Download 2004 Annual Report - Polymetal

In accordance with FAS 141, thecontingent payments have notbeen recorded in the accompany−ing financial statements as theoutcome of the contingency is notdeterminable beyond a reason−able doubt. Accordingly, any futurepayments will be recorded whenmade.On the basis that the half yearaverage silver price to June 30,2005 of U.S. Dollar 7.05 perounce remains unchanged for theforeseeable future, the Companywill pay U.S. Dollar 2 000 per yearuntil 2015 and U.S. Dollar 500 in2016.The acquisition of the 20% inter−est in ZAO Serebro Magadana hasbeen recorded using the purchasemethod of accounting. The differ−ence between the purchase con−sideration of U.S. Dollar 21 266and the historic value of the minor−ity interest acquired totaling U.S.Dollar 7 200, has been recordedas property, plant and equipment.NOTE 27OAO Okhotskaya GGKshare issueIn February 2004, ISPA “Polymet−al” sold 538 ordinary shares(25.08% equity interest) of OAOOkhotskaya GGC to third parties.Consideration received amountedU.S. Dollar 5. As a result, Polymet−al share in OAO Okhotskaya GGCreduced to 54.9%. In April 2004,OAO Okhotskaya GGC issued 20592 common shares at par valueRussian rubles 100 per share, ofwhich 14 136 shares were pur−chased by ISPA “Polymetal” forU.S. Dollar 22 942, and 6 456shares – by other shareholdersfor U.S. Dollar 10 478. As a resultof the second transaction the in−terest of ISPA “Polymetal” in OAOOkhotskaya GGC has increased to65.35%.NOTE 28Subsidiary Preference SharesIssuanceIn September 2003 ZAO ZolotoSevernogo Urala , a Company’ssubsidiary, issued 30 000 seriesA preferred shares with par valueRuble 1 000 per share for a priceof Ruble 20 409 per share. Theproceeds from the issuance to−taled U.S. Dollar 20 787 and theentire issue was sold to Nomos−Bank, a related party (associateof ZAO ICT). According to theterms of the issue, the preferredshare have a liquidation prefer−ence of 50% of stated par valueand convey dividend rights equalto those enjoyed by holders ofcommon shares. As a result ofthe issue, the Company’s effectiveownership interest in ZAO ZolotoSevernogo Urala decreased from99.95% to 83.33%.The transaction was accountedfor as a disposal of an interest ina consolidated subsidiary, and theCompany recognized a gain on dis−posal of U.S. Dollar 13 850 deter−mined as the difference betweenthe proceeds from the preferredshare issuance and the carryingvalue of the disposed interest.NOTE 29Commitments and ContingentLiabilitiesCapital commitments imposedby license agreementsThe “Khakanjinskoye” mine minerallicense agreement (with amend−ments) imposes an obligation onthe OAO Okhotskaya GG_ to con−tribute U.S. Dollar 500 to theproject of Okhotsk region infra−structure development till 1 July2005. As at December 31, 2004,U.S. Dollar 60 was contributed.Operating environmentWhilst there have been improve−ments in economic trends in thecountry, the Russian Federationcontinues to display certain char−acteristics of an emerging market.These characteristics include, butare not limited to, the existence ofa currency that is not freely con−vertible in most countries outsideof the Russian Federation, re−strictive currency controls, andrelatively high inflation. The tax,currency and customs legislationwithin the Russian Federation issubject to varying interpreta−tions, and changes, which can oc−cur frequently.The future economic direction ofthe Russian Federation is largelyAppendix #1: Consolidated financial statements69