| Tue 31 Mar 2009, 15:42 | | EPS - Consolidated financial statements of Eastern Platinum Limited |
|
EPS
EPS
EPS - Consolidated financial statements of Eastern Platinum Limited
EASTERN PLATINUM LIMITED
(Incorporated in Canada)
(Canadian Registration number BC0722783)
(South African Registration number 2007/006318/10)
Share Code TSX: ELR ISIN: CA2768551038
Share Code AIM: ELR ISIN: CA2768551038
Share Code JSE: EPS ISIN: CA2768551038
Consolidated financial statements of Eastern Platinum Limited
December 31, 2008 and 2007 and June 30, 2007
Eastern Platinum Limited
December 31, 2008 and 2007 and June 30, 2007
Table of contents
Auditors` report............................................................. 3
Consolidated statements of operations ....................................... 4
Consolidated balance sheets ................................................. 5
Consolidated statements of shareholders` equity ............................. 6
Consolidated statements of comprehensive income (loss) ...................... 6
Consolidated statements of cash flows........................................ 7
Notes to the consolidated financial statements ........................... 8-28
Deloitte & Touche LLP
2800 - 1055 Dunsmuir Street
4 B entall Centre
P.O. Box 49279
Vancouver BC V7X 1P4
Canada
Tel: 604-669-4466
Fax: 604-685-0395
www.deloitte.ca
Auditors` report
To the Shareholders of
Eastern Platinum Limited
We have audited the consolidated balance sheets of Eastern Platinum Limited as
at December 31, 2008 and 2007 and the consolidated statements of operations,
shareholders` equity, comprehensive income (loss) and cash flows for the year
ended December 31, 2008, six months ended December 31, 2007 and year ended June
30, 2007. These financial statements are the responsibility of the Company`s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
2008 and 2007 and the results of its operations and its cash flows for the year
ended December 31, 2008, six months ended December 31, 2007 and year ended June
30, 2007 in accordance with Canadian generally accepted accounting principles.
Chartered Accountants
March 31, 2009
Eastern Platinum Limited
Consolidated statements of operations
(Expressed in thousands of U.S. dollars, except per share amounts)
December 31, December 31, June 30,
2008 2007 2007
(12 months) (6 months) (12 months)
Revenue $ 116,198 $ 65,578 $ 101,205
Cost of operations
Production costs 79,961 41,363 69,467
Depletion and depreciation 14,599 9,120 8,123
94,560 50,483 77,590
Mine operating earnings 21,638 15,095 23,615
Expenses
General and administrative 19,411 11,305 15,979
Stock-based compensation 4,290 10,251 14,416
23,701 21,556 30,395
Operating loss (2,063) (6,461) (6,780)
Other income (expense)
Interest income 7,081 4,924 4,908
Interest expense (3,551) (2,010) (5,427)
Foreign exchange loss (2,155) (5,604) (1,897)
Loss before income taxes (688) (9,151) (9,196)
and non-controlling interests
Future income tax (expense) 13,623 (1,639) 2,002
recovery (Note 9)
Non-controlling interests
(Note 10) 3,429 (1,414) (3,078)
Net earnings (loss) for the
period $ 16,364 $ (12,204) $ (10,272)
Earnings (loss) per share
Basic $ 0.02 $ (0.02) $ (0.02)
Diluted $ 0.02 $ (0.02) $ (0.02)
Weighted average number of
common share outstanding
Basic 677,116,680 668,157,833 538,663,898
Diluted 687,581,138 668,157,833 538,663,898
Eastern Platinum Limited
Consolidated balance sheets
as at December 31, 2008 and 2007
(Expressed in thousands of U.S. dollars)
December 31, December 31,
2008 2007
Assets
Current assets
Cash and cash equivalents $ 25,806 $ 18,818
Short-term investments 35,257 171,038
Trade receivables 9,556 33,157
Inventories (Note 4) 3,881 6,888
Future income taxes (Note 9) 1,178 -
75,678 229,901
Property, plant and equipment (Note 5) 783,039 813,461
Refining contract (Note 6) 12,493 18,467
Other assets 1,017 1,247
$ 872,227 $ 1,063,076
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 36,729 $ 22,967
Future income taxes (Note 9) - 6,416
Current portion capital leases 649 -
Current loans (Note 3(b)) 2,972 3,837
40,350 33,220
Asset retirement obligation (Note 7) 2,846 2,889
Capital leases 3,261 9,127
Future income taxes (Note 9) 117,234 143,616
163,691 188,852
Non-controlling interests (Note 10) 12,335 23,402
Commitments (Note 13)
Shareholders` equity
Share capital (Note 8) 890,049 868,045
Contributed surplus 31,491 27,428
Accumulated other comprehensive income (loss) (173,571) 23,481
Deficit (51,768) (68,132)
(225,339) (44,651)
696,201 850,822
$ 872,227 $ 1,063,076
Approved by the Board
"David Cohen" "Robert Gay ton"
Eastern Platinum Limited
Consolidated statements of shareholders` equity
(Expressed in thousands of U.S. dollars)
Common Shares Contributed
Without Par Value Surplus
Shares Amount
Balance, June 30, 2006 513,228,985 $ 588,279 $ 6,799
Shares issued on acquisition of
interest in Afriminerals 3,000,000 3,548 -
Shares issued on acquisition of 1%
NSR in Spitzkop 12,000,000 21,062 -
Shares issued for cash 105,921,095 188,894 -
Shares issued on acquisition of
additional 5% in Barplats 17,272,594 29,020 -
Warrants exercised 13,318,184 26,032 -
Stock options exercised 3,037,500 8,268 (3,318)
Stock-based compensation - - 14,416
Share issue costs - - -
Net loss for the period - - -
Currency translation adjustment - - -
Balance, June 30, 2007 667,778,358 $ 865,103 $ 17,897
Warrants exercised 100,000 178 -
Stock options exercised 1,153,333 2,764 (720)
Stock-based compensation - - 10,251
Net loss for the period - - -
Currency translation adjustment - - -
Balance, December 31, 2007 669,031,691 868,045 27,428
Warrants exercised 10,824,077 21,153 -
Stock options exercised 670,686 851 (227)
Stock-based compensation - - 4,290
Net earnings for the period - - -
Currency translation adjustment - - -
Balance, December 31, 2008 680,526,454 $ 890,049 $ 31,491
Accumulated Other Deficit Total
Comprehensive Shareholders`
Income (Loss) Equity
Balance, June 30, 2006 $ (52,754) $ (36,376) $ 505,948
Shares issued on
acquisition of interest in
Afriminerals - - 3,548
Shares issued on acquisition of
1% NSR in Spitzkop - - 21,062
Shares issued for cash - - 188,894
Shares issued on acquisition of
additional 5% in Barplats - - 29,020
Warrants exercised - - 26,032
Stock options exercised - - 4,950
Stock-based compensation - - 14,416
Share issue costs - (9,280) (9,280)
Net loss for the period - (10,272) (10,272)
Currency translation
adjustment 29,730 - 29,730
Balance, June 30, 2007 $ (23,024) $ (55,928) $ 804,048
Warrants exercised - - 178
Stock options exercised - - 2,044
