| Thu 15 May 2008, 14:18 | | EPS - Eastern Platinum Limited Management`s Discus |
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EPS
EPS
EPS - Eastern Platinum Limited Management`s Discussion And Analysis Of Financial
Conditions And Results Of Operations For The Three Months Ended March 31, 2008
EASTERN PLATINUM LIMITED
(Incorporated in Canada)
(Canadian Registration number BC0722783)
(South African Registration number 2007/006318/10)
Share Code TSX: ELR & ISIN: CA2768551038
Share Code AIM: ELR & ISIN: CA2768551038
Share Code JSE: EPS & ISIN: CA2768551038
EASTERN PLATINUM LIMITED MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2008
The following Management`s Discussion and Analysis ("MD&A") is intended to
assist the reader to assess material changes in financial condition and results
of operations of Eastern Platinum Limited ("Eastplats" or the "Company") as at
March 31, 2008 and for the three months then ended in comparison to the same
period in 2007. This MD&A should be read in conjunction with the unaudited
consolidated financial statements for the three months ended March 31, 2008 and
supporting notes that have been prepared in accordance with Canadian generally
accepted accounting principles ("GAAP").
The Company reports certain non-GAAP measures such as EBITDA and cash costs per
ounce, which are explained in Section 1.2 of this MD&A.
All monetary amounts are in U.S. dollars unless otherwise specified. The
effective date of this MD&A is May 15, 2008. Additional information relating to
the Company is available on SEDAR at www.sedar.com.
Overview
Eastplats is an expanding platinum group metals ("PGM") producer engaged in the
mining and development of PGM`s with properties located in various provinces in
South Africa. All of the Company`s properties are situated on the western and
eastern limbs of the Bushveld Complex ("BC"), the geological environment that
supports over 75% of the world`s PGM supply.
The Company`s primary operating asset is an 85% direct and indirect interest in
Barplats Investments Limited ("Barplats"), whose main assets are the PGM
producing Crocodile River Mine ("CRM") located on the western limb of the BC
and the non-producing Kennedy`s Vale Project located on the eastern limb of the
BC. The Company also has a 75.5% direct and indirect interest in Mareesburg
Platinum JV ("Mareesburg") and a 93.4% direct and indirect interest in Spitzkop
PGM Project ("Spitzkop") both located on the eastern limb of the BC.
Highlights for the quarter ended March 31, 2008 ("Q1 2008")
Eastplats recorded net earnings of USD19,962,000 (USD0.03 per share) compared
to a net loss of USD9,939,000 (USD0.02 loss per share) in the first quarter of
2007 ("Q1 2007"). The Company`s results improved over Q1 2007 primarily due to
a significant increase in revenues and increased PGM production.
- Revenues from the Crocodile River Mine increased by 80% to USD56,408,000,
generated from the sale of 27,825 PGM ounces, compared to revenues of
USD31,332,000 from the sale of 26,807 PGM ounces in Q1 2007.
- EBITDA increased by 217% to USD36,658,000 from USD11,569,000 in Q1 2007.
- The average sales price per PGM ounce increased by 44% to USD1,621 compared
to USD1,130 in Q1 2007.
- Operating cash costs decreased by 1% to USD698 per ounce, compared to USD704
per ounce in Q1 2007.
- Recovery rates improved to 78% compared to 73% in Q1 2007, due to improved
plant operating efficiencies at the Crocodile River Mine.
- Grades improved to 4.04 grams per ton (5PGE+Au) compared to 3.91 grams per
ton (5PGE+Au) in Q1 2007.
- Stoping units for the quarter increased by 45% to a record 38,349 square
meters, compared to 26,441 square meters in Q1 2007.
- Total underground development increased by 20% to 4,409 meters during the
quarter (3,687 meters in Q1 2007) as the Company continues to make substantial
progress in the development of the ore reserve at CRM.
- The average mining rate increased to 93,012 tons per month during Q1 2008
from 70,610 tons per month in Q1 2007.
- The chrome recovery plant was commissioned in March 2008. The chrome plant
will effectively reduce chrome content, and as a result the chrome penalties,
in the concentrate being sold under the Company`s primary off-take agreement.
