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EPS - Eastern Platinum Limited - Consolidated financial statements of Eastern
Platinum Limited June 30, 2008 (Unaudited)
EASTERN PLATINUM LIMITED
(Incorporated in Canada)
(Canadian Registration number BC0722783)
(South African Registration number 2007/006318/10)
Share Code TSX: ELR ISIN: CA2768551038
Share Code AIM: ELR ISIN: CA2768551038
Share Code JSE: EPS ISIN: CA2768551038
S&P TSX Composite Index
Consolidated financial statements of Eastern Platinum Limited June 30, 2008
(Unaudited)
Eastern Platinum Limited
June 30, 2008
Table of contents
Consolidated statements of operations ......................................3
Consolidated balance sheets ................................................4
Consolidated statements of shareholders` equity ............................5
Consolidated statements of comprehensive loss ..............................5
Consolidated statements of cash flows ......................................6
Notes to the consolidated financial statements ......................... 7-17
Eastern Platinum Limited
Consolidated statements of operations
(Expressed in thousands of U.S. dollars, except per share amounts - unaudited)
Three months Three months
ended ended
June 30, June 30,
2008 2007
Revenue $ 50,143 $ 22,324
Cost of operations
Production costs 21,058 17,853
Depletion and depreciation 4,450 (325)
25,508 17,528
Mine operating earnings 24,635 4,796
Expenses
General and administrative 5,309 5,049
Stock-based compensation 340 1,642
5,649 6,691
Operating income (loss) 18,986 (1,895)
Other income (expense)
Interest income 1,855 1,493
Interest expense (1,935) (2,917)
Foreign exchange (gain) loss 71 (1,938)
Income (loss) before income
taxes and 18,977 (5,257)
non-controlling interests
Future income tax (expense)
recovery (5,532) 976
Non-controlling interests
(Note 8) (740) (412)
Net earnings (loss) for the
period $ 12,705 $ (4,693)
Basic and diluted earnings
(loss)
per share $ 0.02 $ (0.01)
Weighted average number of
common shares outstanding -
basic 677,772,370 604,376,451
Weighted average number of
common shares outstanding -
diluted 713,615,412 604,376,451
Six months Six months
ended ended
June 30, June 30,
2008 2007
Revenue $ 106,551 $ 53,656
Cost of operations
Production costs 40,808 37,616
Depletion and depreciation 8,812 2,393
49,620 40,009
Mine operating earnings 56,931 13,647
Expenses
General and administrative 9,642 8,787
Stock-based compensation 1,567 14,224
11,209 23,011
Operating income (loss) 45,722 (9,364)
Other income (expense)
Interest income 4,310 1,581
Interest expense (2,162) (3,401)
Foreign exchange (gain) loss 1,128 (2,880)
Income (loss) before income taxes and 48,998 (14,064)
non-controlling interests
Future income tax (expense) recovery (13,780) 1,290
Non-controlling interests (Note 8) (2,551) (1,858)
Net earnings (loss) for the period $ 32,667 $ (14,632)
Basic and diluted earnings (loss)
per share $ 0.05 $ (0.03)
Weighted average number of
common shares outstanding - basic 673,822,281 562,481,710
Weighted average number of
common shares outstanding - diluted 716,094,886 562,481,710
See accompanying notes to the unaudited consolidated financial statements.
