| Mon 23 Feb 2009, 14:00 | | ARQ - Anooraq - Amended Management`s Discussion And Analysis For The Nine Months |
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ARQ
ARQ
ARQ - Anooraq - Amended Management`s Discussion And Analysis For The Nine Months
Ended September 30, 2008
Anooraq Resources Corporation
(Incorporated in British Columbia, Canada)
(Registration number 10022-2033)
JSE share code: ARQ
TSXV share code: ARQ
NYSE Alternext share code: ANO
ISIN: CA03633E1088
("Anooraq" or "the Company")
AMENDED MANAGEMENT`S DISCUSSION AND ANALYSIS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2008
TABLE OF CONTENTS
1.1 DATE......................................................................2
1.2 OVERVIEW .................................................................4
1.2.1 LEBOWA TRANSACTION .....................................................6
1.2.2 GA-PHASHA JV PROJECT ..................................................14
PROJECT ACTIVITIES ..........................................................18
1.2.3 PLATREEF PROJECT, NORTHERN LIMB........................................18
1.2.3.1 BOIKGANTSHO JV PROJECT...............................................18
AGREEMENT ...................................................................18
PROJECT ACTIVITIES ..........................................................19
1.2.4 MARKET TRENDS .........................................................20
1.3 SELECTED ANNUAL INFORMATION -............................................21
1.4 SUMMARY OF QUARTERLY RESULTS ............................................22
1.5 RESULTS OF OPERATIONS ...................................................23
1.6 LIQUIDITY ...............................................................25
1.7 CAPITAL RESOURCES .......................................................26
1.8 OFF-BALANCE SHEET ARRANGEMENTS...........................................26
1.9 TRANSACTIONS WITH RELATED PARTIES - .....................................26
1.10 FOURTH QUARTER .........................................................26
1.11 PROPOSED TRANSACTIONS...................................................27
1.12 CRITICAL ACCOUNTING ESTIMATES...........................................27
1.13 CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION ..............28
1.14 FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS ............................35
1.15 OTHER MD&A REQUIREMENTS ................................................35
1.15.1 ADDITIONAL DISCLOSURE FOR VENTURE ISSUERS WITHOUT SIGNIFICANT
REVENUE .....................................................................35
1.15.2 DISCLOSURE OF OUTSTANDING SHARE DATA .................................36
1.15.4 DISCLOSURE CONTROLS AND PROCEDURES....................................37
EXPLANATORY NOTE
Explanation of amendments to Anooraq`s Management Discussion and Analysis
("MD&A") for the nine months ended September 30, 2008.
The Canadian Accounting Standards Board ("AcSB") confirmed in February 2008
that International Financial Reporting Standards ("IFRS") will replace Canadian
generally accepted accounting principles ("GAAP") for publicly accountable
enterprises for financial periods beginning on and after January 1, 2011, with
the option available to adopt early upon receipt of approval from the Canadian
Securities regulatory authorities.
The Company has applied and received an approval for exemption from the British
Columbia Securities Commission, pursuant to CSA Staff Notice 52-321, Early
Adoption of International Financial Reporting Standards to early adopt IFRS
starting January 1, 2009.
The original MD&A filed on SEDAR on November 14, 2008 has been amended to
reflect the Company`s transition plan to early adopt IFRS. The changes are
disclosed in Section 1.13 Changes in Accounting Policies including Initial
Adoption.
All other financial and other information contained in the originally filed
MD&A remain unchanged. Except where specifically noted to the contrary, this
amended MD&A does not reflect events occurring after the filing of the original
MD&A, or modify or update the disclosure therein, in any way other than as
required to reflect the amendments set forth herein.
1.1 Date
This MD&A should be read in conjunction with the unaudited interim consolidated
financial statements of Anooraq Resources Corporation ("Anooraq", or the
"Company") for the nine months ended September 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 November 13, 2008.
This discussion includes certain statements that may be deemed "forward looking
statements". All statements in this MD&A, 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;
- Anooraq will be able to secure future debt and equity financing for
implementation of the Lebowa Transaction; 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 MD&A uses the terms "measured resources" and "indicated
resources". The Company advises investors that while those terms are recognized
and required by Canadian regulations, the U.S. Securities and Exchange
Commission does not recognize them. Investors are cautioned not to assume that
any part or all of mineral deposits in these categories will ever be converted
into reserves. Investors should refer to our Annual Report of Form 20-F
available at http://www.sec.gov/edgar.shtml
Cautionary Note to Investors Concerning Estimates of Inferred Resources
This MD&A uses the term "inferred resources". The Company advises investors
that while this term is recognized and required by Canadian regulations, the
U.S. Securities and Exchange Commission does not recognize it. "Inferred
resources" have a great amount of uncertainty as to their existence, and as to
their economic and legal feasibility. It cannot be assumed that all or any part
of a mineral resource will ever be upgraded to a higher category. Under
Canadian rules, estimates of Inferred Mineral Resources may not form the basis
of economic studies, except in rare cases. Investors are cautioned not to
assume that any part or all of an inferred resource exists, or is economically
or legally mineable. Investors should refer to our Annual Report of Form 20-F
available at http://www.sec.gov/edgar.shtml
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 projects will require major financing, probably through a
combination of debt and equity financing. 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
mainly within the UG2 Reef, the Merensky Reef and the Platreef horizon.