- At March 31, 2008, the Company had a cash position (including cash and cash
equivalents and short term investments) of USD169,943,000 (December 31, 2007 -
USD189,856,000).
Contents of the MD&A
1. Results of operations for the quarter ended March 31, 2008
1.1. Mining operations at the Crocodile River Mine ("CRM")
1.2. CRM non-GAAP measures
1.3. Development projects - CRM
1.4. Development projects - Spitzkop and Kennedy`s Vale
1.5. Development projects - Mareesburg
1.6. Corporate and other expenses
2. Liquidity and Capital Resources
2.1. Outlook
2.2. Share capital
2.3. Contractual Obligations and Commitments
3. Related party transactions
4. Adoption of new accounting standards and accounting pronouncements
5. Internal control over financial reporting
6. Cautionary statement on forward-looking information
1. Results of Operations for the Quarter Ended March 31, 2008
The following table sets forth selected consolidated financial information for
the quarters ended March 31, 2008 and 2007:
Consolidated statements of operations
(Unaudited, expressed in thousands of U.S. dollars, except share and per share
amounts)
Three months ended March 31,
2008 2007
Revenue USD 56,408 USD 31,332
Cost of operations
Production costs (19,750) (19,763)
Depletion and depreciation (4,362) (2,718)
Mine operating earnings 32,296 8,851
Expenses
General and administrative (4,333) (3,738)
Stock-based compensation (1,227) (12,582)
Operating income (loss) 26,736 (7,469)
Other income (expense)
Interest income 2,455 88
Interest expense (227) (484)
Foreign exchange gain (loss) 1,057 (942)
Income (loss) before income taxes
and non-controlling interests 30,021 (8,807)
Future income tax (expense) recovery (8,248) 314
Non-controlling interests (1,811) (1,446)
Net income (loss) for the period 19,962 (9,939)
Basic and diluted income (loss) per
share USD 0.03 USD (0.02)
Weighted average common shares
outstanding
Basic 669,872,192 518,350,389
Fully diluted 718,406,612 518,350,389
March 31, December 31,
Consolidated balance sheets
2008 2007
Total assets USD 971,839 USD 1,063,076
Total long-term liabilities USD 132,398 USD 155,632
The table below sets forth selected results of operations for the Company`s
eight most recently completed quarters (in thousands of U.S. dollars, except
per share amounts). All financial data previously reported in Canadian dollars
have been converted to U.S. dollars.
2008
March 31
Revenues USD 56,408
Cost of operations (24,112)
Mine operating earnings 32,296
Expenses (G&A and stock-based compensation) (5,560)
Operating income (loss) 26,736
Net income (loss) USD 19,962
Income (loss) per share - basic USD 0.03
Income (loss) per share - diluted USD 0.03
2007
Dec 31 Sept 30
Revenues USD 34,126 USD 31,452
Cost of operations (26,095) (24,388)
Mine operating earnings 8,031 7 , 0 64
Expenses (G&A and stock-based compensation) (18,022) (3,534)
Operating income (loss) (9,991) 3 , 5 30
Net income (loss) USD (10,814) USD (1,390)
Income (loss) per share - basic USD (0.02) USD -
Income (loss) per share - diluted USD (0.02) USD -
2007
June 30 March 31
Revenues USD 22,324 USD 31,332
Cost of operations (17,528) (22,481)
Mine operating earnings 4,796 8,851
Expenses (G&A and stock-based compensation) (6,691) (16,320)
Operating income (loss) (1,895) (7,469)
Net income (loss) USD (4,693) USD (9,939)
Income (loss) per share - basic USD (0.01) USD (0.02)
Income (loss) per share - diluted USD (0.01) USD (0.02)
2006
Dec 31 Sept 30 June 30
Revenues USD 25,062 USD 22,488 USD 12,668
Cost of operations (19,842) (17,738) (9,849)
Mine operating earnings 5,219 4 , 7 50 2,819
