TIDMKZG
RNS Number : 0582L
KazakhGold Group Ltd
29 April 2010
kazakhgold group limited
CONSOLIDATED FINANCIAL STATEMENTS
FOR the YEAR ENDED 31 DECEMBER 2009
INDEX
Page
Statement of management's responsibilities for the preparation and approval
of
the consolidated financial statements for the year ended 31 December 2009
1
Independent auditors' report
2-3
Consolidated financial statements for the year ended 31 December 2009:
Consolidated income statement
4
Consolidated statement of comprehensive income
5
Consolidated statement of financial position
6
Consolidated statement of cash flows
7-8
Consolidated statement of changes in equity
9
Notes to the consolidated financial statements
10-49
kazakhgold group limited
STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION
AND APPROVAL
OF THE CONSOLIDATED FINANCIAL STATEMENTS
FOR the year ended 31 December 2009
The following statement, which should be read in conjunction with the
independent auditors' report set out on pages 2-3, is made with a view to
distinguishing the respective responsibilities of management and those of the
independent auditors in relation to the consolidated financial statements of
KazakhGold Group Limited and its subsidiaries (the "Group").
Management is responsible for the preparation of the consolidated financial
statements that present fairly
the financial position of the Group as of 31
December 2009, and the results of its operations, cash flows and changes in
shareholders' equity for the year then ended, in compliance with International
Financial Reporting Standards ("IFRS").
In preparing the consolidated financial statements, management is responsible
for:
· properly selecting and applying accounting policies;
· presenting information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable information;
· providing additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to understand the impact
of particular transactions, other events and conditions on the Group's
consolidated financial position and financial performance; and
· making an assessment of the Group's ability to continue as a going
concern.
Management is also responsible for:
· designing, implementing and maintaining an effective and sound system of
internal controls, throughout the Group;
· maintaining adequate accounting records that are sufficient to show and
explain the Group's transactions and disclose with reasonable accuracy at any
time the consolidated financial position of the Group, and which enable them to
ensure that the consolidated financial statements of the Group comply with IFRS;
· maintaining statutory accounting records in compliance with legislation
and accounting standards in the jurisdictions in which the Group operates;
· taking such steps as are reasonably available to them to safeguard the
assets of the Group; and
· preventing and detecting fraud and other irregularities.
The consolidated financial statements of the Group for the year ended 31
December 2009 were approved by the Board of Directors on 27 April 2010:
On behalf of the Management:
_____________________________
Ivanov E.I.
Chief Executive Officer
KazakhGold Group Limited
27 April 2010
independent auditors' report
To shareholders of KazakhGold Group Limited:
We have audited the accompanying consolidated financial statements of KazakhGold
Group Limited and its subsidiaries (hereinafter the "Group"), which comprise the
consolidated statement of financial position as at 31 December 2009 and the
consolidated statements of income, comprehensive income, cash flows, and changes
in equity for the year then ended,
and a summary of significant accounting
policies and other explanatory notes.
The consolidated financial statements of the Group as at and for the year
ended
31 December 2008, before restatement, were audited by another auditor
(the "predecessor auditor"), who issued their report dated 12 June 2009. The
report issued by the predecessor auditor contained an emphasis of matter
indicating a fundamental uncertainty in respect of realisation of a negotiation
rights asset relating to a mining license, and a further emphasis of matter in
respect of a material uncertainty about the Group's ability to continue as a
going concern.
Management's responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these
consolidated financial statements in accordance with International Financial
Reporting Standards.
This responsibility includes: designing, implementing
and maintaining internal control relevant to the preparation and fair
presentation of the consolidated financial statements
that are free from
material misstatement, whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting estimates that are
reasonable in
the circumstances.
Auditors' responsibility
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit. We conducted our audit in accordance with
International Standards on Auditing. Those standards require that we comply with
ethical requirements and plan and perform
the audit to obtain reasonable
assurance whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the consolidated financial statements. The procedures
selected depend on
the auditors' judgment, including the assessment of the
risks of material misstatement of
the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditors
consider internal control relevant to the Group's preparation and
fair
presentation of the 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 Group'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 consolidated financial
statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide
a basis for our audit opinion.
Basis for qualified opinion
The Group did not present a consolidated statement of financial position at 1
January 2008 and accompanying notes as required by IAS 1 "Presentation of
Financial Statements".
Such presentation is required where an entity restates
its consolidated financial statements
as described in note 2.
Qualified opinion
In our opinion, except for the omission of the information as described in the
paragraph above, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of the Group as at 31
December 2009, and the results of its operations and its cash flows for the year
then ended in accordance with International Financial Reporting Standards.
Emphasis of matter
We draw attention to the fact this independent auditors' report refers only to
the consolidated financial statements as at and for the year ended 31 December
2009. The corresponding information for 2008 has been restated as described in
note 2.
Moscow, Russia
27 April 2010
Kazakhgold group limited
CONSOLIDATED INCOME STATEMENT
FOR the year ended 31 December
(in thousands of US Dollars)
+--------------------------------------+-------+--+-----------+--+-----------+
| | Notes | | 2009 | | 2008 |
| | | | | | As |
| | | | | | restated* |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Gold sales | | | 58,434 | | 54,262 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Other sales | | | 1,943 | | - |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Total revenue | | | 60,377 | | 54,262 |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Cost of gold sales | | | (57,296) | | (71,304) |
+--------------------------------------+-------+--+-----------+--+-----------+
| Cost of other sales | | | (2,846) | | - |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Gross profit/(loss) | | | 235 | | (17,042) |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Selling, general and administrative | | | (39,746) | | (28,595) |
| expenses | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Other expenses, net | 6 | | (32,621) | | (204,254) |
+--------------------------------------+-------+--+-----------+--+-----------+
| Finance costs | 7 | | (31,841) | | (25,285) |
+--------------------------------------+-------+--+-----------+--+-----------+
| Income from investments | | | - | | 7,509 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Foreign exchange (loss)/gain, net | | | (45,927) | | 452 |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Loss before income tax | | | (149,900) | | (267,215) |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Income tax benefit | 8 | | 6,161 | | 10,200 |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Loss for the year | | | (143,739) | | (257,015) |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Attributable to: | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Shareholders of the parent company | | | (142,899) | | (257,015) |
+--------------------------------------+-------+--+-----------+--+-----------+
| Minority interest | | | (840) | | - |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | (143,739) | | (257,015) |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Loss per share | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Basic and diluted (US Dollars) | 9 | | (2.70) | | (4.89) |
+--------------------------------------+-------+--+-----------+--+-----------+
The accompanying notes are an integral part of these consolidated financial
statements.
* The information for the year ended 31 December 2008 reflects adjustments made
in connection with
the effect of changes in accounting policies,
reclassifications and correction of errors described in Note 2.
kazakhgold group limited
CONSOLIDATED statement of comprehensive income
FOR the year ended 31 December
(in thousands of US Dollars)
+------------------------------------+-------+--+-----------+--+-----------+
| | | | 2009 | | 2008 |
| | | | | | As |
| | | | | | restated* |
+------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+------------------------------------+-------+--+-----------+--+-----------+
| Loss for the year | | | (143,739) | | (257,015) |
+------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+------------------------------------+-------+--+-----------+--+-----------+
| Other comprehensive income | | | | | |
+------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+------------------------------------+-------+--+-----------+--+-----------+
| Revaluation surplus on property, | | | 8,627 | | - |
| plant and equipment (net of tax in | | | | | |
| the amount of USD 1,598 thousand) | | | | | |
+------------------------------------+-------+--+-----------+--+-----------+
| Exchange difference on translation | | | 10,528 | | (636) |
| of foreign operations | | | | | |
+------------------------------------+-------+--+-----------+--+-----------+
| Effect of translation to | | | 3,033 | | 2,541 |
| presentation currency | | | | | |
+------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+------------------------------------+-------+--+-----------+--+-----------+
| Other comprehensive income for the | | | 22,188 | | 1,905 |
| year | | | | | |
+------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+------------------------------------+-------+--+-----------+--+-----------+
| Total comprehensive loss for the | | | (121,551) | | (255,110) |
| year | | | | | |
+------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+------------------------------------+-------+--+-----------+--+-----------+
| Attributable to: | | | | | |
+------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+------------------------------------+-------+--+-----------+--+-----------+
| Shareholders of the parent company | | | (121,551) | | (255,110) |
+------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+------------------------------------+-------+--+-----------+--+-----------+
| | | | (121,551) | | (255,110) |
+------------------------------------+-------+--+-----------+--+-----------+
The accompanying notes are an integral part of these consolidated financial
statements.
* The information for the year ended 31 December 2008 reflects adjustments made
in connection with
the effect of changes in accounting policies,
reclassifications and correction of errors described in Note 2.
kazakhgold group limited
CONSOLIDATED statement of financial position
AT 31 DECEMBER
(in thousands of US Dollars)
+--------------------------------------+-------+--+-----------+--+-----------+
| | Notes | | 2009 | | 2008 |
| | | | | | As |
| | | | | | restated* |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| ASSETS | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Non-current assets | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Property, plant and equipment | 10 | | 197,051 | | 258,439 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Inventories | 11 | | 2,867 | | 1,950 |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | 199,918 | | 260,389 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Current assets | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Inventories | 11 | | 14,265 | | 17,567 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Trade and other receivables | 12 | | 2,124 | | 6,591 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Advances paid to suppliers | 13 | | 1,905 | | 1,267 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Income tax prepaid | | | 3,057 | | 1,972 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Other current assets | | | 953 | | - |
+--------------------------------------+-------+--+-----------+--+-----------+
| Cash and cash equivalents | 14 | | 3,531 | | 13,966 |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | 25,835 | | 41,363 |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| TOTAL ASSETS | | | 225,753 | | 301,752 |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| EQUITY AND LIABILITIES | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Capital and reserves | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Share capital | 15 | | 9 | | 9 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Additional paid-in capital | | | 220,950 | | 220,950 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Capital contribution | | | 12,686 | | 12,686 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Revaluation surplus | 2 | | 7,787 | | - |
+--------------------------------------+-------+--+-----------+--+-----------+
| Option premium on convertible debt | 16 | | 15,598 | | - |
+--------------------------------------+-------+--+-----------+--+-----------+
| Translation reserve | | | 25,401 | | 11,840 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Accumulated losses | | | (409,601) | | (266,702) |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | (127,170) | | (21,217) |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Non-current liabilities | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Borrowings | 16 | | 20,812 | | 203,272 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Environmental obligations | 17 | | 13,356 | | 20,106 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Deferred tax liabilities | 8 | | - | | 6,772 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Long-term obligations under finance | | | - | | 1,370 |
| leases | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Other non-current liabilities | 18 | | 15,526 | | 4,029 |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | 49,694 | | 235,549 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Current liabilities | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Borrowings | 16 | | 257,816 | | 41,306 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Short-term obligations under finance | | | - | | 568 |
| leases | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| Trade payables | 19 | | 1,771 | | 14,976 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Other payables and accrued expenses | 19 | | 18,897 | | 5,724 |
+--------------------------------------+-------+--+-----------+--+-----------+
| Other taxes payable | | | 24,745 | | 24,846 |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | 303,229 | | 87,420 |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| TOTAL LIABILITIES | | | 352,923 | | 322,969 |
+--------------------------------------+-------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+-------+--+-----------+--+-----------+
| TOTAL EQUITY AND LIABILITIES | | | 225,753 | | 301,752 |
+--------------------------------------+-------+--+-----------+--+-----------+
The accompanying notes are an integral part of these consolidated financial
statements.
* The information at 31 December 2008 reflects adjustments made in connection
with the effect of changes in accounting policies, reclassifications and
correction of errors described in Note 2.
kazakhgold group limited
CONSOLIDATED STATEMENT of cash flows
FOR the year ended 31 December
(in thousands of US Dollars)
+--------------------------------------+------+--+-----------+--+-----------+
| | | | 2009 | | 2008 |
| | | | | | As |
| | | | | | restated* |
+--------------------------------------+------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| Operating activities | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| Loss before income tax | | | (149,900) | | (267,215) |
+--------------------------------------+------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| Adjustments for: | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| Amortisation and depreciation | | | 17,659 | | 20,164 |
+--------------------------------------+------+--+-----------+--+-----------+
| Loss on revaluation of property, | | | 11,079 | | - |
| plant and equipment | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| Finance costs | | | 31,841 | | 25,285 |
+--------------------------------------+------+--+-----------+--+-----------+
| Foreign exchange loss/(gain), net | | | 45,927 | | (452) |
+--------------------------------------+------+--+-----------+--+-----------+
| Bank guarantee provision | | | 11,650 | | - |
+--------------------------------------+------+--+-----------+--+-----------+
| Non-recoverable value added tax on | | | 5,219 | | 27,112 |
| construction, repair, maintenance | | | | | |
| and exploration works (refer to note | | | | | |
| 2) | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| Change in allowance for doubtful | | | 3,594 | | 6,002 |
| debts | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| Loss on disposal of property, plant | | | 1,859 | | 8,957 |
| and equipment | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| Income from investments | | | - | | (7,509) |
+--------------------------------------+------+--+-----------+--+-----------+
| Other | | | 1,881 | | (17,090) |
+--------------------------------------+------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| | | | (19,191) | | (204,746) |
+--------------------------------------+------+--+-----------+--+-----------+
| Movements in working capital: | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| Inventories | | | (2,842) | | (5,203) |
+--------------------------------------+------+--+-----------+--+-----------+
| Trade and other receivables | | | (229) | | 62,682 |
+--------------------------------------+------+--+-----------+--+-----------+
| Advances paid to suppliers | | | (990) | | (546) |
+--------------------------------------+------+--+-----------+--+-----------+
| Other current assets | | | (851) | | (955) |
+--------------------------------------+------+--+-----------+--+-----------+
| Trade payables | | | (10,470) | | (6,534) |
+--------------------------------------+------+--+-----------+--+-----------+
| Other payables and accrued expenses | | | 11,177 | | (11,753) |
+--------------------------------------+------+--+-----------+--+-----------+
| Other taxes payable | | | (1,672) | | 16,719 |
+--------------------------------------+------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| Cash flows used in operations | | | (25,068) | | (150,336) |
+--------------------------------------+------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| Interest paid | | | (22,457) | | (15,735) |
+--------------------------------------+------+--+-----------+--+-----------+
| Income tax paid | | | (1,462) | | (19,489) |
+--------------------------------------+------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| Net cash used in operating | | | (48,987) | | (185,560) |
| activities | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| Investing activities | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| Purchase of property, plant and | | | (7,372) | | (64,159) |
| equipment | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| Proceeds from sale of property, | | | - | | 3,412 |
| plant and equipment | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| Interest received | | | - | | 7,509 |
+--------------------------------------+------+--+-----------+--+-----------+
| Proceeds from sale of other | | | - | | 31,760 |
| financial assets | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
| Net cash used in investing | | | (7,372) | | (21,478) |
| activities | | | | | |
+--------------------------------------+------+--+-----------+--+-----------+
* The information for the year ended 31 December 2008 reflects adjustments made
in connection with
the effect of changes in accounting policies,
reclassifications and correction of errors described in Note 2.
kazakhgold group limited
CONSOLIDATED STATEMENT of cash flows
FOR the year ended 31 December (CONTINUED)
(in thousands of US Dollars)
+---------------------------------------+-------+--+----------+--+-----------+
| | Notes | | 2009 | | 2008 |
| | | | | | As |
| | | | | | restated* |
+---------------------------------------+-------+--+----------+--+-----------+
| | | | | | |
+---------------------------------------+-------+--+----------+--+-----------+
| Financing activities | | | | | |
+---------------------------------------+-------+--+----------+--+-----------+
| | | | | | |
+---------------------------------------+-------+--+----------+--+-----------+
| Proceeds from borrowings | | | 91,288 | | 23,000 |
+---------------------------------------+-------+--+----------+--+-----------+
| Repayments of borrowings | | | (43,145) | | (4,960) |
+---------------------------------------+-------+--+----------+--+-----------+
| Repayments of finance lease | | | (501) | | (10,289) |
| obligations | | | | | |
+---------------------------------------+-------+--+----------+--+-----------+
| Proceeds from issuance of Company's | 15 | | - | | 50,406 |
| share capital | | | | | |
+---------------------------------------+-------+--+----------+--+-----------+
| | | | | | |
+---------------------------------------+-------+--+----------+--+-----------+
| Net cash generated from financing | | | 47,642 | | 58,157 |
| activities | | | | | |
+---------------------------------------+-------+--+----------+--+-----------+
| | | | | | |
+---------------------------------------+-------+--+----------+--+-----------+
| Net decrease in cash and cash | | | (8,717) | | (148,881) |
| equivalents | | | | | |
+---------------------------------------+-------+--+----------+--+-----------+
| | | | | | |
+---------------------------------------+-------+--+----------+--+-----------+
| Cash and cash equivalents at | | | 13,966 | | 160,285 |
| beginning of the year | | | | | |
+---------------------------------------+-------+--+----------+--+-----------+
| | | | | | |
+---------------------------------------+-------+--+----------+--+-----------+
| Effect of translation to presentation | | | (1,718) | | 2,562 |
| currency on cash and | | | | | |
| cash equivalents | | | | | |
+---------------------------------------+-------+--+----------+--+-----------+
| | | | | | |
+---------------------------------------+-------+--+----------+--+-----------+
| Cash and cash equivalents at end of | 14 | | 3,531 | | 13,966 |
| the year | | | | | |
+---------------------------------------+-------+--+----------+--+-----------+
The accompanying notes are an integral part of these consolidated financial
statements.
