Atalaya Mining Regulatory News (ATYM)

6 April 2017

Atalaya Mining Plc

("Atalaya" or the "Company")

Final Results for the year ended 31 December 2016

Atalaya Mining plc (AIM:ATYM, TSX:AYM), the European mining and development company, announces its audited results for the year ended 31 December 2016.

The full audited report, including the consolidated Financial Statements is also available under the Company's profile on SEDAR at www.sedar.com and on the Company's website at www.atalayamining.com

Project Highlights in 2016

· Proyecto Riotinto reached its nameplate capacity of 9.5Mtpa in December 2016. Phases I and II were completed during the year with ramp-up below budget and ahead of schedule.

· Updated NI 43-101 technical report for Proyecto Riotinto was filed in September 2016, reporting a 12% increase in open pit reserves and extending the life of mine to 16.5 years.

· Management continued to look for efficiencies in order to reduce operating costs and will continue to do so.

Production highlights for the 12 months to December 2016

· Atalaya processed 6.5 million tonnes of ore in 2016, including pre-commissioning production.

· From Q2, recoveries improved quarter on quarter with an average rate of 83.29% achieved for the full year.

· Copper concentrate grades of over 21% remained consistent throughout the period, achieving market standards and reducing penalties below the maximum levels stipulated by some smelters.

· Production for 2016 was 122,468 tonnes of copper concentrate containing 26,179 tonnes of copper and 434,000 ounces of silver. Payable copper, including January pre-commissioning production, amounted to 25,353 tonnes.

· Atalaya maintains its copper production guidance for 2017 of 34,000 - 40,000 tonnes.

Financial highlights for the 12 months to December 2016

As commercial production was declared at the start of February 2016, no comparative operational data is available for 2015

· Sales of €98.8 million for the final eleven month period in 2016 since declaring commercial production, including €0.5 million of realised gains on copper hedges. As at 31 December 2016, inventory of concentrate was nil as all concentrate produced was shipped.

· Operating costs, corporate costs and exploration costs amounted to €77.8 million, €4.6 million and €1.0 million respectively, resulting in EBITDA of €15.4 million for Proyecto Riotinto's first year of production.

· Total cash costs for 2016 of US$1.95/lb, providing healthy margins and positive cash flows at average copper prices of $2.21/lb during the year and $2.40/lb during Q4.

· Net income of €12 million (or 10.3 cents per share) included a tax credit of €12.2 million. This was mainly due to the recognition of a deferred tax asset in respect of tax losses for prior years as the start of commercial production has made it probable that these accumulated tax losses will be recovered through future profits. A loss of €15.0 million (or 17.9 cents per share) was reported in 2015 when the project was still under development and no sales were recognised.

· As at 31 December 2016, reported net assets totalled €188.5 million and comprised fixed assets of €263.5 million, long term liabilities of €49.6 million (including rehabilitation provisions and deferred obligations related to Astor) and a working capital deficit of €25.4 million.

· Agreement with Transamine Trading S.A, in September 2016 for a US$14 million prepayment to assist in funding the project expansion.

· The Group shows a working capital deficit of €25.4 million compared with €24.4 million in Q3. There was an underlying reduction in the working capital deficit, offset by reclassification of €5.4 million of the prepayment from Transamine Trading, S.A, from non-current liabilities to current liabilities.

· Positive cash flows from operating activities for the 12 months ended 31 December 2016 amounted to €13.8 million. Cash used for plant construction was €31.3 million with the remaining €17.5 million funded by proceeds from share capital issuances during 2015.

Post-period highlights

· On 6 March 2017, the High Courts of Justice in London ruled that the Group was not in breach of its obligations to Astor under the Master Agreement. The Deferred Consideration did not become payable when permit approval for Proyecto Riotinto was granted, nor did the intra-group loans used to fund the re-start of the project constitute a "senior debt facility" and therefore did not trigger payment of the Deferred Consideration. However, the Master Agreement and its provisions remain in place and while no lump sum or fixed payment schedule is required, the Deferred Consideration must be paid from any excess cash after payment of operating expenses, capital expenses, senior debt service requirements and up to US$10 million of non-Proyecto Riotinto expenses until it is paid in full. In declarations made on 31 March 2017 the Court confirmed that the cash sweep in the Master Agreement also operated to require the Group to apply any excess cash to repaying early the €9.1 million owed to Astor under a credit assignment agreement. However, the Court also confirmed that the cash sweep does not apply to the up-tick payments of up to €15.9 million under the Master Agreement (the "Up-tick Payments") and the judgment notes that the only situation in which the Up-tick Payments could ever become payable is in the unlikely event that mining operations stop at Proyecto Riotinto and a senior debt facility is then secured for a sum sufficient to restart mining operations.

· On 23 February 2017, the Company announced that it had exercised an option to acquire an interest in the Touro Copper Project (Proyecto Touro) located in northwest Spain. It is a brownfields mine site with good local infrastructure that was operated by Riotinto Patiño up to 1986 using open pit mining and copper flotation. The Company has conducted significant drilling, resource evaluation, mine planning, metallurgical test work, plant engineering and other auxiliary studies required to fast track the project to feasibility ahead of permitting. The acquisition of the Project is based on a staged earn-in agreement starting with a 10% ownership of the Project in Phase 1 increasing to an 80% interest in Phase 4 once the project has been financed and construction has commenced. The total consideration for an 80% interest is €18.5 million which equates to less than US$0.02/lb of copper resources in the ground.

· Atalaya granted a total of 900,000 stock options to Persons Discharging Managerial Responsibilities (PDMRs) and management. The options will expire five years from the grant date (23 February 2017), have an exercise price of 144.0 pence and a vesting period of three years.

Alberto Lavandeira, CEO commented:

"This was a transformational year for the Company as we completed Riotinto's journey back to full production significantly ahead of schedule and under budget. Having reached our nameplate capacity of 9.5Mtpa the plant has been running smoothly but we continue to focus on improving performance and chasing efficiencies in order to further reduce our operating costs. The acquisition of Touro, our second project, highlights our strategy of building on our success at Riotinto to expand our portfolio in order to realise our ambition to become sizable and profitable producer. The High Court's decision on the Astor case was positive for us as it has removed the threat of having to pay the Deferred Consideration as a lump sum or according to a fixed schedule, regardless of the cash generation of Proyecto Riotinto. We continue to believe that a lack of significant new copper supply will have a positive impact on the copper price in the medium term making Atalaya Mining a long term option on copper".

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

Contacts:

Directors' report

The board of directors presents its report for Atalaya Mining Plc ("Atalaya Mining" and/or the "Company") and its subsidiaries ("Atalaya", the "Company" and/or the "Group") together with the consolidated financial statements of the Group for the year ended 31 December 2016.

Introduction

This report provides an overview and analysis of the financial results of operations of Atalaya Mining Plc and its subsidiaries ("Atalaya" and/or the "Group"), to enable the reader to assess material changes in the financial position between 31 December 2015 and 31 December 2016 and results of operations for the years ended 31 December 2016 and 31 December 2015.

This report has been prepared as of 5 April 2017. The analysis, hereby included, is intended to supplement and complement the audited consolidated financial statements and notes thereto ("Financial Statements") as at and for the year ended 31 December 2016. The reader should review the Financial Statements in conjunction with the review of this report and with the annual audited, consolidated financial statements for the year ended 31 December 2015. These documents can be found on the Atalaya website at www.atalayamining.com.

Atalaya prepares its Financial Statements in accordance with International Financial Reporting Standards ("IFRSs"). The currency referred to in this document is the Euro, unless otherwise specified.

Forward looking statements

This report may include certain "forward-looking statements" and "forward-looking information" under applicable securities laws. Except for statements of historical fact, certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterised by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate", and other similar words, or statements that certain events or conditions "may" or "will" occur. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made, and are based on a number of assumptions and subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. Assumptions upon which such forward-looking statements are based include that all required third party regulatory and governmental approvals will be obtained. Many of these assumptions are based on factors and events that are not within the control of Atalaya and there is no assurance they will prove to be correct. Factors that could cause actual results to vary materially from results anticipated by such forward-looking statements include changes in market conditions and other risk factors discussed or referred to in this report and other documents filed with the applicable securities regulatory authorities. Although Atalaya has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Atalaya undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements.

Incorporation and principal activity

Atalaya Mining was incorporated in Cyprus on 17 September 2004 and is a limited liability company under the Companies Law of Cyprus, Cap. 113. The Company was listed on the AIM Market of the London Stock Exchange in May 2005 (AIM: ATYM) and on the Toronto Stock Exchange ("TSX") (TSX: AYM) in December 2010.

The Company is a new copper producer with the historical mine of Proyecto Riotinto as its main asset. The site has historically been mined since ancient times. In 2001, operations stopped due to low copper prices and the mine was put in care and maintenance until 2015, when Atalaya reopened the mine and started operations following 18 months of refurbishment, commissioning and ramp-up.

The mine is located in Huelva in the Faja Piritica belt of south Spain, in a mining area with excellent infrastructure and access to power and water, 65 km northwest of Seville and 75 km from a smelter and a major seaport.