Expenses (G&A and stock-based
compensation) (4,020) (3,365) (8,457)
Operating income (loss) 1,199 1 , 3 85 (5,638)
Net income (loss) USD 6,550 USD (2,190) USD (2,583)
Income (loss) per share - basic USD 0.01 USD - USD (0.01)
Income (loss) per share -
diluted USD 0.01 USD - USD (0.01)
1.1 Mining operations at Crocodile River Mine ("CRM")
The following is a summary of CRM`s operations for the quarter ended March 31,
2008 and the four quarters in 2007:
Crocodile River Mine operations
Three months ended
March 31, Dec 31, Sept 30,
2008 2007 2007
Key financial statistics
(amounts stated in
thousands of
U.S. dollars, except
per ounce data)
Revenue USD 56,408 34,126 USD 31,452
Cost of operations
Production costs (19,750) (20,947) (20,416)
Depletion and
depreciation (4,362) (5,148) (3,972)
Mine operating earnings 32,296 8,031 7,064
EBITDA (1) USD 36,658 USD 13,179 USD 11,036
Sales - PGM ounces 27,825 26,632 29,417
Average realized price
per ounce (2) USD 1,621 USD 1,305 USD 1,088
Average basket price USD 1,927 USD 1,551 USD 1,293
Cash costs per ounce of
PGM (1) USD 698 USD 774 USD 637
Key production
statistics
Run of mine tons 279,036 335,263 323,777
Total tons processed 349,497 383,159 399,022
Stoping units (square
meters) 38,349 37,374 35,262
Development meters 4,409 4,759 4,868
On-reef development
meters 2,343 2,814 2,570
Metal in concentrate
sold (ounces)
Platinum (Pt) 13,684 13,264 14,630
Palladium (Pd) 6,201 6,013 6,727
Rhodium (Rh) 2,335 2,182 2,418
Gold (Au) 121 154 166
Iridium (Ir) 1,078 955 1,056
Ruthenium (Ru) 4,405 4,064 4,420
Total PGM ounces 27,825 26,632 29,417
Three months ended
June 30, March 31,
2007 2007
Key financial statistics
(amounts stated in thousands of
U.S. dollars, except per ounce data)
Revenue USD 22,324 USD 31,332
Cost of operations
Production costs (17,291) (19,763)
Depletion and depreciation (237) (2,718)
Mine operating earnings 4,796 8,851
EBITDA (1) USD 5,033 USD 11,569
Sales - PGM ounces 25,111 26,807
Average realized price per ounce (2) USD 1,113 USD 1,130
Average basket price USD 1,322 USD 1,343
Cash costs per ounce of PGM (1) USD 702 USD 704
Key production statistics
Run of mine tons 244,275 211,830
Total tons processed 369,453 415,112
Stoping units (square meters) 35,315 26,441
Development meters 4,807 3,687
On-reef development meters 1,767 2,391
Metal in concentrate sold (ounces)
Platinum (Pt) 12,829 14,303
Palladium (Pd) 5,605 5,842
Rhodium (Rh) 2,002 1,782
Gold (Au) 137 715
Iridium (Ir) 885 787
Ruthenium (Ru) 3,654 3,378
Total PGM ounces 25,111 26,807
(1) These are non-GAAP measures as described in Section 1.2
(2) Average realized price is the average basket price, net of associated
smelter costs, under the Company`s primary off- take agreement.
For the quarter ended March 31, 2008, PGM sales were 27,825 ounces compared
with 26,807 ounces for the quarter ended March 31, 2007. The 4% increase over
2007 is attributable to improved recovery rates (78% in Q1 2008 compared to 73%
in Q1 2007) and an increase in grades (4.04 grams per ton in Q1 2008 compared
to 3.91 grams per ton in Q1 2007), even though tons processed decreased by 16%
(349,497 tons in Q1 2008 compared to 415,112 in Q1 2007). Over the past year,
the Company has experienced an improvement in mining operations at CRM mainly
as a result of a significant investment in on-reef and off-reef development
which has allowed for an increase in the number of stoping crews with
subsequent production and efficiency improvement. Stoping units for the quarter
were 38,349 square meters, a record quarterly achievement.
