| Fri 15 Aug 2008, 13:00 | | ARQ - Anooraq - Consolidated financial statements for the three and six months |
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ARQ
ARQ
ARQ - Anooraq - Consolidated financial statements for the three and six months
ended June 30, 2008
Anooraq Resources Corporation
(Incorporated in British Columbia, Canada)
(Registration number 10022-2033)
(JSE share code: ARQ)
(TSXV share code: ARQ)
(AMEX share code: ANO)
(ISIN: CA03633E1088)
("Anooraq" or "the Company")
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
2008
(Expressed in Canadian Dollars, unless otherwise stated)
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
June 30 December 31
2008 2007
(unaudited) (audited)
Assets
Current assets
Cash and equivalents $ 1,140,359 $ 7,131,821
Amounts receivable 337,630 167,779
Prepaid expenses 40,436 101,409
1,518,425 7,401,009
Deferred acquisition costs 1,330,949 368,146
Equipment (note 4) 408,061 105,494
Mineral property interests (note 5) 9,126,896 9,078,714
$ 12,384,331 $ 16,953,363
Liabilities and Shareholders` Equity
Current Liabilities
Accounts payable and accrued liabilities $ 549,408 $ 475,102
Due to related parties (note 8) 101,294 45,609
Current portion of term loan (note 6) 767,022 1,892,197
1,417,724 2,412,908
Term loan (note 6) 8,931,210 9,806,636
10,348,934 12,219,544
Shareholders` equity
Share capital 52,722,340 51,855,350
Contributed surplus 18,188,166 13,254,905
Deficit (68,875,109) (60,376,436)
2,035,397 4,733,819
Nature of operations (note 1)
Commitments (note 7(c))
Proposed transaction (note 10)
$ 12,384,331 $ 16,953,363
See accompanying notes to consolidated financial statements
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited - Expressed in Canadian Dollars)
Three months ended June 30
2008 2007
Expenses
Accounting, audit and legal $ 35,117 $ 37,457
Accretion on term loan 20,483 26,011
Conference and travel 188,412 19,154
Consulting 106,908 6,705
Exploration (schedule) 70,098 48,868
Foreign exchange loss (gain) 299,021 (65,098)
Gain on disposal of fixed assets (5,736) -
Interest expense 463,873 516,116
Interest income (40,734) (212,261)
Office and administration 287,981 111,225
Salaries and benefits 689,525 633,466
Stock-based compensation - office and
administration 5,110,375 -
Stock-based compensation - exploration - -
Shareholders communications 53,986 73,614
Trust and filing 26,332 57,403
Loss before the following 7,305,641 1,252,660
Future income tax recovery - (1,000)
Loss for the period 7,305,641 1,251,660
Other comprehensive loss - -
Total Comprehensive Loss $ 7,305,641 $ 1,251,660
Basic and diluted loss per share $ 0.04 $ 0.01
Headline loss per share $ 0.04 $ 0.01
Weighted average number of common shares
outstanding 185,253,743 154,821,467
Six months ended June 30
2008 2007
Expenses
Accounting, audit and legal $ 114,546 $ 140,242
Accretion on term loan 44,385 51,959
Conference and travel 241,138 122,276
Consulting 128,890 85,434
Exploration (schedule) 128,468 81,888
Foreign exchange loss (gain) (612,815) (327,346)
Gain on disposal of fixed assets (5,736) -
Interest expense 906,493 959,292
Interest income (135,459) (432,039)
Office and administration 464,353 202,437
Salaries and benefits 1,705,087 963,220
Stock-based compensation - office and
administration 5,232,693 1,044
Stock-based compensation - exploration - 401
Shareholders communications 98,451 131,981
Trust and filing 189,179 199,001
Loss before the following 8,499,673 2,179,790
Future income tax recovery (1,000) (2,000)
Loss for the period 8,498,673 2,177,790
Other comprehensive loss - -
Total Comprehensive Loss $ 8,498,673 $ 2,177,790
Basic and diluted loss per share $ 0.05 $ 0.01
Headline loss per share $ 0.05 $ 0.02
Weighted average number of common shares
outstanding 185,235,828 151,542,901
See accompanying notes to consolidated financial statements
Consolidated Statements of Shareholders` Equity
(Expressed in Canadian Dollars)
Six months ended
June 30, 2008
(unaudited)
Number of
Share capital shares
Balance at beginning of the period 185,208,607 $ 51,855,350
Share purchase options exercised at
$1.40 per share 360,000 504,000
Share purchase options exercised at
$0.95 per share - -
Share purchase options exercised at
$2.97 per share 21,400 63,558
Fair value of stock options allocated to
shares issued on exercise - 299,432
Common shares issued - -
Balance at end of the period 185,590,007 $ 52,722,340
Contributed surplus
Balance at beginning of the period $ 13,254,905
Stock-based compensation 5,232,693
Fair value of stock options allocated to
shares issued on exercise (299,432)
Balance at end of the period $ 18,188,166
Deficit
Balance at beginning of the period $ (60,376,436)
Loss for the period (8,498,673)
Balance at end of the period $ (68,875,109)
TOTAL SHAREHOLDERS` EQUITY $ 2,035,397
Year ended
December 31, 2007
Number of
Share capital shares
Balance at beginning of the period 148,220,407 $ 50,207,363
Share purchase options exercised at
$1.40 per share 883,200 1,236,480
Share purchase options exercised at
$0.95 per share 100,000 95,000
Share purchase options exercised at
$2.97 per share 5,000 14,850
Fair value of stock options allocated to
shares issued on exercise - 301,657
Common shares issued 36,000,000 -
Balance at end of the period 185,208,607 $51,855,350
Contributed surplus
Balance at beginning of the period $ 4,849,043
Stock-based compensation 8,707,519
Fair value of stock options allocated to
shares issued on exercise (301,657)
Balance at end of the period $ 13,254,905
Deficit
Balance at beginning of the period $ (46,080,305)
Loss for the period (14,296,131)
Balance at end of the period $ (60,376,436)
TOTAL SHAREHOLDERS` EQUITY $ 4,733,819
See accompanying notes to consolidated financial statements
Consolidated Statements of Cash Flows
(Unaudited - Expressed in Canadian Dollars)
Three months ended June 30
2008 2007
Operating activities
Loss for the period $ (7,305,641) $ (1,251,660)
Items not involving cash
Amortization included in exploration
expenses 10,287 4,534
Accretion on term loan 20,483 26,011
Future income tax recovery - (1,000)
Accrued interest on term loan (note 6) 408,455 439,852
Stock-based compensation 5,110,375 -
Gain on disposal of equipment (5,736) -
Unrealized foreign exchange gain 249,860 61,000
Equity loss from interest in Ga-Phasha
project (note 5) 91,001 17,667
Changes in non-cash operating working capital
Amounts receivable (88,078) (27,749)
Amounts due to and from related parties (224,739) 16,176
Prepaid expenses 21,066 41,353
Accounts payable and accrued liabilities 253,073 (34,556)
Cash and equivalents used by operating
activities (1,459,594) (708,372)
Investing activities
Purchase of equipment (131,340) (4,864)
Proceeds received on disposal of equipment 23,724 -
Deferred acquisition costs (623,823) -
Equity investment - (12,194)
