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ARQ
ARQ
ARQ - Anooraq Resources Corporation - Results For The Quarter Ended March
31, 2008
Anooraq Resources Corporation
(Incorporated in British Columbia, Canada)
(Registration number 10022-2033)
JSE share code: ARQ & ISIN: CA03633E1088
TSXV share code: ARQ & ISIN: CA03633E1088
AMEX share code: ANO & ISIN: CA03633E1088
("Anooraq" or "the Company")
RESULTS FOR THE QUARTER ENDED MARCH 31, 2008
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
March31 December31
2008 2007
(unaudited)
Assets
Current assets
Cash and equivalents $2,752,154 $7,131,821
Amounts receivable 249,552 167,779
Due from related parties (note 8) 6,275 -
Prepaid expenses 61,502 101,409
3,069,483 7,401,009
Deferred acquisition costs 707,126 368,146
Equipment (note 4) 304,996 105,494
Mineral property interests (note 5) 9,236,897 9,078,714
$13,318,502 $16,953,363
Liabilities and Shareholders` Equity
Current Liabilities
Accounts payable and accrued $296,335 $475,102
liabilities
Due to related parties (note 8) 332,308 45,609
Current portion of term loan (note 6) 347,895 1,892,197
976,538 2,412,908
Term loan (note 6) 8,615,301 9,806,636
9,591,839 12,219,544
Shareholders` equity
Share capital 51,959,140 51,855,350
Contributed surplus 13,336,991 13,254,905
Deficit (61,569,468) (60,376,436)
3,726,663 4,733,819
Nature of operations (note 1)
Commitments (note 7(c))
Proposed transaction (note 10 )
$ $
13,318,502 16,953,363
See accompanying notes to consolidated financial
statements.
Consolidated Statements of Operations and Comprehensive
Loss
(Expressed in Canadian Dollars)
Three months ended March 31 2008 2007
Expenses
Accounting, audit and legal $79,429 $102,785
Accretion on term loan 23,902 25,948
Conference and travel 52,726 103,122
Consulting 21,982 78,729
Exploration (schedule) 58,370 33,020
Foreign exchange gain (911,836) (262,248)
Interest expense 442,620 443,176
Interest income (94,725) (219,778)
Office and administration 176,372 91,212
Salaries and benefits 1,015,562 329,754
Stock-based compensation - office and 122,318 1,044
administration
Stock-based compensation - exploration - 401
Shareholders communications 44,465 58,367
Trust and filing 162,847 141,598
Loss before the following 1,194,032 927,130
Future income tax recovery (1,000) (1,000)
Loss for the period 1,193,032 926,130
Other comprehensive loss - -
Total Comprehensive Loss $1,193,032 $926,130
Basic and diluted loss per share $0.01 $0.01
Weighted average number of common shares 185,217,912 148,227,907
outstanding
Total Comprehensive Loss $1,193,032 $926,130
Adjust for:
Foreign exchange gain (911,836) (262,248)
Headline loss $2,104,868 $1,188,378
Headline loss per share $0.01 $0.01
See accompanying notes to consolidated financial
statements.
Consolidated Statements of Shareholders` Equity
(Expressed in Canadian Dollars)
Three months Year ended
ended March December 31,
31, 2008 2007
(unaudited)
Share capital Number of Number of
shares shares
Balance at 185,208,607 $51,855,350 148,220,407 $50,207,363
beginning of the
period
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 21,400 63,558 5,000 14,850
options
exercised at
$2.97 per share
Fair value of - 40,232 -
stock options
allocated to 301,657
shares issued on
exercise
Common shares - - 36,000,000 -
issued
Balance at end 185,230,007 $51,959,140 185,208,607 $51,855,350
of the period
Contributed
surplus
Balance at $13,254,905 $4,849,043
beginning of the
period
Stock-based 122,318 8,707,519
compensation
Fair value of (40,232) (301,657)
stock options
allocated to
shares issued on
exercise
Balance at end $13,336,991 $13,254,905
of the period
Deficit
Balance at $(60,376,436) $(46,080,305)
beginning of the
period
Loss for the (1,193,032) (14,296,131)
period
Balance at end $(61,569,468) $(60,376,436)
of the period
TOTAL $3,726,663 $4,733,819
SHAREHOLDERS`
EQUITY
The accompanying notes are an integral part of these
consolidated financial statements.
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
Three months ended March 31 2008 2007
Operating activities
Loss for the period $(1,193,032) $(926,130)
Items not involving cash
Amortization included in exploration 7,831 4,734
expenses
Accretion on term loan 23,902 25,948
Future income tax recovery (1,000) (1,000)
Accrued interest on term loan (note 390,975 411,908
6)
Stock-based compensation 122,318 1,445
Unrealized foreign exchange gain (813,109) (163,000)
Equity (gain) loss from interest in (79,183) 18,803
Ga-Phasha project (note 5)
Changes in non-cash operating working
capital
Amounts receivable (81,773) 30,697
Amounts due to and from related 280,424 (24,118)
parties
Prepaid expenses 39,907 23,716
Accounts payable and accrued (178,767) (796,115)
liabilities
Cash and equivalents used by operating (1,481,507) (1,393,112)
activities
Investing activities
Purchase of equipment (207,333) (2,556)
Deferred acquisition costs (338,980) -
Equity investment - (12,713)
Cash and equivalents provided (used by) (546,313) (15,269)
investing activities
Financing activities
Issuance of common shares 63,558 119,000
Payment of term loan interest (1,777,979) -
Cash and equivalents provided by (used by) (1,714,421) 119,000
financing activities
Effect of exchange rate changes on cash and (637,426) (531,710)
equivalents
Decrease in cash and equivalents (4,379,667) (1,821,090)
Cash and equivalents, beginning of period 7,131,821 12,775,145
Cash and equivalents, end of period $2,752,154 $10,954,055
See accompanying notes to consolidated financial
statements.
Consolidated Schedules of Exploration Expenses
(Expressed in Canadian Dollars)
Three months ended March 31 2008 2007
Republic of South Africa
Northern Limb of the Bushveld Complex
Amortization $7,831 $4,734
Assays and analysis - 2,427
Engineering 4,928 8,377
Geological and consulting 1,845 5,125
Graphics 1,938 1,984
Property fees and assessments (recovery) (1,445) -
Property option payments 10,532 5,608
Site activities 1,896 2,081
Transportation 35,077 -
62,602 30,336
Eastern Limb of the Bushveld Complex
Geological and consulting 4,645 2,684
Graphics 454 -
Property fees and assessments (recovery) (9,331) -
(4,232) 2,684
Exploration expenses before the following 58,370 33,020
Stock-based compensation - 401
Exploration expenses 58,370 33,421
Cumulative expenditures, beginning of year 25,982,063 23,613,314
Cumulative expenditures, end of period $26,040,433 $23,646,735
See accompanying notes to consolidated financial
statements.
Notes to Consolidated Financial Statements
For the three months ended March 31, 2008
(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.
Operating results for the three month period ended
March 31, 2008 are not necessarily indicative of the
results that may be expected for the full year ending
December 31, 2008.
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. The Company is currently in the process of
completing a proposed transaction (note 10), which
includes an anticipated debt and equity financing.
