2013 Full Year Results

Statements of Cash flows
for the year ended 31 December

Notes to the Consolidated Financial Statements
for the year ended 31 December 2013

1. General information

Central Asia Metals plc ("CAML" or the "Company") and its subsidiaries (the "Group") are a mining and exploration organisation with operations primarily in Kazakhstan and a parent holding company based in the United Kingdom.

The Group's principal business activity is the production of copper cathode at its Kounrad operations in Kazakhstan. The Group also owns various exploration projects in Mongolia which are held for sale and has recently invested in a copper tailings project in Chile.

CAML is a public limited company, which is listed on the Alternative Investment Market ("AIM") of the London Stock Exchange Plc and incorporated and domiciled in the UK. The address of its registered office is Masters House, 107 Hammersmith Road, London, W14 0QH. The Company's registered number is 5559627.

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Basis of Preparation

The Group's consolidated financial statements have been prepared in accordance with International Finance Reporting standards ("IFRS") as adopted by the European Union, IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention with the exception of assets held for sale which have been held at fair value. The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 31 December 2013. The Group financial statements are presented in US Dollars ($).

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are explained in note 3.

The Group commenced production of copper cathodes on 30 April 2012. The cathodes are produced by the SX-EW plant at Kounrad which is owned and operated by Kounrad Copper Company LLP. Consequently during 2012 the cost of sales and distribution and selling costs refer to only eight months of operations.

On 21 October 2013, the ownership of Kounrad Copper Company LLP increased from 60% to 100% following the acquisition of 40% of KCC. Consequently, the results for 2013 comprise only 60% of the revenues and costs for the first nine months of the year but 100% for the final three months of the year.

The impact of the above two events make annual comparisons difficult from the annually reported numbers in several of the notes to the accounts. A more meaningful analysis of the reported revenues and costs can be obtained from the Financial Review above.

Where a change in the presentational format between the prior year and current year financial statements has been made during the year, comparative figures have been restated accordingly.

The financial information set out above does not constitute the Group's statutory accounts for the year ended 31 December 2013, but is derived from the Group's full financial accounts. The Group's full financial accounts are prepared under International Financial Reporting Standards as adopted by the European Union. The financial statements are prepared on a going concern basis.

Basis of Consolidation

Joint Venture Accounting - Kounrad Project

The Kounrad Project ownership changes have taken a significant amount of time to complete. Throughout the periods of joint ownership and under the terms of the JOA, both of the parties had an equal vote on all significant operational, financial and planning matters. Consequently, it was concluded that Joint Control existed over the Kounrad project and so, whilst the various transactions have been negotiated and submitted for government approval, the Kounrad Project has been accounted for in the following manner;

1.     The sub soil user licence operations under SK are classified as a jointly controlled asset. The assets, liabilities, income and expenditure have been proportionately consolidated on a 60:40 basis.

2.     All of the operations conducted under Kounrad Copper Company LLP have also been proportionately consolidated on a 60:40 basis as it has been a jointly owned legal entity. During 2013 the Group took advantage of the EU exemption which enabled it to delay implementing revised accounting standards under IFRS 11 for joint entities.

Business Combinations - Kounrad Project

Throughout 2013 the above Joint Venture Accounting has remained in place although it is recognised that the completion of both transactions (KCC and SUC) will result in a change in control of the Kounrad Project from joint control to control by CAML.

As such an IFRS 3 "Business Combination" will be deemed to have taken place upon completion.

Details of the accounting treatment for the business combination are contained in note 20.

3. Critical accounting estimates and judgments

The Group has four key areas where critical accounting estimates and judgements are required that could have a material impact on the financial statements:

Impairment

As mentioned above estimates are required periodically to assess assets for impairment. These estimates will incorporate the expected future commodity prices, estimates of the ore reserves and projected future costs of development and production. This includes an assessment of the carrying values of assets held for sale.

The carrying value of the goodwill generated by accounting for the business combination of the Group acquiring an additional 40% in the Kounrad Project requires an annual impairment review. This review will determine whether the value of the goodwill can be justified by reference to the carrying value of the business assets and the future discounted cash flows of the business.

Mineral reserves and resources

The major value associated with the Group is the value of its mineral resources. These resources are the Group's best estimate of product that can be economically and legally extracted from the relevant mining property. The Group's estimates are supported by geological studies and drilling samples to determine the quantity and grade of each deposit.

Significant judgement is required to generate an estimate based on the geological data available. Ore resource estimates may vary from period to period. This judgement has a significant impact on impairment consideration and the period over which capitalised assets are depreciated within the financial statements.

The resources have been independently verified by Wardell Armstrong International and were classified as JORC Compliant in 2013.

Decommissioning and site rehabilitation estimates

Provision is made for the costs of decommissioning and site rehabilitation costs when the related environmental disturbance takes place. Provisions are recognised at the net present value of future expected costs using discount rate of 6.40% (2012: 6.86%).

The provision recognised represents management's best estimate of the costs that will be incurred, but significant judgement is required as many of these costs will not crystallise until the end of the life of the mine. Estimates are reviewed annually and are based on current contractual and regulatory requirements and the estimated useful life of mines. Engineering and feasibility studies are undertaken periodically; however significant changes in the estimates of contamination, restoration standards and techniques will result in changes to provisions from period to period.

Business combination

The Kounrad Transaction will ultimately result in the Group acquiring the 40% of the joint venture project at Kounrad that it did not previously own. The assessment of the fair value uplift of the underlying assets acquired and the treatment of the two legal entities involved in the project as at the 31 December 2013 period end required a high degree of judgement.

The assessment of the overall project as a business combination for both legal entities, Kounrad Copper Company LLP and Sary Kazna LLP, and the impact on that judgement caused by the different stages of completion as at 31 December 2013 required a careful review of the overall transaction as opposed to the specific nature of the assets being acquired.

