RNS Number : 8686H
European Goldfields Ltd
11 November 2008
European Goldfields Limited
Interim Consolidated Financial Statements
(Unaudited)
For the Three- and Nine-Month Periods Ended
30 September 2008 and 2007
Disclosure of auditor review of interim consolidated financial statements
The interim consolidated financial statements of the Company for the three- and nine-month periods ended 30 September 2008 and 2007 have
not been reviewed by the auditors of the Company.
Consolidated Balance Sheets
As at 30 September 2008 and 31 December 2007
(Unaudited * Prepared by Management)
(in thousands of US Dollars, except per share amounts)
30 September 31 December
2008 2007
$ $
Assets Note Unaudited Audited
Current assets
Cash and cash equivalents 187,556 218,839
Accounts receivable 18,900 20,408
Prepaid expenses 5,549 7,769
Inventory 4 4,995 2,110
217,000 249,126
Non current assets
Property, plant and equipment 5 62,434 48,776
Deferred exploration and development costs 6
Greek production stage mineral properties 27,932 29,525
Greek development stage mineral properties 403,177 401,829
431,109 431,354
Romanian development stage mineral properties 43,869 38,285
Turkish exploration stage mineral properties 226 -
475,204 469,639
Investment in associate 7 1,784 -
Restricted investment 8 4,900 4,900
Other financial assets 7,220 882
Future tax asset 6,827 8,808
775,369 782,131
Liabilities
Current liabilities
Accounts payable and accrued liabilities 8,391 9,977
Income taxes payable - 12,718
8,391 22,695
Non current liabilities
Future tax liability 9 111,872 109,943
Non-controlling interest 3,394 3,341
Asset retirement obligation 10 6,906 6,805
Deferred revenue 11 65,103 65,344
187,275 185,433
Shareholders* equity
Capital stock 12 538,656 537,275
Contributed surplus 12 7,547 5,997
Other comprehensive income 41,886 38,295
Deficit (8,386) (7,564)
579,703 574,003
775,369 782,131
The accompanying notes are an integral part of these interim consolidated financial statements.
Approved by the Board of Directors
(s) Timothy Morgan-Wynne (s) Jeffrey O'Leary
Timothy Morgan-Wynne, Director Jeffrey O'Leary, Director
Consolidated Statements of Profit and Loss
For the three- and nine-month periods ended 30 September 2008 and 2007
(Unaudited * Prepared by Management)
(in thousands of US Dollars, except per share amounts)
3 months ended 30 September 9 months ended 30
September
Note 2008$ 2007$ 2008$ 2007$
Income
Sales 16,101 21,663 47,270 63,690
Cost of sales (13,065) (8,870) (33,518) (24,123)
Depletion of asset retirement (174) (127) (308) (325)
obligation
Depreciation and depletion (1,469) (1,393) (3,732) (2,881)
Gross profit 1,393 11,273 9,712 36,361
Other income
Hedge contract profit 1,362 - 1,753 -
Interest income 1,306 2,320 4,565 3,889
Foreign exchange (loss)/gain (2,800) 6,494 (153) 6,077
(132) 8,814 6,165 9,966
Expenses
Corporate administrative and 1,353 869 3,918 2,600
overhead expenses
Equity-based compensation 544 603 1,547 1,509
expense
Hellas Gold administrative and 2,192 2,128 6,202 6,660
overhead expenses
Hellas Gold water treatment 1,764 1,070 3,855 3,250
expenses(non-operating mines)
Accretion of asset retirement 10 35 31 101 91
obligation
Amortisation 166 118 506 349
6,054 4,819 16,129 14,459
Share of loss in equity 66 - 102 -
investment
(Loss)/Profit for the period (4,859) 15,268 (354) 31,868
before income tax
Income taxes
Current taxes 1,639 (3,829) 1,198 (7,072)
Future taxes (2,090) 1,065 (1,626) (207)
(451) (2,764) (428) (7,279)
(Loss)/Profit for the period (5,310) 12,504 (782) 24,589
after income tax
Non-controlling interest 267 (348) (40) (4,990)
(Loss)/Profit for the period (5,043) 12,156 (822) 19,599
Deficit * Beginning of period (3,343) (23,320) (7,564) (30,763)
Deficit * End of period (8,386) (11,164) (8,386) (11,164)
(Loss)/Earnings per share 21
Basic (0.03) 0.07 0.00 0.14
Diluted (0.03) 0.07 0.00 0.14
Weighted average number of
shares(in thousands)
Basic 179,606 178,860 179,586 137,570
Diluted 179,606 180,444 179,586 139,032
The accompanying notes are an integral part of these interim consolidated financial statements.
Consolidated Statements of Equity
As at 30 September 2008 and 2007
(Unaudited * Prepared by Management)
(in thousands of US Dollars, except per share amounts)
Accumulated Deficit Total
Other $ $
Comprehensive
Capital Contributed Income
Stock Surplus $
$ $
Balance - 31 December 2006 246,890 7,135 4,276 (30,763) 227,538
Equity-based compensation cost - 1,940 - - 1,940
Shares issued for equity 130,059 - - - 130,059
financing
Shares issued as consideration 161,424 - - - 161,424
for acquisition
Share issue costs (7,055) - - - (7,055)
Restricted share units vested 850 (850) - - -
Share options exercised or 940 (888) - - 52
exchanged
Movement in cumulative - - 16,363 - 16,363
translation adjustment
Profit for the period - - - 19,599 19,599
286,218 202 16,363 19,599 322,382
Balance 30 September 2007 533,108 7,337 20,639 (11,164) 549,920
Equity-based compensation cost - 548 - - 548
Share issue cost 2,279 - - - 2,279
Restricted share units vested 1,796 (1,796) - - -
Share options exercised or 92 (92) - - -
exchanged
Change in fair value cash flow - - 882 - 882
hedge
Movement in cumulative - - 16,774 - 16,774
translation adjustment
Profit for the period - - - 3,600 3,600
4,167 (1,340) 17,656 3,600 24,083
Balance - 31 December 2007 537,275 5,997 38,295 (7,564) 574,003
Equity-based compensation cost - 2,888 - - 2,888
Share issue costs (10) - - - (10)
Restricted share units vested 1,314 (1,314) - - -
Share options exercised or 77 (24) - - 53
exchanged
Change in fair value cash flow - - 3,882 - 3,882
hedge
Movement in cumulative - - (291) - (291)
translation adjustment
Loss for the period - - - (822) (822)
1,381 1,550 3,591 (822) 5,700
Balance - 30 September 2008 538,656 7,547 41,886 (8,386) 579,703
The accompanying notes are an integral part of these interim consolidated financial statements.
