Wrap Text
Q3 September 2012 results
GREAT BASIN GOLD LIMITED
(Incorporated in Canada and registered as an External Company in South Africa)
(Registration No. 2006/021304/10)
Share Code: GBG ISIN Number: CA3901241057
("Great Basin" or "the Company")
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012
Unaudited)
(Expressed in thousands of Canadian Dollars, unless otherwise stated)
Consolidated Statements of Loss
Expressed in thousands of Canadian dollars, except per share data
Three months ended Nine months ended
September 30 September 30
2012 2011 2012 2011
Note
$ '000 $ '000 $ '000 $ '000
Revenue 38,436 46,673 104,180 129,754
Cost of operations
Production cost (34,425) (29,965) (93,690) (72,933)
Depletion charge (2,027) (1,407) (4,224) (4,397)
Depreciation charge (2,964) (5,030) (8,365) (12,228)
Expenses
Exploration expenses (1,572) (1,260) (6,291) (7,604)
Pre-development expenses (5,033) (6,287) (14,784) (13,712)
Corporate and administrative cost (1,273) (1,966) (4,319) (6,418)
Environmental impact study (397) (722) (1,279) (1,647)
Foreign exchange gain (loss) - net 5,261 (5,105) 4,838 (1,928)
Salaries and compensation
Salaries and wages (598) (1,918) (5,173) (6,428)
Share based payments expense 12(c) (1,152) (1,013) (3,928) (4,028)
Severance cost (6,907) – (6,907) –
Professional fees (3,617) – (3,617) –
Loss from operating activities (16,268) (8,000) (43,559) (1,569)
Interest expense (30,914) (5,980) (45,277) (17,177)
Interest income 375 396 1,223 1,189
Net interest expense (30,539) (5,584) (44,054) (15,988)
Loss from operating activities after net interest (46,807) (13,584) (87,613) (17,557)
Impairment of loan due from related party 6 (2,395) – (6,395) –
Impairment of mineral property 7 (24,746) – (24,746) –
Loss on derivative instruments - net (15,199) (19,814) (7,589) (36,019)
Loss before income taxes (89,147) (33,398) (126,343) (53,576)
Income tax expense (459) (589) (3,023) (1,803)
Net loss for the period (89,606) (33,987) (129,366) (55,379)
Basic and diluted loss per share (0.16) (0.07) (0.25) (0.12)
Weighted average number of common shares outstanding (thousands) 552,436 473,856 527,059 453,501
The accompanying notes are an integral part of these consolidated financial statements
Consolidated Statements of Comprehensive Loss
Expressed in thousands of Canadian dollars
Three months ended Nine months ended
September 30 September 30
2012 2011 2012 2011
$ '000 $ '000 $ '000 $ '000
Net loss for the period (89,606) (33,987) (129,366) (55,379)
Other comprehensive loss
Changes in fair value of financial instruments 8 (1,490) – (1,490) –
Cumulative translation adjustment (31,595) (56,401) (37,941) (86,357)
Other comprehensive loss for the period (33,085) (56,401) (39,431) (86,357)
Comprehensive loss for the period (122,691) (90,388) (168,797) (141,736)
The accompanying notes are an integral part of these consolidated financial statements
Consolidated Statements of Financial Position
Expressed in thousands of Canadian dollars
S eptember 30 December 31
Note 2012 2011
$ '000 $ '000
Assets
Current assets
Cash and cash equivalents 9,122 25,749
Trade and other receivables 6,827 14,060
Inventories 5 22,516 19,694
Other current assets 3,069 2,404
41,534 61,907
Non-current assets
Inventories 5 6,069 7,998
Loan due from related party 6 - 3,784
Property, plant and equipment 7 716,415 720,213
Available-for-sale financial assets 8 4,956 -
Financial assets at fair value through profit or loss 9 2,064 -
Other assets 6,910 5,327
Deferred income tax assets 49,383 51,081
Total assets 827,331 850,310
Liabilities
Current liabilities
Trade and other payables 92,850 56,038
Current portion of long term debt 10 325,311 20,371
Current portion of other liabilities 11 39,901 3,050
458,062 79,459
Non-current liabilities
Long term debt 10 - 262,075
Other liabilities 11 - 31,197
Site reclamation obligations 5,794 6,011
Total liabilities 463,856 378,742
Equity
Share capital 12(b) 883,160 833,643
Warrants 12(b) 4,324 -
Contributed surplus 90,200 83,337
Accumulated other comprehensive loss (113,195) (73,764)
Deficit (501,014) (371,648)
Total equity 363,475 471,568
Total liabilities and equity 827,331 850,310
The accompanying notes are an integral part of these consolidated financial statements
Approved by the Board of Directors
Lourens van Vuuren Ronald W. Thiessen
Interim Chief Executive Officer Director
Consolidated Statements of Changes in Equity
For the nine months ended September 30, 2012 and 2011
Expressed in thousands of Canadian dollars
Accumulated
other
Contributed comprehensive
Share capital Warrants surplus loss Deficit Total
$'000 $'000 $'000 $'000 $'000 $'000
Balance - January 1, 2012 833,643 - 83,337 (73,764) (371,648) 471,568
Comprehensive loss for the period - - - (39,431) (129,366) (168,797)
Net loss for the period - - - - (129,366) (129,366)
Other comprehensive loss - - - (39,431) - (39,431)
Employee share options
Value of services recognized (note 12(c)) - - 6,863 - - 6,863
Proceeds on issuance of units in public offering (net 49,517 4,324 - - - 53,841
of transaction costs) (note 12(b))
Balance - September 30, 2012 883,160 4,324 90,200 (113,195) (501,014) 363,475
Balance - January 1, 2011 709,449 6,108 77,676 26,395 (353,911) 465,717
Comprehensive loss for the period - - - (86,357) (55,379) (141,736)
Net loss for the period - - - - (55,379) (55,379)
Other comprehensive loss - - - (86,357) - (86,357)
Employee share options
Value of services recognized (note 12(c)) - - 6,599 - - 6,599
Proceeds on issuing shares 7,288 - (2,732) - - 4,556
Warrants
Proceeds on issuing shares 35,393 (6,053) - - - 29,340
Proceeds on issuance of shares in public offering 81,175 - - - - 81,175
(net of transaction costs)
Other 163 - - - - 163
Balance - September 30, 2011 833,468 55 81,543 (59,962) (409,290) 445,814
The accompanying notes are an integral part of these consolidated financial statements
Consolidated Statements of Cash Flows
Expressed in thousands of Canadian dollars
Three months ended Nine months ended
September 30 September 30
2012 2011 2012 2011
$ '000 $ '000 $ '000 $ '000