The asset is an open-pit mine with certificated proven and probable ore reserves of 153 million tonnes of ore containing 680,000 tonnes of copper. The fully operated processing plant of 9.5Mtpa provides a 16+ years of life of mine producing concentrate.

Atalaya has offices in Nicosia (Cyprus) and Huelva (Spain) and a strong workforce of more than 320 employees plus more than 150 contractors on site.

Directors' report (continued)

Review of operations

The following table presents a summarised statement of operations for the year ended 31 December 2016. As commercial production was declared in February 2016, no operational data was available for 2015.

Note:

1) The numbers in the above table may slightly differ between them due to rounding.

2) The 2016 figures include pre-commissioning production for January 2016.

Declaration of commercial production, expansion project and production ramp-up

During the year, the Group achieved significant milestones in Proyecto Riotinto. In early 2016, the Group successfully completed the commissioning and the ramp-up for Phase I. Commercial production was declared in February 2016, as the plant reported above 85% of planned throughput capacity of 5 Mtpa, while maintaining copper recoveries of above 80% and copper concentrates grades of approximately 20% copper.

At the same time the plant commenced its operations, the Group started the expansion project to increase capacity to 9.5 Mpta. The expansion project was declared mechanically complete in May 2016, ahead of schedule and under budget.

The ramp-up for the expanded plant was finalised in December 2016, when the plant reached nameplate capacity during a single run of ten consecutives days, achieving designed recoveries and concentrate grades.

In 2017, once treatment rates are stabilised, the Group will continue to seek and implement alternatives to optimise the plant in terms of throughput, recoveries and cost reductions.

Mining and Processing

Mining

Atalaya mined 7.75 million metric tonnes of ore during 2016. As this is the first year of operation of Proyecto Riotinto, the only operation mine of the Group, no comparatives are available for 2015. The average ore mined for the year was 646,208 tonnes per month, with October being the highest month of mining with 1.1 million tonnes of ore mined.

Mining operations during 2016 were carried out in the Cerro Colorado open pit.

Management has worked to maintain ore level in the stockpile. As of 31 December 2016, the ore in the stockpile was shown as inventory in the balance sheet.

Processing

Ore processed in the year was 6.5 million tonnes, including 391,787 tonnes of ore processed in January, during the pre-commissioning stage.

Since commercial operations started in February 2016, the plant has increased its production rate as expected, and achieved nameplate capacity in December 2016, with an annualised rate of 9.5 million tonnes per annum.

Plant availability was in line with planned ramp-up, increasing progressively since February 2016.

Grades

Average ore grade for 2016 was 0.49%, increasing from 0.43% in the first quarter of 2016 to 0.52% in the last quarter.

Copper grade levels were in line with the updated Technical Report released in September 2016 (Note: Exploration and geology).

Copper concentrate grade averaged 21.56% during 2016, in line with offtake agreements and offtakers' expectations.

Recoveries

The recovery rate in 2016 was 83.29% reaching the design criteria.

Copper production

The Group produced during the year 122,468 tonnes of copper concentrates with 26,179 tonnes of copper and 434 thousand ounces of silver contained. Copper payable amounted to 25,353 tonnes.

Directors' report (continued)

Infrastructure

During the year, the Company completed investment in the commissioning of the operation and the expansion to the current nameplate capacity of 9.5 Mtpa.

A water treatment plant is now fully operational after successful commissioning during the third quarter of 2016.

Dewatering of Cerro Colorado open pit is progressing according to plan and the pit is expected to be fully dewatered by the summer of 2017.

Exploration and geology

During 2016, Atalaya compiled and reported an updated technical report on its Mineral Resources and Reserves for Proyecto Riotinto. The report was compiled according to the Canadian National Instruments 43-101 and filed on a voluntary basis.

New mineral reserves estimation amounts to 152.8 million metric tonnes with an average copper grade of 0.45%, using variable, declining cut-off grades. New reserve estimates increased both copper metal contained by 12%, up to 681,000 metric tonnes and life of mine, up to 16.5 years.

Total open-pit measured and indicated mineral resources were estimated at 192.8 million metric tonnes, averaging 0.43% copper. Inferred mineral resources were estimated at 22.7 million metric tonnes, averaging 0.48% copper. These figures do not include any resources from the San Antonio/Planes deposit and from the San Dionisio/Atalaya zones. Although some of these zones could have some limited open pit potential, it is expected that, if economic, they would be mined using underground methods. After concentrating on infill drilling of the Cerro Colorado pit, Atalaya is now focusing exploration in extensions of new mineralisation at the Cerro Colorado and Atalaya pits.

Operation guidance

The forward-looking information contained in this section is subject to the risk factors and assumptions contained in the cautionary statement on forward-looking statements included in the introduction note of this report.

The short and medium terms outlook for commodities appears to remain positive. It is expected that demand from Asian countries will continue to stimulate the demand for commodities. As a base metals producer of copper, Atalaya's operation is subject to the demand for, and fluctuations in the market prices of copper. The Company considers itself well-positioned for the future as its main operation is fully operated now and it is located in a historical site, within a safe jurisdiction.

The Riotinto Project operational guidance for 2017 is 34,000 to 40,000 tonnes of copper contained in concentrates. Copper head grade for 2017 is expected to be in line with 2016 figures and average between 0.49% Cu and 0.51% Cu, with an expected recovery rate of 79% to 82%.

On the costs side, with the expected full capacity production levels, cash operating costs for 2017 are expected to be in the range of $1.9/lb - $2.1/lb.

Acquisition of Touro project

On 23 February 2017, the Company announced that it had exercised an option to acquire 10% of the share capital of Cobre San Rafael S.L., ("CSR"), a wholly owned subsidiary of Explotaciones Gallegas S.L. ("EG"), part of the F. GOMEZ Group. This is part of an earn-in agreement (the "Agreement"), which will enable the Company to acquire up to 80% of CSR.

Proyecto Touro is located about 27 km east of Santiago de Compostela in northwest Spain. It was operated by Riotinto Patiño from 1973 to 1986 using open pit mining followed by copper flotation. Infrastructure is in place, including high voltage power and a road network providing access to an international airport and a number of deep-water ports.

In July 2015, the Company secured an exclusivity agreement. Since then it has been working with its consultants to evaluate the viability of the project. The Company has carried out significant drilling, resource evaluation, mine planning, metallurgical test work, plant engineering and other auxiliary studies required to fast track the project to feasibility stage ahead of permitting.

The Company's evaluation of the results to date has confirmed and expanded the resources identified by previous owners. As the project has been a past producer, the orebody is well understood and exhibits straightforward metallurgy, reporting good copper recoveries and clean concentrates.

Drilling has confirmed a significant resource that remains open in several directions. The deposit is amenable to open pit mining in shallow pits. Capital expenditures are expected to compare favourably with copper projects globally, as was the case at Proyecto Riotinto.

Following the acquisition of the initial 10% of CSR's share capital, the agreement included the following four phases:

Directors' report (continued)

Acquisition of Touro project (continued)

· Phase 1 - The Company paid €0.5 million to secure the exclusivity agreement and will continue to fund up to a maximum of €5 million to get the project through the permitting and financing stages.

· Phase 2 - When permits are granted, the Company will pay €2 million to earn-in an additional 30% interest in the project (cumulative 40%).

· Phase 3 - Once development capital is in place and construction is underway, the Company will pay €5 million to earn-in an additional 30% interest in the project (cumulative 70%).

· Phase 4 - Once commercial production is declared, the Company will purchase an additional 10% interest in the project (cumulative 80%) in return for a 0.75% Net Smelter Return (NSR) royalty, with a buyback option.

The Agreement has been structured so that the various phases and payments will only occur once the project is de-risked, permitted and in operation.

Ruling on the Astor litigation

On 6 March 2017, judgment in the Astor Management AG ("Astor") case ("Astor Case") was handed down in the High Court of Justice in London (the "Judgment"). On 31 March 2017 declarations were made by the High Court which give effect to the Judgment.

In summary, the High Court found that the deferred consideration of €43.8 million (the "Deferred Consideration"), potentially payable to Astor under the master agreement entered into in 2008 between inter alia the Company and Astor (the "Master Agreement"), did not start to become payable when permit approval was granted for Proyecto Riotinto. In addition, the intra-group loans by which funding for the restart of mining operations was made available to the Company's subsidiary, Atalaya Riotinto Minera S.L. did not constitute a "Senior Debt Facility" so as to trigger payment of the Deferred Consideration. Accordingly, the first instalment of the Deferred Consideration has not fallen due.

Astor failed to show that there had been a breach of the all reasonable endeavours obligation contained in the Master Agreement to obtain a senior debt facility or that the Group had acted in bad faith in not obtaining a senior debt facility. While the Court confirmed that the Group was not in breach of any of its obligations, the Master Agreement and its provisions remain in place. Accordingly, other than up to US$10 million a year which may be required for non-Proyecto Riotinto related expenses, Atalaya Riotinto Minera S.L. cannot make any dividend, distribution or any repayment of the money lent to it by companies in the Group until the consideration under the Master Agreement (including the Deferred Consideration) has been paid in full.