Consolidated Statements of Cash Flows
For the three- and nine-month periods ended 30 September 2008 and 2007
(Unaudited * Prepared by Management)
(in thousands of US Dollars, except per share amounts)
3 months ended 9 months ended
30 September 30 September
2008 2007 2008 2007
$ $ $ $
Note
Cash flows from operating
activities
(Loss)/Profit for the period (5,043) 12,156 (822) 19,599
Share of loss in equity 66 - 102 -
investment
Foreign exchange (gain)/loss 2,906 (6,563) (16) (6,077)
Amortisation 781 545 2,230 1,615
Equity-based compensation expense 544 603 1,547 1,509
Accretion of asset retirement 35 31 102 91
obligation
Current taxation (1,639) 3,828 (1,198) 7,072
Future tax asset recognised 2,090 (1,065) 1,626 207
Non-controlling interest (267) 348 40 4,990
Deferred revenue recognised (1,591) (1,151) (3,349) (2,165)
Depletion of mineral properties 1,029 1,095 2,316 1,941
Other non-cash items - 565 - -
(1,089) 10,392 2,578 28,782
Net changes in non-cash working 14 (5,332) (6,904) (13,440) (12,438)
capital
(6,421) 3,488 (10,862) 16,344
Cash flows from investing
activities
Deferred exploration and (1,420) (1,658) (4,115) (3,602)
develop.costs - Romania
Plant and equipment - Greece (2,971) (12,142) (13,183) (17,827)
Deferred development costs - (519) (491) (1,944) (1,432)
Greece
Deferred exploration cost - (68) - (118) -
Turkey
Purchase of equipment (52) (26) (165) (61)
Purchase of land - - (2,705)
Further acquisition in Hellas - (9,003) - (9,003)
Gold
Restricted cash - - - 28
Investment in subsidiary - - (121) -
Investment in associate - - (1,858) -
(5,030) (23,320) (24,209) (31,897)
Cash flows from financing
activities
Proceeds from equity financing - - - 130,059
Deferred revenue - - 3,563 59,683
Proceeds from exercise of share - 52 54 52
options
Share issue costs - 97 - (7,055)
- 149 3,617 182,739
Effect of foreign currency (2,001) 9,658 171 9,798
translation on cash
(Decrease)/increase in cash and (13,452) (10,025) (31,283) 176,984
cash equivalents
Cash and cash equivalents - 201,008 221,596 218,839 34,587
Beginning of period
Cash and cash equivalents - End 187,556 211,571 187,556 211,571
of period
The accompanying notes are an integral part of these interim consolidated financial statements.
Statement of Comprehensive Income
For the three- and nine-month periods ended 30 September 2008 and 2007
(Unaudited * Prepared by Management)
(in thousands of US Dollars, except per share amounts)
3 months ended 9 months ended
30 September 30 September
2008 2007 2008 2007
$ $ $ $
(Loss)/Profit for the period (5,043) 12,156 822 19,599
Other comprehensive income in the period
Currency translation adjustment (314) 11,312 (291) 16,363
Cash flow hedge adjustment (1,232) - 3,883 -
Comprehensive income (6,589) 23,468 4,414 35,962
Notes to Consolidated Financial Statements
For the three- and nine-month periods ended 30 September 2008 and 2007
(Unaudited * Prepared by Management)
(in thousands of US Dollars, except per share amounts)
1. Nature of operations
European Goldfields Limited (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 South-East Europe.
The Company's common shares are listed on the AIM Market of the London Stock Exchange and on the Toronto Stock Exchange (TSX) under the
symbol "EGU".
Greece - The Company holds a 95% interest in Hellas Gold S.A ("Hellas Gold"). Hellas Gold owns three major gold and base metal deposits
in Northern Greece. The deposits are the polymetallic operation at Stratoni, the Olympias project which contains gold, zinc, lead and
silver, and the Skouries copper/gold porphyry project. 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 - European Goldfields owns 80% of the Certej gold/silver project in Romania. In July 2008, the National Agency of Mineral
Resources approved the technical feasibility study in support of its permit application and issued a new mining permit for the Certej
project.
The underlying value of the deferred exploration and development costs for mineral properties is dependent upon the existence and
economic recovery of reserves in the future, and the ability to raise long-term financing to complete the development of the properties.
For the coming year, the Company believes it has adequate funds available to meet its corporate and administrative obligations and its
planned expenditures on its mineral properties.
These consolidated financial statements have been prepared on a going concern basis, which assumes the Company will be able to realise
assets and discharge liabilities in the normal course of business for the foreseeable future. These consolidated financial statements do not
include the adjustments that would be necessary should the Company be unable to continue as a going concern.
