Wrap Text
EPS - Eastern Platinum - Eastern Platinum Reports Results For The Six Months
Ended December 31, 2007
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 REPORTS RESULTS FOR THE SIX MONTHS ENDED
DECEMBER 31, 2007
RECORD REVENUES AND EBITDA
LONDON, England, March 31, 2008 - Mr. Ian Rozier, President and CEO of Eastern
Platinum Limited ("Eastplats") is pleased to report on financial results for
the six months ended December 31, 2007. Effective July 1, 2007, the Company
changed its fiscal year-end from June 30 to December 31 to conform with
reporting periods of other companies in the mining industry. All monetary
amounts are stated in U.S. dollars.
Eastplats recorded a net loss of $12,204,000 ($0.02 loss per share) for the
six months ended December 31, 2007 compared to a net income of $4,360,000
($0.01 earnings per share) for the six months ended December 31, 2006. For the
quarter ended December 31, 2007, the Company recorded a net loss of
$10,814,000 ($0.02 loss per share) compared to a net income of $6,550,000
($0.01 earnings per share) in the same period in 2006. Despite increased
revenues in the quarter ended December 31, 2007 compared to the quarter ended
December 31, 2006, the Company incurred a net loss in the quarter ended
December 31, 2007 compared to 2006 as a result of significant foreign exchange
loss due to the weakening of the South African rand relative to the Canadian
dollar and a stock-based compensation expense compared to the prior period.
Highlights for the quarter ended December 31, 2007
Revenues from the Crocodile River Mine ("CRM") of $34,126,0 00 were generated
from the sale of 26,632 PGM ounces, compared to revenues of $25,062,000 from
sales of 25,873 PGM ounces in the same quarter in 2006.
The average sales price per ounce was $1,305 compared to $992 in the same
quarter in 2006.
Operating cash costs were $774 per ounce , compared to $613 per ounce for
the same quarter in 2006 , primarily as a result of increased on-reef
development, and cost increases as a result of a 9% inflation rate in South
Africa (accounting for a $58 per ounce increase in cash costs) and an 8%
increase in the value of the rand in relation to the U.S. dollar during the
period (accounting for a $49 per ounce increase in cash cost).
EBITDA increased by 58% to $13,179,000, up from $8,324,000 in the same
quarter in 2006.
Total underground development rate increased by 95% to 4,759 meters during
the quarter, up from 2,438 meters in the quarter ended December 31, 2006 ,
continuing the substantial progress in the development of the ore reserve at
CRM.
On-reef development increased by 62% to 2,814 meters, up from 1,737 meters in
the quarter ended December 31, 2006. This is integral in generating additional
mineable ore to support the continued production build up at CRM.
The average mining rate increased 60% during the quarter ending December 31,
2007 to 111,750 tons per month , up from 69,993 tons per month in the same
quarter of 2006, with grades maintaining a consistent average of 4.02 g/t
(5PGE+Au).
Construction of a chrome recovery plant was completed which will reduce the
chrome content and resulting chrome penalties in the concentrate being sold.
CRM maintained a safety record that was significantly better than the
industry average in 2007 (measured on the basis of lost time injury rates).
Development continued on the Mareesburg and Spitzkop/Kennedy`s Vale
properties.
At December 31, 2007, the Company had a cash position (including cash and
cash equivalents and short term investments) of $189,856,000 (June 30, 2007 -
$204,498,000) which is invested in highly liquid, fully guaranteed, bank
sponsored instruments. The Company is not exposed to financial instruments
involving the U.S. residential property markets or Canadian asset backed
commercial paper.
Highlights for the six months ended December 31, 2007
Revenues of $65,578,000 were generated from the sale of 56,049 PGM ounces,
compared to revenues of $47,549,000 from sales of 48,539 PGM ounces in the six
months ended December 31, 2006.
The average sales price per ounce was $1,203 compared to $994 in the
comparative six months in 2006.
Operating cash costs were $723 per ounce compared to $628 per ounce for the
comparative six months in 2006.
EBITDA increased by 54% to $24,215,000 , up from $15,699,000 in the
comparative six months in 2006.
Total underground development increased by 101% to 9,627 meters, up from
4,789 meters for the six months ended December 31, 2006.
On-reef development increased by 58% to 5,384 meters, up from 3,401 meters in
the six months ended December 31, 2006.
The average monthly mining rate increased 63% to 109,840 tons , up from
67,397 tons for the six months ended December 31, 2006.
On November 27, 2007, the Company announced mineral reserve and resource
estimates for all of its PGM projects in South Africa. Based upon the new
mineral resource estimate for Spitzkop/Kennedy`s Vale on a 5PGE + Au basis,
the Company`s projects have reserves and resources with over 100 million
contained PGM ounces after accounting for geological losses, with over 86
million ounces PGM attributable to the Company. The estimates were prepared
following extensive infill drilling programmes and were completed in
accordance with NI 43-101, JORC (Australasian Joint Ore Reserve Committee) and
SAMREC (South African Code for Reporting of Mineral Resources and Mineral
Reserves) technical reporting requirements. Details of these reserve and
resource estimates are available on SEDAR at www.sedar.com.
"The last six months were a successful period for the Company as PGM prices
reached historical highs and we generated record EBITDA for the quarter and
six months " , said Mr. Rozier. " We are making substantial progress with
underground development at CRM in order to build up towards a target
production rate of 200,000 tonnes per month. We have major plans in 2008 for
developing the Crocette Section at CRM as well as our Spitzkop and Mareesburg
properties on the eastern limb and plan on bringing them into production as
quickly as possible. We are taking advantage of the high PGM prices and are
poised to grow our production as planned into an extremely positive long-term
price outlook."
Financial Information
For complete details of financial results, please refer to the attached
audited consolidated financial statements and accompanying Management`s
Discussion and Analysis ("MD&A") for the six months ended December 31, 2007.
These financial statements and MD&A, and the comparative financial statements
for the year ended June 30, 2007 are all available on SEDAR at www.sedar.com
and on the Company`s website www.eastplats.com.
About the Company
Eastplats is an expanding platinum group metals ("PGM") producer engaged in
the development and mining of PGM`s with properties located in various
provinces 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 supply.
The Company`s primary operating asset is an 85% direct and indirect interest
in Barplats Investments Limited ("Barplats"), whose main assets are the PGM
producing Crocodile River Mine 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 JV ("Mareesburg") and a 93.4% direct and indirect interest in
Spitzkop PGM Project ("Spitzkop") both located on the eastern limb of the BC.
The Company`s strategy is to maximize shareholder returns from its Crocodile
River Mine and from its other mining properties under development. The Company
will continue to focus on traditional cost effective mining methods that place
a premium on a safe work environment. The Company take s full advantage of the
current PGM price environment as it has neither hedged nor sold forward any of
its PGM production.
The Company`s Nominated Advisor ("NOMAD") in London is Canaccord Adams Limited
and the Company`s Sponsor in Johannesburg is PSG Capital Limited.
Teleconference call details
Eastern Platinum Limited will host a telephone conference call on Monday,
March 31, 2008 at 1:00 pm PST (4:00) EST) to discuss these results. The
conference call may be accessed by dialing 1-800-319-4610 in Canada and the
United States, or 1-604-638-5340 internationally.
The conference call will be archived for later playback until Monday April 7,
2008 and can be accessed by dialing 604-638-9010 or 1-800-319-6413 and using
the pass code 4219 followed by the number sign (#).
Total shares issued and outstanding - 671,306,427 as at March 28, 2008
For further information, please contact:
EASTERN PLATINUM LIMITED
Ian Rozier, President & C.E.O.
+1-604-685-6851 (tel)
+1-604-685-6493 (fax)
info@eastplats.com
www.eastplats.com
NOMAD - Canaccord Adams Limited
Ryan Gaffney - Ryan.Gaffney@CanaccordAdams.com
+44 20 7050 6500
JSE SPONSOR - PSG Capital (Pty) Limited
Anje Maasdorp - anjem@psgcapital.com
+27 21 887 9602
No stock exchange, securities commission or other regulatory authority has
approved or disapproved the information contained herein.
Cautionary Statement on Forward-Looking Information
This press release, which contains certain forward-looking statements, is
intended to provide readers with a reasonable basis for assessing the
financial performance and outlook 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.
Consolidated financial statements of
Eastern Platinum Limited
December 31 and June 30, 2007
Table of contents
Auditors` report .......................................................... 2
Consolidated statements of operations and deficit.......................... 3
Consolidated statements of comprehensive income ........................... 3
Consolidated balance sheets................................................ 4
Consolidated statements of shareholders` equity............................ 5
Consolidated statements of cash flows...................................... 6
Notes to the consolidated financial statements ........................ 7-2 4
Deloitte & Touche LLP
2800-1055 Dunsmuir Street
4 Bentall Centre
P.O. Box 49279
Vancouver BC V7X 1P4
Canada
Tel: 604-669-4466
Fax: 604-685-0395
www.deloitte.ca
Auditors` report
To the Shareholders of
Eastern Platinum Limited
We have audited the consolidated balance sheets of Eastern Platinum Limited as
at December 31, 2007 and June 30, 2007 and the consolidated statements of
operations, shareholders` equity, comprehensive income and cash flows for the
six months ended December 31, 2007 and year ended June 30, 2007. These
financial statements are the responsibility of the Company`s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting
the amounts and disclosures in the financial statements. An audit also
includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
2007 and June 30, 2007 and the results of its operations and its cash flows
for the six months ended December 31, 2007 and year ended June 30, 2007 in
accordance with Canadian generally accepted accounting principles.
