RNS Number:5877W
European Goldfields Ltd
15 May 2007
Immediate Release 15 May 2007
European Goldfields Limited
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED 31 MARCH 2007
The following discussion and analysis, prepared as at 15 May 2007, is intended
to assist in the understanding and assessment of the trends and significant
changes in the results of operations and financial conditions of European
Goldfields Limited (the "Company"). Historical results may not indicate future
performance. Forward-looking statements are subject to a variety of factors that
could cause actual results to differ materially from those contemplated by these
statements. The following discussion and analysis should be read in conjunction
with the Company's unaudited consolidated financial statements for the
three-month periods ended 31 March 2007 and 2006 and accompanying notes (the
"Consolidated Financial Statements").
Additional information relating to the Company, including the Company's Annual
Information Form, is available on the Canadian System for Electronic Document
Analysis and Retrieval (SEDAR) at www.sedar.com. Except as otherwise noted, all
dollar amounts in the following discussion and analysis and the Consolidated
Financial Statements are stated in United States dollars.
Overview
The Company, a company incorporated under the Yukon Business Corporations Act,
is a resource company involved in the acquisition, exploration and development
of mineral properties in Greece, Romania and the Balkans.
The Company's Common Shares are listed on the AIM Market of London Stock
Exchange plc and on the Toronto Stock Exchange (TSX) under the symbol "EGU".
Greece - The Company holds a 65% interest in Hellas Gold S.A ("Hellas Gold").
Hellas Gold owns the three major gold and base metal deposits of Stratoni,
Skouries and Olympias in Northern Greece. Hellas Gold commenced production at
Stratoni in September 2005 and commenced selling an existing stockpile of gold
concentrates from Olympias in July 2006. Hellas Gold is applying for permits to
develop the Skouries and Olympias projects.
Romania - The Company owns 80% of the Certej gold/silver project in Romania. The
Company submitted in March 2007 a technical feasibility study to the Romanian
government in support of a permit application to develop the project.
Results of operations
The Company's results of operations for the three-month period ended 31 March
2007 were comprised primarily of activities related to the results of operations
of the Company's 65%-owned subsidiary Hellas Gold in Greece and the Company's
exploration and development program in Romania. The following table summarises
operational results at Stratoni.
Stratoni Mine (Greece)
--------------------------------------------------
--------- -------- -------- -------- --------
Q1 2007 Q4 2006 Q3 2006 Q2 2006 Q1 2006
---------------------------- --------- -------- -------- -------- --------
Inventory (start of period)
Ore mined (wet tonnes) 2,499 3,617 12,326 1,155 10,963
Zinc concentrate (tonnes) 37 1,199 1,562 1,034 95
Lead/silver concentrate
(tonnes) 214 1,345 674 308 1,268
Production
Ore mined (wet tonnes) 55,069 47,321 49,652 47,966 31,752
Ore milled (tonnes) 55,258 47,038 56,769 35,810 40,333
- Average grade: Zinc (%) 11.39 10.73 10.54 9.45 8.89
Lead (%) 7.38 6.56 5.78 5.83 7.28
Silver (g/t) 179.56 161.73 142.29 146.09 183.45
Zinc concentrate (tonnes) 11,731 9,263 10,768 6,041 6,222
- Containing: Zinc (tonnes) 5,760 4,619 5,468 3,098 3,229
Lead concentrate (tonnes) 5,406 3,993 4,368 2,703 3,662
- Containing: Lead (tonnes) 3,744 2,818 2,997 1,881 2,667
Silver (oz) 288,023 216,586 227,817 141,809 207,496
Sales
Zinc concentrate (tonnes) 8,244 10,425 11,130 5,513 5,283
- Containing payable: Zinc
(tonnes)* 3,463 4,418 4,702 2,320 2,335
Lead concentrate (tonnes) 3,774 5,124 3,696 2,337 4,623
- Containing payable: Lead
(tonnes)* 2,486 3,329 2,418 1,554 3,166
Silver (oz)* 190,292 254,881 189,349 121,350 252,559
Cash operating costs per
tonne milled ($) 138 147 109 115 90
Inventory (end of period)
Ore mined (wet tonnes) 843 2,499 3,617 12,326 1,155
Zinc concentrate (tonnes) 3,524 37 1,199 1,562 1,034
Lead/silver concentrate
(tonnes) 1,846 214 1,345 674 308
Financial information
(in thousands of US dollars)
Sales ($)** 17,083 19,870 15,211 8,274 9,083
Gross profit ($)** 10,139 10,669 7,958 4,330 4,295
Capital expenditure ($) 1,564 4,202 1,487 1,351 526
Amortisation and depletion
($) 773 1,119 796 942 456
---------------------------- --------- -------- -------- -------- --------
* Net of smelter deductions
** Includes the sale of approximately 13,778 wmt of gold concentrates from an
existing stockpile at Olympias.
