 warrants which are accounted for as derivative liability as at December 31, 2017 is 7 GBp (2016: 22 GBp).

17.       Provision

 

 

The estimated mine closure and rehabilitation costs are expected to be incurred at the end of the life of each mine, 2022 for New Liberty, 2024 for Youga and 2018 for Balogo.  Mine closure and rehabilitation costs are estimated based on a formal closure plan and are subject to regular reviews.  The principal factors that can cause expected cash flows to change include change in the LOM plan, changes in ore reserves and changes in law and regulation governing the protection of the environment.

18.       Equity

(a)      Authorised

Unlimited number of common shares without par value.

 (b)     Issued

 

 

(c)      Stock options

Information relating to stock options outstanding at December 31, 2016 is as follows:

 

There were 51,202,500 stock options that have vested as at December 31, 2017 (2016: 24,952,550) with a weighted average exercise price of Cdn$0.04 (2016: Cdn$0.25).

The weighted average fair value of the 174,500,000 stock options granted in year ended December 31, 2017 (2016: 113,046,000 options) was estimated at US$0.01 per option (2016: US$0.02) at the grant date based on the Black-Scholes option-pricing model using the following assumptions:

 

19.       Loss per share

 

The weighted average number of common shares has been restated for the 100:1 share consolidation that became effective on January 16, 2018 (Note 25).

Where there is a loss, the impact of warrants and stock options is anti-dilutive, hence, basic and diluted earnings per share are the same.

20.       Related party transactions

Following are the Company's related party transactions in addition to the acquisition of Youga and Balogo Gold Mines as discussed in Note 4.

(a) AJL loan facility

As discussed in Note 13(b), the Company borrowed US$18.8 million from its majority shareholder, AJL, during the year ended December 31, 2017.  Interest charged on the loan for the year ended December 31, 2017 amounted to US$0.7 million.

(b) Loans payable to Mapa

As discussed in Note 13(c), the Company borrowed US$23.2 million from Mapa during the year ended December 31, 2017.  Interest charged on the loans for the year ended December 31, 2017 amounted to US$0.4 million.

(c) Guarantee on the Loan Facilities

In exchange for the revised and improved conditions and rescheduled repayment terms of the Loan Facilities (see Note 13(a)) a personal guarantee was provided by Mehmet Nazif G?nal, Non-Executive Chairman of the Company and corporate guarantees were provided by the Avesoro Holdings Limited group, the beneficial owner of 72.9% of the Company's issued equity.

(d) Termination of mining services contract and acquisition of mining assets

On September 6, 2016 the mining services contract (the "Contract") between BMMC, the Company's wholly owned subsidiary, and MonuRent (Liberia) Limited ("MonuRent") together with all underlying supplier contracts was novated to Atmaca Services (Liberia) Inc. ("ASLI"), a Liberian company that is wholly owned by AJL.  All terms of the Contract remained the same.

As part of the novation agreement with MonuRent, ASLI paid to MonuRent cash of $15.4 million to acquire mining equipment leased to BMMC, $7.1 million cash for inventory, $9.7 million cash for invoiced receivables and $4.5 million cash as a contract novation fee.

On December 6, 2016 BMMC terminated the mining services contract with ASLI and completed the acquisition of mining equipment and inventory from ASLI in exchange for a payment of $36.7 million, equal to the amount paid by ASLI to MonuRent.

ASLI invoiced BMMC a total of $7.4 million for the lease and maintenance of mining equipment in accordance with the Contract from September 6 to December 6, 2016 of which $6.1 million was paid in 2016 leaving an outstanding payable as at December 31, 2016 of $1.3 million.

During the year ended December 31, 2017, BMMC charged $2 million for management, procurement and operational assistance provided to ASLI and an additional $0.3 million for payments made on behalf of ASLI.  The outstanding receivable from ASLI as at December 31, 2017 is $1 million. 

(e) Other provision/(purchases) of goods and services

The Company also provided/(purchased) the following services from related parties:

 

Included in trade and other receivables is a receivable from a related party of $1 million as at December 31, 2017 (2016: $0.1 million) which represents management, procurement and operational assistance services. 

Included in trade and other payables is $0.5 million payable to related parties as at December 31, 2017 (2016: $1.3 million) which represents mainly drilling and charter jet services.

(f)      Key management compensation

The Company's directors and officers are considered the Company's key management personnel.  The compensation paid or payable to key management for services is shown below.

 

The remuneration earned by each director is as follows:

 

(g)        Equity financing

AJL's participation in the financing of the Company are disclosed in Note 18b.

21.       Financial instruments by category

The Company's financial instruments consist of cash and cash equivalents, trade and other receivables, available for sale investments, borrowings, trade payables and accruals, finance lease liability and derivative liability.  Financial instruments are initially recognized at fair value with subsequent measurement depending on classification as described below. Classification of financial instruments depends on the purpose for which the financial instruments were acquired or issued, their characteristics, and the Company's designation of such instruments.

