Anglo Asian Regulatory News (AAZ)

Anglo Asian Mining plc / Ticker: AAZ / Index: AIM / Sector: Mining

13 May 2020

Anglo Asian Mining PLC

2019 Full year results

Increase in profit before tax to $30.1 million

Final dividend increases to $0.045 per ordinary share giving a total 2019 dividend of $0.08 per ordinary share (2018: $0.07 per share)

Anglo Asian Mining PLC ("Anglo Asian" or the "Company"), the AIM listed gold, copper and silver producer focused in Azerbaijan, is pleased to announce its final results for the year ended 31 December 2019 ("FY 2019"). Note that all references to "$" are to United States Dollars.

Financial Highlights

Record total revenues

· Final dividend declared of $0.045 per ordinary share payable on 30 July 2020 subject to approval at the Annual General Meeting giving a FY 2019 total dividend of $0.08 per ordinary share (FY 2018: $0.07 per ordinary share)

· Record total revenues in 2019 of $92.1 million representing a two per cent. year-on-year ("y-o-y") increase (2018: $90.4 million)

· Profit before taxation for 2019 of $30.1 million (2018: $25.2 million) - a y-o-y increase of 19 per cent.

· Strong operating cash flow before movements in working capital of $50.5 million (2018: $50.1 million) driven by strong sales and continued operational efficiencies as one of the lowest cash cost gold producers

· Net cash of $21.2 million at 31 December 2019 (31 December 2018: $6.1 million) calculated as cash and cash in transit less aggregate of loans and borrowings with Company becoming debt free in February 2020

Operational Highlights

FY 2019 production in line with expectations

· 82,795 gold equivalent ounces ("GEOs") produced, calculated using budgeted metal prices, compared to forecast of 82,000 to 84,000 GEOs:

o Gold production for FY 2019 decreased by four per cent. y-o-y to 70,098 ounces (FY 2018: 72,798 ounces)

o Copper production for FY 2019 increased by 34 per cent. y-o-y to 2,210 tonnes (FY 2018: 1,645 tonnes)

o Silver production for FY 2019 of 159,356 ounces (FY 2018: 210,184 ounces)

· FY 2019 gold bullion sales of 53,992 ounces (FY 2018: 59,481 ounces) completed at an average of $1,410 per ounce (FY 2018: $1,265 per ounce)

· FY 2019 copper concentrate shipments to the customer totalled 10,281 dry metric tonnes ("dmt") with a sales value of $16.7 million (excluding Government of Azerbaijan production share) (FY 2018: 7,675 dmt with a sales value of $15.4 million)

· All in sustaining cost ("AISC") of gold production increased to $591 per ounce (2018: $541 per ounce) - AISC remains in the lowest quartile

· Total production target for FY 2020 between 75,000 and 80,000 GEOs

Chairman's statement

I am very pleased to report on another year of excellent performance for Anglo Asian. We continue to enjoy higher precious metal prices and the Company increased both its turnover and profits in 2019 with production broadly similar to 2018. The Company is now debt free having repaid the last instalment of its bank debt in February 2020 and has a robust balance sheet. We continue to reward shareholders from our reliable cash flow and I am delighted to declare a final dividend for the year ended 31 December 2019 of US 4.5 cents per share, payable on 30 July 2020, giving a total dividend of US 8.0 cents for 2019.

Our geological exploration programme made very good progress in the year. We announced two new significant copper and gold discoveries at Avshancli and Gilar. The mineral reserves and life of our existing mines are being extended and several promising new mineral occurrences are under investigation. We are proceeding at pace to classify our exploration targets and new discoveries as mineral resources and reserves with the aim of starting their commercial exploitation as soon as possible.

The COVID-19 health emergency has necessarily raised concerns about our current trading. The Government of Azerbaijan acted swiftly and imposed many restrictions to prevent the spread of the coronavirus. However, whilst the safety of our employees is paramount, we have been able to maintain production and continue to sell our gold doré and copper concentrate. Our production forecast for 2020 is currently unchanged. Although the future evolution of the COVID-19 health emergency and its final effects are unknown at this time, the Company is well placed to weather the situation and continue to provide returns to its shareholders.

Operational review

A total of 81,399 gold equivalent ounces was produced in 2019, a three per cent. decrease compared to 2018. Copper production increased to 2,210 tonnes compared to 1,645 tonnes in 2018. Gold production was 70,098 ounces compared to 72,798 ounces in 2018 which was a four per cent. decrease. Silver production in 2019 was 159,356 ounces, a decrease of 24 per cent. compared to 2018.

Gold production was lower by 2,700 ounces due to lower production of gold within gold doré of 1,465 ounces and lower gold within copper concentrate of 1,235 ounces. The lower gold production was due to the lower gold grade of ore processed by both the agitation leaching and flotation plants. Copper production increased due to a full year of independent operation of the flotation plant.

The Company has done much to improve the efficiency and safety of the Gedabek site during the previous few years. This has included major enhancements such as the construction of an electrical sub-station and connection of the site to the national power grid and the construction of a water treatment plant. The site is now well developed but the Company continues to make improvements wherever possible. New equipment including a reverse circulation drill rig and four excavators were deployed during 2019 and an on-site vehicle repair facility constructed. The gold room was also refurbished and new equipment installed.

Our tailings dam was inspected in June 2019 by Knight Piésold, a leading environmental engineering company. Knight Piésold reported that the dam had been properly constructed and showed no signs of instability or seepage. Various recommendations were made by Knight Piésold, which have now been implemented. The dam wall is being raised this year by six metres to increase the capacity of the dam by 1.4 million cubic metres. This will provide enough storage capacity for the next two years and will be the final raise of the wall. The Company is looking at alternative sites to build another dam and alternative treatment options for its tailings.

Financial results and dividend

Our financial performance in 2019 was again exceptional with revenues increasing by $1.7 million to $92.1 million and profit after tax by $3.0 million to $19.3 million. Increased gold prices more than offset the marginally lower production. Gold bullion was sold at an average price of $1,410 per ounce in 2019 compared to $1,265 in 2018. Revenues continued to be subject to an effective royalty of 12.75 per cent. in 2019. We anticipate this effective royalty rate will continue until at least 2023 and further details are in the financial review below. The all-in sustaining cost ("AISC") per ounce of gold produced increased in the year to $591 from $541 in 2018. This was due to a full year's operation of the flotation plant and increased mining from the Gedabek open pit. The Company's AISC remains amongst the lowest quartile in the industry.

The Group's financial position continued to strengthen in 2019. Cash from operations including cash in transit was $42.9 million and free cash flow was $25.5 million. The final instalment of its bank debt was repaid in February 2020. The Company had over $50 million of bank debt in 2015 and it was therefore a significant milestone to become debt free in early 2020. The Company has agreed terms for a $15 million standby credit facility as a precautionary measure in light of the uncertainty caused by the COVID-19 health emergency.

The Company is committed to delivering returns to shareholders by dividends and has a target of distributing approximately 25 per cent. of free cash flow to its shareholders. I am therefore delighted to announce a final dividend for the year ended 31 December 2019 of US 4.5 cents per share giving a total dividend for 2019 of US 8.0 cents per share.

Mineral resources and geological exploration

Current mineral resource and ore reserves for the Company's three mines at Gedabek, together with recent near-mine exploration work, provide confidence of a combined mine life of Anglo Asian's existing mines to at least 2024. It is the Company's intention to produce new JORC resource and reserves statements for its existing mines during the course of 2020, which is likely to further extend the mine life. This work is ongoing with completion expected during quarter three 2020.

The Company's geological exploration programme continued throughout 2019 with considerable success. Work on investigating the targets identified in 2018 by the aerial ZTEM survey continued during the year. We were delighted to announce the discovery of two new mineral occurrences "Avshancli" and "Gilar" and positive exploration results were obtained in the vicinity of our existing mines. Mineralisation remains open both down dip and to the east of the Gedabek open pit and copper mineralisation was discovered in the vicinity of the Ugur open pit. We also had success at the Gosha contract area which has historically been under explored. Mineralisation at depth was discovered beneath an existing adit of the existing Gosha mine and several new polymetallic targets were identified. WorldView-3 satellite remote sensing image collection took place over Ordubad and the area was visited by geologists from the Natural History Museum of London. Their work suggests that the geology at Ordubad is favourable for porphyry formation. A revised geological map of the contract area is under preparation using all available geological data. A targeted drill programme will then be planned to produce data for resource estimation.

COVID-19 health emergency

The Government of Azerbaijan (the "Government") implemented various strict restrictions starting from early March 2020 to contain the spread of the coronavirus. All international land borders were closed to passengers (but not to freight) and all scheduled air flights in and out of the country together with domestic flights were suspended. Domestic travel around the country and the movement of people were also severely curtailed.

