| Tue 3 Apr 2007, 15:53 | | ARQ/ANO - Anooraq Resources Corporation - Year end |
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ARQ
ARQ
ARQ/ANO - Anooraq Resources Corporation - Year end results
Anooraq Resources Corporation
(Incorporated in British Columbia, Canada)
(Registration number 10022-2033)
(JSE share code: ARQ & ISIN: CA03633E1088)
(TSXV share code: ARQ & ISIN: CA03633E1088)
(AMEX share code: ANO & ISIN: CA03633E1088)
(`Anooraq` or `the Company`)
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005, AND FOURTEEN MONTHS ENDED DECEMBER 31,
2004
Expressed in Canadian Dollars, unless otherwise stated
ANOORAQ RESOURCES CORPORATION
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
December 31 December 31 December 31
2006 2005 2004
(restated - note 4)
Assets
Current assets
Cash and equivalents $12,775,145 $4,590,284 $14,945,355
Amounts receivable 159,079 78,772 513,489
Due from related
parties (note 8) 138,616 374,308 190,042
Prepaid expenses 104,164 116,069 138,642
13,177,004 5,159,433 15,787,528
Deferred financing
costs (note 6) 337,852 - -
Equipment (note 4) 73,315 174,163 197,995
Mineral property
interests (note 5) 8,240,751 8,502,000 8,494,358
$21,828,922 $13,835,596 $24,479,881
Liabilities and
Shareholders` Equity
Current Liabilities
Accounts payable and
accrued liabilities
(note 8) $1,034,144 $378,997 $1,413,234
Term loan (note 6) 11,818,677 - -
12,852,821 378,997 1,413,234
Shareholders` equity
Share capital (note 7) 50,207,363 50,207,363 49,974,357
Contributed surplus
(note 7(c)) 4,849,043 4,824,697 2,363,950
Deficit (46,080,305) (41,575,461) (29,271,660)
8,976,101 13,456,599 23,066,647
Nature of operations
(note 1)
Commitments (notes
5(b), 6 and 7(d))
Subsequent events
(note 5(b))
$21,828,922 $13,835,596 $24,479,881
See accompanying notes to consolidated financial statements
Approved by the Board of Directors
/s/ Tumelo M. Motsisi /s/ Popo Molefe
Tumelo M. Motsisi Popo Molefe
Director Director
ANOORAQ RESOURCES CORPORATION
Consolidated Statements of Operations
(Expressed in Canadian Dollars)
Fourteen
Year ended Year ended months ended
December 31 December 31 December 31
2006 2005 2004
Expenses
Accounting, audit and legal $690,132 $474,422 $479,731
Conference and travel 360,959 646,992 486,481
Consulting 168,457 965,720 536,216
Exploration (schedule) 751,325 5,240,321 7,860,266
Foreign exchange loss (gain) (34,817) 68,720 145,199
Gain on disposal of equipment (41,291) - -
Interest expense (note 6) 253,071 - -
Interest income (117,829) (119,779) (485,452)
Office and administration 354,353 551,278 457,571
Salaries and benefits 1,511,874 1,659,465 834,223
Stock-based compensation -
office and administration
(note 7(c)) 9,137 1,822,010 1,426,006
Stock-based compensation -
exploration (note 7(c)) 15,209 714,243 1,040,542
Shareholders communications 289,824 260,155 342,848
Trust and filing 415,440 85,254 159,633
Recovery of amounts receivable - - (256,000)
Loss before the following 4,625,844 12,368,801 13,027,264
Future income tax recovery
(notes 5(b) and 9) (121,000) (65,000) -
Loss for the period $4,504,844 $12,303,801 $13,027,264
Basic and diluted loss per
share $0.03 $0.08 $0.18
Weighted average number of
common shares outstanding 148,220,407 148,107,407 73,017,307
See accompanying notes to consolidated financial statements
Consolidated Statements of Deficit
(Expressed in Canadian Dollars)
Fourteen
Year ended Year ended months ended
December 31 December 31 December 31
2006 2005 2004
Deficit, beginning of
period $(41,575,461) $(29,271,660) $(16,244,396)
Loss for the period (4,504,844) (12,303,801) (13,027,264)
Deficit, end of the period $(46,080,305) $(41,575,461) $(29,271,660)
See accompanying notes to consolidated financial statements
ANOORAQ RESOURCES CORPORATION
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
Fourteen
Year ended Year ended months ended
December 31 December 31 December 31
2006 2005 2004
Operating activities
Loss for the period $(4,504,844) $(12,303,801) $(13,027,264)
Items not involving cash
Amortization included in
exploration expenses 30,862 48,503 39,121
Amortization of deferred
finance costs 13,879 - -
Future income tax recovery (121,000) (65,000) -
Accrued interest on term
loan 253,071 - -
Stock-based compensation
(note 7(c)) 24,346 2,536,253 2,466,548
Gain on disposal of
equipment (41,291) - -
Unrealized foreign
exchange loss (114,000) (165,312) -
Equity loss in exploration
expenditures (note 5) 555,677 317,709 195,387
Shares issued for property
option payments
included in exploration
expenses - - 340,000
Changes in non-cash
operating working capital
Amounts receivable (80,307) 434,717 (539,032)
Amounts due to and from
related parties 235,692 (184,266) -
Prepaid expenses 11,905 22,573 (77,823)
Accounts payable and
accrued liabilities 303,416 (1,034,237) 884,957
Cash and equivalents used
by operating activities (3,432,594) (10,392,861) (9,718,106)
Investing activities
Mineral property
acquisition costs - - (4,489,745)
Purchase of equipment (9,066) (24,671) (220,126)
Proceeds on disposal of
equipment 120,343 - -
Equity investment (note 5) (59,428) (95,039) -
Cash and equivalents
(provided by) used by
investing activities 51,849 (119,710) (4,709,871)
Financing activities
Issuance of common shares - 157,500 23,958,934
Term loan 10,710,078 - -
Cash and equivalents
provided by financing
activities 10,710,078 157,500 23,958,934
Effect of exchange rate
changes on cash and
equivalents 855,528 - -
Increase (decrease) in
cash and equivalents 8,184,861 (10,355,071) 9,530,957
Cash and equivalents,
beginning of period 4,590,284 14,945,355 5,414,398
Cash and equivalents, end
of period $12,775,145 $4,590,284 $14,945,355
Supplementary information
Interest paid $145,991 $73,855 $23,584
Interest received $(239,329) $(193,634) $(509,036)
Taxes paid $- $- $-
Non-cash operating,
financing and investing
activities
Increase in mineral
property for future income
taxes $- $- $1,385,255
Financing costs accrued in
accounts payable and
accrued liabilities $351,641 $- $-
Fair value of options
allocated to shares issued
on exercise $- $75,506 $-
See accompanying notes to consolidated financial statements
ANOORAQ RESOURCES CORPORATION
Consolidated Schedules of Exploration Expenses
(Expressed in Canadian Dollars)
Fourteen
Republic of South Africa Year ended Year ended months ended
December 31 December 31 December 31
2006 2005 2004
Northern Limb of the Bushveld
Complex
Amortization $30,862 $48,503 $39,121
Assays and analysis 17,125 1,112,445 1,550,516
Drilling - 2,023,315 2,972,042
Engineering 53,423 501,068 788,238
Environmental and socioeconomic 10,126 63,316 68,689
Geological and consulting 55,582 718,439 993,136
Graphics 2,426 2,661 47,101
Property fees and assessments 18,168 78,777 68,628
Property option payments 32,548 31,108 369,765
Site activities 34,484 247,249 480,387
Transportation 2,098 99,561 229,157
256,842 4,926,442 7,606,780
Eastern Limb of the Bushveld
Complex
Assays and analysis 21,268 20,963 -
Drilling 376,406 182,014 -
Engineering 88,361 37,101 93,539
Geological and consulting 8,448 40,896 29,294
Graphics - 1,200 8,060
Environmental and socioeconomic - - 1,554
Property fees and assessments - 1,440 2,783
Site activities - 29,950 4,533
Transportation - 315 113,723
494,483 313,879 253,486
Exploration expenses before
the following 751,325 5,240,321 7,860,266
Stock-based compensation (note
7(c)) 15,209 714,243 1,040,542
Exploration expenses 766,534 5,954,564 8,900,808
Cumulative expenditures,
beginning of period 22,846,780 16,892,216 7,991,408
Cumulative expenditures, end
of period $23,613,314 $22,846,780 $16,892,216
See accompanying notes to consolidated financial statements
ANOORAQ RESOURCES CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 2006 and 2005,
and the fourteen months ended December 31, 2004
(Expressed in Canadian Dollars, unless otherwise stated)
1. NATURE OF OPERATIONS
Anooraq Resources Corporation (the "Company" or "Anooraq") is incorporated in
the Province of British Columbia, Canada and its principal business activity is
the exploration of mineral property interests. Since 1999, the Company has
focused on mineral property interests located in the Republic of South Africa,
with particular attention on the Bushveld Complex (note 5).
During 2004, the Company changed its fiscal year end from October 31 to
December 31.
The Company is in the process of exploring its mineral property interests and
has not yet determined whether its mineral property interests contain
economically recoverable mineral reserves. The underlying value and the
recoverability of the amounts shown for mineral property interests are entirely
dependent upon the existence of economically recoverable mineral reserves, the
ability of the Company to obtain the necessary financing to complete the
exploration and development of the mineral property interests, and future
profitable production or proceeds from the disposition of the mineral property
interests.
The consolidated financial statements are prepared on the basis that the
Company will continue as a going concern. Management recognizes that the
Company will need to generate additional financial resources in order to meet
its planned business objectives. However, there can be no assurances that the
Company will continue to obtain additional financial resources and/or achieve
profitability or positive cash flows. If the Company is unable to obtain
adequate additional financing, the Company will be required to curtail
operations and exploration activities.
Furthermore, failure to continue as a going concern would require that the
Company`s assets and liabilities be restated on a liquidation basis which would
differ significantly from the going concern basis.
2. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles. The consolidated financial statements
include the accounts of the Company and its subsidiaries, all of which are
wholly owned.
The Company`s investment in the Ga-Phasha joint venture (note 5) is accounted
for using the equity method.
All material intercompany balances and transactions have been eliminated.
3. SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and equivalents
Cash and equivalents consist of cash and highly liquid investments, having
maturity dates of three months or less from the date of purchase, that are
readily convertible to known amounts of cash.
(b) Equipment
Equipment is carried at cost less accumulated amortization. Amortization is
provided on a declining balance basis at various rates ranging from 15% to 30%
per annum.
(c) Mineral property interests
Exploration expenses incurred prior to determination of the feasibility of
mining operations and periodic option payments are expensed as incurred.
Mineral property acquisition costs, and exploration and development
expenditures incurred subsequent to the determination of the feasibility of
mining operations and approval of development by the Company, are capitalized
until the property to which they relate is placed into production, sold,
allowed to lapse or abandoned.
