| Thu 15 Nov 2007, 15:56 | | ARQ / ANO - Anooraq Resources Corporation - Result |
|
ARQ
ARQ
ARQ / ANO - Anooraq Resources Corporation - Results for the quarter ended
September 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`)
RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 2007
CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007
(Expressed in Canadian Dollars, unless otherwise stated)
(unaudited)
These financial statements have not been reviewed by the Company`s auditors
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
September 30 December 31
2007 2006
(unaudited)
ASSETS
Current assets
Cash and equivalents $8,763,063 $12,775,145
Amounts receivable 156,696 159,079
Due from related parties (note 7) 156,295 138,616
Prepaid expenses 219,896 104,164
9,295,950 13,177,004
Deferred financing costs - 337,852
Equipment (note 4) 103,654 73,315
Mineral property interests (note 5) 9,078,222 8,240,751
$18,477,826 $21,828,922
LIABILITIES AND SHARHOLDERS` EQUITY
Current Liabilities
Accounts payable and accrued liabilities $199,452 $1,034,144
Current portion of term loan 2,737,000 -
2,936,452 1,034,144
Term loan 8,573,942 11,818,677
11,510,394 12,852,821
Shareholders` equity
Share capital (note 6(a)) 51,575,768 50,207,363
Contributed surplus 4,604,683 4,849,043
Deficit (49,213,019) (46,080,305)
6,967,432 8,976,101
Nature of operations (note 1)
Proposed transaction (note 9)
Subsequent event (note 10)
$18,477,826 $21,828,922
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited - Expressed in Canadian Dollars)
Three months ended September 30
2007 2006
Expenses
Accounting, audit and legal $47,276 $205,169
Conference and travel 29,004 17,314
Consulting 30,196 221,967
Exploration (schedule) 21,620 42,056
Foreign exchange gain (192,162) (117,280)
Gain on disposal of fixed assets - (10,538)
Interest expense 496,076 -
Interest income (134,151) 16,591
Office and administration 77,521 79,168
Salaries and benefits 487,756 335,039
Stock-based compensation - office and
administration - (580)
Stock-based compensation - exploration - (2,896)
Shareholders communications 60,299 37,677
Trust and filing 31,489 28,660
Loss before the following 954,924 852,347
Future income tax expense (recovery) (note 5) - 4,000
Loss for the period 954,924 856,347
Other comprehensive income (loss) - -
Total Comprehensive Loss $954,924 $856,347
Basic and diluted loss per share $0.01 $0.01
Weighted average number of common
shares outstanding 184,770,793 148,220,407
Nine months ended September 30
2007 2006
Expenses
Accounting, audit and legal $187,518 $588,419
Conference and travel 151,280 142,958
Consulting 115,630 301,364
Exploration (schedule) 103,508 599,724
Foreign exchange gain (519,508) (267,748)
Gain on disposal of fixed assets - (21,884)
Interest expense 1,507,327 -
Interest income (566,190) (22,911)
Office and administration 279,958 252,436
Salaries and benefits 1,450,976 1,118,423
Stock-based compensation - office and
administration 1,044 9,137
Stock-based compensation - exploration 401 15,209
Shareholders communications 192,280 177,672
Trust and filing 230,490 127,564
Loss before the following 3,134,714 3,020,363
Future income tax expense (recovery) (note 5) (2,000) (96,000)
Loss for the period 3,132,714 2,924,363
Other comprehensive income (loss) - -
Total Comprehensive Loss $3,132,714 $2,924,363
Basic and diluted loss per share $0.02 $0.02
Weighted average number of common
shares outstanding 162,740,579 148,220,407
See accompanying notes to consolidated financial statements
Consolidated Statements of Shareholders` Equity and Deficit
(Expressed in Canadian Dollars)
Nine months ended
September 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 734,000 1,027,600
Share purchase options exercised at
$0.95 per share 100,000 95,000
Fair value of stock options allocated to
shares issued on exercise - 245,805
Common shares issued (note 5(a)(i)) 36,000,000 -
Balance at end of the period 185,054,407 $51,575,768
Contributed 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 (245,805)
Balance at end of the period $4,604,683
Deficit
Balance at beginning of the period $(46,080,305)
Loss for the period (3,132,714)
Balance at end of the period $(49,213,019)
TOTAL SHAREHOLDERS` EQUITY $6,967,432
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 5(a)(i)) - -
Balance at end of the period 148,220,407 $50,207,363
Contributed 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
September 30
2007 2006
Operating activities
Loss for the period $(954,924) $(856,347)
Items not involving cash
Amortization included in exploration expenses 6,044 5,752
Future income tax expense (recovery) - 4,000
Accrued interest on term loan 465,295 -
Stock-based compensation - (3,476)
Loss (gain) on disposal of equipment - (10,538)
Unrealized foreign exchange gain (277,299) (65,000)
Equity loss (gain) in exploration expenditures 24,664 (38,428)
Changes in non-cash operating working capital
Amounts receivable (565) 3,902
Amounts due to and from related parties (9,737) 470,970
Prepaid expenses (180,801) (83,296)
Accounts payable and accrued liabilities (4,021) 167,406
Cash and equivalents used by operating activities (931,344) (405,055)