2. Significant accounting policies
These interim consolidated financial statements have been prepared on the going concern basis in accordance with accounting principles
generally accepted in Canada ("Canadian GAAP") using the same accounting policies as those disclosed in Note 2 to the Company's audited
consolidated financial statements for the years ended 31 December 2007 and 2006.
These interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial
statements for the years ended 31 December 2007 and 2006.
Basis of preparation and principles of consolidation
Associates - are those entities in which the Company has a material long term interest and in respect of which the group exercises
significant influence over operational and financial policies, normally owning between 20% and 50% of the voting equity, but which it does
not control.
Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Company's
share of its associates post-acquisition profits or losses is recognised in the income statement. Cumulative post-acquisition movements are
adjusted against the carrying amount of investment. When the Company's share of losses in an associate equals or exceeds its interest in the
associate, including any other unsecured receivables, the Company does not recognise further losses, unless it has uncured obligations or
made payments on behalf of the associate.
Company Country of Incorporation Ownership Percentage
Ariana Resources plc United Kingdom 20.67%
Capital Disclosure - Effective 1 January 2008, the Company adopted CICA Handbook, Section 1535, Capital disclosures. The new standard
requires disclosures of qualitative and quantitative information that enables users of financial statements to evaluate the Company's
objectives, policies and processes for managing capital.
Inventories - Effective 1 January 2008, the Company adopted the CICA Handbook Section 3031, Inventories. The new section requires
inventories to be measured at the lower of cost and net realisable value and provides guidance on the cost methodology used to assign costs
to inventory, disallows the use of last-in-first-out inventory costing methodology and requires that, when circumstances which previously
caused inventories to be written down below cost no longer exist, the amount previously written down is to be reversed. Upon adoption, the
impact to the financial statements arising was immaterial.
Standards of Financial Statement Presentation - Effective 1 January 2008, the Company adopted CICA Handbook Section 1400, General
standards of Financial Statement Presentation. This section provides guidance related to management's assessment of the Company's ability to
continue as a going concern. The adoption of this standard had no impact on the Company's presentation of its financial position.
Financial Instruments Presentation and Disclosures - Effective 1 January 2008, the Company adopted CICA Handbook Sections 3862,
Financial instruments - disclosures, and 3863, Financial instruments - Presentation. These new sections represent a revision and enhancement
to Section 3861, Financial instrument - Presentation and disclosure. Under the new standards, the Company is required to disclose
information about the significance of financial instruments for its financial position and performance and qualitative and quantitative
information about its exposure to risks arising from financial instruments, as well as management's objectives, policies and processes for
managing such risks. The adoption of these standards did not have an impact on the classification and valuation of financial instruments.
The new disclosures resulting from adoption of these standards are included in note 15.
Change in functional currency - During the nine - month period ended 30 September 2008, Hellas Gold completed a long term planning
exercise on its Stratoni mine. As a stand alone business, Stratoni was shown to generate excess of US dollar revenues over Euro expenses for
its life of mine. Hellas Gold also has a series of development projects which will increase the excess of US dollar revenues over Euro
denominated cost. Also taken into consideration along with the net cash flows, were the following factors:
* All sales are priced in US dollars;
* Sales markets are international, rather than domestic to Greece;
* Day to day activities are financed by US dollar denominated sales;
* Significant amounts of future financing earmarked for the development projects has already been raised in US dollars by European
Goldfields Limited, and other financing activities in Hellas Gold, prepaid sales receipts, have all been US dollar denominated;
* Labour and materials are predominantly denominated in Euros.
Overall, it was deemed that the net exposure to the US dollar was greater than the exposure to the Euro, and that the functional
currency of Hellas Gold should change to the US dollar. The change in functional currency is effective 1 January 2008.
3. Business combination - Acquisition of an additional 30% interest in Hellas Gold
In June 2007, the Company completed the acquisition of additional shares in Hellas Gold, increasing its total interest from 65% to 95%.
The total consideration paid by the Company for the purchased shares was satisfied as follows:
(a) The issue of 35,447,246 common shares of the Company; and
(b) $8.42 million paid in cash to the vendor.
Transaction costs of $1.55 million were also accounted for as part of the acquisition.
A summary of the accounting treatment of fair value of net assets acquired and consideration paid is as follows:
$
Current assets 31,272
Property, plant and equipment 12,220
Other assets 6,536
Current liabilities (7,050)
Other liabilities (20,470)
Mineral properties 198,518
Future tax liabilities (49,630)
171,396
Purchase consideration: $
Cash paid 8,418
Shares issued (35,447,246) 161,424
Transaction costs 1,554
Purchase price 171,396
For accounting purposes, the Company has used an average share price based upon 5 days prior and post the announcement of the
transaction, to value the share element of the purchase consideration.
4. Inventory
This balance comprises the following:
30 September 31 December
2008 2007
$ $
Ore mined 786 -
Metal concentrates 2,479 865
Material and supplies 1,730 1,245
4,995 2,110
5. Property, plant and equipment
Plant and Vehicles Mine development, land and buildings Total
equipment $ $ $
$
Cost - 2008
At 31 December 2007 31,701 1,932 21,523 55,156
Additions 12,507 103 3,442 16,052
Disposals (14) (6) - (20)
At 30 September 2008 44,194 2,029 24,965 71,188
Accumulated amortisation -
2008
At 31 December 2007 3,151 1,076 2,153 6,380
Provision for the period 1,233 169 990 2,392
Disposals (11) (7) - (18)
At 30 September 2008 4,373 1,238 3,143 8,754
Net book value at 30 September 39,821 791 21,822 62,434
2008
6. Deferred exploration and development costs
Greek mineral properties:
Stratoni Olympias Skouries Total
$ $ $ $
Balance - 31 December 2007 29,525 237,284 164,545 431,354
Deferred development costs 579 318 1,287 2,184
Depletion of mineral properties (2,172) (257) - (2,429)
(1,593) 61 1,287 (245)
Balance - 30 September 2008 27,932 237,345 165,832 431,109
The Stratoni, Skouries and Olympias properties are held by the Company's 95%-owned subsidiary, Hellas Gold. In September 2005, the
Stratoni property commenced production.
