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EPS - Consolidated financial statements of Eastern Platinum Limited

Release Date: 31/03/2009 15:42
Code(s): EPS
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EPS - Consolidated financial statements of Eastern Platinum Limited 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 Consolidated financial statements of Eastern Platinum Limited December 31, 2008 and 2007 and June 30, 2007 Eastern Platinum Limited December 31, 2008 and 2007 and June 30, 2007 Table of contents Auditors` report............................................................. 3 Consolidated statements of operations ....................................... 4 Consolidated balance sheets ................................................. 5 Consolidated statements of shareholders` equity ............................. 6 Consolidated statements of comprehensive income (loss) ...................... 6 Consolidated statements of cash flows........................................ 7 Notes to the consolidated financial statements ........................... 8-28 Deloitte & Touche LLP 2800 - 1055 Dunsmuir Street 4 B entall 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, 2008 and 2007 and the consolidated statements of operations, shareholders` equity, comprehensive income (loss) and cash flows for the year ended December 31, 2008, 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, 2008 and 2007 and the results of its operations and its cash flows for the year ended December 31, 2008, six months ended December 31, 2007 and year ended June 30, 2007 in accordance with Canadian generally accepted accounting principles. Chartered Accountants March 31, 2009 Eastern Platinum Limited Consolidated statements of operations (Expressed in thousands of U.S. dollars, except per share amounts) December 31, December 31, June 30, 2008 2007 2007 (12 months) (6 months) (12 months) Revenue $ 116,198 $ 65,578 $ 101,205 Cost of operations Production costs 79,961 41,363 69,467 Depletion and depreciation 14,599 9,120 8,123 94,560 50,483 77,590
Mine operating earnings 21,638 15,095 23,615 Expenses General and administrative 19,411 11,305 15,979 Stock-based compensation 4,290 10,251 14,416 23,701 21,556 30,395 Operating loss (2,063) (6,461) (6,780) Other income (expense) Interest income 7,081 4,924 4,908 Interest expense (3,551) (2,010) (5,427) Foreign exchange loss (2,155) (5,604) (1,897) Loss before income taxes (688) (9,151) (9,196) and non-controlling interests Future income tax (expense) 13,623 (1,639) 2,002 recovery (Note 9) Non-controlling interests (Note 10) 3,429 (1,414) (3,078) Net earnings (loss) for the period $ 16,364 $ (12,204) $ (10,272) Earnings (loss) per share Basic $ 0.02 $ (0.02) $ (0.02) Diluted $ 0.02 $ (0.02) $ (0.02) Weighted average number of common share outstanding Basic 677,116,680 668,157,833 538,663,898 Diluted 687,581,138 668,157,833 538,663,898 Eastern Platinum Limited Consolidated balance sheets as at December 31, 2008 and 2007 (Expressed in thousands of U.S. dollars) December 31, December 31, 2008 2007 Assets Current assets Cash and cash equivalents $ 25,806 $ 18,818 Short-term investments 35,257 171,038 Trade receivables 9,556 33,157 Inventories (Note 4) 3,881 6,888 Future income taxes (Note 9) 1,178 - 75,678 229,901 Property, plant and equipment (Note 5) 783,039 813,461 Refining contract (Note 6) 12,493 18,467 Other assets 1,017 1,247 $ 872,227 $ 1,063,076 Liabilities Current liabilities Accounts payable and accrued liabilities $ 36,729 $ 22,967 Future income taxes (Note 9) - 6,416 Current portion capital leases 649 - Current loans (Note 3(b)) 2,972 3,837 40,350 33,220 Asset retirement obligation (Note 7) 2,846 2,889 Capital leases 3,261 9,127 Future income taxes (Note 9) 117,234 143,616 163,691 188,852 Non-controlling interests (Note 10) 12,335 23,402 Commitments (Note 13) Shareholders` equity Share capital (Note 8) 890,049 868,045 Contributed surplus 31,491 27,428 Accumulated other comprehensive income (loss) (173,571) 23,481 Deficit (51,768) (68,132) (225,339) (44,651) 696,201 850,822 $ 872,227 $ 1,063,076
Approved by the Board "David Cohen" "Robert Gay ton" Eastern Platinum Limited Consolidated statements of shareholders` equity (Expressed in thousands of U.S. dollars) Common Shares Contributed Without Par Value Surplus Shares Amount
