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ARQ
ARQ
ARQ - Anooraq Resources Corporation - Consolidated Annual Results For
The Year Ended 31 December 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")
CONSOLIDATED ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
December 31 December 31 December 31
2007 2006 2005
Assets
Current assets
Cash and equivalents $7,131,821 $12,775,145 $4,590,284
Amounts receivable 167,779 159,079 78,772
Due from related parties - 138,616 374,308
(note 9)
Prepaid expenses 469,555 104,164 116,069
7,769,155 13,177,004 5,159,433
Deferred financing costs - 337,852 -
(note 7)
Equipment (note 5) 105,494 73,315 174,163
Mineral property interests 9,078,714 8,240,751 8,502,000
(note 6)
$16,953,363 $21,828,922 $13,835,596
Liabilities and
Shareholders` Equity
Current Liabilities
Accounts payable and accrued $475,102 $1,027,709 $378,997
liabilities
Due to related parties (note 45,609 6,435 -
9)
Current portion of term loan 1,892,197 - -
(note 7)
2,412,908 1,034,144 378,997
Term loan (note 7) 9,806,636 11,818,677 -
12,219,544 12,852,821 378,997
Shareholders` equity
Share capital (note 8(a)) 51,855,350 50,207,363 50,207,363
Contributed surplus 13,254,905 4,849,043 4,824,697
Deficit (60,376,436) (46,080,305) (41,575,461)
4,733,819 8,976,101 13,456,599
Nature of operations (note
1)
Commitments (notes 6(b) and
8(c))
Proposed transaction (note
12 )
$16,953,363 $21,828,922 $13,835,596
See accompanying notes to consolidated financial statements.
Consolidated Statements of Operations and Comprehensive Loss
(Expressed in Canadian Dollars)
Year ended December 31
2007 2006 2005
Expenses
Accounting, audit and legal $416,745 $690,132 $474,422
Accretion on term loan 112,459 13,879 -
Conference and travel 492,106 360,959 646,992
Consulting 177,809 154,578 965,720
Exploration (schedule) 876,900 751,325 5,240,321
Foreign exchange loss (gain) (588,115) (34,817) 68,720
Gain on disposal of - (41,291) -
equipment
Interest expense 2,042,711 399,062 -
Interest income (799,985) (263,820) (119,779)
Office and administration 451,908 354,353 551,278
Salaries and benefits 2,016,689 1,511,874 1,659,465
Stock-based compensation - 7,215,670 9,137 1,822,010
office and administration
(note 8(b))
Stock-based compensation - 1,491,849 15,209 714,243
exploration (note 8(b))
Shareholders communications 258,882 289,824 260,155
Trust and filing 269,503 415,440 85,254
Loss before the following 14,435,131 4,625,844 12,368,801
Future income tax recovery (139,000) (121,000) (65,000)
(note 10)
Loss for the year 14,296,131 4,504,844 12,303,801
Other comprehensive loss - - -
Total Comprehensive Loss $14,296,131 $4,504,844 $12,303,801
Basic and diluted loss per $0.08 $0.03 $0.08
share
Headline loss per share $0.08 $0.03 $0.08
Weighted average number of 168,377,927 148,220,407 148,107,407
common shares outstanding
See accompanying notes to consolidated financial statements.
Consolidated Statements of Shareholders` Equity
(Expressed in Canadian Dollars)
Year ended Year ended
December 31, December 31,
2007 2006
Share capital Number of Number of
shares shares
Balance at 148,220,407 $50,207,363 148,220,407 $50,207,363
beginning of the
year
Share purchase 883,200 1,236,480 - -
options
exercised at
$1.40 per share
Share purchase 100,000 95,000 - -
options
exercised at
$0.95 per share
Share purchase 5,000 14,850 - -
options
exercised at
$2.97 per share
Fair value of - 301,657 -
stock options
allocated to
shares issued on
exercise
Common shares 36,000,000 - - -
issued (note
6(b))
Balance at end 185,208,607 $51,855,350 148,220,407 $50,207,363
of the year
Contributed
surplus
Balance at $4,849,043 $4,824,697
beginning of the
year
Stock-based 8,707,519 24,346
compensation
Fair value of (301,657) -
stock options
allocated to
shares issued on
exercise
Balance at end $13,254,905 $4,849,043
of the year
Deficit
Balance at $(46,080,305) $(41,575,461)
beginning of the
year
Loss for the (14,296,131) (4,504,844)
year
Balance at end $(60,376,436) $(46,080,305)
of the year
TOTAL $4,733,819 $8,976,101
SHAREHOLDERS`
EQUITY
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
Year ended December 31
2007 2006 2005
Operating activities
Loss for the year $(14,296,131) $(4,504,844) $(12,303,801)
Items not involving cash
Amortization included in 24,009 30,862 48,503
exploration expenses
Accretion on term loan 112,459 13,879 -
Future income tax recovery (139,000) (121,000) (65,000)
Accrued interest on term 1,775,862 253,071 -
loan (note 7)
Stock-based compensation 8,707,519 24,346 2,536,253
(note 8(b))
Gain on disposal of - (41,291) -
equipment
Unrealized foreign exchange (410,350) (114,000) (165,312)
gain
Equity loss in exploration 920,608 555,677 317,709
expenditures (note 6)
Changes in non-cash
operating working capital
Amounts receivable (8,700) (80,307) 434,717
Amounts due to and from 177,790 235,692 (184,266)
related parties
Prepaid expenses (365,391) 11,905 22,573
Accounts payable and accrued (200,966) 303,416 (1,034,237)
liabilities
Cash and equivalents used by (3,702,291) (3,432,594) (10,392,861)
operating activities
Investing activities
Purchase of equipment (56,188) (9,066) (24,671)
Proceeds on disposal of - 120,343 -
equipment
Equity investment (note 6) (1,481,571) (59,428) (95,039)
Cash and equivalents (1,537,759) 51,849 (119,710)
provided by (used by)
investing activities
Financing activities
Issuance of common shares 1,346,330 - 157,500
Financing costs paid (445,917) - -
Term loan - 10,710,078 -
Cash and equivalents 900,413 10,710,078 157,500
provided by financing
activities
Effect of exchange rate (1,303,687) 855,528 -
changes on cash and
equivalents
Increase (decrease) in cash (5,643,324) 8,184,861 (10,355,071)
and equivalents
Cash and equivalents, 12,775,145 4,590,284 14,945,355
beginning of year
Cash and equivalents, end of $7,131,821 $12,775,145 $4,590,284
year
Supplementary information
Interest paid $266,849 $145,991 $73,855
Interest received $(799,985) $(239,329) $(193,634)
Miscellaneous income $- $(24,491) $-
Taxes paid $- $- $-
Non-cash operating,
financing and investing
activities
Financing costs accrued in $- $351,641 $-
accounts payable and accrued
liabilities
Fair value of options $301,657 $- $75,506
allocated to shares issued
on exercise
See accompanying notes to consolidated
financial statements.
Consolidated Schedules of Exploration
Expenses
(Expressed in Canadian Dollars)
Republic of South Africa Year ended December 31
2007 2006 2005
Northern Limb of the
Bushveld Complex
Amortization $24,009 $30,862 $48,503
Assays and analysis 200 17,125 1,112,445
Drilling - - 2,023,315
Engineering 19,784 53,423 501,068
Environmental and - 10,126 63,316
socioeconomic
Geological and consulting 41,369 55,582 718,439
Graphics 5,104 2,426 2,661
Property fees and 9,303 18,168 78,777
assessments
Property option payments 12,016 32,548 31,108
Site activities 12,717 34,484 247,249
Transportation 4,036 2,098 99,561
128,538 256,842 4,926,442
Eastern Limb of the Bushveld
Complex
Assays and analysis - 21,268 20,963
Drilling - 376,406 182,014
Engineering - 88,361 37,101
Geological and consulting 748,362 8,448 40,896
Graphics - - 1,200
Property fees and - - 1,440
assessments
Site activities - - 29,950
Transportation - - 315
748,362 494,483 313,879
Exploration expenses before 876,900 751,325 5,240,321
the following
Stock-based compensation 1,491,849 15,209 714,243
(note 8(b))
Exploration expenses 2,368,749 766,534 5,954,564
Cumulative expenditures, 23,613,314 22,846,780 16,892,216
beginning of year
Cumulative expenditures, end $25,982,063 $23,613,314 $22,846,780
of year
See accompanying notes to consolidated
financial statements.
Notes to Consolidated Financial Statements
For the years ended December 31, 2007,
2006 and 2005
(Expressed in Canadian Dollars, unless
otherwise stated)
1. NATURE OF OPERATIONS
Anooraq Resources Corporation (the
"Company" or "Anooraq") is incorporated in
the Province of British Columbia, Canada
and its principal business activity is
the exploration of mineral property
interests. Since 1999, the Company has
focused on mineral property interests
located in the Republic of South Africa,
with particular attention on the Bushveld
Complex (note 6).
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. While the Company
forecasts that it has adequate cash and
cash equivalents to fund identified 2008
expenditure requirements, there can be
no assurances that the Company will
continue to obtain additional financial
resources and/or achieve profitability or
positive cash flows. If the Company
is unable to obtain adequate additional
financing, the Company will be required
to curtail operations and exploration
activities. Furthermore, failure to
continue as a going concern would require
that the Company`s assets and
liabilities be restated on a liquidation
basis which would differ significantly
from the going concern basis.
2. BASIS OF PRESENTATION AND PRINCIPLES OF
CONSOLIDATION
These financial statements have been
prepared in accordance with Canadian
generally accepted accounting principles.
The consolidated financial statements
include the accounts of the Company and
its subsidiaries, all of which are
wholly owned.
The Company`s investment in the Ga-Phasha
joint venture (note 6(b)) is accounted
for using the equity method.
All material intercompany balances and
transactions have been eliminated.
3. SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and equivalents
Cash and equivalents consist of cash and
highly liquid investments, having
maturity dates of three months or less
from the date of purchase, that are
readily convertible to known amounts of
cash. At December 31, 2007, of the
$7,131,821 cash and equivalents held by
the Company, $6,557,885 (ZAR 45,540,868)
were held in South African Rand ("ZAR")
(2006 - $11,738,214 (ZAR 71,011,579)).
(b) Equipment
Equipment is carried at cost less
accumulated amortization. Amortization is
provided on a declining balance basis at
various rates ranging from 15% to 30%
per annum.
(c) Mineral property interests
Exploration expenses incurred prior to
determination of the feasibility of
mining operations and periodic option
payments are expensed as incurred.
Mineral property acquisition costs, and
exploration and development expenditures
incurred subsequent to the determination
of the feasibility of mining operations
and approval of development by the
Company, are capitalized until the
property
to which they relate is placed into
production, sold, allowed to lapse or
abandoned.
