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EPS - Eastern Platinum Limited - Management`s Discussion And Analysis Of

Release Date: 12/11/2009 17:27
Code(s): EPS
Wrap Text

EPS - Eastern Platinum Limited - Management`s Discussion And Analysis Of Financial Conditions And Results Of Operations For The Three And Nine Months Ended September 30, 2009 EASTERN PLATINUM LIMITED (Incorporated in Canada) (Canadian Registration number BC0722783) (South African Registration number 2007/006318/10) Share Code TSX: ELR & ISIN: CA2768551038 Share Code AIM: ELR & ISIN: CA2768551038 Share Code JSE: EPS & ISIN: CA2768551038 EASTERN PLATINUM LIMITED MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 The following Management`s Discussion and Analysis ("MD&A") is intended to assist the reader to assess material changes in financial condition and results of operations of Eastern Platinum Limited ("Eastplats" or the "Company") as at September 30, 2009 and for the three and nine months then ended in comparison to the same period in 2008. In February 2009, the applicable provincial securities commissions granted the Company exemptive relief to adopt International Financial Reporting Standards ("IFRS") with an adoption date of January 1, 2009 and a transition date of January 1, 2008. This MD&A should be read in conjunction with the condensed consolidated interim financial statements for the three and nine months ended September 30, 2009 and supporting notes. These condensed consolidated interim financial statements have been prepared using accounting policies consistent with IFRS and in accordance with International Accounting Standard 34 ("IAS 34") - Interim Financial Reporting. A reconciliation of the previously disclosed comparative periods` financial statements prepared in accordance with Canadian generally accepted accounting principles to IFRS is set out in Note 15 to these condensed consolidated interim financial statements. In this MD&A, the Company also reports certain non-IFRS measures such as EBITDA and cash costs per ounce which are explained in Section 3.2 of this MD&A. All monetary amounts are in U.S. dollars unless otherwise specified. The effective date of this MD&A is November 12, 2009. Additional information relating to the Company is available on SEDAR at www.sedar.com. Contents of the MD&A 1. Overview 2. Highlights for the quarter ended September 30, 2009 3. Results of operations for the three and nine months ended September 30, 2009 3.1. Mining operations at the Crocodile River Mine ("CRM") 3.2. CRM non-IFRS measures 3.3. Development projects 3.3.1. CRM 3.3.2. Spitzkop and Kennedy`s Vale 3.3.3. Mareesburg 3.4. Corporate and other expenses 4. Liquidity and Capital Resources 4.1. Outlook 4.2. Impairment 4.3. Share capital 4.4. Contractual Obligations and Commitments 5. Related party transactions 6. Adoption of accounting standards and accounting pronouncements under IFRS 6.1 Significant differences between IFRS and Canadian GAAP in the Company`s financial statements 6.2 Accounting standards issued but not yet effective 7. Internal control over financial reporting 8. Cautionary statement on forward-looking information 1. Overview Eastplats is a platinum group metals ("PGM") producer engaged in the mining and development of PGM deposits with properties located in South Africa. All of the Company`s properties are situated on the western and eastern limbs of the Bushveld Complex ("BC"), the geological environment that supports over 75% of the world`s PGM mine production. The Company`s primary operating asset is an 87.5% direct and indirect interest in Barplats Investments Limited ("Barplats"), whose main assets are the PGM producing Crocodile River Mine ("CRM") located on the western limb of the BC and the non-producing Kennedy`s Vale Project located on the eastern limb of the BC. The Company also has a 75.5% direct and indirect interest in Mareesburg Platinum Project ("Mareesburg") and a 93.4% direct and indirect interest in Spitzkop PGM Project ("Spitzkop"), both located on the eastern limb of the BC. 2. Highlights for the quarter ended September 30, 2009 ("Q3 2009") * CRM reached two million fatality-free shifts in September. * The Company`s Lost Time Injury Frequency Rate (LTIFR) was 1.69 this quarter compared to 3.02 in the third quarter of 2008 ("Q3 2008"). * Eastplats recorded a net profit attributable to equity shareholders of the Company of $1,839,000 ($0.00 per share) compared to a net loss attributable to equity shareholders of $10,829,000 ($0.02 loss per share) in Q3 2008. * Production at CRM was 29,986 PGM ounces compared to 30,758 PGM ounces in Q3 2008, despite the industrial action by contract mining company`s workers in July. * EBITDA was $4,971,000 compared to negative EBITDA of $11,405,000 in Q3 2008. * The average delivered basket price per PGM ounce was $765, a decrease of 36% compared to $1,193 in Q3 2008. * Operating cash costs net of by-product credits were $583 per ounce, a 12% increase from $521 per ounce achieved in Q3 2008 as a result of the industrial action in July. Operating cash costs were $758 per ounce, an increase of 13% compared to the $672 per ounce in Q3 2008. * Rand operating cash costs net of by-product credits were R4,548 per ounce, an increase of 12% compared to R4,055 per ounce in Q3 2008. Rand operating cash costs were R5,915 per ounce, an increase of 13% compared to R5,233 per ounce in Q3 2008. * Head grade increased to 4.1 grams per tonne in Q3 2009 from 4.0 grams per tonne in Q3 2008, and average concentrator recovery remained unchanged at 78%. * Development meters decreased by 49% to 2,882 meters and on-reef development decreased by 56% to 1,562 meters compared to Q3 2008, partly due to the industrial action in July, and partly due to the planned reduction in reserve