Cash and equivalents used by investing
activities (731,439) (17,058)
Financing activities
Issuance of common shares 504,000 416,300
Payment of term loan interest - -
Cash and equivalents provided by (used
by) financing activities 504,000 416,300
Effect of exchange rate changes on cash
and equivalents 75,238 (524,659)
Decrease in cash and equivalents (1,611,795) (833,789)
Cash and equivalents, beginning of period 2,752,154 10,954,055
Cash and equivalents, end of period $ 1,140,359 $ 10,120,266
Supplementary information
Interest paid $ - $ -
Interest received $ (40,734) $ (212,261)
Taxes paid $ - $ -
Non-cash operating, financing and
investing activities
Fair value of options allocated to
shares issued on exercise $ 40,232 $ 65,292
Six months ended June 30
2008 2007
Operating activities
Loss for the period $ (8,498,673) $ (2,177,790)
Items not involving cash
Amortization included in exploration expenses 18,118 9,268
Accretion on term loan 44,385 51,959
Future income tax recovery (1,000) (2,000)
Accrued interest on term loan (note 6) 799,430 851,760
Stock-based compensation 5,232,693 1,445
Gain on disposal of equipment (5,736) -
Unrealized foreign exchange gain (563,249) (102,000)
Equity loss from interest in Ga-Phasha
project (note 5) 11,818 36,470
Changes in non-cash operating working capital
Amounts receivable (169,851) 2,948
Amounts due to and from related parties 55,685 (7,942)
Prepaid expenses 60,973 65,069
Accounts payable and accrued liabilities 74,306 (830,671)
Cash and equivalents used by operating
activities (2,941,101) (2,101,484)
Investing activities
Purchase of equipment (338,673) (7,420)
Proceeds received on disposal of equipment 23,724 -
Deferred acquisition costs (962,803) -
Equity investment - (24,907)
Cash and equivalents used by investing
activities (1,277,752) (32,327)
Financing activities
Issuance of common shares 567,558 535,300
Payment of term loan interest (1,777,979) -
Cash and equivalents provided by (used
by) financing activities (1,210,421) 535,300
Effect of exchange rate changes on cash
and equivalents (562,188) (1,056,369)
Decrease in cash and equivalents (5,991,462) (2,654,880)
Cash and equivalents, beginning of period 7,131,821 12,775,145
Cash and equivalents, end of period $ 1,140,359 $ 10,120,266
Supplementary information
Interest paid $ 1,777,979 $ -
Interest received $ (135,459) $ (432,039)
Taxes paid $ - $ -
Non-cash operating, financing and
investing activities
Fair value of options allocated to
shares issued on exercise $ 299,432 $ 122,135
See accompanying notes to consolidated financial statements
Consolidated Schedules of Exploration Expenses
(Unaudited - Expressed in Canadian Dollars)
Republic of South Africa Three months ended June 30
2008 2007
Northern Limb of the Bushveld Complex
Amortization $ 10,287 $ 4,534
Assays and analysis - (2,227)
Engineering 6,426 11,407
Geological and consulting 54,816 21,436
Graphics 1,348 100
Property fees and assessments (recovery) (9,219) (22,599)
Property option payments (126) 26,940
Site activities 23,396 3,348
Transportation (25,719) 3,358
61,209 46,297
Eastern Limb of the Bushveld Complex
Geological and consulting 12 2,571
Graphics (454) -
Property fees and assessments 9,331 -
8,889 2,571
Exploration expenses before the following 70,098 48,868
Stock-based compensation - -
Exploration expenses 70,098 48,868
Cumulative expenditures, beginning of period 26,040,433 23,646,735
Cumulative expenditures, end of period $ 26,110,531 $ 23,695,603
Republic of South Africa Six months ended June 30
2008 2007
Northern Limb of the Bushveld Complex
Amortization $ 18,118 $ 9,268
Assays and analysis - 200
Engineering 11,354 19,784
Geological and consulting 56,661 26,561
Graphics 3,286 2,084
Property fees and assessments (recovery) (10,664) (22,599)
Property option payments 10,406 32,548
Site activities 25,292 5,429
Transportation 9,358 3,358
123,811 76,633
Eastern Limb of the Bushveld Complex
Geological and consulting 4,657 5,255
Graphics - -
Property fees and assessments - -
4,657 5,255
Exploration expenses before the following 128,468 81,888
Stock-based compensation - 401
Exploration expenses 128,468 82,289
Cumulative expenditures, beginning of period 25,982,063 23,613,314
Cumulative expenditures, end of period $ 26,110,531 $ 23,695,603
See accompanying notes to consolidated financial statements
Notes to Consolidated Financial Statements
For the six months ended June 30, 2008
(Unaudited - Expressed in Canadian Dollars, unless otherwise stated)
1. NATURE OF OPERATIONS
Anooraq is incorporated in the Province of British Columbia, Canada and its
principal business activity is the exploration of mineral property interests.
Since 1999, the Company has focused on mineral property interests located in the
Republic of South Africa, with particular attention on the Bushveld Complex.
Operating results for the three and six month periods ended June 30, 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 anticipates 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, cash and
equivalents and term loan, 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. 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 June 30, 2008 are sufficient for its
present needs, specifically to continue administrative and exploration
operations at current levels through to the end of 2008.
There were no changes to the Company`s approach to capital management during the
six months ended June 30, 2008. The Company is not subject to externally imposed
capital requirements as at June 30, 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 from that 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 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 African 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:
Carrying Contractual
June 30, 2008 amount cash flow 2008
Accounts payable and accrued
liabilities $549,408 $549,408 $549,408
Amounts due to related parties 101,294 101,294 101,294
Term loan payable 9,698,232 13,676,552 806,828
June 30, 2008 2009 2010
Accounts payable and accrued
liabilities $ - $ -
Amounts due to related parties - -
Term loan payable 1,677,537 11,192,187
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 ("ZAR"). 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 June 30, 2008 December 31, 2007
South African Rand $ 848,301 $ 6,648,832
Other 41,395 37,435
Total Financial Assets $ 889,696 $ 6,686,267
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 June 30, 2008 December 31, 2007
South African Rand $ 9,783,295 $ 11,816,622
Total Financial Liabilities $ 9,783,295 $ 11,816,622
A 10 percent change of the Canadian dollar against the South African Rand at
June 30, 2008 would have changed net loss by $932,000. This analysis assumes
that all other variables, in particular interest rates, remain constant.
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.
