| Mon 13 Aug 2007, 7:05 | | ARQ / ARQ / ANO - Anooraq - Interim Consolidated F |
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ARQ
ARQ
ARQ / ARQ / ANO - Anooraq - Interim Consolidated Financial Statements For The
Six Months Ended June 30, 2007
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`)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2007
The unaudited financial statements of Anooraq for the three and six months ended
June 30,2007 and the audited financial statements for the year ended December
31, 2006, prepared in accordance with Canadian generally accepted accounting
principles, are presented below. All dollar amounts herein are expressed in
Canadian Dollars unless otherwise stated.
The statements are presented in three parts:
PART I comprises the consolidated balance sheets, statements of operations,
statements of shareholders equity and deficit, statements of cash flows and
schedules of exploration expenses
PART II comprise the notes to the financial statements
PART III comprises management`s discussion and analysis
PART I
These financial statements have not been reviewed by the Company`s auditors
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
June 30 December 31
2007 2006
(unaudited)
ASSETS
Current assets
Cash and equivalents $ 10,120,266 $ 12,775,145
Amounts receivable 156,131 159,079
Due from related parties (note 6) 146,558 138,616
Prepaid expenses 39,095 104,164
10,462,050 13,177,004
Deferred financing costs - 337,852
Equipment 71,467 73,315
Mineral property interests (note 4) 8,333,188 8,240,751
$ 18,866,705 $ 21,828,922
LIABILITIES AND SHARHOLDERS` EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 203,473 $ 1,034,144
Current portion of term loan 1,082,065 -
1,285,538 1,034,144
Term loan 10,246,110 11,818,677
11,531,648 12,852,821
Shareholders` equity
Share capital 50,864,798 50,207,363
Contributed surplus 4,728,353 4,849,043
Deficit (48,258,094) (46,080,305)
7,335,057 8,976,101
Nature of operations (note 1)
Subsequent event (note 8)
$ 18,866,705 $ 21,828,922
See accompanying notes to consolidated financial statements
Consolidated Statements of Operations
(Unaudited - Expressed in Canadian Dollars)
Three months ended June 30
2007 2006
Expenses
Accounting, audit and legal $ 37,457 $ 216,438
Conference and travel 19,154 37,981
Consulting 6,705 26,844
Exploration (schedule) 48,868 465,674
Foreign exchange loss (gain) (65,098) 10,131
Gain on disposal of fixed assets - (11,346)
Interest expense 542,127 -
Interest income (212,261) (11,856)
Office and administration 111,225 102,581
Salaries and benefits 633,466 407,990
Stock-based compensation - office and
administration - (3,250)
Stock-based compensation - exploration - (6,247)
Shareholders communications 73,614 78,574
Trust and filing 57,403 14,788
Loss before the following 1,252,660 1,328,302
Future income tax recovery (note 4) (1,000) -
Loss for the period $ 1,251,660 $ 1,328,302
Basic and diluted loss per share $ 0.01 $ 0.01
Weighted average number of common shares
outstanding 154,821,467 148,220,407
Six months ended June 30
2007 2006
Expenses
Accounting, audit and legal $ 140,242 $ 383,250
Conference and travel 122,276 125,644
Consulting 85,434 79,397
Exploration (schedule) 81,888 557,668
Foreign exchange loss (gain) (327,346) 19,532
Gain on disposal of fixed assets - (11,346)
Interest expense 1,011,251 -
Interest income (432,039) (39,502)
Office and administration 202,437 173,268
Salaries and benefits 963,220 783,384
Stock-based compensation - office and
administration 1,044 9,717
Stock-based compensation - exploration 401 18,105
Shareholders communications 131,981 139,995
Trust and filing 199,001 98,904
Loss before the following 2,179,790 2,338,016
Future income tax recovery (note 4) (2,000) -
Loss for the period $ 2,177,790 $ 2,338,016
Basic and diluted loss per share $ 0.01 $ 0.02
Weighted average number of common shares
outstanding 151,542,901 148,220,407
See accompanying notes to consolidated financial statements
Consolidated Statements of Shareholders` Equity and Deficit
(Expressed in Canadian Dollars)
Six months ended
June 30, 2007
(unaudited)
Number of
Share capital shares
Balance at beginning of the period 148,220,407 $ 50,207,363
Share purchase options exercised at $1.40
per share 314,500 440,300
Share purchase options exercised at $0.95
per share 100,000 95,000
Fair value of stock options allocated to
shares issued on exercise - 122,135
Common shares issued (note 4(a)(i)) 36,000,000 -
Balance at end of the period 184,634,907 $ 50,864,798
Contibuted surplus