Operating cash costs decreased to USD698 per ounce for the quarter ended March
31, 2008 compared to USD704 per ounce for the same quarter in 2007 mostly as a
result of a drop in the value of the Rand against the U.S dollar and a 3.8%
increase in the number of ounces sold. However, this is offset by cost
increases due to a number of factors including an increase in consumable costs,
particularly steel and fuel related expenditures, and general cost increases as
a result of inflation. A reconciliation of production costs, as reported in the
income statement, to cash operating costs is shown under Section 1.2 below.
The average mining rate in Q1 2008 increased to 93,010 tons per month from
70,610 tons per month in Q1 2007, with grades maintaining a consistent average
of 4.04 g/t (5PGE+Au) during the quarter.
"5PGE+Au" is defined as platinum, palladium, rhodium, iridium, ruthenium and
gold.
The Company continues to make substantial progress with underground development
at CRM to generate an 18 to 24 month reserve base necessary to support the
production build up towards the target production rate of 200,000 tons of ore
per month. Underground development increased 20% to 4,409 meters in Q1 2008
compared with 3,687 meters in the same quarter in 2007.
In Q1 2008, CRM suffered two lost time injuries (compared to three lost time
injuries in Q1 2007) resulting in a Lost Time Injury Frequency Rate ("LTIFR")
of 2.81 (3.22 in Q1 2007). The Company`s twelve month rolling LTIFR of 2.27 to
March 31, 2008 compares favorably against most of the other platinum producers
in South Africa, whose average LTIFR was above 8.00, according to information
compiled by the Bushveld Safety Forum.
PGM ounces sold were up by 4.5% in Q1 2008 compared to the quarter ended
December 31, 2007 despite unexpected power shut-downs that affected the South
African mining industry throughout January 2008.
The Company experienced complete power shut-downs totalling nine days plus
additional periods of intermittent power interruptions throughout the month.
Resulting production stops and starts also contributed to lost production time.
The Company estimates that these shut-downs and interruptions caused a loss of
production of approximately 6,000 PGM ounces, which would have been 17% of the
quarter`s production. Similarly, the development meters (including on-reef
development) and tons mined and processed were below the December quarter`s
operations by 7 to 17 %. As a result of the power issues in South Africa and
the Company`s current expectations of future availability and reliability of
power, the Company now estimates that production will be 128,500 PGM (5PGE+Au)
ounces in 2008.
Operating cash costs decreased to USD698 per ounce in Q1 2008 compared to
USD774 per ounce in the December quarter. The decrease is mostly attributable
to an 11% drop in the value of the Rand compared to the U.S dollar and a 4.5%
increase in the number of ounces sold, offset by increases in fuel related
costs and a general annual wage increase to mine workers awarded in March 2008.
Recovery rates increased to 78% in Q1 2008 compared to 72% in the quarter ended
December 31, 2007 as a result of improved operating efficiencies at the CRM
plant.
The Company continued to focus on the quality of the concentrate produced in
order to minimize the level of chromitite in concentrate and the associated
chrome penalties under its primary off-take agreement. The Company commenced
operation of a chrome recovery plant in March 2008 and is expected to realize
the benefits of the chrome plant during the remainder of 2008.
Recent developments at CRM
In April 2008, the processing plant at CRM was shut down for approximately 10
days for a planned debottlenecking. A significant ore stockpile was built up
during this period. The Company anticipates that the plant shut-down will not
have a significant impact on second quarter production.
In April 2008, a fatality involving an underground contract miner occurred at
the Zandfontein section.
1.2 CRM non-GAAP measures
In this MD&A, the Company has reported its share of earnings before interest,
depletion, depreciation, amortization and tax ("EBITDA") at CRM. This is a
liquidity non-GAAP measure which the Company believes is used by certain
investors to determine the Company`s ability to generate cash flows for
investing and other activities. The Company also reports cash operating costs
per ounce of PGM produced, another non-GAAP measure which is a common
performance measure used in the precious metals industry. These non-GAAP
measures do not have any standardized meaning prescribed under Canadian GAAP,
and therefore they may not be comparable to similar measures employed by other
companies.