Chartered Accountants
March 28 , 200 8
Eastern Platinum Limited
Consolidated statements of operations
(Expressed in thousands of U.S. dollars, except share and per share amounts)
December 31, June 30,
2007 2007
(6 months) (12 months)
Revenue USD 65,578 USD 101,205
Cost of operations
Production costs 41,363 69,467
Depletion and depreciation 9,120 8,123
50,483 77,590
Mine operating earnings 15,095 23,615
Expenses
General and administrative 11,305 15,979
Stock-based compensation (Note 9(d)) 10,251 14,416
21,556 30,395
Operating loss (6,461) (6,780)
Other income (expense)
Interest income 4,924 4,908
Interest expense (2,010) (5,427)
Foreign exchange loss (5,604) (1,897)
Loss before income taxes and non-controlling
interests (9,151) (9,196)
Future income tax (expense) recovery (Note 10) (1,639) 2,002
Non-controlling interests (Note 11) (1,414) (3,078)
Net loss for the period USD (12,204) USD (10,272)
Basic and diluted loss per share USD (0.02) USD (0.02)
Basic and diluted weighted average number of
common shares outstanding 668,157,833 538,663,898
Consolidated statements of comprehensive income
(Expressed in thousands of U.S. dollars)
December 31, June 30,
2007 2007
(6 months) (12 months)
Net loss for the period before other
comprehensive income USD (12,204) USD (10,272)
Currency translation adjustment 46,505 29,730
Comprehensive income USD 34,301 USD 19,458
Eastern Platinum Limited
Consolidated balance sheets
as at December 31 and June 30, 2007
(Expressed in thousands of U.S. dollars)
December 31, June 30,
2007 2007
Assets
Current assets
Cash and cash equivalents USD 18,818 USD 6,192
Short-term investments 171,038 198,306
Trade receivables (Note 4) 33,157 22,403
Inventories (Note 5) 6,888 4,651
229,901 231,552
Property, plant and equipment (Note 6) 813,461 757,293
Refining contract (Note 7) 18,467 18,828
Other assets 1,247 1,007
USD 1,063,076 USD 1,008,680
Liabilities
Current liabilities
Accounts payable and accrued liabilities USD 22,967 USD 21,026
Future income taxes (Note 10) 6,416 11,573
Current portion of long-term liability (Note
3(a)) 3,837 3,481
33,220 36,080
Asset retirement obligation (Note 8) 2,889 2,701
Capital leases and other long-term liabilities 9,127 8,439
Future income taxes (Note 10) 143,616 132,910
188,852 180,130
Non-controlling interests (Note 11) 23,402 24,502
Commitments (Notes 3(a) and 15)
Shareholders` equity
Share capital (Note 9) 868,045 865,103
Contributed surplus (Note 9) 27,428 17,897
Accumulated other comprehensive income 23,481 (23,024)
Deficit (68,132) (55,928)
(44,651) (78,952)
850,822 804,048
USD 1,063,076 USD 1,008,680
Approved by the Board
"David Cohen" "Robert Gayton"
David Cohen, Director Robert Gayton, Director
Eastern Platinum Limited
Consolidated statements of shareholders` equity
(Expressed in thousands of U.S. dollars)
Common Shares
Without Par Value
Shares Amount
Balance June 30, 2006 513,228,985 USD 588,279
Shares issued on acquisition of interest in
Afriminerals 3,000,000 3,548
Shares issued on acquisition of 1% NSR in
Spitzkop 12,000,000 21,062
Shares issued for cash 105,921,095 188,894
Shares issued on acquisition of additional 5%
in Barplats 17,272,594 29,020
Warrants exercised 13,318,184 26,032
Stock options exercised 3,037,500 8,268
Stock-based compensation - -
Share issue costs - -
Net loss for the period - -
Currency translation adjustment - -
Balance June 30, 2007 667,778,358 865,103
Warrants exercised 100,000 178
Stock options exercised 1,153,333 2,764
Stock-based compensation - -
Net loss for the period - -
Currency translation adjustment - -
Balance December 31, 2007 669,031,691 USD 868,045
Contributed Deficit
Surplus
Balance June 30, 2006 USD 6,799 USD (36,376)
Shares issued on acquisition of interest in
Afriminerals - -
Shares issued on acquisition of 1% NSR in Spitzkop - -
Shares issued for cash - -
Shares issued on acquisition of additional 5% in
Barplats - -
Warrants exercised - -
Stock options exercised (3,318) -
Stock-based compensation 14,416 -
Share issue costs - (9,280)
Net loss for the period - (10,272)
Currency translation adjustment - -
Balance June 30, 2007 17,897 (55,928)
Warrants exercised - -
Stock options exercised (720) -
Stock-based compensation 10,251 -
Net loss for the period - (12,204)
Currency translation adjustment - -
Balance December 31, 2007 USD 27,428 USD (68,132)
Accumulated Other Total
Comprehensive Shareholders`
Income (Loss) Equity
Balance June 30, 2006 USD (52,754) USD 505,948
Shares issued on acquisition of
interest in Afriminerals - 3,548
Shares issued on acquisition of 1% NSR
in Spitzkop - 21,062
Shares issued for cash - 188,894
Shares issued on acquisition of
additional 5% in Barplats - 29,020
Warrants exercised - 26,032
Stock options exercised - 4,950
Stock-based compensation - 14,416
Share issue costs - (9,280)
Net loss for the period - (10,272)
Currency translation adjustment 29,730 29,730
Balance June 30, 2007 (23,024) 804,048
Warrants exercised - 178
Stock options exercised - 2,044
Stock-based compensation - 10,251
Net loss for the period - (12,204)
Currency translation adjustment 46,505 46,505
Balance December 31, 2007 USD 23,481 USD 850,822
Eastern Platinum Limited
Consolidated statements of cash flows
(expressed in thousands of U.S. dollars)
December 31, June 30,
2007 2007
(6 months) (12 months)
Operating activities
Net loss for the period USD (12,204) USD (10,272)
Items not involving cash
Accretion (Note 8) 180 672
Depletion and depreciation 9,120 8,123
Stock-based compensation 10,251 14,416
Foreign exchange loss 5,604 1,897
Future income tax expense (recovery) 1,639 (2,002)
Non-controlling interests 1,414 3,078
16,004 15,912
Net changes in non-cash working capital items
Receivables (10,017) (9,461)
Inventories (2,095) (2,975)
Accounts payable and accrued liabilities 1,347 6,577
5,239 10,053
Financing activities
Common shares issued for cash, net of share
issue costs 2,222 213,914
Repayment of short-term debt - (25,767)
Other long-term liabilities 301 6,023
2,523 194,170
Investing activities
Acquisitions, net of cash acquired (Note 3) - (56,662)
Maturity (purchase) of short-term investments 41,026 (123,600)
Property, plant and equipment expenditures (36,079) (62,997)
4,947 (243,259)
Effect of exchange rate changes on cash and
cash equivalents (83) (282)
Increase (decrease) in cash and cash
equivalents 12,626 (39,318)
Cash and cash equivalents, beginning of period 6,192 45,510
Cash and cash equivalents, end of period USD 18,818 USD 6,192
Cash and cash equivalents are comprised of:
Cash in bank USD 18,818 USD 6,077
Short-term money market instruments - 115
USD 18,818 USD 6,192
Supplementary cash flow information
Interest paid USD 374 USD 598
Income taxes paid USD 3 USD -
Supplemental non-cash investing activities
Investment in Afriminerals (Note 3(b)) USD - USD 3,500
Acquisition of 1% NSR from Rhodium Reefs
Royalties (Note 3(b)) - 21,100
Acquisition of additional 5% of Barplats (Note
3(a)) - 29,019
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
1. Nature of operations
Eastern Platinum Limited (the "Company") is a platinum group metal ("PGM")
producer engaged in the acquisition, development and mining of PGM properties
located in various provinces in South Africa.
The year end of the Company was changed from June 30 to December 31. The
current fiscal year ended December 31, 2007 consists of operations for the 6
month period then ended. Comparative figures for the year ended June 30, 2007
are for a twelve month period.
2. Summary of significant accounting policies
These consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("Canadian GAAP"). The
principal accounting policies are outlined below:
(a) Basis of consolidation
These consolidated financial statements include the accounts of the Company
and
all its subsidiaries. All significant intercompany transactions and balances
have been eliminated.
Variable Interest Entities ("VIE `s") as defined by the Accounting Standards
Board in Accounting Guideline ("AcG") 15, "Consolidation of Variable
Interest Entities" are entities in which equity investors do not have the
characteristics of a "controlling financial interest" or there is not
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support. VIE`s are subject to consolidation
by the primary beneficiary who will absorb the majority of the entities `
expected losses and/or expected residual returns. The Company has determined
that its investment in Gubevu Consortium Holdings (Pty) Ltd. ("Gubevu") is a
VIE. As the Company is the primary beneficiary, the accounts of Gubevu are
consolidated with those of the Company (Note 3(a )).
(b) Reporting currency
These consolidated financial statements have been translated to the U.S.
dollar in accordance with EIC 130 "Translation Method when the Reporting
Currency Differs from the Measurement Currency or There is a Change in the
Reporting Currency". These guidelines require that the financial statements be
translated into the reporting currency using the current rate method. Under
this method, the statement of operations and cash flow items for each year are
translated into the reporting currency using the average rate in effect for
the
period, and assets and liabilities are translated u sing the exchange rate at
the period end. All resulting exchange differences are reported as a separate
component of shareholders` equity titled "Accumulated Other Comprehensive
Income".
(c) Measurement uncertainty
The preparation of financial statement s in accordance with Canadian GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant accounts that
require estimates as the basis for determining the stated amounts include
accounting for doubtful accounts receivable, inventories, property, plant and
equipment, asset retirement obligations, stock-based compensation, allocation
of purchase price of acquisitions and income and mining taxes.
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
2. Summary of significant accounting policies (continued)
(c) Measurement uncertainty (continued)
Depreciation and depletion of property, plant and equipment assets are
dependent upon estimates of useful lives and reserves estimates, both of which
are determined with the exercise of judgement. The assessment of any
impairment
of property, plant and equipment is dependent upon estimates of fair value
that
take into account factors such as reserves, economic and market conditions and
the useful lives of assets. Asset retirement obligations are recognized in the
period in which they arise and are stated as the fair value of estimated
future
costs. These estimates require extensive judgement about the nature, cost and
timing of the work to be completed, and may change with future changes to
costs, environmental laws and regulations and remediation practices.
(d) Foreign currency translation
The Company and its subsidiaries operate in Canada and South Africa. The
Company`s Canadian operations have the Canadian dollar as their functional
currency and its South African operations have the South African Rand as their
functional currency.
Where a subsidiary is self-sustaining, the financial results have been
translated into Canadian dollars using the current rate method. The current
rate method provides that all assets and liabilities are translated at the
year-end rate of exchange and all revenue and expense items are translated at
the average rate of exchange prevailing during the period. Exchange gains and
losses arising from this translation, representing the net unrealized foreign
currency translation gain (loss) on the Company`s net investment in these
foreign operations, are recorded in the accumulated other comprehensive income
component of shareholders` equity.
Where a subsidiary is integrated, the financial results have been translated
into Canadian dollars using the temporal method. The temporal method provides
for foreign currency denominated monetary assets and liabilities to be
translated into Canadian dollars at rates of exchange in effect at the balance
sheet date. Non-monetary items are translated at historical exchange rates
and revenues and expenses at average rates of exchange during the period.
Exchange gains and losses arising on translation are included in the statement
of operations and deficit.
Other foreign currency transactions included in these consolidated financial
statements are translated into Canadian dollars at the rates of exchange in
effect at the consolidated balance sheet dates in the case of monetary assets
and liabilities and at the rates of exchange in effect on the date of
transaction in the case of non-monetary assets and income and expenses. All
gains and losses on translation of these foreign currency transactions are
included in the consolidated statement of operations and deficit.
(e) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits in banks and
highly
liquid investments with an original maturity of three months or less.
(f) Short-term investments
Short-term investments are investments which are transitional or current in
nature, with an original maturity greater than three months.
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
2. Summary of significant accounting policies (continued)
(g) Inventories
Inventories , comprising stockpiled ore and concentrate awaiting further
processing and sale, are valued at the lower of cost and net realizable value.
Consumables are valued at the lower of cost and replacement value. Cost is
determined using the weighted average method and includes direct mining
expenditures and an appropriate portion of normal overhead expenditure. In the
case of concentrate, direct concentrate costs are also included. Net
realizable value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and selling expenses.
Obsolete, redundant and slow moving stores are identified and written down to
net realizable values.
(h) Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated
depreciation and depletion. Maintenance, repairs and renewals are charged to
operations.
Mining properties and mining and process facility assets are amortized on a
units-of-production basis which is measured by the portion of the mine`s
economically recoverable and proven ore reserves recovered during the period.
Other assets are depreciated using the straight-line method based on their
estimated useful lives, which generally range from 5 to 7 years, with the
exception of agricultural and residential properties whose estimated useful
lives are 50 years.
All direct costs related to the acquisition, exploration and development of
mineral properties are capitalized until the properties to which they relate
are placed into production, sold, abandoned or management has determined there
to be an impairment. If economically recoverable ore reserves are developed,
capitalized costs of the related property are reclassified as mining assets
and
amortized using the units-of-production method following commencement of
production.
The amounts shown for mineral properties do not necessarily represent present
or future values. Their recoverability is dependent upon the discovery of
economically recoverable reserves, the ability of the Company to obtain the
necessary financing to complete the development, and future profitable
production or proceeds from the disposition thereof.
Long-lived assets are tested for recoverability whenever events or changes in
circumstances indicate that their carrying amount may not be recoverable. An
impairment loss is recognized when their carrying value exceeds the total
undiscounted cash flows expected from their use and eventual disposition. The
amount of the impairment loss is determined as the excess of the carrying
value
of the asset over its fair value. Future cash flows are estimated based on
expected future production, commodity prices, operating costs and capital
costs.
(i) Refining contract
The Company sells its concentrate to one customer under the terms of a n
off-take or refining contract. The refining contract is amortized over the
life
of the contract, estimated to be twelve years. An evaluation of the carrying
value of the contract is undertaken whenever events or changes in
circumstances
indicate that the carrying amount may not be recoverable. During the periods
ended December 31 and June 30, 2007, there were no such events or
circumstances
indicating that the carrying amount was not recoverable.
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
2. Summary of significant accounting policies (continued)
(j) Asset retirement obligations
The Company recognizes liabilities for statutory, contractual or legal
obligations associated with the retirement of property, plant and equipment,
when those obligations result from the acquisition, construction, development
or normal operation of the assets. Initially, the fair value of the liability
for an asset retirement obligation is recognized in the period incurred. The
net present value is added to the carrying amount of the associated asset and
amortized over the asset`s useful life. The liability is accreted over time
through periodic charges to operations and it is reduced by actual costs of
reclamation.
The Company`s estimates of reclamation costs could change as a result of
changes in regulatory requirements and assumptions regarding the amount and
timing of the future expenditures. A change in estimated discount rates is
reviewed annually or as new information becomes available. Expenditures
relating to ongoing environmental programs are charged against operations as
incurred or capitalized and amortized depending on their relationship to
future
earnings.
(k) Income taxes
Future income taxes are recorded using the asset and liability method. Under
the asset and liability method, future tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and
their respective tax bases. Future tax assets and liabilities are measured
using the enacted or substantively enacted tax rates expected to apply when
the
asset is realized or the liability settled. The effect on future tax assets
and
liabilities of a change in tax rates is recognized in income in the period
that
substantive enactment or enactment occurs. To the extent that the Company does
not consider it more likely than not that a future tax asset will be
recovered,
it provides a valuation allowance against the excess.