The Government suspended the operation of many of Azerbaijan's industries but metallurgical companies were not required to close. Gedabek continues to operate and our office in Baku remains open. Gedabek is fortuitously in a fairly isolated location and most of its operations do not require the close gathering of many people. No cases of COVID-19 have so far occurred in Gedebek. The health of our staff is paramount and many measures have been taken to ensure their safety including carrying out an extensive education programme and implementing many hygiene measures. Operating during the COVID-19 health emergency has not added significantly to our costs.

Gold doré is usually shipped to Switzerland by scheduled air flights which have been temporarily suspended. However, the Company continues to ship gold doré by chartered aircraft. The refineries in Switzerland were temporarily closed in March and early April but have since reopened with initially limited operations.

Annual General Meeting for 2020

Due to the UK Government's COVID-19 "Stay Alert" measures which prohibits amongst other things, public gatherings of more than two people, the annual general meeting for 2020 is being convened as a "closed meeting" with only the necessary quorum of two members. Other shareholders will not be allowed to attend the meeting on the grounds of safety.

The directors have very reluctantly taken this measure as previous annual general meetings have been a valuable forum for directors to meet with shareholders. To ensure shareholders can still ask directors questions about the Company, shareholders will be able to submit questions to the board prior to the annual general meeting via the Company's web site. The Company will publish all relevant questions together with the Company's response as soon as practical following the annual general meeting.

Shareholders are strongly encouraged to still vote by proxy. However, shareholders should ensure they appoint the Chairman of the meeting as their proxy as other individuals will not be allowed to attend the meeting.

Outlook

The Company achieved considerable success in 2019 but the COVID-19 health emergency has made the short-term outlook uncertain. However, Anglo Asian is now financially robust and well placed to weather the challenges of COVID-19. The Company's main priority during this period is to protect the health and safety of its staff whilst maintaining normal operations wherever possible.

The Company has over 1,000 square kilometers of land within its contract areas. As set out above and elsewhere in this results announcement, the Company has a comprehensive exploration programme underway to extensively explore this land for new deposits. This programme is yielding results with the identification of several major targets at Gedabek and Gosha and the new mineral occurrences at Avshancli and Gilar. We are also extending the mineral reserves at our existing mines. We still regard Ordubad as an untapped value opportunity and work there has been promising. The Company will also consider any suitable opportunities outside Azerbaijan which it believes can be made commercially successful.

We have set a production target of 75,000 to 80,000 gold equivalent ounces for 2020, which is a small decrease from 2019. This includes up to 67,000 ounces of gold and between 2,200 and 2,400 tonnes of copper. We are currently still on track to achieve this production target and I look forward to updating shareholders with our progress in the coming months. At current metal prices achieving our production guidance is expected to result in a turnover in excess of $100 million.

I would like to conclude by saying that Anglo Asian accomplished much in 2019. We continue to look to the future, beyond the abatement of the COVID-19 health emergency, to build on our very solid foundations to develop your Company into a mid-tier gold, copper and silver producer. Despite the current unprecedented times, I continue to look forward to 2020 and beyond with optimism.

Appreciation

I would like to take this opportunity to thank the employees of Anglo Asian, our partners, the Government of Azerbaijan and our advisors for their continued support in these extraordinary times. I also wish to sincerely thank the shareholders for their continued investment and support in Anglo Asian.

I look forward to sharing the successes of 2020 with you.

Khosrow Zamani

Non-executive chairman

12 May 2020

Dividend

A final dividend of US$0.045 per share will be paid gross in respect of the year ended 31 December 2019 to shareholders on 30 July 2020 that are on the shareholders record at the record date of 3 July 2020 subject to approval of the shareholders at the Company's Annual General Meeting on 23 June 2020. The shares will go ex-dividend on 2 July 2020. All dividends will be paid gross and in cash. A scrip dividend or any other dividend reinvestment plan will not be offered by the Company.

The dividend will be payable in pounds sterling. The dividend will be converted to pounds sterling using the average of the sterling closing mid-price using the exchange rate published by the Bank of England at 4pm each day from the 6 to 10 July 2020.

Corporate governance and Section 172 (1) Statement

A statement of the Company's compliance with the ten principles of corporate governance in the Quoted Companies Alliance Corporate Governance Code ('QCA Code') will be included in the Company's annual report and accounts for 2019.

The Company's Section 172 (1) Statement is included within the strategic report below.

Market Abuse (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

For further information please visit www.angloasianmining.com or contact:

Competent Person Statement

The information in the announcement that relates to exploration results, minerals resources and ore reserves is based on information compiled by Dr Stephen Westhead, who is a full-time employee of Anglo Asian Mining with the position of Director of Geology & Mining, who is a Fellow of The Geological Society of London, a Chartered Geologist, Fellow of the Society of Economic Geologists, Member of The Institute of Materials, Minerals and Mining and a Member of the Institute of Directors.

 Stephen Westhead has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Stephen Westhead consents to the inclusion in the announcement of the matters based on his information in the form and context in which it appears.

Stephen Westhead has sufficient experience, relevant to the style of mineralisation and type of deposit under consideration and to the activity that he is undertaking, to qualify as a "competent person" as defined by the AIM rules. Stephen Westhead has reviewed the resources and reserves included in this announcement.

Strategic report

Principal activities

The principal activity of Anglo Asian Mining PLC (the "Company") is that of a holding company and a provider of support and management services to its main operating subsidiary R.V. Investment Group Services LLC. The Company, together with its subsidiaries (the "Group"), owns and operates gold, silver and copper producing properties in the Republic of Azerbaijan ("Azerbaijan"). It also explores for and develops other potential gold and copper deposits in Azerbaijan.

The Group has a 1,962 square kilometre portfolio of gold, silver and copper properties in western Azerbaijan, at various stages of the development cycle. The Group's primary operating site is Gedabek, which is the location of the Group's main gold, silver and copper open pit mine, the Ugur open pit mine and Gadir, an underground mine. The Group's processing facilities to produce gold doré and copper, silver and gold concentrates are also located at Gedabek. Gosha, the Group's second underground gold and silver mine, is located 50 kilometres away from Gedabek. Ordubad, the Group's early stage gold and copper exploration project is located in Nakhchivan, south-west Azerbaijan.

Overview of 2019 and 2020 production target

In 2019, the Company continued its strategy to increase shareholder value by progressing the development of Anglo Asian into a mid-tier gold, copper and silver miner. The key pillars of the strategy are as follows:

· Formalise mineral resources and ore reserves for all existing mines

· Identify further resources and reserves in proximity to its existing mines which can be brought into production quickly and efficiently in the short to medium term to increase the annual level of production

· Increase its production profile by identifying further resources and reserves in proximity to its existing mines

· Pursue a comprehensive geological exploration programme of all of the accessible land at its contract areas for new deposits with the potential to become new mines

· Ramp-up exploration at Ordubad which is an untapped value opportunity

In 2019, the publication of resource and reserve statements in accordance with the JORC Code (2012) were completed for all the Company's mines. The Company's three-year geological exploration programme, which commenced in 2018, is now starting to yield very positive results with many new targets and potential deposits identified. The exploration activities at Ordubad have also increased significantly, with approximately $1.2 million spent on exploration in 2019.

The Group has a production target for the year to 31 December 2020 of 65,000 ounces to 67,000 ounces of gold and 2,200 tonnes to 2,400 tonnes of copper. The total production target for the year to 31 December 2020 expressed as gold equivalent ounces ("GEOs") is between 75,000 GEOs and 80,000 GEOs, compared to total production for the year to 31 December 2019 of 81,399 GEOs. Silver and copper production were converted into GEOs using the following budget metal prices:

Gedabek

Introduction

The Gedabek mining operation is located in a 300 square kilometre contract area in the Lesser Caucasus mountains in western Azerbaijan on the Tethyan Tectonic Belt, one of the world's most significant copper and gold-bearing geological structures. Gedabek is the location of the Group's Gedabek open pit mine, its Ugur open pit mine, its Gadir underground mine and the Company's processing facilities.

Gold was first poured from ore mined from the Gedabek open pit and processed by heap leaching in May 2009, with production commencing fully in September 2009. Copper and precious metal concentrate production began in 2010 when the Sulphidisation, Acidification, Recycling and Thickening (SART) plant was commissioned. The Group's agitation leaching plant commenced production in 2013 and its flotation plant in 2015.

Underground extraction of ore at Gedabek started in June 2015 when the Gadir mine was opened. During 2017, the Group brought Ugur, a newly-discovered gold deposit three kilometres north-west of its processing facilities, into production as an open pit mine. In July 2018, a second crusher line was added to the flotation plant to enable independent operation and processing by the agitation leaching plant and the flotation plant.