Eastern Platinum Limited
Consolidated balance sheets
(Expressed in thousands of U.S. dollars - unaudited)
June 30, December 31,
2008 2007
Assets
Current assets
Cash and cash equivalents $ 90,734 $ 18,818
Short-term investments 104,653 171,038
Trade receivables 42,435 33,157
Inventories (Note 3) 6,417 6,888
244,239 229,901
Property, plant and equipment
(Note 4) 778,145 813,461
Refining contract (Note 5) 15,562 18,467
Other assets 1,152 1,247
$ 1,039,098 $ 1,063,076
Liabilities
Current liabilities
Accounts payable and accrued
liabilities $ 26,664 $ 22,967
Future income taxes 9,186 6,416
Current portion of long-term
liability 4,011 3,837
39,861 33,220
Asset retirement obligation (Note 6) 2,711 2,889
Capital leases and other long-term
liabilities 3,976 9,127
Future income taxes 136,678 143,616
183,226 188,852
Non-controlling interests (Note 8) 23,380 23,402
Commitments (Note 11)
Shareholders` equity
Share capital (Note 7) 889,854 868,045
Contributed surplus 28,862 27,428
Accumulated other comprehensive
income (loss) (50,759) 23,481
Deficit (35,465) (68,132)
(86,224) (44,651)
832,492 850,822
$ 1,039,098 $ 1,063,076
Approved by the Board
"David Cohen" "Robert Gayton"
David Cohen, Director Robert Gayton, Director
See accompanying notes to the unaudited consolidated financial statements.
Eastern Platinum Limited
Consolidated statements of shareholders` equity
(Expressed in thousands of U.S. dollars - unaudited)
Common Shares Contributed
Without Par Value Surplus
Shares Amount
Balance June 30, 2007 667,778,358 865,103 17,897
Warrants exercised 100,000 17 8 -
Stock options exercised 1,153,333 2,764 (720)
Stock-based compensation - - 10,251
Net loss for the period - - -
Currency translation
adjustment - - -
Balance December 31, 2007 669,031,691 $ 868,045 $ 27,428
Warrants exercised 2,117,400 3,936 -
Stock options exercised 160,000 370 (81)
Stock-based compensation - - 1,227
Net earnings for the period - - -
Currency translation
adjustment - - -
Balance March 31, 2008 671,309,091 $ 872,351 $ 28,574
Warrants exercised 8,706,677 17,277 -
Stock options exercised 150,991 226 (52)
Stock-based compensation - - 340
Net earnings for the period - - -
Currency translation
adjustment - - -
Balance June 30, 2008 680,166,759 $ 889,854 $ 28,862
Deficit Accumulated Other Total
Comprehensive Shareholders`
Income (Loss) Equity
Balance June 30, 2007 (55,928) (23,024) 804,048
Warrants exercised - - 178
Stock options exercised - - 2,044
Stock-based compensation - - 10,251
Net loss for the period (12,204) - (12,204)
Currency translation adjustment - 46,505 46,505
Balance December 31, 2007 $ (68,132) $ 23,481 $ 850,822
Warrants exercised - - 3,936
Stock options exercised - - 289
Stock-based compensation - - 1,227
Net earnings for the period 19,962 - 19,962
Currency translation adjustment - (96,506) (96,506)
Balance March 31, 2008 $ (48,170) $ (73,025) $ 779,730
Warrants exercised - - 17,277
Stock options exercised - - 174
Stock-based compensation - - 340
Net earnings for the period 12,705 - 12,705
Currency translation adjustment - 22,266 22,266
Balance June 30, 2008 $ (35,465) $ (50,759) $ 832,492
Consolidated statements of comprehensive loss
(Expressed in thousands of U.S. dollars - unaudited)
3 months ended 3 months ended
June 30, June 30,
2008 2007
Net income (loss) for the period
before
other comprehensive loss $ 12,705 $ (4,693)
Other comprehensive loss -
currency 22,266 37,290
translation adjustment
Comprehensive income (loss) $ 34,971 $ 32,597
6 months ended 6 months ended
June 30, June 30,
2008 2007
Net income (loss) for the period
before
other comprehensive loss $ 32,667 $ (14,632)
Other comprehensive loss - currency (74,239) 29,730
translation adjustment
Comprehensive income (loss) $ (41,572) $ 15,098
See accompanying notes to the unaudited consolidated financial statements.