Balance at beginning of the period 4,849,043
Stock-based compensation 1,445
Fair value of stock options allocated to
shares issued on exercise (122,135)
Balance at end of the period $ 4,728,353
Deficit
Balance at beginning of the period (46,080,305)
Loss for the period (2,177,790)
Balance at end of the period $ (48,258,094)
TOTAL SHAREHOLDERS` EQUITY $ 7,335,057
Year ended
December 31, 2006
Number of
Share capital shares
Balance at beginning of the period 148,220,407 $ 50,207,363
Share purchase options exercised at $1.40
per share - -
Share purchase options exercised at $0.95
per share
Fair value of stock options allocated to
shares issued on exercise - -
Common shares issued (note 4(a)(i)) - -
Balance at end of the period 148,220,407 $ 50,207,363
Contibuted surplus
Balance at beginning of the period 4,824,697
Stock-based compensation 24,346
Fair value of stock options allocated to
shares issued on exercise -
Balance at end of the period $ 4,849,043
Deficit
Balance at beginning of the period (41,575,461)
Loss for the period (4,504,844)
Balance at end of the period $ (46,080,305)
TOTAL SHAREHOLDERS` EQUITY $ 8,976,101
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Cash Flows
(Unaudited - Expressed in Canadian Dollars)
Three months ended June 30
2007 2006
Operating activities
Loss for the period $ (1,251,660) $ (1,328,302)
Items not involving cash
Amortization included in exploration
expenses 4,534 6,961
Amortization of deferred finance costs (21,757) -
Future income tax recovery (1,000) -
Accrued interest on term loan 487,620 -
Stock-based compensation - (9,497)
Unrealized foreign exchange gain 61,000 -
Equity loss in exploration expenditures
(note 4) 17,667 281,852
Changes in non-cash operating working
capital -
Amounts receivable (27,749) 19,382
Amounts due to and from related parties 16,176 (397,566)
Prepaid expenses 41,353 58,486
Accounts payable and accrued liabilities (34,556) 36,569
Cash and equivalents used by operating
activities (708,372) (1,332,115)
Investing activities
Purchase of equipment (4,864) (9,731)
Disposal of fixed assets - 61,124
Equity investment (note 4) (12,194) -
Cash and equivalents (provided by) used by
investing activities (17,058) 51,393
Financing activities
Issuance of common shares 416,300 -
Cash and equivalents provided by financing
activities 416,300 -
Effect of exchange rate changes on cash and
equivalents (524,659) -
Increase (decrease) in cash and equivalents (833,789) (1,280,722)
Cash and equivalents, beginning of period 10,954,055 3,657,167
$ 10,120,266 $ 2,376,445
Cash and equivalents, end of period
Supplementary information
Interest paid $ - $ 12,790
Interest received $ (212,261) $ (24,646)
Taxes paid $ - $ -
Non-cash operating, financing and investing
activities
Fair value of options allocated to shares
issued on exercise $ 65,292 $ -
Six months ended June 30
2007 2006
Operating activities
Loss for the period $ (2,177,790) $ (2,338,016)
Items not involving cash
Amortization included in exploration
expenses 9,268 19,833
Amortization of deferred finance costs - -
Future income tax recovery (2,000) -
Accrued interest on term loan 903,719 -
Stock-based compensation 1,445 27,822
Unrealized foreign exchange gain (102,000) -
Equity loss in exploration expenditures
(note 4) 36,470 291,055
Changes in non-cash operating working
capital
Amounts receivable 2,948 103,546
Amounts due to and from related parties (7,942) (358,810)
Prepaid expenses 65,069 57,340
Accounts payable and accrued liabilities (830,671) (68,002)
Cash and equivalents used by operating
activities (2,101,484) (2,265,232)
Investing activities
Purchase of equipment (7,420) (9,731)
Disposal of fixed assets - 61,124
Equity investment (note 4) (24,907) -
Cash and equivalents (provided by) used by
investing activities (32,327) 51,393
Financing activities
Issuance of common shares 535,300 -
Cash and equivalents provided by financing
activities 535,300 -
Effect of exchange rate changes on cash and
equivalents (1,056,369) -
Increase (decrease) in cash and equivalents (2,654,880) (2,213,839)
Cash and equivalents, beginning of period 12,775,145 4,590,284
$ 10,120,266 $ 2,376,445
Cash and equivalents, end of period
Supplementary information
Interest paid $ - $ 26,755
Interest received $ (432,039) $ (66,257)
Taxes paid $ - $ -
Non-cash operating, financing and investing
activities
Fair value of options allocated to shares
issued on exercise $ 122,135 $ -
See accompanying notes to consolidated financial statements
Consolidated Schedules of Exploration Expenses
(Unaudited - Expressed in Canadian Dollars)