(l) Revenue recognition
Revenue, based upon prevailing metal prices, is recorded in the financial
statements when title to the PGMs transfers to the customer. The estimated
revenue is recorded based on metal prices and exchange rates on the date of
shipment and is adjusted at each balance sheet date to the metal prices on
those dates. The actual amounts will be reflected in revenue upon final
settlement, which are three and five months after the date of shipment. These
adjustments reflect changes in metal prices and changes in qualities arising
from final assay calculations.
(m) Stock-based compensation
The Company grants stock options to buy common shares of the Company to
directors, officers, employees and service providers. The board of directors
grants such options for periods of up to ten years, with vesting periods
determined at its sole discretion and at prices equal to or greater than the
closing market price on the day preceding the date the options were granted.
The Company applies the fair-value method of accounting in accordance with the
recommendations of CICA Handbook Section ("CICA 3870"), "Stock-based
Compensation and Other Stock-based Payments". Stock-based compensation expense
is calculated using the Black-Scholes option pricing model with a
corresponding
credit to contributed surplus, on a straight-line basis over the vesting
period. If and when the stock options are ultimately exercised, the applicable
amounts of contributed surplus are transferred to share capital.
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
2. Summary of significant accounting policies (continued)
(n) Income (loss) per share
Basic income (loss) per share is computed by dividing the net income (loss)
available to common shareholders by the weighted average number of shares
outstanding during the reporting year. Diluted income (loss) per share is
computed similar to basic income (loss) per share except that the weighted
average shares outstanding are increased to include additional shares for the
assumed exercise of stock options and warrants, if dilutive. The number of
additional shares is calculated by assuming that outstanding stock options and
warrants were exercised an d that the proceeds from such exercises were used
to
acquire common stock at the average market price during the reporting periods.
(o) Employee future benefits
The cost of retirement benefits and other benefit obligations are recognized
over the period in which the employees render services in return for the
benefits. The Company has a defined contribution retirement plan for its South
African based employees. The pension plans are funded by payments from the
employees and by the relevant group companies and charged to income as
incurred.
(p) Adoption of new accounting standards and accounting pronouncements
On July 1, 2007, the Company retrospectively adopted, without restatement of
prior periods, the recommendations included in the following sections of the
Canadian Institute of Chartered Accountants Handbook: Section 1530,
Comprehensive Income, Section 3251, Equity, Section 3855, Financial
Instruments
- Recognition and Measurement , Section 3861, Financial Instruments -
Disclosure and Presentation, and Section 3865, Hedges.
Section 1530, Comprehensive Income, is the change in the Company`s net assets
that results from transactions, events and circumstances from sources other
than the Company`s shareholders and includes items that would not normally be
included in net income such as unrealized gains or losses on available
-for-sale investments, gains or losses on certain derivative instruments and
foreign currency gains or losses related to self-sustaining operations. The
Company`s comprehensive in come, components of other comprehensive income, and
accumulated other comprehensive income are presented in the Statements of
Comprehensive Income and the Statements of Shareholders` Equity. A mounts
previously recorded in " cumulative translation adjustment" have been
reclassified to "accumulated other comprehensive income".
Section 3855, Financial Instruments - Recognition and Measurement, establishes
standards for classification, recognition, measurement, presentation and
disclosure of financial instruments (including derivatives) and non-financial
derivatives in the financial statements. This standard requires the Company to
classify all financial instruments as either held to maturity, available for
sale, held for trading, loans and receivables or other financial liabilities.
Financial assets and liabilities held for trading will be measured at fair
value with gains and losses recognized in net income. Financial assets held to
maturity, loans and receivables and financial liabilities other than those
held
for trading will be measured at amortized cost. Available for sale investments
are measured at fair value with unrealized gains and losses recognized in
other
comprehensive income. The standard also permits the designation of any
financial instrument as held for trading upon initial recognition.
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
2. Summary of significant accounting policies (continued)
The Company has implemented the following classification of its financial
assets and financial liabilities:
- Cash and cash equivalents are classified as held for trading
- Short-term investments are classified as held to maturity
- Receivables are classified as "Loans and Receivables" and are measured at
- amortized cost using the effective interest rate method. At
- December 31, 2007, the recorded a mount approximates fair value.
- Short-term and long-term liabilities and accounts payable and accruals are
- classified as "Other Financial Liabilities " and are measured at amortized
- cost using the effective interest rate method. At December 31, 2007, the re
corded amount approximates fair value.
Transaction costs directly attributable to the acquisition or issue of a
financial asset or financial liability are included in the carrying amount of
the financial asset or financial liability, and are amortized to income using
the effective interest rate method.
Derivatives may be embedded in other financial instruments (host instruments).
Embedded derivatives are treated as separate derivatives when their economic
characteristics and risks are not closely related to those of the host
instrument, the terms of the embedded derivative are the same as those of a
stand-alone derivative, and the combined contract is not classified as held
for trading. These embedded derivatives are measured at fair value on the
balance sheet with subsequent changes in fair value recognized in income. The
Company selected July 1, 2007 as its transition date for embedded derivatives.
The Company has not identified any embedded derivatives that are required to
be
accounted for separately from the host contract.
Section 3865, Hedges , sets out standards under which hedge accounting can be
applied and how hedge accounting should be executed for each of the permitted
hedging strategies, including fair value hedges, cash flow hedges, and hedge s
of a foreign currency exposure of a net investment in a self-sustaining
foreign
operation. The Company does not have any derivatives that qualify as hedging
instruments.
(q) Recent Accounting Pronouncements
(i) Financial Instrument Disclosures
As of January 1, 2008, the Company will be required to adopt two new CICA
standards, Section 3862 "Financial Instruments - Disclosures" and Section 3863
"Financial Instruments - Presentation", which will replace Section 3861
"Financial Instruments - Disclosure and Presentation". The new disclosure
standard increases the emphasis on the risks associated with both recognized
and unrecognized financial instruments and how those risks are managed. The
new
presentation standard carries forward the former presentation requirements.
The
new financial instruments presentation and disclosure requirements were issued
in December 2006 and the Company is assessing the impact on its Consolidated
Financial Statements.
(ii) Capital Disclosures
As of January 1, 2008, the Company will be required to adopt CICA Section 1535
"Capital Disclosures", which will require companies to disclose their
objectives, policies and processes for managing capital. In addition,
disclosures are to include whether companies have complied with externally
imposed capital requirements. The new capital disclosure requirements were
issued in December 2006 and the Company is assessing the impact on its
Consolidated Financial Statements.
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
2. Summary of significant accounting policies (continued)
(iii) Inventories
As of January 1, 2008, the Company will be required to adopt the CICA Handbook
Section 3031, " Inventories", which will replace the existing inventories
standard. The new standard requires inventory to be valued on a first-in,
first-out or weighted average basis, which is consistent with the Company`s
current treatment. The Company is currently assessing the impact of the
adoption of this new Section on its Consolidated Financial Statements.
(iv) Goodwill and Intangible Assets
In February 2008, the CICA issued Section 3064, Goodwill and Intangible Assets
, replacing Section 3062, Goodwill and Other Intangible Assets and Section
3450, Research and Development Costs. The new pronouncement establishes
standards for the recognition, measurement, presentation, and disclosure of
goodwill subsequent to its initial recognition and of intangible assets by
profit-oriented enterprises. Standards concerning goodwill are unchanged from
the standards included in the previous Section 3062. This Section is effective
in the first quarter of 2009, and the Company is currently evaluating the
impact of the adoption of this new Section on its consolidated financial
statements.
(v) Convergence with International Financial Reporting Standards
In 2006, Canada`s Accounting Standards Board ratified a strategic plan that
will result in Canadian GAAP, as used by public companies, being evolved and
converged with International Financial Reporting Standards (IFRS) over a
transitional period to be complete by 2011. The official changeover date from
Canadian GAAP to IFRS is for interim and annual financial statements relating
to fiscal years beginning on or after January 1, 2011. As the International
Accounting Standards Board currently has projects underway that should result
in new pronouncements and since this Canadian convergence initiative is very
much in its infancy as of the date of these statements, the Company has not
yet
assessed the impact of the ultimate adoption of IFRS on the Company.
3. Acquisitions during the year ended June 30, 2007
(a) On May 28 , 2007 the Company acquired a further 5% of Barplats from the
minority shareholders to increase its interest to 74%. In connection with the
acquisition, the Company issued 17,272,594 common shares of the Company and
paid R12.3 million (USD1 ,760) to the minority shareholders of Barplats.
Following the acquisition, the Company owns 74% of Barplats, with the balance
of 26% held by Barplats` Black Economic Empowerment (" BEE ") partner, Gubevu.
Prior to June 2007, the Company (through a wholly-owned subsidiary) purchased
a loan held by Nedbank Capital in favour of Gubevu , Barplats` minority
shareholder and BEE partner, under the same commercial terms and conditions as
the Nedbank Capital loan. The debt was purchased for USD8.9 million and is a
demand note with interest accruing at the floating South African prime rate
(December 31, 2007 - 1 4.5.%). On June 15, 2007 the Company acquired 42.39% of
the shares of Gubevu, for R43 million, and in addition the Company settled
certain debt of Gubevu totalling R21.6 million.
The Company also entered into an agreement to pay an unrelated third party an
amount which existed in the underlying Gubevu debt agreements, whereby the
Company paid R37 million (USD5,230 ) and issued a promissory note for three
additional payments:
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
3. Acquisitions (continued)
- R27.7 million (USD4,024 ) due May 4, 2008 ;
- R27.7 million (USD4,024 ) due May 4, 2009 ; and
- R30.9 million (USD4,489 ) due upon certain corporate reorganization events.
Based upon the fact that these future payments are based in rand, the Company
has discounted these future payments using a rate of 14.5% which represents
the
Company`s borrowing rate in South Africa. The payments due on May 4, 2008 and
2009 were recorded as liabilities of Gubevu at the date of acquisition.
The discounted value of the payment due on May 4, 2008 (USD3,837, June 30,
2007
-USD 3,481) has been classified as current portion of long-term liability in
these consolidated financial statements.
Following these acquisitions , the Company owns directly and indirectly 85% of
Barplats Investments Limited ("Barplats"), a PGM producing company in South
Africa.
Purchase price
Acquisition of 5% interest in Barplats
17,272,460 Eastern Platinum common shares USD 29,019
Cash 1,760
Acquisition of 42.39% interest in Gubevu
Cash 8,929
Promissory note 11,864
Assumption of debt 34,856
Acquisition costs 283
USD 86,711
Net assets acquired
Cash and cash equivalents USD 1,030
Non-cash working capital (515)
Property, plant and equipment 152,610
Refining contract 4,802
Short term debt (11,428)
Asset retirement obligation (889)
Future income tax liabilities (18,310)
Non-controlling interests (40,589)
USD 86,711
(b) The Company owns a 74% shareholding in Spitzkop Platinum (Pty) Ltd.
("Spitzplats") which holds PGM min eralization rights at the Spitzkop Platinum
Project (the "Spitzkop PGM Project"). On August 22, 2006, the Company acquired
a 49% interest in Afriminerals (Pty) Ltd. ("Afriminerals") for total
consideration of USD5.5 million and 3,000,000 shares of the Company, with
USD 5.0 million and the shares being paid to a third party consortium in order
to retire the debt owed to the consortium by Afriminerals for its 26% interest
in Spitzplats. Upon completion of the transaction, Afriminerals owned its 26%
shareholding in Spitzplats free and clear with no debts and/or obligations and
is Spitzkop PGM Project`s BEE partner. As part of the overall transaction, the
Company has an obligation to either finance, or organise project financing
for,
Afriminerals for its share of capital costs for the development of a mine at
Spitzkop. Such financing would be repaid from the proceeds of initial
production attributable to Afriminerals.
On March 20, 2007 , the Company purchased the 1% net smelter royalty held by
Rhodium Reef Royalties on all PGM recovered from the Spitzkop PGM Project. The
consideration was USD 6.5 million and 12 million common shares of the Company.
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
4. Concentration of credit risk
The Company currently sells all of its concentrate production to one customer
under an off-take contract. The loss of this customer or unexpected
termination of the off-take contract could have a material adverse effect on
the Company`s results of operations, financial condition and cash flows. The
Company has not experienced any bad debts with this customer.
