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Central Asia Metals PLC Proposed acquisition of -59-

22 Sep 2017 6:01 am

The Lynx Group, in the normal course of business, makes payments on behalf of its employees for pensions, health care, employment and personnel tax, which are calculated based on gross salaries and wages according to the legislation. The Lynx Group makes these contributions to the Governmental health and retirement funds as well to private retirement funds. The cost of these payments is charged to the consolidated statement of comprehensive income in the same period as the related salary cost.

The Lynx Group does not operate any other pension scheme or post-retirement benefits plan and consequently, has no obligation in respect of pensions.
   b)         Termination benefits 

Termination benefits are payable whenever an employee's employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Lynx Group recognizes termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy.
   c)         Retirement benefits and jubilee awards 

Pursuant to the labour law prevailing in the subsidiaries country of operations, the Lynx Group is obliged to pay retirement benefits in an amount equal to two average monthly salaries, at their retirement date. According to the collective agreement, the Lynx Group is also obliged to pay jubilee anniversary awards that correspond to the total number of years of service of the employee. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. In addition, the Lynx Group is not obligated to provide further benefits to current and former employees.

Retirement benefit obligations arising on severance pay are stated at the present value of expected future cash payments towards the qualifying employees. These benefits have been accrued by an independent actuary in accordance with the prevailing rules of actuarial mathematics. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to income over the employees' expected average remaining working lives.
   2.20     Borrowings 

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statement of comprehensive income over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates.
   2.21     Leases 

Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated statement of comprehensive income on a straight-line basis over the period of the lease.
   2.22     Revenue 

Revenue is derived principally from the sale of metal concentrate and is measured at the fair value of consideration received or receivable, after deducting discounts, volume rebates, value added tax and other sales taxes. A sale is recognized when the significant risks and rewards of ownership have passed. This is when title and insurance risk have passed to the customer and the goods have been delivered to a contractually agreed location.

Sales of metal concentrate are stated at their invoiced amount which is net of treatment and refining charges. Sales of commodities are provisionally priced such that the price is not settled until a predetermined future date and is based on the market price at that time. Revenue on these sales is initially recognized (when the above criteria are met) at the current market price.

Provisionally priced sales are marked to market at each reporting date using the forward price for the period equivalent to that outlined in the contract and presented within revenue.

Revenues from the sale of material by-products are included within revenue. Where a by-product is not regarded as significant, revenue will be credited against the cost of sales. Revenue from services is recognized as services are rendered and accepted by the customer. Amounts billed to customers in respect of shipping and handling activities are classified as revenue where the Lynx Group is responsible for freight. In situations where the Lynx Group is acting as an agent, amounts billed to customers are offset against the relevant costs.

For provisionally priced sales, changes between the prices recorded upon recognition of revenue and the final price due to fluctuations in metal market prices result in the existence of an embedded derivative in the accounts receivable. This embedded derivative is recorded at fair value, with changes in fair value classified as a component of revenue.

The Company reports both a gross revenue and revenue line which reflects the marketing cost deducted from the sales price, purchases of silver for the silver stream delivery, and freight cost.
   2.23     Deferred income 

Advances received from the precious metal streaming agreement for future deliveries of silver are recognized as deferred income and relate to the production over the lifetime of the mine. Deferred income is realised to the statement of comprehensive income as the silver is delivered based on the units of production.
   2.24     Marketing costs 

Marketing costs, which are allowed to customers on a shipment-by-shipment basis are recognised on an accrual basis determined as a difference between the sales and purchase value based on the signed agreement.
   3.         Financial risk management 
   3.1       Financial risk factors 

The Lynx Group does not apply hedge accounting for its financial instruments, all gains and losses are recognized in the profit and loss for the year. The Lynx Group is exposed in particular to risks from movements in exchange rates and market prices that affect its assets and liabilities, credit risk and liquidity risk. Financial risk management aims to limit these market risks through ongoing operational and finance activities.
   (i)         Market risk 

Market risk is defined as the 'risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices' and includes interest rate risk, currency risk and other price risk. The majority of the revenues of the Lynx Group are generated in USD and the remaining part mainly in MKD.

Expenses of the Lynx Group that arise are mainly connected to USD, MKD and EUR. For the presentation of market risks, IFRS 7 requires sensitivity analyzes that show the effects of hypothetical changes of relevant risk variables on profit or loss and shareholders' equity. The periodic effects are determined by relating the hypothetical changes in the risk variables to the balance of financial instruments at the consolidated financial information date. The balances at the end of the reporting period are usually representative for the year as a whole, therefore the impacts are calculated using the year end balances as though the balances had been constant throughout the reporting period. The methods and assumptions used in the sensitivity calculations have been updated to reflect the current economic situation.

Commodity prices, primarily lead and zinc, are key revenue drivers for the Lynx Group. The prices for lead and zinc can fluctuate widely and are affected by various factors beyond the Lynx Group's control. The main driver for metal price fluctuations is the supply and demand balance but other factors such as exchange rates, interest rates or speculative activities and the change in global economies can impact price levels and volatility too. To anticipate the full extent of the impact of any driver for commodity prices market developments is impossible; management believes that is taking all the necessary measures to support the sustainability and growth of the Lynx Group's business in the current circumstances. Nevertheless, future market fluctuations cannot be predicted with accuracy. The Lynx Group does not currently hedge interest commodity price exposure. Any hedging activity requires approval of the Lynx Group's Board of Directors. The Lynx Group will not hold or issue derivative instruments for speculation.

Commodity price sensitivity

The Lynx Group is affected by the volatility of certain commodities. Its operating activities require the ongoing sales of Pb and Zn and processing of ore. The following table shows the effect of metal prices on the Lynx Group's financial results:
 
                                                                            Changes                       Effect 
                                                                             in the         Effect       on profit 
                                                                           financial     on financial     before 
                                                                             result        position         tax 
                                                                         ------------   -------------  ----------- 
                                                                                             USD           USD 
 2016.................................................................      100 USD       3,937,005      903,733 

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