Operating activities
Loss for the period (89,606) (33,987) (129,366) (55,379)
Items not involving cash
Production non-cash charges 8,777 1,111 10,625 2,078
Depletion 2,027 1,407 4,224 4,397
Depreciation 1,076 5,198 8,806 12,752
Exploration non-cash charges 4 30 34 121
Pre-development non-cash charges 184 290 703 665
Unrealized foreign exchange (gain) loss (5,813) 6,139 (5,620) 2,881
Share based payments expense 1,152 1,013 3,928 4,028
Impairment of loan due from related party 2,395 – 6,395 –
Impairment of mineral property 24,746 – 24,746 –
Loss on derivative instruments - net 15,199 19,661 7,589 35,882
Share donation – – – 163
Adjusted for
Interest expense 30,914 5,980 45,277 17,177
Interest income (375) (396) (1,223) (1,189)
Changes in non-cash operating working capital
Trade and other receivables (21) 216 6,816 (362)
Other current assets (2,186) (1,649) (777) (1,068)
Inventories 2,600 (1,522) (8,522) (9,232)
Trade and other payables 18,617 6,793 40,187 11,643
Net cash generated from operating activities 9,690 10,284 13,822 24,557
Investing activities
Advance to related party – – (1,727) (1,468)
Purchase of property, plant and equipment (24,379) (36,630) (85,831) (129,821)
Interest income 69 138 279 460
Reclamation deposits (901) (252) (1,671) (712)
Net cash utilized by investing activities (25,211) (36,744) (88,950) (131,541)
Financing activities
Common shares and warrants issued for cash, net of issue costs (4) 12,615 53,841 115,070
Proceeds on issuance of debt 9,017 – 29,003 68,810
Repayment of debt 442 (15,968) (14,304) (71,723)
Interest expense (1,163) (1,516) (10,510) (10,556)
Net cash generated from (utilized by) financing activities 8,292 (4,869) 58,030 101,601
Decrease in cash and cash equivalents (7,229) (31,329) (17,098) (5,383)
Cash and cash equivalents, beginning of period 16,655 38,771 25,749 12,855
Foreign exchange movement on cash and cash equivalents (304) (920) 471 (950)
Cash and cash equivalents, end of period 9,122 6,522 9,122 6,522
Refer note 13 of the notes to the consolidated financial statements for supplementary information to the cash flow statement.
Notes to the Consolidated Financial Statements
For the three and nine months ended September 30, 2012 and 2011
1. General information
Great Basin Gold Ltd. is incorporated under the laws of the Province of British Columbia and its
registered address is 1108-1030 West Georgia Street, Vancouver BC, Canada. Great Basin Gold
Ltd., including its subsidiaries (“Great Basin” or “the Company”), is a mineral exploration and
development company with two operating assets, both in the production build-up phase, the
Hollister Project on the Carlin Trend in Nevada, USA and the Burnstone Project in the
Witwatersrand Goldfields in South Africa. Over and above the exploration being conducted at the
above mentioned properties, greenfields exploration is being undertaken in Tanzania and
Mozambique.
Due to delays experienced in the Burnstone production ramp-up which have caused liquidity
challenges for the Company, a special committee of directors was formed to pursue a strategic
review process with the objective to alleviate these strains by exploring alternatives which
include possible asset divestitures, refinancing and/or other financial restructuring. The Company
made a Companies Creditors Arrangement Act (“CCAA”) filing on September 19 th, 2012
(Vancouver Registry 126583) following the business rescue (“BR”) proceedings for the
Burnstone mine that commenced September 14, 2012 as a result of the termination of all
development and production activities at the mine on September 11, 2012. CCAA is a Canadian
insolvency statute which will allow the Company a period of time to seek buyers and partners for
its two gold mining projects and/or corporate level financiers in an effort to restructure the
Company.
Operating results for the three and nine month periods ended September 30, 2012 are not
necessarily indicative of the results that may be expected for the full fiscal year ending December
31, 2012. In the opinion of management, these unaudited interim consolidated financial
statements reflect all adjustments that are necessary for a fair presentation of the results for the
interim periods presented.
2. Basis of preparation
The interim consolidated financial statements for the three and nine months ended September 30,
2012 have been prepared in accordance with IAS34, Interim financial reporting. The condensed
interim financial information should be read in conjunction with the annual financial statements
for the year ended December 31, 2011, which have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”). The working capital deficit at September 30, 2012 as well as the
insolvency filings in South Africa and Canada, indicates an uncertainty which may cast
substantial doubt about the company's ability to continue as a going concern. See note 15 which
details the strategic alternatives being considered by management together with managements’
basis for continuing to adopt the going concern assumption as a basis for preparing the interim
consolidated financial statements.
3. Accounting policies
These unaudited interim consolidated financial statements follow the same accounting policies
and methods of application as the Company’s most recent annual financial statements.
Accordingly, they should be read in conjunction with the Company’s most recent annual financial
statements.
The policies applied in these condensed consolidated financial statements are based on IFRS
issued and outstanding as of November 12, 2012, the date the Board of Directors approved the
financial statements.
Accounting standards and amendments issued but not yet adopted
Refer to note 2 of the Company’s most recent annual financial statements for a comprehensive
listing of revised standards and amendments which are effective for annual periods beginning on
or after January 1, 2013 with earlier application permitted. The Company has not yet assessed the
impact of these standards and amendments or determined whether it will early adopt them.