Balance, June 30, 2006 513,228,985 $ 588,279 $ 6,799 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 (3,318) Stock-based compensation - - 14,416 Share issue costs - - - Net loss for the period - - - Currency translation adjustment - - - Balance, June 30, 2007 667,778,358 $ 865,103 $ 17,897 Warrants exercised 100,000 178 - Stock options exercised 1,153,333 2,764 (720) Stock-based compensation - - 10,251 Net loss for the period - - - Currency translation adjustment - - - Balance, December 31, 2007 669,031,691 868,045 27,428 Warrants exercised 10,824,077 21,153 - Stock options exercised 670,686 851 (227) Stock-based compensation - - 4,290 Net earnings for the period - - - Currency translation adjustment - - - Balance, December 31, 2008 680,526,454 $ 890,049 $ 31,491 Accumulated Other Deficit Total
Comprehensive Shareholders` Income (Loss) Equity Balance, June 30, 2006 $ (52,754) $ (36,376) $ 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) (9,280) Net loss for the period - (10,272) (10,272) Currency translation adjustment 29,730 - 29,730 Balance, June 30, 2007 $ (23,024) $ (55,928) $ 804,048 Warrants exercised - - 178 Stock options exercised - - 2,044 Stock-based compensation - - 10,251 Net loss for the period - (12,204) (12,204) Currency translation adjustment 46,505 - 46,505 Balance, December 31, 2007 23,481 (68,132) $ 850,822 Warrants exercised - - 21,153 Stock options exercised - - 624 Stock-based compensation - - 4,290 Net earnings for the period - 16,364 16,364 Currency translation adjustment (197,052) - (197,052) Balance, December 31, 2008 $ (173,571) $ (51,768) $ 696,201 Consolidated statements of comprehensive income (loss) (Expressed in thousands of U.S. dollars) December 31, December 31, June 30, 2008 2007 2007
(12 months) (6 months) (12 months) Net earnings (loss) for the period $ 16,364 $ (12,204) $ (10,272) Other comprehensive income (loss) - currency translation adjustment (197,052) 46,505 29,730 Comprehensive income (loss) $ (180,688) $ 34,301 $ 19,458 Eastern Platinum Limited Consolidated statements of cash flows (Expressed in thousands of U.S. dollars) December 31, December 31, June 30, 2008 2007 2007
(12 months) (6 months) (12 months) Operating activities Net earnings (loss) for the period $ 16,364 $ (12,204) $ (10,272) Items not involving cash Accretion (Note 7) 278 180 672 Depletion and depreciation 14,599 9,120 8,123 Refining contract amortization 1,353 798 1,195 Stock-based compensation 4,290 10,251 14,416 Interest expense 2,845 - - Foreign exchange loss 5,731 5,604 1,897 Future income tax expense (recovery) (13,623) 1,639 (2,002) Non-controlling interests (3,429) 1,414 3,078 28,408 16,802 17,107 Net changes in non-cash working capital items Trade receivables 10,765 (10,017) (9,461) Inventories 1,391 (2,095) (2,975) Accounts payable and accrued liabilities 12,962 1,347 6,577 53,526 6,037 11,248 Financing activities Common shares issued for cash, net of share issue costs 22,004 2,222 213,914 Repayment of short-term debt (892) - (25,767) Other long-term liabilities (3,411) 301 6,023 17,701 2,523 194,170
Investing activities Acquisitions, net of cash acquired (39,589) - (56,662) Maturity (purchase) of short-term investments 119,318 41,026 (123,600) Property, plant and equipment expenditures (143,373) (36,079) (62,997) (63,644) 4,947 (243,259)
Effect of exchange rate changes on cash and cash equivalents (595) (881) (1,477) Increase in cash and cash equivalents 6,988 12,626 (39,318) Cash and cash equivalents, beginning of period 18,818 6,192 45,510 Cash and cash equivalents, end of period $ 25,806 $ 18,818 $ 6,192 Cash and cash equivalents are comprised of: Cash in bank $ 9,123 $ 18,818 $ 6,077 Short-term money market instruments 16,683 - 115 $ 25,806 $ 18,818 $ 6,192 Supplementary cash flow information Interest paid $ 375 $ 374 $ 598 Income taxes paid $ 139 $ 3 $ - 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 mining, exploration and development of PGM properties located in various provinces in South Africa. Effective July 1, 2007, the Company changed its fiscal year end from June 30 to December 31 to better align with financial reporting year ends that are predominant in the mining industry. 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. VIEs 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). (b) Reporting currency Effective July 1, 2006, the Company changed its reporting currency to the U.S. dollar ("$"). 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 using 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 (loss)". (c) Measurement uncertainty The preparation of financial statements 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, accounts receivables, inventories, property, plant and equipment, asset retirement obligations, stock-based compensation, allocation of purchase price o f acquisitions and income and mining taxes. 