Investing activities
Purchase of equipment (38,231) -
Disposal of fixed assets - 9,886
Equity investment (726,698) (20,224)
Cash and equivalents used by investing activities (764,929) (10,338)
Financing activities
Issuance of common shares 587,300 -
Cash and equivalents provided by financing
activities 587,300 -
Effect of exchange rate changes on cash and
equivalents (248,229) -
Decrease in cash and equivalents (1,357,203) (415,393)
Cash and equivalents, beginning of period 10,120,266 2,376,445
Cash and equivalents, end of period $8,763,063 $1,961,052
Supplementary information
Interest paid $30,781 $48,862
Interest received $(134,151) $(32,271)
Taxes paid $- $-
Non-cash financing and investing activities
Fair value of options allocated to shares issued
on exercise $123,670 $-
Nine months ended
September 30
2007 2006
Operating activities
Loss for the period $(3,132,714) $(2,924,363)
Items not involving cash
Amortization included in exploration expenses 15,312 25,585
Future income tax expense (recovery) (2,000) (96,000)
Accrued interest on term loan 1,369,014 -
Stock-based compensation 1,445 24,346
Loss (gain) on disposal of equipment - (21,884)
Unrealized foreign exchange gain (379,299) (235,000)
Equity loss (gain) in exploration expenditures 61,134 252,627
Changes in non-cash operating working capital
Amounts receivable 2,383 107,448
Amounts due to and from related parties (17,679) 112,160
Prepaid expenses (115,732) (25,956)
Accounts payable and accrued liabilities (834,692) 99,404
Cash and equivalents used by operating
activities (3,032,828) (2,681,633)
Investing activities
Purchase of equipment (45,651) (9,731)
Disposal of fixed assets - 82,356
Equity investment (751,605) (20,224)
Cash and equivalents used by investing
activities (797,256) 52,401
Financing activities
Issuance of common shares 1,122,600 -
Cash and equivalents provided by financing
activities 1,122,600 -
Effect of exchange rate changes on cash and
equivalents (1,304,598) -
Decrease in cash and equivalents (4,012,082) (2,629,232)
Cash and equivalents, beginning of period 12,775,145 4,590,284
Cash and equivalents, end of period $8,763,063 $1,961,052
Supplementary information
Interest paid $138,313 $75,617
Interest received $(566,190) $(98,528)
Taxes paid $- $-
Non-cash financing and investing activities
Fair value of options allocated to shares
issued on exercise $245,805 $-
See accompanying notes to consolidated financial statements
Consolidated Schedules of Exploration Expenses
(Unaudited - Expressed in Canadian Dollars)
Republic of South Africa Three months ended
September 30
2007 2006
Northern Limb of the Bushveld Complex
Amortization $6,044 $5,752
Assays and analysis - (741)
Engineering - (11,646)
Environmental and socioeconomic - (2,167)
Geological and consulting 4,552 6,223
Graphics 50 354
Property fees and option payments 5,351 4,485
Site activities 3,679 6,934
Transportation (494) (95)
19,182 9,099
Eastern Limb of the Bushveld Complex
Assays and analysis - (1,032)
Drilling - (11,908)
Engineering - 39,420
Geological and consulting 2,438 6,477
2,438 32,957
Exploration expenses before the following 21,620 42,056
Stock-based compensation - (2,896)
Exploration expenses 21,620 39,160
Cumulative expenditures, beginning of period 23,695,603 23,422,553
Cumulative expenditures, end of period $23,717,223 $23,461,713
Republic of South Africa Nine months ended
September 30
2007 2006
Northern Limb of the Bushveld Complex
Amortization $15,312 $25,585
Assays and analysis 200 17,504
Engineering 19,784 40,470
Environmental and socioeconomic - 10,378
Geological and consulting 31,113 19,797
Graphics 2,134 826
Property fees and option payments 15,300 28,526
Site activities 9,108 29,157
Transportation 2,864 2,147
95,815 174,390
Eastern Limb of the Bushveld Complex
Assays and analysis - 21,797
Drilling - 309,843
Engineering - 65,044
Geological and consulting 7,693 28,650
7,693 425,334
Exploration expenses before the following 103,508 599,724
Stock-based compensation 401 15,209
Exploration expenses 103,909 614,933
Cumulative expenditures, beginning of period 23,613,314 22,846,780
Cumulative expenditures, end of period $23,717,223 $23,461,713
See accompanying notes to consolidated financial statements
Notes to Consolidated Financial Statements
For the three and nine months ended September 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 nine months ended September 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. 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. 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.
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. In the opinion of management, all adjustments considered
necessary for fair presentation have been included in these financial
statements.
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. As required by the transitional provisions
of these new standards, 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 at cost or amortized cost. Changes
in fair value are to be recognized in the statements of operations or
accumulated other comprehensive income depending on the classification the
related instruments.