5. Inventories
December 31, June 30,
2007 2007
Consumables USD 5,446 USD 2,801
Ore and concentrate 1,442 1,850
USD 6,888 USD 4,651
6. Property, plant and equipment
December 31, 2007
Accumulated
depreciation/ Net book
Cost depletion value
Mining plant and equipment USD 216,380 USD 58,597 USD 157,783
Mineral properties
Crocodile River Mine (a) 138,163 9,711 128,452
Kennedy`s Vale Project (b) 377,804 238 377,566
Spitzkop PGM Project (c) 121,442 - 121,442
Mareesburg JV (c) 28,076 - 28,076
Other property, plant and 191 49 142
equipment -
USD 882,056 USD 68,595 USD 813,461
June 30, 2007
Accumulated
depreciation/ Net book
Cost depletion value
Mining plant and equipment USD 135,202 USD 6,766 USD 128,436
Mineral properties
Crocodile River Mine (a) 133,616 4,438 129,178
Kennedy`s Vale Project (b) 362,510 - 362,510
Spitzkop PGM Project (c) 111,112 - 111,112
Mareesburg JV (c) 25,886 - 25,886
Other property, plant and
equipment 205 34 171
USD 768,531 USD 11,238 USD 757,293
(a) Crocodile River Mine ("CRM")
The Company holds directly and indirectly 85% of CRM, which is located on the
eastern portion of the western limb of the Bushveld Complex. The Maroelabult
and Zandfontein sections are currently in production with the Crocette and
Kaarespruit deposits and other potential near-surface opportunities being in
the development stages.
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
6. Property, plant and equipment (continued)
(b) Kennedy `s Vale Project ("KV")
The Company holds directly and indirectly 85% of KV, which is located on the
eastern limb of the Bushveld Complex, near Steelpoort in the Province of
Mpumalanga. It comprises PGM mineral rights on five farms in the Steelpoort
Valley.
(c) Spitzkop PGM Project and Mareesburg Joint Venture
The Company holds directly and indirectly a 93.4% interest in the Spitzkop PGM
Project (Note 3 (b)) and a 75.5% interest in the Mareesburg project. The
Company currently acts as the operator of both the Mareesburg Platinum Project
Joint Venture and Spitzkop PGM Project, both located on the Eastern Limb of
the
Bushveld Complex.
7. Refining contract
At the time of the Company`s acquisition of a 69% interest in Barplats during
the year ended June 30, 2006 , the Company assigned a portion of the excess of
the purchase price over the fair value of the net tangible assets acquired to
the off-take contract governing the sales of Barplats ` PGM concentrate
production (note 4). The initial value of the contract was USD17,939.
During the year ended June 30, 2007, the Company acquired an additional 5%
interest in Barplats (Note 3(a)) resulting in an additional value of the
contract of USD4,802 for a total aggregate value of USD22,741. The value of
the
contract is amortized on a units-of-production basis. The amortization expense
for the six months ended December 31, 2007 was USD798 and the accumulated
amortization at December 31, 2007 was USD4,274.
8. Asset retirement obligation
Although the ultimate amount of the asset retirement obligation is uncertain,
the fair value of these obligations is based on information currently
available, including closure plans and applicable regulations. Significant
closure activities include land rehabilitation, demolition of buildings and
mine facilities and other costs.
The liability for the asset retirement obligation at December 31, 2007 is
approximately R20 million (USD2,889). The undiscounted value of this
liability is approximately R83 million (USD12,144). An accretion expense
component of approximately USD180 (year ended June 30, 2007 - USD672) has been
charged to operations in the year ended December 31, 2007 to reflect an
increase in the carrying amount of the asset retirement obligation which has
been determined using a discount rate of 13.0%. Changes to the asset
retirement obligation during the year are as follows:
Balance, June 30, 2006 USD 3,283
Additions during the year upon acquisitions (Note 3 (a)) 889
Foreign exchange movement 200
Revision in estimates (2,343)
Accretion 672
Balance, June 30, 2007 USD 2,701
Revision in estimates (67)
Foreign exchange movement 75
Accretion 180
Balance, December 31, 2007 USD 2,889
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
9. Share capital
(a) Authorized
- Unlimited number of preferred redeemable, voting, non-participating shares
without nominal or par value
- Unlimited number of common shares with no par value
(b) Stock options
The Company has an incentive plan ("Plan") under which options to purchase
common shares may be granted to its directors, officers, employees and others
at the discretion of the Board of Directors. Under the terms of the Plan, the
aggregate number of common shares, which may be reserved for issuance under
the
Plan, shall not exceed 10% of the outstanding shares.
Each option granted shall be for a term not exceeding ten years from the date
of being granted unless otherwise approved by the Board of Directors and is
exercisable, in whole or in part, at any time during the term of the relevant
option. The option exercise price is set at the date of the grant and cannot
be
less than the closing market price of the Company`s common share s on the
Toronto Stock Exchange on the day immediately preceding the day of the grant
of
the option.
The changes in stock options during the period were as follows:
December 31, June 30,
2007 2007
Weighted Weighted
average average
Number of exercise Number of exercise
options price options price
CdnUSD CdnUSD
Balance
outstanding,
beginning of
period 32,450,000 1.76 17,180,000 1.64
Options granted 15,180,000 2.31 23,487,500 1.82
Options exercised (1,153,333) 1.79 (3,037,500) 1.66
Options expired - - (5,180,000) 1.70
Options cancelled (116,667) 1.70 - -
Balance
outstanding,
end of period 46,360,000 1.94 32,450,000 1.76
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
9. Share capital (continued)
(b) Stock options (continued)
The following table summarizes information concerning outstanding and
exercisable options at December 31, 2007 :
Remaining
Options Options Exercise Contractual
outstanding exercisable price Life (Years) Expiry date
CdnUSD
625,000 625,000 0.56 0.85 November 5, 2008
187,500 187,500 1.00 1.65 August 26, 2009
75,000 75,000 1.70 0.05 January 17, 2008
7,725,000 7,625,000 1.70 3.40 May 24, 2011
330,000 330,000 1.70 3.91 November 27, 2011
22,237,500 22,237,500 1.82 4.19 March 7, 2012
14,940,000 12,920,000 2.31 9.77 October 5, 2017
90,000 30,000 2.62 9.92 November 27, 2017
150,000 50,000 2.50 9.96 December 12, 2017
46,360,000 44,080,000 5.82
(c) Share purchase warrants
The changes in warrants during the period were as follows:
December 31, 2007 June 30, 2007
Weighted Weighted
average average
Number of exercise Number of exercise
warrants price warrants price
CdnUSD CdnUSD
Balance outstanding,
beginning of period 71,348,050 1.83 87,999,370 1.89
Warrants exercised (100,000) 1.80 (13,318,184) 2.08
Warrants expired - (3,333,136) 2.35
Balance outstanding,
end of period 71,248,050 1.83 71,348,050 1.83
The following table summarizes information concerning outstanding warrants at
December 31 , 2007 :
Number of Exercise
warrants price Expiry date
CdnUSD
11,356,054 2.00 April 25, 2008
59,891,996 1.80 March 28, 2009
71,248,050
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
9. Share capital (continued)
(d) Stock-based compensation
The fair value of each option granted is estimated at the time of the grant
using the Black-Scholes option pricing model with weighted average assumptions
for grants as follows:
December 31, June 30,
2007 2007
(6 months) (12 months)
Risk-free interest rate 4.19% 3.90%
Expected Life 3 years 3 years
Annualized volatility 43% 52%
Dividend rate 0% 0%
Weighted average grant date fair value CdnUSD0.78 CdnUSD0.61
Stock-based compensation expense for options vesting during the six months
ended December 31, 2007 is USD10,251 (USD14,416 - year ended June 30, 2007).
10. Income taxes
The provision for income taxes reported differs from the amounts computed by
applying the cumulative Canadian federal and provincial income tax rates to
the loss before tax provision due to the following:
December 31, June 30,
2007 2007
(6 months) (12 months)
Statutory tax rate 34.12% 34.12%
Expected tax recovery on net loss before
income tax USD (3,122) USD (3,138)
Difference in tax rates between foreign
jurisdictions and Canada (2,617) (356)
Items not deductible for income tax purposes 6,987 3,084
Benefit of tax losses (recognized) not recognized 601 (1,592)
Other (210) -
Income tax expense (recovery of future
income taxes) USD 1,639 USD (2,002)
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
10. Income taxes (continued)
The approximate tax effect of each item that gives rise to the Company`s
future
income tax assets are as follows:
December 31, June 30,
2007 2007
Future income tax assets
Non-capital loss carry forwards USD 5,304 USD 2,724
Share issue costs 2,919 4,573
Accumulated cost base difference on assets
and other 3,924 1,077
Net future income tax assets 12,147 8,374
Less valuation allowance (9,406) (7,371)
Net future income tax assets USD 2,741 USD 1,003
Future income tax liabilities
Accumulated cost base difference on assets USD 146,357 USD 133,913
Deferred receipts 6,416 11,573
152,773 145,486
Net future income tax liability-short-term USD 6,4 16 USD 11,573
Net future income tax liability-long-term USD 143,616 USD 132,910
At December 31 , 2007 , the Company has non-capital losses of approximately
Cdn.USD 19,472,000 available to apply against future Canadian income for tax
purposes. The non-capital losses will expire as follows (in Canadian dollars):
2008 USD 1,115
2012 272
2013 1,595
2014 916
2025 3,101
2026 5,776
2027 6,697
USD 19,472
The Company has capital losses of approximately Cdn.USD1.3 million available
to
apply against future capital gains.
The Company is subject to assessments by various taxation authorities which
may interpret tax legislations and tax filing positions differently from the
Company. The Company provides for such differences when it is likely that a
taxation authority will not sustain the Company`s filing position and the
amount of the tax exposure can be reasonably estimated. As at December 31,
2007, no provisions have been made in the financial statements for any
estimated tax liability.
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
11. Non-controlling interests
During the year ended June 30, 2007, non-controlling interest was decreased
following the acquisition of an additional 5% interest in Barplats and
increased following the acquisition of a 42.39% interest in Gubevu
(Note 3 (a )). As Gubevu has been determined to be a VIE, as primary
beneficiary, the Company has measured the non-controlling interest in Gubevu
at fair value.
The non-controlling interests are comprised of the following:
Balance, June 30, 2006 USD 13,546
Non-controlling interests` share of income in Barplats 3,078
Non-controlling interests` share of contributed surplus arising
from stock options and of cumulative translation adjustment
for the year (5,564)
Removal of Barplats minority interest (11,060)
Non-controlling interests` share of net assets at
acquisition date , net of advances to Gubevu (Note 3(a)) 24,502
Balance, June 30, 2007 USD 24,502
Non-controlling interests` share of income in Barplats 1,414
Non-controlling interests` share of interest on advances to Gubevu (2,514)
Balance, December 31, 2007 USD 23,402
1 2. Financial instruments
The fair values of cash and cash equivalents, short-term investments, trade
receivables and accounts payable approximate their carrying values due to the
short-term to maturities of these financial instruments.
The fair value of short-term debt was determined using discounted cash flows
at prevailing market rates and the fair value is considered to approximate
carrying value.
The Company minimizes credit risk by reviewing the credit risk of the
counterparty to the arrangement and has made any necessary provisions related
to credit risk at December 31, 2007.
The Company is exposed to fluctuations in interest rates, foreign currency
exchange rates and commodity prices. The Company has not entered into any
derivative financial instruments to manage exposure to fluctuations in these
rates.
The Company has a cash position (including short-term investments) of
USD189,856 (June 30, 2007 - USD204,498), which is invested in highly liquid,
fully guaranteed, bank-sponsored instruments. The Company is not exposed to
financial instruments involving the US residential markets or mortgages or
asset backed commercial paper.
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
13. Related party transactions
The Company incurred the following expenses in the normal course of operations
, measured at the exchange amount which is determined on a cost recovery
basis,
with companies related by way of directors and officers in common:
December 31, June 30,
2007 2007
(6 months) (12 months)
Consulting fees (a) USD 21 USD -
General and administrative expenses 42 95
Management fees (b) 3,344 978
Rent (c) - 336
USD 3,407 USD 1,409
(a) The Company paid fees to a private company controlled by a director of the
Company for consulting services performed outside of his capacity as a
director.
(b) The Company paid management fees and expenses to private companies
controlled by officers and directors of the Company. Management fees for the
six months ended December 31, 2007 included a termination payment of
USD2,252 due to an officer of the Company in respect of his employment
agreement.