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 advanced
stage 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 with Anglo Platinum that
would transform the Company into a significant PGM producer with a substantial
resource base. Anooraq and Anglo Platinum agreed that 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 (collectively "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. Since announcing the results of the Technical Review and definitive
agreement earlier in the year, the Company has focused on fulfilling the
conditions precedent to the Lebowa Transaction, including taking steps to
obtain all necessary shareholder and regulatory approvals, as well as to
complete the financings necessary to complete the Lebowa Transaction.
Detailed terms of the Lebowa Transaction were announced on April 14, 2008. As
set out in that announcement, a component of the Lebowa Transaction, which
informed commercial terms, surrounded the development and financing of the
Middelpunt Hill UG2 expansion project ("MPH project") at Lebowa. It was
announced that the MPH project would be developed by Anooraq and Anglo Platinum
as part of the then current mine plan and capital development program for
Lebowa, which had been approved by Anglo Platinum in May 2007.
During the period July to October 2008, global economic conditions deteriorated
significantly, contributing to a material decline in platinum group metal
prices and resulting in constrained debt and equity capital markets.
On October 23, 2008, Anglo Platinum announced that it was reviewing the costing
and scheduling of all its capital projects, including the MPH project, in light
of current metal price levels and uncertainty in global markets. Anooraq is
participating in the review of the MPH project costing and scheduling.
Furthermore, Anglo Platinum and Anooraq have agreed to review the current Anglo
Platinum approved mine plan and capital program at Lebowa. As a result of these
developments, Anglo American plc, Anglo Platinum, Anooraq and Pelawan
Investments (Pty) Ltd ("the parties") are currently in advanced stage
discussions surrounding the Lebowa Transaction, as well as its associated
financing strategy, and will provide a detailed Lebowa Transaction update to
the market as soon as possible after such discussions have been concluded.
The parties remain committed to concluding the Lebowa Transaction as soon as
possible. However, as a result of the review process, the Lebowa Transaction
will not close on November 30, 2008, as originally anticipated. The parties
remain confident that the Lebowa Transaction will close during the first
quarter of 2009.
During the three month period ended September 30, 2008 and subsequent to the
end of the third quarter 2008, the deterioration of global economic conditions
has resulted in a significant weakening of PGM prices and high volatility in
exchange traded commodity prices. The deterioration in credit market conditions
has also increased the cost of obtaining capital and limited the availability
of funds. In these conditions, it is difficult to forecast metal prices and
future demand for PGM that will be produced by the Company following completion
of the Lebowa Transaction.
Accordingly, management is actively monitoring the effects of the current
economic and credit conditions on the Company`s business and reviewing all
discretionary spending, projects, and operating costs and implementing
appropriate cash management and preservation strategies.
Furthermore, to ensure the Company has sufficient working capital, the Company
reached an agreement with Anglo Platinum in November 2008 whereby Anglo
Platinum will amend the existing term loan facility by advancing an additional
amount of ZAR 30 million to Anooraq, repayable on implementation and closing of
the Lebowa Transaction. Interest payments on the term loan have also been
deferred until April 2009.
In other corporate developments, a number of key appointments have been made
during the nine months ended September 30, 2008:
- Philip Kotze was appointed President and CEO, and a director of Anooraq;
- Iemrahn Hassen, Chief Financial Officer, was appointed a director of the
Company;
- Tumelo Motsisi, Director, became Deputy Chairman of the Board of Directors;
and
- Bava Reddy was appointed Head of Exploration and Mineral Strategy for the
Company.
In addition the following Independent Non-executive directors were appointed to
the Board during the nine months ended September 30, 2008 and thereafter prior
to the date this MD&A;
- Ms Anu Dhir was appointed to the Board and to the Audit Committee. Ms. Dhir
holds a BA from the University of Toronto and a JD from Quinnipiac University
in Hamden, Connecticut. Ms. Dhir has extensive experience in international
business, operations and legal affairs in private equity and publicly-held
companies in the mining, oil and gas, and technology sectors and is currently
the Vice President, Corporate Development of Katanga Mining Limited. She has
also assisted in financing and leading private companies into public markets,
and will bring additional depth and experience to the Board.
- Ms Fikile de Buck was appointed to the Board and to the Audit Committee.
Ms.De Buck is a Fellow of the Association of Chartered Certified Accountants
FCCA(UK) and has extensive experience in business operations and financial
affairs with companies in the mining sector. Ms. De Buck is currently a non-
executive director of Harmony Gold Mining Company Ltd ("Harmony") and is a
member of various board committees of Harmony including the Audit Committee. She
has also served in various positions at the Council for Medical Schemes in South
Africa and will bring additional depth and experience to the Board.
1.2.1 Lebowa Transaction
In September 2007, Anooraq entered into a transaction framework agreement 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") in
respect of the Lebowa Transaction 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 ZAR 3.6 billion.
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, which will be renamed Bokoni Platinum Holdings (Proprietary)
Limited following completion of the Lebowa Transaction and which is the holding
company ("Holdco") through which Anooraq and Anglo Platinum will hold their
interests in Lebowa. 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.
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 (the due diligence was satisfactorily
completed in April 2008);
2. the approval of the South African Competition Authorities which approval was
obtained on August 13, 2008;
3. the consent of the United Kingdom Treasury for Anglo Platinum to undertake
the transaction;
4. Anooraq and Plateau obtaining sufficient debt and equity financing to fund
the Lebowa Transaction purchase price;
5. the approval of the shareholders of Anooraq of the Lebowa Transaction and
related transactions;
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 ("TSX-V") and the American Stock Exchange.