Mineral property acquisition costs include
the cash consideration and the fair
market value of common shares and warrants
issued for mineral property
interests, pursuant to the terms of the
relevant agreements. These costs will be
amortized over the estimated life of the
property following commencement of
commercial production, or written off if
the property is sold, allowed to lapse
or abandoned, or when an impairment of
value has been determined to have
occurred.
(d) Investments
Investments in entities over which the
Company exercises significant influence
are accounted for using the equity method.
Investments in joint ventures which
the Company jointly controls and are not
variable interest entities are
accounted for using the proportionate
consolidation method.
(e) Income taxes
The Company uses the asset and liability
method of accounting for income taxes.
Under this method, future income tax
assets and liabilities are computed based
on differences between the carrying
amounts of assets and liabilities on the
balance sheet and their corresponding tax
values, using the substantively
enacted or enacted income tax rates
expected to apply to taxable income in the
years in which those temporary differences
are expected to be recovered or
settled. Future income tax assets also
result from unused loss carry forwards
and other deductions. Future tax assets
are recognized to the extent that they
are considered more likely than not to be
realized. The carrying value of
future income tax assets is adjusted, if
necessary, by the use of a valuation
allowance to reflect the amount that is
considered to be more likely than not to
be realized.
(f) Income (loss) per share
Basic income (loss) per share is
calculated by dividing the income (loss)
available to common shareholders by the
weighted average number of common shares
outstanding during the period. For all
years presented, income (loss) available
to common shareholders equals the reported
loss.
Diluted income (loss) per common share is
calculated using the treasury stock
method. Under the treasury stock method,
the weighted average number of common
shares outstanding used for the
calculation of diluted income (loss) per
share
assumes that the proceeds to be received
on the exercise of dilutive share
options and warrants are used to
repurchase common shares at the average
market
price during the year. In the years
presented, diluted loss per share is the
same as basic loss per share as the effect
of including outstanding options and
warrants in the loss per share calculation
would be anti-dilutive.
(g) Translation of foreign currencies
The Company`s functional currency is the
Canadian dollar. Monetary assets and
liabilities denominated in a foreign
currency are translated into Canadian
dollars at exchange rates in effect at the
balance sheet date. Non-monetary assets
and liabilities are translated at
historical exchange rates unless such
items are carried at fair value, in which
case they are translated at the exchange
rates in effect on the balance sheet date.
Revenues and expenses, except
amortization, are translated at the
average exchange rates for the year.
Amortization is translated at the same
exchange rate as the assets to which it
relates. Gains or losses on translation
are recorded in the statement of
operations.
(h) Use of estimates
The preparation of financial statements
requires management to make estimates and
assumptions that affect the reported
amounts of assets and liabilities and the
disclosure of contingent assets and
liabilities at the date of the financial
statements, and the reported amounts of
revenues and expenses during the reporting
year. Significant areas requiring the use
of management estimates include the
determination of the impairment of mineral
property interests, determination of
reclamation obligations, determination of
valuation allowances for future income tax
assets, and the assumptions used in
determining fair value of non-cash stock-
based compensation. Actual results could
differ from these estimates.
(i) Stock-based compensation
The Company has a share option plan which
is described in note 8(b). The Company
records all stock-based payments granted
using the fair value method.
Under the fair value method, stock-based
compensation is measured at the fair value
on the grant date and charged to
operations over the vesting period with a
corresponding credit to contributed
surplus.
Consideration received on the exercise of
stock options is recorded as share capital
and the related contributed surplus is
transferred to share capital.
(j) Asset retirement obligations
The Company recognizes statutory,
contractual or other legal obligations
related to the retirement of tangible long-
lived assets when such obligations are
incurred, if a reasonable estimate of fair
value can be made. These obligations are
measured initially at fair value and the
resulting costs are capitalized to the
carrying value of the related asset. In
subsequent periods, the liability is
adjusted for any changes in the amount or
timing and for the discounting of the
underlying future cash flows. The
capitalized asset retirement cost is
amortized to operations over the life of
the asset.
(k) Variable interest entities
The Company accounts for variable interest
entities ("VIE") in accordance with the
Canadian Institute of Chartered
Accountants ("CICA") Accounting Guideline
15, "Consolidation of Variable Interest
Entities" ("AcG15"). AcG15 prescribes the
application of consolidation principles
for entities that meet the definition of a
VIE and for which the Company is
considered the primary beneficiary. VIEs
are entities in which equity investors do
not have the characteristics of a
controlling financial interest or do not
have sufficient equity at risk for the
entity to finance its activities without
additional subordinated financial support
from other parties. The primary
beneficiary is the party that has exposure
to a majority of the expected losses
and/or expected residual returns of the
VIE. An enterprise holding other than a
voting interest in a VIE could, subject to
certain conditions, be required to
consolidate the VIE if it is considered
its primary beneficiary. The Company has
concluded that the Ga-Phasha Project
qualifies as a VIE but that the Company is
not the primary beneficiary.
(l) Segment disclosures
The Company operates in a single operating
segment, being the exploration of mineral
properties in South Africa.
(m) Comparative figures
Certain of the prior years` comparative
figures have been restated to conform to
the presentation adopted for the current
year.
4. CHANGES IN ACCOUNTING POLICY
(a) Newly Adopted 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 and accounting
changes. As required by the transitional
provisions of these new standards, these
new standards have been adopted with no
restatement to prior period financial
statements.
(i) Section 3855 - Financial Instruments -
Recognition and Measurement
This standard requires all financial
instruments within its scope, including
derivatives, to be recognized on the
balance sheet and measured either at fair
value or, in certain circumstances at cost
or amortized cost.
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. Amortization of premiums
or discounts and losses due to impairment
are included in current period net income
(loss).
- Available-for-sale financial assets are
measured at fair value. Changes in fair
value are included in other comprehensive
income (loss) until the gain or loss is
recognized in income when the asset is
sold or deemed to be permanently impaired.
- Held for trading financial instruments
are measured at fair value. All changes in
fair value are included in net income
(loss) in the current period.
- 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 income
(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 accumulated other comprehensive income.
All financial assets and liabilities are
recognized when the entity becomes a party
to the contract creating the asset or
liability. On adoption of the standards on
January 1, 2007, the Company`s outstanding
financial assets and liabilities were
recognized and measured in accordance with
the new requirements as if these
requirements had always been in effect.
However, no adjustments to opening deficit
or opening accumulated other comprehensive
income were required. In accordance with
this new standard, deferred financing
costs of $337,852 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.
(ii) 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.
(iii) 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 income (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
income to be presented in other
accumulated comprehensive income until it
is considered appropriate to recognize
into net income. 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
December 31, 2007, the Company had no
accumulated other comprehensive income and
for the year ended December 31, 2007,
comprehensive loss equals net loss.
(iv) Section 1506 - Accounting Changes
This standard establishes criteria for
changing accounting policies, together
with the accounting treatment and
disclosure of changes in accounting
policies, changes in accounting estimates
and correction of errors. As a result,
changes in accounting policies are only
permitted when required by a primary
source of generally accepted accounting
principles or when the change will result
in more reliable and more relevant
information.
(b) Accounting Policies Not Yet Adopted
(i) Section 1535 - Capital Disclosures
This standard requires disclosure of an
entity`s objectives, policies and
processes for managing capital,
quantitative data about what the entity
regards as capital and whether the entity
has complied with any capital requirements
and, if it has not complied, the
consequences of such non-compliance. This
standard is effective for the Company for
interim and annual periods relating to
fiscal years beginning on or after January
1, 2008, The Company is currently
evaluating the effects of adopting this
standard.
(ii) Financial Instruments - Disclosure
(Section 3862) and Presentation (Section
3863)
These standards replace CICA 3861,
Financial Instruments - Disclosure and
Presentation. They increase the
disclosures currently required, which will
enable users to evaluate the significance
of financial instruments for an entity`s
financial position and performance,
including disclosures about fair value. In
addition, disclosure is required of
qualitative and quantitative information
about exposure to risks arising from
financial instruments, including specified
minimum disclosures about credit risk,
liquidity risk and market risk. The
quantitative disclosures must provide
information about the extent to which the
entity is exposed to risk, based on
information provided internally to the
entity`s key management personnel. This
standard is effective for the Company for
interim and annual periods beginning on or
after January 1, 2008. The Company expects
that its disclosures will be expanded to
incorporate the additional requirements.
(iii) Amendments to Section 1400 - Going
Concern
CICA 1400, General Standards of Financial
Statement Presentation, was amended to
include requirements to assess and
disclose an entity`s ability to continue
as a going concern. The new requirements
are effective for interim and annual
financial statements relating to fiscal
years beginning on or after January 1,
2008. The Company is currently evaluating
the impact of this new standard.
(iv) International Financial Reporting
Standards ("IFRS")
In 2006, the Canadian Accounting Standards
Board ("AcSB") published a new strategic
plan that will significantly affect
financial reporting requirements for
Canadian companies. The AcSB strategic
plan outlines the convergence of Canadian
GAAP with IFRS over an expected five year
transitional period. In February 2008,
the AcSB announced that 2011 is the
changeover date for publicly-listed
companies to use IFRS, replacing Canada`s
own GAAP. The date is for interim and
annual financial statements relating to
fiscal years beginning on or after January
1, 2011. The transition date of January
1, 2011 will require the restatement for
comparative purposes of amounts reported
by the Company for the year ended December
31, 2010. While the Company has begun
assessing the adoption of IFRS for 2011,
the financial reporting impact of the
transition to IFRS cannot be reasonably
estimated at this time.
5. EQUIPMENT
December 31, 2007
Cost Accumulated Net book value
amortization
Office $66,840 $14,575 $52,265
Vehicles 116,368 63,139 53,229
$183,208 $77,714 $105,494
December 31, 2006
Cost Accumulated Net book value
amortization
Office $10,651 $6,144 $4,507
Vehicles 116,368 47,560 68,808
$127,019 $53,704 $73,315
6. MINERAL PROPERTY INTERESTS
Year ended Year ended
December 31, 2007 December 31, 2006
Ga-Phasha Project (note 6(b))
Balance, beginning of year $4,040,751 $4,302,000
Equity loss - exploration (920,608) (555,677)
expenses
Net investments during the 1,481,571 59,428
period
Equity gain - future income tax 139,000 121,000
recovery
Equity gain - foreign exchange 138,000 114,000
Ga-Phasha Project, end of year 4,878,714 4,040,751
Platreef Properties - 4,200,000 4,200,000
acquisition costs (note 6(a))
Balance, end of year $9,078,714 $8,240,751
(a) Northern Limb of the Bushveld Complex,
South Africa
Platreef
In October 1999, the Company acquired a
two-stage right to purchase up to 100% of
Pinnacle Resources Inc.`s ("Pinnacle")
South African subsidiary, Plateau
Resources (Proprietary) Limited
("Plateau"), which holds the Platreef
platinum group mineral ("PGM") properties
located on the Northern Limb of the
Bushveld Complex in South Africa.