All financial assets and liabilities are recognized when the entity becomes a
party to the contract creating the asset or liability. 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 categories:
held for trading, held-to-maturity, available-for-sale, loans and receivables
and 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. Changes
in fair value are included in other comprehensive income (loss) until the
asset is removed from the balance sheet.
* Held for trading financial instruments are measured at fair value. All
changes in fair value are included in net earnings (loss) 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. Changes in fair value are
included in net earnings (loss) in the period in which they arise, except for
hedge transactions which qualify for hedge accounting treatment in which case
gains and losses are recognized in other comprehensive income.
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, and
are amortized to interest expense using the effective interest rate method.
(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 financial instruments which qualify for hedge accounting.
(c) Section 1530 - Comprehensive Income
Comprehensive income is the change in the Company`s shareholder equity that
results from transactions and other events from other than the Company`s
shareholders and includes items that would not normally be included in net
earnings (loss), such as unrealized gains or losses on available-for-sale
investments. 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. Accumulated other
comprehensive income is presented as a new category in shareholders` equity.
As at September 30, 2007, the Company had no accumulated other comprehensive
income and for the three and nine months ended September 30, 2007,
comprehensive income (loss) equals net loss.
4. EQUIPMENT
September 30, 2007
Accumulated Net book
Cost amortization value
Office $56,303 $9,588 $46,715
Vehicles 116,368 59,429 56,939
$172,671 $69,017 $103,654
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
5. MINERAL PROPERTY INTERESTS
Nine months ended Year ended
September 30, 2007 December 31, 2006
Ga-Phasha Project
Balance, beginning of year $ 4,040,751 $ 4,302,000
Equity loss - exploration expenses (61,134) (555,677)
Net investments during the period 751,605 59,428.
Equity gain - future income tax
recovery 2,000. 121,000.
Equity gain - foreign exchange 145,000. 114,000.
Ga-Phasha Project, end of period 4,878,222 4,040,751
Platreef Properties - acquisition
costs 4,200,000 4,200,000
Balance, end of period $ 9,078,222. $ 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 Black Economic Empowerment ("BEE") company, in
compliance with undertakings given by Pelawan and the Company in favour of the
South African Reserve Bank and Anglo Platinum Limited.
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.
6. 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 average
Weighted remaining life
average
exercise price Number of options (years)
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 1.35 (834,000)
Cancelled 1.40 (60,000)
Balance,
September 30,
2007 $ 1.40 3,094,200 3.07
Options outstanding and exercisable at September 30, 2007 were as follows:
Number of
Exercise options
Expiry date price outstanding
December 14, 2007 $ 1.40 149,200
December 17, 2010 $ 1.40 2,945,000
Total 3,094,200
Average exercise price $ 1.40
There were no options granted during the three and nine months ended
September 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 5(a)(ii)) 167,000,000
Exercised -
Expired -
Balance, September 30, 2007 167,000,000
7. RELATED PARTY TRANSACTIONS AND BALANCES
Three months ended Nine months ended
September 30 September 30
Services rendered by 2007 2006 2007 2006
Hunter Dickinson Inc. (a) $130,574 $ 152,194 $457,785 $701,765
CEC Engineering Ltd. (b) - 35,478 25,111 89,189
As at As at
September 30 December 31
2007 2006
Related party balances receivable
Hunter Dickinson Inc. (a) $112,018 $98,820
Southgold Exploration (Proprietary)
Limited (c) 44,277 39,796
Receivable from related parties $156,295 $138,616
Related party balances payable September 30 December 31
(included in accounts payable) 2007 2006
CEC Engineering Ltd. (b) - 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 nine months ended September 30, 2007, the Company paid or
accrued $25,111 (2006 - $89,189) 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.
8. SEGMENTED INFORMATION
As at and for the nine
months ended Sep 30,
2007 Canada Mexico South Africa Total
Exploration
expenditures $- $- $103,508 $103,508
Loss for the period 1,068,770 4,626 2,059,318 3,132,714
Interest income 20,441 - 545,749 566,190
Interest expense - - 1,507,327 1,507,327
Total assets 1,133,407 26,816. 17,317,603 18,477,826
Equipment - - 103,654 103,654
As at and for the nine
months ended Sep 30,
2006 Canada Mexico South Africa Total
Exploration
expenditures $- $- $599,724 $599,724
Loss for the period 1,371,840 2,760 1,549,763 2,924,363
Interest income 73,252 - (50,341) 22,911
Total assets 1,839,777 29,408 9,165,798 11,034,983
Equipment - - 97,837 97,837
9. PROPOSED TRANSACTION
Acquisition of Lebowa Platinum Mines (Limited)
On September 4, 2007, the Company and Anglo Platinum Limited ("Anglo
Platinum") announced that they had entered into a detailed transaction
framework agreement (the "TFA"). Pursuant to the TFA, Anglo Platinum will sell
to Anooraq an effective 51% of Lebowa Platinum Mines Limited ("Lebowa") and an
effective 1% controlling interest in the Ga-Phasha PGM Project ("Ga-Phasha")
for a total cash consideration of South African Rand 3.6 billion
(approximately C$530 million). The parties have also reached an agreement, in
principle, for the sale of an additional effective 1% controlling interest in
both the Boikgantsho PGM Project ("Boikgantsho") and the Kwanda PGM Projects
("Kwanda") to Anooraq. This means that Anooraq will own and control Lebowa
Platinum Mines as well as the Ga-Phasha, Boikgantsho and Kwanda exploration
and development PGM projects through its 51% control interest, with 49% held
by Anglo Platinum. These interests will be held through a new holding company
("Lebowa Holdco").
