Georgian Mining Corporation announces its final results for the year ended 31 December 2018.
Mike Struthers, CEO, commented, “The only issue holding us back is the exploration permit delay with the government in Georgia. The company continues to explore all avenues for resolving the application, and to engage with senior government officials and other influential parties to try to solicit an outcome. The extreme delay in the Georgian government awarding the permit is clearly unacceptable, with an absence of any formal feedback to the Company.
Outside of the Georgian government our direct engagement on the issue presently includes the British Ambassador and Embassy staff in Georgia; the British Government via its Trade Envoy to Georgia and Armenia; the Georgian Ambassadors to the United Kingdom and Canada; and selected British companies who are already successfully established and influential in Georgia and the region.
Recent political unrest in Georgia is most unfortunate and we hope for Georgia’s sake that it can be resolved peacefully very soon. It only indirectly impacts on the company’s permit application through being a distraction for senior government officials as the country responds to the challenge.
In terms of costs and treasury, the Directors and Executive staff have not received any compensation for their strenuous efforts on behalf of the company since May 2019, and this situation continues. Given the continued delays and resulting poor performance of the company the Board concluded it was appropriate to write-off their Directors fees owing since May 2018, with the exception of the Chief Executive who wrote off part of his fees. The total write-off since May 2018 is £275,000.
Furthermore, the company has made progressive reductions in operating costs both in Georgia and corporately as the permit delay has continued. This has regrettably now included reductions in non-core roles and staff redundancies. We continue to maintain our small team in country, at a low cost, in the hope the permit will be awarded in the near future and to enable us to commence work rapidly.
In terms of newsflow, I recognise the desire of many shareholders for more regular updates on the company’s activities in respect of the exploration permit application. However, because of the political dimensions behind the permit delay many of the initiatives the company is pursuing cannot be publicised since this would undermine those very initiatives. It is a frustrating situation but that is the reality. We continuously look for opportunities to share news with shareholders, but I ask for continued understanding.
A combination of initiatives has been successful in raising the permit issue to a high priority in the Georgian government, and I hope to be able to report positive progress in the near future.”
The annual report and accounts for the year ended 31 December 2018 will be posted to shareholders today.
The annual report and accounts for the year ended 31 December 2018 are available for download on the Company’s website, www.georgianmining.com.
Shareholders will be advised separately of the timing for the Annual General Meeting of the Company.
Chairman’s Report
Key Achievements
The last twelve months have undoubtedly been a challenging period for the Company as we have continued to try to resolve the delay in being granted the exploration permit extension within our 30-year mining concession in Georgia. This application has been in the hands of government since June 2018. A number of governmental changes have occurred which have hindered resolving the application, including a change in the Prime Minister and cabinet in mid-2018, delays in some new ministers commencing their roles, and the Presidential elections later in the year. But regardless we continue to be successful in regularly engaging with senior levels of government, and in raising the profile of the Company in the wider business community in Georgia.
As a result of these continued delays, the Directors have concluded that the Georgian exploration assets no longer fully meet the capitalisation criteria under IFRS 6 and have recognised an impairment provision against these assets until the good standing of the exploration permits is resolved. This impairment will be revered once the permits have been renewed.
The team in Georgia have continued to add value through desktop work, initially focussed on the Kvemo Bolnisi East (“KBE”) and West (“KBW”) projects, then moving on to Dambludi and Tsitel Sopeli, and also stepping out to confirm regional datasets and regional models for more specific drill targeting.
The KBE desktop work was a complete review and revision of the sample data to confirm there were no issues for the data to be used as the final drill planning dataset and that the final drill plan as proposed was the best infill program to confirm the new geological model. Wireframes were also revised, focusing on the lithology and metal distributions within the lithologies and structures. An important aspect is the supergene mineralization and the complex interaction of the various copper species, and the resulting detailed understanding now provides the highest confidence for resource sign-off.
The KBE work then expanded into a KBW review which assisted the infrastructure study so that early mining of KBE would not inadvertently sterilize the potential to expand the general Kvemo Bolnisi area prospects. This work led to further remote sensing geophysics which developed drill targets immediately adjacent to KBE and which, if successful in generating an expanded resource, would be quickly incorporated into a KBW mining plan in parallel with KBE.
An important aspect of all of the above was integrating the Georgian staff into the detailed technical planning and including the professional use of software in planning, confirming and presenting data for ground truthing and drill planning.
Work on Tsitel Sopeli focussed on database verification and a detailed line-by-line review of all Soviet and post-Soviet data, which will be the base for the maiden JORC-compliant resource. This is ongoing as at the date of reporting.
The Dambludi work extended the same data verification reviews to geological modelling, given the combination of available drilling and underground development assays and geology mapping data. The resulting detailed geological model is a significant improvement over earlier work, and provided the basis for then investigating how metal distribution is related to detailed geology, and hence definition of the best value drilling programme going forwards.
Financial Results
During the year, as a result of renegotiating of certain terms within the Joint Venture agreement, including board composition of the JV company, for accounting purposes the Company was no longer considered to control the JV and as a result the JV company is no longer consolidated.
As an exploration and development group which has no revenue we are reporting a loss for the twelve months ended 31 December 2018 of £8,785,533 (31 December 2017: loss of £2,382,476). The increase in the loss is largely as a result of the impairment charge on the Georgian projects and on loans made to the JV of £4,185,028 (2017: £Nil) and a share of loss from Joint Venture of £3,994,585 (2017: £Nil) in relation to the Georgian assets.
The Group’s cash position at the date of signing this report is £420,000.
Outlook
Beyond the obvious priority of resolving the extraordinary delay in awarding the exploration permit extension, the Company’s strategy is essentially unchanged, that is:
1. To press ahead with the continued development of the KBE Project through the execution of the detailed work programme.
2. In parallel, to validate historical data and further progress target testing and resource development work on the Tsitel Sopeli and Dambludi projects, and to test other targets in the wider license area. There are over a dozen known targets with significant resource potential, and we have an excellent opportunity for developing a pipeline of gold-copper projects all within reach of established processing facilities.
3. Acquiring new assets – The Company has continued to examine other opportunities both in Georgia and within the regional Tethyan Belt.
Preliminary plans have been prepared for the development of the KBE, Tsitel Sopeli and Dambludi projects which indicate the potential to create three new mines in the region within 5-6 years. We are particularly excited about the potential at Tsitel Sopeli which has the potential to be a world-class gold project, yet historical drilling did not test the highest-grade “bonanza” gold zones at depth that characterise this type of low-sulphidation epithermal gold system.
Other key elements in the future work programme are the advancement of environmental studies for the KBE project, and executing a robust CSR programme with local communities and stakeholders.
I would like to thank our Shareholders for their support as well as the Board and Advisors for all their hard work and commitment during what has been a challenging year. We are excited by the opportunity for Georgian Mining to play a key role in developing the highly prospective mineral potential of Georgia to the benefit of our Shareholders and the country.