development that was initiated in November 2008. * Stoping units decreased by 9% to 36,263 square meters and run-of-mine rock ore decreased by 23% to 244,959 tonnes compared to the same quarter in 2008 as a result of the industrial action in July. * Run-of-mine ore processed decreased by 8% to 280,777 tonnes in Q3 2009 from 305,490 tonnes in Q3 2008. * At September 30, 2009, the Company had a cash position (including cash, cash equivalents and short term investments) of $22,906,000 (December 31, 2008 - $61,063,000). The table below sets forth selected results of operations for the Company`s eight most recently completed quarters (in thousands of U.S. dollars, except per share amounts). The quarters of 2007 have been presented in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). All financial data previously reported in Canadian dollars have been converted to U.S. dollars. Table 1
Selected quarterly data 2009 2009 2009 (under IFRS unless otherwise noted) Sept 30 June 30 March 31 Revenues $ 27,365 $ 24,838 $ 24,903 Cost of operations (26,702) (22,595) (21,402) Mine operating earnings (loss) 663 2,243 3,501 Expenses (G&A and share-based payment) (2,445) (3,374) (1,768) Impairment of property, plant and equipment - - - Operating (loss) profit (1,782) (1,131) 1,733 Net profit (loss) attributable to equity shareholders of the Company $ 1,839 $ 317 $ 3,164 Earnings (loss) per share-basic $ 0.00 $ 0.00 $ 0.00 Earnings (loss) per share - diluted $ 0.00 $ 0.00 $ 0.00 Average foreign exchange rates South African Rand per US dollar 7.80 8.44 9.94 US dollar per Canadian dollar 0.9114 0.8578 0.8038 Period end foreign exchange rates South African Rand per US dollar 7.53 7.75 9.54 US dollar per Canadian dollar 0.9340 0.8598 0.7928 Selected quarterly data 2008 (under IFRS unless otherwise noted) Dec 31 Sept 30 June 30 March 31 Under IFRS Revenues $ 345 $ 9,224 $ 49,317 $ 55,795 Cost of operations (19,569) (25,372) (25,538) (24,144) Mine operating earnings (loss) (19,224) (16,148) 23,779 31,651 Expenses (G&A and share-based payment) (6,599) (5,996) (5,789) (5,682) Impairment of property, plant and equipment (313,603) - - - Operating (loss) profit (339,426) (22,144) 17,990 25,969 Net profit (loss) attributable to equity shareholders of the Company $ (230,176) $ (10,829) $ 12,148 $ 19,476 Earnings (loss) per share-basic $ (0.34) $ (0.02) $ 0.02 $ 0.03 Earnings (loss) per share - diluted $ (0.34) $ (0.02) $ 0.02 $ 0.03 Average foreign exchange rates South African Rand per US dollar 9.92 7.78 7.77 7.53 US dollar per Canadian dollar 0.8252 0.9603 0.9901 0.9955 Period end foreign exchange rates South African Rand per US dollar 9.29 8.35 7.81 8.14 US dollar per Canadian dollar 0.8210 0.9397 0.9807 0.9742 Selected quarterly data 2007 (under IFRS unless otherwise noted) Dec 31 Under
Canadian GAAP Revenues $ 34,126 Cost of operations (26,095) Mine operating earnings (loss) 8,031 Expenses (G&A and share-based payment) (18,022) Impairment of property, plant and equipment - Operating (loss) profit (9,991) Net profit (loss) attributable to equity shareholders of the Company $ (10,814) Earnings (loss) per share-basic $ (0.02) Earnings (loss) per share - diluted $ (0.02) Average foreign exchange rates South African Rand per US dollar 6.76 US dollar per Canadian dollar 1.0189 Period end foreign exchange rates South African Rand per US dollar 6.88 US dollar per Canadian dollar 1.0088 3. Results of Operations for the three and nine months ended September 30, 2009 The following table sets forth selected consolidated financial information for the three and nine months ended September 30, 2009 and 2008: Table 2 Condensed consolidated interim income statements (Expressed in thousands of U.S. dollars, except per share amounts) Three months ended September 30, 2009 2008 Revenue Cost of operations $ 27,365 $ 9,224 Production costs 22,394 20,629 Depletion and depreciation 4,308 4,743 Mine operating earnings (loss) 663 (16,148) Expenses General and administrative 2,336 5,585 Share-based payments 109 411 Operating (loss) profit (1,782) (22,144) Other income (expense) Interest income 448 2,297 Finance costs (332) (701) Foreign exchange (loss) gain 652 (28) (Loss) profit before income taxes (1,014) (20,576) Deferred income tax recovery (expense) 1,645 6,363 Net profit (loss) for the period $ 631 $ (14,213) Attributable to Non-controlling interest $ (1,208) $ (3,384) Equity shareholders of the Company $ 1,839 $ (10,829) Earnings per share Basic $ 0.00 $ (0.02) Diluted $ 0.00 $ (0.02) Weighted average number of common share outstanding Basic 680,558 680,245 Diluted 687,018 680,245 Nine months ended September 30,
2009 2008 Revenue Cost of operations $ 77,106 $ 114,336 Production costs 58,588 61,437 Depletion and depreciation 12,111 13,617 Mine operating earnings (loss) 6,407 39,282 Expenses General and administrative 7,143 15,227 Share-based payments 444 2,240 Operating (loss) profit (1,180) 21,815 Other income (expense) Interest income 1,437 7,981 Finance costs (1,159) (2,957) Foreign exchange (loss) gain (795) 1,100 (Loss) profit before income taxes (1,697) 27,939 Deferred income tax recovery (expense) 3,934 (7,417) Net profit (loss) for the period $ 2,237 $ 20,522 Attributable to Non-controlling interest $ (3,083) $ (273) Equity shareholders of the Company $ 5,320 $ 20,795 Earnings per share Basic $ 0.01 $ 0.03 Diluted $ 0.01 $ 0.03 Weighted average number of common share outstanding Basic 680,541 675,979 Diluted 686,112 705,249 Condensed consolidated statements of September 30, December 31, financial position 2009 2008 Total assets $ 695,191 $ 596,570 Total long-term liabilities $ 54,425 $ 47,685 3.1 Mining operations at Crocodile River Mine ("CRM") The following is a summary of CRM`s operations for each of the quarters of 2009 and 2008: Table 3 Crocodile River Mine operations September June 30, March 31,