The Company and Pelawan plans to fund the purchase consideration through a
combination of debt and equity. The transaction is subject to a number of
conditions and is expected to close during the first half of 2008. Certain of
these conditions include:
* Completion of confirmatory due diligence;
* Completion of definitive transaction agreements;
* Regulatory approvals;
* Stock exchange approvals;
* Financing; and
* Shareholder approvals as required.
Lebowa, currently 100% owned by Anglo Platinum, has a platinum mine located on
the north- eastern limb of the Bushveld Complex.
* The Lebowa platinum mine consists of a vertical shaft and declines with
underground operations mining the Merensky and UG2 Reefs. In fiscal 2006,
annual refined production was 202,500 ounces of platinum, palladium, rhodium
and gold ("4E"), including 109,200 oz of platinum from its 140,000 tonnes per
month ("tpm") operation.
* The scale of the mining operations at Lebowa is currently being
increased.
* Upon completion of the transaction, Anooraq`s attributable share of the
Lebowa production will be 51% of Lebowa production.
* Operational control of the assets within Lebowa Holdco will pass to
Anooraq on implementation of the transaction agreements.
* Additional expansion projects at Lebowa on both the Merensky and UG2 Reef
horizons are at an advanced stage of evaluation.
10. SUBSEQUENT EVENTS
Subsequent to September 30, 2007, the Company:
* cancelled 250,000 share purchase options that had expired unexercised;
* issued 14,200 common shares pursuant to the exercise of share purchase
options at $1.40 per share; and
* granted 4,629,000 share options with an exercise price of $2.97 expiring
October 15, 2012 as well as 376,000 share options with an exercise price of
$3.27 expiring October 15, 2012.
Approved by the Board of Directors
Tumelo M. Motsisi Popo Molefe
Director Director
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 Resources
Corporation ("Anooraq", or the "Company") for the nine months ended September
30, 2007 and the audited financial statements for the year ended December 31,
2006, prepared in accordance with Canadian generally accepted accounting
principles, which are publicly filed on SEDAR at www.sedar.com. All dollar
amounts herein are expressed in Canadian Dollars unless otherwise stated.
This MD&A is prepared as of November 8, 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.
Cautionary Note to Investors Concerning Estimates of Measured
and Indicated Resources
This section uses the terms `measured resources` and `indicated resources`.
The Company advises investors that while those terms are recognized and
required by Canadian regulations, the U.S. Securities and Exchange Commission
does not recognize them. Investors are cautioned not to assume that any part
or all of mineral deposits in these categories will ever be converted into
reserves.
Cautionary Note to Investors Concerning Estimates of Inferred Resources
This section uses the term `inferred resources`. The Company advises investors
that while this term is recognized and required by Canadian regulations, the
U.S. Securities and Exchange Commission does not recognize it. `Inferred
resources` have a great amount of uncertainty as to their existence, and as to
their economic and legal feasibility. It cannot be assumed that all or any
part of a mineral resource will ever be upgraded to a higher category. Under
Canadian rules, estimates of Inferred Mineral Resources may not form the basis
of economic studies, except in rare cases. Investors are cautioned not to
assume that any part or all of an inferred resource exists, or is economically
or legally mineable.
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.
Anooraq has interests in early to advanced stage exploration projects, the
most advanced of which are the Ga-Phasha PGM Project ("Ga-Phasha Project") on
the eastern limb and the Boikgantsho PGM Project ("Boikgantsho Project") on
the northern limb of the Bushveld. Both of these projects are 50/50 joint
ventures with Anglo Platinum Limited ("Anglo Platinum").
For the past two years, work has mainly been focused on the Ga-Phasha Project.
Results of this work in 2007 include:
* A resource update for the UG2 deposit announced in May 2007, indicating
an overall increase in the resources and, in particular, the measured and
indicated categories. Work continues on a pre- feasibility study of UG2.
* A resource update for the Merensky Reef deposit in October 2007,
indicating an overall increase in the resources and, specifically, in the
indicated and inferred categories.
On September 4, 2007, Anooraq and Anglo Platinum announced that they had
entered into a detailed transaction framework agreement (the "TFA") which, if
implemented, would transform Anooraq into an independent and significant PGM
producer.