Romanian mineral properties:
Certej$ Baita-Craciunesti$ Voia$ Cainel$ Total$
Balance * 31 December 2007 32,915 3,166 1,167 1,037 38,285
Drilling and assaying 274 11 11 - 296
Geosciences and tech. 1,288 24 34 1 1,347
consulting
Samplers, miners and surveying 57 2 9 1 69
Project management 2,234 26 (18) 30 2,272
Project overhead 1,332 32 133 38 1,535
Amortisation 52 6 2 5 65
5,237 101 171 75 5,584
Balance * 30 September 2008 38,152 3,267 1,338 1,112 43,869
The Certej exploitation licence and the Baita-Craciunesti exploration licence are held by the Company's 80%-owned subsidiary, 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.
Individual property spending commitments for each of the Company's Romanian licences have been met as at 30 September 2008.
Turkish mineral properties:
Total
$
Balance - 31 December 2007 -
Additions 226
226
Balance - September 2008 226
The Turkish licenses are held by the Joint Venture Company ("JV"), Pontid Madencilik. Currently the Company has a 51% interest in all
the properties within the JV and the Company will fund 100% of all costs related to the development of these properties. Ownership of these
properties maybe increased to 80% by funding to completion of a Bankable Feasibility Study. Any new concessions within the joint venture
funded to a Bankable Feasibility Study will be 90% owned by the Company. The owner of the remaining 49% of the properties is Ariana
Resources plc.
7. Investment in associate
30 September 31 December
2008 2007
$ $
Balance - Beginning of period - -
Shares acquired 1,858 -
Share of loss (102) -
Cumulative translation adjustment 28 -
-
Balance - End of period 1,784 -
In April 2008, the Company signed definitive documentation governing a JV with Ariana Resources plc ("Ariana"). The transaction
completed and the JV became effective in May 2008 after the transfer of Ariana's properties was confirmed by the General Directorate of
Mining Affairs in Turkey. The JV involves the development of Ariana's current properties in an Area of Intent ("AOI") in the Greater
Pontides region of north-eastern Turkey, which include the Ardala copper-gold porphyry and fifteen other licences covering a total area of
229km�, and a Strategic Partnership within the AOI to define new opportunities for the JV. Upon completion, European Goldfields subscribed
for 20% of the issue share capital of Ariana through a $1,830 (�929) private placement of shares.
8. Restricted investment
The balance consists of an amount of $4,900 pledged by Hellas Gold to the National Bank of Greece as collateral for a letter of
guarantee issued by the National Bank of Greece to the Greek Ministry of Development to guarantee Hellas Gold's environmental commitments
under its mining permit at Stratoni. The letter of guarantee expires on 31 December 2010. The investment bears a rate of interest of Euribor
plus 0.8% per annum.
9. Future tax liability
The following table reflects future income tax liabilities:
30 September 31 December
2008 2007
$ $
Mineral properties 104,182 104,752
Plant and equipment 1,077 701
Exploration and development expenditure 3,354 3,003
Accrued expenses 804 1,487
Cash flow hedge 2,455 -
111,872 109,943
The tax liability arises as a result of the increase in value placed on the mineral properties held by Hellas Gold on acquisition by the
Company. This future tax liability will reverse as the corresponding mineral properties are amortised.
10. Asset retirement obligation
Management has estimated the total future asset retirement obligation based on the Company's net ownership interest in the Olympias,
Skouries and Stratoni mines and facilities. This includes all estimated costs relating to the Company's obligation to dismantle, remove,
reclaim and abandon the facilities and the estimated time period during which these costs will be incurred in the future. The following
table reconciles the asset retirement obligations as at 30 September 2008 and 31 December 2007:
30 September 31 December
2008 2007
$ $
Asset retirement obligation - Beginning of period 6,805 6,031
Currency translation adjustment - 650
Accretion expense 101 124
Asset retirement obligation - End of period 6,906 6,805
As at 30 September 2008, the undiscounted amount of estimated cash flows required to settle the obligation was $7,360 (31 December 2007
- $7,421). The estimated cash flow has been discounted using a credit adjusted risk free rate of 5.04% (2008 - 5.04%). The expected period
until settlement is six years.
11. Deferred revenue
In April 2007, Hellas Gold agreed to sell to Silver Wheaton (Caymans) Ltd. ("Silver Wheaton") all of the silver metal to be produced
from ore extracted during the mine-life within an area of some 7 km� around its zinc-lead-silver Stratoni mine in northern Greece (the
"Silver Wheaton Transaction"). The sale was made in consideration of a prepayment to Hellas Gold of US$57.5 million in cash, plus a fee per
ounce of payable silver to be delivered to Silver Wheaton of the lesser of US$3.90 (subject to an inflationary adjustment beginning after
year three) and the prevailing market price per ounce. The current Stratoni proven and probable silver reserve contains approximately 12
million ounces of silver.