Mineral property acquisition costs include the cash consideration and the fair
market value of common shares and warrants issued for mineral property
interests, pursuant to the terms of the relevant agreement. These costs will be
amortized over the estimated life of the property following commencement of
commercial production, or written off if the property is sold, allowed to lapse
or abandoned or when an impairment in value has been determined to have
occurred.
(d) Investments
Investments in entities over which the Company exercises significant influence
are accounted for using the equity method. Investments in joint ventures which
the Company jointly controls, which are not variable interest entities, are
accounted for using the proportionate consolidation method. Other investments
are recorded at cost and written down only when the Company has determined that
a decline in value that is other than temporary has occurred.
(e) Share capital
The Company records proceeds from share issuances net of issue costs. Shares
issued for consideration other than cash are valued at the quoted market price
on the date the agreement to issue the shares was reached and announced for
business combinations and at the date of issuance for other non-monetary
transactions.
(f) Income taxes
The Company uses the asset and liability method of accounting for income taxes.
Under this method, future income tax assets and liabilities are computed based
on differences between the carrying amounts of assets and liabilities on the
balance sheet and their corresponding tax values, using the substantively
enacted or enacted income tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Future income tax assets also result from unused loss carry forwards
and other deductions. Future tax assets are recognized to the extent that they
are considered more likely than not to be realized.
The carrying value of future income tax assets is adjusted, if necessary, by
the use of a valuation allowance to reflect the amount that is considered to be
more likely than not of realization.
(g) Loss per share
Basic loss per share is calculated by dividing the loss available to common
shareholders by the weighted average number of common shares outstanding during
the period. For all periods presented, loss available to common shareholders
equals the reported loss.
Diluted loss per common share is calculated using the treasury stock method.
Under the treasury stock method, the weighted average number of common shares
outstanding used for the calculation of diluted loss per share assumes that the
proceeds to be received on the exercise of dilutive share options and warrants
are used to repurchase common shares at the average market price during the
year. In the periods presented, diluted loss per share is the same as basic
loss per share as the effect of including outstanding options and warrants in
the loss per share calculation would be anti-dilutive.
(h) Fair value of financial instruments
The carrying amounts of cash and equivalents, amounts receivable, and accounts
payable and accrued liabilities approximate their fair values due to their
short-term nature. The carrying values of the term loan approximate its fair
value based on market rates of interest. It is not practicable to determine the
fair values of amounts receivable due from to related parties (note 8) due to
the related party nature of such amounts and the absence of a secondary market
for such instruments.
(i) Translation of foreign currencies
All of the Company`s foreign operations are integrated. Monetary assets and
liabilities denominated in a foreign currency are translated into Canadian
dollars at exchange rates in effect at the balance sheet date. Non-monetary
assets and liabilities are translated at historical exchange rates unless such
items are carried at market, in which case they are translated at the exchange
rates in effect on the balance sheet date. Revenues and expenses, except
amortization, are translated at the average exchange rates for the year.
Amortization is translated at the same exchange rate as the assets to which it
relates. Gains or losses on translation are recorded in the statement of
operations.
(j) Use of estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting year. Significant areas requiring the use of management estimates
include the determination of the impairment of mineral property interests,
determination of reclamation obligations, determination of valuation allowances
for future income tax assets, and the assumptions used in determining fair
value of non-cash stock-based compensation. Actual results could differ from
these estimates.
(k) Stock-based compensation
The Company has a share option plan which is described in note 7(c). The
Company records all stock-based payments granted using the fair value method.
Under the fair value method, stock-based payments are measured at the fair
value of the consideration received or the fair value of the equity instruments
issued or liabilities incurred, whichever is more reliably measurable, and are
charged to operations over the vesting period with a corresponding credit to
contributed surplus.
Consideration received on the exercise of stock options is recorded as share
capital and the related contributed surplus is transferred to share capital.
(l) Asset retirement obligations
The Company recognizes statutory, contractual or other legal obligations
related to the retirement of tangible long-lived assets when such obligations
are incurred, if a reasonable estimate of fair value can be made. These
obligations are measured initially at fair value and the resulting costs are
capitalized to the carrying value of the related asset. In subsequent periods,
the liability is adjusted for any changes in the amount or timing and for the
discounting of the underlying future cash flows. The capitalized asset
retirement cost is amortized to operations over the life of the asset.
(m) Variable interest entities
The Company accounts for variable interest entities ("VIE") in accordance with
the Canadian Institute of Chartered Accountants ("CICA") Accounting Guideline
15, "Consolidation of Variable Interest Entities" ("AcG15"). AcG15 prescribes
the application of consolidation principles for entities that meet the
definition of a VIE and for which the Company is considered the primary
beneficiary. VIEs are entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties.
The primary beneficiary is the party that has exposure to a majority of the
expected losses and/or expected residual returns of the VIE. An enterprise
holding other than a voting interest in a VIE could, subject to certain
conditions, be required to consolidate the VIE if it is considered its primary
beneficiary. The Company has concluded that the Ga-Phasha Project qualifies as
a VIE but that the Company is not the primary beneficiary.
(n) Segment disclosures
The Company operates in a single operating segment, being the exploration of
mineral properties in South Africa.
(o) Comparative figures
Certain of the prior years` comparative figures have been restated to conform
to the presentation adopted for the current year.
4. EQUIPMENT
December 31, 2006
Accumulated Net book
Cost amortization value
Office $10,651 $6,144 $4,507
Vehicles 116,368 47,560 68,808
$127,019 $53,704 $73,315
December 31, 2005
Accumulated Net book
Cost amortization value
Office $90,520 $48,462 $42,058
Vehicles 253,468 121,363 132,105
$343,988 $169,825 $174,163
5. MINERAL PROPERTY INTERESTS
Year ended December Year ended December
31, 2006 31, 2005
Ga-Phasha Project (note 5(b))
Balance, beginning of year $4,302,000 $4,294,358
Equity loss - exploration
expenses (555,677) (317,709)
Net investments during the
period 59,428. 95,039
Equity gain - future income tax
recovery 121,000. 65,000.
Equity gain - foreign exchange 114,000. 165,312.
Ga-Phasha Project, end of year 4,040,751 4,302,000
Platreef Properties -
acquisition costs (note 5(a)) 4,200,000 4,200,000
Balance, end of year $8,240,751. $8,502,000.
(a) Northern Limb of the Bushveld Complex, South Africa
Platreef
In October 1999, the Company acquired a two-stage right to purchase up to 100%
of Pinnacle Resources Inc.`s ("Pinnacle") South African subsidiary, Plateau
Resources (Proprietary) Limited ("Plateau"), which holds the Platreef platinum
group mineral ("PGM") properties located on the Northern Limb of the Bushveld
Complex in South Africa.
Pursuant to the acquisition agreement, the Company issued 378,500 shares during
the period October 1999 to November 2003. On November 13, 2003, the Company
issued an additional 400,000 common shares as full and final negotiated
settlement under this agreement and thereby completed its acquisition of
Plateau.
In South Africa, many mineral claim areas were historically defined by farm
boundaries and are commonly referred to as "farms".
On May 23, 2000, the Company added to its mineral rights in the region by
acquiring through Plateau the option to purchase a 100% interest in portion 2
of the Elandsfontein 766LR farm located contiguous to the pre-existing Platreef
properties, pursuant to an agreement with MSA Projects (Proprietary) Limited.
The option required staged issuances of a maximum of 500,000 common shares of
the Company (of which 412,500 shares have been issued to December 31, 2006 and
no further share issuances are expected) and aggregate cash payments up to a
maximum of US$350,000 (of which US$84,250 and US$15,000 have been paid).
In July 2001, Plateau acquired the right to purchase a 100 percent interest in
the farm Hamburg 737LR (2,126 hectares) and Portion 1 of the farm Elandsfontein
766LR (428 hectares), located contiguous to the north end of the pre-existing
Platreef properties. The Company has allowed the option to purchase the farms
to lapse during the year.
In August 2002, the Company entered into a five year prospecting contract,
expiring August 2007, with an option to extend the agreement for an additional
three years with the South African Department of Mines and Energy ("DME") for
farm Noord Holland 775LR (1,229 hectares) bringing the aggregate land package
of its Platreef Property to approximately 13,400 hectares. Annual option fees
ranging from South African Rand ("ZAR") 3 per hectare to ZAR 18 per hectare are
payable to the DME.
Rietfontein
On October 10, 2001, the Company completed an agreement with African Minerals
Ltd., now Ivanhoe Nickel and Platinum Ltd. ("Ivanplats"), a private affiliate
of Ivanhoe Capital Corporation, whereby Ivanplats has the right to earn a 50%
interest in the Company`s 2,900 hectare Rietfontein 2KS farm ("Rietfontein").
Under the terms of this agreement, Ivanplats must incur at least $750,000 in
expenditures pursuant to exploration activities undertaken on Rietfontein in
accordance with an approved program in each of the ensuing two years (of which
the year one program has been completed) to obtain the right to form a 50/50
joint venture with the Company on Rietfontein. There is disagreement over
budgets, compilation and analysis of the exploration results, and the overall
adequacy and completeness of Ivanplats` exploration activities. The Company and
Ivanplats are currently in discussions over these matters, both outside of and
within a formal arbitration process, pursuant to the terms of the earn-in
agreement.
Kwanda ("Rustenburg")
On May 16, 2002, the Company completed an agreement with Rustenburg Platinum
Mines Limited ("Rustenburg"), a wholly owned subsidiary of Anglo American
Platinum Corporation Limited ("Anglo Platinum"), for the right to acquire up to
an 80% interest in twelve PGM properties located on the Northern Limb of the
Bushveld Complex.
Under the agreements with Anglo Platinum, the Company has acquired an initial
50% interest in the PGM rights to the twelve farms and can maintain this
interest by making staged exploration expenditure totalling ZAR 25 million
within five years. The Company is required to, and did, spend ZAR 2.5 million
in year one, ZAR 5 million in year two, and is required to spend ZAR 5 million
in each of years three and four and ZAR 7.5 million in year five. The Company
has not yet fulfilled its expenditure requirements in respect of year three
through five, but is in negotiations with Rustenburg to amend the exploration
expenditure schedule.
If a mineral resource is identified, the Company can earn an additional 30%
interest by bringing the property into commercial production. Rustenburg will
retain a 20% interest in the joint venture. The agreements also include plans
to involve local communities in future development of the properties. Any
participation by local and regional communities will be provided out of
Rustenburg`s interest and any participation in the venture by a Historically
Disadvantaged South Africans ("HDSA") partner will be provided out of the
Company`s interest.