Lebowa Transaction update
Detailed terms of the Lebowa Transaction were announced on April 14, 2008. As
set out in that announcement, a component of the Lebowa Transaction, which
informed commercial terms, was the development and financing of the Middelpunt
Hill UG2 expansion project ("MPH project") at Lebowa. It was announced that the
MPH project would be developed by Anooraq and Anglo Platinum as part of the
then current mine plan and capital development program for Lebowa, which had
been approved by Anglo Platinum in May 2007. Anglo Platinum had agreed to
finance the development of the MPH project in full.
During the period July 2008 to October 2008, global economic conditions
deteriorated significantly, contributing to a material decline in platinum
group metal prices and resulting in constrained debt and equity capital
markets.
On October 23, 2008, Anglo Platinum announced that it was reviewing the costing
and scheduling of all its capital projects, including the MPH project, in light
of current metal price levels and uncertainty in global markets. Anooraq is
participating in the review of the MPH project costing and scheduling.
Furthermore, Anglo Platinum and Anooraq have agreed to review the current Anglo
Platinum approved mine plan and capital program for Lebowa.
As a result of these developments, Anglo American plc, Anglo Platinum, Anooraq
and Pelawan Investments (Pty) Ltd ("the parties") are currently in advanced
stage discussions surrounding the Lebowa Transaction, as well as its associated
financing strategy, and will provide a detailed Lebowa Transaction update to
the market as soon as possible after such discussions have been concluded.
The parties remain committed to concluding the Lebowa Transaction as soon as
practically possible. However, as a result of the review process referred to
above, the Lebowa Transaction will not close by November 30, 2008, as
originally anticipated. The parties are confident that the Lebowa Transaction
will close during the first quarter of 2009.
Lebowa Transaction Funding
As announced on April 14, 2008, Anooraq intended to fund the purchase price for
the Lebowa Transaction through a combination of debt and equity financing. On
October 2, 2008, the Company announced that it will not be effecting a general
public offering of new Anooraq shares.
The conditional exercise of 167,000,000 common share purchase warrants (the
"Warrants") by Pelawan in December 2007, for aggregate proceeds of $225 million
(approximately ZAR 1.6 billion), may 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 1.6 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. In the event that the release conditions are not satisfied and
Anooraq does not receive the exercise proceeds of the Warrants by December 31,
2008, the Warrants will lapse unexercised and Anooraq will not be required to
issue 167 million Anooraq Common Shares to Pelawan.
On May 20, 2008, Anooraq announced that it had entered into a credit approved
term sheet with Standard Chartered Bank ("SCB") 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.
Anooraq`s mandate with SCB for the sole underwriting of acquisition debt
finance, which expires on November 30, 2008, is currently under review and may
be extended to coincide with the closing of the Lebowa Transaction. The
Company, together with SCB, is currently assessing the most appropriate amount
of acquisition debt finance for Anooraq, having regard to current market
conditions and the results of the Lebowa Transaction review process.
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.
Pursuant to the Acquisition Agreements, Anglo Platinum and Anooraq agreed to
various financing arrangements between them to implement the Anglo Platinum
approved long term growth plan at Lebowa, as follows:
(i) Anglo Platinum would 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 would 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 eight 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 transaction.
The MPH project scheduling and the MPH facility are currently under review in
terms of the review process being undertaken by Anglo Platinum and Anooraq at
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 five 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 HDP 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 six 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 51% 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 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, at the time of announcing the Lebowa Transaction,
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 101
million ; and
ii. The Anooraq Community Participation Trust (the "Community 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 84 million.
The final amount of funding to be contributed to the Share Ownership Trusts
will vary from time to time according to relative movements in the Anooraq and
Anglo Platinum share prices.
The purpose of these Share Ownership Trusts is to provide the employees of New
Opco and the members of the communities affected by Anooraq`s operations,
respectively, with the opportunity to participate in, and benefit from,
Anooraq`s success.
Anglo Platinum will contribute an amount of approximately ZAR 101 million to
the ESOP Trust to facilitate its establishment, and approximately ZAR 66.6
million of this amount will be utilized by the ESOP Trust to subscribe for
Common Shares. The balance of Anglo Platinum`s contribution will be used to pay
benefits to New Opco employees for the seven years following contribution.
Anglo Platinum will contribute approximately ZAR 104 million to the Community
Trust, of which ZAR 84 million will be used to subscribe for Common Shares and
Common Share purchase warrants with an exercise value of ZAR 108 million. The
terms of such Common Share purchase warrants will be determined by agreement
between the parties to the Community Trust.
As a result of the subscription by the Share Ownership Trusts, Anooraq will
receive proceeds of approximately ZAR 150 million.
The Share Ownership Trusts will subscribe for the Common Shares (and Common
Share purchase warrants in the case of the Anooraq Community Participation
Trust), at a subscription price equal to the market price of the Common Shares,
being the closing price of the Common Shares on the TSX-V on the day prior to
the announcement or reservation of the subscription price, less any allowable
discount, determined in accordance with the applicable TSX-V policies.
The Share Ownership Trusts will hold the Common Shares, and Common Share
purchase warrants in the case of the Community Trust, along with other
investments, for the purpose of making distributions to their beneficiaries in
accordance with their governing trust deed. The issuance to or purchase by the
Share Ownership Trusts of Common Shares, and Common Share purchase warrants in
the case of the Community Trust, is subject to regulatory approvals.