Republic of South Africa Three months ended June 30
2007 2006
Northern Limb of the Bushveld Complex
Amortization $ 4,534 $ 6,961
Assays and analysis (2,227) 16,394
Engineering 11,407 28,844
Environmental and socioeconomic - 12,545
Geological and consulting 21,436 (15,390)
Graphics 100 118
Property fees and assessments (22,599) 8,434
Property option payments 26,940 -
Site activities 3,348 1,841
Transportation 3,358 834
46,297 60,581
Eastern Limb of the Bushveld Complex
Assays and analysis - 22,829
Drilling - 347,771
Engineering - 12,812
Geological and consulting 2,571 21,681
2,571 405,093
Exploration expenses before the following 48,868 465,674
Stock-based compensation - (6,247)
Exploration expenses 48,868 459,427
Cumulative expenditures, beginning of period 23,646,735 22,963,126
Cumulative expenditures, end of period $ 23,695,603 $ 23,422,553
Republic of South Africa Six months ended June 30
2007 2006
Northern Limb of the Bushveld Complex
Amortization $ 9,268 $ 19,833
Assays and analysis 200 18,245
Engineering 19,784 52,115
Environmental and socioeconomic 12,545
Geological and consulting 26,561 13,574
Graphics 2,084 472
Property fees and assessments (22,599) (8,507)
Property option payments 32,548 32,548
Site activities 5,429 22,223
Transportation 3,358 2,242
76,633 165,290
Eastern Limb of the Bushveld Complex
Assays and analysis - 22,829
Drilling - 321,751
Engineering - 25,624
Geological and consulting 5,255 22,174
5,255 392,378
Exploration expenses before the following 81,888 557,668
Stock-based compensation 401 18,105
Exploration expenses 82,289 575,773
Cumulative expenditures, beginning of period 23,613,314 22,846,780
Cumulative expenditures, end of period $ 23,695,603 $ 23,422,553
See accompanying notes to consolidated financial statements
Approved by the Board of Directors
Tumelo M. Motsisi Popo Molefe
Director Director
PART II
Notes to Consolidated Financial Statements
For the three and six months ended June 30, 2007
(Unaudited - Expressed in Canadian Dollars, unless otherwise stated)
1. NATURE OF OPERATIONS
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.
Operating results for the three and six months ended June 30, 2007 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 2007.
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 interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles. The interim
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 is accounted for using the equity method.
These interim financial statements do not include all the disclosures required
for annual financial statements under generally accepted accounting principles.
However, these interim financial statements follow the same accounting policies
and methods of application as the Company`s most recent audited annual
financial statements except for the changes described in note 3 below.
These interim consolidated financial statements should be read in conjunction
with the Company`s audited annual consolidated financial statements for the
year ended December 31, 2006 which have been publicly filed on SEDAR at
www.sedar.com.
3. CHANGES IN ACCOUNTING POLICIES
Effective January 1, 2007, the Company adopted the following new accounting
standards issued by the Canadian Institute of Chartered Accountants ("CICA")
relating to financial instruments. These new standards have been adopted on a
prospective basis with no restatement to prior period financial statements.
(a) Section 3855 - Financial Instruments - Recognition and Measurement
This standard sets out criteria for the recognition and measurement of
financial instruments for fiscal years beginning on or after October 1, 2006.
This standard requires all financial instruments within its scope, including
derivatives, to be included on a Company`s balance sheet and measured either at
fair value or, in certain circumstances when fair value may not be considered
most relevant, at cost or amortized cost. Changes in fair value are to be
recognized in the statements of operations and comprehensive income.
All financial assets and liabilities are recognized when the entity becomes a
party to the contract creating the item. As such, any of the Company`s
outstanding financial assets and liabilities at the effective date of adoption
are recognized and measured in accordance with the new requirements as if these
requirements had always been in effect. Any changes to the fair values of
assets and liabilities prior to January 1, 2007 are recognized by adjusting
opening deficit or opening accumulated other comprehensive income.