Pursuant to the acquisition agreement, the
Company issued 378,500 shares during the
period October 1999 to November 2003. On
November 13, 2003, the Company issued an
additional 400,000 common shares as full
and final negotiated settlement under this
agreement and thereby completed its
acquisition of Plateau.
In South Africa, many mineral claim areas
were historically defined by farm
boundaries and are commonly referred to as
"farms".
On May 23, 2000, the Company added to its
mineral rights in the region by acquiring
through Plateau the option to purchase a
100% interest in portion 2 of the
Elandsfontein 766LR farm located
contiguous to the pre-existing Platreef
properties, pursuant to an agreement with
MSA Projects (Proprietary) Limited. The
option required staged issuances of a
maximum of 500,000 common shares of the
Company (of which 412,500 shares have been
issued to December 31, 2007 and no further
share issuances are expected) and
aggregate cash payments up to a maximum of
US$350,000 (of which US$99,250 and $15,000
have been paid).
In July 2001, Plateau acquired the right
to purchase a 100 percent interest in the
farm Hamburg 737LR (2,126 hectares) and
Portion 1 of the farm Elandsfontein 766LR
(428 hectares), located contiguous to the
north end of the pre-existing Platreef
properties. The Company has allowed the
option to purchase the farms to lapse
during the year.
In August 2002, the Company entered into a
five year prospecting contract, expiring
August 2007, with an option to extend the
agreement for an additional three years
with the South African Department of Mines
and Energy ("DME") for farm Noord Holland
775LR (1,229 hectares) bringing the
aggregate land package of its Platreef
Property to approximately 13,400 hectares.
Annual option fees ranging from South
African Rand ("ZAR") 3 per hectare to ZAR
18 per hectare are payable to the DME. The
Company is currently in discussions to
extend the agreement.
Rietfontein
On October 10, 2001, the Company completed
an agreement with African Minerals Ltd.,
now Ivanhoe Nickel and Platinum Ltd.
("Ivanplats"), a private affiliate of
Ivanhoe Capital Corporation, whereby
Ivanplats has the right to earn a 50%
interest in the Company`s 2,900 hectare
Rietfontein 2KS farm ("Rietfontein").
Under the terms of this agreement,
Ivanplats must incur at least $750,000 in
expenditures pursuant to exploration
activities undertaken on Rietfontein in
accordance with an approved program in
each of the ensuing two years (of which
the year one program has been completed)
to obtain the right to form a 50/50 joint
venture with the Company on Rietfontein.
There is disagreement over budgets,
compilation and analysis of the
exploration results, and the overall
adequacy and completeness of Ivanplats`
exploration activities. The Company and
Ivanplats are currently in discussions
over these matters, both outside of and
within a formal arbitration process,
pursuant to the terms of the earn-in
agreement.
Kwanda ("Rustenburg")
On May 16, 2002, the Company completed an
agreement with Rustenburg Platinum Mines
Limited ("Rustenburg"), a wholly owned
subsidiary of Anglo American Platinum
Corporation Limited ("Anglo Platinum"),
for the right to acquire up to an 80%
interest in twelve PGM properties located
on the Northern Limb of the Bushveld
Complex.
Under the agreements with Anglo Platinum,
the Company has acquired an initial 50%
interest in the PGM rights to the twelve
farms and can maintain this interest by
making staged exploration expenditure
totaling ZAR 25 million within five years.
The Company is required to, and did, spend
ZAR 2.5 million in year one, ZAR 5 million
in year two, and was required to spend ZAR
5 million in each of years three and four
and ZAR 7.5 million in year five. The
Company has not completed its exploration
expenditure requirement from year three to
five, and both parties have mutually
agreed to suspend indefinitely the
expenditures requirements for years three
to five.
If a mineral resource is identified, the
Company can earn an additional 30%
interest by bringing the property into
commercial production. Rustenburg will
retain a 20% interest in the joint
venture. The agreements also include
plans to involve local communities in
future development of the properties. Any
participation by local and regional
communities will be provided out of
Rustenburg`s interest and any
participation in the venture by a
Historically Disadvantaged South Africans
("HDSA") partner will be provided out of
the Company`s interest.
Boikgantsho ("Drenthe-Overysel")
On November 26, 2003, the Company
announced that it had entered into a Joint
Venture Agreement with Potgietersrust
Platinums Limited ("PPRust"), a wholly
owned subsidiary of Anglo Platinum. The
Joint Venture was formed to explore and
develop PGMs, gold and nickel
mineralization on the Company`s Drenthe
778LR and Witrivier 777LR farms and a
portion of PPRust`s adjacent Overysel
815LR farm. These farms are located on
the Northern Limb of the Bushveld Complex.
The objective is to explore and develop a
large-scale open pit deposit with the
potential to utilize nearby milling,
smelting and refining facilities which
could provide substantial cost advantages
to a new mining project. The Company
contributed its rights to the Drenthe
778LR farm on which a large PGM-nickel
resource has been outlined in the Drenthe
deposit, and will contribute the Witrivier
777LR farm if the deposit extends north on
to Witrivier 777LR. PPRust is
contributing its rights to the northern
portion of the Overysel 815LR farm which
lies south of and contiguous to the
Drenthe 778LR farm.
Pursuant to the terms of the Joint Venture
Agreement, the Company and Anglo Platinum
formed an initial 50/50 Joint Venture (the
"Boikgantsho JV") to explore these farms
for a period of up to five years. During
that period, Anooraq will operate the
exploration programs, and spend up to ZAR
12.35 million (of which the entire amount
has been spent) on behalf of the
Boikgantsho JV. Anooraq will then have
the option to proceed on a year-by-year
basis and to take the project to a
bankable feasibility study ("BFS") level.
Once a BFS has been completed, the
parties, by agreement, may proceed to
exploitation subject to relevant
regulatory requirements. If both partners
decide to proceed, then a joint management
committee will be established to oversee
development and operations. At
commencement of exploitation, the joint
venture interest allotted to each of
Anooraq and Anglo Platinum will be
determined in proportion to the relative
value of the metals contained in each
contributed property as reflected in the
BFS. Anooraq or Anglo Platinum, as the
case may be, each has the right to make a
cash payment to the other party or to fund
additional capital contributions to
equalize their respective contributions.
During development, the Boikgantsho JV
will be seeking a Black Economic
Empowerment ("BEE") partner to participate
in the project (which may be Anooraq
itself) with the original Boikgantsho JV
partners dividing the remaining interest.
Should the Company choose not to proceed,
Anglo Platinum has the option of acquiring
the Company`s interest at the aggregate of
(i) the net present value of exploiting
the Company`s mineral rights as a stand
alone mining operation, by applying an
agreed discount rate as determined in the
BFS, and (ii) all exploration expenditures
(as defined in the agreement) incurred by
the Company up to the completion of the
BFS. Should Anglo Platinum decide not to
contribute to exploitation, its interest
will be diluted over time pursuant to a
formula taking into account expenditure on
the project by the contributory parties.
Anglo Platinum will remain entitled to a
minimum 12.5% non-contributory interest,
adjusted depending on the final PGM
royalty to be established under the South
African Mineral and Petroleum Royalty
Bill, to a maximum of 15%.
Anglo Platinum has the right to enter into
a PGM Ore or Concentrate Purchase and
Disposal Agreement at the exploitation
phase, based on standard commercial terms,
whereby PGM produced from the operation
would be treated at Anglo Platinum`s
facilities.
(b) Eastern Limb of the Bushveld Complex,
South Africa
Ga-Phasha
In January 2004, the Company announced it
had agreed to terms whereby the Company
and Pelawan Investments (Proprietary)
Limited ("Pelawan"), a private South
African BEE company, would combine their
respective PGM assets, comprising the
Company`s Northern and Western Limb PGM
projects and Pelawan`s 50% participation
interest in the Ga-Phasha PGM Project ("Ga
Phasha") on the Eastern Limb of the
Bushveld Complex in South Africa. The Ga-
Phasha property consists of four farms -
Portion 1 of Paschaskraal 466KS, and the
whole of farms Klipfontein 465KS, De Kamp
507KS and Avoca 472KS - covering an area
of approximately 9,700 hectares.
The mineral title relating to the Ga-
Phasha Project is held by Micawber 277
(Proprietary) Limited ("Micawber"), a
private South African corporation which
was owned 50% by Anglo Platinum and 50% by
Pelawan.
Pursuant to the terms of the agreement
between the Company and Pelawan, the
Company acquired Pelawan`s 50%
shareholding in Micawber and the rights to
its 50% participation interest in the Ga-
Phasha Project in return for 91.2 million
common shares of the Company (the
"Consideration Shares") and cash payments
totalling ZAR 15,652,744 ($3,055,416).
Approximately 83 million Consideration
Shares are being held in escrow until the
earlier of September 29, 2010 or twelve
months after the commencement of
commercial production from the Ga-Phasha
Project at which time they will be
released.
The transaction was completed on September
29, 2004 and consequently Anooraq became a
BEE company, by virtue of being majority
owned by HDSA`s. The Ga-Phasha Project is
a 50/50 joint venture between the Company,
through Plateau, and Anglo Platinum,
through its wholly owned subsidiary
Rustenburg Platinum Mines Limited,
governed by, among other things, a
shareholders` agreement relating to
Micawber entered into in September 2004.
Work on the Ga-Phasha Project is
continuing toward the preparation of a pre-
feasibility study.
The transaction constituted a "reverse
take-over" under the policies of the TSX
Venture Exchange. This transaction was
accounted for as an acquisition by Anooraq
of Micawber`s 50% interest in its mineral
properties. However, because neither the
fair value of the Anooraq shares issued,
nor the fair value of the mineral property
interests acquired could be readily
determined, the acquisition was recorded
at the net book value, as determined in
accordance with Canadian generally
accepted accounting principles, of
Micawber`s net assets acquired, being nil,
plus related transaction costs.
The acquisition costs were accounted for
as follows:
Cash payments totaling ZAR 15,652,744 $3,055,416
Financial, legal, advisory, and other fees 1,419,329
Estimated South African stamp duties 15,000
Book value of Micawber`s net assets acquired -
Future income taxes 1,385,255
Acquisition cost, Ga-Phasha Project $5,875,000
Commencing September 29, 2004 (the date of
completion of the reverse take-over
transaction), the Company has accounted
for its interest in Micawber, which holds
the Ga-Phasha Project, using the equity
method.
The share exchange agreement which gave
effect to the combination provided that if
any financings in relation to the Ga-
Phasha and Drenthe-Overysel (subsequently
renamed "Boikgantsho") Projects (the
"Projects") took place prior to a
particular date (the "Finalization Date")
and the shareholder dilution associated
with of such financings caused Pelawan`s
shareholding in Anooraq to fall below a
52% minimum shareholding, Anooraq would
issue additional common shares to Pelawan
in order to maintain that minimum. Such
52% minimum shareholding would allow for
compliance with BEE equity requirements
under South African mineral legislation
and was also a requirement of the South
African Reserve Bank for approving the
transaction. Originally, the Finalization
Date was September 30, 2005 but that date,
by agreement in November 2005 between
Anooraq and Pelawan, was extended.