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. 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 net realizable value, with replacement cost used as the best available measure of net realizable 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 pro perties 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. Although the Company has taken steps to verify title to the properties on which it is conducting exploration and in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company`s title. Property title may be subject to unregistered prior agreements and non-compliance with regulatory requirements. 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 an 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. The deterioration in the global economic environment during the year ended December 31, 2008 triggered an impairment evaluation of the refining contract. Based on management`s analysis, the refining contract was not impaired at December 31, 2008. (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 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 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) Comprehensive income 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. (m) Financial instruments The Company has implemented the following classification of its financial assets and financial liabilities: - Cash and cash equivalents are classified as held for trading and are measured at fair value with gains and losses recognized in net income. - Short-term investments have been reclassified from held to maturity to available for sale and have been re-measured at fair value with any gains or losses being recorded directly to other comprehensive income. The impact of the reclassification was insignificant. At December 31, 2008, the recorded amount approximates fair value. - Receivables are classified as "Loans and Receivables" and are measured at amortized cost using the effective interest rate method. At December 31, 2008, the recorded amount approximates fair value. - Short-term and long-term financial liabilities and accounts payable are classified as "Other Financial Liabilities" and are measured at amortized cost using the effective interest rate method. At December 31, 2008, the recorded amount approximates fair value. Transaction costs directly attributable to the acquisition or issue of a financial asset or financial liability, other than held for trading financial assets, 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 has not identified any embedded derivatives that are required to be accounted for separately from the host contract. The Company does not have any derivatives that qualify as hedging instruments. (n) 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. (o) 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. (p) Earnings (loss) per share Basic earnings (loss) per share is computed by dividing the net earnings (loss) available to common shareholders by the weighted average number of shares outstanding during the reporting year. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per s hare 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 and that the proceeds from such exercises were used to acquire common stock at the average market price during the reporting periods. (q) 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. (r) Adoption of new accounting standards and accounting pronouncements Effective January 1, 2008, the Company adopted four new accounting standards that were issued by the Canadian Institute of Chartered Accountants. (i) Financial Instrument Disclosures and Presentation CICA Handbook Sections 3862 "Financial Instruments - Disclosures" and Section 3863 "Financial Instruments - Presentation" replace Section 3861 "Financial Instruments - Disclosure and Presentation". The new standards carry forward the presentation requirements for financial instruments and enhance the disclosure requirements by placing increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the entity manages those risks. (ii) Capital Disclosures CICA Handbook Section 1535 requires the Company to disclose (a) its objectives, policies and processes for managing capital; (b) quantitative data about what the entity regards as capital; (c) whether the entity has complied with any capital requirements; and (d) if it has not complied, the consequences of such non- compliance. (r) Adoption of new accounting standards and accounting pronouncements (continued) (iii) Inventories CICA Handbook Section 3031 replaced 