A 10 percent change of the prime rate for the six month period ended June 30,
2008 would have changed net loss by $72,855. 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 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
June 30, 2008
Accumulated Net book
Cost amortization value
Office $ 435,131 $ 27,070 $ 408,061
Vehicles - - -
$ 435,131 $ 27,070 $ 408,061
December 31, 2007
Accumulated Net book
Cost amortization value
Office $ 66,840 $ 14,575 $ 52,265
Vehicles 116,368 63,139 53,229
$ 183,208 $ 77,714 $ 105,494
5. MINERAL PROPERTY INTERESTS
As at As at
June 30, 2008 December 31, 2007
Ga-Phasha Project
Balance, beginning of year $ 4,878,714 $ 4,040,751
Equity loss - exploration expenses (11,818) (920,608)
Net investments during the period -. 1,481,571
Equity gain - future income tax recovery 1,000 139,000
Equity gain - foreign exchange 59,000 138,000
Ga-Phasha Project, end of period 4,926,896 4,878,714
Platreef Properties - acquisition costs 4,200,000 4,200,000
Balance, end of period $ 9,126,896 $ 9,078,714
6. TERM LOAN
As at As at
June 30, 2008 December 31, 2006
Total term loan $ 9,698,232 $ 11,698,833
Current portion (767,022) (1,892,197)
Non-current portion $ 8,931,210 $ 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. The
interest payment due in June 2008 was deferred to September 30, 2008 as per
agreement with Anglo Platinum. No principal payments are required until maturity
of the loan on September 30, 2010.
Accrued interest expense on the term loan amounted to $799,430 (ZAR 6,065,478)
for the period ended June 30, 2008 (2007 - $851,760) 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:
Contractual
Weighted average Number of options weighted average
exercise price remaining life (years)
Balance,
December 31, 2007 $ 2.43 7,695,000 4.12
Granted 2.86 2,851,000
Exercised 1.49 (381,400)
Cancelled 2.97 (13,600)
Balance,
June 30, 2008 $ 2.59 10,151,000 4.05
Options outstanding and exercisable at June 30, 2008 were as follows:
Number of options
Expiry date Option price outstanding
December 17, 2010 $ 1.40 2,335,000
July 1, 2010 $ 2.97 119,000
October 15, 2012 $ 3.27 376,000
October 15, 2012 $ 2.97 4,470,000
June 25, 2013 $2.76 916,000
June 30, 2013 $2.90 1,935,000
Total 10,151,000
Average option price $ 2.59
Number of options Weighted average life
Expiry date vested (years)
December 17, 2010 2,335,000 2.5
July 1, 2010 119,000 2.0
October 15, 2012 251,000 4.3
October 15, 2012 4,278,750 4.3
June 25, 2013 916,000 5.0
June 30, 2013 1,935,000 5.0
Total 9,834,750 4.05
Average option price $ 2.57
The Company granted 916,000 shares options at $2.76 per share and 1,935,000
share options at $2.90 per share during the six months ended June 30, 2008.
The exercise prices of all share purchase options granted during the period were
equal to or greater than the market price at the grant date. Using an option
pricing model with the assumptions noted below, the estimated fair value of all
options granted have been reflected in the consolidated statement of operations
as follows:
Period ended June 30
2008
Stock-based compensation - Exploration $ -
Stock-based compensation - Office and administration 5,232,693
Credited to contributed surplus during the period 5,232,693
The fair value of the options granted during the three and six month periods
ended June 30, 2008 was $5,033,329 (2007 - $Nil). The assumptions used to
estimate the fair value of options granted during the period were:
2008
Risk free interest rate 3%
Expected life 5 years
Volatility 73%
Expected dividends nil
(c) Share purchase warrants
Pursuant to the Amending Agreement, Pelawan Investments (Pty) Ltd ("Pelawan")
exercised the 167,000,000 Warrants on December 20 2007, by depositing an
escrowed amount equal to the aggregate exercise price for the Warrants ($225
million or ZAR 1.586 billion) into an interest bearing account with 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 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 issue 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
Three months
Note ended June 30
Services rendered by ref 2008 2007
Hunter Dickinson Services Inc. (a) $ 344,582 $ 173,206
CEC Engineering Ltd. (b) - 11,609
Six months
ended June 30
Services rendered by 2008 2007
Hunter Dickinson Services Inc. $ 650,328 $ 327,211
CEC Engineering Ltd. 4,928 25,111
As at As at
June 30 December 31
Related party balances payable 2008 2007
Hunter Dickinson Services Inc. (a) $ 101,294 $ 44,042
CEC Engineering Ltd. (b) - 1,567
Payable to related parties $ 101,294 $ 45,609
(a) Hunter Dickinson Services Inc. ("HDSI") is a private company owned equally
by eight public companies, one of which is the Company. HDSI has certain
directors in common with the Company and provides geological, corporate
development, administrative and management services to, and incurs third party
costs on behalf of, the Company and its subsidiaries on a full cost recovery
basis pursuant to an agreement dated December 31, 1996.
(b) During the period ended June 30, 2008, the Company paid or accrued $4,928
(2007 - $25,111) to CEC Engineering Ltd ("CEC"), a private company owned by a
former director, for engineering and project management services at market
rates.
9. SEGMENTED INFORMATION
As at and for the three
months ended June 30, 2008 Canada Mexico
Exploration expenditures $ - $ -
Loss for the period (5,559,688) 497
Total assets 1,628,387 28,653
Equipment - -
As at and for the six
months ended June 30, 2008 Canada Mexico
Exploration expenditures $ - $ -
Loss for the period (6,296,988) 2,051
Total assets 1,628,387 28,653.
Equipment - -
As at and for the six months
ended June 30, 2007 Canada Mexico
Exploration expenditures $ - $ -
Loss for the period (792,512) (1,028)
Interest and other income 13,995 -
Total assets 822,894 30,414
Equipment - -
As at and for the three
months ended June 30, 2008 South Africa Total
Exploration expenditures $ 70,098 $ 70,098
Loss for the period (1,746,450) (7,305,641)
Total assets 10,727,291 12,384,331
Equipment 408,061 408,061
As at and for the six
months ended June 30, 2008 South Africa Total
Exploration expenditures $ 128,468 $ 128,468
Loss for the period (2,203,736) (8,498,673)
Total assets 10,727,291 12,384,331
Equipment 408,061 408,061
As at and for the six months
ended June 30, 2007 South Africa Total
Exploration expenditures $ 81,188 $ 81,888
Loss for the period (1,384,250) (2,177,790)
Interest and other income 418,044 432,039
Total assets 18,013,397 18,866,705
Equipment 71,467 71,467
10. PROPOSED TRANSACTION
Acquisition of Lebowa Platinum Mines (Limited)
In April 2008, Anooraq announced that it has entered into definitive 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 ZAR3.6 billion ($470 million) through a combination of debt and
equity. An exercise of share purchase warrants by Pelawan in December 2007, in
an aggregate amount of ZAR1.586 billion ($225 million), will provide a portion
of the funds required by Anooraq for this purpose. In May 2008 the Company
announced that it has executed a binding, credit approved term sheet with
Standard Chartered Bank ("Standard Chartered") to provide the Company with sole
underwritten debt finance of up to ZAR 1.7 billion to provide the additional
funding required to complete the acquisition of Lebowa. 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; and
- Closing of debt and equity financing of the transaction; and Shareholder
approvals.