The share exchange agreement further
provided that, to the extent that if no
such dilutive financings had taken place
by the Finalization Date, certain dilutive
financings were deemed to have occurred by
that date. The purpose was to make
allowance for the dilutive effect on
Pelawan`s shareholding of the anticipated
financings for mine development of the
Projects and safeguard the status of
Anooraq as a BEE company. For the
purposes of calculating whether, by virtue
of such deemed dilutive financings, any
common shares were required to be issued
to Pelawan in order to maintain a minimum
52% shareholding, the share exchange
agreement provided that the quantum of
such deemed financings would equal: (a)
30% of the estimated development costs in
accordance with the bankable feasibility
studies in respect of the Projects, less
cash on hand, or (b) to the extent that
such bankable feasibility studies had not
been prepared as at the Finalization Date,
$70.8 million related to the Ga-Phasha
Project and $27.6 million related to the
Drenthe-Overysel Project, less cash on
hand (the "Deemed Dilutive Financings").
Following the Finalization Date, Anooraq
has the right but not the obligation to
issue additional common shares to Pelawan
in order to maintain Pelawan`s minimum
shareholding.
Neither additional financings nor bankable
feasibility studies for the Projects had
been completed by Anooraq as at September
30, 2005 and, in the absence of an
amending agreement between the parties, a
dilutive financing totaling $98.4 million
and share issuances (based on the share
price at the date of the deemed dilutive
financing) would have been deemed to have
taken place as at such date and the
Company would have been obligated to issue
to Pelawan that number of shares which,
after notionally giving effect to the
Deemed Dilutive Financings, would have
resulted in Pelawan continuing to hold a
52% interest in the Company. In November
2005, Anooraq and Pelawan agreed to extend
the Finalization Date.
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, the following
occurred during the current fiscal year:
(i) Anooraq issued 36 million common
shares ("Adjustment Consideration Shares")
to Pelawan as consideration for the
settlement.
(ii) Anooraq issued to Pelawan share
purchase warrants for the purchase of 167
million common shares in Anooraq ("BEE
Warrants") 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 that,
at a minimum, 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.
Pursuant to the exercise of the BEE
Warrants, the Company entered into an
amending agreement (the "Amending
Agreement") with Pelawan to amend the
exercise procedure of the BEE Warrants to
allow Pelawan to finance the exercise of
the BEE Warrants by way of a Bridge Loan
Facility from Rand Merchant Bank ("RMB").
Pursuant to the Amending Agreement, on
December 20, 2007, Pelawan exercised the
BEE Warrants at a price per common share
of $1.35 by depositing an escrowed amount
equal to the aggregate exercise price for
the BEE Warrants ($ 225 million or ZAR
1,586 billion) into an interest bearing
account with RMB, to be released pursuant
to a Deposit Account Agreement (the
"Deposit Agreement") between RMB, Pelawan
Investments (Pty) Ltd and Anooraq upon the
satisfaction of certain release
conditions, as follows:
The earlier of:
- Pelawan repaying the Bridge Loan
Facility in full;
- Pelawan placing a new cash deposit (in
ZAR) in an amount equal to the funds to be
released from the deposit account with
RMB, and Pelawan granting RMB its rights,
title and interest in the cash deposit as
security for the Bridge Loan Facility;
- Pelawan securing an on demand guarantee
for an amount equal to the funds to be
released from the deposit account. The
guarantee will be in favour of RMB
guaranteeing the performance of Pelawan`s
obligations under the Bridge Loan Facility
and should come from a counterparty
acceptable to RMB and approved by the
Company;
- Pelawan encumbering its Anooraq shares
in favour of RMB. The value of the shares
to be encumbered to RMB should equal the
amount requested to be released from the
deposit account. The share value is
determined based on the share price of
Anooraq on the TSX Venture Exchange on a 5
day volume weighted average traded price,
commencing 5 days prior to the date upon
which value is determined, converted from
Canadian Dollars to ZAR at the foreign
exchange closing rate on the last day of
the 5 day period; and
- Evidence to the satisfaction of RMB that
all necessary regulatory approvals in
respect of the subscription of Anooraq
shares and the issue thereof pursuant to
Pelawan`s exercise of the BEE Warrants has
been received.
The common shares underlying the BEE
Warrants will be issued to Pelawan upon
receipt from escrow by the Company of the
exercise price per common share, plus the
interest accrued thereon up to the date of
release.
Should the common shares underlying the
BEE Warrants be issued in full, Pelawan`s
resulting shareholding in Anooraq will
increase to approximately 81% of the
current issued and outstanding common
shares of the Company. The Company
intends to use the proceeds of the BEE
Warrants exercise, when received, as
partial funding for the proposed
acquisition of 51% of Lebowa from Anglo
Platinum (note 12). Should the release
conditions not be satisfied and there is
no close, the warrant exercise is void and
Anooraq will not receive the proceeds of
the exercise of the BEE Warrants nor the
interest earned from the deposit account
and the BEE warrants will continue to
exist in accordance with their terms until
expiry or in accordance with the terms of
the warrants.
7. TERM LOAN
As at As at
December 31, 2007 December 31, 2006
Total term loan $11,698,833 $11,818,677
Current portion (1,892,197) -
Non-current portion $9,806,636 $11,818,677
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.
No principal payments are required until
maturity of the loan on September 30,
2010. However, the agreement allows for
early repayment at the option of the
Company. In connection with the loan, the
Company incurred financing fees of
$445,917, equal to 4% of the loan. As at
December 31, 2006, the unamortized fees
totaled $337,852. Effective January 1,
2007, the unamortized amount was
reclassified to the carrying value of the
term loan in accordance with CICA Section
3855.
The Company is required to spend 85% of
the loan amount to fund work towards the
preparation of and operational
expenditures contemplated in a bankable
feasibility study for the Ga-Phasha
project. Accrued interest expense on the
term loan amounted to $1,888,321 (ZAR
12,263,772) for the year ended December
31, 2007 (2006 - $253,071 (ZAR 1,498,346))
and has been included in the carrying
value of the term loan.
Pursuant to security agreements entered
into in connection with the loan, the
Company has ceded as security, its
interest in Micawber.
8. 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 Company has a share option plan
approved by the Company`s shareholders
that allows it to grant options, subject
to regulatory terms and approval, to its
directors, employees, officers, and
consultants to, as at December 31, 2007,
acquire up to 18,300,000 common shares, of
which 7,695,000 options were outstanding
and 4,770,000 remained available to grant.
The exercise price of each option is set
by the Board of Directors at the time of
grant but cannot be less than the market
price (less permissible discounts) on the
TSX Venture Exchange. Options have a term
of up to a maximum of ten years (however,
the Company has historically granted
options for up to a term of five years),
and terminate 30 to 90 days following the
termination of the optionee`s employment
or term of engagement, except in the case
of retirement or death. Vesting of
options is at the discretion of the Board
of Directors at the time the options are
granted. The continuity of share purchase
options is as follows:
Weighted Number of Contractual
average options weighted
exercise average
price remaining
life (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,December31,2005 $1.47 4,778,200 3.61
Cancelled 1.90 (235,000)
Expired 1.84 (555,000)
Balance,December31,2006 $1.39 3,988,200 3.23
Granted 2.99 5,005,000
Exercised 1.36 (988,200)
Cancelled 1.40 (310,000)
Balance,December31,2007 $2.43 7,695,000 4.12
Options outstanding and exercisable at
December 31, 2007 were as follows:
Expiry date Option Number of Number of Weighted
price options options average
outstanding vested life
(years)
December 17, 2010 $1.40 2,695,000 2,695,000 3.0
July1,2010 $2.97 119,000 119,000 2.5
October15,2012 $3.27 376,000 251,000 4.8
October15,2012 $2.97 4,505,000 4,250,000 4.8
Total 7,695,000 7,315,000
Average option price $2.43 $2.40
The exercise prices of all share purchase
options granted during the period were
equal to or greater than the market price
at the grant date. Using an option
pricing model with the assumptions noted
below, the estimated fair value of all
options granted have been reflected in the
consolidated statement of operations as
follows:
Year ended Year ended Year ended
December 31 December 31 December 31
2007 2006 2005
Stock-based compensation - $1,491,849 $15,209 $714,243
Exploration
Stock-based compensation - 7,215,670 9,137 1,822,010
Office and administration
Credited to contributed surplus 8,707,519 24,346 2,536,253
during the period
The fair value of the options granted
during the year ended December 31, 2007
was $9,320,262 (2006 - $Nil, 2005 -
$2,523,653). The assumptions used to
estimate the fair value of options granted
during the period were:
2007 2006 2005
Risk free interest rate 4% - 3%
Expected life 2.5 - 5 years - 4 years
Volatility 71 - 74% - 82%
Expected dividends nil - nil
(c) Share purchase warrants
The continuity of share purchase warrants
is as follows:
Expiry date June 1, December 31,
2005 2008
Exercise price $2.50 $1.35 TOTAL
Balance, December 31, 2004 5,333,334 - 5,333,334
Issued - - -
Exercised - - -
Expired (5,333,334) - (5,333,334)
Balance, December 31, 2005 - - -
and 2006
Issued (note 6(b)(ii)) - 167,000,000 167,000,000
Reserved for exercise (note - (167,000,000) (167,000,000)
6(b))
Expired - - -
Balance, December 31, 2007 - - -
Pursuant to the Amending Agreement in note
6(b), Pelawan has exercised the Warrants
by depositing an escrowed amount equal to
the aggregate exercise price for the
Warrants ($225 million or ZAR 1,586
billion) into an interest bearing account
with RMB, to be released pursuant to a
deposit account agreement (the "Deposit
Agreement") between RMB, Pelawan
Investments (Pty) Ltd and Anooraq upon the
satisfaction of certain release conditions
(note 6(b)). The common shares underlying
the Warrants has been reserved for
issuance to Pelawan upon receipt by the
Company of the exercise price per common
share, plus the interest accrued thereon
up to the date of release. Should the
release conditions not be satisfied and
there is no close, the warrant exercise is
void and Anooraq will not receive the
proceeds of the exercise of the BEE
Warrants nor the interest earned from the
deposit account and the BEE warrants will
continue to exist in accordance with their
terms until expiry or in accordance with
the terms of the warrants.