Eastern Platinum Limited
Consolidated statements of cash flows
(Expressed in thousands of U.S. dollars - unaudited)
Three Three
months months
ended ended
June 30, June 30 ,
2008 2007
Operating activities
Net income (loss) for the period $ 12,705 $ (4,693)
Items not involving cash
Accretion (Note 6) 86 273
Depletion and depreciation 4,450 (325)
Stock-based compensation 340 1,642
Foreign exchange (gain) loss (71) (4,752)
Future income tax expense (recovery) 5,532 (976)
Non-controlling interests 740 412
23,782 (8,419)
Net changes in non-cash working
capital items
Trade receivables 17,480 8,488
Inventories (670) (1,347)
Accounts payable and accrued liabilities 3,871 1,254
44,463 (24)
Financing activities
Common shares issued for cash, net
of share issue costs 17,452 223,107
Repayment of short-term debt (88) (31,075)
Other long-term liabilities (2,970) 6,023
14,394 198,055
Investing activities
Purchase of debt - 8,677
Acquisitions, net of cash acquired - (51,215)
Maturity of short-term investments 7,758 (150,021)
Property, plant and equipment expenditures (34,643) (5,814)
(26,885) (198,373)
Effect of exchange rate changes on cash
and cash equivalents 563 1,993
Increase in cash and cash equivalents 32,535 1,651
Cash and cash equivalents, beginning of
period 58,199 4,541
Cash and cash equivalents, end of period $ 90,734 $ 6,192
Cash and cash equivalents are comprised of:
Cash in bank $ 40,597 $ 6,077
Short-term money market instruments 50,137 115
$ 90,734 $ 6,192
Supplementary cash flow information
Interest paid $ 245 $ 39
Income taxes paid $ - $ -
Six months Six months
ended ended
June 30, June 30,
2008 2007
Operating activities
Net income (loss) for the period $ 32,667 $ (14,632)
Items not involving cash
Accretion (Note 6) 166 459
Depletion and depreciation 8,812 2,393
Stock-based compensation 1,567 14,224
Foreign exchange (gain) loss (1,128) 2,053
Future income tax expense (recovery) 13,780 (1,290)
Non-controlling interests 2,551 1,858
58,415 5,065
Net changes in non-cash working
capital items
Trade receivables (13,321) 4,962
Inventories (356) 3,335
Accounts payable and accrued liabilities 6,233 4,341
50,971 17,703
Financing activities
Common shares issued for cash, net
of share issue costs 21,676 228,415
Repayment of short-term debt 292 (31,410)
Other long-term liabilities (3,270) 6,023
18,698 203,028
Investing activities
Purchase of debt - 8,563
Acquisitions, net of cash acquired - (51,215)
Maturity of short-term investments 62,325 (139,025)
Property, plant and equipment expenditures (58,349) (39,042)
3,976 (220,719)
Effect of exchange rate changes on cash
and cash equivalents (1,729) 1,545
Increase in cash and cash equivalents 71,916 1,557
Cash and cash equivalents, beginning of
period 18,818 4,635
Cash and cash equivalents, end of period $ 90,734 $ 6,192
Cash and cash equivalents are comprised of:
Cash in bank $ 40,597 $ 6,077
Short-term money market instruments 50,137 115
$ 90,734 $ 6,192
Supplementary cash flow information
Interest paid $ 363 $ 191
Income taxes paid $ 69 $ -
See accompanying notes to the unaudited consolidated financial statements.
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts) (Unaudited)
1. Nature of operations
Eastern Platinum Limited (the "Company") is a platinum group metal ("PGM")
producer engaged in the acquisition, development and mining of PGM properties
located in various provinces in South Africa.
Effective July 1, 2007 the Company changed its fiscal year end from June 30 to
December 31 to better align with financial reporting year ends that are
predominant in the mining industry.
2. Summary of significant accounting policies
These unaudited interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles ("Canadian
GAAP"). The preparation of financial data is based on accounting principles and
practices consistent with those used in the preparation of the audited annual
financial statements except as noted below. These unaudited interim financial
statements should be read in conjunction with the Company`s audited
consolidated financial statements for the six months ended December 31, 2007,
as they do not contain all disclosures required by Canadian GAAP for annual
financial statements.
(a) Adoption of new accounting standards and accounting pronouncements
Effective January 1, 2008, the Company adopted four new accounting standards
that were issued by the Canadian Institute of Chartered Accountants. These
accounting policy changes were adopted on a prospective basis with no
restatement of prior period financial statements.