In April 2007, Hellas Gold entered in an agreement with MRI Trading AG of Switzerland for the sale of 25,000 wet metric tonnes of gold
bearing pyrite concentrate. Hellas Gold received a prepayment of US$2.18 million in cash. In September 2007, Hellas Gold entered into an
agreement with a subsidiary of Celtic Resources Holdings Plc for the sale of 50,000 wet metric tonnes of gold bearing pyrite concentrate,
for which Hellas Gold received a prepayment of $4.71 million in cash. In March 2008, Hellas Gold entered in an agreement with MRI Trading AG
for the sale of 25,000 wet metric tonnes of gold bearing pyrite concentrate Hellas Gold received a prepayment of $3.56 million in cash.
The following table reconciles movements on deferred revenue associated with the MRI prepayment and the Silver Wheaton Transaction:
30 September 31 December
2008 2007
$ $
Deferred revenue - Beginning of period 65,344 -
Additions 3,563 64,389
Revenue recognised (3,804) (3,738)
Foreign currency translation adjustment - 4,693
Deferred revenue - End of period 65,103 65,344
During the nine-month period ended 30 September 2008, Hellas Gold delivered concentrate containing 601,752 ounces (Year to 31 December
2007 - 952,729) ounces of silver for credit to Silver Wheaton.
12. Capital stock
Authorised:
- Unlimited number of common shares, without par value
- Unlimited number of preferred shares, issuable in series, without par value
Issued and outstanding (common shares - all fully paid):
Number of Amount
Shares $
Balance - 31 December 2007 179,162,381 537,275
Restricted share units vested 195,000 1,314
Share options exercised 25,000 77
Share issue costs - (10)
220,000 1,381
Balance - 30 September 2008 179,382,381 538,656
As at 30 September 2008, the Company had 35,447,246 (2007 - 35,447,246) common shares in respect of which trading restrictions applied.
Contributed surplus:
30 September 31 December
2008 2007
$ $
Equity-based compensation expense 6,969 5,419
Broker warrants 578 578
7,547 5,997
13. Share options and restricted share units
Share Option Plan
The Company operates a Share Option Plan (together with its predecessor, the "Share Option Plan") authorising the directors to grant
options to acquire common shares of the Company to the directors, officers, employees and consultants of the Company and its subsidiaries,
on terms that the Board of Directors may determine, within the limitations of the Share Option Plan. The maximum number of common shares of
the Company which may be reserved for issuance for all purposes under the Share Option Plan shall not exceed 15% of the common shares issued
and outstanding from time to time (26,907,357 shares as at 30 September 2008).
An option under he Share Option Plan may elect to dispose of its rights under all or part of its options (the "Exchanged Rights") in
exchange for the following number of common shares of the Company (or at the Company's option for cash) in settlement thereof (the
"Settlement Common Shares"):
Number of Number of Optioned X (Current Price - Exercise Price)
Settlement Shares issuable on Current Price
Common exercise of the
Shares Exchanged Rights
As at 30 September 2008, the following share options were outstanding:
Number of Exercise
Options price
C$
Expiry date
2009 250,000 2.80
2009 250,000 4.20
2009 360,000 3.07
2009 75,000 3.15
2010 359,999 2.00
2010 150,000 2.40
2011 66,666 3.25
2011 600,000 3.85
2011 200,000 4.10
2012 250,000 5.66
2012 150,000 5.71
2012 270,000 5.87
2013 360,000 3.54
2013 50,000 4.73
2013 385,000 5.07
2013 165,000 6.80
3,941,665 4.05
During the nine-month period ended 30 September 2008, share options were granted, exercised and cancelled as follows:
Weighted average exercise price
Number of
options
Balance - 31 December 2007 3,006,665 3.80
Options granted 960,000 4.78
Options exercised (25,000) 2.11
Options forfeited - -
Balance - 30 September 2008 3,941,665 4.05
Of the 3,941,665 (2007 - 3,171,665) share options outstanding as at 30 September 2008, 2,621,669 (2007 - 2,059,999) were fully vested
and had a weighted average exercise price of C$3.48 (2007 - C$3.10) per share. The share options outstanding as at 30 September 2008, had
weighted average remaining contractual life of 3.27 years (2007 - 2.89 years).
The fair value of the share options granted has been estimated at the date of grant using a Black-Scholes option pricing model with the
following assumptions: weighted average risk free interest rate at 2.35% (2007 - 3.35%); volatility factor of the expected market price of
the Company's shares of 32.68% to 50.50% to (2007 - 57.80% to 58.81%); a weighted average expected life of the share options of 5 years
(2007 - 5 years), maximum term of 5 years and a dividend yield of Nil (2007 - Nil).
The weighted average grant date fair value of the 960,000 share options granted during the nine-month period ended 30 September 2008
(2007 - 745,000) was C$4.78 (2007 - C$5.73). For outstanding share options which were not fully vested during the nine-month period ended 30
September 2008, the Company incurred a total equity-based compensation cost of $1,204 (2007 - $960) of which $957 (2007 - $806) has been
recognised as an expense in the income statement and $248 (2007 - $154) has been capitalised to deferred exploration and development costs.
Restricted Share Unit Plan
The Company operates a Restricted Share Unit Plan (the "RSU Plan") authorising the directors, based on recommendations received from the
Compensation Committee, to grant Restricted Share Units ("RSUs") to designated directors, officers, employees and consultants. The RSUs are
"phantom" shares that rise and fall in value based on the value of the Company's common shares and are redeemed for actual common shares on
the vesting dates determined by the Board of Directors when the RSUs are granted. The RSUs vest on the dates below however upon a change of
control of the Company they would typically become 100% vested. The maximum number of common shares of the Company which may be reserved for
issuance for all purposes under the RSU Plan shall not exceed 2.5% of the common shares issued and outstanding from time to time (4,484,560
shares as at 30 September 2008).