As a consequence, the Judgment requires that, in accordance with the Master Agreement, Atalaya Riotinto Minera S.L. must apply any excess cash (after payment of operating expenses, sustaining capital expenditure, any senior debt service requirements and up to US$10 million (for non-Proyecto Riotinto related expenses)) to pay the consideration due to Astor (including the Deferred Consideration and the amount of €9.1 million payable under the loan assignment agreement between the parties) early. The Court confirmed that the obligation to pay consideration early out of excess cash does not apply to the up-tick payments of up to €15.9 million (the "Up-tick Payments") and the Judgment notes that the only situation in which the Up-tick Payments could ever become payable is in the unlikely event that mining operations stop at Proyecto Riotinto and a senior debt facility is then secured for a sum sufficient to restart mining operations.

The Company will consider whether it is appropriate to appeal the Court's decision that excess cash should be used to pay consideration to Astor in circumstances where the conditions precedent to payment have not been met.

Results

The Group's profit after taxation for the year ended 31 December 2016 was €12.0 million compared to a loss of €15.0 million for the year ended 31 December 2015.

Consolidated income statement

The profit for the year 2016 is summarised and compared to the loss for the year 2015 as follows:

Directors' report (continued)

Definition

EBITDA, as defined below, provides insight into the Group's overall business performance (a combination of cost performance, commodity prices and sales volumes), and are the corresponding flow drivers towards achieving an industry-leading return on equity. EBITDA is revenue less cost of goods sold and selling and administrative expenses, excluding significant items such as Impairment, Interest, Tax, Depreciation and Amortisation.

General

Revenues for the year ended 31 December 2016 amounted to €98.8 million (year ended 31 December 2015: €nil). Revenues relate to sales of copper concentrate to off takers since commercial production was declared in February 2016. Total concentrates sold during the year amounted to 122,468 tonnes, as no concentrate inventory was held as of 31 December 2016.

Total operating costs and corporate expenses (both excluding depreciation and amortisation costs) for the year ended 31 December 2016 amounted to €77.9 million and €4.6 million respectively (year ended 31 December 2015: €nil million and €4.2 million respectively).

Operating costs relate to the costs incurred for Proyecto Riotinto, including on-site administration expenses.

Corporate expenses include costs incurred at the corporate office in Cyprus and relate to the general and administrative costs not directly attributable to the Proyecto Riotinto operation.

During 2016 the Operation reported Cash Cost of $1.95 per pound of copper.

Care and maintenance cost incurred during 2015 refer to the pre-commercial stage of the Proyecto Riotinto cost.

Exploration expenses amounted to €1 million, incurred mainly on work done on historical sites. As at 31 December 2016, diamond drilling was carried out mainly in the lateral extension of Cerro Colorado as per Group´s drilling program. The current drilling campaign is focused on San Antonio - Planes, San Dionisio, Alfredo and Filon Sur.

Share-based payments relates to stock options granted to directors and key employees amounted to 137k and 152k for 2016 and 2015, respectively.

Other income amounted to €292k (2015: €135) mainly relating to the sale of scrap.

EBITDA amounted to €15.4 million for the year ended 31 December 2016. The EBITDA level was impacted by the initial low levels of production and lower copper prices toward the beginning of the year.

The main items below the EBITDA line are depreciation and amortisation of €11.3 million, net finance costs and FX losses amounting to €3.3 million, which included the true-up of the deferred consideration, and an impairment of land options not exercised of €0.9 million.

During 2016, the Group recognised a deferred tax asset in respect of tax losses for prior years and recorded a tax income of €12.2 million (2015: expense of €30k) as the start of commercial production has made it probable that these accumulated tax losses will be recovered through future profits.

The Group's full results for the year are set out on page 22.

Realised copper prices

The average prices of copper for year ended 31 December 2016 are as summarised below. As commercial production was declared in February 2016, no operational data was available for 2015.

Consolidated financial position

Directors' report (continued)

Results (continued)

Assets

Total assets were €300.9 million as at 31 December 2016, compared to €224.1 million as at 31 December 2015, an increase of €76.8 million. The Group's significant assets are its mineral properties and mining plant, property and equipment at Proyecto Riotinto. The increase is mainly due to increase in property, plant and machinery of €23.0 million, an increase in intangibles of €39.5 million, an increase in deferred tax asset of €12.2 million, an increase in inventories of €6.2 million and an increase in receivables of €13.4 million, counteracted by a decrease of €0.04 million in available-for-sale investment and a decrease in cash and cash equivalents of €17.5 million.

The increase in property, plant and equipment is primarily due to the execution of works for the restart of activities at Proyecto Riotinto: machinery, equipment, improvement of facilities, professional services and other development costs necessary to renew the mining installations in readiness for the start up and the works done on the expansion of the facilities.

The increase in intangible assets relates to the recognition of the intangible assets corresponding to the deferred consideration recognised in relation to the Astor Case and the result of work completed by technical, permitting and other consultants to develop the necessary technical evaluation and plans for operational and environmental requirements, for the project restart, including restoration and water management.

Other current assets as at 31 December 2016 were €36.3 million (2015: €16.9 million), of which €6.2 million (2015: €nil ) related to spare parts and ore in stockpile classified as inventories, €0.3 million (2015: €0.3 million) related to available-for-sale investment, €29.9 million (2015: €16.6 million) related to trade and other receivables. Trade receivables comprise €15.1 million of receivables from copper concentrates from third parties (2015: €nil) €2.1 million (2015: €6.5 million) related to a receivable from related parties from copper concentrates sales, €11.2 million (2015: €8.0 million) related to VAT due from authorities in Spain and Cyprus, with deposits, prepayments and other receivables amounting to €1.5 million (2015: €2.1 million).

Liabilities

Non-current liabilities stood at €49.5 million on 31 December 2016 compared to €5.9 million on 31 December 2015. The €43.6 million increase was mainly due to the deferred consideration recognised in 2016 amounted to €44.3 million and the increase in the rehabilitation provision by €1.1 million, netted off by the reduction in the non-current element of the debt with the Department of Social Security in Spain and the land options by €1.8 million.

Current liabilities stood at €62.6 million as at 31 December 2016 (2015: €41.9 million). The increase of €20.7 million related to the increase in trade payables by €12.2 million, the increase of the copper concentrate prepayment by €8.7 million and the increase of accruals and other by €0.9 million. offset by a decrease of €1.1 million in the current portion of Social Security debt.

Liquidity and capital resources

Atalaya monitors factors that could impact its liquidity as part of Atalaya's overall capital management strategy. Factors that are monitored include, but are not limited to, the market price of copper, foreign currency rates, production levels, operating costs, capital costs and administrative costs.

The following is a summary of Atalaya's cash position and cash flows as at 31 December 2016 and 31 December 2015:

In 2016, cash flows from operating activities increased mainly due to the sale of concentrates.

In 2016, cash flows used in investing activities mainly comprised a €30.0 million investment in property plant and equipment (2015: €99.3 million) and a €1.3 million investment in intangible assets (2015: €2.5 million).

In 2016, cash flows from financing activities were €nil (2015: €93.2 million).

Directors' report (continued)

Results (continued)

Liquidity information

Unrestricted cash and cash equivalents as at 31 December 2016 decreased to €0.9 million from €18.6 million at 31 December 2015. The decrease in the cash balances is the result of capital expenditures incurred in the period related to the finalisation of the expansion project, certain ramp-up inefficiencies and the resulting slower revenue cash inflows. Atalaya reported a working capital deficit of €25.4 million at 31 December 2016, compared with a €6.4 million deficit at 31 December 2015.

Foreign exchange

Foreign exchange rate movements can have a significant effect on Atalaya's operations, financial position and results. Atalaya's sales are denominated in U.S. dollars ("USD"), while Atalaya's operating expenses, income taxes and other expenses are denominated in Euros ("EUR") and to a much lesser extent in British Pounds ("GBP"). Accordingly, fluctuations in the exchange rates can potentially impact the results of operations and carrying value of assets and liabilities on the balance sheet.

During the year ended 31 December 2016, Atalaya recognised a foreign exchange loss of €0.7 million (2015: €4.7 million).

The following table summarises the movement in key currencies versus the EUR:

During 2016, Atalaya entered into certain short term currency hedging agreements to ensure a competitive rate of EUR to USD. Further information on the hedging agreements is disclosed in the Financial Statements (Note 28).

Proposed dividend

The Directors do not recommend the payment of a dividend for the year (2015: €nil).

Share capital

There was no share capital issue during 2016.

Details on authorised and issued share capital are disclosed in Note 23 of the consolidated financial statements.

Capital structure

At 31 December 2016, the Company had the following shares outstanding and commitments to issue shares:

Details of share options granted after year end are set out in Note 35 to the Financial Statements.

Directors

The names and particulars of the qualifications and experience of each director are set out below. All directors held office from the start of the financial year to the date of this report. In accordance with the Company's Articles of Association, one-third of the board of directors must resign each year. All the directors will retire at the AGM and offer themselves for re-election.