(i) Financial Instrument Disclosures and Presentation
CICA Handbook Sections 3862 "Financial Instruments A- Disclosures" and Section
3863 "Financial Instruments A- Presentation" replace Section 3861 "Financial
Instruments A- Disclosure and Presentation". The new standards carry forward the
presentation requirements for financial instruments and enhance the disclosure
requirements by placing increased emphasis on disclosures about the nature and
extent of risk arising from financial instruments and how the entity manages
those risks.
(ii) Capital Disclosures
CICA Handbook Section 1535 requires the company to disclose (a) its objectives,
policies and processes for managing capital; (b) quantitative data about what
the entity regards as capital; (c) whether the entity has complied with any
capital requirements; and (d) if it has not complied, the consequences of such
non-compliance.
(iii) Inventories
CICA Handbook Section 3031 replaced the existing inventories standard. The new
standard requires inventory to be valued on a first-in, first-out or weighted
average basis, which is consistent with the Company`s current treatment. The
adoption of CICA 3031 did not have a significant impact on the Company`s
accounting for inventory or associated disclosures as at January 1, 2008 or for
the six months ended June 30, 2008.
(b) International Financial Reporting Standards
In February 2008, the CICA announced that Canadian generally accepted
accounting principles (GAAP) for publicly accountable enterprises will be
replaced by International Financial Reporting Standards (IFRS) for fiscal years
beginning on or after January 1, 2011. Companies will be required to provide
IFRS comparative information for the previous fiscal year.
Accordingly the conversion from Canadian GAAP to IFRS will be applicable to the
Company`s reporting for the first quarter of 2011 for which the current and
comparative information will be prepared under IFRS. The Company expects the
transition to IFRS to impact accounting, financial reporting, and IT systems
and processes. The Company is currently assessing the impact of the transition
to IFRS. Training and additional resources will be engaged to ensure the timely
conversion to IFRS.
3. Inventories
June 30, December 31,
2008 2007
Consumables $ 5,849 $ 5,446
Ore and concentrate 568 1,442
$ 6,417 $ 6,888
4. Property, plant and equipment
June 30, 2008
Accumulated
depreciation/ Net book
Cost depletion value
Mining plant and equipment $ 24 0,059 $ 57,491 $ 182,568
Mineral properties
Crocodile River Mine (a) 12 1,723 10,846 110,877
Kennedy`s Vale Project (b) 33 9,785 210 339,575
Spitz kop PGM Project (c) 11 7,643 - 117,643
Mareesburg JV (c) 27 ,371 - 2 7 ,3 7 1
Other property, plant and 141 30 111
equipment
$ 84 6,722 $ 68,577 $ 778,145
December 31, 2007
Accumulated
depreciation/ Net book
Cost depletion value
Mining plant and
equipment $ 216,380 $ 58,597 $ 157,783
Mineral properties
Crocodile River
Mine (a) 138,163 9,711 128,452
Kennedy`s Vale
Project (b) 377,804 238 377,566
Spitzkop PGM
Project (c) 121,442 - 121,442
Mareesburg JV (c) 28,076 - 28,076
Other property,
plant and
equipment 191 49 142
$ 882,056 $ 68,595 $ 813,461
(a) Crocodile River Mine ("CRM")
The Company holds directly and indirectly 85% of CRM, which is located on the
eastern portion of the western limb of the Bushveld Complex. The Maroelabult,
Zandfontein, and Crocette sections are currently in production with the
Kareespruit deposit and other potential near-surface opportunities being in the
development stages.
(b) Kennedy`s Vale Project ("KV")
The Company holds directly and indirectly 85% of KV, which is located on the
eastern limb of the Bushveld Complex, near Steelpoort in the Province of
Mpumalanga. It comprises PGM mineral rights on five farms in the Steelpoort
Valley.
(c) Spitzkop PGM Project and Mareesburg Joint Venture
The Company holds directly and indirectly a 93.4% interest in the Spitzkop PGM
Project and a 75.5% interest in the Mareesburg project. The Company currently
acts as the operator of both the Mareesburg Platinum Project Joint Venture and
Spitzkop PGM Project, both located on the Eastern Limb of the Bushveld Complex.
