TORONTO, Aug. 8, 2019 /CNW/ - Avesoro Resources Inc. ("Avesoro" or the "Company"), the TSX and AIM listed West African gold producer announces the release of its unaudited Financial Statements ("FS") and Management's Discussion and Analysis ("MD&A") for the quarter (the "Quarter" or "Q2") and six months ("H1") ended June 30, 2019.
Serhan Umurhan, Chief Executive Officer of Avesoro, commented: "Following the operational transition to contractor mining at both New Liberty and Youga during the second quarter of this year, we expect to benefit from various operational and cost improvements, including increased material movement at both mines during the second half of 2019.
Whilst some aspects of the transition were challenging for the operations in the Quarter and have as a consequence adversely affected our financial performance, I am confident that the decision will ultimately drive a stronger production performance in H2 2019.
However, as a result of heavy rain in recent days at New Liberty ore mining has temporarily ceased and we anticipate that it will be ten days before the pit has been adequately dewatered to enable ore mining to recommence. We are currently assessing the impact of the stoppage on the business and our capacity to recover lost ore production later in the year to maintain our production guidance of 180,000 to 200,000 ounces of gold for 2019.
We now look forward to a solid second half of the year, in which we will focus on a stronger operational performance across the business and the continued progression of our transition to underground mining at the New Liberty Gold Mine."
Financial & Operational Highlights:
H1 2019
Gold production of 79,436 ounces from the New Liberty Gold Mine in Liberia ("New Liberty") and Youga Gold Mine in Burkina Faso ("Youga");
Company revenues of US$107.9 million from gold sales of 82,277 ounces at an average realised gold price of US$1,308 per ounce;
Consolidated operating cash costs1 of US$1,006 per ounce sold in H1;
Consolidated all in sustaining costs1 ("AISC") of US$1,291 per ounce sold in H1;
Company EBITDA margin of 11% with EBITDA1 of US$11.6 million;
Net operating cash flows of US$10.1 million;
Cash of US$4.4 million and gross debt of US$138.3 million at June 30, 2019; and
The Company expects unit costs to trend downwards in line with the scheduled increase in the production profile in H2 2019.
Q2 2019
Gold production of 34,338 ounces in the Quarter, a decrease of 24% on the previous quarter, as a result of processing low grade mill feed at Youga and operational stoppages associated with the transition to contractor mining operations at both the New Liberty and Youga gold mines;
Company revenues of US$48 million from gold sales of 36,467 ounces at an average realised gold price of US$1,313 per ounce;
Consolidated operating cash costs1 of US$1,125 per ounce sold in Q2;
Consolidated AISC1 of US$1,469 per ounce sold in Q2;
Company EBITDA margin of 4%, with EBITDA1 of US$2.1 million in the Quarter; and
Net operating cash flows of US$5.0 million in the Quarter.
Notes: 1 See "Non-GAAP Financial Measures";
Table 1: Consolidated Financial Highlights
Metric
Q2 2019
Q1 2019
Q2 2019 vs Q1 2019
H1 2019
H1 2018
H1 2019 vs H1 2018
Gold production, oz
34,338
45,098
-24%
79,436
128,319
-38%
Gold sold, oz
36,467
45,810
-20%
82,277
125,838
-35%
Operating cash costs* US$/oz sold
1,125
911
23%
1,006
658
53%
All in sustaining costs US$/oz sold
1,469
1,149
28%
1,291
932
39%
Average realised gold price, US$/oz
1,313
1,304
1%
1,308
1,315
-1%
Revenues, US$m
48.0
59.9
-20%
107.9
165.9
-35%
EBITDA, US$m
2.1
9.5
-78%
11.6
64.6
-82%
EBITDA margin
4%
16%
-73%
11%
39%
-72%
Cash flow from/(used in) operations, US$m
5.0
5.1
2%
10.1
47.9
-79%
Capital expenditure, US$m
5.6
7.9
-29%
13.5
26.8
-50%
Cash, US$m
4.4
9.3
-53%
4.4
12.7
-65%
Gross Debt, US$m
138.3
138.8
0%
138.3
134.5
3%
Table 2: Key Operations Financial Highlights
Metric
Q2 2019
Q1 2019
Q2 2019 vs Q1 2019
H1 2019
H1 2018
H1 2019 vs H1 2018
New Liberty
Gold production, oz
18,822
25,855
-27%
44,677
57,678
-23%
Gold sold, oz
19,637
26,323
-25%
45,960
56,661
-19%
Mining cost, US$/t
1.84
1.68
10%
1.75
2.47
-29%
Processing cost, US$/t
20.27
23.65
-14%
22.08
24.53
-10%
Operating cash costs US$/oz sold
1,116
831
34%
953
813
17%
All in sustaining costs US$/oz sold
1,577
1,031
53%
1,264
1,066
19%
Average realised gold price, US$/oz
1,321
1,303
1%
1,311
1,315
0%
Youga
Gold production, oz
15,516
19,243
-19%
34,759
70,641
-51%
Gold sold, oz
16,830
19,487
-14%
36,317
69,177
-48%
Mining cost, US$/t
1.64
1.85
-11%
1.75
2.11
-17%
Processing cost, US$/t
16.45
18.87
-13%
17.63
19.14
-8%
Operating cash costs US$/oz sold
1,149
1,017
13%
1,078
530
103%
All in sustaining costs US$/oz sold
1,234
1,156
7%
1,192
767
55%
Average realised gold price, US$/oz
1,304
1,305
0%
1,305
1,321
-1%
Outlook
Following the operational transition to contractor mining during the second quarter of 2019, the Company expects to see an increase in material movement at both New Liberty and Youga throughout the second half of 2019, which is in turn expected to translate into increased gold production and a reduction in unit operational costs.