Neil O’Brien
Non-Executive Chairman
28 June 2019
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2018
| | | Group |
| | Note | 2018£ | 2017£ |
| Non-Current Assets | | | |
| Property, plant and equipment | 8 | 34,042 | 162,535 |
| Investment in joint venture | 23 | – | – |
| Intangible assets | 9 | – | 10,472,718 |
| | | 34,042 | 10,635,253 |
| Current Assets | | | |
| Trade and other receivables | 10 | 141,105 | 381,555 |
| Cash and cash equivalents | 11 | 525,354 | 2,569,997 |
| | | 666,459 | 2,951,552 |
| Total Assets | | 700,501 | 13,586,805 |
| Current Liabilities | | | |
| Trade and other payables | 12 | 242,701 | 413,080 |
| | | 242,701 | 413,080 |
| Total Liabilities | | 242,701 | 413,080 |
| Net Assets | | 457,800 | 13,173,725 |
| Equity attributable to owners of the Parent | | | |
| Share capital | 13 | – | – |
| Share premium | 13 | 38,904,337 | 38,880,612 |
| Reverse acquisition reserve | | (18,845,147) | (18,845,147) |
| Other reserves | 14 | 136,020 | 384,099 |
| Retained losses | | (19,737,410) | (11,033,204) |
| Total equity attributable to owners of the Parent | | 457,800 | 9,386,360 |
| Non-controlling interest | | – | 3,787,365 |
| Total Equity | | 457,800 | 13,173,725 |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
As at 31 December 2018
| | | Group |
| Continuing Operations | Note | Year ended 31 December 2018 £ | Year ended 31 December 2017 £ |
| Revenue | 6 | 213,265 | – |
| Cost of sales | | – | – |
| Gross profit | | 213,265 | – |
| Administration expenses | 7 | (1,420,729) | (1,909,711) |
| Loss on deconsolidation of subsidiary | 24 | (265,094) | |
| Other gains / (losses) | 16 | 866,638 | (472,870) |
| Impairment of intangible assets and amounts due from joint venture | 9,10 | (4,185,028) | – |
| Operating Loss | | (4,790,948) | (2,382,581) |
| Finance income | 19 | – | 105 |
| Share of net loss of joint venture accounted for using equity method | 23 | (3,994,585) | – |
| Loss before Taxation | | (8,785,533) | (2,382,476) |
| Income tax | 20 | – | – |
| Loss for the year | | (8,785,533) | (2,382,476) |
| Loss attributable to: | | | |
| – owners of the Parent | | (8,774,021) | (2,260,603) |
| – non-controlling interests | | (11,512) | (121,873) |
| Loss for the year | | (8,785,533) | (2,382,476) |
| Other Comprehensive Income: | | | |
| Items that may be subsequently reclassified to profit or loss | | | |
| Exchange differences on translating foreign operations | | 448,800 | (345,659) |
| Total Comprehensive Income | | (8,336,733) | (2,728,135) |
| Attributable to: | | | |
| – owners of the Parent | | (8,542,591) | (2,875,242) |
| – non-controlling interests | | 205,858 | 147,107 |
| Total Comprehensive Income | | (8,336,733) | (2,728,135) |
| | | | |
| Earnings per share (pence) from continuing operations attributable to owners of the Parent – Basic & Diluted | 21 | (7.647) | (2.232) |
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
For the year ended 31 December 2018
| | Attributable to Equity Shareholders | | |
| | Share premium£ | Reverse acquisition reserve£ | Other reserves£ | Retained losses£ | Total£ | Non-controlling interest£ | Total equity£ | |
| As at 1 January 2017 | 33,653,273 | (18,845,147) | 838,470 | (8,772,601) | 6,873,995 | 3,640,258 | 10,514,253 | |
| Loss for the year | – | – | – | (2,260,603) | (2,260,603) | (121,873) | (2,382,476) | |
| Other comprehensive income | | | | | | | | |
| Exchange differences on translating foreign operations | – | – | (614,639) | – | (614,639) | 268,980 | (345,659) | |
| Total comprehensive income for the year | – | – | (614,639) | (2,260,603) | (2,875,242) | 147,107 | (2,728,135) | |
| Transactions with owners | | | | | | | | |
| Issue of ordinary shares | 5,463,941 | – | – | – | 5,463,941 | – | 5,463,941 | |
| Issue costs | (236,602) | – | – | – | (236,602) | – | (236,602) | |
| Share Option charge | – | – | 160,268 | – | 160,268 | – | 160,268 | |
| Total transactions with owners | 5,227,339 | – | 160,268 | – | 5,387,607 | – | 5,387,607 | |
| As at 31 December 2017 | 38,880,612 | (18,845,147) | 384,099 | (11,033,204) | 9,386,360 | 3,787,365 | 13,173,725 | |
| As at 1 January 2018 | 38,880,612 | (18,845,147) | 384,099 | (11,033,204) | 9,386,360 | 3,787,365 | 13,173,725 | |
| Loss for the year | – | – | – | (8,774,021) | (8,774,021) | (11,512) | (8,785,533) | |
| Other comprehensive income | | | | | | | | |
| Exchange differences on translating foreign operations | – | – | 231,430 | – | 231,430 | 217,370 | 448,800 | |
| Total comprehensive income for the year | – | – | 231,430 | (8,774,021) | (8,542,591) | 205,858 | (8,336,733) | |
| Transactions with owners | | | | | | | | |
| Issue of ordinary shares | 23,725 | – | – | – | 23,725 | – | 23,725 | |
| Share Option charge | – | – | (12,634) | 168 | (12,466) | – | (12,466) | |
| Expiry of share options | – | – | (69,647) | 69,647 | – | – | – | |
| Deconsolidation of Georgian Copper and Gold | – | – | (397,228) | – | (397,228) | (3,993,223) | (4,390,451) | |
| Total transactions with owners | 23,725 | – | (479,509) | 69,815 | 385,969 | (3,993,223) | (4,379,192) | |
| As at 31 December 2018 | 38,904,337 | (18,845,147) | 136,020 | (19,737,410) | 457,800 | – | 457,800 | |
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2018
| | | Group | |
| | Note | 2018£ | 2017£ | |
| Cash flows from operating activities | | | | |
| Loss before taxation | | (8,785,533) | (2,382,476) | |
| Adjustments for: | | | | |
| Share option expenses | | 12,446 | 160,268 | |
| Share based payments | | – | 57,061 | |
| Share of loss on joint venture | | 3,994,585 | – | |
| Loss on deconsolidation of Georgian Copper & Gold | | 265,094 | – | |
| Depreciation | | 23,092 | 35,593 | |
| Impairment of intangible asset | | 4,185,028 | – | |
| Decrease/ (increase) in trade and other receivables | | 90,845 | 34,650 | |
| Increase in trade and other payables | | 141,058 | 106,960 | |
| Foreign exchange | | (889,814) | (12,176) | |
| Net cash used in operating activities | | (963,199) | (2,000,120) | |
| Cash flows from investing activities | | | | |
| Interest received | | – | – | |
| Loans granted to joint venture partners | | (801,929) | | |
| Purchase of property, plant & equipment | | (2,815) | (70,400) | |
| Additions to exploration and evaluation intangible | | (287,245) | (2,189,076) | |
| Decrease in cash on deconsolidation | | (13,180) | – | |
| Net cash used in investing activities | | (1,105,169) | (2,259,476) | |
| Cash flows from financing activities | | | | |
| Proceeds from issue of shares | | 23,725 | 5,406,881 | |
| Cost of share issue | | – | (236,602) | |
| Net cash generated from financing activities | | 23,725 | 5,170,279 | |
| Net increase in cash and cash equivalents | | (2,044,643) | 910,683 | |
| Cash and cash equivalents at beginning of year | | 2,569,997 | 1,659,314 | |
| Cash and cash equivalents at end of year | 11 | 525,354 | 2,569,997 | |
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2018
ACCOUNTING POLICIES
1. General Information
The principal activity of Georgian Mining Corporation (“the Company”) and its subsidiaries (together “the Group”) is to implement its mineral exploration strategy to advance projects towards defining a sufficient in-situ mineral resource to support a detailed feasibility study towards mine development and production.