30, 2009 2009 2009 Key financial statistics (dollar amounts stated in U.S. dollars) Sales - P GM ounces 29,986 33,383 32,969 Average delivered price per ounce (2) $765 $679 $590 Average basket price $878 $779 $676 Cash costs per ounce of PGM (1) $758 $554 $536 Cash costs per ounce of PGM, net of chrome by-product credits (1) $583 $494 $388 Rand cash costs per ounce of PGM (1) R 5,915 R 4,673 R 5,326 Rand cash costs per ounce of PGM, net of chrome by-product credits (1) R 4,548 R 4,169 R 3,857 Key production statistics Total tonnes processed 471,743 440,288 318,394 Run-of-mine ("ROM") rock tonnes processed 280,777 304,354 318,394 Tailings tonnes processed 190,966 135,934 - Third party ore processed - - - Development meters 2,882 4,326 4,573 On-reef development meters 1,562 2,860 2,745 Stoping units (square meters) 36,263 51,342 45,098 Concentrator recovery from ROM ore 78% 80% 80% Chrome produced (tonnes) 83,930 82,760 77,554 Metal in concentrate sold (ounces) Platinum (Pt) 15,080 16,721 16,499 Palladium (Pd) 6,613 7,406 7,399 Rhodium (Rh) 2,499 2,868 2,812 Gold (Au) 115 141 135 Iridium (Ir) 1,095 1,179 1,144 Ruthenium (Ru) 4,584 5,068 4,980 Total PGM ounces 29,986 33,383 32,969 Three months ended
December 31, September 30, June 30, March 31, 2008 2008 2008 2008 Key financial statistics (dollar amounts stated in U.S. dollars) Sales - P GM ounces 29,015 30,758 30,311 27,825 Average delivered price per ounce (2) $550 $1,193 $1,657 $1,621 Average basket price $655 $1,438 $1,969 $1,927 Cash costs per ounce of PGM (1) $628 $672 $696 $698 Cash costs per ounce of PGM, net of chrome by-product credits (1) $578 $521 $696 $698 Rand cash costs per ounce of PGM (1) R 6,231 R 5,233 R 5,411 R 5,258 Rand cash costs per ounce of PGM, net of chrome by-product credits (1) R 5,734 R 4,055 R 5,410 R 5,256 Key production statistics Total tonnes processed 298,514 317,602 337,471 349,497 Run-of-mine ("ROM") rock tonnes processed 298,514 305,490 313,767 257,748 Tailings tonnes processed - 12,112 23,704 88,948 Third party ore processed - - - 2,801 Development meters 4,604 5,599 5,575 4,409 On-reef development meters 2,922 3,556 3,230 2,343 Stoping units (square meters) 46,459 39,652 44,277 38,686 Concentrator recovery from ROM ore 76% 78% 73% 78% Chrome produced (tonnes) 69,937 64,744 37,515 22,489 Metal in concentrate sold (ounces) Platinum (Pt) 14,466 15,393 15,333 13,684 Palladium (Pd) 6,690 6,973 6,777 6,201 Rhodium (Rh) 2,451 2,581 2,543 2,335 Gold (Au) 121 123 132 121 Iridium (Ir) 979 1,083 994 1,078 Ruthenium (Ru) 4,308 4,605 4,532 4,405 Total PGM ounces 29,015 30,758 30,311 27,825 (1) These are non-IFRS measures as described in Section 3.2 (2) Average delivered price is the average basket price at the time of delivery of PGM concentrates, net of associated smelter costs, under the Company`s primary off-take agreement. Quarter ended September 30, 2009 compared to the quarter ended September 30, 2008 The Company recorded revenue of $27,365,000 in Q3 2009. This amount represents revenues recorded when PGM concentrates are physically delivered to the buyer, plus/minus adjustments made when final prices for these concentrates are settled. The Company settles its PGM sales three to five months following the physical delivery of the concentrates which are provisionally priced on the date of delivery. After a period of sharp declines in late 2008, PGM prices in U.S. dollar terms have risen steadily throughout 2009 from its lows in December 2008. The Company recorded an average delivered basket price of $765 per PGM ounce in Q3 2009, compared to $679 in Q2 2009 and $1,193 in Q3 2008. The delivered price per ounce refers to the PGM prices in effect at the time the PGM concentrates are delivered. As a result of the rise in prices, the Company recorded positive provisional price adjustments of $1,579,000 and $6,490,000 for the three and nine months ended September 30, 2009 respectively. In comparison, PGM prices declined sharply from August through December 2008 resulting in significant negative adjustments to the provisional prices in Q3 2008 when these were marked to market at September 30, 2008. The following table shows a reconciliation of revenue and provisional price adjustments. Table 4 Crocodile River Mine Effect of provisional price adjustments on revenues (stated in thousands of U.S. dollars) Three months ended Three months ended September 30, 2009 September 30, 2008
Revenue before provisional price adjustments $ 25,786 $ 34,412 Provisional price adjusments Adjustments to revenue upon settlement 20 (4,749) of prior periods` sales Mark-to-market adjustment on sales not yet settled at end of period 1,559 (20,439) Revenue as reported in the income statement $ 27,365 $ 9,224 Nine months ended Nine months ended
September 30, 2009 September 30, 2008 Revenue before provisional price adjustments $ 70,616 $ 129,702 Provisional price adjusments Adjustments to revenue upon settlement 4,931 5,073 of prior periods` sales Mark-to-market adjustment on sales not yet settled at end of period 1,559 (20,439) Revenue as reported in the income statement $ 77,106 $ 114,336 In Q3 2009, CRM suffered five lost time injuries (compared to eight lost time injuries in Q3 2008) resulting in a Lost Time Injury Frequency Rate ("LTIFR") of 1.69 (3.02 in Q3 2008). The Company`s twelve month rolling LTIFR of 1.85 to September 30, 2009 compares favorably with other platinum producers in South Africa. PGM ounces sold were down by 3% in Q3 2009 compared to Q3 2008 as a result of decreased run-of- mine rock tonnes processed (280,777 tonnes in Q3 2009 compared to 305,490 tonnes in Q3 2008). The decrease in run-of-mine tonnes was due to an illegal industrial action by personnel employed by two contract mining companies