However, heavy rainfall in recent days has resulted in flooding of the main pit and ore mining has temporarily ceased at New Liberty. It is anticipated that it will be ten days before ore mining can recommence. The mining equipment continues to operate on waste stripping and the impact of the ore production stoppage is currently being assessed and in particular, whether the reduction in ore production can be caught up later in the year to maintain production guidance of 180,000 to 200,000 ounces of gold for 2019.
The Company is assessing the impact this will have on the Company's cash flow and the Special Committee will consider this alongside the other initiatives it is pursuing to address the cash shortfall previously announced.
Higher levels of waste stripping will continue at New Liberty for the remainder of the year in order to complete the final open pit pushback and prepare the pit for the development of underground operations. Following the completion of the New Liberty underground Pre-Feasibility Study in March 2019, the Company continues to progress with the technical studies and detailed designs required for the transition to underground mining at the New Liberty Gold Mine, with underground development expected to commence in H1 2020.
Covenant Breach
In July 2019, Avesoro Holdings Limited ("AHL") which is the Company's ultimate parent company and controlled by Mr. Murathan Doruk Günal ("MDG"), the eldest son of the Company's Chairman, reported that it had breached two undertakings contained in the parent company guarantee that AHL has provided to the Company's Lenders Nedbank Limited and FirstRand Bank Limited (collectively the "Lenders") in respect of the Company's bank borrowings as follows:
Late submission of the audited accounts of AHL to the Lenders;
AHL's total equity financial covenant at 31 December 2018 was lower than the required level following an impairment in the carrying value of an asset held by a privately held subsidiary of AHL that is not within the Avesoro Resources Inc. group and accounting losses as a result of non-cash depreciation charges.
The two technical breaches represent events of default by the Company under the cross default provisions of the loan documents and allow the Lenders to accelerate repayment of the bank borrowings before their final maturity date.
AHL and the Company have requested a waiver of the events of default from the Lenders and are currently in discussions with them. The Company is confident that a waiver or suitable alternative remedy can be agreed with the Lenders. However, in the event that these efforts were unsuccessful the AHL parent company guarantee and personal guarantee provided by the Company's Chairman remain in force.
Analyst and Investor Call
The company will be hosting a conference call and webcast for investors and analysts on Thursday, August 8, 2019 at 08:00 EST / 13:00 BST
The access details for the conference call are as follows:
The FS are appended to this announcement. The FS and the accompanying MD&A are available to review at the Company's website, www.avesoro.com and on www.sedar.com.
Non-GAAP Financial Measures
The Company has included certain non-GAAP financial measures in this press release, including operating cash costs, all-in sustaining costs ("AISC") per ounce of gold sold and EBITDA. These non-GAAP financial measures do not have any standardised meaning. Accordingly, these financial measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with International Financial Reporting Standards ("IFRS").
Operating cash costs and AISC are a common financial performance measure in the mining industry but have no standard definition under IFRS. Operating cash costs are reflective of the cost of production.
AISC include operating cash costs, net-smelter royalty, corporate costs, sustaining capital expenditure, sustaining exploration expenditure and capitalised stripping costs. The Company reports cash costs on an ounces of gold sold basis.
The Company calculates EBITDA as net profit or loss for the period excluding finance costs, income tax expense and depreciation. EBITDA does not have a standardised meaning prescribed by IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. EBITDA excludes the impact of cash costs of financing activities and taxes and the effects of changes in working capital balances and therefore is not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate EBITDA differently.
Other companies may calculate these measures differently and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.
About Avesoro Resources Inc.
Avesoro Resources is a West Africa focused gold producer and development company that operates two gold mines across West Africa and is listed on the Toronto Stock Exchange ("TSX") and the AIM market operated by the London Stock Exchange ("AIM"). The Company's assets include the New Liberty Gold Mine in Liberia ("New Liberty") and the Youga Gold Mine in Burkina Faso ("Youga").
New Liberty has an estimated Proven and Probable Mineral Reserve of 17Mt with 1,365,000 ounces of gold grading 2.49g/t and an estimated Measured and Indicated Mineral Resource of 20.47Mt with 1,748,200 ounces of gold grading 2.66g/t and an estimated Inferred Mineral Resource of 3.0Mt with 271,000 ounces of gold grading 2.8g/t. A supporting Technical Report summarising the PFS, prepared in accordance with CIM guidelines, is set out in an NI 43-101 compliant Technical Report dated January 31, 2019 and entitled "NI 43-101 Pre-Feasibility Report, Mineral Resource and Mineral Reserve Update for the New Liberty Gold Mine, Liberia" and is available on SEDAR?at www.sedar.com.
Youga has an estimated Proven and Probable Mineral Reserve of 14.7Mt with 814,900 ounces of gold grading 1.72g/t and a combined estimated Measured and Indicated Mineral Resource of 22.16Mt with 1,189,100 ounces of gold grading 1.67g/t and an Inferred Mineral Resource of 7.6Mt with 377,000 ounces of gold grading 1.5g/t. A Technical Report dated 20 June 2019 prepared in accordance with the requirements of National Instrument 43-101 and entitled " NI 43-101 Technical Report Mineral Resource and Mineral Reserve Update for the Youga Gold Mine, Burkina Faso" is available on SEDAR at www.sedar.com and on the Company's corporate website www.avesoro.com.
For more information, please visit www.avesoro.com
Qualified Persons
The Company's Qualified Person is Mark J. Pryor, who holds a BSc (Hons) in Geology & Mineralogy from Aberdeen University, United Kingdom and is a Fellow of the Geological Society of London, a Fellow of the Society of Economic Geologists and a registered Professional Natural Scientist (Pr. Sci.Nat) of the South African Council for Natural Scientific Professions. Mark Pryor is an independent technical consultant with over 25 years of global experience in exploration, mining and mine development and is a "Qualified Person" as defined in National Instrument 43 -101 "Standards of Disclosure for Mineral Projects" of the Canadian Securities Administrators and has reviewed and approved this press release. Mr. Pryor has verified the underlying technical data disclosed in this press release.
