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Central Asia Metals PLC Proposed acquisition of -43-

22 Sep 2017 6:01 am

SASA's functional currency is the MKD. The foreign exchange risk exposure of SASA is related to holding foreign currency cash balances, and operating activities through revenues from and payments to international companies as well as capital expenditure contracted with vendors in foreign currency.

The currency giving rise to this risk is primarily USD. SASA manages the foreign exchange risk exposure by striving to manage sales contracts in USD and thus most of the trade receivables are in USD. SASA has small cash reserves in USD currency. SASA uses cash deposits in MKD or cash deposits in MKD indexed to EUR, to economically manage its foreign currency risk as well as local currency risk in accordance with the available banks offers.

However, the purchase of spare parts and raw materials are mostly denominated in MKD or EUR and connected to the price movement on the global movement, which is denominated in the both currencies. Therefore there is associated inherent business risk with such transactions. SASA's exposure to foreign currency risk was as follows:
 
                                MKD              EUR            USD           SEK       Other 
 Assets 
  Cash and cash 
  equivalents 
  . . . . . . . . . . . 
  . . . . .                        62,262     154,379                  -            -     - 
 Trade and other 
  receivables 
  . . . . . . . . . . . 
  . . . .                        72,411       97,810       6,014,982                -   - 
                          ---------------  --------------  -------------  -----------  ------ 
 Total assets . . . . 
  . . . . . . . . . . . 
  . . . . . . . . . .          134,673      252,189        6,014,982                -   - 
 Liabilities 
  Trade payables . . . 
  . . . . . . . . . . . 
  . . . . . . . . .            1,473,914      442,470            45,641       135,647     - 
 Other current 
  financial 
  liabilities . . . . . 
  . . . . . . .              1,240,687              -                  -            -   - 
 Borrowings . . . . . 
  . . . . . . . . . . . 
  . . . . . . . . . .      11,208,226               -                  -            -   - 
                          ---------------  --------------  -------------  -----------  ------ 
 Total liabilities . . 
  . . . . . . . . . . . 
  . . . . . . . . . .      13,922,827       442,470            45,641       135,647     - 
                          ---------------  --------------  -------------  -----------  ------ 
 Net balance sheet 
  exposure 
  . . . . . . . . . . . 
  . . .                   (13,788,154)     (190,281)       5,969,341       (135,647)    - 
                          ---------------  --------------  -------------  -----------  ------ 
 
   2014 MKD EUR USD SEK Other 
 Assets 
  Cash and cash 
  equivalents 
  . . . . . . . . . . 
  . . . .                       24,308             15,506        923,134           -      - 
 Trade and other 
  receivables 
  . . . . . . . . . . 
  . . . .                  2,137,028           223,732     45,406,425            -      - 
 Short-term loans . . 
  . . . . . . . . . . 
  . . . . . . . . .       12,688,013       24,559,636      18,252,723            -      - 
                         ----------------  --------------  -------------  -----------  ------ 
 Total assets . . . . 
  . . . . . . . . . . 
  . . . . . . . . . .     14,849,349       24,798,874      64,582,282            -      - 
 Liabilities 
  Trade payables . . . 
  . . . . . . . . . . 
  . . . . . . . . .          1,412,350           380,871               -     88,923       - 
 Other current 
  financial 
  liabilities . . . . 
  . . . . . . .           63,815,239                    -              -         -      - 
 Borrowings . . . . .                   -               -    9,228,567           -      - 
  . . . . . . . . . . 
  . . . . . . . . . 
                         ----------------  --------------  -------------  -----------  ------ 
 Total liabilities . 
  . . . . . . . . . . 
  . . . . . . . . . .     65,227,589           380,871       9,228,567     88,923       - 
                         ----------------  --------------  -------------  -----------  ------ 
 Net balance sheet 
  exposure 
  . . . . . . . . . . 
  . . .                  (50,378,240)      24,418,003      55,353,715     (88,923)      - 
                         ----------------  --------------  -------------  -----------  ------ 
 
 

At 31 December 2015, if the MKD had weakened/strengthened by 0.5%, 2% i.e. 0.5% against the EUR/USD/SEK respectively with all other variables held constant, the recalculated post-tax profit for the year would have been for USD 958 lower/higher (2014: USD 122,092 lower/higher) for EUR; USD 119,380 lower/ higher (2014: USD 1,107,072 lower/higher) for USD; and USD 674 lower/higher (2014: USD 435 lower/ higher) for SEK.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Change in the interest rates and interest margins may influence financing costs and returns on financial investments. Changes in market interest rates affect the interest income on time deposits with banks.