Cash operating costs per tonne milled fell in Q1 2007 to $138 (Euro104) per tonne,
compared to $147 (Euro114) per tonne in Q4 2006. The $9 per tonne decrease in costs
consisted of a $22/t (Euro17/t) reduction resulting from higher tonnage throughput
at the mill, offset by cost increases at the Stratoni operation and the
strengthening of the Euro against the US dollar. Mill costs increased $5/t (Euro4/
t) as a result of higher labour and maintenance costs, and mine costs increased
by $4/t (Euro3/t) mainly as a result of a significant increase in operational
development in the quarter, to access new levels in the upper area of the mine.
The weakening US dollar also added approximately US$3/t to the dollar based cost
per tonne.
Compared to 2006, labour costs have increased as a result of national labour
agreements which have awarded a 7% salary increase effective 1 January 2007 and
a second increase of 6% effective 1 May 2007. Under new contract arrangements
with Aktor S.A. (Hellas Gold's mining contractor), labour is now charged on an
accruals rather than a cash basis, which inflated Q1 costs compared to the full
year.
The Company's results of operations for the eight most recently completed
quarters are summarised in the following table:
------------------ ------ ------ ------ ------ ------ ------ ------ ------
(in thousands
of US dollars, 2007 2006 2006 2006 2006 2005 2005 2005
except per share Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
amounts)
$ $ $ $ $ $ $ $
------------------ ------ ------ ------ ------ ------ ------ ------ ------
Statement of loss
and deficit
Sales 17,083 19,870 15,211 8,274 9,083 1,464 - 57
Cost of sales 6,944 9,201 7,253 3,944 4,788 1,367 - -
Gross profit 10,139 10,669 7,958 4,330 4,295 97 - 57
Interest income 453 393 485 267 300 339 272 326
Expenses 4,916 4,446 4,341 4,345 3,558 5,079 3,536 2,287
Profit/(loss)
before income
tax 5,676 6,616 4,102 252 1,037 (4,643) (3,264) (1,904)
Profit/(loss)
after income
tax 3,957 4,349 2,984 (311) 161 (4,251) (3,729) (846)
Non-controllin
g interest (1,848) (1,973) (1,509) (225) (475) (58) 1,003 123
Profit/(loss)
for the period 2,109 2,376 1,475 (536) (314) (4,309) (2,726) (723)
Earnings/(loss
) per share 0.02 0.02 0.01 0.00 0.00 (0.04) (0.02) (0.01)
Balance sheet (end
of period)
Working capital 45,201 41,854 39,666 36,453 34,515 33,765 39,171 49,544
Total assets 325,501 311,943 294,719 292,236 274,381 266,618 295,914 298,948
Non current
liabilities 79,183 74,603 70,080 69,018 64,684 62,807 70,053 71,056
Statement of cash
flows
Deferred
exploration
and
development
costs -
Romania 696 856 598 992 848 1,081 1,067 893
Plant and
equipment -
Greece 1,577 4,144 1,268 1,599 568 1,298 2,506 2,453
Deferred
development
costs - Greece 421 2,095 462 999 476 1,510 439 891
---------------- ------ ------ ------ ------ ------ ------ ------ ------
The breakdown of deferred exploration and development costs per mineral property
for the three-month periods ended 31 March 2007 and 2006 is as follows:
Three-month periods ended 31 March
-------------------
----------- -----------
(in thousands of US dollars) 2007 2006
$ $
----------- -----------
---------------
Romanian mineral properties
Certej 661 (95%) 772 (91%)
Cainel -(-%) 17 (2%)
Voia 10 (1%) 42 (5%)
Baita-Craciunesti 25 (4%) 17 (2%)
--------------- ----------- -----------
696(100%) 848 (100%)
--------------- ----------- -----------
Greek mineral properties
Stratoni - (-%) - (-%)
Skouries 219 (52%) 162 (34%)
Olympias 202 (48%) 316 (66%)
--------------- ----------- -----------
421 (100%) 478 (100%
Total 1,117 (100%) 1,326 (100%)
--------------- ----------- -----------
The Certej exploitation licence and the Baita-Craciunesti exploration licence
are held by the Company's 80%-owned subsidiary, Deva Gold S.A. ("Deva Gold").