Anooraq intends to fund the purchase price of Lebowa with a combination of long
term debt, proceeds from the Pelawan share warrants and to the extent required,
issue of new shares. In addition, Anglo Platinum will provide an interest
bearing standby loan facility which enables Anooraq to utilize up to 80% of all
cash flows generated from the Lebowa operations in meeting debt obligations.
This facility will only be required to support payment by Anooraq of external
acquisition senior debt finance for 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 ($26.1
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 ($208 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 an 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
/s/ Philip Kotze /s/ Iemrahn Hassen
Philip Kotze Iemrahn Hassen
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 six months ended
June 30, 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 August 11, 2008.
This discussion includes certain statements that may be deemed "forward looking
statements". All statements in this release, other than statements of historical
facts, that address potential acquisitions, future production, reserve
potential, exploration drilling, exploitation activities and events or
developments that Anooraq expects are forward looking statements. Anooraq
believes that such forward looking statements are based on reasonable
assumptions, including assumptions that: the Lebowa Transaction will complete;
Lebowa will continue to achieve production levels similar to previous years; the
planned Lebowa expansions will be completed and successful; Anooraq will be able
to secure future debt and equity financing on favourable terms; and the Ga-
Phasha and Platreef Project exploration results will continue to be positive.
Forward looking statements however, are not guarantees of future performance and
actual results or developments may differ materially from those in 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, changes in and the effect of government policies with
respect to mining and natural resource exploration and exploitation and
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 those actual results or developments may
differ materially from those projected in the forward looking statements.
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 do 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 do 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.
Cautionary Note to Investors Concerning Technical Review of Lebowa Platinum
Mines
The following are the principal risk factors and uncertainties which, in
management`s opinion, are likely to most directly affect the conclusions of the
technical review of Lebowa Platinum Mines. Some of the mineralized material
classified as a measured and indicated resource has been used in the cash flow
analysis. For US mining standards, a full feasibility study would be required,
which would require more detailed studies. Additionally all necessary mining
permits would be required in order to classify the project`s mineralized
material as an economically exploitable reserve. There can be no assurance that
this mineralized material will become classifiable as a reserve and there is no
assurance as to the amount, if any, which might ultimately qualify as a reserve
or what the grade of such reserve amounts would be. Data is not complete and
cost estimates have been developed, in part, based on the expertise of the
individuals participating in the preparation of the technical review and on
costs at projects believed to be comparable, and not based on firm price quotes.
Costs, including design, procurement, construction and on-going operating costs
and metal recoveries could be materially different from those contained in the
technical review. There can be no assurance that mining can be conducted at the
rates and grades assumed in the technical review. There can be no assurance that
these infrastructure facilities can be developed on a timely and cost-effective
basis. Energy risks include the potential for significant increases in the cost
of fuel and electricity, and fluctuation in the availability of electricity.
Projected metal prices have been used for the technical review. The prices of
these metals are historically volatile, and the Company has no control of or
influence on the prices, which are determined in international markets. There
can be no assurance that the prices of platinum, palladium, rhodium, gold,
copper and nickel will continue at current levels or that they will not decline
below the prices assumed in the technical review. Prices for these commodities
have been below the price ranges assumed in the technical review at times during
the past ten years, and for extended periods of time. The project will require
major financing, probably a combination of debt and equity financing. Interest
rates are at historically low levels. There can be no assurance that debt and/or
equity financing will be available on acceptable terms. A significant increase
in costs of capital could materially adversely affect the value and feasibility
of constructing the expansions. Other general risks include those ordinary to
large construction projects, including the general uncertainties inherent in
engineering and construction cost, the need to comply with generally increasing
environmental obligations, and accommodation of local and community concerns.
The economics are sensitive to the currency exchange rates, which have been
subject to large fluctuations in the last several years.
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 is a geological complex which hosts numerous PGM mines and prospects.
Anooraq, through its wholly owned South African subsidiary Plateau Resources
(Pty) Limited ("Plateau"), holds interests in several PGM projects, including
the advanced stage Ga-Phasha PGM Project ("Ga-Phasha Project") and the
Boikgantsho PGM Project ("Boikgantsho Project"), and the early stage Kwanda PGM
project ("Kwanda Project"). All of these projects are currently 50/50 joint
ventures with Anglo Platinum Limited ("Anglo Platinum").
In September 2007, Anooraq announced a transaction to transform the Company into
a significant PGM producer with a substantial resource base. Anooraq and Anglo
Platinum entered into a detailed transaction framework agreement whereby Anooraq
would purchase a controlling interest of 51% in Lebowa Platinum Mines
("Lebowa"), an operating PGM mine, and increase its interests to 51% in the Ga-
Phasha, Boikgantsho and Kwanda Projects ("the Lebowa Transaction"). The
companies signed definitive agreements for the Lebowa Transaction in late March
2008.
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 April 2008, and
further described below, 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 South African
Rand ("ZAR") 16.9 billion ($2.2 billion).
Since announcing the results of the Technical Review and definitive agreement
early in the quarter, the Company has focused on compiling the necessary
documentation for shareholder and government approvals and financing to complete
the Lebowa Transaction. This work is progressing, with anticipated closing in
the fourth quarter of 2008.
1.2.1 Lebowa Transaction
In September 2007, Anooraq entered into a transaction with Anglo Platinum
whereby Anooraq would purchase an effective 51% interest in Lebowa and increase
its interest in the Ga-Phasha Project from 50% to 51%. The parties also
announced that they had reached an agreement in principle for Anooraq to
increase its interest in the Boikgantsho and Kwanda Projects from 50% to 51%.
On March 28, 2008, Anooraq, through Plateau, entered into definitive acquisition
agreements (the "Acquisition Agreements") with Anglo Platinum and certain of its
wholly-owned subsidiaries (collectively, "Anglo Platinum") to acquire an
effective 51% of Lebowa and an additional 1% of the Ga-Phasha Project, the
Boikgantsho Project and the Kwanda Project for an aggregate cash consideration
of ZAR3.6 billion (the "Lebowa Transaction").
Closing of the Lebowa Transaction is conditional upon satisfaction (or waiver)
of various conditions, including:
1. the completion by all parties of their respective due diligence reviews and
satisfaction with the results thereof;
2. Anooraq and Plateau obtaining sufficient debt and equity financing to fund
the Lebowa Transaction purchase price;
3. the approval of the shareholders of Anooraq of the Lebowa Transaction and
related transactions;
4. the approval of the South African Competition Authorities;
5. the consent of the United Kingdom Treasury for Anglo Platinum to undertake
the transaction;
6. approval of the Lebowa Transaction and of certain transfers of mineral title
relating to the Ga-Phasha, Boikgantsho and Kwanda Projects by the South African
Department of Minerals and Energy ("DME"); and
7. 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 Lebowa Transaction is expected to close as soon as practicable following the
satisfaction or waiver of all conditions. The parties have agreed on an outside
cut-off date of November 30, 2008, or such later date as the parties may agree,
for the fulfillment or waiver of the conditions to the Lebowa Transaction.