* The information for the year ended 31 December 2008 reflects adjustments made
in connection with
the effect of changes in accounting policies,
reclassifications and correction of errors described in Note 2.
kazakhgold group limited
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR the YEAR ended 31 december 2009
(in thousands of US Dollars)
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| | | Equity attributable to shareholders of the parent company | | | | |
+-----------------------+-------+----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+----------+----------+----------+-----------+
| | Notes | Share | | Additional | | Capital | | Translation | | Revaluation | | Option | | Retained | | Total | | Minority | | Total |
| | | capital | | paid-in | | contribution | | reserve | | surplus | | premium | | earnings/ | | | | interest | | |
| | | | | capital | | | | | | | | on | | (Accumu-lated | | | | | | |
| | | | | | | | | | | | | convertible | | losses) | | | | | | |
| | | | | | | | | | | | | debt | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| Balance at 1 January | | 9 | | 170,544 | | 510,000 | | 62,727 | | - | | - | | 39,198 | | 782,478 | | - | | 782,478 |
| 2008 - as previously | | | | | | | | | | | | | | | | | | | | |
| reported | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| Effect of changes in | 2 | - | | - | | (497,314) | | (52,792) | | - | | - | | (48,978) | | (599,084) | | - | | (599,084) |
| accounting policies | | | | | | | | | | | | | | | | | | | | |
| and restatements | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| Balance at 1 January | | 9 | | 170,544 | | 12,686 | | 9,935 | | - | | - | | (9,780) | | 183,394 | | - | | 183,394 |
| 2008 - as restated | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| Loss for the year - | | - | | - | | - | | - | | - | | - | | (257,015) | | (257,015) | | - | | (257,015) |
| as restated | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| Other comprehensive | | - | | - | | - | | 1,905 | | - | | - | | - | | 1,905 | | - | | 1,905 |
| income | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| Total comprehensive | | - | | - | | - | | 1,905 | | - | | - | | (257,015) | | (255,110) | | - | | (255,110) |
| income/(loss) | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| Equity-settled | | - | | - | | - | | - | | - | | - | | 93 | | 93 | | - | | 93 |
| share-based payments | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| Issuance of Company's | 15 | - | | 50,406 | | - | | - | | - | | - | | - | | 50,406 | | - | | 50,406 |
| ordinary shares | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| Balance at 31 | | 9 | | 220,950 | | 12,686 | | 11,840 | | - | | - | | (266,702) | | (21,217) | | - | | (21,217) |
| December 2008 - as | | | | | | | | | | | | | | | | | | | | |
| restated | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| Loss for the year | | - | | - | | - | | - | | - | | - | | (142,899) | | (142,899) | | (840) | | (143,739) |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| Other comprehensive | | - | | - | | - | | 13,561 | | 7,787 | | - | | - | | 21,348 | | 840 | | 22,188 |
| income (net of tax in | | | | | | | | | | | | | | | | | | | | |
| the amount of USD | | | | | | | | | | | | | | | | | | | | |
| 1,598 thousand) | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| Total comprehensive | | - | | - | | - | | 13,561 | | 7,787 | | - | | (142,899) | | (121,551) | | - | | (121,551) |
| income/(loss) | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| Issuance of | 16 | - | | - | | - | | - | | - | | 15,598 | | - | | 15,598 | | - | | 15,598 |
| convertible debt | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
| Balance at 31 | | 9 | | 220,950 | | 12,686 | | 25,401 | | 7,787 | | 15,598 | | (409,601) | | (127,170) | | - | | (127,170) |
| December 2009 | | | | | | | | | | | | | | | | | | | | |
+-----------------------+-------+---------+----------+------------+----------+--------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+-----------+----------+----------+----------+-----------+
The accompanying notes are an integral part of these consolidated financial
statements.
1. GENERAL
Organisation
KazakhGold Group Limited (the "Company" or "KazakhGold") was incorporated in
Jersey on
26 September 2005. The principal activities of the Company and its
subsidiaries (the "Group") are
the extraction, production and sale of cathodic
gold, free gold and other gold-bearing products. Mining and processing
facilities of the Group are located in the northern part of the Republic of
Kazakhstan. The Group also performs research and exploration works, primarily in
the existing production locations, in Central and Eastern Kazakhstan and in
Romania. Details regarding
the nature of the business and of the significant
subsidiaries of the Group are presented below:
+---------------------+---------------+----------+----------------+----------+--------+----------+--------+
| | | | | | Effective % held1 |
+---------------------+---------------+----------+----------------+----------+----------------------------+
| Subsidiaries | Country | | Nature of | | 2009 | | 2008 |
| | of | | business | | | | |
| | incorporation | | | | | | |
+---------------------+---------------+----------+----------------+----------+--------+----------+--------+
| | | | | | | | |
+---------------------+---------------+----------+----------------+----------+--------+----------+--------+
| JSC Kazakhaltyn MMC | Kazakhstan | | Mining | | 100.0 | | 100.0 |
+---------------------+---------------+----------+----------------+----------+--------+----------+--------+
| Romaltyn Mining SRL | Romania | | Mining | | 100.0 | | 100.0 |
| | | | (Exploration | | | | |
| | | | stage) | | | | |
+---------------------+---------------+----------+----------------+----------+--------+----------+--------+
| Romaltyn Mining | Romania | | Mining | | 100.0 | | 100.0 |
| Exploration SRL | | | (Exploration | | | | |
| | | | stage) | | | | |
+---------------------+---------------+----------+----------------+----------+--------+----------+--------+
| Talas Gold Mining | Kyrgyzstan | | Mining | | 66.7 | | 66.7 |
| Company | | | (Exploration | | | | |
| | | | stage) | | | | |
+---------------------+---------------+----------+----------------+----------+--------+----------+--------+
| | | | | | | | |
+---------------------+---------------+----------+----------------+----------+--------+----------+--------+
1 Effective % held by the Company, including holdings by other subsidiaries of
the Group.
On 30 July 2009, Jenington International Inc., the wholly owned subsidiary of
OJSC "Polyus Gold", became the majority shareholder of the Group.
Statement of compliance
The consolidated financial statements of the Group have been prepared in
accordance with International Financial Reporting Standards ("IFRS"). IFRS
include standards and interpretations approved by
the International Accounting
Standards Board ("IASB"), including International Accounting Standards ("IAS")
and interpretations issued by the International Financial Reporting
Interpretations Committee ("IFRIC").
Authorisation for issuance
The consolidated financial statements of the Group have been authorised for
issuance by the Board of Directors on 27 April 2010.
Going concern assumption
As at 31 December 2009, the Group had a working capital deficiency of USD
277,394 thousand.
The deficit is primarily resulting from the amount owed on
the senior notes in the amount of
USD 200,000 thousand with original
maturity in 2013. The notes have been classified as current liabilities as at 31
December 2009 as a result of the Group's default on restrictive financial and
reporting covenants. Management believes that it can successfully negotiate the
repayment of
the senior notes to 2013, the original maturity, or refinance
it with another facility. The Group has also modified its operational structure
and increased its production at facilities during the period from August 2009.
As a result of these adjustments, the Group has been able to decrease its loss
in 2009 compared to 2008. If the maturity date of the guaranteed senior notes is
not renegotiated or the Group's improved productivity is not sufficient to fund
the Group's operations, the Group has the ability to obtain additional funding
from its new parent, Jenington International Inc. ("Jenington"), or Polyus Gold.
Jenington provided loan facilities to the Group of up to USD 50,000 thousand in
2009, and a further USD 50,000 thousand in February 2010. Furthermore, as part
of the Partial Offer whereby Jenington acquired 50.2% of the Group, Jenington
committed to underwrite a USD 100,000 thousand placement of shares in
KazakhGold. Management intends to continue improving the operating results that
were initiated in August 2009 as the new management continues to address
maintenance shortcomings and underinvestment.
Based on the information discussed above, management believes that it will be
able to meet its borrowings obligations and continue to finance its operational
activities. Management has prepared
a detailed forecast of cash flows for 2010
financial year and believes that future cash flows from operating and financing
activities will be sufficient for the Group to meet its obligations as they
become due.
Basis of presentation
The entities of the Group maintain their accounting records in accordance with
the laws, accounting and reporting regulations of the jurisdictions in which
they are incorporated and registered. The accounting principles and financial
reporting procedures in these jurisdictions may differ substantially from those
generally accepted under IFRS. Accordingly, financial statements of such
entities have been adjusted to ensure that the consolidated financial statements
are presented in accordance with IFRS.
The consolidated financial statements of the Group are prepared on the
historical cost basis, except for subsequent revaluation of property, plant and
equipment in accordance with IAS 16 Property, Plant and Equipment.
The consolidated financial statements for the year ended 31 December 2008
contained herein as comparative financial information represent amounts that
were reclassified and restated as described in note 2.
Adoption of new and revised Standards and Interpretations
In the preparation of the consolidated financial statements, the Group has
adopted all of the new and revised International Financial Reporting Standards
and Interpretations issued by IFRIC that are relevant to its operations and
effective for the annual reporting periods reported herein.
The principles changes due to implementation were as follows:
IAS 1 Presentation of Financial Statements (as revised in 2007 and effective 1
January 2009)
This revised standard separates owner and non-owner changes in the statement of
changes in equity. Based on the revised standard the statement of changes in
equity includes only details of transactions with owner, with non-owner changes
in equity presented as a single line item and separately disclosed in the
statement of comprehensive income. In addition, the Standard introduces the
statement of comprehensive income and introduces new names of some statements.
All information presented in these consolidated financial statements was amended
accordingly.
The revisions and amendments to the following Standards and Interpretations
presented below did not have any impact on the accounting policies, financial
position or performance of the Group:
· IFRS 2 Share-based Payments;
· IFRS 7 Financial Instruments: Disclosures;
· IFRS 8 Operating Segments;
· IAS 7 Statement of Cash Flows;
· IAS 16 Property, Plant and Equipment;
· IAS 18 Revenue;
· IAS 19 Employee Benefits;
· IAS 20 Accounting for Government Grants and Disclosure of Government
Assistance;
· IAS 23 Borrowing Costs;
· IAS 27 Consolidated and Separate Financial Statements;
· IAS 28 Investments in Associates;
· IAS 29 Financial Reporting in Hyperinflationary Economies;
· IAS 31 Interests in Joint Ventures;
· IAS 32 Financial Instruments: Presentation;
· IAS 36 Impairment of Assets;
· IAS 38 Intangible Assets;
· IAS 39 Financial Instruments: Recognition and Measurement;
· IAS 40 Investment Property; and
· IFRIC 15 Agreements for the Construction of Real Estate.
IFRS 8 Operating Segments (effective 1 January 2009) requires disclosure of
financial information about the Group's operating segments based on management
reporting and replaces the requirements to determine primary (business) and
secondary (geographical) reporting segments of the Group. Adoption of this
standard did not have any effect on the financial position or performance
of
the Group. Segment information is not presented in these consolidated
financial statements as
the Group comprises a single operating segment for
management purposes.
Standards and interpretations in issue but not yet adopted
At the date of approval of the Group's consolidated financial statements, the
following new and revised standards and interpretations have been issued, but
are not effective for 2009:
+-----------------------------------------------------+-------------+----------+
| Standards and interpretations | Effective | |
| | for | |
| | annual | |
| | periods | |
| | beginning | |
| | on or after | |
+-----------------------------------------------------+-------------+----------+
| | | |
+-----------------------------------------------------+-------------+----------+
| IAS 1 Presentation of Financial Statements | 1 January 2010 |
| (amended) | |
+-----------------------------------------------------+------------------------+
| IAS 7 Statement of Cash Flows (amended) | 1 July 2009 and |
| | 1 January 2010 |
+-----------------------------------------------------+------------------------+
| IAS 17 Leases (amended) | 1 January 2010 |
+-----------------------------------------------------+------------------------+
| IAS 21 The Effects of Changes in Foreign Exchange | 1 July 2009 |
| Rates (amendments) | |
+-----------------------------------------------------+------------------------+
| IAS 24 Related Parties Disclosures (amended) | 1 January 2011 |
+-----------------------------------------------------+------------------------+
| IAS 27 Consolidated and Separate Financial | 1 July 2009 |
| Statements (revised) | |
+-----------------------------------------------------+------------------------+
| IAS 28 Investments in Associates (revised due to | 1 July 2009 |
| revision of IFRS 3) | |
+-----------------------------------------------------+------------------------+
| IAS 31 Investments in Joint Ventures (revised due | 1 July 2009 |
| to revision of IFRS 3) | |
+-----------------------------------------------------+------------------------+
| IAS 32 Financial Instruments: Presentation | 1 February 2010 |
| (amended) | |
+-----------------------------------------------------+------------------------+
| IAS 36 Impairment of Assets (amended) | 1 January 2010 |
+-----------------------------------------------------+------------------------+
| IAS 38 Intangible Assets (amended) | 1 July 2009 |
+-----------------------------------------------------+------------------------+
| IAS 39 Financial Instruments: Recognition and | 1 July 2009 and |
| Measurement (amended) | 1 January 2010 |
+-----------------------------------------------------+------------------------+
| IFRS 2 Share-based Payment (amended) | 1 January 2010 |
+-----------------------------------------------------+------------------------+
| IFRS 3 Business Combinations (revised) | 1 July 2009 |
+-----------------------------------------------------+------------------------+
| IFRS 5 Non-current Assets Held for Sale and | 1 January 2010 |
| Discontinued Operations (amended) | |
+-----------------------------------------------------+------------------------+
| IFRS 8 Operating segments (amended) | 1 January 2010 |
+-----------------------------------------------------+------------------------+
| IFRS 9 Financial Instruments | 1 January 2013 |
+-----------------------------------------------------+------------------------+
| IFRIC 14 IAS 19: The Limit on a Defined Benefit | 1 January 2011 |
| Asset, Minimum Funding Requirements | |
| and their Interaction (amended) | |
+-----------------------------------------------------+------------------------+
| IFRIC 17 Distribution of Non-cash Assets to Owners | 1 July 2009 |
+-----------------------------------------------------+------------------------+
| IFRIC 19 Extinguishing Financial Liabilities with | 1 July 2010 |
| Equity Instruments | |
+-----------------------------------------------------+-------------+----------+
Management anticipates that all of the above standards and interpretations will
be adopted in the Group's consolidated financial statements for the respective
periods. The impact of adoption of these standards and interpretations in the
preparation of consolidated financial statements in the future periods is
currently being assessed by the Group's management.