which severely interrupted production at the mine in July and August. By September, production levels had returned to those achieved in June 2009. The decrease in production was partially offset by an increase in grades from 4.0 grams per tonne in Q3 2008 to 4.1 grams per tonne in Q3 2009. Total tonnage processed increased by 49% compared to Q3 2008 primarily due to the Q3 2009 recommencement of tailings retreatment at CRM. There were 190,966 tonnes of tailings processed in Q3 2009 versus 12,112 tonnes in Q3 2008. Total development for the quarter was 2,882 metres, a 49% decrease compared to 5,599 metres achieved in Q3 2008, and on-reef development was 1,562 metres, a 56% decrease compared to 3,556 metres in Q3 2008, again as a result of the industrial action. Since the industrial action, the Company`s focus has been to return to production levels achieved in June 2009 in a safe, timely, and cost efficient manner. Going forward, development is planned at Q2 levels in order to ensure that the reserve immediately available for stoping can be maintained at about eighteen months. Recovery rates increased from 78% in Q3 2008 to 80% in Q2 2009 and then decreased to 78% in Q3 2009 as a result of the industrial action causing sub-optimal concentrator operation during times of low feed from underground. Operating cash costs, a non-IFRS measure, increased by 13% from $672 per ounce in Q3 2008 to $758 per ounce in Q3 2009 due to inefficiencies caused by the disruption of the industrial action, a 10% wage increase effective July 1, 2009, and a 30% increase in electricity costs. Operating cash costs are incurred primarily in Rand. The average U.S. dollar-Rand exchange rate, which was R7.80:$1.00 in both Q3 2009 and Q3 2008, was not a factor in the comparison of operating cash costs. A reconciliation of production costs, as reported in the income statement, to cash operating costs, is shown under Section 3.2 below under CRM non-IFRS measures. The chrome recovery circuit at CRM was fully operational at the end of the second quarter of 2008. As a result, penalties for excess chrome present in PGM concentrates have been significantly reduced and commercial quantities of chrome have been produced and sold as a by-product of PGM production. In July 2008, the Company commenced reporting cash costs net of chrome by-product credits, also a non- IFRS measure. In Q3 2009, 83,930 tonnes of chrome were produced and 76,900 tonnes were sold for proceeds of $5,255,000, reducing operating cash costs net of by-product credits to $583 per ounce. Quarter ended September 30, 2009 compared to the quarter ended June 30, 2009 Underground mining activities and production were significantly interrupted during the quarter as a result of the illegal industrial action in July. Development meters, on-reef development meters, and stoping units decreased by 33%, 45% and 29% respectively compared to Q2 2009. However, the decrease in run- of-mine ore processed was limited to 8% and the decrease in PGM ounces sold was limited to 10% due to the processing of 35,000 tonnes of surface ore stockpiles which had accumulated as at June 30, 2009. The decrease in production ounces and production efficiencies led to a 37% increase in operating cash costs per ounce from $554 per ounce in Q2 2009 to $758 per ounce in Q3 2009. Other factors contributing to this increase was a 10% rise in wages effective July 1, 2009 and a 30% rise in electricity costs. An 8% weakening of the U.S. dollar from R8.44:$1.00 in Q2 2009 to R7.80:$1.00 in Q3 2009 also contributed to the increase in operating cash costs, which are incurred primarily in Rand. Revenues were 10% higher compared to Q2 2009 as a result of a 13% rise in the average delivered price per PGM ounce, which also contributed to positive provisional price adjustments for the current quarter, and an increase in chrome production and sales. Nine months ended September 30, 2009 ("9M 2009") compared to the nine months ended September 30, 2008 ("9M 2008") In 9M 2009, the Company sold 96,338 PGM ounces, an increase of 8% compared to 9M 2008, primarily as a result of higher volumes mined in 2009 (1,230,425 tonnes processed in 9M 2009 compared to 1,004,570 tonnes processed in 9M 2008), and improved recovery rates (79% in 9M 2009 compared to 76% in 9M 2008). On-reef development decreased to 7,167 meters in 9M 2009 compared to 9,129 meters in 9M 2008. The average delivered basket price per ounce decreased from $1,485 in 9M 2008 to $675 in 9M 2009 as PGM prices reached multi-year highs in March 2008 and decreased between August 2008 and December 2008. Operating cash costs of $611 per ounce were achieved in 9M 2009, compared to $688 per ounce in 9M 2008, due to an 8% increase in the number of ounces produced in 2009 compared to 2008 and a 12% rise in the value of the U.S. dollar relative to the Rand between 2008 and 2009. However, total cash operating costs in Rand were 8% higher in 9M 2009 compared to the same period in 2008 due to increased labour costs and general inflation on other supplies and services during this period. 3.2 CRM non-IFRS measures The following table provides a reconciliation of EBITDA and cash operating costs per PGM ounce to mine operating earnings and production costs, respectively: Table 5 Crocodile River Mine non-IFRS measures (Expressed in thousands of U.S. dollars, except ounce and per ounce data) Three months ended September September 30, 2009 30, 2008