Minvest S.A. (a Romanian state owned mining company), together with three
private Romanian companies, hold the remaining 20% interest in Deva Gold and the
Company holds the pre-emptive right to acquire such 20% interest. The Company is
required to fund 100% of all costs related to the exploration and development of
these properties. As a result, the Company is entitled to the refund of such
costs (plus interest) out of future cash flows generated by Deva Gold, prior to
any dividends being distributed to shareholders. The Voia and Cainel exploration
licences are held by the Company's wholly-owned subsidiary, European Goldfields
Deva SRL.
The Company recorded a profit (before tax) of $5.68 million for the three-month
period ended 31 March 2007, compared to a profit (before tax) of $1.04 million
for the same period of 2006. The Company recorded a net profit (after tax and
non-controlling interest) of $2.11 million ($0.02 per share) for the three-month
period ended 31 March 2007, compared to a net loss of $0.31 million ($0.00 per
share) for the same period of 2006. The following factors have contributed to
the Company recording a profit (before tax) in Q1 2007, compared to a loss for
the same period of 2006:
* In Q1 2007, Hellas Gold's Stratoni mine was operating at substantially
higher levels than in Q1 2006: mine ore production increased 73% and mill
throughput increased 37% over the same period in 2006. This translated into
increased concentrate tonnages sold of 122% for zinc and 17% for lead.
In addition, in Q1 2007 Hellas Gold sold 13,778 tonnes of pyrite
concentrates, compared to nil in the prior year. These increased activity
levels combined with higher metal prices yielded significantly increased
revenues and profitability for Q1 2007 compared to Q1 2006.
* As a result, the Company recorded $10.14 million in gross profit on
revenues of $17.08 million in Q1 2007 for the sale of concentrates by Hellas
Gold, compared to $4.30 million in gross profit on revenues of $9.08 million
for the same period of 2006. Cost of sales of $6.94 million compared to
$4.79 million for the same period of 2006, reflect the higher mine activity
levels and included $0.77 million in amortisation and depletion expenses.
* The Company's corporate administrative and overhead expenses have
increased slightly from $0.53 million in Q1 2006, to $0.85 million for the
same period of 2007. This reflects higher general levels of corporate
activity compared to the prior period.
* The Company recorded a non-cash equity-based compensation expense of
$0.46 million in Q1 2007, compared to $0.67 million for the same period of
2006. Whilst a higher number of restricted share units were outstanding in
Q1 2007, the lower levels of charges reflect the increased level of
development activities by corporate personnel. In Q1 2007, the Company
continued a practice of recharging some of its equity-based compensation
expense to its operating subsidiaries, a portion of which is capitalised by
such subsidiaries.
* The Company recorded a foreign exchange loss of $0.15 million in Q1
2007. This loss resulted primarily from unrealised losses on translation of
Sterling denominated liabilities at the period end in a weakening United
States dollar environment. In contrast, the Company realised a foreign
exchange gain of $0.02 million in Q1 2006.
* In Q1 2007, Hellas Gold's administrative and overhead expenses amounted
to $2.21 million, compared to $0.74 million for the same period of 2006.
Hellas Gold's administrative and overhead expenses are mostly attributable
to operations related to the Stratoni mine and plant, and have increased
significantly in Q1 2007 compared to the same period of 2006. The increase
in costs relate to high current levels of community and local activities.
The company is involved in several local projects including refurbishment of
local buildings and amenities.
* In Q1 2007, Hellas Gold incurred an expense of $1.10 million, compared
to $0.49 million for the same period of 2006, for ongoing water pumping and
treatment at its non-operating mines of Olympias and Stratoni (Madem
Lakkos), in compliance with Hellas Gold's commitment to the environment
under its contract with the Greek State. At Madem Lakkos, in particular, a
significantly higher amount of backfilling of underground voids took place
in Q1 2007 than in the prior period in 2006. Additional costs were also
incurred making underground areas safe for backfilling activities.
* In Q1 2007, Hellas Gold incurred a non-recurring expense of $Nil
million, compared to $0.90 million for the same period of 2006, for the
maintenance of old adits and equipment at Stratoni. Any minor amounts which
relate to rehabilitation work at the mine are charged directly to cost of
sales.
* The Company recorded a charge for income taxes of $1.72 million in Q1
2007, compared to a charge of $0.88 million for the same period of 2006. The
charge in Q1 2007 has arisen due to the Company providing for current tax
for the first time and a residual future tax liability resulting from the
elimination of the future tax asset based on losses carried forward in
Hellas Gold. The charge in Q1 2006 had arisen due to the Company reducing
its future tax asset relating to the losses carried forward in Hellas Gold.