Boikgantsho ("Drenthe-Overysel")
On November 26, 2003, the Company announced that it had entered into a Joint
Venture Agreement with Potgietersrust Platinums Limited ("PPRust"), a wholly
owned subsidiary of Anglo Platinum. The Joint Venture was formed to explore and
develop PGMs, gold and nickel mineralization on the Company`s Drenthe 778LR and
Witrivier 777LR farms and a portion of PPRust`s adjacent Overysel 815LR farm.
These farms are located on the Northern Limb of the Bushveld Complex.
The objective is to explore and develop a large-scale open pit deposit with the
potential to utilize nearby milling, smelting and refining facilities which
could provide substantial cost advantages to a new mining project. The Company
contributed its rights to the Drenthe 778LR farm on which a large PGM-nickel
resource has been outlined in the Drenthe deposit, and will contribute the
Witrivier 777LR farm if the deposit extends north on to Witrivier 777LR. PPRust
is contributing its rights to the northern portion of the Overysel 815LR farm
which lies south of and contiguous to the Drenthe 778LR farm.
Pursuant to the terms of the Joint Venture Agreement, the Company and Anglo
Platinum formed an initial 50/50 Joint Venture (the "Boikgantsho JV") to
explore these farms for a period of up to five years. During that period,
Anooraq will operate the exploration programs, and spend up to ZAR 12.35
million (of which the entire amount has been spent) on behalf of the
Boikgantsho JV. Anooraq will then have the option to proceed on a year-by-year
basis and to take the project to a bankable feasibility study ("BFS") level.
Once a BFS has been completed, the parties, by agreement, may proceed to
exploitation subject to relevant regulatory requirements. If both partners
decide to proceed, then a joint management committee will be established to
oversee development and operations. At commencement of exploitation, the joint
venture interest allotted to each of Anooraq and Anglo Platinum will be
determined in proportion to the relative value of the metals contained in each
contributed property as reflected in the BFS. Anooraq or Anglo Platinum, as the
case may be, each has the right to make a cash payment to the other party or to
fund additional capital contributions to equalize their respective
contributions. During development, the Boikgantsho JV will be seeking a Black
Economic Empowerment ("BEE") partner to participate in the project (which may
be Anooraq itself) with the original Boikgantsho JV partners dividing the
remaining interest.
Should the Company choose not to proceed, Anglo Platinum has the option of
acquiring the Company`s interest at the aggregate of (i) the net present value
of exploiting the Company`s mineral rights as a stand alone mining operation,
by applying an agreed discount rate as determined in the BFS, and (ii) all
exploration expenditures (as defined in the agreement) incurred by the Company
up to the completion of the BFS. Should Anglo Platinum decide not to contribute
to exploitation, its interest will be diluted over time pursuant to a formula
taking into account expenditure on the project by the contributory parties.
Anglo Platinum will remain entitled to a minimum 12.5% non- contributory
interest, adjusted depending on the final PGM royalty to be established under
the South African Mineral and Petroleum Royalty Bill, to a maximum of 15%.
Anglo Platinum has the right to enter into a PGM Ore or Concentrate Purchase
and Disposal Agreement at the exploitation phase, based on standard commercial
terms, whereby PGM produced from the operation would be treated at Anglo
Platinum`s facilities.
(b) Eastern Limb of the Bushveld Complex, South Africa
Ga-Phasha Project
In January 2004, the Company announced it had agreed to terms whereby the
Company and Pelawan Investments (Proprietary) Limited ("Pelawan"), a private
South African BEE company, would combine their respective PGM assets,
comprising the Company`s Northern and Western Limb PGM projects and Pelawan`s
50% participation interest in the Ga-Phasha (previously known as Paschaskraal)
PGM Project ("Ga-Phasha") on the Eastern Limb of the Bushveld Complex in South
Africa. The Ga-Phasha property consists of four farms - Portion 1 of
Paschaskraal 466KS, and the whole of farms Klipfontein 465KS, De Kamp 507KS and
Avoca 472KS - covering an area of approximately 9,700 hectares.
The mineral title relating to the Ga-Phasha Project is held by Micawber 277
(Proprietary) Limited ("Micawber"), a private South African corporation which
was owned 50% by Anglo Platinum and 50% by Pelawan.
Pursuant to the terms of the agreement between the Company and Pelawan, the
Company acquired Pelawan`s 50% shareholding in Micawber and the rights to its
50% participation interest in the Ga-Phasha Project in return for 91.2 million
common shares of the Company (the "Consideration Shares") and cash payments
totalling ZAR 15,652,744 ($3,055,416). Approximately 83 million Consideration
Shares are being held in escrow until the earlier of September 29, 2010 or
twelve months after the commencement of commercial production from the
Ga-Phasha Project at which time they will be released.
The transaction was completed on September 29, 2004 and consequently Anooraq
became a BEE company, by virtue of being majority owned by HDSA`s. The
Ga-Phasha Project is a 50/50 joint venture between the Company, through
Plateau, and Anglo Platinum, through its wholly owned subsidiary Rustenburg
Platinum Mines Limited, governed by, among other things, a shareholders`
agreement relating to Micawber entered into in September 2004. Work on the
Ga-Phasha Project is continuing toward the preparation of a pre-feasibility
study.
The transaction constituted a "reverse take-over" under the policies of the TSX
Venture Exchange. This transaction was accounted for as an acquisition by
Anooraq of Micawber`s 50% interest in its mineral properties. However, because
neither the fair value of the Anooraq shares issued, nor the fair value of the
mineral property interests acquired could be readily determined, the
acquisition was recorded at the net book value, as determined in accordance
with Canadian generally accepted accounting principles, of Micawber`s net
assets acquired, being nil, plus related transaction costs.
The acquisition costs were accounted for as follows:
Cash payments totaling ZAR 15,652,744 $ 3,055,416
Financial, legal, advisory, and other fees 1,419,329
Estimated South African stamp duties 15,000
Book value of Micawber`s net assets acquired -
Future income taxes 1,385,255
Acquisition cost, Ga-Phasha Project $ 5,875,000
Commencing September 29, 2004, the date of completion of the reverse take-over
transaction, the Company accounts for its interest in Micawber, which holds the
Ga- Phasha Project, using the equity method.
The share exchange agreement which gave effect to the combination provided that
if any financings in relation to the Ga-Phasha and Drenthe-Overysel
(subsequently renamed "Boikgantsho") Projects (the "Projects") took place prior
to a particular date (the "Finalization Date") and the shareholder dilution
associated with of such financings caused Pelawan`s shareholding in Anooraq to
fall below a 52% minimum shareholding, Anooraq would issue additional common
shares to Pelawan in order to maintain that minimum. Such 52% minimum
shareholding would allow for compliance with BEE equity requirements under
South African mineral legislation and was also a requirement of the South
African Reserve Bank for approving the transaction. Originally, the
Finalization Date was September 30, 2005 but that date, by agreement in
November 2005 between Anooraq and Pelawan, was extended.
The share exchange agreement further provided that, to the extent that if no
such dilutive financings had taken place by the Finalization Date, certain
dilutive financings were deemed to have occurred by that date. The purpose was
to make allowance for the dilutive effect on Pelawan`s shareholding of the
anticipated financings for mine development of the Projects and safeguard the
status of Anooraq as a BEE company. For the purposes of calculating whether, by
virtue of such deemed dilutive financings, any common shares were required to
be issued to Pelawan in order to maintain a minimum 52% shareholding, the share
exchange agreement provided that the quantum of such deemed financings would
equal: (a) 30% of the estimated development costs in accordance with the
bankable feasibility studies in respect of the Projects, less cash on hand, or
(b) to the extent that such bankable feasibility studies had not been prepared
as at the Finalization Date, $70.8 million related to the Ga-Phasha Project and
$27.6 million related to the Drenthe-Overysel Project, less cash on hand (the
"Deemed Dilutive Financings").
Following the Finalization Date, Anooraq has the right but not the obligation to
issue additional common shares to Pelawan in order to maintain Pelawan`s minimum
shareholding.
Neither additional financings nor bankable feasibility studies for the Projects
had been completed by Anooraq as at September 30, 2005 and, in the absence of
an amending agreement between the parties, a dilutive financing totaling $98.4
million and share issuances (based on the share price at the date of the deemed
dilutive financing) would have been deemed to have taken place as at such date
and the Company would have been obligated to issue to Pelawan that number of
shares which, after notionally giving effect to the Deemed Dilutive Financings,
would have resulted in Pelawan continuing to hold a 52% interest in the
Company. In November 2005, Anooraq and Pelawan agreed to extend the
Finalization Date to the earlier of:
(a) the first date at which both the Drenthe-Overysel financing and the Ga-
Phasha financings shall, in fact, have occurred;
(b) any date which is within a 60-day period following an announcement by
Anooraq of a further material transaction, as defined; and
(c) December 31, 2006.
In December 2006, the Company entered into a Settlement Agreement with Pelawan
to waive the deemed dilutive financing contemplated in the 2004 share exchange
agreement. Under the terms of the Settlement Agreement:
(i) Anooraq will issue to Pelawan 36 million common shares ("Adjustment
Consideration Shares"). The Company is currently awaiting regulatory approval
for the issuance of the Adjustment Consideration Shares.
(ii) Anooraq will issue to Pelawan share purchase warrants for the purchase
of 167 million common shares in Anooraq ("BEE Warrants"). The BEE
Warrants are exercisable until December 31, 2008. The BEE Warrants can
be exercised at the higher of (a) $1.35 if exercised on or before
December 31, 2007 or $1.48 if exercised after December 31, 2007 or (b)
at a price that is 50% less than the price per Anooraq common share
payable by arms length parties under an equity financing undertaken by
the Company that either raises an amount of at least $98.4 million or
is undertaken pursuant to a material transaction (a "Concurrent
Financing"). The Company is currently awaiting regulatory approval for
the issuance of the BEE Warrants.
(iii) From the date of issue of the Adjustment Consideration Shares to
Pelawan in (i) above or as a result of the exercise of any of the BEE
Warrants up to the closing date of the Concurrent Financing, the common
shares issued to Pelawan pursuant thereto will be subject to a lock up
arrangement and Pelawan will not be entitled to dispose of any of these
shares, save for the exemption referred to in (iv) below. After the
closing date of the Concurrent Financing, the disposal of such shares
shall remain subject to the original lock up agreement entered into
between Pelawan and Anooraq under the terms of the original RTO
transaction ("the BEE Lock Up").
(iv) Anooraq has agreed to grant Pelawan an exemption to the BEE Lock Up for
the purposes of facilitating Pelawan`s financing of the exercise of the
BEE Warrants. In the event that Pelawan exercises any BEE Warrants,
Pelawan shall, in its sole discretion, be entitled to dispose that
number of common shares up to 25% (or such greater amount as is
required to facilitate the financing of the exercise of the BEE
Warrants) of the aggregate common shares issued to Pelawan pursuant to
such exercise, provided that all of the proceeds received by Pelawan
from such disposal shall be applied by Pelawan to support the financing
of the exercise of the BEE Warrants and reasonable expenses related to
such exercise.