9. RELATED PARTY TRANSACTIONS AND BALANCES
Note Year ended December 31
Services rendered by ref 2007 2006 2005
Hunter Dickinson Services Inc. (a) $798,330 $1,023,633 $1,297,159
Hunter Dickinson Group Inc. (b) - - 9,600
Pelawan Investments (c) - - 658,035
(Proprietary) Limited
CEC Engineering Ltd. (d) 26,589 127,781 166,662
Related party balances December December
receivable 31 2007 31 2006
Hunter Dickinson Services Inc. (a) $- $98,820
Southgold Exploration (e) - 39,796
(Proprietary) Limited
Receivable from related parties $- $138,616
Related party balances payable December December
31 2007 31 2006
Hunter Dickinson Services Inc. (a) $44,042 $-
CEC Engineering Ltd. (d) 1,567 6,435
Payable to related parties $45,609 $6,435
(a) Hunter Dickinson Services Inc.
("HDSI") is a private company owned
equally by eight public companies, one of
which is the Company. HDSI has certain
directors in common with the Company and
provides geological, corporate
development, administrative and management
services to, and incurs third party costs
on behalf of, the Company and its
subsidiaries on a full cost recovery basis
pursuant to an agreement dated December
31, 1996.
(b) Hunter Dickinson Group Inc. ("HDGI")
was a private company with certain
directors in common with the Company that
provided consulting services to, and
incured costs on behalf of, the Company,
at market rates.
(c) Pelawan is a private South African BEE
company which is a significant shareholder
of the Company and which has certain
directors in common with the Company (note
6(b)). Pelawan became a majority
shareholder on September 29, 2004. During
the year ended December 31, 2005, the
Company paid $658,035 for technical,
administrative and management services
provided to, and repayment of costs paid
on behalf of, the Company.
(d) During the year ended December 31,
2007, the Company paid or accrued $26,589
(2006 - $127,781, 2005 - $166,662) to CEC
Engineering Ltd ("CEC"), a private company
owned by a former director, for
engineering and project management
services at market rates.
(e) Southgold Exploration (Proprietary)
Limited ("Southgold") is a wholly-owned
subsidiary of Great Basin Gold Ltd., a
Canadian public company which has certain
directors in common with the Company.
Southgold shares certain premises and
other facilities with the Company pursuant
to a cost-sharing arrangement based on a
full cost recovery basis.
10. INCOME TAXES
As at December 31, 2007 and 2006 the tax
effect of the significant components of
the Company`s future tax asset (liability)
were as follows:
December 31, December 31,
2007 2006
Future income tax assets
Mineral property interests $3,675,000. $4,157,000.
Loss carry forwards 3,916,000. 5,789,000.
Equipment 17,000. 17,000.
Other tax pools 2,330,000. 1,386,000.
Subtotal 9,938,000. 11,349,000.
Valuation allowance (9,938,000) (11,349,000)
Net future income tax asset - -
Future income tax liability
Mineral property interests $633,000 $910,000
The Company`s future income tax liability
relates to its equity investment in the Ga-
Phasha Project and is classified as part
of its equity investment (note 6(b)).
Income tax expense differs from the amount
that would result from applying the
Canadian federal and provincial tax rates
to earnings before income taxes. These
differences result from the following
items:
December 31, December 31, December 31,
2007 2006 2005
Combined Canadian federal and 34.12% 34.12% 34.87%
provincial statutory rate
Income tax at statutory rates $(4,972,000) $(1,578,000) $(4,313,000)
Stock based compensation 2,971,000 70,000 1,366,000
Other non-deductible items 3,097,000 - (461,000)
Difference in foreign tax (1,164,000) (299,000) 455,000
rates
Reduction in statutory tax 415,000 336,000 223,000
rates
Effect of unrealized foreign 925,000 (561,000) (237,000)
currency loss
Change in valuation allowance (1,411,000) 1,911,000 2,902,000
$(139,000) $(121,000) $(65,000)
At December 31, 2007, the Company had
losses available for income tax purposes
in Canada totalling approximately $12.4
million (2006 - $10.9 million), expiring
in various periods from 2008 to 2027. The
Company has losses available for income
tax purposes in South Africa totaling $2.0
million (2006 - $2.0 million) which can be
carried forward indefinitely.
11. SEGMENTED INFORMATION
For the year Canada Mexico South Africa Total
ended December
31, 2007
Exploration $- $- $876,900 $876,900
expenditures
Loss for the (10,549,834) (4,839) (3,741,458) (14,296,131)
year
Total assets 896,740 26,602. 16,030,021 16,953,363
Equipment - - 105,494 105,494
For the year Canada Mexico South Africa Total
ended December
31, 2006
Exploration $- $- $751,325 $751,325
expenditures
Loss for the (1,894,272) (726) (2,609,846) (4,504,844)
year
Total assets 1,252,044 31,441. 20,545,437 21,828,922
Equipment - - 73,315 73,315
For the year Canada Mexico South Africa Total
ended December
31, 2005
Exploration $- $- $5,240,321 $5,240,321
expenditures
Loss for the (4,302,015) (8,841) (7,992,945) (12,303,801)
year
Total assets 4,645,858 32,166. 9,157,572 13,835,596
Equipment - - 174,163 174,163
12. PROPOSED TRANSACTION
Acquisition of Lebowa Platinum Mines
(Limited)
On September 4, 2007, the Company and
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
Project") for a total cash consideration
of South African Rand 3.6 billion
(approximately C$480 million). The parties
have also reached an agreement, in
principle, for the sale of an additional
effective 1% controlling interest in both
the Boikgantsho and Kwanda projects 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.
The Company 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.
Approved by the Board of Directors
Tumelo 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 audited financial statements of
Anooraq Resources Corporation ("Anooraq",
or the "Company") for the years ended
December 31, 2007 and 2006, prepared in
accordance with Canadian generally
accepted accounting principles, and
publicly available 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 March 10,
2008.
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 underground operations,
mining PGM deposits called the Merensky
and UG2 reefs on its Eastern and Western
Limbs. The PGM-bearing horizon on the
Northern Limb, called the Platreef, tends
to be nearer to the surface and is wider,
so the PGM deposits are potentially
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") on the eastern limb
and the Boikgantsho PGM Project
("Boikgantsho") on the northern limb of
the Bushveld. Both of the Boikgantsho and
Ga-Phasha 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, and included drilling
and resource estimates by Anglo Platinum
and preliminary work toward a
prefeasibility study
On September 4, 2007, Anooraq and Anglo
Platinum announced that they had entered
into a detailed transaction framework
agreement (the "TFA") whereby Anooraq
would purchase a controlling interest of
51% in Lebowa Platinum Mines Limited
("Lebowa"), and increase its interests to
51% in the Ga-Phasha, Boikgantsho and
Kwanda PGM projects ("Kwanda," comprised
of earlier stage northern limb prospects),
transforming Anooraq into an independent
PGM producer with three projects with PGM
resources.
Anooraq-Anglo Platinum Transaction
Framework Agreement
Pursuant to the TFA, Anglo Platinum will
sell to Anooraq, through its subsidiary
Plateau Resources (Pty) Ltd. an effective
51% of Lebowa and an effective 1%
controlling interest in Ga-Phasha for a
total cash consideration of South African
Rand 3.6 billion (approximately C$480
million). The parties have also reached
agreement in principle for the sale of an
additional effective 1% controlling
interest in both the Boikgantsho and the
Kwanda Joint ventures to Anooraq. Anooraq
plans to fund the purchase consideration
through a combination of debt and equity.
On completion of the proposed transaction,
Anooraq will own a 51% controlling
interest in Lebowa, Ga-Phasha, Boikgantsho
and Kwanda, with Anglo Platinum holding
49% of each of these properties through a
new holding company ("Lebowa Holdco").
Operational control of the assets within
Lebowa Holdco will pass to Anooraq on
implementation of the transaction
agreements. 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 project scheduling.
The transaction is subject to a number of
conditions and is expected to close during
the first half of fiscal 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 adjacent to
the Ga-Phasha Project. The Lebowa
operation consists of a vertical shaft and
declines to access the underground
development on the Merensky and UG2 Reefs,
and two concentrators. According to the
Anglo Platinum 2007 Annual Report, refined
production at Lebowa is approximately
187,700 ounces of platinum, palladium,
rhodium and gold from the 140,000 tonnes
per month ("tpm") operation. The
Middelpunt Hill UG2 and Brakfontein
Merensky expansions are expected to
increase production to about 245,000 tpm,
resulting in annual production of about
430,000 4E oz, including 200,000 oz of
platinum, by 2012.
Anooraq engaged RSG Global (Coffey Mining)
to conduct a due diligence assessment on
the Lebowa mine and Snowden Mining
Industry Consultants Pty Ltd to review the
mineral resources and mineral reserves and
develop an NI 43-101 report. This work
and associated discussions regarding the
transaction are well advanced.
Since the announcement of the transaction
in September 2007, Anooraq primarily
focused its resources on completing due
diligence on Lebowa, and completing other
tasks required to complete the
transaction, deferring Pre-feasibility
work on Ga-Phasha and other project
activities.
In 2008, the Company`s primary focus will
be completion of the Lebowa transaction,
and consideration of synergies between
Lebowa and Ga-Phasha prior to further
advancement of the pre-feasibility level
work on the latter project. Anooraq also
intends to re-initiate pre-feasibility
work on the Boikgantsho Project.
1.2.1 Ga-Phasha JV Project, Eastern Limb
Anooraq has a 50% interest in the Ga-
Phasha PGM Project, located on the eastern
limb of the Bushveld, approximately 250
kilometers northeast of Johannesburg.
Anooraq acquired its interest in the
project by way of a reverse takeover
transaction ("RTO") with Pelawan
Investment (Pty) Ltd. in 2004 (further
details below).
Anooraq-Pelawan 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 prospects and Pelawan`s 50%
participation interest in Ga-Phasha. 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 Ga-Phasha 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
("Rustenburg") subsidiary and 50% by
Anooraq through its wholly owned South
African subsidiary Plateau Resources (Pty)
Ltd ("Plateau"). Anglo Platinum is the
operator.
The 50/50 joint venture between Plateau
and Rustenburg 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 broad-based BEE entities,
including women investment groups,
cultural trusts and Polokwane-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 was
subsequently extended by agreement in
November 2005 between Anooraq and Pelawan.
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.
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 36 million common
shares ("Adjustment Consideration Shares")
to Pelawan as consideration for the
settlement (completed in June 2007).
(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 $98.4 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 granted 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.