* The Company recorded a charge of $1.85 million in Q1 2007 relating to
the non-controlling shareholder's interest in Hellas Gold's profit (after
tax) for this period, compared to a charge of $0.48 million for the same
period of 2006, relating to the non-controlling shareholder's interest in
Hellas Gold's loss (after tax) for this period.
Comprehensive Income
The Company is reporting comprehensive income for the first time, having adopted
the new accounting standards for financial instruments which were effective for
Canadian companies on January 1, 2007. The only component for comprehensive
income was currency translation adjustments.
Liquidity and capital resources
As at 31 March 2007, the Company had cash and cash equivalents of $33.96
million, compared to $34.59 million as at 31 December 2006, and working capital
of $45.20 million, compared to $41.85 million as at 31 December 2006.
The small decrease in cash and cash equivalents as at 31 March 2007, compared to
the balances as at 31 December 2006, resulted primarily from a net increase in
accounts receivable vs. accounts payable ($2.21 million), an increase in
inventory ($2.63 million), deferred exploration and development costs in Romania
($0.70 million), capital expenditure in Greece ($1.58 million), deferred
development costs in Greece ($0.42 million) and the effects of foreign currency
translation on cash ($0.30 million), offset by operating profits ($7.25
million).
The following table sets forth the Company's contractual obligations including
payments due for each of the next five years and thereafter:
(in thousands of US dollars) Payments due by period
---------------- -------- ---------- --------- --------- ---------
Contractual Less than 1
obligations Total year 1 - 3 years 4 - 5 years After 5 years
---------------- -------- ---------- --------- --------- ---------
Operating
lease (London
office) 840 187 373 280 -
Exploration
licence
spending
commitments
(Voia,
Romania) 1,080 - 1,080 - -
---------------- -------- ---------- --------- --------- ---------
Total
contractual
obligations 1,920 187 1,453 280 -
---------------- -------- ---------- --------- --------- ---------
In 2007, the Company expects to spend a total of $81.31 million in capital
expenditures to fund the development of its project portfolio. This amount
comprises $10.53 million at its existing operation at Stratoni, and further
amounts of $12.09 million at Olympias, in order to start the refurbishment of
the mine and concentrator plant, and $55.51 million at Skouries, as the Company
puts in orders for the long lead time equipment items and site preparation. At
Certej, the Company expects to spend a further $3.18 million as it finalises its
bankable feasibility study and increases exploration on its inferred resources
and potential satellite ore bodies close to Certej. In addition to its capital
expenditure programme, the Company expects to spend $2.04 million in exploration
over the wider licence area in Greece, $5.00 million on Hellas Gold
administrative and overhead and other expenses and $3.00 million on corporate
administrative and overhead expenses. The Company expects to fund all such costs
from existing cash balances and operating cash flow generated at Stratoni. After
the quarter end, Hellas Gold received $57.50 million from Silver Wheaton
relating to the sale of its silver stream at Stratoni.
Outstanding share data
The following represents all equity shares outstanding and the numbers of common
shares into which all securities are convertible, exercisable or exchangeable:
Common shares: 115,004,621
Common share options: 3,281,999
Restricted share units: 1,185,000
--------------
Common shares (fully-diluted): 119,471,620
Preferred shares: Nil
Adoption of new accounting ftandards
Effective 1 January 2007, the Company adopted the revised CICA Section 1506
"Accounting Changes", which requires that: a voluntary change in accounting
principles can be made if, and only if, the changes result in more reliable and
relevant information, changes in accounting policies are accompanied with
disclosures of prior period amounts and justification for the change, and for
changes in estimates, the nature and amount of the change should be disclosed.
The company has not made any voluntary change in accounting principles since the
adoption of the revised standard.
Financial Instruments - Recognition and Measurement, Section 3855
This standard prescribes when a financial asset, financial liability, or
non-financial derivative is to be recognised on the balance sheet and whether
fair value or cost-based methods are used to measure the recorded amounts. It
also specifies how financial instrument gains and losses are to be presented.
Effective 1 January 2007, the Company's cash equivalents, temporary investments
and investments in marketable securities have been classified as
available-for-sale and are recorded at fair value on the balance sheet. Fair
values are determined directly by reference to published price quotations in an
active market. Changes in the fair value of these instruments are reflected in
other comprehensive income and included in shareholders' equity on the balance
sheet.
All derivatives are to be recorded on the balance sheet at fair value.
Mark-to-market adjustments on these instruments will be included in net profit,
unless the instruments are designated as part of a cash flow hedge relationship.
In accordance with the standard's transitional provisions, the Company
recognises as separate assets and liabilities only embedded derivatives acquired
or substantively modified on or after 1 January 2003.