(v) On the occurrence of a Concurrent Financing, Pelawan shall be obliged
to exercise the BEE Warrants to ensure, at a minimum, that Anooraq
retains its status as a 52% controlled BEE company, in compliance with
undertakings given by Pelawan and the Company in favour of the South
African Reserve Bank and Anglo Platinum Limited.
c) Western Limb of the Bushveld Complex, South Africa
Thusong Joint Venture
In May 2003, the Company entered into a joint venture agreement with Rustenburg
to form a joint venture to explore and develop PGMs, gold and nickel
mineralization on the Wachteenbietjieslaagte 4JQ, Vogelstruiskraal 400KQ and
Cyferkuil 1JQ farms, which are located on the western limb of the Bushveld
Complex, approximately 75 kilometres north of the town of Rustenburg, adjacent
to Anglo Platinum`s Union operations.
Pursuant to the terms of the joint venture agreement, the Company and Anglo
Platinum could have formed an initial 50/50 joint venture (the "Thusong JV") to
explore the three farms for a period of up to five years from the date of the
agreement. In October 2006, the Company terminated the Thusong JV in order to
focus development of the Ga-Phasha project.
6. TERM LOAN
December 31 December 31
2006 2005
Term loan $11,818,677 $-
$11,818,677 $(BT1)-
In November 2006, the Company, through its wholly owned subsidiary Plateau,
entered into a 70 million ZAR term loan agreement with Rustenburg Platinum
Mines Limited, a wholly owned subsidiary of Anglo Platinum Limited. The loan
bears interest at prime plus two percent, as quoted by the Standard Bank of
South Africa.
The first interest payment is due and payable in January 2008, with other
subsequent interest payments due and payable in six month intervals thereafter.
The final repayment date for the loan will be on September 30, 2010, however,
the agreement allows for early repayment. In connection with the loan, the
Company incurred financing fees of $351,730 equal to 3% of the loan. As at
December 31, 2006, finance costs of $337,851 have been deferred and are being
amortized over the term of the loan.
The Company is required to spend 85% of the loan amount to fund work towards
the preparation of and operational expenditures contemplated in a bankable
feasibility study for the Ga-Phasha project.
Accrued interest expense on the term loan amounted to $253,071 (ZAR 1,498,346)
for the year ended December 31, 2006 and has been included in the carrying
value of the term loan.
Pursuant to security agreements entered into in connection with the loan, the
Company has ceded as security, its interest in Micawber.
7. SHARE CAPITAL
(a) Authorized share capital
The Company`s authorized share capital consists of an unlimited number of
common shares without par value.
(b) Issued and outstanding common shares
Number of Dollar
Price Shares Amount
Balance, October 31, 2003 40,164,172 $25,086,863
Issued during fiscal 2004
Shares issued for property option
(note 5(a)) $0.85 400,000 340,000
Fair value of stock options allocated
to shares issued on
exercise - - 588,560
Share purchase options exercised $0.75 3,419,300 2,555,390
Share purchase warrants exercised $0.85 3,313,125 2,822,529
Private placement, net of issue costs
(note 7(e)) $2.10 9,523,810 18,635,143
Shares issued to acquire Ga-Phasha
Project (note 5(b)) 91,200,000 -
Share issue cost of Ga-Phasha project - (54,128)
Balance, December 31, 2004 148,020,407 49,974,357
Share purchase options exercised $0.79 200,000 157,500
Fair value of stock options allocated
to shares issued on
exercise - - 75,506
Balance, December 31, 2005 and 2006 148,220,407 $50,207,363
(c) Share option plan
The Company has a share option plan approved by the Company`s shareholders that
allows it to grant options, subject to regulatory terms and approval, to its
directors, employees, officers, and consultants to, as at December 31, 2006,
acquire up to 13,453,200 common shares, of which 3,988,200 options were
outstanding and 9,465,000 remained available to grant. The exercise price of
each option is set by the Board of Directors at the time of grant but cannot be
less than the market price (less permissible discounts) on the TSX Venture
Exchange. Options have a term of up to a maximum of ten years (however, the
Company has historically granted options for up to a term of five years), and
terminate 30 days following the termination of the optionee`s employment or
term of engagement, except in the case of retirement or death. Vesting of
options is at the discretion of the Board of Directors at the time the options
are granted.
The continuity of share purchase options is as follows:
Contractual weighted
Weighted average average remaining life
exercise price Number of options (years)
Balance,
October
31, 2003 $1.12 5,200,000 1.36
Granted 1.89 897,500
Exercised 0.75 (3,419,300)
Cancelled 0.97 (68,200)
Balance,
December
31, 2004 $1.87 2,610,000 1.54
Granted 1.39 4,233,200
Exercised 0.79 (200,000)
Expired 2.00 (1,522,500)
Cancelled 1.60 (342,500)
Balance,
December
31, 2005 $1.47 4,778,200 3.61
Cancelled 1.90 (235,000)
Expired 1.84 (555,000)
Balance,
December
31, 2006 $1.39 3,988,200 3.23
Options outstanding and exercisable at December 31, 2006 were as follows:
Expiry date Option price Number of options outstanding
July 1, 2007 $0.95 100,000
September 28, 2007 $1.40 415,000
December 14, 2007 $1.40 408,200
December 17, 2010 $1.40 3,065,000
Total 3,988,200
Average option price $1.39
The exercise prices of all share purchase options granted during the period
were equal to or greater than the market price at the grant date. Using an
option pricing model with the assumptions noted below, the estimated fair value
of all options granted have been reflected in the consolidated statement of
operations as follows:
Fourteen
Year ended Year ended months ended
December 31 December 31 December 31
2006 2005 2004
Stock-based compensation -
Exploration $15,209 $714,243 $1,040,542
Stock-based compensation -
Office and administration 9,137 1,822,010 1,426,006
Credited to contributed
surplus during the period 24,346 2,536,253 2,466,548
Share purchase options
exercised, credited to share
capital - (75,506) (588,560)
Contributed surplus, beginning
of the period 4,824,697 2,363,950 485,962
Contributed surplus, end of
period $4,849,043 $4,824,697 $2,363,950
The assumptions used to estimate the fair value of options granted during
the period were:
2006 2005 2004
Risk free interest rate - 3% 3%
Expected life - 4 years 2 years
Volatility - 82% 88%
Expected dividends - nil nil
There were no options granted during the year ended December 31, 2006.
(d) Share purchase warrants
The continuity of share purchase warrants is as follows:
Expiry date Dec. 21, Dec. 27, June 1,
2003 2003 2005
Exercise price $0.85 $0.88 $2.50 TOTAL
Balance, October
31, 2003 3,100,718 212,407 - 3,313,125
Issued - - 5,333,334 5,333,334
Exercised (3,100,718) (212,407) - (3,313,125)
Balance, December
31, 2004 - - 5,333,334 5,333,334
Issued - - - -
Exercised - - - -
Expired - - (5,333,334) (5,333,334)
Balance, December
31, 2005 and 2006 - - - -
The Company is committed to issue 167,000,000 share purchase warrants ("BEE
warrants") pursuant to the Settlement Agreement in note 5(b). Each BEE warrant
is exercisable for one common share of the Company. The BEE warrants expire on
December 31, 2008 and have an exercise price of the higher of (i) $1.35 if
exercised on or before December 31, 2007 or $1.48 if exercised after December
31, 2007 or (ii) a price per BEE warrant that is 50% less than the common share
price payable by arms length parties under an equity financing undertaken by
the Company that either raises an amount of at least $98,400,000 or is
undertaken pursuant to a concurrent financing.
(e) Private placement, December 2003
During December 2003, the Company completed a $20 million private placement
financing of 9,523,810 units at a price of $2.10 per unit. Each unit was
comprised of one common share and one-half of a common share purchase warrant,
with each whole warrant exercisable at $2.50 per common share until June 1,
2005. The agents received 571,429 share purchase warrants each exercisable into
one common share at $2.50 per common share until June 1, 2005. The fair value
of warrants issued has been presented on a net basis in share capital. During
the year ended December 31, 2005, these warrants expired unexercised.
8. RELATED PARTY TRANSACTIONS AND BALANCES
Fourteen
months
Year ended Year ended ended
Note December 31 December 31 December 31
Services rendered by ref 2006 2005 2004
Hunter Dickinson Inc. (a) $ 1,023,633 $ 1,297,159 $ 1,512,441
Hunter Dickinson
Group Inc. (b) - 9,600 17,360
Pelawan Investments
(Proprietary) Limited (c) - 658,035 745,438
CEC Engineering Ltd. (d) 127,781 166,662 135,104
Related party balances
receivable December 31 2006 December 31 2005
Hunter Dickinson Inc. (a) $ 98,820 $ 233,205
Southgold Exploration
(Proprietary) Limited (e) 39,796 141,103
Receivable from
related parties $ 138,616 $ 374,308
Related party balances
payable (included in
accounts payable) December 31 2006 December 31 2005
CEC Engineering Ltd. (d) 6,435 $ 48,506
(a) Hunter Dickinson Inc. ("HDI") is a private company owned equally by
nine public companies, one of which is the Company. HDI has certain
directors in common with the Company and provides geological, corporate
development, administrative and management services to, and incurs
third party costs on behalf of, the Company and its subsidiaries on a
full cost recovery basis pursuant to an agreement dated December 31,
1996.
(b) Hunter Dickinson Group Inc. ("HDGI") was a private company with certain
directors in common with the Company that provided consulting services
to, and incurs costs on behalf of, the Company, at market rates.
(c) Pelawan is a private South African BEE company which is a significant
shareholder of the Company and which has certain directors in common
with the Company (note 5(b)). Pelawan became a majority shareholder on
September 29, 2004. During the year ended December 31, 2006, the
Company paid $nil (2005 - $658,035) for technical, administrative and
management services provided to, and repayment of costs paid on behalf
of, the Company.
(d) During the year ended December 31, 2006, the Company paid or accrued
$127,781 (2005 - $166,662) to CEC Engineering Ltd ("CEC"), a private
company owned by a former director, for engineering and project
management services at market rates.
(e) Southgold Exploration (Proprietary) Limited ("Southgold") is a
wholly-owned subsidiary of Great Basin Gold Ltd., a Canadian public
company which has certain directors in common with the Company.
Southgold shares certain premises and other facilities with the Company
pursuant to a cost-sharing arrangement based on a full cost recovery
basis.
(f) Micawber is a private South African corporation which is owned 50% by
Anglo Platinum and 50% by the Company; hence it is a related party. The
Company accounts for its investment in Micawber using the equity
method.
9. INCOME TAXES
As at December 31, 2006 and 2005 the tax effect of the significant components
of the Company`s future tax asset (liability) were as follows:
December 31, December 31,
2006 2005
Future income tax assets
Mineral property interests $4,157,000. $4,428,000.