4. Estimates
The preparation of interim financial statements requires management to make judgements,
estimates and assumptions that affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual results may differ from these
estimates.
In preparing these condensed consolidated interim financial statements, the significant
judgements made by management in applying the Company’s accounting policies and key
sources of estimation uncertainty were the same as those that applied to the consolidated financial
statements for the year ended December 31, 2011. In addition, see note 15 which details the
strategic alternatives being considered by management together with managements' basis for
continuing to adopt the going concern assumption as a basis for preparing the interim
consolidated financial statements.
5. Inventories
September 30 December 31
2012 2011
$ ‘000 $ ‘000
Stores and materials 4,797 4,699
Unprocessed ore 3,346 2,437
Precious metals in process 20,442 20,556
28,585 27,692
Non-current 6,069 7,998
Current 22,516 19,694
28,585 27,692
Cost of operations recognized in the statement of income consists of direct and indirect mining
costs, overhead costs, royalties, depreciation of mining equipment and depletion of mineral
properties. The Company recognized cost of inventories of $39 million (2011: $36 million) and
$106 million (2011: $90 million) as cost of operations expenses during the three and nine months
ended September 30, 2012 respectively.
Inventories including unprocessed ore and precious metals in process of $2.7 million are carried
at net realizable value (2011: $nil). Non-current inventories comprise of gold in lock-up in
metallurgical plants which are expected to be realized upon plant clean-up or dismantling.
6. Related party balances and transactions
Related party transactions are recorded at the exchange amount which is the amount of
consideration paid or received.
Loan due from related party
September 30 December 31
2012 2011
$’000 $’000
Balance, beginning of the period 3,784 13,372
Cash advances 1,727 4,506
Interest earned 944 1,000
Impairment provision (6,395) (13,680)
Foreign exchange (60) (1,414)
Balance, end of the period - 3,784
In 2007 the Company completed a series of transactions in order to achieve compliance with
South Africa’s post-apartheid legislation designed to facilitate participation by historical
disadvantages South Africans (“HDSAs”) in the mining industry. This legislation is reflected in
the South African Mining Charter and required the Company to achieve a target of 26%
ownership by HDSA in the Company’s South African projects by 2014. In order to comply with
these requirements, Tranter Burnstone (Pty) Ltd (“Tranter”), an HDSA company, acquired
19,938,650 Great Basin treasury common shares for $38 million (ZAR260 million) which,
because it involved indirect economic participation in both the Hollister and Burnstone projects,
was deemed equivalent to a 26% interest in Burnstone. Tranter borrowed ZAR200 million ($27
million) from Investec Bank Ltd (“Investec”), a South African bank, to partly fund the purchase
of the shares and the Company gave a loan guarantee in favour of Tranter limited of ZAR140
($16.6 million) million. A loan of $16.2 million (ZAR 136.4 million) was advanced to Tranter
under the guarantee agreement to enable Tranter to meet its payment obligation to Investec.
As a result of this loan the remaining guarantee available, as at September 30, 2012, is $0.4
million (ZAR3.6 million) (2011: $2.2 million (ZAR17 million)) (refer note 11).
Any advances to Tranter are due to be repaid in installments from 2014 to 2017, with interest
accruing at the South African prime interest rate plus 2%. Security for any advances made
includes a second charge against any shares of the Company held by Tranter (second to Investec).
The fair value of the security, based on the prolonged decline in the Company’s share price, was
deemed inadequate and the Company raised a fair value impairment provision of $2.4 million
(ZAR19.7 million) and $6.4 million (ZAR51.3 million) during the three and nine months ended
September 30, 2012 respectively. These are in addition to the $13.7 million (ZAR100 million)
impairment provision raised against the loan to provide for its exposure to potential future
repayment losses in quarter 4 of 2011.
7. Property, plant and equipment
Assets
Mineral Mine Mine under Other
properties infrastructure equipment construction assets Total
$’000 $’000 $’000 $’000 $’000 $’000
Period ended September 30, 2012
At January 1, 2012 164,854 460,320 40,131 47,141 7,767 720,213
Additions - 48,427 298 42,852 155 91,732
Disposal - - (824) - - (824)
Transfers (9,565) 3,220 2,630 (5,948) 98 (9,565)
Impairment (24,746) - - - - (24,746)
Depletion and
depreciation (4,751) (5,197) (8,965) - (1,076) (19,989)
Foreign exchange
differences (5,607) (28,353) (1,854) (4,211) (381) (40,406)
At September 30, 2012 120,185 478,417 31,416 79,834 6,563 716,415
At September 30, 2012
Cost 144,705 493,514 62,606 79,834 11,618 792,277
Accumulated depreciation (24,520) (15,097) (31,190) - (5,055) (75,862)
Net book value 120,185 478,417 31,416 79,834 6,563 716,415
Year ended December 31, 2011
At January 1, 2011 182,992 23,064 44,399 435,255 9,664 695,374
Additions 85 389 11,443 138,151 898 150,966
Transfers - 482,985 - (482,985) - -
Depletion and
depreciation (5,354) (9,103) (9,634) - (1,508) (25,599)
Foreign exchange
differences (12,869) (37,015) (6,077) (43,280) (1,287) (100,528)
At December 31, 2011 164,854 460,320 40,131 47,141 7,767 720,213
At December 31, 2011
Cost 185,404 470,913 64,460 47,141 11,959 779,877
Accumulated depreciation (20,550) (10,593) (24,329) - (4,192) (59,664)
Net book value 164,854 460,320 40,131 47,141 7,767 720,213
Depletion of $2.4 million relating to stockpiled tons and ounces in process was capitalized to the
value of the unprocessed ore and precious metals in process at September 30, 2012 (2011: $1.7
million) (refer note 5).
Mineral properties of $109 million consisting of the Hollister, Esmeralda and Burnstone
properties and fixed assets of $596 million have been pledged as security for the term loans (refer
note 10(a) and 10(b)).