2. change in accounting policies, RESTATEMENT of errors and
reclassifications
Common control transactions
In 2009, management of the Group changed its accounting policy for accounting
for common
control transactions. Previously, the accounting for the
acquisition of the entire share capital
of Romanshorn LC AG by KazakhGold
Group Limited from the common controlling party
(this acquisition occurred
during the year ended 31 December 2005) was accounted as capital contribution
with the acquired assets and liabilities initially recognised at fair value
and
the corresponding increase to equity within Capital contribution.
The accounting for business combinations involving entities under common control
is out of scope of IFRS 3 Business Combinations and is not addressed within
other IFRSs. In the absence of clear guidance in IFRS for combinations involving
businesses under common control, management considered other standard-setting
bodies that use a similar conceptual framework to develop accounting
standards,
as well as other accounting literature and accepted industry
practices.
Management concluded that a change in accounting policy for common control
transactions will result in the financial statements providing more reliable and
relevant information about the effects of such transaction and the Group's
financial position and results of its financial performance and will be more
comparable to the Group's peers.
Under the new accounting policy, the assets and liabilities of subsidiaries
acquired from entities under common control are recorded at the carrying values
recognised by the transferor. Any difference between the carrying value of the
net assets of subsidiaries acquired, and the consideration paid by
the Group
is accounted for as an adjustment to shareholders' equity. Management believes
the new accounting policy properly reflects the basis of the transaction because
the transfer of an entity from one common control entity to another does not
represent a market transaction between willing parties.
The following principles were used in preparation of the restated consolidated
financial statements under the new accounting policy for common control
transactions:
· at the date of acquisition of Romanshorn LC AG by KazakhGold all assets
and liabilities acquired were recorded at the same carrying values as in the
consolidated financial statements of Romanshorn LC AG; and
· the differences between the carrying value of net assets transferred to
KazakhGold and
the consideration paid was recorded as Capital contribution
within equity.
The change in accounting policy has been applied retrospectively. The effect of
this change in accounting policy resulted in a restatement of the 2008
consolidated historical results by decreasing the value of net assets recognised
upon acquisition to the carrying values of the transferor, which primarily
resulted in a decrease in the property and equipment balance acquired as part of
this transaction.
Revaluation model for property, plant and equipment
With effect from 1 January 2009 the Group has changed its accounting from the
historical cost method to a revaluation model for subsequent measurement of its
property, plant and equipment.
In June 2009, before the acquisition of the Group by Polyus Gold and after the
issuance of the consolidated financial statements of the Group prepared in
accordance with IFRS for the year ended 31 December 2008, there was a fire at
the Group's premises which led to the loss of a significant amount of historical
information including purchase and construction costs of property, plant and
equipment. As a result of these circumstances, management was unable to restore
information on opening balances for property, plant and equipment and the
revaluation model for the measurement of property, plant and equipment became a
tool to provide reliable and relevant information about the Group's assets.
As of 1 January 2009, the Group has revalued all classes of property, plant and
equipment based on
a valuation performed by an independent professionally
qualified valuer. Most of the assets subject to revaluation represent
specialised items of property, plant and equipment that are not widely traded on
secondary markets. The Group used the depreciated replacement cost approach as
the main approach to valuation of property, plant and equipment. The Group
primarily used a market based approach for valuation of land.
The adoption of the revaluation model resulted in adjustments in the
consolidated statement of changes in equity for the year ended 31 December 2009
in respect of revaluation surplus in the amount of USD 8,627 thousand (net of
income tax effect of USD 1,598 thousand).
Amortisation of mining assets
In 2009, management of the Group changed its accounting policy for amortisation
of mining assets. Previously, mining properties were amortised over the
estimated useful life of mining reserves on
a "unit-of-production" basis.
Under the new accounting policy, mining properties are amortised on
the
basis that represents the greater amount as determined on a straight-line basis
over the life of
the Group's mines or the unit-of-production basis, which
are based on estimated proven and probable ore reserves. Management believes
that using this basis will provide more relevant information about wear and tear
of these assets due to the fact, that during recent years, extraction volumes
were at historically low levels, but regardless of the low production level,
there is ongoing reduction in the life of the assets which should be reflected
in profit and loss. The policy has been applied retrospectively which resulted
in a decrease in previously reported property, plant and equipment.
Accounting for stripping costs
In 2009, management of the Group changed its accounting policy for stripping
costs. Previously, mine stripping costs were expensed in the year incurred as
operating expenses. Under the new accounting policy, expenditure for stripping
costs incurred during the production phase to remove waste ore is deferred and
charged to cost of sales on the basis of the average life-of-mine stripping
ratio. The cost of excess stripping is capitalised as deferred stripping costs.
Management believes that deferring stripping costs incurred during the
production stage of its open-pit operations will better reflect the matching of
the costs against the related economic benefits and will be consistent with
industry practice and comparable to other mining companies. This is generally
the case where there are fluctuations in stripping costs over the life of the
mine. The new method reduces the volatility in reporting periods for operations
that experience significant fluctuations in the ratio of waste materials to ore
on a year to year basis over the life of a mine. The change in accounting policy
has been applied retrospectively but did not have any effect on historical
results due to the fact that actual stripping ratios in prior periods were lower
than the average life-of-mine stripping ratio.
Capitalisation of certain construction, repair, maintenance and exploration
works during the year ended 31 December 2008
In 2009, management identified errors in the treatment of certain costs that
were recorded as asset additions during 2008. These costs did not meet the
criteria for asset recognition and should have been expensed when incurred,
together with finance costs capitalised on those assets, instead of reflected as
asset additions. In 2008, comparative financial information has been restated to
write off these additions and to reflect them as costs during the period.
In addition, management has made an assessment of taxes and penalties to which
the Group is exposed due to inappropriate capitalisation of the property, plant
and equipment. As a result, additional value added tax has been recorded in the
2008 restated statement of financial position.
Accounting for acquisition of Norox Mining Company Limited
In 2009, management identified an error in the original accounting for the
acquisition of 100% of
the share capital of Norox Mining Company Limited in
2007. Norox Mining Company Limited is
the owner of 66.7% of the share
capital of Talas Gold Mining Company. At the time of the original accounting,
the acquisition of Norox Mining Company Limited was treated as an asset
acquisition. The fair values of identifiable net assets were determined and the
difference between consideration transferred and fair value of identifiable net
assets acquired was recognised as "Negotiation Rights" within intangible assets.
Management determined in 2009 that the Negotiation Rights did not meet the
recognition criteria for intangible assets at the date of acquisition of Norox
Mining Company Limited as these rights did not arise from contractual or other
legal rights.
The 2008 comparative financial information has been restated to eliminate this
asset.
Advances paid to contractors and revenue from sales of gold
In 2008, the Group recorded revenue from gold sales in the amount of USD 36,739
thousand to a customer, as part of a series of offsetting arrangements with
certain suppliers to the Group. Accounts receivable from these gold sales were
not repaid by 31 December 2008, but were reportedly settled by the customer with
the Group's suppliers. As a result of such reported settlement, advances paid to
suppliers of the same amount were recorded in the Group's consolidated financial
statements for
the year ended 31 December 2008.
In 2009, management performed an investigation of the relevant transactions and
concluded that there was no substance to the transactions. The financial effect
of this error has been corrected and the consolidated financial statements have
been restated to reflect the reversal of previously recorded revenues and trade
and other receivables.
Environmental obligations
In 2009, management identified an error in the original calculation and
accounting for environmental obligations. Under its subsoil use agreements, the
Group is obliged to perform works to remove production facilities and restore
damaged sites. At the time of the original accounting, not all works that are
required to be performed under the Group's subsoil use agreements were included
in
the calculation of environmental obligations. The Group has restated the
previously reflected financial statements to account for an increase in
environmental obligations.
Historical costs and other provisions
In 2009, management identified an error in accounting for historical costs
related to a charge levied by the Government of the Republic of Kazakhstan to
compensate the State for historical geological works in respect of mineral
reserves and resources. Under subsoil use agreement 145, the Group is obliged to
reimburse historical costs to the government of the Republic of Kazakhstan in
the total amount of USD 8,991 thousand (refer to note 18). A liability for these
costs had not recognised as at
31 December 2008.
The 2008 comparative financial statements have been restated to record the
appropriate liability.
Tax liabilities
In 2009, management performed a reconciliation of tax liabilities of the Group
as of
31 December 2008. As a result of the reconciliation, management
identified errors in the amount of current tax payable and other taxes payable
recorded at 31 December 2008.
The 2008 comparative financial information have been restated to correct these
errors.
Other errors
Management identified various other errors in the previously issued 2008
financial statements. These include the following:
· Provisions recorded related to commitments and contingencies for training
of local staff, social sphere and other matters that do not meet the definition
of a liability in accordance with IAS 37 Provisions, Contingent Liabilities and
Contingent Assets as there is no present obligation (legal or constructive) as a
result of past event;
· Non-refundable value added tax related to acquisition of certain items of
property, plant and equipment recorded within trade and other receivables that
should instead be capitalised with cost of the acquired asset;
· Overstatement of trade and other payables; and
· Classification errors for certain items of equipment that were recorded
as inventory should have been recorded as property, plant and equipment.
The comparative 2008 financial information has been restated to reflect the
impact of these changes.
Reclassifications
The Group has reclassified certain amounts in the 2008 financial statements to
be consistent with the presentation applied by management in 2009. These
reclassifications resulted from: (i) Polyus Gold obtained control of the Group
through acquisition of 50.2% of the Group's outstanding shares and as such the
Group modified the presentation of certain items to align with its new parent
company, and (ii) certain amounts from prior year have been disaggregated in the
current year, and as a result the prior year presentation has been revised to
achieve comparability with the current year presentation.
Reclassifications made to the consolidated income statement for the year ended
31 December 2008 included the following:
· Abnormal production expenses were reclassified from Administrative
expenses to Cost of gold sales;
· Other operating expenses were reclassified to Other expenses, net;
· Administrative expenses were reclassified to Other expenses, net and to
Selling, general and administrative expenses; and
· other reclassifications.
Reclassifications made to the consolidated statement of financial position at 31
December 2008 included the following:
· Advances given to suppliers for construction works were reclassified
from Trade and other receivables to Property, plant and equipment;
· Advances given to suppliers, other than for construction works, were
reclassified from Trade and other receivables and presented as a separate item
in the consolidated statement of financial position;
· interests payable were reclassified from Trade and other payables to
Other payables and accrued expenses;
· Obligations under finance leases were reclassified from Borrowings and
presented as a separate item in the consolidated statement of financial
position;
· Other taxes payable were reclassified from Trade and other payables and
presented as a separate item in the consolidated statement of financial
position; and
· other reclassifications.
These reclassifications had no impact on loss for the year ended 31 December
2008 or shareholders' equity.
The cumulative effect of the changes in accounting policy, restatement of
errors, and reclassifications on the Group's results of operation for the year
ended 31 December 2008 and the Group's financial position as at 31 December 2008
is presented in the table below.
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| | Amounts | | Change | | Reclassification | | Restated |
| | previously | | in | | adjustments | | |
| | reported | | accounting | | | | |
| | | | policies | | | | |
| | | | and | | | | |
| | | | restatement | | | | |
| | | | adjustments | | | | |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| | | | | | | | |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| CONSOLIDATED INCOME | | | | | | | |
| STATEMENT | | | | | | | |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| | | | | | | | |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| Revenue | 91,001 | | (36,739) | | - | | 54,262 |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| Cost of gold sales | (55,852) | | 4,417 | | (19,869) | | (71,304) |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| Other operating | 2,496 | | 3,238 | | (5,734) | | - |
| income | | | | | | | |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| Distribution | (466) | | - | | 466 | | - |
| expenses | | | | | | | |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| Abnormal production | (19,869) | | - | | 19,869 | | - |
| expenses | | | | | | | |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| Other administrative | (54,552) | | 12,956 | | 41,596 | | - |
| expenses | | | | | | | |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| Other operating | (10,540) | | (185,529) | | 196,069 | | - |
| expenses | | | | | | | |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| Finance income | 7,509 | | - | | (7,509) | | - |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| Finance costs | (16,531) | | (8,754) | | - | | (25,285) |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| Income tax benefit | 175,615 | | (165,415) | | - | | 10,200 |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| Selling, general and | - | | - | | (28,595) | | (28,595) |
| administrative | | | | | | | |
| expenses | | | | | | | |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| Other expenses, net | - | | - | | (204,254) | | (204,254) |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| Income from | - | | - | | 7,509 | | 7,509 |
| investments | | | | | | | |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| Foreign exchange | - | | - | | 452 | | 452 |
| gain, net | | | | | | | |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| | | | | | | | |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| Profit/(loss) for | 118,811 | | (375,826) | | - | | (257,015) |
| the year | | | | | | | |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| | | | | | | | |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
| Basic and diluted | 2.26 | | (7.15) | | - | | (4.89) |
| earnings/(loss) | | | | | | | |
| per share (US | | | | | | | |
| dollars) | | | | | | | |
+----------------------+------------+-+-------------+-+------------------+-+-----------+
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| | Amounts | | Change | | Reclassification | | Restated |
| | previously | | in | | adjustments | | |
| | reported | | accounting | | | | |
| | | | policies | | | | |
| | | | and | | | | |
| | | | restatement | | | | |
| | | | adjustments | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| CONSOLIDATED | | | | | | | |
| STATEMENT OF | | | | | | | |
| FINANCIAL POSITION | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Assets | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Property, plant and | 1,215,229 | | (963,442) | | 6,652 | | 258,439 |
| equipment | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Intangible assets | 74,518 | | (69,133) | | (5,385) | | - |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Inventories | - | | - | | 1,950 | | 1,950 |
| (non-current) | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Inventories | 22,390 | | (2,873) | | (1,950) | | 17,567 |
| (current) | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Trade and other | 63,114 | | (52,017) | | (4,506) | | 6,591 |
| receivables | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Advances paid to | - | | - | | 1,267 | | 1,267 |
| suppliers | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Income tax prepaid | - | | - | | 1,972 | | 1,972 |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Equity and | | | | | | | |
| liabilities | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Capital contribution | 510,000 | | (497,314) | | - | | 12,686 |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Translation reserve | 64,780 | | (52,940) | | - | | 11,840 |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Retained | 158,102 | | (424,804) | | - | | (266,702) |
| earnings/(Accumulated | | | | | | | |
| losses) | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Long-term borrowings | 204,642 | | - | | (1,370) | | 203,272 |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Short-term | 41,874 | | - | | (568) | | 41,306 |
| borrowings | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Long-term | - | | - | | 1,370 | | 1,370 |
| obligations under | | | | | | | |
| finance leases | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Short-term | - | | - | | 568 | | 568 |
| obligations under | | | | | | | |
| finance leases | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Trade payables | 32,645 | | 12,901 | | (30,570) | | 14,976 |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Other payables and | - | | - | | 5,724 | | 5,724 |
| accrued expenses | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Other taxes payable | - | | - | | 24,846 | | 24,846 |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Current taxes | 8,972 | | (8,972) | | - | | - |
| payable | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Environmental | 10,189 | | 9,917 | | - | | 20,106 |
| obligations | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Other non-current | - | | 4,029 | | - | | 4,029 |
| liabilities | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
| Deferred tax | 137,054 | | (130,282) | | - | | 6,772 |
| liabilities | | | | | | | |
+-----------------------+------------+-+-------------+-+------------------+-+-----------+
3. SIGNIFICANT ACCOUNTING POLICIES
Change in accounting policies
The accounting policies used in the preparation of the consolidated financial
statements for the year ended 31 December 2009 were consistent with the previous
financial year, except that the Group has adopted new accounting policies in
respect of:
· accounting for common control transactions (refer to section Common
control transactions below and note 2);
· subsequent measurement of property, plant and equipment - adoption of a
revaluation model under IAS 16 Property, Plant and Equipment as of 1 January
2009 (refer to section Property, Plant and Equipment below and note 2);
· deferred stripping costs (refer to section Deferred stripping costs
below and note 2); and
· amortisation of mining assets (refer to section Mining assets below and
note 2).