Loss carry forwards 5,789,000. 4,408,000.
Equipment 17,000. 20,000.
Other tax pools 1,386,000. 582,000.
Subtotal 11,349,000. 9,438,000.
Valuation allowance (11,349,000) (9,438,000)
Net future income tax asset - -
Future income tax liability
Mineral property interests $1,038,130 $1,154,943
The Company`s future income tax liability relates to its equity investment in
the Ga-Phasha Project and forms part of its equity investment (note 5(b)).
Income tax expense differs from the amount that would result from applying the
Canadian federal and provincial tax rates to earnings before income taxes.
These differences result from the following items:
December 31, December 31, December 31,
2006 2005 2004
Combined Canadian federal
and provincial 34.12% 34.87% 35.62%
statutory rate
Income tax at statutory rates $(1,578,000) $(4,313,000) $(4,640,000)
Non-deductible items 70,000 905,000 709,000
Difference in foreign tax
rates (299,000) 455,000 616,000
Reduction in statutory tax
rates 336,000 223,000 58,000
Benefit of unrealized
foreign currency loss (561,000) (237,000) -
Valuation allowance 1,911,000 2,902,000 3,257,000
$(121,000) $(65,000) $-
At December 31, 2006, the Company had losses available for income tax purposes
in Canada totalling approximately $ 10.9 million (2005 - $8.6 million),
expiring in various periods from 2007 to 2026. The Company has losses available
for income tax purposes in South Africa totaling $8.3 million (2005 - $4.7
million) which can be carried forward indefinitely.
10. SEGMENTED INFORMATION
For the year ended
December 31, 2006 Canada Mexico South Africa Total
Exploration
expenditures $- $- $751,325 $751,325
Loss for the year (1,894,272) (726) (2,609,846) (4,504,844)
Total assets 1,252,044 31,441. 20,545,437 21,828,922
Equipment - - 73,315 73,315
For the year ended
December 31, 2005 Canada Mexico South Africa Total
Exploration
expenditures $- $- $5,240,321 $5,240,321
Loss for the year (4,302,015) (8,841) (7,992,945) (12,303,801)
Total assets 4,645,858 32,166. 9,157,572 13,835,596
Equipment - - 174,163 174,163
For the 14 months
ended
December 31, 2004 Canada Mexico South Africa Total
Exploration
expenditures $- $- $7,860,266 $7,860,266
Loss for the year (4,086,230) (4,323) (8,936,711) (13,027,264)
ANOORAQ RESOURCES CORPORATION
YEAR ENDED DECEMBER 31, 2006
MANAGEMENT`S DISCUSSION AND ANALYSIS
1.1 Date
This Management`s Discussion and Analysis ("MD&A") should be read in
conjunction with the audited financial statements of Anooraq Resources
Corporation ("Anooraq", or the "Company") for the years ended December 31, 2006
and 2005. All dollar amounts herein are expressed in Canadian Dollars unless
otherwise stated.
This MD&A is prepared as of March 26, 2007.
This discussion includes certain statements that may be deemed "forward-looking
statements". These forward-looking statements constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All statements in this
discussion, other than statements of historical facts, that address future
production, reserve potential, exploration drilling, exploitation activities
and events or developments that the Company expects are forward-looking
statements. Although the Company believes the expectations expressed in such
forward-looking statements are based on reasonable assumptions, such statements
are not guarantees of future performance and actual results or developments may
differ materially from those in the forward-looking statements. Factors that
could cause actual results to differ materially from those in forward-looking
statements include market prices, exploitation and exploration successes,
continued availability of capital and financing and general economic, market or
business conditions. Investors are cautioned that any such statements are not
guarantees of future performance and actual results or developments may differ
materially from those stated herein.
1.2 Overview
Anooraq is engaged in the exploration and development of platinum group metals
("PGM") prospects in the Bushveld Complex of the Republic of South Africa.
The large Bushveld Complex covers a total area of approximately 67,000 square
kilometers and is divided into four main areas or "limbs". Most PGM production
from the Bushveld Complex to date has been derived from the Merensky and UG2
reefs, which are the main PGM-bearing horizons on the Eastern and Western Limbs
of the Bushveld. The PGM-bearing horizon on the Northern Limb, called the
Platreef, tends to be nearer to the surface and is wider than those on the
other limbs, and so has potential for the discovery and development of
large-scale deposits that are amenable to open pit mining.
In 2006, Anooraq had interests in early to advanced stage exploration
properties on the Northern, Eastern and Western Limbs of the Bushveld Complex,
called the Platreef, Ga-Phasha and Thusong Projects. In October 2006, the
Company terminated the joint venture with Anglo Platinum Limited ("Anglo
Platinum") on the Thusong Project on the Western Limb.
Anooraq`s exploration work in 2006 was mainly focused on advancing the
Ga-Phasha Project in the Eastern Bushveld.
In November 2006, Anooraq concluded an agreement with Anglo Platinum, whereby
Anglo Platinum provided South African Rand ("ZAR") 70 million in funding to
Anooraq via a term loan.
Anooraq effected an inward secondary listing on the JSE Limited in 2006, and
began trading on December 19, 2006 under the trading symbol of ARQ. The Company
also trades on the TSX Venture Exchange (symbol ARQ) and American Stock
Exchange (symbol ANO).
In December 2006, the Company entered into a Settlement Agreement with Pelawan
Investments (Proprietary) Limited ("Pelawan") to waive the deemed dilutive
financing contemplated in the 2004 share exchange agreement. The equity
issuance terms of this settlement are subject to regulatory approval which has
not been obtained at March 26, 2007.
1.2.1 Ga-Phasha JV Project, Eastern Limb
Anooraq has a 50% interest in the Ga-Phasha PGM Project (the "Ga-Phasha
Project"), located on the North-Eastern Limb of the Bushveld, approximately 250
kilometers northeast of Johannesburg. Anooraq acquired the project by way of a
reverse takeover transaction ("RTO") with Pelawan Investment Holdings (Pty)
Ltd. in 2004 (further details below). Ga-Phasha has significant PGM mineral
resources outlined in the Merensky and UG2 Reefs that are open to further
expansion. In 2006, a program targeting the UG2 Reef was completed.
The Ga-Phasha Project is a 50/50 joint venture with Anglo Platinum Limited
("Anglo Platinum"). Anglo Platinum is the operator.
Agreement
In January 2004, the Company entered into an agreement with Pelawan, a private
South African Black Economic Empowerment ("BEE") company, pursuant to which the
Company and Pelawan would combine their respective PGM assets, comprising the
Company`s Northern and Western Limb PGM projects and Pelawan`s 50%
participation interest in the Ga-Phasha Project. The transaction between
Anooraq and Pelawan was completed on September 29, 2004.
Pursuant to the terms of the agreement between the Company and Pelawan, the
Company acquired Pelawan`s 50% shareholding in Micawber and the rights to its
50% participation interest in the Ga-Phasha Project in return for 91.2 million
common shares of the Company (the "Consideration Shares") and cash payments
totalling ZAR 15,652,744 ($3,055,416). Approximately 83 million Consideration
Shares are being held in escrow until the earlier of September 29, 2010 or
twelve months after the commencement of commercial production from the
Ga-Phasha Project at which time they will be released.
The Ga-Phasha property consists of four farms, covering an area of
approximately 9,700 hectares, held by Micawber 277 (Proprietary) Limited
("Micawber"), a private South African corporation owned 50% by Anglo Platinum
through its wholly owned subsidiary Rustenburg Platinum Mines ("RPM")
subsidiary and 50% by Anooraq through its wholly owned South African subsidiary
Plateau Resources (Pty) Ltd ("Plateau"). The 50/50 joint venture between
Plateau and RPM is governed by, among other things, a shareholders agreement
relating to Micawber dated September 22, 2004.
On March 28, 2005, Pelawan sold 7.9 million of the Anooraq shares it was
permitted to sell under the agreement to strategic stakeholders in Anooraq and
the proceeds from such sales were remitted to Pelawan shareholders through the
Pelawan Trust. The proceeds received by the Pelawan Trust from the sale of
certain shares held by the Pelawan Trust were distributed to Pelawan`s
shareholder base, comprising 15 broadly-based BEE entities, including women
investment groups, cultural trusts and Limpopo-based groups within those areas
where Anooraq`s proposed mining activities are situated.
The share exchange agreement which gave effect to the combination provided that
if any financings in relation to the Ga-Phasha and Drenthe-Overysel
(subsequently renamed "Boikgantsho") Projects (the "Projects") took place prior
to a particular date (the "Finalization Date") and the shareholder dilution
associated with such financings caused Pelawan`s shareholding in Anooraq to
fall below a 52% minimum shareholding, Anooraq would issue additional common
shares to Pelawan in order to maintain that minimum. Such 52% minimum
shareholding allowed for compliance with BEE equity requirements under South
African mineral legislation and was also a requirement of the South African
Reserve Bank for approving the transaction. Originally, the Finalization Date
was September 30, 2005 but that date, by agreement in November 2005 between
Anooraq and Pelawan, was extended.
The share exchange agreement further provided that, to the extent that if no
such dilutive financings had taken place by the Finalization Date, certain
dilutive financings were deemed to have occurred by that date. The purpose was
to make allowance for the dilutive effect on Pelawan`s shareholding of the
anticipated financings for mine development of the Projects and safeguard the
status of Anooraq as a BEE company. For the purposes of calculating whether, by
virtue of such deemed dilutive financings, any common shares are required to be
issued to Pelawan in order to maintain a minimum 52% shareholding, the share
exchange agreement provided that the quantum of such deemed financings would
equal: (a) 30% of the estimated development costs in accordance with the
bankable feasibility studies in respect of the Projects, less cash on hand, or
(b) to the extent that such bankable feasibility studies had not been prepared
as at the Finalization Date, $70.8 million related to the Ga-Phasha Project and
$27.6 million related to the Drenthe-Overysel Project, less cash on hand (the
"Deemed Dilutive Financings").
Following the Finalization Date, Anooraq has the right but not the obligation
to issue additional common shares to Pelawan in order to maintain Pelawan`s
minimum shareholding.
As neither additional financings nor bankable feasibility studies for the
Projects had been completed by Anooraq as at September 30, 2005 and, in the
absence of an amending agreement between the parties, a dilutive financing
totaling $98.4 million and share issuances (based on the share price at the
date of the deemed dilutive financing) would have been deemed to have taken
place as at such date and the Company would have been obligated to issue to
Pelawan that number of shares which, after notionally giving effect to the
Deemed Dilutive Financings, would have resulted in Pelawan continuing to hold a
52% interest in the Company. In November 2005, Anooraq and Pelawan agreed to
extend the Finalization Date to the earlier of:
(a) the first date at which both the Drenthe-Overysel financing and the
Ga-Phasha financings shall, in fact, have occurred;
(b) any date which is within a 60-day period following an announcement by
Anooraq of a further material transaction, as defined; and
(c) December 31, 2006.
