| Wed 1 Apr 2009, 10:12 | | ARQ - Anooraq - Consolidated financial statements years ended December 31 2008 |
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ARQ
ARQ
ARQ - Anooraq - Consolidated financial statements years ended December 31, 2008,
2007 and 2006
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")
CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(Expressed in Canadian Dollars, unless otherwise stated)
ANOORAQ RESOURCES CORPORATION
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
December 31 December 31
2008 2007
Assets
Current assets
Cash and cash equivalents $ 3,850,674 $ 7,131,821
Accounts receivable 158,644 167,779
Prepaid expenses 112,910 101,409
4,122,228 7,401,009
Deferred acquisition costs 1,587,959 368,146
Equipment (note 5) 469,635 105,494
Mineral property interests (note 6) 8,993,645 9,078,714
$ 15,173,467 $ 16,953,363
Liabilities and Shareholders` Equity (Deficit)
Current Liabilities
Accounts payable and accrued liabilities $ 1,004,767 $ 475,102
Due to related parties (note 9) 794,072 45,609
Accrued interest on term loan (note 7) 1,735,663 1,892,197
3,534,502 2,412,908
Term loan (note 7) 12,967,753 9,806,636
16,502,255 12,219,544
Shareholders` Equity (Deficit)
Share capital 54,948,341 51,855,350
Contributed surplus 17,584,974 13,254,905
Deficit (73,862,103) (60,376,436)
(1,328,788) 4,733,819
Nature of operations and going concern (note 1)
Proposed transaction (note 12 )
$ 15,173,467 $ 16,953,363
See accompanying notes to consolidated financial statements
Approved by the Board of Directors
/s/ Philip Kotze /s/ Iemrahn Hassen
Philip Kotze Iemrahn Hassen
Director Director
ANOORAQ RESOURCES CORPORATION
Consolidated Statements of Operations and Comprehensive Loss
(Expressed in Canadian Dollars)
Year ended December 31
2008 2007 2006
Expenses
Accounting, audit and legal $ 576,330 $ 416,745 $ 690,132
Amortization 61,140 24,009 30,862
Accretion on term loan 88,771 112,459 13,879
Conference and travel 421,469 492,106 360,959
Consulting 309,377 177,809 154,578
Exploration (schedule) 341,943 852,891 720,463
Foreign exchange gain (426,785) (588,115) (34,817)
Gain on disposal of equipment (5,779) - (41,291)
Interest expense 1,985,653 2,042,711 399,062
Interest income (179,119) (799,985) (263,820)
Office and administration 905,877 451,908 354,353
Salaries and benefits 3,626,962 2,016,689 1,511,874
Stock-based compensation -
office and administration
(note 8(b)) 5,385,502 7,215,670 9,137
Stock-based compensation -
exploration (note 8(b)) - 1,491,849 15,209
Shareholders communications 212,015 258,882 289,824
Trust and filing 183,311 269,503 415,440
Loss before the following 13,486,667 14,435,131 4,625,844
Future income tax recovery (1,000) (139,000) (121,000)
Loss for the year 13,485,667 14,296,131 4,504,844
Other comprehensive loss - - -
Total Comprehensive Loss $ 13,485,667 $ 14,296,131 $ 4,504,844
Basic and diluted loss per
share $ 0.07 $ 0.08 $ 0.03
Weighted average number of
common shares outstanding 185,775,361 168,377,927 148,220,407
See accompanying notes to consolidated financial statements
Total Comprehensive Loss 13 485 667 14 296 131 4 504 844
Adjust for:
Foreign exchange gain (426 785) (588 115) (34 817)
Gain on disposal of equipment (5 779) - (41 291)
Headline earnings 13 918 231 14 884 246 4 580 952
Headline earnings per share 0.07 0.09 0.03
ANOORAQ RESOURCES CORPORATION
Consolidated Statements of Shareholders` Equity(Deficit)
(Expressed in Canadian Dollars)
Year ended
December 31, 2008
Number of Number of
Share capital shares shares
Balance at beginning of
the year 185,208,607 $ 51,855,350 148,220,407
Share purchase options
exercised at $1.40
per share 1,410,000 1,974,000 883,200
Share purchase options
exercised at $0.95
per share - - 100,000
Share purchase options
exercised at $2.97
per share 21,400 63,558 5,000
Fair value of stock
options allocated to
shares issued on exercise - 1,055,433 -