The Group's significant accounting policies are set out below:
Basis of consolidation
Subsidiaries
The consolidated financial statements of the Group include the financial
statements of the Company and its subsidiaries, from the date that control
effectively commenced until the date that control effectively ceased. Control is
achieved where the Company has the power to govern the financial
and
operating policies of an entity so as to obtain benefits from its activities.
Minority interest in the net assets of consolidated subsidiaries is identified
separately from the Group's equity therein. Minority interest includes interest
at the date of the original acquisition and minority's share of changes in net
assets since the date of the acquisition. Losses applicable to minority interest
in excess of the minority's interest in the subsidiary's net assets are
allocated against the interest of the Group except to the extent that a minority
has a binding obligation and is able to make an additional investment to cover
the losses.
All intra-group balances, transactions and any unrealised profits or losses
arising from intra-group transactions are eliminated on consolidation.
Business combinations
Acquisitions of subsidiaries and businesses, other than acquisitions from
entities under common control, are accounted for using the purchase method. The
cost of the business combination is measured as the aggregate of the fair values
(at the date of acquisition) of assets given, liabilities incurred or assumed,
and equity instruments issued by the Group in exchange for control of
the
acquiree, plus any costs directly attributable to the business combination.
The acquiree's identifiable assets, liabilities and contingent liabilities that
meet the conditions for recognition under IFRS 3 Business Combinations are
recognised at their fair values at the acquisition date, except for non-current
assets (or disposal groups) that are classified as held for sale in accordance
with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which
are recognised and measured at fair value less costs to sell.
Goodwill
Goodwill arising on acquisition is recognised as an asset and initially measured
at cost, being
the excess of the cost of the business combination over the
Group's interest on the net fair value of the identifiable assets, liabilities
and contingent liabilities recognised. If the Group's interest in
the net
fair value of the acquiree's identifiable assets, liabilities and contingent
liabilities exceeds
the cost of the business combination, the excess is
recognised immediately in the income statement.
Goodwill is not amortised but is reviewed for impairment at least annually. For
the purpose of impairment testing, goodwill is allocated to each of the Group's
cash-generating units expected to benefit from the synergies of the combination.
Cash-generating units to which goodwill has been allocated are tested for
impairment annually, or more frequently when there is an indication that
the
unit may be impaired. If the recoverable amount of the cash-generating unit is
less than
the carrying amount of the unit, the impairment loss is allocated
first to reduce the carrying amount of any goodwill allocated to the unit and
then to the other assets of the unit pro-rata on the basis of
the carrying
amount of each asset in the unit. An impairment loss recognised for goodwill is
not reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill is included in
the determination of the gain or loss on disposal.
Common control transactions
Subsidiaries acquired from entities under common control are recorded in the
Group's financial statements at the transferor's carrying values of the assets
and liabilities of such subsidiaries. Any difference between the carrying value
of the net assets of subsidiaries acquired, and the consideration paid by the
Group is accounted for as an adjustment to shareholder's equity. The net assets
of
the subsidiaries and their results are retrospectively recognised from
the date on which control of
the subsidiaries was obtained by the
transferor.
Assets acquired from entities under common control (outside of business
combinations) are recognised at the transferor's carrying value as of the date
of the transaction. Any difference between the carrying value of the assets
acquired and the consideration paid by the Group is accounted for as an
adjustment to shareholders' equity.
Functional and presentation currency
The individual financial statements of the Group's subsidiaries are prepared in
their functional currency.
The US Dollar ("USD") is the functional currency of the Company. Kazakh Tenge
("KZT") is
the functional currency of the Company's subsidiaries located in
the Republic of Kazakhstan.
The functional currencies of other subsidiaries
operating with significant degrees of autonomy are presented below:
+--------------------------------------------------------+------------+
| Subsidiary | Functional |
| | currency |
+--------------------------------------------------------+------------+
| | |
+--------------------------------------------------------+------------+
| Romaltyn Mining S.R.L. | Romanian |
| | Lei |
+--------------------------------------------------------+------------+
| Romaltyn Exploration S.R.L. | Romanian |
| | Lei |
+--------------------------------------------------------+------------+
| Talas Gold Mining Company | Kyrgyz |
| | Som |
+--------------------------------------------------------+------------+
The Group has chosen to present its consolidated financial statements in USD, as
management believes it is a more convenient presentation currency for
international users of the consolidated financial statements of the Group. The
translation of the financial statements of the Group entities from their
functional currencies to the presentation currency is made as follows:
· all assets and liabilities, both monetary and non-monetary, are
translated at closing exchange rates at each reporting period end date;
· all income and expenses in each income statement are translated at the
average exchange rates for the years presented;
· resulting exchange differences are included in other comprehensive
income and presented as Effect of translation to presentation currency within
Translation reserve; and
· in the statement of cash flows, cash balances at beginning and end of
each reporting period presented are translated at exchange rates at the
respective dates. All cash flows are translated at the average exchange rates
for the years presented, except for significant transactions that are translated
at rates on the date of the transaction. Resulting exchange differences are
presented as Effect of translation to presentation currency.
Exchange rates used in the preparation of the consolidated financial statements
were as follows:
+------------------------------------+---------+--+---------+
| | 2009 | | 2008 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| KZT/USD | | | |
+------------------------------------+---------+--+---------+
| 31 December | 148.36 | | 120.66 |
+------------------------------------+---------+--+---------+
| Average for the year | 147.51 | | 120.34 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Romanian Lei/USD | | | |
+------------------------------------+---------+--+---------+
| 31 December | 2.94 | | 2.83 |
+------------------------------------+---------+--+---------+
| Average for the year | 3.05 | | 2.52 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Kyrgyz Som/USD | | | |
+------------------------------------+---------+--+---------+
| 31 December | 44.09 | | 39.42 |
+------------------------------------+---------+--+---------+
| Average for the year | 42.99 | | 36.62 |
+------------------------------------+---------+--+---------+
Foreign currencies
Transactions in currencies other than the entity's functional currencies
(foreign currencies) are recorded at the exchange rates prevailing on the dates
of the transactions. All monetary assets and liabilities denominated in foreign
currencies are translated at the exchange rates prevailing at the reporting
date. Non-monetary items carried at historical cost are translated at the
exchange rate prevailing on the date of transaction. Non-monetary items carried
at fair value are translated at the exchange rate prevailing on the date on
which the most recent fair value was determined. Exchange differences arising
from changes in exchange rates are recognised in the consolidated income
statement.
Property, plant and equipment
Estimated ore reserves
Estimated proven and probable ore reserves reflect the economically recoverable
quantities which can be legally recovered in the future from known mineral
deposits. The majority of the Group's reserves are estimated in accordance with
the Former Soviet Union and Romanian National Agency for Mineral Resources
classification codes.
Exploration and evaluation assets
Exploration and evaluation assets represent capitalised expenditures incurred by
the Group in connection with the exploration for and evaluation of gold
resources, such as:
· acquisition of rights to explore potentially mineralised areas;
· topographical, geological, geochemical and geophysical studies;
· exploratory drilling;
· trenching;
· sampling; and
· activities in relation to evaluating the technical feasibility and
commercial viability of extracting a gold resource.
Exploration and evaluation expenditures are carried at revalued amount.
Exploration and evaluation expenditures are capitalised when it is expected that
they will be recouped by future exploitation or sale, and when the exploration
and evaluation activities have not reached a stage that permits a reasonable
assessment of the existence of commercially recoverable gold reserves. When the
technical feasibility and commercial viability of extracting a gold resource are
demonstrable, capitalised exploration and evaluation assets are reclassified to
mining assets.
Impairment of exploration and evaluation assets
Exploration and evaluation assets are assessed for impairment when facts and
circumstances suggest that the carrying amount of an exploration and evaluation
asset may exceed its recoverable amount. The following facts and circumstances,
among others, indicate that exploration and evaluation assets must be tested for
impairment:
· the term of exploration license in the specific area has expired during
the reporting period or will expire in the near future, and is not expected to
be renewed;
· substantive expenditure on further exploration for and evaluation of
gold resources in
the specific area is neither budgeted nor planned;
· exploration for and evaluation of gold resources in the specific area
have not led to the discovery of commercially viable quantities of gold
resources and the decision was made to discontinue such activities in the
specific area; and
· sufficient data exist to indicate that, although a development in the
specific area is likely to proceed, the carrying amount of the exploration and
evaluation asset is unlikely to be recovered in full from successful development
or by sale.
For the purpose of assessing exploration and evaluation assets for impairment,
such assets are allocated to cash-generating units, being exploration licence
areas.
Any impairment loss is recognised as an expense in accordance with the policy on
impairment of tangible assets set out below.
Mining assets
From 1 January 2009, mining assets are classified as, property, plant and
equipment and are carried at
a revalued amount, being its fair value at the
date of the revaluation less any subsequent accumulated depreciation and
subsequent accumulated impairment losses. Prior to 1 January 2009, the Group
recorded its mining assets at historical cost less accumulated depreciation
(refer to note 2). Mining assets include the cost of acquiring and developing
mining properties, pre-production expenditure, mine infrastructure, mineral
rights and mining and exploration licenses and the present value of future
decommissioning costs.
Revaluations are made with sufficient regularity to ensure that the carrying
amount does not differ materially from that which would be determined using fair
value at the end of the reporting period.
If an item of property, plant and
equipment is revalued, the entire class of property, plant and equipment to
which that asset belongs is revalued.
If an asset's carrying amount is increased as a result of a revaluation, the
increase is recognised in other comprehensive income and accumulated in equity
within Revaluation surplus. However, the increase is recognised in profit or
loss to the extent that it reverses a revaluation decrease of the same asset
previously recognised in profit or loss.
If an asset's carrying amount is decreased as a result of a revaluation, the
decrease is recognised
in the consolidated income statement. However, the
decrease is recognised in other comprehensive income to the extent of any credit
balance existing in the revaluation surplus in respect of that asset. The
decrease recognised in other comprehensive income reduces the amount accumulated
in equity within Revaluation surplus.
The revaluation surplus included in equity in respect of an item of property,
plant and equipment is transferred directly to retained earnings when the asset
is retired or disposed of.
Mining assets are recorded at revalued amount less accumulated amortisation.
Mining assets include the cost of acquiring and developing mining properties,
pre-production expenditure, mine infrastructure and mining and exploration
licenses and the present value of future decommissioning costs.
Mining assets are amortised on a straight-line basis over the life of mines of
23 years, which is based on estimated proven and probable ore reserves.
Amortisation is charged from the date on which
a new mine reaches commercial
production quantities and is included in the cost of production.
Non-mining assets
Non-mining assets such as buildings, structures, plant and equipment, trucks and
vehicles and other non-mining assets are carried at revalued amount on a similar
basis as described in section Mining assets, less subsequent accumulated
depreciation. Land is not depreciated. Depreciation for all non-mining assets is
provided on a straight-line basis over the economic useful lives of such assets:
· buildings, structures, plant and equipment 5-13 years;
· trucks and vehicles 3
years;
· other assets 3-7
years.
Capital construction-in-progress
Capital construction-in-progress comprises costs directly related to mine
development, construction of buildings, infrastructure, processing plant,
machinery and equipment. Amortisation or depreciation of these assets commences
when the assets are placed into commercial production.
Leased assets
Leases under which the Group assumes substantially all the risks and rewards of
ownership are classified as finance leases. Assets subject to finance leases are
capitalised as property, plant and equipment at
the lower of fair value or
present value of future minimum lease payments at the date of
acquisition,
with the related lease obligation recognised at the same value.
Assets held under finance leases are depreciated over their estimated economic
useful lives or over the term of the lease, if shorter.
If there is
reasonable certainty that the lessee will obtain ownership by the end of the
lease term,
the period of expected use is useful life of the asset.
Finance lease payments are allocated using the effective interest rate method,
between the lease finance cost, which is included in interest paid, and the
capital repayment, which reduces the related lease obligation to the lessor.
Impairment of property, plant and equipment, other than exploration and
evaluation assets
An impairment review of property, plant and equipment is carried out when there
is an indication that those assets have suffered an impairment loss. If any such
indication exists, the carrying amount of the asset is compared to the estimated
recoverable amount of the asset in order to determine the extent of the
impairment loss (if any).Where it is not possible to estimate the recoverable
amount of
an individual asset, the Group estimates the recoverable amount of
the cash-generating unit to which the asset belongs.
The recoverable amount is the higher of fair value less costs to sell and
value-in-use. 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
(or cash-generating unit) is reduced to its recoverable amount. The impairment
loss is recognised in the income statement immediately, unless the relevant
asset is carried at revalued amount, in which case the impairment loss is
treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset
(or cash-generating unit) is increased to the revised estimate of its
recoverable amount, but only to the extent that the increased carrying amount
does not exceed the original carrying amount that would have been determined had
no impairment loss been recognised in prior periods.
A reversal of an impairment loss is recognised in the income statement
immediately, unless the relevant asset is carried at a revalued amount, in which
case the reversal of the impairment loss is treated as
a revaluation
increase.
Deferred stripping costs
The Group accounts for stripping costs incurred using the average life-of-mine
stripping ratio.
The method assumes that stripping costs incurred during the
production phase to remove waste ore are deferred and charged to operating costs
on the basis of the average life-of-mine stripping ratio. The average stripping
ratio is calculated as the number of cubic meters of waste material
removed
per ton of ore mined based on proven and probable reserves. The
average life-of-mine ratio is revised annually or when circumstances change in
the mine's pit design or in the technical or economic parameters impacting the
reserves. Changes to the life-of-mine ratio are accounted prospectively as
changes in accounting estimates.
Stripping costs incurred in the period are deferred to the extent that the
current period stripping ratio exceeds the expected life-of-mine ratio. Such
deferred costs are then charged against profit and loss to the extent that, in
subsequent periods, the current ratio falls short of the life-of-mine ratio.
The cost of excess stripping is capitalised as deferred stripping costs and
forms part of the total investment in the relevant cash-generating unit, which
is reviewed for impairment if events or
a change in circumstances indicate
that the carrying value may not be recoverable. Amortisation of deferred
stripping costs is included in cost of gold sales.
Inventories
Finished goods
Gold-bearing products, which represent finished goods, are measured at the lower
of net production cost and net realisable value. The net cost of production per
unit of gold-bearing products is determined by dividing total production cost,
by the saleable mine output of gold-bearing products.
Production costs include consumables and spares, labour, tax on mining,
utilities, sundry costs, amortisation and depreciation of operating assets,
adjustments for deferred stripping costs capitalised, change in provision for
land restoration and change in gold-in-process and finished goods.
Gold-in-process and stockpiles
Costs that are incurred in or benefit the production process are accumulated as
stockpiles and gold in process. Net realisable value tests are performed at
least annually and represent the estimated future sales price of the product,
based on prevailing spot metal prices, less estimated costs to complete
production and bring the product to sale.
Gold-in-process is valued at the net unit cost of production with reference to
the relevant stage of production.