Mine operating earnings (loss) $ 663 $ (16,148) Depletion and depreciation 4,308 $ 4,743 EB ITDA (1) 4,971 (11,405) Production costs as reported 22,394 20,629 Adjustments for miscellaneous costs (2) 335 40 Cash opera ting costs 22,729 20,669 Less by-product credits - chrome revenues and adjustments (5,255) (4,640) Cash opera ting costs net of by-product credits 17,474 16,029 Ounces sold 29,986 30,758 Cash cost per ounce sold $ 758 $ 672 Cash cost per ounce sold net of by-product credits $ 583 $ 521 Nine months ended September September 30, 2009 30, 2008 Mine opera ting earnings (loss) $ 6,407 $ 39,282 Depletion and depreciation 12,111 13,617 EB ITDA (1) 18,518 52,899 Production costs as reported 58,588 61,437 Adjustments for miscellaneous costs (2) 306 (245) Cash opera ting costs 58,894 61,192 Less by-product credits - chrome revenues and adjustments (12,144) (4,640) Cash opera ting costs net of by-product credits 46,750 56,552 Ounces sold 96,338 88,894 Cash cost per ounce sold $ 611 $ 688 Cash cost per ounce sold net of by-product credits $ 485 $ 636 (1) EBITDA includes provisional price adjustments, chrome revenues, chrome penalties, and foreign exchange adjustments to sales. (2) Miscellaneous costs include costs such as housing, technical services and planning. The Company is of the opinion that conventional measures of performance prepared in accordance with IFRS do not fully demonstrate the ability of its operations to generate cash flow. Therefore, the Company has included certain non-IFRS measures in this MD&A to supplement its financial statements which are prepared in accordance with IFRS. These non-IFRS measures do not have any standardized meaning prescribed under IFRS, and therefore they may not be comparable to similar measures employed by other companies. In this MD&A, the Company has reported its share of earnings before interest, depletion, depreciation, amortization and tax ("EBITDA") at CRM. This is a liquidity non-IFRS measure which the Company believes is used by certain investors to determine the Company`s ability to generate cash flows for investing and other activities. The Company also reports cash operating costs per ounce of PGM produced, another non-IFRS measure which is a common performance measure used in the precious metals industry. 3.3 Development projects 3.3.1 CRM In Q3 2009, the Company spent approximately $3.9 million at CRM, primarily on continuing underground mine development, concentrator instrumentation upgrades, underground high tension electricity expansion and upgrades, and ongoing surface and underground works at the Zandfontein vertical shaft, including conveyor belts for the transport of ore hoisted up the vertical shaft and construction of dams for underground water control. The shaft hoisting capacity will be 100,000 tonnes of ore per month plus associated waste, and the shaft, along with additional decline development, will allow access into the deeper parts of the ore body. Due to the recent downturn in the global economy and platinum group metals prices, the development of the Crocette and Kareespruit sections at CRM has been put on hold while the Company focused on increasing production from existing mining areas. 3.3.2 Spitzkop/Kennedy`s Vale Development of Spitzkop and Kennedy`s Vale has been on hold since December 2008. During Q3 2009 the only expenditures at Spitzkop/Kennedy`s Vale related to care and maintenance costs. Spitzkop is planned as a decline mining operation that will access high-grade PGM resources in the UG2 reef at shallow depth without the requirement for high capital cost shaft infrastructure. Spitzkop is situated up dip of, and adjacent to, the Kennedy`s Vale project. Kennedy`s Vale and the deeper sections of both properties could utilize the existing twin vertical shafts. This infrastructure would provide a significant reduction in capital costs for the development of the deeper sections of both properties. During 2008, work on the basic engineering for trial mining was completed and long lead items such as mills and mining equipment were purchased or ordered. The box-cuts for both the Merensky Reef and UG2 declines were completed. Due to the market environment, development of the declines was suspended after about 180 metres and equipment purchased is being stored for future use. The new order mining right for Spitzkop was executed in October 2009. 3.3.3 Mareesburg Further work on the Mareesburg project has been on hold since December 2008. A new order mining right application was submitted in December 2007 which supports the Company`s intention to commence mining when PGM prices improve. An updated feasibility study for the Mareesburg open pit is expected to be completed in 2009. 3.4 Corporate and other expenses General and administrative expenses ("G&A") are costs associated with the Company`s corporate head office in Vancouver and the Johannesburg administrative office and costs associated with care and maintenance at Spitzkop, Kennedy`s Vale and Mareesburg. Corporate office costs include legal and accounting, regulatory, executive management fees, investor relations, travel and consulting fees. Given the current downturn in the economy and the curtailment and postponement of some of the Company`s projects, the Company has made considerable efforts to reduce G&A expenses beginning in Q4 2008. G&A decreased by 58% to $2,336,000 in Q3 2009 from $5,585,000 in Q3 2008. Similarly, G&A decreased by 53% to $7,143,000 in 9M 2009 from $15,227,000 in 9M 2008. The decrease in G&A was due to a reduction in certain senior level staff in Johannesburg in late 2008, and a general reduction in corporate travel and investor relations activities. Compared to the second quarter of 2009, G&A decreased from $3,171,000 to $2,336,000 in Q3 2009 mainly due to the Q2 2009 settlement of two long-standing legal proceedings which originated at CRM in 2004 and 2006 respectively. The costs to settle these proceedings totaled $1,407,000. Interest income recorded during the three and nine months ended September 30, 2009 was $448,000 and $1,437,000 respectively compared with $2,297,000 and $7,981,000 in the same period in 2008. The decrease in interest income was due to lower average cash balances and lower interest rates in 2009 compared to the same period in 2008. During the three and nine months ended September 30, 2009 the Company recorded an income tax recovery of $1,645,000 and $3,934,000 respectively. The recoveries were based on net losses generated at CRM during the period as well as changes in the Company`s net assets that resulted in a deferred tax recovery. The consolidated statement of financial position reflects total deferred tax liabilities of $43,506,000 which arose primarily as a result of the step-up to fair value of the net assets acquired on the Barplats and Gubevu business acquisitions during the years ended June 30, 2006, June 30, 2007, and December 31, 2008. 