TIDMEGU
RNS Number : 7650I
European Goldfields Ltd
18 March 2010
European Goldfields Limited
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED 31 DECEMBER 2009
The following discussion and analysis, prepared as at 18 March 2010, 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"). The following discussion and analysis
should be read in conjunction with the Company's audited consolidated financial
statements for the years ended 31 December 2009 and 2008 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 thousands of 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 South-East Europe. 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".
European Goldfields is a developer-producer with globally significant gold
reserves located within the European Union. The Company generates cash flow from
its 95% owned Stratoni operation, a high grade lead/zinc/silver mine in
North-Eastern Greece and the sale of gold concentrates from Olympias. European
Goldfields will evolve into a mid tier producer through responsible development
of its project pipeline of gold and base metal deposits at Skouries and Olympias
in Greece and Certej in Romania. The Company plans future growth through
development of its highly prospective exploration portfolio in Greece, Romania
and Turkey.
Cautionary statement on forward-looking information
Certain statements and information contained in this document, including any
information as to the Company's future financial or operating performance and
other statements that express management's expectations or estimates of future
performance, constitute forward-looking information under provisions of Canadian
provincial securities laws. When used in this document, the words "anticipate",
"expect", "will", "intend", "estimate", "forecast", "planned" and similar
expressions are intended to identify forward-looking statements or information.
Forward-looking statements include, but are not limited to, the estimation of
mineral reserves and mineral resources, the timing and amount of estimated
future production, costs and timing of development of new deposits, permitting
time lines and expectations regarding metal recovery rates. Forward-looking
statements are necessarily based upon a number of estimates and assumptions
that, while considered reasonable by management, are inherently subject to
significant business, economic and competitive uncertainties and contingencies.
The Company cautions the reader that such forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual financial results, performance or achievements of the Company to be
materially different from its estimated future results, performance or
achievements expressed or implied by those forward-looking statements and the
forward-looking statements are not guarantees of future performance. These
risks, uncertainties and other factors include, but are not limited to: changes
in the price of gold, base metals or certain other commodities (such as fuel and
electricity) and currencies; uncertainty of mineral reserves, mineral resources,
grades and recovery estimates; uncertainty of future production, capital
expenditures and other costs; currency fluctuations; financing and additional
capital requirements; the successful and timely permitting of the Company's
Skouries, Olympias and Certej projects; legislative, political, social or
economic developments in the jurisdictions in which the Company carries on
business; operating or technical difficulties in connection with mining or
development activities; the speculative nature of gold and base metals
exploration and development, including the risks of diminishing quantities or
grades of mineral reserves; the risks normally involved in the exploration,
development and mining business; and risks associated with internal control over
financial reporting. For a more detailed discussion of such risks and material
factors or assumptions underlying these forward-looking statements, see
information under the heading "Risk Factors". The Company does not intend, and
does not assume any obligation, to update or revise any forward-looking
statements whether as a result of new information, future events or otherwise,
except as required by law.
RESULTS OF OPERATIONS
The Company's results of operations for the year and three-month period ended 31
December 2009 were comprised primarily of activities related to the results of
operations of the Company's 95%-owned subsidiary Hellas Gold in Greece and the
Company's exploration and development programmes in Romania and Turkey.
GREECE SUMMARY
Permitting - Preliminary Environmental Impact Study Approved
In late September the then Ministry of Environment, Physical Planning and Public
Works, completed the Preliminary Environmental Assessment and Evaluation based
on the Preliminary Environmental Impact Study ("PEIS") submitted by the
Company's 95%-owned subsidiary Hellas Gold SA, and issued a pre-approval of the
construction and operation of the Project (the "Pre-Approval") in the province
of Halkidiki, in North-Eastern Greece.
The "Project", consists of:
· The development of mining and processing at the Skouries project.
· The next stages of the Olympias project, namely the mining and processing
of ore and metallurgical treatment of the concentrate, to produce gold dore on
site.
· Continuation of operations at the Mavres Petres deposit of the Stratoni
Mine.
· The expansion of existing port facilities at Stratoni in service of the
above projects' operations.
This Pre-Approval of the Project successfully concludes the major stage of
assessment by the authorities and will lead to the preparation and submission of
the Environmental Impact Study ("EIS") and supporting studies required by Greek
and European Legislation. The EIS will be based on terms of reference as now
defined by the Pre-Approval. The EIS will be submitted to the relevant
authorities for review and the normal European Union public consultation
requirements in the near future. The Company is confident that the extensive
detail of the successful Pre-Approval process will in turn now optimise approval
of the EIS.
Olympias project
Hellas Gold completed 16 shipments of Olympias concentrates in Q4 2009 (Q4 2008
- 10) and 78 shipments for the year to end Q4 2009 (to end Q4 2008 - 34). This
translates into 34,182 tonnes for Q4 2009 (Q4 2008 - 18,566) and 114,882 tonnes
for the year end 2009 (2008 - 63,533) of pyrite concentrates sold. Hellas Gold
has now completed the sale of the Olympias pyrite gold concentrate stockpile
Sales of pyrite concentrates were as follows:
+----------------------+--------+--------+--------+--------+--------+--------+--------+-------+
| Sale of Gold-Bearing Concentrates from Existing Stockpile |
+---------------------------------------------------------------------------------------------+
| | 2009 | 2009 | 2009 | 2009 | 2008 | 2008 | 2008 | 2008 |
| | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
+----------------------+--------+--------+--------+--------+--------+--------+--------+-------+
| Sales | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+-------+
| Gold concentrate | 34,182 | 21,734 | 32,134 | 26,832 | 18,566 | 12,710 | 22,479 | 9,778 |
| (dmt) | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+-------+
| | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+-------+
Sales of Olympias gold concentrate will resume once Hellas Gold receives the
permits to process 2.4Mt of stockpiled tailings arising from the previous
operations at Olympias and when plant rehabilitation is completed. Reprocessed
tailings will produce approximately 350,000 tonnes of concentrates (containing
238,000 oz of gold) over approximately a three year period. Subsequently, the
resumption of underground primary mining operations at Olympias will produce
more gold bearing pyrite concentrates for sale. The Company has submitted an
Environmental Impact Study ("EIS") to allow the early processing of these
existing tailings and allow the rehabilitation of a significant area of the
Olympias valley. It is planned that this re-processing will commence in
parallel with refurbishment of underground infrastructure to recommence primary
mining production.
Since Olympias already benefits from extensive mining and plant infrastructure
including a concentrator plant, a shaft and a decline, the project can be
brought back into efficient operation quickly and at relatively modest cost.
Hellas Gold has commenced engineering work to rehabilitate the Concentrator
starting with a structural review. Scott Wilson Mining Consultants has completed
an initial underground mine refurbishment study which is being optimised. Life
of mine schedules, plant refurbishment plans and cost studies for the Olympias
project are under technical and financial review with a view to accelerating the
construction of the gold doré plant.
Skouries project
During 2009, Outotec completed the fabrication of the SAG and ball mills, motors
and thickeners, which represents the bulk of the process plant for the Skouries
project. Process equipment is held at a storage facility in Thessaloniki which
has been approved by Outotec. With the majority of the process plant fabricated
the Company is in a position to minimise the build time upon receipt of final
permits. The Greek engineering group ENOIA has issued the Basic Engineering
package to schedule.
Outotec is also well advanced with the Detailed Engineering of instrumentation
and control systems for the concentrator plant and ENOIA is coordinating the
overall control package including equipment outside of Outotec's supply to
provide a fully integrated system.A hydrogeological study by IGME, the Greek
geological survey, has also been completed and detailed design of all civil
construction activity including the tailings management facility ("TMF") is
currently being undertaken by Omikron Kappa.
The project utilises established technology and has a simple flow-sheet. The
involvement of Outotec through the engineering and construction phases, together
with its process guarantee, will enable a smooth advancement to production and
ensure the technical performance of the plant. The balance of the project
represents a large-scale civil construction project which the company believes
represents low technical risk and can easily be sub-contracted.
Stratoni operations
The Company's cash flow positive mining operations at Stratoni continue to
demonstrate European Goldfields' permitting and environmental capabilities and
commitment to the highest levels of social responsibility.
Production
Hellas Gold completed 7 shipments in Q4 2009 (Q4 2008 - 10), and 26 shipments
for the year to end Q4 2009 (to end Q4 2008 - 30). Hellas Gold's results from
its operations at Stratoni for the eight most recently completed quarters are
summarised in the following table:
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Operational results |
+--------------------------------------------------------------------------------------------------------------------------+
| | 2009 | 2009 | 2009 | 2009 | 2008 | 2008 | 2008 | 2008 |
| | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Inventory (start of period) | | | | | | | | |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Ore mined (wet tonnes) | 8,097 | 2,293 | 4,010 | 1,778 | 6,489 | 1,003 | 2,816 | - |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Zinc concentrate (tonnes) | 583 | 25 | 621 | 2,975 | 2,078 | 5,660 | 2,745 | 1,689 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Lead/silver concentrate (tonnes) | 857 | 2,090 | 1,393 | 488 | 1,294 | 1,238 | 2,213 | 49 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Production | | | | | | | | |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Ore mined (wet tonnes) | 57,247 | 57,235 | 60,023 | 56,892 | 70,468 | 69,847 | 73,137 | 58,208 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Ore milled (tonnes) | 63,345 | 50,167 | 60,287 | 52,984 | 73,320 | 63,040 | 73,280 | 53,675 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| - Average grade: Zinc (%) | 8.64 | 9.10 | 8.87 | 7.85 | 8.80 | 8.82 | 10.37 | 9.37 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Lead (%) | 5.40 | 5.18 | 5.56 | 6.42 | 6.54 | 6.40 | 6.21 | 5.35 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Silver (g/t) | 140 | 133 | 141 | 166 | 167 | 160 | 155 | 134 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Zinc concentrate (tonnes) | 10,572 | 8,495 | 9,975 | 7,932 | 12,106 | 10,451 | 14,139 | 9,427 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| - Containing: Zinc (tonnes) | 5,080 | 4,248 | 4,971 | 3,827 | 5,914 | 5,132 | 7,004 | 4,644 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Lead concentrate (tonnes) | 4,684 | 3,503 | 4,483 | 4,667 | 6,750 | 5,531 | 6,443 | 4,035 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| - Containing: Lead (tonnes) | 3,143 | 2,376 | 3,060 | 3,129 | 4,434 | 3,726 | 4,201 | 2,653 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Silver (oz) | 236,621 | 177,650 | 230,106 | 240,366 | 336,336 | 280,305 | 316,354 | 207,215 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Sales | | | | | | | | |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Zinc concentrate (tonnes) | 8,338 | 7,937 | 10,571 | 10,286 | 11,210 | 14,033 | 11,224 | 8,371 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| - Containing payable: Zinc (tonnes)* | 3,380 | 3,325 | 4,427 | 4,144 | 4,591 | 5,818 | 4,633 | 3,454 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Lead concentrate (tonnes) | 4,717 | 4,736 | 3,786 | 3,762 | 7,556 | 5,475 | 7,418 | 1,872 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| - Containing payable: Lead (tonnes)* | 3,030 | 3,042 | 2,448 | 2,347 | 4,775 | 3,495 | 4,628 | 1,188 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Silver (oz)* | 227,661 | 228,574 | 183,452 | 183,504 | 363,205 | 263,464 | 355,298 | 95,582 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Cash operating cost per tonne milled ($) | 173 | 165 | 144 | 156 | 145 | 164 | 161 | 164 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Cash operating cost per tonne milled (EUR) | 117 | 116 | 106 | 119 | 109 | 109 | 103 | 110 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Inventory (end of period) | | | | | | | | |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Ore mined (wet tonnes) | 1 | 8,097 | 2,293 | 4,010 | 1,778 | 6,489 | 1,003 | 2,816 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Zinc concentrate (tonnes) | 2,817 | 583 | 25 | 621 | 2,975 | 2,078 | 5,660 | 2,745 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
| Lead/silver concentrate (tonnes) | 824 | 857 | 2,090 | 1,393 | 488 | 1,294 | 1,238 | 2,213 |
+------------------------------------------+---------+---------+---------+---------+---------+---------+---------+---------+
* Net of smelter payable deductions
Ore production rates from underground were lower than 2008 due to unexpected
poor geotechnical conditions, particularly in the upper levels and in previously
mined areas found not to be backfilled. Grade was also affected as the poor
geotechnical conditions forced the operation to mine lower grade areas.