5. Refining Contract
As at June 30, 2008, the refining contract had a total aggregate value of
$15,562. The value of the contract is amortized on a units-of-production basis.
The amortization expense for the three and six months ended June 30, 2008 was
$383 and $723 respectively. The accumulated amortization at June 30, 2008 was
$4,997.
6. Asset retirement obligation
Although the ultimate amount of the asset retirement obligation is uncertain,
the fair value of these obligations is based on information currently
available, including closure plans and applicable regulations. Significant
closure activities include land rehabilitation, demolition of buildings and
mine facilities and other costs.
The liability for the asset retirement obligation at June 30, 2008 is
approximately 21.2 million Rand ($2,711). The undiscounted value of this
liability is approximately 84 million Rand ($10,699). An accretion expense
component of approximately $86 for the three months ended June 30, 2008 and
$166 for the six months ended June 30, 2008 (6 months ended December 31, 2007 -
$180) has been charged to operations for the corresponding period ended June
30, 2008 to reflect an increase in the carrying amount of the asset retirement
obligation which has been determined using a discount rate of 13%. Changes to
the asset retirement obligation during the three and six months ended June 30,
2008 are as follows:
Balance, December 31, 2007 $ 2,889
Foreign exchange movement
(444)
Accretion 80
Balance, March 31, 2008 $ 2,525
Foreign exchange movement 100
Accretion 86
Balance, June 30, 2008 $ 2,711
7. Share capital
(a) Authorized
- Unlimited number of preferred redeemable, voting, non-participating shares
without nominal or par value
- Unlimited number of common shares with no par value
(b) Stock options
The Company has an incentive plan ("2008 Plan"), approved by the Company`s
shareholders at its annual general meeting held on June 4, 2008, under which
options to purchase common shares may be granted to its directors, officers,
employees and others at the discretion of the Board of Directors. Under the
terms of the 2008 Plan, 75 million common shares are reserved for issuance upon
the exercise of options. All outstanding options at June 4, 2008 granted under
the Company`s previous plan ("2005 Plan") will continue to exist under the 2008
Plan provided that the fundamental terms governing such options will be deemed
to be those under the 2005 Plan. Upon adoption of the 2008 Plan, options to
purchase a total of 27,525,000 common shares were available for grant under the
2008 Plan, representing 75,000,000 less the 47,475,000 outstanding options at
June 4, 2008 granted under the 2005 Plan.
Under the 2008 Plan, each option granted shall be for a term not exceeding five
years from the date of being granted and the vesting period is determined based
on the discretion of the Board of Directors. The option exercise price is set
at the date of the grant and cannot be less than the closing market price of
the Company`s common shares on the Toronto Stock Exchange on the day
immediately preceding the day of the grant of the option. The changes in stock
options during the six months ended June 30, 2008 were as follows:
June 30, December 31,
2008 2007
Weighted Weighted
average average
Number of exercise Number of exercise
options price options price
Cdn$ Cdn$
Balance
outstanding,
beginning of period 46,360,000 1.94 32,450,000 1.76
Options granted 1,500,000 3.38 15,180,000 2.31
Options exercised (320,000) 1.53 (1,153,333) 1.79
Options expired - - - -
Options cancelled (170,000) 2.54 (116,667) 1.70
Balance
outstanding,
end of period 47,370,000 1.99 46,360,000 1.94
The following table summarizes information concerning outstanding and
exercisable options at June 30, 2008:
Remaining
Options Options Exercise Contractual
outstanding exercisable price Life (Years) Expiry date
Cdn$
550,000 550,000 0.56 0.35 November 5, 2008
187,500 187,500 1.00 1.16 August 26, 2009
7,725,000 7,725,000 1.70 2.90 May 24, 2011
250,000 250,000 1.70 3.41 November 27, 2011
22,187,500 22,187,500 1.82 3.69 March 7, 2012
14,880,000 12,880,000 2.31 9.27 October 5, 2017
90,000 30,000 2.50 9.46 December 12, 2017
1,000,000 600,000 3.38 9.65 February 20, 2018
500,000 200,000 3.38 9.75 March 27, 2018
47,370,000 44,610,000 5.46
(c) Share purchase warrants
The changes in warrants during the six months ended June 30, 2008 were as
follows:
June 30, 2008 December 31, 2007
Weighted Weighted
average average
Number of exercise Number of exercise
warrants price warrants price
Cdn$ Cdn$
Balance outstanding,
beginning of period 71,248,050 1.83 71,348,050 1.83
Warrants exercised (10,824,077) 1.97
Warrants expired (1,937,977) 2.00 (100,000) 1.80
Balance outstanding,
end of period 58,485,996 1.80 71,248,050 1.83
At June 30, 2008, the Company had 58,485,996 warrants outstanding, each warrant
exercisable at Cdn$1.80 per common share and expiring on March 28, 2009.