As at 30 September 2008, the following RSUs were outstanding:
Vesting date Number of Grant date
RSUs fair value of
underlying
shares
C$
31 December 2008 50,000 6.22
31 December 2008* 100,000 6.77
30 June 2008 30,000 5.74
31 May 2008 175,000 3.30
355,000 3.39
* or earlier if certain milestones are achieved. Vesting conditional upon such milestones being achieved by 31 December 2008
During the nine-month period ended 30 September 2008, RSUs were granted, vested and cancelled as follows:
Weighted
average
grant date
fair value of underlying
shares
C$
Number of
RSUs
Balance - 31 December 2007 185,000 4.86
RSUs granted 365,000 5.26
RSUs vested (195,000) 5.08
RSU's forfeited - -
Balance - 30 September 2008 355,000 5.14
The weighted average grant date fair value of underlying shares of the 365,000 RSUs granted during the nine-month period ended 30
September 2008 (2007 - 290,000 ) was C$5.26 (2007 - C$5.50). For outstanding RSUs which were not fully vested during the nine-month period
ended 30 September 2008, the Company incurred a total equity-based compensation cost of $1,683 (2007 - $988) of which $590 (2007 - $703) has
been recognised as an expense in the income statement and $1,092 (2007 - $285) has been capitalised to deferred exploration and development
costs.
14. Supplementary cash flow information
3 months ended 9 months ended
30 September 30 September
2008 2007 2008 2007
$ $ $ $
Changes in non-cash operating
accounts:
Accounts receivable, prepaid 7,462 (8,354) 3,729 (11,599)
expenses and supplies
Accounts payable (1,487) 3,367 (1,366) 2,822
Taxation (11,831) - (13,227) -
Inventory 524 (1,917) (2,576) (3,661)
(5,332) (6,904) (13,440) (12,438)
Supplementary disclosure of
non-cash transactions:
Share options and restricted share 1,024 (321) 2,888 1,940
units issued for non-cash
consideration
Exercise of share options - - (707) (24) (888)
Transfer from contributed surplus
to share capital
Vesting of restricted share units - (232) (1,314) (850)
15. Financial instruments and financial risk management
The Company's financial instruments consist of cash and cash equivalents, accounts receivable, restricted cash, accounts payable,
accrued liabilities, embedded derivatives and hedge contracts.
Short-term financial assets are amounts that are expected to be settled within one year. The carrying amounts in the consolidated
balance sheets approximate fair value because of the short term nature of these instruments.
The embedded derivatives are classified as a short term financial asset.
The carrying amounts for the financial instruments as at 30 September 2008 are as follows:
30 September 2008 31 December 2007
$ $
Financial Assets:
Held-for-trading, measured at fair value
Cash and cash equivalents 187,556 218,839
Restricted cash 4,900 4,900
192,456 223,739
Loans and receivables, measured at
amortised cost
Accounts receivable 18,900 20,408
Prepaid expenses 5,549 7,769
24,449 28,177
Financial Liabilities
Current liabilities, measured at
amortised costs
Accounts payable and accrued liabilities 8,391 22,695
8,391 22,695
Derivative Financial instruments -
measured at fair value
Designated as cash flow hedge
Lead hedging contracts 7,220 882
7,220 882
Credit risk - Credit risk represents the financial loss the Company would suffer if the Company's counterparties to a financial
instrument, in owing an amount to the Company, fail to meet or discharge their obligation to the Company.
Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents,
accounts receivable and hedging contracts. The cash equivalents consist mainly of short-term investments, such as money market deposits. The
Company has deposited the cash equivalents only with the largest banks within a particular region or with top rated institutions, from which
management believes the risk of loss to be remote and does not invest in asset-backed commercial papers.
As at 30 September 2008, the cash and restricted cash comprises the following:
30 September 2008 31 December 2007
$ $
Interest bearing bank accounts 131,793 216,569
Short-term deposits 60,663 7,170
192,456 223,739
The Company has accounts receivable from trading counterparties to whom concentrate products are sold. Where traders are chosen as
counterparties, only the larger and most financially secure metal trading groups are dealt with. The company may also transact agreements
with trading groups who have direct interests in smelting capacity, or direct to the smelters themselves.
Of the total trade receivable as at 30 September 2008, four customers represented 97% of the total. The Company does not anticipate any
loss for non-performance.
As at 30 September 2008, the accounts receivable comprises the following:
30 September 2008 31 December 2007
$ $
Trade receivables 6,408 2,412
Valued added taxes recoverable 9,445 17,996
Other accounts receivable 3,047 -
18,900 20,408
As at the 30 September 2008, the Company considers its accounts receivable excluding Value Added Taxes recoverable and other accounts
receivable to be aged as follows:
30 September 2008
$
Ageing
Current 5,526
Past due (1-30 days) 864
Past due (31-60 days) -
Past due (more than 60 days) 18
6,408
Interest rate risk - The Company is exposed to interest rate risk arising from fluctuations in interest rates on its cash equivalents.
The Company seeks to maximise returns on cash equivalents, without risking capital values. The Company's objectives of managing its cash and
cash equivalents are to ensure sufficient funds are maintained on hand at all times to meet day to day requirements and to place any amounts
which are considered in excess of day to day requirements on short-term deposits with the Company's banks so they earn interest. Upon
placing amounts of cash and cash equivalents on short-term deposits, the Company uses top rated institutions and ensures that access to the
amounts can be gained at short notice. During the nine-month period ended 30 September 2008 interest income of $4,565 and $1,306 for three -
month period on cash and cash equivalents, based on rates of returns between 1.25% and 4.00%
Currency risk - The Company is exposed to currency risk on sales, purchases and cash holdings that are denominated in a currency other
than the functional currencies of the individual entities in the group. As at the 30 September 2008, the Company held the equivalent of
$51,429 in foreign currencies. These balances are primarily made up of Euro and to a lesser extent Pound Sterling.
