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EPS - Eastern Platinum Limited - Eastern Platinum Limited management`s

Release Date: 11/08/2010 15:12
Code(s): EPS
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EPS - Eastern Platinum Limited - Eastern Platinum Limited management`s discussion and analysis of financial conditions and results of operations for the three and six months ended June 30, 2010 EASTERN PLATINUM LIMITED (Incorporated in Canada) (Canadian Registration number BC0722783) (South African Registration number 2007/006318/10) Share Code TSX: ELR ISIN: CA 2768551038 Share Code AIM: ELR ISIN: CA 2768551038 Share Code JSE: EPS ISIN: CA 2768551038 EASTERN PLATINUM LIMITED MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 The following Management`s Discussion and Analysis ("MD&A") is intended to assist the reader to assess material changes in financial condition and results of operations of Eastern Platinum Limited ("Eastplats" or the "Company") as at June 30, 2010 and for the three and six months then ended in comparison to the same period in 2009. In February 2009, the applicable provincial securities commissions granted the Company exemptive relief to adopt International Financial Reporting Standards ("IFRS") with an adoption date of January 1, 2009 and a transition date of January 1, 2008. This MD&A should be read in conjunction with the condensed consolidated interim financial statements for the three and six months ended June 30, 2010 and supporting notes. These condensed consolidated interim financial statements have been prepared using accounting policies consistent with IFRS and in accordance with International Accounting Standard 34 ("IAS 34") - Interim Financial Reporting. In this MD&A, the Company also reports certain non-IFRS measures such as EBITDA and cash costs per ounce which are explained in Section 3.2 of this MD&A. All monetary amounts are in U.S. dollars unless otherwise specified. The effective date of this MD&A is August 9, 2010. Additional information relating to the Company is available on SEDAR at www.sedar.com. Contents of the MD&A 1. Overview 2. Summary of results 2.1. Summary of results for the quarter ended June 30, 2010 2.2. Summary of results for the six months ended June 30, 2010 3. Results of operations for the three and six months ended June 30, 2010 3.1. Mining operations at the Crocodile River Mine ("CRM") 3.2. CRM non-IFRS measures 3.3. Development projects 3.3.1. CRM 3.3.2. Spitzkop and Kennedy`s Vale 3.3.3. Mareesburg 3.4. Corporate and other expenses 4. Liquidity and Capital Resources 4.1. Outlook 4.2. Impairment 4.3. Share capital 4.4. Contractual obligations and commitments 5. Related party transactions 6. Adoption of accounting standards and accounting pronouncements under IFRS 7. Internal control over financial reporting 8. Cautionary statement on forward-looking information 1. Overview Eastplats is a platinum group metals ("PGM") producer engaged in the mining and development of PGM deposits with properties located in South Africa. All of the Company`s properties are situated on the western and eastern limbs of the Bushveld Complex ("BC"), the geological environment that supports over 75% of the world`s PGM mine production. The Company`s primary operating asset is an 87.5% direct and indirect interest in Barplats Investments Limited ("Barplats"), whose main assets are the PGM producing Crocodile River Mine ("CRM") located on the western limb of the BC and the non-producing Kennedy`s Vale Project located on the Eastern Limb of the BC. The Company also has a 75.5% direct and indirect interest in Mareesburg Platinum Project ("Mareesburg") and a 93.4% direct and indirect interest in Spitzkop PGM Project ("Spitzkop"), both located on the Eastern Limb of the BC. 2. Summary of results 2.1 Summary of results for the quarter ended June 30, 2010 ("Q2 2010") * Eastplats recorded a net profit attributable to equity shareholders of the Company of $3,448,000 ($0.01 basic earnings per share) compared to $317,000 ($0.00 per share) in the second quarter of 2009 ("Q2 2009"). * EBITDA was $9,757,000, an increase of 49% compared to $6,529,000 in Q2 2009. * CRM sold 30,820 PGM ounces, a decrease of 8% compared to 33,383 PGM ounces in Q2 2009. * The U.S. average delivered basket price per PGM ounce was $1,015, an increase of 49% compared to $679 in Q2 2009. * The Rand average delivered basket price per PGM ounce was R7,643, an increase of 33% compared to R5,730 in Q2 2009. * Rand operating cash costs net of by-product credits were R4,866 per ounce, an increase of 17% compared to R4,169 per ounce in Q2 2009. Rand operating cash costs were R6,639 per ounce, an increase of 42% compared to R4,673 per ounce in Q2 2009. * U.S. dollar operating cash costs net of by-product credits were $646 per ounce, a 31% increase from $494 per ounce achieved in Q2 2009. Operating cash costs were $882 per ounce, an increase of 59% compared to the $554 per ounce in Q2 2009. * Head grade decreased to 4.1 grams per tonne in Q2 2010 from 4.2 grams per tonne in Q2 2009. * Average concentrator recovery remained consistent at 80% when compared to Q2 2009. * Development meters decreased by 26% to 3,202 meters and on-reef development decreased by 45% to 1,573 meters compared to Q2 2009. * Stoping units remained consistent at 50,573 square meters compared to 51,342 square metres in Q2 2009. * Run-of-mine ore hoisted decreased by 13% to 297,186 tonnes in Q2 2010 compared to 342,368 tonnes in Q2 2009. * Run-of-mine ore processed decreased by 5% to 290,028 tonnes in Q2 2010 compared to 304,354 tonnes in Q2 2009. * The Company`s Lost Time Injury Frequency Rate (LTIFR) was 2.78 in Q2 2010 compared to 1.94 in Q2 2009. * At June 30, 2010, the Company had a cash position (including cash, cash equivalents and short term investments) of $19,565,000 (December 31, 2009 - $21,658,000). 