The following table provides a reconciliation of EBITDA and cash operating
costs per ounce of PGM sold to the financial statements:
Crocodile River Mine non-GAAP measures
(Expressed in thousands of U.S. dollars, except ounce and per ounce data)
Three months ended
March 31, December 31, September 30,
2007
2008 2007
Mine operating earnings USD 32,296 USD 8,031 USD 7,064
Depletion and depreciation 4,362 5,148 3,972
EBITDA (1) 36,658 13,179 11,036
Production costs as
reported 19,750 20,947 20,416
Less overhead costs (2) (323) (322) (525)
Cash operating costs 19,427 20,625 19,891
Ounces sold 27,825 26,632 29,417
Cash cost per ounce sold USD 698 USD 774 USD 676
Three months ended
June 30, March 31,
2007 2007
Mine operating earnings USD 4,796 USD 8,851
Depletion and depreciation (237) 2,718
EBITDA (1) 4,559 11,569
Production costs as reported 18,154 19,763
Less overhead costs (2) (525) (891)
Cash operating costs 17,629 18,872
Ounces sold 25,111 26,807
Cash cost per ounce sold USD 702 USD 704
(1) EBITDA does not include non-operating general and administrative expenses
at CRM.
(2) Overhead costs include costs such as safety, housing, technical services
and planning.
EBITDA during the quarter ended March 31, 2008
Based on sales of 27,825 PGM ounces at an average realized price of USD1,621
per ounce with a cash cost of USD698 per ounce, revenues and EBITDA in Q1 2008
were expected to be approximately USD45 million and USD26 million,
respectively. However, as PGM prices were higher than USD1,305 per ounce (being
the average realized price for PGM sales during the quarter ended December 31,
2007) through most of Q1 2008 and as the U.S. dollar appreciated 11% against
the Rand, the Company recorded positive provisional sales price adjustments on
sales recognized in the quarter ended December 31, 2007. The Company estimates
that the rise in PGM prices added USD8 million to expected revenues and EBITDA
and the appreciation in the U.S. dollar added USD3 million to expected revenues
and EBITDA.
1.3 Development projects - CRM
During the quarter ended March 31, 2008, the Company spent a total of USD15.4
million on development projects at CRM, which include the Zandfontein,
Kareespruit, and Crocette sections.
At the Zandfontein section, the re-equipping and refurbishment of an existing
vertical shaft, which will allow for more efficient mining operations and
development at deeper levels, is scheduled to be commissioned in the second
quarter of 2008.
At the Crocette section of CRM, underground development commenced in April 2008
following the Department of Minerals and Energy`s ("DME") granting of a new
order mining right which CRM received on March 31, 2008. The Crocette section
is anticipated to build up to full production by the second half of 2010 with
mining and production reaching 40,000 tons per month and an estimated 55,000
PGM ounces per year, respectively.
Additional delineation and evaluation drilling is in progress with the
objective of upgrading the current resource base. The resource upgrade drilling
programme has been initiated for Kareespruit and the down dip extension areas
of Zandfontein and Crocette, with a planned drilling campaign of approximately
20,000 meters in 25 holes. This programme is expected to be completed at the
end of 2008. Preliminary indications are that the Kareespruit section has the
potential to become a standalone operation capable of mining up to 200,000
tonnes per month.
1.4 Development projects - Spitzkop and Kennedy`s Vale
During the quarter ended March 31, 2008, the Company received an amended new
order prospecting permit from the DME allowing for bulk sampling of the
orebody. An EPCM contract for the detailed engineering, design and construction
of the mine and concentrator was awarded in March 2008 and tenders for long
lead items have been sought. Development towards underground trial mining and
bulk sampling commenced at Spitzkop in April 2008. A new order mining right
application was submitted to the DME during the quarter.
1.5 Development projects - Mareesburg
At Mareesburg, work is continuing on updating a feasibility study and on
obtaining a new order mining right from the DME. RSV, an independent
consultant, has been engaged to prepare the updated feasibility study based
upon a study prepared in 2007 by another independent consultant, SRK. The study
is scheduled to be completed by late 2008.