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 previous treatment. The adoption of CICA 3031 did not have a significant impact on the Company`s accounting for inventory or associated disclosures as at January 1, 2008 or for the twelve months ended December 31, 2008. (s) International Financial Reporting Standards In February 2008, the CICA announced that Canadian generally accepted accounting principles ("GAAP") for publicly accountable enterprises will be replaced by International Financial Reporting Standards ("IFRS") for fiscal years beginning on or after January 1, 2011. In Staff Notice 52-321 - Early Adoption of International Financial Reporting Standards, Use of US GAAP and Reference to IFRS-IASB, the Canadian Securities Administrators (CSA) indicated that the CSA would be prepared to provide exemptive relief to permit a Canadian reporting issuer to prepare its financial statements in accordance with IFRS for financial periods beginning before January 1, 2011. The Company applied for exemptive relief in 2008 and was granted exemptive relief in February, 2009. The Company intends to adopt IFRS for Canadian reporting purposes with an adoption date of January 1, 2009 and a transition date of January 1, 2008. 3. Acquisitions (a) Acquisitions during the year ended December 31, 2008 On December 8, 2008 the Company acquired a further 2.47% of Barplats Investments Limited ("Barplats") to increase its direct and indirect interest to 87.49%. Of the 2.47% interest, the Company acquired 0.99% directly from Barplats through the acquisition of 12,155,814 shares issued from Barplats` treasury in exchange for net cash of $6,422. This increased the Company`s direct ownership in Barplats from 74% to 74.99%. The Company acquired the other 1.48% indirectly from Gubevu through the acquisition of 1,519 shares in Gubevu in exchange for net cash of $33,167. This increased the Company`s direct ownership in Gubevu from 42.39% to 49.99%, and the Company`s indirect ownership in Barplats from 11.02% to 12.50%. Following these acquisitions, the Company owns directly and indirectly 87.49% of Barplats, a PGM producing company in South Africa. Purchase price Acquisition of 2.47% interest in Barplats Cash $ 39,589 $ 39,589 Net assets acquired Property, plant and equipment 55,759 Future income tax liabilities (16,170) $ 39,589 (b) Acquisitions during the year ended June 30, 2007 - Barplats 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 ($1,760) 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 $8.9 million and is a demand note with interest accruing at the floating South African prime rate (December 31, 2007 - 14.5.%). 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 ($5,230) and issued a promissory note for three additional payments: - R27.7 million ($4,024) paid on May 4, 2008; - R27.7 million ($2,972) due May 4, 2009; and - R30.9 million ($4,489) 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, 2009 ($2,972, December 31, 2007 - $4,024) has been classified as current loans in these consolidated financial statements. At December 31, 2008 the R30.9 million was not due as the corporate reorganization events had not occurred. (b) Acquisitions during the year ended June 30, 2007 - Barplats (continued) Purchase price Acquisition of 5% interest in Barplats 17,272,460 Eastern Platinum common shares $ 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 $ 86,711 Net assets acquired Cash and cash equivalents $ 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) $ 86,711
(c) Acquisitions during the year ended June 30, 2007 - Spitzkop PGM Project 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 $6.5 million and 12 million common shares of the Company. 4. Inventories December 31, December 31, 2008 2007 Consumables $ 3,509 $ 5,446 Ore and concentrate 372 1,442 $ 3,881 $ 6,888 5. Property, plant and equipment December 31, 2008
Accumulated depreciation/ Net book Cost depletion value Mining plant and equipment $ 317,625 $ 91,837 $ 225,788 Mineral properties Crocodile River Mine (a) 125,142 14,786 110,356 Kennedy`s Vale Project (b) 333,462 11,607 321,855 Spitzkop PGM Project (c) 101,711 - 101,711 Mareesburg JV (c) 23,292 - 23,292 Other property, plant and equipment 90 53 37 $ 901,322 $ 118,283 $ 783,039
December 31, 2007 Accumulated depreciation/ Net book Cost depletion value