Pursuant to the terms of the Acquisition Agreements, Anooraq will acquire 51% of
the shares in, and claims on shareholders loan account against, Richtrau No. 179
(Proprietary) Limited, a private company incorporated under the laws of South
Africa and which will be renamed Bokoni Platinum Holdings (Proprietary) Limited
following completion of the Lebowa Transaction, and which is the holding company
("Holdco") that will hold the interests of Anooraq and Anglo Platinum. The joint
venture agreements in respect of the Ga-Phasha Project, Boikgantsho Project and
Kwanda Project will be terminated and these projects will be transferred into
separate companies, established as wholly-owned subsidiaries of Holdco. Anglo
Platinum has given Anooraq appropriate sale warranties in relation to the Lebowa
Transaction.
Lebowa Transaction Funding
Anooraq intends to fund the purchase price for the Lebowa Transaction through a
combination of debt and equity financing. The exercise of 167,000,000 common
share purchase warrants (the "Warrants") by Pelawan in December 2007, for
aggregate proceeds of $225 million (ZAR 1.586 billion), will provide a portion
of the funds required by Anooraq for this purpose. In connection with the
exercise of the Warrants, Anooraq entered into an amending agreement (the
"Amending Agreement") with the Pelawan Trust 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, the Pelawan Trust exercised the Warrants by depositing an escrowed
amount equal to the aggregate exercise price for the Warrants ($225 million or
ZAR 1.586 billion) into an interest bearing account with RMB, to be released
pursuant to a deposit account agreement (the "Deposit Agreement") between RMB,
Pelawan and Anooraq upon the satisfaction of certain release conditions. The
Common Shares underlying the Warrants will be issued to the Pelawan Trust upon
receipt by the Company of the exercise price per Common Share, plus the interest
accrued thereon up to the date of release. Pelawan has advised Anooraq that it
has entered into a credit approved term sheet with Standard Chartered Bank to
provide Pelawan with sole underwritten debt finance of up to ZAR 700 million.
Pelawan intends to apply these funds towards the refinancing the RMB bridge loan
facility.
On May 20, 2008, Anooraq announced that it had entered into a binding, credit
approved term sheet with Standard Chartered Bank for sole underwritten debt
financing of up to ZAR 1.7 billion for the purpose of funding a portion of the
Lebowa Transaction purchase price. Completion of this debt financing facility is
subject to the satisfaction of certain conditions precedent and final
documentation.
Other Commercial Terms of the Lebowa Transaction
Anglo Platinum has agreed to 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.
Anglo Platinum and Anooraq have agreed to various financing arrangements between
them to implement the Anglo Platinum approved long term growth plan at Lebowa,
as follows:
(i) Anglo Platinum will incur for its own account the first ZAR 200 million
required for development of the Middlepunt Hill UG2 decline expansion project;
and
(ii) Anglo Platinum will provide Lebowa with a project finance facility of ZAR
1.6 billion, 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 an 8 year term, with a capital repayment
holiday of one year, will bear interest at a preferential interest rate and is
subordinated in priority of repayment against certain other funding instruments
within the Lebowa.
Lebowa has entered into a five 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. Anglo Platinum has
extended options to Anooraq 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.
Management and Control of Lebowa and Holdco
Anooraq and Anglo Platinum have entered into a shareholders` agreement to govern
the management of Holdco. Pursuant to this shareholders` agreement, Anooraq has
the ability to appoint the majority of the directors to the board of Holdco and
all of its subsidiaries. Anglo Platinum will participate in key management
decisions through especially established committees.
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 ("MPRDA") and the Mining Charter. The effect of these
undertakings is that HDPs must maintain "effective" or "the equivalent"
beneficial ownership of at least 26% in the assets of Holdco until the repayment
of at least 60% of the MPH Facility (approximately 6 years) ("Initial Term").
These undertakings include that Pelawan, 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 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 Holdco. Should there be a change of such control then Anglo Platinum
may require Anooraq to acquire its shares in Holdco at a market-related price.
In addition, should Anooraq wish to sell its entire interest in Holdco to a
third party then Anglo Platinum have 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 Holdco.
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.
Ongoing Funding
The board of 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 Holdco by funding the entire cash call, provided that during the Initial
Term, Anooraq`s shareholding in Holdco cannot be diluted for default in respect
of equity contributions.
Lebowa Employees and Communities
Anooraq and Anglo Platinum have agreed to establish:
(i) the Bokoni Platinum Mine Employee Share Ownership Plan ("ESOP") Trust (the
share ownership trust established for the benefit of employees of Lebowa) to
which Anglo Platinum will contribute an amount of approximately ZAR 112 million
for purposes of subscription for Anooraq common shares; and
(ii) the Anooraq Community Participation Trust (the share ownership trust
established for the benefit of the communities interested in or affected by
Anooraq`s operations) to which Anglo Platinum will contribute an amount of
approximately ZAR 83 million for purposes of subscription for Anooraq common
shares.
Lebowa Technical Information
Lebowa is an operating mine located on the north-eastern limb of the Bushveld
Complex, to the north of and adjacent to the Ga-Phasha Project. The Lebowa
property consists of seven mining licenses covering an area of 15,459.78
hectares.
Anglo Platinum applied to the DME for conversion of the "old order" mining
rights in respect of Lebowa to "new order" mining rights, as required by the
MPRDA. On April 29, 2008, Anglo Platinum announced that the DME has granted
conversion of the "old order" mining rights related to Lebowa.
Lebowa consists of a vertical shaft and a decline shaft system to access the
underground development on the Merensky Reef and UG2 Reef, as well as two
concentrator plants. Approximate monthly production from the Merensky Reef is
85,000 tonnes per month ("tpm") and from the UG2 Reef is 45,000 tpm. According
to the Anglo Platinum 2007 Annual Report, production at Lebowa in 2007 was
approximately 187,700 refined ounces of platinum, palladium, rhodium and gold
("4E") from 1.33 Million tonnes ("Mt") of ore milled.
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 Reef
production at 120,000 tpm and steady state UG2 Reef production of 255,000 tpm.
Anglo Platinum has approved a long term growth plan for Lebowa, which includes
various replacement and expansion projects to increase production to
approximately 375,000 tpm, comprising steady state Merensky Reef production at
120,000 tpm and steady state UG2 Reef production of 255,000 tpm. Anooraq
supports this growth plan, which will result in existing mining operations at
Lebowa increasing in two stages:
- Stage 1 (2008-2013) comprises an expansion of Merensky Reef and UG2 Reef ore
production to 245,000 tpm, with Merensky Reef production being increased to
120,000 tpm, initially from the Brakfontein Merensky Reef decline shaft system,
and UG2 Reef production being increased to 125,000 tpm, initially from the
Middelpunt Hill UG2 Reef decline shaft system.