The 220 decline and sump, the 360 adit and the main internal ramp at Mavres
Petres were completed and connected during the year. The main fans were
installed in the 360 adit affording the operation much improved access,
ventilation and supply facilities. The internal ramp has been extended downwards
to the 142 level from the 220 decline to orebody extensions enabling additional
large, more productive stopes to be designed and mined. Second accesses from the
main internal ramp to an additional number of levels have been mined in 2009 to
provide more mining faces enhancing flexibility.
ROMANIA SUMMARY
PUZ permit approvals complete
The last remaining approval required for the grant of the Zonal Urbanisation
Plan ("PUZ") relating to Certej was recently issued by the Ministry of
Environment. Formal public notice of this approval has been issued in Romania
and the full PUZ permit will be granted at the next meeting of the Certej
council.
The grant of the PUZ will be a significant milestone which takes European
Goldfields one step closer to production. Certej contains 2.4 million reserve
ounces of gold, plus 17.3 million reserve ounces of silver, and lies in an area
which was a major gold producer historically and retains considerable future
potential. The Company is already well advanced in the next and final
substantive part of the permitting process for Certej, which is the approval of
the full Environmental Impact Study.
Basic engineering substantially complete
The Basic Engineering ("BE") contract for the Certej project process plant and
associated infrastructure awarded to Aker Solutions Engineering & Construction
was completed in September 2009. The BE covers the entire process plant
engineering, encompassing all three main areas of processing: the concentrator
area, the Albion section and gold-silver doré production by CIL. Xstrata
Technology, who are the owners of the Albion Process, were part of the BE team
leading the design of the Albion section of the plant. The capital and operating
costs calculated deviated little from previously estimated in-house calculations
developed from the 2008 Cost & Definition study, also conducted by Aker
Solutions. Basic design continues on the civil engineering and infrastructure
components of the project. This includes geotechnical investigations with the
assistance of Golder Associates UK ("Golder") for the TMF, dumps and pump tests
carried out by Golder's PasteTec(TM) division on tailings which will allow the
detailed design of the tailings pumping and delivery system.
Technical Report in preparation for Construction Permit application initiated
The Romanian contractor Cepromin has been appointed to prepare the Technical
Report, which involves advancing the BE level studies. This work is due for
completion in 2010, which together with the environmental permits will be
required for issuing the Construction Permit.
An audit has also been completed by an independent Technical Consultant which
was required in order to obtain bank finance. This audit looked at every
material aspect of the project and has confirmed the validity of the Company's
technical approach to the project.
Project Finance
European Goldfields commissioned an Independent Consultant to undertake an audit
for the Bank Financing of Certej which is now complete and will form the basis
for the conclusion of a project finance facility. Negotiations with a group of
financing institutions are well advanced: a detailed term sheet has been agreed
along with the roles for each institution within the facility.
EXPLORATION SUMMARY
The Board of Directors has approved a group wide, results driven exploration
budget of US$15 million for 2010.
Greece
The Stratoni project, the Olympias and Skouries development projects and three
drill-ready exploration targets are hosted within European Goldfields' 317 km²
Greek Licence Area. The total 2010 exploration budget for Greece is US$9.2
million and an aggressive drilling and exploration plan has been developed with
the aim of defining new massive sulphide and porphyry style resources in the
indicated and inferred categories.
Results of an airborne geophysics survey have significantly increased the number
and extent of conductive anomalies identified within the Licence Area. Some of
these anomalies are already known to host mineralisation and others are
currently untested. The EM survey had already successfully confirmed an anomaly
extending eight kilometres of strike at the Piavitsa massive sulphide target;
two kilometres of this strike length have massive sulphide drill intercepts
which correspond exactly with the EM anomaly. To put this new exploration
target in context, the massive sulphide mineral reserves at Olympias have a
strike length which totals two kilometres. This historic drilling has indicated
that the grade, mineralogy and geometry of the Piavitsa mineralisation is
similar to that at Olympias.
In addition, the magnetic component of the survey has already identified a 17
kilometre by six kilometre belt of porphyry intrusives over which a three
dimensional model has been completed defining two other major targets, Fisoka
and Tsikara. Follow-up reconnaissance mapping on the ground has confirmed the
presence of porphyry style mineralisation. Historic drill results at Fisoka
show mineralisation but Tsikara is a virgin target. The identification of open
pittable porphyry style copper and gold resources has the potential to defer the
underground development costs of the Skouries project.
Romania
In Romania a results driven exploration programme has been designed with a total
cost of some US$4.4 million with the aim of testing current targets and
delineating early project stage resources.
Along the volcanic belt which hosts the Certej project, surface work including
extensive soil sampling, geophysical surveys and re-interpretation of existing
data has outlined a series of epithermal gold targets proximal to the Certej
deposit and the historic Brad mines.
In addition porphyry style mineralised targets have been identified around the
Deva porphyry which historically produced some 20Mt at 0.8% Cu and with the gold
grade unrecorded.
Turkey
An exploration budget of US$2.2 million covering a results driven programme of
drilling, trenching and continued surface exploration and licence acquisition
has been approved for Turkey.
Mapping and sampling has confirmed that porphyry mineralisation continues to the
south of the previously recognised outcrops, and this additional extension
increases the size potential of the porphyry system. A high-grade gold zone has
also been identified at some three km to the southwest of the Ardala porphyry.
Trenching has returned bedrock intercepts of between 6 and 46 metres at grades
of between 2.8 and 9.6 g/t gold (using a 0.5g/t gold lower cut-off and no upper
cut-off grade) over a 360m strike length with mineralisation open to the south.
The Company continues to consolidate ground to the south of the Ardala licence
and has finalised an agreement with Aldridge Minerals Inc ("Aldridge") for the
joint development of Aldridge's Derinkoy properties, which covers an area of 40
km² adjacent to the Company's Ardala Licences. The Company continues to look for
new opportunities in Turkey and the exploration team has conducted a number of
exploration site visits to various portfolios, properties and deposits, both
within the Ariana JV area of interest and elsewhere in Turkey.
CORPORATE UPDATE
Board Changes
The Company is pleased to announce that it has appointed Alfred Merton Vinton to
its Board of Directors. The appointment of Mr. Vinton as our third Independent
Non-Executive Director will add valuable industry experience and insight to the
Board.
Mr. Vinton (aged 71) is Deputy Chairman of The Unipart Group of Companies. He is
also a director of Dinamia SCR S.A, GP Investments Ltd, and Hochschild Mining
plc, as well as a number of Latin American and European investment funds. From
1995-2009 he was Chairman of Electra Partners, the well-known private equity
firm. Prior to 1995, he had served as Chief Executive of Quilvest Ltd, Chief
Operating Officer of N M Rothschilds, and for 25 years worked for J P Morgan,
latterly as Senior Vice President responsible for the bank's business in the UK
and Scandinavia.
Mr. Vinton is a highly respected and well known industry executive whose
appointment will augment the Board's commercial and operational experience. Mr.
Vinton has already joined the Company's Audit, Compensation and Nominating and
Corporate Governance Committees.
In addition the Company is pleased to announce the appointment of Varshan Gokool
as Vice President, Treasurer. Mr. Gokool brings corporate banking, trading and
industry experience to the management team. Prior to joining European
Goldfields, Mr. Gokool was Treasurer at Katanga Mining Limited where he was
responsible for the treasury activities of the Company which included the
arrangement of funding for its Kamoto Copper Project in the Democratic Republic
of Congo. Mr. Gokool is a graduate of the University of Cape Town with a
B.Bus.Sci (Finance), and is a CFA Charterholder.
European Goldfields added to S&P/TSX Global Gold Index
The Company is pleased to announce that, as a result of Standard & Poor's
Canadian index changes following the quarterly S&P/TSX Composite Index review,
European Goldfields has been added to the S&P Global Gold Index. The change will
be effective on Monday, March 22, 2010.
Positive update on legal proceedings
As reported previously in June 2005, certain residents of Stratoniki village
submitted a request for the annulment of the Greek government's joint
ministerial decision approving the EIS 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 was held in late 2009 and
Company is now pleased to confirm that the Council of State has published its
judgement to reject both requests for annulment in all respects.
Long term incentive plan
European Goldfields is currently finalising a Long Term Incentive Plan ("LTIP")
for employees. As benefits under the LTIP will not take effect for some time
the Board has agreed to approve a Special Grant of RSUs and Share Options to
inter alia Messrs Rachovides and Morgan-Wynne being Directors and Officers of
the Company and to Messrs Forward and Dimitriadis being Officers of the Company.
The Company is examining longer term options such as an Employee Benefit Trust
in the context of developing the LTIP plan. Details of the Special Grant will
be finalised and the grant will be actually made once the Company has decided
upon these arrangements and this is expected by 31 March 2010. Options issued
under the Special Grant will be priced at $6.03 reflecting the stipulations of
the Company's Option Plan at the time of Board approval. Further details will
be disclosed at the time the Special Grant is actually made.
Outlook and Strategy
The Company initiated a Strategic Review in November 2009 which was completed
January 2010. The review focused on assessing the Company's key resource
requirements - personnel, infrastructure and finance - in order to prepare for
the next phase of the Company's development as it moves towards becoming a
mid-tier producer. As a consequence of this review, the Company has already
established a new Investor Relations and Treasury function and further key hires
will be made in the near future. European Goldfields has been through a
rebranding process and the new website and communication materials better
support the Company's intention to reposition itself in the market. We have
already expanded our positive research coverage by brokers in the UK and North
America and are in the process of further broadening our exposure.
A major part of the Strategic Review was to prepare a highly detailed technical
roadmap and resourcing plan which will be implemented as we further progress
with permitting. In addition, the Company continues to advance discussions on
the financing of its project portfolio with initial focus on Certej.
There is considerable potential to significantly add to the Company's gold
resource inventory during 2010. The Company already benefits from an unusually
high level of reserves and a high resource to reserve conversion ratio.
However, the broader potential around its current operational and development
assets is currently untested and newly identified drill ready targets present
the opportunity to fast track the Company's US$15 million 2010 exploration
program with a view to increasing resource ounces.
The management of European Goldfields continues to demonstrate its ability to
deliver on permitting, further derisking a globally significant gold reserve
base and adding shareholder value. As the Company nears the conclusion of the
permitting process for its development stage projects, management's priority
will be to fully realise the potential of its current assets. This
demonstration of permitting ability will be brought to bear on any new
opportunities presented by the exploration programme or by acquisition.
SUMMARY OF FINANCIAL RESULTS
Stratoni operations
The Stratoni mine's financial results for the eight most recently completed
quarters are summarised in the following table:
+-----------------+--------+--------+---------+---------+---------+--------+--------+--------+
| Financial performance |
+--------------------------------------------------------------------------------------------+
| (in thousands | 2009 | 2009 | 2009 | 2009 | 2008 | 2008 | 2008 | 2008 |
| of US dollars) | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
+-----------------+--------+--------+---------+---------+---------+--------+--------+--------+
| | | | | | | | | |
+-----------------+--------+--------+---------+---------+---------+--------+--------+--------+
| Sales | 13,656 | 11,500 | 9,472 | 4,935 | 8,465 | 13,250 | 13,000 | 10,097 |
+-----------------+--------+--------+---------+---------+---------+--------+--------+--------+
| EBITDA | 2,601 | 1,315 | 305 | (3,025) | (5,233) | 1,742 | 1,017 | 4,057 |
+-----------------+--------+--------+---------+---------+---------+--------+--------+--------+
| Gross profit | 1,196 | (449) | (1,561) | (4,345) | (7,060) | 171 | (198) | 3,060 |
+-----------------+--------+--------+---------+---------+---------+--------+--------+--------+
| Capital | 2,053 | 596 | 2,793 | 4,214 | 3,543 | 2,496 | 2,086 | 3,111 |
| expenditure | | | | | | | | |
+-----------------+--------+--------+---------+---------+---------+--------+--------+--------+
| Amortisation | 1,405 | 1,764 | 1,866 | 1,320 | 1,827 | 1,571 | 1,215 | 997 |
| and depletion | | | | | | | | |
+-----------------+--------+--------+---------+---------+---------+--------+--------+--------+
Base metal prices showed a strong improvement throughout 2009, with the prices
peaking at the very end of the calendar year. This translated into increasing
base metal revenues across the year, and in Q4 2009 allowed the Stratoni
operation to improve its earnings before interest, taxes, depreciation and
amortisation ("EBITDA") each quarter, ending the year in Q4 2009 with the best
quarterly EBITDA performance in since Q1 2008 on an annual basis, however,
revenues in 2009 did not recover sufficiently to match revenues in 2008. For Q4
2009 revenues were higher than Q4 2008 revenues as a result of metal prices
peaking at the end of 2009.