Management recognizes that the Company will need to
generate additional financial resources in order to
meet its planned business objectives. While the Company
anticipates 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 interim consolidated financial statements have
been prepared in accordance with Canadian generally
accepted accounting principles. The interim
consolidated financial statements include the accounts
of the Company and its subsidiaries, all of which are
wholly owned. The Company`s investment in the Ga-Phasha
joint venture is accounted for using the equity method.
These interim financial statements do not include all
the disclosures required for annual financial
statements under generally accepted accounting
principles. However, these interim financial
statements follow the same accounting policies and
methods of application as the Company`s most recent
audited annual financial statements except for the
changes described in note 3 below. These interim
consolidated financial statements should be read in
conjunction with the Company`s 2007 audited annual
consolidated financial statements which are filed on
www.sedar.com. Certain comparative information has been
reclassified to conform to the presentation adopted in
the current period.
All material intercompany balances and transactions
have been eliminated.
3. ADOPTION OF NEW ACCOUNTING STANDARDS
Effective January 1, 2008, the Company adopted the
following new accounting standards issued by the
Canadian Institute of Chartered Accountants ("CICA").
These new standards have been adopted on a prospective
basis with no restatement to prior period financial
statements.
(a) Newly Adopted Accounting Policies
(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 externally imposed capital requirements and,
if it has not complied, the consequences of such non-
compliance.
The Company`s objective when managing capital is to
safeguard the Company`s ability to continue as a going
concern, so that it can continue to explore and develop
its projects for the benefit of its shareholders and
other stakeholders. The Company considers the
components of shareholders` equity and term loan, as
well as its cash and equivalents, as capital. The
Company manages the capital structure and makes
adjustments to it in the light of changes in economic
conditions and the risk characteristics of the
underlying assets. Since the Company is in the
exploration stage, the Company may issue new shares
through private placements in order to maintain or
adjust the capital structure.
In order to facilitate the management of its capital
requirements, the Company prepares annual expenditure
budgets that are updated as necessary depending on
various factors, including successful capital
deployment and general industry conditions. The
Company`s cash resources at March 31, 2008 are
sufficient for its present needs, specifically to
continue administrative and exploration operations at
current levels through the end of 2008.
There were no changes to the Company`s approach to
capital management during the three months ended March
31, 2008. The Company is not subject to externally
imposed capital requirements as at March 31, 2008
(ii) Financial Instruments - Disclosure (Section 3862)
and Presentation (Section 3863)
These standards replace CICA 3861, Financial
Instruments - Disclosure and Presentation. They
increase the disclosures previously 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.
The carrying value of the Company`s cash and cash
equivalents, accounts receivable, accounts payable and
accrued liabilities, due to/from related parties and
term loan approximate their fair value.
Financial Instrument Risk Exposure and Risk Management
The Company is exposed in varying degrees to a variety
of financial instrument related risk, including credit
risk, liquidity risk, foreign exchange risk, interest
risk and commodity price risk.
Credit Risk
Credit risk is the risk of potential loss to the
Company if a counterparty to a financial instrument
fails to meet its contractual obligations. The
Company`s credit risk is primarily attributable to its
liquid financial assets including cash and equivalents,
accounts receivable and due from related parties. The
Company limits exposure to credit risk on liquid
financial assets through maintaining its cash and
equivalents with high-credit quality financial
institutions. The carrying value of the Company`s cash
and cash equivalents, accounts receivable and due from
related parties represent the maximum exposure to
credit risk. The Company does not have financial assets
that are invested in asset backed commercial paper.
Liquidity Risk
Liquidity risk is the risk that the company will not be
able to meet its financial obligations as they fall
due. The Company ensures that there is sufficient
capital in order to meet short term business
requirements, after taking into account cash flows from
operations and the Company`s holdings of cash and cash
equivalents. The Company believes that these sources
will be sufficient to cover the likely requirements for
the foreseeable future. The Company`s cash and
equivalents are invested in business accounts which are
available on demand for the Company`s programs, and
which are not invested in any asset backed
deposits/investments.
The Company operates in South Africa. Like other
foreign entities operating there, the Company is
subject to currency exchange controls administered by
the South African Reserve Bank, that country`s central
bank. A significant portion of the Company`s funding
structure for its South African operations consists of
advancing loans to its South Africa incorporated
subsidiaries and it is possible the Company may not be
able to acceptably repatriate such funds once those
subsidiaries are able to repay the loans or repatriate
other funds such as operating profits should any
develop. The repatriation of cash held in South Africa
is permitted upon the approval of the South African
Reserve Bank. Cash balances in South Africa are the
Rand balances disclosed below.
The following are the contractual maturities of
financial liabilities:
March 31, 2008 Carrying Contractual 2008 2009 2010
amount cash flow
Accounts $296,335 $296,335 $296,335 $- $-
payable and
accrued
liabilities
Amounts due to 332,308 332,308 332,308 - -
related parties
Term loan 8,963,196 12,955,693 752,432 1,508,639 10,694,622
payable
Foreign Exchange Risk
In the normal course of business, the Company enters
into transactions for the purchase of supplies and
services denominated in South African Rand. In
addition, the Company has cash and certain liabilities
denominated in South African Rand. As a result, the
Company is subject to foreign exchange risk from
fluctuations in foreign exchange rates. The Company has
not entered into any derivative or other financial
instruments to mitigate this foreign exchange risk.
The exposure of the Company`s cash and equivalents,
amounts receivable and amounts due from related parties
to foreign exchange risk is as follows:
Currency March 31, December 31,
2008 2007
South African $2,845,803 $6,648,832
Rand
Other 36,286 37,435
Total $2,882,089 $6,686,267
Financial
Assets
The exposure of the Company`s accounts payable and
accrued liabilities, amounts due to related parties and
term loan to foreign exchange risk is as follows:
Currency March 31, December 31,
2008 2007
South African $8,954,088 $11,816,622
Rand
Total $8,954,088 $11,816,622
Financial
Liabilities
Sensitivity analysis:
A 10 percent change of the Canadian dollar against the
following currencies at March 31, 2008 would have
changed net loss by $603,000. This analysis assumes
that all other variables, in particular interest rates,
remain constant. The analysis is performed on the same
basis for 2007.
Interest Rate Risk
The Company has a financing agreement with Anglo
Platinum whereby Anglo Platinum, through its wholly
owned subsidiary Rustenburg Platinum Mines, loaned an
amount of ZAR70 million to Plateau Resources
(Proprietary) Limited, a subsidiary of the Company.
The loan bears interest at prime plus two percent, as
quoted by the Standard Bank of South Africa, and is
subject to interest rate change risk.
Sensitivity analysis:
A 10 percent change of the prime rate for the period
March 31, 2008 would have changed net loss by $35,000.
This analysis assumes that all other variables, in
particular foreign exchange rates, remain constant
Commodity Price Risk
While the value of the Company`s resource properties
depend on the price of platinum group metals ("PGM")
and their outlook, the Company currently does not have
any operating mines and hence, does not have any
hedging or other commodity based price risks in respect
of its operational activities. PGM prices historically
have fluctuated widely and are affected by numerous
factors outside of the Company`s control, including,
but not limited to, industrial and retail demand,
forward sales by producers and speculators, levels of
worldwide production, and short-term changes in supply
and demand because of speculative hedging activities.