4. Liquidity and Capital Resources At September 30, 2009, the Company had working capital of $30,271,000 (December 31, 2008 - $34,025,000) and cash and cash equivalents and short-term investments of $22,906,000 (December 31, 2008 - $61,063,000) in highly liquid, fully guaranteed, bank sponsored instruments. The Company had no long-term debt at September 30, 2009, other than a provision for environmental rehabilitation relating primarily to its Crocodile River Mine, and capital lease obligations relating to mining vehicles with lease terms of five years with options to purchase for a nominal amount at the conclusion of the lease. See Contractual Obligations under Section 4.4 below. 4.1 Outlook The sharp decline in the prices of platinum group metals (PGMs) during the last five months of 2008 had a negative impact on the Company`s profitability and the Company`s development projects which have been put on hold until a sustained recovery of PGM prices takes place. PGM prices in U.S. dollar terms have recovered since the beginning of 2009, but this has been negated by the recent strength of the Rand against the U.S. dollar. As a result, the realized basket prices that the Company is receiving have not improved significantly since their lows of December 2008 and are still more than 50% below those recorded in July 2008. In light of the current global economic uncertainty, the Company anticipates that PGM prices will remain depressed and the Rand-U.S. dollar exchange rate will remain volatile in the short term. Furthermore, the illegal industrial action at CRM in July and the hiring and training of new personnel resulted in lower production levels in the third quarter. Despite the negative impact of this disruption, the Company anticipates production to return to budgeted levels in the fourth quarter as new mining crews complete their phase-in and training periods. As a consequence of the global economic uncertainty and the industrial action at CRM, the Company`s near-term goal has been, and continues to be, to preserve its cash balances to the greatest extent possible, by finding ways to increase production and minimize operating costs without compromising safety, health and environmental standards, and by curtailing capital expenditures. This process began in December 2008, and until the industrial action took place, the Company was successful in achieving significant cost improvements over the first two quarters of 2009. The Company will continue to manage costs as a priority and expects the lower cost structure to be maintained, as long as there are no further unanticipated disruptions in production. The Company`s three primary development projects, at the Crocette section at CRM and at Spitzkop and Mareesburg on the Eastern Limb, have remained on care and maintenance since the end of 2008. The Company continually assesses their status, with a view to determining an appropriate development schedule given the market conditions, the Company`s current cash balances, its ability to generate sufficient cash flows, and its ability to obtain additional funding in the current market environment. Additional funding may be required and may include external debt financing, joint venture or other third party participation in one or more of the projects, or the public or private sales of equity or debt securities of the Company. If current market conditions persist for an extended time and PGM prices remain at present levels or lower, then the cash flows from CRM and current cash balances will be insufficient to advance any or all of the Company`s development projects to commercial production. This, along with the current tight credit markets that may result in higher financing costs, could negatively affect the Company`s ability to obtain equity financing, external debt financing or third party participation. There can be no assurance that additional funding will be available to the Company or, if available, that this funding will be on acceptable terms. If adequate funds are not available, the Company may be required to further delay or reduce the scope of any or all of its development projects. 4.2 Impairment The Company has assessed the carrying values of its mineral properties as a result of the market downturn. Since late 2008, declining PGM prices and negative market sentiment have led to the Company`s market capitalization dropping below its book value as at December 31, 2008 and throughout 2009. Based on the then-current and expected PGM prices and cost structures as at December 31, 2008, management determined that the values of the Company`s mineral properties have not been impaired as of December 31, 2008, with the exception of the Kennedy`s Vale Project, which was impaired by $313,603,000 as determined under IFRS. This impairment has been recorded in the year ended December 31, 2008. Should market conditions and commodity prices deteriorate for a prolonged period of time, an impairment of the Company`s other mineral properties may be required. 