Mining plant and equipment $ 270,171 $ 114,696 $ 155,475 Mineral properties Crocodile River Mine (a) 149,618 11,932 137,686 Kennedy`s Vale Project (b) 386,353 15,666 370,687 Spitzkop PGM Project (c) 121,443 - 121,443 Mareesburg JV (c) 28,075 - 28,075 Other property, plant and equipment 119 24 95 $ 955,779 $ 142,318 $ 813,461 (a) Crocodile River Mine ("CRM") The Company holds directly and indirectly 87.5% 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, while development of the Crocette and Kareespriut sections was temporarily suspended in the fourth quarter of 2008 due to the significant decrease in PGM prices. (b) Kennedy`s Vale Project ("KV") The Company holds directly and indirectly 87.5% 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 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. The development of these projects was temporarily suspended in the fourth quarter of 2008 due to the significant decrease in PGM prices. (d) Supplementary information Accumulated depreciation/ Net book Cost depletion value Balance, June 30, 2007 $ 887,071 $ 129,778 $757,293 Mining plant and equipment 34,285 8,542 Crocodile River Mine 145 404 Kennedy`s Vale Project (305) - Spitzkop PGM Project 1,029 - Mareesburg JV 2,533 - Foreign exchange movement 31,021 3,594 Balance, December 31, 2007 $ 955,779 $ 142,318 $813,461 Mining plant and equipment 116,462 5,195 Crocodile River Mine 3,769 542 Kennedy`s Vale Project 226 - Spitzkop PGM Project 4,118 - Mareesburg JV 391 - Purchase price allocation 56,302 7,099 Foreign exchange movement (235,725) (36,871) Balance, December 31, 2008 $ 901,322 $ 118,283 $ 783,039 6. 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 intangible assets acquired to the off-take contract governing the sales of Barplats` PGM concentrate production. The initial value of the contract was $17,939. During the year ended June 30, 2007, the Company acquired an additional 5% interest in Barplats resulting in an additional value of the contract of $4,802 for a total aggregate value of $22,741. During the year ended December 31, 2008, the Company acquired an additional 2.47% interest in Barplats which did not affect the aggregate value of the contract. The value of the contract is amortized over the term of the contract. The amortization expense for the twelve months ended December 31, 2008 was $1,353 and the accumulated amortization at December 31, 2008 was $5,627. Balance, June 30, 2007 $ 18,828 Depreciation expense (798) Foreign exchange movement 437 Balance, December 31, 2007 $ 18,467 Depreciation expense (1,353) Foreign exchange movement (4,621) Balance, December 31, 2008 $ 12,493 7. 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, 2008 is approximately ZAR26.4 million ($2,846). The undiscounted value of this liability is approximately ZAR104 million ($11,197). An accretion expense component of approximately $278 (six months ended December 31, 2007 - $180) has been charged to operations in the year ended December 31, 2008 to reflect an increase in the carrying amount of the asset retirement obligation which has been determined using a discount rate of 13%. Changes to the asset retirement obligation during the year ended December 31, 2008 are as follows: Balance, June 30, 2007 $ 2,701 Revision in estimates (67) Foreign exchange movement 75 Accretion 180 Balance, December 31, 2007 $ 2,889 Revision in estimates 428 Foreign exchange movement (749) Accretion 278 Balance, December 31, 2008 $ 2,846 8. 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 (the "2008 Plan"), approved by the Company`s shareholders at its annual general meeting held on June 4, 2008, 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 2008 Plan, 75 million common shares are reserved for issuance upon the exercise of options. All outstanding options at June 4, 2008 granted under the Company`s previous plan (the "2005 Plan") will continue to exist under the 2008 Plan provided that the fundamental terms governing such options will be deemed to be those under the 2005 Plan. Upon adoption of the 2008 Plan, options to purchase a total of 27,525,000 common shares were available for grant under the 2008 Plan, representing 75,000,000 less the 47,475,000 outstanding options at June 4, 2008 granted under the 2005 Plan. Under the 2008 Plan, each option granted shall be for a term not exceeding five years from the date of being granted and the vesting period is determined based on the discretion of the Board of Directors. 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 shares 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 twelve months ended December 31, 2008 were as follows: December 31, December 31, 2008 2007 Weighted Weighted
average average Number of exercise Number of exercise options price options price Cdn$ Cdn$