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. In April 2008, the DME granted conversion of the "old order" mining
rights related to Lebowa to "new order" mining rights.
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.
The initial plan was for 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 refrigeration
at depths above 650 meters below surface, resulting in a lower 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, dated April 2008, 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
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
124 Million tonnes
Life of Mine Tonnes Treated
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/USD 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 USD/ oz 1,048
Operating Cost USD/ 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.
The original MPH project development schedule and the MPH capex facility had
been determined on a basis which sought to accelerate the UG2 production growth
profile at Lebowa in the short term, as opposed to implementing a UG2
production growth profile at Lebowa on a more incremental basis.
On October 23, 2008, Anglo Platinum announced that it was reviewing the costing
and scheduling of all its capital projects, including the MPH project, in light
of current metal price levels and uncertainty in global markets. Anooraq is
participating in the review of the MPH project costing and scheduling.
Furthermore, Anglo Platinum and Anooraq have agreed to review the current Anglo
Platinum approved mine plan and capital program at Lebowa, with a view to
optimizing cash flow generation from the operations in the short to medium
term.
A key element of the ongoing review process is to ensure that the revised mine
plan and capital scheduling at Lebowa, as well as the associated Transaction
financing strategy, are implemented on a sustainable basis which ensures that
the original Lebowa Transaction objectives of Anooraq and Anglo Platinum are
achieved.
1.2.2 Ga-Phasha JV Project
Anooraq currently owns 50% interest in the Ga-Phasha Project, which was
acquired by way of a reverse takeover transaction ("RTO") with Pelawan
Investments (Pty) Ltd ("Pelawan") in 2004.) The Ga-Phasha JV Project property
consists of four farms, covering an area of approximately 9,700 hectares, held
by Ga-Phasha Platinum Mine (Proprietary) Limited ("GPM"), 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 GPM 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 GPM dated September 22,
2004. On implementation of the Lebowa Transaction the existing joint venture
agreement in respect of the Ga-Phasha Project will be terminated, save for
certain terms which will survive surrounding concentrate off take terms and
associated smelter options, and this project will be transferred into a
separate company, established as wholly-owned subsidiaries of Holdco. Anooraq
will hold an effective 51% control interest in GPM.
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 to the earlier of:-
a) the first date at which both the Drenthe-Overysel financing and the
Ga-Phasha financings shall, in fact, have occurred;
b) any date which is within a 60-day period following an announcement by
Anooraq of a further material transaction, being a transaction having a
transaction value that exceeds 30% of Anooraq`s market capitalisation at the
time of such announcement; and
c) December 31, 2006.
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 the Finalization Date, 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 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 September 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 BEE company, in compliance with undertakings given
by Pelawan and the Company in favour of the South African Reserve Bank and
Anglo Platinum.
On December 20, 2007, the Company entered into an amending agreement (the
"Amending Agreement") with the Pelawan Trust to amend the exercise procedure of
167,000,000 share purchase warrants held by the Pelawan Trust (the "Warrants"),
to allow Pelawan to finance the exercise of the BEE Warrants by way of a bridge
loan (the "Bridge Loan Facility") from Rand Merchant Bank ("RMB"). Pursuant to
the Amending Agreement, the Pelawan Trust conditionally exercised the Warrants
on December 20 2007, by depositing an escrowed amount equal to the aggregate
exercise price for the Warrants ($225 million or ZAR 1.6 billion) into an
interest bearing account (the "Deposit Account") 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, as follows:
- the provision of evidence to the satisfaction of RMB that all necessary
regulatory approvals and amendments to Pelawan`s constitutional documents, in
respect of the subscription of Anooraq shares and the issue thereof pursuant to
the Pelawan Trust`s exercise of the BEE Warrants; and
- the occurrence of the first of any of the following conditions:
- Pelawan repaying in full 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, and Pelawan granting to 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 be provided by a counterparty acceptable to RMB and
approved by the Company; or
- Anooraq shares are encumbered in favour of RMB. The ratio of the value of
the shares to be encumbered to RMB, to the amount requested to be released from
the Deposit Account will be determined by RMB. 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;
- 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 until expiry in accordance with the terms of the Settlement
Agreement.
The Anooraq share price has recently declined to below the Warrant exercise
price of $1.35, thus Anooraq cannot be assured that the release conditions will
be unconditionally satisfied on or before December 31, 2008.
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) 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.
1.2.3 Platreef Project, Northern Limb
Anooraq holds interests in mineral rights (or "farms") over 37,000 hectares
that make up the Boikgantsho and Kwanda JV Projects, and the Rietfontein and
Central Block properties. Collectively, these properties are known as the
Platreef Project.
1.2.3.1 Boikgantsho JV 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 Project 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.
On implementation of the Lebowa Transaction the existing joint venture
agreement in respect of the Boikgantsho Project will be terminated and this
project will be transferred into a separate company, established as
wholly-owned subsidiaries of Holdco. Anooraq will hold an effective 51% control
interest in the Boikgantsho Project. Anglo Platinum has also agreed to
reimburse Anooraq in an amount of ZAR 28 million, comprising 49% of the total
exploration expenditure incurred by Anooraq at the Boikgantsho Project to date.
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 continued to
increase in the first half of 2008, averaging US$1955/oz to the end of June,
but have significantly decreased since mid July.
The average price in the year to September 30 is US$1814/oz.