Pursuant to the exercise of the BEE
Warrants, the Company entered into an
amending agreement (the "Amending
Agreement") with Pelawan to amend the
exercise procedure of the BEE Warrants to
allow Pelawan to finance the exercise of
the BEE Warrants by way of a bridge loan
from Rand Merchant Bank (RMB"). Pursuant
to the Amending Agreement, on December 20,
2007, Pelawan exercised the BEE Warrants
at a price per common share of $1.35 by
depositing an escrowed amount equal to the
aggregate exercise price for the Warrants
($ 225 million or ZAR 1,586 billion) into
an interest bearing account with RMB, to
be released pursuant to a deposit account
agreement (the "Deposit Agreement")
between RMB, Pelawan Investments (Pty) Ltd
and Anooraq upon the satisfaction of
certain release conditions, as follows:
The earlier of:
- Pelawan repaying the Bridge Loan
Facility in full;
- Pelawan placing a new cash deposit (in
ZAR) in an amount equal to the funds to be
released from the deposit account with
RMB, and Pelawan granting RMB its rights,
title and interest in the cash deposit as
security for the Bridge Loan Facility;
- Pelawan securing an on demand guarantee
for an amount equal to the funds to be
released from the deposit account. The
guarantee will be in favour of RMB
guaranteeing the performance of Pelawan`s
obligations under the Bridge Loan Facility
and should come from a counterparty
acceptable to RMB and approved by the
Company;
- Pelawan encumbering its Anooraq shares
in favour of RMB. The value of the shares
to be encumbered to RMB should equal the
amount requested to be released from the
deposit account. The share value is
determined based on the share price of
Anooraq on the TSX Venture Exchange on a 5
day volume weighted average traded price,
commencing 5 days prior to the date upon
which value is determined, converted from
Canadian Dollars to ZAR at the foreign
exchange closing rate on the last day of
the 5 day period; and
- Evidence to the satisfaction of RMB that
all necessary regulatory approvals in
respect of the subscription of Anooraq
shares and the issue thereof pursuant to
Pelawan`s exercise of the BEE Warrants has
been received.
The common shares underlying the BEE
Warrants will be issued to Pelawan upon
receipt by the Company of the exercise
price per common share, plus the interest
accrued thereon up to the date of release.
Should the common shares underlying the
BEE Warrants be issued in full, Pelawan`s
resulting shareholding in Anooraq will
increase to approximately 81% of the
current issued and outstanding common
shares of the Company. The Company
intends to use the proceeds of the BEE
Warrants exercise, when received, as
partial funding for the proposed
acquisition of 51% of Lebowa from Anglo
Platinum. Should the release conditions
not be satisfied and there is no close,
the warrant exercise is void and Anooraq
will not receive the proceeds of the
exercise of the BEE Warrants nor the
interest earned from the deposit account
and the BEE warrants will continue to
exist in accordance with their terms until
expiry or in accordance with the terms of
the warrants.
Project Activities
Ga-Phasha has significant PGM mineral
resources outlined in the Merensky and UG2
Reefs. 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.
Anooraq and Anglo Platinum undertook a
program review between April and October
2006. Several approaches were considered
to optimize mining of the deposits at Ga-
Phasha. The review confirmed that the UG2
reef deposit would remain the primary
focus for development, and the Merensky
reef warrants further study through
additional drilling.
Engineering and other work directed toward
completion of a prefeasibility was
initiated in late 2006, with the following
parameters/objectives:
- a Phase 1 study to exploit the UG2 reef
to a depth of some 650 meters below
surface;
- identification of a single preferred
option by which to proceed to the bankable
feasibility phase; and
- contemplate and assess optimization of
economies of scale between the Parties`
operations in the area, and in that
regard, will evaluate the possible usage
of joint infrastructure and processing
facilities between Anglo Platinum`s
adjacent Twickenham Platinum Mine and Ga-
Phasha.
Over the past year, studies on mining
method and infrastructure have been
underway. Over 100 new drill holes have
been completed on the property, resulting
in new resource estimates by Anglo
Platinum (see Anooraq Q3 report and
October 2007 technical report). Labour,
socio-economic and environmental studies
were also done.
Preliminary work suggests developing two
declines, one in each of the Paschaskraal
and Klipfontein areas, and a centrally
located vertical shaft to access the
deposits for mining. The most appropriate
mining method appears to be conventional
breast stoping, supported by rail bound,
footwall infrastructure.
Plans for 2008
It is expected that most of the Company`s
efforts will be focused on completion of
the transaction to acquire Lebowa and
transition associated with the
acquisition. It is expected that work on
Ga-Phasha will largely be focused on
studies of the potential for shared
infrastructure and assessment of other
synergies with Lebowa. Hence, it is now
expected that the prefeasibility study
will be concluded in fiscal 2008.
1.2.2 Platreef Project, Northern Limb
Anooraq holds interests in over 37,000
hectares of mineral rights on the northern
limb of the Bushveld Complex.
Collectively, these properties are known
as the Platreef Project.
Anooraq initially outlined a mineral
resource in the Drenthe deposit on its
Drenthe and Witrivier farms in 2000. In
November 2003, Anooraq and Rustenburg,
which has an open pit operation nearby,
formed the Boikgantsho Joint Venture
("Boikgantsho JV"), with Anooraq as the
operator. From that time until late 2005,
most of Anooraq`s work was focused on the
Boikgantsho JV properties.
Anooraq also holds several other early
exploration stage properties on the
Northern Limb. These include:
The Rietfontein property:
- 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.
- No work was done on the property in
2007.
The Kwanda Joint Venture:
- On May 16 2002, Plateau completed an
agreement with Rustenburg for the right to
acquire up to an 80% interest in the PGM
farms now known as the Kwanda JV. Under
the agreements with Rustenburg, the
Company acquired an initial 50% interest
in the PGM rights to the twelve farms
(including the Dorstland farm within the
Central Block) and can maintain this
interest by making staged exploration
expenditure totalling ZAR 25 million ($3.7
million) within five years. The Company
was required to spend ZAR 2.5 million
($368,000) in year one (which was
completed), ZAR 5 million ($736,000) in
each of years two, three, and four, and
ZAR 7.5 million ($ 1.1 million) in year
five. The Company has not completed its
exploration expenditure requirements from
year two to five, and the JV parties have
mutually agreed to suspend indefinitely
any outstanding or future expenditure in
respect of the Kwanda JV.
- When a mineral resource is identified,
the Company can earn an additional 30%
interest by bringing the property into
commercial production. Rustenburg will
retain a 20% interest in the Kwanda JV.
- No work was done on the Kwanda JV in
fiscal 2007.
The Central Block properties:
- The Central Block consists of eight
farms acquired by Plateau in 1999, and a
portion of the Dorstland farm acquired by
way of the Kwanda JV agreement with
Rustenberg.
- No work was done on the properties
during 2007.
1.2.2.1 Boikgantsho JV Project
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
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 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 results. 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.
Anooraq also completed an additional
24,000 meters of drilling on the Drenthe
deposit in 2005. 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. The program confirmed the
continuity of the PGM mineralization
within the Drenthe deposit. A
prefeasibility study was initiated in 2005
but work on the study was deferred in 2006
and 2007 as the Company focused on the Ga-
Phasha Project and other corporate
objectives.
Plans for 2008
Planning is underway to resume work on the
Boikgantsho pre-feasibility study in 2008.
1.2.3 Market Trends
Platinum prices have been increasing for
the past three years, averaging US$900/oz
in 2005, US$1145/oz in 2006, and
US$1314/oz in 2007. Prices in the first
quarter of 2008 have been particularly
buoyant, averaging US$1838/oz to March 10.
Palladium prices averaged approximately
US$201/oz in 2005, US$323/oz in 2006 and
US$358/oz in 2007. Palladium prices are
strengthening in 2008 as consumers are
considering substitution from platinum.
The average price in 2008 March 10 is
US$442/oz.
Gold prices are continuing a long and
sustained uptrend. The gold price averaged
US$445/oz in 2005, US$604/oz in 2006 and
US$697/oz in 2007. The price has averaged
US$916/oz in the first quarter of 2008.
1.3 Selected Annual Information
December 31 December 31 December 31
2007 2006 2005
Current assets $7,769,155 $13,177,004 $5,159,433
Mineral property interests 9,078,714 8,240,751 8,502,000
Other assets 105,494 411,167 174,163
Total assets 16,953,363 21,828,922 13,835,596
Current liabilities 2,412,908 1,034,144 378,997
Long term liabilities 9,806,636 11,818,677 -
Shareholders` equity 4,733,819 8,976,101 13,456,599
Total liabilities and $16,953,363 $21,828,922 $13,835,596
shareholders` equity
Year ended Year ended Year ended
Dec31,2007 Dec31,2006 Dec31,2005
Expenses
Accretion on term loan $112,459 $13,879 $-
Conference and travel 492,106 360,959 646,992
Consulting 177,809 154,578 965,720
Depreciation 24,009 30,862 48,503
Exploration 852,891 720,463 5,191,818
Foreign exchange -588,115 -34,817 68,720
Gain on disposal of equipment - -41,291 -
Interest expense 2,042,711 399,062 -
Interest income -799,985 -263,820 -119,779
Legal, accounting and audit 416,745 690,132 474,422
Office and administration 451,908 354,353 551,278
Salaries and benefits 2,016,689 1,511,874 1,659,465
Shareholders communications 258,882 289,824 260,155
Trust and filing 269,503 415,440 85,254
Subtotal 5,727,612 4,601,498 9,832,548
Stock based compensation 8,707,519 24,346 2,536,253
Future income tax recovery -139,000 -121,000 -65,000
Loss for the year $14,296,131 $4,504,844 $12,303,801
Loss per share $0.08 $0.03 $0.08
Weighted average number of 168,378 148,220 148,107
common shares outstanding
(thousands)
1.4 Summary of Quarterly Results
Expressed in thousands of dollars, except
per-share amounts. Small differences are
due to rounding.
