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EPS - Eastern Platinum Limited - Eastern Platinum Limited / management`s
discussion and analysis of financial conditions / and results of operations
for the three months ended March 31, 2010
EASTERN PLATINUM LIMITED
(Incorporated in Canada)
(Canadian Registration number BC0722783)
(South African Registration number 2007/006318/10)
Share Code TSX: ELR ISIN: CA 2768551038
Share Code AIM: ELR ISIN: CA 2768551038
Share Code JSE: EPS ISIN: CA 2768551038
EASTERN PLATINUM LIMITED
MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2010
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
March 31, 2010 and for the three months then ended in comparison to the same
period in 2009.
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 months ended March 31, 2010 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.
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 May 10, 2010. Additional information relating to
the Company is available on SEDAR at www.sedar.com.
Contents of the MD&A
1. Overview
2. Summary of results for the quarter ended March 31, 2010
3. Results of operations for the quarter ended March 31, 2010
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
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. Summary of results for the quarter ended March 31, 2010 ("Q1 2010")
* Eastplats recorded a net profit attributable to equity shareholders of the
Company of $824,000 ($0.00 per share) compared to $3,164,000 ($0.00 per
share) in the first quarter of 2009 ("Q1 2009").
* EBITDA was $8,996,000 compared to $7,018,000 in Q1 2009.
* Production at CRM was 30,531 PGM ounces, a decrease of 7% compared to
32,969 PGM ounces in Q1 2009.
* The U.S. average delivered basket price per PGM ounce was $959, an increase
of 63% compared to $590 in Q1 2009.
* The Rand average delivered basket price per PGM ounce was R7,202, an
increase of 23% compared to R5,865 in Q1 2009.
* Rand operating cash costs net of by-product credits were R5,336 per ounce,
an increase of 38% compared to R3,857 per ounce in Q1 2009. Rand operating
cash costs were R6,315 per ounce, an increase of 19% compared to R5,326 per
ounce in Q1 2009.
* U.S. dollar operating cash costs net of by-product credits were $711 per
ounce, an 83% increase from $388 per ounce achieved in Q1 2009. Operating
cash costs were $841 per ounce, an increase of 57% compared to the $536 per
ounce in Q1 2009.
* Head grade increased to 4.1 grams per tonne in Q1 2010 from 4.0 grams per
tonne in Q1 2009.
* Average concentrator recovery decreased to 78% from 80% in Q1 2009.
* Development meters decreased by 39% to 2,812 meters and on-reef
development decreased by 30% to 1,931 meters compared to Q1 2009.
* Stoping units increased by 15% to 51,760 square meters compared to 45,098
square metres in Q1 2009.
* Run-of-mine rock ore hoisted decreased by 5% to 304,309 tonnes in Q1 2010
compared to 321,165 tonnes in Q1 2009.
* Run-of-mine ore processed decreased by 9% to 290,854 tonnes in Q1 2010
compared to 318,394 tonnes in Q1 2009.
* The Company`s Lost Time Injury Frequency Rate (LTIFR) was 1.77 in Q1 2010
compared to 1.83 in Q1 2009.
* At March 31, 2010, the Company had a cash position (including cash, cash
equivalents and short term investments) of $17,293,000 (December 31, 2009 -
$21,658,000).
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) in accordance with IFRS.