2.2 Summary of results for the six months ended June 30, 2010 ("6M 2010") * Eastplats recorded a net profit attributable to equity shareholders of the Company of $4,272,000 ($0.01 per share) compared to $3,481,000 ($0.01 per share) in the six months ended June 30, 2009 ("6M 2009"). * EBITDA was $18,753,000, an increase of 38% compared to $13,547,000 in 6M 2009. * CRM sold 61,351 PGM ounces, a decrease of 8% compared to 66,352 PGM ounces in 6M 2009. * The U.S. average delivered basket price per PGM ounce was $987, an increase of 55% compared to $635 in 6M 2009. * The Rand average delivered basket price per PGM ounce was R7,424, an increase of 28% compared to R5,797 in 6M 2009. * Rand operating cash costs net of by-product credits were R5,100 per ounce, an increase of 27% compared to R4,014 per ounce in 6M 2009. Rand operating cash costs were R6,478 per ounce, an increase of 30% compared to R4,997 per ounce in 6M 2009. * U.S. dollar operating cash costs net of by-product credits were $678 per ounce, a 54% increase from $441 per ounce achieved in 6M 2009. Operating cash costs were $861 per ounce, an increase of 58% compared to the $545 per ounce in 6M 2009. * Head grade remained consistent at 4.1 grams per tonne during 6M 2009 and 2010. * Average concentrator recovery decreased to 79% from 80% when compared to 6M 2009. * Development meters decreased by 32% to 6,014 meters and on-reef development decreased by 37% to 3,504 meters compared to 6M 2009. * Stoping units increased by 6% from 96,440 square meters to 102,333 square meters in 6M 2009. * Run-of-mine ore hoisted decreased by 9% to 601,495 tonnes in 6M 2010 compared to 663,533 tonnes in 6M 2009. * Run-of-mine ore processed decreased by 7% to 580,882 tonnes in 6M 2010 compared to 622,748 tonnes in 6M 2009. The table below sets forth selected results of operations for the Company`s eight most recently completed quarters (in thousands of U.S. dollars, except per share amounts) in accordance with IFRS. Table 1 Selected quarterly data 2010 June 30 March 31 Revenues $ 36,612 $ 34,699 Cost of operations (32,383) (31,018) Mine operating earnings (loss) 4,229 3,681 Expenses (G&A and share-based payment) (2,050) (4,935) Impairment of property, plant and equipment - - Operating profit (loss) 2,179 (1,254) Net profit (loss) attributable to equity shareholders of the Company $ 3,448 $ 824 Earnings (loss) per share - basic $ 0.01 $ 0.00 Earnings (loss) per share - diluted $ 0.00 $ 0.00 Average foreign exchange rates South African Rand per US dollar 7.53 7.51 US dollar per Canadian dollar 0.9727 0.9608 Period end foreign exchange rates South African Rand per US dollar 7.66 7.33 US dollar per Canadian dollar 0.9393 0.9844 Selected quarterly data 2009 Dec 31 Sept 30 Revenues $ 34,259 $ 27,365 $ Cost of operations (29,294) (26,702) Mine operating earnings (loss) 4,965 663 Expenses (G&A and share-based payment) (3,523) (2,445) Impairment of property, plant and equipment - - Operating profit (loss) 1,442 (1,782) Net profit (loss) attributable to equity shareholders of the Company $ 330 $ 1,839 Earnings (loss) per share - basic $ 0.00 $ 0.00 Earnings (loss) per share - diluted $ 0.00 $ 0.00 Average foreign exchange rates South African Rand per US dollar 7.50 7.80 US dollar per Canadian dollar 0.9459 0.9114 Period end foreign exchange rates South African Rand per US dollar 7.41 7.53 US dollar per Canadian dollar 0.9515 0.9340 June 30 March 31
Revenues 24,838 $ 24,903 Cost of operations (22,595) (21,402) Mine operating earnings (loss) 2,243 3,501 Expenses (G&A and share-based payment) (3,374) (1,768) Impairment of property, plant and equipment - - Operating profit (loss) (1,131) 1,733 Net profit (loss) attributable to equity shareholders of the Company $ 317 $ 3,164 Earnings (loss) per share - basic $ 0.00 $ 0.00 Earnings (loss) per share - diluted $ 0.00 $ 0.00 Average foreign exchange rates South African Rand per US dollar 8.44 9.94 US dollar per Canadian dollar 0.8578 0.8038 Period end foreign exchange rates South African Rand per US dollar 7.75 9.54 US dollar per Canadian dollar 0.8598 0.7928 Selected quarterly data 2008 Dec 31 Sept 30 Revenues $ 345 $ 9,224 Cost of operations (19,569) (25,372) Mine operating earnings (loss) (19,224) (16,148) Expenses (G&A and share-based payment) (6,599) (5,996) Impairment of property, plant and equipment (297,285) - Operating profit (loss) (323,108) (22,144) Net profit (loss) attributable to equity shareholders of the Company $ (230,176) $ (10,829) Earnings (loss) per share - basic $ (0.34) $ (0.02) Earnings (loss) per share - diluted $ (0.34) $ (0.02) Average foreign exchange rates South African Rand per US dollar 9.92 7.78 US dollar per Canadian dollar 0.8252 0.9603 Period end foreign exchange rates South African Rand per US dollar 9.29 8.35 US dollar per Canadian dollar 0.8210 0.9397 3. Results of Operations for the three and six months ended June 30, 2010 The following table sets forth selected consolidated financial information for the three and six months ended June 30, 2010 and 2009: Table 2 Condensed consolidated interim income statements (Expressed in thousands of U.S. dollars, except per share amounts) Condensed consolidated interim income statements (Expressed in thousands of U.S. dollars, except per share amounts) Three months ended
June 30, 2010 2009 Revenue $ 36,612 $ 24,838 Cost of operations Production costs 26,855 18,309 Depletion and depreciation 5,528 4,286 Mine operating earnings 4,229 2,243 Expenses General and administrative 2,037 3,171 Share-based payments 13 203 Operating profit (loss) 2,179 (1,131) Other income (expense) Interest income 421 495 Finance costs (593) (375) Foreign exchange (loss) gain (36) (1,372) Profit (loss) before income taxes 1,971 (2,383) Deferred income tax recovery 548 1,609 Net profit (loss) for the period $ 2,519 $ (774) Attributable to Non-controlling interest $ (929) $ (1,091) Equity shareholders of the Company 3,448 317 Net profit (loss) for the period $ 2,519 $ (774) Earnings per share Basic $ 0.01 $ 0.00 Diluted $ 0.00 $ 0.00 Weighted average number of common share outstanding Basic 682,792 680,538 Diluted 693,988 687,181 Six months ended June 30, 2010 2009