For the nine-month period ended 30 September 2008 the Company recorded a foreign exchange loss of $153 and a loss of $2,800 for the
three-month period, mainly due to the translation of its Euro balances in Hellas Gold.
The Company publishes its consolidated financial statements in US dollars and as a result, it is also subject to foreign exchange
translation risk in respect of assets and liabilities nominated in Euros in its foreign operations.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations when they become due.
The Company manages its liquidity risk by ensuring there is sufficient capital to meet short and long term business requirements after
taking into account cash flows from operations and holdings of cash and cash equivalents. The Company believes that these sources will be
sufficient to cover the likely short to medium term requirements. Senior management is also actively involved in the review and approval of
planned expenditures by regularly monitoring cash flows from operations and anticipated investing and financing activities.
The Company does not have any borrowing or debt facilities and settles its obligations out of cash and cash equivalents. The ability to
do this relies on the Company collecting its accounts receivable in a timely manner and maintaining cash on hand.
Financial liabilities consist of trade payables, accrued liabilities and income taxes payable. As at 30 September 2008, the Company's
trade payables and accrued liabilities amounted to $8,391 (31 December 2007- $9,977), all which fall due for payment within 12 months of the
balance sheet date. The average credit period taken during the nine-month period ended 30 September 2008 was 30 days,(30 days - 2007).
Commodity Price Risk
The value of the Company's mineral resource properties is related to the prices of gold, copper, zinc, lead and silver and outlook for
these commodities.
Gold prices historically have fluctuated widely and are affected by numerous factors outside of the company's control, including, but
not limited to, industrial and retail demand, central bank lending, forward sales by producers and speculators, levels of worldwide
production, short-term changes in supply and demand because of speculative investing activities, macro-economic and political variables, and
certain other factors related specifically to gold. Base metal prices have historically tended to be driven more by the demand and supply
fundamentals for each metal. However, levels of speculative activity in the base metals market have increased in recent years.
The profitability of the Company's operations is highly correlated to the market price of its commodities in particular gold. To the
extent that these prices increase, asset values increase and cash flows improve; conversely, declines in metal prices directly impact value
and cash flows. A protracted period of depressed prices could impair the Company's operations and development opportunities, and
significantly erode shareholder value.
The Company has completed a sensitivity analysis to estimate the impact on net profit of a 5% change in foreign exchange rates or a 1%
change in interest rates during the period ended 30 September 2008. The results of the sensitivity analysis can be seen in the following
table:
3 months ended 30 September 2008 9 months ended
$ 30 September 2008
$
Impact on Net Profit (+/-)
Change of +/- 5 % US$: EUR 1,762 3,277
foreign exchange rate
Change of +/- 1% in interest 515 1,030
rates
Limitations of sensitivity analysis
The above table demonstrates the effect of either a change in foreign exchange rates or interest rates in isolation. In reality, there
is a correlation between the two factors. Additionally, the financial position of the Company may vary at the time that a change in either
of these factors occurs, causing the impact on the Company's results to differ from that shown above.
Hedging and specific commitments - The Company enters into financial transactions in the normal course of business and in line with
Board guidelines for the purpose of hedging and managing its expected exposure to commodity prices. There are a number of financial
institutions which offer metal hedging services. As with cash deposits, the Company deals with highly rated banks and in addition, those
institutions who have demonstrated long term commitment to the mining sector. The hedges below are treated as cash flow hedges in accordance
with CICA 3865: Hedges.
Lead hedging contracts - As at 30 September 2008, the Company had entered into forward hedging arrangements over 12,600 tonnes of lead,
using options to provide a minimum: maximum price exposure. The hedging contracts are put/call option collar contracts with maturity dates
between 2 October 2008 and 31 December 2009 and strike prices as shown in the table below. The fair value of these contracts as 30 September
2008 amounted to $7,220 established by reference to market prices for lead.
30 September 2008
$
Lead Tonnes 9,900
US dollar price ($/tonne) - Put 2,477
US dollar contract amount ($'000) - Put 24,525
US dollar price ($/tonne) - Call 3,459
US dollar contract amount ($'000) - Call 34,245
16. Capital Risk Management
The Company's objectives when managing capital is to maintain its ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders and to ensure sufficient resources are available to meet day to day operating
requirements.
The Company's Board of Directors takes full responsibility for managing the Company's capital and does so through quarterly board
meetings, review of financial information, and regular communication with Officers and senior management.
In order to maximize ongoing development efforts, the company does not pay out dividends.
The Company's investment policy is to invest its cash in high-grade investment securities with varying terms and maturity, selected with
regards to the expected timing of expenditures from continuing operations.
The Company expects it's current capital resources will be sufficient to carry out its plans and operations through its current
operating period.
The Company is not subject to externally imposed capital requirements and there has been no change in the overall capital risk
management strategy during the thee-month period ended 30 September 2008.
17. Commitments
As at 30 September 2008, the Company had remaining spending commitments of $634 (2007 - $970) over the remaining term of its Voia
exploration licence in Romania which expires in March 2010.
The Company has spending commitments of $190 per year (plus service charges and value added tax) for a term of ten years under the lease
for its office in London, England, which commenced in April 2004. The rent will be reviewed on the fifth anniversary of the commencement of
the term to reflect any increase in rents in the market.
As at 30 September 2008, Hellas Gold had entered into off-take agreements pursuant to which Hellas Gold agreed to sell 22,455 dmt of
zinc concentrates, and 8,146 dmt of lead/silver concentrates until the end of 2008 and 433,415 dmt of gold concentrates until the financial
year's ending 2011. As at 30 September 2008, 33,628 dmt of zinc concentrates, 14,765 dmt of lead/silver concentrates and 41,707 dmt of gold
concentrates had been sold on account of the commitments.