Stock-based compensation - - 10,251
Net loss for the period - (12,204) (12,204)
Currency translation
adjustment 46,505 - 46,505
Balance, December 31, 2007 23,481 (68,132) $ 850,822
Warrants exercised - - 21,153
Stock options exercised - - 624
Stock-based compensation - - 4,290
Net earnings for the period - 16,364 16,364
Currency translation adjustment (197,052) - (197,052)
Balance, December 31, 2008 $ (173,571) $ (51,768) $ 696,201
Consolidated statements of comprehensive income (loss)
(Expressed in thousands of U.S. dollars)
December 31, December 31, June 30,
2008 2007 2007
(12 months) (6 months) (12 months)
Net earnings (loss)
for the period $ 16,364 $ (12,204) $ (10,272)
Other comprehensive income
(loss) - currency translation
adjustment (197,052) 46,505 29,730
Comprehensive income (loss) $ (180,688) $ 34,301 $ 19,458
Eastern Platinum Limited
Consolidated statements of cash flows
(Expressed in thousands of U.S. dollars)
December 31, December 31, June 30,
2008 2007 2007
(12 months) (6 months) (12 months)
Operating activities
Net earnings (loss) for the
period $ 16,364 $ (12,204) $ (10,272)
Items not involving cash
Accretion (Note 7) 278 180 672
Depletion and depreciation 14,599 9,120 8,123
Refining contract amortization 1,353 798 1,195
Stock-based compensation 4,290 10,251 14,416
Interest expense 2,845 - -
Foreign exchange loss 5,731 5,604 1,897
Future income tax expense
(recovery) (13,623) 1,639 (2,002)
Non-controlling interests (3,429) 1,414 3,078
28,408 16,802 17,107
Net changes in non-cash
working capital items
Trade receivables 10,765 (10,017) (9,461)
Inventories 1,391 (2,095) (2,975)
Accounts payable and accrued
liabilities 12,962 1,347 6,577
53,526 6,037 11,248
Financing activities
Common shares issued for
cash, net of share issue costs 22,004 2,222 213,914
Repayment of short-term debt (892) - (25,767)
Other long-term liabilities (3,411) 301 6,023
17,701 2,523 194,170
Investing activities
Acquisitions, net of cash
acquired (39,589) - (56,662)
Maturity (purchase) of
short-term investments 119,318 41,026 (123,600)
Property, plant and equipment
expenditures (143,373) (36,079) (62,997)
(63,644) 4,947 (243,259)
Effect of exchange rate
changes on cash
and cash equivalents (595) (881) (1,477)
Increase in cash and cash
equivalents 6,988 12,626 (39,318)
Cash and cash equivalents,
beginning of period 18,818 6,192 45,510
Cash and cash equivalents,
end of period $ 25,806 $ 18,818 $ 6,192
Cash and cash equivalents are
comprised of:
Cash in bank $ 9,123 $ 18,818 $ 6,077
Short-term money market
instruments 16,683 - 115
$ 25,806 $ 18,818 $ 6,192
Supplementary cash flow
information
Interest paid $ 375 $ 374 $ 598
Income taxes paid $ 139 $ 3 $ -
Eastern Platinum Limited
Notes to the consolidated financial statements
(Expressed in thousands of U.S. dollars, except number of shares and per share
amounts)
1. Nature of operations
Eastern Platinum Limited (the "Company") is a platinum group metal ("PGM")
producer engaged in the mining, exploration and development of PGM properties
located in various provinces in South Africa.
Effective July 1, 2007, the Company changed its fiscal year end from June 30 to
December 31 to better align with financial reporting year ends that are
predominant in the mining industry.
2. Summary of significant accounting policies
These consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("Canadian GAAP"). The
principal accounting policies are outlined below:
(a) Basis of consolidation
These consolidated financial statements include the accounts of the Company and
all its subsidiaries. All significant intercompany transactions and balances
have been eliminated.
Variable Interest Entities ("VIE`s") as defined by the Accounting Standards
Board in Accounting Guideline ("AcG") 15, "Consolidation of Variable
Interest Entities" are entities in which equity investors do not have the
characteristics of a "controlling financial interest" or there is not
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support. VIEs are subject to consolidation by
the primary beneficiary who will absorb the majority of the entities` expected
losses and/or expected residual returns. The Company has determined that its
investment in Gubevu Consortium Holdings (Pty) Ltd. ("Gubevu") is a VIE. As the
Company is the primary beneficiary, the accounts of Gubevu are consolidated
with those of the Company (Note 3).
(b) Reporting currency
Effective July 1, 2006, the Company changed its reporting currency to the U.S.
dollar ("$"). These consolidated financial statements have been translated to
the U.S. dollar in accordance with EIC 130 "Translation Method when the
Reporting Currency Differs from the Measurement Currency or there is a Change
in the Reporting Currency".
These guidelines require that the financial statements be translated into the
reporting currency using the current rate method. Under this method, the
statement of operations and cash flow items for each year are translated into
the reporting currency using the average rate in effect for the period, and
assets and liabilities are translated using the exchange rate at the period
end. All resulting exchange differences are reported as a separate component of
shareholders` equity titled "Accumulated Other Comprehensive income (loss)".
(c) Measurement uncertainty
The preparation of financial statements in accordance with Canadian GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant accounts that
require estimates as the basis for determining the stated amounts include
accounting for doubtful accounts receivable, accounts receivables, inventories,
property, plant and equipment, asset retirement obligations, stock-based
compensation, allocation of purchase price o f acquisitions and income and
mining taxes.
Depreciation and depletion of property, plant and equipment assets are
dependent upon estimates of useful lives and reserves estimates, both of which
are determined with the exercise of judgement. The assessment of any impairment
of property, plant and equipment is dependent upon estimates of fair value that
take into account factors such as reserves, economic and market conditions and
the useful lives of assets. Asset retirement obligations are recognized in the
period in which they arise and are stated as the fair value of estimated future
costs. These estimates require extensive judgement about the nature, cost and
timing of the work to be completed, and may change with future changes to
costs, environmental laws and regulations and remediation practices.