Table 1
Selected quarterly data 2010
March 31
Revenues $ 34,699
Cost of operations (31,018)
Mine operating earnings (loss) 3,681
Expenses (G&A and share-based payment) (4,935)
Impairment of property, plant and equipment -
Operating (loss) profit (1,254)
Net profit (loss) attributable to equity
shareholders of the Company $ 824
Earnings (loss) per share - basic $ 0.00
Earnings (loss) per share - diluted $ 0.00
Average foreign exchange rates
South African Rand per US dollar 7.51
US dollar per Canadian dollar 0.9608
Period end foreign exchange rates
South African Rand per US dollar 7.33
US dollar per Canadian dollar 0.9844
Selected quarterly data 2009
Dec 31 Sept 30 June 30 March 31
Revenues $ 34,259 $ 27,365 $ 24,838 $ 24,903
Cost of operations (29,294) (26,702) (22,595) (21,402)
Mine operating earnings
(loss) 4,965 663 2,243 3,501
Expenses (G&A and
share-based payment) (3,523) (2,445) (3,374) (1,768)
Impairment of property,
plant and equipment - - - -
Operating (loss) profit 1,442 (1,782) (1,131) 1,733
Net profit (loss)
attributable to equity
shareholders of the
Company $ 330 $ 1,839 $ 317 $ 3,164
Earnings (loss) per
share - basic $ 0.00 $ 0.00 $ 0.00 $ 0.00
Earnings (loss) per
share - diluted $ 0.00 $ 0.00 $ 0.00 $ 0.00
Average foreign
exchange rates
South African Rand per
US dollar 7.50 7.80 8.44 9.94
US dollar per Canadian
dollar 0.9459 0.9114 0.8578 0.8038
Period end foreign
exchange rates
South African Rand per
US dollar 7.41 7.53 7.75 9.54
US dollar per Canadian
dollar 0.9515 0.9340 0.8598 0.7928
Selected quarterly data 2008
Dec 31 Sept 30 June 30
Revenues $ 345 $ 9,224 $ 49,317
Cost of operations (19,569) (25,372) (25,538)
Mine operating earnings (loss) (19,224) (16,148) 23,779
Expenses (G&A and share-based
payment) (6,599) (5,996) (5,789)
Impairment of property, plant and
equipment (297,285) - -
Operating (loss) profit (323,108) (22,144) 17,990
Net profit (loss) attributable to
equity
shareholders of the Company $ (230,164) $ (10,829) $ 12,148
Earnings (loss) per share - basic $ (0.34) $ (0.02) $ 0.02
Earnings (loss) per share - diluted $ (0.34) $ (0.02) $ 0.02
Average foreign exchange rates
South African Rand per US dollar 9.92 7.78 7.77
US dollar per Canadian dollar 0.8252 0.9603 0.9901
Period end foreign exchange rates
South African Rand per US dollar 9.29 8.35 7.81
US dollar per Canadian dollar 0.8210 0.9397 0.9807
3. Results of Operations for the quarter ended March 31, 2010
The following table sets forth selected consolidated financial information for
the quarter ended March 31, 2010 and 2009:
Table 2
Condensed consolidated interim income statements
(Expressed in thousands of U.S. dollars, except per share amounts)
Three months ended
March 31,
2010 2009
Revenue $ 34,699 $ 24,903
Cost of operations
Production costs 25,703 17,885
Depletion and depreciation 5,315 3,517
Mine operating earnings 3,681 3,501
Expenses
General and administrative 3,196 1,636
Share-based payments 1,739 132
Operating (loss) profit (1,254) 1,733
Other income (expense)
Interest income 372 494
Finance costs (370) (452)
Foreign exchange gain (loss) 268 (75)
(Loss) profit before income taxes (984) 1,700
Deferred income tax recovery 548 680
Net (loss) profit for the period $ (436) $ 2,380