Palladium prices averaged approximately US$201/oz in 2005, US$323/oz in 2006
and US$358/oz in 2007. Palladium prices strengthened in the first half of 2008
as consumers considered substitution for platinum. The average price in the
year to September 30, 2008 is US$408/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 gold price
continued on its uptrend in the first half of 2008, averaging US$910/oz to June
30. Prices have been more volatile but generally stronger than most other
commodities since that time and have averaged US$897/oz to September 30, 2008.
Towards the end of October 2008, metal prices declined substantially with
platinum at US$850/oz, palladium at US$200/oz and gold at US$750/oz.
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.
Sep 30 Jun 30 Mar 31 Dec 31
2008 2008 2008 2007
Current assets 1,445 1,518 3,070 7,769
Mineral properties 9,053 9,127 9,237 9,079
Other assets 2,031 1,739 1,012 106
Total assets 12,529 12,384 13,319 16,954
Current liabilities 2,192 1,418 977 2,413
Long term liabilities 8,722 8,931 8,615 9,807
Shareholders` equity 1,615 2,035 3,727 4,734
Total liabilities and
shareholders`
equity 12,529 12,384 13,319 16,954
Working Capital (747) 101 2,093 5,356
Expenses
Exploration 30 70 58 773
Accretion on term loan 22 21 24 113
Conference and travel 128 188 53 341
Consulting 62 107 22 62
Foreign exchange loss (gain) (278) 299 (911) (69)
Interest on term loan 496 408 391 535
Interest expense (income) (12) 15 (43) (234)
Accounting, audit and legal 367 35 79 229
Gain on disposal of fixed asset - (6) - -
Office and administration 204 288 176 172
Salaries and benefits 796 690 1,016 566
Shareholder communications 63 54 45 66
Trust and filing 14 26 163 39
Subtotal 1,892 2,195 1,073 2,593
Stock-based compensation -
exploration - - - 1,491
Stock-based compensation -
office and administration 78 5,111 122 7,216
Future income tax expense
(recovery) (1) - (1) (137)
Loss for the period 1,969 7,306 1,194 11,163
Basic and diluted loss per share 0.01 0.04 0.01 0.06
Weighted average number of 184,82
common shares outstanding 185,978 185,254 185,218
3
Sep 30 Jun 30 Mar 31 Dec 31
2007 2007 2007 2006
Current assets 9,296 10,462 11,326 13,177
Mineral properties 9,078 8,333 8,399 8,241
Other assets 104 72 387 411
Total assets 18,478 18,867 20,112 21,829
Current liabilities 2,934 1,285 238 1,034
Long term liabilities 8,574 10,246 11,703 11,819
Shareholders` equity 6,967 7,335 8,171 8,976
Total liabilities and shareholders`
equity 18,478 18,867 20,112 21,829
Working Capital 6,362 9,177 11,088 12,143
Expenses
Exploration 22 49 33 152
Accretion on term loan - - - 14
Conference and travel 29 19 103 218
Consulting 30 7 79 (147)
Foreign exchange loss (gain) (192) (65) (262) 231
Interest on term loan 465 542 416 253
Interest expense (income) (103) (212) (167) (95)
Accounting, audit and legal 47 37 103 102
Gain on disposal of fixed asset - - - (19)
Office and administration 78 111 91 102
Salaries and benefits 488 634 330 394
Shareholder communications 60 74 58 112
Trust and filing 31 57 142 288
Subtotal 955 1,253 926 1,605
Stock-based compensation -
exploration - - - -
Stock-based compensation -
office and administration - - 1 -
Future income tax expense
(recovery) - (1) (1) (25)
Loss for the period 955 1,252 926 1,580
Basic and diluted loss per share 0.01 0.01 0.01 0.01
Weighted average number of 184,77 154,82 148,22 148,22
common shares outstanding
0 2 8 0
1.5 Results of Operations
Three months ended September 30, 2008
The loss for the three months ended September 30, 2008 was $1,969,010 compared
to a loss of, $954,924 for the three months ended September 30, 2007. This
increased loss resulted from additional personnel costs of $307,953, increased
office costs consisting mainly of rental cost, relating to the South African
operations, and exploration expenditures increasing in the three months ended
September 30, 2008 to $29,490 from $21,620 incurred for the same period of
fiscal 2007. The exploration costs are related to preserving the prospecting
rights, and meeting joint venture costs on Ga-Phasha as no costs have been
incurred on exploration activities.
Legal, accounting and audit expenses for the period ended September 30, 2008
increased to $367,015 in comparison to $47,276 for the previous year mainly due
to increased legal and advisory fees relating to the Lebowa Transaction and
regulatory filing costs.
Office and administration costs for the three months ended September 30, 2008
amounted to $204,459 in comparison to $77,521 spent for the three months ended
September 30, 2007. The increase is due to the Company using larger premises in
South Africa in anticipation of the completion of the Lebowa Transaction.
Conference and travel costs of $129,246 were incurred during the three months
ended September 30, 2008 in comparison to the $29,004 incurred during for the
same period of fiscal 2007 largely due to increased travel by management for
attending the annual general meeting as well as travel relating to the Lebowa
Transaction and increased conference expenses. Consulting costs for the three
months ended September 30, 2008 increased to $62,490 as compared to $30,196
spent for the same period of fiscal 2007 largely due to tax related consulting
expenses. Salaries and benefits amounted to $795,709 in the three months ended
September 30, 2008 in comparison to $487,756 for the same period in the prior
year due to the increase in number of staff at the South African office.