4.3 Share Capital During the three months ended September 30, 2009, the Company did not grant any stock options. Share- based payment expense for the quarter was $109,000, which takes into account the vesting of options. During Q3 2009, 472,500 options were forfeited at a weighted average exercise price of Cdn$1.35. During the nine months ended September 30, 2009, the Company granted 480,000 stock options with a weighted average exercise price of Cdn$0.49 and expiry dates of February 11, 2014 and June 30, 2014, giving rise to share-based payment expense of $101,000 for the period. The total share-based payment expense for the period was $444,000, which takes into account the vesting of options. During the nine months ended September 30, 2009, 5,154,167 options were forfeited at a weighted average exercise price of Cdn$2.02. On March 28, 2009, the Company`s warrants that traded on the Toronto Stock Exchange under the symbol "ELR.WT.A" expired. A total of 58,485,996 warrants expired unexercised. As at November 12, 2009, the Company had: * 680,570,958 common shares outstanding; and * 60,157,500 stock options outstanding, which are exercisable at prices ranging from Cdn$0.32 to Cdn$3.38 and expire between 2011 and 2018. 4.4 Contractual Obligations and Commitments The Company`s major contractual obligations and commitments at September 30, 2009 were as follows: Table 6 (in thousands of U.S. dollars) Total Less than 1 1-5 years More than 5 year years Provision for environmental rehabilitation $ 16,031 $ - $ - $ 16,031 Capital expenditure contracted at September 30, 2009 but not recognized on the condensed consolidated interim statement of financial position 4,122 4,122 - - Capital lease obligations 4,817 1,202 3,614 - $ 24,970 $ 5,324 $ 3,614 $ 16,031 5. Related Party Transactions A number of the Company`s executive officers are engaged under contract with those officers` personal services companies. During the three and nine months ended September 30, 2009 the Company paid $280,000 and $829,000 respectively for management and consulting fees compared to $322,000 and $1,033,000 respectively during the same periods in 2008. During the three and nine months ended September 30, 2009, the Company paid $26,000 and $45,000 respectively for reimbursements of expenses to private companies controlled by officers and directors of the Company, compared to $73,000 and $228,000 respectively during the same period in 2008. Management fees were lower during the three and nine months ended September 30, 2009 compared to the same periods in 2008 due to cost-cutting measures and a lower Canadian dollar. Reimbursements of expenses were lower during the three and nine months ended September 30, 2009 compared to the same periods in 2008 due to less travel to South Africa. All related party transactions were recorded at the amounts agreed upon between the parties. Any balances payable are payable on demand without interest. 6. Adoption of Accounting Standards and Pronouncements under IFRS In 2008, the Company`s management assessed the impact of an early adoption to IFRS and concluded that early adoption would be beneficial to shareholders. An application for early adoption was submitted to the British Columbia and Ontario Securities Commissions (the "Commissions") in November 2008. In February 2009, the Commissions granted the Company exemptive relief to adopt International Financial Reporting Standards ("IFRS") with an adoption date of January 1, 2009 and a transition date of January 1, 2008. The Company`s second financial statements prepared under IFRS are the interim financial statements for the three and nine months ended September 30, 2009, which includes full disclosure of its new IFRS policies in Note 3 to these financial statements. These financial statements also include reconciliations of the previously disclosed comparative periods financial statements prepared in accordance with Canadian generally accepted accounting principles ("GAAP") to IFRS as set out in Note 15. 6.1 Significant differences between IFRS and Canadian GAAP in the Company`s financial statements During the year ended December 31, 2008, the Company recorded an impairment of its Kennedy`s Vale ("KV") Project of $313,603,000 under IFRS, as the discounted cash flows of the KV Project were below its carrying value. The amount of the impairment was the difference between the discounted cash flows and the carrying value. Deferred tax liabilities associated with the KV Project were also written off as a result. The effect of the impairment was a decrease in property, plant and equipment of $274,354,000, from $783,039,000 under Canadian GAAP, to $508,685,000 under IFRS. An impairment was not required under Canadian GAAP, as the undiscounted cash flows of the KV Project were higher than its carrying value. Since the valuation of the KV Project was based on a production start date of 2020, discounted and undiscounted cash flows varied significantly, creating a difference in the impairment determination under IFRS and under Canadian GAAP. Tests for impairment are based on certain assumptions on metal prices, production rates, project start-up dates, operating costs, capital costs, and discount rates. Should any of these assumptions change and cause an adverse effect on the valuation of a project, additional impairment charges may be required. At January 1, 2008, the Company elected to eliminate its currency translation adjustment balance in the statement of financial position, as allowed for first-time IFRS adopters. The effect of this elimination was a decrease in the deficit of $21,747,000, from $68,132,000 under Canadian GAAP to $46,385,000 under IFRS. 6.2 Accounting standards issued but not yet effective (i) Effective for annual periods beginning on or after July 1, 2009 * IFRS 2 Share Based Payments (revised) - revision of scope * IFRS 3 Business Combinations (revised) - revision of scope and amendments to accounting for business combinations * IAS 27 Consolidated and Separate Financial Statements (revised) - amendments due to IFRS 3 Business Combinations revisions * IAS 38 Intangible Assets (revised) - amendments due to IFRS 3 Business Combinations revisions and measuring the fair value of an intangible asset acquired in a business combination (ii) Effective for annual periods beginning on or after January 1, 2010 * IFRS 8 Operating Segments (revised) - disclosure of information about segment assets The Company has not early adopted these revised standards and is currently assessing the impact that these standards will have on the consolidated financial statements. 