(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.
(b) Accounting Policies Not Yet Adopted
(i) 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
International Financial Reporting Standards ("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 Canadian 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 impact
of adoption of IFRS for 2011, the financial reporting
impact of the transition to IFRS cannot be reasonably
estimated at this time.
4. EQUIPMENT
March 31, 2008 December 31, 2007
Cost Accumul Net book Cost Accumula Net book
ated value ted value
amortiz amortiza
ation tion
Office $274,173 $18,992 $255,181 $66,840 $14,575 $52,265
Vehicles 116,368 66,553 49,815 116,368 63,139 53,229
$390,541 $85,545 $304,996 $183,208 $77,714 $105,494
5. MINERAL PROPERTY INTERESTS
As at As at
March31,2008 December31,2007
Ga-Phasha Project
Balance, beginning of year $4,878,714 $4,040,751
Equity gain (loss) - exploration 79,183 (920,608)
expenses
Net investments during the period -. 1,481,571
Equity gain - future income tax 1,000 139,000
recovery
Equity gain - foreign exchange 78,000 138,000
Ga-Phasha Project, end of period 5,036,897 4,878,714
Platreef Properties - acquisition 4,200,000 4,200,000
costs
Balance, end of period $9,236,897 $9,078,714
6. TERM LOAN
As at As at
March 31, 2008 December 31, 2006
Total term loan $8,963,196 $11,698,833
Current portion (347,895) (1,892,197)
Non-current portion $8,615,301 $9,806,636
In January 2008, the Company made the first interest
payment amounting to $1,777,979 in accordance with the
terms of the loan agreement. Subsequent interest
payments are due and payable in six month intervals
thereafter. No principal payments are required until
maturity of the loan on September 30, 2010.
Accrued interest expense on the term loan amounted to
$390,975 (ZAR 3,110,027) for the period ended March 31,
2008 (2007 - $411,908) and has been included in the
carrying value of the term loan.
7. SHARE CAPITAL
(a) Authorized share capital
The Company`s authorized share capital consists of an
unlimited number of common shares without par value.
(b) Share option plan
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, 2007 $2.43 7,695,000 4.12
Granted - -
Exercised 2.97 (21,400)
Cancelled - -
Balance, March 31, 2008 $2.43 7,673,600 3.87
Options outstanding and exercisable at March 31, 2008
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 2.7
July 1, 2010 $2.97 119,000 119,000 2.3
October 15, 2012 $3.27 376,000 251,000 4.6
October 15, 2012 $2.97 4,483,600 4,292,350 4.6
Total 7,673,600 7,357,350
Average option price $2.43 $2.40
There were no options granted during the three months
ended March 31, 2008.
(c) Share purchase warrants
Pursuant to the Amending Agreement, Pelawan Investments
(Pty) Ltd ("Pelawan") has exercised the 167,000,000
Warrants by depositing an escrowed amount equal to the
aggregate exercise price for the Warrants ($225 million
or ZAR 1.782 billion) into an interest bearing account
with Rand Merchant Bank ("RMB"), to be released
pursuant to a deposit account agreement (the "Deposit
Agreement") between Rand Merchant Bank, Pelawan 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 Warrants have 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 Settlement Agreement.
8. RELATED PARTY TRANSACTIONS AND BALANCES
Note Three months
ended March 31
Services rendered by ref 2008 2007
Hunter Dickinson Inc. (a) $334,634 $154,004
CEC Engineering Ltd. (b) 4,928 13,501
Related party balances receivable As at As at
March 31 December 31
2008 2007
Southgold Exploration (c) $6,275 $-
(Proprietary) Limited
Related party balances payable As at As at
March 31 December 31
2008 2007
Hunter Dickinson Inc. (a) $329,204 $44,042
CEC Engineering Ltd. (b) 3,104 1,567
Payable to related parties $332,308 $45,609
(a) Hunter Dickinson Inc. ("HDI") is a private company
owned equally by eight public companies, one of which
is the Company. HDI has certain directors in common
with the Company and provides geological, corporate
development, administrative and management services to,
and incurs third party costs on behalf of, the Company
and its subsidiaries on a full cost recovery basis
pursuant to an agreement dated December 31, 1996.
(b) During the period ended March 31, 2008, the Company
paid or accrued $4,928 (2007 - $13,501) to CEC
Engineering Ltd ("CEC"), a private company owned by a
former director, for engineering and project management
services at market rates.
(c) Southgold Exploration (Proprietary) Limited
("Southgold") is a wholly-owned subsidiary of Great
Basin Gold Ltd., a Canadian public company which has
certain directors in common with the Company. Southgold
shared certain premises and other facilities with the
Company pursuant to a cost-sharing arrangement based on
a full cost recovery basis.
9. SEGMENTED INFORMATION
For the three months Canada Mexico South Total
ended March 31, 2008 Africa
Exploration expenditures $- $- $58,370 $58,370
Loss for the period (737,300) 1,554 (457,286) (1,193,032)
Total assets 648,987 28,156. 12,641,359 13,318,502
Equipment - - 304,996 304,996
For the three months Canada Mexico South Total
ended March 31, 2007 Africa
Exploration expenditures $- $- $33,020 $33,020
Loss for the period (456,352) (962) (468,816) (926,130)
Total assets 833,508 30,479. 19,247,525 20,111,512
Equipment - - 71,137 71,137
10. PROPOSED TRANSACTION
Acquisition of Lebowa Platinum Mines (Limited)
In April 2008, Anooraq announced that it has entered
into certain agreements with Anglo Platinum Limited and
Rustenburg Platinum Mines Limited pursuant to which
Anooraq agreed to purchase an effective 51% of Lebowa
Platinum Mines Limited ("Lebowa") together with an
effective 1% controlling interest in certain other
assets located in South Africa (the "Acquisition") for
an aggregate cash consideration of South African Rand
3.6 billion ($450 million) through a combination of
debt and equity. An exercise of share purchase warrants
by Pelawan in December 2007, in an aggregate amount of
ZAR1.782 billion (C$225 million), will provide a
portion of the funds required by Anooraq for this
purpose.
Closing of the Acquisition is conditional upon
satisfaction (or waiver) of various conditions,
including:
- Completion by all parties of their respective due
diligence reviews and satisfaction with the results
thereof;
- Completion of certain internal restructuring
transactions;
- Canadian and South African regulatory approvals;
- Stock exchange approvals;
- Closing of debt and equity financing of the
transaction; and
- Shareholder approvals.
Anglo Platinum will provide Anooraq with an interest
bearing standby loan facility. This facility enables
Anooraq to utilize up to 80% of all cash flows
generated from the Lebowa operations should this be
required to support external acquisition senior debt
finance secured by Anooraq for the purposes of the
Lebowa Transaction.
The parties have agreed to various financing
arrangements between them to implement the Anglo
Platinum approved long term growth plan at Lebowa, as
follows:
- Anglo Platinum will incur for its own account the
first ZAR200 million (C$25.2 million) required for
development of the Middlepunt Hill UG2 decline
expansion project;
- Anglo Platinum will provide Lebowa with a project
finance facility of ZAR1.6 billion (C$202 million),
representing the balance of the capital budget estimate
for implementation of the Middlepunt Hill UG2 decline
expansion project ("The MPH Facility"). The MPH
Facility has a 8 year term, with a capital repayment
holiday of one year, will bear interest at a
facilitation interest rate and is subordinated in
priority of repayment against certain other funding
instruments within the Lebowa group.