Attributable to
Non-controlling interest $ (1,260) $ (784)
Equity shareholders of the Company 824 3,164
Net (loss) profit for the period $ (436) $ 2,380
Earnings per share
Basic $ 0.00 $ 0.00
Diluted $ 0.00 $ 0.00
Weighted average number of common share
outstanding
Basic 681,200 680,526
Diluted 693,830 683,395
Condensed consolidated statements of March 31, December 31,
financial position 2010 2009
Total assets $ 716,373 $ 706,850
Total long-term liabilities $ 53,725 $ 53,493
3.1 Mining operations at Crocodile River Mine ("CRM")
The following is a summary of CRM`s operations for the eight most recently
completed quarters:
Table 3
Crocodile River Mine operations
Three months ended
2010
March 31
Key financial statistics
(dollar amounts stated in U.S. dollars)
Sales - PGM ounces 30,531
Average delivered price per ounce (2) $959
Average basket price $1,130
Rand average delivered price per ounce R 7,202
Rand average basket price R 8,486
Cash costs per ounce of PGM (1) $841
Cash costs per ounce of PGM,
net of chrome by-product credits (1) $711
Rand cash costs per ounce of PGM (1) R 6,315
Rand cash costs per ounce of PGM,
net of chrome by-product credits (1) R 5,336
Key production statistics
Total tonnes processed 423,128
Run-of-mine ("ROM") rock tonnes processed 290,854
Tailings tonnes processed 132,274
Development meters 2,812
On-reef development meters 1,931
Stoping units (square meters) 51,760
Concentrator recovery from ROM ore 78%
Chrome produced (tonnes) 103,852
Metal in concentrate sold (ounces)
Platinum (Pt) 15,405
Palladium (Pd) 6,562
Rhodium (Rh) 2,607
Gold (Au) 105
Iridium (Ir) 1,106
Ruthenium (Ru) 4,746
Total PGM ounces 30,531
2009
December 31 September 30 June 30 March 31
Key financial
statistics
(dollar amounts
stated in U.S.
dollars)
Sales - PGM ounces 34,000 29,986 33,383 32,969
Average delivered
price per ounce (2) $860 $765 $679 $590
Average basket price $1,008 $878 $779 $676
Rand average
delivered price per
ounce R 6,450 R 5,967 R 5,730 R 5,865
Rand average basket
price R 7,560 R 5,848 R 6,574 R 6,720
Cash costs per ounce
of PGM (1) $706 $758 $554 $536
Cash costs per ounce
of PGM,
net of chrome
by-product credits(1) $621 $583 $494 $388
Rand cash costs per
ounce of PGM (1) R 5,296 R 5,915 R 4,673 R 5,326
Rand cash costs per
ounce of PGM,
net of chrome
by-product credits(1) R 4,661 R 4,548 R 4,169 R 3,857
Key production
statistics
Total tonnes processed 466,414 471,743 440,288 318,394
Run-of-mine ("ROM")
rock tonnes processed 321,983 280,777 304,354 318,394
Tailings tonnes
processed 144,431 190,966 135,934 -
Development meters 3,254 2,882 4,326 4,573
On-reef development
meters 2,135 1,562 2,860 2,745
Stoping units (square
meters) 55,153 36,263 51,342 45,098
Concentrator recovery
from ROM ore 79% 78% 80% 80%
Chrome produced
(tonnes) 109,388 83,930 82,760 77,554
Metal in concentrate
sold (ounces)
Platinum (Pt) 17,012 15,080 16,721 16,499
Palladium (Pd) 7,444 6,613 7,406 7,399
Rhodium (Rh) 2,923 2,499 2,868 2,812
Gold (Au) 121 115 141 135
Iridium (Ir) 1,240 1,095 1,179 1,144
Ruthenium (Ru) 5,260 4,584 5,068 4,980
Total PGM ounces 34,000 29,986 33,383 32,969
2008
December 31 September 30 June 30
Key financial statistics
(dollar amounts stated in U.S.