All financial instruments are classified into one of the following five
categories: held for trading, held-to-maturity, loans and receivables,
available-for-sale financial assets, or other financial liabilities. Initial
and subsequent measurement and recognition of changes in the value of financial
instruments depends on their initial classification:
- Held-to-maturity investments, loans and receivables, and other financial
liabilities are initially measured at fair value and subsequently measured at
amortized cost.
- Available-for-sale financial assets are measured at fair value. Revaluation
gains and losses are included in other comprehensive income until the asset is
removed from the balance sheet.
- Held for trading financial instruments are measured at fair value. All gains
and losses are included in net earnings in the period in which they arise.
- All derivative financial instruments are measured at fair value, even when
they are part of a hedging relationship. All gains and losses are included in
net earnings in the period in which they arise.
In accordance with this new standard, deferred financing costs relating to the
issuance of the term loan are no longer presented as a separate asset on the
balance sheet and are now included in the carrying value of the term loan.
(b) Section 3865 - Hedges
This new standard specifies the circumstances under which hedge accounting is
permissible and how hedge accounting may be performed. The Company currently
does not have any hedges.
(c) Section 1530 - Comprehensive Income
Comprehensive income is the change in the Company`s net assets that results
from transactions, events, and circumstances from other than the Company`s
shareholders. This standard requires certain gains and losses that would
otherwise be recorded as part of net earnings to be presented in other
"comprehensive income" until it is considered appropriate to recognize into net
earnings. This standard requires the presentation of comprehensive income, and
its components in a separate financial statement that is displayed with the
same prominence as the other financial statements.
Accordingly, the Company now reports a consolidated statement of comprehensive
income (loss) and includes the account "accumulated other comprehensive income"
in the shareholders` equity section of the consolidated balance sheet.
4. MINERAL PROPERTY INTERESTS
Six months ended Year ended
June 30, 2007 December 31, 2006
Ga-Phasha Project
Balance, beginning of year $ 4,040,751 $ 4,302,000
Equity loss - exploration expenses (36,470) (555,677)
Net investments during the period 24,907 59,428
Equity gain - future income tax
recovery 2,000 121,000
Equity gain - foreign exchange 102,000 114,000
Ga-Phasha Project, end of period 4,133,188 4,040,751
Platreef Properties - acquisition
costs 4,200,000 4,200,000
Balance, end of period $ 8,333,188 $ 8,240,751
(a) Pelawan Settlement Agreement
Pursuant to the Settlement Agreement in December 2006 between the Company and
Pelawan Investments (Proprietary) Limited ("Pelawan") as described in note 5(a)
of the audited consolidated financial statements for the year ended December
31, 2006, Pelawan has waived the deemed dilutive financing contemplated in the
2004 share exchange agreement. Under the terms of the Settlement Agreement:
(i) Anooraq has issued 36 million common shares ("Adjustment Consideration
Shares") to Pelawan as consideration for the settlement.
(ii) Anooraq has issued 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").
(iii) From the date of issue (June 14, 2007) 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 and the payment of taxes. 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"),
which is the earlier of September 29, 2010 or twelve months after the
commencement of commercial production from the Ga-Phasha Project.
(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.
5. SHARE CAPITAL
(a) Authorized share capital
The Company`s authorized share capital consists of an unlimited number of
common shares without par value.
(b) Share option plan
The continuity of share purchase options is as follows:
Contractual
Weighted weighted average
average remaining life
exercise price Number of options (years)
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
Exercised 1.39 (414,500)
Cancelled 1.40 (60,000)
Balance, June 30,
2007 $ 1.40 3,513,700 3.07
Options outstanding and exercisable at June 30, 2007 were as follows:
Number of
options
Expiry date Option price outstanding
September 28, 2007 $ 1.40 224,500
December 14, 2007 $ 1.40 224,200
December 17, 2010 $ 1.40 3,065,000
Total 3,513,700
Average option price $ 1.40
There were no options granted during the six months ended June 30, 2007.
