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Central Asia Metals PLC Proposed acquisition of -60-

22 Sep 2017 6:01 am
   (100) USD                                                                             (3,937,005)    (903,733) 
 
 2015.................................................................      100 USD       3,790,363      192,940 
   (100) USD                                                                             (3,790,363)    (192,940) 
 
   (ii)        Foreign exchange risk 

The Lynx Group's functional currency is the USD. The foreign exchange risk exposure of the Lynx Group 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.

As a result of significant operations in Macedonia, the Lynx Group's consolidated statement of financial position can be affected significantly by movements in the USD/MKD and USD/Euro exchange rates. The Lynx Group 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 denominated in USD or EUR and connected to the price movement on the global movement, which is denominated in both currencies. Therefore there is associated inherent business risk with such transactions.

The Lynx Group's exposure to foreign currency risk was as follows:
 
2016                                                 USD           MKD          EUR         SEK        Other 
                                                -------------  ------------  ----------  ----------  --------- 
 
Assets 
Cash and cash 
 equivalents..........................             14,477,901    14,801,010      15,290           -          - 
 Trade and other 
  financial receivables......                       5,555,725     1,030,513     256,773           -     61,529 
                                                -------------  ------------  ----------  ----------  --------- 
 Total 
  assets...................................... 
  .....                                            20,033,626    15,831,523     272,063           -     61,529 
 
 Liabilities 
 Trade 
  payables.................................... 
  ....                                                 16,233     2,596,262     534,295     165,138     97,468 
 Other financial 
  liabilities.........................              1,082,114       914,537           -           -          - 
 Loans and 
  borrowings..............................         73,000,000    18,324,040           -           -          - 
                                                -------------  ------------  ----------  ----------  --------- 
 Total 
  liabilities................................. 
  ...                                              74,098,347    21,834,839     534,295     165,138     97,468 
                                                -------------  ------------  ----------  ----------  --------- 
 Net balance sheet 
  exposure................                       (54,064,721)   (6,003,016)   (262,232)   (165,138)   (35,939) 
                                                =============  ============  ==========  ==========  ========= 
 
 
 2015                                                             USD            MKD          EUR         SEK 
 Assets 
                                                             -------------  ------------  ----------  ---------- 
 Cash and cash equivalents..............................           673,787     6,598,747      19,470           - 
 Trade and other financial 
  receivables............                                        5,701,723     1,283,565      85,296           - 
                                                             -------------  ------------  ----------  ---------- 
 Total 
  assets................................................... 
  .....                                                          6,375,510     7,882,312     104.768           - 
 
 Liabilities 
 Trade 
  payables................................................. 
  .                                                                 69,126     1,466,743     416,611     134,987 
 Other financial 
  liabilities...................................                   196,175     1,223,354           -           - 
 Loans and borrowings......................................     25,043,151    11,119,170           -           - 
                                                             -------------  ------------  ----------  ---------- 
 Total 
  liabilities.............................................. 
  ....                                                          25,308,452    13,809,267     416,611     134,987 
                                                             -------------  ------------  ----------  ---------- 
 Net balance sheet 
  exposure.............................                       (18,932,942)   (5,926,955)   (311,845)   (134,987) 
                                                             =============  ============  ==========  ========== 
 

At 31 December 2016, if the currency had weakened/strengthened by 0.5%, 2% i.e. 0.5% against the EUR/MKD/SEK respectively with all other variables held constant, the recalculated post-tax profit for the year would have been for $1,311 (2015: $1,559) lower/higher for EUR; $120,066 (2015: $118,539) higher/lower for MKD; $826 (2015: $675) lower/higher for SEK.
   (iii)       Interest 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. As of 31 December 2016 the Lynx Group has no time deposits in banks.

The Lynx Group has borrowings in amounts of $91,324,040 as of 31 December 2016 (2015: $36,162,321), therefore 1 percentage point rise in market interest rate would have caused (ceteris paribus) the interest paid to increase with approximately $913,240 (2015: $361,623) annually before tax, while similar decrease would have caused the same decrease in interest paid.

The Lynx Group has cash and cash equivalents in amounts of $29,294,201 as of 31 December 2016 (2015: $7,292,004), therefore 1 percentage point rise in market interest rate would have caused (ceteris paribus) the interest received to increase with approximately $292,942 (2015: $72,920) annually before tax, while similar decrease would have caused the same decrease in interest paid.
   (iv)       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. The Lynx Group is exposed to credit risk from its operating activities and certain financing activities. 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, collaboration with collection agencies and collection after legal relationship as litigation process, court proceedings, involvement of the executive unit and factoring. 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 and through preventive barring which determinates the credit limit based on the customer's previous revenues.

The Lynx Group procedures ensure on a permanent basis that sales are made to one customer with an appropriate credit history and not exceed acceptable credit exposure. As of 31 December 2016, the Company has one customer, Lynx Metals.

The Lynx Group 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, the Lynx Group 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 the Lynx Group's exposure to credit risk as at 31 December 2016 and 31 December 2015:
 
                                                                                                2016         2015 
                                                                                            -----------  ----------- 
 Cash and cash 
  equivalents............................................................................. 
  ....                                                                                       29,294,201    7,292,004 
 Trade 
  receivables............................................................................. 
  .....................                                                                       3,691,173    5,305,224 
 Other financial 
  receivables............................................................................. 
  .....                                                                                       3,213,367     1765,360 
                                                                                            -----------  ----------- 
                                                                                             36,198,741   14,362,588 
                                                                                            ===========  =========== 
 

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

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