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EPS - Eastern Platinum Limited - Management`s discussion and analysis of

Release Date: 12/05/2011 13:51
Code(s): EPS
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EPS - Eastern Platinum Limited - Management`s discussion and analysis of financial conditions and results of operations for the three months ended March 31, 2011 EASTERN PLATINUM LIMITED (Incorporated in Canada) (Canadian Registration number BC0722783) (South African Registration number 2007/006318/10) Share Code TSX: ELR ISIN: CA 2768551038 Share Code AIM: ELR ISIN: CA 2768551038 Share Code JSE: EPS ISIN: CA 2768551038 EASTERN PLATINUM LIMITED MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2011 The following Management`s Discussion and Analysis ("MD&A") is intended to assist the reader to assess material changes in financial condition and results of operations of Eastern Platinum Limited ("Eastplats" or the "Company") as at March 31, 2011 and for the three months then ended in comparison to the same period in 2010. This MD&A should be read in conjunction with the unaudited condensed consolidated interim financial statements for the three months ended March 31, 2011 and supporting notes. These unaudited condensed consolidated interim financial statements have been prepared using accounting policies consistent with IFRS and in accordance with International Accounting Standard 34 - Interim Financial Reporting("IAS 34"). In this MD&A, the Company also reports certain non-IFRS measures such as EBITDA and cash costs per ounce which are explained in Section 3.2 of this MD&A. All monetary amounts are in U.S. dollars unless otherwise specified. The effective date of this MD&A is May 9, 2011. Additional information relating to the Company is available on SEDAR at www.sedar.com. Contents of the MD&A 1. Overview 2. Summary of results for the three months ended March 31, 2011 3. Results of operations for the three months ended March 31, 2011 3.1. Mining operations at Crocodile River Mine ("CRM") 3.2. CRM non-IFRS measures 3.3. Development projects 3.3.1. CRM 3.3.2. Eastern Limb projects 3.4. Corporate and other expenses 4. Liquidity and Capital Resources 4.1. Outlook 4.2. Impairment 4.3. Share capital 4.4. Contractual obligations and commitments 5. Related party transactions 6. Adoption of accounting standards and accounting pronouncements under IFRS 7. Internal control over financial reporting 8. Cautionary statement on forward-looking information 1. Overview Eastplats is a platinum group metals ("PGM") producer engaged in the mining and development of PGM deposits with properties located in South Africa. All of the Company`s properties are situated on the western and eastern limbs of the Bushveld Complex ("BC"), the geological environment that supports over 75% of the world`s PGM mine production. The Company`s primary operating asset is an 87.5% direct and indirect interest in Barplats Investments Limited ("Barplats"), whose main assets are the PGM producing Crocodile River Mine ("CRM") located on the western limb of the BC and the non-producing Kennedy`s Vale Project located on the Eastern Limb of the BC. The Company also has a 75.5% direct and indirect interest in Mareesburg Platinum Project ("Mareesburg") and a 93.4% direct and indirect interest in Spitzkop PGM Project ("Spitzkop"), both located on the Eastern Limb of the BC. 2. Summary of results for the three months ended March 31, 2011 * Eastplats recorded a net loss attributable to equity shareholders of the Company of $5,633,000 ($0.01 loss per share) in Q1 2011 compared to earnings of $824,000 ($0.00 per share) in the first quarter of 2010 ("Q1 2010"). * EBITDA decreased 29% to $6,412,000 in Q1 2011 compared to $8,996,000 in Q1 2010. * PGM ounces sold decreased 17% to 25,387 ounces in Q1 2011 compared to 30,531 PGM ounces in Q1 2010. * The U.S. average delivered price per PGM ounce increased 18% to $1,136 in Q1 2011 compared to $959 in Q1 2010. * The Rand average delivered price per PGM ounce increased 11% to R7,963 in Q1 2011 compared to R7,202 in Q1 2010. * Rand operating cash costs net of by-product credits increased 16% to R6,167 per ounce in Q1 2011 compared to R5,336 per ounce in Q1 2010. Rand operating cash costs increased 28% to R8,090 per ounce in Q1 2011 compared to R6,315 per ounce in Q1 2010. * U.S. dollar operating cash costs net of by-product credits increased 24% to $880 per ounce in Q1 2011 compared to $711 per ounce achieved in Q1 2010. U.S. dollar operating cash costs increased 37% to $1,154 per ounce in Q1 2011 compared to $841 per ounce in Q1 2010. * Head grade decreased to 3.9 grams per tonne in Q1 2011 from 4.1 grams per tonne in Q1 2010. * Average concentrator recovery increased to 79% in Q1 2011 compared to 78% in Q1 2010. * Development meters increased by 50% to 4,219 meters and on-reef development increased by 26% to 2,434 meters compared to Q1 2010. * Stoping units decreased 14% to 44,674 square meters in Q1 2011 compared to 51,760 square meters in Q1 2010. * Run-of-mine ore hoisted decreased by 19% to 247,369 tonnes in Q1 2011 compared to 304,309 tonnes in Q1 2010. * Run-of-mine ore