Common shares issued
(note 6 (b)) - - 36,000,000
Balance at end of
the year 186,640,007 $ 54,948,341 185,208,607
Contributed surplus
Balance at beginning
of the year $ 13,254,905
Stock-based compensation 5,385,502
Fair value of stock
options allocated to
shares issued on exercise (1,055,433)
Balance at end of the year $ 17,584,974
Deficit
Balance at beginning of
the year $ (60,376,436)
Loss for the year (13,485,667)
Balance at end of the year $ (73,862,103)
TOTAL SHAREHOLDERS` EQUITY $ (1,328,788)
Year ended Year ended
December 31, 2007 December 31, 2006
Number of
Share capital shares
Balance at
beginning of the year $ 50,207,363 148,220,407 $ 50,207,363
Share purchase
options exercised
at $1.40 per share 1,236,480 - -
Share purchase
options exercised
at $0.95 per share 95,000 - -
Share purchase
options exercised
at $2.97 per share 14,850 - -
Fair value of stock
options allocated
to shares issued on
exercise 301,657 - -
Common shares
issued (note 6 (b)) - - -
Balance at end of
the year $ 51,855,350 148,220,407 $ 50,207,363
Contributed surplus
Balance at
beginning of the year $ 4,849,043 $ 4,824,697
Stock-based
compensation 8,707,519 24,346
Fair value of stock
options allocated
to shares issued on
exercise (301,657) -
Balance at end of
the year $ 13,254,905 $ 4,849,043
Deficit
Balance at
beginning of the year $ (46,080,305) $ (41,575,461)
Loss for the year (14,296,131) (4,504,844)
Balance at end of
the year $ (60,376,436) $ (46,080,305)
TOTAL SHAREHOLDERS`
EQUITY $ 4,733,819 $ 8,976,101
See accompanying notes to consolidated financial statements
ANOORAQ RESOURCES CORPORATION
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
Year ended December 31
2008 2007 2006
Operating activities
Loss for the year $ (13,485,667) $ (14,296,131) $ (4,504,844)
Items not involving cash:
Amortization 61,140 24,009 30,862
Accretion on term loan 88,771 112,459 13,879
Future income tax recovery (1,000) (139,000) (121,000)
Accrued interest on
term loan (note 7) 1,759,645 1,775,862 253,071
Stock-based
compensation (note 8 (b)) 5,385,502 8,707,519 24,346
Gain on disposal of
equipment (5,779) - (41,291)
Unrealized foreign
exchange gain (313,541) (410,350) (114,000)
Equity loss from
interest in Ga-Phasha
project (note 6) 143,069 920,608 555,677
Changes in non-cash
operating working capital:
Amounts receivable 9,135 (8,700) (80,307)
Amounts due to related
parties 748,463 177,790 235,692
Prepaid expenses (11,501) 2,755 11,905
Accounts payable and
accrued liabilities 529,665 (200,966) 303,416
Payment of accrued
interest (1,885,517) - -
Cash and cash
equivalents used by
operating activities (6,977,615) (3,334,145) (3,432,594)
Investing activities
Purchase of equipment (473,642) (56,188) (9,066)
Proceeds received on
disposal of equipment 54,140 - 120,343
Deferred acquisition costs (1,219,813) (368,146) -
Equity investment - (1,481,571) (59,428)
Cash and cash equivalents
provided (used) by
investing activities (1,639,315) (1,905,905) 51,849
Financing activities
Issuance of common shares 2,037,558 1,346,330 -
Proceeds from increase
in term loan 3,630,000 - 10,710,078
Financing costs paid - (445,917) -
Cash and cash
equivalents provided
(used ) by financing
activities 5,667,558 900,413 10,710,078
Effect of exchange rate
changes on cash and
cash equivalents held in
foreign jurisdictions (331,775) (1,303,687) 855,528
Increase (decrease) in
cash and cash
equivalents (3,281,147) (5,643,324) 8,184,861
Cash and cash
equivalents, beginning
of year 7,131,821 12,775,145 4,590,284
Cash and cash
equivalents, end of year $ 3,850,674 $ 7,131,821 $ 12,775,145
Supplementary
information
Interest paid $ 1,930,842 $ 266,849 $ 145,991
Interest received $ (179,119) $ (799,985) $ (239,329)
Non-cash operating,
financing and investing
activities
Financing costs accrued
in accounts payable and
accrued liabilities $ - $ - $ 351,641
Fair value of options
allocated to shares