(c) Share purchase warrants
The continuity of share purchase warrants is as follows:
Expiry date December 31, 2008
Exercise price $1.35
Balance, December 31, 2006 -
Issued (note 4(a)(ii)) 167,000,000
Exercised -
Expired -
Balance, June 30, 2007 167,000,000
6. RELATED PARTY TRANSACTIONS AND BALANCES
Three months ended Six months ended
June 30, June 30, June 30, June 30,
Services rendered by 2007 2006 2007 2006
Hunter Dickinson Inc. $ 173,206 $ 227,524 $ 327,211 $ 549,571
CEC Engineering Ltd. 11,609 22,813 25,111 49,914
As at As at
June 30 December 31
Related party balances receivable 2007 2006
(a)
Hunter Dickinson Inc. $ 130,690 $ 98,820
(c)
Southgold Exploration (Proprietary) Limited 15,868 39,796
Receivable from related parties $ 146,558 $ 138,616
Related party balances payable June 30 December 31
2007 2006
(included in accounts payable)
CEC Engineering Ltd. (b) 5,119 6,435
(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) During the six months ended June 30, 2007, the Company paid or accrued
$25,111 (2006 - $49,914) to CEC Engineering Ltd, a private company owned by a
former director, for engineering and project management services at market
rates.
(c)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 shared certain premises
and other facilities in 2006 with the Company pursuant to a cost-sharing
arrangement based on a full cost recovery basis.
7. SEGMENTED INFORMATION
As at and for the
six months
ended June 30, 2007 Canada Mexico South Africa Total
Exploration
expenditures $ - $ - $ 81,188 $ 557,668
Loss for the period (792,512) (1,028) (1,384,250) (2,177,790)
Interest and other
income 13,995 - 418,044 432,039
Total assets 822,894 30,414 18,013,397 18,866,705
Equipment - - 71,467 102,937
As at and for the
six months
ended June 30, 2006 Canada Mexico South Africa Total
Exploration
expenditures $ - $ - $ 557,668 $ 557,668
Loss for the
period (1,041,808) (2,698) (1,293,510) (2,338,016)
Interest and other
income 56,174 - (16,672) 39,502
Total assets 2,358,812 29,468 9,048,575 11,436,855
Equipment - - 102,937 102,937
8. SUBSEQUENT EVENT
Subsequent to June 30, 2007, the Company issued 140,000 common shares pursuant
to the exercise of share purchase options at $1.40 per share.
PART 111
SIX MONTHS ENDED JUNE 30, 2007
MANAGEMENT`S DISCUSSION AND ANALYSIS
1.1 Date
This Management`s Discussion and Analysis ("MD&A") should be read in
conjunction with the unaudited financial statements of Anooraq for the six
months ended June 30,2007 and the audited financial statements for the year
ended December 31, 2006,prepared in accordance with Canadian generally accepted
accounting principles. All dollar amounts herein are expressed in Canadian
Dollars unless otherwise stated.
This MD&A is prepared as of August 7, 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 2007, Anooraq has interests in early to advanced stage exploration
properties on the Northern and Eastern Limbs of the Bushveld Complex, called
the Platreef and Ga-Phasha Projects. For the past two years, Anooraq`s
exploration work has mainly been focused on advancing the Ga-Phasha Project in
the Eastern Bushveld.
In May 2007, Anooraq announced the result of a resource update for the UG2
deposit at Ga-Phasha, indicating an overall increase in the resources and the
resource in the measured and indicated categories.
In addition, work continues on the pre-feasibility study based on the UG2
mineral resources.
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 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 277 (Proprietary)
Limited ("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, a private South African
corporation owned 50% by Anglo Platinum through its wholly owned subsidiary
Rustenburg Platinum Mines ("RPM") 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 issued 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 36
million Adjustment 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.
(ii) Anooraq issued 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").
(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 and the payment of any taxes. 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"), which is
the earlier of September 29, 2010 or twelve months after the commencement of
commercial production from the Ga-Phasha Project.
(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 of 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 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. 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. Pursuant to security agreements entered into in
connection with the loan, the Company has ceded, as security, its interest in
Micawber.
Project Activities
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
of, 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.
Work in 2007
Resource Update
The mineral resource estimate presented below is for the UG2 Reef deposit only,
and is based on drilling results on the Ga-Phasha property in 2006 from 583 UG2
intersections either as single drill holes or drill holes containing
deflections. The results are for the Paschaskraal and Klipfontein farms, which
comprise all the shallower resources at Ga-Phasha. The Avoca and De Kamp farms
lie down dip and remain to be evaluated, representing significant potential
additional resource.
The UG2 resource data tabulated below includes only resources lying within a
minimum potential mining width of 0.90 m, established through a combination of
model estimates of the geotechnical hanging wall thickness, the UG2 reef
thickness and a minimum footwall dilution of 0.10 m; the grade and width
contributions are density and length weighted to report the resource cut.