(d) Foreign currency translation
The Company and its subsidiaries operate in Canada and South Africa. The
Company`s Canadian operations have the Canadian dollar as their functional
currency and its South African operations have the South African Rand as their
functional currency.
Where a subsidiary is self-sustaining, the financial results have been
translated into Canadian dollars using the current rate method. The current
rate method provides that all assets and liabilities are translated at the
year-end rate of exchange and all revenue and expense items are translated at
the average rate of exchange prevailing during the period. Exchange gains and
losses arising from this translation, representing the net unrealized foreign
currency translation gain (loss) on the Company`s net investment in these
foreign operations, are recorded in the accumulated other comprehensive income
component of shareholders` equity.
Where a subsidiary is integrated, the financial results have been translated
into Canadian dollars using the temporal method. The temporal method provides
for foreign currency denominated monetary assets and liabilities to be
translated into Canadian dollars at rates of exchange in effect at the balance
sheet date. Non- monetary items are translated at historical exchange rates and
revenues and expenses at average rates of exchange during the period. Exchange
gains and losses arising on translation are included in the statement of
operations and deficit.
Other foreign currency transactions included in these consolidated financial
statements are translated into Canadian dollars at the rates of exchange in
effect at the consolidated balance sheet dates in the case of monetary assets
and liabilities and at the rates of exchange in effect on the date of
transaction in the case of non-monetary assets and income and expenses. All
gains and losses on translation of these foreign currency transactions are
included in the consolidated statement of operations and deficit.
(e) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits in banks and highly
liquid investments with an original maturity of three months or less.
(f) Short-term investments
Short-term investments are investments which are transitional or current in
nature, with an original maturity greater than three months.
2. Summary of significant accounting policies (continued)
(g) Inventories
Inventories, comprising stockpiled ore and concentrate awaiting further
processing and sale, are valued at the lower of cost and net realizable value.
Consumables are valued at the lower of cost and net realizable value, with
replacement cost used as the best available measure of net realizable value.
Cost is determined using the weighted average method and includes direct mining
expenditures and an appropriate portion of normal overhead expenditure. In the
case of concentrate, direct concentrate costs are also included. Net realizable
value is the estimated selling price in the ordinary course of business, less
the estimated costs of completion and selling expenses. Obsolete, redundant and
slow moving stores are identified and written down to net realizable values.
(h) Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated
depreciation and depletion. Maintenance, repairs and renewals are charged to
operations.
Mining pro perties and mining and process facility assets are amortized on a
units-of-production basis which is measured by the portion of the mine`s
economically recoverable and proven ore reserves recovered during the period.
Although the Company has taken steps to verify title to the properties on which
it is conducting exploration and in which it has an interest, in accordance
with industry standards for the current stage of exploration of such
properties, these procedures do not guarantee the Company`s title. Property
title may be subject to unregistered prior agreements and non-compliance with
regulatory requirements.
Other assets are depreciated using the straight-line method based on their
estimated useful lives, which generally range from 5 to 7 years, with the
exception of agricultural and residential properties whose estimated useful
lives are 50 years.
All direct costs related to the acquisition, exploration and development of
mineral properties are capitalized until the properties to which they relate
are placed into production, sold, abandoned or management has determined there
to be an impairment. If economically recoverable ore reserves are developed,
capitalized costs of the related property are reclassified as mining assets and
amortized using the units- of-production method following commencement of
production.
The amounts shown for mineral properties do not necessarily represent present
or future values. Their recoverability is dependent upon the discovery of
economically recoverable reserves, the ability of the Company to obtain the
necessary financing to complete the development, and future profitable
production or proceeds from the disposition thereof.
Long-lived assets are tested for recoverability whenever events or changes in
circumstances indicate that their carrying amount may not be recoverable. An
impairment loss is recognized when their carrying value exceeds the total
undiscounted cash flows expected from their use and eventual disposition. The
amount of the impairment loss is determined as the excess of the carrying
value of the asset over its fair value. Future cash flows are estimated based
on expected future production, commodity prices, operating costs and capital
costs.
(i) Refining contract
The Company sells its concentrate to one customer under the terms of an
off-take or refining contract. The refining contract is amortized over the life
of the contract, estimated to be twelve years. An evaluation of the carrying
value of the contract is undertaken whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. The deterioration in
the global economic environment during the year ended December 31, 2008
triggered an impairment evaluation of the refining contract. Based on
management`s analysis, the refining contract was not impaired at December 31,
2008.
(j) Asset retirement obligations
The Company recognizes liabilities for statutory, contractual or legal
obligations associated with the retirement of property, plant and equipment,
when those obligations result from the acquisition, construction, development
or normal operation of the assets. Initially, the fair value of the liability
for an asset retirement obligation is recognized in the period incurred. The
net present value is added to the carrying amount of the associated asset and
amortized over the asset`s useful life. The liability is accreted over time
through periodic charges to operations and it is reduced by actual costs of
reclamation.
The Company`s estimates of reclamation costs could change as a result of
changes in regulatory requirements and assumptions regarding the amount and
timing of the future expenditures. A change in estimated discount rates is
reviewed annually or as new information becomes available. Expenditures
relating to ongoing environmental programs are charged against operations as
incurred or capitalized and amortized depending on their relationship to future
earnings.
(k) Income taxes
Future income taxes are recorded using the asset and liability method. Under the
asset and liability method, future tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Future tax assets and liabilities are measured
using the substantively enacted tax rates expected to apply when the asset is
realized or the liability settled. The effect on future tax assets and
liabilities of a change in tax rates is recognized in income in the period that
substantive enactment occurs. To the extent that the Company does not consider
it more likely than not that a future tax asset will be recovered, it provides
a valuation allowance against the excess.
(l) Comprehensive income
Comprehensive income is the change in the Company`s net assets that results from
transactions, events and circumstances from sources other than the Company`s
shareholders and includes items that would not normally be included in net
income such as unrealized gains or losses on available-for-sale investments,
gains or losses on certain derivative instruments and foreign currency gains or
losses related to self- sustaining operations. The Company`s comprehensive
income, components of other comprehensive income, and accumulated other
comprehensive income are presented in the Statements of Comprehensive Income
and the Statements of Shareholders` Equity.
(m) Financial instruments
The Company has implemented the following classification of its financial
assets and financial liabilities:
- Cash and cash equivalents are classified as held for trading and are measured
at fair value with gains and losses recognized in net income.