Mining equipment includes leased assets with net book values as set out below. These assets are
pledged as security for the related finance leases (refer note 10).
September 30 December 31
2012 2011
$’000 $’000
Cost 138 5,451
Accumulated depreciation (16) (981)
Net book value 122 4,470
The Company entered into an agreement in June 2011 whereby it granted Shanta Gold Limited
(“Shanta”) the option, following the fulfillment of the conditions precedent, to acquire an 80%
interest in the Company’s wholly-owned subsidiary, Shield Resources Limited (“Shield”), who is
the holder of various prospecting licenses in the Lupa region of Tanzania.
In consideration for providing Shanta with the exclusive right to acquire the shares in Shield,
Shanta issued 12,368,584 ordinary shares and 12,368,584 Shanta warrants to the Company.
Furthermore Shanta has to fund a US$12 million exploration program, spread over a period of 3
years ending December 31, 2014 and make additional payments depending on the number of gold
ounce resources discovered. Shanta will acquire the 80% equity interest in Shield upon the
completion of the exploration program.
Conditions precedent to affect the transaction were satisfied by August 22, 2012. The Company
recorded its investment in Shanta shares and warrants, at fair values of $6.4 million and $3.2
million respectively, against mineral properties on the effective date (refer note 8 and 9).
Mineral properties relating to the Company’s Tanzanian assets were impaired following the
CCAA filing on September 19, 2012. The Company previously valued these properties based on
the assumption that further exploration will be conducted by the Company which will allow for a
value increase in these assets. Given the liquidity challenges the Company is facing, it is unable
to continue with this valuation method. A valuation based on the estimated disposal value of the
mineral properties resulted in the $24.7 million impairment loss being recognized.
8. Available-for-sale financial assets
September 30 December 31
2012 2011
$’000 $’000
Balance, beginning of the period - -
Fair value upon addition 6,384 -
Unrealized fair value loss (1,490) -
Foreign exchange 62
Balance, end of the period 4,956 -
Shanta, a mineral resources and exploration company with operations in Africa, is a publicly
traded company on the AIM market of the London Stock Exchange. The Company received
12,368,584 shares as partial consideration for providing Shanta with the exclusive right to acquire
the shares in Shield (refer note 7). The shares were recorded at its fair value of $6.4 million on
August 22, 2012, which was calculated based on the closing price of GBP 32.90 pence per share
and an exchange rate of $1.57:1GBP.
An unrealized fair value loss of $1.5 million for the period ended September 30, 2012 is reported
in the Consolidated Statements of Comprehensive Loss under other comprehensive loss and was
calculated based on the closing price of GBP 25.25 pence per share and an exchange rate of
$1.59:1GBP.
9. Financial assets at fair value through profit or loss
September 30 December 31
2012 2011
$’000 $’000
Balance, beginning of the period - -
Addition – Shanta warrants received 3,182 -
Unrealized fair value loss (1,155) -
Foreign exchange 37 -
Balance, end of period 2,064 -
The Company received a further 12,368,584 warrants as remaining consideration for providing
Shanta with the exclusive right to acquire the shares in Shield (refer note 7). The warrants are
exercisable at GBP 35 pence per share, expire on August 22, 2015 and are carried at fair value.
10. Long term debt
Non-current portion of long term debt
September 30 December 31
2012 2011
$ ‘000 $ ‘000
Convertible debentures - 97,669
Finance lease liabilities - 71
Term loan I (note 10(a)) - 125,879
Term loan II (note 10(b)) - 38,456
- 262,075
Current portion of long term debt
September 30 December 31
2012 2011
$ ‘000 $ ‘000
Convertible debentures 129,873 843
Finance lease liabilities 78 2,902
Term loan I (note 10(a)) 152,794 280
Term loan II (note 10(b)) 42,566 16,346
325,311 20,371
The continuity of long term debt is as follows:
September 30 December 31
2012 2011
$ ‘000 $ ‘000
Balance, beginning of the period 282,446 209,578
New debt 29,003 135,321
New leases - 1,989
Lease written off (474) -
Transaction cost (260) (6,525)
Repayment of debt and interest (23,499) (94,010)
Settlement loss on senior secured notes - 8,817
Amortized transaction cost 1,323 1,231
Interest expense 42,899 25,476
Foreign exchange (6,127) 569
Balance, end of the period 325,311 282,446
(a) Term loan I
In December 2011, the Company restructured Term loan I, thereby increasing the facility to
$152.6 million (US$150 million) and extending repayment to 2016. $132 million (US$130
million) of the restructured facility was drawn down on December 15, 2011, with the remaining
$20 million (US$20 million) drawn down during the six months ended June 30, 2012.
The Company received emergency funding of $9 million (US$9.2 million) on September 21,
2012, under Term loan I, which was repaid upon first drawdown of the Debtor-in-Possession
facility agreement (“DIP facility agreement”) in October 2012 and at an interest rate of 4.181% (1
week USD LIBOR of 0.181% plus 4% premium) (refer note 16(a)).
The Burnstone Property, its assets and certain subsidiary guarantees serve as security for the
facility (refer note 7).
Term loan I currently has a maximum term of 5 years from the December 15, 2011 draw down
with repayment of capital structured in 16 quarterly consecutive installments set to commence on
March 15, 2013. The interest rate for Term loan I is linked to the US$ London interbank offered
rate (“US$ LIBOR”) at a premium of 4% above US$ LIBOR and is fixed on a quarterly basis.
The floating rate on September 30, 2012 is 4.38875% (USD LIBOR of 0.38875% plus 4%
premium).
Operating and development activities were suspended at the Burnstone mine in early September
2012 which created a default under the loan agreement. Term loan 1 will be restructured or
settled under the Business rescue proceedings of the South African subsidiary owing title to the
Burnstone mine as well as the CCAA filing by the Company. As a result of the default the
outstanding amounts have been disclosed as current.
Refer to note 11(a) and note 16(b) for details of the hedge structure entered into under the Term
loan I agreement.