(c) Rent incurred during the year ended June 30, 2007 included a lease
cancellation penalty of CdnUSD312 (USD276) paid to a company controlled by an
officer of the Company as a result of the Company moving to new premises.
(d) Amounts due to related parties are unsecured, non-interest bearing and due
on demand. Accounts payable at December 31, 2007 included USD 2,550 (June 30,
2007-USDnil) which were due to private companies controlled by officers of the
Company.
1 4. Segmented information
(a) Operating segment-The Company`s operations are primarily directed
towards the acquisition, exploration and production of PGMs in South Africa.
(b) Geographic segments-The Company`s assets, revenues and expenses by
geographic areas for the years ended December 31 and June 30, 2007 are as
follows:
December 31, 2007 (6 months)
South Africa Canada Total
Property, plant and equipment USD 813,378 USD 83 USD 813,461
Total assets 871,790 191,286 1,063,076
Property, plant and
equipment expenditures USD 113,539 USD - USD 113,539
Revenues USD 65,578 USD - USD 65,578
Production costs (41,363) - (41,363)
Depletion and depreciation (9,105) (15) (9,120)
Expenses (5,035) (6,270) (11,305)
Stock based compensation - (10,251) (10,251)
Interest income 334 4,590 4,924
Interest expense (2,010) - (2,010)
Foreign exchange loss (5,600) (4) (5,604)
Income (loss) before income taxes
and non-controlling interests USD 2,799 USD (11,950) USD (9,151)
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
14. Segmented information (continued)
(b) Geographic segments (continued)
June 30, 2007 (12 months)
South Africa Canada Total
Property, plant and equipment USD 757,184 USD 109 USD 757,293
Total assets 810,596 198,084 1,008,680
Property, plant and
equipment expenditures USD 62,894 USD 103 USD 62,997
Revenues USD 101,205 USD - USD 101,205
Production costs (69,467) - (69,467)
Depletion and depreciation (8,116) (7) (8,123)
Expenses (11,337) (4,642) (15,979)
Stock based compensation - (14,416) (14,416)
Interest income 1,845 3,063 4,908
Interest expense (5,427) - (5,427)
Foreign exchange loss (1,739) (158) (1,897)
Loss before income taxes
and non-controlling interests USD 6,964 USD (16,160) USD (9,196)
For the period ended December 31 and for the year ended June 30, 2007, 100% of
the Company`s PGM production was sold to one customer (Note 4).
15. Commitments
The Company has committed to capital expenditures on projects of approximately
R173 million (USD25 million) as at December 31, 2007.
16. Subsequent events
From January 1, 2 008 to March 28, 2008:
(a) 160,000 stock options were exercised at prices ranging from CdnUSD1.70 to
CdnUSD 2.31 per common share for proceeds of CdnUSD290.
(b) 2,109,300 share purchase warrants were exercised at prices ranging from
CdnUSD 1.80 to CdnUSD2.00 per common share for proceeds of CdnUSD 3,937.
(c) The Company granted 1,500,000 stock options to employees and a director of
the Company at a n exercise price of CdnUSD3.38 per common share, with
1,000,000 expiring on February 20, 2018 and 500,000 expiring on March 27,
2018.
EASTERN PLATINUM LIMITED
MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 2007
Effective July 1, 2007, the Company changed its fiscal year end from June 30
to December 31 to better align itself with industry reporting and to allow for
improved presentation of production results. This change has resulted in the
Company reporting a six-month period ending December 31, 2007. Unless
otherwise stated, all references in this document to the "period ended
December
31, 2007" mean the six months ended December 31, 2007. The comparative period
used in this MD&A is the six month period ended December 31, 2006.
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
December 31, 2007 and for the six months then ended in comparison to the same
period in 2006. This MD&A should be read in conjunction with the audited
consolidated financial statements for the period ended December 31 , 2007 and
supporting notes that have been prepared in accordance with Canadian generally
accepted accounting principles ("GAAP").
All monetary amounts are in U.S. dollars unless otherwise specified. The
effective date of this MD&A is March 28, 2008. Additional information relating
to the Company is available on SEDAR at www.sedar.com.
Contents of the MD &A
1. Overview
2. Highlights
2.1. Highlights for the quarter ended December 31, 2007
2.2. Highlights for the six months ended December 31, 20 07
3. Results of operations for the quarter and six months ended December 31,
2007
3.1. Mining operations at the Crocodile River Mine ("CRM")
3.2. CRM and non-GAAP measures
3.3. Development projects - CRM
3.4. Development projects - Spitzkop and Kennedy`s Vale
3.5. Development projects - Mareesburg
3.6. Mineral tenure
3.7. Mineral reserve and resource estimates
3.8. Corporate and other expenses
4. Liquidity and Capital Resources
4.1. Share capital
4.2. Contractual Obligations and Commitments
5. Related party transactions
6. Risk factors
6.1. Risks associated with the mining industry
6.2. Risks associated with financial markets
6.3. Risks associated with metals prices
6.4. Risks associated with foreign operations
6.5. Risks associated with granting of exploration, mining and other licences
7. Critical accounting policies and estimates
7.1. Revenue recognition
7.2. Stock-based compensation
7.3. Property, plant and equipment
7.4. Asset retirement obligations
8. Adoption of new accounting standards and accounting pronouncements
9. Internal control over financial reporting
10. Cautionary statement on forward-looking information
1. Overview
Eastplats is an expanding platinum group metals ("PGM") producer engaged in
the
development and mining of PGM `s with properties located in various provinces
in South Africa. All of the Company`s properties are situated on the western
and eastern limbs of the Bushveld Complex ("B C") , the geological environment
that supports over 75% of the world`s PGM supply.
The Company`s primary operating asset is an 85% 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 JV ("Mareesburg") and a 93.4% direct and indirect interest in
Spitzkop
PGM Project ("Spitzkop") both located on the eastern limb of the BC.
The Company `s strategy is to maximize shareholder returns from its Crocodile
River Mine and from its other mining properties under development. The Company
will continue to focus on traditional cost effective mining methods that place
a premium on a safe work environment. The Company is poised to take advantage
of the current rising PGM price environment as it has neither hedged nor sold
forward any of its PGM production.
2. Highlights
Eastplats recorded a net loss of USD12,204,000 (USD0.02 loss per share) for
the six months ended December 31, 2007 compared to a net income of
USD4,360,000 (USD0.01 earnings per share) for the six months ended
December 31 , 2006. For the quarter ended December 31, 2007, the Company
recorded a net loss of USD10,814,000 (USD0.02 loss per share) compared to a
net income of USD6,550,000 (USD0.01 earnings per share) in the same period in
2006. Despite increased revenues in the quarter ended December 31, 2007
compared to the quarter ended December 31, 2006, the Company incurred a net
loss in the quarter ended December 31, 2007 compared to 2006 as a result of
significant reversal from foreign exchange gain to foreign exchange loss and a
significant stock-based compensation expense compared to the prior period.
2.1 Highlights for the quarter ended December 31, 2007
Revenues from the Crocodile River Mine of USD34,126,000 were generated from
the sale of 26,632 PGM ounces, compared to revenues of USD25,062,000 from the
sale of 25,873 PGM ounces in the same quarter in 2006.
The average sales price per ounce was USD1,305 compared to USD992 in the same
quarter in 2006.
Operating cash costs were USD774 per ounce, compared to USD613 per ounce for
the same quarter in 2006.
EBITDA increased by 58% to USD13,179,000 from USD8,324,000 in the same
quarter in 2006.
Total underground development rate increased by 95% to 4,759 meters during
the quarter (2,438 meters in the quarter ended December 31, 2006) as it
continues to make substantial progress in the development of the ore reserve
at CRM.
On-reef development increased 62% to 2,814 meters (1,737 meters in the
quarter ended December 31, 2006). This is integral in generating additional
mineable ore to support the continued production build up at CRM.
The average mining rate increased to 111,750 tons per month during the
quarter ended December 31, 2007 from 69,993 tons per month in the same quarter
of 2006, with grades maintaining a consistent average of 4. 02 g/t (5PGE+Au).
The Company has completed the construction of a chrome recovery plant which
will reduce the chrome content, and as a result the chrome penalties, in the
concentrate being sold under the Company`s primary off-take agreement.
The Company continues to maintain a safety record at CRM (measured on the
basis of lost time injury frequency rates) which was significantly better than
the industry average in 2007.
During the quarter ended December 31, 2007, the Company continue d with the
development of its Mareesburg, Spitzkop and Kennedy`s Vale properties.
At December 31, 2007 , the Company had a cash position (including cash and
cash equivalents and short term investments) of USD189,856,000 (June 30, 2007
-
USD204,498,000) which is invested in highly liquid, fully guaranteed, bank
sponsored instruments. The Company is not exposed to financial instruments
involving U.S. residential property markets or Canadian asset-backed
commercial
paper.
2.2 Highlights for the six months ended December 31, 2007
Revenues of USD65,578 ,000 were generated from the sale of 56,049 PGM ounces,
compared to revenues of USD47,549,000 from the sale of 48,539 PGM ounces in
the six months ended December 31, 2006.
The average sales price per ounce was USD1,203 compared to USD994 in the
comparative six months in 2006.
Operating cash costs were USD 723 per ounce compared to USD628 per ounce for
the comparative six months in 2006.
EBITDA increased by 54% to USD24,215,000 from USD15,699,000 in the
comparative six months in 2006.
Total underground development increased by 101% to 9,627 meters from 4,789
meters in the six months ended December 31, 2006.
On-reef development increased by 58% to 5,384 meters from 3,401 meters in the
six months ended December 31, 2006.
The average monthly mining rate for the six months ended December 31, 2007
increased 63% to 109,840 tons from 67,397 tons for the six month s ended
December 31, 2006.
3. Results of Operations for the Quarter and Period Ended December 31, 2007
The following table sets forth selected consolidated financial information for
the quarters ended December 31, 2007 and 2006 and for the six months ended
December 31, 2007 and 2006:
Consolidated statements of operations
(Expressed in thousands of U.S. dollars, except share and per share amounts)
Three months ended December 31,
2007 2006
(unaudited) (unaudited)
Revenue USD 34,126 USD 25,062
Cost of operations
Production costs (20,947) (16,738)
Depletion and depreciation (5,148) (3,104)
Mine operating earnings 8,031 5,219
Expenses
General and administrative (7,825) (3,877)
Stock-based compensation (10,197) (143)
Operating income (loss) (9,991) 1,199
Other income (expense)
Interest income 2,736 1,648
Interest expense (1,231) (746)
Foreign exchange gain (loss) (260) 4,685
Income (loss) before income taxes
and non-controlling interests (8,746) 6,786
Future income tax (expense) recovery (1,263) 357
Non-controlling interests (805) (593)
Net income (loss) for the period (10,814) 6,550
Basic and diluted income (loss) per share USD (0.02) USD 0.01
Weighted average common shares outstanding
Basic 668,475,351 515,234,420
Diluted 668,475,351 515,612,386
Six months ended December 31,
2007 2006
(unaudited)
Revenue USD 65,578 USD 47,549
Cost of operations
Production costs (41,363) (31,850)
Depletion and depreciation (9,120) (5,730)
Mine operating earnings 15,095 9,969
Expenses
General and administrative (11,305) (7,193)
Stock-based compensation (10,251) (193)
Operating income (loss) (6,461) 2,584
Other income (expense)
Interest income 4,924 3,326
Interest expense (2,010) (2,026)
Foreign exchange gain (loss) (5,604) 983
Income (loss) before income taxes
and non-controlling interests (9,151) 4,867
Future income tax (expense) recovery (1,639) 713
Non-controlling interests (1,414) (1,220)
Net income (loss) for the period (12,204) 4,360
Basic and diluted income (loss) per share USD (0.02) USD 0.01
Weighted average common shares outstanding
Basic 668,157,833 514,569,575
Diluted 668,157,833 515,612,386
Year ended
June 30, 2007
Revenue USD 101,205
Cost of operations
Production costs (69,467)
Depletion and depreciation (8,123)
Mine operating earnings 23,615
Expenses
General and administrative (15,979)
Stock-based compensation (14,416)
Operating income (loss) (6,780)
Other income (expense)
Interest income 4,908
Interest expense (5,427)
Foreign exchange gain (loss) (1,897)
Income (loss) before income taxes
and non-controlling interests (9,196)
Future income tax (expense) recovery 2,002
Non-controlling interests (3,078)
Net income (loss) for the period (10,272)
Basic and diluted income (loss) per share USD (0.02)
Weighted average common shares outstanding
Basic 538,663,898
Diluted 538,663,898
Consolidated balance sheets December 31 June 30 December 31
2007 2007 2006
Total assets USD 1,063,076 USD 1,008,680 USD 702,235
Total long-term liabilities USD 188,852 USD 180,130 USD 168,044
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). All financial data previously reported in Canadian dollars
have been converted to the U.S. dollar.