Forward Looking Statements
Certain information contained in this press release constitutes forward looking information or forward-looking statements within the meaning of applicable securities laws. This information or statements may relate to future events, facts, or circumstances or the Company's future financial or operating performance or other future events or circumstances. All information other than historical fact is forward looking information and involves known and unknown risks, uncertainties and other factors which may cause the actual results or performance to be materially different from any future results, performance, events or circumstances expressed or implied by such forward-looking statements or information. Such statements can be identified by the use of words such as "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "would", "project", "should", "believe", "target", "predict" and "potential". No assurance can be given that this information will prove to be correct and such forward looking information included in this press release should not be unduly relied upon. Forward looking information and statements speak only as of the date of this press release.
Forward looking statements or information in this press release include the Company meeting its annual production and cost guidance for 2019 of 180,000 - 200,000 ounces of gold, at an operating cash cost of US$889 to US$960 per ounce sold and an AISC of US$1,152 to US$1,248 per ounce sold, statements regarding the Company's expectation for unit costs to trend downwards in line with the scheduled increase in the production profile in H2 2019, and statements regarding underground development at the New Liberty Gold Mine expected to commence in H1 2020.
In making the forward looking information or statements contained in this press release, assumptions have been made regarding, among other things: general business, economic and mining industry conditions; interest rates and foreign exchange rates; the continuing accuracy of Mineral Resource and Reserve estimates; geological and metallurgical conditions (including with respect to the size, grade and recoverability of Mineral Resources and Reserves) and cost estimates on which the Mineral Resource and Reserve estimates are based; the supply and demand for commodities and precious and base metals and the level and volatility of the prices of gold; market competition; the ability of the Company to raise sufficient funds from capital markets and/or debt to meet its future obligations and planned activities and that unforeseen events do not impact the ability of the Company to use existing funds to fund future plans and projects as currently contemplated; the stability and predictability of the political environments and legal and regulatory frameworks including with respect to, among other things, the ability of the Company to obtain, maintain, renew and/or extend required permits, licences, authorizations and/or approvals from the appropriate regulatory authorities; that contractual counterparties perform as agreed; and the ability of the Company to continue to obtain and retain qualified staff (including employees and contractors) and equipment in a timely and cost-efficient manner to meet its demand.
Actual results could differ materially from those anticipated in the forward-looking information or statements contained in this press release as a result of risks and uncertainties (both foreseen and unforeseen) and should not be read as guarantees of future performance or results and will not necessarily be accurate indicators of whether or not such results will be achieved. These risks and uncertainties include the risks normally incidental to exploration and development of mineral projects and the conduct of mining operations (including exploration failure, cost overruns or increases, and operational difficulties resulting from plant or equipment failure, among others); the inability of the Company to obtain required financing when needed and/or on acceptable terms or at all; risks related to operating in West Africa, including potentially more limited infrastructure and/or less developed legal and regulatory regimes; health risks associated with the mining workforce in West Africa; risks related to the Company's title to its mineral properties; the risk of adverse changes in commodity prices; the risk that the Company's exploration for and development of mineral deposits may not be successful; the inability of the Company to obtain, maintain, renew and/or extend required licences, permits, authorizations and/or approvals from the appropriate regulatory authorities and other risks relating to the legal and regulatory frameworks in jurisdictions where the Company operates, including adverse or arbitrary changes in applicable laws or regulations or in their enforcement; competitive conditions in the mineral exploration and mining industry; risks related to obtaining insurance or adequate levels of insurance for the Company's operations; that Mineral Resource and Reserve estimates are only estimates and actual metal produced may be less than estimated in a Mineral Resource or Reserve estimate; the risk that the Company will be unable to delineate additional Mineral Resources; risks related to environmental regulations and cost of compliance, as well as costs associated with possible breaches of such regulations; uncertainties in the interpretation of results from drilling; risks related to the tax residency of the Company; the possibility that future exploration, development or mining results will not be consistent with expectations; the risk of delays in construction resulting from, among others, the failure to obtain materials in a timely manner or on a delayed schedule; inflation pressures which may increase the cost of production or of consumables beyond what is estimated in studies and forecasts; changes in exchange and interest rates; risks related to the activities of artisanal miners, whose activities could delay or hinder exploration or mining operations; the risk that third parties to contracts may not perform as contracted or may breach their agreements; the risk that plant, equipment or labour may not be available at a reasonable cost or at all, or cease to be available or resign, or in the case of labour, may undertake strike or other labour actions; the inability to attract and retain key management and personnel; and the risk of political uncertainty, terrorism, civil strife, or war in the jurisdictions in which the Company operates, or in neighbouring jurisdictions which could impact on the Company's exploration, development and operating activities.
Although the forward-looking statements contained in this press release are based upon what management believes are reasonable assumptions, the Company cannot provide assurance that actual results or performance will be consistent with these forward-looking statements. The forward looking information and statements included in this press release are expressly qualified by this cautionary statement and are made only as of the date of this press release. The Company does not undertake any obligation to publicly update or revise any forward looking information except as required by applicable securities laws.