(b) Term loan II
Term loan II is being repaid in 14 remaining quarterly consecutive installments. The interest rate
for Term loan II is linked to the US$ LIBOR at a premium of 3.75% above US$ LIBOR and is
fixed on a quarterly basis. The floating rate on September 30, 2012 is 4.13875% (USD LIBOR of
0.38875% plus 3.75% premium).
The Hollister project and a surety signed by the Company serve as security for the loan (refer
note 7).
Covenants on Term loan II were breached as a result of the Company failing to finance the Debt
Service Reserve Account in September 2012. This loan will be restructured or refinanced as part
of the Strategic review process the Company initiated under the CCAA filing. As a result of the
default the outstanding amounts have been disclosed as current.
Refer to note 11(b) for details of the hedge structure entered into under the Term loan II
agreement.
(c) Convertible debentures
An aggregate of $126.5 million principal amount of 8% senior unsecured convertible debentures
at a price of $1,000 per Debenture were issued on November 12, 2009. The Debentures mature on
November 30, 2014 (“the Maturity date”) and bear interest at the rate of 8% per annum. Interest
is payable semi-annually in arrears on May 30 and November 30 of each year.
The fair value of the liability and equity components were calculated on issuance of the
debentures. The fair value of the liability component, included in long term borrowings, was
calculated using an estimated market related interest rate of 16.5%. The residual amount,
representing the value of the equity component, is included in shareholders’ equity in contributed
surplus.
Operating and development activities were suspended at the Burnstone mine in early September
2012 which created a default under the debenture agreement. The liability component, previously
presented on the amortized cost basis, had to be increased to its fair value and the Company
accordingly recorded interest of $22.9 million during Q3 2013. As a result of the default the
outstanding amounts have been disclosed as current.
11. Other liabilities
Non-current portion of other liabilities
September 30 December 31
2012 2011
$ ‘000 $ ‘000
Zero cost collar program I (note 11(a)) - 17,834
Zero cost collar program II (note 11(b)) - 13,363
- 31,197
Current portion of other liabilities
September 30 December 31
2012 2011
$ ‘000 $ ‘000
Financial guarantee 432 2,165
Zero cost collar program I (note 11(a)) 24,463 666
Zero cost collar program II (note 11(b)) 15,006 219
39,901 3,050
The continuity of other liabilities is as follows:
September 30 December 31
2012 2011
$ ‘000 $ ‘000
Balance, beginning of the period 34,247 12,697
ZCC fair value upon inception - 43,212
ZCC fair value upon novation - (18,295)
ZCC marked-to-market adjustments 8,315 (3,814)
Financial guarantee fair value adjustment (1,690) -
Foreign exchange (971) 447
Balance, end of the period 39,901 34,247
(a) Zero cost collar program I
In connection with Term loan I (refer note 10(a)), the Company executed a zero cost collar hedge
program for a total 165,474 gold ounces over a period of five years that commenced in January
2012.
The pricing and delivery dates of the put and call options are presented in note 11(d) below.
The marked-to-market movements until September 30, 2012 were calculated using an option
pricing model with inputs based on the following assumptions:
September 30 December 31
2012 2011
Gold price (per ounce) US$1,772 US$1,564
Risk free interest rate 0.23% - 0.57% 0.33% - 1.285%
Expected life 1 - 51 months 1 – 60 months
Gold price volatility 15.06% - 25.16% 20.35% - 32%
Gold delivery positions as at September 30, 2012:
September 30 December 31
2012 2011
Expired unexercised at no cost 13,782 ounces Nil ounces
Delivered Nil ounces Nil ounces
Remaining positions 151,692 ounces 165,474 ounces
Refer to note 16(b) for details of early termination of the hedge.
(b) Zero cost collar program II
In connection with Term loan II (refer note 10(b)), the Company executed a zero cost collar
hedge program for a total 117,500 gold ounces over a period of four years that commenced in
January 2012.
The pricing and delivery dates of the put and call options are presented in note 11(d) below.
The marked-to-market movements until September 30, 2012 were calculated using an option
pricing model with inputs based on the following assumptions:
September 30 December 31
2012 2011
Gold price (per ounce) US$1,772 US$1,564
Risk free interest rate 0.23% - 0.45% 0.33% - 1.06%
Expected life 1 - 39 months 1 - 48 months
Gold price volatility 15.06% - 24% 20.35% - 30.76%
Gold delivery positions as at September 30, 2012:
September 30 December 31
2012 2011
Expired unexercised at no cost 7,875 ounces Nil ounces
Delivered Nil ounces Nil ounces
Remaining positions 109,625 ounces 117,500 ounces
(c) Classification
The fair values of the derivative instruments as of September 30, 2012 are as follows:
Asset Liability Net
derivatives derivatives derivatives
Estimated Estimated Estimated
Derivatives not designated as hedging Statement of financial fair value fair value fair value
instruments position classification $’000 $’000 $’000
Commodity contracts (gold) – ZCC 1 Current other liabilities 5,414 (29,877) (24,463)
Commodity contracts (gold) – ZCC 2 Current other liabilities 973 (15,979) (15,006)
6,387 (45,856) (39,469)
(d) Gold delivery positions
The Company’s gold delivery positions as at September 30, 2012 are as follows:
Put options
2012 2013 2014 2015 2016 Total
Strike price AU oz AU oz AU oz AU oz AU oz AU oz
ZCC – 1 $900 7,530 - - - - 7,530
ZCC – 1 $950 - 28,506 - - - 28,506
ZCC – 1 $1,200 - - 34,008 39,768 41,880 115,656
ZCC – 2 $1,050 2,625 36,000 36,000 35,000 - 109,625
10,155 64,506 70,008 74,768 41,880 261,317
Call options
Strike 2012 2013 2014 2015 2016 Total
price AU oz AU oz AU oz AU oz AU oz AU oz
ZCC – 1 $1,890 3,765 14,253 17,004 19,884 20,940 75,846
ZCC – 1 $1,930 3,765 14,253 17,004 19,884 20,940 75,846
ZCC – 2 $1,930 2,625 36,000 36,000 35,000 - 109,625
10,155 64,506 70,008 74,768 41,880 261,317
As a result of the default on the Term loans, the net hedge liabilities have been disclosed as
current.