The Company’s shares are traded on AIM, a market operated by the London Stock Exchange. The Company is incorporated in the British Virgin Islands and domiciled in the United Kingdom.
The address of its registered office is Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI.
2. Summary of Significant Accounting Policies
The principal accounting policies applied in the preparation of these Financial Statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.
2.1 Basis of Preparation of Financial Statements
The Group Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations as adopted by the European Union applicable to companies under IFRS. The Group Financial Statements have been prepared under the historical cost convention.
The Financial Statements are presented in UK Pounds Sterling rounded to the nearest pound.
The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s Accounting Policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Financial Statements, are disclosed in Note 4.
2.2 Changes in accounting policy and disclosures
(a) New and amended standards mandatory for the first time for the financial periods beginning on or after 1 January 2018
As of 1 January 2018 the Group has adopted IFRS 9 and IFRS 15.
The Group adopted IFRS 9, Financial Instruments (‘IFRS 9’), which replaced IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 addresses the classification, measurement and recognition of financial assets and liabilities.
The Group reviewed the financial assets and liabilities reported on its Statement of Financial Position and completed an assessment between IAS 39 and IFRS 9 to identify any accounting changes. The financial assets subject to this review were trade and other receivables and financial assets held at fair value through profit or loss. The financial liabilities subject to this review were the trade and other payables. Based on this assessment of the classification and measurement model, there were no changes to classification and measurement other than changes in terminology.
IFRS 15 requires an expected quantitative impact of the application of IFRS 15 to be included within the financial statements. Management service income recognition is not considered to change as a result of the transition to IFRS 15. The Group has no other revenue sources.
Of the other IFRSs and IFRICs adopted in 2018, none have had a material effect on future Groups Financial Statements.
(b) New standards, amendments and Interpretations in issue but not yet effective or not yet endorsed and not early adopted
Standards, amendments and interpretations that are not yet effective and have not been early adopted are as follows:
| Standard | Impact on initial application | Effective date |
| IFRS 16 | Leases | 1 January 2019 |
| IFRS 9 (Amendments) | Prepayment features with negativecompensation | 1 January 2019 |
| IAS 28 (Amendments) | Long term interests in associates and joint ventures | 1 January 2019 |
| 2015-2017 Cycle | Annual improvements to IFRS Standards | 1 January 2019 |
| IFRS 3 (Amendments) | Business combinations | *1 January 2020 |
*subject to EU endorsement
Of the other IFRSs and IFRICs, none are expected to have a material effect on future Group financial statements.
2.3 Basis of Consolidation
The Group Financial Statements consolidate the Financial Statements of Georgian Mining Corporation and the financial statements of all of its subsidiary undertakings made up to 31 December 2018.
Subsidiaries are entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Where an entity does not have returns, the Group’s power over the investee is assessed as to whether control is held. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Below is a summary of subsidiaries of the Group:
| Name of subsidiary | Place of business | Parent company | Registered capital | Share capital held | Principal activities |
| Kibe Investments No.2 Limited | British Virgin Islands | Georgian Mining Corporation | Ordinary shares US$12 | 100% | Dormant |
| Noricum Gold AT GmbH | Austria | Kibe Investments No.2 Limited | Ordinary shares €35,000 | 100% | Exploration |
| GMC Investments Limited | British Virgin Islands | Georgian Mining Corporation | Ordinary shares US$1 | 100% | Dormant |
| European Mining Services Limited | United Kingdom | Georgian Mining Corporation | Ordinary shares£1 | 100% | Mining Services |
Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting
policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
On 18 March 2018, the Group entered into a Deed of Variation with its joint venture partner Georgian Copper & Gold. As a result, the Company lost control of Georgian Copper & Gold and it was deconsolidated from the financial statements as at the date of the Deed of Variation.
The Directors remain confident that this exploration permit extension will be granted in due course however, as a result of this process having been ongoing now for over 12 months, the Directors have taken the decision that in order to comply with the requirements of IFRS 6, Exploration for and Evaluation of Mineral Resources, to fully impair the carrying value of the Georgian exploration assets as at 31 December 2018. IFRS 6 includes certain triggers that prima facie, indicate that an impairment should be considered. One of these triggers is “The period for which the entity has the right to explore in the specific area has expired during the period, or will expire in the near future, and is not expected to be renewed.” While the Directors are still confident that the renewal will be forthcoming, it has been deemed that the prudent and conservative approach given the extended delay, is to fully impair the carried forward exploration and evaluation asset. This has resulted in an impairment charge of approximately £4.2 million and a share of loss from JV of £4 million for the financial year ended 31 December 2018.
2.4 Going Concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the Chairman’s Report from page 3. In addition, Note 3 to the Financial Statements includes the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; and details of its exposure to credit and liquidity risk.
The Financial Statements have been prepared on a going concern basis. Although the Group’s assets are not generating steady revenue streams, an operating loss has been reported and an operating loss is expected in the 12 months subsequent to 31 December 2018, the Directors believe that the Group has sufficient funds to meet its immediate working capital requirements and undertake its targeted operating activities over the next 12 months from the date of approval of these Financial Statements. Whilst the negotiations to extend the exploration permits are ongoing, the Group has ceased exploration work in Georgia and reduced expenditure to preserve cash in the short term.
The Group has financial resources which, the Directors believe, will be sufficient to fund the Group’s committed expenditure both operationally and on specific exploration projects for the next 12 months. However, in order to complete other exploration work, including additional exploration and development subsequent to the expected renewal of the exploration permit, as well as additional work over the life of existing projects and also to meet minimum spend requirements for existing projects after 12 months from the date of approval of these Financial Statements, additional funding will be required. In addition, the Group has significantly reduced its working capital requirements and has ceased expenditure on exploration as existing funds are not sufficient. The amount of funding required cannot be reliably estimated at the point of approval of these Financial Statements and the Group will need to raise additional funds either via an issue of equity or through the issuance of debt. The auditors have included a ‘Material Uncertainty’ paragraph in their audit report as a result of this uncertainty.
The Directors have, in the light of all the above circumstances, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the Group Financial Statements.
2.5 Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions.
Segment results, include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
2.6 Foreign Currencies
(a) Functional and presentation currency
Items included in the Financial Statements of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the ‘functional currency’). The functional currency of the Company is Sterling, the functional currency of the BVI subsidiaries is US Dollars and the functional currency of the Austrian subsidiary is Euros. The Financial Statements are presented in Pounds Sterling, rounded to the nearest pound, which is the Company’s functional and the Group’s presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where such items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement.
(c) Group companies
The results and financial position of all the Group’s entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
· assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;
· income and expenses for each statement of comprehensive income presented are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
· all resulting exchange differences are recognised in other comprehensive income where material.
On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of monetary items receivable from foreign subsidiaries for which settlement is neither planned nor likely to occur in the foreseeable future, are taken to other comprehensive income. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale.
2.7 Intangible Assets
Exploration and evaluation assets
The Group recognises expenditure as exploration and evaluation assets when it determines that those assets will be successful in finding specific mineral resources. Expenditure included in the initial measurement of exploration and evaluation assets and which are classified as intangible assets, relate to the acquisition of rights to explore, topographical, geological, geochemical and geophysical studies, exploratory drilling, trenching, sampling and activities to evaluate the technical feasibility and commercial viability of extracting a mineral resource. Capitalisation of pre-production expenditure ceases when the mining property is capable of commercial production.
Exploration and evaluation assets are recorded and held at cost.