Mineral resources and ore reserves

Key to the future development of the Gedabek site is our knowledge of the mineral resources and ore reserves within the Company's contract areas. The Group's most recent mineral resources and ore reserves estimates for its Gedabek open pit were published as of 18 September 2018. Full JORC (2012) reporting with unchanged mineral resources and ore reserves estimates was subsequently released on 14 March 2019. The mineral resource estimate showed a total mineral resource (at a cut-off grade of 0.3 grammes per tonne of gold) of approximately 986 thousand ounces of gold, 63.4 thousand tonnes of copper and 8,172 thousand ounces of silver. The economically mineable ore reserves are over 343 thousand ounces of gold and more than 36 thousand tonnes of copper, which has extended the current life of the Gedabek open pit until 2024. Table 1 shows the Gedabek open pit mineral resources estimate at 14 March 2019 and Table 2 shows the Gedabek open pit ore reserves estimate at 14 March 2019.

Table 1 - Gedabek open pit mineral resources estimate at 14 March 2019

Some of the totals in the above table do not sum due to rounding

Table 2 - Gedabek open pit ore reserves estimate at 14 March 2019

Some of the totals in the above table do not sum due to rounding

The above proved and probable ore reserves estimate is based on that portion of the Measured and Indicated Mineral Resource of the deposit within the scheduled mine designs that may be economically extracted, considering all "Modifying Factors" in accordance with the JORC (2012) Code.

The latest JORC (2012) mineral resources and ore reserves statements for the Ugur deposit were completed in 2017. Table 3 shows the Ugur open pit mineral resources estimate at 1 August 2017 and Table 4 shows the Ugur open pit ore reserves estimate at 1 August 2017.

Table 3 - Ugur open pit mineral resources estimate at 1 August 2017

Some of the totals in the above table do not sum due to rounding

Table 4 - Ugur open pit ore reserves estimate at 1 August 2017

Some of the totals in the above table do not sum due to rounding

The above proved and probable ore reserves estimate is based on that portion of the Measured and Indicated Mineral Resource of the deposit within the scheduled mine designs that may be economically extracted, considering all "Modifying Factors" in accordance with the JORC (2012) Code.

In March 2019, the Group published the mineral resources statement and ore reserves estimate in accordance with the JORC (2012) Code for its Gadir underground mine. The mineral resources statement showed measured plus indicated mineral resources (at a cut-off grade of 0.5 grammes per tonne of gold) of 1,775,000 tonnes containing 145,200 ounces of gold, 736,100 ounces of silver, 3,295 tonnes of copper and 14,470 tonnes of zinc. Table 5 shows the Gadir underground mine mineral resources estimate as at 20 August 2018. Table 6 shows the Gadir underground mine ore reserves estimate as at 20 August 2018.

Table 5 - Gadir underground mine mineral resources estimate at 20 August 2018

Some of the totals in the above table do not sum due to rounding

Table 6 - Gadir underground mine ore reserves estimate at 20 August 2018 

Some of the totals in the above table do not sum due to rounding

The above proved and probable ore reserves estimate is based on that portion of the Measured and Indicated Mineral Resource of the deposit within the scheduled mine designs that may be economically extracted, considering all "Modifying Factors" in accordance with the JORC (2012) Code. Zinc was not estimated as part of this reserve as it is under study at resource level currently.

Mining operations

The principal mining operation at the Gedabek contract area is conventional open-cast mining using truck and shovel from the Gedabek open pit (which comprises several contiguous smaller open pits) and the Ugur open pit. Ore is first drilled and blasted and then transported either to a processing facility or to a stockpile for storage. The mining activities of blast-hole drilling, and haulage of ore and waste rock, are carried out by contractors. Blasting and other mining activities are carried out by the Company.

Production commenced from the Ugur open pit mine in September 2017. To enable production, a 4.6 kilometre road was constructed between the mine and the Company's processing facilities. All necessary surface infrastructure, including geology, medical and HSE offices, hygiene facilities, a mechanical workshop, lubricants and spares stores, a weighbridge and a diesel store was also constructed at the mine site.

Ore is also mined from the Gadir underground mine, the portal of which is situated approximately one kilometre from the Gedabek open pit. Table 7 shows the ore mined in the year ended 31 December 2019 from all the Company's mines at Gedabek and Gosha.

Table 7 - Ore mined at Gedabek from all mines (including Gosha) for the year ended 31 December 2019

Processing operations

Ore is processed at Gedabek to produce either gold doré (an alloy of gold and silver with small amounts of impurities, mainly copper) or a copper and precious metal concentrate.

Gold doré is produced by cyanide leaching. Initial processing is to leach (i.e. dissolve) the precious metal (and some copper) in a cyanide solution. This is done by various methods:

1 Heap leaching of crushed ore. Crushed ore is heaped into permeable "pads" onto which is sprayed a solution of cyanide. The solution dissolves the metals as it percolates through the ore by gravity and it is then collected by the impervious base under the pad.

2 Heap leaching of run of mine ("ROM") ore. The process is similar to heap leaching for crushed ore, except the ore is not crushed, instead it is heaped into pads as received from the mine (ROM) without further treatment or crushing. This process is used for very low grade ores.

3 Agitation leaching. Ore is crushed and then milled in a grinding circuit. The finely ground ore is placed in stirred (agitation) tanks containing cyanide solution and the contained metal is dissolved in the solution. Depending on the composition of the ore, an option is available to process the finely ground ore through the flotation plant prior to, or after treatment by the agitation leaching plant. However, since installation of the second crusher line for the flotation plant in 2018, the two plants have been operating independently. Any coarse, free gold is separated using a centrifugal-type Knelson concentrator.

Slurries produced by the above processes with dissolved metal in solution are then transferred to a resin-in-pulp ("RIP") plant. A synthetic ion exchange resin, in the form of small spherical plastic beads designed to absorb gold selectively over copper and silver, is mixed with the leach slurry or "pulp". After separation from the pulp, the gold-loaded resin is treated with a second solution, which "strips" (i.e. desorbs) the gold, plus the small amounts of absorbed copper and silver, transferring the metals from the resin back into solution. The gold and silver dissolved in this final solution are recovered by electrolysis and are then smelted to produce the doré metal, comprising an alloy of gold and silver.

Copper and precious metal concentrates are produced by two processes, SART processing and flotation.

1 Sulphidisation, Acidification, Recycling and Thickening ("SART"). The cyanide solution after gold absorption by resin-in-pulp processing is transferred to the SART plant. The pH of the solution is then changed by the addition of reagents. This precipitates the copper from the solution in the form of a finely divided copper sulphide concentrate containing silver and minor amounts of gold. The process also recovers cyanide from the solution, which is recycled back to leaching.

2 Flotation. Flotation is carried out in a separate flotation plant. Feedstock, which can be either tailings from the agitation leaching plant or freshly crushed and milled ore, is mixed with water to produce a slurry called "pulp" and other reagents are then added. This pulp is processed in flotation cells (tanks). The flotation cells are agitated and air introduced as small bubbles. The sulphide mineral particles attach to the air bubbles and float to the surface where they form a froth which is collected. This froth is dewatered to form a mineral concentrate containing copper, gold and silver.

In the early years of the mine's life, gold doré was produced at Gedabek only by heap leaching crushed and agglomerated ore. Heap leaching is a low capital cost method of production commonly used by mines when they first move into production. Currently, heap leaching at Gedabek is being carried out with ore crushed to less than 25mm in size and the resultant gold recovery is approximately 60 per cent. to 70 per cent. of the contained gold over leaching cycles which extend typically beyond one year.

To increase gold recoveries and production, in 2013 the Group constructed an agitation leaching plant. Compared to heap leaching, agitation leaching can deliver higher recoveries of gold without long leaching cycles. Heap leach pads also require considerable space for their construction and due to the topography of the Gedabek site, this is a constraint. The capacity of the agitation leaching plant was increased in 2016 by the installation of a second semi-autogenous grinding ("SAG") mill.

The ore at Gedabek is polymetallic containing significant amounts of copper. Initially, the SART processing plant was constructed to recover some of the copper as a copper and precious metal chemical concentrate. However, to further exploit the high copper content of the Group's ore reserves, the Group constructed a flotation plant whose function is primarily to produce a copper-rich mineral concentrate, containing gold and silver as by-products. The flotation plant commenced production in November 2015. The flotation plant has the flexibility to be configured for various methods of operation.

In 2018, a second crusher line was installed for the flotation plant. This has a budgeted capacity of 95 tonnes per hour compared to the original crusher of up to 120 tonnes per hour. This removed a large bottleneck and enabled independent operation of the agitation leaching and flotation plants using separate sources of feedstock. The addition of this second crusher not only significantly increases the capacity of our processing plants, but also their flexibility.

Production and sales

For the year ended 31 December 2019, total gold production as doré bars and as a constituent of the copper and precious metal concentrate totalled 70,098 ounces, which was a decrease of 2,700 ounces in comparison to the production of 72,798 ounces for the year ended 31 December 2018.

Table 8 summarises the amount of ore and its gold grade processed by leaching at Gedabek for the year ended 31 December 2019.

Table 8 - Ore and its gold grade processed by leaching at Gedabek for the year ended 31 December 2019

Table 9 summarises the amount of ore and its gold, silver and copper content processed by flotation for the year ended 31 December 2019.

