Atalaya Mining PLC Announces Results for the year ended 31 December 2018

1.Incorporation and summary of business

Countryof incorporation

Atalaya Mining Plc (the “Company”) 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 to be listed on AIM and the TSX as at 31 December 2018.

Additional information about Atalaya Mining Plc is available at www.atalayamining.com as per requirement of AIM rule 26.

Changedon 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 £0.075 for every 30 existing ordinary shares of nominal value of £0.0025.

Principalactivities

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

In addition, the Company has a phased earn-in agreement up to 80% ownership of “The Touro Project”, a brownfield copper project in northwest Spain, which is currently at the permitting stage.

The Company’s and its subsidiaries’ activity 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. Summaryof significant accounting policies

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

2.1Basis of preparation

(a) Overview

The financial statements of Atalaya Mining Plc 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 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. For the year ending 31 December 2018, the standards applicable for IFRS’s as adopted by the EU are aligned with the IFRS’s as issued by the IASB.

The consolidated financial statements have been prepared on a historical cost basis except for the revaluation of certain financial instruments that are measured at fair value at the end of each reporting period, as explained below.

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 financial statements are disclosed in Note 3.4.

2. Summaryof significant accounting policies (continued)

(b) Going concern

These financial statements have been prepared on the basis of accounting principles applicable to a going concern which assumes that the Group and the Company 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 and the Company will generate sufficient cash and cash equivalents to continue operating for the next twelve months.

2.2Changes in accounting policy and disclosures

2.2.1New and amended standards and interpretations

During the current year the Group and the Company 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 2018.

The Group and the Company applied IFRS 9 and IFRS 15 for the first time from 1 January 2018. The nature and effect of the changes as a result of adoption of these new accounting standards are described below.

Several other amendments and interpretations apply for the first time in 2018, but do not have a significant impact on the consolidated financial statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.

IFRS 9Financial Instruments

IFRS 9 Financial Instruments addresses the classification, measurement, and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets.

Based on the assessment performed, the new guidance has the following impacts on the classification and measurement of its financial instruments.

• Classification and measurement of the embedded derivatives arising from sales: The financial assets and liabilities arising from the revaluation of provisional priced contracts were previously disclosed separately in the balance sheet as part of “Other financial assets/liabilities”. Under IFRS 9, the embedded derivative is no longer separated from the host contract and therefore the revaluation of provisionally priced contract is disclosed within the receivable of the host contract in “Trade and other receivables” and classified as fair value through profit and loss. An embedded derivative will often make a financial asset fail the SPPI test thereby requiring the instrument to be measured at fair value through profit or loss in its entirety. This is applicable to the Group’s trade receivables (subject to provisional pricing). No significant impact on measurement on transition to IFRS 9.
• Classification and measurement of the Parent Company participative loan: The Participative loan was previously classified at amortised cost. Under IFRS 9 the classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s business model for managing them. In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. The Participative loan is now classified as fair value through profit and loss. No significant impact on measurement on transition to IFRS 9.
• Financial assets at fair value through Other Comprehensive Income (“OCI”): The equity instruments that were classified as available-for-sale financial assets satisfy the conditions for classification as at fair value through other comprehensive income (FVOCI) and therefore there is no impact in classification. Gains and losses accumulated in other comprehensive income are not recycled to the income statement.

Furthermore, under IFRS 9 there is no exception to carry investments in entities at costs less any recognised impairment and therefore, fair value will need to be calculated. There are no other significant changes to the accounting treatment of these assets.

• Impairment: The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as is the case under IAS 39. The Group applies the simplified approach and records lifetime expected losses on all trade receivables. However, given the short term nature of the Group’s receivables, there is not a significant impact in the financial statements.

For the Parent Company, current and non-current receivables (except for non-current assets at fair value through profit and loss) are stated at amortised cost. A provision for impairment of receivables is established using the expected credit loss impairment model according IFRS 9.

2. Summary of significantaccounting policies (cont.)

2.2 Changes in accounting policy anddisclosures (cont.)

2.2.1 New and amended standards andinterpretations (cont.)

The amount of the provision is the difference between the carrying amount and the recoverable amount and this difference is recognised in the income statement.

• Disclosures: The standard introduces expanded disclosure requirements and changes in presentation included in this report. The Group also assessed other changes introduced by IFRS 9 that have no impact
• on the financial statements as explained below:
• There is no impact on the accounting for financial liabilities, as the new requirements of IFRS 9 only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Group does not have any such liabilities.
• No impacts in relation to derecognition of financial instruments as the same rules have been transferred from IAS39 Financial Instruments: Recognition and Measurement

IFRS 15Revenue from Contracts with Customers

The IASB has issued a new standard for the recognition of revenue arising from contracts with customers. The new revenue standard supersedes all current revenue recognition requirements under IFRS.