Interim Consolidated Statements of Financial Position
(stated in thousands of US dollars)
Unaudited
June 30,
2019
$'000
December 31,
2018
$'000
Assets
Current assets
Cash and cash equivalents
4,403
3,522
Trade and other receivables (Note 6)
22,368
23,759
Inventories (Note 7)
42,083
45,850
Other assets
1,780
1,731
70,634
74,862
Non-current assets
Intangible assets - Exploration and evaluation assets (Note 8)
8,317
6,452
Property, plant and equipment (Note 9)
202,541
224,953
Deferred tax asset
2,821
2,585
Other assets
1,437
1,236
215,116
235,226
Total assets
285,750
310,088
Liabilities
Current liabilities
Borrowings (Note 10)
34,554
17,663
Trade and other payables
63,797
65,909
Income tax payable
1,147
4,333
Lease liability (Note 11)
874
975
Provisions
3,123
3,276
103,495
92,156
Non-current liabilities
Borrowings (Note 10)
101,337
106,137
Lease liability (Note 11)
1,582
2,259
Provisions
10,682
10,939
113,601
119,335
Total liabilities
217,096
211,491
Equity
Share capital (Note 12)
353,686
353,686
Capital contribution
55,597
55,434
Share based payment reserve
9,635
8,987
Acquisition reserve
(33,060)
(33,060)
Cumulative translation reserve
(574)
(456)
Deficit
(320,080)
(289,631)
Equity attributable to owners
65,204
94,960
Non-controlling interest (Note 13)
3,450
3,637
Total equity
68,654
98,597
Total liabilities and equity
285,750
310,088
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Avesoro Resources Inc.
Interim Consolidated Statements of Cash Flows
(stated in thousands of US dollars)
Unaudited
Six months ended
June 30,
2019
Six months ended
June 30,
2018
$'000
$'000
Operating activities
Net (loss)/profit after tax
(30,636)
6,958
Tax for the period
544
9,856
(Loss)/Profit before tax
(30,092)
16,814
Items not affecting cash:
Share-based payments (Note 3)
648
567
Depreciation (Note 9)
35,273
37,171
Unrealized foreign exchange (gain)/loss
(185)
1,125
Interest expense
7,096
7,173
Derivative liability gain
-
(105)
Loss on lease termination
-
566
Changes in non-cash working capital
Decrease/(Increase) in trade and other receivables
981
(7,246)
Increase/(Decrease) in trade and other payables
(3,357)
6,008
Increase in inventories
3,767
(3,098)
Income taxes paid
(3,984)
(11,066)
Cash flows from operating activities
10,147
47,909
Investing activities
Payments to acquire property, plant and equipment
(11,616)
(23,447)
Payments to acquire intangible assets
(1,865)
(3,359)
(Increase)/Decrease in other assets
(250)
119
Proceeds from sale of available for sale investment
-
44
Cash flows used in investing activities
(13,731)
(26,643)
Financing activities
Proceeds from borrowings (Note 10b)
10,250
6,150
Payments to borrowings (Note 10)
-
(24,045)
Finance charges
(4,937)
(5,540)
Dividend payment to non-controlling interest
-
(1,424)
Payment of finance leases
(837)
(1,254)
Proceeds from exercise of stock options (Note 12)
-
33
Cash flows from/(used in) financing activities
4,476
(26,080)
Impact of foreign exchange on cash balance
(11)
(287)
Net increase/(decrease) in cash and cash equivalents
881
(5,101)
Cash and cash equivalents at beginning of period
3,522
17,787
Cash and cash equivalents at end of period
4,403
12,686
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Avesoro Resources Inc.
Interim Consolidated Statements of Changes in Equity
(stated in thousands of US dollars)
Unaudited
Total Equity Attributable to Owners
Share capital
$'000
Capital contribution
$'000
Share- based payment reserve
$'000
Acquisition
reserve
$'000
Equity investment
reserve
$'000
Cumulative translation reserve
$'000
Deficit
$'000
Total
$'000
Non- controlling Interest
$'000
Total Equity
$'000
Balance at January 1, 2018
353,653
54,022
7,840
(33,060)
(487)
(466)
(260,156)
121,346
3,714
125,060
Profit for the period
-
-
-
-
-
-
3,847
3,847
3,111
6,958
Other comprehensive income/(loss) for period
-
-
-
-
22
(40)
-
(18)
-
(18)
Total comprehensive income/(loss) for period
-
-
-
-
22
(40)
3,847
3,829
3,111
6,940
Exercise of stock options (Note 12b)
33
-
-
-
-
-
-
33
-
33
Share-based payments (Note 3)
-
-
567
-
-
-
-
567
-
567
Dividends paid to non-controlling interest
-
-
-
-
-
-
-
-
(1,424)
(1,424)
Related party loans (Note 10)
-
1,698
-
-
-
-
-
1,698
-
1,698
Payment of related party loans
-
(2,171)
-
-
-
-
-
(2,171)
-
(2,171)
Reserve transfer on sale of investment
-
-
-
-
465
-
(465)
-
-
-
Balance at June 30, 2018
353,686
53,549
8,407
(33,060)
-
(506)
(256,774)
125,302
5,401
130,703
Balance at January 1, 2019
353,686
55,434
8,987
(33,060)
-
(456)
(289,631)
94,960
3,637
98,597
Loss for the period
-
-
-
-
-
-
(30,449)
(30,449)
(187)
(30,636)
Other comprehensive loss for period
-
-
-
-
-
(118)
-
(118)
-
(118)
Total comprehensive loss for period
-
-
-
-
-
(118)
(30,449)
(30,567)
(187)
(30,754)
Share-based payments (Note 3)
-
-
648
-
-
-
-
648
-
648
Drawdown on Working Capital Facility (Note 10b)
-
163
-
-
-
-
-
163
-
163
Balance at June 30, 2019
353,686
55,597
9,635
(33,060)
-
(574)
(320,080)
65,204
3,450
68,654
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Avesoro Resources Inc. Notes to Condensed Interim Consolidated Financial Statements (Unaudited) For the three and six months ended June 30, 2019 and 2018 (in thousands of US dollars unless otherwise stated)
1 Nature of operations and basis of preparation
Avesoro Resources Inc. ("Avesoro" or the "Company"), was incorporated under the Canada Business Corporations Act on February 1, 2011. The focus of Avesoro's business is the exploration, development and operation of gold assets in West Africa, specifically the New Liberty Gold Mine in Liberia and the Youga Gold Mine in Burkina Faso.