processed decreased by 16% to 245,500 tonnes in Q1 2011 compared to 290,854 tonnes in Q1 2010. * The Company`s Lost Time Injury Frequency Rate (LTIFR) improved to 1.54 in Q1 2011 compared to 1.77 in Q1 2010. * At March 31 2011, the Company had a cash position (including cash, cash equivalents and short term investments) of $349,719,000 (December 31, 2010 - $350,292,000). The table below sets forth selected results of operations for the Company`s eight most recently completed quarters (in thousands of U.S. dollars, except per share amounts) in accordance with IFRS. Table 1 Selected quarterly data 2011 Mar 31 Revenues $ 35,702 Cost of operations (34,409) Mine operating earnings 1,293 Expenses (G&A and share-based payment) (11,318) Operating (loss) profit (10,025) Net (loss) profit attributable to equity shareholders of the Company $ (5,633) (Loss) earnings per share - basic $ (0.01) (Loss) earnings per share - diluted $ (0.01) Average foreign exchange rates South African Rand per US dollar 7.01 US dollar per Canadian dollar 1.0141 Period end foreign exchange rates South African Rand per US dollar 6.75 US dollar per Canadian dollar 1.0314 Selected quarterly data 2010 Dec 31 Sept 30 June 30 March 31
Revenues $ 45,616 $ 38,073 $ 36,612 $ 34,699 Cost of operations (36,272) (32,735) (32,383) (31,018) Mine operating earnings 9,344 5,338 4,229 3,681 Expenses (G&A and share-based payment) (4,382) (2,202) (2,050) (4,935) Operating (loss) profit 4,962 3,136 2,179 (1,254) Net (loss) profit attributable to equity shareholders of the Company $ 5,041 $ 4,039 $ 3,448 $ 824 (Loss) earnings per share - basic $ 0.01 $ 0.01 $ 0.01 $ 0.00 (Loss) earnings per share - diluted $ 0.01 $ 0.01 $ 0.00 $ 0.00 Average foreign exchange rates South African Rand per US dollar 6.91 7.31 7.53 7.51 US dollar per Canadian dollar 0.9870 0.9621 0.9727 0.9608 Period end foreign exchange rates South African Rand per US dollar 6.59 7.00 7.66 7.33 US dollar per Canadian dollar 1.0054 0.9718 0.9393 0.9844 Selected quarterly data 2009 Dec 31 Sept 30 June 30
Revenues $ 34,259 $ 27,365 $ 24,838 Cost of operations (29,294) (26,702) (22,595) Mine operating earnings 4,965 663 2,243 Expenses (G&A and share-based payment) (3,523) (2,445) (3,374) Operating (loss) profit 1,442 (1,782) (1,131) Net (loss) profit attributable to equity shareholders of the Company $ 330 $ 1,839 $ 317 (Loss) earnings per share - basic $ 0.00 $ 0.00 $ 0.00 (Loss) earnings per share - diluted $ 0.00 $ 0.00 $ 0.00 Average foreign exchange rates South African Rand per US dollar 7.50 7.80 8.44 US dollar per Canadian dollar 0.9459 0.9114 0.8578 Period end foreign exchange rates South African Rand per US dollar 7.41 7.53 7.75 US dollar per Canadian dollar 0.9515 0.9340 0.859 3. Results of Operations for the three months ended March 31, 2011 The following table sets forth selected consolidated financial information for the three months ended March 31, 2011 and 2010: Table 2 Condensed consolidated interim income statements (Expressed in thousands of U.S. dollars, except per share amounts - unaudited) Three months ended March 31, 2011 2010 Revenue $ 35 702 $ 34 699 Cost of operations Production costs 29 290 25 703 Depletion and depreciation 5 119 5 315 Mine operating earnings 1 293 3 681 Expenses General and administrative 3 095 3 196 Share-based payments 8 223 1 739 Operating loss (10 025) (1 254) Other income (expense) Interest income 1,509 372 Finance costs (522) (370) Foreign exchange gain 1564 268 Loss before income taxes (7474) (984) Deferred income tax recovery 122 548 Net loss for the period $ (7352) $ (436) Attributable to Non-controlling interest $ (1 719) $ (1 260) Equity shareholders of the Company (5 633) 824 Net loss for the period $ (7 352) $ (436) (Loss) earnings per share Basic $ (0.01) $ 0.00 Diluted $ (0.01) $ 0.00 Weighted average number of common share outstanding Basic 908 015 681 200 Diluted 908 015 693 830 Condensed consolidated statements of March 31, December 31, financial position 2011 2010 Total assets $ 1 125 966 $ 1 126 975 Total long-term liabilities $ 53 946 $ 55 576 3.1 Mining operations at Crocodile River Mine ("CRM") The following is a summary of CRM`s operations for the eight most recently completed quarters: Table 3 Crocodile River Mine operations Three months ended
2011 March 31 Key financial statistics (dollar amounts stated in U.S. dollars) Sales - PGM ounces 25 387 Average delivered price per ounce (2) $1 136 Average basket price $1 344 Rand average delivered price per ounce R 7 963 Rand average basket price R 9 421 Cash costs per ounce of PGM (1) $1 154 Cash costs per ounce of PGM, net of chrome by-product credits (1) $880 Rand cash costs per ounce of PGM (1) R 8 090 Rand cash costs per ounce of PGM, net of chrome by-product credits (1) R 6 167 Key production statistics Run-of-mine ("ROM") ore tonnes processed 245 500 Development meters 4 219 On-reef development meters 2 434 Stoping units (square meters) 44 674 Concentrator recovery from ROM ore 79% Chrome sold (tonnes) 63 578 Metal in concentrate sold (ounces) Platinum (Pt) 12 790 Palladium (Pd) 5 494 Rhodium (Rh) 2 162 Gold (Au) 97 Iridium (Ir) 919 Ruthenium (Ru) 3 925 Total PGM ounces 25 387 2010 December 31 September 30 June 30 March 31