dollars)
Sales - PGM ounces 29,015 30,758 30,311
Average delivered price per ounce
(2) $550 $1,193 $1,657
Average basket price $655 $1,438 $1,969
Rand average delivered price per
ounce R 5,456 R 9,285 R 12,880
Rand average basket price R 6,496 R 11,191 R 15,305
Cash costs per ounce of PGM (1) $628 $672 $696
Cash costs per ounce of PGM,
net of chrome by-product credits(1) $578 $521 $696
Rand cash costs per ounce of PGM(1) R 6,231 R 5,233 R 5,411
Rand cash costs per ounce of PGM,
net of chrome by-product credits(1) R 5,734 R 4,055 R 5,410
Key production statistics
Total tonnes processed 298,514 317,602 337,471
Run-of-mine ("ROM") rock tonnes
processed 298,514 305,490 313,767
Tailings tonnes processed - 12,112 23,704
Development meters 4,604 5,599 5,575
On-reef development meters 2,922 3,556 3,230
Stoping units (square meters) 46,459 39,652 44,277
Concentrator recovery from ROM ore 76% 78% 73%
Chrome produced (tonnes) 69,937 64,744 37,515
Metal in concentrate sold (ounces)
Platinum (Pt) 14,466 15,393 15,333
Palladium (Pd) 6,690 6,973 6,777
Rhodium (Rh) 2,451 2,581 2,543
Gold (Au) 121 123 132
Iridium (Ir) 979 1,083 994
Ruthenium (Ru) 4,308 4,605 4,532
Total PGM ounces 29,015 30,758 30,311
(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 March 31, 2010 compared to the quarter ended March 31, 2009
In Q1 2010, CRM suffered three lost time injuries (compared to five lost time
injuries in Q1 2009) resulting in a Lost Time Injury Frequency Rate ("LTIFR")
of 1.77 (1.83 in Q1 2009).
The Company generated revenue of $34,699,000 in Q1 2010 which represents
amounts recorded when PGM concentrates are physically delivered to the buyer,
and 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.
The Company recorded an average delivered basket price of $959 per PGM ounce in
Q1 2010, compared to $590 in Q1 2009 and $860 in the fourth quarter of 2009
("Q4 2009"). 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
$2,898,000 and $2,058,000 for the three months ended March 31, 2010 and 2009,
respectively.
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
March 31,
2010 2009
Revenue before provisional price adjustments $ 31,801 $ 22,845
Provisional price adjusments
Adjustments to revenue upon settlement of prior
periods` sales 1,702 433
Mark-to-market adjustment on sales not yet
settled at end of period 1,196 1,625
Revenue as reported in the income statement $ 34,699 $ 24,903
PGM ounces sold were down by 7% in Q1 2010 compared to Q1 2009 as a result of
decreased run-of- mine rock tonnes processed (290,854 tonnes in Q1 2010
compared to 318,394 tonnes in Q1 2009), and a decrease in concentrator recovery
to 78% from 80% in Q1 2009. This decrease was slightly offset by increased head
grades (4.1 grams per tonne in Q1 2010 compared to 4.0 grams per tonne in Q1
2009), and the processing of 132,274 tonnes of tailings in Q1 2010 compared to
Nil in Q1 2009. PGM production in Q1 2009 also benefitted from the processing
of approximately 25,000 tonnes of ore which had been stockpiled underground at
the end of 2008. No such stockpile existed at the end of 2009 because of
stockpile depletion in Q3 and Q4 of 2009 as a result of the industrial action
at CRM in July 2009. The Q1 2010 mine start-up after the December holiday
season was also much slower than anticipated. Mining rates have since picked up
to normal levels while head grade and PGM recoveries have remained consistent.
Total development for the quarter was 2,812 metres, a 39% decrease compared to
4,573 metres achieved in Q1 2009, and on-reef development was 1,931 metres, a
30% decrease compared to 2,745 metres in Q1 2009. These decreases were due to
the slower than anticipated start-up following the December break.
However, the current development levels still ensure that the reserves
immediately available for stoping are maintained at approximately eighteen
months.
Operating cash costs, a non-IFRS measure, are incurred primarily in Rand. Rand
operating cash costs, also a non-IFRS measure, increased by 19% from R5,326 per
ounce in Q1 2009 to R6,315 per ounce in Q1 2010 due to a 7% decrease in ounces
produced, combined with a 10% wage increase and a 30% increase in electricity
costs effective June 1 and July 1, 2009, respectively. Repairs to the primary
and tertiary crushers at CRM and the implementation of a key skills retention
plan for senior employees at CRM also contributed to the increase in Rand cash
operating costs. The retention plan is more fully described under Section 3.4.