Revenue $ 71,311 $ 49,741 Cost of operations Production costs 52,558 36,194 Depletion and depreciation 10,843 7,803 Mine operating earnings 7,910 5,744 Expenses General and administrative 5,233 4,807 Share-based payments 1,752 335 Operating profit (loss) 925 602 Other income (expense) Interest income 793 989 Finance costs (963) (827) Foreign exchange (loss) gain 232 (1,447) Profit (loss) before income taxes 987 (683) Deferred income tax recovery 1,096 2,289 Net profit (loss) for the period $ 2,083 $ 1,606 Attributable to Non-controlling interest $ (2,189) $ (1,875) Equity shareholders of the Company 4,272 3,481 Net profit (loss) for the period $ 2,083 $ 1,606 Earnings per share Basic $ 0.01 $ 0.01 Diluted $ 0.01 $ 0.01 Weighted average number of common share outstanding Basic 682,000 680,532 Diluted 693,909 685,597 Condensed consolidated statements of June 30, December 31, financial position 2010 2009 Total assets $ 687,301 $ 706,850 Total long-term liabilities $ 50,540 $ 53,493 3.1 Mining operations at Crocodile River Mine ("CRM") The following is a summary of CRM`s operations for the eight most recently completed quarters: Table 3 Crocodile River Mine operations 2010 June 30 March 31 Key financial statistics (dollar amounts stated in U.S. dollars) Sales - PGM ounces 30,820 30,531 Average delivered price per ounce (2) $1,015 $959 Average basket price $1,200 $1,130 Rand average delivered price per ounce R 7,643 R 7,202 Rand average basket price R 9,036 R 8,486 Cash costs per ounce of PGM (1) $882 $841 Cash costs per ounce of PGM, net of chrome by-product credits (1) $646 $711 Rand cash costs per ounce of PGM (1) R 6,639 R 6,315 Rand cash costs per ounce of PGM, net of chrome by-product credits (1) R 4,866 R 5,336 Key production statistics Total tonnes processed 499,640 423,128 Run-of-mine ("ROM") rock tonnes processed 290,028 290,854 Tailings tonnes processed 209,612 132,274 Development meters 3,202 2,812 On-reef development meters 1,573 1,931 Stoping units (square meters) 50,573 51,760 Concentrator recovery from ROM ore 80% 78% Chrome sold (tonnes) 76,677 75,846 Metal in concentrate sold (ounces) Platinum (Pt) 15,433 15,405 Palladium (Pd) 6,769 6,562 Rhodium (Rh) 2,661 2,607 Gold (Au) 108 105 Iridium (Ir) 1,077 1,106 Ruthenium (Ru) 4,772 4,746 Total PGM ounces 30,820 30,531 Three months ended 2009 December 31 September 30 Key financial statistics (dollar amounts stated in U.S. dollars) Sales - PGM ounces 34,000 29,986 Average delivered price per ounce (2) $860 $765 Average basket price $1,008 $878 Rand average delivered price per ounce R 6,450 R 5,967 Rand average basket price R 7,560 R 6,848 Cash costs per ounce of PGM (1) $706 $758 Cash costs per ounce of PGM, net of chrome by-product credits (1) $621 $583 Rand cash costs per ounce of PGM (1) R 5,296 R 5,915 Rand cash costs per ounce of PGM, net of chrome by-product credits (1) R 4,661 R 4,548 Key production statistics Total tonnes processed 466,414 471,743 Run-of-mine ("ROM") rock tonnes processed 321,983 280,777 Tailings tonnes processed 144,431 190,966 Development meters 3,254 2,882 On-reef development meters 2,135 1,562 Stoping units (square meters) 55,153 36,263 Concentrator recovery from ROM ore 79% 78% Chrome sold (tonnes) 85,347 76,900 Metal in concentrate sold (ounces) Platinum (Pt) 17,012 15,080 Palladium (Pd) 7,444 6,613 Rhodium (Rh) 2,923 2,499 Gold (Au) 121 115 Iridium (Ir) 1,240 1,095 Ruthenium (Ru) 5,260 4,584 Total PGM ounces 34,000 29,986 June 30 March 31 Key financial statistics (dollar amounts stated in U.S. dollars) Sales - PGM ounces 33,383 32,969 Average delivered price per ounce (2) $679 $590 Average basket price $779 $676 Rand average delivered price per ounce R 5,730 R 5,865 Rand average basket price R 6,574 R 6,720 Cash costs per ounce of PGM (1) $554 $536 Cash costs per ounce of PGM, net of chrome by-product credits (1) $494 $388 Rand cash costs per ounce of PGM (1) R 4,673 R 5,326 Rand cash costs per ounce of PGM, net of chrome by-product credits (1) R 4,169 R 3,857 Key production statistics Total tonnes processed 440,288 318,394 Run-of-mine ("ROM") rock tonnes processed 304,354 318,394 Tailings tonnes processed 135,934 - Development meters 4,326 4,573 On-reef development meters 2,860 2,745 Stoping units (square meters) 51,342 45,098 Concentrator recovery from ROM ore 80% 80% Chrome sold (tonnes) 70,850 84,207 Metal in concentrate sold (ounces) Platinum (Pt) 16,721 16,499 Palladium (Pd) 7,406 7,399 Rhodium (Rh) 2,868 2,812 Gold (Au) 141 135 Iridium (Ir) 1,179 1,144 Ruthenium (Ru) 5,068 4,980 Total PGM ounces 33,383 32,969 2008 December 31 September 30 Key financial statistics (dollar amounts stated in U.S. dollars) Sales - PGM ounces 29,015 30,758 Average delivered price per ounce (2) $550 $1,193 Average basket price $655 $1,438 Rand average delivered price per ounce R 5,456 R 9,285 Rand average basket price R 6,496 R 11,191 Cash costs per ounce of PGM (1) $628 $672 Cash costs per ounce of PGM, net of chrome by-product credits (1) $578 $521 Rand cash costs per ounce of PGM (1) R 6,231 R 5,233 Rand cash costs per ounce of PGM, net of chrome by-product credits (1) R 5,734 R 4,055 Key production statistics Total tonnes processed 298,514 317,602 Run-of-mine ("ROM") rock tonnes processed 298,514 305,490 Tailings tonnes processed - 12,112 Development meters 4,604 5,599 On-reef development meters 2,922 3,556 Stoping units (square meters) 46,459 39,652 Concentrator recovery from ROM ore 76% 78% Chrome sold (tonnes) 13,000 44,079 Metal in concentrate sold (ounces) Platinum (Pt) 14,466 15,393 Palladium (Pd) 6,690 6,973 Rhodium (Rh) 