Stockpiles are measured by estimating the number of tonnes added and removed
from the stockpile,
the number of contained gold ounces based on assay data,
and the estimated recovery percentage based on the expected processing method.
Stockpiles are verified by periodic surveys.
Stores and materials
Stores and materials consist of consumable stores and are valued at the weighted
average cost less provision for obsolete and slow-moving items.
Financial assets
Financial assets are recognised on trade date where 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, and
are initially measured at fair value, plus transaction costs, except for
financial assets classified as at fair value through profit or loss, which are
initially measured at fair value.
The Group's financial assets represent trade and other receivables and are
measured at amortised cost using the effective interest method less any
impairment.
Impairment of financial assets
When a trade or other receivable is uncollectible, it is written off against the
allowance account. Subsequent recoveries of amounts previously written off are
credited against the allowance account. Changes in the carrying amount of the
allowance account are recognised in the consolidated income statement.
Derecognition of financial assets
The Group 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 Group neither transfers nor retains substantially all the risks
and rewards of ownership and continues to control the transferred asset, the
Group recognises its retained interest in the asset and an associated liability
for amounts it may have to pay. If the Group retains substantially all the risks
and rewards of ownership of a transferred financial asset, the Group continues
to recognise the financial asset and also recognises a collateralised borrowing
for the proceeds received.
Financial liabilities
Financial liabilities, including borrowings, are initially measured at fair
value, net of transaction costs, and subsequently measured at amortised cost
using the effective interest method, with interest expense recognised on an
effective yield basis.
Effective interest method
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 outflows through the expected life of the financial liability,
or,
where appropriate, a shorter period.
Expense is recognised on an effective interest rate basis for debt instruments.
Compound instruments
The component parts of compound instruments such as convertible loans issued by
the Group are classified separately as financial liabilities and equity in
accordance with the substance of the contractual arrangement. At the date of
issue, the fair value of the liability component is estimated using
the
prevailing market interest rate for a similar non-convertible instrument. This
amount is recorded as a liability on an amortised cost basis using the effective
interest method until extinguished upon conversion or at the instrument's
maturity date. The equity component is determined by deducting the amount of the
liability component from the fair value of the compound instrument as a whole.
This is recognised and included in Option premium on convertible debt within the
statement of changes in equity, net of income tax effects, and is not
subsequently remeasured.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group's
obligations are discharged, cancelled or they expire.
Finance costs
Finance costs directly attributable to the acquisition, construction or
production of qualifying assets, which are assets that necessarily take a
substantial period of time to get ready for their intended use or sale, are
added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings
pending their expenditure on qualifying assets is deducted from the finance
costs eligible for capitalisation.
All other finance costs are recognised in the consolidated income statement in
the period in which they are incurred.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, cash deposits and highly
liquid investments with original maturities of three months or less, which are
readily convertible to known amounts of cash and are subject to an insignificant
risk of changes in value.
Provisions
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that the Group will be
required to settle the obligation, and a reliable estimate can be made of the
amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration
required to settle
the present obligation at the reporting date, taking into
account the risks and uncertainties surrounding the obligation. Where a
provision is measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash flows.
Employee benefit obligations
Remuneration to employees in respect of services rendered during a reporting
period is recognised as an expense in that reporting period.
The Group contributes to certain defined contribution and employee benefit
schemes on behalf of
its employees. These contributions are recognised in
the income statement when employees have rendered services entitling them to the
contribution.
Income tax
Income tax expense represents the sum of the tax currently payable and deferred
tax. Income taxes are computed in accordance with the laws of countries where
the Group operates.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from profit as reported in the consolidated income statement
because it excludes items of income or expense that are taxable or deductible in
other years and it further excludes items that are never taxable or deductible.
The Group's liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the reporting date.
Deferred tax
Deferred tax is recognised on differences between the carrying amounts of assets
and liabilities in
the financial statements and the corresponding tax bases
used in the computation of taxable profit, and are accounted for using the
balance sheet liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences, and deferred tax assets are
generally recognised for all deductible temporary differences to the extent that
it is probable that taxable profits will be available against which those
deductible temporary differences can be utilised. Such assets and
liabilities
are not recognised if the temporary difference arises from
goodwill or from the initial recognition (other than in a business combination)
of other assets and liabilities in a transaction that affects neither the
taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
associated with investments in subsidiaries and associates except where the
Group is able to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable
future.
Deferred tax assets arising from deductible temporary differences associated
with such investments are only recognised to the extent that it is probable that
there will be sufficient taxable profits against which to utilise the benefits
of the temporary differences and they are expected to reverse in the foreseeable
future.
The carrying amount of deferred tax assets is reviewed at each reporting date
and reduced to
the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply in the period in which the liability is settled or the asset
realised, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the reporting date. The measurement of deferred tax
liabilities and assets reflects the tax consequences that would follow from the
manner in which the Group expects, at the reporting date, to recover or settle
the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and
the Group intends to settle its current tax assets and liabilities on a net
basis.
Current and deferred tax for the period
Current and deferred tax are recognised as an expense or income in the
consolidated income statement, except when they relate to items credited or
debited directly to equity, in which case the tax is
also recognised
directly in equity, or where they arise from the initial accounting for a
business combination. In the case of a business combination, the tax effect is
taken into account in calculating goodwill or determining the excess of the
acquirer's interest in the net fair value of the acquiree's identifiable assets,
liabilities and contingent liabilities over cost.
Revenue recognition
Gold sales revenue
Revenue from the sale of cathodic gold, free gold and other gold-bearing
products is recognised when the risks and rewards of ownership are transferred
to the buyer. Gold sales revenue represents
the invoiced value of gold
shipped to customers, net of value-added tax.
Other revenue
Other revenue consists of sales of goods, other than gold-bearing products, and
services the Group provides as necessary in the locations where it operates.
Revenue from sale of goods is recognised when significant risks and rewards of
ownership are transferred to the buyer in accordance with
the shipping terms
specified in the sales agreements. Revenue from services is recognised
when
the services are rendered.
Operating leases
The lease of assets under which all the risks and benefits of ownership are
retained by the lessor are classified as operating leases. Costs for operating
leases are recognised in the income statement in the period in which they are
incurred in accordance with lease terms.
Environmental obligations
Environmental obligations include decommissioning and land restoration costs.
Future decommissioning costs, discounted to net present value, are capitalised
and corresponding decommissioning obligations raised as soon as the constructive
obligation to incur such costs arises and the future decommissioning cost can be
reliably estimated. Decommissioning assets are amortised on a straight-line
basis over the life of mine. The unwinding of the decommissioning obligation is
included in the income statement as finance costs. Decommissioning obligations
are periodically reviewed in light of current laws and regulations, and
adjustments made as necessary with correspondence to property, plant and
equipment.
Provision for land restoration, representing the cost of restoring land that
arises when environmental disturbance is caused by the development or ongoing
production of a mining property, is estimated at the net present value of the
expenditures expected to settle the obligation. Change in provision and
unwinding of discount on land restoration are recognised to the consolidated
income statement and included in cost of production.
Ongoing restoration costs are expensed when incurred.
4. CRITICAL ACCOUNTING ESTIMATES AND JudgmentS
Preparation of the consolidated financial statements in accordance with IFRS
requires the Group's 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 amounts of revenues and expenses during the reporting period. The
determination of estimates requires judgments which are based on historical
experience, current and expected economic conditions, and all other available
information. Actual results could differ from those estimates.
Critical judgements in applying accounting policies
The following are the critical judgments, apart from those involving estimations
(see below), that
the management has made in the process of applying the
Group's accounting policies and that have the most significant effect on the
amounts recognised in the consolidated financial statements.
Revaluation of property, plant and equipment
From 1 January 2009, the Group applies a revaluation model to measurement of
property, plant and equipment. A revaluation is made with sufficient regularity
to determine that the carrying amount of these assets to determine whether
carrying amount differs materially from fair value. The Group carries out such
review based on the depreciated replacement cost approach as the main approach
to valuation of property, plant and equipment.
Based on the Group's change in accounting policy described in Note 2, the Group
concluded that depreciated replacement cost would be used to value property,
plant and equipment.
Exploration and evaluation expenditure
The Group has to apply judgment in determining whether exploration and
evaluation expenditure should be capitalised or expensed. Management exercises
this judgment based on the results of economic evaluations, prefeasibility or
feasibility studies. Many of the factors, assumptions and variables involved in
estimating resources are beyond the Group's control and may change over time.
Costs are capitalised where those studies conclude that more likely than not the
Group will obtain future economic benefit from the expenditures. Subsequent
changes in gold resources estimates could impact the carrying value of
exploration and evaluation assets.
Contingencies
By their nature, contingencies will only be resolved when one or more future
events occur or fail to occur. The assessment of such contingencies inherently
involves the exercise of significant judgments and estimates of the outcome of
future events.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key
sources of estimation uncertainty at the end of the reporting period that have a
significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year.
The most significant areas requiring the use of management estimates and
assumptions relate to:
· useful economic lives of property, plant and equipment;
· calculation of allowance for doubtful debts;
· environmental obligations; and
· income taxes.
Useful economic lives of property, plant and equipment
The Group's mining assets, classified within property, plant and equipment, are
amortised using
the straight-line method over life of mine based on proven and
probable ore reserves. When determining life of mine, assumptions that were
valid at the time of estimation, may change when new information becomes
available.
The factors that could affect estimation of life of mine include the following:
· change of estimates of proven and probable ore reserves;
· the grade of mineral reserves varying significantly from time to time;
· differences between actual commodity prices and commodity price
assumptions used in
the estimation of ore reserves;
· unforeseen operational issues at mine sites; and
· changes in capital, operating mining, processing and reclamation costs,
discount rates and foreign exchange rates possibly adversely affecting the
economic viability of ore reserves.
Any of these changes could affect prospective amortisation of mining assets and
their carrying value.
Non-mining property, plant and equipment are depreciated on a straight-line
basis over their useful economic lives. Management periodically reviews the
appropriateness of assets' useful economic lives. The review is based on the
current condition of the assets and the estimated period during which they will
continue to bring economic benefit to the Group.
Allowance for doubtful debts
The Group creates allowances for doubtful debts to account for estimated losses
resulting from
the inability of counterparties to make required payments.
When evaluating the adequacy of
an allowance for doubtful debts, management
bases its estimates on the current overall economic conditions, the aging of
accounts receivable balances, historical write-off experience, customer
creditworthiness and changes in payment terms. Changes in the economy, industry
or specific customer conditions may require adjustments to the allowance for
doubtful debts recorded in the consolidated financial statements.
Environmental obligations
The Group's mining and exploration activities are subject to various
environmental laws and regulations. The Group estimates environmental
obligations based on the management's understanding of the current legal
requirements in the various jurisdictions, terms of the license agreements and
internally generated engineering estimates. Provision is made, based on net
present values, for decommissioning and land restoration costs as soon as the
obligation arises. Actual costs incurred in future periods could differ
materially from the amounts provided. Additionally, future changes to
environmental laws and regulations, life of mine estimates and discount rates
could affect the carrying amount of this provision.
Income taxes
The Group is subject to income taxes in numerous jurisdictions. Significant
judgment is required in determining the worldwide provision for income taxes due
to the complexity of legislation. There are many transactions and calculations
for which the ultimate tax determination is uncertain. The Group recognises
liabilities for anticipated tax audit issues based on estimates of whether
additional taxes will be due. Where the final tax outcome of these matters is
different from the amounts that were initially recorded, such differences will
impact the income tax and deferred tax provisions in the period in which such
determination is made.
Deferred tax assets are reviewed at each reporting date and reduced to the
extent that it is no longer probable that sufficient taxable profit will be
available to allow all or part of the deferred tax asset to be utilised. The
estimation of that probability includes judgments based on the expected
performance. Various factors are considered to assess the probability of the
future utilisation of deferred tax assets, including past operating results,
operational plan, expiration of tax losses carried forward, and tax planning
strategies. If actual results differ from that estimates or if these estimates
must be adjusted in future periods, the financial position, results of
operations and cash flows may be negatively affected.
5. Employee benefit expense
+-------------------------------------------+----------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Wages and salaries | 25,535 | | 19,338 |
+-------------------------------------------+----------+--+----------+
| Direct social taxes | 2,156 | | 2,407 |
+-------------------------------------------+----------+--+----------+
| Other employee benefits | 630 | | 93 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Total | 28,321 | | 21,838 |
+-------------------------------------------+----------+--+----------+
Employee benefit expenses in the amount of USD 18,823 thousand, USD 360 thousand
and
USD 9,138 thousand were recognised as part of Cost of gold sales, Cost
of other sales and Selling, general and administrative expenses, respectively.
Contributions to certain defined contribution and employee benefit schemes for
the year ended 31 December 2009 amounted to USD 2,156 thousand (2008: USD
2,407thousand).
6. OTHER expenses, NET
+-------------------------------------------+----------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Bank guarantee provision (refer to note | 11,650 | | - |
| 18) | | | |
+-------------------------------------------+----------+--+----------+
| Loss on revaluation of property, plant | 11,079 | | - |
| and equipment | | | |
+-------------------------------------------+----------+--+----------+
| Non-recoverable value added tax on | 5,219 | | 27,112 |
| construction, repair, | | | |
| maintenance and exploration works (refer | | | |
| to note 2) | | | |
+-------------------------------------------+----------+--+----------+
| Change in allowance for doubtful debts | 3,594 | | 6,002 |
+-------------------------------------------+----------+--+----------+
| Loss on disposal of property, plant and | 1,859 | | 8,957 |
| equipment | | | |
+-------------------------------------------+----------+--+----------+
| Construction, repair, maintenance and | - | | 158,417 |
| exploration works expensed (refer to note | | | |
| 2) | | | |
+-------------------------------------------+----------+--+----------+
| Other | (780) | | 3,766 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Total | 32,621 | | 204,254 |
+-------------------------------------------+----------+--+----------+
7. FINANCE COSTS
+-------------------------------------------+----------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Interest on borrowings | 27,436 | | 21,807 |
+-------------------------------------------+----------+--+----------+
| Unwinding of discounts | 1,713 | | 1,534 |
+-------------------------------------------+----------+--+----------+
| Interest on obligations under finance | - | | 1,074 |
| lease | | | |
+-------------------------------------------+----------+--+----------+
| Other | 2,692 | | 870 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Total | 31,841 | | 25,285 |
+-------------------------------------------+----------+--+----------+
8. income tax
+-------------------------------------------+----------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Deferred tax benefit | 6,161 | | 10,200 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Total income tax benefit | 6,161 | | 10,200 |
+-------------------------------------------+----------+--+----------+
The corporate income tax rates in the countries where the Group has a taxable
presence vary
from 0% to 28%.
A reconciliation of statutory income tax at the rate effective in the Republic
of Kazakhstan, location of the Group's production entities and substantially all
operations, to the amount of actual income tax expense recorded in the
consolidated income statement is as follows:
+-------------------------------------------+-----------+--+-----------+
| | 2009 | | 2008 |
+-------------------------------------------+-----------+--+-----------+
| | | | |
+-------------------------------------------+-----------+--+-----------+
| Loss before income tax | (149,900) | | (267,215) |
+-------------------------------------------+-----------+--+-----------+
| | | | |
+-------------------------------------------+-----------+--+-----------+
| Income tax at statutory rate of 20% | 29,980 | | 76,156 |
| (2008: 28.5%) | | | |
+-------------------------------------------+-----------+--+-----------+
| Effect of expenses not deductible for tax | (11,374) | | (74,290) |
| purposes | | | |
+-------------------------------------------+-----------+--+-----------+
| Effect on deferred tax balances due to | - | | 10,620 |
| change in statutory income tax rate for | | | |
| future periods from 28.5% to 15% | | | |
+-------------------------------------------+-----------+--+-----------+
| Effect of unused tax losses and deferred | (12,445) | | (2,286) |
| tax asset not recognised | | | |
+-------------------------------------------+-----------+--+-----------+
| | | | |
+-------------------------------------------+-----------+--+-----------+
| Income tax benefit at effective rate of | 6,161 | | 10,200 |
| 4.1% (2008: 3.8%) | | | |
+-------------------------------------------+-----------+--+-----------+
At 31 December 2009, the Group has not recognised deferred tax assets in the
amount of
USD 10,970 thousand (2008: USD 6,275 thousand) in respect of tax
losses carried forward that are available for offset against future taxable
profit of the Group up to ten years due to the uncertainty of available future
taxable profits.