12. Share capital
(a) Authorized share capital
The Company’s authorized share capital consists of an unlimited number of common shares
without par value.
(b) Public offering, March and April 2012
The Company completed a public offering on March 30, 2012 whereby it issued 66,700,000 units
(the “Units”) at a price of $0.75 per Unit. On April 5, 2012, the Company issued a further 10
million Units for proceeds of $7.5 million upon closing the offering’s overallotment.
Each Unit consisted of one common share (each, a “Common Share”) in the capital of the
Company and one-half of one common share purchase warrant (each whole common share
purchase warrant, a “Warrant”) of the Company.
Each Warrant entitles the holder thereof to purchase one Common Share at a price of $0.90 until
expiry on March 30, 2014.
On the date of issuance, the fair value of the 38,352,500 warrants was estimated at $0.12 per
warrant. The valuation was performed by using an option pricing model.
The Company paid the underwriters a fee of $2.9 million and incurred other share issue costs of
approximately $0.79 million. Net proceeds of $49.5 million and $4.3 million have been recorded
as share capital and warrants respectively.
(c) Share option plan
The continuity of share purchase options is as follows:
Contractual weighted
Weighted average Number of options average remaining life
exercise price (thousands) (years)
Opening total at January 1 $1.97 17,958 2.22
Granted to employees $0.95 12,490
Cancelled $1.71 (20,270)
Replaced $0.75 10,135
Expired $1.82 (1,227)
Forfeited $1.16 (7,312)
$0.81 11,774 3.82
Directors, employees and certain consultants were allowed to cancel unexercised employee and
non-employee stock options and receive new options equal to 50% of the cancelled options at an
exercise price of $0.75 and vesting period of 24 months. The cancellation of these options was
concluded on June 7, 2012.
The cancelled options were accounted for as cancellations in accordance with IFRS 2 where any
carry forward cost not yet recognized was recognized immediately in the statement of operations.
The new options issued were accounted for as modifications in accordance with IFRS 2, where
the incremental value was recorded as additional cost measured by the difference between the fair
value of the cancelled options calculated on the modification date and the value of the
replacement options at the modification date. The amount is recognized over the vesting period
of the replacement option. Any remaining compensation cost for as yet unvested cancelled
options is also recognized over the new vesting period. In addition, approximately 5 million
options were forfeited during the quarter ended September 30, 2012 as a result of the
retrenchment of employees.
As at September 30, 2012, 2.7 million of the outstanding options were exercisable at an average
exercise price of $1.01 per option and expiry dates ranging between March 26, 2013 and May 16,
2015.
On June 1, 2012, 677,766 out of plan options expired unexercised. These options were issued
with the acquisition of mineral properties in 2008.
Costs previously recognized on options were, upon forfeiture, reversed through the current
period’s consolidated statement of loss.
The exercise prices of all share purchase options granted during the three and nine months ended
September 30, 2012 and 2011 were at or above the market price at the grant date.
(c) Share option plan (continued)
Using an option pricing model with the assumptions noted below, the estimated fair value of
options granted to employees which have been included in the consolidated statement of loss for
the three and nine months ended September 30, 2012, is as follows:
Three months ended September 30
2012 2011
$ ‘000 $ ‘000
Total compensation cost recognized, credited to contributed surplus 1,547 1,634
Compensation cost allocated to production cost (395) (621)
Share based payments expense 1,152 1,013
Nine months ended September 30
2012 2011
$ ‘000 $ ‘000
Total compensation cost recognized, credited to contributed surplus 6,863 6,599
Compensation cost allocated to production cost (2,935) (2,475)
Compensation cost capitalized on Burnstone mine development - (96)
Share based payments expense 3,928 4,028
The weighted-average assumptions used to estimate the fair value of options granted during the
respective periods were as follows:
Three months ended Nine months ended
September 30 September 30
1
2012 2011 2012 2011
Risk free interest rate - 1.9% 1.79% 2.5%
Expected life - 3 years 3.6 years 3.4 years
Expected volatility - 80% 64.21% 81%
Expected dividends - Nil Nil Nil
1 No options were granted during the three months ended September 30, 2012
13. Additional cash flow information
Supplementary information
Three months ended September 30
2012 2011
$’000 $’000
Income taxes paid - 1
Non-cash investing activities:
Depreciation capitalized to property, plant and machinery (note 7) 1,660 1,101
Fair value of stock options transferred to share capital from contributed - 1,158
surplus on options exercised
Fair value of warrants transferred to share capital on warrants exercised - 2,260
Fair value of available-for-sale financial assets transferred from mineral 6,384 -
properties (note 8)
Fair value of financial assets at fair value through profit or loss 3,182 -
transferred from mineral properties (note 9)
Three months ended September 30
2012 2011
$’000 $’000
Income taxes paid - 3
Non-cash investing activities:
Depreciation capitalized to property, plant and machinery (note 7) 5,123 3,419
Accrued interest capitalized to property, plant and machinery (note 7) - 2,515
Share based compensation capitalized (refer note 12(c)) - 96
Fair value of available-for-sale financial assets transferred from mineral 6,384 -
properties (note 8)
Fair value of financial assets at fair value through profit or loss 3,182 -
transferred from mineral properties (note 9)
Non-cash financing activities:
Fair value of stock options transferred to share capital from contributed - 2,732
surplus on options exercised
Fair value of warrants transferred to share capital on warrants exercised - 6,063
14. Segment disclosure
The Company operates in reportable operating segments to deliver on its strategy to explore, develop and
exploit mineral properties. Management has determined the operating segments based on the reports
reviewed by the Company's Chief Operating Decision Maker ("CODM") that are used to make strategic
decisions. The Company's CODM at the date of filing these interim consolidated financial statements is
its interim Chief Executive Officer.