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 unaudited
interim consolidated financial statements of Anooraq
Resources Corporation ("Anooraq", or the "Company") for
the three months ended March 31, 2008 and the audited
consolidated financial statements for the year ended
December 31, 2007, 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 May 12, 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 Bushveld Complex is one of the world`s richest PGM
environments. It underlies an area of some 67,000
square kilometers and is subdivided into four main
areas or "limbs". Most PGM production to date has been
derived from underground operations mining the Merensky
and UG2 reefs deposits on the Eastern and Western limbs
of the Bushveld. The PGM-bearing horizon on the
Northern limb is called the Platreef; it tends to be
nearer to the surface and wider, so the PGM deposits
there are potentially amenable to open pit mining.
Anooraq has interests in early to advanced stage
exploration properties. The advanced stage projects are
the Ga-Phasha PGM Project ("Ga-Phasha") on the North-
Eastern limb and the Boikgantsho PGM Project
("Boikgantsho") on the Northern limb. The Boikgantsho
and Ga-Phasha projects, and the early stage Kwanda PGM
project ("Kwanda"), are 50/50 joint ventures with Anglo
Platinum Limited ("Anglo Platinum").
On September 4, 2007, Anooraq and Anglo Platinum
announced that they had entered into a detailed
transaction framework agreement whereby Anooraq would
purchase a controlling interest of 51% in Lebowa
Platinum Mines Limited ("Lebowa"), an operating PGM
mine, and increase its interests to 51% in the Ga-
Phasha, Boikgantsho and Kwanda projects ("the Lebowa
Transaction"), transforming Anooraq into a significant
PGM producer with a substantial resource base. The
companies signed a definitive agreement for the "Lebowa
Transaction" in early April 2008 (see below).
As part of its due diligence for the Lebowa
Transaction, Anooraq engaged international mining
industry consultants to conduct a technical review of
Lebowa. The results of the technical review, announced
in mid April, indicate a 34-year life of mine plan for
Lebowa. The net present value at a 7.5% discount, for
100% of the project is ZAR16.9 billion (CAD$2.2
billion).
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 work on the latter
project. Anooraq also intends to re-initiate pre-
feasibility work on the Boikgantsho Project.
1.2.1 Lebowa Transaction
The Lebowa mine is located on the North-Eastern limb of
the Bushveld Complex, to the north of and adjacent to
the Ga-Phasha Project. The operation consists of a
vertical shaft and a decline shaft system to access the
underground development on the Merensky reef
(approximately 85,000 tonnes per month (tpm)) and the
UG2 reef (approximately 45,000 tpm), as well as two
concentrator plants.
According to Anglo Platinum`s 2007 Annual Report,
production at Lebowa in 2007 was approximately 187,700
refined ounces of platinum, palladium, rhodium and gold
from 1.33 million tonnes (Mt) of ore milled. Anglo
Platinum has approved a long term growth plan for
Lebowa, which includes various replacement and
expansion projects increasing in two stages. Technical
studies conducted by Anglo Platinum indicate that
Lebowa`s value is maximized at a mining rate of 375,000
tpm, comprising steady state Merensky production at
120,000 tpm and steady state UG2 production of 255,000
tpm.
- Stage 1 (2008-2013) comprises an expansion of
Merensky and UG2 ore production to 245,000 tpm, with
Merensky production being increased to 120,000 tpm,
initially from the Brakfontein Merensky decline shaft
system, and UG2 production being increased to 125,000
tpm, initially from the Middelpunt Hill UG2 decline
shaft system.
- Stage 2 (2016 onwards) sees the further expansion of
UG2 production to 255,000 tpm with Merensky production
remaining at 120,000 tpm.
Both the Stage 1 and Stage 2 expansions at Lebowa will
access the Merensky reef and UG2 reef from near surface
to approximately 650 meters below surface. Development
to this depth requires no material refrigeration,
resulting in a less constrained power requirement for
the Lebowa mine than would be required for operations
and projects accessing the reef at deeper levels.
Anooraq-Anglo Platinum Definitive Agreement
Salient Terms & Conditions
Richtrau No 179 (Proprietary) Limited ("Lebowa Holdco")
has been established to hold Anooraq`s and Anglo
Platinum`s interests in Lebowa, Ga-Phasha, Boikgantsho
and Kwanda. Upon completion of the Lebowa Transaction,
Anooraq will hold a 51% interest in Lebowa Holdco.
The cash acquisition price for the Lebowa Transaction
is ZAR3.6 billion (C$450 million). Anooraq intends to
fund the purchase price through a combination of debt
and equity. An exercise of share purchase warrants by
Pelawan in December 2007, in an aggregate amount of
ZAR1.586 billion (C$200 million), will provide a
portion of the funds required by Anooraq for this
purpose.
Anglo Platinum will provide Anooraq with an interest
bearing standby loan facility. This facility enables
Anooraq to utilize up to 80% of all cash flows
generated from the Lebowa operations should this be
required to support external acquisition senior debt
finance secured by Anooraq for the purposes of the
Lebowa Transaction.
The parties have agreed to various financing
arrangements between them to implement the Anglo
Platinum approved long term growth plan at Lebowa, as
follows:
- Anglo Platinum will incur for its own account the
first ZAR200 million (C$25.2 million) required for
development of the Middlepunt Hill UG2 decline
expansion project;
- Anglo Platinum will provide Lebowa with a project
finance facility of ZAR1.6 billion (C$202 million),
representing the balance of the capital budget estimate
for implementation of the Middlepunt Hill UG2 decline
expansion project ("The MPH Facility"). The MPH
Facility has a 8 year term, with a capital repayment
holiday of one year, will bear interest at a
facilitation interest rate and is subordinated in
priority of repayment against certain other funding
instruments within the Lebowa group; and
Beneficiation
- Lebowa has entered into a 5-year Concentrate Off-Take
Agreement with Anglo Platinum for the sale of Lebowa
concentrates at competitive market rates, renewable at
Lebowa`s election for a further 5 years.
- In seeking to facilitate Anooraq`s ambition of
becoming a "mine to market" company, Anglo Platinum
will extend Anooraq an option to acquire an ownership
interest in Anglo Platinum`s Polokwane Smelter, which
ownership interest will be relative to Anooraq`s group
concentrate feed into the Polokwane Smelter from time
to time and subject to certain conditions precedent.
Conditions
The Lebowa Transaction is subject to a number of
conditions precedents, including:
- completion of due diligence investigations by both
Anglo Platinum and Anooraq, which investigations have
already been substantially progressed;
- debt and equity capital raising by Anooraq in order
to fund the full purchase consideration for the Lebowa
Transaction;
- Anooraq shareholder approval of all resolutions
necessary to implement the Lebowa transaction;
- approval by the South African Competition Commission;
- consent by the United Kingdom Treasury for Anglo
Platinum to undertake the transaction;
- approval of the transaction and of certain transfers
of mineral title relating to Ga-Phasha, Boikgantsho and
Kwanda by the South African Department of Minerals and
Energy; and
- other regulatory approvals including, where
necessary, the Exchange Control department of South
African Reserve Bank, the JSE Limited, the TSX Venture
Exchange and the American Stock Exchange.