- Stage 2 (2016 onwards) sees the further expansion of UG2 Reef production to
255,000 tpm with Merensky Reef 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.
Anooraq considers this an advantage, as there will be no need for material
refrigeration at depths above 650 meters below surface, 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 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. The following estimates of mineral
resources and reserves were confirmed for the Lebowa mineral properties:
LEBOWA MINERAL RESERVES & RESOURCES
DECEMBER 2007
CATEGORY TONNAGE 4E CONTAINED Pt
(Mt) (g/t) 4E (Moz) (g/t)
MERENSKY MINERAL RESERVES
Proven 23.1 4.25 3.20 2.62
Probable 5.4 4.06 0.70 2.50
Proven & Probable 28.5 4.22 3.90 2.59
UG2 MINERAL RESERVES
Proven 34.1 5.29 5.80 2.18
Probable 9.4 5.04 1.50 2.11
Proven & Probable 43.5 5.23 7.30 2.17
MERENSKY MINERAL RESOURCES
Measured 25.0 5.68 4.57 3.65
Indicated 27.4 5.51 4.86 3.46
Measured & Indicated 52.4 5.61 9.43 3.55
Inferred 103.2 5.30 17.58 3.34
UG2 MINERAL RESOURCES
Measured 107.6 6.60 22.84 2.70
Indicated 71.3 6.56 15.32 2.70
Measured & Indicated 178.9 6.58 38.16 2.70
Inferred 145.0 6.61 30.82 2.72
CATEGORY Pd Rh Au
(g/t) (g/t) (g/t)
MERENSKY MINERAL RESERVES
Proven 1.20 0.15 0.28
Probable 1.12 0.16 0.28
Proven & Probable 1.19 0.16 0.28
UG2 MINERAL RESERVES
Proven 2.57 0.44 0.10
Probable 2.39 0.44 0.09
Proven & Probable 2.53 0.44 0.10
MERENSKY MINERAL RESOURCES
Measured 1.51 0.21 0.30
Indicated 1.52 0.20 0.33
Measured & Indicated 1.52 0.20 0.32
Inferred 1.45 0.20 0.31
UG2 MINERAL RESOURCES
Measured 3.23 0.55 0.12
Indicated 3.20 0.53 0.13
Measured & Indicated 3.22 0.54 0.12
Inferred 3.23 0.53 0.13
The Mineral Reserves and Mineral Resources stated are for 100% of Lebowa.
Anooraq`s interest will be 51% of the above once the Lebowa 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 meters
depth from surface. Inferred Mineral Resources are generally located beyond 650
meters depth.
4E = Pt+Pd+Rh+Au
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 and 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, Au-$741/oz, Ni-$8.64/lb and Cu-$1.67/lb.
The capital and operating costs stated are estimated to a 90% level of accuracy
for projects approved by Anglo Platinum, i.e. the mineral reserves above.
Certain Indicated and Measured Mineral Resources (51.9 Million tonnes grading at
4.49 4E g/t), which have been demonstrated to have economic viability through
prefeasibility studies but do not yet have a mine plan approved by Anglo
Platinum, were also included to determine the longer term potential of the mine.
The table shows the after tax and royalty results of the technical review in
real terms for the life of mine for 100% of Lebowa. Anooraq`s interest after
completion of the Lebowa Transaction will be 51%.
TECHNICAL REVIEW OF LEBOWA
APRIL 2008
Life of Mine 34 years
Life of Mine Tonnes Treated 124 Million tonnes
4E Grade 4.49 g/t
4E 17.9 Moz
Pt 8.5 Moz
Pd 7.7 Moz
Rh 1.2 Moz
Au 0.5 Moz
ZAR/$ 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 $/ oz 1,048
Operating Cost $/ 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 Project, North-Eastern Limb
Anooraq has a 50% interest in the Ga-Phasha Project. Anooraq acquired its
interest in the project by way of a reverse takeover transaction ("RTO") with
Pelawan Investments (Pty) Ltd ("Pelawan") in 2004 (further details below).
The Ga-Phasha Project 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 Limited
("Rustenburg") and 50% by Anooraq through its wholly owned South African
subsidiary, 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
Anooraq`s Northern limb prospects and Pelawan`s 50% participation interest in
the Ga-Phasha Project. The transaction between Anooraq and Pelawan was completed
on September 29, 2004.
Pursuant to the terms of the agreement between Anooraq and Pelawan, Anooraq
acquired Pelawan`s 50% shareholding in Micawber and the rights to its 50%
participation interest in the Ga-Phasha Project in return for 91.2 million
common shares of the Company (the "Consideration Shares") and cash payments
totaling 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 Project and the Drenthe-Overysel
(subsequently renamed "Boikgantsho") Project 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 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 Ga-Phasha and Boikgantsho 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 Ga-Phasha and
Boikgantsho 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
1.586 billion) into an interest bearing account with RMB, to be released
pursuant to a deposit account agreement (the "Deposit Agreement") between RMB,
Pelawan Investments (Pty) Ltd and Anooraq upon the satisfaction of certain
release conditions, as follows:
- 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; and
The earlier of the fulfillment of any of the following conditions
- 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;
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
The Ga-Phasha Project 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
the Ga-Phasha Project. 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 the
Ga-Phasha Project 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 continuing and being reviewed in light of the
Lebowa Transaction.
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.
1.2.3.1 Boikgantsho 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 mine 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 Project area.
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 Project 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 has since been deferred as the Company focused on the Ga-
Phasha Project and the Lebowa Transaction.
Planning is underway to resume work on the Boikgantsho Project technical program
and studies.
1.2.4 Market Trends
Platinum prices have increased over 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
increase in 2008, averaging US$1940/oz to August 5, 2008.
Palladium prices averaged approximately US$201/oz in 2005, US$323/oz in 2006 and
US$358/oz in 2007. Palladium prices strengthened in 2008 as consumers consider
substitution for platinum with the average price to August 5, 2008 at US$443/oz.
Gold prices have been on an uptrend for several years. 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$915/oz to August 5, 2008.
1.3 Selected Annual Information
December 31 December 31 December 31
2007 2006 2005
Current assets $ 7,401,009 $ 13,177,004 $ 5,159,433
Mineral property interests 9,078,714 8,240,751 8,502,000
Other assets 473,640 411,167 174,163
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
shareholders` equity $ 16,953,363 $ 21,828,922 $ 13,835,596
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
common shares
outstanding (thousands) 168,378 148,220 148,107
1.4 Summary of Quarterly Results
Expressed in thousands of dollars, except per-share amounts. Small differences
are due to rounding.