Segment statement of income – three months ended September 2012
North South
American African Tanzanian
1
operations operations operations Other Total
$’000 $’000 $’000 $’000 $’000
Revenue 31,097 7,339 - - 38,436
Cost of operations
Production cost (24,565) (9,860) - - (34,425)
Depletion charge (1,982) (45) - - (2,027)
Depreciation charge (1,516) (1,448) - - (2,964)
Expenses
Exploration expenses (1,282) (71) (219) - (1,572)
Pre-development expenses (5,033) - - - (5,033)
Corporate and administrative cost - (11) (1) (1,261) (1,273)
Environmental impact study (397) - - - (397)
Foreign exchange gain (loss) - 57 32 5,172 5,261
Salaries and compensation
Salaries and wages - - - (598) (598)
Share based compensation - - - (1,152) (1,152)
Severance cost - (6,180) - (727) (6,907)
Professional fees - - - (3,617) (3,617)
Loss from operating activities (3,678) (10,219) (188) (2,183) (16,268)
Interest expense (1,446) (2,001) - (27,467) (30,914)
Interest income - 356 - 19 375
Net interest expense (1,446) (1,645) - (27,448) (30,539)
Loss from operating activities
after net interest (5,124) (11,864) (188) (29,631) (46,807)
Impairment of loan due from related
party - - - (2,395) (2,395)
Impairment of mineral property - - (24,746) - (24,746)
Loss on derivative instruments – net (5,224) (8,820) (1,155) - (15,199)
Loss before income taxes (10,348) (20,684) (26,089) (32,026) (89,147)
Income tax expense (459) - - - (459)
Net loss for the period (10,807) (20,684) (26,089) (32,026) (89,606)
1 Corporate entities
Segment statement of income – three months ended September 2011
North South
American African Tanzanian
1
operations operations operations Other Total
$’000 $’000 $’000 $’000 $’000
Revenue 35,753 10,920 - - 46,673
Cost of operations
Production cost (14,481) (15,484) - - (29,965)
Depletion charge (1,174) (233) - - (1,407)
Depreciation charge (894) (4,136) - - (5,030)
Expenses
Exploration expenses (852) (94) (314) - (1,260)
Pre-development expenses (6,287) - - - (6,287)
Corporate and administrative cost - - (18) (1,948) (1,966)
Environmental impact study (722) - - - (722)
Foreign exchange (loss) gain - - 5 (5,110) (5,105)
Salaries and compensation
Salaries and wages - - - (1,918) (1,918)
Share based compensation - - - (1,013) (1,013)
Profit (loss) from operating activities 11,343 (9,027) (327) (9,989) (8,000)
Interest expense (598) (1,079) - (4,303) (5,980)
Interest income - 316 - 80 396
Net interest expense (598) (763) - (4,223) (5,584)
Profit (loss) from operating
activities after net interest 10,745 (9,790) (327) (14,212) (13,584)
Loss on derivative instruments – net (10,357) (9,457) - - (19,814)
Profit (loss) before income taxes 388 (19,247) (327) (14,212) (33,398)
Income tax expense (589) - - - (589)
Net loss for the period (201) (19,247) (327) (14,212) (33,987)
1 Corporate entities
Segment statement of income – nine months ended September 2012
North South
American African Tanzanian
1
operations operations operations Other Total
$’000 $’000 $’000 $’000 $’000
Revenue 77,261 26,919 - - 104,180
Cost of operations
Production cost (54,149) (39,541) - - (93,690)
Depletion charge (4,072) (152) - - (4,224)
Depreciation charge (3,479) (4,886) - - (8,365)
Expenses
Exploration expenses (5,173) (260) (858) - (6,291)
Pre-development expenses (14,784) - - - (14,784)
Corporate and administrative cost - (57) (59) (4,203) (4,319)
Environmental impact study (1,279) - - - (1,279)
Foreign exchange gain (loss) - 149 27 4,662 4,838
Salaries and compensation
Salaries and wages - - - (5,173) (5,173)
Share based compensation - - - (3,928) (3,928)
Severance cost - (6,180) - (727) (6,907)
Professional fees - - - (3,617) (3,617)
Loss from operating activities (5,675) (24,008) (890) (12,986) (43,559)
Interest expense (3,212) (5,642) - (36,423) (45,277)
Interest income - 1,163 - 60 1,223
Net interest expense (3,212) (4,479) - (36,363) (44,054)
Loss from operating activities
after net interest (8,887) (28,487) (890) (49,349) (87,613)
Impairment of loan due from related
party - - - (6,395) (6,395)
Impairment of mineral properties - - (24,746) - (24,746)
Loss on derivative instruments – net (1,911) (4,523) (1,155) - (7,589)
Loss before income taxes (10,798) (33,010) (26,791) (55,744) (126,343)
Income tax expense (3,023) - - - (3,023)
Net loss for the period (13,821) (33,010) (26,791) (55,744) (129,366)
1 Corporate entities
Segment statement of income – nine months ending September 2011
North South
American African Tanzanian
1
operations operations operations Other Total
$’000 $’000 $’000 $’000 $’000
Revenue 106,948 22,806 - - 129,754
Cost of operations
Production cost (46,559) (26,374) - - (72,933)
Depletion charge (3,894) (503) - - (4,397)
Depreciation charge (2,880) (9,348) - - (12,228)
Expenses
Exploration expenses (6,350) (301) (9530 - (7,604)
Pre-development expenses (13,712) - - - (13,712)
Corporate and administrative cost - - (324) (6,094) (6,418)
Environmental impact study (1,647) - - - (1,647)
Foreign exchange (loss) gain - - (7) (1,921) (1,928)
Salaries and compensation
Salaries and wages - - - (6,428) (6,428)
Share based compensation - - - (4,028) (4,028)
Profit (loss) from operating activities 31,906 (13,720) (1,284) (18,471) (1,569)
Interest expense (1,410) (3,594) - (12,173) (17,177)
Interest income - 1,024 - 165 1,189
Net interest expense (1,410) (2,570) - (12,008) (15,988)
Profit (loss) from operating
activities after net interest 30,496 (16,290) (1,284) (30,479) (17,557)
(Loss) profit on derivative
instruments – net (20,034) (7,168) - (8,817) (36,019)
Profit (loss) before income taxes 10,462 (23,458) (1,284) (39,296) (53,576)
Income tax expense (1,803) - - - (1,803)
Net profit (loss) for the period 8,659 (23,458) (1,284) (39,296) (55,379)
Refined precious metals were sold to RK Mine Finance Trust I (“RK Mine”) under the terms of
an off-take agreement.