- Short-term investments have been reclassified from held to maturity to
available for sale and have been re-measured at fair value with any gains or
losses being recorded directly to other comprehensive income. The impact of the
reclassification was insignificant. At December 31, 2008, the recorded amount
approximates fair value.
- Receivables are classified as "Loans and Receivables" and are measured at
amortized cost using the effective interest rate method. At December 31, 2008,
the recorded amount approximates fair value.
- Short-term and long-term financial liabilities and accounts payable are
classified as "Other Financial Liabilities" and are measured at amortized cost
using the effective interest rate method. At December 31, 2008, the recorded
amount approximates fair value.
Transaction costs directly attributable to the acquisition or issue of a
financial asset or financial liability, other than held for trading financial
assets, are included in the carrying amount of the financial asset or financial
liability, and are amortized to income using the effective interest rate
method.
Derivatives may be embedded in other financial instruments (host instruments).
Embedded derivatives are treated as separate derivatives when their economic
characteristics and risks are not closely related to those of the host
instrument, the terms of the embedded derivative are the same as those of a
stand-alone derivative, and the combined contract is not classified as held for
trading. These embedded derivatives are measured at fair value on the balance
sheet with subsequent changes in fair value recognized in income. The Company
has not identified any embedded derivatives that are required to be accounted
for separately from the host contract.
The Company does not have any derivatives that qualify as hedging instruments.
(n) Revenue recognition
Revenue, based upon prevailing metal prices, is recorded in the financial
statements when title to the PGMs transfers to the customer. The estimated
revenue is recorded based on metal prices and exchange rates on the date of
shipment and is adjusted at each balance sheet date to the metal prices on
those dates. The actual amounts will be reflected in revenue upon final
settlement, which are three and five months after the date of shipment. These
adjustments reflect changes in metal prices and changes in qualities arising
from final assay calculations.
(o) Stock-based compensation
The Company grants stock options to buy common shares of the Company to
directors, officers, employees and service providers. The board of directors
grants such options for periods of up to ten years, with vesting periods
determined at its sole discretion and at prices equal to or greater than the
closing market price on the day preceding the date the options were granted.
The Company applies the fair-value method of accounting in accordance with the
recommendations of CICA Handbook Section ("CICA 3870"), "Stock-based
Compensation and Other Stock-based Payments ". Stock-based compensation expense
is calculated using the Black-Scholes option pricing model with a
corresponding credit to contributed surplus, on a straight-line basis over the
vesting period. If and when the stock options are ultimately exercised, the
applicable amounts of contributed surplus are transferred to share capital.
(p) Earnings (loss) per share
Basic earnings (loss) per share is computed by dividing the net earnings (loss)
available to common shareholders by the weighted average number of shares
outstanding during the reporting year. Diluted earnings (loss) per share is
computed similar to basic earnings (loss) per s hare except that the weighted
average shares outstanding are increased to include additional shares for the
assumed exercise of stock options and warrants, if dilutive. The number of
additional shares is calculated by assuming that outstanding stock options and
warrants were exercised and that the proceeds from such exercises were used to
acquire common stock at the average market price during the reporting periods.
(q) Employee future benefits
The cost of retirement benefits and other benefit obligations are recognized
over the period in which the employees render services in return for the
benefits. The Company has a defined contribution retirement plan for its South
African based employees. The pension plans are funded by payments from the
employees and by the relevant group companies and charged to income as
incurred.
(r) Adoption of new accounting standards and accounting pronouncements
Effective January 1, 2008, the Company adopted four new accounting standards
that were issued by the Canadian Institute of Chartered Accountants.
(i) Financial Instrument Disclosures and Presentation
CICA Handbook Sections 3862 "Financial Instruments - Disclosures" and Section
3863 "Financial Instruments - Presentation" replace Section 3861 "Financial
Instruments - Disclosure and Presentation". The new standards carry forward the
presentation requirements for financial instruments and enhance the disclosure
requirements by placing increased emphasis on disclosures about the nature and
extent of risks arising from financial instruments and how the entity manages
those risks.
(ii) Capital Disclosures
CICA Handbook Section 1535 requires the Company to disclose (a) its objectives,
policies and processes for managing capital; (b) quantitative data about what
the entity regards as capital; (c) whether the entity has complied with any
capital requirements; and (d) if it has not complied, the consequences of such
non- compliance.
(r) Adoption of new accounting standards and accounting pronouncements
(continued)
(iii) Inventories
CICA Handbook Section 3031 replaced the existing inventories standard. The new
standard requires inventory to be valued on a first-in, first-out or weighted
average basis, which is consistent with the Company`s previous treatment. The
adoption of CICA 3031 did not have a significant impact on the Company`s
accounting for inventory or associated disclosures as at January 1, 2008 or for
the twelve months ended December 31, 2008.
(s) International Financial Reporting Standards
In February 2008, the CICA announced that Canadian generally accepted
accounting principles ("GAAP") for publicly accountable enterprises will be
replaced by International Financial Reporting Standards ("IFRS") for fiscal
years beginning on or after January 1, 2011. In Staff Notice 52-321 - Early
Adoption of International Financial Reporting Standards, Use of US GAAP and
Reference to IFRS-IASB, the Canadian Securities Administrators (CSA) indicated
that the CSA would be prepared to provide exemptive relief to permit a Canadian
reporting issuer to prepare its financial statements in accordance with IFRS
for financial periods beginning before January 1, 2011. The Company applied for
exemptive relief in 2008 and was granted exemptive relief in February, 2009.
The Company intends to adopt IFRS for Canadian reporting purposes with an
adoption date of January 1, 2009 and a transition date of January 1, 2008.
3. Acquisitions
(a) Acquisitions during the year ended December 31, 2008
On December 8, 2008 the Company acquired a further 2.47% of Barplats
Investments Limited ("Barplats") to increase its direct and indirect interest
to 87.49%. Of the 2.47% interest, the Company acquired 0.99% directly from
Barplats through the acquisition of 12,155,814 shares issued from Barplats`
treasury in exchange for net cash of $6,422. This increased the Company`s
direct ownership in Barplats from 74% to 74.99%. The Company acquired the other
1.48% indirectly from Gubevu through the acquisition of 1,519 shares in Gubevu
in exchange for net cash of $33,167. This increased the Company`s direct
ownership in Gubevu from 42.39% to 49.99%, and the Company`s indirect ownership
in Barplats from 11.02% to 12.50%.
Following these acquisitions, the Company owns directly and indirectly 87.49%
of Barplats, a PGM producing company in South Africa.