Roger Davey - Non-Executive Chairman of the Board

Mr. Davey is a member of the Audit and Financial Risk, Physical Risk and Corporate Governance, Nominating and Compensation Committees of the Company.

Mr. Davey has over forty years' experience in the mining industry. Previous employment included assistant director and senior mining engineer at NM Rothschild & Sons; director, vice-president and general manager of AngloGold's subsidiaries in Argentina; operations director of Greenwich Resources Plc, London; production manager for Blue Circle Industries in Chile; and various production roles from graduate trainee to mine manager, in Gold Fields of South Africa (1971 to 1978). Mr. Davey is currently a director of Orosur Mining Inc. Condor Gold Plc and Central Asia Metals Plc.

Mr. Davey is a graduate of the Camborne School of Mines, England (1970), with a Master of Science degree in Mineral Production Management from Imperial College, London University, (1979) and a Master of Science degree from Bournemouth University (1994). He is a Chartered Engineer (C.Eng.), a European Engineer (Eur. Ing.) and a Member of the Institute of Materials, Minerals and Mining (MIMMM).

Directors' report (continued)

Directors (continued)

Alberto Lavandeira - Managing Director and Chief Executive Officer

Mr. Lavandeira brings 39 years of experience operating and developing mining projects. As a Director of Samref Overseas S.A. from 2007 to early 2014, he represented one of the shareholder's interests in the JV that developed the world-class Mutanda Copper-Cobalt Mine in the Democratic Republic of Congo. From 1995 to 2007, he worked for Rio Narcea Gold Mines starting as COO and later working as President and CEO and Director. During this period, RNG took three projects from exploration stage into production. Prior to that, Mr. Lavandeira held different positions within the Spanish mining subsidiaries of Rio Tinto, Anglo American and Cominco.

He is a graduate of the University of Oviedo, Spain with a degree in Mining Engineering.

Damon Barber - Non-Executive Director

Mr. Barber is a member of the Corporate Governance, Nominating and Compensation Committee of the Company.

Mr. Barber is the Senior Managing Director of Liberty Metals & Mining Holdings, LLC. He formerly held management positions with several mining companies, served as the Head of Deutsche Bank's Metals & Mining Investment Banking practice in the Asia-Pacific region and was an investment banker in Credit Suisse's Energy Group.

Mr. Barber is currently a director of Yara Dallol B.V., Baralaba Coal Company Limited and Ram River Coal Corp. and holds a B.S. degree in Mining Engineering from the University of Kentucky and an MBA in Finance from the Wharton School of Business.

Dr. Hussein Barma - Non-Executive Director

Dr. Barma is the Chairman of the Audit and Financial Risk Committee and a member of the Corporate Governance, Nominating and Compensation Committee of the Company.

Dr. Barma is a principal of Barma Advisory. He was formerly CFO (UK) of Antofagasta Plc from 1998 to 2014 and possesses a deep knowledge of governance practices at board level, as well as accounting and reporting, investor relations and regulatory requirements of the London market. He previously worked as an auditor at Price Waterhouse (now PwC) and is a steering group member of the UK Financial Reporting Council's Financial Reporting Lab. Dr Barma has no other directorships in publicly listed companies.

Jesus Fernandez - Non-Executive Director

Mr. Fernandez is head of the M&A team for Trafigura. He joined Trafigura in 2004 and has 16 years of experience in mining investments and financing. He is currently a director of Nyrstar NV, Terrafame Ltd and Mawson West Limited. Previously, he was a director of Tiger Resources Limited, Anvil Mining Limited and Iberian Minerals Corp. plc.

Harry Liu, BSc. Economics - Non-Executive Director

Mr. Liu is a board director of Shandong Xiangguang Copper Group in China, one of the world's largest copper smelting, refining and processing groups.

Mr. Liu has held a number of senior management and marketing positions in the mineral and financial industries in Shanghai and Hong Kong, including roles as marketing manager at BHP Billiton Marketing AG and Director at BNP Paribas Asia and vice president of Maike Metals International Group.

Mr. Liu graduated with a Bachelor´s Degree in Economics from Zhejiang University in Zhejiang Province, China. Mr. Liu is a member of LME Copper Committee.

Jonathan Lamb - Non-Executive Director

Mr. Lamb is Investment Manager at Orion Mine Finance and formerly Investment Manager for Red Kite Group's Mine Finance business. He was previously with Deutsche Bank's Metals & Mining Investment Banking group in New York, where he worked on a variety of debt and equity financings and M&A transactions. Mr. Lamb is currently a director of Lynx Resources and Minera La Negra.

Dr. Jose Sierra Lopez - Non-Executive Director

Dr. Sierra is Chairman of the Physical Risks Committee of the Company.

Dr. Sierra brings to the Company extensive experience as a mining and energy leader in the business and government sectors. He spent 16 years on mineral exploration, becoming COO of the National Exploration Company of Spain. His experience includes being Spain's national Director General of Mines and Construction Industries and EU Director for Fossil Fuels for the European Commission. Most recently he was Commissioner at the National Energy Commission of Spain and Deputy Independent Member of the SEMC (Single Electricity Market Committee of the Island of Ireland). He was a member of the Board of TIGF (Transport et Infrastructures Gaz France).

Dr. Sierra holds a Ph.D. in Mining Engineering from the University of Madrid. He obtained a DIC at the Royal School of Mines (Imperial College) and is an elected member of the Royal Academy of Doctors of Spain.

Directors' report (continued)

Directors (continued)

Stephen Scott - Non-Executive Director

Mr. Scott is the Chairman of the Corporate Governance, Nominating and Compensation Committee, and a member of the Audit and Financial Risk and Physical Risks Committees of the Company.

Mr. Scott is President and CEO of Entree Gold Inc. and a director of Nevsum Resources Ltd.

He previously held several executive positions with Rio Tinto Plc, including General Manager Commercial for Rio Tinto Copper (2005 to 2014).

Indemnification of Directors and officers

During the year, the Company held insurance to indemnify Directors, the Company Secretary and executive officers of the Company against liabilities incurred in the conduct of their duties to the extent permitted under applicable legislation.

Directors' interests

The interests of the Directors and their immediate families, (all of which are beneficial unless otherwise stated) and of persons connected with them, in Ordinary Shares, as at 31 December 2016 and 2015, are as follows:

(1) Liberty Metals & Mining Holdings LLC

(2) Urion Holdings (Malta) Ltd

(3) Yanggu Xiangguang Copper Co. Ltd

(4) Orion Mine Finance (Master) Fund I LP

* 66,666 shares held in escrow

** Shares held by the companies the directors represent

*** includes 444,711 shares held personally by Mr. Liu

The Directors to whom options over Ordinary Shares have been granted and the number of Ordinary Shares subject to such Options (post share consolidation figures) as at the date of this report are as follows:

Options expire five years after grant date and are exercisable at the exercise price in whole or in part up to one third in the first year from the grant date, two thirds in the second year from the grant date and the balance thereafter.

Directors' emoluments

In compliance with the disclosure requirements of the listing requirements of AIM and TSX, the aggregate remuneration paid to the directors of Atalaya Mining for the year ended 31 December 2016 is set out below.

* There were no new options granted during 2016. The amount relates to options granted in 2014 which vest over a three year period. During 2016, 431,654 options expired without being exercise.

** There were no new shares granted during 2016. The amount relates to shares issued in 2014 and held in escrow, which vest over a three year period.

(1) The bonus related to the completion of construction and for the period up to declaration of commercial production of the mine and it is expected to be paid in 2017. In 2017 the Group granted 150,000 share options under the incentive share options plan to Mr. Lavandeira (See Note 35 to the Financial Statements).

Directors' report (continued)

Directors' emoluments (continued)

Substantial share interests

The Shareholders holding more than 3% of the share capital of the Company as at the date of this report were:

Corporate governance

The Directors comply with TSX and AIM regulations and Cyprus Company Law. The Board remains accountable to the Company's shareholders for good corporate governance.

Board of directors

The Board is responsible for approving Company policy and strategy. The Board has 10 formal meetings in each calendar year (13 meetings actually held during 2016). The Board is supplied with appropriate and timely information and the Directors are free to seek any further information they consider necessary. All Directors have access to advice from the Company Secretary and independent professionals at the Company's expense. Training is available for new Directors and other Directors as necessary. A number of the Group's key strategic and operational decisions are reserved exclusively for the decision of the Board.

The Board currently consists of one executive director who holds an operating position in the Company (the CEO) and eight Non-Executive Directors, who bring a breadth of experience and knowledge, all of whom are independent of management and four of whom are independent of any business or other relationship which could interfere with the exercise of their independent judgment. The Board regularly reviews key business risks including the financial risks facing the Group in the operation of its business.

The Company has adopted a model code for Directors' dealings which is appropriate for a TSX and AIM listed company. The Directors intend to comply with Rules 21 and 31 of the AIM Rules relating to Directors' dealings and will take all reasonable steps to ensure compliance by the Group's applicable employees as well.

