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Central Asia Metals PLC Proposed acquisition of -62-

22 Sep 2017 6:01 am
 Liabilities as per the 
  statement of financial 
 Borrowings                    91,324,040    91,324,040   91,324,040 
 Trade and other financial 
  liabilities                  5,406,047     5,406,047    5,406,047 
                             -------------  -----------  ----------- 
                               96,730,087    96,730,087   96,730,087 
                             -------------  -----------  ----------- 
                                  Cash and 
                                    other       Carrying       Fair 
 31 December 2015                receivables     amount        value 
                               -------------  -----------  ----------- 
 Assets as per the statement 
  of financial position 
 Trade and other financial 
  receivables                    7,070,584     7,070,584    7,070,584 
 Cash and cash equivalents       7,292,004     7,292,004    7,292,004 
                               -------------  -----------  ----------- 
                                 14,362,588    14,362,588   14,362,588 
                               -------------  -----------  ----------- 
                                 Other        Carrying 
                                financial      amount        Fair 
                               liabilities                   value 
                             -------------  -----------  ----------- 
 Liabilities as per the 
  statement of financial 
 Borrowings                    36,162,321    36,162,321   36,162,321 
 Trade and other financial 
  liabilities                  3,506,996     3,506,999    3,506,996 
                             -------------  -----------  ----------- 
                               39,669,317    39,669,317   39,669,317 
                             -------------  -----------  ----------- 

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 2016 and 31 December 2015, the Lynx Group 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).

The different levels have been defined as follows:

-- Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).

-- Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).

-- Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
   4.         Critical accounting estimates and assumptions 

The Lynx Group 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 

For mineral reserves, 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 units 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 mineralization 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 Lynx Group's total assets, the impact of any changes in these assumptions could be material to Lynx Group's financial position, and results of operations. If depreciation cost were decrease/increase by 10%, this would result in change of annual depreciation expense of approximately $1,449,962 (2015: $231,457).
   (ii)        Potential impairment of property, plant and equipment and intangibles 

The Lynx Group assesses 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.

If such an indication exists, the recoverable amount of the asset is estimated in order to determine the extent of any impairment. Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the CGU to which the asset belongs.

Internal and external factors are considered in assessing whether indicators of impairment are present. Significant assumptions regarding commodity prices, operating costs, capital expenditures and discount rates are used in determining whether there are any indicators of impairment. These assumptions are reviewed regularly by senior management and compared, where applicable, to observable market data.

Recoverable amount is the higher of fair value less costs of disposal and value in use (VIU). Fair value less costs of disposal is determined as the amount that would be obtained from the sale of the asset in an arm's length transaction between knowledgeable and willing parties. For mining assets this would generally be determined based on the present value of the estimated future cash flows arising from the continued development, use or eventual disposal of the asset. In assessing these cash flows and discounting them to present value, assumptions used are those that an independent market participant would consider appropriate. In assessing VIU, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which estimates of future cash flows have not been adjusted. If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognised in the income statement.

Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment been recognised for the asset or CGU. A reversal of an impairment loss is recognised in the income statement.
   (iii)       Business combinations 

All business combinations in the Lynx Group are accounted for under IFRS 3 'Business Combinations' using the acquisition method. When the Lynx Group acquires a business, it assesses the fair value of assets and liabilities acquired for the purpose of purchase price allocation as at the acquisition date. When discounted cash flow calculations are undertaken, management estimates the expected future cash flows from the CGU by considering the future lead and zinc price, expected lead and zinc ore reserve, lead and zinc grade, mine life, moisture content and discount rate in order to estimate the expected present value of cash flows from the mine. The inputs to these factors are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values.

The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Lynx Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.
   (iv)       Impairment of trade and other receivables 

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

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