The tax rate used for the 2009 reconciliations above is the income tax rate of
20% (2008: 28.5%) payable by JSC "MMC Kazakhaltyn", the Group's main operating
subsidiary in the Republic of Kazakhstan, on taxable profits. The income tax
rate will be reduced to 17.5% in 2013 and 15% starting from 2014.
The movement in the Group's deferred taxation position was as follows:
+-------------------------------------------+----------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Net liability at beginning of the year | 6,772 | | 17,076 |
+-------------------------------------------+----------+--+----------+
| Recognised in the income statement | (6,161) | | (420) |
+-------------------------------------------+----------+--+----------+
| Recognised in the shareholders' equity on | 1,598 | | - |
| revaluation surplus for property, plant | | | |
| and equipment | | | |
+-------------------------------------------+----------+--+----------+
| Effect on deferred tax balances due to | - | | (9,780) |
| change in statutory income tax rate for | | | |
| future periods from 28.5% to 15% | | | |
+-------------------------------------------+----------+--+----------+
| Effect of translation to presentation | (2,209) | | (104) |
| currency | | | |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Net liability at end of the year | - | | 6,772 |
+-------------------------------------------+----------+--+----------+
Deferred taxation is attributable to the temporary differences that exist
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes.
The tax effects of temporary
differences that give rise to deferred taxation are presented below:
+-------------------------------------------+----------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Property, plant and equipment | 5,441 | | 5,081 |
+-------------------------------------------+----------+--+----------+
| Other | (3,611) | | 1,691 |
+-------------------------------------------+----------+--+----------+
| Unused tax losses | (7,705) | | - |
+-------------------------------------------+----------+--+----------+
| Less: Valuation allowance | 5,875 | | - |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Total | - | | 6,772 |
+-------------------------------------------+----------+--+----------+
The Group did not recognise a deferred tax asset for temporary differences
associated with investments in subsidiaries of USD 16,535 thousand (2008: USD
11,624 thousand), because management believes that it is able to control the
timing of reversal of such differences and has no intention to reverse them in
the foreseeable future.
9. loss per share
The following reflects the income and share data used in the calculation of
basic and diluted loss per share:
+-------------------------------------------+------------+--+------------+
| | 2009 | | 2008 |
+-------------------------------------------+------------+--+------------+
| | | | |
+-------------------------------------------+------------+--+------------+
| Loss for the year attributable to | 142,899 | | 257,015 |
| shareholders of the parent company | | | |
+-------------------------------------------+------------+--+------------+
| Weighted average number of ordinary | 52,941,666 | | 52,533,446 |
| shares in issue during the year | | | |
+-------------------------------------------+------------+--+------------+
| | | | |
+-------------------------------------------+------------+--+------------+
| Basic and diluted loss per share (US | 2.70 | | 4.89 |
| Dollars) | | | |
+-------------------------------------------+------------+--+------------+
In 2009, the convertible loans were antidilutive: 24,834,083 contingently
issuable shares on conversion of the loans were therefore excluded from the
weighted average number of ordinary shares for the purposes of diluted loss per
share.
10. PROPERTY, PLANT AND EQUIPMENT
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| | Exploration | | Mining | | Non-mining | | Capital | | Total |
| | and | | assets | | assets | | construction- | | |
| | evaluation | | | | | | in-progress | | |
| | assets | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Cost | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Balance at 1 | 5,303 | | 204,037 | | 1,398 | | 43,509 | | 254,247 |
| January 2008 | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Additions | - | | 52,110 | | - | | 3,680 | | 55,790 |
| (restated) | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Transfers | - | | 2,211 | | - | | (2,211) | | - |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Disposals | - | | (14,252) | | - | | (71) | | (14,323) |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Effect of | 2 | | (114) | | 1 | | (76) | | (187) |
| translation to | | | | | | | | | |
| presentation | | | | | | | | | |
| currency | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Balance at 31 | 5,305 | | 243,992 | | 1,399 | | 44,831 | | 295,527 |
| December 2008 | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Effect of | (4,378) | | (46,261) | | 53 | | 12,644 | | (37,942) |
| revaluation (refer | | | | | | | | | |
| to note 2) | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Revalued amount | 927 | | 197,731 | | 1,452 | | 57,475 | | 257,585 |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Additions | 3,464 | | 1,380 | | 616 | | 4,244 | | 9,704 |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Transfers | - | | 631 | | 1,354 | | (1,985) | | - |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Change in | - | | (3,934) | | - | | - | | (3,934) |
| decommissioning | | | | | | | | | |
| liabilities | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Disposals | (652) | | (931) | | (157) | | (340) | | (2,080) |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Effect of | 133 | | (34,184) | | (281) | | (9,842) | | (44,174) |
| translation to | | | | | | | | | |
| presentation | | | | | | | | | |
| currency | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Balance at 31 | 3,872 | | 160,693 | | 2,984 | | 49,552 | | 217,101 |
| December 2009 | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Accumulated | | | | | | | | | |
| amortisation, | | | | | | | | | |
| depreciation and | | | | | | | | | |
| impairment | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Balance at 1 | - | | (18,269) | | (52) | | - | | (18,321) |
| January 2008 | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Charge for the year | - | | (20,158) | | (6) | | - | | (20,164) |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Disposals | - | | 1,954 | | - | | - | | 1,954 |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Impairment | (176) | | (373) | | - | | - | | (549) |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Effect of | - | | (9) | | 1 | | - | | (8) |
| translation to | | | | | | | | | |
| presentation | | | | | | | | | |
| currency | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Balance at 31 | (176) | | (36,855) | | (57) | | - | | (37,088) |
| December 2008 | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Effect of | 176 | | 36,855 | | 57 | | - | | 37,088 |
| revaluation | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Revalued amount | - | | - | | - | | - | | - |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Charge for the year | - | | (19,734) | | (365) | | - | | (20,099) |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Disposals | - | | 64 | | 157 | | - | | 221 |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Effect of | - | | (173) | | 1 | | - | | (172) |
| translation to | | | | | | | | | |
| presentation | | | | | | | | | |
| currency | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Balance at 31 | - | | (19,843) | | (207) | | - | | (20,050) |
| December 2009 | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| Net book value | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| 31 December 2008 | 5,129 | | 207,137 | | 1,342 | | 44,831 | | 258,439 |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| | | | | | | | | | |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
| 31 December 2009 | 3,872 | | 140,850 | | 2,777 | | 49,552 | | 197,051 |
+---------------------+-------------+-+----------+-+------------+-+---------------+-+----------+
At 31 December 2009, property, plant and equipment with a carrying value of USD
20,510 thousand
were pledged to secure borrowings of the Group (refer to
note 16).
11. INVENTORIES
+------------------------------------+---------+--+---------+
| | 2009 | | 2008 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Inventories expected to be | | | |
| recovered after twelve months | | | |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Stockpiles | 2,867 | | 1,950 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Total | 2,867 | | 1,950 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Inventories expected to be | | | |
| recovered in the next twelve | | | |
| months | | | |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Gold-in-process at net production | 5,462 | | 5,441 |
| cost | | | |
+------------------------------------+---------+--+---------+
| Finished goods at net production | 4,926 | | 3,218 |
| cost | | | |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Total metal inventories | 10,388 | | 8,659 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Stores and materials at cost | 4,954 | | 9,032 |
+------------------------------------+---------+--+---------+
| Less: Allowance for obsolescence | (1,077) | | (124) |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| | 14,265 | | 17,567 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Total | 17,132 | | 19,517 |
+------------------------------------+---------+--+---------+
The Group consumed USD 13,518 thousand of inventories during the year ended 31
December 2009, which has been recognised as Cost of gold sales (2008: USD 57,718
thousand).
12. TRADE AND OTHER RECEIVABLES
+------------------------------------+---------+--+---------+
| | 2009 | | 2008 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Trade receivables for gold sales | 1,359 | | 957 |
+------------------------------------+---------+--+---------+
| Other receivables | 9,404 | | 11,998 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| | 10,763 | | 12,955 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Less: Allowance for doubtful debts | (8,639) | | (6,364) |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Total | 2,124 | | 6,591 |
+------------------------------------+---------+--+---------+
The average credit period on gold sales varied from 3 to 8 days in 2009 and
2008. No interest is charged on trade receivables for the first 5 days from the
date of invoice. Thereafter, interest is charged at 0.045% per annum on the
outstanding balance.
The Group has fully provided for all receivables over 365 days because
historical experience is such that receivables that are past due beyond 365 days
are generally not recoverable.
At 31 December 2009, the Group's largest customers individually exceeding 5% of
the total balance represented 99.9% of the outstanding balance of trade and
other receivables.
At 31 December 2009, included in the Group's trade receivables were balances of
USD 1,359 thousand
(31 December 2008: nil) which were past due but which were
not impaired. The Group does not hold any collateral over these amounts. The
average age of these receivables was 5 days.
Movement in the allowance for doubtful debts:
+-------------------------------------------+----------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Balance at beginning of the year | 6,364 | | 4,290 |
+-------------------------------------------+----------+--+----------+
| Receivable balances written off | - | | (3,243) |
+-------------------------------------------+----------+--+----------+
| Increase in allowance | 3,594 | | 6,002 |
+-------------------------------------------+----------+--+----------+
| Effect of translation to presentation | (1,319) | | (685) |
| currency | | | |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Balance at end of the year | 8,639 | | 6,364 |
+-------------------------------------------+----------+--+----------+
Included in the allowance for doubtful debts were individually impaired other
receivables amounting to USD 8,639 thousand (31 December 2008: USD 6,364
thousand) relating to counterparties which have been placed under liquidation.
The Group does not hold any collateral over these balances.
13. ADVANCES paid TO SUPPLIERS
At 31 December 2009, advances paid to suppliers in the amount of USD 1,905
thousand
(31 December 2008: USD 1,267 thousand) were presented net of
impairment loss of
USD 990 thousand (31 December 2008: USD 1,082 thousand).
14. CASH AND CASH EQUIVALENTS
+-------------------------------------------+----------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Current bank accounts | 3,262 | | 13,309 |
+-------------------------------------------+----------+--+----------+
| Other cash and cash equivalents | 269 | | 657 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Total | 3,531 | | 13,966 |
+-------------------------------------------+----------+--+----------+
15. SHARE CAPITAL
At 31 December 2009 and 2008, authorised share capital of the Company comprised
of
100,000,000 ordinary shares at par value of GBP 0.0001 and issued and
fully paid share capital of the Company comprised of 52,941,666 ordinary shares.
On 6 March 2008, the Company issued 2,301,666 new ordinary shares at a price of
USD 23 per share for a total consideration of USD 50,406 thousand net of
expenses. The amount raised was used to provide additional working capital for
the Group.
16. Borrowings
+------------------+-------+----------+----------+---------+----------+--------------+----------+-----------+----------+--------------+
| | | | | 2009 | | 2008 |
+------------------+-------+----------+----------+-----------------------------------+----------+-------------------------------------+
| | | Currency | | Rate,% | | Outstan-ding | | Rate,% | | Outstan-ding |
| | | | | | | balance | | | | balance |
+------------------+-------+----------+----------+---------+----------+--------------+----------+-----------+----------+--------------+
| | | | | | | | | | | |
+------------------+-------+----------+----------+---------+----------+--------------+----------+-----------+----------+--------------+
| Guaranteed | (i) | USD | | 9.375 | | 200,000 | | 9.375 | | 197,308 |
| senior notes | | | | | | | | | | |
+------------------+-------+----------+----------+---------+----------+--------------+----------+-----------+----------+--------------+
| Convertible loan | (ii) | USD | | LIBOR+6 | | 47,892 | | - | | - |
| received from | | | | | | | | | | |
| Jenington | | | | | | | | | | |
+------------------+-------+----------+----------+---------+----------+--------------+----------+-----------+----------+--------------+
| Convertible |(iii) | USD | | 10.0 | | 19,783 | | - | | - |
| loans received | | | | | | | | | | |
| from | | | | | | | | | | |
| Gold Lion | | | | | | | | | | |
| Holdings Limited | | | | | | | | | | |
+------------------+-------+----------+----------+---------+----------+--------------+----------+-----------+----------+--------------+
| Secured bank | (iv) | KZT | | 16.0 | | 1,854 | | 16.0 | | 7,361 |
| loan | | | | | | | | | | |
+------------------+-------+----------+----------+---------+----------+--------------+----------+-----------+----------+--------------+
| Secured bank | (iv) | USD | | 13.75 | | 4,751 | | 10.0-11.0 | | 16,899 |
| loan | | | | | | | | | | |
+------------------+-------+----------+----------+---------+----------+--------------+----------+-----------+----------+--------------+
| Unsecured bank | (v) | USD | | 11.0 | | 4,348 | | - | | - |
| loan | | | | | | | | | | |
+------------------+-------+----------+----------+---------+----------+--------------+----------+-----------+----------+--------------+
| Bonds | (vi) | KZT | | n/a | | - | | 10.4 | | 23,010 |
+------------------+-------+----------+----------+---------+----------+--------------+----------+-----------+----------+--------------+
| | | | | | | | | | | |
+------------------+-------+----------+----------+---------+----------+--------------+----------+-----------+----------+--------------+
| Total | | | | | | 278,628 | | | | 244,578 |
+------------------+-------+----------+----------+---------+----------+--------------+----------+-----------+----------+--------------+
| | | | | | | | | | | |
+------------------+-------+----------+----------+---------+----------+--------------+----------+-----------+----------+--------------+
| Less: Current | | | | | | (257,816) | | | | (41,306) |
| portion due | | | | | | | | | | |
| within twelve | | | | | | | | | | |
| months | | | | | | | | | | |
+------------------+-------+----------+----------+---------+----------+--------------+----------+-----------+----------+--------------+
| | | | | | | | | | | |
+------------------+-------+----------+----------+---------+----------+--------------+----------+-----------+----------+--------------+
| Long-term | | | | | | 20,812 | | | | 203,272 |
| borrowings | | | | | | | | | | |
+------------------+-------+----------+----------+---------+----------+--------------+----------+-----------+----------+--------------+
Summary of borrowing agreements
(i) Guaranteed senior notes
In November 2006, the Company issued USD 200,000 thousand 9.375% senior notes
(the "Notes"). The Notes were issued at par with an interest payable
semi-annually in arrear on 6 May and 6 November of each year, and the principal
due on 6 November 2013. At the date of issuance the Notes were unconditionally
and irrevocably guaranteed by JSC "MMC Kazakhaltyn" and its subsidiaries.
On
30 July 2009 Jenington International Inc. ("Jenington"), a subsidiary of Polyus
Gold acquired 50.2% of issued shares of KazakhGold Group Limited. As a result of
the acquisition Polyus Gold
has become an additional limited liability
guarantor of the Notes.
The Group is obliged to comply with a number of restrictive financial and other
covenants, including maintaining of certain financial ratios and required
issuance of KazakhGold IFRS consolidated financial statements. At 31 December
2009 the Group is not in compliance with all the covenants, and accordingly, the
Notes are classified as current. By the date of issuance of the consolidated
financial statements, the Group did not receive any enforcement notice from the
bondholders regarding earlier redemption.