1.6 Corporate and other expenses
General and administrative expenses ("G&A") are costs associated with the
Company`s corporate head office in Vancouver and the Johannesburg and CRM
administrative offices. Such costs include legal and accounting, regulatory,
executive management fees, investor relations, travel and consulting fees. G&A
increased from USD3,738,000 in Q1 2007 to USD4,333,000 in Q1 2008 mainly due to
the hiring of senior personnel in Vancouver and in Johannesburg in late 2007 to
oversee the Company`s projects and expansion of operations.
During the quarter ended March 31, 2008, the Company`s board of directors
granted 1,500,000 stock options to employees and a new director, resulting in a
stock based compensation expense of USD1,227,000.
The Company had a 10% rolling stock option plan which expired on March 31,
2008. The board is proposing an amended stock option plan with a fixed reserve
for approval at the Company`s annual general meeting to be held on June 4,
2008. The Company believes that a significant part of its future success is
dependent upon attracting and retaining appropriately qualified and talented
employees in a very competitive global labour market, especially in the mining
industry. Offering equity participation in the Company through incentive stock
options is an effective means to ensure that the Company can compete in this
market.
Interest income recorded during the quarter ended March 31, 2008 was
USD2,455,000 compared with USD88,000 in the same period in 2007. The increase
was due to a higher average cash balance during the quarter ended March 31,
2008 as compared with the same quarter in 2007.
Interest expense is comprised primarily of interest incurred on equipment
financing in South Africa and interest on debt related to Gubevu. Interest
expense in the quarters ended March 31, 2008 and 2007 was not significantly
different.
During the quarter ended March 31, 2008, the Company recorded an income tax
expense of USD8,248,000 mostly based on net income generated at CRM during the
period. Loss carry forwards and other tax assets were utilized such that no
cash taxes were payable. The consolidated balance sheet reflects a total future
income tax liability of USD134,612,000 which arose primarily as a result of the
step-up to fair value of the net assets acquired on business acquisitions
during the years ended June 30, 2006 and June 30, 2007.
2. Liquidity and Capital Resources
At March 31, 2008, the Company had working capital of USD194,410,000 (December
31, 2007 - USD196,681,000) and cash and cash equivalents and short-term
investments of USD169,943,000 (December 31, 2007 - USD189,856,000) in highly
liquid, fully guaranteed, bank sponsored instruments. The Company is not
exposed to financial instruments involving the US residential property markets
or mortgages.
The Company had no long-term debt at March 31, 2008, other than asset
retirement obligations relating primarily to its Crocodile River Mine, capital
lease obligations relating to mining vehicles with lease terms of five years
with options to purchase for a nominal amount at the conclusion of the lease,
and payments in connection with the Company`s acquisition of 42.39% of the
shares of Gubevu during the year ended June 30, 2007. See Contractual
Obligations under Section 2.3 below.
2.1 Outlook
The Company anticipates prices of the platinum group metals will remain strong
at least through the next two years. Based on this outlook and planned
production levels at CRM, the Company expects to receive significant cash flows
from CRM for the next several years. Together with the Company`s current cash
balances and cash from the anticipated exercise of its CdnUSD1.80 warrants,
which expire in 2009, a significant part of the cash required for the Company
to develop the Crocette deposit at CRM and the Spitzkop and Mareesburg projects
can be funded. However, the Company may require additional funding in order to
bring all these projects into commercial production. Additional funding may
include external financing, joint venture or other third party participation in
one or more of the projects, or the public or private sales of equity or debt
securities of the Company.
However, if volatile global and market conditions result in a significant
decline in PGM prices, then the cash flows from CRM and current cash balances
may be insufficient to advance any of the Company`s projects to the production
stage. This, along with deteriorating market conditions, could result in the
Company having difficulty in obtaining equity financing, external financing or
third party participation.