2007
Dec 31 Sept 30
Revenues USD 34,126 USD 31,452
Cost of operations (26,095) (24,388)
Mine operating earnings 8,031 7,064
Expenses (G&A and stock-based compensation) (18,022) (3,534)
Operating income (loss) (9,991) 3,530
Net income (loss) USD (10,814) USD (1,390)
Income (loss) per share - basic USD (0.02) USD -
Income (loss) per share - diluted USD (0.02) USD -
2007
June 30 March 31
Revenues USD 22,324 USD 31,332
Cost of operations (17,528) (22,481)
Mine operating earnings 4,796 8,850
Expenses (G&A and stock-based compensation) (6,691) (16,319)
Operating income (loss) (1,895) (7,469)
Net income (loss) USD (4,693) USD (9,939)
Income (loss) per share - basic USD (0.01) USD (0.02)
Income (loss) per share - diluted USD (0.01) USD (0.02)
2006
Dec 31 Sept 30
Revenues USD 25,062 USD 22,488
Cost of operations (19,842) (17,738)
Mine operating earnings 5,219 4,750
Expenses (G&A and stock-based compensation) (4,020) (3,365)
Operating income (loss) 1,199 1,385
Net income (loss) USD 6,550 USD (2,190)
Income (loss) per share - basic USD 0.01 USD -
Income (loss) per share - diluted USD 0.01 USD -
2006
June 30 March 31
Revenues USD 12,668 USD -
Cost of operations (9,849) -
Mine operating earnings 2,819 -
Expenses (G&A and stock-based compensation) (8,457) (612)
Operating income (loss) (5,638) (612)
Net income (loss) USD (2,583) USD (952)
Income (loss) per share - basic USD (0.01) USD (0.01)
Income (loss) per share - diluted USD (0.01) USD (0.01)
3.1 Mining operations at Crocodile River Mine ("CRM")
The following is a summary of CRM`s operations for the six months ended
December 31, 2007 and December 31, 2006:
Crocodile River Mine operations
Three months ended December 31,
2007 2006
Key financial statistics
(amounts stated in thousands of
U.S. dollars, except per ounce data)
Revenue USD 34,126 USD 25,062
Cost of operations
Production costs (20,947) (16,738)
Depletion and depreciation (5,148) (3,104)
Mine operating earnings 8,031 5,219
EBITDA (1) USD 13,179 USD 8,324
Sales - PGM ounces 26,632 25,873
Average realized price per ounce (2) USD 1,305 USD 992
Average basket price (2) USD 1,551 USD 1,179
Cash costs per ounce of PGM (1) USD 774 USD 613
Key production statistics
Run of mine tons 335,263 209,978
Total tons processed 383,159 351,045
Stoping units (square meters) 37,374 27,771
Development meters 4,759 2,438
On-reef development meters 2,814 1,737
Six months ended December 31,
2007 2006
Key financial statistics
(amounts stated in thousands of
U.S. dollars, except per ounce data)
Revenue USD 65,578 USD 47,549
Cost of operations
Production costs (41,363) (31,850)
Depletion and depreciation (9,120) (5,730)
Mine operating earnings 15,095 9,969
EBITDA (1) USD 24,215 USD 15,699
Sales - PGM ounces 56,049 48,539
Average realized price per ounce (2) USD 1,203 USD 994
Average basket price (2) USD 1,430 USD 1,182
Cash costs per ounce of PGM (1) USD 723 USD 628
Key production statistics
Run of mine tons 659,040 404,383
Total tons processed 782,181 638,646
Stoping units (square meters) 72,636 43,301
Development meters 9,627 4,789
On-reef development meters 5,384 3,401
(1) These are non-GAAP measures as described in Section 3.2
(2) Average realized price is the average basket price, net of associated
smelter costs, under the Company`s primary off-take agreement.
For the three months ended December 31, 2007, PGM sales were 26,632 ounces
compared with 25,873 ounces for the quarter ended December 31, 2006. The 3%
increase over 2006 is attributable to the improvement in mining operations at
CRM including the installation of conveyor belts to surface and a significant
investment in on-reef and off-reef development that has allowed for increased
stoping units, production and improved efficiencies, all of which is expected
to be fully realized in 2008.
Operating cash costs increased to USD774 per ounce for the quarter ended
December 31, 2007 compared to USD613 per ounce for the same quarter in 2006 as
a result of increased on-reef development , an increase in consumable costs,
particularly steel and fuel related expenditures, and general cost increases
as
a result of inflation and a higher value of the rand compared to the U.S.
dollar. Similarly, operating cash costs increased from USD628 per ounce in the
six months ended December 31, 2006 to USD723 per ounce in the same period in
2007. See Section 3.2 for details on the calculation of cash cost per ounce.
The Company continues to focus upon on-reef development which increased 62 %
to 2,814 meters in the quarter ended December 31, 2007 from 1,737 meters in
the
same quarter of 2006 and increased 58% to 5,384 meters in the six months ended
December 31, 2007 from 3,401 meters a year earlier. The Company expenses all
on-reef development.
The Company also continues to focus on the quality of the concentrate produced
in order to minimize the level of chromitite in concentrate and the associated
chrome penalties under its primary off-take agreement. The Company has
completed the construction of a chrome recovery plant which will reduce the
chrome content , and the resulting chrome penalties, in the concentrate being
sold under the off-take agreement. The benefits of the chrome plant are
expected to be fully realized in 2008.
The Company continues to make substantial progress with underground
development at CRM to generate an 18 to 24 month reserve base required to
support the build up towards the target production rate of 200,000 tonnes of
ore per month.
Underground development increased 95% to 4,759 meters during the quarter ended
December 31, 2007 compared with 2,438 meters in the same quarter in 2006. For
the six months ended December 31, 2007, underground development increased 101%
to 9,627 meters from 4,789 meters in the same period in 2006.
The average mining rate during the quarter ending December 31, 2007 increased
to 111,750 tonnes per month from 69,993 tonnes per month in the same quarter
of 2006, with grades maintaining a consistent average of 4. 02 g/t (5PGE+Au).
"5PGE +Au" is defined as platinum, palladium, rhodium, ruthenium, iridium and
gold.
During the quarter ended December 31, 2007, CRM suffered six lost time
injuries (compared to three lost time injuries in the same quarter in 2006)
resulting in a Lost Time Injury Frequency Rate ("LTIFR") of 3.07 (1.49 in the
same quarter in 2006). The Company`s twelve month rolling LTIFR of 2.27 to
December 31, 2007 compares favorably against most of the other platinum
producers in South Africa, whose average LTIFR was above 8.00, according to
information compiled by the Bushveld Safety Forum.
The Company is committed to the maintenance of a safe work environment at CRM.
In early December, CRM terminated the services of five stoping crews (out of a
total of 35) who were proven to be performing in working conditions which were
below the safety standards demanded at CRM. The operational effect caused by
these terminations and the process of hiring and training new crews impacted
both the December and January underground production results.
The table below presents selected production data at the Crocodile River Mine
for the Company`s seven most recently completed quarters:
Dec 31, Sept 30, June 30, Mar 31,
Production 2007 2007 2007 2007
Ounces sold 26,632 29,417 25,111 26,807
Run of mine tons 335,263 323,777 244,275 211,830
Total tons processed 383,159 399,022 369,453 415,112
Stoping units (m2) 37,374 35,262 35,315 26,441
Development meters 4,759 4,868 4,807 3,687
Dec 31, Sept 30, June 30,
Production 2006 2006 2006
Ounces sold 25,873 22,666 12,553
Run of mine tons 209,978 194,405 134,018
Total tons processed 351,045 287,601 178,859
Stoping units (m2) 27,771 30,054 15,530
Development meters 2,438 2,351 741
Note: CRM was acquired by the Company in April 2006
3.2 CRM non-GAAP measures
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-GAAP measure which the Company believes is used by certain
investors to determine the Company`s ability to generate cash flows for the
investing and other activities. The Company also reports cash costs per ounce
of PGM produced, another non-GAAP measure which is a common performance
measure used in the precious metals industry.
These non-GAAP measures do not have any standardized meaning prescribed under
Canadian GAAP, and therefore they may not be comparable to similar measures
employed by other companies.
The following table provides a reconciliation of EBITDA and cash costs per
ounce of PGM sold to the financial statements:
Crocodile River Mine non-GAAP measures
(Expressed in thousands of U.S. dollars, except ounce and per ounce data)
Three months ended December 31,
2007 2006
Mine operating earnings USD 8,031 USD 5,219
Depletion and depreciation 5,148 3,104
EBITDA 13,179 8,323
Production costs as reported 20,947 16,738
Less overhead costs (1) (322) (878)
Cash operating costs 20,625 15,860
Ounces sold 26,632 25,873
Cash cost per ounce sold USD 774 USD 613
Six months ended December 31,
2007 2006
Mine operating earnings USD 15,095 USD 9,969
Depletion and depreciation 9,120 5,730
EBITDA 24,215 15,699
Production costs as reported 41,363 31,850
Less overhead costs (1) (847) (1,373)
Cash operating costs 40,516 30,477
Ounces sold 56,049 48,539
Cash cost per ounce sold USD 723 USD 628
(1) Overhead costs include costs such as safety, housing, technical services
and planning.
Cash cost per ounce increased in the three and six months periods ended
December 31, 2006 compared to the same periods in 2007. The main contributors
to this change are increased mine on-reef development, an increase in the cost
of consumables, particularly steel and fuel-related expenditures, general cost
increases as a result of an 8% to 9% inflation rate and an 8% rise in the rand
in relation to the U.S. dollar, cost increases for labour also as a result of
inflation, and a slight drop in the mining recovery rates, from 75% in the six
months ended December 31, 2006 to 72% in the same period in 2007.
3.3 Development projects - CRM
During the six months ended December 31, 2007, the Company spent a total of
USD 31.2 million on development projects at CRM, which include the
Zandfontein, Kareespruit, and Crocette sections.
The bulk of the expenditures were at the Zandfontein section, where USD20.4
million was spent, mostly on underground (off-reef) development and on the
re-equipping and refurbishment of an existing vertical shaft which will allow
for more economic mine development at deeper levels. A resource upgrade
drilling programme has been initiated to upgrade the mineral resource for the
down dip extension areas of Zandfontein and Crocette, with a planned drilling
campaign of approximately 20,000 meters in 25 holes.
This programme is expected to be completed at the end of 2008.
A total of USD1.3 million was spent on initial infrastructure projects and
decline development at Crocette. In March 2008, CRM was advised by the
Department of Minerals and Energy ("DME") that it would soon be issuing a new
order mining right for the Crocette deposit. The Company expects to commence
underground development at Crocette in 2008.
At Kareespruit, where USD4.5 million was spent, exploration continued during
the six months ended December 31, 2007 with a total of almost 20,000 metres
drilled in 30 holes completed to date. A n internal scoping study is being
conducted and preliminary indications are that the Kareespruit deposit has the
potential to become a stand alone operation capable of mining up to 200,000
tonnes per month. Additional delineation and evaluation drilling is underway
to upgrade the resources in order to complete a pre-feasibility over this
area.
This programme provides for the drilling of a further 11,800 meters in 12
holes. The pre-feasibility evaluation is expected to be completed by the end
of 2008.
3.4 Development projects - Spitzkop and Kennedy`s Vale
During the six months ended December 31, 2007, the Company spent USD3.5
million, mostly on the purchase of second hand mills which were delivered to
the site in December 2007. Tender documents have been received for the re
furbishment of these mills. The EPCM contract for the mine and concentrator
design and construction has been placed, with work expected to commence in the
first quarter of 2008.
The Company plans to develop access portals at Spitzkop for the purpose of
trial mining on both the UG2 and Merensky reefs. Mobilization for the box cut
development commenced in March 2008.
A new mineral resource statement for the Spitzkop/Kennedy`s Vale Project was
completed and filed in January 2008. At the De Goedeverwachting ("DGV")
deposit, previous drilling confirmed geological structure and orebody
continuity near the surface. Further drilling has commenced on the shallow
portion of the DGV deposit to determine if a mineable UG2 resource exists.
3.5 Development projects - Mareesburg
The mining application has been submitted to the DME along with the
environmental impact assessment (EIA) scoping report. The Company has engaged
RSV, an independent consultant , to prepare a pre-feasibility study based upon
a similar study prepared in 2007 by another independent consultant , SRK.