The Company's parent company is Avesoro Jersey Limited ("AJL"), a company incorporated in Jersey and Mr. Murathan Doruk G?nal is the ultimate beneficial owner.
These condensed interim consolidated financial statements ("interim financial statements") have been prepared in accordance with International Accounting Standard ("IAS") 34, "Interim Financial Reporting". They do not include all disclosures that would otherwise be required in a complete set of financial statements. They follow accounting policies and methods of their application consistent with the audited consolidated financial statements for the year ended December 31, 2018 except for the adoption of new accounting policies as discussed below. Accordingly, they should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2018.
These interim financial statements were authorised by the Board of Directors on August 7, 2019.
New accounting policies
The Company has initially adopted IFRS 16 from January 1, 2019. IFRS 16 introduced a single, on-balance sheet accounting model for lessees. As a result, the Company as a lessee, has recognised right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease payments. Lessor accounting remains the same. Accordingly, the comparative information presented for 2018 has not been restated. On transition to IFRS 16, the Company elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously assessed as leases. Contracts that were not identified as lease under IAS 17 and IFRC 4 were not reassessed. Therefore, the definition of lease under IFRS 16 has been applied to contracts entered into or changed on or after January 1, 2019 and no new leases were identified.
The Company leases drill rigs and the fuel storage facility at New Liberty, which were previously classified as finance leases under IAS 17. For the finance leases, the carrying amount of the right-of-use asset and lease liability at January 1, 2019 were determined as the carrying amount of the lease asset and lease liability under IAS 17 immediately before date of use. Management is currently looking at the transition to contractor mining and impact of IFRS 16 and this will come into effect in Q3 2019.
A number of other new standards are effective from January 1, 2019 but these do not have a material effect on the Company's financial statements.
Going concern
Following a cost review, the Company implemented an initiative to transition both Youga and New Liberty Gold mines to contractor mining with the objective of further reducing the mining cost and increasing mining volumes. This transition resulted in disruption to mining activities and gold production at New Liberty in April and May 2019 and at Youga the open pit mining fleet operators refusing to work leading to a temporary suspension of mining and process plant operations in June 2019.
As a result of the aforementioned issues and ongoing mill feed grade being lower than planned at Youga the group production guidance for 2019 was reduced from 210,000 – 230,000 ounces to 180,000 – 200,000 ounces on June 10, 2019 and the revised cash forecast currently shows a funding shortfall of $10-$15 million later in 2019. The funding gap includes US$12.9 million of debt provided by Mapa ?n?aat ve Ticaret A.?. ("Mapa"), a related party and a company controlled by Mr. Mehmet Nazif G?nal, Non-Executive Chairman of the Company, falling due for repayment in 2019. The Company is holding constructive discussions Mapa about deferral of these debt repayments.
In July 2019, Avesoro Holdings Limited ("AHL") which is the Company's ultimate parent company and controlled by Mr. Murathan Doruk Günal ("MDG"), the eldest son of the Company's Chairman, reported that it had breached two undertakings contained in the parent company guarantee that AHL has provided to the Company's Lenders Nedbank Limited and FirstRand Bank Limited (collectively the "Lenders") in respect of the Company's bank borrowings as follows:
Late submission of the audited accounts of AHL to the Lenders; and
AHL's total equity financial covenant at December 31, 2018 was lower than the required level following an impairment in the carrying value of an asset held by a privately held subsidiary of AHL that is not within the Avesoro Resources Inc. group and accounting losses as a result of non-cash depreciation charges.
The two technical breaches represent events of default by the Company under the cross default provisions of the loan documents and allow the Lenders to accelerate repayment of the bank borrowings before their final maturity date.
AHL and the Company have requested a waiver of the events of default from the Lenders and are currently in discussions with them. The Company is confident that a waiver or suitable alternative remedy can be agreed with the Lenders. However, in the event that these efforts were unsuccessful, the AHL parent company guarantee and personal guarantee provided by the Company's Chairman remain in force.
The Company has received confirmation that Mr. Murathan Doruk Günal intends to support the Group for at least one year from the date of this interim financial statements. On this basis, the Directors and Management continue to adopt the going concern basis of accounting in preparing the interim financial statements.
2 Segment information
The Company is engaged in the exploration, development and operation of gold projects in the West African countries of Liberia and Burkina Faso. Information presented to the Chief Executive Officer for the purposes of resource allocation and assessment of segment performance is focused on the geographical location of mining operations. The reportable segments under IFRS 8 are as follows:
New Liberty operations;
Burkina operations which include the Youga Gold Mine and the Balogo satellite deposit;
Exploration; and
Corporate.