Exploration and evaluation assets are assessed for impairment annually or when facts and circumstances suggest that the carrying amount of an asset may exceed its recoverable amount. The assessment is carried out by allocating exploration and evaluation assets to cash generating units, which are based on specific projects or geographical areas. IFRS 6 permits impairments of exploration and evaluation expenditure to be reversed should the conditions which led to the impairment improve. The Group continually monitors the position of the projects capitalised.
Whenever the exploration for and evaluation of mineral resources in cash generating units does not lead to the discovery of commercially viable quantities of mineral resources and the Group has decided to discontinue such activities of that unit, the associated expenditures are written off to the Income Statement.
2.8 Property, Plant and Equipment
Property, plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Depreciation is provided on all property, plant and equipment to write off the cost less estimated residual value of each asset over its expected useful economic life on a straight-line basis at the following annual rates:
Computer equipment – 20 to 50% straight line
Field equipment – 20 to 50% straight line
Vehicles – 20% straight line
All assets are subject to annual impairment reviews. 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.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replacement part is derecognised. All other repairs and maintenance are charged to the Income Statement during the financial period in which they are incurred.
The asset’s residual value and useful economic lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Gains and losses on disposal are determined by comparing the proceeds with the carrying amount and are recognised within ‘Other net gains / (losses)’ in the income statement.
2.9 Impairment of non-financial assets
Assets that have an indefinite useful life, for example, intangible assets not ready to use, are not subject to amortisation and are tested annually for impairment. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).
Non-financial assets that suffered impairment (except goodwill) are reviewed for possible reversal of the impairment at each reporting date.
2.10 Financial Assets
(a) Classification
The Group classifies its financial assets in the following categories: at amortised cost including trade receivables and other financial assets at amortised cost, The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
(b) Recognition and measurement
Amortised cost
Trade and other receivables are recognised initially at the amount of consideration that is unconditional, unless they contain significant financing components, in which case they are recognised at fair value. The group holds the trade and other receivables with the objective of collecting the contractual cash flows, and so it measures them subsequently at amortised cost using the effective interest method.
The group classifies its financial assets as at amortised cost only if both of the following criteria are met:
· the asset is held within a business model whose objective is to collect the contractual cash flows; and
· the contractual terms give rise to cash flows that are solely payments of principle and interest.
(c) Impairment of financial assets
The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original EIR. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
For trade receivables (not subject to provisional pricing) and other receivables due in less than 12 months, the Group applies the simplified approach in calculating ECLs, as permitted by IFRS 9. Therefore, the Group does not track changes in credit risk, but instead, recognises a loss allowance based on the financial asset’s lifetime ECL at each reporting date.
The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows and usually occurs when past due for more than one year and not subject to enforcement activity.
At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
(d) Derecognition
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss. This is the same treatment for a financial asset measured at FVTPL.
2.11 Financial Liabilities
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Trade and other payables
After initial recognition, trade and other payables are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in the statement of profit or loss and other comprehensive income when the liabilities are derecognised, as well as through the EIR amortisation process.
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 EIR. The EIR amortisation is included as finance costs in the statement of profit or loss and other comprehensive income.
Derecognition
A financial liability is derecognised when the associated obligation 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 the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss and other comprehensive income.
2.12 Cash and Cash Equivalents
Cash and cash equivalents comprise cash at bank and in hand.
2.13 Taxation
Tax for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised directly in equity. In this case the tax is also recognised directly in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company’s subsidiaries and associates 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. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the 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 income tax is determined using tax rates (and laws) that have been enacted, or substantially enacted, by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised, or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally the group is unable to control the reversal of the temporary difference for associates. Only where there is an agreement in place that gives the group the ability to control the reversal of the temporary difference not recognised.
Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities, and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
There has been no tax credit or expense for the period relating to current or deferred tax.
2.14 Share Capital, share premium and other reserves
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity, as a deduction, net of tax, from the proceeds provided there is sufficient premium available. Should sufficient premium not be available placing costs are recognised in the Income Statement.
Other reserves consists of the share option reserve and the foreign exchange translation reserve.
2.15 Reverse acquisition reserve
The reverse acquisition reserve arose on the acquisition of Kibe Investments No. 2 Limited in 2010. There has been no movement in the reserve since that date.
2.16 Share Based Payments
The Group operates a number of equity-settled share-based schemes, under which the entity receives services from employees or third party suppliers as consideration for equity instruments (shares, options and warrants) of the Group. The Group may also issue warrants to share subscribers as part of a share placing. The fair value of the equity-settled share based payments is recognised as an expense in the income statement or charged to equity depending on the nature of the service provided or instrument issued. The total amount to be expensed or charged in the case of options is determined by reference to the fair value of the options or warrants granted:
· including any market performance conditions;
· excluding the impact of any service and non-market performance vesting conditions (for example, profitability or sales growth targets, or remaining an employee of the entity over a specified time period); and
· including the impact of any non-vesting conditions (for example, the requirement for employees to save).
In the case of shares and warrants the amount charged to the share premium account is determined by reference to the fair value of the services received if available. If the fair value of the services received is not determinable the shares are valued by reference to the market price and the warrants are valued by reference to the fair value of the warrants granted as described previously.
Non-market vesting conditions are included in assumptions about the number of options or warrants that are expected to vest. The total expense or charge is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement or equity as appropriate, with a corresponding adjustment to another reserve in equity.
When the warrants or options are exercised, the Company issues new shares. The proceeds received, net of any directly attributable transaction costs, are credited to share capital (nominal value) and share premium when the warrants or options are exercised.
2.17 Operating Leases
Leases of assets under which a significant amount of the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Operating lease payments are charged to the income statement on a straight-line basis over the period of the respective leases.
2.18 Revenue Recognition
Revenue is recognised in respect of amounts recharged to project strategic partners in accordance with their contractual terms. Revenue is also generated from management and consulting services to third parties.
The Group derives revenue from the transfer of services overtime and at a point in time in the service lines detailed below. Revenues from external customers come from consulting services.
The Group provides management services to subsidiary undertakings for a fixed monthly fee. Revenue from providing services is recognised in the accounting period in which the services are rendered. Efforts to satisfy the performance obligation are expended evenly throughout the performance period and so the performance obligation is considered to be satisfied evenly over time.
2.19 Finance Income
Finance income consists of bank interest on cash and cash equivalents which is recognised using the effective interest rate method.
3. Financial Risk Management
3.1 Financial Risk Factors
The Group’s activities expose it to a variety of financial risks being market risk (including, interest rate risk, currency risk and price risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.
Market Risk
(a) Foreign currency risks
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the USD and Euros against the UK pound. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. The Group negotiates all material contracts for activities in relation to its subsidiary in USD and Euros. The Directors will continue to assess the effect of movements in exchange rates on the Group’s financial operations and initiate suitable risk management measures where necessary.
(b) Price risk
The Group is not exposed to commodity price risk as a result of its operations, which are still in the exploration phase. Other than insignificant consulting revenue, the only revenue relates to revenue charged to the joint venture JSC Georgian Copper & Gold. The Directors will revisit the appropriateness of this policy should the Group’s operations change in size or nature.
The Group has no exposure to equity securities price risk, as it has no listed equity investments.
(c) Interest rate risk
As the Group has no borrowings, it is not exposed to interest rate risk on financial liabilities. The Group’s interest rate risk arises from its cash held on short-term deposit, which is not significant.
Credit Risk
Credit risk arises from cash and cash equivalents as well as outstanding receivables. Management does not expect any losses from non-performance of these receivables.
The amount of exposure to any individual counter party is subject to a limit, which is assessed by the Board. No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance by these counterparties.