Purchase price
Acquisition of 2.47% interest in Barplats
Cash $ 39,589
$ 39,589
Net assets acquired
Property, plant and equipment 55,759
Future income tax liabilities (16,170)
$ 39,589
(b) Acquisitions during the year ended June 30, 2007 - Barplats
On May 28, 2007 the Company acquired a further 5% of Barplats from the minority
shareholders to increase its interest to 74%. In connection with the
acquisition, the Company issued 17,272,594 common shares of the Company and
paid R12.3 million ($1,760) to the minority shareholders of Barplats. Following
the acquisition, the Company owns 74% of Barplats, with the balance of 26% held
by Barplats` Black Economic Empowerment ("BEE") partner, Gubevu.
Prior to June 2007, the Company (through a wholly-owned subsidiary) purchased a
loan held by Nedbank Capital in favour of Gubevu , Barplats` minority
shareholder and BEE partner, under the same commercial terms and conditions as
the Nedbank Capital loan. The debt was purchased for $8.9 million and is a
demand note with interest accruing at the floating South African prime rate
(December 31, 2007 - 14.5.%). On June 15, 2007 the Company acquired 42.39% of
the shares of Gubevu, for R43 million, and in addition the Company settled
certain debt of Gubevu totalling R21.6 million.
The Company also entered into an agreement to pay an unrelated third party an
amount which existed in the underlying Gubevu debt agreements, whereby the
Company paid R37 million ($5,230) and issued a promissory note for three
additional payments:
- R27.7 million ($4,024) paid on May 4, 2008;
- R27.7 million ($2,972) due May 4, 2009; and
- R30.9 million ($4,489) due upon certain corporate reorganization events.
Based upon the fact that these future payments are based in rand, the Company
has discounted these future payments using a rate of 14.5% which represents the
Company`s borrowing rate in South Africa. The payments due on May 4, 2008 and
2009 were recorded as liabilities of Gubevu at the date of acquisition.
The discounted value of the payment due on May 4, 2009 ($2,972, December 31,
2007 - $4,024) has been classified as current loans in these consolidated
financial statements. At December 31, 2008 the R30.9 million was not due as the
corporate reorganization events had not occurred.
(b) Acquisitions during the year ended June 30, 2007 - Barplats (continued)
Purchase price
Acquisition of 5% interest in Barplats
17,272,460 Eastern Platinum common shares $ 29,019
Cash 1,760
Acquisition of 42.39% interest in Gubevu
Cash 8,929
Promissory note 11,864
Assumption of debt 34,856
Acquisition costs 283
$ 86,711
Net assets acquired
Cash and cash equivalents $ 1,030
Non-cash working capital (515)
Property, plant and equipment 152,610
Refining contract 4,802
Short term debt (11,428)
Asset retirement obligation (889)
Future income tax liabilities (18,310)
Non-controlling interests (40,589)
$ 86,711
(c) Acquisitions during the year ended June 30, 2007 - Spitzkop PGM Project
On March 20, 2007, the Company purchased the 1% net smelter royalty held by
Rhodium Reef Royalties on all PGM recovered from the Spitzkop PGM Project. The
consideration was $6.5 million and 12 million common shares of the Company.
4. Inventories
December 31, December 31,
2008 2007
Consumables $ 3,509 $ 5,446
Ore and concentrate 372 1,442
$ 3,881 $ 6,888
5. Property, plant and equipment
December 31, 2008
Accumulated
depreciation/ Net book
Cost depletion value
Mining plant and equipment $ 317,625 $ 91,837 $ 225,788
Mineral properties
Crocodile River Mine (a) 125,142 14,786 110,356
Kennedy`s Vale Project (b) 333,462 11,607 321,855
Spitzkop PGM Project (c) 101,711 - 101,711
Mareesburg JV (c) 23,292 - 23,292
Other property, plant and
equipment 90 53 37
$ 901,322 $ 118,283 $ 783,039
December 31, 2007
Accumulated
depreciation/ Net book
Cost depletion value
Mining plant and equipment $ 270,171 $ 114,696 $ 155,475
Mineral properties
Crocodile River Mine (a) 149,618 11,932 137,686
Kennedy`s Vale Project (b) 386,353 15,666 370,687
Spitzkop PGM Project (c) 121,443 - 121,443
Mareesburg JV (c) 28,075 - 28,075
Other property, plant and
equipment 119 24 95
$ 955,779 $ 142,318 $ 813,461
(a) Crocodile River Mine ("CRM")
The Company holds directly and indirectly 87.5% of CRM, which is located on the
eastern portion of the western limb of the Bushveld Complex. The Maroelabult
and Zandfontein sections are currently in production, while development of the
Crocette and Kareespriut sections was temporarily suspended in the fourth
quarter of 2008 due to the significant decrease in PGM prices.
(b) Kennedy`s Vale Project ("KV")
The Company holds directly and indirectly 87.5% of KV, which is located on the
eastern limb of the Bushveld Complex, near Steelpoort in the Province of
Mpumalanga. It comprises PGM mineral rights on five farms in the Steelpoort
Valley.
(c) Spitzkop PGM Project and Mareesburg Joint Venture
The Company holds directly and indirectly a 93.4% interest in the Spitzkop PGM
Project and a 75.5% interest in the Mareesburg project. The Company currently
acts as the operator of both the Mareesburg Platinum Project Joint Venture and
Spitzkop PGM Project, both located on the eastern limb of the Bushveld Complex.
The development of these projects was temporarily suspended in the fourth
quarter of 2008 due to the significant decrease in PGM prices.
(d) Supplementary information
Accumulated
depreciation/ Net book
Cost depletion value
Balance, June 30, 2007 $ 887,071 $ 129,778 $757,293
Mining plant and equipment 34,285 8,542
Crocodile River Mine 145 404
Kennedy`s Vale Project (305) -
Spitzkop PGM Project 1,029 -
Mareesburg JV 2,533 -
Foreign exchange movement 31,021 3,594
Balance, December 31, 2007 $ 955,779 $ 142,318 $813,461
Mining plant and equipment 116,462 5,195
Crocodile River Mine 3,769 542
Kennedy`s Vale Project 226 -
Spitzkop PGM Project 4,118 -
Mareesburg JV 391 -
Purchase price allocation 56,302 7,099
Foreign exchange movement (235,725) (36,871)
Balance, December 31, 2008 $ 901,322 $ 118,283 $ 783,039
6. Refining Contract
At the time of the Company`s acquisition of a 69% interest in Barplats during
the year ended June 30, 2006, the Company assigned a portion of the excess of
the purchase price over the fair value of the intangible assets acquired to the
off-take contract governing the sales of Barplats` PGM concentrate production.