Board committees

Audit and Financial Risk Committee

The Company's Audit and Financial Risk Committee ("AFRC") is responsible for ensuring that appropriate financial reporting procedures are properly maintained and reported on, for meeting with the Group's auditors and reviewing their reports on the Group's financial statements and the internal controls and for reviewing key financial risks.

The AFRC comprises three members all of whom are Non-Executive and Independent. The current membership of the committee is Dr. H. Barma (Chairman), Mr. R. Davey and Mr. S. Scott.

Corporate Governance, Nominating and Compensation Committee

The Company's Corporate Governance, Nominating and Compensation Committee ("CGNCC") is, among other things, responsible for reviewing the performance of the executives, setting their remuneration, determining the payment of bonuses, considering the grant of options under any share option scheme and, in particular, the price per share and the application of performance standards which may apply to any such grant.

The CGNCC comprises four members all of whom are Non-Executive and three are Independent. The current membership of the committee is Mr. S. Scott (Chairman), Mr. R. Davey, Dr. H. Barma and Mr. D. Barber.

Directors' report (continued)

Board committees (continued)

Physical Risks Committee

The Company's Physical Risks Committee ("PRC") is responsible for reviewing the compliance with regulatory and industry standards for environmental performance and occupational health and safety of personnel and the communities affected by the Company.

The PRC comprises three members all of whom are Non-Executive and Independent. The current membership of the committee is Dr. J. Sierra (Chairman), Mr. R. Davey and Mr. S. Scott.

Internal controls

The Directors have overall responsibility for the Group's internal control and effectiveness in safeguarding the assets of the Group. Internal control systems are designed to reflect the particular type of business, operations and safety risks and to identify and manage risks, but not entirely all risks to which the business is exposed. As a result, internal controls can only provide a reasonable, but not absolute, assurance against material misstatements or loss.

The processes used by the Board to review the effectiveness of the internal controls are through the AFRC and the executive management reporting to the Board on a regular basis where business plans and budgets, including investments are appraised and agreed. The Board also seeks to ensure that there is a proper organisational and management structure with clear responsibilities and accountability. It is the Board's policy to ensure that the management structure and the quality and integrity of the personnel are compatible with the requirements of the Group.

The Board attaches importance to maintaining good relationships with all its shareholders and ensures that all price sensitive information is released to all shareholders at the same time in accordance with AIM and TSX rules. The Company's principal communication with its investors is through the annual report and accounts, the quarterly statements and press releases issued as material events unfold.

Directors' responsibilities for the financial statements

Cyprus company law states that the Directors are responsible for the preparation of financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the Group and of the profit or loss of the Group for that period.

In the preparation of these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent; and

• state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements.

The Directors are responsible for maintaining proper accounting records, for safeguarding the assets of the Group and for taking reasonable steps for the prevention and detection of fraud and other irregularities. Legislation in Cyprus governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.

Going concern

Operations at Proyecto Riotinto started in February 2016 and the Group has generated significant operational cash flows during the year. Accordingly, the Directors have a reasonable expectation that the mining operation and the Group have adequate resources to continue in operational existence for the foreseeable future. See Note 2.1 for further information.

Creditors' payment terms

The Company does not have a specific policy towards our suppliers and does not follow any code or standard practice. However, terms of payment with suppliers are settled when agreeing overall terms of business, and the Company seeks to abide by the terms of the contracts to which it is bound.

Political and charitable donations

The Group made no political and no charitable donations during the year ended 31 December 2016 (2015: €nil).

Corporate Social Responsibility

Our communities

Atalaya Mining is committed to being a responsible corporate citizen every day by managing the environmental and social impact of its mining operations in a conscientious and sensitive manner.

Our strategy is to ensure that relations with institutions, society and the environment are led by transparency in our commercial activities, the appropriate degree of interaction with stakeholders and the maximum responsibility and accountability in all our operations.

Directors' report (continued)

Corporate Social Responsibility (continued)

Sustainable development

Atalaya Mining is committed to achieving development that provides benefits for those regions where it operates, without compromising the ability of future generations to meet their own needs both economically and environmentally. Atalaya will endeavour to achieve excellence in environmental performance abiding by environmental standards beyond those set by international regulations.

Our people

Atalaya operates within a favourable framework for labour relations based on a non-discriminatory, equal opportunities system that respects diversity and facilitates communication at all levels. The Company provides a healthy and safe working environment by implementing the best available international practices and procedures.

Communication

Atalaya Mining advocates the establishment of broad communication channels and seeks opportunities for conversation with the various stakeholders to ensure that business objectives remain in tune with social needs and expectations. The Company will always seek to provide relevant, transparent and accurate information about its activities and encourage continuous improvement.

Principal risks and uncertainties

The Company's principal risks and management objectives and policies are described in Note 2 and Note 3 to the financial statements.

Board of Directors

There were no significant changes in the responsibilities or in the remuneration of the Board of Directors.

Events after the reporting period

Any significant events that occurred after the end of the reporting period are described in Note 35 to the financial statements.

Auditors

The Group is currently reviewing its audit arrangements including the appropriateness of a tender for the year ended 31 December 2017, and an appropriate resolution will be proposed at the next Annual General Meeting.

By order of the board

Inter Jura CY (Services) Limited,

Secretary

Nicosia, Cyprus

5 April 2017

Independent Auditors' Report

To the shareholders of Atalaya Mining Plc

Report on the consolidated financial statements

We have audited the accompanying consolidated financial statements of Atalaya Mining Plc (the "Company") and its subsidiaries (together with the Company, the "Group"), which comprise the consolidated statements of financial position as at 31 December 2016 and 2015, and the consolidated income statements, statements of changes in equity and statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.

Management's responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Atalaya Mining Plc and its subsidiaries as at 31 December 2016 and 2015 and their financial performance and their cash flows for the years then ended in accordance with International Financial Reporting Standards.

Chartered Professional Accountants

Licensed Public Accountants

Mississauga, Ontario

5 April 2017

Independent auditor's report

To the Members of ATALAYA MINING PLC

Report on the Audit of the consolidated financial statements

We have audited the consolidated and separate financial statements of Atalaya Mining Plc (the "Company"), and its subsidiaries (the "Group"), which are presented in pages 22 to 71 and comprise the consolidated and separate statement of financial position as at 31 December 2016, and the consolidated and separate statements of profit or loss and other comprehensive income, the consolidated and separated changes in equity and the consolidated and separated statements of cash flows for the year then ended, and the notes to the consolidated and separate financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated and separated financial statements give a true and fair view of the consolidated financial position of the Company and the Group as at 31 December 2016, and of its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated and Separate Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the consolidated and separate financial statements in Cyprus, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The key audit matters noted below relate to the consolidated and separated financial statements.

Other information

The Board of Directors is responsible for the other information. The other information comprises the information included in the Directors Report and the Payments to Government Report, but does not include the consolidated financial statements and our auditor's report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Board of Directors for the Consolidated Financial Statements

The Board of Directors is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap. 113, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

The Board of Directors is responsible for overseeing the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

· Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors.

· Conclude on the appropriateness of the Board of Directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

· Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves a true and fair view.

· Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal Requirements

Pursuant to the additional requirements of the Auditors and Statutory Audits of Annual and Consolidated Accounts Laws of 2009 to 2016, we report the following:

· We have obtained all the information and explanations we considered necessary for the purposes of our audit.

· In our opinion, proper books of account have been kept by the Company, so far as appears from our examination of these books.

· The consolidated financial statements are in agreement with the books of account.

· In our opinion and to the best of our information and according to the explanations given to us, the consolidated financial statements give the information required by the Cyprus Companies Law, Cap. 113, in the manner so required.

· In our opinion, the management report has been prepared in accordance with the requirements of the Cyprus Companies Law, Cap. 113, and the information given is consistent with the consolidated financial statements.

· In our opinion, and in the light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we have not identified material misstatements in the management report.

Other Matter

This report, including the opinion, has been prepared for and only for the Company's members as a body in accordance with Section 34 of the Auditors and Statutory Audits of Annual and Consolidated Accounts Laws of 2009 to 2016 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to.

The engagement partner on the audit resulting in this independent auditor's report is Constantinos Schizas.

Consolidated income statements

The notes on pages 28 to 71 are an integral part of these consolidated financial statements.

Statements of financial position

The notes on pages 28 to 71 are an integral part of these consolidated financial statements.

The consolidated financial statements were authorised for issue by the board of directors on 5 April 2017 and were signed on its behalf.

Consolidated statements of changes in equity

Years ended 31 December 2016 and 2015

The notes on pages 28 to 71 are an integral part of these consolidated financial statements.

Company statements of changes in equity

Years ended 31 December 2016 and 2015

The notes on pages 28 to 71 are an integral part of these consolidated financial statements.

Consolidated statements of cash flows

Years ended 31 December 2016 and 2015

The notes on pages 28 to 71 are an integral part of these consolidated financial statements.

Company statements of cash flows

Years ended 31 December 2016 and 2015

The notes on pages 28 to 71 are an integral part of these consolidated financial statements.

