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Central Asia Metals PLC Proposed acquisition of -63-

22 Sep 2017 6:01 am

The Lynx Group 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 the Lynx Group 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.
   (v)        Ore reserves and resources 

Mineral Reserves and Resources are defined as the Lynx Group'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. The Lynx Group's estimates are supported by geological studies conducted by appropriately qualified persons. However, the Lynx Group 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.
   (vi)       Provision for decommissioning and restoration costs 

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. The carrying amount of the provision as at 31 December 2016 is $2,432,029.
   (vii)      Income taxes 

The Lynx Group is subject to income taxes in the Country of operation. Significant estimates are required in determining the provision for income taxes. There are some transactions and calculations for which the ultimate tax determination is uncertain. The Lynx Group recognises liabilities for anticipated tax based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
   5.         Business combination 

The Lynx Group acquired 100% of the zinc and lead mine of Sasa, a Company holding certain lead and zinc exploration and development licences, on 3 November 2015. The final fair values of identifiable assets and liabilities of Sasa as at the date of acquisition were:
 
                                                                        Provisional       Final 
                                                                            fair           fair        Carrying 
                                                                            value          value         value 
                                                                       -------------  -------------  ----------- 
 Assets 
 Property, plant and 
  equipment.............................                                 190,911,522    189,972,158   46,752,829 
 Inventories 
  .............................................................            1,391,475      1,450,970    1,391,475 
 Trade receivables...................................................         22,824         22,824       22,824 
 Other 
  receivables....................................................          1,623,415      1,623,415    1,623,415 
 Cash and cash equivalents...................................              2,320,922      2,320,922    2,320,922 
                                                                       -------------  -------------  ----------- 
                                                                         196,270,158    195,390,289   52,111,465 
 
 Liabilities 
 Trade 
  payables.......................................................          1,808,834      1,808,834    1,808,834 
 Other current financial 
  liabilities..........................                                    1,167,346      1,167,346    1,167,346 
 Provision for liabilities...........................................      2,561,574      2,561,574    2,561,574 
 Income tax payable.................................................         500,827        500,827      500,827 
 Loans and borrowings...........................................          11,180,919     11,180,919   17,219,500 
                                                                       -------------  -------------  ----------- 
                                                                          17,219,500     17,219,500   17,219,500 
 
 Total identifiable net 
  assets at fair value 
  translated at exchange...........................................      179,050,658    178,170,789 
 Consideration paid.................................................     179,050,658    178,170,789 
 

Purchase consideration of $178,170,789 was paid in cash. The net cash outflow to acquire Sasa, net of cash acquired was $175,849,867.

The fair values disclosed are provisional as at 3 November 2015. An independent valuation advisor confirmed the final fair values in November 2016. To determine the fair value of the mineral reserves within property, plant and equipment including mining reserves the Lynx Group used a discounted cash flow model to estimate the expected future cash flows of the mine, based on the life-of-mine plan. Expected future cash flows were based on estimates of future production and commodity prices, operating costs, and forecast capital expenditures using the life-of-mine plan as at the acquisition date.

The fair value of the property, plant and equipment was determined based on a replacement cost approach. Significant part of the revenue and profit in the consolidated statement of comprehensive income arise from Sasa. No deferred tax liability was recorded upon the business combination since the Lynx Group plans the merger of the Lynx Europe and the subsidiary (Sasa).

The final value of property, plant and equipment has been decreased by $939,364, and inventory has been increased by $59,495 at the acquisition date, with a corresponding adjustment to mineral reserves. The final fair value was not significantly different than the provisional fair value. The 2015 comparative information is restated to reflect the adjustment for the year ended 31 December 2015.
   6.         Gross Revenue 
 
                                                                                                          For the 
                                                                                                           period 
                                                                                              2016         19 June 
                                                                                                             to 
                                                                                                         31 December 
                                                                                                            2015 
                                                                                          -----------  ------------- 
 Revenue on domestic market 
  - lead and zinc concentrate...........                                                   77,515,409      8,620,144 
 Revenue on foreign market 
  - lead and zinc concentrate..............                                                    23,031          2,767 
 Revenue of                                                                                   969,742              - 
 silver................................................................................ 
                                                                                          -----------  ------------- 
                                                                                           78,508,182      8,622,911 
                                                                                          ===========  ============= 
 
   7.         Operating Segment 

Sales of lead and zinc concentrate and sales of silver are sold to customers in Europe.

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

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