The initial value of the contract was $17,939. During the year ended June 30,
2007, the Company acquired an additional 5% interest in Barplats resulting in
an additional value of the contract of $4,802 for a total aggregate value of
$22,741. During the year ended December 31, 2008, the Company acquired an
additional 2.47% interest in Barplats which did not affect the aggregate value
of the contract. The value of the contract is amortized over the term of the
contract. The amortization expense for the twelve months ended December 31,
2008 was $1,353 and the accumulated amortization at December 31, 2008 was
$5,627.
Balance, June 30, 2007 $ 18,828
Depreciation expense (798)
Foreign exchange movement 437
Balance, December 31, 2007 $ 18,467
Depreciation expense (1,353)
Foreign exchange movement (4,621)
Balance, December 31, 2008 $ 12,493
7. Asset retirement obligation
Although the ultimate amount of the asset retirement obligation is uncertain,
the fair value of these obligations is based on information currently
available, including closure plans and applicable regulations. Significant
closure activities include land rehabilitation, demolition of buildings and
mine facilities and other costs.
The liability for the asset retirement obligation at December 31, 2008 is
approximately ZAR26.4 million ($2,846). The undiscounted value of this
liability is approximately ZAR104 million ($11,197). An accretion expense
component of approximately $278 (six months ended December 31, 2007 - $180) has
been charged to operations in the year ended December 31, 2008 to reflect an
increase in the carrying amount of the asset retirement obligation which has
been determined using a discount rate of 13%. Changes to the asset retirement
obligation during the year ended December 31, 2008 are as follows:
Balance, June 30, 2007 $ 2,701
Revision in estimates (67)
Foreign exchange movement 75
Accretion 180
Balance, December 31, 2007 $ 2,889
Revision in estimates 428
Foreign exchange movement (749)
Accretion 278
Balance, December 31, 2008 $ 2,846
8. Share capital
(a) Authorized
- Unlimited number of preferred redeemable, voting, non-participating shares
without nominal or par value
- Unlimited number of common shares with no par value
(b) Stock options
The Company has an incentive plan (the "2008 Plan"), approved by the Company`s
shareholders at its annual general meeting held on June 4, 2008, under which
options to purchase common shares may be granted to its directors, officers,
employees and others at the discretion of the Board of Directors. Under the
terms of the 2008 Plan, 75 million common shares are reserved for issuance upon
the exercise of options. All outstanding options at June 4, 2008 granted under
the Company`s previous plan (the "2005 Plan") will continue to exist under the
2008 Plan provided that the fundamental terms governing such options will be
deemed to be those under the 2005 Plan. Upon adoption of the 2008 Plan, options
to purchase a total of 27,525,000 common shares were available for grant under
the 2008 Plan, representing 75,000,000 less the 47,475,000 outstanding options
at June 4, 2008 granted under the 2005 Plan.
Under the 2008 Plan, each option granted shall be for a term not exceeding five
years from the date of being granted and the vesting period is determined based
on the discretion of the Board of Directors. The option exercise price is set
at the date of the grant and cannot be less than the closing market price of
the Company`s common shares on the Toronto Stock Exchange on the day
immediately preceding the day of the grant of the option.
The changes in stock options during the twelve months ended December 31, 2008
were as follows:
December 31, December 31,
2008 2007
Weighted Weighted
average average
Number of exercise Number of exercise
options price options price
Cdn$ Cdn$
Balance
outstanding,
beginning of
period 46,360,000 1.94 32,450,000 1.76
Options granted 19,856,000 0.55 15,180,000 2.31
Options
exercised (845,000) 1.26 (1,153,333) 1.79
Options
forfeited (625,000) 1.76 (116,667) 1.70
Balance
outstanding,
end of period 64,746,000 1.52 46,360,000 1.94
The following table summarizes information concerning outstanding and
exercisable options at December 31, 2008:
Remaining
Options Options Exercise Contractual
outstanding exercisable price Life (Years) Expiry date
Cdn$
187,500 187,500 1.00 0.65 August 26, 2009
7,475,000 7,475,000 1.70 2.39 May 24, 2011
250,000 250,000 1.70 2.91 November 27, 2011
22,187,500 22,187,500 1.82 3.18 March 7, 2012
18,356,000 16,302,667 0.32 4.97 December 18, 2013
14,790,000 13,820,000 2.31 8.77 October 5, 2017
90,000 60,000 2.50 8.95 December 12, 2017
1,000,000 600,000 3.38 9.15 February 20, 2018
410,000 170,000 3.38 9.24 March 27, 2018
64,746,000 61,052,667 5.00
(c) Share purchase warrants
The changes in warrants during the twelve months ended December 31, 2008 were
as follows:
December 31, 2008 December 31, 2007
Weighted Weighted
average average
Number of exercise Number of exercise
warrants price warrants price
Cdn$ Cdn$
Balance outstanding,
beginning of period 71,248,050 1.83 71,348,050 1.83
Warrants exercised (10,824,077) 1.97 - -
Warrants expired (1,937,977) 2.00 (100,000) 1.80
Balance outstanding,
end of period 58,485,996 1.80 71,248,050 1.83
At December 31, 2008, the Company had 58,485,996 warrants outstanding, each
warrant exercisable at Cdn$1.80 per common share and expiring on March 28,
2009.
These warrants expired unexercised on March 28, 2009.
(d) Stock-based compensation
The fair value of each option granted is estimated at the time of the grant
using the Black-Scholes option pricing model with weighted average assumptions
for grants as follows:
December 31, December 31, June 30,
2008 2007 2007
(12 months) (6 months) (12 months)
Risk-free interest rate 1.54% 4.19% 3.90%
Expected life 3 years 3 years 3 years
Annualized volatility 74% 43% 52%
Dividend rate 0% 0% 0%
Grant date fair value Cdn$0.23 Cdn$0.78 Cdn$0.61
Stock-based compensation expense for options vested during the year ended
December 31, 2008 is $4,290 ($10,251 - six months ended December 31, 2007;
$14,416 - year ended June 30, 2007).