+-----------------------+-----+----------+-----+---------+-----+------------------------+-------+----+-----------------+
| Reconciliation of Stratoni revenues - 2009 |
+----------------------------------------------------------------------------------------------------------------------+
| (in thousands | | | | | | | | |
| of US dollars) | | Zinc | | Lead | | Silver | | Total |
+-----------------------+-----+----------+-----+---------+-----+--------------------------------+----+-----------------+
| | | | | | | | | |
+-----------------------+-----+----------+-----+---------+-----+--------------------------------+----+-----------------+
| Payable metal | | 15,276t | | 10,867t | | 823,191oz | | n/a |
+-----------------------+-----+----------+-----+---------+-----+--------------------------------+----+-----------------+
| Realised price | | $1,656t | | $1,890t | | $8.06oz | | n/a |
+-----------------------+-----+----------+-----+---------+-----+--------------------------------+----+-----------------+
| | | | | | | | | |
+-----------------------+-----+----------+-----+---------+-----+--------------------------------+----+-----------------+
| Payable metal | | 25,294 | | 20,542 | | 6,632 | | 52,468 |
| revenue | | | | | | | | |
+-----------------------+-----+----------+-----+---------+-----+--------------------------------+----+-----------------+
| TC/RCs | | (10,085) | | (2,771) | | (631) | | (13,487) |
+-----------------------+-----+----------+-----+---------+-----+--------------------------------+----+-----------------+
| Transport | | 181 | | (140) | | 0 | | 41 |
| recoveries/(charges) | | | | | | | | |
+-----------------------+-----+----------+-----+---------+------------------------------+-------+----+-----------------+
| Net revenue | | 15,390 | | 17,631 | | 6,001 | | 39,022 |
+-----------------------+-----+----------+-----+---------+------------------------------+-------+----+-----------------+
| Prior year | | 171 | | 402 | | (32) | | 541 |
| adjustments | | | | | | | | |
+-----------------------+-----+----------+-----+---------+------------------------------+-------+----+-----------------+
| Total revenue | | 15,561 | | 18,033 | | 5,969 | | 39,563 |
+-----------------------+-----+----------+-----+---------+------------------------------+-------+----+-----------------+
| | | | | | | | | |
+-----------------------+-----+----------+-----+---------+-----+------------------------+-------+----+-----------------+
+-----------------------+-----+----------+-----+------------+-----+--------+-----+--------+----+--------+----------+
| Reconciliation of Stratoni revenues - 2008 |
+------------------------------------------------------------------------------------------------------------------+
| (in thousands | | | | | | | | |
| of US dollars) | | Zinc | | Lead | | Silver | | Total |
+-----------------------+-----+----------+-----+------------+-----+-----------------------+-------------+----------+
| | | | | | | | | |
+-----------------------+-----+----------+-----+------------+-----+-----------------------+-------------+----------+
| Payable metal | | 18,496t | | 14,086t | | 1,077,550oz | | n/a |
+-----------------------+-----+----------+-----+------------+-----+-----------------------+-------------+----------+
| Realised price | | $1,795t | | $1,874t | | $7.81oz | | n/a |
+-----------------------+-----+----------+-----+------------+-----+-----------------------+-------------+----------+
| | | | | | | | | |
+-----------------------+-----+----------+-----+------------+-----+-----------------------+-------------+----------+
| Payable metal | | 33,200 | | 26,398 | | 8,420 | | |
| revenue | | | | | | | | 68,018 |
+-----------------------+-----+----------+-----+------------+-----+-----------------------+-------------+----------+
| TC/RCs | | (12,671) | | (8,211) | | (374) | | (21,256) |
+-----------------------+-----+----------+-----+------------+-----+-----------------------+-------------+----------+
| Transport | | 44 | | 1,090 | | 0 | | |
| recoveries/(charges) | | | | | | | | 1,134 |
+-----------------------+-----+----------+-----+------------+-----+-----------------------+----+-------------------+
| Net revenue | | 20,573 | | 19,277 | | 8,046 | | |
| | | | | | | | | 47,896 |
+-----------------------+-----+----------+-----+------------+-----+-----------------------+----+-------------------+
| Prior year | | (721) | | (2,347) | | (16) | | (3,084) |
| adjustments | | | | | | | | |
+-----------------------+-----+----------+-----+------------+-----+-----------------------+----+-------------------+
| Total revenue | | 19,852 | | 16,930 | | 8,030 | | |
| | | | | | | | | 44,812 |
+-----------------------+-----+----------+-----+------------+-----+-----------------------+----+-------------------+
| | | | | | | | | |
+-----------------------+-----+----------+-----+------------+-----+--------+-----+--------+----+--------+----------+
For the full year 2009, total revenues from base metal concentrate sales fell
12% compared to 2008 as a result of lower concentrate and payable metal sales
volumes, along with lower average zinc prices being realised. Payable zinc and
lead in concentrate sales declined 17% and 23% respectively, as a result of
lower mine production in 2009 compared to 2008. Realised zinc prices were
$1,656 per tonne, a fall of 8% compared to 2008, whilst lead and silver prices
were marginally improved. Net smelter returns ("NSRs") in zinc declined
slightly in 2009 compared to 2008, whilst a significant improvement was seen in
lead NSRs over the same period, as lead TC/RCs were marked lower under new
offtake terms for 2009.
+-----------------------+-----+---------+-----+---------+-----+------------------------+-------+-----+---------+
| Reconciliation of Stratoni revenues - Q4 2009 |
+--------------------------------------------------------------------------------------------------------------+
| (in thousands | | | | | | | | |
| of US dollars | | Zinc | | Lead | | Silver | | Total |
| unless stated | | | | | | | | |
| otherwise) | | | | | | | | |
+-----------------------+-----+---------+-----+---------+-----+--------------------------------+-----+---------+
| | | | | | | | | |
+-----------------------+-----+---------+-----+---------+-----+--------------------------------+-----+---------+
| Payable metal | | 3,380t | | 3,030t | | 227,661oz | | n/a |
+-----------------------+-----+---------+-----+---------+-----+--------------------------------+-----+---------+
| Realised price | | $2,291t | | $2,380t | | $8.25oz | | n/a |
+-----------------------+-----+---------+-----+---------+-----+--------------------------------+-----+---------+
| | | | | | | | | |
+-----------------------+-----+---------+-----+---------+-----+--------------------------------+-----+---------+
| Payable metal | | 7,745 | | 7,211 | | 1,879 | | 16,835 |
| revenue | | | | | | | | |
+-----------------------+-----+---------+-----+---------+-----+--------------------------------+-----+---------+
| TC/RCs | | (2,389) | | (810) | | (210) | | (3,409) |
+-----------------------+-----+---------+-----+---------+-----+--------------------------------+-----+---------+
| Transport | | 19 | | 0 | | 0 | | 19 |
| recoveries/(charges) | | | | | | | | |
+-----------------------+-----+---------+-----+---------+------------------------------+-------+-----+---------+
| Net revenue | | 5,375 | | 6,401 | | 1,669 | | 13,445 |
+-----------------------+-----+---------+-----+---------+------------------------------+-------+-----+---------+
| Prior quarter | | 228 | | (2) | | (15) | | 211 |
| adjustments | | | | | | | | |
+-----------------------+-----+---------+-----+---------+------------------------------+-------+-----+---------+
| Total revenue | | 5,603 | | 6,399 | | 1,654 | | 13,656 |
+-----------------------+-----+---------+-----+---------+------------------------------+-------+-----+---------+
| | | | | | | | | |
+-----------------------+-----+---------+-----+---------+-----+------------------------+-------+-----+---------+
+-----------------------+-----+---------+-----+---------+-----+------------------------+-------+-----+---------+
| Reconciliation of Stratoni revenues - Q4 2008 |
+--------------------------------------------------------------------------------------------------------------+
| (in thousands | | | | | | | | |
| of US dollars | | Zinc | | Lead | | Silver | | Total |
| unless stated | | | | | | | | |
| otherwise) | | | | | | | | |
+-----------------------+-----+---------+-----+---------+-----+--------------------------------+-----+---------+
| | | | | | | | | |
+-----------------------+-----+---------+-----+---------+-----+--------------------------------+-----+---------+
| Payable metal | | 4,591t | | 4,775t | | 363,205oz | | n/a |
+-----------------------+-----+---------+-----+---------+-----+--------------------------------+-----+---------+
| Realised price | | $1,199t | | $1,292t | | $7.81oz | | n/a |
+-----------------------+-----+---------+-----+---------+-----+--------------------------------+-----+---------+
| | | | | | | | | |
+-----------------------+-----+---------+-----+---------+-----+--------------------------------+-----+---------+
| Payable metal | | 5,506 | | 6,168 | | 2,835 | | 14,509 |
| revenue | | | | | | | | |
+-----------------------+-----+---------+-----+---------+-----+--------------------------------+-----+---------+
| TC/RCs | | (2,979) | | (1,917) | | (127) | | (5,023) |
+-----------------------+-----+---------+-----+---------+-----+--------------------------------+-----+---------+
| Transport | | 44 | | 563 | | 0 | | 607 |
| recoveries/(charges) | | | | | | | | |
+-----------------------+-----+---------+-----+---------+------------------------------+-------+-----+---------+
| Net revenue | | 2,571 | | 4,814 | | 2,708 | | 10,093 |
+-----------------------+-----+---------+-----+---------+------------------------------+-------+-----+---------+
| Prior quarter | | (46) | | (1,573) | | (9) | | (1,628) |
| adjustments | | | | | | | | |
+-----------------------+-----+---------+-----+---------+------------------------------+-------+-----+---------+
| Total revenue | | 2,525 | | 3,241 | | 2,699 | | 8,465 |
+-----------------------+-----+---------+-----+---------+------------------------------+-------+-----+---------+
| | | | | | | | | |
+-----------------------+-----+---------+-----+---------+-----+------------------------+-------+-----+---------+
In Q4 2009, revenues from base metal concentrate sales increased 61% compared to
Q4 2008. Although payable zinc and lead in concentrate sales declined 26% and
37% respectively, as a result of lower mine production and lower lead grades
compared to Q4 2008, realised prices for zinc were $2,291 per tonne, 91% up on
Q4 2008, and $2,380 per tonne for lead, an increase of 84% compared to Q4 2008.
Overall higher realised prices and the continued benefit of higher lead NSRs
outweighed lower sales volumes compared to the prior year quarter. In addition,
as base metal prices trended upwards, prior quarter revenue adjustments yielded
a net benefit for Q4 2009, compared to negative adjustments in a declining metal
price environment for Q4 2008.
Olympias project
+----------------------+-------+-------+-------+-------+-------+-------+-------+-------+
| Financial performance |
+--------------------------------------------------------------------------------------+
| (in thousands of US | 2009 | 2009 | 2009 | 2009 | 2008 | 2008 | 2008 | 2008 |
| dollars) | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
+----------------------+-------+-------+-------+-------+-------+-------+-------+-------+
| | | | | | | | | |
+----------------------+-------+-------+-------+-------+-------+-------+-------+-------+
| Sales | 5,073 | 5,537 | 6,732 | 5,807 | 4,309 | 2,851 | 5,461 | 2,611 |
+----------------------+-------+-------+-------+-------+-------+-------+-------+-------+
| Gross profit | 4,067 | 4,012 | 4,747 | 4,003 | 2,995 | 1,222 | 3,668 | 1,789 |
+----------------------+-------+-------+-------+-------+-------+-------+-------+-------+
| Amortisation and | 196 | 124 | 184 | 153 | 106 | 72 | 129 | 56 |
| depletion | | | | | | | | |
+----------------------+-------+-------+-------+-------+-------+-------+-------+-------+
Olympias had a record year shipping 114,882 tonnes of concentrate in 2009, an
increase of 91% over 63,533 tonnes of sales in 2008, and realising revenues of
$23.1 million, 52% higher compared to $15.2 million in 2008.