Balance outstanding, beginning of period 46,360,000 1.94 32,450,000 1.76 Options granted 19,856,000 0.55 15,180,000 2.31 Options exercised (845,000) 1.26 (1,153,333) 1.79 Options forfeited (625,000) 1.76 (116,667) 1.70 Balance outstanding, end of period 64,746,000 1.52 46,360,000 1.94 The following table summarizes information concerning outstanding and exercisable options at December 31, 2008: Remaining Options Options Exercise Contractual outstanding exercisable price Life (Years) Expiry date Cdn$ 187,500 187,500 1.00 0.65 August 26, 2009 7,475,000 7,475,000 1.70 2.39 May 24, 2011 250,000 250,000 1.70 2.91 November 27, 2011 22,187,500 22,187,500 1.82 3.18 March 7, 2012 18,356,000 16,302,667 0.32 4.97 December 18, 2013 14,790,000 13,820,000 2.31 8.77 October 5, 2017 90,000 60,000 2.50 8.95 December 12, 2017 1,000,000 600,000 3.38 9.15 February 20, 2018 410,000 170,000 3.38 9.24 March 27, 2018 64,746,000 61,052,667 5.00 (c) Share purchase warrants The changes in warrants during the twelve months ended December 31, 2008 were as follows: December 31, 2008 December 31, 2007
Weighted Weighted average average Number of exercise Number of exercise warrants price warrants price
Cdn$ Cdn$ Balance outstanding, beginning of period 71,248,050 1.83 71,348,050 1.83 Warrants exercised (10,824,077) 1.97 - - Warrants expired (1,937,977) 2.00 (100,000) 1.80 Balance outstanding, end of period 58,485,996 1.80 71,248,050 1.83 At December 31, 2008, the Company had 58,485,996 warrants outstanding, each warrant exercisable at Cdn$1.80 per common share and expiring on March 28, 2009. These warrants expired unexercised on March 28, 2009. (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, December 31, June 30,
2008 2007 2007 (12 months) (6 months) (12 months) Risk-free interest rate 1.54% 4.19% 3.90% Expected life 3 years 3 years 3 years Annualized volatility 74% 43% 52% Dividend rate 0% 0% 0% Grant date fair value Cdn$0.23 Cdn$0.78 Cdn$0.61 Stock-based compensation expense for options vested during the year ended December 31, 2008 is $4,290 ($10,251 - six months ended December 31, 2007; $14,416 - year ended June 30, 2007). 9. 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, December 31, June 30, 2008 2007 2007
(12 months) (6 months) (12 months) Statutory tax rate 31.00% 34.12% 34.12% Expected tax expense (recovery) on net income (loss) before income tax $ (213) $ (3,122) $ (3,138) Difference in tax rates between foreign jurisdictions and Canada (6,754) (2,617) (356) Items not deductible for income tax purposes 2,060 6,987 3,084 Effective change in tax rates (3,433) - - Effect of tax rate change on valuation allowance (532) - - Benefit of tax losses (recognized) not recognized (32) 601 (1,592) Change in tax estimates (4,719) (210) - Income tax expense (recovery of future income taxes) (13,623) 1,639 (2,002) The approximate tax effect of each item that gives rise to the Company`s future income tax assets are as follows: December 31, December 31, 2008 2007 Future income tax assets Non-capital loss carry forwards $ 4,327 $ 5,304 Share issue costs 1,982 2,919 Accumulated cost base difference on assets and other 1,094 2,852 Deferred receipts 1,178 - Net future income tax assets $ 8,581 $ 11,075 Less valuation allowance (6,436) (8,334) Total future income tax assets $ 2,145 $ 2,741 Future income tax liabilities Accumulated cost base difference on assets $ 118,201 $ 146,357 Deferred receipts - 6,416 Total future income tax liabilities $ 118,201 $ 152,773 Net future income tax asset - short-term $ 1,178 $ - Net future income tax liability - short-term $ - $ 6,416 Net future income tax liability - long-term $ 117,234 $ 143,616 At December 31, 2008, the Company has non -capital losses of approximately Cdn$20,270 available to apply against future Canadian income for tax purposes. The non-capital losses will expire as follows (in thousands of Canadian dollars): 2011 1,115 2012 272
2013 1,595 2014 916 2025 3,101 2026 6,106