2,451 2,581 Gold (Au) 121 123 Iridium (Ir) 979 1,083 Ruthenium (Ru) 4,308 4,605 Total PGM ounces 29,015 30,758 (1) These are non-IFRS measures as described in Section 3.2 (2) Average delivered price is the average basket price at the time of delivery of PGM concentrates, net of associated smelter costs, under the Company`s primary off-take agreement. Quarter ended June 30, 2010 compared to the quarter ended June 30, 2009 In Q2 2010, CRM recorded a Lost Time Injury Frequency Rate ("LTIFR") of 2.78 compared to 1.94 in Q2 2009. The Company generated revenue of $36,612,000 in Q2 2010 which represents amounts recorded when PGM concentrates are physically delivered to the buyer, and adjustments made when final prices for these concentrates are settled. The Company settles its PGM sales three to five months following the physical delivery of the concentrates which are provisionally priced on the date of delivery. The Company recorded an average delivered basket price of $1,015 per PGM ounce in Q2 2010, compared to $679 in Q2 2009 and $959 in the first quarter of 2010 ("Q1 2010"). The delivered price per ounce refers to the PGM prices in effect at the time the PGM concentrates are delivered. As a result of fluctuations in PGM prices, the Company recorded negative provisional price adjustments of $824,000 and positive provisional price adjustments of $2,074,000 in the three and six months ended June 30, 2010, respectively, compared to positive price adjustments of $2,853,000 and $4,911,000 in the three and six months ended June 30, 2009, respectively. The following table shows a reconciliation of revenue and provisional price adjustments. Table 4 Crocodile River Mine Effect of provisional price adjustments on revenues (stated in thousands of U.S. dollars) Three months ended June 30, 2010 2009 Revenue before provisional price adjustments $ 37,436 $ 21,985 Provisional price adjusments Adjustments to revenue upon settlement of prior periods` sales 1,053 1,060 Mark-to-market adjustment on sales not yet settled at end of period (1,877) 1,793 Revenue as reported in the income statement $ 36,612 $ 24,838 Six months ended
June 30, 2010 2009 Revenue before provisional price adjustments $ 69,237 $ 44,830 Provisional price adjusments Adjustments to revenue upon settlement of prior periods` sales 3,951 3,118 Mark-to-market adjustment on sales not yet settled at end of period (1,877) 1,793 Revenue as reported in the income statement $ 71,311 $ 49,741 PGM ounces sold were down by 8% in Q2 2010 compared to Q2 2009 as a result of a decrease in the on- reef development meters (1,573 meters in Q2 2010 compared to 2,860 meters in Q2 2009), a decrease in the run-of-mine tonnes hoisted (297,186 tonnes in Q2 2010 compared to 342,368 tonnes in Q2 2009), which resulted in a decrease in run-of-mine rock tonnes processed (290,028 tonnes in Q2 2010 compared to 304,354 tonnes in Q2 2009), and a decrease in grade to 4.1 from 4.2 in Q2 2009. The decrease in on- reef development meters and run-of-mine tonnes hoisted was due to the dismissal of 15 contract stoping crews (out of a total of 58 crews) in May, and the corresponding build-up and training of new crews. The contract crews were dismissed due to management`s concerns over their safety procedures. Full replacement of the crews was completed in July 2010 and the Company expects that on-reef development and production will increase once the new crews have been properly inducted and trained. Operating cash costs, a non-IFRS measure, are incurred primarily in Rand. Rand operating cash costs, also a non-IFRS measure, increased by 42% from R4,673 per ounce in Q2 2009 to R6,639 per ounce in Q2 2010 due to an 8% decrease in ounces produced compared to Q2 2009, a new South African mining royalty tax effective March 1, 2010, a 7.5% wage increase effective March 1, 2010, and two significant increases in electricity tariffs that came into effect in Q3 2009 and again in Q2 2010. Repairs to underground vehicles in Q2 2010 also contributed to the increase in Rand cash operating costs. Operating cash costs stated in U.S. dollars increased by 59% from $554 per ounce in Q2 2009 to $882 per ounce in Q2 2010 primarily due to increases in actual Rand operating cash costs and an 11% appreciation of the South African Rand relative to the U.S. dollar. The average U.S. dollar-Rand exchange rate was R7.53:$1.00 in Q2 2010 compared to R8.44:$1.00 in Q2 2009. A reconciliation of production costs, as reported in the income statement, to cash operating costs, is shown in Table 5 under Section 3.2 CRM non-IFRS measures. The Company sold 76,677 tonnes (70,850 tonnes in Q2 2009) of chrome in Q2 2010. Total chrome revenues were $7,257,000 ($1,994,000 in Q2 2009), reducing operating cash costs net of by-product credits to $646 per ounce. The net realized price per tonne of chrome in Q2 2010 increased by 250% compared to Q2 2009. Quarter ended June 30, 2010 compared to the quarter ended March 31, 2010 PGM revenues increased by 6% compared to Q1 2010 as a result of a 6% rise in the average delivered basket price per ounce and a 1% increase in ounces produced during the quarter. However, run-of-mine ore processed, which was expected to increase in Q2 2010 as the Q1 mine start-up after the December holiday season was slower than anticipated, remained consistent at approximately 290,000 tonnes in Q1 and Q2 2010. This and other operating measures, such as run-of-mine tonnes hoisted and on-reef development meters, underperformed compared to Q1 2010 due to the dismissal of 15 contract stoping crews (out of a total of 58 crews) in May and the resulting build-up and training of new crews. The Company expects that on-reef development and production will increase once the new crews have been properly inducted and trained. Rand operating cash costs increased by 5% from R6,315 per ounce in Q1 2010 to R6,639 per ounce in