The weathered and oxidized horizon, indicated as "R egolith" below, extends to
an average depth of 40 m below surface; other horizons are defined by
geological loss factors (related to the presence of potholes or other
structural features in the reefs). The following factors have been applied to
each horizon: Regolith, from 17% (measured) to 26% (inferred); Mining
Footprint, 15% (measured and indicated); and Remnant, from 24% (indicated) to
25% (measured and inferred).
GA-PHASHA PGM PROJECT - UG2 REEF (4)
RESOURCE CUT MINERAL RESOURCES (1) OVER A MINIMUM WIDTH OF 0.90 m
TONNAGE AFTER 4PGM (2) Pt (3)
RESOURCE WIDTH GEO LOSS grade grade
CLASSIFICATION (m) (millions tonnes) g/t g/t
REGOLITH
MEASURED 0.90 0.97 6.33 2.74
INDICATED 0.92 1.43 6.45 2.74
INFERRED 0.92 1.13 6.28 2.68
MINING
FOOTPRINT
MEASURED 0.90 7.17 6.74 2.80
INDICATED 0.90 0.07 7.04 2.91
INFERRED 0.00 0.00 0.00 0.00
REMNANT
MEASURED 0.91 16.71 6.40 2.71
INDICATED 0.91 55.95 6.56 2.77
INFERRED 0.95 67.36 6.47 2.72
TOTAL
MEASURED+INDICATED 0.91 82.30 6.53 2.76
TOTAL INFERRED 0.95 68.49 6.47 2.72
Pd 3 Rh (3) Au (3) CONTENT
RESOURCE grade grade grade 4PGM (3)
CLASSIFICATION g/t g/t g/t (millions oz)
REGOLITH
MEASURED 2.99 0.49 0.11 0.20
INDICATED 3.08 0.52 0.12 0.30
INFERRED 2.99 0.50 0.11 0.23
MINING
FOOTPRINT
MEASURED 3.28 0.55 0.12 1.55
INDICATED 3.41 0.60 0.13 0.02
INFERRED 0.00 0.00 0.00 0.00
REMNANT
MEASURED 3.05 0.54 0.11 3.44
INDICATED 3.14 0.53 0.11 11.79
INFERRED 3.09 0.54 0.11 14.02
TOTAL
MEASURED+INDICATED 3.13 0.53 0.11 17.30
TOTAL INFERRED 3.09 0.54 0.11 14.25
(1) A mineral resource is an inventory of mineralization that, under
realistically assumed and justifiable technical and economic conditions, might
become economically viable. A mineral resource that is not a mineral reserve
does not have demonstrated economic viability.
(2) 4PGM = platinum + palladium + rhodium + gold
(3) Grades for individual elements are estimated from percentages of each used
to tally 4PGM.
(4) The resource estimate represents 10 0% of the Ga-Phasha resource of which
50% is attributable to Anooraq.
The mineral resources were estimated using a geostatistical method, and were
categorized according to the South African Code for Reporting Mineral Resources
and Mineral Reserves (the "SAMREC Code") March 2000 guidelines by Anglo
Platinum`s in-house qualified person for the project, Gordon Chunnett,
Pr.Sci.Nat. In his opinion, the definitions and standards of the SAMREC Code
are substantively similar to the definitions and standards of the Canadian
Institute of Mining, Metallurgy and Petroleum (the "CIM Standards") which are
recognized by the Canadian regulatory authorities and NI 43-101; and a
reconciliation of the resources between the SAMREC Code and the CIM Standards
does not provide a materially different result. A technical report by D. Stone
P.Eng., S. Godden, CE, FIMM, and G. Chunnett, Pr.Sci.Nat., has been filed on
www.sedar.com.
Pre-feasibility Study
Work continues on the pre-feasibility study based on the UG2 mineral resources.
A detailed timetable of further studies as well as a project timetable toward a
Bankable Feasibility Study will be released after the completion of the PFS.
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. (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.)
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.
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.
Work in 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
approximately US$1250/oz to the end of July. Palladium prices declined in 2005,
averaging approximately US$201/oz, but have been increasing since that time.
Palladium prices averaged US$323/oz in 2006, and have averaged approximately
US$357/oz over the first six months of 2007. Gold prices continued a strong
uptrend in 2006, averaging US$604/oz, compared to US$445/oz in 2005. Gold
prices decreased in late 2006-early 2007, but have been increasing since mid
January 2007, and have averaged approximately US$659/oz to the end of July.