2027 2,551 2028 4,614 $ 20,270 The Company has capital losses of approximately Cdn$1.6 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, 2008, no provisions have been made in the financial statements for any estimated tax liability. 10. Non-controlling interests During the year ended December 31, 2008, non-controlling interest was decreased following the acquisition of an additional 7.6% interest in Gubevu and the acquisition of an additional 0.99% direct interest in Barplats (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, 2007 $ 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 $ 23,402 Non-controlling interests` share of income in Barplats (430) Non-controlling interests` share of interest on advances to Gubevu (2,999) Foreign exchange movement (7,638) Balance, December 31, 2008 $ 12,335 11. Related party transactions The Company incurred the following general and administrative 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, December 31, June 30, 2008 2007 2007 (12 months) (6 months) (12 months) Consulting fees (a) $ 90 $ 21 $ - General and ad ministrative expenses 254 42 95 Management fees (b) 1,205 3,344 978 Rent (c) - - 336 $ 1,549 $ 3,407 $ 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 $2,252 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 Cdn$312 ($276) 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, 2008 included $35 (Dec 31, 2007 - $2,550) which were due to private companies controlled by officers of the Company. 12. Segmented information (a) Operating segment - The Company`s operations are primarily directed towards the acquisition, exploration and production of platinum group metals in South Africa. (b) Geographic segments - The Company`s assets, revenues and expenses by geographic areas for the years ended December 31, 2008 and June 30, 2007, and the six months ended December 31, 2007 are as follows: December 31, 2008 (12 months) South Africa Canada Total
Property, plant and equipment $ 783,002 $ 37 $ 783,039 Refining contract 12,493 - 12,493 Other assets 1,017 - 1,017 Total assets 815,371 56,856 872,227 Property, plant and equipment expenditures $ 143,373 $ - $ 143,373 Revenues $ 116,198 $ - $ 116,198 Production costs (79,961) - (79,961) Depletion and depreciation (14,546) (53) (14,599) Expenses (13,004) (6,407) (19,411) Stock based compensation (1,646) (2,644) (4,290) Interest income 1,958 5,123 7,081 Interest expense (3,551) - (3,551) Foreign exchange gain (loss) (2,328) 173 (2,155) Income (loss) before income taxes and non-controlling interests $ 3,120 $ (3,808) $ (688) December 31, 2007 (6 months) South Africa Canada Total Property, plant and equipment $ 813,378 $ 83 $ 813,461 Refining contract 18,467 - 18,467 Other assets 1,247 - 1,247 Total assets 871,790 191,286 1,063,076 Property, plant and equipment expenditures $ 36,079 $ - $ 36,079 Revenues $ 65,578 $ - $ 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 $ 2,799 $ (11,950) $ (9,151) June 30, 2007 (12 months) South Africa Canada Total
Property, plant and equipment $ 757,184 $ 109 $ 757,293 Refining contract 18,828 - 18,828 Other assets 1,007 - 1,007 Total assets 810,596 198,084 1,008,680 Property, plant and equipment expenditures $ 62,894 $ 103 $ 62,997 Revenues $ 101,205 $ - $ 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) Income (loss) before income taxes and non-controlling interests $ 6,964 $ (16,160) $ (9,196) For the periods ended December 31, 2008 and 2007, and June 30, 2007, 100% of the Company`s PGM production was sold to one customer (Note 15(c)). 13. Commitments The Company has committed to capital expenditures on projects of approximately 259 million Rand ($27,925) as at December 31, 2008. 14. Management of capital risk The capital structure of the Company consists of equity attributable to common shareholders, comprising of issued capital, contributed surplus, deficit and accumulated other comprehensive income (loss). The Company`s objectives when managing capital are to: (i) preserve capital, (ii) obtain the best available net return, and (iii) maintain liquidity. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets or adjust the amount of cash and cash equivalents and investments. The Company`s policy is to invest its excess cash in highly liquid, fully guaranteed, bank - sponsored instruments. The Company staggers the maturity dates of its investments over different time periods and dates to minimize exposure to interest rate changes. This strategy is unchanged from 2007. The Company is not subject to externally imposed capital requirements. 15. Management of financial risk The Company`s financial instruments are exposed to certain financial risks, including price risk, currency risk, credit risk, liquidity risk, and interest risk. The Company`s exposure to these risks and its methods of managing the risks remain consistent. (a) Price risk The Company is exposed to price risk with respect to the revenues and costs of production. Revenues are affected by fluctuations in both the prices of platinum group metals and exchange rates. Costs of production include electricity, labour, and diesel amongst others. The Company closely monitors these prices to determine the appropriate course of action to be taken by the Company. The Company