8. Non-controlling interests
The non-controlling interests are comprised of the following:
Balance, December 31, 2007 $ 23,402
Non-controlling interests` share of income in Barplats (2,652)
Non-controlling interests` share of interest on advances to
Gubevu 841
Foreign Exchange Movement 178
Balance, March 31, 2008 $ 21,769
Non-controlling interests` share of income in Barplats 6,931
Non-controlling interests` share of interest on advances to
Gubevu (2,570)
Foreign Exchange Movement (2,750)
Balance, June 30, 2008 $ 23,380
9. Related party transactions
The Company incurred the following expenses in the normal course of operations,
measured at the exchange amount which is determined on a cost recovery basis,
with companies related by way of directors and officers in common:
June 30, June 30,
2008 2007
(3 months) (3 months)
Consulting fees (a) $ 25 $ 91
General and administrative expenses 82 50
Management fees (b) 311 113
Rent - 284
$ 418 $ 538
June 30, June 30,
2008 2007
(6 months) (6 months)
Consulting fees (a) $ 42 $ 179
General and administrative expenses 155 99
Management fees (b) 669 219
Rent - 305
$ 866 $ 802
(a) The Company paid fees to a private company controlled by a director of the
Company for consulting services performed outside of his capacity as a
director.
(b) The Company paid management fees and expenses to private companies
controlled by officers and directors of the Company.
(c) Amounts due to related parties are unsecured, non-interest bearing and due
on demand. Accounts payable at June 30, 2008 included $Nil (Dec 31, 2007 -
$2,550) which were due to private companies controlled by officers of the
Company.
10. Segmented information
(a) Operating segment - The Company`s operations are primarily directed towards
the acquisition, exploration and production of PGMs in South Africa.
(b) Geographic segments - The Company`s revenues and expenses by geographic
areas for the three and six months ended March 31 2008 and 2007 are as follows:
June 30, 2008 (3 months)
South Africa Canada Total
Property, plant and
equipment 778,047 98 778,145
Total Assets 837,656 201,442 1,039,098
Property, plant and
equipment expenditures 34,657 1,020 35,677
Revenues $ 50,143 $ - $ 50,143
Production costs (21,058) - (21,058)
Depletion and
depreciation (4,450) - (4,450)
Expenses (4,111) (1,198) (5,309)
Stock based compensation - (340) (340)
Interest income 905 950 1,855
Interest expense (2,024) 89 (1,935)
Foreign exchange gain
(loss) 49 22 71
Income (loss) before
income taxes
and non-controlling
interests $ 19,454 $ (477) $ 18,977
(b) Geographic segments (continued)
June 30, 2007 (3 months)
South Africa Canada Total
Property, plant and
equipment 757,184 109 757,293
Total Assets 810,596 198,084 1,008,680
Property, plant and
equipment expenditures 5,711 103 5,814
Revenues $ 23,190 $ - $ 23,190
Production costs (18,420) - (18,420)
Depletion and depreciation 2 39 (7) 232
Expenses (3,445) (1,724) (5,169)
Stock based compensation - (1,782) (1,782)
Interest income 3 03 1,227 1,530
Interest expense (2,945) - (2,945)
Foreign exchange gain (loss) (715) (1,222) (1,937)
Income (loss) before income
taxes and non-controlling
interests $ (1,793) $ (3,508) $ (5,301)
June 30, 2008 (6 months)
South Africa Canada Total
Property, plant and