Base metal prices have been strengthening for some time. Copper prices have
been increasing since late 2003, averaging US$3.03/lb in 2006. As a result of
increasing supply, prices dropped slightly in early 2007, but have increased
again since mid February. The average price to the end of July 2007 is
US$3.13/lb.
Nickel prices averaged US$6.60/lb in 2005, an increase from US$6.24/lb in 2004.
In the past two years, nickel prices have seen substantial increases, averaging
US$10.55/lb in 2006 and US$18.63/lb in the first six months of 2007.
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
Amortization 30,862 48,503 39,121
Conference and travel $ 360,959 $ 646,992 $ 486,481
Consulting 168,457 965,720 536,216
Exploration 720,463 5,191,818 7,821,145
Foreign exchange loss
(gain) (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.
Jun 30 Mar 31 Dec 31 Sep 30
2007 2007 2006 2006
Current assets 10,462 11,326 13,177 2,337
Mineral properties 8,333 8,399 8,241 8,600
Other assets 72 387 411 98
Total assets 18,867 20,112 21,829 11,035
Current liabilities 1,285 238 1,034 478
Long term liabilities 10,246 11,703 11,819 -
Shareholders` equity 7,335 8,171 8,976 10,557
Total liabilities and
shareholders` equity 18,867 20,112 21,829 11,035
Expenses
Exploration 49 33 152 42
Conference and travel 19 103 218 17
Consulting 7 79 (133) 222
Foreign exchange loss (gain) (65) (262) 231 (117)
Interest on term loan 542 416 253 -
Interest expense (income) (212) (167) (95) 16
Legal, accounting and audit 37 103 102 205
Gain on disposal of fixed asset - - (19) (11)
Office and administration 111 91 102 79
Salaries and benefits 634 330 394 335
Shareholder communications 74 58 112 38
Trust and filing 57 142 288 29
Subtotal 1,253 926 1,605 855
Stock-based compensation -
exploration - - - (2)
Stock-based compensation -
office and administration - 1 - (1)
Future income tax expense
(recovery) (1) (1) (25) 4
Loss for the period 1,252 926 1,580 856
Basic and diluted loss per share 0.01 0.01 0.01 0.01
Weighted average number of
common shares outstanding 154,822 148,228 148,220 148,220
Jun 30 Mar 31 Dec 31 Sep 30
2006 2006 2005 2005
Current assets 3,143 4,103 5,159 6,369
Mineral properties 8,211 8,493 8,502 8,661
Other assets 103 161 174 181
Total assets 11,457 12,757 13,835 15,211
Current liabilities 311 273 379 351
Long term liabilities - - - -
Shareholders` equity 11,146 12,484 13,456 14,860
Total liabilities and
shareholders` equity 11,457 12,757 13,835 15,211
Expenses
Exploration 466 92 15 526
Conference and travel 38 88 208 26
Consulting 27 53 86 127
Foreign exchange loss (gain) (159) 9 202 (113)
Interest on term loan - - - -
Interest expense (income) (12) (28) (27) 12
Legal, accounting and audit 216 167 173 (7)
Gain on disposal of fixed asset (11) - - -
Office and administration 102 71 121 158
Salaries and benefits 408 375 465 422
Shareholder communications 78 61 40 54
Trust and filing 15 84 3 (2)
Subtotal 1,168 972 1,286 1,203
Stock-based compensation -
exploration (6) 24 (155) 32
Stock-based compensation -
office and administration (3) 13 (367) 124
Future income tax expense
(recovery) (100) - 117 (182)
Loss for the period 1,059 1,009 881 1,177
Basic and diluted loss per share 0.01 0.01 0.01 0.01
Weighted average number of
common shares outstanding 148,220 148,220 148,107 148,069
1.5 Results of Operations
The loss for the six months ended June 30, 2007 was $2,177,790 compared to a
loss of $2,338,016 for the six months ended June 30, 2006. This decrease in
loss was due mainly to decreased exploration activity. The Company recorded a
loss of $0.01 per share for the six months ended June 2007 compared to a loss of
$0.02 per share for the same period of 2006.
Exploration expenditures decreased to $81,888 for the six months ended June 30,
2007 (2006 - $557,668) as a result of reduced activity at the Boikgantsho and
Ga-Phasha projects.