Trust and filing expenses for the three months ended September 30, 2008 were
lower at $13,519 in comparison to $31,489 incurred for the three months ended
September 30, 2007 primarily as a result of decreased expenses relating to the
Company`s listing on the JSE Limited in South Africa incurred in the same
period for fiscal 2007. The Company recorded interest expense of $495,104 for
the three months ended September 30, 2008 in comparison to $470,628 incurred
for the same period of fiscal 2007. The increased interest expense is mainly
due to the change in rate as the prime overdraft rate increased to 15.5% during
the quarter.
Interest income amounted to $12,002 for the three months ended September 30,
2008, in comparison to $134,151 for the same period of fiscal 2007 as a result
of the depletion of cash balances.
Nine months ended September 30, 2008
The loss for the nine months ended September 30, 2008 was $10,467,683 compared
to a loss of $3,132, 714 for the nine months ended September 30, 2007. This
increased loss primarily resulted from additional personnel costs of
$1,049,820, increased office costs, mainly rental of premises relating to the
South African operations, and stock based compensation expenses of $5,311,104
which were partially offset by foreign exchange gains resulting from the
weakening of the South African Rand.
Exploration expenditures increased in the nine months ended September 30, 2008
to $157,958 from $103,508 incurred for the same period of fiscal 2007. The cost
is only related to preserving the prospecting rights and meeting joint venture
costs on Ga-Phasha as no costs were incurred on exploration activities.
Legal, accounting and audit expenses for the period ended September 30, 2008
increased to $481,561 in comparison to $187,518 for the previous year mainly
due to increased legal and advisory fees relating to the Lebowa Transaction.
Office and administration costs for the nine months ended September 30, 2008
amounted to $668,812 in comparison to $279,958 spent for the nine months ended
September 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 $370,384 were incurred during the
nine months ended September 30, 2008 in comparison to the $151,280 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 nine months ended September 30, 2008 increased to
$191,380 in comparison to $115,360 spent for the same period of fiscal 2007
largely due to tax related consulting expenses. Salaries and benefits amounted
to $2,500,796 in the nine months ended September 30, 2008 in comparison to
$1,450,976 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 expenses for the nine months ended September 30, 2008
decreased to $202,698 in comparison to the $230,490 incurred for the nine
months ended September 30, 2007 primarily as a result of decreased expenditure
relating to the Company`s listing on the JSE Limited. Stock based compensation
expenses increased to $5,311,104 for the nine months ended September 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 $1,401,597 for the nine months ended
September 30, 2008 in comparison to $1,431,066 incurred for the same period of
fiscal 2007. The increased cost resulting from the increase in the prime
overdraft rate to 15.5% was offset by the strengthening of the Canadian dollar
against the South African rand.
Interest income amounted to $147,561 for the nine months ended September 30,
2008, in comparison to $566,190 for the same period of fiscal 2007 as a result
of lower cash balances.
The Company also recorded a foreign exchange gain of $891,742 for the nine
months ended September 30, 2008 in comparison to a gain of $519,508 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 nine
months ended September 30, 2008. A significant amount of the Company`s
liabilities are denominated in South African Rand.
1.6 Liquidity
At September 30, 2008, the Company had a working capital deficit of $746,540
compared to a positive working capital of $4,988,101 at September 30, 2007
inclusive of the current portion of the RPM loan. Working capital excluding the
current portion of the RPM loan was a deficit of $434,959 compared to a
positive working capital of $6,880,298. Payment of interest costs relating to
the RPM loan has been deferred until April 2009.
The cash position at September 30, 2008 was approximately $1.2 million.
During the quarter, the Company had an inflow of $1.4 million resulting from
the exercise of options. The Company`s cash resources at September 30, 2008 are
not adequate, for the Company to continue administrative and exploration
operations at current levels through the end of 2008 and to complete the Lebowa
Transaction. Consequently, the Company reached an agreement with Anglo Platinum
in November, 2008 whereby Anglo Platinum has agreed to provide an additional
ZAR 30 million to the Company by increasing the existing loan to the Company`s
subsidiary, Plateau Resources from ZAR 70 million to ZAR 100 million and has
also agreed to defer interest payments owing to April 2009.
In April 2008, Anooraq, through its wholly-owned subsidiary, Plateau, entered
into the Lebowa Transaction. (refer to section 1.2.1 - Lebowa Transaction
Funding)
The Company is currently undertaking various funding exercises to complete this
transaction and is progressing towards completion.
The Company`s long term debt obligations are denominated in South African Rand.
Long term debt obligations have been presented at an exchange rate of 1
Canadian dollar = ZAR 7.85, the closing rate in effect on September 30, 2008.
Since then, the South African Rand has further weakened to 1 Canadian dollar =
ZAR 9.03 by mid October 2008.
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 13.37M 0.8m 12.59m
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 had 186,640,007 common shares outstanding at September 30, 2008.
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.
1.7 Capital Resources
Anooraq`s sources of capital are primarily equity investment and debt.
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 the Company not being able to complete
its proposed Lebowa Transaction, significant delays in exploration programs and
a substantial curtailment of operations.
The Company has no commitments for capital expenditures as of September 30,
2008.
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
several 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 nine months ended
September 30, 2008 HDSI billed Anooraq $955,152 as compared to $457,785 for the
same period 2007 fiscal for such services and cost reimbursements.