Key financial statistics (dollar amounts stated in U.S. dollars) Sales - PGM ounces 32 752 37 798 30 820 30 531 Average delivered price per ounce (2) $1 058 $953 $1 015 $959 Average basket price $1 250 $1 128 $1 200 $1 130 Rand average delivered price per ounce R 7 311 R 6 966 R 7 643 R 7 202 Rand average basket price R 8 638 R 8 246 R 9 036 R 8 486 Cash costs per ounce of PGM (1) $928 $713 $882 $841 Cash costs per ounce of PGM, net of chrome by-product credits (1) $653 $625 $646 $711 Rand cash costs per ounce of PGM (1) R 6 412 R 5 212 R 6 639 R 6 315 Rand cash costs per ounce of PGM, net of chrome by-product credits (1) R 4 509 R 4 566 R 4 866 R 5 336 Key production statistics Run-of-mine ("ROM") ore tonnes processed 327 872 357 219 290 028 290 854 Development meters 3 501 3 299 3 202 2 812 On-reef development meters 1 925 1 797 1 573 1 931 Stoping units (square meters) 53 044 50 892 50 573 51 760 Concentrator recovery from ROM ore 78% 81% 80% 78% Chrome sold (tonnes) 89 123 50 148 76 677 75 846 Metal in concentrate sold (ounces) Platinum (Pt) 16 526 19 195 15 433 15 405 Palladium (Pd) 7 055 8 129 6 769 6 562 Rhodium (Rh) 2 786 3 216 2 661 2 607 Gold (Au) 117 131 108 105 Iridium (Ir) 1 183 1 323 1 077 1 106 Ruthenium (Ru) 5 085 5 804 4 772 4 746 Total PGM ounces 32 752 37 798 30 820 30 531 2009 December 31 September 30 June 30 Key financial statistics (dollar amounts stated in U.S. dollars) Sales - PGM ounces 34 000 29 986 33 383 Average delivered price per ounce (2) $860 $765 $679 Average basket price $1 008 $878 $779 Rand average delivered price per ounce R 6 450 R 5 967 R 5 730 Rand average basket price R 7 560 R 6 848 R 6 574 Cash costs per ounce of PGM (1) $706 $758 $554 Cash costs per ounce of PGM, net of chrome by-product credits (1) $621 $583 $494 Rand cash costs per ounce of PGM (1) R 5 296 R 5 915 R 4 673 Rand cash costs per ounce of PGM, net of chrome by-product credits (1) R 4 661 R 4 548 R 4 169 Key production statistics Run-of-mine ("ROM") ore tonnes processed 321 983 280 777 304 354 Development meters 3 254 2 882 4 326 On-reef development meters 2 135 1 562 2 860 Stoping units (square meters) 55 153 36 263 51 342 Concentrator recovery from ROM ore 79% 78% 80% Chrome sold (tonnes) 66 694 76 900 70 850 Metal in concentrate sold (ounces) Platinum (Pt) 17 012 15 080 16 721 Palladium (Pd) 7 444 6 613 7 406 Rhodium (Rh) 2 923 2 499 2 868 Gold (Au) 121 115 141 Iridium (Ir) 1 240 1 095 1 179 Ruthenium (Ru) 5 260 4 584 5 068 Total PGM ounces 34 000 29 986 33 383 (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 smelting, refining and marketing costs, under the Company`s primary off-take agreement. Quarter ended March 31, 2011 compared to the quarter ended March 31, 2010 In Q1 2011, CRM recorded a Lost Time Injury Frequency Rate ("LTIFR") of 1.54 compared to 1.77 in Q1 2010. There were three lost time injuries in both Q1 2011 and Q1 2010. The difference in LTIFR was due to more man hours in Q1 2011 than in Q1 2010. The Company generated revenue of $35,702,000 in Q1 2011 of which $28,739,000 is PGM revenue and $6,963,000 is chrome revenue. PGM revenues represent the amounts recorded when PGM concentrates are physically delivered to the buyer, which are provisionally priced on the date of delivery. The Company settles its PGM sales three to five months following the physical delivery of the concentrates and adjustments are made when the prices for the metal sold to the market are established. The Company recorded an average delivered basket price of $1,136 per PGM ounce in Q1 2011, compared to $959 in Q1 2010 and $1,058 in the fourth quarter of 2010 ("Q4 2010"). The delivered price per ounce refers to the PGM prices in effect at the time the PGM concentrates are delivered to the smelter. As a result of fluctuations in PGM prices, the Company recorded positive provisional price adjustments of $1,273,000 in the three months ended March 31, 2011, compared to positive price adjustments of $2,898,000 in the three months ended March 31, 2010. The following table shows a reconciliation of revenue and provisional price adjustments. Table 4 Crocodile River Mine Effect of provisional price adjustments on revenues (stated in thousands of U.S. dollars) Three months ended March 31,
2011 2010 Revenue before provisional price adjustments $ 34 429 $ 31 801 Provisional price adjusments Adjustments to revenue upon settlement of prior periods` sales 1 697 1 702 Mark-to-market adjustment on sales not yet settled at end of period (424) 1 196 Revenue as reported in the income statement $ 35 702 $ 34 699 PGM ounces sold decreased by 17% in Q1 2011 compared to Q1 2010 due to lower run-of-mine ore tonnes processed (245,500 tonnes in Q1 2011 compared to 290,854 tonnes in Q1 2010) and lower head grade (3.9 grams per tonne in Q1 2011 compared to 4.1 grams per tonne in Q1 2010), despite higher concentrator recovery (79% in Q1 2011 compared to 78% in Q1 2010). The decrease in run-of- mine tonnes processed was the result of a comprehensive internal safety review that occurred early in the quarter and is in line with new DMR general safety recommendations on