The Group considers the credit ratings of banks in which it holds funds in order to reduce exposure to credit risk.
Liquidity Risk
In keeping with similar sized mineral exploration groups, the Group’s continued future operations depend on the ability to raise sufficient working capital through the issue of equity share capital. The Directors are confident that adequate funding will be forthcoming with which to finance operations. Controls over expenditure are carefully managed. In May 2019, the Company raised £380,000 which will fund the Group for the next 12 months. Controls over expenditure are carefully managed.
3.2 Capital Risk Management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, in order to provide returns for shareholders and to enable the Group to continue its exploration and evaluation activities. The Group has no debt at 31 December 2018 and defines capital based on the total equity of the Company being £943,052. The Group monitors its level of cash resources available against future planned exploration and evaluation activities and may issue new shares in order to raise further funds from time to time.
4. Critical Accounting Estimates and Judgements
The preparation of the Group Financial Statements in conformity with IFRSs requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the year. Actual results may vary from the estimates used to produce these Financial Statements.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Significant items subject to such estimates and assumptions include, but are not limited to:
Impairment of exploration and evaluation costs
Exploration and evaluation costs have a carrying value at 31 December 2018 of £Nil (2017: £10,472,718): refer to Note 9 for more information. The Group has a right to renew exploration permits and the asset is only depreciated once extraction of the resource commences. Management tests annually whether exploration projects have future economic value in accordance with the accounting policy stated in Note 2.7. Each exploration project is subject to an annual review by either a consultant or senior company geologist to determine if the exploration results returned during the year warrant further exploration expenditure and have the potential to result in an economic discovery. This review takes into consideration the expected costs of extraction, long term metal prices, anticipated resource volumes and supply and demand outlook. In the event that a project does not represent an economic exploration target and results indicate there is no additional upside, a decision will be made to discontinue exploration.
The Directors have reviewed the estimated value of each project prepared by management and have concluded that the project in Georgia be impaired to £Nil. The Georgian exploration asset was impaired in full due to the ongoing exploration licence negotiations. The Group applied for an extension to this licence on 10 October 2017 however are still awaiting an outcome. As a result of the uncertainty the Directors have determined its appropriate to impair the asset to £Nil until further notice.
Share based payment transactions
The Group has made awards of options and warrants over its unissued share capital to certain Directors and employees as part of their remuneration package. Certain warrants have also been issued to shareholders as part of their subscription for shares and to suppliers for various services received.
The valuation of these options and warrants involves making a number of critical estimates relating to price volatility, future dividend yields, expected life of the options and forfeiture rates. These assumptions have been described in more detail in Note 15.
Control of Georgian Copper and Gold
Judgement is required to determine whether the Group has control over its subsidiaries. Georgian Copper and Gold is 50% owned but management are of the opinion that they no longer have control of the entity. On 18 March 2018, the Company entered into a Deed of Variation with its joint venture partner in Georgian Copper & Gold (“GCG”) in relation to the ongoing operations of the operating company, future work programmes and budgets. As a result, both shareholders now have equal representation on the board of GCG and therefore, from that date, the subsidiary was derecognised and the ongoing 50% ownership accounted for as a joint venture in accordance with IFRS 11.
Carrying value of investment in joint ventures
As above, during the year the Group lost control of GCG and accounted for the joint arrangement relationship as an investment in joint venture. On initial recognition on the 18 March 2018, the carrying value of the investment in joint venture was £3,994,585. The equity accounting for the joint venture meant that the share of loss of the joint venture was in excess of the carrying value and as such the amount was written down to £Nil. No liability has been recognised for the loss in excess of the carrying value as the Group does not have an obligation to pay for these losses.
5. Segmental Information
As at 31 December 2018, the Group operates in three geographical areas, the UK, Austria and Georgia. The Parent Company operates in one geographical area, the UK. Activities in the UK are mainly administrative in nature whilst activities in Austria relate to exploration and evaluation work. As from 18 March 2018, the Group no longer has control of Georgian Copper and Gold (refer to note 4) and as a result the below segmental information only includes information from this entity up until this date. The reports used by the chief operating decision maker are based on these geographical segments.
The Group generated revenue of £213,265 during the year ended 31 December 2018 (2017: £nil).
| 2018 | Georgia £ | Austria £ | UK £ | Total £ |
| | | | | |
| Revenue | – | – | 213,265 | 213,265 |
| Administrative expenses | (36,518) | (880) | (1,383,331) | (1,420,729) |
| Other gains/(losses) | 800,241 | – | 66,397 | 866,638 |
| Impairment of intangible assets | (3,706,915) | – | (478,113) | (4,185,028) |
| Loss on deconsolidation of subsidiary | (265,094) | | – | (265,094) |
| Share of loss from Georgian Copper and Gold | (3,994,585) | – | – | (3,994,585) |
| Loss from operations per reportable segment | (7,202,871) | (880) | (1,581,782) | (8,785,533) |
| Additions to non-current assets | – | – | 2,815 | 2,815 |
| Reportable segment assets | 1 | 8,626 | 691,874 | 700,501 |
| Reportable segment liabilities | – | 5,246 | 237,455 | 242,701 |
Segment assets and liabilities are allocated based on geographical location.
| 2017 | Georgia £ | Austria£ | UK £ | Total £ |
| | | | | |
| Revenue | – | – | – | – |
| Administrative expenses | (271,422) | (45,101) | (1,593,188) | (1,909,711) |
| Other gains/(losses) | (312,742) | – | (160,128) | (472,870) |
| Loss from operations per reportable segment | (584,164) | (45,101) | (1,753,316) | (2,382,581) |
| Additions to non-current assets | 2,023,197 | – | 236,386 | 2,259,476 |
| Reportable segment assets | 10,488,140 | 11,740 | 3,086,925 | 13,586,805 |
| Reportable segment liabilities | 35,792 | 9,225 | 368,063 | 413,080 |
A reconciliation of adjusted loss from operations per reportable segment to loss before tax is provided as follows:
| | 2018 £ | 2017 £ |
| Loss from operation per reportable segment | (8,785,533) | (2,382,581) |
| – Finance income | – | 105 |
| Loss for the year before taxation | (8,785,533) | (2,382,476) |
6. Revenue
| | 2018 | 2017 |
| | £ | £ |
| Operational services | 207,575 | – |
| Geological consulting services | 5,690 | – |
| | 213,265 | – |
Operational services are services are recharged by European Mining Services which include salaries, sample preparation and assay costs and consulting fees. All operational services were invoiced to Georgian Copper and Gold JSC and as of 18 March 2018 they are no longer eliminated on consolidation.