Legal, accounting and audit for the six months ended June 30, 2007 decreased to
$140,242 (2006 - $383,250), mainly due to reduced legal advisory fees. Office
and administration for the six months ended June 30, 2007 increased to $202,437
(2006 - $173,268) and salaries and benefits increased to $963,220 (2006 -
$783,384) as a result of salary adjustments and additional employees.
Conference and travel costs incurred for the six months ended June 30, 2007
amounted to $122,276 compared to $125,644 for the same period in 2006. These
costs relate mainly to travel by management personnel to mining conferences.
Trust and filing for the six months ended June 30, 2007 increased to $199,001
(2006 - $98,904). The increase in trust and filing costs is due to additional
regulatory filing costs associated with the Company`s listing on the
JSE Limited.
The Company recorded interest expense of $1,011,251 for the six months ended
June 30, 2007 (2006 - nil). The interest expense is due to accrued interest on
the Company`s November 2006 term loan with Rustenburg Platinum Mines Limited.
Interest income increased to $432,039 for the six months ended June 30, 2007
(2006 - $39,502) as a result of a higher cash balance compared to the same
period in the prior year.
The Company also recorded a foreign exchange gain of $327,346 (2006 - loss of
$19,532). The gain is due to the strengthening of the Canadian dollar against
the South African Rand. A significant amount of the Company`s liabilities are
denominated in South African Rand.
1.6 Liquidity
At June 30, 2007, the Company had working capital of approximately $9.2 million
as compared to $12.1 million at the end of the 2006 fiscal year. The cash
position at June 30, 2007 was approximately $10.1 million.
Anooraq`s sources of capital are primarily equity investment and most recently
a term loan. 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 June 30, 2007 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.
The Company had 184,634,907 common shares outstanding at June 30, 2007. As the
Company continue on its exploration programs in the Bushveld, it will need to
raise additional funds for such expenditures from time to time. During the
quarter, Anooraq issued 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. Please refer
to discussion in Section 1.2.1.
The Company`s tabular disclosure of contractual obligations at June 30, 2007 is
as follows:
Payments due by period
Less than More than 5
Total 1 year 1 to 3 years 3-5 years years
Contractual obligation Nil Nil Nil Nil Nil
Long term debt obligations 16.9m 1.9m 4.1m 10.9m Nil
Operating lease obligations Nil Nil Nil Nil Nil
Purchase obligations Nil Nil Nil Nil Nil
Other Nil Nil Nil Nil Nil
Total 16.9m 1.9m 4.1m 10.9m Nil
Other than previously disclosed, 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 =
6.63ZAR.
1.7 Capital Resources
At June 30, 2007, Anooraq had working capital of approximately $9.2 million as
compared to $12.1 million at the end of the 2006 fiscal year. The Company had
approximately 185 million common shares outstanding at June 30, 2007.
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. During the six months ended June 30, 2007
HDI billed Anooraq $327,210 as compared to $549,571 for the same period of 2006
for such services and cost reimbursements.
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 shared certain premises
and other facilities in 2006 with the Company pursuant to a cost- sharing
arrangement based on a full cost recovery basis.
During the six month period ended June 30, 2007, the Company paid or accrued
$25,110 (six months ended June 30, 2006 - $53,711) 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
None.
1.11 Proposed Transactions
None.
1.12 Critical Accounting Estimates
The Company`s accounting policies follow the same accounting policies and
methods of application as presented in note 3 of the consolidated financial
statements for the year ended December 31, 2006, and as presented in changes in
accounting policies item 1.13 and note 3 of the consolidated financial
statements for the six months ended June 30, 2007 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 mineral 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 mineral 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 mineral 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, requires 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 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.
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 August 7, 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 184,774,907
Warrants December 31, 2008 $ 1.35 167,000,000
Share
purchase
options September 28, 2007 $ 1.40 84,500
December 14, 2007 $ 1.40 224,200
December 17, 2010 $ 1.40 3,065,000 3,373,700
1.15.3 Disclosure Controls and Procedures
The Company`s management is responsible for establishing and maintaining
adequate internal control over financial reporting. Any system of internal
control over financial reporting, no matter how well designed, has inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
There have been no changes in the Company`s internal control over financial
reporting during the quarter ended June 30, 2007 that have materially affected,
or are reasonably likely to materially affect, internal control over financial
reporting.
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.
There have been no significant changes in the Company`s disclosure controls
during the quarter ended June 30, 2007 that could significantly affect
disclosure controls subsequent to the date the Company carried out its
evaluation.
Date: 13/08/2007 07:05:01 Produced by the JSE SENS Department.
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