Table 9 - Ore and its gold, silver and copper content processed by flotation for the year ended 31 December 2019

Table 10 summarises the gold and silver bullion produced from doré bars and sales of gold bullion for the year ended 31 December 2019.

Table 10 - Gold and silver bullion produced from doré bars and sales of gold bullion for the year ended 31 December 2019

*including Government of Azerbaijan's share.

** excluding Government of Azerbaijan's share.

Table 11 summarises the total copper, gold and silver produced as concentrate by both SART and flotation processing for the year ended 31 December 2019.

Table 11 - Total copper, gold and silver produced as concentrate by both SART and flotation processing for the year ended 31 December 2019

Table 12 summarises the total copper concentrate (including gold and silver) production and sales from both SART and flotation processing for the year ended 31 December 2019.

Table 12 - Total copper concentrate (including gold and silver) production and sales from both SART and flotation processing for the year ended 31 December 2019

*including the Government of Azerbaijan's share.

** these are invoiced sales of the Group's share of production before any accounting adjustments in respect of IFRS 15. The total for the year does not therefore agree to the revenue disclosed in note 6 - "Revenue" to the Group financial statements.

Infrastructure

The Gedabek contract area is served by excellent infrastructure. The main site is located at the village of Gedabek which is connected by a good tarmacadam road to the regional capital of Ganja. Baku, the capital of Azerbaijan to the south and the country's border with Georgia to the north, are both approximately a four to five hour drive over excellent roads. The site is connected to the Azeri national power grid and there is a dedicated sub-station located at the main Gedabek processing facilities.

Water management

The Gedabek site has its own water treatment plant which was constructed in 2017 and which uses the latest reverse osmosis technology. In the last few years, Gedabek village has experienced water shortages in the summer and this plant reduces to the absolute minimum the consumption of fresh water required by the Company.

Wastewater evaporation equipment is also deployed in the tailings dam. This is mobile, skid mounted equipment into which water is pumped without treatment direct from the tailings dam. The equipment then evaporates the water by jetting it into the atmosphere as a fine spray. It can evaporate approximately 25 litres per second of water depending upon climatic conditions.

Tailings (waste) storage

The Company is very mindful of the importance of proper storage of tailings both for efficient operation of its processing plants and to fulfil its environmental responsibilities. The Company stores its tailings in a purpose built dam approximately seven kilometres from its processing facilities, topographically at a lower level than the processing plant, thus allowing gravity assistance of tailings flow in the slurry pipeline. Immediately downstream of the tailings dam is a reed bed biological treatment system to purify any seepage from the dam before discharge into the nearby Shamkir river.

The current capacity of the tailings dam is 4.3 million cubic metres. There are two pipelines from the Company's processing facilities to the tailings dam to increase capacity and provide redundancy.

The tailings dam was inspected in early June 2019 by Knight Piésold ("KP"), a leading environmental engineering company. KP reported that the dam had been properly constructed, showed no visible signs of instability and that there were no signs of seepage. Various minor recommendations, including moving the location of the tailings discharge pipes to better spread sediment within the dam, were made to ensure that the dam operates to best practice. These have now been implemented.

Health, safety and environmental

The health and safety of our employees and the protection of the environment in and around our mine properties are prime concerns for the Company's board and senior management team. The health, safety and environmental ("HSE") department at Gedabek has a qualified HSE manager, who is assisted by a team of HSE officers. Overall strategy for HSE matters in the Company is overseen by the HSE and technical committee, which is chaired by a board director, Professor John Monhemius. The HSE and technical committee meets twice a year at the Gedabek site.

During 2019, there were 21 reportable safety incidents (2018: 44), of which ten involved injuries to personnel. Three of these cases were minor injuries, but seven (2018: four) were lost time incidents (LTI), where the casualty had to take time off work. A comprehensive HSE training schedule is being implemented in 2020.

Gosha

The Gosha contract area is 300 square kilometres in size and is located in western Azerbaijan, 50 kilometres north-west of Gedabek. Gosha is currently the location of a small, high grade, underground gold mine. Ore mined at Gosha is transported by road to Gedabek for processing.

A total of 7,235 tonnes of ore of average gold grade 2.81 grammes per tonne were mined at Gosha in the year ended 31 December 2019.

The Company carried out considerable geological exploration work at Gosha in 2019, details of which are set out in the report on geological exploration below.

Ordubad

The 462 square kilometre Ordubad contract area is located in Nakhchivan, south-west Azerbaijan and contains numerous targets. The Company carried out considerable geological exploration work at Ordubad in 2019, details of which are set out in the report on geological exploration below.

Geological exploration

Overview

The Group's geological exploration programme in 2019 was the second year of a rolling three-year exploration plan. The programme was designed to both determine the further mineralisation potential of the Group's existing mines and identify new areas of mineralisation which can be brought into the Group's resource and reserves pipeline.

Summary of exploration results

The Group's exploration programme yielded a number of very significant results during the year:

· It was demonstrated that mineralisation remains open both down dip and to the east at the Gedabek open pit

· Further mineable extensions both laterally and down dip were identified at the Gadir underground mine

· The existence of copper mineralisation in the vicinity of the Ugur mine was identified

· 31 targets were detected by the aerial ZTEM survey carried out in 2018 which are now being investigated including drilling at Duzyurd

· Two new mineral occurrences were discovered at Gedabek - "Avshancli" and "Gilar"

· Mineralisation at depth was confirmed in an area ("Zone 5") below an existing adit of the Gosha underground mine

· Several new polymetallic targets were identified at Gosha.

· Drilling at a number of existing and new targets at Ordubad returned very good gold and copper grades

· Preliminary results from the Natural History Museum of London's whole rock analyses of samples from Ordubad suggest the presence of igneous rocks favourable for porphyry development

Gedabek contract area ("Gedabek")

Gedabek open pit and Duzyurd

14 diamond drill holes were completed at the Gedabek open pit area from surface for a total length of 2,425 metres. 49 reverse circulation drill holes with a total length of 2,772 metres were also completed. The drill holes were to provide confidence in the continuity of copper mineralisation and their locations were focused on the north-western and south-eastern margins of the open pit.

Duzyurd was identified as a possible porphyry target by the ZTEM survey. Its centre lies approximately 2.4 kilometres south-east of the Gedabek open pit. One drill hole was drilled at Duzyurd with a total length of 727 metres. Both the drill hole at Duzyurd and one Gedabek open pit surface drill hole were designed to explore the geology at depth.

Analysis of the drilling results confirms the two distinct types of mineralisation that were established during the 2018 resource estimation process, which are:

· Gold mineralisation with variable copper content; and

· Copper mineralisation with no gold content.

The drilling results demonstrate that both copper and gold mineralisation remains open, both down dip and to the east along strike. The results will be utilised in the next Gedabek open pit mineral resource update. Notable diamond drilling intersections include:

An additional diamond drill hole and a reverse circulation drill hole were drilled from Pit 4 for geotechnical assessment for construction of the ventilation shaft to allow for continued tunnelling below the open pit and for exploration drilling to take place.

Tunnelling from the Gadir underground mine to the target mineralisation beneath the Gedabek open pit continued throughout the year. The ventilation shaft was constructed and 1,669 metres of tunnel were developed.

Gadir underground mine

The following diamond drill holes were completed:

· 8 deep exploration drill holes from the surface with a total length of 3,809 metres targeting lateral extensions of the deposit; and

· 80 underground exploration drill holes of either HQ (63.5 millimetre diameter) or NQ (47.6 millimetre diameter) with a total length of 12,447 metres which targeted previously untested areas; and

· 153 shorter underground drill holes producing BQ-sized (36.5 millimetre) core designed to increase confidence around sites for stoping.

Surface drill holes showing significant grades were as follows:

The drilling has resulted in defining ore that extends the current Gadir mineralisation footprint both laterally and down dip. These positive results demonstrate the expansion potential of the Gadir mine. In-house geological wireframe modelling of the drill results commenced in the 2019 which will be utilised to update the geological model of Gadir.

A surface Induced Polarisation ("IP") geophysical survey over the Gadir deposit using an advanced wireless system was completed in the second half of the year. This technique involves transmitting an electrical current into the sub-surface which is then monitored by further electrodes. The results have been interpreted and are currently being analysed in conjunction with drill hole and other geological data. In-house preliminary interpretation of the IP data has established that the Gadir type geological system shows continuation in a south-westerly direction.

Ugur regional

11 surface drill holes were completed around the western, south-western and eastern flanks of the Ugur open pit, with a total length of 4,388 metres targeting down dip extensions. Two of the drill holes were for geotechnical purposes. Several drill holes in the eastern area (19UGDD03 and 19UGDD06) returned particularly positive results for copper, silver and zinc. Notable intersections, including 25 metres at 1.9 per cent. copper, were as follows:

ZTEM aerial survey

The aerial ZTEM survey was carried out in the last quarter of 2018. The survey identified 31 favourable targets as follows:

· Shallow: 20 targets at 300 metres or less depth; and

· Deep: 5 targets at between 201 to 500 metres; and

· Porphyry: 6 targets at various depths.

