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Press Release: Avesoro Resources Inc. - Financial -9-

21 Mar 2018 11:00 am

On December 17, 2013 the Company entered into an agreement for an $88 million project finance loan facility (the "Senior Facility") with the Nedbank Limited and FirstRand Bank Limited (collectively the "Lenders"), and also entered into a subordinated loan facility agreement for $12 million with RMB Resources (the "Subordinated Facility"). On December 9, 2015 the Company entered into an agreement for an additional $10 million Tranche B Senior Facility ("Tranche B Facility", together with the Senior Facility and the Subordinated Facility the "Loan Facilities") provided by the Lenders. These Loan Facilities, which have been fully drawn, financed the development of the Company's New Liberty Gold Mine. $12.4 million of the Senior Facility has been repaid to date.

On March 31, 2017, the Company finalised an amendment to its Loan Facilities. The revisions include improved conditions and rescheduled repayment terms of the Loan Facilities in exchange for the provision of a personal guarantee from Mehmet Nazif Gűnal, Non-Executive Chairman of the Company, and corporate guarantees from the Avesoro Holdings Limited group, the beneficial owner of 72.9% of the Company's issued equity.

The rescheduled repayment structure provides no further capital repayments until March 31, 2018 and the Senior Facility loan tenor has been extended by two years until January 31, 2022, and the tenor on the Subordinated Facility has been extended to the earlier of 12 months following the repayment of the senior facility or January 31, 2023. The Senior Facility interest rate remains at LIBOR plus 1.8% until 2020, following which it will increase to LIBOR plus 4.3% and the Subordinated Facility interest rate remains the same at LIBOR plus 7.5%.

The Senior Facility is secured by charges over the assets of BMMC and charges over the shares in BMMC.

(b) Shareholder loan

Current

The current shareholder loan payable to AJL of $8.1 million was assumed on acquisition of Youga and Balogo Gold Mines (see Note 4).

Non-current

During the year ended December 31, 2017, BMMC borrowed $18.8 million from AJL to meet liabilities arising on the termination of legacy procurement contracts, make advanced payments to suppliers to secure lower unit cost pricing and to accelerate the acquisition of capital items that will increase process plant throughput at New Liberty.

The loan is unsecured and ranks subordinated to the Company's bank loans. Interest is charged on the loan at a fixed rate of 3.75% per annum. The amount undrawn from this loan facility as at December 31, 2017 is $16.2 million. BMMC may draw down in multiple tranches at the Company's discretion before December 31, 2020, with funds available for general working capital purposes. The facility is due to repaid in full no later than December 31, 2022 and has no early repayment penalty.

The loan payable to AJL was initially recognised at fair value calculated as its present value at a market rate of interest and subsequently measured at amortised cost. The difference between fair value and loan amount of $4.5 million has been credited to equity as a capital contribution as the loan is from its majority shareholder.

(c) Related party loan

During the year ended December 31, 2017 the Company entered into equipment and finance facility agreements with Mapa İn aat ve Ticaret A. . ("Mapa"), a company controlled by Mehmet Nazif Gűnal, Non-Executive Chairman of the Company, to facilitate the purchase of heavy mining equipment totaling $23.2 million. The loan principal of these agreements includes a mark-up of 2.5% over the cost incurred by Mapa in procuring the equipment. The equipment finance loans are unsecured, with interest charged at 6.5% per annum on the US$ denominated loan amount of approximately $11 million and 5.5% per annum on the Euro denominated loan amount of approximately EUR10.3 million (equivalent to approximately $12.2 million). The loans are repayable in cash in eight equal semi-annual instalments, the first of which will fall due six months after utilisation of the loan.

The loan payable to Mapa was initially recognised at fair value calculated as its present value at a market rate of interest and subsequently measured at amortised cost. The difference between fair value and loan amount of $6.5 million has been credited to equity as a capital contribution from a related party.

14. Trade and other payables
 
                                      December 31,2017  December 31,2016 
                                      $'000             $'000 
Current 
Trade payables                                  27,649             7,368 
Due to related parties (Note 20(e))                464             1,342 
Accruals and other payables                     12,890             5,517 
                                                41,003            14,227 
Non-current 
Trade payables                                     463                 - 
 

15. Finance lease liability

The finance lease liability relates to diesel-powered generators and related equipment and the fuel storage facility, all at New Liberty Gold Mine. Such assets have been classified as finance leases as the rental period amounts to a major portion of the estimated useful economic life of the lease assets and the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased assets.
 
                                   December 31,  December 31, 
                                    2017          2016 
                                   $'000         $'000 
Gross finance lease liability 
- Within one year                         2,820         3,902 
- Between two and five years              7,191        11,842 
- After five years                            -           420 
                                         10,011        16,164 
Future finance cost                     (2,223)       (4,004) 
Present value of lease liability          7,788        12,160 
 
Current portion                           1,913         2,370 
Non-current portion                       5,875         9,790 
 

As discussed in Note 11, the Company cancelled certain finance leases of heavy mining equipment. The derecognition of those finance leases resulted in a gain of $4 million recognised in the consolidated statement of comprehensive income.

16. Derivative liability
 
                        Year ended         Year ended 
                         December 31,2017   December 31,2016 
                        $'000              $'000 
Beginning of the year                 105              1,159 
Change in fair value                    -            (1,054) 
End of the year                       105                105 
 

On April 22, 2014 and July 29, 2014 the Company issued 16,687,499 and 12,260,148 warrants, respectively, with an exercise price of GBP0.378 (or the prevailing C$ equivalent thereof) and a term of three and a half years.

On December 22, 2015 the Company issued 20,400,000 Financier Options and re-issued 11,124,528 warrants with an exercise price of 7p and a term of 3.3 years.

The Company's derivative liability is classified as Level 3 where the fair value is based on inputs that are not observable and significant to the overall fair value measurement. These are treated as a derivative liability and were fair valued at inception using the Black-Scholes option pricing model and the following assumptions:

16. Derivative liability (continued)
 
                                          December 22,  July 29,    April 22, 
                                           2015          2014        2014 
Number of warrants                          31,524,528  12,260,148  16,687,499 
Exercise price                                   7 GBp    37.8 GBp    37.8 GBp 
Dividend yield                                      0%          0%          0% 
Risk free interest rate                          1.29%       1.93%       1.99% 
Expected life                                3.3 years   3.5 years   3.5 years 
Expected volatility (based on historical 
 volatility)                                       60%         43%         46% 
 

The changes in fair value at each reporting date are taken directly to the statement of comprehensive income. The following assumptions were used at each date.
 
                                                   December 31,  December 31, 
                                                    2017          2016 
Exercise price                                     7 GBp         7-37.8 GBp 
Dividend yield                                               0%             0% 
Risk free interest rate                                   0.73%          0.55% 
Expected life                                         1.3 years  0.8-2.3 years 
Expected volatility (based on historical 
 volatility)                                               103%        92-115% 
 

The weighted average exercise price of the outstanding 31,524,528 warrants which are accounted for as derivative liability as at December 31, 2017 is 7 GBp (2016: 22 GBp).

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