The study is scheduled to be completed by mid - 2008.
3.6 Mineral tenure
As at March 28, 2008, the status with regard to the Company`s applications for
mining and prospecting licences is as follows:
Mining
Property Applied Granted Pending
CRM 5 2 3
Kennedy`s Vale - - -
Mareesburg 1 - 1
Spitzkop - - -
Totals 6 2 4
Prospecting
Property Applied Granted Pending
CRM 18 14 4
Kennedy`s Vale 3 3 -
Mareesburg 1 1 -
Spitzkop 1 1 -
Totals 23 19 4
3.7 Mineral reserve and resource estimates
On November 27, 2007, the Company announced mineral reserve and resource
estimates for all of its PGM projects in South Africa. The estimates were
prepared following extensive infill drilling programmes and were completed in
accordance with NI 43-101, JORC (Australasian Joint Ore Reserve Committee) and
SAMREC (South African Code for Reporting of Mineral Resources and Mineral
Reserves) technical reporting requirements. Details of these reserve and
resource estimates are available on SEDAR at www.sedar.com. Highlights are as
follows:
Measured and indicated resource in all projects of 66.5 million ounces of PGM,
of which 57.4 million ounces are attributable to the Company
Inferred resources in all projects of 34.0 million ounces of PGM, of which
28.9 million ounces are attributable to the Company
Proven and probable reserves at the Crocodile River Mine of 4.1 million ounces
of PGM
Measured and indicated resource at CRM (including mineral reserves) of 5.6
million ounces of PGM
Inferred resource at CRM of 10.2 million ounces of PGM
All these mineral reserves and resources occur in the platinum rich UG2 and
Merensky reefs with mineable widths and all estimates referenced are after
subtraction of estimated geological losses.
3.8 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. Such costs include legal and accounting, regulatory,
executive management fees, investor relations, travel and consulting fees. G&A
increased from USD7,193,000 during the six months ended December 31, 2006 to
USD11,305,000 in the six months ended December 31, 2007 mainly due to
termination payments of USD2,726,000 made to former executives of the Company
during the quarter ended December 31, 2007, costs incurred in the delisting of
Barplats shares from the Johannesburg Stock Exchange, and an increased level
of
corporate activity.
During the quarter ended December 31, 2007, the Company`s board of directors
granted 15,180,000 stock options to directors, officers and employees
resulting
in a stock based compensation expense of USD10,251,000. The Company believe s
that a significant part of its future success is to attract and retain
appropriately qualified and talented employees in a very competitive global
labour market, especially in the mining industry. Offering equity
participation
in the Company through incentive stock options is one way to ensure that the
Company can compete in this market.
Interest income recorded during the six months ended December 31, 2007 was
USD4,924,000 compared with USD3,326,000 in the same period in 2006. The
increase was due to increased average cash balances offset by lower interest
rates during the period ended December 31, 2007 as compared with the same
period in 2006.
Interest expense is comprised primarily of interest incurred on equipment
financing in South Africa and interest on debt related to Gubevu. Interest
expense in the periods ended December 31, 2007 and 2006 was not significantly
different.
The Company has advanced funds to its South African subsidiary entities, which
have been designated as rand-based debt at the subsidiary level. As the
Company anticipates that these funds will be repaid, the Company is exposed to
exchange rate fluctuations between the lending currency and the rand. During
the six months ended December 31, 2007, this exposure has resulted in a
foreign exchange loss of USD5,604,000 compared to an exchange gain of
USD983,000 in the six months ended December 31, 2006.
During the six months ended December 31, 2007 the Company recorded an income
tax expense of USD1,639,000 mostly based on net income generated at CRM during
the period. Loss carry forwards and other tax assets were utilized such that
no cash taxes were payable. The consolidated balance sheet reflects a total
future income tax liability of USD150,032,000 which arose primarily as a
result of the step-up to fair value of the net assets acquired on business
acquisitions during the years ended June 30, 2006 and June 30, 2007.
4. Liquidity and Capital Resources
At December 31, 2007 , the Company had working capital of USD196,681,000 (June
30, 2007 - USD195,472 ,000) and cash and cash equivalents and short-term
investments of USD189,856 ,000 (June 30, 2007
- USD204,498 ,000) which are invested in highly liquid, fully guaranteed, bank
sponsored instruments. The Company is not exposed to financial instruments
involving the US residential property markets or mortgages.
The Company had no long-term debt at December 31, 2007, other than asset
retirement obligations relating primarily to its Crocodile River Mine, capital
lease obligations relating to mining vehicles with lease terms of five years
with options to purchase the vehicles for a nominal amount at the conclusion
of the lease terms, and payments in connection with the Company`s acquisition
of 42.39% of the shares of Gubevu during the year ended June 30, 20 07. See
Contractual Obligations under Section 4. 2 below.
The Company anticipates prices of the platinum group metals to remain strong
at least through the next two years. Based on this outlook and planned
production levels at CRM, the Company expects to receive significant cash
flows from CRM for the next few years. Together with the Company`s current
cash balances and cash from the anticipated exercise of its warrants, which
expire in 2008 and 2009 , a significant part of the cash required for the
Company to develop the Crocette deposit at CRM and the Spitzkop and Mareesburg
projects can be funded.
However, t he Company will require additional funding in order to bring all
these projects into commercial production. Additional funding may include
external financing , the offering of 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.
However, if volatile global and market conditions result in a significant
decline in PGM prices, then the cash flows from CRM and current cash balances
may become insufficient to advance any of the Company`s projects to the
production stage. This, along with deteriorating market conditions, could
also result in the Company having difficulty in obtaining equity financing,
external financing or third party participation. If so, over the long-term,
there can be no assurance that any additional funding will be available to the
Company or, if available, that it will be on acceptable terms. If adequate
funds are not available, the Company may be required to delay or reduce the
scope of its activities to bring any or all of its development projects into
commercial production.
4.1 Share Capital
During the period ended December 31, 2007, the Company granted 15,180,000
stock options with exercise prices ranging from Cdn.USD2.31 to Cdn.USD2.62 and
expiry dates of October 5, 2017 to December 12, 2017, giving rise to a
stock-based compensation expense of USD10,251,000. During the same period,
1,153,333 options were exercised at a weighted average exercise price of
Cdn.USD1.79 for proceeds of USD2, 044 ,000 and 100,000 warrants were exercised
at Cdn.USD1.80 per common share for proceeds of USD178,00 0.
As at March 28, 2008, the Company had 671,306,427 common shares outstanding
and 47,050,000 stock options outstanding, which are exercisable at prices
ranging from Cdn.USD0.56 to Cdn.USD3.38 and expire mostly between 2011 and
2018.
At March 28, 2008, the Company had the following share purchase warrants
outstanding:
Number of Warrants Exercise Price (Cdn.USD) Expiry Date
10,647,154 (1) USD2.00 April 25, 2008
58,485,996 (2) USD1.80 March 28, 2009
69,133,150
(1) These warrants are traded on the Toronto Stock Exchange under the symbol
ELR.WT
(2) The se warrants are traded on the Toronto Stock Exchange under the symbol
ELR.WT.A
4.2 Contractual Obligations and Commitments
The following table summarizes the Company`s major contractual obligations and
commitments at December 31, 2007:
(in thousands of
U.S. dollars) Less than More than
Total 1 year 1- 5 years 5 years
Asset retirement
obligations USD 2,889 USD - USD - USD 2,889
Capital expenditure
contracted at
December 31,
2007 but not
recognized on the
balance sheet 25,149 25,149 - -
Capital lease
obligations 5,804 748 5,056 -
Obligations related
to Gubevu
acquisition 8,048 4,024 4,024 -
USD 41,890 USD29, 921 USD 9,080 USD 2,889
Pursuant to the Company`s acquisition of a 42.39% interest in Gubevu
Consortium
Holdings (Pty) Ltd. ("Gubevu") during the year ended June 30, 2007, the
Company
entered into an agreement to pay an unrelated third party an amount of R55.4
million that existed in the underlying Gubevu agreements as an obligation of
Gubevu. This amount has been recorded at a discounted value of USD7,160,000 in
long-term liabilities, of which USD3,837,000 is payable on May 4, 2008.
5. Related Party Transactions
A number of the Company`s executive officers are engaged under contract with
those officers` personal services companies. The Company paid USD3, 407,000
for
management fees, consulting fees and reimbursements of expenses to private
companies controlled by officers and directors of the Company in the six
months ended December 31, 2007, compared to USD753,000 in the same six-month
period ended December 31, 2006. The increase over the prior comparative period
is due to the hiring of two executive officers in November 2007, a payment to
an executive officer whose management contract was terminated in December
2007, and a one-time payment of USD2,252 ,000 made to an executive officer
representing a termination payment triggered from certain conditions pursuant
to the officer`s management agreement with the Company.
All related party transactions were recorded at the amounts agreed upon
between the parties. Any balances payable are payable on demand without
interest.
6. Risk Factors
The business of exploring for minerals and the mining and processing of those
minerals involves a high degree of risk. These activities involve significant
risks which careful evaluation, experience and knowledge may not, in some
cases, eliminate. These risks include risks associated with the mining
industry, the financial markets, metals prices and foreign operations.
6.1 Risks associated with the mining industry
The commercial viability of any mineral deposit depends on many factors, not
all of which are within the control of management. Some of the factors that
will affect the financial viability of a mineral deposit include its size,
grade and proximity to infrastructure. In addition, government regulation,
taxes, royalties, land tenure, land use, environmental protection and
reclamation and closure obligations could have a profound impact on the
economic viability of a mineral deposit.
The mining operations and the exploration and development programmes of the
Company may be disrupted by a variety of risks and hazards which are beyond
the control of the Company, including , but not limited to, geological,
geotechnical and seismic factors, fires, power outages, labour disruptions,
flooding, explosions, cave-ins, land-slides, availability of suitable or
adequate machinery and labour, industrial and mechanical accidents,
environmental hazards (including discharge of metals, pollutants or hazardous
chemicals), and political and social instability.
The current power supply issues in South Africa are an operational risk to all
mining companies operating in South Africa. There is no assurance that the
power supply issues will be resolved in the near-term.
Hence, management has identified alternative power supply sources through the
acquisition of generators to mitigate the impact of power interruptions.
It is not always possible to obtain insurance against all risks described
above
and the Company may decide not to insure against certain risks as a result of
high premiums or for other commercial reasons. The Company does not maintain
insurance against political or environmental risks, but may be required to do
so in the future. Should any uninsured liabilities arise, they could result in
increased costs, reductions in profitability, and a decline in the value of
the Company`s securities.
The Company is not able to determine the impact of potential changes in
environmental laws and regulations on its financial position due to the
uncertainty surrounding the form such changes may take. As mining regulators
continue to update and clarify their requirements for closure plans and
environmental protection laws and administrative policies are changed,
additional reclamation obligations and further security for mine reclamation
costs may be required. It is not known whether such changes would have a
material effect on the operations of the Company.
6.2 Risks associated with financial markets
The Company currently uses the South African rand and the Canadian dollar as
its functional currencies, and the U.S. dollar as its reporting currency.
Operations at the Company`s Crocodile River Mine ("CRM") are predominately
conducted in rands, with costs paid in rands and revenues received in rands,
even though PGM prices are based in U.S. dollars. The Company does not hedge
or
sell forward any of its PGM production and is therefore exposed to exchange
rate fluctuations. A deterioration of the U.S. dollar against the South
African rand could have an adverse effect on the earnings of CRM. Fluctuations
in the exchange rate between the Canadian dollar and the rand may also have a
significant impact on the Company`s results of operations and financial
condition. The recent deterioration of the rand has had a negative impact on
the Company`s results of operations.
6.3 Risks associated with metals prices
Metals prices , particularly platinum prices, have a direct impact on the
Company `s earnings and the commercial viability of the Company`s other
mineral properties. Platinum is both a precious metal and an industrial metal.
The current fundamentals of the platinum market are tight - supplies are
limited, while demand currently exceeds supply and is predicted to increase.
As a result, the platinum price has experienced significant volatility in
recent years, and if the current imbalance between supply and demand
continues, price volatility can be expected to continue. Some of the key
factors that may influence platinum prices are policies in the most important
producing countries, namely South Africa and the Russian Federation, the
amount of stockpiled platinum, economic conditions in the main consuming
countries, international economic and political trends, fluctuations in the
U.S. dollar and other currencies, interest rates, and inflation.