Anooraq-Anglo Platinum Transaction Framework Agreement
Pursuant to the TFA, Anglo Platinum will sell to Anooraq an effective 51% of
Lebowa Platinum Mines Limited ("Lebowa") and an effective 1% controlling
interest in the Ga-Phasha Project for a total cash consideration of South
African Rand 3.6 billion (approximately C$530 million). The parties have also
reached agreement, in principle, for the sale of an additional effective 1%
controlling interest in both the Boikgantsho Project and the Kwanda PGM
Project ("Kwanda") to Anooraq. This means that Anooraq will own and control
Lebowa Platinum Mines as well as the Ga-Phasha, Boikgantsho and Kwanda
projects
through its 51% control interest, with 49% held by Anglo Platinum. These
interests will be held through a new holding company ("Lebowa Holdco").
The transaction is subject to a number of conditions and is expected to close
during the first half of 2008. Certain of these conditions include:
* completion of confirmatory due diligence;
* completion of definitive transaction agreements;
* regulatory approvals;
* stock exchange approvals;
* completion of financing; and
* shareholder approvals, as required.
Lebowa, currently 100% owned by Anglo Platinum, is located on the north-
eastern
limb of the Bushveld Complex.
* Lebowa platinum mine consists of a vertical shaft and declines with
underground operations mining the Merensky and UG2 Reefs. In the fiscal year
ended December 2006, annual refined production was 202,500 ounces of platinum,
palladium, rhodium and gold ("4E"), including 109,200 oz of platinum from its
140,000 tonnes per month ("tpm") operation.
* The scale of the mining operations at Lebowa is currently being increased
to reflect the true quality of the mineral deposits. The Middelpunt Hill UG2
and Brakfontein Merensky expansions will increase production to about 245,000
tpm, producing about 430,000 4E oz, including 200,000 oz of platinum, by 2012.
* Upon completion of the transaction, Anooraq`s attributable share of the
Lebowa production will be 51% of Lebowa production, or approximately 103,300
4E ounces (based on 2006 production). Upon completion of the Lebowa expansions
announced to date, it is estimated that Anooraq`s attributable share will
increase to approximately 219,300 4E ounces annually.
* Operational control of the assets within Lebowa Holdco will pass to
Anooraq on implementation of the transaction agreements.
* Additional expansion projects at Lebowa on both the Merensky and UG2 Reef
horizons are at an advanced stage of evaluation. Anooraq and Anglo Platinum
believe there is scope for expansion of current operations to 350,000 tpm.
* Lebowa has significant mineral reserves and resources which, according to
Anglo Platinum`s Annual Report, at 31 December 2006, were:
* proved and probable mineral reserves of 23.0 million tonnes grading 4.29
g/t 4E in the Merensky Reef and 42.5 million tonnes grading 5.30 g/t 4E in the
UG2 Reef, plus
* measured and indicated resources of 48.7 million tonnes grading 5.61 g/t
4E in the Merensky Reef and 171.0 million tonnes grading 6.76 g/t 4E in the
UG2 Reef, and
* additional extensive inferred resources in both the Merensky and UG2 Reef
horizons.
As the Ga-Phasha Project is contiguous to Lebowa, Anooraq believes that it
will be able to exploit significant synergies between the two operations.
Additionally, as Lebowa Holdco will be a stand-alone company, it will be able
to advance operations and the projects at Lebowa and Ga-Phasha in accordance
with its own mines and project scheduling.
Anooraq plans to fund the purchase consideration through a combination of debt
and equity.
In conjunction with these transactions and consistent with meeting Anooraq`s
stated BEE objectives, the following management changes were effected. Ronald
Thiessen has relinquished the role as President and CEO and will remain a
non-executive director. Tumelo Motsisi, former deputy CEO and Managing
Director, has been appointed as Acting President and CEO of Anooraq.
1.2.1 Ga-Phasha PGM Project, Eastern Limb
The Ga-Phasha Project is located approximately 250 kilometers northeast of
Johannesburg. The property encompasses the Klipfontein 465KS ("Klipfontein"),
Paschaskraal 466KS ("Paschaskraal"), De Kamp 507KS ("DeKamp") and Avoca 472KS
("Avoca") farms. The Ga-Phasha Project has significant mineral resources
outlined in the Merensky and UG2 Reefs that are open to further expansion.
Anooraq acquired its interest in the project by way of a reverse takeover
transaction ("RTO") with Pelawan Investment Holdings (Pty) Ltd. in 2004
(further details below).
Anglo Platinum is the operator of the Ga-Phasha Project. 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 Project. This work has continued since Anooraq acquired its interest
in 2004. South African consultants, Global Geo Services (Pty) Ltd. carried out
an initial resource estimate on behalf of Anooraq at that time.
New mineral resource estimates were announced in May 2007 for UG2 on the
Paschaskraal and Klipfontein farms, and in October 2007 for the Merensky Reef
deposit on the Paschaskraal and Klipfontein farms and for the UG2 and Merensky
Reefs on the Avoca and DeKamp farms. The results of updated resource estimates
were provided to Anooraq by Anglo Platinum and these are described in work in
2007.