Q2 2010 primarily as a result of a new South African mining royalty tax effective March 1, 2010, a 7.5% wage increase effective March 1, 2010, and a 26% increase in electricity tariffs effective in Q2 2010. Operating cash costs stated in U.S. dollars also increased by 5% from $841 per ounce in Q1 2010 to $882 per ounce in Q2 2010. The U.S. dollar remained consistent at approximately R7.50:$1.00 in both Q1 and Q2 2010. Six months ended June 30, 2010 compared to the six months ended June 30, 2009 In 6M 2010, the Company sold 61,351 PGM ounces, a decrease of 8% compared to 6M 2009, primarily as a result of lower run-of-mine volumes processed in 2010 (580,882 tonnes processed in 6M 2010 compared to 622,748 tonnes processed in 6M 2009), and lower recovery rates (79% in 6M 2010 compared to 80% in 6M 2009). On-reef development decreased to 3,504 meters in 6M 2010 compared to 5,605 meters in 6M 2009. The average delivered basket price per ounce increased from $635 in 6M 2009 to $987 in 6M 2010. PGM prices have gradually increased between January 2009 and June 2010. Operating cash costs of $861 per ounce were achieved in 6M 2010, compared to $545 per ounce during the same period in 2009 due to an 8% decrease in the number of ounces produced in 6M 2010 compared to 6M 2009, an 18% weakening in the value of the U.S. dollar relative to the Rand between 6M 2009 and 6M 2010, and a 20% increase in total Rand operating cash costs. Total Rand operating cash costs were 20% higher in 6M 2010 compared to the same period in 6M 2009 due to a new South African mining royalty tax effective March 1, 2010, a 7.5% wage increase effective March 1, 2010, a 26% increase in electricity effective in Q2 2010, repairs to underground vehicles in Q2 2010, repairs to the primary and tertiary crushers in Q1 2010, and the implementation of a key skills management retention plan in Q1 2010. 3.2 CRM non-IFRS measures The following table provides a reconciliation of EBITDA and cash operating costs per PGM ounce to mine operating earnings and production costs, respectively: Table 5 Crocodile River Mine non-IFRS measures (Expressed in thousands of U.S. dollars, except ounce and per ounce data) Three months ended June 30, 2010 2009 Mine operating earnings $ 4,229 $ 2,243 Depletion and depreciation 5,528 $ 4,286 EBITDA (1) 9,757 6,529 Production costs as reported 26,855 18,309 Adjustments for miscellaneous costs (2) 318 185 Cash operating costs 27,173 18,494 Less by-product credits - chrome revenues and adjustments (7,257) (1,994) Cash operating costs net of by-product credits 19,916 16,500 Ounces sold 30,820 33,383 Cash cost per ounce sold $ 882 $ 554 Cash cost per ounce sold net of by-product credits $ 646 $ 494 Six months ended June 30, 2010 2009 Mine operating earnings $ 7,910 $ 5,744 Depletion and depreciation 10,843 7,803 EBITDA (1) 18,753 13,547 Production costs as reported 52,558 36,194 Adjustments for miscellaneous costs (2) 289 (29) Cash operating costs 52,847 36,165 Less by-product credits - chrome revenues and adjustments (11,237) (6,889) Cash operating costs net of by-product credits 41,610 29,276 Ounces sold 61,351 66,352 Cash cost per ounce sold $ 861 $ 545 Cash cost per ounce sold net of by-product credits $ 678 $ 441 (1) EBITDA includes provisional price adjustments, chrome revenues, chrome penalties, and foreign exchange adjustments to sales. (2) Miscellaneous costs include costs such as housing, technical services and planning. The Company is of the opinion that conventional measures of performance prepared in accordance with IFRS do not meaningfully demonstrate the ability of its operations to generate cash flow. Therefore, the Company has included certain non-IFRS measures in this MD&A to supplement its financial statements which are prepared in accordance with IFRS. These non-IFRS measures do not have any standardized meaning prescribed under IFRS, and therefore they may not be comparable to similar measures employed by other companies. In this MD&A, the Company has reported its share of earnings before interest, depletion, depreciation, amortization and tax ("EBITDA") for CRM. This is a liquidity non-IFRS measure which the Company believes is used by certain investors to determine the Company`s ability to generate cash flows for investing and other activities. The Company also reports cash operating costs per ounce of PGM produced, another non-IFRS measure which is a common performance measure used in the precious metals industry. 3.3 Development projects 3.3.1 CRM During the three months ended June 30, 2010, the Company spent approximately $6,376,000 at CRM, primarily on continuing underground mine development, concentrator upgrades, underground electrical upgrades, and ongoing surface and underground works at the Zandfontein vertical shaft, including conveyor belts for the transport of ore from the vertical shaft to the surface crusher and construction of dams for underground water control. The shaft hoisting capacity will be 100,000 tonnes of ore per month plus associated waste. The shaft, along with additional decline development, will allow access into the deeper parts of the ore body. As a result of the higher trend in PGM prices, mine development at the shallow Crocette ore body recommenced on April 4, 2010. At full production, Crocette is planned to deliver up to 40,000 tons of ore per month, which will enable CRM to achieve its production target of 175,000 tons of ore per month. Infill drilling has confirmed the continuity of the UG2 reef at Crocette to a depth of 600m with a dip of 18, a reef width of 1.2m and an estimated head grade of 4.1 g/t (5PGE+Au). A commitment to provide construction power for the project has been received from Eskom, the South African public utility company, but alternative supplies are also being evaluated by the Company. 