Hellas Gold completed 16 shipments of Olympias concentrates in Q4 2009
representing 34,182 tonnes of pyrite concentrates sold, an increase of 84% over
the prior year period (18,566 tonnes - Q4 2008). Realised gold prices were
higher than the prior year, but negative prior quarter pricing adjustments in Q4
2009 and beneficial transport recoveries in Q4 2008 meant that in dollar terms,
revenues from sales of gold concentrates totaled $5.1 million in Q4 2009, an
increase of only 19% over the same period in 2008 ($4.3 million).
Consolidated results
The Company's statements of profit and loss for the eight most recently
completed quarters are summarised in the following table:
+------------------+---------+---------+---------+---------+----------+---------+--------+----------------+----------------+
| Financial performance | |
+---------------------------------------------------------------------------------------------------------+----------------+
| | 2009 | 2009 | 2009 | 2009 | 2008 | 2008 | 2008 | 2008 |
| (in thousands of | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
| US dollars, | $ | $ | $ | $ | $ | $ | $ | $ |
| except per share | | | | | | | | |
| amounts) | | | | | | | | |
+------------------+---------+---------+---------+---------+----------+---------+--------+---------------------------------+
| Statement of | | | | | | | | |
| Profit and Loss | | | | | | | | |
+------------------+---------+---------+---------+---------+----------+---------+--------+---------------------------------+
| Sales | 18,729 | 17,037 | 16,204 | 10,742 | 12,774 | 16,101 | 18,461 | 12,708 |
+------------------+---------+---------+---------+---------+----------+---------+--------+---------------------------------+
| Cost of sales | 13,466 | 13,474 | 13,018 | 11,084 | 16,839 | 14,708 | 14,991 | 7,859 |
+------------------+---------+---------+---------+---------+----------+---------+--------+---------------------------------+
| Gross profit | 5,263 | 3,563 | 3,186 | (342) | (4,065) | 1,393 | 3,470 | 4,849 |
+------------------+---------+---------+---------+---------+----------+---------+--------+---------------------------------+
| Interest income | (163) | 147 | 133 | 508 | 1,164 | 1,306 | 1,502 | 1,757 |
+------------------+---------+---------+---------+---------+----------+---------+--------+---------------------------------+
| Foreign exchange | 88 | (501) | 1,719 | (2,882) | (6,253) | (2,800) | (27) | 2,674 |
| gain/(loss) | | | | | | | | |
+------------------+---------+---------+---------+---------+----------+---------+--------+---------------------------------+
| Hedge contract | 373 | 1,030 | 1,801 | 2,417 | 3,165 | 1,362 | 391 | - |
| profit | | | | | | | | |
+------------------+---------+---------+---------+---------+----------+---------+--------+---------------------------------+
| Share of | (3) | (187) | 18 | 60 | (3) | (66) | (36) | - |
| profit/(loss) in | | | | | | | | |
| associate | | | | | | | | |
+------------------+---------+---------+---------+---------+----------+---------+--------+---------------------------------+
| Expenses | 11,251 | 5,384 | 4,204 | 3,740 | 5,253 | 6,054 | 5,058 | 5,017 |
+------------------+---------+---------+---------+---------+----------+---------+--------+---------------------------------+
| Profit/(loss) | (5,693) | (1,332) | 2,653 | (3,979) | (11,245) | (4,859) | 242 | 4,263 |
| before income | | | | | | | | |
| taxes | | | | | | | | |
+------------------+---------+---------+---------+---------+----------+---------+--------+---------------------------------+
| Income taxes | (991) | (1,847) | (1,078) | 540 | 17,067 | (451) | 644 | (621) |
+------------------+---------+---------+---------+---------+----------+---------+--------+---------------------------------+
| Profit/(loss) | (6,684) | (3,179) | 1,575 | (3,439) | 5,822 | (5,310) | 886 | 3,642 |
| after income | | | | | | | | |
| taxes | | | | | | | | |
+------------------+---------+---------+---------+---------+----------+---------+--------+---------------------------------+
| Non-controlling | (159) | 56 | (136) | 183 | 519 | 267 | (74) | (233) |
| interest | | | | | | | | |
+------------------+---------+---------+---------+---------+----------+---------+--------+---------------------------------+
| Profit/(loss) | (6,843) | (3,123) | 1,439 | (3,256) | 6,341 | (5,043) | 812 | 3,409 |
| for the period | | | | | | | | |
+------------------+---------+---------+---------+---------+----------+---------+--------+---------------------------------+
| Earnings/(loss) | (0.04) | (0.02) | 0.01 | (0.02) | 0.04 | (0.03) | 0.00 | 0.02 |
| per share | | | | | | | | |
+------------------+---------+---------+---------+---------+----------+---------+--------+----------------+----------------+
Selected financial information
The Company's financial results for the years ended 31 December 2009, 2008 and
2007, and the three-month periods ended 31 December 2009 and 2008 are summarised
in the following table:
+------------------+----------+----------+----------+---------+----------+
| | Years ended 31 December | Three-months |
| | | ended 31 December |
+------------------+--------------------------------+--------------------+
| | 2009 | 2008 | 2007 | 2009 | 2008 |
| (in thousands of | $ | $ | $ | $ | $ |
| US dollars) | | | | | |
+------------------+----------+----------+----------+---------+----------+
| Statement of | | | | | |
| Profit and Loss | | | | | |
+------------------+----------+----------+----------+---------+----------+
| Sales | 62,712 | 60,044 | 86,405 | 18,729 | 12,774 |
+------------------+----------+----------+----------+---------+----------+
| Cost of sales | 51,042 | 54,397 | 42,618 | 13,466 | 16,839 |
+------------------+----------+----------+----------+---------+----------+
| Gross profit | 11,670 | 5,647 | 43,787 | 5,263 | (4,065) |
+------------------+----------+----------+----------+---------+----------+
| Interest Income | 625 | 5,729 | 6,588 | (163) | 1,164 |
+------------------+----------+----------+----------+---------+----------+
| Hedge contract | 5,621 | 4,918 | - | 373 | 3,165 |
| profit | | | | | |
+------------------+----------+----------+----------+---------+----------+
| Foreign exchange | (1,576) | (6,406) | 3,904 | 88 | (6,253) |
| gain/(loss) | | | | | |
+------------------+----------+----------+----------+---------+----------+
| Share of loss in | (112) | (105) | - | (3) | (3) |
| associate | | | | | |
+------------------+----------+----------+----------+---------+----------+
| Expenses | 24,579 | 21,382 | 20,844 | 11,251 | 5,253 |
+------------------+----------+----------+----------+---------+----------+
| Profit/(loss) | (8,351) | (11,599) | 33,435 | (5,693) | (11,245) |
| before income | | | | | |
| taxes | | | | | |
+------------------+----------+----------+----------+---------+----------+
| Income taxes | (3,376) | 16,639 | (5,217) | (991) | 17,067 |
+------------------+----------+----------+----------+---------+----------+
| Profit/(loss) | (11,727) | 5,040 | 28,218 | (6,684) | 5,822 |
| after income | | | | | |
| taxes | | | | | |
+------------------+----------+----------+----------+---------+----------+
| Non-controlling | (56) | 479 | (5,019) | (159) | 519 |
| interest | | | | | |
+------------------+----------+----------+----------+---------+----------+
| Profit/(loss)for | (11,783) | 5,519 | 23,199 | (6,843) | 6,341 |
| the period | | | | | |
+------------------+----------+----------+----------+---------+----------+
| Earnings/(loss) | (0.07) | 0.03 | 0.16 | (0.04) | 0.04 |
| per share | | | | | |
+------------------+----------+----------+----------+---------+----------+
| Balance sheet | | | | | |
| (end of period) | | | | | |
+------------------+----------+----------+----------+---------+----------+
| Working capital | 144,899 | 192,675 | 226,431 | 144,899 | 192,675 |
+------------------+----------+----------+----------+---------+----------+
| Total assets | 744,100 | 766,095 | 782,131 | 744,100 | 766,095 |
+------------------+----------+----------+----------+---------+----------+
| Non current | 145,563 | 155,727 | 182,092 | 145,563 | 155,727 |
| liabilities | | | | | |
+------------------+----------+----------+----------+---------+----------+
| Statement of | | | | | |
| cash flows | | | | | |
+------------------+----------+----------+----------+---------+----------+
| Deferred | 5,478 | 6,096 | 5,735 | 1,310 | 1,981 |
| exploration and | | | | | |
| development | | | | | |
| costs - Romania | | | | | |
+------------------+----------+----------+----------+---------+----------+
| Plant and | 37,153 | 26,181 | 21,606 | 4,101 | 12,998 |
| equipment - | | | | | |
| Greece | | | | | |
+------------------+----------+----------+----------+---------+----------+
| Deferred | 2,096 | 2,489 | 2,347 | 745 | 545 |
| development | | | | | |
| costs - Greece | | | | | |
+------------------+----------+----------+----------+---------+----------+
| | | | | | |
+------------------+----------+----------+----------+---------+----------+
For the year ended 31 December 2009, gross profit and net loss before tax has
improved over the same period in 2008 primarily because of a strong performance
from Olympias gold concentrate sales. Stratoni production was constrained by
challenging operating conditions, but was more than offset by sales of Olympias
gold concentrate. The Company's old lead hedging programme expired at the end
of December 2009 and generated income of $5.6 million for the year. This has
been replaced by a new lead and zinc hedging programme for 2010. Working capital
declined as the Company continued its capital expenditure programmes at its
operating mine and development projects, but the Company's balance sheet remains
strong.
Revenues increased 47% in the three-month period ending 31 December 2009
compared to the three-month period ending 31 December 2008 as a result of higher
base metal prices; however, lower hedge income, foreign exchange movements and
income tax credits, along with higher corporate and equity-based compensation
expenses and an impairment of mineral property meant that the Company recorded a
loss for the period of $6.7 million compared to a profit of $17.1 million the
same period in 2008.
The Company recorded a loss before taxes of $8.4 million for the year ended 31
December 2009, compared to a loss before taxes of $11.6 million for the same
period of 2008. The Company recorded a net loss (after taxes and non-controlling
interest) of $11.8 million ($0.07 loss per share) for the year ended 31 December
2009, compared to a net profit of $5.5 million ($0.03 per share) for the same
period of 2008. This twelve month performance was impacted by lower average
realized zinc prices, lower than planned operating performance at Stratoni,
lower interest rates, income tax credits and foreign exchange movements offset
by strong Olympias concentrate sales, higher hedge income and lower other
operating costs, as described below.
The Company recorded a loss before taxes of $5.7 million for the three-month
period ended 31 December 2009, compared to a loss before taxes of $11.3 million
for the same period of 2008. The Company recorded a net loss (after tax and
non-controlling interest) of $6.9million ($0.04 loss per share) for the
three-month period ended 31 December 2009, compared to a net profit of $6.3
million ($0.04 per share) for the same period of 2008. For the three month
performance, improving base metal and gold prices, higher other expenses and
foreign exchange losses more than offset lower production from Stratoni and
lower hedging and interest income, resulting in higher levels of gross profits
and lower pre-tax losses. A very significant income tax credit in Q4 2008 meant
that post-tax profits were created in Q4 2008 compared to post-tax losses in Q4
2009.