Anooraq-Pelawan Agreement
In January 2004, the Company entered into an agreement with Pelawan
Investments (Proprietary) Limited ("Pelawan"), a private South African Black
Economic Empowerment ("BEE") company, pursuant to which the Company and
Pelawan combined their respective PGM assets, comprising the Company`s
northern limb 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 totaling ZAR15,652,744 ($3,055,416).
Approximately 83 million Consideration Shares are 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 business combination of
the Company 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 was subsequently
extended by agreement in November 2005 between Anooraq and Pelawan,.
The share exchange agreement further provided that, to the extent that no such
dilutive financings had taken place by the Finalization Date, certain dilutive
financings were deemed to have occurred. 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 to 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 were completed by Anooraq as at September 30, 2005, 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 as 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. Pelawan
will thus 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 favor 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
UG2 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.
A program review took place between April and October 2006, in which several
approaches were considered to optimize mining of the deposits at the Ga-Phasha
Project. The review confirmed that the UG2 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 the Ga-Phasha Project.
Resource Updates
Updated resource estimates were announced for the UG2 and Merensky Reef
deposit, in May 2007 and October 2007, respectively, based on drilling to mid
2006 by Anglo Platinum.
The UG2 and Merensky Reef 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.
Technical reports were filed on www.sedar.com in June and October 2007.
UG2 Deposit
The mineral resource estimate for the UG2 Reef deposit only is based on
drilling results on the Ga-Phasha property from 583 UG2 intersections either
as single drill holes or drill holes containing deflections. The UG2 resource
data tabulated below includes only resources lying within a minimum potential
mining width of 0.90 meter, 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 meter; the grade and width
contributions are density and length weighted to report the resource cut.
For the Paschaskraal and Klipfontein farms, the weathered and oxidized
horizon, indicated as "Regolith" below, extends to an average depth of 40
meter 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).
Mineral Resources for the Avoca and De Kamp farms have been estimated over a
minimum 0.9 meter width, but honoring reef widths (average shown in the
table). Grades, widths and specific gravity values are derived from the up-dip
resources for Paschaskraal (for De Kamp) and Klipfontein (for Avoca). An
average geological loss factor of 25% was applied to the tonnage estimate.
UG2 REEF RESOURCE CUT MINERAL RESOURCES1,4 OVER A MINIMUM WIDTH OF 0.90 m
TONNAGE AFTER
RESOURCE WIDTH GEO LOSS 4PGE2 Pt3
CLASSIFICATION (m) (millions tonnes) g/t g/t
PASCHASKRAAL & KLIPFONTEIN
FARMS
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
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
AVOCA & DE KAMP FARMS
TOTAL INFERRED 0.96 118.11 6.49 2.73
CONTENT
4PGE
RESOURCE Pd3 Rh3 Au3 ounces5
CLASSIFICATION g/t g/t g/t (millions)
PASCHASKRAAL & KLIPFONTEIN
FARMS
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
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
AVOCA & DE KAMP FARMS
TOTAL INFERRED 3.11 0.54 0.12 24.63
Notes for UG2 Table (above):
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 4PGE = platinum + palladium + rhodium + gold
3 Grades for individual elements are estimated from prill assays and used
to tally 4PGE.
4 The resource estimate represents 100% of the Ga-Phasha resource of which
50% is attributable to Anooraq.
5 Metallurgical recoveries are assumed to be 100%.
Merensky Reef
The Merensky Reef estimate is based on drilling to 2006 from 257 intersections
either as single drill holes or drill holes containing deflections in the
Merensky Reef. For the farms Paschaskraal and Klipfontein farms, the weathered
and oxidized horizon, indicated as "Regolith" below, extends to an estimated
depth of 40 meters below surface. A 27% geological loss factor, related to the
presence of potholes or other structural features in the reefs, has been
applied to each horizon. The resource cut width was established through a
combination of model estimates of a hanging wall thickness of 0.10 meter, the
Merensky Reef thickness and a minimum footwall dilution of 0.10 meter, plus
composited footwall components greater than 2.0 g/t PGE were also included in
the resource cut; the grade and width contributions are specific gravity and
length weighted. Mineral Resources for the Avoca and De Kamp farms have been
estimated over a minimum 0.9 meter width, but honoring reef widths (average
shown in the table). Grades, widths and specific gravity values are derived
from the up-dip resources for Paschaskraal (for De Kamp) and Klipfontein (for
Avoca). A geological loss factor of 32% was applied.