The Company has made the following classifications for its financial instruments:

 

 

 

 

22.  Financial and capital risk management

(a)  Financial risk management

The Company's activities expose it to a variety of financial risks, which include interest rate and liquidity risk, foreign exchange risk and credit risk.

Interest rate and liquidity risk

Fluctuations in interest rates impact on the value of short term cash investments, finance lease liability and borrowings giving rise to interest rate risk.  The Company has in the past been able to actively source financing through public offerings and debt financing.  This cash is managed to ensure surplus funds are invested in a manner to achieve maximum returns while minimising risks.  In the ordinary course of business, the Company is required to fund working capital and capital expenditure requirements.  The Company typically holds cash and cash equivalents with a maturity of less than 30 days.

The Directors consider there to be minimal interest rate risk from fluctuations in market interest rates since the interest on the borrowings are largely fixed.  If USD LIBOR, which is the variable component of the interest increased by 100% during the year ended December 31, 2017, finance cost would have increased by $1 million.

The Company ensures that its liquidity risk is mitigated by a combination of cash flow forecasts, budgeting, monitoring of operational performance and placing financial assets on short term maturity, thus all financial liabilities are met as they become due.

The Company's liabilities, stated at their gross, contractual and undiscounted amounts, fall due as indicated in the following table:

 

Foreign exchange risk

Foreign exchange risk to the Group arises from transactions denominated in currencies other than US dollars.  In the normal course of business the Company enters into transactions denominated in foreign currencies, primarily Pounds Sterling, Canadian Dollars, Euros, Australian Dollars and South African Rand.  As a result, the Company is subject to exposure from fluctuations in foreign currency exchange rates.  The Company does not enter into derivatives to manage these risks.

 

The sensitivities below are based on financial assets and liabilities held at December 31, 2017 and 2016 where balances were not denominated in the functional currency of the Company.  The sensitivities do not take into account the Company's income and expenses and the results of the sensitivities could change due to other factors such as changes in the value of financial assets and liabilities as a result of non-foreign exchange influenced factors.     

Credit risk

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents. The Company has an investment policy requiring that cash and cash equivalents only are deposited in permitted investments with certain minimum credit ratings. 

 

(b)  Capital risk management

The Company's objectives when managing capital is to maintain its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to ensure sufficient resources are available to meet day to day operating requirements.  The Company defines capital as 'equity' as shown in the consolidated statement of financial position.

The Company's board of directors takes responsibility for managing the Company's capital and does so through board meetings, review of financial information, and regular communication with officers and senior management.

The Company does not currently pay out dividends.

The Company's investment policy is to invest its cash in deposits with high credit worthy financial institutions with short term maturity.

The Company is not subject to externally imposed capital requirements and there has been no change in the overall capital risk management as at December 31, 2017.

23.  Commitments

Operating expenditure contracted for at December 31, 2017 but not yet incurred is as follows:

 

Operating expenditure commitments comprises of operating leases as at December 31, 2017.

Commitments in respect of finance leases are disclosed in Note 15.

24.  Notes to the statement of cash flows

 

 

25.  Restatement of related party loans and capital contribution as at December 31, 2017

In preparing the Company's unaudited interim financial statements for the period ended June 30, 2018, Management identified an error in the calculation of the fair valuation of related party loans with Mapa Insaat ve Ticaret A.S.  The error requires the restatement of the audited consolidated statement of financial position as at December 31, 2017.  The impact of the restatement of the audited consolidated statement of financial position is to increase the current portion of borrowings by $2.0 million, increase the non-current portion of borrowings by $3.2 million and reduce the capital contribution in equity by $5.2 million.  The impact of the restatement of the audited consolidated statement of changes in equity is to reduce capital contribution by $5.2 million.  The adjustment has no impact on profit nor cash flows for the year ended December 31, 2017.  The repayment terms, rates and amounts payable pursuant to the loan agreements are unchanged.

 

26.  Subsequent events

On January 16, 2018 a 100:1 share consolidation became effective and the Company's previously issued share capital of 8,156,075,823 common shares of nil par value was reduced to 81,560,260 new common shares of nil par value.

On February 21, 2018 the Company entered into further equipment and finance facility agreements with Mapa to facilitate the purchase of heavy mining equipment totaling approximately $10.3 million.  The equipment finance loans are unsecured, with interest charged at 6.5% per annum and have similar terms as those entered into with Mapa during the year ended December 31, 2017 as discussed in Note 18(c).  The loan principal of these agreements includes a mark-up of 2.5% over the cost incurred by Mapa in procuring the equipment.   

SOURCE Avesoro Resources Inc.