In more detail, the following factors have contributed to the above:
· On average in 2009, base metal prices were lower than the same
period in 2008: the price of zinc, the Stratoni mine's primary sales product,
averaged $1,689 per tonne, 11% lower than in 2008 which averaged $1,901 per
tonne; the lead price averaged $1,743 per tonne for the same period in 2009, a
17% reduction compared to $2,095 per tonne in 2008. In addition, the Stratoni
mine was operating at lower production levels 2009 than in the same period of
2008, with mine and mill production falling 15% and 14% respectively. Lower
metal grades meant that zinc metal in concentrate production fell 20%, and lead
in concentrate production fell 22%. Payable metal sales in 2009 were in line
with the overall declining trend in production, with payable zinc sales of
15,276 tonnes, a 17% decrease over the same period in 2008, and payable lead
sales down by 23% to 10,867 tonnes.
· In contrast there is a positive metal price trend when looking at
the three-month periods ended 31 December: during that period in 2008, base
metal prices were reaching their cyclical troughs; subsequently, lead and zinc
rallied strongly for the whole of calendar year 2009, peaking in the same period
in 2009. Thus in the three months ended 31 December 2009, zinc averaged $2,241
per tonne and lead $2,313 per tonne compared to $1,219 per tonne and $1,265 per
tonne respectively for the same period in 2008. Sales of payable zinc in Q4
2009 fell 26% compared to Q4 2008, whereas sales of payable lead fell 37% over
the same period.
· The trend in the Company's gold concentrate sales has remained
extremely encouraging: in the year ended 31 December 2009, Hellas Gold sold a
total of 114,882 tonnes of gold bearing pyrite concentrates from Olympias,
compared to 63,533 in the same period of 2008. Gold prices have broadly traded
in a range between $850 and $950 per ounce for the majority of the period since
the beginning of 2008, but at the beginning of Q4 2009, the gold price made a
major break through the psychological $1,000 per ounce barrier and has
subsequently maintained a comfortable margin above this level. Therefore the
gold price averaged $974 per ounce in the twelve months of 2009 compared to $872
per ounce in the same period in 2008, and $1,101 per ounce in the quarter ended
31 December 2009 compared to $799 per ounce for the corresponding period in
2008. Sales in the quarter ended 31 December 2009 also showed a very positive
trend with sales of 34,182 tonnes of concentrate compared to 18,566 tonnes for
the corresponding period in 2008.
· Cost of sales was $51.0 million in 2009 and $13.5 million in Q4
2009, compared to $54.4 million and $16.8 million, respectively, for the same
periods of 2008, and included $7.0 million in depreciation and depletion
expenses in 2009, compared to $6.0 million for the same period of 2008. In
2009, lower production offset by marginally higher US dollar unit operating
costs reduced Stratoni cash costs of production by $5.4 million, but these
reductions were offset by other cost increases: transport costs were $2.1
million higher, resulting primarily from significantly higher gold concentrate
sales; amortisation and depreciation were $1.0 million higher mainly because
2008 had benefited from a one off life of mine catch up reduction; and $0.9
million lower because of an inventory write down in 2008. For the quarter ended
31 December 2009 compared to the same period in 2008, the trends were as
follows: lower production levels were offset by higher US dollar unit operating
costs resulting in a $0.3 million increase in cash costs of production; lower
sales quarter on quarter resulted in $1.1 million lower transport costs, $0.3
million lower amortisation and depreciation, an increase in inventory of $1.3
million which reduced cost of sales and no inventory write-down which had
increased cost of sales for the three months ended 31 December 2008 by $1.0
million.
· As a result, the Company recorded a gross profit of $11.7 million in
2009 and $5.3 million in Q4 2009, on revenues of $62.7 million and $18.7
million, respectively, compared to a gross profit of $5.7 million 2008 and a
gross loss of $4.1 million in Q4 2008, on revenues of $60.0 million and $12.8
million, respectively. The Company's corporate administrative and overhead
expenses have increased from $4.9 million in 2008 and $0.9 million in Q4 2008,
to $7.3 million and $4.1 million, respectively, for the same periods of 2009.
The main elements to this increase in costs occurred in the final quarter, where
costs were incurred relating to the departure of the former CEO plus additional
bonus costs.
· The Company recorded a non-cash equity-based compensation expense of
$6.5 million in 2009 and $4.2 million in Q4 2009, compared to $2.9 million and
$1.4 million, respectively, for the same periods of 2008. Again, the changes
relate to events in the final quarter, where equity compensation expense were
incurred upon the appointment of the new Executive Chairman and the joining of
the new Vice President - Investor Relations. Equity-based compensation in 2009
relates primarily to restricted share units ("RSUs") and deferred phantom units
("DPUs"), as the Company in recent years has favoured the issuance of RSUs and
DPUs over share options. Both RSUs and DPUs are valued by direct reference to
the Company's share price, without the need for estimates to calculate the fair
value of these instruments. RSUs are valued using the share price upon
issuance, whilst DPUs are revalued to the Company's closing share price at the
end of each reporting period. 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 $1.6 million in 2009
and a foreign exchange gain of $0.9 million in Q4 2009. In comparison, the
Company incurred a foreign exchange loss of $6.4 million in 2008, and a loss of
$6.3 million in Q4 2008. These exchange differences arise as a result of
changes in the US dollar values of Hellas Gold's net current assets or
liabilities.
· Hellas Gold's administrative and overhead expenses amounted to $5.4
million in 2009 and $0.7 million in Q4 2009, compared to $7.6 million and $1.4
million, respectively, for the same periods of 2008. Hellas Gold's
administrative and overhead expenses include the costs of the Athens based
office and environmental and water treatment expenses not directly attributable
to the Stratoni operation. The principal change was a fall in the total amount
spent on local community projects.
· Hellas Gold incurred an expense of $3.4 million in 2009 and $0.8
million in Q4 2009, compared to $5.2 million and $1.3 million, respectively, for
the same periods of 2008, for ongoing water pumping and treatment at its
non-operating mines of Olympias and Madem Lakkos backfilling, in compliance with
Hellas Gold's commitment to the environment under its contract with the Greek
State. Lower costs were incurred in line with the continued strategy of limiting
all non essential spend where possible at the operations and in other areas of
the business.
· The Company recorded a charge for income taxes of $3.4 million in
2009 and a credit of $1.0 million in Q4 2009, compared to credits of $16.6
million and $17.1 million, respectively, for the same periods of 2008. This
reflects an increase relating to the finalisation of three years of tax accounts
at Hellas Gold, and also the fact that there was a one off tax credit in the
final quarter of 2008, as a result of announced future tax rate reductions in
Greece.
· The Company recorded a charge of $0.1 million in 2009 and $0.2 million
in Q4 2009 relating to the non-controlling shareholder's interest in Hellas
Gold's profit (after tax), compared to a credit of $0.5 million and a credit of
$0.5 million, respectively, for the same periods of 2008.
Financial instruments
Hedging 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 and the
Company deals with highly rated banks and institutions who have demonstrated
long term commitment to the mining industry. The Company has one counterparty in
respect of its lead and zinc hedge contracts noted below. Market conditions and
prices would affect the fair value of these hedge contracts and in certain
market conditions, where the fair value of the hedge contract is positive to the
Company, if this counterparty were unable to honour its obligations under the
hedge contract, the Company would be exposed to the value of the hedge and the
difference between the hedged price and the then current market price on the
date of the settlement. The hedges below are treated as cash flow hedges in
accordance with CICA 3865: Hedges.
Lead and Zinc hedging contracts - As at 31 December 2009, the Company had
entered into hedging arrangements as illustrated below which, for the amount of
production shown, protects the Company from decreasing prices below the floor
price and limits participation in increasing prices above the cap price. The
period of the hedge is from 1 January 2010 until 31 December 2010 and is cash
settled on a monthly basis between the monthly average of the relevant commodity
price and the cap and floor price, as applicable. As at 31 December 2009, these
contracts had a fair value of ($1,064) (2008 - $10,282), determined by a 3rd
party valuation using the appropriate Black-Scholes options valuation
model based on the then prevailing market prices including lead and zinc prices,
interest rates and market volatility.
+--------------------+--------------------------------------+-------+-------+
| Period January 2010 - December 2010 | |
| | Zinc |
| Lead | |
+-------------------------------------------------------------------+-------+
| | | | |
+--------------------+--------------------------------------+-------+-------+
| Total Volume | (tonne) | 6,000 | 7,800 |
+--------------------+--------------------------------------+-------+-------+
| Monthly Volume | (tonne) | 500 | 650 |
+--------------------+--------------------------------------+-------+-------+
| | | | |
+--------------------+--------------------------------------+-------+-------+
| Floor Price | ($/tonne) | 2,000 | 2,000 |
+--------------------+--------------------------------------+-------+-------+
| Cap Price | ($/tonne) | 2,900 | 2,925 |
+--------------------+--------------------------------------+-------+-------+
During the year ended 31 December 2009, the Company recorded income relating to
its hedging program of $5,621 (2008 - $4,918).
Given the current maturity profile of the hedge, market expectations and
parameters, we expect that the fair value of the existing hedge contracts
($1,064) will be released to net income within the next 12 months.
Related parties
Aktor S.A ("Aktor") Greece's largest construction Company owns 5% of Hellas Gold
the Company's 95% owned subsidiary. Aktor is a 100% subsidiary of Ellaktor
S.A., which owns 19.7% of the Company's issued share capital. Aktor, which is
deemed a related party, contracts management, technical and engineering services
to Hellas Gold.
During the year ended 31 December 2009, Hellas Gold incurred costs of $33,566
(2008 - $41,852) which have been recognised as cost of sales in the statements
of profit and loss and capitalised to property, plant and equipment, for
services received from Aktor. As at 31 December 2009, Hellas Gold had accounts
payable of $3,881 (2008 - $3,637) to Aktor. These expenditures were contracted
in the normal course of operations and are recorded at the exchange amount
agreed by the parties. The terms of the payable is 30 days (2008 - 30 days).
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet and cash flows for the eight most recently completed
quarters are summarised in the following table:
+----------------+----------+----------+----------+----------+----------+-----+------------+---------+------------+------+
| | 2009 | 2009 | 2009 | 2009 | 2008 | 2008 | 2008 | 2008 |
| (in thousands | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
| of US dollars, | $ | $ | $ | $ | $ | $ | $ | $ |
| except per | | | | | | | | |
| share amounts) | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+------------------+----------------------+------+
| Balance sheet | | | | | | | | |
| (end of | | | | | | | | |
| period) | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+-----+----------------------+-------------------+
| Cash | 113,642 | 124,112 | 142,728 | 153,995 | 170,296 | 192,456 | 205,908 | 215,582 |
+----------------+----------+----------+----------+----------+----------+------------------+---------+-------------------+
| Working | 144,899 | 146,158 | 171,185 | 176,319 | 192,675 | 208,609 | 216,822 | 225,673 |
| capital | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+------------------+---------+-------------------+
| Total assets | 744,100 | 749,870 | 753,196 | 757,206 | 766,095 | 775,369 | 796,537 | 794,911 |
+----------------+----------+----------+----------+----------+----------+------------------+---------+-------------------+
| Non current | 145,563 | 153,882 | 153,544 | 154,882 | 155,727 | 183,881 | 185,897 | 184,635 |
| liabilities | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+------------------+---------+-------------------+
| Statement of | | | | | | | | |
| cash flows | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+-----+----------------------+-------------------+
| Cash flows | (4,589) | 2,865 | (7,733) | (2,923) | 883 | (6,421) | (609) | (3,832) |
| from operating | | | | | | | | |
| activities | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+------------------+---------+-------------------+
| Investing | (6,851) | (22,793) | (6,167) | (10,674) | (11,672) | (5,030) | (9,271) | (9,909) |
| activities | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+------------------+---------+-------------------+
| -Plant and | (4,101) | (20,649) | (3,450) | (8,953) | (12,998) | (2,971) | (3,065) | (7,147) |
| equipment | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+------------------+---------+-------------------+
| -Deferred | | | | | | | | |
| exploration | (2,440) | (2,137) | (2,600) | (1,481) | (2,837) | (2,007) | (1,798) | (2,372) |
| and | | | | | | | | |
| development | | | | | | | | |
| costs | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+------------------+---------+-------------------+
| -Other | (310) | (7) | (117) | (240) | 4,163 | (52) | (4,407) | (390) |
+----------------+----------+----------+----------+----------+----------+------------------+---------+-------------------+
| Financing | 1,692 | - | 80 | 558 | (10) | - | 54 | 3,563 |
| activities | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+------------------+---------+-------------------+
| Effect of | (722) | 1,312 | 2,553 | (3,262) | (6,229) | (2,233) | 152 | 2,021 |
| foreign | | | | | | | | |
| exchange on | | | | | | | | |
| cash | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+------------------+---------+-------------------+
| Total movement | (10,470) | (18,616) | (11,267) | (16,301) | (17,028) | (13,384) | (9,674) | (8,157) |
| in cash | | | | | | | | |
+----------------+----------+----------+----------+----------+----------+-----+------------+---------+------------+------+
As at 31 December 2009, the Company had cash and cash equivalents of $113.6
million, compared to
$170.3 million as at 31 December 2008, and working
capital of $144.9 million, compared to $192.7 million as at 31 December 2008.