7. Internal Control over Financial Reporting The Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO") of the Company, together with the Company`s management, are responsible for the information disclosed in this MD&A and in the Company`s other external disclosure documents. For the quarters ended September 30, 2009 and September 30, 2008, the CEO and the CFO have designed, or caused to be designed under their supervision, the Company`s disclosure controls and procedures ("DCP") to provide reasonable assurance that material information relating to the Company and its consolidated subsidiaries has been disclosed in accordance with regulatory requirements and good business practices and that the Company`s DCP will enable the Company to meet its ongoing disclosure requirements. The CEO and CFO have evaluated the effectiveness of the Company`s disclosure controls and procedures and have concluded that the design and operation of the Company`s DCP were effective as of September 30, 2009 and that the Company has the appropriate DCP to ensure that information used internally by management and disclosed externally is, in all material respects, complete and reliable. The CEO and the CFO are also responsible for the design of the internal controls over financial reporting ("ICFR") within the Company in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards ("IFRS"). During 2008, the Company engaged an international accounting firm to act as the Company`s internal auditors for its South African operations. Under the supervision, and with the participation, of the CEO and the CFO, management conducted an evaluation of the effectiveness of the Company`s ICFR based on the framework in the Internal Control - Integrated Framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, the CEO and the CFO concluded that the design and operation of the Company`s ICFR were effective as at September 30, 2009. The scope of the Company`s design of DCP and ICFR excluded Gubevu Consortium Holdings (Pty) Ltd., a subsidiary which is accounted for as a special purpose entity under IFRS (previously a variable interest entity under Canadian generally accepted accounting principles). During the design and evaluation of the Company`s ICFR, management identified certain non-material deficiencies, a number of which have been addressed or are in the process of being addressed in order to enhance the Company`s processes and controls. The Company employs entity level and compensating controls to mitigate any deficiencies that may exist in its process controls. Management intends to continue to further enhance the Company`s ICFR. The Company`s management, including its CEO and CFO, believe that any DCP and ICFR, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override to the future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected. There have been no changes in the Company`s ICFR during the quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company`s ICFR. 8. Cautionary Statement on Forward-Looking Information This MD&A, which contains certain forward-looking statements, are intended to provide readers with a reasonable basis for assessing the financial performance of the Company. All statements, other than statements of historical fact, are forward-looking statements. The words "believe", "expect", "anticipate", "contemplate", "target", "plan", "intends", "continue", "budget", "estimate", "may", "will", "schedule" and similar expressions identify forward looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, but are not limited to, fluctuations in the currency markets such as Canadian dollar, South African Rand and U.S. dollar, fluctuations in the prices of PGM and other commodities, changes in government legislation, taxation, controls, regulations and political or economic developments in Canada, the United States, South Africa, or Barbados or other countries in which the Company carries or may carry on business in the future, risks associated with mining or development activities, the speculative nature of exploration and development, including the risk of obtaining necessary licenses and permits, and quantities or grades of reserves. Many of these uncertainties and contingencies can affect the Company`s actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, the Company. Readers are cautioned that forward-looking statements are not guarantees of future performance. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those acknowledged in such statements. Specific reference is made to the Company`s most recent Annual Information Form on file with Canadian provincial securities regulatory authorities for a discussion of some of the factors underlying forward-looking statements. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except to the extent required by applicable laws. November 12, 2009 Ian Rozier Date: 12/11/2009 17:27:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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