Following is an analysis of the Group's results, assets and liabilities by reportable segment for the three months ended June 30, 2019:
New Liberty operations
Burkina operations
Exploration
Corporate
Total
$'000
$'000
$'000
$'000
$'000
(Loss)/Profit for the period
(14,658)
8
(1,281)
(2,869)
(18,800)
Revenues
25,933
21,954
-
121
48,008
Production costs
- Operating costs
(21,574)
(19,289)
-
227
(40,636)
- Change in inventories
(1,222)
(1,382)
-
-
(2,604)
(22,796)
(20,671)
227
(43,240)
Depreciation
(15,389)
(1,539)
-
(27)
(16,955)
Segment assets
197,298
71,285
10,587
6,580
285,750
Segment liabilities
(135,752)
(38,119)
(6,155)
(37,070)
(217,096)
Capital additions
- property, plant and equipment
7,460
159
-
-
7,619
- intangible assets
-
-
904
-
904
Following is an analysis of the Group's results, assets and liabilities by reportable segment for the six months ended June 30, 2019:
New Liberty operations
Burkina operations
Exploration
Corporate
Total
$'000
$'000
$'000
$'000
$'000
(Loss)/Profit for the period
(22,840)
2,205
(4,091)
(5,910)
(30,636)
Revenues
60,233
47,380
-
271
107,884
Production costs
- Operating costs
(44,307)
(40,243)
-
172
(84,378)
- Change in inventories
(1,527)
(1,508)
-
-
(3,035)
(45,834)
(41,751)
-
172
(87,413)
Depreciation
(31,540)
(3,678)
-
(55)
(35,273)
Capital additions
- property, plant and equipment
11,164
1,697
-
-
12,861
- intangible assets
-
-
1,865
-
1,865
Following is an analysis of the Group's results, assets and liabilities by reportable segment for the three months ended June 30, 2018:
New Liberty operations
Burkina operations
Exploration
Corporate
Total
$'000
$'000
$'000
$'000
$'000
Profit/(Loss) for the period
(7,701)
12,476
(5,314)
(2,350)
(2,889)
Revenues
37,194
37,336
-
-
74,530
Production costs
- Operating costs
(23,435)
(21,222)
-
-
(44,657)
- Change in inventories
(135)
1,597
-
-
1,462
(23,570)
(19,625)
-
-
(43,195)
Depreciation
(18,653)
(1,736)
(65)
(53)
(20,507)
Segment assets
232,806
94,472
4,356
5,765
337,399
Segment liabilities
(144,557)
(55,125)
(4,310)
(2,706)
(206,698)
Capital additions
- property, plant and equipment
- intangible assets
7,273
-
3,822
-
-
1,599
-
-
11,095
1,599
Following is an analysis of the Group's results, assets and liabilities by reportable segment for the six months ended June 30, 2018:
New Liberty operations
Burkina operations
Exploration
Corporate
Total
$'000
$'000
$'000
$'000
$'000
Profit/(Loss) for the period
(13,737)
30,756
(6,351)
(3,710)
6,958
Revenues
74,517
91,383
-
-
165,900
Production costs
- Operating costs
(46,696)
(41,909)
-
-
(88,605)
- Change in inventories
(1,887)
(1,689)
-
-
(3,576)
(48,583)
(43,598)
-
-
(92,181)
Depreciation
(31,200)
(5,800)
(117)
(54)
(37,171)
Capital additions
- property, plant and equipment
- intangible assets
23,721
-
12,734
-
40
3,359
-
-
36,495
3,359
3 Administrative and other expenses
Three months ended
Six months ended
June 30,
2019
June 30,
2018
June 30,
2019
June 30,
2018
$'000
$'000
$'000
$'000
Wages and salaries
793
591
1,364
1,127
Legal and professional
397
657
869
959
Royalty payable to AJL (Note 14)
351
-
1,386
-
Depreciation
27
117
55
171
Share based payments
224
270
648
567
Other expenses
319
770
749
1,185
2,111
2,405
5,071
4,009
4 Income taxes
Three months ended
Six months ended
June 30, 2019
June 30, 2018
June 30, 2019
June 30, 2018
$'000
$'000
$'000
$'000
Current taxes
(367)
(3,554)
(781)
(7,884)
Deferred taxes
237
287
237
(1,972)
(130)
(3,267)
(544)
(9,856)
5 (Loss)/Earnings per share ("EPS")
Three months ended
Six months ended
June 30,2019
June 30,2018
June 30,2019
June 30,2018
$'000
$'000
$'000
$'000
Net (loss)/profit after tax
attributable to Owners of the Company
(18,511)
(4,172)
(30,449)
3,847
Weighted average number of outstanding shares for basic EPS
81,575,260
81,575,260
81,575,260
81,567,802
Dilutive share options
-
-
-
583,456
Weighted average number of outstanding shares for diluted EPS
81,575,260
81,575,260
81,575,260
82,151,258
Basic EPS (US$)
(0.227)
(0.051)
(0.373)
0.047
Diluted EPS (US$)
(0.227)
(0.051)
(0.373)
0.047
6 Trade and other receivables
June 30, 2019
December 31, 2018
$'000
$'000
Trade receivable
1,946
165
Other receivable
9,187
11,557
Due from related parties (Note 14)
3,572
3,350
Pre-payments
7,663
8,687
22,368
23,759
Other receivables as at June 30, 2019 include VAT receivable from the Burkina Faso Government of $6.0 million (December 31, 2018: $3.1 million) and a financial asset with respect to factored VAT receivable from the Burkina Faso Government of $nil (December 31, 2018: $6.4 million).
7 Inventories
June 30, 2019
December 31, 2018
$'000
$'000
Gold doré
829
2,299
Gold in circuit
2,767
3,969
Ore stockpiles
3,448
3,849
Consumables
35,039
35,733
42,083
45,850
Ore stockpiles as at June 30, 2019 are stated at their net realisable values after cumulative write-down at New Liberty of $1.8 million (December 31, 2018: $1.6 million) and a provision for obsolescence of consumables at Youga of $0.6 million (December 31, 2018: $0.7 million).
8 Intangible assets - Exploration and evaluation assets
Six months
ended
June 30,
2019
Year
ended
December 31,
2018
$'000
$'000
Beginning of the period
6,452
-
Additions in the period
1,865
8,234
Transfer to property, plant and equipment (Note 9)
-
(1,782)
End of the period
8,317
6,452
Intangible assets as at June 30, 2019 are in respect of capitalised exploration and evaluation assets at Ndablama and Ouaré, located 44 kilometres east of the Youga processing plant. Ouare is the subject of an infill drilling campaign to upgrade the confidence level and classification of the existing mineral resources. Resource modelling and pit design shows that this satellite deposit will add further mine life to Youga.