During the period ended September 30, 2008, the Company paid or accrued $4,928
(nine months ended September 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 nine months ended September 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 or incur debt financing 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 September 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 nine months ended September 30, 2008. The Company is not subject to
externally imposed capital requirements as at September 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 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`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
ZAR 70 million (subsequently increased to ZAR 100 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
1) Section 3064 - Goodwill and Intangibles
The AcSB issued CICA Handbook Section 3064 which replaces Section 3062,
Goodwill and Other Intangible Assets, and Section 3450, Research and
Development Costs. This new section establishes standards for the recognition,
measurement, presentation and disclosure of goodwill subsequent to its initial
recognition and of intangible assets. Standards concerning goodwill remain
unchanged from the standards included in the previous Section 3062. The section
applies to interim and annual financial statements issued on or after January
1, 2009. Section 3064 is not expected to have a significant impact on the
Company`s financial statement.
2) Transition to International Financial Reporting Standards from Canadian GAAP
The Canadian Accounting Standards Board ("AcSB") confirmed in February 2008
that International Financial Reporting Standards ("IFRS") will replace Canadian
generally accepted accounting principles ("GAAP") for publicly accountable
enterprises for financial periods beginning on and after January 1, 2011, with
the option available to early adopt IFRS from periods beginning on or after
January 1, 2009 upon receipt of approval from the Canadian Securities
regulatory authorities.
The Company`s application, pursuant to CSA Staff Notice 52-321, to early adopt
IFRS starting January 1, 2009 was approved by the British Columbia Securities
Commission on February 18, 2009. Comparative periods for Fiscal 2008 would also
be restated under IFRS. The following discussion provides further information
about the Company`s IFRS convergence activities.
Management of IFRS Convergence Project
The Company has substantially completed the process of transitioning from
current Canadian GAAP to IFRS. It has established a formal project plan,
allocated internal resources and engaged expert consultants, monitored by a
Steering Committee to manage the transition from GAAP to IFRS reporting. The
Steering Committee regularly updates the Audit Committee and the Board of
Directors with the progress of the convergence project through communication
and meetings.
The Company has evaluated its overall readiness to transition from Canadian
GAAP to IFRS, including the readiness of its staff, board of directors, audit
committee and auditors.
The IFRS convergence project consists of three primary phases, which in certain
cases will be in process concurrently as IFRS is applied to specific areas:
- Initial Scoping and Impact Assessment Analysis: to isolate key areas that
will be impacted by the transition to IFRS.
- Evaluation and Design: to identify specific changes required to existing
accounting policies, information systems and business processes, together with
an analysis of policy alternatives allowed under IFRS and development of draft
IFRS financial statements.
- Implementation and Review: to execute the changes to information systems
and
business processes, completing formal authorization processes to approve
recommended accounting policy changes and training programs across the
company`s finance and other staff, as necessary. This will culminate in the
collection of financial information necessary to compile IFRS-compliant
financial statements, including embedding IFRS principles in business
processes, and Audit Committee review and approval of IFRS financial
statements.
A detailed timetable has been prepared to manage the transition and the Company
is currently on schedule. At the date of preparing this amended MD&A, the
Company has met the key objectives of the project plan. The Company`s analysis
of IFRS and comparison with currently applied GAAP accounting principles has
identified a number of differences which is discussed under the heading "Impact
of Adoption of IFRS on Financial Reporting" section below.
First-time Adoption of International Financial Reporting Standards
IFRS 1, First-time Adoption of International Financial Reporting Standards
("IFRS 1") sets forth guidance for the initial adoption of IFRS. Commencing for
the period ended March 31, 2009, the Company will restate its comparative
fiscal 2008 financial statements for annual and interim periods to be
consistent with IFRS. In addition, the Company will reconcile equity and net
earnings from the previously reported fiscal 2008 Canadian GAAP amounts to the
restated 2008 IFRS amounts.
IFRS 1 generally requires that first-time adopters retrospectively apply all
effective IFRS standards and interpretations in effect as at the reporting
date. IFRS 1 also provides for certain optional exemptions and certain
mandatory exceptions to this general principle. Those elections that are
considered significant to the Company include decisions to:
- measure property, plant and equipment at deemed cost, being the value of
property, plant and equipment immediately prior to the date of transition, with
no adjustment made to fair value
- not apply the requirements of IFRS 2, Share-based payments ("IFRS 2") to
equity instruments granted before November 7, 2002;
- apply the requirements of IFRS 2 only to unvested awards outstanding as of
the transition date (i.e. January 1, 2008); and
- transfer all foreign currency translation differences, if any, recognized
as a separate component of equity to retained earnings at the transition date,
including those foreign currency differences which arise on application of
IFRS.
Changes to estimates previously made are not permitted. The estimates
previously made by the Company under Canadian GAAP will not be revised for
application of IFRS except where necessary to reflect any changes resulting
from differences in accounting policies.
Impact of Adoption of IFRS on Financial Reporting
While Canadian GAAP is in many respects similar to IFRS, conversion will result
in differences in recognition, measurement, and disclosure in the financial
statements. For the Company, the accounting policies and financial statement
accounts identified as being significantly affected by the adoption of IFRS are
discussed below:
1. Basis of Consolidation
Under Canadian GAAP, the Company accounts for its 50% interest in Micawber 227
(Proprietary) Limited ("Micawber") as a variable interest. However, as the
Company is not considered the primary beneficiary, it accounts for its interest
using the equity method.
IFRS does not include the concept of a variable interest entity. IFRS requires
the Company to consolidate entities including Special Purpose Entities ("SPE")
only where the Company has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. In
application of IFRS, the Company has determined that it has joint control of
Micawber. Accordingly, under IFRS, the Company can elect to use either the
equity method or proportionate consolidation method to account for its interest
in Micawber.