In December 2006, the Company entered into a Settlement Agreement with Pelawan
to waive the deemed dilutive financing contemplated in the 2004 share exchange
agreement. Under the terms of the Settlement Agreement:
(i) Anooraq will issue to Pelawan 36 million common shares ("Adjustment
Consideration Shares"), representing a 50% reduction in the number of
shares potentially to be issued under the original RTO transaction
terms. The Company is currently awaiting regulatory approval for the
issuance of the Adjustment Consideration Shares.
(ii) Anooraq will issue to Pelawan share purchase warrants for the purchase
of 167 million common shares in Anooraq ("BEE Warrants"). The BEE
Warrants are exercisable until December 31, 2008. The BEE Warrants can
be exercised at the higher of (a) $1.35 if exercised on or before
December 31, 2007 or $1.48 if exercised after December 31, 2007 or (b)
at a price that is 50% less than the price per Anooraq common share
payable by arms length parties under an equity financing undertaken by
the Company that either raises an amount of at least $98,400,000 or is
undertaken pursuant to a material transaction (a "Concurrent
Financing"). The Company is currently awaiting regulatory approval for
the issuance of the BEE Warrants.
(iii) From the date of issue of the Adjustment Consideration Shares to
Pelawan in (i) above or as a result of the exercise of any of the BEE
Warrants up to the closing date of the Concurrent Financing, the common
shares issued to Pelawan pursuant thereto will be subject to a lock up
arrangement and Pelawan will not be entitled to dispose of any of these
shares, save for the exemption referred to in (iv) below. After the
closing date of the Concurrent Financing, the disposal of such shares
shall remain subject to the original lock up agreement entered into
between Pelawan and Anooraq under the terms of the original RTO
transaction ("the BEE Lock Up").
(iv) Anooraq has agreed to grant Pelawan an exemption to the BEE Lock Up for
the purposes of facilitating Pelawan`s financing of the exercise of the
BEE Warrants. In the event that Pelawan exercises any BEE Warrants,
Pelawan shall, in its sole discretion, be entitled to dispose that
number of common shares up to 25% (or such greater amount as is
required to facilitate the financing of the exercise of the BEE
Warrants) of the aggregate common shares issued to Pelawan pursuant to
such exercise, provided that all of the proceeds received by Pelawan
from such disposal shall be applied by Pelawan to support the financing
of the exercise of the BEE Warrants and reasonable expenses related to
such exercise.
(v) On the occurrence of a Concurrent Financing, Pelawan shall be obliged
to exercise the BEE Warrants to ensure, at a minimum, that Anooraq
retains its status as a 52% controlled BEE company, in compliance with
undertakings given by Pelawan and the Company in favour of the South
African Reserve Bank and Anglo Platinum Limited.
Financings
In April 2006, Anooraq announced that it had reached an agreement in principle
with Anglo Platinum, whereby Anglo Platinum would undertake a US$10 million
(ZAR70 million) funding into Anooraq. The financing was concluded in November
2006. Anglo Platinum, through its subsidiary RPM, loaned ZAR 70 million to
Plateau. Plateau is required to use 85% of the funding for operational
expenditures on the Ga Phasha Project. Pursuant to security agreements entered
into in connection with the loan, Plateau has ceded as security, its interest
in Micawber.
Project Activities
For the year ended December 31, 2006, exploration and administrative
expenditures of approximately $494,483 had been incurred on the Ga-Phasha
project. These are included in the costs discussed under Results of Operations.
Prior to the involvement of Anooraq, Anglo Platinum (and others) had carried
out extensive drilling as well as preliminary engineering and mine planning
studies on the Ga-Phasha property. Significant mineral resources were outlined
in the UG2 and Merensky Reefs. South African consultants, Global Geo Services
(Pty) Ltd. carried out a resource estimate on behalf of Anooraq in early 2004
based on information received to that time from Anglo Platinum, outlining
significant mineral resources in both the UG2 and Merensky Reefs.
Under a preliminary development plan, proposed in 2001-2002, the UG2 Reef was
seen as the principal target reef horizon for mining, with mineralization being
processed through a joint concentrator situated on Anglo Platinum`s adjacent
Twickenham property.
A program review took place between April and October 2006, in which several
approaches were considered to optimize mining of the deposits at Ga-Phasha. The
Review confirmed that the UG2 reef deposit remains the primary focus for
development and the Merensky reef warrants further study through additional
drilling programs.
As a result of this work, Anooraq and Anglo Platinum agreed on the parameters
and engaged an independent project manager to conduct a Pre-feasibility Study
("PFS") for the Project. The PFS will consist of a Phase 1 study to exploit the
UG2 reef to a depth of some 650 meters below surface, and will also seek to
identify a single preferred option by which to proceed to the bankable
feasibility phase. The PFS will also contemplate optimizing economies of scale
between the Parties` operations on the North- Eastern Limb of the Bushveld
Complex, and in that regard, will evaluate the possible usage of joint
infrastructure and processing facilities between Anglo Platinum`s Twickenham
Platinum Mine and Ga-Phasha.
Read, Swatman & Voigt (Pty) Ltd ("RSV") has been appointed as the independent
project manager to conduct the PFS. RSV is a highly reputable South African
engineering and project management company that serves the mining,
metallurgical, and industrial sectors in South Africa and the rest of the
world. With a staff complement of 300 people from the mining, engineering,
project management and administration discipline RSV has conducted assessments
of numerous PGM Projects on the Western and Eastern Limbs of the Bushveld
Igneous Complex in South Africa. Some of its key projects include the Lonmin
Platinum K4 Shaft Project, the Impala Platinum 16 Shaft project, and the Anglo
Platinum`s Rustenburg Platinum Mine UG2 expansion.
Plans for 2007
A detailed timetable of further studies as well as a project timetable toward a
Bankable Feasibility Study will be released after the PFS, which is scheduled
for completion by the end of the first half of 2007.
1.2.2 Platreef Projects, Northern Limb
Prior to January 2004, Anooraq mainly focused on the acquisition and
exploration of mineral properties (called "farms" in South Africa) on the
Bushveld`s Northern Limb. Anooraq initially outlined a mineral resource in the
Drenthe deposit on its Drenthe and Witrivier farms in 2000. In November 2003,
Anooraq and RPM, which has an open pit operation nearby, formed the Boikgantsho
Joint Venture ("Boikgantsho JV"), with Anooraq as the operator. Most of
Anooraq`s work on the Northern Limb has been focused on the Boikgantsho JV
ground, mainly taking place prior to the end of 2005. In December 2006, Anooraq
received new order rights for the farms Rietfontein 2 KS, Malokongskop 780 LR
and Drenthe 778 LR, which are a portion of its properties on the Northern Limb
of the Bushveld Complex.1
Anooraq also holds several other early exploration stage properties on the
Northern Limb. At Rietfontein, Ivanhoe Nickel and Platinum Ltd. ("Ivanplats")
is earning an interest by carrying out exploration in conjunction with work on
its adjacent Turfspruit farm. Ivanplats outlined mineralization on the
Rietfontein farm through drilling in 2001. There is disagreement over budgets,
compilation and analysis of the exploration results, and the overall adequacy
and completeness of Ivanplats` exploration activities.
The Company and Ivanplats are currently in discussions over these matters, both
outside of and within a formal arbitration process, pursuant to the terms of
the earn-in agreement.
1.2.3 Boikgantsho JV Project
The objective of the Boikgantsho JV is to explore and develop PGM deposits on
the Drenthe and Witrivier farms and the northern portion of the Overysel farm,
located immediately to the south of the Drenthe farm. Drilling under the JV in
2004 expanded the Drenthe deposit and resulted in the discovery of the Overysel
North deposit.
In March 2005, Anooraq completed a preliminary economic assessment of a
potential open pit development on the Drenthe and Overysel North deposits,
which gave positive returns. Anooraq also completed an additional 24,000 meters
of drilling on the Drenthe deposit in 2005. The program was designed to define
measured mineral resources within the deposit and advance the project toward a
feasibility study.
Agreement
In November 2003, Anooraq, through its wholly-owned South African subsidiary
Plateau,, entered into a joint venture agreement with Potgietersrust Platinum
Limited, a wholly owned subsidiary of Anglo Platinum, to explore and develop
PGM, gold, nickel and copper mineralization on Anooraq`s Drenthe and Witrivier
farms and the northern portion of Anglo Platinum`s adjacent Overysel farm.
Anooraq made its required expenditures by the end of 2004, and now has the
option to proceed on a year-by-year basis and to take the project to a bankable
feasibility study ("BFS") level.
1. New Order Prospecting Rights have been converted from `old order prospecting
rights` into prospecting rights in terms of the Mineral and Petroleum
Resources Development Act, 2002.
Once a BFS has been completed, either or both of the partners in the
Boikgantsho JV will have the option to proceed to exploitation. If both
partners decide to proceed, then a joint management committee will be
established to oversee development and operations. The ultimate joint venture
interest allotted to Anooraq and Anglo Platinum will be determined according to
the proportion of contained metal within the Drenthe deposit that lies on the
ground contributed by each, as determined by the BFS. Anglo Platinum has the
option to be diluted to a minimum 12.5% non-contributory interest, adjusted
depending on the final PGM royalty to be established under the Mineral and
Petroleum Royalty Bill, to a maximum of 15%.
Anglo Platinum has the right to enter into a PGM Ore or Concentrate Purchase
and Disposal Agreement with the Company at the exploitation phase, based on
standard commercial terms, whereby PGM produced from the operation would be
treated at Anglo Platinum`s facilities. Anglo Platinum owns and operates a PGM
smelter at Polokwane, which is approximately 80 kilometers east of the
property.
Project Activities
A preliminary assessment of a potential open pit development of the Drenthe and
Overysel North Deposits, based on mineral resources outlined to September 2004,
was completed during the first quarter of 2005. As the preliminary assessment
is based, in part, on inferred resources that are geologically speculative,
there is no certainty that the economic considerations or results will be
realized. The preliminary assessment indicates favorable financial results for
an open pit and conventional mill operation. Further details are provided in a
technical report filed at www.sedar.com.
Drilling in 2005 focused on the Drenthe deposit. The program tested the entire
area within the provisional open pit design for the Drenthe deposit that was
used for the March 2005 preliminary assessment. One hundred and thirty six
vertical holes, totaling approximately 24,400 meters, were drilled at 50-meter
intervals along 50-meter spaced lines. The program confirmed the continuity of
the PGM mineralization within the Drenthe deposit. An independent consultant
was engaged to update the deposit database and estimate of the mineral
resources.
Results from the updated resource model and recommendations from the
preliminary assessment will be followed up by pre-feasibility work. Currently,
however, the Company is focused on advancing the Ga- Phasha Project.