31-Dec 30-Sep 30-Jun 31-Mar
2007 2007 2007 2007
Current assets 7,769 9,296 10,462 11,326
Mineral properties 9,079 9,078 8,333 8,399
Other assets 106 104 72 387
Total assets 16,954 18,478 18,867 20,112
Current liabilities 2,413 2,934 1,285 238
Long term liabilities 9,807 8,574 10,246 11,703
Shareholders` equity 4,734 6,967 7,335 8,171
Total liabilities and shareholders` 16,954 18,478 18,867 20,112
equity
Working Capital 5,356 6,362 9,177 11,088
Expenses
Exploration 773 22 49 33
Accretion on term loan 113 - - -
Conference and travel 341 29 19 103
Consulting 62 30 7 79
Foreign exchange loss (gain) -69 -192 -65 -262
Interest on term loan 535 465 542 416
Interest expense (income) -234 -103 -212 -167
Accounting, audit and legal 229 47 37 103
Gain on disposal of fixed asset - - - -
Office and administration 172 78 111 91
Salaries and benefits 566 488 634 330
Shareholder communications 66 60 74 58
Trust and filing 39 31 57 142
Subtotal 2,593 955 1,253 926
Stock-based compensation - 1,491 - - -
exploration
Stock-based compensation - office 7,216 - - 1
and administration
Future income tax expense (recovery) -137 - -1 -1
Loss for the period 11,163 955 1,252 926
Basic and diluted loss per share 0.06 0.01 0.01 0.01
Weighted average number of common 184,823 184,770 154,822 148,228
shares outstanding
31-Dec 30-Sep 30-Jun 31-Mar
2006 2006 2006 2006
Current assets 13,177 2,337 3,143 4,103
Mineral properties 8,241 8,600 8,211 8,493
Other assets 411 98 103 161
Total assets 21,829 11,035 11,457 12,757
Current liabilities 1,034 478 311 273
Long term liabilities 11,819 - - -
Shareholders` equity 8,976 10,557 11,146 12,484
Total liabilities and shareholders` 21,829 11,035 11,457 12,757
equity
Working Capital 12,143 1,859 2,832 3,830
Expenses
Exploration 152 42 466 92
Accretion on term loan 14 - - -
Conference and travel 218 17 38 88
Consulting -147 222 27 53
Foreign exchange loss (gain) 231 -117 -159 9
Interest on term loan 253 - - -
Interest expense (income) -95 16 -12 -28
Accounting, audit and legal 102 205 216 167
Gain on disposal of fixed asset -19 -11 -11 -
Office and administration 102 79 102 71
Salaries and benefits 394 335 408 375
Shareholder communications 112 38 78 61
Trust and filing 288 29 15 84
Subtotal 1,605 855 1,168 972
Stock-based compensation - - -2 -6 24
exploration
Stock-based compensation - office - -1 -3 13
and administration
Future income tax expense (recovery) -25 4 -100 -
Loss for the period 1,580 856 1,059 1,009
Basic and diluted loss per share 0.01 0.01 0.01 0.01
Weighted average number of common 148,220 148,220 148,220 148,220
shares outstanding
1.5 Results of Operations
The loss for the year ended December 31,
2007 was $14,296,131 compared to a loss of
$4,504,844 for the year ended December 31,
2006. This increase primarily resulted from
stock based compensation expenses recognized
on stock option granted in October 2007,
interest expense on the Company`s term loan
with Rustenburg Platinum Mines Limited and
additional salary and benefit costs relating
to increased personnel in the Company`s
South African operations. The Company
recorded a loss of $0.08 per share for the
year ended December 31, 2007, compared to a
loss of $0.03 per share for the year ended
December 31, 2006.
Exploration expenses for the year ended
December 31, 2007 amounted to $876,900 in
comparison to $751,325 spent for the year
ended December 31, 2006. The exploration
expenses for the year ended December 31,
2007 were mainly incurred on the Ga-Phasha
project. No drilling expenses were incurred
for the year ended December 31, 2007
compared to $376,406 spent for the year
ended December 31, 2006. Assays and
analysis expenditures amounted to $200 spent
for the year ended December 31, 2007 in
comparison to $38,393 expended for the year
ended December 31, 2006. Geological and
consulting costs for the year ended 2007
were $789,731 compared to $64,030 spent for
the year ended December 31, 2006.
Engineering costs decreased to $19,784 from
$141,784 incurred for the year ended
December 31, 2006. The cost of site
activities was $12,717 compared to $34,484
spent for the year ended December 31, 2006.
Site activity costs are principally
associated with maintaining the field office
in South Africa, but also include activities
associated with the geological programs.
Legal, accounting and audit for the year
ended December 31, 2007 decreased to
$416,745 in comparison to $690,132 for the
year ended December 31, 2006 primarily as a
result of advisory services provided in 2006
for the annual general meeting, expenses
incurred relating to a secondary listing on
the Johannesburg Stock Exchange in South
Africa and various regulatory and financial
reporting requirements. Office and
administration for the year ended December
31, 2007 amounted to $451,908 in comparison
to $354,353 spent for the year ended
December 31, 2006. Conference and travel
costs of $492,106 were incurred during the
year ended December 31, 2007 in comparison
to the $360,959 incurred during for the year
ended December 31, 2006 largely due to
increased conference fees. These expenses
were offset by decreased travel activity
associated with the work rotation of project
engineers. Consulting costs increased to
$177,809 in comparison to $154,578 spent for
the year ended December 31, 2006. Salaries
and benefits amounted to $2,016,689 in 2007,
an increase from $1,511,874 spent for the
year ended December 31, 2006 mainly due to
the employment of additional personnel in
South Africa.
Trust and filing for the year ended December
31, 2007 decreased to $269,503 in comparison
to the $415,440 incurred for the year ended
December 31, 2006 primarily as a result of
expenses incurred in 2006 relating to
listing on the Johannesburg Stock Exchange
in South Africa. Stock based compensation
expenses increased to $8,707,519 for the
year ended December 31, 2007, compared to
$24,346 incurred for fiscal 2006, as a
result of stock option grants in October
2007.
The Company recorded interest expense of
$2,042,711 for the year ended December 31,
2007 in comparison to $399,062 incurred for
fiscal 2006. The increase in interest
expense is mainly due to a full year of
accrued interest on the Company`s November
2006 term loan with Rustenburg Platinum
Mines Limited. Interest income increased to
$799,985 for the year ended December 31,
2007 (2006 - $263,820) as a result of a
higher average cash balance compared to the
same period in the previous year.
The Company also recorded a foreign exchange
gain of $588,115 for the year ended December
31, 2007 in comparison to $34,817 for the
year ended December 31, 2006. The gain is
due to the strengthening of the Canadian
dollar against the South African Rand over
the course of fiscal 2007. A significant
amount of the Company`s liabilities are
denominated in South African Rand.
1.6 Liquidity
At December 31, 2007, the Company had
working capital of approximately $5.4
million as compared to $12.1 million at the
end of the 2006 fiscal year. The cash
position at December 31, 2007 was
approximately $7.1 million.
Anooraq`s sources of capital are primarily
equity investment. The Company`s access to
capital sources is dependent 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
in exploration programs and a substantial
curtailment of operations. The Company`s
cash resources at December 31, 2007 are
sufficient for its present needs,
specifically to continue administrative and
exploration operations at current levels
through the end of the year 2008. 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 185,208,607 common shares
outstanding at December 31, 2007. As the
Company proceeds on its exploration programs
in the Bushveld, it will be required to
raise additional funds for such expenditures
from time to time. In December 2006, the
Company entered into a Settlement Agreement
with Pelawan to waive the deemed dilutive
financing(please refer the discussion in
section 1.2.1).
In June 2007, Anooraq issued to Pelawan 36
million common shares ("Adjustment
Consideration Shares"), representing a 50%
reduction in the number of shares
potentially issuable under the original RTO
transaction terms. In addition the Company
issued to Pelawan share purchase warrants
for the purchase of 167 million common
shares in Anooraq, these share purchase
warrants were exercised by the Pelawan trust
on December 20, 2007, at a price per common
share of $1.35(refer to 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$480 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 various funding
exercises to complete this transaction and
is currently progressing towards it.
Payments due by period
Total Less 1 to 3 3-5 More
than years years than 5
one years
year
Contractual obligation Nil Nil Nil Nil Nil
Long term debt obligations 11.7m 1.9m 9.8m Nil Nil
(1)
Operating lease obligations Nil Nil Nil Nil Nil
Purchase obligations Nil Nil Nil Nil Nil
Other Nil Nil Nil Nil Nil
Total Nil Nil Nil Nil Nil
The Company has routine market-price leases
on its office premises in Johannesburg,
South Africa.
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 debt
obligations have been presented at an
exchange rate of 1 Canadian dollar = 6.94
ZAR. The current exchange rate on March 10,
2008 is 1 Canadian dollar = 7.85 ZAR.
1.7 Capital Resources
At December 31, 2007, Anooraq had working
capital of approximately $5.4 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 December 31, 2007.
1.8 Off-Balance Sheet Arrangements
None.
1.9 Transactions with Related Parties
Hunter Dickinson Services Inc. ("HDSI") is a
private company owned equally by eight
public companies, one of which is Anooraq.
HDSI provides geological, corporate
development, administrative and management
services to, and incurs third party costs on
behalf of the Company on a full cost
recovery basis, pursuant to an agreement
dated December 31, 1996. For the year ended
December 31, 2007 HDSI billed Anooraq
$798,330 as compared to $1,023,633 for the
year ended December 31, 2006 for such
services and cost reimbursements.
Pelawan is a significant shareholder of the
Company and has certain directors in common
with the Company. Pelawan became a majority
shareholder on September 29, 2004. During
the year ended December 31, 2007 and 2006,
Pelawan did not provide any services to the
Company.
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 year ended December 31, 2007, the
Company paid or accrued $26,589 (year ended
December 31, 2006 - $127,781) to CEC
Engineering Ltd, a private company owned by
a former director, for engineering and
project management services at market rates.
1.10 Fourth Quarter
The loss for quarter ended December 31, 2007
was $11,163,417 compared to a loss of
$1,580,481 for the quarter ended December
31, 2006. This increase primarily resulted
from increased stock based compensation,
increased exploration expenses on the Ga-
Phasha project and the increase in interest
expense due to accrued interest on the
Company`s term loan with Rustenburg Platinum
Mines Limited.
Stock based compensation expense for the
quarter ended December 31, 2007 amounted to
$8,706,074 compared to $Nil for the same
period as a result of stock options granted
in October 2007. Exploration expenses for
the quarter ended December 31, 2007 totaled
$773,392 compared to $151,601 incurred for
the quarter ending December 31, 2006. This
increase is due to exploration activities on
the Ga-Phasha project in the fourth quarter
of 2007. Interest expense of $535,384 for
the quarter ended December 31, 2007 in
comparison to $253,071 incurred for the same
period fiscal 2006 as a result of accrued
interest on the Company`s term loan with
Rustenburg Platinum Mines Limited which
commenced in November 2006.
Legal, accounting and audit for the quarter
ended December 31, 2007 amounted to $229,227
compared to $101,713 for the same period of
fiscal 2006 due mainly to increased legal
activity in the fourth quarter of 2007.
Office and administration for the quarter
ended December 31, 2007 amounted to $171,950
in comparison to $101,917 spent for the same
period in fiscal 2006. Conference and travel
costs amounted to $340,826 incurred in the
fourth quarter 2007 compared to $218,001
incurred for the fourth quarter 2006 due to
an increase in the number of conferences
attended by the Company`s executives.
Salaries and benefits for the fourth quarter
of 2007 amounted to $565,713 compared to
$393,451 spent in the fourth quarter of
fiscal 2006 due to an increase in the number
of personnel compared to the same period in
2006. Trust and filing for the quarter ended
December 31, 2007 amounted to $39,013
compared to $287,876 incurred in the same
period of fiscal 2006 largely due to costs
incurred in 2006 relating to listing on the
Johannesburg Stock Exchange.
1.11 Proposed Transactions
Refer to Anooraq-Anglo Platinum Transaction
Framework Agreement discussion in 1.2
Overview
1.12 Critical Accounting Estimates
The Company`s accounting policies are
presented in note 3 of the consolidated
financial statements for the year ended
December 31, 2007, which have been publicly
filed on SEDAR at www.sedar.com and as
presented in changes in accounting policies
item 1.13 The preparation of consolidated
financial statements in accordance with
generally accepted accounting principles
requires management to select accounting
policies and make estimates. Such estimates
may have a significant impact on the
financial statements. These estimates
include:
- mineral resources and reserves,
- the carrying values of property, plant and
equipment,
- restoration costs following completion of
the mining activities, and
- the valuation of stock-based compensation
expense.