(ii) Loan received from Jenington
On 14 August 2009, the Company signed a USD 50,000 thousand unsecured loan
agreement with Jenington. The loan agreement has a floating rate of LIBOR+6% per
annum. The principal amount together with accrued interest are payable when the
Company completes a capital raising of
USD 100,000 thousand. The principal
amount of the loan together with accrued interest can be converted by Jenington
into the Company's ordinary shares at a rate of USD 1.5 per one share at any
point during the life of the loan. Conversion right may be exercised by
Jenington at any date following the loan agreement date and is subject to
several restrictions, including regulatory approval from
the Government of
the Republic of Kazakhstan.
The net proceeds received under the convertible loan agreement have been split
between a liability element and an equity component, representing the residual
attributable to the option (option premium) to convert the liability into equity
of the Group, as follows:
+----------------------------------+---------+--+---------+--+----------+
| Proceeds from issue | | | | | 49,310 |
+----------------------------------+---------+--+---------+--+----------+
| Fair value of liability | | | | | (47,083) |
| component at date of issue | | | | | |
+----------------------------------+---------+--+---------+--+----------+
| | | | | | |
+----------------------------------+---------+--+---------+--+----------+
| Equity component | | | | | 2,227 |
+----------------------------------+---------+--+---------+--+----------+
The interest charged for the period is calculated by applying an effective
interest rate of 14.5%.
(iii) Loans received from Gold Lion Holdings Limited
On 11 June 2009, the Company signed two loan agreements with Gold Lion Holdings
Limited,
a related party. The loan agreements have a 10% interest rate per
annum. Principal amounts of
USD 21,650 thousand and USD 9,375 thousand
together with accrued interests are payable on
6 November 2014. Until their
maturity date, these loans are convertible wholly or in part into
the
Company's ordinary shares at a rate of USD 1.5 per one share. Conversion is
subject to several restrictions, including Republic of Kazakhstan regulators
approval and approval from the Company. In June 2009 Gold Lion Holdings Limited
granted the call option to Jenington, or any other direct of indirect subsidiary
of Polyus Gold to acquire all rights and interests under these loan agreements,
including the conversion right.
The net proceeds received under the convertible loan agreements have been split
between
a liability element and an equity component, representing the
residual attributable to the option to convert the liability into equity of the
Group, as follows:
+----------------------------------+---------+--+---------+--+----------+
| Proceeds from issue | | | | | 31,025 |
+----------------------------------+---------+--+---------+--+----------+
| Fair value of liability | | | | | (17,654) |
| component at date of issue | | | | | |
+----------------------------------+---------+--+---------+--+----------+
| | | | | | |
+----------------------------------+---------+--+---------+--+----------+
| Equity component | | | | | 13,371 |
+----------------------------------+---------+--+---------+--+----------+
The interest charged for the period is calculated by applying an effective
interest rate of 22.1%.
(iv) Secured bank loans
In 2009, a subsidiary of the Group obtained a USD 4,751 thousand secured loan
denominated in USD from JSC SB "Sberbank" at a fixed rate of 13.75% per annum.
The loan is to be repaid on
5 December 2010. Interest is payable monthly.
In 2009, a subsidiary of the Group obtained a USD 1,854 thousand secured loan
denominated in KZT from JSC "Kazkommertsbank" ("KKB") at a fixed rate of 16.00%
per annum. The principal amount of the loan is to be repaid on a quarterly basis
until 6 March 2012. Interest is payable quarterly.
(v) Unsecured bank loan
In 2009, a subsidiary of the Group obtained a USD 4,348 thousand unsecured loan
denominated in USD from JSC SB "HSBC Bank Kazakhstan" at a fixed rate of 11% per
annum. The loan is to be repaid on 16 October 2010. Interest is payable monthly.
(vi) Bonds
Unsecured coupon bonds issued by a subsidiary of the Group on the Kazakhstan
Stock Exchange were fully repaid in June 2009.
Pledges
Property, plant and equipment with book value of USD 20,510 thousand were
pledged to secure borrowings.
17. ENVIRONMENTAL OBLIGATIONS
Decommissioning obligations
+------------------------------------+---------+--+---------+
| | 2009 | | 2008 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Balance at beginning of the year | 17,203 | | 15,394 |
+------------------------------------+---------+--+---------+
| Change in estimate | (3,934) | | - |
+------------------------------------+---------+--+---------+
| Unwinding of discount on | 1,230 | | 1,102 |
| decommissioning obligations | | | |
+------------------------------------+---------+--+---------+
| Effect of translation to | (2,643) | | 707 |
| presentation currency | | | |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Balance at end of the year | 11,856 | | 17,203 |
+------------------------------------+---------+--+---------+
Provision for land restoration
+------------------------------------+---------+--+---------+
| | 2009 | | 2008 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Balance at beginning of the year | 2,903 | | 1,366 |
+------------------------------------+---------+--+---------+
| New obligations raised | - | | 1,383 |
+------------------------------------+---------+--+---------+
| Change in estimate | (1,087) | | - |
+------------------------------------+---------+--+---------+
| Unwinding of discount on provision | 162 | | 6 |
| for land restoration | | | |
+------------------------------------+---------+--+---------+
| Effect of translation to | (478) | | 148 |
| presentation currency | | | |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Balance at end of the year | 1,500 | | 2,903 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Total environmental obligations | 13,356 | | 20,106 |
+------------------------------------+---------+--+---------+
The principle assumptions used for the estimation of environmental obligations
were as follows:
+------------------------------------+---------+--+---------+
| | 2009 | | 2008 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Discount rates, % | 12.0 | | 12.0 |
+------------------------------------+---------+--+---------+
| Expected mine closure dates | 2032 | | 2032 |
+------------------------------------+---------+--+---------+
18. other non-current liabilities
+------------------------------------+---------+--+---------+
| | 2009 | | 2008 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Bank guarantee liability | 11,014 | | - |
+------------------------------------+---------+--+---------+
| Historical costs liability | 4,512 | | 4,029 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Total | 15,526 | | 4,029 |
+------------------------------------+---------+--+---------+
Bank guarantee liability
In April 2006, the Group entered into a contractual arrangement to guarantee a
credit facility of
USD 15,000 thousand provided by "Kazkommertsbank" ("KKB")
to "Akir Group" LLP, a former related party to the Group. That credit facility
has a maturity date of 4 April 2013. Funds received from the credit facility
were used by "Akir Group" to acquire mining and other equipment which was
subsequently leased to the Group under finance lease agreements concluded during
2006-2007.
In 2009, "Akir Group" LLP defaulted on loan agreement with KKB of USD 13,249
thousand (including current portion of the loan in the amount of USD 2,235
thousand). The Group has fully provided for potential losses related to this
guarantee liability at 31 December 2009.
Historical costs liability
The Group is obligated to reimburse the Government of the Republic of Kazakhstan
the amount of
USD 8,991 thousand for the historical cost of geological
studies performed in respect to the Group's subsoil use contracts. The
historical cost of geologic studies is expected to be repaid in 10 equal annual
instalments, commencing from 2011 subject to approval from the appropriate
governmental authority. The amount was discounted at a rate of 12% per annum to
arrive to the net present value of the liability.
+-------------------------------------------+----------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Balance at beginning of the year | 4,029 | | 3,597 |
+-------------------------------------------+----------+--+----------+
| Unwinding of discount | 483 | | 432 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Balance at end of the year | 4,512 | | 4,029 |
+-------------------------------------------+----------+--+----------+
19. Trade, Other payables and accrued expenses
+------------------------------------+---------+--+---------+
| | 2009 | | 2008 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Trade payables to third parties | 1,771 | | 14,976 |
+------------------------------------+---------+--+---------+
| Other payables | 15,851 | | 4,800 |
+------------------------------------+---------+--+---------+
| Accrued expenses | 3,046 | | 924 |
+------------------------------------+---------+--+---------+
| | | | |
+------------------------------------+---------+--+---------+
| Total | 20,668 | | 20,700 |
+------------------------------------+---------+--+---------+
In 2009, the credit period for trade and other payables was 30-45 days (2008:
30-60 days).
There was no interest charged on the outstanding payables balance
during the credit period.
The Group has financial risk management policies
in place, which include budgeting and analysis of cash flows and payments
schedules to ensure that all amounts payable are settled within the credit
period.
20. RELATED PARTIES
Related parties include shareholders, entities under common ownership and
control with the Group and companies presumed by management to be under control
of members of the Company's Board of Directors. In 2009 the Company and its
subsidiaries entered into transactions with related parties in relation to the
provision of financing agreements from its parent entities or entities under
common ownership and in 2008 into transactions for other services.
As a result of change of shareholders of the Company, Polyus Gold and its
subsidiaries became related parties to the Group from 30 July 2009.
As at 31 December 2009 and 2008, the Group had the following outstanding
balances with related parties:
+-------------------------------------------+----------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Jenington | | | |
+-------------------------------------------+----------+--+----------+
| Borrowings | 47,892 | | - |
+-------------------------------------------+----------+--+----------+
| Interest payable | 644 | | - |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Gold Lion Holdings Limited | | | |
+-------------------------------------------+----------+--+----------+
| Borrowings | 19,783 | | - |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Total | 68,319 | | - |
+-------------------------------------------+----------+--+----------+
The amounts outstanding were unsecured and are expected to be settled in cash.
During the years ended 31 December 2009 and 2008, the Group entered into the
following transactions with related parties:
+-------------------------------------------+----------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Jenington | | | |
+-------------------------------------------+----------+--+----------+
| Loans received | 49,310 | | - |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Gold Lion Holdings Limited | | | |
+-------------------------------------------+----------+--+----------+
| Loans received | 31,025 | | - |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Entities under common ownership and | | | |
| control with the Group | | | |
+-------------------------------------------+----------+--+----------+
| Construction, repair, maintenance and | - | | 158,417 |
| exploration works expensed (refer to Note | | | |
| 2). | | | |
+-------------------------------------------+----------+--+----------+
Loans were provided from related parties at the rates from LIBOR+6% to 10%.
Compensation of key management personnel
+-------------------------------------------+----------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Short-term employee benefits | 2,546 | | 4,974 |
+-------------------------------------------+----------+--+----------+
| Equity-settled share based payments | - | | 93 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Total | 2,546 | | 5,067 |
+-------------------------------------------+----------+--+----------+
21. CONTINGENCIES
Capital commitments
The Group's budgeted capital expenditures for the year ended 31 December 2010
amounted to
USD 62,068 thousand, including USD 2,372 thousand of contractual
capital commitments.
Contractual obligations in the Republic of Kazakhstan
The Group's subsoil use rights are not granted in perpetuity, and any renewal
must be approved
before the expiration of the relevant subsoil use contract
or license. These rights may be terminated by
the Kazakhstan Government (the
"Government") if the Group does not fulfil its contractual obligations.
Management of the Group believes it fulfilled all the contractual obligations
during the year ended
31 December 2009.
Pursuant to the subsurface use contracts ("SSU") contracts the Group has
committed to the following contractual obligations:
(?) Minimum working program
The Group approved a minimum working program for exploration ("MWP") which can
be updated on a periodic basis due to the economic and operating conditions of
the fields. Each year the Group agrees the annual working program ("AWP") with
the Ministry of the Energy and Mineral Resources of
the Republic of
Kazakhstan. According to the AWP, the mining expenditures for 2009, which were
agreed, were USD 4,571 thousand. In 2009 mining expenditures amounted to USD
4,260 thousand. Management of the Group believes that the Group is in compliance
with this requirement.
(b) Training of local staff
The Group is obliged to finance on an annual basis professional training of its
Kazakhstan personnel. Actual obligations materialise over the passage of time
and, as such, the Group recognises such expenses in the consolidated income
statement as they are incurred. The management believes that the Group fulfilled
this obligation as at 31 December 2009.
(c) Social programs
The Group is obliged to participate in development of the social programs of the
contract territory and to transfer for development of social sphere of Eastern
Kazakhstan and Akmola regions amounts agreed with local authorities. Actual
obligations materialise over the passage of time and, as such,
the Group
recognises such expenses in the consolidated income statement as they are
incurred.
(d) Environmental matters
The Group is subject to various environmental laws and regulations of the
Republic of Kazakhstan. While management believes that substantial compliance
with such laws and regulations has been achieved, there can be no assurance that
contingent liabilities do not exist.
According to the SSU contracts #2526 and #2527, the Group is obliged to finance
environmental works related to the projects. The Group's management believes
that its mining and production technologies are in compliance with the existing
environmental legislation in the countries in which it operates. However,
environmental laws and regulations continue to evolve. The Group is unable to
predict the timing or extent to which those laws and regulations may change.
Such change, if it occurs, may require that the Group modernise technology to
meet more stringent standards.
Litigation
The Group has a number of insignificant claims and litigation relating to sales
and purchases of goods and services from suppliers. Management believes that
none of these claims, individually or in aggregate, will have a material adverse
impact on the Group.
Compliance with licenses
The business of the Group depends on the continuing validity of its licenses,
particularly subsoil licenses for the Group's exploration and mining operations,
the issuance of new licences and the Group's compliance with the terms of its
licenses. Kazakhstan regulatory authorities exercise considerable discretion in
the timing of licenses issuances and renewals and the monitoring of a licensee's
compliance with the terms of a license. Requirements imposed by these
authorities, including requirements to comply with numerous industrial
standards, recruit qualified personnel and subcontractors, maintain necessary
equipment and quality control systems, monitor the operations of the Group,
maintain appropriate filings and, upon request, submit appropriate information
to
the licensing authorities, may be costly and time-consuming and may
result in delays in the commencement or continuation of exploration or
production operations. Accordingly, licenses that may be needed for the
operations of the Group may be invalidated or may not be issued or renewed, or
if issued or renewed, may not be issued or renewed in a timely fashion.
The legal and regulatory basis for the licensing requirements is subject to
frequent change, which increases the risk that the Group may be found in
non-compliance. In the event that the licensing authorities discover a material
violation by the Group, the Group may be required to suspend its operations or
incur substantial costs in eliminating or remediating the violation, which could
have a material adverse effect on the Group's business and financial condition.
On 15 October 2005, new changes were introduced to the Subsoil Use Law of the
Republic of Kazakhstan. Those changes stipulate that assignments, transfers and
amendments of subsoil use rights may be made only with the prior consent of the
Ministry of Energy and Mineral Resources of the Republic of Kazakhstan (except
when such assignment or transfer is to a subsidiary of the subsoil user in
question or is as a result of a reorganization of the subsoil user whereby its
legal successor assumes all its rights and obligations). The Government has a
pre-emption right in respect of a transfer of any part of the subsoil use rights
and of a participation share (shares) in the legal entity holding such subsoil
use rights for assets in the Republic of Kazakhstan, provided that the terms and
conditions (upon which such pre-emption right may be exercised) are not less
favourable than those on which the proposed transferee is prepared to assume
such subsoil use rights.
Insurance
The insurance industry in the Republic of Kazakhstan is in a developing state
and many forms of insurance protection common in other parts of the world are
not yet generally available. The Group has the following insurance coverage:
· insurance of the Group's plant facilities, in respect of natural
disasters, fire, flood and theft;
· coverage for the Group's plant facilities and third party liability in
respect of property or environmental damage arising from accidents on Group's
property or relating to Group's operations;
· civil liability of owners of vehicles; and
· employer's legal liability for all employees of the Group.
The Group has not yet obtained coverage for business interruption.
Taxation contingencies in the Republic of Kazakhstan
The taxation system in Kazakhstan is relatively new and is characterised by
frequent changes in legislation, official pronouncements and court decisions,
which are often unclear, contradictory and subject to varying interpretation by
different tax authorities. Taxes are subject to review and investigation by
various levels of authorities, which have the authority to impose severe fines,
penalties and interest charges. A tax year generally remains open for review by
the tax authorities for ten subsequent calendar years under newly amended tax
law but under certain circumstances a tax year may remain open longer.