roof support requirements. Following the review, support methods at CRM were modified, which included the acceleration of the previously planned progressive introduction of cement grout support packs into working panels, to further enhance safety standards. This increase in support standards necessitated the retraining of underground personnel, which temporarily decreased the number of working panels during the quarter and impacted production. The decrease in head grade was the result of increased on- reef development. Operating cash costs, a non-IFRS measure, are incurred in Rand. Rand operating cash costs, increased by 28% from R6,315 per ounce in Q1 2010 to R8,090 per ounce in Q1 2011 due to a 17% decrease in ounces sold, the introduction of the South African mining royalty and a 7.5% wage increase both effective March 1, 2010, a significant increase in electricity tariffs that came into effect in Q2 2010, and inflation on other expenses of approximately 7%. Operating cash costs stated in U.S. dollars increased by 37% from $841 per ounce in Q1 2010 to $1,154 per ounce in Q1 2011 primarily due to an increase in actual Rand operating cash costs combined with a 7% appreciation of the South African Rand relative to the U.S. dollar. The average U.S. dollar-Rand exchange rate was R7.01:$1.00 in Q1 2011 compared to R7.51:$1.00 in Q1 2010. 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. Chrome revenues and effect on cash costs per ounce The Company recorded revenue for 63,578 tonnes of chrome in Q1 2011 (75,846 tonnes in Q1 2010). Net chrome revenue recognized was $110 per tonne ($52 per tonne in Q1 2010) for a total of $6,963,000 ($3,980,000 in Q1 2010). The net chrome revenue per tonne received by the Company which increased by 112% compared to Q1 2010, has been very volatile during the last two years. Global chrome prices dropped in late 2009 and increased in the latter half of 2010. Q1 2011 chrome revenues of $6,963,000 reduced operating cash costs from $1,154 to $880 per ounce net of by-product credits and from R8,090 to R6,167 per ounce net of by-product credits. Quarter ended March 31, 2011 compared to the quarter ended December 31, 2010 Revenues decreased by 22% compared to Q4 2010 as a result of a 22% decrease in the ounces produced in the quarter, a 23% decrease in chrome revenues and a 59% decrease in price adjustments, which were slightly offset by a 7% rise in the average delivered price per ounce. The decrease in chrome revenues was due to a 29% decrease in tonnes of chrome sold which was partially offset by a 9% increase in the net price received for chrome. The decrease in ounces produced was due to a 25% decrease in run-of-mine ore processed (327,872 tonnes in Q4 2010 compared to 245,500 tonnes in Q1 2011) and a decrease in head grade from 4.0 grams per tonne in Q4 2010 to 3.9 grams per tonne in Q1 2011, which were slightly offset by an increase in concentrator recovery from 78% in Q4 2010 to 79% in Q1 2011. The decrease in run-of-mine ore processed was due to the change in stope support standards and the retraining of underground personnel in order to further enhance stope stability. The decrease in head grade was the result of increased on-reef development, and the increase in concentrator recovery was the result of improved concentrator utilization and stability. Rand operating cash costs increased by 26% from R6,412 per ounce in Q4 2010 to R8,090 per ounce in Q1 2011 primarily as a result of a 22% decrease in ounces produced. Operating cash costs stated in U.S. dollars increased by 24% from $928 per ounce in Q4 2010 to $1,154 per ounce in Q1 2011 due to increases in actual Rand operating cash costs, which was slightly offset by a 1% depreciation of the South African Rand relative to the U.S. dollar. The average U.S. dollar-Rand exchange rate was R7.01:$1.00 in Q1 2011 compared to R6.91:$1.00 in Q4 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 March 31,
2011 2010 Mine operating earnings $ 1 293 $ 3 681 Depletion and depreciation 5 119 $ 5 315 EBITDA (1) 6 412 8 996 Production costs as reported 29 290 25,703 Adjustments for miscellaneous costs (2) 7 (29) Cash operating costs 29 297 25,674 Less by-product credits - chrome revenues and adjustments (6 963) (3 980) Cash operating costs net of by-product credits 22 334 21 694 Ounces sold 25 387 30 531 Cash cost per ounce sold $ 1 154 $ 841 Cash cost per ounce sold net of by-product credits $ 880 $ 711 (1) EBITDA includes provisional price adjustments, chrome revenues, chrome penalties, and foreign exchange adjustments to sales. (2) Miscellaneous costs include costs such as housing, technical services and planning. The Company is of the opinion that conventional measures of performance prepared in accordance with IFRS do not meaningfully demonstrate the ability of its operations to generate cash flow. Therefore, the Company has included certain non-IFRS measures in this MD&A to supplement its financial statements which are prepared in accordance with IFRS. These non-IFRS measures do not have any standardized meaning prescribed under IFRS, and therefore they may not be comparable to similar measures employed by other companies. In this MD&A, the Company has reported its share of earnings before interest, depletion, depreciation, amortization and tax ("EBITDA") for CRM. This is a liquidity non-IFRS measure which the Company believes is used by certain investors to determine the Company`s ability to generate cash flows for investing and other activities. The Company also reports cash operating costs per ounce of PGM produced, another non-IFRS measure which is a common performance measure used in the precious metals industry. 