9. Income taxes
The provision for income taxes reported differs from the amounts computed by
applying the cumulative Canadian federal and provincial income tax rates to the
loss before tax provision due to the following:
December 31, December 31, June 30,
2008 2007 2007
(12 months) (6 months) (12 months)
Statutory tax rate 31.00% 34.12% 34.12%
Expected tax expense (recovery)
on net income (loss) before
income tax $ (213) $ (3,122) $ (3,138)
Difference in tax rates between
foreign jurisdictions and
Canada (6,754) (2,617) (356)
Items not deductible for income
tax purposes 2,060 6,987 3,084
Effective change in tax rates (3,433) - -
Effect of tax rate change on
valuation allowance (532) - -
Benefit of tax losses (recognized)
not recognized (32) 601 (1,592)
Change in tax estimates (4,719) (210) -
Income tax expense (recovery
of future income taxes) (13,623) 1,639 (2,002)
The approximate tax effect of each item that gives rise to the Company`s future
income tax assets are as follows:
December 31, December 31,
2008 2007
Future income tax assets
Non-capital loss carry forwards $ 4,327 $ 5,304
Share issue costs 1,982 2,919
Accumulated cost base difference on assets
and other 1,094 2,852
Deferred receipts 1,178 -
Net future income tax assets $ 8,581 $ 11,075
Less valuation allowance (6,436) (8,334)
Total future income tax assets $ 2,145 $ 2,741
Future income tax liabilities
Accumulated cost base difference on assets $ 118,201 $ 146,357
Deferred receipts - 6,416
Total future income tax liabilities $ 118,201 $ 152,773
Net future income tax asset - short-term $ 1,178 $ -
Net future income tax liability - short-term $ - $ 6,416
Net future income tax liability - long-term $ 117,234 $ 143,616
At December 31, 2008, the Company has non -capital losses of approximately
Cdn$20,270 available to apply against future Canadian income for tax purposes.
The non-capital losses will expire as follows (in thousands of Canadian
dollars):
2011 1,115
2012 272
2013 1,595
2014 916
2025 3,101
2026 6,106
2027 2,551
2028 4,614
$ 20,270
The Company has capital losses of approximately Cdn$1.6 million available to
apply against future capital gains.
The Company is subject to assessments by various taxation authorities which may
interpret tax legislations and tax filing positions differently from the
Company. The Company provides for such differences when it is likely that a
taxation authority will not sustain the Company`s filing position and the
amount of the tax exposure can be reasonably estimated. As at December 31,
2008, no provisions have been made in the financial statements for any
estimated tax liability.
10. Non-controlling interests
During the year ended December 31, 2008, non-controlling interest was decreased
following the acquisition of an additional 7.6% interest in Gubevu and the
acquisition of an additional 0.99% direct interest in Barplats (Note 3(a)). As
Gubevu has been determined to be a VIE, as primary beneficiary, the Company has
measured the non-controlling interest in Gubevu at fair value.
The non-controlling interests are comprised of the following:
Balance, June 30, 2007 $ 24,502
Non-controlling interests` share of income in Barplats 1,414
Non-controlling interests` share of interest on advances to Gubevu (2,514)
Balance, December 31, 2007 $ 23,402
Non-controlling interests` share of income in Barplats (430)
Non-controlling interests` share of interest on advances to Gubevu (2,999)
Foreign exchange movement (7,638)
Balance, December 31, 2008 $ 12,335
11. Related party transactions
The Company incurred the following general and administrative expenses in the
normal course of operations, measured at the exchange amount which is
determined on a cost recovery basis, with companies related by way of directors
and officers in common:
December 31, December 31, June 30,
2008 2007 2007
(12 months) (6 months) (12 months)
Consulting fees (a) $ 90 $ 21 $ -
General and ad ministrative
expenses 254 42 95
Management fees (b) 1,205 3,344 978
Rent (c) - - 336
$ 1,549 $ 3,407 $ 1,409
(a) The Company paid fees to a private company controlled by a director of the
Company for consulting services performed outside of his capacity as a
director.
(b) The Company paid management fees and expenses to private companies
controlled by officers and directors of the Company. Management fees for the
six months ended December 31, 2007 included a termination payment of $2,252 due
to an officer of the Company in respect of his employment agreement.
(c) Rent incurred during the year ended June 30, 2007 included a lease
cancellation penalty of Cdn$312 ($276) paid to a company controlled by an
officer of the Company as a result of the Company moving to new premises.
(d) Amounts due to related parties are unsecured, non-interest bearing and due
on demand. Accounts payable at December 31, 2008 included $35 (Dec 31, 2007 -
$2,550) which were due to private companies controlled by officers of the
Company.
12. Segmented information
(a) Operating segment - The Company`s operations are primarily directed towards
the acquisition, exploration and production of platinum group metals in South
Africa.
(b) Geographic segments - The Company`s assets, revenues and expenses by
geographic areas for the years ended December 31, 2008 and June 30, 2007, and
the six months ended December 31, 2007 are as follows:
December 31, 2008 (12 months)
South Africa Canada Total
Property, plant and equipment $ 783,002 $ 37 $ 783,039
Refining contract 12,493 - 12,493
Other assets 1,017 - 1,017
Total assets 815,371 56,856 872,227
Property, plant and
equipment expenditures $ 143,373 $ - $ 143,373
Revenues $ 116,198 $ - $ 116,198
Production costs (79,961) - (79,961)
Depletion and depreciation (14,546) (53) (14,599)
Expenses (13,004) (6,407) (19,411)
Stock based compensation (1,646) (2,644) (4,290)
Interest income 1,958 5,123 7,081
Interest expense (3,551) - (3,551)
Foreign exchange gain (loss) (2,328) 173 (2,155)
Income (loss) before income taxes
and non-controlling interests $ 3,120 $ (3,808) $ (688)
December 31, 2007 (6 months)
South Africa Canada Total
Property, plant and equipment $ 813,378 $ 83 $ 813,461
Refining contract 18,467 - 18,467
Other assets 1,247 - 1,247
Total assets 871,790 191,286 1,063,076
Property, plant and
equipment expenditures $ 36,079 $ - $ 36,079
Revenues $ 65,578 $ - $ 65,578
Production costs (41,363) - (41,363)
Depletion and depreciation (9,105) (15) (9,120)
Expenses (5,035) (6,270) (11,305)
Stock based compensation - (10,251) (10,251)
Interest income 334 4,590 4,924
Interest expense (2,010) - (2,010)
Foreign exchange loss (5,600) (4) (5,604)
Income (loss) before income taxes
and non-controlling interests $ 2,799 $ (11,950) $ (9,151)
June 30, 2007 (12 months)
South Africa Canada Total
Property, plant and equipment $ 757,184 $ 109 $ 757,293
Refining contract 18,828 - 18,828
Other assets 1,007 - 1,007
Total assets 810,596 198,084 1,008,680
Property, plant and
equipment expenditures $ 62,894 $ 103 $ 62,997
Revenues $ 101,205 $ - $ 101,205
Production costs (69,467) - (69,467)
Depletion and depreciation (8,116) (7) (8,123)
Expenses (11,337) (4,642) (15,979)
Stock based compensation - (14,416) (14,416)
Interest income 1,845 3,063 4,908
Interest expense (5,427) - (5,427)
Foreign exchange loss (1,739) (158) (1,897)
Income (loss) before income taxes
and non-controlling interests $ 6,964 $ (16,160) $ (9,196)
For the periods ended December 31, 2008 and 2007, and June 30, 2007, 100% of
the Company`s PGM production was sold to one customer (Note 15(c)).