Exploration and evaluation costs charged to profit and loss arose from the following licence areas:
Three months ended
Six months ended
June 30,
2019
June 30,
2018
June 30,
2019
June 30,
2018
$'000
$'000
$'000
$'000
New Liberty MDA licence
51
1,809
1,091
2,159
Youga exploitation permit
167
1,338
1,381
1,968
Balogo exploitation permit
583
944
1,126
1,653
Zerbogo/Songo
33
363
284
609
Others
93
59
132
135
927
4,513
4,014
6,524
9 Property, plant and equipment
Mining assets
Stripping asset
Mine closure and rehabilitation
Right-of-use assets
Machinery and equipment
Vehicles
Leasehold improvement
Total
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
Cost
At January 1, 2018
208,507
16,229
6,212
11,758
74,793
3,092
86
320,677
Additions
6,736
14,957
756
1,232
29,707
516
-
53,904
Transfer from intangible assets
1,782
-
-
-
-
-
-
1,782
Disposals
-
-
-
(7,000)
(1,034)
(335)
-
(8,369)
At December 31, 2018
217,025
31,186
6,968
5,990
103,466
3,273
86
367,994
Additions
2,332
10,131
-
-
398
-
-
12,861
At June 30, 2019
219,357
41,317
6,968
5,990
103,864
3,273
86
380,855
Accumulated depreciation
At January 1, 2018
52,105
1,838
2,290
2,564
10,880
1,362
86
71,125
Charge for the year
37,618
17,017
1,026
1,265
17,343
544
-
74,813
Disposals
-
-
-
(1,528)
(1,034)
(335)
-
(2,897)
At December 31, 2018
89,723
18,855
3,316
2,301
27,189
1,571
86
143,041
Charge for the year
25,595
1,607
475
1,042
6,169
385
-
35,273
At June 30, 2019
115,318
20,462
3,791
3,343
33,358
1,956
86
178,314
Net book value
At December 31, 2018
127,302
12,331
3,652
3,689
76,277
1,702
-
224,953
At June 30, 2019
104,039
20,855
3,177
2,647
70,506
1,317
-
202,541
10 Borrowings
June 30,
2019
December 31,
2018
$'000
$'000
Current
Bank loan - Senior Facility
9,361
6,676
Related party loan
14,919
10,987
Working Capital Facility
10,274
-
34,554
17,663
Non-current
Bank loan - Senior Facility
48,934
51,801
Bank loan - Subordinated Facility
10,738
10,528
Working Capital Facility
24,259
23,142
Shareholder loan
3,985
3,985
Related party loan
13,421
16,681
101,337
106,137
(a) Bank loans
On December 17, 2013 the Company entered into an agreement for an $88 million project finance loan facility with Nedbank Limited and FirstRand Bank Limited (collectively the "Lenders"), (the "Senior Facility"), and also entered into a subordinated loan facility agreement for $12 million with RMB Resources (the "Subordinated Facility"). On December 9, 2015 the Company entered into an agreement for an additional $10 million Tranche B Senior Facility (together with the Senior Facility and the Subordinated Facility the "Loan Facilities") provided by the Lenders. These Loan Facilities, which have been fully drawn, financed the development of the Company's New Liberty Gold Mine. $38.4 million of the Senior Facility principal has been repaid to date.
(b) Working Capital Facility with AJL
Six months ended
June 30,
2019
Year
ended
December 31, 2018
$'000
$'000
Beginning of the period
23,142
14,938
Fair value of new tranches of loans
10,087
17,947
Repayments
-
(10,801)
Interest charged
1,304
1,058
End of the period
34,533
23,142
Gross proceeds of new tranches during the period ended June 30, 2019 was $10.3 million (year ended December 31, 2018: $21.9 million) of which $0.2 million (year ended December 31, 2018: $3.9 million) has been credited to capital contribution. Gross repayments during the period ended June 30, 2019 amounted to $nil (year ended December 31, 2018: $13.7 million) of which $nil (year ended December 31, 2018: $2.9 million) has been charged to capital contribution.
(c) Related party loans payable to Mapa ?n?aat ve Ticaret A.?. ("Mapa")
Six months ended
June 30,
2019
Year
ended
December 31, 2018
$'000
$'000
Beginning of the period
27,668
22,263
Fair value of new loans
-
9,916
Repayments (including interest)
(448)
(6,466)
Interest charged
1,225
2,439
Unrealised foreign exchange
(105)
(484)
End of the period
28,340
27,668
Gross proceeds of new loans during the period ended June 30, 2019 was $nil (year ended December 31, 2018: $10.3 million) of which $nil (year ended December 31, 2018: $0.4 million) has been credited to capital contribution. Principal repayments during the period ended June 30, 2019 amounted to $nil (year ended December 31, 2018: $4.8 million) and interest repayments during the period ended June 30, 2019 amounted to $0.4 million (year ended December 31, 2018: $1.7 million).
11 Lease liability
Lease liability as at June 30, 2019 relates to drill rigs and the fuel storage facility at New Liberty. Lease liability is measured at the present value of the leased payments. Lease payments are apportioned between the finance charges and reduction of lease liability using the incremental borrowing rate implicit in the lease to achieve a constant rate of interest on the remaining balance of the liability.
June 30,
2019
December 31,
2018
$'000
$'000
Gross finance lease liability
- Within one year
1,091
1,266
- Between two and five years
1,744
2,539
2,835
3,805
Future finance cost
(379)
(571)
Present value of lease liability
2,456
3,234
Current portion
874
975
Non-current portion
1,582
2,259
12 Equity
(a) Authorised
Unlimited number of common shares without par value.