The shallow targets are possible epithermal-porphyry mineralisation deposits. Several of the targets straddle or lie outside of the boundary of the Gedabek contact area. However, under the production sharing agreement, the Group has the right to explore and exploit mineral deposits outside its contract area provided they can be demonstrated to have geological continuity to within the contract area.

Outcrop sampling was carried out in 2019 at those high priority targets selected for evaluation. The targets identified and the outcrop sampling results are as follows:

Drilling was also carried out at Duzyurd (M6) and the results of the investigation of the target is discussed above along with the Gedabek open pit.

Avshancli district

Avshancli is a mineral district which is 10.5 kilometres north-east of the Gedabek open pit. Avshancli is a gold-copper occurrence comprising three defined areas; Avshancli 1,2 and 3. It was discovered in the second half of the year whilst fieldwork was being conducted over the area. It was not directly identified through the ZTEM survey. However, it lies immediately south of the Zehmetkend and Masxit ZTEM targets and was defined by structural mapping of trends linking ZTEM targets.

A significant amount of exploration work took place in the second half of the year following completion of preliminary field mapping:

· 466 outcrop samples were collected

· 1,732 metres of trenching was carried out

· Nine surface drill holes of 1,732 metres total length were completed

Of the 466 outcrop samples, 156 returned reportable assay grades with gold grades as high as 4 to 6 grammes per tonne and copper grades as high as 1.5 per cent. These results are significant as they indicate the area could be a potential near-surface mineralised system.

Trenching was carried out over all three Avshancli areas. Two trenches were dug in Avshancli 1 and one each in Avshancli 2 and 3. Notable intersections were as follows:

Nine surface drill holes with a total length of 1,732 metres were completed at the Avshancli district to commence the initial drill programme. There was one notable intersection as follows:

A ground based magnetic survey covering approximately 0.15 square kilometres was completed over the Avshancli 1 region in October 2019. This was to determine if there was any subsurface magnetic response to help target drilling. The survey utilised a GEM System Overhauser GSM-19 magnetometer. Three key magnetic anomalies were identified which are believed to be associated with alteration zones. This study will enable optimisation of the drilling programme by identifying geological favourable targets. Further use of this technique together with ground based IP geophysics is planned over both Avahancli-2 and -3 during 2020.

Gilar

Gilar is a new mineral occurrence located approximately two kilometres south of Avshancli-1. It was identified during geological fieldwork in the region. It is a quartz vein deposit. Following preliminary field mapping, outcrop sampling and a preliminary drilling programme were carried out.

A total of 72 outcrop sampling assays were taken over the entire area. 35 of these returned gold grades, with 14 samples having elevated gold grades in the range of 3 to 12 grammes per tonne. One sample returned a gold grade of 16.02 grammes per tonne.

Four drill holes with a total length of 692 metres were completed at Gilar in the fourth quarter of the year. Assay results have been returned from all of the drill holes with the following significant intersections.

WorldView-3 Remote Sensing Project ("WorldView-3")

WorldView-3 remote sensing took place over Gedabek in September 2019 with data and image processing conducted by Exploration Mapping Group Inc. This is the second WorldView satellite reconnaissance carried out by the Company, following the one carried out at Ordubad (see below). The area covered by the survey is in the north-west of Gedabek in the region of the Agamaly, Narzan and Hachagaya ZTEM anomalies. These areas are being targeted to test the satellite capabilities over heavily vegetated terrain, where access is difficult. Follow-up field validation is planned to test the initial interpretation that showed significant amounts of alteration, structural trends and potential areas of mineralisation.

Natural history Museum (London) ("NHM") site visit

Geologists from the NHM visited Gedabek in late November 2019 and worked with the Company's geology team to assess the porphyry potential at Gedabek. Correlation work with the WorldView-3 data also provided information relating to alteration and structural patterns that may relate to buried porphyry systems, above which is the surface expression of the epithermal style gold-copper mineralisation seen. Samples were collected by the visiting team for further analysis at the NHM research facilities in London. Discussions are ongoing with the NHM to assess the potential to further utilise their services to assist with mineral target definition, rock age dating and geochemical interpretation.

Gosha contract area ("Gosha")

The Gosha contract area is underexplored and during the year geological fieldwork was undertaken to increase our understanding of the area. Drilling, trenching and outcrop sampling were all carried out in the near-mine region of Gosha. The results confirm the dominance of gold mineralisation around the vicinity of the Gosha mine and that gold mineralisation exists at depth below an existing adit of the Gosha mine ("Zone 5").

Exploration also took place in the Gosha region at two prospects - "Asrikchay" and "Khatinca".

Near mine exploration and "Zone 5"

Seventeen core drill holes were completed in the year with a total length of 5,700 metres in the vicinity of the Gosha mine. The aim of this drilling was to test the Gosha vein system at depth below and adjacent to the current adit ("Zone 5"). Notable intersections of the drill holes are as follows:

A total of 10 trenches were completed in the Gosha near mine region in 2019 of total length 88 metres. 104 samples were obtained taken at one metre intervals unless geological constraints warranted adjustments in sample length. Significant intersections were as follows:

A total of 169 outcrop samples were collected with five samples returning positive grades for both gold and copper as follows:

Asrikchay

Asrikchay is a recent polymetallic mineralisation discovery within the Gosha contract area. It is approximately seven kilometres north of the existing Gosha underground mine within the Asrikchay valley. No drilling was conducted during the year at Asrikchay, however interpretation of the drilling in the previous year continued. An IP geophysical survey was completed but initial interpretation of the data did not correlate well with the drill results. Further refinement of the data processing algorithms is ongoing to define the locations of mineralisation from drilling and to then expand the target area.

Asrikchay has been divided into two adjacent areas - "QS" and "ASKL". 19 and 8 outcrop samples were obtained during the year from areas QS and ASKL, respectively. Some notable grades were obtained from the QS area as follows:

A small stream sediment sampling programme was also carried out in the Asrikchay valley and surrounding water courses but none of the samples returned notable grades.

Khatinca

Exploration commenced in the year at Khatinca which is a target one kilometre from the village of Khatyndzhan and approximately four kilometres from the existing Gosha mine. Khatinca has been selected for its favourable geology, which is similar to the Gosha mine and its easy surface conditions for access. 22 outcrop samples were collected in 2019 but none returned notable grades.

Ordubad contract area ("Ordubad")

Shakardara and surrounding area (copper, gold and silver prospects)

Results were returned in the year for all 5,504 litho-geochemical samples obtained during 2018, collected over the Shakardara, Dirnis and Keleki targets. All samples passed QAQC checks and the data are currently being interpreted in-house. 48 element multi-element analysis and gold determination were completed on each sample and show positive results. Study of these results to define anomaly trends with integration of other geological data is ongoing. Based on preliminary interpretation of the geochemical data, two new areas of vein-style mineralisation were identified, namely Aylis and Unus.

Dirnis (copper and silver prospect)

The Dirnis prospect is located approximately 2.5 kilometres west of Dirnis village. It is a copper-silver occurrence and significant grades have previously been returned from malachite veining occurring in areas hosting both "White Rock" and "Green Rock" alteration.

A total of 18 diamond drill holes were completed during the year at Dirnis. Notable intersections of these drill holes are as follows:

Due to the high gold grades of DRDD06A and DRDD21 and holes previously reported, a study is being carried out on the coarseness of the gold mineralisation and the assays are being verified. Sampling pulps for the check assays are planned to be sent with the next batch of QAQC samples to the external independent laboratory used by AIMC.

Keleki (gold prospect)

The Keleki mineral target is located approximately 500 metres north of the village of Keleki and 500 metres east of the village of Unus with easy site access. Geologically, Keleki is similar to the Shakardara deposit and host rocks are various volcanic facies of Lower Eocene age. A total of ten drill holes were completed in the year to assess the depth of the extensions of the gold bearing vein system and to better understand the orientation of the ore body. Due to the very high gold grades returned, further checks of the data are planned. Significant intersections were as follows:

Destabashi

Destabashi is a copper prospect in the south-western corner of Ordubad. The Destabashi area hosts lower volcanic units capped by Cretaceous sedimentary rocks. A small-scale surface geochemical sampling campaign was completed during the year. The total area covered was 4.2 square kilometres, spread over two zones. In total, 244 samples were collected, and detailed geological mapping was completed of the sampling area. 82 samples were collected from 'Zone 1' (approximately two kilometres southeast of the village of Khanagha) and 162 samples were obtained from 'Zone 2' (adjacent to the village of Desta). Geochemical results have been received from ALS Minerals "OMAC" laboratory in Ireland and are being assessed for reporting.