If so, over the long-term, there can be no assurance that any additional
funding will be available to the Company or, if available, that this funding
will be on acceptable terms. If adequate funds are not available, the Company
may be required to delay or reduce the scope of its activities to bring any or
all of its development projects into commercial production.
2.2 Share Capital
During the quarter ended March 31, 2008, the Company granted 1,500,000 stock
options with an exercise price of CdnUSD3.38 and expiry dates of February 20,
2018 to March 27, 2018, giving rise to a stock-based compensation expense of
USD1,227,000. During the same period, 160,000 options were exercised at a
weighted average exercise price of CdnUSD1.81 for proceeds of USD290,300 and
2,117,400 warrants were exercised at a weighted average exercise price of
CdnUSD1.87 per common share for proceeds of USD3,953,600.
On April 25, 2008, the Company`s warrants that trade on the Toronto Stock
Exchange under the symbol "ELR.WT" expired. Prior to the expiry, 8,706,677 of
these warrants were exercised in April 2008 at CdnUSD2.00 per share for
proceeds of CdnUSD17,413,000. A total of 1,937,977 warrants expired
unexercised.
As at May 15, 2008, the Company had:
- 680,090,604 common shares outstanding;
- 47,550,000 stock options outstanding, which are exercisable at prices ranging
from CdnUSD0.56 to CdnUSD3.38 and expire mostly between 2011 and 2018; and
- 58,485,996 share purchase warrants outstanding, which are exercisable at
CdnUSD1.80 per share and expire on March 28, 2009. These warrants are traded on
the Toronto Stock Exchange under the symbol "ELR.WT.A".
2.3 Contractual Obligations and Commitments
The Company`s major contractual obligations and commitments at March 31, 2008
were as follows:
(in thousands of U.S. dollars) Less than More than
Total 1 year 1-5 years 5 years
Asset retirement obligations USD 2,525 USD - USD - USD 2,525
Capital expenditure contracted
at March 31, 2008 but not
recognized on the balance she 45,608 45,608 - -
Capital lease obligations 4,960 666 4,294 -
Obligations related to
Gubevu acquisition 6,808 3,404 3,404 -
USD 59,901 USD 49,678 USD 7,698 USD 2,525
Pursuant to the Company`s acquisition of a 42.39% interest in Gubevu Consortium
Holdings (Pty) Ltd.
("Gubevu") during the year ended June 30, 2007, the Company entered into an
agreement to pay an unrelated third party an amount of R55.4 million that
existed in the underlying Gubevu agreements as an obligation of Gubevu. This
amount has been recorded at a discounted value of USD6,282,000 in long-term
liabilities, of which USD3,367,000 (27.7 million Rand) is payable on June 12,
2008.
3. Related Party Transactions
A number of the Company`s executive officers are engaged under contract with
those officers` personal services companies. The Company paid USD375,000 for
management fees, consulting fees and the quarter ended March 31, 2008, compared
to USD194,000 in the same quarter in 2007. The increase over the prior
comparative period is due to the hiring of two executive officers in November
2007.
All related party transactions were recorded at the amounts agreed upon between
the parties. Any balances payable are payable on demand without interest.
4. Adoption of New Accounting Standards and Accounting Pronouncements
Effective January 1, 2008, the Company adopted four new accounting standards
that were issued by the Canadian Institute of Chartered Accountants. These
accounting policy changes were adopted on a prospective basis with no
restatement of prior period financial statements.
CICA Handbook Sections 3862 "Financial Instruments - Disclosures" and Section
3863 "Financial Instruments - Presentation" replace Section 3861 "Financial
Instruments - Disclosure and Presentation". The new standards carry forward the
presentation requirements for financial instruments and enhance the disclosure
requirements by placing increased emphasis on disclosures about the nature and
extent of risks arising from financial instruments and how the entity manages
those risks.
CICA Handbook Section 1535 requires the company to disclose (a) its objectives,
policies and processes for managing capital; (b) quantitative data about what
the entity regards as capital; (c) whether the entity has complied with any
capital requirements; and (d) if it has not complied, the consequences of such
non- compliance.