Notes to the consolidated financial statements

Years ended 31 December 2016 and 2015

1. Incorporation and summary of business

Country of incorporation

Atalaya Mining Plc was incorporated in Cyprus on 17 September 2004 as a private company with limited liability under the Companies Law, Cap. 113 and was converted to a public limited liability company on 26 January 2005. Its registered office is at 1 Lampousa Street, Nicosia, Cyprus. The Company was listed on AIM of the London Stock Exchange in May 2005 under the symbol ATYM and on the TSX on 20 December 2010 under the symbol AYM. The Company continued listed in AYM and TSX as at 31 December 2016.

Changed on name and share consolidation

Following the Company's EGM on 13 October 2015, the change of the name Emed Mining Public Limited to Atalaya Mining Plc became effective on 21 October 2015. On the same day, the consolidation of ordinary shares came into effect, whereby all shareholders received one new ordinary share of nominal value Stg £0.075 for every 30 existing ordinary shares of nominal value of Stg £0.0025.

Summary of business

The Company owns and operates through a wholly-owned subsidiary, the Proyecto Riotinto, an open-pit copper mine located in the Pyritic belt, in the Andalusia region, approximately 65 km northwest of Seville.

In addition to the production of copper concentrates, the Company's and its subsidiaries' business is to explore for and develop metals production operations in Europe, with an initial focus on copper.

The strategy is to evaluate and prioritise metal production opportunities in several jurisdictions throughout the well-known belts of base and precious metal mineralisation in Spain and the Eastern European region.

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.

2.1 Basis of preparation

(a) Overview

The consolidated financial statements of Atalaya Mining have been prepared in accordance with International Financial Reporting Standards ("IFRS"). IFRS comprise the standards issued by the International Accounting Standards Board ("IASB") and IFRS Interpretations Committee ("IFRICs") as issued by the IASB.

Additionally, the consolidated financial statements have also been prepared in accordance with the IFRS as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap.113.

The consolidated financial statements have been prepared under the historical cost convention, except for derivative financial instruments that have been measured at fair value.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment 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 disclosed in Note 3.4.

(b) Going concern

These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern which assumes that the Group will realise its assets and discharge its liabilities in the normal course of business. Management has carried out an assessment of the going concern assumption and has concluded that the Group's will generate sufficient cash and cash equivalents to continue operating for the next twelve months.

2.2 Changes in accounting policy and disclosures

During the current year the Group adopted all the new and revised International Financial Reporting Standards (IFRS) that are relevant to its operations and are effective for accounting periods beginning on 1 January 2016. This adoption did not have a material effect on the accounting policies of the Group.

Up to the date of approval of the consolidated financial statements, certain new standards, interpretations and amendments to existing standards have been published that are not yet effective for the current reporting period and which the Group has not early adopted, as follows:

(i) Issued by the IASB and adopted by the European Union

New standards

• IFRS 9 ''Financial Instruments'' (effective for annual periods beginning on or after 1 January 2018).

• IFRS 15 ''Revenue from Contracts with Customers'' (effective for annual periods beginning on or after 1 January 2018).

Notes to the consolidated financial statements (continued)

Years ended 31 December 2016 and 2015

2. Summary of significant accounting policies (continued)

2.2 Changes in accounting policy and disclosures

 (continued)

 (ii) Issued by the IASB but not yet adopted by the European Union

New standards

• IFRS 16 ''Leases'' (effective for annual periods beginning on or after 1 January 2019).

Amendments

• Amendments to IFRS2: Classification and Measurement of Share-based Payment Transactions (effective for annual periods beginning on or after 1 January 2018).

• Amendments to IFRS 4: Applying IFRS 9 ''Financial Instruments'' with IFRS 4 ''Insurance Contracts'' (effective for annual periods beginning on or after 1 January 2018).

• Clarifications to IFRS 15 ''Revenue from Contracts with Customers'' (effective for annual periods beginning on or after 1 January 2018).

• IAS 7 (Amendments) ''Disclosure Initiative'' (effective for annual periods beginning on or after 1 January 2017)

• IAS 12 (Amendments) ''Recognition of Deferred Tax Assets for Unrealised Losses'' (effective for annual periods beginning on or after 1 January 2017).

• Annual Improvements to IFRSs 2014-2016 Cycle (issued on 8 December 2016) (effective for annual periods beginning on or after 1 January 2017).

• Annual Improvements to IFRSs 2014-2016 Cycle (issued on 8 December 2016) (effective for annual periods beginning on or after 1 January 2018).

• Amendments to IAS 40: ''Transfers of Investment Property'' (effective for annual periods beginning on or after 1 January 2018).

New IFRICs

• IFRIC Interpretation 22 ''Foreign Currency Transactions and Advance Consideration'' (effective for annual periods beginning on or after 1 January 2018).

The Group is currently evaluating the effect of these standards or interpretations on its consolidated financial statements.

2.3 Consolidation

(a) Basis of consolidation

The consolidated financial statements comprise the financial statements of Atalaya Mining plc and its subsidiaries.

(b) Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Group has control. Control exists when the Group is exposed, or has rights, to variable returns for its involvement with the investee and has the ability to affect those returns through its power over the investee. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control.

De-facto control may arise in circumstances where the size of the Group's voting rights relative to the size and dispersion of holdings of other shareholders give the Group the power to govern the financial and operating policies, etc.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The only operating subsidiary of Atalaya Mining plc is the 100% owned Atalaya Riotionto Minera, S.L.U. which operates the Proyecto Minero Riotinto, in the historical site of Huelva, Spain.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets.

Notes to the consolidated financial statements (continued)

Years ended 31 December 2016 and 2015

2. Summary of significant accounting policies (continued)

2.3 Consolidation (continued)

(c) Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 in profit or loss. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.

(d) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions - that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

(e) Disposal of subsidiaries.

When the Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

(f) Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition. The Group's investment in associates includes goodwill identified on acquisition.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.

The Group's share of post-acquisition profit or loss is recognised in the income statement, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income, with a corresponding adjustment to the carrying amount of the investment. When the Group share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to 'share of profit/(loss) of associates' in the income statement.

Notes to the consolidated financial statements (continued)

Years ended 31 December 2016 and 2015

2. Summary of significant accounting policies (continued)

2.3 Consolidation (continued)

Profits and losses resulting from upstream and downstream transactions between the Group and its associate are recognised in the Group's consolidated financial statements only to the extent of unrelated investors' interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the group. Dilution gains and losses arising in investments in associates are recognised in the income statement.

(g) Functional currency

Functional and presentation currency items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in Euro which is the Group's functional and presentation currency.

Determination of functional currency may involve certain judgements to determine the primary economic environment and the parent entity reconsiders the functional currency of its entities if there is a change in events and conditions which determined the primary economic environment.

Foreign currency transactions are translated into the functional currency using the spot exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in the income statement.

Monetary assets and liabilities denominated in foreign currencies are retranslated at year-end spot exchange rates.

Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Gains or losses of monetary and non-monetary items are recognised in the income statement.

Balance sheet items are translated at period-end exchange rates. Exchange differences on translation of the net assets of such entities are taken to equity and recorded in a separate currency translation reserve.

2.4 Investments in subsidiary companies

Investments in subsidiary companies are stated at cost less provision for impairment in value, which is recognised as an expense in the period in which the impairment is identified. This policy only applies to the "Company's" financial statements.

2.5 Interest in joint arrangements

A joint arrangement is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control that is when the strategic, financial and operating policy decisions relating to the activities the joint arrangement require the unanimous consent of the parties sharing control.

Where a group entity undertakes its activities under joint arrangements directly, the Group's share of jointly controlled assets and any liabilities incurred jointly with other ventures are recognised in the financial statements of the relevant entity and classified according to their nature. Liabilities and expenses incurred directly in respect of interests in jointly controlled assets are accounted for on an accrual basis. Income from the sale or use of the Group's share of the output of jointly controlled assets, and its share of joint arrangement expenses, are recognised when it is probable that the economic benefits associated with the transactions will flow to/from the Group and their amount can be measured reliably.

The Group undertakes joint arrangements that involve the establishment of a separate entity in which each acquiree has an interest (jointly controlled entity). The Group reports its interests in jointly controlled entities using the equity method of accounting.

Where the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Group's interest in the joint arrangement.

Notes to the consolidated financial statements (continued)

Years ended 31 December 2016 and 2015

2. Summary of significant accounting policies (continued)

2.6 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the CEO who makes strategic decisions.

The Group has only one distinct business segment, being that of mining operations, mineral exploration and development.

2.7 Inventory

Inventory consists in copper concentrates, ore stockpiles and metal in circuit and spare parts. Inventory is physically measured or estimated and valued at the lower of cost or net realisable value. Net realisable value is the estimated future sales price of the product the entity expects to realise when the product is processed and sold, less estimated costs to complete production and bring the product to sale. Where the time value of money is material, these future prices and costs to complete are discounted.