Aylis

Aylis is a target recently identified through the Shakardara geochemical programme, which lies approximately 2.5 kilometres north-east of Dirnis and 2 kilometres east of Keleki. Geological mapping of total area four square kilometres was carried out in the year. Trench sampling also commenced at Aylis in late 2019. A total of 48 trenches were dug totalling 327 linear metres until the sampling was stopped due to unfavourable weather conditions. The work will recommence when weather conditions allow. The quartz veins range from 0.4 metres to 1.2 metres in thickness and contain polymetallic mineralisation. Exploration will continue of this epithermal system.

WorldView-3 satellite remote sensing

WorldView-3 satellite image collection took place over Ordubad in the second half of the year. Data were collected over an area of 244 square kilometres. Studies were completed in the final quarter of the year in collaboration with a member of the From Arc Magmas to Ores ('FAMOS') research team of the NHM to corroborate preliminary interpretations of the Worldview-3 imaging and data against field observations.

Natural History Museum of London ("NHM") whole rock analysis study

A field visit took place by geologists from the NHM in late 2018. The results of the study were published separately alongside the results of Q3 2019 exploration report for Ordubad. The potential indicators suggest that the geochemistry of the igneous sites is favourable for porphyry formations.

Detailed reports on Geological exploration

Detailed reports on all exploration activities in 2019 can be found on the Group's web-site at

https://www.angloasianmining.com/operations/exploration-and-development/

Sale of the Group's products

Important to the Group's success is the ability to transport its products to market and sell them without disruption.

Until late 2018, the Group shipped all its gold doré to MKS Finance SA in Switzerland for refining. In late 2018, the Group signed an additional contract with Argor-Heraeus SA, also in Switzerland, for the refining of gold doré. The Group contracted with a second refiner to ensure refining services are obtained on the best commercial terms. The Group now ships its gold doré to both refiners. The logistics of transport and sale are well established and gold doré shipped from Gedabek arrives in Switzerland within three to five days. The proceeds of the estimated 90 per cent. of the gold content of the doré can be settled within one to two days of receipt of the doré. The Group, at its discretion, can sell the resulting refined gold bullion to the refiner. The Group experienced very minor delays to its export of gold doré in 2019 due to delays in obtaining export permission following a reorganisation of the Ministry of Finance of the Government of Azerbaijan. The delays had no significant effect on the operations of the Group and the protocol for gold export was subsequently amended by the Government of Azerbaijan. Since the protocol was amended, no delay in the export of gold doré has been experienced other than delays due to the temporary suspension of scheduled airflights due to the COVID-19 pandemic.

The Gedabek mine site has good road transportation links and our copper and precious metal concentrate is collected by truck from the Gedabek site by the purchaser. In 2014, the Group commenced selling its copper concentrate produced by SART processing to Industrial Minerals SA, a Swiss-based integrated trading, mining and logistics group under an exclusive three year contract. This contract has been subsequently renewed and expanded to include copper concentrate produced by flotation, in addition to the SART concentrate. The latest renewal of the contract was signed in early 2020 for a period of one year, but the contract will automatically extend unless terminated by either party.

In June 2018, the Group signed a contract with Trafigura Pte. Limited ("Trafigura") for the sale of copper concentrates produced by flotation processing. The contract has no expiry date unless terminated by either party and the first shipment of concentrate was made under the contract in September 2018. In 2019, Trafigura purchased all concentrate produced by flotation and Industrial Minerals SA purchased all concentrate produced by SART processing. The Group experienced minor delays in the shipment of flotation concentrates in the first half of 2019 whilst Trafigura established its logistical procedures. These have now been settled and no delays have subsequently been experienced in the sale of concentrates.

Section 172(1) Statement and stakeholders engagement

Introduction

The board of directors of Anglo Asian Mining PLC (the "Board") consider that they have adhered to the requirements of section 172 of the Companies Act 2006 (the "Act") and have, in good faith, acted in a way that they consider would be most likely to promote the success of the Company for the benefit of its shareholders as a whole. In acting this way, the Board have had regard to and recognise the importance of considering all stakeholders and other matters as set out in section 172(1) (a to f) of the Act in its decision-making.

The Board members are directors of Anglo Asian Mining PLC which is a holding company. The Group carries out its business of mining in Azerbaijan through its wholly owned subsidiaries. Given the nature and size of the Group, the Board consider it reasonable that executive decision making for the entire Group, including its subsidiaries in Azerbaijan, is the responsibility of the Board. The section 172(1) statement has accordingly been prepared for the entire Group.

The new reporting legislation around stakeholder engagement is welcomed by the Board and the commentary and table below sets out the Company's section 172(1) statement. This statement provides details of key stakeholder engagement undertaken by the Board during the year and how this helps the Board to factor in potential impacts on stakeholders in the decision-making process.

General

The Group promotes the highest standards of governance as set out in Corporate Governance in the Group's annual report. The principles of Corporate Governance underpin how the Board conducts itself. The Board is very conscious of the impact that the Group's business and decisions has on its direct stakeholders as well as its societal impact. The Company operates to the highest ethical standards as discussed in Corporate Governance Section of the annual report.

Principal decisions and other key factors in maintaining shareholder value

For the year ended 31 December 2019, the Board consider that the following are examples of the principal decisions that it made in the year:

· Consideration and agreement of the Group's budget together with the associated production guidance for the year ended 31 December 2019.

· Consideration of the final dividend payable for the year ended 31 December 2018 and the interim dividend payable for the year ending 31 December 2019.

The Group, like all companies operating in the extractive industries, is required to continually replace and increase its mineral reserves to maintain and improve the sustainability of its business. This concern is a high priority of the Board. To address this priority, a three-year geological exploration campaign of its existing mining concessions was started in 2018 which the Board monitor through regular reports and site visits by directors. The Company is also looking at other opportunities and the Board receive regular updates on progress in this area.

The Board and senior managers of the Company hold in total 44.6 per cent. of the shares of the Company with the remainder held by a wide range of individual and institutional shareholders. The Board are extremely mindful that all shareholders must be treated equally. This is reflected in the Board's behaviour to ensure all decisions do not disadvantage external shareholders compared to the interests of directors and senior management and that external shareholders are fully and timely informed of all company developments.

Engagement with key stakeholders

The table below sets out the Board's key stakeholders and provides examples of how the Board engaged with them in the year as well as demonstrating stakeholder consideration in the decision-making process. However, the Board recognise that depending on the nature of an issue, the interests of each stakeholder group may differ. The Board seeks to understand the relative interests and priorities of each stakeholder and to have regard to these, as appropriate, in its decision making. However, the Board acknowledges that not every decision it makes will necessarily result in a positive outcome for all stakeholders.

COVID-19

The Board are very focused on the COVID-19 Health emergency and the effect on its stakeholders. The Board has ensured its shareholders are regularly updated by issuing press releases setting out in detail its effect on the Group's operations.

Principal risks and uncertainties

Country risk in Azerbaijan

The Group currently operates solely in Azerbaijan and is therefore naturally at risk of adverse changes to the regulatory or fiscal regime within the country. However, Azerbaijan is outward looking and desirous of attracting direct foreign investment and the Company believes the country will be sensitive to the adverse effect of any proposed changes in the future. In addition, Azerbaijan has historically had a stable operating environment and the Company maintains very close links with all relevant authorities.

Operational risk

The Company currently produces all its products for sale at Gedabek. Planned production may not be achieved as a result of unforeseen operational problems, machinery malfunction or other disruptions. Operating costs and profits for commercial production therefore remain subject to variation. The Group monitors production on a daily basis and has robust procedures in place to effectively manage these risks.

Commodity price risk

The Group's revenues are exposed to fluctuations in the price of gold, silver and copper and all fluctuations have a direct impact on the operating profit and cash flow of the Group. Whilst the Group has no control over the selling price of its commodities, it has very robust cost controls to minimise expenditure to ensure it can withstand any prolonged period of commodity price weakness.

The Group actively monitors all changes in commodity prices to understand the impact on the business. The Group has previously hedged against the future movement in the price of gold. The directors keep under review the potential benefit of hedging.

Foreign currency risk

The Group reports in United States Dollars and a large proportion of its costs are incurred in United States Dollars. It also conducts business in Australian Dollars, Azerbaijan Manats and United Kingdom Sterling. The Group does not currently hedge its exposure to other currencies, although it will review this periodically if the volume of non-United States Dollar transactions increases significantly. Information on the carrying value of monetary assets and liabilities denominated in foreign currency and the sensitivity analysis of foreign currency is disclosed in note 24 to the financial statements below.

Liquidity and interest rate risk

During 2019, the only material borrowing of the Group has been the Pasha Bank refinancing loan which had a fixed rate of interest. The Group has not therefore used any interest rate swaps or other instruments to manage its interest rate profile during 2019, but this recourse is reviewed on a periodic basis. The approval of the board of directors is required for all new borrowing facilities. The Group occasionally has minor borrowings in connection with providing letters of credit to suppliers.