These circumstances may create tax risks in Kazakhstan that are more significant
than in other countries. Management believes that it has provided adequately for
tax liabilities based on its interpretations of applicable tax legislation,
official pronouncements and court decisions. However, the interpretations of the
relevant authorities could differ and the effect on these consolidated financial
statements, if the authorities were successful in enforcing their
interpretations, could be significant.
Stability of applicable tax regime
Subsoil use contracts in Kazakhstan have traditionally always contained tax
terms that reflected
the tax law in effect when the contract was signed, and
these tax terms were "stabilised," meaning that they were to remain in effect
for the life of the contract, regardless of how tax law changed over time. All
subsoil use contracts of the Group have been stabilised.
In 2008, Kazakhstan enacted a new tax law which came into effect on 1 January
2009. Only production sharing agreements and concessionary agreements with a tax
regime approved by a legislative act of the Kazakhstan Parliament are to retain
their tax stability. The Group's subsoil use contracts do not fall within either
of these two categories and the tax regime applicable to these subsoil use
contracts may therefore change.
Republic of Kazakhstan tax laws
A new tax law which took effect in Kazakhstan from 1 January 2009 serves as the
source of tax legislation that governs the Group's contractual subsoil use
operations. The following are some of the more substantial changes in the law:
· the tax law introduces the concept of constructive dividends. In
particular, amounts paid between affiliated entities for services in excess of
market prices may be treated as constructive dividends;
· the tax statute of limitations period is five years except that, for
some subsoil users, the tax statute of limitations period is equal to the
duration of their subsoil contract plus five years following the expiration of
the subsoil use contract;
· starting from 2010, the excess of an input value added tax ("VAT") may
be used to settle
the taxpayer's liabilities for other taxes, fines and
penalties. The remaining VAT input balance is then refunded;
· the corporate income tax rate is 20% in 2009 and will reduce to 17.5% in
2013 and 15% starting from 2014;
· income as the result of a revaluation of assets performed for book
purposes is not regarded as taxable income;
· the gain on the sale of an enterprise is defined as the excess of the
selling price over net book value of the enterprise's net assets (assets less
the enterprise's debt);
· interest paid on a loan from any lender unrelated to the borrower is
deductible in full, regardless of the residency of the lender. Interest paid on
loans from related lenders and lenders residing in tax havens are subject to
limitation;
· tax losses can be carried forward for 10 years;
· gains on disposals of shares and ownership stakes in a Kazakh subsoil
user or any entity deriving more than 50% of its value from the property of a
Kazakh subsoil user are taxable at the source of payment, even if the buyer is
not a registered taxpayer in Kazakhstan. The seller must inform the buyer of its
tax basis to enable the buyer to determine the gain, or the gain is subject to
income tax withholding by the buyer. If the buyer fails to withhold and remit
the tax, the tax authorities can collect the tax from the Kazakh entity whose
stakes are being sold or
the Kazakh subsoil user whose property produces the
value of the stakes being sold. However, gains on sales of stock sold on a stock
exchange are exempt from income tax in Kazakhstan;
· tax law introduces a new tax on subsoil users: a mineral extraction tax.
This tax applies to
the value or volume of extracted hydrocarbons, metals,
coal and other minerals; and
· VAT rate reduces to 12% and the social tax rate is a flat 11% for both
Kazakh and foreign employees. Starting from 2009, property tax is levied on
taxpayers' immovable property at
a rate of 1.5%.
The Group has not yet evaluated the potential impact of the above changes to its
financial performance and position apart from deferred tax assets and
liabilities, which have been assessed incorporating estimated tax rates from 20%
to 17.5% and 15% depending upon the future periods in which
the respective
timing differences will be deductible or taxable.
Transfer price legislation
A new transfer price law took effect from 1 January 2009. As before, the new law
primarily applies to cross-border transactions involving sales of goods and
services. In addition, the transfer price law applies to in-country sales and
purchases of goods and services, if these transactions are determined to be
effected not at market price.
Also, the new law eliminated the 10% price safe harbor that existed under the
previous transfer price law (except for sales of agricultural produce).
Accordingly, the tax authorities are now entitled to review prices charged in
any transaction, where the contractual price deviates from the market price by
any percentage.
Environmental matters
The Group is subject to extensive federal, local environmental controls and
regulations in the regions in which it operates. The Group's operations involve
the discharge of materials and contaminants into the environment, disturbance of
land that could potentially impact on flora and fauna, and give rise to other
environmental concerns.
The Group's management believes that its mining and production technologies are
in compliance with the existing environmental legislation in the countries in
which it operates. However, environmental laws and regulations continue to
evolve. The Group is unable to predict the timing or extent to which those laws
and regulations may change. Such change, if it occurs, may require that the
Group modernise technology to meet more stringent standards.
The Group is obliged in terms of various laws, mining licenses and 'use of
mineral rights' agreements to decommission mine facilities on cessation of its
mining operations and to restore and rehabilitate the environment. Management of
the Group regularly reassesses environmental obligations for its operations.
Estimations are based on management's understanding of the current legal
requirements and the terms of the license agreements. Should the requirements of
applicable environmental legislation change or be clarified, the Group may incur
additional environmental obligations.
Republic of Kazakhstan risk
Although in recent years there has been a general improvement in economic
conditions in
the Republic of Kazakhstan, the country continues to display
certain characteristics of an emerging market. These include, but are not
limited to, currency controls and convertibility restrictions, relatively high
level of inflation and continuing efforts by the government to implement
structural reforms.
As a result, laws and regulations affecting businesses in the Republic of
Kazakhstan continue to change rapidly. Tax, currency and customs legislation
within the Republic of Kazakhstan is subject to varying interpretations, and
other legal and fiscal impediments contribute to the challenges faced by
entities currently operating in the Republic of Kazakhstan. The future economic
direction of
the Republic of Kazakhstan is largely dependent upon the
effectiveness of economic, fiscal and monetary measures undertaken by the
government, together with legal, regulatory, and political developments.
22. RISK MANAGEMENT ACTIVITIES
Capital risk management
The Group manages its capital to ensure that entities of the Group will be able
to continue as a going concern. The capital structure of the Group consists of
net debt (borrowings as described in note 16 offset by cash and cash equivalents
(disclosed in note 14) and equity of the Group (comprising issued share capital,
reserves, accumulated losses and minority interest).
Major categories of financial instruments
The Group's principal financial liabilities comprise borrowings, trade and other
payables, obligations under finance lease and other non-current liabilities. The
main purpose of these financial instruments is to raise finance for the Group's
operations. The Group financial assets represent mainly trade and other
receivables, cash and cash equivalents and investments in securities.
+-------------------------------------------+----------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Financial assets | | | |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Loans and receivables, including cash and | | | |
| cash equivalents | | | |
+-------------------------------------------+----------+--+----------+
| Cash and cash equivalents | 3,531 | | 13,966 |
+-------------------------------------------+----------+--+----------+
| Trade and other receivables | 2,124 | | 6,591 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Total financial assets | 5,655 | | 20,557 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Financial liabilities | | | |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Borrowings | 278,628 | | 244,578 |
+-------------------------------------------+----------+--+----------+
| Trade payables | 1,771 | | 14,976 |
+-------------------------------------------+----------+--+----------+
| Other payables | 15,851 | | 4,800 |
+-------------------------------------------+----------+--+----------+
| Obligations under finance leases | - | | 1,938 |
+-------------------------------------------+----------+--+----------+
| Other non-current liabilities | 15,526 | | 4,029 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Total financial liabilities | 311,776 | | 270,321 |
+-------------------------------------------+----------+--+----------+
The main risks arising from the Group's financial instruments are commodity
price, interest rate, foreign currency, credit and liquidity risks. Due to the
fact that the Group has no investments in equity securities at 31 December 2009,
management believes that the Group is not exposed to equity investments price
risk.
Fair value of financial instruments
Management believes that the carrying values of financial assets (refer to notes
12 and 14) and financial liabilities (refer to notes 16, 18 and 19) recorded at
amortised cost in the consolidated financial statements approximate their fair
values due to their short-term nature, except for
the fair value of the
Company's Senior Notes, which fair value at the reporting date was
USD
201,000 thousand (2008: USD 96,000 thousand) based on the mid market price
as
quoted on the Luxembourg Stock Exchange.
Commodity price risk
Commodity price risk is the risk that the Group's current or future earnings
will be adversely impacted by changes in the market price of gold. A decline in
gold prices could result in a decrease in profit and cash flows. Management of
the Group regularly monitors gold price, market forecasts and believes that the
current trend of price increase will continue in the future.
The Group does not enter into any hedging contracts or use other financial
instruments to mitigate
the commodity price risk.
Interest rate risk
Interest rate risk is the risk that changes in interest rates will adversely
impact the financial results of the Group. The Group's interest rate risk arises
from borrowings at floating rates. The effect of interest rate risk is
considered insignificant by the management as most of its borrowings are at
fixed rates.
Foreign currency risk
Foreign currency risk is the risk that the financial results of the Group will
be adversely affected by changes in exchange rates to which the Group is
exposed. The Group undertakes certain transactions denominated in foreign
currencies. All revenues are denominated in USD, whereas the majority of
the
Group's expenditures are denominated in KZT. Accordingly, operating profits are
adversely impacted by appreciation of KZT against USD.
The carrying amounts of monetary assets and liabilities denominated in foreign
currencies other than functional currencies of the individual Group entities at
31 December 2009 and 2008 were as follows:
+------------------+----------+--+----------+--+----------+--+----------+
| | Assets | | Liabilities |
+------------------+------------------------+--+------------------------+
| | 2009 | | 2008 | | 2009 | | 2008 |
+------------------+----------+--+----------+--+----------+--+----------+
| | | | | | | | |
+------------------+----------+--+----------+--+----------+--+----------+
| USD | 4,274 | | 11,602 | | 281,286 | | 228,120 |
+------------------+----------+--+----------+--+----------+--+----------+
| GBP | - | | 181 | | - | | 7,009 |
+------------------+----------+--+----------+--+----------+--+----------+
| | | | | | | | |
+------------------+----------+--+----------+--+----------+--+----------+
| Total | 4,274 | | 11,783 | | 281,286 | | 235,129 |
+------------------+----------+--+----------+--+----------+--+----------+
Currency risk is monitored by performing sensitivity analysis in order to verify
that the potential loss is at an acceptable level.
The table below details the Group's sensitivity to changes of exchange rates of
the KZT to USD
and GBP by 10% which is the sensitivity rate used by the
Group for internal reporting purposes.
The analysis was applied to monetary
items at the reporting dates denominated in respective currencies.
+-------------------------------------------+----------+--+----------+
| | 2009 | | 2008 |
+-------------------------------------------+----------+--+----------+
| | | | |
+-------------------------------------------+----------+--+----------+
| Profit or loss (KZT to USD) | 27,701 | | 21,652 |
+-------------------------------------------+----------+--+----------+
| Profit or loss (KZT to GBP) | - | | 683 |
+-------------------------------------------+----------+--+----------+
Credit risk
Credit risk is the risk that a counterparty may default or not meet its
obligations to the Group on
a timely basis, leading to financial losses to
the Group. Credit risk arises from cash and cash equivalents, trade and other
receivables and advances paid to suppliers.
Prior to dealing with a new counterparty, management assesses the credit
worthiness and liquidity of the counterparty.
Although the Group sells substantially all the gold produced to two major
customers, the Group is not economically dependant on these customers because of
the high level of liquidity in the gold commodity market. Buyers of gold are
required to make advance payments, therefore credit risk related to trade
receivables is minimal. At 31 December 2009 the Group had USD 1,359 thousand of
outstanding trade receivables from gold sales (31 December 2008: USD 957
thousand). Gold sales to the Group's two major customers, individually exceeding
10% of the Group's gold sales, amounted to USD 57,402 thousand (2008: USD 48,793
thousand).
Other receivables include amounts receivable from sales of other than
gold-bearing goods and services. The procedures of accepting a new customer
include check by a security department and responsible on-site management for a
business reputation, licenses and certification, credit worthiness and
liquidity.
Management of the Group believes that there is no other significant
concentration of credit risk.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to settle all
liabilities as they are due.
The Group's liquidity position is carefully
monitored and managed. The Group manages liquidity risk by maintaining detailed
budgeting, cash forecasting process and matching the maturity profiles of
financial assets and liabilities to help ensure that it has adequate cash
available to meet its payment obligations.
The maturity profile of the Group's financial liabilities at 31 December 2009
and 2008 based on contractual payments is presented below:
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| 2009 | Total | | Due | | Due | | Due | | Due | | Due | | Due | | Due | | Due |
| | | | within | | from | | from | | in | | in | | in | | in | | in |
| | | | three | | three | | six | | the | | the | | the | | the | | thereafter |
| | | | months | | to | | to | | second | | third | | fourth | | fifth | | |
| | | | | | six | | twelve | | year | | year | | year | | year | | |
| | | | | | months | | months | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Borrowings, including: |
+-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Principle | 289,870 | | 200,206 | | 48,098 | | 9,512 | | 823 | | 206 | | - | | 31,025 | | - |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Interest | 24,105 | | 1,105 | | 1,105 | | 565 | | 297 | | 53 | | - | | 20,980 | | - |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Other non-current liabilities, including: |
+-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Principle | 20,005 | | - | | - | | - | | 11,583 | | 1,229 | | 899 | | 899 | | 5,395 |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Trade and other payables, including: |
+-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Principle | 17,622 | | 4,316 | | 8,018 | | 5,288 | | - | | - | | - | | - | | - |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Total | 351,602 | | 205,627 | | 57,221 | | 15,365 | | 12,703 | | 1,488 | | 899 | | 52,904 | | 5,395 |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| 2008 | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Borrowings, including: |
+-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Principle | 247,270 | | 18,296 | | - | | 23,010 | | 5,964 | | - | | - | | 200,000 | | - |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Interest | 92,623 | | 1,016 | | 9,742 | | 9,742 | | 18,750 | | 18,750 | | 18,750 | | 15,873 | | - |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Obligations under finance leases, including: |
+-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Principle | 1,938 | | 568 | | - | | - | | 1,370 | | - | | - | | - | | - |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Interest | 192 | | 73 | | - | | - | | 119 | | - | | - | | - | | - |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Other non-current liabilities, including: |
+-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Principle | 8,991 | | - | | - | | - | | - | | 899 | | 899 | | 899 | | 6,294 |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Trade and other payables, including: |
+-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Principle | 19,776 | | 16,179 | | 2,865 | | 732 | | - | | - | | - | | - | | - |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| | | | | | | | | | | | | | | | | | |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
| Total | 370,790 | | 36,132 | | 12,607 | | 33,484 | | 26,203 | | 19,649 | | 19,649 | | 216,772 | | 6,294 |
+-----------+---------+----------+---------+----------+--------+----------+--------+----------+--------+----------+--------+----------+--------+----------+---------+----------+------------+
23. SUBSEQUENT events
In 2010, without notification to the Group, KKB confiscated USD 3,907 thousand
from the Group's current bank account as a result of "Akir Group" LLP's default
on its loan in the amount of
USD 13,249 thousand (Note 18).
In February 2010, the Company signed a convertible loan agreement with its
shareholder, Jenington International Inc., a wholly owned subsidiary of Polyus
Gold. Under the loan agreement
the Company may obtain up to USD 50,000
thousand. The principal amount of the loan together with accrued interest at the
rate 9.27% per annum is payable in nine months after the date of the agreement.
The Company has an option to convert the loan and accrued interest into its
shares or GDRs at the price equal to the average of the closing prices of GDRs
on London Stock Exchange for the period of
20 trading days ending on a trading
day immediately preceding the date on which the conversion notice is provided to
Jenington.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR KKCDPBBKDKQB
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