equipment expenditures 57,312 1,037 58,349
Revenues $ 106,551 $ - $ 106,551
Production costs (40,808) - (40,808)
Depletion and depreciation (8,812) - (8,812)
Expenses (6,958) (2,684) (9,642)
Stock based compensation (1) (1,566) (1,567)
Interest income 1,491 2,819 4,310
Interest expense (2,251) 89 (2,162)
Foreign exchange gain
(loss) 1,107 21 1,128
Income (loss) before
income taxes
and non-controlling
interests $ 50,319 $ (1,321) $ 48,998
June 30, 2007 (6 months)
South Africa Canada Total
Property, plant and
equipment expenditures 38,939 103 39,042
Revenues $ 54,522 $ - $ 54,522
Production costs (38,183) - (38,183)
Depletion and depreciation (2,479) (7) (2,486)
Expenses (5,956) (2,951) (8,907)
Stock based compensation (144) (14,220) (14,364)
Interest income (86) 1,704 1,618
Interest expense (3,429) - (3,429)
Foreign exchange gain (loss) (2,876) (3) (2,879)
Income (loss) before income
taxes and non-controlling
interests $ 1,369 $ (15,477) $ (14,108)
For the period ended June 30, 2008 and 2007, 100% of the Company`s PGM
production was sold to one customer (Note 13(b)).
11. Commitments
The Company has committed to capital expenditures on projects of approximately
370million Rand ($47,358) as at June 30, 2008.
12. Management of capital risk
The capital structure of the Company consists of equity attributable to common
shareholders, comprising of issued capital, contributed surplus, retained
earnings and accumulated other comprehensive income. The Company`s objectives
when managing capital are to: (i) preserve capital, (ii) obtain the best
available net return, and (iii) maintain liquidity.
The Company manages the capital structure and makes adjustments to it in light
of changes in economic condition and the risk characteristics of the underlying
assets. To maintain or adjust the capital structure, the Company may attempt to
issue new shares, issue new debt, acquire or dispose of assets or adjust the
amount of cash and cash equivalents and investments.
The Company`s policy is to invest its excess cash in highly liquid, fully
guaranteed, bank- sponsored instruments. The Company staggers the maturity
dates of its investments over different time periods and dates to minimize
exposure to interest rate changes. This strategy is unchanged from 2007.
The Company is not subject to externally imposed capital requirements.
13. Management of financial risk
The Company`s financial instruments are exposed to certain financial risks,
including currency risk, credit risk, liquidity risk, interest risk and
commodity price risk. The Company`s exposure to these risks and its methods of
managing the risks remain consistent.
(a) Currency risk
The Company is exposed to the financial risk related to the fluctuation of
foreign exchange rates. The Company receives revenue in South African Rand,
incurs expenses in Canadian dollars and South African Rand and its reporting
currency is the US dollar. A significant change in the currency exchange rates
between the Canadian dollar and South African Rand relative to the US dollar
could have an effect on the Company`s results of operations, financial position
or cash flows. The Company has not entered into any derivative financial
instruments to manage exposures to currency fluctuations.