The Company has sufficient capital for its needs until all the permits to
construct its new mines are received, at which point additional capital will be
required. The Company is confident that the bank debt and capital markets have
sufficient liquidity to provide any additional capital it may require to bring
its project portfolio into production.
The decrease in cash and cash equivalents as at 31 December 2009, compared to
the balances as at
31 December 2008, resulted primarily from capital
expenditure in Greece ($37.2 million), changes in working capital balances
($13.7 million), deferred exploration and development costs in Romania
($5.5 million), deferred development costs in Greece ($2.1 million), deferred
exploration costs in Turkey ($1.1 million), offset by operating cash flow ($2.1
million) and proceeds from exercise of share options ($2.3 million).
The following table sets forth the Company's contractual obligations including
payments due for each of the next five years and thereafter:
+-------------------------+-------+---------+--------+--------+--------+
| | Payments due by period |
+-------------------------+--------------------------------------------+
| | (in thousands of US dollars) |
+-------------------------+--------------------------------------------+
| Contractual obligations | Total | Less | 2 - 3 | 4 - 5 | After |
| | | than 1 | years | years | 5 |
| | | year | | | years |
+-------------------------+-------+---------+--------+--------+--------+
| Operating lease (London | 1,421 | 173 | 683 | 565 | - |
| office) | | | | | |
+-------------------------+-------+---------+--------+--------+--------+
| Operating lease (Athens | 1,047 | 150 | 299 | 299 | 299 |
| office) | | | | | |
+-------------------------+-------+---------+--------+--------+--------+
| Outotec OT - Processing | 3,594 | 3,594 | - | - | - |
| Plant | | | | | |
+-------------------------+-------+---------+--------+--------+--------+
| Total contractual | 6,062 | 3,917 | 982 | 864 | 299 |
| obligations | | | | | |
+-------------------------+-------+---------+--------+--------+--------+
The Company's contractual obligation with Outotec relates to the contract to
supply the large technology services for its Skouries project.
In 2010, the Company expects to spend a total of $65 million in capital
expenditures to fund the development of its project portfolio. This amount
comprises $3 million at its existing operation at Stratoni to upgrade the mill
and mining equipment, $25 million at Olympias as part of the refurbishment of
the mine and process plant, and $5 million at Skouries as the Company expects to
continue to spend on engineering studies. At Certej, the Company expects to
spend $31 million as it progresses through the final stages of environmental
permitting, and advances through the basic and detailed engineering phases. In
addition to its capital expenditure programme, the Company expects to spend $16
million in exploration over the wider licence areas in Greece, Romania and
Turkey, $9 million on Hellas Gold administrative and overhead and water
treatment expenses, and $12 million on corporate administrative and overhead
expenses. The Company expects to fund all such costs from existing cash balances
and operating cash flow generated from its Hellas Gold operations.
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:
181,777,720
Common share options:
3,406,664
Restricted share units:
823,428
Common shares (fully-diluted):
186,007,812
Preferred shares:
Nil
NON GAAP PERFORMANCE MEASURES
The Company uses certain performance measures in its analysis. Some of these
performance measures have no meaning within Canadian GAAP and, therefore,
amounts presented may not be comparable to similar data presented by other
mining companies. The data is intended to provide additional information and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with Canadian GAAP.
Cash operating cost per tonne milled is a Non-GAAP measure which the Company
uses as a key performance indicator, which reflects the fact that it is a key
performance measure that Stratoni mine management uses to monitor operating
performance. The Stratoni ore body produces three saleable products, being zinc
lead and silver. Using a measure which focuses on actual cost of the production
process rather than a measurement of cost per product eliminates distortions
resulting from grade mined or realised metal prices, and provides a real
indication of cost management compared to tonnage processed. Management uses
these statistics to assess how well the Company's producing mine is performing
compared to plan and to assess overall efficiency and effectiveness of the
mining operation.
The Company provides this cash cost information as it is a key performance
indicator required by users of the Company's financial information in order to
assess the Company's profit potential and performance relative to its peers.
The cash cost figure represents the total of all cash costs directly
attributable to the related mining and processing operations without the
deduction of any credits in respect of by-product sales. Cash cost is not a
GAAP measure and, although it is calculated according to accepted industry
practice, the Company's disclosed cash costs may not be directly comparable to
other base metal producers. Cash operating cost per tonne milled is a measure
denominated in Euros, and therefore, when stated in US dollars, will be affected
by changes in the Euro - US dollar exchange rate.
The following table reconciles cash operating cost per tonne to cost of sales as
disclosed in our income statement for the most recent 8 quarters:
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| (in thousands of US | 2009 | 2009 | 2009 | 2009 | 2008 | 2008 | 2008 | 2008 |
| dollars) | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
| | $ | $ | $ | $ | $ | $ | $ | $ |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| | | | | | | | | |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| Milled production | 63,345 | 50,167 | 60,287 | 52,984 | 73,320 | 63,040 | 73,280 | 53,675 |
| (dmt) | | | | | | | | |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| | | | | | | | | |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| Cash operating cost | 117 | 116 | 106 | 119 | 109 | 109 | 103 | 110 |
| per tonne milled | | | | | | | | |
| (EUR) | | | | | | | | |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| Cash operating cost | 173 | 165 | 144 | 156 | 145 | 164 | 161 | 164 |
| per tonne milled | | | | | | | | |
| ($) | | | | | | | | |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| | | | | | | | | |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| Cash cost of | 10,948 | 8,288 | 8,687 | 8,278 | 10,609 | 10,346 | 11,831 | 8,823 |
| production | | | | | | | | |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| | | | | | | | | |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| Movement in | (916) | 1,080 | (175) | (1,300) | 368 | 893 | 423 | (2,782) |
| concentrate | | | | | | | | |
| inventory | | | | | | | | |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| | | | | | | | | |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| Cash cost of sales | 10,032 | 9,368 | 8,512 | 6,978 | 10,977 | 11,239 | 12,254 | 6,041 |
| - Stratoni | | | | | | | | |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| | | | | | | | | |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| Amortisation and | 1,601 | 1,888 | 2,050 | 1,473 | 1,933 | 1,643 | 1,344 | 1,053 |
| depletion | | | | | | | | |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| Concentrate | 1,833 | 2,218 | 2,666 | 2,423 | 2,977 | 1,565 | 1,664 | 765 |
| transport costs | | | | | | | | |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| Inventory | - | - | (210) | 210 | 952 | 261 | (271) | - |
| write-down/adjustments | | | | | | | | |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| | | | | | | | | |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| Cost of sales | 13,466 | 13,474 | 13,018 | 11,084 | 16,839 | 14,708 | 14,991 | 7,859 |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
| | | | | | | | | |
+------------------------+--------+--------+--------+---------+--------+--------+--------+---------+
Earnings before interest, tax, depreciation and amortisation ("EBITDA") is a
Non-GAAP measure which the Company uses as an indicator of the cash generation.
For each operation, it is calculated as gross profit adjusted for all
depreciation, depletion and amortisation charges as presented under Canadian
GAAP.
CRITICAL ACCOUNTING ESTIMATES
The consolidated financial statements have been prepared on a going concern
basis in accordance with accounting principles generally accepted in Canada
("Canadian GAAP"), which assumes the Company will be able to realise assets and
discharge liabilities in the normal course of business for the foreseeable
future. The consolidated financial statements do not include the adjustments
that would be necessary should the Company be unable to continue as a going
concern and reflect the following critical accounting estimates.
Deferred exploration and development costs - Acquisition costs of resource
properties, together with direct exploration and development costs incurred
thereon, are deferred and capitalised. Upon reaching commercial production,
these capitalised costs are transferred from exploration properties to producing
properties on the consolidated balance sheets and are amortised into operations
using the unit-of-production method over the estimated useful life of the
estimated related ore reserves.
The proven and probable reserves are determined based on a professional
evaluation using accepted international standards for the assessment of mineral
reserves. The assessment involved the study geological, geophysical and
economic data and the reliance on a number of financial and technical
assumptions. The estimates of the reserves may be subject to change based on
new information gained subsequent to the initial assessment. This may include
additional information available from continuing exploration, results from the
reconciliation of actual mining and plant production data against the original
reserve estimates, or the impact of economic factors such as changes in metal
prices, exchange rates or the cost of components of production. A total of $784
for Q4 2009 (2008: $939) and $3,216 for the year ended 31 December 2009 (2008:
$2,946) was charged to the income statement in relation to depletion of mineral
properties, which were subject to these estimates. If actual reserves prove to
be significantly different from current estimates, a material change to amounts
charged to earnings could occur. A total of $480,995 of mineral properties was
stated on the balance sheet that are subject to these estimates now and in the
future.
Long-lived assets - All long-lived assets and intangibles held and used by the
Company are reviewed for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If changes in circumstances indicate that the carrying amount of an
asset that an entity expects to hold and use may not be recoverable, future cash
flows expected to result from the use of the asset and its disposition must be
estimated. If the undiscounted value of the future cash flows is less than the
carrying amount of the asset, impairment is recognised based on the fair value
of the assets. Under Canadian GAAP, a fall in metal prices is one of a number of
factors in whether long-lived assets are subject to impairment. In such
circumstances, management would prepare future cash flow forecasts to establish
whether any actual impairment had occurred. These estimates are based on future
expectations, and a number of assumptions and judgments made by management, the
same as those required for the estimation of reserves. Current metal prices do
not suggest there has been any impairment on any of the Company's long-lived
assets. If such animpairment were to occur, this could result in a material
charge to earnings. A total of $480,995 of mineral properties was stated on the
balance sheet that are subject to this estimation process.
Long lived assets are depreciated againstoperations using the unit-of-production
method over the estimated useful life of the estimated related ore reserves. As
stated above, the determination of reserves is dependent upon the reliance on a
number of financial and technical assumptions, which may be subject to change.
If actual reserves prove to be significantly different from current estimates, a
material change to amounts charged to earnings could occur.
Asset retirement obligation - The fair value of the liability of an asset
retirement obligation is recorded when it is legally incurred and the
corresponding increase to the mineral property is depreciated over the life of
the mineral property. The future costs of retirement obligations are estimated
by management based upon knowledge of the cost of these activitiesand a number
of assumptions and judgments are made by management in their determination.
These estimates are regularly reviewed for reasonableness and any changes to the
original cost estimate reflected in the asset retirement obligation liability.
The liability is adjusted over time to reflect an accretion element considered
in the initial measurement at fair value and revisions to the timing or amount
of original estimates and drawdowns as asset retirement expenditures are
incurred. As at 31 December 2009, the Company had an asset retirement obligation
relating to its Stratoni property in Greece amounting to $7,068 (2008: $6,937)
subject to these estimates. A total of $129 for Q4 2009 (2008: $174) and $365
for the year ending 31 December 2009 (2008: $308) was charged to the income
statement in relation to asset retirement obligation, which were subject to
these estimates. A significant change to either the estimated future costs or to
reserves could result in a material change to amounts charged to earnings.