Plans for 2007
Planning is underway to resume work on the Boikgantsho pre-feasibility
study in 2007.
1.2.4 Market Trends
Platinum prices have been increasing for the past three years and averaged
US$1145/oz in 2006. Platinum has continued to increase in 2007, averaging
US$1190/oz to mid March. Palladium prices declined in 2005, averaging
approximately US$201/oz, but have increased in 2006, averaging US$323/oz for
the year. Gold prices continued a strong uptrend in 2006, averaging US$604/oz,
compared to US$445/oz in 2005.
1.3 Selected Annual Information
December 31 December 31 December 31
2006 2005 2004
Current assets $13,177,004 $5,159,433 $15,787,528
Mineral property interests 8,240,751 8,502,000 8,494,358
Other assets 411,167 174,163 197,995
Total assets 21,828,922 13,835,596 24,479,881
Current liabilities 1,034,144 378,997 1,413,234
Long term liabilities 11,818,677 - -
Shareholders` equity 8,976,101 13,456,599 23,066,647
Total liabilities and
shareholders` equity $21,828,922 $13,835,596 $24,479,881
Year ended Year ended 14 months ended
Dec 31, 2006 Dec 31, 2005 Dec 31, 2004
Expenses
Conference and travel $360,959 $646,992 $486,481
Consulting 168,457 965,720 536,216
Depreciation 30,862 48,503 39,121
Exploration 720,463 5,191,818 7,821,145
Foreign exchange (34,817) 68,720 145,199
Gain on disposal of
equipment (41,291) - -
Interest expense 253,071 - -
Interest income (117,829) (119,779) (485,452)
Legal, accounting and
audit 690,132 474,422 479,731
Office and administration 354,353 551,278 457,571
Salaries and benefits 1,511,874 1,659,465 834,223
Shareholders
communications 289,824 260,155 342,848
Trust and filing 415,440 85,254 159,633
Subtotal 4,601,498 9,832,548 10,816,716
Stock based compensation 24,346 2,536,253 2,466,548
Future income tax recovery (121,000) (65,000) -
Write-off (recovery) of
amounts receivable - - (256,000)
Loss for the year $4,504,844 $12,303,801 $13,027,264
Loss per share $0.03 $0.08 $0.18
Weighted average number
of common shares
outstanding (thousands) 148,220 148,107 73,017
1.4 Summary of Quarterly Results
Expressed in thousands of dollars, except per-share amounts. Small differences
are due to rounding.
Dec 31 Sep 30 Jun 30 Mar 31
2006 2006 2006 2006
Current assets 13,177 2,337 3,143 4,103
Mineral properties 8,241 8,600 8,211 8,493
Other assets 411 98 103 161
Total assets 21,829 11,035 11,457 12,757
Current liabilities 1,034 478 311 273
Long term liabilities 11,819 - - -
Shareholders` equity 8,976 10,557 11,146 12,484
Total liabilities and
shareholders` equity 21,829 11,035 11,457 12,757
Expenses
Exploration 152 42 466 92
Conference and travel 218 17 38 88
Consulting (133) 222 27 53
Foreign exchange loss (gain) 231 (117) (159) 9
Interest on term loan 253 - - -
Interest expense (income) (95) 16 (12) (28)
Legal, accounting and audit 102 205 216 167
Gain on disposal of fixed asset (19) (11) (11) -
Office and administration 102 79 102 71
Salaries and benefits 394 335 408 375
Shareholder communications 112 38 78 61
Trust and filing 288 29 15 84
Subtotal 1,605 855 1,168 972
Stock-based compensation -
exploration - (2) (6) 24
Stock-based compensation -
office and administration - (1) (3) 12
Future income tax expense
(recovery) (25) 4 (100) -
Loss for the period 1,580 856 1,059 1,008
Basic and diluted loss per share 0.01 0.01 0.01 0.01
Weighted average number of
common shares outstanding 148,220 148,220 148,220 148,220
Dec 31 Sep 30 Jun 30 Mar 31
2005 2005 2005 2005
Current assets 5,159 6,369 8,327 12,079
Mineral properties 8,502 8,661 8,495 8,495
Other assets 174 181 179 191
Total assets 13,835 15,211 17,001 20,765
Current liabilities 379 351 1,248 1,488
Long term liabilities - - - -
Shareholders` equity 13,456 14,860 15,753 19,277
Total liabilities and
shareholders` equity 13,835 15,211 17,001 20,765
Expenses
Exploration 15 526 2,318 2,381
Conference and travel 208 26 191 222
Consulting 86 127 440 316
Foreign exchange loss (gain) 202 (113) (119) 99
Interest on term loan - - - -
Interest expense (income) (27) 12 (60) (45)
Legal, accounting and audit 173 (7) 178 130
Gain on disposal of fixed asset - - - -
Office and administration 121 158 96 174
Salaries and benefits 465 422 412 360
Shareholder communications 40 54 90 76
Trust and filing 3 (2) 8 76
Subtotal 1,286 1,203 3,554 3,789
Stock-based compensation -
exploration (155) 32 843 (6)
Stock-based compensation -
office and administration (367) 124 2,069 (4)
Future income tax expense
(recovery) 117 (182) - -
Loss for the period 881 1,177 6,466 3,779
Basic and diluted loss per share 0.01 0.01 0.04 0.02
Weighted average number of
common shares outstanding 148,107 148,069 148,028 148,020
1.5 Results of Operations
The loss for the year ended December 31, 2006 was $4,504,844 compared to a loss
of $12,303,801 for the year ended December 31, 2005. This decrease primarily
resulted from lower exploration expenses due to financial constraints and a
reduction in stock based compensation. The Company recorded a loss of $0.03 per
share for the year ended December 31, 2006, compared to a loss of $0.08 per
share for the year ended December 31, 2005.
Exploration expenses for the year ended December 31, 2006 amounted to $751,325
in comparison to $5,240,321 spent for the year ended December 31, 2005. The
decrease in exploration was mainly due to the Company`s lower cash balance
compared to the prior year. The exploration expenses for the year ended
December 31, 2006 were mainly incurred on the Ga-Phasha project. Drilling costs
amounted to $376,406 spent for the year ended December 31, 2006 compared to
$2,205,329 spent for the year ended December 31, 2005. Assays and analysis
expenditures amounted to $38,393 spent for the year ended December 31, 2006 in
comparison to $1,133,408 expended for the year ended December 31, 2005.
Geological and consulting costs for the year ended 2006 were $64,030 compared
to $759,335 spent for the year ended December 31, 2005. Engineering costs
decreased to $141,784 from $538,169 incurred for the year ended December 31,
2005. The cost of site activities was $34,484 compared to $277,199 spent for
the year ended December 31, 2005. Site activity costs are principally
associated with maintaining the field office in South Africa, but also include
activities associated with the drilling program.
Legal, accounting and audit for the year ended December 31, 2006 amounted to
$690,132 in comparison to $474,422 for the year ended December 31, 2005
primarily as a result of advisory services provided for the annual general
meeting, expenses incurred relating to a secondary listing on the Johannesburg
Stock Exchange in South Africa and various regulatory financial reporting
requirements. Office and administration for the year ended December 31, 2006
amounted to $354,353 in comparison to $551,278 spent for the year ended
December 31, 2005. Conference and travel costs of $360,959 were incurred during
the year ended December 31, 2006 in comparison to the $646,992 incurred during
for the year ended December 31, 2005 largely due to decreased travel activity
associated with the work rotation of project engineers. Consulting costs
decreased to $168,457 in comparison to $965,720 spent for the year ended
December 31, 2005. Salaries and benefits amounted to $1,511,874 in 2006, a
decrease from $1,659,465 spent for the year ended December 31, 2005. Trust and
filing for the year ended December 31, 2006 increased to $415,440 in comparison
to the $85,254 incurred for the year ended December 31, 2005 primarily as a
result of expenses incurred relating to listing on the Johannesburg Stock
Exchange in South Africa.
1.6 Liquidity
At December 31, 2006, the Company had working capital of approximately $12.1
million as compared to $4.8 million at the end of the 2005 fiscal year. The
cash position at December 31, 2006 was approximately $12.8 million.
Anooraq`s sources of capital are primarily equity investment. The Company`s
access to capital sources is dependant upon general financial market
conditions, especially those that pertain to venture capital situations such as
mineral exploration and development. There can be no assurance that Anooraq`s
future capital requirements can be met in the long term, or that adequate
financing will be obtained on a timely basis or at all. Failure to obtain
adequate financing will result in significant delays of exploration programs
and a substantial curtailment of operations. The Company`s cash resources at
December 31, 2006 are sufficient for its present needs, specifically to
continue administrative and exploration operations at current levels through
the end of the year 2007. Future programs may be deferred and operations
curtailed if additional funding is not secured. However, the Company
anticipates being able to raise additional financing.
In November 2006, the Company completed its financing agreement with Anglo
Platinum whereby Anglo Platinum, through its wholly owned subsidiary Rustenburg
Platinum Mines, loaned an amount of ZAR70 million to Plateau Resources (Pty)
Ltd ("Plateau"), a wholly owned South African subsidiary of the Company. The
loan bears interest at prime plus two percent, as quoted by the Standard Bank
of South Africa. The first interest payment will become due and payable
fourteen months after the date of the advancement of the funds, with other
subsequent interest payments due and payable in 6-month intervals thereafter.
The final repayment date for the loan is on September 30, 2010, although, the
agreement does allow for early repayment thereof. In conjunction with the loan,
the Company incurred financing fees equal to 3% of the loan. Pursuant to
security agreements entered into in connection with the loan, Plateau has ceded
as security, its interest in Micawber 277 (Pty) Ltd (Micawber). Micawber, a
South African company equally owned by Rustenburg Platinum Mine and Plateau
Resources, owns the parties` interests in the Ga-Phasha PGM Project.
The Company had 148,220,407 common shares outstanding at December 31, 2006. As
the Company proceeds on its exploration programs in the Bushveld, it will need
to raise additional funds for such expenditures from time to time.
Payments due by period
Total Less than 1 to 3 years 3-5 years More than 5
Contractual obligation Nil Nil Nil Nil Nil
Long term debt
obligations (1) 18.3m Nil 4.7m 13.6m Nil
Operating lease
obligations Nil Nil Nil Nil Nil
Purchase
obligations Nil Nil Nil Nil Nil
Other Nil Nil Nil Nil Nil
Total Nil Nil Nil Nil Nil
The Company has no other capital lease obligations, operating leases or any
other long term debt. The Company has routine market-price leases on its office
premises in Johannesburg.
The Company has no "Purchase Obligations" defined as any agreement to purchase
goods or services that is enforceable and legally binding on the Company that
specifies all significant terms, including: fixed or minimum quantities to be
purchased; fixed, minimum or variable price provisions; and the approximate
timing of the transaction.
