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Central Asia Metals PLC Proposed acquisition of -45-

22 Sep 2017 6:01 am
                                                                      ----------------  ------------  ------------ 
   Trade and other 
    receivables.................................................            47,767,207    47,767,207    47,767,207 
   Cash and cash 
    equivalents...................................................             962,947       962,947       962,947 
   Short-term 
    loans........................................................... 
    ..........                                                              55,500,372    55,500,372    55,500,372 
                                                                      ----------------  ------------  ------------ 
                                                                           104,230,526   104,230,526   104,230,526 
                                                                      ================  ============  ============ 
 
 
                                                                               Other 
Liabilities as per the Statement                                              financial    Carrying       Fair 
 of financial position                                                       liabilities     amount       value 
                                                                            ------------  -----------  ----------- 
   Interest bearing 
    borrowings....................................................             9,228,566    9,228,566    9,228,566 
   Trade payables and other 
    current financial liabilities.........                                    65,697,384   65,697,384   65,697,384 
                                                                            ------------  -----------  ----------- 
                                                                              74,925,950   74,925,950   74,925,950 
                                                                            ============  ===========  =========== 
 

The fair value of borrowings has been calculated by discounting the expected future cash flows at contracted interest rates. The fair value of loan notes and other financial assets has been calculated using market interest rates. As at 31 December 2015 and 31 December 2014, SASA measured the fair value using techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly (Level 2).
   4.         Critical accounting estimates and judgments 

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
   4.1       Critical accounting estimates and assumptions 

SASA makes estimates and assumptions concerning the future. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The most critical estimates and assumptions are discussed below.
   (i)         Useful lives of assets 

Units of production basis

For mining properties and leases and certain mining equipment, consumption of the economic benefits of the asset is linked to production. Except as noted below, these assets are depreciated on a unit of production basis.

In applying the units of production method, depreciation is normally calculated based on production in the period as a percentage of total expected production in current and future periods based on ore reserves and, for some mines, other mineral resources and therefore the annual depreciation expense could be materially affected by changes in the underlying estimates which are driven by the life of mine plans. Changes in estimates can be the result of actual future production differing from current forecasts of future production, expansion of mineral reserves through exploration activities, differences between estimated and actual costs of mining and differences in the commodity prices used in the estimation of mineral reserves.

The required level of confidence is unlikely to exist for minerals that are typically found in low-grade ore. Specific areas of mineralisation have to be evaluated in considerable detail before their economic status can be predicted with confidence. In calculating the units of production ratio, management made significant estimates. Changes in the proven and probable reserves estimates may impact the carrying value of property, plant and equipment.

Straight-line basis

Assets within operations for which production is not expected to fluctuate significantly from one year to another or which have a physical life shorter than the related mine are depreciated on a straight-line basis.

Further, due to the significant weight of depreciable assets in SASA's total assets, the impact of any changes in these assumptions could be material to SASA's financial position, and results of operations. If depreciation cost is decreased/increased by 10%, this would result in additional annual depreciation of approximately USD 547,199 (2014: USD 529,946).
   (ii)        Potential impairment of property, plant and equipment and intangibles 

SASA is assessing the impairment of identifiable property, plant, equipment and intangibles whenever there is a reason to believe that the carrying value may materially exceed the recoverable amount and where impairment in value is anticipated. The recoverable amounts are determined by value in use calculations, which use a broad range of estimates and factors affecting those. Among others, SASA typically considers future revenues and expenses, macroeconomic indicators, technological obsolescence, discontinuance of operations and other changes in circumstances that may indicate impairment. If impairment is identified using the value in use calculations, SASA also determines the fair value less cost to sell (if determinable), to calculate the exact amount of impairment to be charged (if any). As this exercise is highly judgmental, the amount of potential impairment may be significantly different from that of the result of these calculations.
   (iii)       Impairment of trade and other receivables 

SASA calculates impairment for doubtful accounts based on estimated losses resulting from the inability of its customers to make required payments. For customers in bankruptcy and liquidation, impairment is calculated on an individual basis, while for other customers it is estimated on a portfolio basis, for which SASA bases its estimate on the aging of its account receivables balance and its historical write-off experience, customer credit-worthiness and changes in its customer payment terms. These factors are reviewed periodically, and changes are made to calculations when necessary. The estimates involve assumptions about future customer behaviour and the resulting future cash collections. If the financial condition of its customers were to deteriorate, actual write-offs of currently existing receivables may be higher than expected and may exceed the level of the impairment losses recognized so far.
   (iv)       Ore reserves & Resources 

Mineral Reserves and Resources may be used to calculate useful economic lives of assets and depreciation on SASA's mining properties and are defined as SASA's best estimate of Mineral Ore that can be mined in an economically viable fashion from the relevant property. Feasibility is determined based on operational assumptions that include, but are not limited to, production costs, mining and processing recoveries, cut-off grades, long term commodity prices as well as, possibly, exchange rates, inflation rates and capital costs. SASA's estimates are supported by geological studies conducted by appropriately qualified persons. However, SASA maintains that estimates ultimately depend upon interpretation and statistical inferences drawn from drilling and sampling analysis, and may therefore be subject to upward or downward restatements over time.

Mineral Reserves and Resources are determined based on assumptions that were valid at the time of estimation may change when new information becomes available. In addition, the calculation of the unit of production rate of amortisation could be impacted to the extent that actual production in the future is different from current forecast production. Any changes in estimate could affect prospective depreciation rates and asset carrying values and, as a result, the determination of Ore Reserves is considered a key source of estimation uncertainty.
   (v)        Provisions for rehabilitation and environmental provision 

Management estimates and recognizes provisions for rehabilitation and environmental disturbances at the moment when disruption of the environment is caused by the initial and current development of the mine. Expenses for withdrawal are calculated at the present value of the estimated future expenses for settlement of liabilities based on projected cash flows. Consequently, a rehabilitation asset is recognized within property, plant or equipment. Cash flows are discounted using a risk free rate and changes are recognized as financial expenses. Estimated future expenses for withdrawal are estimated each year. Changes in the estimated future expenses or discount rates are added or deduct from the expense of the asset.
   (vi)       Income taxes 

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