Actual amounts could differ from the
estimates used and, accordingly, affect the
results of operation.
Mineral resources and reserves, and the
carrying values of property, plant and
equipment
Mineral resources and reserves are estimated
by professional geologists and engineers in
accordance with recognized industry,
professional and regulatory standards.
These estimates require inputs such as
future metals prices, future operating
costs, and various technical geological,
engineering, and construction parameters.
Changes in any of these inputs could cause a
significant change in the estimated
resources and reserves which, in turn, could
have a material effect on the carrying value
of property, plant and equipment.
Site restoration costs
Upon the completion of any mining
activities, the Company will ordinarily be
required to undertake environmental
reclamation activities in accordance with
local and/or industry standards. The
estimated costs of these reclamation
activities are dependent on labour costs,
the environmental impacts of the Company`s
operations, the effectiveness of the chosen
reclamation techniques, and applicable
government environmental standards. Changes
in any of these factors could cause a
significant change in the reclamation
expense charged in a period.
Stock-based compensation expense
From time to time, the Company may grant
share purchase options to employees,
directors, and service providers. The
Company uses the Black-Scholes option
pricing model to estimate a value for these
options. This model, and other models which
are used to value options, require inputs
such as expected volatility, expected life
to exercise, and interest rates. Changes in
any of these inputs could cause a
significant change in the stock-based
compensation expense charged in a period.
1.13 Changes in Accounting Policies
including Initial Adoption
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 and accounting
changes. As required by the transitional
provisions of these new standards, these new
standards have been adopted with no
restatement to prior period financial
statements.
(i) Section 3855 - Financial Instruments -
Recognition and Measurement
This standard requires all financial
instruments within its scope, including
derivatives, to be recognized on the balance
sheet and measured either at fair value or,
in certain circumstances at cost or
amortized cost.
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.
Amortization of premiums or discounts and
losses due to impairment are included in
current period net income (loss).
- Available-for-sale financial assets are
measured at fair value. Changes in fair
value are included in other comprehensive
income (loss) until the gain or loss is
recognized in income when the asset is sold
or deemed to be permanently impaired.
- Held for trading financial instruments are
measured at fair value. All changes in fair
value are included in net income (loss) in
the current period.
- 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 income (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
accumulated other comprehensive income.
All financial assets and liabilities are
recognized when the entity becomes a party
to the contract creating the asset or
liability. On adoption of the standards on
January 1, 2007, the Company`s outstanding
financial assets and liabilities were
recognized and measured in accordance with
the new requirements as if these
requirements had always been in effect.
However, no adjustments to opening deficit
or opening accumulated other comprehensive
income were required. 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.
(ii) 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.
(iii) 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 income (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 income
to be presented in other accumulated
comprehensive income until it is considered
appropriate to recognize into net income.
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
December 31, 2007, the Company had no
accumulated other comprehensive income and
for the year ended December 31, 2007,
comprehensive loss equals net loss.
(iv) Section 1506 - Accounting Changes
This standard establishes criteria for
changing accounting policies, together with
the accounting treatment and disclosure of
changes in accounting policies, changes in
accounting estimates and correction of
errors. As a result, changes in accounting
policies are only permitted when required by
a primary source of generally accepted
accounting principles or when the change
will result in more reliable and more
relevant information.
(b) Accounting Policies Not Yet Adopted
(i) Section 1535 - Capital Disclosures
This standard requires disclosure of an
entity`s objectives, policies and processes
for managing capital, quantitative data
about what the entity regards as capital and
whether the entity has complied with any
capital requirements and, if it has not
complied, the consequences of such non-
compliance. This standard is effective for
the Company for interim and annual periods
relating to fiscal years beginning on or
after January 1, 2008, The Company is
currently evaluating the effects of adopting
this standards.
(ii) Financial Instruments - Disclosure
(Section 3862) and Presentation (Section
3863)
These standards replace CICA 3861, Financial
Instruments - Disclosure and Presentation.
They increase the disclosures currently
required, which will enable users to
evaluate the significance of financial
instruments for an entity`s financial
position and performance, including
disclosures about fair value. In addition,
disclosure is required of qualitative and
quantitative information about exposure to
risks arising from financial instruments,
including specified minimum disclosures
about credit risk, liquidity risk and market
risk. The quantitative disclosures must
provide information about the extent to
which the entity is exposed to risk, based
on information provided internally to the
entity`s key management personnel. This
standard is effective for the Company for
interim and annual periods beginning on or
after January 1, 2008. The Company expects
that its disclosures will be expanded to
incorporate the additional requirements.
(iii) Amendments to Section 1400 - Going
Concern
CICA 1400, General Standards of Financial
Statement Presentation, was amended to
include requirements to assess and disclose
an entity`s ability to continue as a going
concern. The new requirements are effective
for interim and annual financial statements
relating to fiscal years beginning on or
after January 1, 2008. The Company is
currently evaluating the impact of this new
standard.
(iv) International Financial Reporting
Standards ("IFRS")
In 2006, the Canadian Accounting Standards
Board ("AcSB") published a new strategic
plan that will significantly affect
financial reporting requirements for
Canadian companies. The AcSB strategic plan
outlines the convergence of Canadian GAAP
with IFRS over an expected five year
transitional period. In February 2008, the
AcSB announced that 2011 is the changeover
date for publicly-listed companies to use
IFRS, replacing Canada`s own GAAP. The date
is for interim and annual financial
statements relating to fiscal years
beginning on or after January 1, 2011. The
transition date of January 1, 2011 will
require the restatement for comparative
purposes of amounts reported by the Company
for the year ended December 31, 2010. While
the Company has begun assessing the adoption
of IFRS for 2011, the financial reporting
impact of the transition to IFRS cannot be
reasonably estimated at this time.
1.14 Financial Instruments and Other
Instruments
Please refer to Section 1.13 above.
1.15 Other MD&A Requirements
Not applicable.
1.15.1 Additional Disclosure for Venture
Issuers without Significant Revenue
Not applicable. The Company is not a venture
issuer.
1.15.2 Disclosure of Outstanding Share Data
The following details the share capital
structure as at March 10, 2008. These
figures may be subject to minor accounting
adjustments prior to presentation in future
consolidated financial statements.
Expiry date Exercise Number Number
price
Common shares 185,230,007
Escrow Warrants (1) December 31, 2008 $1.35 167,000,000
Share purchase December 17, 2010 $1.40 2,695,000
options
July 1, 2010 $2.97 119,000
October 15, 2012 $2.97 4,483,600
October 15, 2012 $3.27 376,000 7,673,600
(1) Pursuant to the exercise of the BEE
Warrants, the Company entered into an
amending agreement (the "Amending
Agreement") with Pelawan to amend the
exercise procedure of the Warrants to allow
Pelawan to finance the exercise of the
Warrants by way of a bridge loan from Rand
Merchant Bank (RMB"). Pursuant to the
Amending Agreement, Pelawan has exercised
the Warrants by depositing an escrowed
amount equal to the aggregate exercise price
for the Warrants ($ 225 million or ZAR 1,586
billion) into an interest bearing account
with RMB, to be released pursuant to a
deposit account agreement (the "Deposit
Agreement") between RMB, Pelawan Investments
(Pty) Ltd and Anooraq upon the satisfaction
of certain release conditions. The common
shares underlying the Warrants will be
issued to Pelawan upon receipt by the
Company of the exercise price per common
share, plus the interest accrued thereon up
to the date of release.
Should the common shares underlying the
Warrants be issued in full, Pelawan`s
resulting shareholding in Anooraq will
increase to approximately 81% of the current
issued and outstanding common shares of the
Company. The Company intends to use the
proceeds of the BEE Warrants exercise, when
received, as partial funding for the
proposed acquisition of 51% of Lebowa from
Anglo Platinum (note 12). Should the release
conditions not be satisfied and there is no
close, the warrant exercise is void and
Anooraq will not receive the proceeds of the
exercise of the BEE Warrants and the BEE
warrants will continue to exist in
accordance with their terms until expiry or
in accordance with the terms of the
warrants.
1.15.3 Internal Controls over Financial
Reporting Procedures
The management of the Company is responsible
for establishing and maintaining adequate
internal controls over financial reporting.
The Company`s internal control system was
designed to provide reasonable assurance to
the Company`s management and the board of
directors regarding the preparation and fair
presentation of published financial
statements. Internal control over financial
reporting includes those policies and
procedures that: (1) pertain to the
maintenance of records that in reasonable
detail accurately and fairly reflect the
transactions and dispositions of the assets
of the Company, (2) provide reasonable
assurance that transactions are recorded as
necessary to permit preparation of financial
statements in accordance with GAAP, and that
receipts and expenditures of the Company are
being made only in accordance with
authorizations of management and directors
of the Company, and (3) provide reasonable
assurance regarding prevention or timely
detection of unauthorized acquisition, use
or disposition of the Company`s assets that
could have a material effect on the
financial statements. All internal control
systems, no matter how well designed, have
inherent limitations. Therefore, even those
systems determined effective can provide
only reasonable assurance with respect to
financial statement preparation and
presentation.
The Company`s management, with the
participation of the Chief Executive Officer
and the Chief Financial Officer, has
evaluated the effectiveness of internal
control over financial reporting based on
the framework and criteria established in
Internal Control - Integrated Framework,
issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Based on this evaluation, our management has
concluded that internal control over
financial reporting was effective as of
December 31, 2007 to provide reasonable
assurance regarding the reliability of
financial reporting and the preparation of
financial statements in accordance with
GAAP.
1.15.4 Disclosure Controls and Procedures
As of the end of the period covered by this
report, our management carried out an
evaluation, with the participation of our
Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our
disclosure controls and procedures (as
defined in Rule 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934
(the "Exchange Act")). Based upon that
evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, as
of the end of the period covered by this
report, our disclosure controls and
procedures were effective in recording,
processing, summarizing and reporting, on a
timely basis, information required to be
disclosed by us in reports that we file or
submit under the Exchange Act.
It should be noted that while our Chief
Executive Officer and our Chief Financial
Officer believe that our disclosure controls
and procedures provide a reasonable level of
assurance that they are effective, they do
not expect that our disclosure controls and
procedures or internal control over
financial reporting will prevent all errors
and fraud. A control system, no matter how
well conceived or operated, can provide only
reasonable, not absolute, assurance that the
objectives of the control system will be
met.
1 April 2008
Sandton
Sponsor: QuestCo Sponsors
Date: 01/04/2008 14:30:08 Produced by the JSE SENS Department.
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