The Company`s long term debt obligations are denominated in South African Rand
("ZAR"). Payments and settlement on the obligation is denominated in ZAR. Long
term obligations have been presented at an exchange rate of 1 Canadian dollar =
6.05 ZAR.
1.7 Capital Resources
At December 31, 2006, Anooraq had working capital of approximately $12.1
million as compared to $4.8 million at the end of the 2005 fiscal year. The
Company had approximately 148 million common shares outstanding at December 31,
2006.
1.8 Off-Balance Sheet Arrangements
None.
1.9 Transactions with Related Parties
Hunter Dickinson Inc. ("HDI") is a private company owned equally by nine public
companies, one of which is Anooraq. HDI provides geological, corporate
development, administrative and management services to, and incurs third party
costs on behalf of the Company on a full cost recovery basis, pursuant to an
agreement dated December 31, 1996. For the year ended December 31, 2006 HDI
billed Anooraq $1,023,633 as compared to $1,297,159 for the year ended December
31, 2005 for such services and cost reimbursements.
Pelawan is a significant shareholder of the Company and has certain directors
in common with the Company. Pelawan became a majority shareholder on September
29, 2004. During the year ended December 31, 2006, the Company paid $nil (year
ended December 31, 2005 - $658,035) for technical, corporate development,
administrative and management services provided to, and repayment of costs paid
on behalf of, the Company. Pelawan`s employees and consultants were transferred
to Plateau, a subsidiary of the Company, as of July 1, 2005 and are charging
their time and services directly to Plateau.
During the year ended December 31, 2006, the Company paid or accrued $127,781
(year ended December 31, 2005 - $166,662) to CEC Engineering Ltd, a private
company owned by a former director, for engineering and project management
services at market rates.
1.10 Fourth Quarter
The loss for quarter ended December 31, 2006 was $1,580,481 compared to a loss
of $881,605 for the quarter ended December 31, 2005. The increase is largely
due to expenses incurred relating to listing on the Johannesburg Stock Exchange
in South Africa, regulatory financial reporting requirements and interest
accrued on the term loan.
Exploration expenses for quarter ended December 31, 2006 totaled $151,601
compared to $15,328 incurred for the quarter ending December 31, 2005; the
increase is due to exploration activities on the Ga- Phasha project in the
fourth quarter of 2006.
Legal, accounting and audit for the quarter ended December 31, 2006 amounted to
$101,713 compared to $172,724 for the same period of fiscal 2005. Office and
administration for the quarter ended December 31, 2006 amounted to $101,917 in
comparison to $123,875 spent for the same period in fiscal 2005.
Conference and travel costs amounted to $218,001 incurred in the fourth quarter
2006 compared to $208,257 incurred for the fourth quarter 2005.
Salaries and benefits for the fourth quarter of 2006 amounted to $393,451
compared to $465,755 spent in the fourth quarter of fiscal 2005. Trust and
filing for the quarter ended December 31, 2006 amounted to $287,876 compared to
$3,328 incurred in the same period of fiscal 2005 largely due to costs relating
to listing on the Johannesburg Stock Exchange.
1.11 Proposed Transactions
None.
1.12 Critical Accounting Estimates
The Company`s accounting policies are presented in note 3 of the consolidated
financial statements for the year ended December 31, 2006, which have been
publicly filed on SEDAR at www.sedar.com. The preparation of consolidated
financial statements in accordance with generally accepted accounting
principles requires management to select accounting policies and make
estimates. Such estimates may have a significant impact on the financial
statements. These estimates include:
mineral resources and reserves,
the carrying values of property, plant and equipment,
restoration costs following completion of the mining activities, and
the valuation of stock-based compensation expense.
Actual amounts could differ from the estimates used and, accordingly, effect
the results of operation.
Mineral resources and reserves, and the carrying values of property, plant
and equipment
Mineral resources and reserves are estimated by professional geologists and
engineers in accordance with recognized industry, professional and regulatory
standards. These estimates require inputs such as future metals prices, future
operating costs, and various technical geological, engineering, and
construction parameters. Changes in any of these inputs could cause a
significant change in the estimated resources and reserves which, in turn,
could have a material effect on the carrying value of property, plant and
equipment.
Site restoration costs
Upon the completion of any mining activities, the Company will ordinarily be
required to undertake environmental reclamation activities in accordance with
local and/or industry standards. The estimated costs of these reclamation
activities are dependent on labour costs, the environmental impacts of the
Company`s operations, the effectiveness of the chosen reclamation techniques,
and applicable government environmental standards. Changes in any of these
factors could cause a significant change in the reclamation expense charged in
a period.
Stock-based compensation expense
From time to time, the Company may grant share purchase options to employees,
directors, and service providers. The Company uses the Black-Scholes option
pricing model to estimate a value for these options. This model, and other
models which are used to value options, require inputs such as expected
volatility, expected life to exercise, and interest rates. Changes in any of
these inputs could cause a significant change in the stock-based compensation
expense charged in a period.
1.13 Changes in Accounting Policies including Initial Adoption
The CICA issued Section 3855, Financial Instruments -Recognition and
Measurement, Section 3861, "Financial Instruments - Disclosure and
Presentation", Section 3865, "Hedges", and Section 1530, "Comprehensive
Income", all applicable to the Company for annual or interim accounting periods
beginning on January 1, 2007.
Section 3855 requires all financial assets, financial liabilities and
non-financial derivatives to be recognized on the balance sheet and measured
based on specified categories. Section 3861 identifies and details information
to be disclosed in the financial statements.
Section 3865 sets out when hedge accounting can be applied and builds on
existing Canadian GAAP guidance by specifying how hedge accounting is applied
and disclosed.
Section 1530 introduces new standards for the presentation and disclosure of
the components of comprehensive income. Comprehensive income is defined as the
change in net assets of an enterprise during a reporting period from
transactions and other events and circumstances from non-owner sources.
The Company is currently evaluating the full impact of the standards and will
be required to present a new statement entitled "Comprehensive Income".
The CICA also issued Section 1506, Accounting Changes, which revises the
current standards on changes in accounting policy, estimates or errors as
follows: voluntary changes in accounting policy are allowed only when they
result in financial statements that provide reliable and more relevant
information; changes in accounting policy are to be applied retrospectively
unless doing so is impracticable; changes in estimates are to be recorded
prospectively; and prior period adjustments are to be corrected
retrospectively. In addition, this standard calls for enhanced disclosure about
the effects of changes in accounting policies, estimates and errors on the
financial statements.
Section 1506 is applicable for the Company beginning January 1, 2007. The
impact of Section 1506 cannot be determined until such time as the Company
makes a change in accounting policy.
1.14 Financial Instruments and Other Instruments
The carrying amounts of cash and equivalents, amounts receivable, and accounts
payable and accrued liabilities approximate their fair values due to their
short-term nature. The carrying values of the term loan approximate its fair
value based on market rates of interest. It is not practicable to determine the
fair values of amounts receivable due from to related parties due to the
related party nature of such amounts and the absence of a secondary market for
such instruments.
1.15 Other MD&A Requirements
Not applicable.
1.15.1 Additional Disclosure for Venture Issuers without Significant Revenue
Not applicable. The Company is not a venture issuer.
1.15.2 Disclosure of Outstanding Share Data
The following details the share capital structure as at March 26, 2007. These
figures may be subject to minor accounting adjustments prior to presentation in
future consolidated financial statements.
Exercise
Expiry date price Number Number
Common shares 148,305,407
Share purchase
options July 01, 2007 $0.95 100,000
September 28, 2007 $1.40 345,000
December 14, 2007 $1.40 333,200
December 17, 2010 $1.40 3,065,000 3,843,200
Subject to the settlement agreement with Pelawan discussed in Section 1.2.1,
the Company is required to issue to Pelawan 36 million common shares and 167
million warrants. Each warrant is exercisable until December 31, 2008 and can
be exercised at the higher of (a) $1.35 if exercised on or before December 31,
2007 or $1.48 if exercised after December 31, 2007 or (b) at a price that is
50% less than the price per Anooraq common share payable by arms length parties
under an equity financing undertaken by the Company that either raises an
amount of at least $98,400,000 or is undertaken pursuant to a material
transaction (a "Concurrent Financing").
The Company is currently awaiting approval from the respective regulatory
agencies for the issuance of the shares.
This discussion includes certain statements that may be deemed "forward-looking
statements". All statements in this discussion, other than statements of
historical facts, that address future production, reserve potential,
exploration drilling, exploitation activities and events or developments that
the Company expects are forward-looking statements. Although the Company
believes the expectations expressed in such forward-looking statements are
based on reasonable assumptions, such statements are not guarantees of future
performance and actual results or developments may differ materially from those
in the forward-looking statements. Factors that could cause actual results to
differ materially from those in forward-looking statements include market
prices, exploitation and exploration successes, continued availability of
capital and financing and general economic, market or business conditions.
Investors are cautioned that any such statements are not guarantees of future
performance and actual results or developments may differ materially from those
projected in the forward-looking statements.
1.15.3 Disclosure Controls and Procedures
In accordance with the requirements of Multilateral Instrument 52-109,
Certification of Disclosure in Issuers` Annual and Interim Filings (MI 52-109),
evaluations of the design and operating effectiveness of disclosure controls
and procedures and the design effectiveness of internal control over our
financial reporting were carried out under the supervision of the Chief
Executive Officer and Chief Financial Officer for the year ended December 31,
2006.
The Company has disclosure controls and procedures in place to provide
reasonable assurance that any information required to be disclosed by the
Company under securities legislation is recorded, processed, summarized and
reported within the applicable time periods and to ensure that required
information is gathered and communicated to the Company`s management so that
decisions can be made about timely disclosure of that information. The
Company`s CEO and CFO evaluated the Company`s disclosure controls and
procedures for the year ended December 31, 2006 and have found those disclosure
controls and procedures to be adequate and effective to provide reasonable
assurance that material information relating to us and our consolidated
subsidiaries would have been known to them and by others within those entities.
There have been no significant changes in the Company`s disclosure controls or
in other factors that could significantly affect disclosure controls subsequent
to the date the Company carried out its evaluation.
During the Company`s most recently completed interim period, there were no
changes in the Company`s internal control over financial reporting that have
materially affected or are reasonably likely to affect its internal control
over financial reporting.
The CEO and CFO have also concluded that our internal controls over financial
reporting are designed effectively, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of consolidated
financial statements for external purposes in accordance with generally
accepted accounting principles.
Nonetheless, the CEO and CFO have identified areas where we can improve process
controls, and they intend to incorporate such improvements into the internal
controls over financing reporting over the next twelve months. We employ entity
level controls to counterweigh any deficiencies that may exist. Under MI
52-109, the CEO and CFO are not yet required to, and have not yet tested the
actual effectiveness of our internal controls over financial reporting.
Date: 03/04/2007 15:53:01 Produced by the JSE SENS Department.