3.3.2 Spitzkop/Kennedy`s Vale Development of Spitzkop and Kennedy`s Vale has been on hold since December 2008. During the three and six months ended June 30, 2010, the expenditures at Spitzkop/Kennedy`s Vale related to care and maintenance costs. Spitzkop is planned as a decline mining operation that will access high-grade PGM resources in the UG2 reef at shallow depth without the requirement for high capital cost shaft infrastructure. Spitzkop is situated up dip of, and adjacent to, the Kennedy`s Vale project. Kennedy`s Vale and the deeper sections of both properties could utilize the existing twin vertical shafts. This infrastructure would provide a significant reduction in capital costs for the development of the deeper sections of both properties. The new order mining right for Spitzkop was executed in October 2009. With the higher trend in PGM prices, the Company has evaluated development alternatives for the Spitzkop Project in conjunction with the Mareesburg Project and the Company`s four-phased development plan for the Eastern Limb was announced on June 3, 2010. Phase 1 is the development of the Mareesburg open-pit mine and the construction of a processing plant at Kennedy`s Vale. Phase 2 is the development of the Spitzkop mine to supplement and eventually replace the Mareesburg open-pit production. Phase 3 is the development of the underground mines at Mareesburg and DGV. Phase 4 is the development of the Kennedy`s Vale mine. 3.3.3 Mareesburg Work on the Mareesburg project has been on hold since December 2008. A new order mining right application was submitted in December 2007 which supports the Company`s intention to commence mining. It is expected that Mareesburg would be developed as part of the Company`s four-phased development plan for the Eastern Limb as discussed above. 3.4 Corporate and other expenses General and administrative expenses ("G&A") are costs associated with the Company`s corporate head office in Vancouver and the Johannesburg administrative office, and costs associated with care and maintenance at the Company`s Eastern Limb projects, Spitzkop, Kennedy`s Vale and Mareesburg. Corporate office costs include legal and accounting, regulatory, executive management fees, investor relations, travel and consulting fees. G&A decreased by 36% from $3,171,000 in Q2 2009 to $2,037,000 in Q2 2010 due to (1) the settlement of two long-standing legal proceedings at a cost of $1,407,000 in Q2 2009, and (2) a weakening of the U.S. dollar relative to the South African Rand. For the six months ended June 30, G&A increased by 9% from $4,807,000 in 2009 to $5,233,000 in 2010 mainly due to a weakening of the U.S. dollar relative to the South African Rand and the introduction in Q1 2010 of a key skills retention plan for the Company`s senior employees in South Africa. G&A decreased by 36% from $3,196,000 in Q1 2010 to $2,037,000 in Q2 2010, mainly due to the key skills retention plan which was expensed in Q1 2010. Interest income recorded during the three and six months ended June 30, 2010 was $421,000 and $793,000 compared with $495,000 and $989,000 during the same period in 2009. The decrease in interest income for the comparable six month periods was mainly due to significantly lower average cash balances in Q1 2010 compared to Q1 2009, and lower interest rates during the six months ended June 30, 2010 compared to the same period in 2009. During the three and six months ended June 30, 2010 the Company recorded a deferred income tax recovery of $548,000 and $1,096,000. The deferred income tax recovery was based on changes in the Company`s net assets. The consolidated statement of financial position reflects total deferred tax liabilities of $40,041,000 which arose primarily as a result of the step-up to fair value of the net assets acquired on the Barplats and Gubevu business acquisitions during the years ended June 30, 2006, June 30, 2007, and December 31, 2008. 4. Liquidity and Capital Resources At June 30, 2010, the Company had working capital of $33,997,000 (December 31, 2009 - $31,776,000) and cash and cash equivalents and short-term investments of $19,565,000 (December 31, 2009 - $21,658,000) in highly liquid, fully guaranteed, bank sponsored instruments. The Company had no long-term debt at June 30, 2010, other than a provision for environmental rehabilitation relating to CRM and Spitzkop, and finance lease obligations relating to mining vehicles with lease terms of five years and options to purchase for a nominal amount at the conclusion of the lease. See Contractual Obligations under Section 4.4 below. 4.1 Outlook As a consequence of the global economic uncertainty and market volatility since 2008, the Company`s near-term goal has been, and continues to be, to preserve its cash balances to the greatest extent possible, by finding ways to increase production and minimize operating costs without compromising safety, health and environmental standards, and by curtailing capital expenditures which would not result in short-term increases in production ounces. As a result, the Company has primarily focused its resources on improving operations at its CRM property over the past two years, while putting development projects on hold until a sustained recovery of PGM prices materialized. PGM prices in U.S. dollar terms have recovered since the beginning of 2009, but this has been partially negated by the strength of the Rand against the U.S. dollar. While the realized basket prices that the Company is receiving have improved since the December 2008 lows, these prices (in Rand terms) are still more than 40% below those recorded in June 2008 when basket prices reached their peak. The Company anticipates that PGM prices and the Rand-U.S. dollar exchange rate will remain volatile in the short term. With the rising trend in PGM prices, the Company resumed mine development at the Crocette section at CRM on April 4, 2010 and is currently assessing