3.3 Development projects 3.3.1 CRM During the three months ended March 31, 2011, the Company spent approximately $14,306,000 at CRM on underground mine development, underground electrical upgrades, and ongoing underground works at the Zandfontein vertical shaft, including the development of a decline for a conveyor and chairlift system that will move ore and workers to and from the new stopes being developed below 4-level. As a result of the higher trend in PGM prices, mine development at the shallow Crocette ore body recommenced on April 4, 2010. The Company expects Crocette to reach full production by the first quarter of 2013, at which time Crocette is planned to deliver up to 40,000 tonnes of ore per month. Combined with the mining at Zandfontein and Maroelabult, this will enable CRM to achieve its production target of approximately 175,000 tonnes of ore per month with an estimated head grade of 4.1 g/t (5PGE+Au). Construction power for the project is being provided by Eskom, the South African public utility company and the Company is in discussions with Eskom for the supply of permanent power. 3.3.2 Eastern Limb projects Development of Mareesburg, Spitzkop and Kennedy`s Vale was put on hold in December 2008 but rising PGM prices and the receipt of New Order Mining Rights for both Spitzkop and Mareesburg (received in October 2009 and September 2010 respectively) have allowed the Company to move forward in Q4 2010 with the development plans for these projects. During the three months ended March 31, 2011, expenditures at these projects were comprised of care and maintenance costs as well as costs for the restart of engineering and construction planning for an open-pit mine at Mareesburg and an associated 90,000 tonne-per- month (tpm) concentrator. The Company expects expenditures to increase commencing in the second quarter of 2011 as development activities ramp up. The Mareesburg open-pit mine, when operating at full capacity, could result in an increase in the Company`s annual PGM production to approximately 325,000 ounces by 2014, when combined with CRM. Under the current development plan, a 90,000 tpm concentrator would be located on the Kennedy`s Vale site and the planned rapid production build-up at Mareesburg would allow the concentrator to ramp up quickly to full capacity immediately upon commissioning. To accommodate future capacity increases, the plant at Kennedy`s Vale would include the civil and other surface infrastructure work required for an additional 90,000 tpm processing stream and appropriate tailings facility infrastructure to process up to 180,000 tonnes per month of ore. Mareesburg will initially be an open-pit mining operation and consequently require little power. A power line currently provides 800 KVA across the Mareesburg property and this will be adequate to run administration and workshop/maintenance facilities with any further power requirements to be provided by on-site diesel power generators. Design for the mine and concentrator are progressing, and long lead items such as mills and mining equipment have been purchased or ordered. The mill terrace is complete. A project management/construction management contract has been awarded to a qualified South African company and construction work on site is expected to begin in the second quarter of 2011 with operations planned in the fourth quarter of 2012. The Company has already secured 3MVA of power for the construction phase for the concentrator at the Kennedy`s Vale site. With respect to permanent operating power for the concentrator and for the Spitzkop mine which is planned to be developed after the Mareesburg open-pit mine comes on stream, the Company has applied for 40 MVA of installed capacity, of which 20MVA would be required for the initial 90,000 tpm plant. The Company has paid the necessary fees to initiate the acquisition of power and Eskom has commenced the engineering work. 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 3% from $3,196,000 in Q1 2010 to $3,095,000 in Q1 2011 due to a $514,000 decrease in G&A at the Company`s South African subsidiary, Barplats Investments Limited, which was partially offset by the appreciation of the South African Rand relative to the U.S. dollar. The average U.S. dollar-Rand exchange rate was R7.01:$1.00 in Q1 2011 compared to R7.51:$1.00 in Q1 2010. G&A decreased by 34% from $4,698,000 in Q4 2010 to $3,095,000 in Q1 2011 mainly due to the payment of $1,471,000 in bonuses to executive officers and directors of the Company in Q4 2010. Interest income recorded during the three months ended March 31, 2011 was $1,509,000 compared with $372,000 during the same period in 2010. The increase in interest income was mainly due to an increase in cash balances at head office as a result of the Company`s December 30, 2010 equity financing. Further details on the equity financing have been included within Section 4. During the three months ended March 31, 2011, the Company recorded current tax expense of $377,000 and a deferred income tax recovery of $499,000 for a net deferred tax recovery of $122,000. The current tax expense was the result of income earned for non-mining activities. The Company`s mining loss carry- forwards could not be applied against this income as the income was non-mining based. 