The Group's surplus cash deposits have steadily increased since the beginning of 2019. The Group places these on deposit in United States dollars with a range of banks to both ensure it obtains the best return on these deposits and to minimise counterparty risk. The amount of interest received on these deposits is not material to the financial results of the Company and therefore any decrease in interest rates would not have any adverse effect.

COVID-19 pandemic in 2020

The COVID-19 pandemic has resulted in restrictions being put in place on the ability of the Group to operate since early March 2020. International travel generally and domestic travel in Azerbaijan has been either temporarily suspended or curtailed. The operations of many businesses in Azerbaijan have also been temporarily suspended and the Group's gold refiners in Switzerland were closed for a period in March and April 2020 but have now reopened with initially limited operations.

The measures taken by the board of directors (the "Board") to manage the risk of the COVID-19 pandemic are set out in the Corporate Governance section of the Group's annual report. These include informally convening weekly Board meetings during the pandemic to ensure all possible actions are put in place to protect the health and safety of its staff and to maintain production.

Despite the restrictions, the Company has continued in operation and to sell its products. It has also put in place actions to safeguard the health of its employees at Gedabek. These include many hygiene measures such as the provision of hand disinfectants, deep cleaning of work areas and key employee homes and the provision of take away food to avoid the close gathering of people in canteens. An education progamme for employees was carried out and the Gosha accommodation camp has been redeployed as a quarantine facility. It has also chartered aircraft to ship its gold doré to Switzerland.

The main risk to the Group from the COVID-19 pandemic would be a lower level, or a complete cessation, of production. This could occur due to an outbreak of COVID-19 at Gedabek or further action by the Government of Azerbaijan to prevent the spread of the Coronavirus. The Group may also be required to operate at a lower level of production or cease production altogether due to its inability to obtain necessary supplies and services or to adequately staff or maintain its operations. There is also the risk that the Group can continue in production but will be unable to ship and sell its finished products. However, given that the future evolution and duration of the COVID-19 pandemic is currently unknown, it is not possible to quantify at this time its long-term effect on the Group.

Key performance indicators

The Group has adopted certain key performance indicators ("KPIs") which enable it to measure its financial performance. These KPIs are as follows:

1 Profit before taxation. This is the key performance indicator used by the Group. It gives insight into cost management, production growth and performance efficiency.

2 Net cash provided by operating activities. This is a complementary measure to profit before taxation and demonstrates conversion of underlying earnings into cash. It provides additional insight into how we are managing costs and increasing efficiency and productivity across the business in order to deliver increasing returns.

3 Free cash flow ("FCF"). FCF is calculated as net cash flow from operating activities less capital expenditure. This is a measure of the amount of cash generated which can either be distributed to investors or used for expansion of the business.

4 All-in sustaining cost ("AISC") per ounce. AISC is a widely used, standardised industry metric and is a measure of how our operation compares to other producers in the industry. AISC is calculated in accordance with the World Gold Council's Guidance Note on Non-GAAP Metrics dated 27 June 2013. The AISC calculation includes a credit for the revenue generated from the sale of copper and silver, which are classified by the Group as by-products. There are no royalty costs included in the Company's AISC calculation as the Production Sharing Agreement with the Government of Azerbaijan is structured as a physical production sharing arrangement. Therefore, the Company's AISC is calculated using a cost of sales, which is the cost of producing 100 per cent. of the gold and such costs are allocated to total gold production including the Government of Azerbaijan's share.

Reza Vaziri

President and chief executive

12 May 2020

Financial review

Group statement of income

The Group generated revenues in 2019 of $92.1m (2018: $90.4m) from the sales of gold and silver bullion and copper and precious metal concentrate.

The revenues in 2019 included $76.4m (2018: $75.5m) generated from the sales of gold and silver bullion from the Group's share of the production of doré bars. Bullion sales in 2019 were 53,992 ounces of gold and 16,471 ounces of silver (2018: 59,481 ounces of gold and 25,394 ounces of silver) at an average price of $1,410 per ounce and $16 per ounce respectively (2018: $1,265 per ounce and $16 per ounce respectively). In addition, the Group generated revenue in 2019 of $15.7m (2018: $14.9m) from the sale of 10,281 (2018: 7,675) dry metric tonnes of copper and precious metal concentrate. The Group's revenue benefited in the year from a higher average price of gold at $1,404 per ounce (2018: $1,269 per ounce) offset by a lower average price of copper at $6,015 per metric tonne (2018: $6,527 per metric tonne).

The Group did not hedge any metal sales during 2018 or 2019.

The Group incurred lower cost of sales in 2019 of $54.6m (2018: $56.5m) due to lower depreciation. Cash costs were higher at $48.0m (2018: $40.5m). Reagent costs were higher due to the independent operation of the flotation plant throughout 2019 and mining costs were higher due to increased mining from the open pit in 2019. Stripping costs were $1.4m (2018: credit of $4.7m). The higher cash and stripping costs were offset by lower depreciation of $3.8m and a credit of $9.2m (2018: cost of $1.4m) in respect of an increase of inventory.

Depreciation and amortisation in 2019 was lower at $19.2m compared to $22.9m in 2018. Accumulated mine development costs within producing mines are depreciated and amortised on a unit-of-production basis over the economically recoverable reserves of the mine concerned, except in the case of assets whose useful life is shorter than the life of the mine, in which case the straight line method is applied. The depreciation and amortisation were lower in 2019 due to the lower amount of gold produced. Amortisation of $0.8m was incurred in 2019 (2018: $nil) in respect of depreciation on right of use assets due to the adoption in 2019 of IFRS 16 - "Leases".

The Group incurred administration expenses in 2019 of $5.2m (2018: $5.3m). The Group's administration expenses comprise the cost of the administrative staff and associated costs at the Gedabek mine site, the Baku office and maintaining the Group's listing on AIM. The majority of the administration costs are incurred in either Azerbaijan New Manats, the United States dollar or United Kingdom pounds sterling. United Kingdom pounds sterling weakened against the US dollar in 2019 compared to 2018 whilst the Azerbaijan New Manat was stable. Administration costs in 2019 were similar to 2018 as a marginally higher level of sterling denominated costs were offset by the weaker exchange rate. Finance costs in 2019 were $1.3m compared to $1.6m in 2018. The costs reduced in the year due to both a significant reduction in the average bank debt in 2019 and a reduction in the average interest rate on the bank debt. In the 2019, the finance costs included $0.4m (2018: $nil) interest expense on lease liabilities due to the adoption in 2019 of IFRS 16 - "Leases".

The Group recorded a profit before taxation in 2019 of $30.1m compared to $25.2m in 2018. This was due to higher revenues and lower cost of sales and finance costs.

The Group had a taxation charge in 2019 of $10.8m (2018: $8.9m). This comprised a current income tax charge of $7.2m (2018: $7.3m) and a deferred tax charge of $3.6m (2018: $1.6m). The current income tax charge of $7.2m was incurred by R.V. Investment Group Services ("RVIG") in Azerbaijan. RVIG generated taxable profits in 2019 of $22.6m which were taxed at 32 per cent. (the corporation tax rate stipulated in the Group's production sharing agreement). RVIG had no tax losses carried forward at 1 January 2019 or 31 December 2019.

The taxable profits of the operating company in Azerbaijan are taxed at 32 per cent. However, the Group's overall tax rate in 2019 was 36 per cent. (2018: 35 per cent.). The overall tax rate is higher than 32 per cent. because the UK administrative costs and depreciation of mining rights in Azerbaijan cannot be offset against the taxable profits arising in Azerbaijan. These costs in 2019 totalled $3.6m (2018: $3.3m).

All-in sustaining cost of gold production

The Group produced gold at an all-in sustaining cost ("AISC") per ounce of $591 in 2019 compared to $541 in 2018. The Group reports its cash cost as an AISC calculated in accordance with the World Gold Council's guidance which is a standardised metric in the industry. The reason for the increase in 2019 compared to 2018 was the independent operation of the flotation plant throughout 2019 and increased mining from the Gedabek open pit. Production also decreased which increases the AISC as many of the costs are fixed or semi-fixed.

Group statement of financial position

Non-current assets decreased from $98.6m at the end of 2018 to $93.4m at the end of 2019. The main reason for the decrease was property, plant and equipment being lower by $11.4m due to depreciation in the year. Non-current assets at 31 December 2019 included $3.6m (2018: $nil) in respect of right of use assets due to the adoption in 2019 of IFRS 16 - "Leases". Intangible assets increased from $17.0m at the end of 2018 to $20.0m at the end of 2019 due to expenditure on geological exploration and evaluation of $4.5m offset by amortisation.

Net current assets were $55.5m at the end of 2019 compared to $33.5m at the end of 2018. The main reason for the increase in net current assets was an increase in cash and cash in transit of $8.3m and a decrease in the current portion of bank loans payable of $5.0m. The Group's cash balances at 31 December 2019 including cash in transit were $22.9m (2018: $14.5m). Surplus cash is maintained in US dollars and was placed on fixed deposit with several banks at tenors of between one to three months at interest rates of around 1.5 to 2.2 per cent.