the status of its three primary Eastern Limb development projects at Spitzkop, Kennedy`s Vale and Mareesburg, with a view to determining an appropriate development schedule given the market conditions, the Company`s current cash balances, its ability to generate sufficient cash flows, and its ability to obtain additional funding in the current market environment. Additional funding will be required and may include external debt financing, joint venture or other third party participation in one or more of the projects, or the public or private sales of equity or debt securities of the Company. If the volatility and uncertainty in the current market persist for an extended time and PGM production and/or prices remain at present levels or lower, then the cash flows from CRM and current cash balances will be insufficient to advance any or all of the Company`s development projects to commercial production. This, along with credit markets that may tighten and result in higher financing costs, could negatively affect the Company`s ability to obtain equity financing, external debt financing or third party participation. There can be no assurance that additional funding will be available to the Company or, if available, that this funding will be on acceptable terms. If adequate funds are not available, the Company may be required to further delay or reduce the scope of any or all of its development projects. 4.2 Impairment At June 30, 2010, the Company determined that there was no indication of impairment for the carrying values of its mineral properties. Should market conditions and commodity prices deteriorate or improve in the future, an impairment or reversal of impairment of the Company`s mineral properties may be required. 4.3 Share Capital During the three months ended June 30, 2010, the Company did not grant any stock options. Total share- based payment expense for the quarter was $13,000, which takes into account the vesting of options. During Q2 2010, 258,334 options were forfeited at a weighted average exercise price of Cdn$1.30 and 1,892,163 options were exercised at a weighted average exercise price of Cdn$0.33. During the six months ended June 30, 2010, the Company granted 2,231,000 stock options at an exercise price of Cdn$1.30. The grant date fair value was Cdn$0.80 per share, which resulted in share-based payment expense of $1,705,000 upon issuance. Total share-based payment expense for the six months was $1,752,000, which also takes into account the vesting of options. During the six months ended June 30, 2010, 666,668 options were forfeited at a weighted average exercise price of Cdn$1.74 and 2,412,994 options were exercised at a weighted average exercise price of Cdn$0.33. As at August 9, 2010, the Company had: * 683,030,752 common shares outstanding; and * 58,617,172 stock options outstanding, which are exercisable at prices ranging from Cdn$0.32 to Cdn$3.38 and expire between 2011 and 2018. 4.4 Contractual Obligations and Commitments The Company`s major contractual obligations and commitments at June 30, 2010 were as follows: Table 6
(in thousands of U.S. dollars) Total Less than 1 year Provision for environmental rehabilitation $ 8,219 $ - Capital expenditure and purchase commitments contracted at June 30, 2010 but not recognized on the consolidated statement of financial position 5,230 5,230 Finance lease obligations 3,534 1,169 $ 16,983 $ 6,399 1-5 years More than 5
years Provision for environmental rehabilitation$ - $ 8,219 Capital expenditure and purchase commitments contracted at June 30, 2010 but not recognized on the consolidated statement of financial position - - Finance lease obligations 2,365 - $ 2,365 $ 8,219 5. Related Party Transactions (Expressed in thousands of U.S. dollars, except per share amounts) Three months ended
June 30, 2010 2009 Trading transactions Management and consulting fees $ 349 $ 283 Reimbursements of expenses 42 19 Total trading transactions $ 391 $ 302 Compensation of key management personnel Salaries and directors` fees $ 568 $ 506 Share-based payments - 93 Total compensation of key management personnel $ 568 $ 599 Six months ended June 30,
2010 2009 Trading transactions Management and consulting fees $ 685 $ 549 Reimbursements of expenses 62 19 Total trading transactions $ 747 $ 568 Compensation of key management personnel Salaries and directors` fees $ 1,116 $ 980 Share-based payments 1,627 93 Total compensation of key management personnel $ 2,743 $ 1,073 A number of the Company`s executive officers are engaged under contract with those officers` personal services companies. Other executive officers are paid directly via salary and directors` fees. All share options are issued to the Company`s officers and directors, and not to their companies. Management and consulting fees increased during the three and six months ended June 30, 2010 mainly due to the strengthening of the Canadian dollar during the past twelve months. During the same periods, reimbursements of expenses were higher due to increased travel to South Africa by the Company`s head office staff. Salaries and directors` fees increased during the three and six months ended June 30, 2010 due to the strengthening of the Canadian dollar. Share-based payment decreased from $93,000 in Q2 2009 to Nil in Q2 2010 as there were no stock options issued to directors during Q2 2010. Share-based payments increased from $93,000 during the six months ended June 30, 2009 to $1,627,000 during the same period in 2010 due to the issuance of stock options in Q1 2010. All related party transactions were recorded at the amounts agreed upon between the parties. Any balances payable are payable on demand without interest. 