has not entered into any derivative financial instruments to manage exposures to price fluctuations. A sensitivity analysis has not been completed at December 31, 2008 as it would not be representative of the actual risk. The future costs of production are unknown and are expected to change frequently. (b) Currency risk The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Company receives revenue in South African Rand, incurs expenses in Canadian dollars and South African Rand and its reporting currency is the US dollar. A significant change in the currency exchange rates between the Canadian dollar and South African Rand relative to the US dollar could have an effect on the Company`s results of operations, financial position or cash flows. The Company has not entered into any derivative financial instruments to manage exposures to currency fluctuations. At December 31, 2008, the Company is exposed to currency risk through the following financial instruments denominated in South African Rand and Canadian dollars: December 31, 2008 December 31, 2007 (000`s (000`s (000`s (000`s Cdn$)
ZAR) Cdn$) ZAR) Cash and cash equivalents $ 25,589 44,566 $ 18,176 3,326 Short-term investments 42,944 - 169,546 - Trade receivables 552 84,572 1,880 215,195 Short-term liabilities 3,463 7,224 3,804 - Long-term liabilities - 30,297 3,294 39,958 Accounts payable and accruals 455 337,773 3,646 132,797 The sensitivity of the Company`s net earnings and other comprehensive income due to changes in the exchange rate between the South African Rand and the United States dollar is summarized in the tables below. The increase (decrease) in other comprehensive income is due to the effect of the exchange rate on both financial instruments and the translation of the Company`s financial statements. Year ended Dec. 31, 2008 10% 10%
increase in decrease in ZAR to USD ZAR to USD FX Rate FX Rate Increase (decrease) in net earnings 6,684 (6,684) Increase (decrease) in other comprehensive income (59,794) 59,794 Comprehensive income (loss) (53,110) 53,110 (c) Credit risk Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations, and arises principally from the Company`s trade receivables. The carrying value of the financial assets represents the maximum credit exposure. The Company currently sells all of its concentrate production to one customer under an off-take contract. At December 31, 2008 the Company had receivable balances associated with this one customer of $9,956 (2007 - $33,157). 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. 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, 2008. (d) Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has a planning and budgeting process in place to help determine the funds required to support the Company`s normal operating requirements on an ongoing basis and its expansionary plans. The Company ensures that there are sufficient funds to meet its short-term business requirements, taking into account its anticipated cash flows from operations and its holdings of cash and cash equivalents. In the normal course of business the Company enters into contracts that give rise to commitments for future minimum payments. The following table summarizes the Company`s significant commitments and corresponding maturities. 4-5 >5 Total <1 year 1-3 years years years
Accounts payable $ 36,729 $36,729 $ - $ - $ - Capital leases 3,910 649 3,261 - - Loans (Note 3(b)) 2,972 2,972 - - - Purchase commitments 4,751 4,751 - - - Capital expenditures 23,174 22,725 449 - - Total $ 71,536 $ 67,826 $ 3,710 $- $- (e) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its short-term investments. The risk that the Company will realize a loss as a result of a decline in the fair value of short-term investments is limited because these investments, although available for sale, are generally held to maturity. The Company monitors its exposure to interest rates and has not entered into any derivative financial instruments to manage this risk. 16. Fair value estimation of financial instruments The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. 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 has assessed these financial instruments in light of the current market conditions and has not identified any impairment. 17. Subsequent event From January 1, 2009 to March 31, 2009, the Company granted 80,000 stock options with an exercise price of Cdn$0.32 per share expiring on February 11, 2014. Date: 31/03/2009 15:42:26 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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