The fair value uplift of the assets acquired as a result of that judgement and the resulting accounting treatment have resulted in a significant change to both the income statement and the balance sheet of the business. The details are explained in note 20.

4. Segmental information

The Board is the Group's chief operating decision-maker. Management has determined the operating segments based on the information reviewed by the Board for the purposes of allocating resources and assessing performance. The Board considers the business from a geographic prospective.

As at 31 December 2013, the Group only had one business segment consisting of an SX-EW copper plant at Kounrad in Kazakhstan. The Group operations are controlled from a head office in London, UK but this does not represent a separate business segment.

Previously reported business segments within the Group, namely all the Mongolian operations, are classified as held for sale as at 31 December 2013. As part of the sale process, in December 2013, New CAML Mongolia LLC and Mongolian Silver Mountain LLC were sold for nil consideration.

The Board assesses the performance of the Kounrad project based on a number of key operational and financial measures which relate to copper production output, revenues from the sales of copper and the overall costs of producing the copper. All capital related expenditure at the project is also closely monitored and controlled.

The segmental results for the year ended 31 December 2013 are as follows:

The total production at Kounrad for the 12 month period was 10,509 tonnes whilst the total quantity of copper sold was slightly higher at 10,689 tonnes. The average price achieved from the sale of copper was $7,114 per tonne.

EBITDA is a non-IFRS financial measure. CAML calculates EBITDA as profit or loss for the period excluding the following items:

·          Income tax expense;

·          Finance income and expense;

·          Depreciation and amortisation; and

·          Discontinuing operations; and Gain on re-measuring to fair value and other income or expenses.

EBITDA is intended to provide additional information to investors and analysts. It does not have any standardised meaning prescribed by IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. EBITDA excludes the impact of cash costs of financing activities and taxes, and the effects of changes in operating working capital balances, and therefore is not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate EBITDA differently.

A reconciliation between net profit for the period and EBITDA is presented below:

Segmental assets and liabilities for the year ended 31 December 2013 are as follows:

5. Revenue

The Group sells and distributes its copper cathode product primarily through an offtake arrangement with Traxys. The offtake arrangements are for 90% of the SX-EW plant's output for the period up until 31 December 2015. The copper cathodes are delivered from the Kounrad site by rail under an FCA (Incoterms 2010) contractual basis and delivered to the end customers in Turkey. As part of the offtake arrangements, the Group sells the copper cathodes at a price linked to the London Metal Exchange (LME) copper price based on an agreed quotational period.

The offtake arrangements with Traxys started in May 2012 in line with the commencement of production on site. Given the lack of previous knowledge and experience of both the logistical issues and costs associated with delivering the copper cathodes from Kounrad to the end customers at that time, it was agreed to deliver the cathodes on an "open book" basis for the remaining eight months of 2012. This basis allowed the Group to better understand the costs and logistical issues involved during this learning period and thereby agree rates for future periods on a more informed basis.

Consequently, during 2012 the costs associated with the sales and distribution of the copper cathodes from Kounrad to the end customer were incurred by Traxys but paid for by the Group. During 2013, the costs of delivery to the end customers have been effectively borne by the Group through means of an annually agreed buyer's fee which is offset from the selling price (note 8).

During 2013 the Group sold 10,500 tonnes (2012: 6,083 tonnes) of copper through the offtake arrangements. Some of the copper cathodes are also sold locally and during 2013 a total of 189 tonnes (2012: 320 tonnes) were sold to local customers.

6. Cost of sales by nature

7. Distribution and selling costs by nature

The above distribution and selling costs are those incurred at the Kounrad site in addition to the costs associated with the offtake arrangements. Note 5 above refers to the costs associated with the offtake arrangements with Traxys.

8. Administrative expenses by nature

9. Income tax

UK corporate income tax is calculated at 23.25% (2012: 24.5%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the UK statutory rate of 23.25% (2012: 24.5%) applicable to the profit of the Group, as follows:

The tax on the Company's loss before tax differs from the theoretical amount that would arise using the UK statutory rate of 23.25% (2012: 24.5%) applicable to the loss of the Company, as follows:

From 1 April 2013, the main UK Corporation tax rate reduced from 24% to 23%. Further reductions in the main tax rate to 21% from 1 April 2014 and 20% from 1 April 2015 have been announced.

The rate reductions were substantively enacted on 3 July 2013 and have been reflected in the calculation of deferred tax at the statement of financial position date.

10. Earnings/(loss) per share

(a) Basic

Basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to owners of the Company by the weighted average number of Ordinary Shares in issue during the year excluding Ordinary Shares purchased by the Company and held as treasury shares.

(b) Diluted

The diluted earnings/(loss) per share is calculated by adjusting the weighted average number of Ordinary Shares outstanding after assuming the conversion of all outstanding granted share options and exercise of outstanding security warrants.

11. Property, plant and equipment

Included within the line Acquisition of Subsidiary are a number of adjustments resulting from the Kounrad Transaction, explained in note 20. The adjustments comprise:

1.        A proportionate increase (i.e. from 60% to 100%) in the carrying values of Kounrad related property, plant and equipment of $11,214,903 and accumulated depreciation of $605,294.

2.        A fair value uplift applied to the Kounrad assets of $46,392,000 (of which $27,835,000 results from measuring at fair value the Group's 60% equity interest in KCC held before the business combination). This fair value uplift resulted in an additional depreciation charge of $1,335,856 during the year; and

3.        The transfer of assets related to the Kounrad project of $4,508,743, previously recognised as investments.

The Company had $198,119 of office equipment at net book value as at 31 December 2013 (2012: $9,543).