The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The Group evaluates recognition and measurement of revenue based on the five-step model in IFRS 15 and has not identified significant financial impacts, hence no adjustments were recorded derived from the adoption of IFRS 15 other than certain reclassifications as explained below.

The Group adopted the new standard from 1 January 2018 applying the simplified transition method and modified retrospective approach. Certain disclosures changed as a result of the requirements of IFRS 15.

The key issues identified, and the Group’s views and perspective are set below:

The revaluation of provisionally priced contracts is recorded as an adjustment to revenue. IFRS 15 does not change the assessment of the provisional price adjustment, but they are not considered within the scope of IFRS 15, and consequently have to be disclosed separately (refer to Note 5).

Impact of shipping terms: The group sells a very small portion of its products on CIF Incoterms and therefore the Group is responsible for shipping services after the date at which control of the copper passes to the customer. Under IAS 18, these shipping services were not considered to be part of the revenue transaction and thus the Group disclosed them as selling expenses. However, under IFRS 15, the Group reclassified the portion of these selling expenses relating to transport of copper from the Group’s production plants to the ports and to the customers, and reclassify those costs to cost of sales. The shipping services reclassified for the period ending 31 December 2018 amounted to €1.0 million. The Group assessed the amount of costs related to shipping services which are considered a separate performance obligation under IFRS 15 and therefore, a portion of the revenue currently recognised when the title has passed to the customer will need to be deferred and recognised as the shipping services are subsequently provided. Under IFRS 15 the costs related to shipping services are considered a separate performance obligation and therefore they should be deferred and recognised as the shipping services are subsequently provided. Based on the Group’s assessment, the shipping services being provided at the beginning and end of the reporting period are immaterial and therefore these have not been deferred. The total shipping services recognised during the year as a separate performance obligation under IFRS 15 amounts to €1.0 million and have been disclosed in Note 5.

IFRS 2:Classification and Measurement of Share based Payment Transactions (Amendments)

The Amendments are effective for annual periods beginning on or after 1 January 2018 with earlier application permitted. The Amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments, for share-based payment transactions with a net settlement feature for withholding tax obligations and for modifications to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. As the Company does not have cash settled awards, the amendments to IFRS 2 do not impact the Consolidated and Company’s financial statements

2. Summary of significant accounting policies (cont.)

2.2Changes in accounting policy and disclosures (cont.)

2.2.2Standards issued but not yet effective

The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the financial statements are disclosed below. Some of them were adopted by the European Union and others not yet. The Group and the Company intend to adopt these new and amended standards and interpretations, if applicable, when they become effective.

IFRS 16 –Leases

The new standard on leases that replaces IAS 17, IFRIC 4, SIC-15 and SIC-27. Under the provisions of the standard most leases, including the majority of those previously classified as operating leases, will be brought onto the statement of financial position, as both a right-of-use asset and a largely offsetting lease liability. The right-of-use asset and lease liability are both based on the present value of lease payments due over the term of the lease, with the asset being depreciated in accordance with IAS 16 ‘Property, Plant and Equipment’ and the liability increased for the accretion of interest and reduced by lease payments.

Atalaya has completed an initial assessment of the potential impact of IFRS 16 on its consolidated financial statements but has not yet completed its detailed assessment. The actual impact of applying IFRS 16 on the consolidated financial statements in the period of initial application will depend on future economic conditions, including the Group´s borrowing rate at 1 January 2019, the composition of Atalaya´s borrowing rate at 1 January 2019, the composition of Atalaya´s portfolio at that date, its latest assessment of whether it will exercise any lease renewal options, and the extent to which Atalaya chooses to use practical expedients and recognition exemptions. The directors continue to consider the potential effects on the Group’s financial statements and do not currently expect that there will be a material impact, given the current market and internal conditions.

IFRS 9:Prepayment features with negative compensation (Amendment)

These Amendments should be applied retrospectively and are effective from 1 January 2019, with earlier application permitted, These Amendments have no impact on the consolidated financial statements of the Group..

Amendmentin IFRS 10 Consolidated Financial Statements and IAS 28 Investments inAssociates and Joint Ventures: Sale or Contribution of Assets between anInvestor and its Associate or Joint Venture.

The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. In December 2015 the IASB postponed the effective date of this amendment indefinitely, but an entity that early adopts the amendments must apply them prospectively. The Group will apply these amendments when they become effective.

IFRS 17Insurance Contracts

In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts (IFRS 4) that was issued in 2005. IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few scope exceptions will apply. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. The core of IFRS 17 is the general model, supplemented by:

• A specific adaptation for contracts with direct participation features (the variable fee approach)

• A simplified approach (the premium allocation approach) mainly for short-duration contracts

IFRS 17 is effective for reporting periods beginning on or after 1 January 2021, with comparative figures required. Early application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS 17. This standard is not applicable to the Group.

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SOURCE: Atalaya Mining PLC