Operating cash costs stated in U.S. dollars increased by 57% from $536 per
ounce in Q1 2009 to $841 per ounce in Q1 2010 primarily due to increases in
actual Rand operating cash costs and a 24% appreciation of the South African
Rand relative to the U.S. dollar. The average U.S. dollar-Rand exchange rate
was R7.51:$1.00 in Q1 2010 compared to R9.94:$1.00 in Q1 2009.
A reconciliation of production costs, as reported in the income statement, to
cash operating costs, is shown under Section 3.2 CRM non-IFRS measures.
In Q1 2010, 103,852 tonnes of chrome were produced and 75,846 tonnes were sold
for proceeds of $3,980,000, reducing operating cash costs net of by-product
credits to $711 per ounce.
Quarter ended March 31, 2010 compared to the quarter ended December 31, 2009
PGM revenues increased by 1% compared to Q4 2009 as a result of a 12% rise in
the average delivered basket price per ounce offset by a 10% decrease in ounces
produced during the quarter. Run-of-mine ore processed decreased by 10% from
321,983 tonnes in Q4 2009 to 290,854 tonnes in Q1 2010. Both of these decreases
were a result of the Q1 2010 mine start-up being much slower than anticipated
following the December break. Subsequently, mining rates have picked up to more
normal levels and the head grade and PGM recoveries have remained consistent.
Development meters, on-reef development meters, and stoping units decreased by
14%, 10% and 6% respectively compared to Q4 2009 due to the slow start-up of
the mine in Q1 2010.
Rand operating cash costs increased by 19% from R5,296 per ounce in Q4 2009 to
R6,315 per ounce in Q1 2010 primarily as a result of a 10% decrease in ounces
produced, repairs to the primary and tertiary crushers at CRM, and the
implementation of a key skills retention plan for senior employees at CRM.
Operating cash costs stated in U.S. dollars increased by 19% from $706 per
ounce in Q4 2009 to $841 per ounce in Q1 2010 due to increases in actual Rand
operating cash costs. The U.S. dollar remained consistent at approximately
R7.50:$1.00 in both Q1 2010 and Q4 2009.
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
March 31,
2010 2009
Mine operating earnings $ 3,681 $ 3,501
Depletion and depreciation 5,315 $ 3,517
EBITDA (1) 8,996 7,018
Production costs as reported 25,703 17,885
Adjustments for miscellaneous costs (2) (29) (214)
Cash operating costs 25,674 17,671
Less by-product credits - chrome revenues and
adjustments (3,980) (4,895)
Cash operating costs net of by-product credits 21,694 12,776
Ounces sold 30,531 32,969
Cash cost per ounce sold $ 841 $ 536
Cash cost per ounce sold net of by-product
credits $ 711 $ 388
(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 meaningfully 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") for 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
During the three months ended March 31, 2010, the Company spent approximately
$4.3 million at CRM, primarily on continuing underground mine development,
concentrator upgrades, underground electrical upgrades, and ongoing surface and
underground works at the Zandfontein vertical shaft, including conveyor belts
for the transport of ore from the vertical shaft to the surface crusher and
construction of dams for underground water control. The shaft hoisting capacity
will be 100,000 tonnes of ore per month plus associated waste. The shaft, along
with additional decline development, will allow access into the deeper parts of
the ore body.
As a result of the higher trend in PGM prices, mine development at the shallow
Crocette ore body recommenced on April 4, 2010. At full production, Crocette is
planned to deliver up to 40,000 tons of ore per month, which will enable CRM to
achieve its production target of 175,000 tons of ore per month.
Infill drilling has confirmed the continuity of the UG2 reef at Crocette to a
depth of 600m with a dip of 18, a reef width of 1.2m and an estimated head
grade of 4.1 g/t (5PGE+Au). A commitment to provide construction power for the
project has been received from Eskom, the South African public utility company,
but alternative supplies are also being evaluated by the Company.
3.3.2 Spitzkop/Kennedy`s Vale
Development of Spitzkop and Kennedy`s Vale has been on hold since December
2008. During the three months ended March 31, 2010, the 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 at Spitzkop was completed and long
lead items such as mills and mining equipment were purchased or ordered.