Equity-based compensation - The Company operates a share option plan, an RSU
plan and a DPU plan. The Company accounts for equity-based compensation granted
under such plans using the fair value method of accounting. Under such method,
the cost of equity-based compensation is estimated at fair value and is
recognised in the profit and loss statement as an expense, or capitalised to
deferred exploration and development costs when the compensation can be
attributed to mineral properties. The Company uses the Black-Scholes option
pricing model to estimate fair values of share options granted, and uses the
market price of common shares to determine fair value of RSUs granted and DPUs
issued. This cost is recognised over the relevant vesting period for grants to
directors, officers and employees, and measured in full at the earlier of
performance completed or vesting for grants to non-employees. Any consideration
received by the Company on exercise of share options is credited to share
capital. In relation to DPUs, the trend of cost charged or credited to income
statement relates directly to the fluctuation in the Company's share price. A
total of $4,198 for Q4 2009 (2008: $1,353) and $2,332 for the year ended 31
December 2009 (2008: $2,900) was charged to the income statement in relation to
equity base compensation, which were subject to these estimates.
Future taxes - The Company uses the asset and liability method of accounting for
future income taxes. Under this method, current income taxes are recognised for
the estimated income taxes payable for the current year. Future income tax
assets and liabilities are recognised for temporary differences between the tax
and accounting bases of assets and liabilities, calculated using the currently
enacted or substantively enacted tax rates anticipated to apply in the period
that the temporary differences are expected to reverse. Future income tax
inflows and outflows are subject to estimation in terms of both timing and
amount of future taxable earnings, which are subject to assumptions on the
future tax rates and recoverability of any tax losses. Should these estimates
change, the carrying value of income tax assets or liabilities may change, and
consequently the charge or credit to the income statement. A total charge of
$974 for Q4 2009 (2008: $16,811) and $2,528 for the year to 31 December 2009
(2008: $15,185) was charged to the income statement in relation to future income
taxes, which were subject to these estimates.
SIGNIFICANT CHANGES IN ACCOUNTING POLICIES
International Financial Reporting Standards ("IFRS") - In February 2008, the
Canadian Accounting Standards Board ("AcSB") confirmed that IFRS will replace
Canadian GAAP for publicly listed companies, for interim and annual financial
statements relating to fiscal years beginning on or after January 1,
2011,including comparative figures for the prior years. 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 intends to transition to IFRS on 1 January 2011, and will file its
first interim financials under IFRS for the quarter ended 31 March 2011. The
IFRS compliant financial statements will include reconciliations for the quarter
as well as well reconciliations as at the 1 January 2010 transition date. The
Company has identified four phases to its conversion process: design and
planning, detailed assessment and quantification of differences under IFRS,
implementation and post implementation.
During the design and planning phase, the Company focused on ensuring that the
correct skills were available and on the longer term planning to ensure the
smooth transition to IFRS. This commenced in Q2 2008, when the Company
established a project management team which included members of the finance
function at the subsidiary level, who were already experienced in the
preparation of IFRS accounts. Other team members were provided with IFRS
training. In addition, the Company's finance function already had some IFRS
experience from the preparation of a detailed reporting pack under IFRS on a
quarterly basis for its major shareholders. This IFRS pack includes accounting
adjustments for all material differences between IFRS and Canadian GAAP, with
the exception of IFRS 1. During 2008, the Company also undertook an IFRS
diagnostic report which included an initial assessment of key accounting areas
where IFRS differs to Canadian GAAP and which may have a significant impact on
the financial statements. The report also outlined the key systems and processes
which would be affected by the conversion process. Concluding the planning and
design phase, the Company also established a timeline for key milestones and
deliverables to be reported to the audit committee on an ongoing basis.
At the end of 2008, the Company moved to the next phase of its IFRS conversion
process, by initiating a detailed review and assessment of all accounting
differences under IFRS standards, with particular focus on IFRS 1. This
included a detailed assessment of all fixed assets throughout the Group to
identify assets where a different treatment is required under IFRS. This
assessment also identified the following areas where there are potential
differences between IFRS and Canadian GAAP:
* Business combinations
* Exploration for and evaluation of mineral resources
* Property, plant and equipment
* Foreign currency
* Impairment of assets
* Rehabilitation provisions
This took place in the first half of 2009 along with further in-depth training
to members of the project management team as well as attendance of seminars
relating to IFRS changeover. The project team has identified and made an
initial assessment of the various elections the Company is required to make with
regards to IFRS 1.
During Q4, the Company changed its group auditors to Ernst & Young LLP, and an
IFRS implementation plan was drawn up with them so the Company would be able to
finalise its required elections under IFRS 1 after the 2009 audit under Canadian
GAAP has been completed. The objective will be to establish opening IFRS
balances as at 1 January 2010 to act as the opening position for the 2010
comparatives to the 2011 financial year for which IFRS reporting will be
required. It is intended that Ernst & Young will review the Company's
implementation of IFRS1 during the first half of 2010. This will include the
numerical impact on and additional disclosures in the financial statements.
The Company continues with the detailed assessment of IT and systems in the
subsidiaries to affect the changeover. This will be reported to the audit
committee on a timely basis.
Goodwill and intangible assets - In February 2008, the Canadian Institute of
Chartered Accountants ("CICA") issued Section 3064 Goodwill and intangible
assets, replacing Section 3062, Goodwill and other intangible assets. 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
adopted the new standards on 01 January 2009. The adoption of this new Section
had no impact on the consolidated financial statements.
Credit Risk and the Fair Value of Financial Assets and Financial Liabilities
(EIC 173) - In January 2009, the CICA issued EIC 173, "Credit Risk and the Fair
Value of Financial Assets and Financial Liabilities". The EIC requires the
Company to take into account the Company's own credit risk and the credit risk
of the counterparty in determining the fair value of financial assets and
financial liabilities, including derivative instruments. This EIC applies to
interim and annual consolidated financial statements relating to fiscal years
beginning on or after 01 January 2009. The adoption of this new accounting
policy did not have any impact on the Company's consolidated financial
statements.
Mining Exploration Costs (EIC 174) - In March 2009, the CICA issued EIC Abstract
174, "Mining Exploration Costs". The EIC provides guidance on the accounting and
the impairment review of exploration costs. This EIC applies to interim and
annual consolidated financial statements relating to fiscal years beginning on
or after 01 January 2009. The adoption of this new accounting policy did not
have any material impact on the Company's consolidated financial statements.
RISKS AND UNCERTAINTIES
Current Global Conditions - Current global financial conditions have been
subject to increased volatility and numerous financial institutions have either
gone into bankruptcy or have had to be rescued by governmental authorities.
Access to public financing has been negatively impacted by both sub-prime
mortgages and the liquidity crisis affecting the asset-backed commercial paper
market. These factors may impact the ability of the Company to obtain equity or
debt financing in the future and, if obtained, on terms favourable to the
Company. If these increased levels of volatility and market turmoil continue,
the Company's operations could be adversely impacted and the value and the price
of the Company's Common Shares could be adversely affected.
Market price volatility - The trading price of the Common Shares may be subject
to large fluctuations. The trading price of the Common Shares may increase or
decrease in response to a number of events and factors, some of which are
directly related to the Company's success and some of which are not directly
related to the Company's success and are therefore not within the Company's
control. Such events and factors include: the price of gold and other metals,
the Company's operating performance and the performance of competitors and other
similar companies, the public's reaction to the Company's press releases, other
public announcements and the Company's filings with the various securities
regulatory authorities, changes in earnings estimates or recommendations by
research analysts who track the Common Shares or the shares of other companies
in the mineral resource sector, changes in general economic conditions, the
number of the Common Shares to be publicly traded after an offering, the breadth
of the public market for the Common Shares, the arrival or departure of key
personnel, acquisitions, strategic alliances or joint ventures involving the
Company or its competitors, developments that affect the market for all mineral
resource sector shares, and the attractiveness of alternative investments.
The effect of these and other factors on the market price of the Common Shares
on the exchanges in which the Company trades has historically made the Company's
share price volatile and suggests that the Company's share price will continue
to be volatile in the future. A decline in the market prices of the Company's
securities could also impair the Company's ability to raise additional capital.
In the past, following periods of volatility in the market price of a company's
securities, shareholders have often instituted class action securities
litigation against those companies. Such litigation, if instituted against the
Company, could result in substantial costs and diversion of management attention
and resources, which could significantly harm the Company's profitability and
reputation.
Dilution - The Company may require additional funds to fund exploration and
development programs and potential acquisitions. The Company cannot predict the
size of future issuances of Common Shares or the issuance of debt instruments or
other securities convertible into shares or the effect, if any, that future
issuances and sales of the Company's securities will have on the market price of
the Common Shares. If it raises additional funding by issuing additional equity
securities, such financing may substantially dilute the interests of existing
shareholders. Sales of substantial amounts of Common Shares, or the availability
of such Common Shares for sale, could adversely affect the prevailing market
prices for the Company's securities.
No dividends - The Company has never paid cash dividends on the Common Shares.
It currently intends to retain future earnings, if any, to fund the development
and growth of its business, and may not pay any cash dividends on the Common
Shares for the foreseeable future. Furthermore, the Company may in the future
become subject to contractual restrictions on, or prohibitions against, the
payment of dividends. As a result, investors will have to rely on capital
appreciation, if any, to earn a return on their investment in Common Shares in
the foreseeable future. The payment of future dividends, if any, will be
reviewed periodically by the Company's board of directors and will depend upon,
among other things, conditions then existing including earnings, financial
condition and capital requirements, restrictions in financing agreements,
business opportunities and conditions and other factors.
Foreign country risk - Any changes in regulations in Greece, Romania or Turkey,
or shifts in political attitudes are beyond the Company's control and may
adversely affect its business. Exploration and development of any one or more of
the Company's mineral properties may be affected in varying degrees by
government regulations or policies with respect to restrictions on future
exploitation and production, labour, environmental protection, price controls,
royalties, export controls, foreign exchange controls, income taxes,
expropriation of property, environmental legislation and mine and/or site
safety.
Currently there are no restrictions on the repatriation from Greece, Romania or
Turkey of earnings to foreign entities. However, there can be no assurance that
restrictions on repatriation of earnings from Romania, Greece or Turkey will not
be imposed in the future.
Current economic and fiscal difficulties involving Greece could result in a
sovereign debt default and could negatively impact economic, political and
social stability. Whilst the Company believes this risk to be remote and not
specifically or directly relevant to its assets in the country, this is an
unusual position for a Eurozone state member. It is therefore possible that this
situation may escalate and thus negatively impact the Company and its
operations.
Exploration and mining risks - The business of exploring for minerals and mining
involves a high degree of risk. Only a small proportion of the properties that
are explored are ultimately developed into producing mines. Although substantial
benefits may be derived from the discovery of a major mineralised deposit, no
assurance can be given that minerals will be discovered in sufficient quantities
or having sufficient grade to justify commercial operations. The economics of
developing gold and other mineral properties is affected by many factors
including the cost of operations, variations of the grade of ore mined,
fluctuations in the price of gold or other minerals produced, costs of
processing equipment and such other factors as government regulations.
Unless otherwise indicated, mineral resource and mineral reserve figures
presented herein are based upon estimates made by company personnel and
independent geologists. These estimates are imprecise and depend upon geological
interpretation and statistical inferences drawn from drilling and sampling
analysis, which may prove to be inaccurate. There can be no assurance that:
these estimates will be accurate, mineral reserves, mineral resources or other
mineralisation figures will be accurate, or this mineralisation could be mined
or processed profitably.
Mineralisation estimates for the Company's properties may require adjustments or
downward revisions based upon further exploration or development work or actual
production experience. In addition, the grade of ore ultimately mined, if any,
may differ from that indicated by drilling results. There can be no assurance
that minerals recovered in small scale tests will be duplicated in large scale
tests under on-site conditions or in production scale.
The mineral reserve and mineral resource estimates contained herein have been
determined and valued based on assumed future prices, cut-off grades and
operating costs that may prove to be inaccurate. Extended declines in market
prices for gold and silver may render portions of the Company's mineralisation
uneconomic and result in reduced reported mineralisation. Any material
reductions in estimates of mineralisation, or of the Company's ability to
extract this mineralisation, could have a material adverse effect on the
Company's results of operations or financial condition.
The grade of mineralisation ultimately mined may differ from that indicated by
drilling results and such differences could be material. There can be no
assurance that minerals recovered in small scale laboratory tests will be
duplicated in large scale tests under on-site conditions or in production scale
operations. Material changes in geological mineral resources, grades, stripping
ratios or recovery rates may affect the economic viability of projects.