All other financial instruments will be recorded at cost or amortised cost,
subject to impairment reviews. The criteria for assessing on other than
temporary impairment remain unchanged. Transaction costs incurred to acquire
financial instruments are included in the underlying balance. The Company has
determined that the adoption of Section 3855 had no effect on these financial
statements.
Hedges, Section 3865
This standard is applicable when a company chooses to designate a hedging
relationship for accounting purposes. It builds on the previous AcG-13 "Hedging
Relationships" and Section 1650 "Foreign Currency Translation", by specifying
how hedge accounting is applied and what disclosures are necessary when it is
applied.The Company has determined that the adoption of Section 3865 had no
effect on these financial statements.
Comprehensive Income, Section 1530
This standard requires the presentation of a statement of comprehensive income
and its components. Comprehensive income includes both net earnings and other
comprehensive income. Other comprehensive income includes holding gains and
losses on available-for-sale investments, gains and losses on certain derivative
instruments and foreign currency gains and losses relating to self-sustaining
foreign operations, all of which are not included in the calculation of net
earnings until realised. This statement has been included in the consolidated
financial statements starting this period.
Outlook
Greece - In September 2005, Hellas Gold resumed production at Stratoni following
the award by the Greek State of all necessary environmental and mining permits.
Production of ore reached over 175,000 tonnes in 2006, and is expected to
steadily increase to 400,000 tonnes per annum by year five.
In January 2006, Hellas Gold submitted a business plan to the Greek State for
the joint development of its major gold and base metal projects of Skouries and
Olympias. This submission represents a significant milestone in obtaining the
permits for these projects.
The business plan focuses on a phased approach to the development of the
projects with emphasis on achieving full production at the Skouries gold-copper
porphyry deposit as soon as possible, and the phasing of the Olympias
gold-lead-zinc-silver deposit. This approach minimises financial risk by the
phased injection of capital. The principal revenue stream in the early phases
will be through the sale of concentrates.
In March 2006, Hellas Gold received an official response from the Greek Ministry
of Development (the "Ministry") on the business plan. The response states that
the Ministry is in agreement with the principles stated in the business plan,
and that the Ministry considers the business plan to be in the best interests of
the Greek economy. This response was received by Hellas Gold within the
timeframe provided for in its contract with the Greek State.
In March 2006, Hellas Gold submitted a preliminary environmental impact study
(PEIS) to the Greek State, on which comments are expected shortly. Hellas Gold
is currently finalising a full environmental impact study (EIS) addressing any
comments made on the PEIS. On approval of the EIS, the environmental permits for
Skouries and Olympias are expected to be issued.
Hellas Gold will then submit to the Greek government a final technical report on
the Skouries and Olympias projects, which will restate the principles of the
business plan and take into account any conditions detailed in the environmental
permit. The mining permits are expected to be issued on approval of the
technical report by the Greek government.
Hellas Gold also holds 317 km(2) of highly prospective exploration licences in
northern Greece. Recent work by the Company has highlighted a total of twenty
exploration targets, including six advance targets and extensions to known
deposits, seven targets of known mineralisation for follow-up work and seven
conceptual targets. An exploration programme has been undertaken focusing on
these targets.
Romania - The Company has completed all necessary Environmental Impact
Assessments (EIA Levels I and II) for the Certej project. The Company submitted
in March 2007 a technical feasibility study to the Romanian government, in
support of a permit application to develop the project. To complete its
application, the Company plans to submit a final Environmental Impact Study to
the Romanian government in Q3 2007.
Finally, the Company continues to conduct an exploration programme in Romania
focusing on extending the life-of-mine of the Certej project and increasing the
number of conceptual and regional targets for further exploration in the South
Apuseni Mountain area.
Risks and uncertainties
The risks and uncertainties affecting the Company, its subsidiaries and their
business are discussed in the Company's Annual Information Form for the year
ended 31 December 2006, filed on SEDAR at www.sedar.com.
Documents sent to shareholders
Copies of the Company's Annual Report, Management's Discussion and Analysis and
Consolidated Financial Statements for the year ended 31 December 2006, and
copies of the Notice of Meeting and Management Proxy Circular for the Annual
Meeting of shareholders of the Company to be held on 21 May 2007 have been sent
to shareholders and filed on SEDAR at www.sedar.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
QRFDXGDUGGBGGRS
European Gold (LSE:EGU)
Historical Stock Chart
From Jun 2024 to Jul 2024
European Gold (LSE:EGU)
Historical Stock Chart
From Jul 2023 to Jul 2024