7. Expenses by Nature
| | 2018 £ | 2017 £ |
| | | |
| Directors’ fees | 100,323 | 142,750 |
| Employee salaries | 48,273 | 139,135 |
| Fees payable to the Company’s auditors for the audit of the Parent Company and group financial statements | 40,000 | 42,325 |
| Professional, legal and consulting fees | 294,841 | 531,744 |
| Accounting related services | 11,147 | 37,369 |
| Insurance | 35,057 | 31,734 |
| Office and administrative expenses | 85,822 | 82,027 |
| Depreciation | 23,092 | 35,593 |
| Travel and subsistence | 80,019 | 184,528 |
| AIM related costs including investor relations | 191,167 | 236,662 |
| Share option expense | 12,446 | 160,268 |
| Operations related costs (Georgia) | 400,760 | 213,096 |
| Other expenses | 97,782 | 72,480 |
| Total administrative expenses | 1,420,729 | 1,909,711 |
8. Property, Plant and Equipment
| | | | |
| | | Motor Vehicles £ | Field equipment £ | Computer equipment£ | Total
£ | |
| Cost | | | | | | |
| As at 1 January 2017 | | 46,942 | 66,253 | 45,378 | 158,573 | |
| Additions | | 14,763 | 47,461 | 8,176 | 70,400 | |
| Exchange differences | | (3,035) | – | (1,656) | (4,691) | |
| As at 31 December 2017 | | 58,670 | 113,714 | 51,898 | 224,282 | |
| Additions | | – | – | 2,815 | 2,815 | |
| Disposals | | | | (5,312) | (5,312) | |
| Disposals on deconsolidation | | (60,082) | (48,604) | (24,430) | (133,116) | |
| Exchange differences | | 1,412 | 1,143 | 574 | 3,129 | |
| As at 31 December 2018 | | – | 66,253 | 25,545 | 91,798 | |
| | | | | | | |
| Depreciation | | | | | | |
| As at 1 January 2017 | | 4,798 | 11,032 | 10,775 | 26,605 | |
| Charge for the year | | 9,086 | 17,913 | 8,594 | 35,593 | |
| Exchange differences | | (310) | – | (141) | (451) | |
| As at 31 December 2017 | | 13,574 | 28,945 | 19,228 | 61,747 | |
| Charge for the year | | 1,652 | 14,748 | 6,692 | 23,092 | |
| Disposals | | | | | | |
| Disposals on deconsolidation | | (15,553) | (6,271) | (5,810) | (27,634) | |
| Exchange differences | | 327 | 112 | 112 | 551 | |
| As at 31 December 2018 | | – | 37,534 | 20,222 | 57,756 | |
| Net book value as at 31 December 2017 | | 45,096 | 84,769 | 32,670 | 162,535 | |
| Net book value as at 31 December 2018 | | – | 28,719 | 5,323 | 34,042 | |
9. Intangible Assets
| | |
| Exploration & Evaluation Assets at Cost and Net Book Value | 2018£ | 2017£ |
| Balance as at 1 January | 10,472,718 | 8,612,883 |
| Additions | 287,245 | 2,189,076 |
| Disposal on deconsolidation | (7,857,313) | |
| Impairment | (3,125,702) | – |
| Foreign currency differences | 223,052 | (329,241) |
| As at 31 December | – | 10,472,718 |
As part of the acquisition of GMC Investments Limited, the Group entered into a Shareholder Agreement with Caucasian Mining Group Limited (“CMG”), the partner in JSC Georgian Copper and Gold. The details of the agreement were such that CMG would transfer the exploration and mining licenses for the Georgian sites into Georgian Copper and Gold, which were considered to have a fair value of US$6m, while the Group would commit to paying the expenditure requirements on the operations over a two year period from the date of the licence transfer date of December 2015, which is also US$6m. As a result, the Group recognised the fair value of the licenses of US$6m, which translated to £4.2m, as an exploration and evaluation asset.
Exploration projects Georgia are at an early stage of development and as at 31 December 2018, although a JORC (Joint Ore Reserves Committee) compliant resource estimate is available at Kvemo Bolnisi East, much of the licence area is still subject to further early stage exploration. The Directors therefore undertook an assessment of the following areas and circumstances which could indicate the existence of impairment:
• The Group’s right to explore in an area has expired, or will expire in the near future without renewal.
• No further exploration or evaluation is planned or budgeted for.
• A decision has been taken by the Board to discontinue exploration and evaluation in an area due to the absence of a commercial level of reserves.
• Sufficient data exists to indicate that the book value m not be fully recovered from future development and production.
The application for the extension to the current exploration permit within the 30 year Mining Licence held by Georgian Copper and Gold JSC, was submitted in June 2018 and the renewal still pending. The Group, along with its JV partner Caucasian Mining Group, have continued to try to resolve the delay in being granted the exploration permit extension within our 30-year mining concession in Georgia. This application has been in the hands of government since June 2018. A number of governmental changes have occurred which have hindered resolving the application, including a change in the Prime Minister and cabinet in mid-2018, delays in some new ministers commencing their roles, and the Presidential elections later in the year.
As a result of these continued delays, the Directors have concluded that the Georgian exploration assets no longer fully meet the capitalisation criteria under IFRS 6 and have recognised an impairment provision against these assets until the good standing of the exploration permits is resolved.
As the Group is still awaiting an outcome on the exploration extension, the Directors determined it was reasonable to impair the asset in full until further notice.
10. Trade and Other Receivables
| | |
| | 2018£ | 2017£ | |
| Trade receivables | 39,748 | – | |
| VAT receivable | 9,610 | 180,376 | |
| Prepayments | 36,569 | 57,287 | |
| Other receivables | 55,178 | 143,892 | |
| | 141,105 | 381,555 | |
Trade and other receivables are all due within one year. The fair value of all receivables is the same as their carrying values stated above. These assets, excluding prepayments, are the only form of financial asset within the Group, together with cash and cash equivalents.
Other receivables relate to amounts owing from the issue of shares.
Following the directors assessment of the Gerogian exploration assets and subsequent impairment, the amount due by the Group from its joint venture, GCG, of £975,679, was impaired to £nil.
The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:
| | | |
| | 2018£ | 2017£ |
| | | |
| UK Pounds | 138,811 | 227,855 |
| Euros | 2,294 | 1,820 |
| Georgian Lari | – | 151,880 |
| | 141,105 | 381,555 |
| | | | |
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security.
11. Cash and Cash Equivalents
| | |
| | 2018£ | 2017£ |
| Cash at bank and in hand | 525,354 | 2,569,997 |
All of the Group’s cash at bank is held with institutions with an AA credit rating.
12. Trade and Other Payables
| | | |
| | 2018£ | 2017£ | |
| Trade payables | 110,205 | 278,457 | |
| Other payables | 2,682 | 9,040 | |
| Accrued expenses | 129,814 | 125,583 | |
| | 242,701 | 413,080 | |
13. Share Capital and Share Premium
On 15 December 2010 the shareholders approved the removal of the Company’s authorised share capital and so there is no limit on the number of shares the Company is authorised to issue. On that date the shareholders also approved the removal of the nominal value of the shares, as permitted under local company legislation. As such all amounts raised are considered to be share premium.
Issued share capital
| Group | Number of shares | Ordinary shares£ | Share premium£ | Total£ | |
| At 1 January 2017 | 80,424,853 | – | 33,653,273 | 33,653,273 | |
| Issue of new shares – 23 May 2017 (1) | 34,149,638 | – | 5,227,339 | 5,227,339 | |
| At 31 December 2017 | 114,574,491 | – | 38,880,612 | 38,880,612 | |
| Exercise of warrants – 26 January 2018 | 182,500 | – | 23,725 | 23,725 |
| At 31 December 2018 | 114,756,991 | – | 38,904,337 | 38,904,337 | |
(1) Includes issue costs of £236,602
On 26 January 2018 the Company issued and allotted 182,500 new Ordinary Shares at a price of 13 pence per share following an exercise of warrants.
14. Other reserves
| | |
| | 2018£ | 2017£ | |
| Foreign currency translation reserve | (225,384) | (34,673) | |
| Share option Reserve | 361,404 | 418,772 | |
| | 136,020 | 384,009 | |
Foreign currency translation reserve – the foreign currency translation reserve represents the effect of changes in exchange rates arising from translating the financial statements of subsidiary undertakings into the Company’s presentation currency.
Share option reserve – the share option reserve represents the fair value of share options and warrants in issue. The amounts included are recycled to share premium on exercise or recycled to retained earnings on expiry.