SASA has borrowings in amounts of USD 11,208,226 as of 31 December 2015 (2014: USD 9,228,566), therefore 1 percentage point rise in market interest rate would have caused (ceteris paribus) the interest paid to increase by approximately USD 112,072 annually before tax (2014: USD 92,305), while a similar decrease would have caused the same decrease in interest paid.

SASA has nil loans receivables as of 31 December 2015 (2014: USD 55,500,372 ), therefore 1 percentage point rise in market interest rate would have caused (ceteris paribus) the interest received to increase by D nil (2014: USD 555,000) annually before tax, while a similar decrease would have caused the same decrease in interest received.

SASA has cash and cash equivalents in amounts of USD 216,641 as of 31 December 2015 (2014: USD 923,391), therefore 1 percentage point rise in market interest rate would have caused (ceteris paribus) the interest received to increase by approximately USD 2,164 annually before tax (2014: USD 9,632), while a similar decrease would have caused the same decrease in interest paid.
   (ii)        Credit risk 

Credit risk is defined as the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. SASA is exposed to credit risk from its operating activities and certain financing activities, as it carries similar credit risk borne by its Ultimate parent, which exposes it to all financial consequences of default from the parent company's customers failing to make required payments. The process of managing the credit risk from operating activities includes preventive measures such as creditability checking and prevention barring, corrective measures during legal relationship for example reminding and disconnection activities. The overdue payments are followed through a debt escalation procedure based on customer's type, credit class and amount of debt. The credit risk is controlled through credibility checking - which determines that the customer is not indebted and the customer's credit worthiness.

SASA's procedures ensure on a permanent basis that sales are made to one customer who is a related party with an appropriate credit history and not exceed acceptable credit exposure.

SASA does not guarantee obligations of other parties. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. Consequently, SASA considers that its maximum exposure is reflected by the amount of debtors net of provisions for impairment recognized and the amount of cash deposits in banks at the Balance Sheet date. Management is focused on dealing with most reputable banks in foreign and domestic ownership on the domestic market.

The following table represents SASA's exposure to credit risk as at 31 December 2015 and 31 December 2014:
 
                                         2015         2014 
Cash and cash equivalents . . . 
 . . . . . . . . . . . . . . . . 
 . . . . . . . . . . . . . . . .      216,641      962,947 
Trade receivables . . . . . . . 
 . . . . . . . . . . . . . . . . 
 . . . . . . . . . . . . . . . . 
 . .                                6,022,610   45,415,543 
Other receivables . . . . . . . 
 . . . . . . . . . . . . . . . . 
 . . . . . . . . . . . . . . . . 
 . .                                1,374,647    2,351,664 
Loans . . . . . . . . . . . . . 
 . . . . . . . . . . . . . . . . 
 . . . . . . . . . . . . . . . . 
 . . .                                      -   55,500,372 
                                   ----------  ----------- 
                                    7,613,898  104,230,526 
                                   ----------  ----------- 
 

The receivables are summarized as follows:
 
                                                            31 December 2015              31 December 2014 
                                                      ----------------------------  ---------------------------- 
                                                          Trade          Trade          Trade          Trade 
                                                        receivables    receivables    receivables    receivables 
                                                        - domestic      - foreign     - domestic      - foreign 
                                                      -------------  -------------  -------------  ------------- 
 Neither past due 
  nor impaired..............                                    905      6,021,705          1,622     45,413,921 
 Past due but not                                                 -              -              -              - 
  impaired..................... 
 Impaired 
  ..................................................          6,723              -          7,496 

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September 22, 2017 02:01 ET (06:01 GMT)

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