Mining involves various types of risks and hazards, including: environmental
hazards, industrial accidents, metallurgical and other processing problems,
unusual or unexpected rock formations, structural cave-ins or slides, seismic
activity, flooding, fires, periodic interruptions due to inclement or hazardous
weather conditions, variations in grade, deposit size, density and other
geological problems, mechanical equipment performance problems, unavailability
of materials and equipment including fuel, labour force disruptions,
unanticipated or significant changes in the costs of supplies including, but not
limited to, petroleum, and unanticipated transportation costs.
These risks could result in damage to, or destruction of, mineral properties,
production facilities or other properties, personal injury or death, loss of key
employees, environmental damage, delays in mining, increased production costs,
monetary losses and possible legal liability.
Where considered practical to do so, the Company maintains insurance against
risks in the operation of its business in amounts which it believes to be
reasonable. Such insurance, however, contains exclusions and limitations on
coverage. There can be no assurance that such insurance will continue to be
available, will be available at economically acceptable premiums or will be
adequate to cover any resulting liability. Insurance against certain
environmental risks, including potential liability for pollution or other
hazards as a result of the disposal of waste products occurring from production,
is not generally available to the Company or to other companies within the
mining industry. The Company may suffer a material adverse effect on its
business if it incurs losses related to any significant events that are not
covered by its insurance policies. Payment of such liabilities would reduce
funds available for acquisition of mineral prospects or exploration and
development and would have a material adverse affect on the financial position
of the Company.
Capital and Operating Cost risks - The Company's forecasts, feasibility studies
and technical reports are based on a set of assumptions current as at the date
of completion of these forecasts and studies. The realised operating and
capital costs achieved by the Company may differ substantially owing to factors
outside the control of the Company, including currency fluctuations, supply and
demand factors for the equipment and supplies, global commodity prices,
transport and logistics costs and competition for human resources. Though the
Company incorporates a level of contingency in its assumptions, these may not be
adequate depending on market conditions
Financing risks - Exploration and development of one or more of the Company's
properties will be dependent upon the Company's ability to obtain financing
through joint ventures, equity or debt financing or other means, and although
the Company has been successful in the past in obtaining financing through the
sale of equity securities, there can be no assurance that the Company will be
able to obtain adequate financing in the future or that the terms of such
financing will be favourable. Failure to obtain such additional financing could
result in delay or indefinite postponement of further exploration and
development of the Company's projects with the possible loss of such properties.
Market Prices
· Mineral and Commodity prices - The Company's profitability and long-term
viability depend, in large part, upon the market price of gold and other metals
and minerals produced from the Company's properties. The market price of gold
and other metals is volatile and is impacted by numerous factors beyond the
Company's control, including: expectations with respect to the rate of
inflation, the relative strength of the U.S. dollar and certain other
currencies, interest rates, global or regional political or economic conditions,
supply and demand for jewellery and industrial products containing metals, costs
of substitutes, changes in global or regional investment or consumption
patterns, and sales by central banks and other holders, speculators and
producers of gold and other metals in response to any of the above factors.
There can be no assurance that the market price of gold and other metals will
remain at current levels or that such prices will improve. A decrease in the
market price of gold, silver and other metals could adversely affect the
profitability of the Company's existing mines, which would have a material
adverse effect on the Company's financial condition and results of operations. A
decline in the market price of gold, silver, or other metals, may also require
the Company to write-down its mineral reserves which would have a material and
adverse affect on its earnings and profitability.
· Currency fluctuations - Gold and other metals are sold throughout the
world principally in United States dollars. Further, the capital markets in
which the Company would have access to for financing (debt and equity), are
predominantly denominated in United States Dollars. The Company's capital and
operating costs for its European projects are incurred principally in Euros. As
a result, any significant and sustained appreciation of the Euro against the
U.S. dollar may materially increase the Company's costs and reduce revenues.
The Company does not currently use any derivative products to manage or mitigate
any foreign exchange exposure.
· Interest Rate Fluctuations - The Company currently has no debt, but as
part of its strategy going forward may incur project debt to complete the
development of certain of the Company's assets. This would introduce interest
rate risk to the Company as its borrowing cost will fluctuate with interest
rates over which the Company has no control.
· Counterparty Credit Risk - The Company's credit risk is primarily
attributable to trade receivables from concentrate sales to our offtakers and on
cash balances and short term investments with the Company's bankers. Though the
Company is selects its offtakers considering their credit standing and
diversifies this risk by selling to a number of different offtakers, however,
there is a risk that should these offtakers not perform the Company will not
realise its trade receivables. The majority of the Company's cash and cash
equivalents are on deposit with banks or money market participants with a
Standard and Poors rating of at least A.
Exploration, development, mining and other licences - The Company's current
operations, including further exploration, development and mining activities,
require certain licenses, concessions, leases, permits and regulatory consents
(the "Authorisations") from various levels of governmental authorities. The
Company may also be required to obtain certain property rights to access, or
use, certain of its properties in order to proceed to development. There can be
no assurance that all Authorisations which the Company requires for the conduct
of mining operations will be obtainable on reasonable terms or in a timely
manner, or at all, that such terms may not be adversely changed, that required
extension will be granted, or that the issuance of such Authorisations will not
be challenged by third parties. Delays in obtaining or a failure to obtain such
Authorisations or extension thereto, challenges to the issuance of such
Authorisations, whether successful or unsuccessful, changes to the terms of such
Authorisations, or a failure to comply with the terms of any such Authorisations
that the Company has obtained, could have a material adverse impact on the
Company.
Title matters - While the Company has diligently investigated title to all
mineral concessions and, to the best of the Company's knowledge, title to all of
its properties are in good standing, this should not be construed as a guarantee
of title. Title to the properties may be affected by undisclosed and undetected
defects.
Environmental and other regulatory requirements - The Company's activities are
subject to environmental regulations promulgated by government agencies from
time to time. Environmental legislation generally provides for restrictions and
prohibitions on spills, releases or emissions of various substances produced in
association with certain mining industry operations, such as seepage from
tailings disposal areas, which would result in environmental pollution. A breach
of such legislation may result in imposition of fines and penalties. In
addition, certain types of operations require the submission and approval of
environmental impact assessments. Environmental legislation is evolving in a
manner which means stricter standards, and enforcement, fines and penalties for
non-compliance are more stringent. Environmental assessments of proposed
projects carry a heightened degree of responsibility for companies and their
directors, officers and employees. The cost of compliance with changes in
governmental regulations has a potential to reduce the profitability of
operations.
The Company's current exploration and development activities require permits
from various governmental authorities and such operations are and will be
governed by laws and regulations governing prospecting, labour standards,
occupational health, waste disposal, toxic substances, land use, environmental
protection, safety and other matters. Companies engaged in exploration and
development activities generally experience increased costs and delays as a
result of the need to comply with applicable laws, regulations and permits.
There can be no assurance that all permits which the Company may require for
exploration and development will be obtainable on reasonable terms or on a
timely basis, or that such laws and regulations would not have an adverse effect
on any project that the Company may undertake. The Company believes it is in
substantial compliance with all material laws and regulations which currently
apply to the Company's activities. However, there may be unforeseen
environmental liabilities resulting from exploration, development and/or mining
activities and these may be costly to remedy.
Amendments to current laws, regulations and permits governing operations and
activities of exploration and development companies, or more stringent
implementation thereof, could have a material adverse impact on the Company and
cause increases in expenditures and costs, or require abandonment, or cause
delays in developing new mining properties.
Tax matters - The Company believes that it is, and intends to take all necessary
steps to remain, resident solely in Canada for income tax purposes. The
Company's tax residency is, however, affected by a number of factors, some of
which are outside of its control, including the application and interpretation
of the relevant tax laws and treaties. If ever the Company were to cease to be
tax resident in Canada, it would be liable to pay additional Canadian taxes,
including, but not limited to, capital gains tax based on the difference between
the fair market value and tax cost of its assets at the relevant time. If such
taxes were to become payable, this could have a material adverse effect on the
Company's business, financial condition and results of operations. Further, the
income tax consequences to holders of Common Shares would be different from
those applicable if the Company were resident in Canada.
Dependence on management - The Company's development to date has largely
depended and in the future will continue to depend on the efforts of key
management. Loss of any of these people could have a material adverse effect on
the Company and its business. The Company has not taken out and does not intend
to take out key man insurance in respect of any directors, officer or other
employees.
Joint ventures - The Company holds (and expects to hold in the future) interests
in joint ventures. Joint ventures may involve special risks associated with the
possibility that the joint venture partners may (i) have economic or business
interests or targets that are inconsistent with ours; (ii) take action contrary
to the Company's policies or objectives with respect to their investments, for
instance by veto of proposals in respect of joint venture operations; (iii) be
unable or unwilling to fulfil their obligations under the joint venture or other
agreements; or (iv) experience financial or other difficulties. Any of the
foregoing may have a material adverse effect on the Company's results of
operations or financial condition. In addition, the termination of certain of
these joint venture agreements, if not replaced on similar terms, could have a
material adverse effect on the Company's results of operations or financial
condition.
Competition - The international mining industry is highly competitive. The
Company's ability to acquire properties and add mineral reserves in the future
will depend not only on its ability to develop its present properties, but also
on its ability to select and acquire suitable producing properties or prospects
for mineral exploration. The Company may be at a competitive disadvantage in
acquiring additional mining properties because it must compete with other
individuals and companies, many of which have greater financial resources,
operational experience and technical capabilities than the Company. The Company
may also encounter competition from other mining companies in its efforts to
hire experienced mining professionals. Competition could adversely affect the
Company's ability to attract necessary capital funding or acquire suitable
producing properties or prospects for mineral exploration in the future.
Competition for services and equipment could cause project costs to increase
materially, resulting in delays if services or equipment cannot be obtained in a
timely manner due to inadequate availability, and increase potential scheduling
difficulties and cost increases due to the need to coordinate the availability
of services or equipment, any of which could materially increase project
exploration, development or construction costs, result in project delays or
both.
Conflicts of Interest - Certain directors of the Company are, and may continue
to be, involved in the mining and mineral exploration industry through their
direct and indirect participation in corporations, partnership or joint ventures
which are potential competitors of the Company. Situations may arise in
connection with potential acquisitions in investments where the other interests
of these directors may conflict with the interests of the Company. Directors of
the Company with conflicts of interest will be subject to and will follow the
procedures set out in applicable corporate and securities legislation,
regulations, rules and policies.
Legal Proceedings - the Company is a party to the legal proceedings described
under the heading "Legal Proceedings". If decided adversely to the Company,
these legal proceedings, or others that could be brought against the Company in
the future which are not now known, for example, litigation based on its
business activities, environmental laws, volatility in its stock price or
failure to comply with its disclosure obligations, could have a material adverse
effect on the Company's financial condition or operations.
DISCLOSURE CONTROLS & PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
The Executive Chairman and the Chief Financial Officer of the Company (the
"Certifying Officers") have established and maintained in the year ended 31
December 2009 disclosure controls and procedures ("DC&P") and internal control
over financial reporting ("IFCR") for the Company.
The Certifying Officers have caused DC&P, as defined in National Instrument
52-109 ("NI 52-109"), to be designed under their supervision, to provide
reasonable assurance that material information relating to the Company and its
subsidiaries is made known to the Certifying Officers by others within those
entities, as appropriate, to allow decisions regarding required disclosure
within the time periods specified by legislation, particularly during the period
in which interim and annual filings are being prepared.
The Certifying Officers have evaluated the effectiveness of the Company's DC&P
as at 31 December 2009. Based upon that evaluation, the Certifying Officers
have concluded that the DC&P are adequate and effective for the year ended 31
December 2009.
The Certifying Officers have caused internal control over financial reporting,
as defined in NI 52-109, to be designed under their supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
Canadian GAAP.
As of 31 December 2009 the Certifying Officers assessed the effectiveness of the
Company's internal control over financial reporting. Based upon that evaluation,
the Certifying Officers concluded that the internal controls and procedures are
adequate and effective for the year ended 31 December 2009.
During the year ended 31 December 2009, there has been no change in the
Company's internal control over financial reporting that have materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
The Certifying Officers believe that disclosure controls and procedures and
internal control systems can only provide reasonable assurance, and not absolute
assurance, that such objectives are met.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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