During 2007 the Company entered into purchase agreements with Outotec Minerals OY for long-lead-time equipment and services for the
Skouries project with a cost of $51,573 (EUR36,057) of which is to be paid over three years beginning 2007. As at 30 September 2008,
$12,824 (EUR8,966) of the commitment had been paid. Hellas Gold has pledged $18,000 in support of a letter of credit issued on behalf of
Outotec Minerals OY through Nordea Bank of Finland.
18. Transactions with related parties
During the nine-month period ended 30 September 2008, Hellas Gold incurred costs of $28,651 (2007 - $20,884) for management, technical
and engineering services received from a related party, Aktor S.A., a 5% shareholder in Hellas Gold. As at 30 September 2008, Hellas Gold
had accounts payable of $4,216 (2007 - $8,836) to Aktor S.A. These expenses were contracted in the normal course of operations and are
recorded at the exchange amount agreed by the parties.
19. Segmented information
The Company has one operating segment: the acquisition, exploration and development of precious and base metal mineral resources
properties located in Greece and Romania.
Geographic segmentation of plant and equipment and deferred exploration and development costs and operating liabilities is as follows:
30 September 31 December
2008 2007
$ $
Revenue
Canada - -
Greece 47,270 86,405
Romania - -
Turkey - -
United Kingdom - -
47,270 86,405
Plant and equipment and deferred exploration and
development costs
Canada - -
Greece 490,356 479,656
Romania 46,703 38,418
Turkey 265 -
United Kingdom 314 341
537,638 518,415
Operating liabilities
Canada 156 832
Greece 6,942 20,037
Romania 213 659
Turkey 110 -
United Kingdom 970 1,167
8,391 22,695
20. Pension plans and other post-retirement benefits
The company's subsidiary, European Goldfields (Services) Limited, maintains a defined contribution pension plan for its employees. The
defined contribution pension plan provides pension benefits based on accumulated employee and Company contributions. Company contributions
to these plans are a set percentage of employees' annual income and may be subject to certain vesting requirements. The cost of defined
contribution benefits is expensed as earned by employees.
As at 30 September 2008, the company recognised the following costs:
3 months ended 9 months ended
30 September 30 September
2008 2007 2008 2007
$ $ $ $
Defined contribution plans 65 58 190 161
21. Earnings per share
The calculation of the basic and diluted earnings per share attributable to holders of the Company's common shares is based as follows:
3 months ended 9 months ended
30 September 30 September
2008 2007 2008 2007
$ $ $ $
(Loss)/Earnings (822) 12,156 (5,043) 19,599
Effect of dilutive potential common shares - - - -
Diluted (loss)/earnings (822) 12,156 (5,043) 19,599
Weighted average number of common shares
for the purpose of 179,606 178,860 179,586 137,570
basic earnings per
share
Incremental shares - Share options - 1,584 - 1,462
Weighted average number of common shares
for the purpose of 179,606 180,444 179,586 139,032
diluted earnings per
share
22. Reclassification of comparative figures
Certain comparative figures have been reclassified to conform to the current year's presentation.
23. Legal proceedings
In June 2005, certain residents of Stratoniki village submitted a request for the annulment of the Greek government's joint ministerial
decision approving the environmental impact study for the Stratoni mine (the "JMD Approval"). In November 2005, the same petitioners
submitted a request for the annulment of the decision of the Minister of Development approving the Technical Study for the exploitation of
the Mavres Petres mine that forms part of the Stratoni complex (the "MOD Approval"). The JMD Approval and the MOD Approval are necessary for
the continued operation of the Stratoni mine. In both cases the petitioners alleged a lack of legal basis for the approvals and potential
harm to the environment and their properties. The Greek government, supported by the Company, the Association of Extractive Companies, and
two workers' unions, has taken a position that the approvals are valid. In December 2005 the petitioners requested an injunction to stop
work on the Stratoni project pending the hearing of the requests for annulment, but the court rejected the request. A hearing on both requests for annulment will be held shortly. The management of
the Company believes that both requests for annulment are unfounded and unlikely to succeed.
24. New accounting pronouncements
Goodwill and intangible assets - In February 2008, the Canadian Institute of Chartered Accountants issued Section 3064 Goodwill and
intangible assets, replacing Section 3062, Goodwill and other intangible assets. The new Section will be applicable to financial statements
relating to fiscal years beginning on or after 1 October 2008. Accordingly, the Company will adopt the new standards for its fiscal year
beginning 1 January 2009. It establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to
its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the
standards included in the previous Section 3062.The Company is currently evaluating the impact of the adoption of this new Section on its
consolidated financial statements.
International Financial Reporting Standards ("IFRS) - In 2006, the Canadian Accounting Standards Board ("AcSB") published a new
strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the
convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB confirmed that publicly
listed companies will be required to adopt IFRS for interim and annual financial statements relating to fiscal years beginning on or after
January 1, 2011, and in April 2008, the AcSB issued for comment its Omnibus Exposure Draft, Adopting IFRS in Canada. Early adoption may be
permitted, however it will require exemptive relief on a case by case basis from the Canadian Securities Administrators.
The Company has begun assessing the adoption of IFRS and is in the process of completing its overall conversion plan. The plan assesses
the possible benefits of early adoption, the key differences between IFRS and Canadian GAAP including disclosures as well as a timeline for
implementation.
This information is provided by RNS
The company news service from the London Stock Exchange
END
QRTURVWRWORAAAA
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