15. Share Based Payments
Warrants and options outstanding at 31 December 2018 have the following expiry dates and exercise prices:
| | | | | Shares |
| Grant date | Expiry date | Exercise price in £ per share | | 2018 | 2017 | |
| 28 January 2016 | 21 January 2018 | 0.1300 | | – | 182,500 | |
| 1 July 2016 | 1 July 2018 | 0.1800 | | – | 55,866 | |
| 20 July 2016 | 20 July 2021 | 0.1400 | | 5,000,000 | 5,000,000 | |
| 15 November 2016 | 16 November 2018 | 0.1000 | | – | 170,000 | |
| 30 January 2017 | 3 March 2022 | 0.1200 | | 1,900,000 | 1,900,000 | |
| 22 June 2017 | 21 July 2022 | 0.1825 | | 3,300,000 | 3,300,000 | |
| 30 July 2018 | 26 July 2023 | 0.1400 | | 1,000,000 | – | |
| 30 July 2018 | 26 July 2023 | 0.2000 | | 1,000,000 | – | |
| | | | | 12,200,000 | 10,608,366 | |
| | 2017 Warrants | 2017 Warrants | 2018 Warrants |
| Granted on: | 30/01/2017 | 22/06/2017 | 30/07/2018 |
| Life (years) | 5.2 years | 5 years | 5 years |
| Share price on grant date | 8.8p | 17.7p | 9.35p |
| Risk free rate | 0.57% | 0.57% | 0.75% |
| Expected volatility | 27.06% | 34.43% | 27.06% |
| Expected dividend yield | – | – | – |
| Exercise price | 12p | 18.25p | 14p |
| Marketability discount | 20% | 20% | 20% |
| Total fair value (£) | 20,225 | 140,043 | 8,872 |
| | 2018 Warrants |
| Granted on: | 30/07/2018 |
| Life (years) | 5 years |
| Share price on grant date | 9.35p |
| Risk free rate | 0.75% |
| Expected volatility | 27.06% |
| Expected dividend yield | – |
| Exercise price | 20p |
| Marketability discount | 20% |
| Total fair value (£) | 3,575 |
The risk free rate of return is based on zero yield government bonds for a term consistent with the warrant and option life.
The movement of options and warrants for the year to 31 December 2018 is shown below:
| | 2018 | | 2017 |
| | Number | Weighted average exercise price (£) | | Number | Weighted average exercise price (£) |
| As at 1 January | 10,608,366 | 0.15 | | 5,408,366 | 0.14 |
| Granted | 2,000,000 | 0.17 | | 5,200,000 | 0.16 |
| Exercised | (182,500) | 0.13 | | – | – |
| Expired | (225,866) | 0.18 | | – | – |
| Outstanding as at 31 December | 12,200,000 | 0.15 | | 10,608,366 | 0.15 |
| Exercisable at 31 December | 12,200,000 | 0.15 | | 10,608,366 | 0.15 |
| | 2018 | 2017 |
| Range of exercise prices (£) | Weighted average exercise price (£) | Number of shares | Weighted average remaining life expected (years) | Weighted average remaining life contracted (years) | Weighted average exercise price (£) | Number of shares | Weighted average remaining life expected (years) | Weighted average remaining life contracted (years) |
| 0.1 – 0.2 | 0.15 | 12,200,000 | 3.252 | 3.252 | 0.15 | 10,608,366 | 3.923 | 3.923 |
The total fair value charged to the statement of comprehensive income for the year ended 31 December 2018 and included in administrative expenses was £12,446 (2017: £ 160,268).
16. Other (losses)/gains – Net
| | Group |
| | 2018£ | 2017£ | |
| Net foreign exchange gains / (losses) | 468,850 | (451,125) | |
| Deconsolidation of Georgian Copper and Gold | 397,228 | – | |
| Other gains/losses | 560 | (21,745) | |
| | 866,638 | (472,870) | |
17. Employees
| | Group |
| Staff costs (excluding Directors) | 2018£ | 2017£ | |
| Salaries and wages | 181,251 | 139,136 | |
| Social security costs | 12,367 | 41,091 | |
| Pensions | 1,154 | 924 | |
| | 194,772 | 181,151 | |
The average monthly number of employees during the year was 4 (2017: 23).
18. Directors’ Remuneration
| | | For the year ended 31 December 2018 | |
| | Short term benefits£ | Post Employment benefits£ | Share based payment £ | Total £ |
| Executive Directors | | | | |
| Gregory Kuenzel | 30,618 | 350 | – | 30,968 |
| Martyn Churchouse | 3,730 | 14 | – | 3,744 |
| Michael Struthers | 66,935 | – | 12,447 | 79,382 |
| Non-executive Directors | | | | |
| Neil O’Brien | 33,500 | – | – | 33,500 |
| Peter Damouni | 8,333 | 82 | – | 8,415 |
| Laurence Mutch | 10,000 | – | – | 10,000 |
| | 153,116 | 446 | 12,447 | 166,009 |
| | | | | | | |
| | | For the year ended 31 December 2017 | |
| | Short term benefits£ | Post Employment benefits£ | Share based payment £ | Total £ |
| Executive Directors | | | | |
| Gregory Kuenzel | 70,000 | 314 | 63,656 | 133,970 |
| Martyn Churchouse | 125,000 | 386 | – | 125,386 |
| Non-executive Directors | | | | |
| Michael Hutchinson | 4,166 | – | – | 4,166 |
| Roderick McIllree | 8,333 | 24 | – | 8,357 |
| Neil O’Brien | 21,250 | – | 21,219 | 42,469 |
| Peter Damouni | 20,000 | 141 | 42,437 | 62,578 |
| Laurence Mutch | 20,000 | 91 | 20,190 | 40,281 |
| Tony Frizelle | 9,000 | – | 10,645 | 19,645 |
| | 277,749 | 956 | 158,147 | 436,852 |
| | | | | | | |
Of the above director fees, £53,000 (2017: £135,000) has been capitalised in accordance with IAS 38 as exploration and evaluation related costs and are shown as an intangible addition in the year.
19. Finance Income
| | Group |
| | 2018£ | 2017£ | |
| Finance income – bank interest | – | 105 | |
20. Taxation
The tax on the Group’s loss differs from the theoretical amount that would arise using the weighted average tax rate applicable to the losses of the consolidated entities as follows:
| | Group |
| | 2018£ | 2017£ | |
| Loss before tax | (8,785,533) | (2,382,476) | |
| Tax at the weighted average rate of 9.05% (2017: 19.78%) | (795,091) | (471,254) | |
| Expenditure not deductible for tax purposes | 410,573 | 23,141 | |
| Net tax effect of losses carried forward on which no deferred tax asset is recognised | 384,518 | 448,112 | |
| Income tax for the year | – | – | |
No charge to taxation arises due to the losses incurred.
The weighted average applicable tax rate of 9.05% (2017: 19.78%) used is a combination of the 19% standard rate of corporation tax in the UK, 25% Austrian corporation tax and 0% BVI corporation tax.
The Group has accumulated tax losses of approximately £3,789,000 (2017: £3,404,000) available to carry forward against future taxable profits. A deferred tax asset has not been recognised because of uncertainty over future taxable profits against which the losses may be utilised.
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2017 (on 6 September 2016). These include reductions to the standard rate to reduce the rate to 17% from 1 April 2020.
21. Earnings per Share
The calculation of the total basic loss per share of 7.647 pence (2017: loss 2.232 pence) is based on the loss attributable to equity owners of the group of £8,774,021 (2017: £2,260,603) and on the weighted average number of ordinary shares of 114,744,492 (2017: 101,288,979) in issue during the period.