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 $45,049,000 which arose primarily as a result of the step-up to fair value of the net assets acquired on the Barplats and Gubevu business acquisitions during the years ended June 30, 2006, June 30, 2007, and December 31, 2008. 4. Liquidity and Capital Resources At March 31, 2011, the Company had working capital of $360,356,000 (December 31, 2010 - $362,691,000) and cash and cash equivalents and short-term investments of $349,719,000 (December 31, 2010 - $350,292,000) in highly liquid, fully guaranteed, bank sponsored instruments. The Company`s strong working capital and cash position was achieved through the completion of an equity financing on December 30, 2010. The Company raised Cdn$348 million through a public offering which consisted of 224,250,000 common shares, of which 195,361,476 common shares were issued at a price of Cdn$1.55 and 28,888,524 common shares were issued at a price of GBP0.9568. The Company had no long-term debt at March 31, 2011, other than a provision for environmental rehabilitation relating to CRM, Kennedy`s Vale and Spitzkop. In January, 2011 the Company received formal letters of commitment to underwrite a US$100 million corporate debt facility through Eastplats International Inc., a subsidiary of the Company. The mandated lead arrangers are UniCredit Bank AG, London Branch and The Standard Bank of South Africa Limited. 4.1 Outlook The PGM industry has experienced over three years of global economic uncertainty and market volatility. Although PGM prices in U.S. dollar terms have recovered since the beginning of 2009, this has been significantly negated by the strength of the Rand against the U.S. dollar. The U.S. dollar realized basket prices that the Company is receiving have improved since the December 2008 lows, but these prices, in Rand terms, are still significantly below those recorded in June 2008 when basket prices reached their peak. The Company anticipates that PGM prices will remain volatile and the Rand will remain strong against the U.S. dollar in the short term, which impacts the income and cash flows generated by the Company as it has U.S. dollar-based revenues and a Rand-based operating cost structure. As a result, the Company continues to seek ways to improve its operating efficiency and thereby minimize its operating costs, without compromising safety, health and environmental standards. With the rising trend in PGM prices, the Company resumed mine development at the Crocette section at CRM in April 2010 and commenced planning for Phase 1 of the development of its Eastern Limb projects in late 2010. Phase 1 includes the development of an open-pit mine at Mareesburg and the construction of a 90,000 tpm concentrator located on the Kennedy`s Vale site. Concurrently with the planning for Crocette and for Phase 1, the Company sought to raise financing to fund these development projects. On December 30, 2010, the Company completed a Cdn$348 million public offering, which primary purpose was to finance the development of Phase 1. In January 2011, the Company received formal letters of commitment to underwrite a US$100 million corporate debt facility through Eastplats International Inc., a subsidiary of the Company. The mandated lead arrangers are UniCredit Bank AG, London Branch and The Standard Bank of South Africa Limited. The Company expects to complete the final legal documentation for the debt facility during the second quarter of 2011. Upon the closing of the debt facility, the Company will have approximately U.S.$450 million in cash, short-term investments and undrawn credit facilities available for the development of the Mareesburg open- pit mine and the associated concentrator, for the Crocette development, and for general corporate purposes. To bring the rest of the Eastern Limb projects, which includes Spitzkop and Kennedy`s Vale, into production additional funding will be required and may include joint venture or other third party participation in one or more of these projects, or the public or private sales of equity or debt securities of the Company. 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, including funds generated from producing operations, the Company may be required to delay or reduce the scope of these development projects. 