Cost is determined by using the FIFO method and comprises direct purchase costs and an appropriate portion of fixed and variable overhead costs, including depreciation and amortisation, incurred in converting materials into finished goods, based on the normal production capacity. The cost of production is allocated to joint products using a ratio of spot prices by volume at each month end. Separately identifiable costs of conversion of each metal are specifically allocated.

Materials and supplies are valued at the lower of cost or net realisable value. Any provision for obsolescence is determined by reference to specific items of stock. A regular review is undertaken to determine the extent of any provision for obsolescence.

2.8 Assets under construction

All subsequent expenditure on the construction, installation or completion of infrastructure facilities including mine plants and other necessary works for mining, are capitalised in 'Assets under construction'. Any costs incurred in testing the assets to determine if they are functioning as intended, are capitalised, net of any proceeds received from selling any product produced while testing. Where these proceeds exceed the cost of testing, any excess is recognised in the statement of profit or loss and other comprehensive income. After production starts, all assets included in 'Assets under construction' are then transferred to the relevant asset categories.

Once a project has been established as commercially viable, related development expenditure is capitalised. A development decision is made based upon consideration of project economics, including future metal prices, reserves and resources, and estimated operating and capital costs. Capitalization of costs incurred and proceeds received during the development phase ceases when the property is capable of operating at levels intended by management.

Capitalisation ceases when the mine is capable of commercial production, with the exception of development costs which give rise to a future benefit.

Pre-commissioning sales are offset against the cost of constructing the asset.

No depreciation is recorded until the assets are substantially complete and ready for productive use.

2.9 Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Property, plant and equipment are depreciated to their estimated residual value over the estimated useful life of the specific asset concerned, or the estimated remaining life of the associated mine ("LOM"), field or lease. Depreciation commences when the asset is available for use.

The major categories of property, plant and equipment are depreciated/amortised on a Unit of Production ("UOP") and/or straight-line basis as follows:

· Buildings UOP

· Mineral rights UOP

· Deferred mining costs UOP

· Plant and machinery UOP

· Motor vehicles 5 years

· Furniture/fixtures/office equipment 5-10 years

Notes to the consolidated financial statements (continued)

Years ended 31 December 2016 and 2015

2. Summary of significant accounting policies (continued)

2.9 Property, plant and equipment (continued)

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within 'Other (losses)/gains - net' in the income statement.

(a) Mineral rights

Mineral reserves and resources which can be reasonably valued are recognised in the assessment of fair values on acquisition. Mineral rights for which values cannot be reasonably determined are not recognised. Exploitable mineral rights are amortised using the UOP basis over the commercially recoverable reserves and, in certain circumstances, other mineral resources. Mineral resources are included in amortisation calculations where there is a high degree of confidence that they will be extracted in an economic manner.

(b) Deferred mining costs - stripping costs

Mainly comprises of certain capitalised costs related to pre-production and in-production stripping activities as outlined below.

Stripping costs incurred in the development phase of a mine (or pit) before production commences are capitalised as part of the cost of constructing the mine (or pit) and subsequently amortised over the life of the mine (or pit) on a UOP basis.

In-production stripping costs related to accessing an identifiable component of the ore body to realise benefits in the form of improved access to ore to be mined in the future (stripping activity asset), are capitalised within deferred mining costs provided all the following conditions are met:

i. it is probable that the future economic benefit associated with the stripping activity will be realised;

ii. the component of the ore body for which access has been improved can be identified; and

iii. the costs relating to the stripping activity associated with the improved access can be reliably measured.

If all of the criteria are not met, the production stripping costs are charged to the consolidated statement of income as they are incurred.

The stripping activity asset is initially measured at cost, which is the accumulation of costs directly incurred to perform the stripping activity that improves access to the identified component of ore, plus an allocation of directly attributable overhead costs.

(c) Exploration costs

The Group expenses of Exploration and evaluation are expenditure in the period incurred.

Under the Group's accounting policy, exploration expenditure is not capitalised until the management determines a property will be developed and point is reached at which there is a high degree of confidence in the project's viability and it is considered probable that future economic benefits will flow to the Group. A development decision is made based upon consideration of project economics, including future metal prices, reserves and resources, and estimated operating and capital costs.

Subsequent recovery of the resulting carrying value depends on successful development or sale of the undeveloped project. If a project does not prove viable, all irrecoverable costs associated with the project net of any related impairment provisions are written off.

(d) Major maintenance and repairs

Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets and overhaul costs. Where an asset, or part of an asset, that was separately depreciated and is now written off is replaced, and it is probable that future economic benefits associated with the item will flow to the Group through an extended life, the expenditure is capitalised.

Where part of the asset was not separately considered as a component and therefore not depreciated separately, the replacement value is used to estimate the carrying amount of the replaced asset(s) which is immediately written off. All other day-to-day maintenance and repairs costs are expensed as incurred.

Notes to the consolidated financial statements (continued)

Years ended 31 December 2016 and 2015

2. Summary of significant accounting policies (continued)

2.10 Property, plant and equipment (continued)

(e) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale (a qualifying asset) are capitalised as part of the cost of the respective asset. Where funds are borrowed specifically to finance a project, the amount capitalised represents the actual borrowing costs incurred.

(f) Restoration, rehabilitation and decommissioning

Restoration, rehabilitation and decommissioning costs arising from the installation of plant and other site preparation work, discounted using a risk adjusted discount rate to their net present value, are provided for and capitalised at the time such an obligation arises.

The costs are charged to the consolidated statement of income over the life of the operation through depreciation of the asset and the unwinding of the discount on the provision. Costs for restoration of subsequent site disturbance, which are created on an ongoing basis during production, are provided for at their net present values and charged to the consolidated statement of income as extraction progresses.

Changes in the estimated timing of the rehabilitation or changes to the estimated future costs are accounted for prospectively by recognising an adjustment to the rehabilitation liability and a corresponding adjustment to the asset to which it relates, provided the reduction in the provision is not greater than the depreciated capitalised cost of the related asset, in which case the capitalised cost is reduced to nil and the remaining adjustment recognised in the consolidated statement of income. In the case of closed sites, changes to estimated costs are recognised immediately in the consolidated statement of income.

2.11 Intangible assets

(a) Business combination and goodwill

Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the acquired interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree.

The results of businesses acquired during the year are brought into the consolidated financial statements from the effective date of acquisition. The identifiable assets, liabilities and contingent liabilities of a business which can be measured reliably are recorded at their provisional fair values at the date of acquisition. Provisional fair values are finalised within 12 months of the acquisition date. Acquisition-related costs are expensed as incurred.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed.

(b) Permits

Permits are capitalised as intangible assets which relate to projects that are at the pre-development stage. No amortisation charge is recognised in respect of these intangible assets. Once the Group receives those permits, the intangible assets relating to permits will be depreciated on a UOP basis.

Other intangible assets include computer software.

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation (calculated on a straight-line basis over their useful lives) and accumulated impairment losses, if any.

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortised over their useful economic lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of profit or loss and other comprehensive income when the asset is derecognised.

Notes to the consolidated financial statements (continued)

Years ended 31 December 2016 and 2015

2. Summary of significant accounting policies (continued)

2.12 Impairment of non-financial assets

Assets that have an indefinite useful life - for example, goodwill or intangible assets not ready to use - are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

2.13 Financial assets

2.13.1 Classification

The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. The Group's financial assets include cash and short-term deposits, trade and other receivables and derivative financial assets.

(a) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months, otherwise they are classified as non-current.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Group's loans and receivables comprise 'trade and other receivables' and 'cash and cash equivalents' in the statement of financial position (Notes 2.18).

(c) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period.

2.13.2 Recognition and measurement

Regular purchases and sales of financial assets are recognised on the trade-date - the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method.

Gains or losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are presented in the income statement within 'other (losses)/gains - net' in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the income statement as part of other income when the Group's right to receive payments is established.

Changes in the fair value of monetary securities classified as available for sale are recognised in other comprehensive income.

When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as 'gains and losses from investment securities'. Interest on available-for-sale securities calculated using the effective interest method is recognised in the income statement as part of finance income. Dividends on available-for-sale equity instruments are recognised in the income statement as part of other income when the Group's right to receive payments is established.

Notes to the consolidated financial statements (continued)

Years ended 31 December 2016 and 2015

2. Summary of significant accounting policies (continued)

2.14 Financial liabilities

The Group classifies its financial liabilities in the following categories: trade and other payables, provisions, Interest-bearing loans and borrowings, deferred consideration and derivatives. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

(a) Trade and other payables

Trade and other payables are obligations to pay for goods, assets or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

(b) Provisions

Provisions for environmental restoration, restructuring costs and legal claims are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

(c) Interest-bearing loans and borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings, using the effective interest method, unless they are directly attributable to the acquisition, construction or production of a qualifying asset, in which case they are capitalised as part of the cost of that asset.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment and amortised over the period of the facility to which it relates.

Borrowing costs are interest and other costs that the Group incurs in connection with the borrowing of funds, including interest on borrowings, amortisation of discounts or premium relating to borrowings, amortisation of ancillary costs incurred in connection with the arrangement of borrowings, finance lease charges and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.

Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, being an asset that necessarily takes a substantial period of time to get ready for its intended use or sale, are capitalised as part of the cost of that asset, when it is probable that they will result in future economic benefits to the Group and the costs can be measured reliably.

(d) Deferred consideration

Deferred consideration arises when settlement of all or any part of the cost of an agreement is deferred. It is stated at fair value at the date of recognition, which is determined by discounting the amount due to present value at that date. Interest is imputed on the fair value of non-interest bearing deferred consideration at the discount rate and expensed within interest pay able and similar charges. At each balance sheet date deferred consideration comprises the remaining deferred consideration valued at acquisition plus interest imputed on such amounts from recognition to the balance sheet date.

Notes to the consolidated financial statements (continued)

Years ended 31 December 2016 and 2015

2. Summary of significant accounting policies (continued)

2.14 Financial liabilities (continued)

 (e) Derivatives

Derivative financial instruments are initially accounted for at cost and subsequently measured at fair value. Fair value is calculated using the Black Scholes valuation method. Derivatives are recorded as assets when their fair value is positive and as liabilities when their fair value is negative. The adjustments on the fair value of derivatives held at fair value through profit or loss are transferred to profit or loss.

In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand and in bank net of outstanding bank overdrafts and short-term deposits with an original maturity of three months or less.

Sales of the Group's copper are sold on a provisional basis whereby sales are recognised at prevailing metal prices when title transfers to the customer and final pricing is not determined until a subsequent date. The Group uses derivative financial instruments to reduce exposure to foreign exchange, interest rate and commodity price movements.

The Group does not use such derivative instruments for trading purposes. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to the statement of profit or loss and other comprehensive income. Realised gains and losses on commodity derivatives recognised in profit or loss are recorded within revenue.

2.15 Current versus non-current classification

The Group presents assets and liabilities in statement of financial position based on current/non-current classification.

(a) An asset is current when it is either:

· Expected to be realised or intended to be sold or consumed in normal operating cycle;

· Held primarily for the purpose of trading;

· Expected to be realised within 12 months after the reporting period

Or

· Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period

All other assets are classified as non-current.

(b) A liability is current when either:

· It is expected to be settled in the normal operating cycle;

· It is held primarily for the purpose of trading

· It is due to be settled within 12 months after the reporting period

Or

· There is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period

The Group classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

2.16 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

2.17 Impairment of financial assets

(a) Assets carried at amortised cost

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors are experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Notes to the consolidated financial statements (continued)

Years ended 31 December 2016 and 2015

2. Summary of significant accounting policies (continued)

2.17 Impairment of financial assets (continued)

(a) Assets carried at amortised cost (continued)

For the loans and receivables category, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate.

The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the group may measure impairment on the basis of an instrument's fair value using an observable market price.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated income statement.

(b) Assets classified as available for sale

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For debt securities, the Group uses the criteria referred to in (a) above. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised in profit or loss. Impairment losses recognised in the consolidated income statement on equity instruments are not subsequently reversed. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed through the income statement.

2.18 Trade and other receivables

Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

At Company level, other receivables include intercompany balances.

2.19 Cash and cash equivalents

In the consolidated statements of cash flows, cash and cash equivalents includes cash in hand and in bank including deposits held at call with banks.

2.20 Share capital

Ordinary shares are classified as equity. The difference between the fair value of the consideration received by the Company and the nominal value of the share capital being issued is taken to the share premium account.

Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net of tax, from the proceeds in the share premium account.

2.21 Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Notes to the consolidated financial statements (continued)

Years ended 31 December 2016 and 2015

2. Summary of significant accounting policies (continued)

2.21 Current and deferred income tax (continued)

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is also not recognised if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period date and are expected to apply when the related deferred tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred income tax liabilities where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

2.22 Share-based payments

The Group operates a share-based compensation plan, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The fair value is measured using the Black Scholes pricing model. The inputs used in the model are based on management's best estimates for the effects of non-transferability, exercise restrictions and behavioural considerations. Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest.

Vesting conditions are: (i) the personnel should be an employee that provides services to the Group; and (ii) should be in continuous employment for the whole vesting period of 3 years. Specific arrangements may exist with senior managers and board members, whereby their options stay in use until the end.

The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. (Note 24)

2.23 Rehabilitation provisions

The Group records the present value of estimated costs of legal and constructive obligations required to restore operating locations in the period in which the obligation is incurred. The nature of these restoration activities includes dismantling and removing structures, rehabilitating mines and tailings dams, dismantling operating facilities, closure of plant and waste sites and restoration, reclamation and re-vegetation of affected areas. The obligation generally arises when the asset is installed or the ground/environment is disturbed at the production location. When the liability is initially recognised, the present value of the estimated cost is capitalised by increasing the carrying amount of the related mining assets to the extent that it was incurred prior to the production of related ore. Over time, the discounted liability is increased for the change in present value based on the discount rates that reflect current market assessments and the risks specific to the liability. The periodic unwinding of the discount is recognised in the consolidated income statement as a finance cost. Additional disturbances or changes in rehabilitation costs will be recognised as additions or charges to the corresponding assets and rehabilitation liability when they occur. For closed sites, changes to estimated costs are recognised immediately in the consolidated income statement.

The Group assesses its mine rehabilitation provision annually. Significant estimates and assumptions are made in determining the provision for mine rehabilitation as there are numerous factors that will affect the ultimate liability payable. These factors include estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes and changes in discount rates. Those uncertainties may result in future actual expenditure differing from the amounts currently provided. The provision at the consolidated statement of financial position date represents management's best estimate of the present value of the future rehabilitation costs required.

2.24 Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are

Notes to the consolidated financial statements (continued)

Years ended 31 December 2016 and 2015

2. Summary of significant accounting policies (continued)

2.24 Leases (continued)

classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

The Group leases certain property, plant and equipment. Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.

Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in other long term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term.

2.25 Revenue recognition

(a) Sales of goods

Revenue is recognised when Atalaya has transferred to the buyer all significant risks and rewards of ownership of the goods sold. Revenue excludes any applicable sales taxes and is recognised at the fair value of the consideration received or receivable to the extent that it is probable that economic benefits will flow to Atalaya and the revenues and costs can be reliably measured. In most instances sales revenue is recognised when the product is delivered to the destination specified by the customer, which is typically the vessel on which it is shipped, the destination port or the customer's premises.

For certain commodities, the sales price is determined on a provisional basis at the date of sale as the final selling price is subject to movements in market prices up to the date of final pricing, normally ranging from 30 to 90 days after initial booking. Revenue on provisionally priced sales is recognised based on the estimated fair value of the total consideration receivable. The revenue adjustment mechanism embedded within provisionally priced sales arrangements has the character of a commodity derivative. Accordingly, the fair value of the final sales price adjustment is re-estimated continuously and changes in fair value are recognised as an adjustment to revenue.

Pre-commissioning sales are offset against the cost of constructing the asset.

(b) Sales of services

The Group sells services in relation to maintenance of accounting records, management, technical, administrative support and other services to other companies. Revenue is recognised in the accounting period in which the services are rendered.

2.26 Interest income

Interest income is recognised using the effective interest method. When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loan and receivables is recognised using the original effective interest rate.

2.27 Dividend income

Dividend income is recognised when the right to receive payment is established.

2.28 Dividend distribution

Dividend distributions to the Company's shareholders are recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's shareholders. No dividend has been paid by the Company since its incorporation.

2.29 Earnings per share

Basic earnings per share is calculated by dividing the net profit for the year by the weighted average number of ordinary shares outstanding during the year. The basic and diluted earnings per share are the same as there are no instruments that have a dilutive effect on earnings.

2.30 Reclassification from prior year presentation

Certain prior year amounts have been reclassified for consistency with the financial statements for the year ended 31 December 2016.

Theses reclassifications had no effect on the reported results of the operation. During 2016, the Riotinto mine started its operations and the presentation of the consolidated income statements have been changed to allow the reader understanding of the operations of the Group.

2.31 Amendment of financial statements after issue

The board of directors has the power to amend the consolidated financial statements after issue.

Notes to the consolidated financial statements (continued)

Years ended 31 December 2016 and 2015

3. Financial Risk Management

3.1 Financial risk factors

Risk management is overseen by the AFRC under the board of directors. The AFRC oversees the risk management policies employed by the Group to identify, evaluate and hedge financial risks, in close co-operation with the Group's operating units. The Group is exposed to liquidity risk, commodity price risk, credit risk, interest rate risk, operational risk, compliance risk, litigation risk and currency risk arising from the financial instruments it holds. The risk management policies employed by the Group to manage these risks are discussed below:

(a) Liquidity risk

Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Group has procedures with the object of minimising such losses such as maintaining sufficient cash to meet liabilities when due. Cash flow forecasting is performed in the operating entities of the Group and aggregated by Group finance. Group finance monitors rolling forecasts of the Group's liquidity requirements to ensure it has sufficient cash to meet operational needs.

The following tables detail the Group's remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes principal cash flows. A breakdown of the balances is shown in Notes 25, 26, 27 and 28.