Statement of financial position
North South
American African Tanzanian
1
operations operations operations Other Total
September 30, 2012 $’000 $’000 $’000 $’000 $’000
Total assets 168,636 631,646 17,977 9,072 827,331
Total liabilities 104,199 223,606 107 135,944 463,856
1 Corporate entities
North South
American African Tanzanian
1
operations operations operations Other Total
December 31, 2011 $’000 $’000 $’000 $’000 $’000
Total assets 180,682 613,772 45,392 10,464 850,310
Total liabilities 100,198 174,941 19 103,584 378,742
1 Corporate entities
Additions to non-current assets2
North South
American African Tanzanian
1
operations operations operations Other Total
$’000 $’000 $’000 $’000 $’000
September 30, 2012 4,902 86,771 - 59 91,732
December 31, 2011 7,353 143,641 (117) 89 150,966
1 Corporate entities
2 Additions to non-current assets exclude financial instruments and deferred tax assets
15. Liquidity
The operational performance from the Nevada and South African operations resulted in a
working capital deficit of approximately $23 million on June 30, 2012. The Board of Directors
initiated a review process in August 2012 to consider a range of strategic alternatives with a view
to preserving and enhancing shareholder value in light of the continuing financial challenges.
Strategic alternatives are likely to include, but are not limited to, the sale of all or a portion of the
Company's assets, a merger or other business combination transaction involving a third party
acquiring all of the Company, a capital raising, recapitalization, reorganization, or restructuring of
the Company, as well as continued execution of the Company's existing business plan, or some
combination of these alternatives.
The Company has secured from its existing bank lenders a $35 million working capital loan
which was approved as a DIP loan by order of the British Columbia Supreme Court pursuant to
the CCAA filing made on September 19th, 2012. The DIP Loan is a post-commencement
financing under the business rescue provisions of the South African Companies Act which
commenced September 14, 2012. CCAA is a Canadian insolvency statute which will allow the
Company a period of time to complete its Strategic Review process. The DIP Loan proceeds is
being used, subject to the concurrence of a business rescue practitioner in South Africa and
KPMG LLP, the CCAA-appointed monitor in Canada, to affect an orderly suspension of
operations at Burnstone, ongoing care and maintenance of Burnstone assets, and for working
capital at Hollister.
In assessing whether the Company was a going concern management was cognizant of the CCAA
and Business rescue proceedings initiated during the quarter.
These proceedings allow the Company the time it requires to complete its Strategic review
process which will provide the required information to assess the going concern status of the
Company. Available in-house valuations of the Company’s assets currently indicate excess value
to the liabilities of the Company. As part of the Strategic review process potential investors or
bidders for the Company assets is being sought which will provide accurate evidence of arms
length market valuation of the assets. The Company is also updating the Mineral resource and
reserves for the Burnstone property which will provide the basis for an updated valuation based
on a discounted cash flow model. The outcome of the market value indication as well as the
updated discounted cash flow valuation will provide management with evidence to re-evaluate
the going concern status of the Company at December 31, 2012.
16. Subsequent events
Subsequent to September 30, 2012
(a) Debtor-in-possession Loan Agreement
The Company executed the DIP loan agreement on October 3, 2012. $14 million (US$14.3
million) of the $34.4 million (US$35 million) DIP facility was drawn down on October 3, 2012.
$9.1 million (US$9.3 million) of the proceeds repaid the emergency funding, plus accrued
interest, advanced on September 21, 2012 under Term loan I (refer note 10(a)). A further $5.4
million (US$5.5 million) was drawn down on October 23, 2012. An additional $24 million
(US$24.5 million) remains available for future draw down on November 12, 2012.
The $34.4 million (US$35 million) DIP facility has a term of 6 months with the option to extend
for 3 months. The interest rate for the DIP facility is linked to the US$ LIBOR at a premium of
10% above US$ LIBOR and is fixed on a weekly basis.
The Burnstone and Hollister Properties, its assets and certain subsidiary guarantees serve as
security for the facility (refer note 7).
(b) Early termination of zero cost collar hedge program I
On October 3 and 5, 2012, the Company received notice of early termination of all transactions
outstanding under ZCC I. This hedge structure was terminated at a realized loss of approximately
$25.4 million (U$25.9 million) as a result of the default under the Term loan I agreement. The
realized liability has been added to the outstanding principal value of Term loan I. The fair value
of the liability was valued at $24.5 million (U$24.9 million) at September 30, 2012 (refer note
11(a)).
(c) Related party transaction
Following negotiations between the Company, Tranter and Investec, a Term sheet was agreed to
during late April 2012 setting out the mutually beneficial proposal whereby the Company
provides Tranter with further financial assistance over a period of 18 months to enable them to
meet their proposed restructured loan repayment obligations to Investec and thereby remove their
current breach on the loan agreement.
(c) Related party transaction (continued)
In terms of the proposal Investec will remove all cash margin requirements and also restructure
the repayment in such a manner that the required assistance from the Company does not impact
on its short term cash requirements. The parties are currently working on finalizing the legal
agreements and obtaining the required approvals to enter into the binding legal agreements.
Finalization of this restructured financial support is being delayed as a result of the strategic
review process the Company has initiated.
Refer to note 6 for information on the loan advanced to Tranter.
Johannesburg
15 November 2012
Sponsor
Sasfin Capital (a division of Sasfin Bank Limited)
27
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