While prices for platinum and other PGMs have increased significantly in the
last few years, with platinum reaching all-time highs in early 2008 , there is
no assurance that this trend will continue or that current price levels will
be sustained.
The marketability of metals is also affected by numerous other factors beyond
the control of the Company, including but not limited to government
regulations relating to price, royalties, allowable production and importing
and exporting of minerals, the effect of which cannot accurately be predicted.
A decline in the market price of PGMs mined by the Company may render ore
reserves containing relatively low grades of mineralization uneconomic and may
in certain circumstances lead to a restatement of reserves.
6.4 Risks associated with foreign operations
The Company`s investments in South Africa carry certain risks associated with
different political and economic environments. South Africa has recently
undergone major constitutional changes to effect majority rule, and mineral
title. Accordingly, all laws may be considered relatively new, resulting in
risks such as possible misinterpretation of new laws, unilateral modification
of mining or exploration rights, operating restrictions, increased taxes,
environmental regulation, mine safety and other risks arising out of a new
sovereignty over mining, any or all of which could have an adverse impact upon
the Company. The Company`s operations may also be affected in varying degrees
by political and economic instability, terrorism, crime, extreme fluctuations
in currency exchange rates, and inflation.
The Government of South African recently proposed a royalty for South African
mining companies with a projected effective date of May 1, 2009. The royalty
rate for PGM producing companies is estimated to be approximately 2.7% of
gross mining revenues. This proposal, in the form of a draft royalty bill, is
currently under industry review. Management continues to work with other
mining companies active in South Africa to draft a response to the proposed
royalty legislation. The royalty, if enacted, is expected to have a negative
impact on CRM`s earnings in 2009.
6.5 Risks associated with the granting of exploration, mining and other
licences
The Government of South Africa exercises control over such matters as
exploration and mining licensing, permitting, exporting and taxation, which
may adversely impact on the Company`s ability to carry out exploration,
development and mining activities. Failure to comply strictly with applicable
laws, regulations and local practices relating to mineral right applications
and tenure, could result in loss, reduction or expropriation of entitlements,
or the imposition of additional local or foreign parties as joint venture
partners with carried or other interests.
The Company`s exploration and mining activities are dependent upon the grant
of
appropriate licences, concessions, leases, permits and regulatory consents
which may be granted for a defined period of time, or may not be granted, or
may be withdrawn or made subject to limitations. There can be no assurance
that such authorizations will be renewed following expiry or granted (as the
case may be) or as to the terms of such grants or renewals. There is also no
assurance that the issue of a reconnaissance, prospecting or exploration
licence will ensure the subsequent issue of a mining licence. All `old order`
mineral rights in South Africa are subject to conversion into `new order`
mineral rights. New order prospecting rights for both the Spitzkop and the
Mareesburg PGM Projects have been issued by the Department of Minerals and
Energy ("DME"). CRM has been awarded two new order rights and has three
applications pending. Both the Kennedy`s Vale Project and CRM have had new
order prospecting rights granted on certain farms (17 in total). Application
for the conversion of the remaining old order (prospecting and mining) rights
to new order rights for both CRM and the Kennedy`s Vale Project have been made
in the appropriate manner and such applications are currently being processed
by the DME, as referenced in the various legal opinions with respect to the
Company`s rights and title. The Company and its independent South African
legal counsel are not aware of any reasons that conversion of `old order` to
`new order` rights will not occur.
7. Critical Accounting Policies and Estimates
The preparation of financial statements requires management to establish
accounting policies, estimates and assumptions that affect the timing and
reported amounts of assets, liabilities, revenues and expenses.
These estimates are based upon historical experience and on various other
assumptions that management believes to be reasonable under the circumstances,
and require judgement on matters which are inherently uncertain. A summary of
the Company`s significant accounting policies is set forth in Note 2 of the
consolidated financial statements for the six months ended December 31, 2007.
Management reviews its estimates and assumptions on an ongoing basis using the
most current information available and considers the following to be key
accounting policies and estimates:
7.1 Revenue recognition
Revenue, based upon prevailing metal prices, is recorded in the financial
statements when title to the PGMs transfers to the customer. The estimated
revenue is recorded based on metal prices and exchange rates on the date of
shipment and is adjusted at each balance sheet date to the metal prices on
those dates. The actual amounts will be reflected in revenue upon final
settlement, which are three and five months after the date of shipment. These
adjustments reflect changes in metal prices and changes in qualities arising
from final assay calculations.
7.2 Stock-based compensation
The Company applies the fair-value method of accounting in accordance with
the recommendations of CICA Handbook Section ("CICA 3870"), "Stock-based
Compensation and Other Stock-based Payments". Stock-based compensation expense
is calculated using the Black-Scholes option pricing model with a
corresponding credit to contributed surplus, on a straight-line basis over the
vesting period. If and when the stock options are ultimately exercised, the
applicable amounts of contributed surplus are transferred to share capital.
During the six months ended December 31, 2007, the Company`s assumptions for
the calculation included a risk-free interest rate of 4.19%, expected life of
the options of 3 years and annualized volatility of the Company`s shares of
43%.
7.3 Property, plant and equipment
Mining interests are the most significant assets of the Company and represent
capitalized expenditures related to the development of mining properties and
related plant and equipment and the value assigned to exploration potential on
acquisition. Property, plant and equipment are recorded at cost less
accumulated depreciation and depletion. Maintenance, repairs and renewals are
charged to operations. Capitalized costs are depreciated and depleted using
either the unit-of-production method over the estimated economic life of the
mine which they relate to, or using the straight-line method over their
estimated useful lives.
All direct costs related to the acquisition, exploration and development of
mineral properties are capitalized until the properties to which they relate
are placed into production, sold, abandoned or management has determined there
to be an impairment. If economically recoverable ore reserves are developed,
capitalized costs of the related property are reclassified as mining assets
and
amortized using the units-of-production method following commencement of
production.
The amounts shown for mineral properties do not necessarily represent present
or future values. Their recoverability is dependent upon the discovery of
economically recoverable reserves, the ability of the Company to obtain the
necessary financing to complete the development, and future profitable
production or proceeds from the disposition thereof.
The Company reviews and evaluates its mining interests for impairment at least
annually or when events or changes in circumstances indicate that the related
carrying amounts may not be recoverable. An impairment is considered to exist
if the total estimated future undiscounted cash flows are less than the
carrying amount of the assets. An impairment loss is measured and recorded
based on discounted estimates of future cash flows. Future cash flows are
estimated based on expected future production, commodity prices, operating
costs and capital costs.
7.4 Asset retirement obligations
The Company recognizes liabilities for statutory, contractual or legal
obligations associated with the retirement of property, plant and equipment,
when those obligations result from the acquisition, construction, development
or normal operation of the assets. Initially, the fair value of the liability
for an asset retirement obligation is recognized in the period incurred. The
net present value is added to the carrying amount of the associated asset and
amortized over the asset`s useful life. The liability is accreted over time
through periodic charges to operations and it is reduced by actual costs of
reclamation.
The Company`s estimates of reclamation costs could change as a result of
changes in regulatory requirements and assumptions regarding the amount and
timing of the future expenditures. A change in estimated discount rates is
reviewed annually or as new information becomes available. Expenditures
relating to ongoing environmental programs are charged against operations as
incurred or capitalized and amortized depending on their relationship to
future earnings.
8. Adoption of New Accounting Standards and Accounting Pronouncements
On July 1, 2007, the Company retrospectively adopted, without restatement of
prior periods, the recommendations included in the following sections of the
Canadian Institute of Chartered Accountants Handbook: Section 1530,
Comprehensive Income , Section 3251, Equity, Section 3855, Financial
Instruments - Recognition and Measurement, Section 3816, Financial Instruments
- Disclosure and Presentation, and Section 3865, Hedges.
Section 1530, Comprehensive Income, is the change in the Company`s net assets
that results from transactions, events and circumstances from sources other
than the Company`s shareholders and includes items that would not normally be
included in net income such as unrealized gains or losses on available -
for-sale investments, gains or losses on certain derivative instruments and
foreign currency gains or losses related to self-sustaining operations. The
Company`s comprehensive income, components of other comprehensive income, and
accumulated other comprehensive income are presented in the Statements of
Comprehensive Income and the Statements of Shareholders` Equity. Amounts
previously recorded in "cumulative translation adjustment" have been
reclassified to "accumulated other comprehensive income".
Section 3855, Financial Instruments - Recognition and Measurement, establishes
standards for classification, recognition, measurement, presentation and
disclosure of financial instruments (including derivatives) and non-financial
derivatives in the financial statements. This standard requires the Company to
classify all financial instruments as either held to maturity, available for
sale, held for trading, loans and receivables or other financial liabilities.
Financial assets and liabilities held for trading will be measured at fair
value with gains and losses recognized in net income. Financial assets held to
maturity, loans and receivables and financial liabilities other than those
held for trading will be measured at amortized cost. Available for sale
investments are measured at fair value with unrealized gains and losses
recognized in other comprehensive income. The standard also permits the
designation of any financial instrument as held for trading upon initial
recognition.
The Company has implemented the following classification of its financial
assets and financial liabilities:
- Cash and cash equivalents are classified as held for trading
- Short-term investments are classified as held to maturity
- Receivables are classified as "Loans and Receivables" and are measured at
amortized cost using the effective interest rate method. At December 31,
2007, the recorded amount approximates fair value.
Short-term and long-term liabilities and accounts payable and accruals are
classified as "Other Financial Liabilities" and are measured at amortized
cost using the effective interest rate method. At December 31, 2007, the
recorded amount approximate s fair value.
Transaction costs directly attributable to the acquisition or issue of a
financial asset or financial liability are included in the carrying amount of
the financial asset or financial liability, and are amortized to income using
the effective interest rate method.
Section 3865, Hedges, sets out standards under which hedge accounting can be
applied and how hedge accounting should be executed for each of the permitted
hedging strategies, including fair value hedges, cash flow hedges, and hedge s
of a foreign currency exposure of a net investment in a self-sustaining
foreign operation. The Company does not have any derivatives that qualify as
hedging instruments.
The Company`s South African subsidiaries prepare their financial statements in
accordance with International Financial Reporting Standards ("IFRS") and its
interpretations adopted by the International Accounting Standards Board. The
subsidiaries` statements are adjusted to Canadian GAAP for the consolidated
financial statements. In 2006, Canada`s Accounting Standards Board ratified a
strategic plan that will result in Canadian GAAP, as used by public companies,
being evolved and converged with IFRS over a transitional period to be
complete
by 2011. The official changeover date from Canadian GAAP to IFRS is for
interim
and annual financial statements relating to fiscal years beginning on or after
January 1, 2011. As the International Accounting Standards Board currently has
projects underway that should result in new pronouncements and since this
Canadian convergence initiative is very much in its infancy as of the date of
these statements, the Company has not yet assessed the impact of the ultimate
adoption of IFRS on the Company.
9. Internal Control over Financial Reporting
At June 30, 2007, the Company`s last fiscal year-end, management identified
the need to expand its complement of personnel who possessed an appropriate
level of knowledge, experience and training in the application of Canadian
GAAP and in internal control over financial reporting commensurate with the
Company`s financial reporting requirements. Management took the necessary
steps to address this weakness in the quarter ended December 31, 2007 with the
appointment of a new Chief Financial Officer and several additions to its
financial accounting staff both at its head office and at its operating
subsidiaries, particularly at the Crocodile River Mine. Management is
continuing to take appropriate steps to further analyze and improve this area.
The Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") of the
Company are responsible for the design of internal control over financial
reporting 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 Canadian GAAP. Management
has evaluated the design of the Company`s internal control and procedures over
financial reporting as of the end of the period covered by these annual
filings, and believes the design to be sufficient to provide such reasonable
assurance.
The CEO and CFO have also evaluated the effectiveness of the Company`s
disclosure controls and procedures as of the period ended December 31, 200 7
and as a result of the changes described above, have concluded that the
Company`s disclosure controls and procedures provide reasonable assurance that
material information relating to the Company, including its consolidated
subsidiaries, was made known to them and reported as required, particularly
during the period in which the se annual filings were being prepared.
Management of the Company, including the CEO and CFO, do not expect that the
Company`s disclosure controls and procedures will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can
provide reasonable but 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 the associated costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected.
Other than described above, there were no changes in the Company`s internal
control over financial reporting during the period ended December 31, 200 7
that have materially affected, or are reasonably likely to affect, the
Company`s internal control over financial reporting.
10. 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 asses sing 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 regulator y 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.
March 28, 2008
Ian Rozier
Date: 31/03/2008 14:12:43 Supplied by www.sharenet.co.za
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