Jun 30 Mar 31 Dec 31 Sep 30
2008 2008 2007 2007
Current assets 1,518 3,070 7,769 9,296
Mineral properties 9,127 9,237 9,079 9,078
Other assets 1,739 1,012 106 104
Total assets 12,384 13,319 16,954 18,478
Current liabilities 1,418 977 2,413 2,934
Long term liabilities 8,931 8,615 9,807 8,574
Shareholders` equity 2,035 3,727 4,734 6,967
Total liabilities and
shareholders`
equity 12,384 13,319 16,954 18,478
Working Capital 101 2,093 5,356 6,362
Expenses
Exploration 70 58 773 22
Accretion on term loan 21 24 113 -
Conference and travel 188 53 341 29
Consulting 107 22 62 30
Foreign exchange loss (gain) 299 (911) (69) (192)
Interest on term loan 408 391 535 465
Interest expense (income) 15 (43) (234) (103)
Accounting, audit and legal 35 79 229 47
Gain on disposal of fixed asset (6) - - -
Office and administration 288 176 172 78
Salaries and benefits 690 1,016 566 488
Shareholder communications 54 45 66 60
Trust and filing 26 163 39 31
Subtotal 2,195 1,073 2,593 955
Stock-based compensation -
exploration - - 1,491 -
Stock-based compensation -
office and administration 5,111 122 7,216 -
Future income tax expense
(recovery) - (1) (137) -
Loss for the period 7,306 1,194 11,163 955
Basic and diluted loss per share 0.04 0.01 0.06 0.01
Weighted average number of
common shares outstanding 185,254 185,218 184,823 184,770
Jun 30 Mar 31 Dec 31 Sep 30
2007 2007 2006 2006
Current assets 10,462 11,326 13,177 2,337
Mineral properties 8,333 8,399 8,241 8,600
Other assets 72 387 411 98
Total assets 18,867 20,112 21,829 11,035
Current liabilities 1,285 238 1,034 478
Long term liabilities 10,246 11,703 11,819 -
Shareholders` equity 7,335 8,171 8,976 10,557
Total liabilities and
shareholders`
equity 18,867 20,112 21,829 11,035
Working Capital 9,177 11,088 12,143 1,859
Expenses
Exploration 49 33 152 42
Accretion on term loan - - 14 -
Conference and travel 19 103 218 17
Consulting 7 79 (147) 222
Foreign exchange loss (gain) (65) (262) 231 (117)
Interest on term loan 542 416 253 -
Interest expense (income) (212) (167) (95) 16
Accounting, audit and legal 37 103 102 205
Gain on disposal of fixed asset - - (19) (11)
Office and administration 111 91 102 79
Salaries and benefits 634 330 394 335
Shareholder communications 74 58 112 38
Trust and filing 57 142 288 29
Subtotal 1,253 926 1,605 855
Stock-based compensation -
exploration - - - (2)
Stock-based compensation -
office and administration - 1 - (1)
Future income tax expense
(recovery) (1) (1) (25) 4
Loss for the period 1,252 926 1,580 856
Basic and diluted loss per share 0.01 0.01 0.01 0.01
Weighted average number of
common shares outstanding 154,822 148,228 148,220 148,220
1.5 Results of Operations
Three months ended June 30, 2008
The loss for the three months ended June 30, 2008 was $7,305,641 compared to a
loss of $1,251,660 for the three months ended June 30, 2007. This increase
primarily resulted from additional conference and travel, consulting, stock
based compensation expenses and foreign exchange losses. The Company recorded a
loss of $0.04 per share for the three months period ended June 30, 2008,
compared to a loss of $0.01 per share for the same period in fiscal 2007.
Exploration expenditures for the quarter increased to $70,098 in comparison to
$48,868 incurred for the same period of fiscal 2007 due to increased activities
at the Ga-Phasha projects.
Legal, accounting and audit for the three months ended June 30, 2008 amounted to
$35,117 in comparison to $37,457 for the three months ended June 30, 2007.
However, legal and accounting fees of $623,823 relating to the Lebowa
Transaction have been capitalized to deferred acquisition costs during the three
months ended June 30, 2008 as they will be included in the cost of acquisition
when the transaction completes.
Office and administration for the three months ended June 30, 2008 amounted to
$287,981 in comparison to $111,225 spent for the second quarter of the previous
fiscal year. 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 $188,412 were incurred during the three months
ended June 30, 2008 in comparison to the $19,154 incurred during for the same
period of fiscal 2007 and are largely due to increased travel by management
incurred for attending the annual general meeting, travel related expenditure
for the Lebowa Transaction and increased conference expenses. Consulting costs
for the three months ended June 30, 2008 increased to $106,908 in comparison to
$6,705 spent for the same period of fiscal 2007 largely due to tax related
consulting expenses incurred in the quarter. Salaries and benefits amounted to
$689,525 in the three months ended June 30, 2008 in comparison to $633,466 for
the same period in the prior year; the increase is largely due to the increase
in staff in South Africa.
Trust and filing for the three months ended June 30, 2008 decreased to $26,332
in comparison to the $57,403 incurred for the three months ended June 30, 2007
primarily as a result of higher expenses incurred in the same period for fiscal
2007 relating to the Company`s listing on the Johannesburg Stock Exchange in
South Africa. Stock based compensation expenses increased to $5,110,375 for the
three months ended June 30, 2008, compared to $nil being incurred for the same
period in fiscal 2007, as a result of stock option grants in June 2008.
The Company recorded interest expense of $463,873 for the three months ended
June 30, 2008 in comparison to $516,116 incurred for the same period of fiscal
2007. The interest expense is mainly due to accrued interest on the term loan
from Rustenburg Platinum Mines Limited. Interest income for the three months
ended June 30, 2008 amounted to $40,734 in comparison to $212,261 interest
received for the same period of fiscal 2007 as a result of a lower cash balance
compared to the same period in the previous year.
Six months ended June 30, 2008
The loss for the six months ended June 30, 2008 was $8,498,673 compared to a
loss of $2,177,790 for the six months ended June 30, 2007. This increase
primarily resulted from additional salary and benefit costs relating to the
South African operations and stock based compensation expenses which were
partially offset by foreign exchange gains. The Company recorded a loss of $0.05
per share for the six months period ended June 30, 2008, compared to a loss of
$0.01 per share for the same period in fiscal 2007.
Exploration expenditures increased in the six months ended June 30, 2008 to
$128,468 from $81,888 incurred for the same period of fiscal 2007 due to
increased activities at the Ga-Phasha Project.