6. Adoption of Accounting Standards and Pronouncements under IFRS In February 2009, the Commissions granted the Company exemptive relief to adopt International Financial Reporting Standards ("IFRS") with an adoption date of January 1, 2009 and a transition date of January 1, 2008. The Company`s first audited financial statements prepared in accordance with IFRS were the financial statements for the year ended December 31, 2009. Full disclosure of the Company`s accounting policies in accordance with IFRS can be found in Note 3 to those financial statements. Those financial statements also include reconciliations of the previously disclosed comparative periods financial statements prepared in accordance with Canadian generally accepted accounting principles ("GAAP") to IFRS as set out in Note 25. Effective January 1, 2010, the Company adopted a new accounting standard (IFRS 8 Operating Segments) that was issued by the International Accounting Standards Board ("IASB"). IFRS 8 was revised and now requires disclosure of information about segment assets. This accounting policy change was adopted on a prospective basis with no restatement of prior period financial statements. 7. Internal Control over Financial Reporting The Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO") of the Company, together with the Company`s management, are responsible for the information disclosed in this MD&A and in the Company`s other external disclosure documents. For the quarters ended June 30, 2010 and 2009, the CEO and the CFO have designed, or caused to be designed under their supervision, the Company`s disclosure controls and procedures ("DCP") to provide reasonable assurance that material information relating to the Company and its consolidated subsidiaries has been disclosed in accordance with regulatory requirements and good business practices and that the Company`s DCP will enable the Company to meet its ongoing disclosure requirements. The CEO and CFO have evaluated the effectiveness of the Company`s disclosure controls and procedures and have concluded that the design and operation of the Company`s DCP were effective as of June 30, 2010 and that the Company has the appropriate DCP to ensure that information used internally by management and disclosed externally is, in all material respects, complete and reliable. The CEO and the CFO are also responsible for the design of the internal controls over financial reporting ("ICFR") within the Company in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards ("IFRS"). During 2009, the Company engaged an international accounting firm to act as the Company`s internal auditors for its South African operations. Under the supervision, and with the participation, of the CEO and the CFO, management conducted an evaluation of the effectiveness of the Company`s ICFR based on the framework in the Internal Control - Integrated Framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, the CEO and the CFO concluded that the design and operation of the Company`s ICFR were effective as at June 30, 2010. The scope of the Company`s design of DCP and ICFR excluded Gubevu Consortium Holdings (Pty) Ltd., a subsidiary which is accounted for as a special purpose entity under IFRS. During the design and evaluation of the Company`s ICFR, management identified certain non-material deficiencies, a number of which have been addressed or are in the process of being addressed in order to enhance the Company`s processes and controls. The Company employs entity level and compensating controls to mitigate any deficiencies that may exist in its process controls. Management intends to continue to further enhance the Company`s ICFR. The Company`s management, including its CEO and CFO, believe that any DCP and ICFR, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override to the future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected. There have been no changes in the Company`s ICFR during the quarter ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, the Company`s ICFR. 8. Cautionary Statement on Forward-Looking Information This MD&A, which contains certain forward-looking statements, is intended to provide readers with a reasonable basis for assessing the financial performance of the Company. All statements, other than statements of historical fact, are forward-looking statements. The words "believe", "expect", "anticipate", "contemplate", "target", "plan", "intends", "continue", "budget", "estimate", "may", "will", "schedule" and similar expressions identify forward looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, but are not limited to, fluctuations in the currency markets such as Canadian dollar, South African Rand and U.S. dollar, fluctuations in the prices of PGM and other commodities, changes in government legislation, taxation, controls, regulations and political or economic developments in Canada, the United States, South Africa, or Barbados or other countries in which the Company carries or may carry on business in the future, risks associated with mining or development activities, the speculative nature of exploration and development, including the risk of obtaining necessary licenses and permits, and quantities or grades of reserves. Many of these uncertainties and contingencies can affect the Company`s actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, the Company. Readers are cautioned that forward-looking statements are not guarantees of future performance. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those acknowledged in such statements. Specific reference is made to the Company`s most recent Annual Information Form on file with Canadian provincial securities regulatory authorities for a discussion of some of the factors underlying forward-looking statements. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except to the extent required by applicable laws. August 9, 2010 Ian Rozier Date: 11/08/2010 15:12:03 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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