Net assets of the Group at the end of 2019 were $109.0m (2018: $98.4m). The net assets were higher due to the increase in retained earnings. There were no shares issued in 2019.

The Group is financed by a mixture of equity and debt. The Group's bank borrowings continued to reduce during 2019 and at 31 December 2019 were $1.7m, a significant reduction from $8.4m at 31 December 2018. The Group refinanced $13.5m of its outstanding debt during 2018 with a 3-year refinancing loan which was the only outstanding bank borrowing at 31 December 2019. The interest rate on the refinancing loan was 7 per cent. (2018: 7 per cent.). Total Group debt at 31 December 2019 was $5.5m which also includes $3.8m (2018: $nil) of lease liabilities due to the adoption in 2019 of IFRS 16 - "Leases".

There were no movements of the Group's share capital or share premium account in 2019. The Group's holding company, Anglo Asian Mining PLC received in 2019 an intercompany dividend of $10m (2018: $nil) which gives it the capacity to pay dividends of $9.1m at 31 December 2019.

Group cash flow statement

Operating cash inflow before movements in working capital for 2019 was $50.5m (2018: $50.1m). The main source of operating cash flow was operating profit before the non-cash charges of depreciation and amortisation in 2019 of $49.4m (2018: $49.8m) after adding back finance cost net of finance income.

Working capital movements excluding cash in transit absorbed cash of $7.6m (2018: generated cash of $0.6m) largely due to an increase in inventories of $9.7m (2018: $0.4m). This was due to increased stockpiles of ore and increased heap leaching at the end of 2019.

Net cash from operating activities excluding cash in transit of $5.1m in 2019 was $34.8m compared to $47.1m in 2018 due to cash absorbed by working capital and higher tax payments.

The Company paid corporation tax in 2019 of $8.2m (2018: $3.6m) in Azerbaijan in accordance with local requirements. This was the final payment of its liability for 2018 and payments on account of its liability for the year ended 31 December 2019.

Expenditure on property, plant and equipment and mine development was $4.7m (2018: $15.3m). The main items of expenditure in 2019 were mine development of $2.2m and heap leach pad expansion of $0.5m.

Exploration and evaluation expenditure in 2019 of $4.5m (2018: $2.9m) was incurred and capitalised. This arose on exploration at the Gedabek, Gosha and Ordubad contract areas.

COVID-19 pandemic in 2020

The Group has operated since early 2020 under restrictions imposed by governments around the world to combat the spread of the coronavirus. The Group has managed to maintain production and ship and sell its products. It is estimated that the Group is incurring additional operating costs of approximately $0.1m per month during the restrictions. These include the cost of chartering aircraft to ship its gold doré to Switzerland, staff overtime due to reorganisation of staff shifts to prevent the spread of the coronavirus and additional logistical costs.

The evolution and duration of the emergency is not known but should the Group be required to temporarily suspend its operations it would incur costs of approximately $1.0m per month to place the operation on care and maintenance. It currently costs approximately $4.0m to $5.0m million a month to maintain full production.

The Group has agreed terms for a $15m standby credit facility as a precautionary measure. It is for 3 years at an interest rate of 4.5 per cent. The documentation for the loan is currently being processed.

Dividends

In respect of 2019, the Group paid an interim dividend of $0.035 per share and has proposed a final dividend of $0.045 per share giving a total for the year of $0.08 per share (2018: total for the year of $0.07 per share). Dividends are declared in United States dollars but paid in United Kingdom pounds sterling. The total cost of the 2018 dividends was $8.0m (£6.3m) and the estimated total cost of the dividends for 2019 is $9.2m (£7.5m). The proposed final dividend for 2019 is subject to the approval of the shareholders and has not been accrued in the 2019 financial statements.

The directors have announced a policy to target a distribution to shareholders each year comprising approximately 25 per cent. of the Group's free cash flow. This distribution will be made in two approximately equal instalments comprising an interim and final dividend. The amounts and timing of payment of the interim and final dividends will be announced each year along with the Group's interim and final results respectively. The board will review this policy each year taking into account the financing needs of the business at that time. Free cash flow is defined as net cash flow from operating activities less capital expenditure and for 2019 was $25.5m (2018: $28.9m) including cash in transit of $5.1m (2018: $nil).

Production Sharing Agreement

Under the terms of the Production Sharing Agreement ("PSA") with the Government of Azerbaijan ("Government"), the Group and the Government share the commercial products of each mine. The Government's share is 51 per cent. of "Profit Production". Profit Production is defined as the value of production, less all capital and operating cash costs incurred during the period when the production took place. Profit Production for any period is subject to a minimum of 25 per cent. of the value of the production. This is to ensure the Government always receives a share of production. The minimum Profit Production is applied when the total capital and operating cash costs (including any unrecovered costs from previous periods) are greater than 75 per cent. of the value of production. All operating and capital cash costs in excess of 75 per cent. of the value of production can be carried forward indefinitely and set off against the value of future production.

Profit Production for the Group has been subject to the minimum 25 per cent. for all years since commencement of production including 2019. The Government's share of production in 2019 (as in all previous years) was therefore 12.75 per cent. being 51 per cent. of 25 per cent. with the Group entitled to the remaining 87.25 per cent. The Group was therefore subject to an effective royalty on its revenues in 2019 of 12.75 per cent. (2018: 12.75 per cent.) of the value of its production.

The Group can recover the following costs in accordance with the PSA:

· all direct operating expenses of the Gedabek mine;

· all exploration expenses incurred on the Gedabek contract area;

· all capital expenditure incurred on the Gedabek mine;

· an allocation of corporate overheads - currently, overheads are apportioned to Gedabek according to the ratio of direct capital and operating expenditure at the Gedabek contract area compared with direct capital and operational expenditure at the Gosha and Ordubad contract areas; and

· an imputed interest rate of United States Dollar LIBOR + 4 per cent. per annum on any unrecovered costs.

Unrecovered costs are calculated separately for the three contract areas of Gedabek, Gosha and Ordubad and can only be recovered against production from their respective contract areas. The total unrecovered costs for the Gedabek and Gosha contract areas at 31 December 2019 were $59.0m and $25.5m respectively (2018: $76.9m and $23.3m respectively). The Group's current business plans indicate that these costs will not be fully recovered until at least 2023 and the effective royalty of 12.75 per cent. will therefore continue until then.

Going concern

The directors have prepared the Group financial statements on a going concern basis after reviewing the Group's forecast cash position for the period to 30 June 2021 and satisfying themselves that the Group will have sufficient funds on hand to meet its obligations as and when they fall due over the period of their assessment. Appropriate rigour and diligence has been applied by the directors who believe the assumptions are prepared on a realistic basis using the best available information.

The Group had cash balances of $26.0 million and no bank debt at 31 March 2020. The Group is able to fund its working capital requirements from cash generated from its operations at Gedabek provided production is maintained and finished products sold. The Group has access to local sources of both short and long term finance should this be required and has agreed terms for a $15 million standby credit facility with Pasha Bank as a contingency measure.

From early March 2020, the Government of Azerbaijan gradually implemented restrictions to prevent the spread of the coronavirus. These included closing the country's international borders to passengers, temporarily suspending all scheduled air traffic and restricting domestic travel. Despite these restrictions, the Company has continued production at Gedabek and to ship and sell gold doré and copper concentrate. The Company estimates the restrictions are increasing operating costs by approximately $0.1 million per month which is not significant. Given the uncertain effect of the COVID-19 pandemic, various scenarios are possible under which the business may in future be required to operate. However, the directors believe the most likely scenarios would be a period of continuing production but having to stockpile finished product for later sale or alternatively a period where production is either disrupted or shut down and the business placed on care and maintenance. It is currently costing between $4.0 million to $5.0 million per month to continue in production and estimated it would cost approximately $1.0 million per month to place the business on care and maintenance. The directors will manage any disruption to, or cessation of, production or inability to sell the Company's products as circumstances dictate. The Group has the financial resources to continue as a going concern in the unlikely event of a very prolonged cessation of production of at least one year or more.

The Group's business activities, together with the factors likely to affect its future development, performance and position, can be found within the chairman's statement and the strategic report above. The financial position of the Group, its cash flow, liquidity position and borrowing facilities are discussed within this financial review. In addition, note 24 to the Group financial statements below includes the Group's financial management risk objectives and details of its financial instrument exposures to credit risk and liquidity risk.

After making due enquiry, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing the annual report and financial statements.

Reza Vaziri

President and chief executive

William Morgan

Chief Financial Officer

12 May 2020

Group statement of income

year ended 31 December 2019

Group statement of comprehensive income

year ended 31 December 2019

Group statement of financial position

31 December 2019

Group statement of cash flows

year ended 31 December 2019