Box-cuts for declines to access both the Merensky Reef and UG2 reefs were also
completed. As a result of the market environment, development of the declines
was suspended after approximately 180 metres of development and equipment
purchased is being stored for future use.
The new order mining right for Spitzkop was executed in October 2009. With the
higher trend in PGM prices, the Company is currently evaluating development
alternatives for the Spitzkop Project in conjunction with the Mareesburg
Project. A development decision is expected to be finalized in 2010.
3.3.3 Mareesburg
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
2010.
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 the
Company`s Eastern Limb projects, Spitzkop, Kennedy`s Vale and Mareesburg.
Corporate office costs include legal and accounting, regulatory, executive
management fees, investor relations, travel and consulting fees. G&A increased
by 95% from $1,636,000 in Q1 2009 to $3,196,000 in Q1 2010. The increase was
due to (1) changes in the average foreign exchange rates, specifically the drop
in the value of the U.S. dollar, (2) an increase in the activities on the
Eastern Limb projects as the Company assesses development alternatives, and (3)
the implementation of a key skills retention plan for senior South African
employees in Q1 2010.
In Q1 2010, the Company`s South African subsidiary, Barplats Investments
Limited, implemented a key skills retention plan for its senior employees in
South Africa, in response to the growing skills shortage in the country. The
purpose of the plan is to retain key employees, attract new employees as the
need arises, and remain competitive with other South African mining companies.
The plan allows for employees to own shares in the Company, which shares become
vested over time. During the quarter, the Company expensed $1,145,000 with
respect to plan contributions for 2009, of which $493,000 was recorded in G&A
and $652,000 was recorded in cost of sales.
Interest income recorded during the three months ended March 31, 2010 was
$372,000 compared with $494,000 during the same period in 2009. The decrease in
interest income was due to significantly lower average cash balances and lower
interest rates during Q1 2010 compared to Q1 2009.
During the three months ended March 31, 2010 the Company recorded a deferred
income tax recovery of $548,000. The deferred income tax recovery was based on
changes in the Company`s net assets. The consolidated statement of financial
position reflects total deferred tax liabilities of $42,376,000 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 March 31, 2010, the Company had working capital of $34,394,000 (December 31,
2009 - $31,776,000) and cash and cash equivalents and short-term investments of
$17,293,000 (December 31, 2009 - $21,658,000) in highly liquid, fully
guaranteed, bank sponsored instruments.
The Company had no long-term debt at March 31, 2010, other than a provision for
environmental rehabilitation relating to CRM and Spitzkop, and finance lease
obligations relating to mining vehicles with lease terms of five years and
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 PGM prices during the second half of 2008 had a
significantly negative impact on the Company`s profitability through early
2009. This led management to put the Company`s development projects on hold
until a sustained recovery of PGM prices took place. PGM prices in U.S.
dollar terms have recovered since the beginning of 2009, but this has been
negated by the strength of the Rand against the U.S. dollar. As a result, while
the realized basket prices that the Company is receiving have improved since
their lows of December 2008, these prices (in Rand terms) are still nearly 50%
below those recorded in July 2008 when prices reached their peak. In light of
the current global economic uncertainty, the Company anticipates that PGM
prices and the Rand-U.S. dollar exchange rate will remain volatile in the short
term.
As a consequence of the global economic uncertainty and the possibility of
unanticipated 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 which would not result in short-term increases
in production ounces. This process began in December 2008, and, over the first
two quarters of 2009 until the industrial action took place in July 2009, the
Company was successful in achieving significant cost improvements. The Company
will continue to manage costs as a priority and expects the lower cost
structure to be maintained, provided that there are no further unanticipated
disruptions in production.