13. Commitments
The Company has committed to capital expenditures on projects of approximately
259 million Rand ($27,925) as at December 31, 2008.
14. Management of capital risk
The capital structure of the Company consists of equity attributable to common
shareholders, comprising of issued capital, contributed surplus, deficit and
accumulated other comprehensive income (loss). The Company`s objectives when
managing capital are to: (i) preserve capital, (ii) obtain the best available
net return, and (iii) maintain liquidity.
The Company manages the capital structure and makes adjustments to it in light
of changes in economic conditions and the risk characteristics of the
underlying assets. To maintain or adjust the capital structure, the Company may
attempt to issue new shares, issue new debt, acquire or dispose of assets or
adjust the amount of cash and cash equivalents and investments.
The Company`s policy is to invest its excess cash in highly liquid, fully
guaranteed, bank - sponsored instruments. The Company staggers the maturity
dates of its investments over different time periods and dates to minimize
exposure to interest rate changes. This strategy is unchanged from 2007.
The Company is not subject to externally imposed capital requirements.
15. Management of financial risk
The Company`s financial instruments are exposed to certain financial risks,
including price risk, currency risk, credit risk, liquidity risk, and interest
risk. The Company`s exposure to these risks and its methods of managing the
risks remain consistent.
(a) Price risk
The Company is exposed to price risk with respect to the revenues and costs of
production. Revenues are affected by fluctuations in both the prices of
platinum group metals and exchange rates. Costs of production include
electricity, labour, and diesel amongst others. The Company closely monitors
these prices to determine the appropriate course of action to be taken by the
Company. The Company has not entered into any derivative financial instruments
to manage exposures to price fluctuations.
A sensitivity analysis has not been completed at December 31, 2008 as it would
not be representative of the actual risk. The future costs of production are
unknown and are expected to change frequently.
(b) Currency risk
The Company is exposed to the financial risk related to the fluctuation of
foreign exchange rates. The Company receives revenue in South African Rand,
incurs expenses in Canadian dollars and South African Rand and its reporting
currency is the US dollar. A significant change in the currency exchange rates
between the Canadian dollar and South African Rand relative to the US dollar
could have an effect on the Company`s results of operations, financial position
or cash flows. The Company has not entered into any derivative financial
instruments to manage exposures to currency fluctuations.
At December 31, 2008, the Company is exposed to currency risk through the
following financial instruments denominated in South African Rand and Canadian
dollars:
December 31, 2008 December 31, 2007
(000`s (000`s (000`s
(000`s Cdn$)
ZAR) Cdn$) ZAR)
Cash and cash equivalents $ 25,589 44,566 $ 18,176 3,326
Short-term investments 42,944 - 169,546 -
Trade receivables 552 84,572 1,880 215,195
Short-term liabilities 3,463 7,224 3,804 -
Long-term liabilities - 30,297 3,294 39,958
Accounts payable and
accruals 455 337,773 3,646 132,797
The sensitivity of the Company`s net earnings and other comprehensive income
due to changes in the exchange rate between the South African Rand and the
United States dollar is summarized in the tables below. The increase (decrease)
in other comprehensive income is due to the effect of the exchange rate on both
financial instruments and the translation of the Company`s financial
statements.
Year ended Dec. 31, 2008
10% 10%
increase in decrease in
ZAR to USD ZAR to USD
FX Rate FX Rate
Increase (decrease) in net earnings 6,684 (6,684)
Increase (decrease) in other
comprehensive income (59,794) 59,794
Comprehensive income (loss) (53,110) 53,110
(c) Credit risk
Credit risk is the risk of an unexpected loss if a customer or third party to a
financial instrument fails to meet its contractual obligations, and arises
principally from the Company`s trade receivables. The carrying value of the
financial assets represents the maximum credit exposure.
The Company currently sells all of its concentrate production to one customer
under an off-take contract. At December 31, 2008 the Company had receivable
balances associated with this one customer of $9,956 (2007 - $33,157). The loss
of this customer or unexpected termination of the off-take contract could have
a material adverse effect on the Company`s results of operations, financial
condition and cash flows. The Company has not experienced any bad debts with
this customer.
The Company minimizes credit risk by reviewing the credit risk of the
counterparty to the arrangement and has made any necessary provisions related
to credit risk at December 31, 2008.
(d) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due. The Company has a planning and
budgeting process in place to help determine the funds required to support the
Company`s normal operating requirements on an ongoing basis and its
expansionary plans. The Company ensures that there are sufficient funds to meet
its short-term business requirements, taking into account its anticipated cash
flows from operations and its holdings of cash and cash equivalents.
In the normal course of business the Company enters into contracts that give
rise to commitments for future minimum payments. The following table summarizes
the Company`s significant commitments and corresponding maturities.
4-5 >5
Total <1 year 1-3 years
years years
Accounts payable $ 36,729 $36,729 $ - $ - $ -
Capital leases 3,910 649 3,261 - -
Loans (Note 3(b)) 2,972 2,972 - - -
Purchase commitments 4,751 4,751 - - -
Capital expenditures 23,174 22,725 449 - -
Total $ 71,536 $ 67,826 $ 3,710 $- $-
(e) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates. The Company is exposed to interest rate risk on its short-term
investments. The risk that the Company will realize a loss as a result of a
decline in the fair value of short-term investments is limited because these
investments, although available for sale, are generally held to maturity. The
Company monitors its exposure to interest rates and has not entered into any
derivative financial instruments to manage this risk.
16. Fair value estimation of financial instruments
The fair value of financial instruments traded in active markets is based on
quoted market prices at the balance sheet date.
The fair values of cash and cash equivalents, short-term investments, trade
receivables and accounts payable approximate their carrying values due to the
short-term to maturities of these financial instruments.
The fair value of short-term debt was determined using discounted cash flows at
prevailing market rates and the fair value is considered to approximate
carrying value.
The Company has assessed these financial instruments in light of the current
market conditions and has not identified any impairment.
17. Subsequent event
From January 1, 2009 to March 31, 2009, the Company granted 80,000 stock
options with an exercise price of Cdn$0.32 per share expiring on February 11,
2014.
Date: 31/03/2009 15:42:26 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