The parties remain committed to closing the Lebowa
Transaction as soon as reasonably practicable. The long-
stop date for closing the Lebowa Transaction is 30
November 2008.
Sale of Shares Agreement
Pursuant to the terms of the Sale of Shares Agreement
concluded with Anglo Platinum, Anooraq will acquire 51%
of the shares in, and claims on shareholders loan
account against, Lebowa Holdco. The joint venture
agreements in respect of the Ga-Phasha, Boikgantsho and
Kwanda will be terminated and these projects will be
transferred into separate companies, established as
wholly-owned subsidiaries of Lebowa Holdco.
Anglo Platinum has given Anooraq appropriate sale
warranties in relation to the Lebowa Transaction. It
has also been agreed that Anglo Platinum`s current
rehabilitation provision in respect of Lebowa will be
transferred into a new rehabilitation trust fund to be
established for the operations of Lebowa Holdco. Anglo
Platinum`s current rehabilitation guarantees in respect
of Lebowa will remain in place for one year after the
implementation of the Lebowa Transaction for the
benefit of Lebowa Holdco.
Shareholders Agreement
Pursuant to the terms of the Shareholders Agreement
concluded between Anooraq and Anglo Platinum, Anooraq
has the ability to appoint the majority of the
directors to the board of Lebowa Holdco and all of its
subsidiaries. Anglo Platinum will participate in key
management decisions through committees established for
that purpose.
Furthermore, in order to ensure a successful transition
at Lebowa, Anglo American plc Group has agreed to
provide certain essential services to Lebowa, at a cost
which is no greater than the costs charged to another
Anglo American plc Group company for the same or
similar services, for an initial period of one year.
Anooraq has given certain undertakings to Anglo
Platinum in relation to the maintenance of its status
as a company controlled by Historically Disadvantaged
Persons ("HDP"), as envisaged in the South African
Mineral and Petroleum Resources Development Act No.28
of 2002 and the Mining Charter. The effect of these
undertakings is that HDP must maintain beneficial
ownership of at least 26% in the assets of Lebowa
Holdco until the repayment of at least 60% of the MPH
Facility (approximately 6 years) ("Initial Term").
These undertakings include that Pelawan Investments
(Pty) Ltd, the HDP controlling shareholder of Anooraq,
will not allow either its own level of HDP shareholding
or its shareholding in Anooraq, to fall below 26% HDP
beneficial ownership interest. If these shareholding
levels should be breached, and Anooraq fails to
exercise its rights to remedy such a breach, Anooraq
may be required to dispose of its shares in Lebowa
Holdco to another HDP.
It is important from Anglo Platinum`s perspective that
the Anooraq group retain its current HDP control status
and that Anooraq retains control of Lebowa Holdco.
Should there be a change of such control then Anglo
Platinum may require Anooraq to acquire its shares in
Lebowa Holdco at a market-related price. In addition,
should Anooraq wish to sell its entire interest in
Lebowa Holdco to a third party then Anglo Platinum has
a tag along right relating to such sale. The parties
have also granted each other reciprocal rights of first
refusal relating to a proposed sale of their interests
in Lebowa Holdco.
Ongoing Funding
The board of Lebowa Holdco, which will be controlled by
Anooraq, has the right to call for funding either by
way of shareholder loan or equity. If a shareholder
should default on a cash call, the other shareholder
may increase its equity interest in Lebowa HoldCo by
funding the entire cash call, provided that during the
Initial Term, Anooraq`s shareholding in Lebowa Holdco
cannot be diluted for default in respect of equity
contributions.
Employees and Communities
The parties have agreed to establish:
- an Employee Share Ownership Plan ("ESOP") for the
benefit of employees of Lebowa. Anglo Platinum will
contribute an amount of approximately ZAR138 million
(based on current market prices) to the ESOP Trust to
facilitate its establishment, and approximately ZAR112
million of this amount will be utilized by the ESOP
Trust to subscribe for shares in Anooraq. The balance
of the funds will be used to pay benefits to the
employees of Lebowa over the next seven years; and
- a Communities Trust for the benefit of communities
affected by the operations of Lebowa Holdco. Anglo
Platinum will contribute an amount of approximately
ZAR104 million to the Communities Trust, which funds
will be utilized to subscribe for shares in Anooraq and
facilitate annual payments to the beneficiaries of the
community trust. Anooraq will issue warrants to the
trust with an option value of ZAR108 million.
Accordingly, pursuant to Anooraq`s equity financing for
implementation of the Lebowa Transaction, the Company
will receive an inflow of approximately ZAR195 million
from the ESOP Trust and Communities Trust.
Anooraq`s Technical Review of Lebowa
As part of its due diligence for the Lebowa
Transaction, Anooraq engaged international mining
industry consultants to conduct a technical review of
the Lebowa mine. The Mineral Resources and Mineral
Reserves have been reviewed by Snowden Mining Industry
Consultants. A technical report by independent
qualified persons D.B. Gray, Pr.Sci.Nat., and B.C. Rip,
Pr.Eng., FSAIMM, has been filed on www.sedar.com.
LEBOWA MINERAL RESERVES & RESOURCES
DECEMBER 2007
Category Tonnage 4E Contained Pt Pd Rh Au
(Mt) (g/t) 4E (Moz) (g/t) (g/t) (g/t) (g/t)
Merensky Mineral Reserves
Proven 23.1 4.25 3.20 2.62 1.20 0.15 0.28
Probable 5.4 4.06 0.70 2.50 1.12 0.16 0.28
Proven & 28.5 4.22 3.90 2.59 1.19 0.16 0.28
Probable
UG2 Mineral Reserves
Proven 34.1 5.29 5.80 2.18 2.57 0.44 0.10
Probable 9.4 5.04 1.50 2.11 2.39 0.44 0.09
Proven & 43.5 5.23 7.30 2.17 2.53 0.44 0.10
Probable
Merensky Mineral Resources
Measured 25.0 5.68 4.57 3.65 1.51 0.21 0.30
Indicated 27.4 5.51 4.86 3.46 1.52 0.20 0.33
Measured & 52.4 5.61 9.43 3.55 1.52 0.20 0.32
Indicated
Inferred 103.2 5.30 17.58 3.34 1.45 0.20 0.31
UG2 Mineral Resources
Measured 107.6 6.60 22.84 2.70 3.23 0.55 0.12
Indicated 71.3 6.56 15.32 2.70 3.20 0.53 0.13
Measured & 178.9 6.58 38.16 2.70 3.22 0.54 0.12
Indicated
Inferred 145.0 6.61 30.82 2.72 3.23 0.53 0.13
The Mineral reserves and Mineral Resources stated are
for 100% of Lebowa. Anooraq`s interest would be 51% of
the above once the transaction is completed. Mineral
Resources are exclusive of Mineral Reserves.
Mineral Resources that are not Mineral Reserves have
potential economic viability but have not yet been
demonstrated by an approved mining plan. Measured and
Indicated Mineral Resources are generally located
within 650 m depth from surface. Inferred Mineral
Resources are generally located beyond 650 m depth.