4.2 Impairment At March 31, 2011, 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 March 31, 2011, the Company granted 9,875,000 stock options at an exercise price of Cdn$1.55. Total share-based payment expense with regards to stock options for the quarter was $8,186,000, which takes into account the vesting of options and the reversal of share-based payment expense previously recognized for unvested options that were forfeited in the period. During Q1 2011, 30,000 options were forfeited at a weighted average exercise price of Cdn$0.32 and 590,000 options were exercised at a weighted average exercise price of Cdn$0.32. In 2010, the Company`s South African subsidiary, Barplats Investments Limited ("BIL"), implemented a key skills retention plan for its senior employees in South Africa, in response to the growing skills shortage in the country. The purpose of the plan is to retain key employees, attract new employees as the need arises and remain competitive with other South African mining companies. The plan operates through a trust ("the Trust") which purchases shares of the Company on behalf of the employees. These shares then vest to the employees over time. During the 3 months ended March 31, 2011, the Trust purchased 198,563 shares pursuant to the plan which resulted in a share-based payment expense of $37,000 and a share-based payment liability of $15,000. As at May 9, 2011, the Company had: * 908,187,807 common shares outstanding; and * 67,070,503 stock options outstanding, which are exercisable at prices ranging from Cdn$0.32 to Cdn$3.38 and expire between 2011 and 2018. 4.4 Contractual Obligations and Commitments The Company`s major contractual obligations and commitments at March 31, 2011 were as follows: Table 6 (in thousands of U.S. dollars) Less than 1
Total year Provision for environmental rehabilitation $ 31 896 $ - Capital expenditure and purchase commitments contracted at March 31, 2011 but not recognized on the unaudited condensed consolidated interim statement of financial position 23 065 23 065 Finance lease obligations 3 322 3 322 $ 58 283 $ 26 387 More than 5
1-5 years years Provision for environmental rehabilitation $ - $ 31 896 Capital expenditure and purchase commitments contracted at March 31, 2011 but not recognized on the unaudited condensed consolidated interim statement of financial position - - Finance lease obligations - - $ - $ 31 896 5. Related Party Transactions Table 7 (Expressed in thousands of U.S. dollars, except per share amounts) Three months ended March 31,
2011 2010 Trading transactions Management and consulting fees $ 392 $ 336 Reimbursements of expenses 18 20 Total trading transactions $ 410 $ 356 Compensation of key management personnel Salaries and directors` fees $ 647 $ 548 Share-based payments 7 996 1 627 Total compensation of key management personnel $ 8 643 $ 2 175 A number of the Company`s executive officers are engaged under contract with those officers` personal services companies. Other executive officers are paid directly via salary and directors` fees. All share options are issued to the Company`s officers and directors, and not to their companies. Management and consulting fees increased during the three months ended March 31, 2011 mainly due to an appreciation of the Canadian dollar relative to the U.S. dollar. The average U.S. dollar-Canadian dollar exchange rate was U.S.$1.0141:Cdn$1.00 in Q1 2011 compared to U.S.$0.9608:Cdn$1.00 in Q1 2010. Salaries and directors` fees increased during the three months ended March 31, 2011 as a result of increases to annual fees granted to certain officers and directors during the quarter. Share-based payments increased from $1,627,000 during the three months ended March 31, 2010 to $7,996,000 during the same period in 2011 mainly due to the issuance of 3.4 times as many stock options in Q1 2011 compared to 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 Accounting Pronouncements under IFRS Effective January 1, 2011, the Company adopted new and revised International Financial Reporting Standards ("IFRSs") that were issued by the International Accounting Standards Board ("IASB"). The application of these new and revised IFRSs has not had any material impact on the amounts reported for the current and prior years but may affect the accounting for future transactions or arrangements. (a) Amendment to IAS 32 Financial Instruments: Presentation Rights, options or warrants to acquire a fixed number of the Company`s equity instruments for a fixed amount of any currency will be allowed to be classified as equity instruments so long as the Company offers the rights, options or warrants pro rata to all of the Company`s existing owners of the same class of the Company`s non-derivative equity instruments. (b) Amendments to IFRS 3 Business Combinations Clarification that the contingent consideration arising in a business combination previously accounted for in accordance with IFRS 3 that is outstanding at the adoption date continues to be accounted for in accordance with IFRS 3. Limiting the accounting policy choice to measure non-controlling interests upon initial recognition at fair value or at the non-controlling interest`s proportionate share of the acquiree`s identifiable net assets to instruments that give rise to a present ownership interest and that currently entitle the holder to a share of