MERENSKY REEF
RESOURCE CUT MINERAL RESOURCES1,4 OVER A MINIMUM WIDTH OF 0.90 m
TONNAGE AFTER
GEO LOSS
RESOURCE WIDTH (millions 4PGE2 Pt3
CLASSIFICATION (meters) tonnes) (g/t) (g/t)
PASCHASKRAAL & KLIPFONTEIN
FARMS
REGOLITH
MEASURED 1.44 0.83 4.05 2.44
INDICATED 1.52 4.15 4.16 2.52
MEASURED + INDICATED 1.51 4.98 4.14 2.51
REMNANT
MEASURED 1.48 7.54 4.35 2.63
INDICATED 1.38 44.05 4.70 2.94
MEASURED + INDICATED 1.40 51.59 4.65 2.89
INFERRED 1.28 57.51 4.40 2.67
TOTAL MEASURED + INDICATED 1.43 56.57 4.61 2.86
TOTAL INFERRED 1.28 57.51 4.40 2.67
AVOCA & DE KAMP FARMS
TOTAL INFERRED 1.30 122.5 4.48 2.71
CONTAINED
4PGE
RESOURCE Pd3 Rh3 Au3 ounces5
CLASSIFICATION (g/t) (g/t) (g/t) (millions)
PASCHASKRAAL & KLIPFONTEIN FARMS
REGOLITH
MEASURED 1.25 0.14 0.23 0.11
INDICATED 1.23 0.13 0.28 0.55
MEASURED + INDICATED 1.23 0.13 0.27 0.66
REMNANT
MEASURED 1.33 0.15 0.24 1.05
INDICATED 1.30 0.17 0.28 6.65
MEASURED + INDICATED 1.30 0.17 0.27 7.71
INFERRED 1.30 0.16 0.28 8.14
TOTAL MEASURED + INDICATED 1.29 0.17 0.27 8.37
TOTAL INFERRED 1.30 0.16 0.28 8.14
AVOCA & DE KAMP FARMS
TOTAL INFERRED 1.33 0.16 0.28 17.64
Notes for Merensky Reef Table (above):
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 4PGE = platinum + palladium + rhodium + gold
3 Grades for individual elements are estimated from prill assays and used
totally 4PGE.
4 The resource estimate represents 100% of the Ga-Phasha resource of which
50% is attributable to Anooraq.
5 Metallurgical recoveries are assumed to be 100%.
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
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.
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.
1.2.2.1 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-metre
intervals along 50-metre 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.
1.2.3 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$1283/oz to the end of October. 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 nine 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$675/oz
to the end of October.
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 October is
US$3.24/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$17.03/lb over the first nine months of
2007.
1.3 Selected Annual Information
The following selected annual information is derived from the Company`s
audited financial statements for the years ended December 31, 2006, 2005 and
2004, and is prepared in accordance with Canadian generally accepted
accounting principles.
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
Accounting, audit and
legal $690,132 $474,422 $479,731
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)
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.
Sep 30 Jun 30 Mar 31 Dec 31
2007 2007 2007 2006
Current assets 9,296 10,462 11,326 13,177
Mineral properties 9,078 8,333 8,399 8,241
Other assets 104 72 387 411
Total assets 18,478 18,867 20,112 21,829
Current liabilities 2,934 1,285 238 1,034
Long term liabilities 8,574 10,246 11,703 11,819
Shareholders` equity 6,967 7,335 8,171 8,976
Total liabilities and
shareholders` equity 18,478 18,867 20,112 21,829
Working Capital 6,360 9,177 11,088 12,143
Expenses
Exploration 22 49 33 152
Conference and travel 29 19 103 218
Consulting 30 7 79 (133)
Foreign exchange loss (gain) (192) (65) (262) 231
Interest on term loan 465 542 416 253
Interest expense (income) (103) (212) (167) (95)
Accounting, audit and legal 47 37 103 102
Gain on disposal of fixed asset - - - (19)
Office and administration 78 111 91 102
Salaries and benefits 488 634 330 394
Shareholder communications 60 74 58 112
Trust and filing 31 57 142 288
Subtotal 955 1,253 926 1,605
Stock-based compensation -
exploration - - - -
Stock-based compensation -
office and administration - - 1 -
Future income tax expense
(recovery) - (1) (1) (25)
Loss for the period 955 1,252 926 1,580
Basic and diluted loss per share 0.01 0.01 0.01 0.01
Weighted average number of
common shares outstanding 184,770 154,822 148,228 148,220
Sep 30 Jun 30 Mar 31 Dec 31
2006 2006 2006 2005
Current assets 2,337 3,143 4,103 5,159
Mineral properties 8,600 8,211 8,493 8,502
Other assets 98 103 161 174
Total assets 11,035 11,457 12,757 13,835
Current liabilities 478 311 273 379
Long term liabilities - - - -
Shareholders` equity 10,557 11,146 12,484 13,456
Total liabilities and
shareholders` equity 11,035 11,457 12,757 13,835
Working Capital 1,859 2,832 3,830 4,780
Expenses
Exploration 42 466 92 15
Conference and travel 17 38 88 208
Consulting 222 27 53 86
Foreign exchange loss (gain) (117) (159) 9 202
Interest on term loan - - - -
Interest expense (income) 16 (12) (28) (27)
Accounting, audit and legal 205 216 167 173
Gain on disposal of fixed asset (11) (11) - -
Office and administration 79 102 71 121
Salaries and benefits 335 408 375 465
Shareholder communications 38 78 61 40
Trust and filing 29 15 84 3
Subtotal 855 1,168 972 1,286
Stock-based compensation -
exploration (2) (6) 24 (155)
Stock-based compensation -
office and administration (1) (3) 13 (367)
Future income tax expense
(recovery) 4 (100) - 117
Loss for the period 856 1,059 1,009 881
Basic and diluted loss per share 0.01 0.01 0.01 0.01
Weighted average number of
common shares outstanding 148,220 148,220 148,220 148,107
1.5 Results of Operations
The loss for the nine months ended September 30, 2007 was $3,132,714 compared
to a loss of $2,924,363 for the nine months ended September 30, 2006. This
increase in loss was due mainly to an increase in interest expenses as a
result of the Company`s term loan with Rustenburg Platinum Mines Limited and
additional salary and benefits. This increase was offset by decreased
exploration activity. The Company recorded a loss of $0.02 per share for the
nine months ended September 2007 compared to a loss of $0.02 per share for the
same period of 2006.