At June 30, 2008, the Company is exposed to currency risk through the following
financial instruments denominated in South African Rand and Canadian dollars:
June 30, December June 30,
2008 31, 2007 2008 December 31,
Cdn$ Cdn$ ZAR 2007
(000`s) (000`s) (000`s) ZAR (000`s)
Cash and cash
equivalents 65,631 18,107 206,047 3,326
Short-term investments 106,713 169,546 0 0
Trade receivables 2,357 1,880 313,504 215,195
Short-term liabilities 3,208 3,804 6,759 0
Long-term liabilities Nil 3,294 31,067 39,958
Accounts payable and
accruals 483 3,646 204,746 132,797
The sensitivity of the Company`s net earnings and other comprehensive income
due to changes in the exchange rate between the Canadian dollar and the South
African Rand is summarized in the tables below:
3 months ended June 30, 2008
10% 10% decrease
increase in in
Canadian Canadian
dollar dollar
Increase (decrease) in net earnings (779) 955
Increase (decrease) in other comprehensive
income 2,405 (2,442)
Comprehensive income (loss) 1,626 (1,487)
6 months ended June 30, 2008
10% 10% decrease
increase in in
Canadian Canadian
dollar dollar
Increase (decrease) in net earnings (2,092) 2,558
Increase (decrease) in other comprehensive
income (41,484) 50,986
Comprehensive income (loss) (43,576) 53,544
The sensitivity of the Company`s net earnings and other comprehensive income
due to changes in the exchange rate between the Canadian dollar and the United
States dollar is summarized in the tables below:
3 months ended June 30, 2008
10% 10% decrease
increase in in
Canadian Canadian
dollar dollar
Increase (decrease) in net earnings 1,272 (1,269)
Increase (decrease) in other comprehensive
income 2,226 (2,227)
Comprehensive income (loss) 3,498 (3,496)
6 months ended June 30, 2008
10% 10% decrease
increase in in
Canadian Canadian
dollar dollar
Increase (decrease) in net earnings 3,267 (3,266)
Increase (decrease) in other comprehensive
income (7,424) 7,424
Comprehensive income (loss) (4,157) 4,158
(b) Credit risk
Credit risk is the risk of an unexpected loss if a customer or third party to a
financial instrument fails to meet its contractual obligations. The Company`s
cash equivalents and short-term investments are held through large Canadian and
South African financial institutions. Short-term and long-term investments
(including those presented as part of cash and cash equivalents) are composed
of financial instruments issued by Canadian and South African banks and
companies with high investment- grade ratings. These investments mature at
various dates over the current operating period. The Company did not invest in
any asset backed commercial paper.
The Company currently sells all of its concentrate production to one customer
under an off-take contract. The loss of this customer or unexpected termination
of the off- take contract could have a material adverse effect on the Company`s
results of operations, financial condition and cash flows. The Company has not
experienced any bad debts with this customer.
The Company minimizes credit risk by reviewing the credit risk of the
counterparty to the arrangement and has made any necessary provisions related
to credit risk at June 30, 2008.
(c) 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 has a planning and
budgeting process in place to help determine the funds required to support the
Company`s normal operating requirements on an ongoing basis and its
expansionary plans. The Company ensures that there are sufficient funds to meet
its short-term business requirements, taking into account its anticipated cash
flows from operations and its holdings of cash and cash equivalents.
(d) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates. The Company is exposed to interest rate risk on its short-term
investments. The risk that the Company will realize a loss as a result of a
decline in the fair value of short-term investments is limited because these
investments, although available for sale, are generally held to maturity. The
Company monitors its exposure to interest rates and has not entered into any
derivative financial instruments to manage this risk.
(e) Price risk
The Company is exposed to price risk with respect to the revenues and costs of
production. These costs include electricity, labour, and diesel amongst others.
The Company closely monitors these prices to determine the appropriate course
of action to be taken by the Company. The Company has not entered into any
derivative financial instruments to manage exposures to price fluctuations.
A sensitivity analysis has not been completed at June 30, 2008 as it would not
be representative of the actual risk. The future costs of production are
unknown and are expected to change frequently.
14. Fair value estimation of financial instruments
The fair value of financial instruments traded in active markets is based on
quoted market prices at the balance sheet date. The fair value of financial
instruments that are not traded in an active market is determined using a
Black-Scholes model based on assumptions that are supported by observable
current market conditions. Changes in these assumptions to reasonably possible
alternative assumptions would not significantly affect the Company`s results.
The fair values of cash and cash equivalents, short-term investments, trade
receivables and accounts payable approximate their carrying values due to the
short-term to maturities of these financial instruments.
The fair value of short-term debt was determined using discounted cash flows at
prevailing market rates and the fair value is considered to approximate
carrying value.
Date: 14/08/2008 15:30:02 Produced by the JSE SENS Department.
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