net assets in the event of liquidation. Expansion of the guidance with regards to the attribution of the market-based measure of an acquirer`s share-based payment awards issued in exchange for acquiree awards. (c ) Amendments to IAS 27 Consolidated and Separate Financial Statements Clarification that the amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates, IAS 28 Investments in Associates, and IAS 31 Interests in Joint Ventures resulting from IAS 27 should be applied prospectively, except for amendments resulting from renumbering. (d) Amendments to IFRS 7 Financial Instruments: Disclosures Amendment to disclosure requirements, specifically, ensuring qualitative disclosures are made in close proximity to quantitative disclosures in order to better enable financial statement users to evaluate an entity`s exposure to risks arising from financial instruments. (e ) Amendments to IAS 1 Presentation of Financial Statements Clarification that the breakdown of changes in equity resulting from transactions recognized in other comprehensive income is required to be presented in the statement of changes in equity or in the notes to the financial statements. (f ) Amendments to IAS 24 Related Party Disclosures Amendment of the definition for related parties. (g) Amendments to IAS 34 Interim Financial Reporting Addition of further examples of events or transactions that require disclosure and removal of references to materiality when discussing other minimum disclosures. 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 three months ended March 31, 2011 and 2010, the CEO and the CFO have designed, or caused to be designed under their supervision, the Company`s disclosure controls and procedures ("DCP") to provide reasonable assurance that material information relating to the Company and its consolidated subsidiaries has been disclosed in accordance with regulatory requirements and good business practices and that the Company`s DCP will enable the Company to meet its ongoing disclosure requirements. The CEO and CFO have evaluated the effectiveness of the Company`s disclosure controls and procedures and have concluded that the design and operation of the Company`s DCP were effective as of March 31, 2011 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"). Since 2009, the Company has used the services of an international accounting firm to act as the Company`s internal auditors for its South African operations. Under the supervision, and with the participation, of the CEO and the CFO, management conducted an evaluation of the effectiveness of the Company`s ICFR based on the framework in the Internal Control - Integrated Framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, the CEO and the CFO concluded that the design and operation of the Company`s ICFR were effective as at March 31, 2011. The scope of the Company`s design of DCP and ICFR excluded Gubevu Consortium Investment 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 three months ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company`s ICFR. 8. Cautionary Statement on Forward-Looking Information This MD&A, which contains certain forward-looking statements, is intended to provide readers with a reasonable basis for assessing the financial performance of the Company. All statements, other than statements of historical fact, are forward-looking statements. The words "believe", "expect", "anticipate", "contemplate", "target", "plan", "intends", "continue", "budget", "estimate", "may", "will", "schedule" and similar expressions identify forward looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, but are not limited to, fluctuations in the currency markets such as Canadian dollar, South African Rand and U.S. dollar, fluctuations in the prices of PGM and other commodities, changes in government legislation, taxation, controls, regulations and political or economic developments in Canada, the United States, South Africa, or Barbados or other countries in which the Company carries or may carry on business in the future, risks associated with mining or development activities, the speculative nature of exploration and development, including the risk of obtaining necessary licenses and permits, and quantities or grades of reserves. Many of these uncertainties and contingencies can affect the Company`s actual results and could cause actual results to differ materially from those expressed or implied in any forward- looking statements made by, or on behalf of, the Company. Readers are cautioned that forward-looking statements are not guarantees of future performance. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those acknowledged in such statements. Specific reference is made to the Company`s most recent Annual Information Form on file with Canadian provincial securities regulatory authorities for a discussion of some of the factors underlying forward-looking statements. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except to the extent required by applicable laws. May 9, 2011 Ian Rozier Date: 12/05/2011 13:51:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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