Exploration expenditures decreased to $103,508 for the nine months ended
September 30, 2007 (2006 - $599,724) as a result of reduced activity at the
Boikgantsho and Ga-Phasha projects.
Accounting, audit and legal for the nine months ended September 30, 2007
decreased to $187,518 (2006 - $588,419), mainly due to reduced legal advisory
fees and costs incurred on the Company`s listing on the Johannesburg Stock
Exchange in the prior year. Office and administration for the nine months
ended September 30, 2007 increased to $279,958 (2006 - $252,436) and salaries
and benefits increased to $1,450,976 (2006 - $1,118,423) as a result of salary
adjustments and additional employees.
Conference and travel costs incurred for the nine months ended September 30,
2007 amounted to $151,280 compared to $142,958 for the same period in 2006.
These costs relate mainly to travel by management personnel to mining
conferences.
Trust and filing for the nine months ended September 30, 2007 increased to
$230,490 (2006 - $127,564). The increase in trust and filing costs is due to
additional regulatory filing costs associated with the Company`s listing on
the Johannesburg Stock Exchange.
The Company recorded interest expense of $1,507,327 for the nine months ended
September 30, 2007 (2006 - nil). The interest expense is mainly due to accrued
interest on the Company`s November 2006 term loan with Rustenburg Platinum
Mines Limited. Interest income increased to $566,190 for the nine months ended
September 30, 2007 (2006 - $22,911) 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 $519,508 (2006 -
$267,748). 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 September 30, 2007, the Company had working capital of approximately $6.4
million as compared to $12.1 million at the end of the 2006 fiscal year. The
cash position at September 30, 2007 was approximately $8.8 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 September 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 185,054,407 common shares outstanding at September 30, 2007.
As the Company continues on its exploration programs in the Bushveld, it will
need to raise additional funds for such expenditures from time to time. In
June 2007, 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.
On September 4, 2007, the Company and Anglo Platinum Limited ("Anglo
Platinum") announced that they had entered into a detailed transaction
framework agreement (the "TFA") whereby Anglo Platinum will sell to Anooraq an
effective 51% of Lebowa Platinum Mines Limited ("Lebowa") and an effective 1%
controlling interest in the Ga-Phasha PGM Project ("Ga-Phasha") for a total
cash consideration of South African Rand 3.6 billion (approximately C$530
million). The parties have also reached an agreement, in principle, for the
sale of an additional effective 1% controlling interest in both the
Boikgantsho PGM Project ("Boikgantsho") and the Kwanda PGM Projects ("Kwanda")
to Anooraq. Consequently, the Company will be required to undertake a
financing to complete this transaction.
The Company`s tabular disclosure of contractual obligations at September 30,
2007 is as follows:
Payments due by period
Less than 1 to 3 More than 5
Total 1 year years 3-5 years years
Contractual obligation Nil Nil Nil Nil Nil
Long term debt obligations 16.6m 2.7m 13.9m Nil Nil
Operating lease obligations Nil Nil Nil Nil Nil
Purchase obligations Nil Nil Nil Nil Nil
Other Nil Nil Nil Nil Nil
Total 16.6m 2.7m 13.9m Nil 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
= 6.91ZAR.
1.7 Capital Resources
At September 30, 2007, Anooraq had working capital of approximately $6.4
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 September
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 nine months ended September 30,
2007 HDI billed Anooraq $457,785 as compared to $701,765 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 nine month period ended September 30, 2007, the Company paid or
accrued $25,111 (nine months ended September 30, 2006 - $89,189) 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
The Company recently entered into a Transaction Framework Agreement to acquire
an effective 51% of Lebowa Platinum Mines Limited from Anglo Platinum. Please
refer to discussion in 1.2 Overview.
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 nine months ended September 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,
* reclamation 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 reclamation 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.
1.1 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
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 November 8, 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 185,068,607
Warrants December 31, 2008 $1.35 167,000,000
Share purchase options December 14, 2007 $1.40 135,000
December 17, 2010 $1.40 2,695,000
October 15, 2012 $2.97 4,629,000
October 15, 2012 $3.27 376,000 7,835,000
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 September 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 September 30, 2007 that could significantly affect
disclosure controls subsequent to the date the Company carried out its
evaluation.
15 November 2007
Sandton
Sponsor : BDO QuestCo
Date: 15/11/2007 15:56:39 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