(b) Issued
Shares
$'000
Balance at January 1, 2018
8,156,075,823
353,653
Effect of 100:1 share consolidation
(8,074,515,563)
-
Exercise of stock options
15,000
33
Balance at December 31, 2018 and June 30, 2019
81,575,260
353,686
(c) Stock options
Information relating to stock options outstanding at June 30, 2019 is as follows:
Six months ended June 30, 2019
Year ended December 31, 2018
Number of options
Weighted average exercise price per share
Number of options
Weighted average exercise price per share
Cdn$
Cdn$
Beginning of the period
4,209,233
3.94
2,829,428
4.96
Options granted
-
-
1,681,000
2.68
Options exercised
-
-
(15,000)
2.66
Options expired
(22,062)
50.73
(13,362)
70.32
Options forfeited
(105,000)
2.79
(272,828)
3.55
Share consolidation adjustment
-
-
(5)
4.96
End of the period
4,082,171
3.72
4,209,233
3.94
13 Non-controlling interest
The composition of the non-controlling interests held by the Government of Burkina Faso is as follows:
Netiana Mining Company
$'000
Burkina Mining Company
$'000
Total
$'000
At January 1, 2018
2,202
1,512
3,714
Share in net income
1,140
1,858
2,998
Dividend distribution
(1,673)
(1,402)
(3,075)
At December 31, 2018
1,669
1,968
3,637
Share in net loss
(123)
(64)
(187)
At June 30, 2019
1,546
1,904
3,450
14 Related party transactions
(a) Borrowings
The Company's related party loans payable to Mapa, Working Capital Facility with AJL and loan payable to AJL are disclosed in Note 10.
(b) Royalty payable to AJL
Pursuant to the share purchase agreement between the Company and AJL on the acquisition of the Youga Gold Mine in December 2017, the Company accrued a royalty payable to AJL of $1.4 million for the six months ended June 30, 2019 in respect of a net smelter return on the Youga Gold Mine.
(c) Provision/(purchases) of goods and services
The Company also provided/(purchased) the following services from related parties:
Three months ended
Six months ended
June 30,
2019
June 30,
2018
June 30,
2019
June 30,
2018
$'000
$'000
$'000
$'000
Technical and support staff services provided by the Company to:
MNG Gold Liberia Inc., a subsidiary of Company's parent company
137
146
304
146
Sale of consumables* by the Company to: MNG Gold Liberia Inc., a subsidiary of Company's parent company
73
538
163
538
Drilling services provided to the Company by:
Zwedru Mining Inc., a subsidiary of Company's parent company
(286)
(967)
(700)
(1,854)
Drilling services provided to the Company by:
Faso Drilling Company SA., a subsidiary of Company's parent company
(390)
(2,397)
(955)
(3,847)
Charter plane services provided to the Company by:
MNG Gold Liberia Inc., a subsidiary of Company's parent company
(90)
(90)
(180)
(180)
Travel services provided to the Company by:
MNG Turizm ve Ticaret A.S., an entity controlled by the Company's Chairman
-
(6)
-
(6)
* Company's gross billings as agents in the procurement, shipping and handling of consumables
Included in trade and other receivables is a receivable from related parties of $3.6 million as at June 30, 2019 (December 31, 2018: $3.4 million).
Included in trade and other payables is $4.5 million payable to related parties as at June 30, 2019 (December 31, 2018: $3.3 million).
15 Subsequent events
On July 15, 2019, the Company's subsidiaries, Burkina Mining Company SA ("BMC") and Netiana Mining Company SA ("NMC"), entered into an open pit mining contract (the "Contract") with Orkun Group Sarl ("Orkun") at the Youga Gold Mine ("Youga") in Burkina Faso.
The mining programme under the Contract is based on the excavation of between 800,000 to 900,000 bank cubic metres ("BCM") of material per month, including a minimum of 120,000 tonnes of ore delivered to the ROM pad per month. Over the life of mine, the Contract is based on the excavation of a minimum of 42 million BCM ("Minimum TMM") of material over the life of mine which can be increased, at the Company's option, to 60 million BCM on the same terms.
The Contract price of excavation during the Minimum TMM period is US$4.26 per BCM (approximately US$1.60 per tonne) reducing to US$3.75 per BCM thereafter (approximately US$1.41 per tonne) for the remainder of the Contract.
Orkun will pay an earn-in fee of US$0.51 per BCM to acquire BMC's existing heavy mining equipment ("HME") fleet. The earn-in fee will be offset against the amounts invoiced by Orkun. Upon completion of the Minimum TMM, ownership of BMC's HME fleet will transfer to Orkun. However, Orkun assumes full responsibility for the on-going upkeep and maintenance of the HME from commencement of the Contract.
Orkun has also committed to supplement the existing HME fleet with US$5 million of additional equipment at its own cost. The first batch of this additional HME is due to arrive at Youga in Q3 2019.
BMC and NMC retain responsibility for mining geology, planning and certain other costs which are included in the total cost of mining reported by the Company.
In July 2019, AHL reported that it had breached two undertakings contained in the parent company guarantee that AHL has provided to the Company's Lenders in respect of the Company's bank borrowings as follows:
Late submission of the audited accounts of AHL to the Lenders; and
AHL's total equity financial covenant at December 31, 2018 was lower than the required level following an impairment in the carrying value of an asset held by a privately held subsidiary of AHL that is not within the Avesoro Resources Inc. group and accounting losses as a result of non-cash depreciation charges.
The two technical breaches represent events of default by the Company under the cross default provisions of the loan documents and allow the Lenders to accelerate repayment of the bank borrowings before their final maturity date.
AHL and the Company have requested a waiver of the events of default from the Lenders and are currently in discussions with them. The Company is confident that a waiver or suitable alternative remedy can be agreed with the Lenders. However, in the event that these efforts were unsuccessful, the AHL parent company guarantee and personal guarantee provided by the Company's Chairman remain in force.