In accordance with IAS 33, basic and diluted earnings per share are identical as the effect of the exercise of share options or warrants would be to decrease the loss per share.
22. Commitments
(a) Work programme commitment
As a result of the continued delay in the renewal of the exploration permit, no work programme has been agreed by the Joint Venture partners. The Company is committed to funding 50% of the ongoing administrative expenditure of Georgia Copper and Gold which currently totals approximately $10,000 per month.
(b) Royalty agreements
As part of the contractual arrangement with Kibe No.1 Investments Limited the Group has agreed to pay a royalty on revenue from gold sales arising from gold mines developed by Noricum Gold AT GmbH and covered by licenses acquired by Kibe No.1 Investments Limited. Under the terms of the Royalty Agreement between Kibe No.1 Investments Limited and Noricum Gold AT GmbH, the Group shall pay royalties, based on total ounces of gold sold, equal to US$1 for every US$250 of the sale price per ounce.
23. Investment in Joint Venture
On 15 March 2018, the Company entered into a Deed of Variation with its joint venture partner in Georgian Copper & Gold in relation to the ongoing operations of the operating company, future work programmes and budgets. As a result, both shareholders now have equal representation on the board of GCG and therefore, from that date, the subsidiary was derecognised and the ongoing 50% ownership accounted for as a joint venture.
The carrying value of the investment in the joint venture is determined as follows:
| | |
| | As at 31 December 2018$ |
| Opening balance | – |
| Recognised on deconsolidation of subsidiary | 3,994,585 |
| Share of loss in joint venture | (3,994,585) |
| Forex | – |
| | – |
The joint venture listed below has share capital consisting solely of ordinary shares, which are held by the Group and their joint venture partner Caucasian Mining Group.
| Name of entity | Address of the registered officeSI 2017/980 | % of ownership interest | Nature of relationship | Measurement method |
| Georgian Copper & Gold JSC | 6 Saakadze Descent, 2nd Fl.Tbilisi 0171, Georgia | 50 | As above | Equity |
Commitments and contingent liabilities in respect of joint ventures
The share of loss of the joint venture was £4,478,356. This has been capped at the total value of the investment previously recognised. The Group has no obligation or commitments to contribute to any losses in excess of the carrying value of the investment.
Summarised financial information of joint venture
| | | | | 31 December2018£ |
| | | | | |
| Property, plant and equipment | | | | 89,371 |
| Cash | | | | 18,589 |
| Intangibles | | | | 4,030 |
| Other receivables | | | | 81,537 |
| Total assets | | | | 193,527 |
| Trade and other payables | | | | 82,773 |
| Loan with GMC Investments Limited | | | | 975,679 |
| Total liabilities | | | | 1,058,452 |
The joint venture did not generate any revenue in the year. Total costs of £252,334 were incurred including an impairment of exploration assets of £8,704,377.
24. Deconsolidation of subsidiary
On 18 March 2018 the Group was deemed to no longer have control of subsidiary Georgian Copper and Gold. The Groups share of the joint venture loss is reported in the profit and loss. Financial information relating to deconsolidation for the period to the date of disposal is set out below.
| Details of deconsolidation of the subsidiary | | | | 2018£ |
| Carrying amount of net assets upon deconsolidation (see below) | | | | 7,722,154 |
| Elimination of non controlling interest | | | | (3,992,663) |
| Transfer to Investment in joint venture | | | | (3,994,585) |
| Loss on disposal of subsidiary | | | | (265,094) |
The carrying amounts of assets and liabilities as at the date of deconsolidation (18 March 2018) were:
| | | | | 2018£ |
| | | | | |
| Property, plant and equipment | | | | 105,482 |
| Cash | | | | 13,180 |
| Intangibles | | | | 7,857,313 |
| Other receivables | | | | 7,536 |
| Total assets | | | | 7,983,511 |
| Trade and other payables | | | | (261,357) |
| Total liabilities | | | | (261,357) |
| Net Assets disposed | | | | 7,722,154 |
25. Related Party Transactions
Recharges between Georgian Mining Corporation and European Mining Services Limited
During the year Georgian Mining Corporation recharged administrative costs with a total value of £8,395 (2017: £161,654) to European Mining Services Limited for services rendered to European Mining Services Limited.
Services provided by European Mining Services Limited to JSC Georgian Copper & Gold
During the year European Mining Services Limited provided geological, technical and other professional services with a total value of £255,428 (2017: £1,040,963) to JSC Georgian Copper and Gold.
Loan from Georgian Mining Corporation to Kibe No.2 Investments Limited
As at 31 December 2018 there were amounts receivable of £4,706 (2017: £3,826) from Kibe No.2 Investments Limited. No interest was charged on the loans.
Loan from Georgian Mining Corporation to European Mining Services Limited
As at 31 December 2018 there were amounts receivable of £525,028 (2017: £323,152) from European Mining Services Limited.
All intra-group transactions are eliminated on consolidation.
Other Transactions
Fairholme Consulting Services Ltd, a company in which Gregory Kuenzel is a Director and beneficial owner, was paid a fee of £26,333 (2017: £46,667) for management and corporate consulting services to the Group. No balance was outstanding at the year-end.
Silvergate Capital Partners, a company in which Peter Damouni is a Director and beneficial owner, was paid a fee of £16,667 (2017: £33,333) for management and corporate consulting services to the Group. No balance was outstanding at the year-end.
Laurie Mutch & Associates Ltd, a company in which Laurie Mutch is a Director and beneficial owner, was paid a fee of £15,000 (2017: £20,500) for management and corporate consulting services to the Group. No balance was outstanding at the year-end.
Greenland Gas and Oil Limited, a company in which Greg Kuenzel is a Director, was paid a fee £nil (2017: £18,600) for geological information systems consulting services to the Group. No balance was outstanding at the year-end.
Heytesbury Corporate LLP, an entity in which Fairholme Consulting Services Ltd is an officer, and Gregory Kuenzel is a partner, was paid a fee of £62,440 (2017: £62,740) for accounting services to the Group. At the year-end there was an outstanding balance of £6,042 (2017: £6,449).
26. Ultimate Controlling Party
The Directors believe there to be no ultimate controlling party.
27. Events after the Reporting Date
On 23 May 2019, the Company raised £380,000 by way of placing and subscription of 19,000,000 new ordinary shares of no par value at a price of 2p per share.
On 23 May 2019, Peter Damouni subscribed for 500,000 placing shares at 2p per share.
On 23 May 2019, Neil O’Brien, Gregory Kuenzel, Laurence Mutch and Peter Damouni have agreed to completely write off the their accrued compensation for the past 12 months. Michael Struthers, has agreed to write off part of his compensation for the past 12 months, The total amount of the write off totals approximately £275,000.
**ENDS**
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.
For further information please visit www.georgianmining.com or contact:
| Mike Struthers | Georgian Mining Corporation | Company | Tel: 020 7907 9327 |
| Ewan Leggat | S. P. Angel Corporate Finance LLP | Nomad & Broker | Tel: 020 3470 0470 |
| Soltan Tagiev | S. P. Angel Corporate Finance LLP | Nomad & Broker | Tel: 020 3470 0470 |
| Damon Heath | Shard Capital Partners LLP | Joint Broker | Tel: 020 7186 9950 |
| Camilla Horsfall | Blytheweigh | PR | Tel: 020 7138 3224 |
| Julia Tilley | Blytheweigh | PR | Tel: 020 7138 3553 |
| Simon Woods | Blytheweigh | PR | Tel: 020 7138 3204 |
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.