CICA Handbook Section 3031 replaced the existing inventories standard. The new
standard requires inventory to be valued on a first-in, first-out or weighted
average basis, which is consistent with the Company`s current treatment.
The Company`s South African subsidiaries prepare their financial statements in
accordance with International Financial Reporting Standards ("IFRS") and its
interpretations adopted by the International Accounting Standards Board. The
subsidiaries` statements are adjusted to Canadian GAAP for the consolidated
financial statements. In 2006, Canada`s Accounting Standards Board ratified a
strategic plan that will result in Canadian GAAP, as used by public companies,
being evolved and converged with IFRS over a transitional period to be complete
by 2011. The official changeover date from Canadian GAAP to IFRS is for interim
and annual financial statements relating to fiscal years beginning on or after
January 1, 2011. As the International Accounting Standards Board currently has
projects underway that should result in new pronouncements and since this
Canadian convergence initiative is very much in its infancy as of the date of
these statements, the Company has not yet assessed the impact of the ultimate
adoption of IFRS on the Company.
5. Internal Control over Financial Reporting
The Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") of the
Company are responsible for the design of internal control over financial
reporting within the Company in order to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with Canadian GAAP. Management
has evaluated the design of the Company`s internal control and procedures over
financial reporting as of the end of the period covered by these annual
filings, and believes the design to be sufficient to provide such reasonable
assurance.
The CEO and CFO have also evaluated the effectiveness of the Company`s
disclosure controls and procedures as of the quarter ended March 31, 2008 and
as a result of the changes described above, have concluded that the Company`s
disclosure controls and procedures provide reasonable assurance that material
information relating to the Company, including its consolidated subsidiaries,
was made known to them and reported as required, particularly during the period
in which these annual filings were being prepared.
Management of the Company, including the CEO and CFO, do not expect that the
Company`s disclosure controls and procedures will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can provide
reasonable but not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to the associated costs.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been detected.
Other than described above, there were no changes in the Company`s internal
control over financial reporting during the quarter ended March 31, 2008 that
have materially affected, or are reasonably likely to affect, the Company`s
internal control over financial reporting.
6. Cautionary Statement on Forward-Looking Information
This MD&A, which contains certain forward-looking statements, are intended to
provide readers with a reasonable basis for assessing the financial performance
of the Company. All statements, other than statements of historical fact, are
forward-looking statements. The words "believe", "expect", "anticipate",
"contemplate", "target", "plan", "intends", "continue", "budget", "estimate",
"may", "will", "schedule" and similar expressions identify forward looking
statements. Forward-looking statements are necessarily based upon a number of
estimates and assumptions that, while considered reasonable by the Company, are
inherently subject to significant business, economic and competitive
uncertainties and contingencies. Known and unknown factors could cause actual
results to differ materially from those projected in the forward-looking
statements. Such factors include, but are not limited to, fluctuations in the
currency markets such as Canadian dollar, South African Rand and U.S. dollar,
fluctuations in the prices of PGM and other commodities, changes in government
legislation, taxation, controls, regulations and political or economic
developments in Canada, the United States, South Africa, or Barbados or other
countries in which the Company carries or may carry on business in the future,
risks associated with mining or development activities, the speculative nature
of exploration and development, including the risk of obtaining necessary
licenses and permits, and quantities or grades of reserves. Many of these
uncertainties and contingencies can affect the Company`s actual results and
could cause actual results to differ materially from those expressed or implied
in any forward-looking statements made by, or on behalf of, the Company.
Readers are cautioned that forward-looking statements are not guarantees of
future performance. There can be no assurance that such statements will prove
to be accurate and actual results and future events could differ materially
from those acknowledged in such statements. Specific reference is made to the
Company`s most recent Annual Information Form on file with Canadian provincial
securities regulatory authorities for a discussion of some of the factors
underlying forward-looking statements.
The Company disclaims any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future
events or otherwise, except to the extent required by applicable laws.
May 15, 2008
Ian Rozier
Stellenbosch
15 May 2008
Sponsor
PSG Capital (Pty) Limited
Date: 15/05/2008 14:18:14 Produced by the JSE SENS Department.
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