For Mineral Reserves, the Merensky pay limit (break
even) varies between 1.3 and 4.8 g/t 4E and the UG2 pay
limit (break even) varies between 1.3 and 4.4 g/t 4E
across all operations of Anglo Platinum.
Cut-off grades of 2.4 to 3.5 g/t 4E depending on reef
characteristics are applied to Merensky Mineral
Resource statements. A cut-off grade of 1.8 g/t 4E is
applied to UG2 Mineral Resource statements.
Contained metal for reserves has recoveries applied.
No recoveries are applied for contained metal for
resources.
To determine the longer potential of the mine, an
economic analysis has also been done as part of the
technical review using South African Rand as the
currency, analyst consensus estimates of metal prices
and exchange rates to 2012. Long term average US dollar
metal prices are: Pt-$1273/oz, Pd-$332/oz, Rh-$3669/oz,
Ni-$8.64/lb and Cu-$1.67/lb.
The capital and operating costs stated are estimated to
a 90% level of accuracy for projects approved by Anglo
Platinum, ie the mineral reserves above. Certain
Indicated and Measured Mineral Resources, which have
been demonstrated to have economic viability through
pre-feasibility studies (and would be considered
mineral reserves under National Instrument 43-101) but
are not yet approved by Anglo Platinum, were also
included to determine the longer term potential of the
mine. An additional 51.9 Mt grading at 4.49 4E g/t
have been converted from the Mineral Resources to
Proven and Probable Mineral Reserves in the proposed
project evaluations.
The table shows the after-tax and royalty results of
the technical review in real terms for the life of mine
for 100% of Lebowa. Anooraq`s interest after
completion of the transaction will be 51%.
TECHNICAL REVIEW OF LEBOWA
APRIL 2008
Life of Mine 34 years
Life of Mine Tonnes Treated 124 Million tonnes
4E Grade 4.49 g/t
4E 17.9 Moz
Pt 8.5 Moz
Pd 7.7 Moz
Rh 1.2 Moz
Au 0.5 Moz
ZAR/US$ exchange rate 8.09
4E Basket Price ZAR/kg 272,144
Operating Cost ZAR/ 4E kg 85,512
Operating Cost ZAR/Tonne 384
4E Basket Price US$/ oz 1,048
Operating Cost US$/ 4E oz 329
ZAR Millions CAD Millions
Gross Revenue 143,414 18,698
Total Capital Cost 11,029 1,438
Expansion & Replacement 7,659 999
Stay in Business 3,370 439
Operating cost 47,609 6,207
Gross Profit 95,806 12,491
Free Cash Flow 54,822 7,148
Net Present Value (at 5.0% discount rate) 23.747 3,096
Net Present Value (at 7.5% discount rate) 16,888 2,202
Net Present Value (at 10% discount rate) 12,553 1,637
- CAD values converted at an exchange rate of 7.67 as
at 12 April 2008.
- Stay in Business capital is the sustaining capital.
- Basket price is total metal value per refined 4E
kilogram and takes into account different ratios of the
metals for Lebowa.
1.2.2 Ga-Phasha JV Project, North-Eastern Limb
Anooraq has a 50% interest in the Ga-Phasha PGM
Project. 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).
The Ga-Phasha property consists of four farms, covering
an area of approximately 9,700 hectares, held by
Micawber 277 (Proprietary) Limited ("Micawber"), a
private South African corporation owned 50% by Anglo
Platinum through its wholly owned subsidiary Rustenburg
Platinum Mines ("Rustenburg") and 50% by Anooraq
through its wholly owned South African subsidiary
Plateau Resources (Pty) Ltd ("Plateau"). Anglo
Platinum is the operator.
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 Anooraq`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 Anooraq
and Pelawan, Anooraq acquired Pelawan`s 50%
shareholding in 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 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 it 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 to
safeguard the status of Anooraq as a BEE company. For
the purposes of calculating whether, by virtue of such
deemed dilutive financings, any common shares are
required to be issued to Pelawan in order to maintain a
minimum 52% shareholding, the share exchange agreement
provided that the quantum of such deemed financings
would equal: (a) 30% of the estimated development costs
in accordance with the bankable feasibility studies in
respect of the Projects, less cash on hand, or (b) to
the extent that such bankable feasibility studies had
not been prepared as at the Finalization Date, $70.8
million related to the Ga-Phasha Project and $27.6
million related to the Boikgantsho 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, 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 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.
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 1.782 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 PGM mineral resources outlined in the
Merensky and UG2 reef deposits. 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 deposit
would remain the primary focus for development, and the
Merensky deposit warrants further study through
additional drilling.
Engineering and other work directed toward completion
of a pre-feasibility was initiated in late 2006. Since
that time, studies on mining method and infrastructure
have been underway. Socio-economic and environmental
studies have also been done.
Once the Lebowa transaction is complete, the potential
for synergies between Ga-Phasha and Lebowa as well as
other opportunities to maximize efficiencies will be
assessed prior to completion of the pre-feasibility
study. The pre-feasibility study is currently expected
to be concluded in fiscal 2008.
1.2.3 Platreef Project, Northern Limb
Anooraq holds interests in over 37,000 hectares of
mineral rights (or "farms") that make up the
Boikgantsho, Rietfontein, the Kwanda and Central Block
properties. 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 Potgietersrust
Platinum Limited ("PPL"), a wholly owned subsidiary of
Anglo Platinum that has an open pit operation nearby,
formed the Boikgantsho Joint Venture with Anooraq as
the operator. From that time until late 2005, most of
Anooraq`s work was focused on the Boikgantsho JV.
1.2.3.1 Boikgantsho JV Project
Agreement
In November 2003, Anooraq, through its wholly-owned
South African subsidiary Plateau, entered into a joint
venture agreement with PPL 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. Drilling in 2004 under the JV
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. 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. 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.
Anooraq 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 pre-feasibility 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.
Planning is underway to resume work on the Boikgantsho
pre-feasibility study in 2008.
1.2.4 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 have continued to be
strong in 2008, averaging US$1906/oz to April 30.
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 over the first four months of 2008 is
US$451/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$922/oz so far in 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
Dec 31,2007 Dec 31,2006 Dec 31,2005
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.