This decision will have no impact on net assets or net earning (loss) but will
affect the presentation on the balance sheet and income statement.
2. Share-based Payments (IFRS 2)
Currently, the Company measures stock-based compensation at the fair value of
the options granted using the Black-Scholes option pricing formula and
recognizes this expense over the vesting period of the options. For the purpose
of accounting for share based payment transactions, an individual is classified
as an employee when the individual is consistently represented to be an
employee under law. The fair value of the options granted to employees is
measured on the date of grant. The fair value of options granted to contractors
and consultants is measured on the date the services are completed.
Forfeitures are recognized as they occur.
As in Canadian GAAP, IFRS 2 requires the Company to measure stock-based
compensation related to stock-options granted to employees at the fair value of
the options on the date of grant and to recognize such expense over the vesting
period of the options. However, for options granted to non-employees, IFRS
requires that stock-based compensation be measured at the fair value of the
services received unless the fair value of the services cannot be reliably
measured. For the purpose of accounting for share based payment transactions,
an individual is classified as an employee when the individual is an employee
for legal or tax purposes (direct employee) or provides services similar to
those performed by a direct employee. This definition of an employee is broader
than that currently applied by the Company and will result in certain
contractors and consultants being regarded as employees.
Based on the application of the IFRS definition of an employee, the Company
will reclassify a number of individuals previously classified as non-employees
to employees. For the stock options granted to the individuals reclassified,
the Company will make adjustments to reverse changes in fair value after the
grant date previously recognized for Canadian GAAP purposes. The adjustments
will be calculated only for unvested options issued and outstanding as of
January 1, 2008 (see First Time Adoption of IFRS).
3. Deferred Tax on Mineral Properties
Currently the Company, in the determination of the net earnings (loss) from its
interest in Micawber, recognizes the impact of a deferred tax liability on
temporary differences arising on the initial recognition of assets (where the
fair value of the asset acquired exceeds its tax value) in a transaction which
was not a business combination and affected neither accounting profit/ (loss)
nor taxable profit/ (loss). IAS 12, Income Taxes does not permit the
recognition of deferred taxes on such temporary differences.
As of the transition date, the Company will derecognize the impact of all
deferred tax liabilities which have previously been recognized on the initial
acquisition of Mineral Properties through transactions deemed not to be
business combinations and affecting neither accounting profit/ (loss) nor
taxable profit/ (loss).
4. Impairment of Non-Financial Assets
Under Canadian GAAP, for assets other than financial assets, a write-down to
estimated fair value is recognized if the estimated undiscounted future cash
flows from an asset or group of assets are less than their carrying value.
IAS 36, Impairment of Assets requires a write-down to be recognized if the
recoverable amount, determined as the higher of the estimated fair value less
costs to sell or value in use (uses discounted cash-flows) is less than
carrying value.
The Company will have to perform impairment tests as of the transition date and
consider whether an impairment charge would be recognized under IFRS on the
transition date.
The known or reliably estimable impacts on the consolidated balance sheet as at
December 31, 2008 and the consolidated statement of operations for the year
ended December 31, 2008 had they been prepared using IFRS will be disclosed in
the annual MD&A. No material impacts are expected in relation to the statements
of cash flows. While these reconciliations do not represent an official
adoption of IFRS, it provides an indication of the major differences identified
to date based on management`s best knowledge of expected standards and
interpretations, and current facts, relative to our historical financial
statements.
IFRS Impact on Our Organization
The conversion to IFRS will impact the way the Company present its financial
results. The first financial statements prepared using IFRS (i.e. interim
financial statements for the three months ended March 31, 2009) will be
required to include numerous notes disclosing extensive transitional
information and full disclosure of all new IFRS accounting policies.
The Company has obtained an understanding of IFRS from intensive training and
preparation of reconciliations of historical Canadian GAAP financial statements
to IFRS. Further, our finance personnel includes employees who have prepared
financial statements under IFRS previously.
The Company is still evaluating the impact of the conversion on its accounting
systems. However, based on the analysis and differences identified to date, the
Company believes its systems can accommodate the required changes. In addition,
the Company`s internal and disclosure control processes, as currently designed,
will not need significant modifications as a result of our conversion to IFRS.
The Company has further:
- assessed the impacts of adopting IFRS on our contractual arrangements, and
has not identified any material compliance issues.
- considered the impacts that the transition will have on our internal
planning process and compensation arrangements and has not identified any
significant impacts to date.
The information set out above will be updated in the annual management`s
discussion and analysis including, to the extent known, quantitative
information regarding the impact of adopting IFRS on key line items in the
annual financial statements for the year ending December 31, 2008.
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 November 13, 2008.
These figures may be subject to minor accounting adjustments prior to
presentation in future consolidated financial statements.
Exercise
price
Expiry date Number Number
Common shares 186,640,007
Escrow
Warrants (1) December 31, 2008 $1.35 167,000,000
Share purchase
options December 17, 2010 $1.40 1,285,000
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 9,101,000
(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 1.6 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.
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 nine months ended September 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 nine months ended September 30, 2008 that could significantly affect
disclosure controls subsequent to the date the Company carried out its last
evaluation.
23 February 2009
Sponsor: QuestCo Sponsors
Date: 23/02/2009 14:00:01 Produced by the JSE SENS Department.
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