The Company resumed mine development at the Crocette section at CRM on April 4,
2010. The Company`s three primary Eastern Limb development projects at
Spitzkop, Kennedy`s Vale and Mareesburg have remained on care and maintenance
since the end of 2008. With the rising trend in PGM prices, the Company is
currently assessing the status of all of these projects, 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 will 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 the volatility and uncertainty in the current market persist for an extended
time and PGM production and/or 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 credit markets that may tighten and 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
At December 31, 2009, the Company assessed the carrying values of its mineral
properties and concluded that none of its mineral properties required further
impairment or reversal of impairment. Should market conditions and commodity
prices deteriorate or improve in the future, an impairment or reversal of
impairment of the Company`s mineral properties may be required.
4.3 Share Capital
During the three months ended March 31, 2010, the Company granted 2,231,000
stock options at an exercise price of Cdn$1.30. The grant date fair value was
Cdn$0.80 per share, which resulted in share- based payment expense of
$1,705,000 upon issuance. Total share-based payment expense for the quarter was
$1,739,000, which also takes into account the vesting of options. During Q1
2010, 408,334 options were forfeited at a weighted average exercise price of
Cdn$2.03 and 520,831 options were exercised at a weighted average exercise
price of Cdn$0.34.
As at May 10, 2010, the Company had:
* 682,896,270 common shares outstanding; and
* 59,141,506 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 March 31, 2010
were as follows:
Table 6
(in thousands of U.S. dollars)
Less than 1
Total year
Provision for environmental rehabilitation $ 8,410 $ -
Capital expenditure and purchase commitments
contracted
at March 31, 2010 but not recognized on the
consolidated
statement of financial position 4,472 4,472
Finance lease obligations 4,327 1,234
$ 17,209 $ 5,706
More than 5
1-5 years years
Provision for environmental rehabilitation$ - $ 8,410
Capital expenditure and purchase
commitments contracted
at March 31, 2010 but not recognized on
the consolidated
statement of financial position - -
Finance lease obligations 3,093 -
$ 3,093 $ 8,410
5. Related Party Transactions
(Expressed in thousands of U.S. dollars, except per share amounts)
Three months ended
March 31,
2010 2009
Trading transactions
Management and consulting fees $ 336 $ 266
Reimbursements of expenses 20 -
Total trading transactions $ 356 $ 266
Compensation of key management personnel
Salaries and directors` fees $ 548 $ 474
Share-based payments 1,627 -
Total compensation of key management personnel $ 2,175 $ 474
A number of the Company`s executive officers are engaged under contract with
those officers` personal services companies. Other executive officers are paid
directly via salary and directors` fees. All share options are issued to the
Company`s officers and directors, and not to their companies.
Management and consulting fees increased during the three months ended March
31, 2010 mainly due to the strengthening of the Canadian dollar from
Cdn$1.00:US$0.8038 in Q1 2009 to Cdn$1.00:US$0.9608 in Q1 2010. During the same
period, reimbursements of expenses were higher due to increased travel to South
Africa by the Company`s head office staff. Salaries and directors` fees
increased during the three months ended March 31, 2010 due to the strengthening
of the Canadian dollar. Share-based payment increased from Nil to $1,627,000
due to the issuance of stock options to directors during Q1 2010. No options
were granted to directors during Q1 2009 as options had been granted during the
quarter ended December 31, 2008.
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 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 first
audited financial statements prepared in accordance with IFRS were the
financial statements for the year ended December 31, 2009. Full disclosure of
the Company`s accounting policies in accordance with IFRS can be found in Note
3 to those financial statements. Those 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 25.
Effective January 1, 2010, the Company adopted a new accounting standard (IFRS
8 Operating Segments) that was issued by the International Accounting Standards
Board ("IASB"). IFRS 8 was revised and now requires disclosure of information
about segment assets. This accounting policy change was adopted on a
prospective basis with no restatement of prior period 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 March 31, 2010 and 2009, 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 March 31, 2010 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 2009, 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 March 31, 2010.
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. 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 March
31, 2010 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, is 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.
May 10, 2010
Ian Rozier
Date: 12/05/2010 15:47:01 Supplied by www.sharenet.co.za
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