Mar 31 Dec 31 Sep 30 Jun 30
2008 2007 2007 2007
Current assets 3,070 7,769 9,296 10,462
Mineral properties 9,237 9,079 9,078 8,333
Other assets 1,012 106 104 72
Total assets 13,319 16,954 18,478 18,867
Current liabilities 977 2,413 2,934 1,285
Long term liabilities 8,615 9,807 8,574 10,246
Shareholders` equity 3,727 4,734 6,967 7,335
Total liabilities and 13,319 16,954 18,478 18,867
shareholders` equity
Working Capital 2,093 5,356 6,362 9,177
Expenses
Exploration 58 773 22 49
Accretion on term loan 24 113 - -
Conference and travel 53 341 29 19
Consulting 22 62 30 7
Foreign exchange loss (gain) (911) (69) (192) (65)
Interest on term loan 391 535 465 542
Interest expense (income) (43) (234) (103) (212)
Accounting, audit and legal 79 229 47 37
Gain on disposal of fixed - - - -
asset
Office and administration 176 172 78 111
Salaries and benefits 1,016 566 488 634
Shareholder communications 45 66 60 74
Trust and filing 163 39 31 57
Subtotal 1,072 2,593 955 1,253
Stock-based compensation - - 1,491 - -
exploration
Stock-based compensation - 122 7,216 - -
office and administration
Future income tax expense (1) (137) - (1)
(recovery)
Loss for the period 1,193 11,163 955 1,252
Basic and diluted loss per 0.01 0.01 0.01 0.01
share
Weighted average number of 185,218 184,823 184,770 154,822
common shares outstanding
Mar 31 Dec 31 Sep 30 Jun 30
2007 2006 2006 2006
Current assets 11,326 13,177 2,337 3,143
Mineral properties 8,399 8,241 8,600 8,211
Other assets 387 411 98 103
Total assets 20,112 21,829 11,035 11,457
Current liabilities 238 1,034 478 311
Long term liabilities 11,703 11,819 - -
Shareholders` equity 8,171 8,976 10,557 11,146
Total liabilities and 20,112 21,829 11,035 11,457
shareholders` equity
Working Capital 11,088 12,143 1,859 2,832
Expenses
Exploration 33 152 42 466
Accretion on term loan - 14 - -
Conference and travel 103 218 17 38
Consulting 79 (147) 222 27
Foreign exchange loss (gain) (262) 231 (117) (159)
Interest on term loan 416 253 - -
Interest expense (income) (167) (95) 16 (12)
Accounting, audit and legal 103 102 205 216
Gain on disposal of fixed - (19) (11) (11)
asset
Office and administration 91 102 79 102
Salaries and benefits 330 394 335 408
Shareholder communications 58 112 38 78
Trust and filing 142 288 29 15
Subtotal 926 1,605 855 1,168
Stock-based compensation - - - (2) (6)
exploration
Stock-based compensation - 1 - (1) (3)
office and administration
Future income tax expense (1) (25) 4 (100)
(recovery)
Loss for the period 926 1,580 856 1,059
Basic and diluted loss per 0.01 0.01 0.01 0.01
share
Weighted average number of 148,228 148,220 148,220 148,220
common shares outstanding
1.5 Results of Operations
The loss for the three months ended March 31, 2008 was
$1,193,032 compared to a loss of $926,130 for the first
quarter 2007. This increase primarily resulted from
additional salary and benefit costs relating to the
South African operations and stock based compensation
expenses which were offset by foreign exchange gains.
The Company recorded a loss of $0.01 per share for the
period ended March 31, 2008, compared to a loss of
$0.01 per share for the same quarter of 2007.
Exploration expenditures increased in the first quarter
of the year to $58,370 from $33,020 in the first
quarter of fiscal 2007 due to increased activities at
the Ga-Phasha projects.
Legal, accounting and audit for the period ended March
31, 2008 decreased to $79,429 in comparison to $102,785
for the first quarter of fiscal 2007, mainly due to
reduced legal advisory fees. However, legal fees of
approximately $707,000 relating to the Lebowa
transaction has been capitalized to deferred
acquisition costs as they will be included in the cost
of acquisition when the transaction completes. Office
and administration for the first quarter of fiscal 2008
amounted to $176,372 in comparison to $91,212 spent for
the first quarter of fiscal 2007. The increase is due
to the Company moving to larger premises in South
Africa in anticipation of the completion of the Lebowa
transaction. Conference and travel costs of $52,726
were incurred during the first quarter of fiscal 2008
in comparison to the $103,122 incurred during for the
first quarter of fiscal 2007 largely due to increased
conference fees incurred in the prior year. Consulting
costs for the three months ended March 31, 2008
decreased to $21,982 in comparison to $78,729 spent for
the first quarter of fiscal 2007. Salaries and benefits
amounted to $1,015,562 in the first quarter of fiscal
2008 in comparison to $329,754 for the same period in
the prior year due to the increase in staff and the
payment of performance bonuses relating to the Lebowa
transaction.
Trust and filing for the period ended March 31, 2008
increased to $162,847 in comparison to the $141,598
incurred for the first quarter of fiscal 2007 primarily
as a result of increased expenses relating to the
Company`s listing on the Johannesburg Stock Exchange in
South Africa. Stock based compensation expenses
increased to $122,318 for the period ended March 31,
2008, compared to $1,445 incurred for same period in
fiscal 2007, largely as a result of stock option grants
in October 2007 being amortized in the current period.
The Company recorded interest expense of $442,620 for
the period ended March 31, 2008 in comparison to
$443,176 incurred for the first quarter of fiscal 2007.
The interest expense is mainly due to accrued interest
on the Company`s November 2006 term loan with
Rustenburg Platinum Mines Limited. Interest income
amounted to $94,725 for the period ended March 31, 2008
(2007 - $219,778) as a result of a lower cash balance
compared to the same period in the previous year.
The Company also recorded a foreign exchange gain of
$911,836 for the period ended March 31, 2008 in
comparison to a gain of $262,248 for the first quarter
of fiscal 2007. The gain is due to the strengthening of
the Canadian dollar against the South African Rand over
the course of the first quarter of fiscal 2008. A
significant amount of the Company`s liabilities are
denominated in South African Rand.
1.6 Liquidity
At March 31, 2008, the Company had working capital of
approximately $2.1 million as compared to $5.0 million
at the end of the 2007 fiscal year. The cash position
at March 31, 2008 was approximately $2.8 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 March 31, 2008 are
sufficient for its present needs, specifically to
continue administrative and exploration operations at
current levels through the end of 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
and is currently in the process of raising financing in
conjunction with the proposed transaction discussed in
Section 1.2 and below.
The Company had 185,230,007 common shares outstanding
at March 31, 2008. As the Company progresses on its
exploration programs in the Bushveld area, it will be
required to raise additional funds. 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).
In April 2008, Anooraq, through its wholly-owned
subsidiary, Plateau Resources (Proprietary) Limited,
entered into certain agreements with Anglo Platinum
Limited and Rustenburg Platinum Mines Limited pursuant
to which Anooraq agreed to purchase an effective 51% of
Lebowa Platinum Mines Limited ("Lebowa") together with
an effective 1% controlling interest in certain other
assets located in South Africa (the "Acquisition") for
an aggregate cash consideration of South African Rand
3.6 billion ($450 million). Closing of the Acquisition
is conditional upon satisfaction (or waiver) of various
conditions, including:
- Completion by all parties of their respective due
diligence reviews and satisfaction with the results
thereof;
- Completion of certain internal restructuring
transactions;
- Canadian and South African regulatory approvals;
- Stock exchange approvals;
- Debt and equity financing of the transaction; and
- Shareholder approvals.
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 one years years than 5
year years
Contractual obligation Nil Nil Nil Nil Nil
Long term debt obligations 13.0M 0.8m 12.2m Nil Nil
(1)
Operating lease Nil Nil Nil Nil Nil
obligations
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 = 7.92 ZAR, the rate
in effect on March 31, 2008. The current exchange rate
on May 12, 2008 is 1 Canadian dollar = 7.59 ZAR.
1.7 Capital Resources
At March 31, 2008, Anooraq had working capital of
approximately $2.1 million as compared to $5.0 million
at the end of the 2007 fiscal year.