Legal, accounting and audit for the period ended June 30, 2008 decreased to
$114,546 in comparison to $140,242 for the six months ended June 30, 2007,
mainly due to reduced legal advisory fees. However, legal and accounting fees of
approximately $1,330,949 relating to the Lebowa Transaction have 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
six months ended June 30, 2008 amounted to $464,353 in comparison to $202,437
spent for the six months ended June 30, 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 $241,138 were incurred
during the six months ended June 30, 2008 in comparison to the $122,276 incurred
during for the same period of fiscal 2007 largely due to increased travel by
management incurred for attending the annual general meeting as well as travel
relating to the Lebowa Transaction and increased conference expenses. Consulting
costs for the six months ended June 30, 2008 increased to $128,890 in comparison
to $85,434 spent for the same period of fiscal 2007 largely due to tax related
consulting expenses. Salaries and benefits amounted to $1,705,087 in the six
months ended June 30, 2008 in comparison to $963,220 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 six months ended June 30, 2008 decreased to $189,179 in
comparison to the $199,001 incurred for the six months ended June 30, 2007
primarily as a result of increased expenses relating to the Company`s listing on
the Johannesburg Stock Exchange in South Africa incurred in the same period for
fiscal 2007. Stock based compensation expenses increased to $5,232,693 for the
six months ended June 30, 2008, compared to $1,445 incurred for same period in
fiscal 2007, largely as a result of stock option grants in June 2008.
The Company recorded interest expense of $906,493 for the six months ended June
30, 2008 in comparison to $959,292 incurred for the same period of fiscal 2007.
The interest expense is mainly due to accrued interest on the term loan from
Rustenburg Platinum Mines Limited. Interest income amounted to $135,459 for the
six months ended June 30, 2008, in comparison to $432,039 interest received for
the same period of fiscal 2007 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 $612,815 for the six months
ended June 30, 2008 in comparison to a gain of $327,346 for the same period of
fiscal 2007. The gain is due to the strengthening of the Canadian dollar against
the South African Rand over the course of the six months ended June 30, 2008. A
significant amount of the Company`s liabilities are denominated in South African
Rand.
1.6 Liquidity
At June 30, 2008, the Company had working capital of $100,701 as compared to
$5.0 million at the end of the 2007 fiscal year. The cash position at June 30,
2008 was approximately $1.1 million.
Anooraq`s sources of capital are primarily equity investment. The Company`s
access to capital sources is dependent upon general financial market conditions,
especially those that pertain to venture capital situations such as mineral
exploration and development. There can be no assurance that Anooraq`s future
capital requirements can be met in the long term, or that adequate financing
will be obtained on a timely basis or at all. Failure to obtain adequate
financing will result in significant delays in exploration programs and a
substantial curtailment of operations. The Company`s cash resources at June 30,
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 Lebowa Transaction discussed in Section 1.2 and below.
The Company had 185,590,007 common shares outstanding at June 30, 2008. As the
Company progresses on its exploration programs, 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 BEE Warrants for the purchase of 167 million common
shares in Anooraq. These BEE 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, entered
into certain agreements with Anglo Platinum and Rustenburg pursuant to which
Anooraq agreed to purchase an effective 51% of Lebowa together with an effective
1% controlling interest in certain other assets located in South Africa (the
"Acquisition") for an aggregate cash consideration of ZAR3.6 billion ($470
million). In May 2008, the Company announced that it has executed a binding,
credit approved term sheet with Standard Chartered Bank ("Standard Chartered")
to provide the Company with sole underwritten debt finance of up to ZAR 1.7
billion to provide additional funding required to complete the acquisition of
Lebowa.
Closing of the Acquisition is conditional upon satisfaction (or waiver) of
various conditions (see 1.2.1), 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
completion.
The Company has the following long-term contractual obligations
Payments due by period
Total Less than 1 to 3 years
Contractual obligation Nil Nil Nil
Long term debt obligations 13.7M 0.8m 12.9m
Operating lease obligations Nil Nil Nil
Purchase obligations Nil Nil Nil
Other Nil Nil Nil
Total Nil Nil Nil
Payments due by period
3-5 years More than 5
Contractual obligation Nil Nil
Long term debt obligations Nil Nil
Operating lease obligations Nil Nil
Purchase obligations Nil Nil
Other Nil Nil
Total 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 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 = 7.66 ZAR, the
rate in effect on June 30, 2008. The current exchange rate on August 5, 2008 is
1 Canadian dollar = 7.21 ZAR.
1.7 Capital Resources
At June 30, 2008, Anooraq had working capital of $100,701 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 Services Inc. ("HDSI") is a private company owned equally by
eight public companies, one of which is Anooraq. HDSI provides geological,
corporate development, administrative and management services to, and incurs
third party costs on behalf of the Company on a full cost recovery basis,
pursuant to an agreement dated December 31, 1996. During the six months ended
June 30, 2008 HDSI billed Anooraq $650,328 as compared to $327,211 for the same
period 2007 fiscal for such services and cost reimbursements.
During the period ended June 30, 2008, the Company paid or accrued $4,928 (six
months ended June 30, 2007 - $25,111) 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
Not applicable.
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 six months ended June 30, 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 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, loaned an amount of
ZAR70 million to Plateau, 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 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 August 5, 2008. These
figures may be subject to minor accounting adjustments prior to presentation in
future consolidated financial statements.
Exercise
Expiry date price Number Number
Common shares 185,590,007
Escrow
Warrants (1) December 31, 2008 $ 1.35 167,000,000
Share purchase
options December 17, 2010 $ 1.40 2,335,000
July 1, 2010 $2.97 119,000
October 15, 2012 $ 2.97 4,470,000
October 15, 2012 $ 3.27 376,000
June 25, 2013 $2.76 916,000
June 30, 2013 $2.90 1,935,000 10,151,000
(1) Pursuant to the exercise of the BEE Warrants, the Company entered into an
amending agreement (the "Amending Agreement") with Pelawan to amend the exercise
procedure of the Warrants to allow Pelawan to finance the exercise of the
Warrants by way of a bridge loan from Rand Merchant Bank ("RMB"). Pursuant to
the Amending Agreement, Pelawan has exercised the Warrants by depositing an
escrowed amount equal to the aggregate exercise price for the Warrants ($ 225
million or ZAR 1.586 billion) into an interest bearing account with RMB, to be
released pursuant to a deposit account agreement (the "Deposit Agreement")
between RMB, Pelawan Investments (Pty) Ltd and Anooraq upon the satisfaction of
certain release conditions. The common shares underlying the Warrants will be
issued to Pelawan upon receipt by the Company of the exercise price per common
share, plus the interest accrued thereon up to the date of release.
Should the common shares underlying the Warrants be issued in full, Pelawan`s
resulting shareholding in Anooraq will increase to approximately 81% of the
current issued and outstanding common shares of the Company. The Company intends
to use the proceeds of the BEE Warrants exercise, when received, as partial
funding for the proposed acquisition of 51% of Lebowa from Anglo Platinum (note
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 six months ended June 30, 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 six months ended June 30, 2008 that could significantly affect
disclosure controls subsequent to the date the Company carried out its last
evaluation.
15 August 2008
Sandton
Sponsor
QuestCo Sponsors (Pty) Limited
Date: 15/08/2008 13:00:02 Produced by the JSE SENS Department.
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