1.8 Off-Balance Sheet Arrangements
None.
1.9 Transactions with Related Parties
Hunter Dickinson Inc. ("HDI") is a private company
owned equally by eight public companies, one of which
is Anooraq. HDI provides geological, corporate
development, administrative and management services to,
and incurs third party costs on behalf of the Company
on a full cost recovery basis, pursuant to an agreement
dated December 31, 1996. During the first quarter of
2008 HDI billed Anooraq $334,634 as compared to
$154,004 for the first fiscal quarter of 2007 for such
services and cost reimbursements.
Southgold Exploration (Proprietary) Limited
("Southgold") is a wholly-owned subsidiary of Great
Basin Gold Ltd., a Canadian public company which has
certain directors in common with the Company. Southgold
shared certain premises and other facilities in 2006
with the Company pursuant to a cost-sharing arrangement
based on a full cost recovery basis.
During the period ended March 31, 2008, the Company
paid or accrued $4,928 (first fiscal quarter 2007 -
$13,501) to CEC Engineering Ltd, a private company
owned by a former director, for engineering and project
management services at market rates.
1.10 Fourth Quarter
None.
1.11 Proposed Transactions
Refer to Lebowa Transaction 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 and changes to those policies
are described in note 3 of the consolidated financial
statements for the three months ended March 31, 2008,
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 Canadian
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, 2008, 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 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.
The Company`s objective when managing capital is to
safeguard the Company`s ability to continue as a going
concern, so that it can continue to explore and develop
its projects for the benefit of its shareholders and
other stakeholders. The Company considers the
components of shareholders` equity and term loan, as
well as its cash and equivalents, as capital. The
Company manages the capital structure and makes
adjustments to it in the light of changes in economic
conditions and the risk characteristics of the
underlying assets. Since the Company is in the
exploration stage, the Company may issue new shares
through private placements in order to maintain or
adjust the capital structure.
In order to facilitate the management of its capital
requirements, the Company prepares annual expenditure
budgets that are updated as necessary depending on
various factors, including successful capital
deployment and general industry conditions. The Company
expects its current capital resources will be
sufficient to carry its exploration and development
plans and operations through its current operating
period.
(ii) Financial Instruments - Disclosure (Section 3862)
and Presentation (Section 3863)
These standards replace CICA 3861, Financial
Instruments - Disclosure and Presentation. They
increase the disclosures previously 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.
The Company is exposed in varying degrees to a variety
of financial instrument related risk, including credit
risk, liquidity risk, foreign exchange risk, interest
risk and commodity price risk.
Credit Risk
Credit risk is the risk of potential loss to the
Company if a counterparty to a financial instrument
fails to meet its contractual obligations. The
Company`s credit risk is primarily attributable to its
liquid financial assets including cash and equivalents,
accounts receivable and due from related parties. The
Company limits exposure to credit risk on liquid
financial assets through maintaining its cash and
equivalents with high-credit quality financial
institutions. The carrying value of the Company`s cash
and cash equivalents, accounts receivable and due from
related parties represent the maximum exposure to
credit risk. The Company does not have financial assets
that are invested in asset backed commercial paper.
Liquidity Risk
Liquidity risk is the risk that the company will not be
able to meet its financial obligations as they fall
due. The Company ensures that there is sufficient
capital in order to meet short term business
requirements, after taking into account cash flows from
operations and the Company`s holdings of cash and cash
equivalents. The Company believes that these sources
will be sufficient to cover the likely requirements for
the foreseeable future. The Company`s cash and
equivalents are invested in business accounts which are
available on demand for the Company`s programs, and
which are not invested in any asset backed
deposits/investments.
The Company operates in South Africa. Like other
foreign entities operating there, the Company is
subject to currency exchange controls administered by
the South African Reserve Bank, that country`s central
bank. A significant portion of the Company`s funding
structure for its South African operations consists of
advancing loans to its South Africa incorporated
subsidiaries and it is possible the Company may not be
able to acceptably repatriate such funds once those
subsidiaries are able to repay the loans or repatriate
other funds such as operating profits should any
develop. The repatriation of cash held in South Africa
is permitted upon the approval of the South African
Reserve Bank
Foreign Exchange Risk
In the normal course of business, the Company enters
into transactions for the purchase of supplies and
services denominated in South African Rand. In
addition, the Company has cash and certain liabilities
denominated in South African Rand. As a result, the
Company is subject to foreign exchange risk from
fluctuations in foreign exchange rates. The Company has
not entered into any derivative or other financial
instruments to mitigate this foreign exchange risk.
Interest Rate Risk
The Company has a financing agreement with Anglo
Platinum whereby Anglo Platinum, through its wholly
owned subsidiary Rustenburg Platinum Mines, loaned an
amount of ZAR70 million to Plateau Resources Inc, a
subsidiary of the Company. The loan bears interest at
prime plus two percent, as quoted by the Standard Bank
of South Africa, and is subject to interest rate change
risk.
Commodity Price Risk
While the value of the Company`s resource properties
depend on the price of platinum group metals ("PGM")
and their outlook, the Company currently does not have
any operating mines and hence, does not have any
hedging or other commodity based price risks in respect
of its operational activities. PGM prices historically
have fluctuated widely and are affected by numerous
factors outside of the Company`s control, including,
but not limited to, industrial and retail demand,
forward sales by producers and speculators, levels of
worldwide production, and short-term changes in supply
and demand because of speculative hedging activities.
(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.
(b) Accounting Policies Not Yet Adopted
(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
May 12, 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 4,485,000
October 15, 2012 $3.27 371,000 7,670,000
(1) Pursuant to the exercise of the BEE Warrants, the
Company entered into an amending agreement (the
"Amending Agreement") with Pelawan to amend the
exercise procedure of the Warrants to allow Pelawan to
finance the exercise of the Warrants by way of a bridge
loan from Rand Merchant Bank (RMB"). Pursuant to the
Amending Agreement, Pelawan has exercised the Warrants
by depositing an escrowed amount equal to the aggregate
exercise price for the Warrants ($ 225 million or ZAR
1.782 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 10). 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 Company`s management is responsible for
establishing and maintaining adequate internal control
over financial reporting. Any system of internal
control over financial reporting, no matter how well
designed, has inherent limitations. Therefore, even
those systems determined to be effective can provide
only reasonable assurance with respect to financial
statement preparation and presentation.
There have been no significant changes in internal
controls over financial reporting during the quarter
ended March 31, 2008 that could have materially
affected or are reasonably likely to materially affect
the Company`s internal control over financial
reporting.
1.15.4 Disclosure Controls and Procedures
The Company has disclosure controls and procedures in
place to provide reasonable assurance that any
information required to be disclosed by the Company
under securities legislation is recorded, processed,
summarized and reported within the applicable time
periods and to ensure that required information is
gathered and communicated to the Company`s management
so that decisions can be made about timely disclosure
of that information.
There have been no significant changes in the Company`s
disclosure controls during the quarter ended March 31,
2008 that could significantly affect disclosure
controls subsequent to the date the Company carried out
its last evaluation.
16 May 2008
Sandton
Sponsor
QuestCo Sponsors (Pty) Limited
Date: 16/05/2008 13:00:01 Produced by the JSE SENS Department.
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