issued on exercise of
options $ 1,055,433 $ 301,657 $ -
Shares issued to
Pelawan Investments
(Proprietary) Limited
(note 6 (b)) $ - $ - $ -
See accompanying notes to consolidated financial statements
ANOORAQ RESOURCES CORPORATION
Consolidated Schedules of Exploration Expenses
(Expressed in Canadian Dollars)
Republic of South Africa Year ended December 31
2008 2007 2006
Northern Limb of the
Bushveld Complex
Assays and analysis - 200 17,125
Engineering 11,297 19,784 53,423
Environmental and
socioeconomic - - 10,126
Geological and consulting 2,005 41,369 55,582
Graphics 3,279 5,104 2,426
Property fees and
assessments (recovery) (4,880) 9,303 18,168
Property option payments 10,248 12,016 32,548
Site activities 36,768 12,717 34,484
Transportation 16,352 4,036 2,098
75,069 104,529 225,980
Eastern Limb of the Bushveld
Complex
Assays and analysis - - 21,268
Drilling - - 376,406
Engineering - - 88,361
Geological and consulting 103,309 748,362 8,448
103,309 748,362 494,483
Other Exploration
Drilling 61,287 - -
Engineering 62,421 - -
Geological and consulting 39,857 - -
163,565 - -
Exploration expenses before
the following 341,943 852,891 720,463
Stock-based compensation - 1,491,849 15,209
Exploration expenses 341,943 2,344,740 735,672
Cumulative expenditures,
beginning of year 25,927,192 23,582,452 22,846,780
Cumulative expenditures, end
of year $ 26,269,135 $ 25,927,192 $ 23,582,452
See accompanying notes to consolidated financial statements
ANOORAQ RESOURCES CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 2008, 2007 and 2006
(Expressed in Canadian Dollars, unless otherwise stated)
1. NATURE OF OPERATIONS
Anooraq Resources Corporation (the "Company" or "Anooraq") is incorporated in
the Province of British Columbia, Canada and its principal business activity is
the exploration of mineral property interests. Since 1999, the Company has
focused on mineral property interests located in the Republic of South Africa,
with particular attention on the Bushveld Complex (Note 6).
The Company is in the process of exploring its mineral property interests and
has not yet determined whether its mineral property interests contain
economically recoverable mineral reserves. The underlying value and the
recoverability of the amounts shown for mineral property interests are entirely
dependent upon the existence of economically recoverable mineral reserves, the
ability of the Company to obtain the necessary financing to complete the
exploration and development of the mineral property interests, and future
profitable production or proceeds from the disposition of the mineral property
interests.
The consolidated financial statements are prepared on the basis that the
Company will continue as a going concern which contemplates the realization of
assets and settlement of liabilities in the normal course of operations as they
come due. The Company is currently in the process of completing a proposed
transaction to acquire an operating mine (note 12), which would result in
immediate cash flows from operations but requires debt and equity financing to
complete the transaction. As at December 31, 2008, the Company had cash and
cash equivalents of $3,850,674 and working capital of $587,726 and continues to
incur expenditures related to the completion of the proposed transaction.
Furthermore, as the Company is an exploration-stage company, the Company does
not have any sources of revenues and historically has incurred recurring
losses.
Management recognizes that the Company will need to acquire additional
financial resources in order to meet its planned business objectives. The
Company is monitoring all expenditures and implementing appropriate cash
management strategies to ensure that it has sufficient cash resources to fund
expenditure requirements until June 2009 by which time the Company is seeking
to receive regulatory, governance and shareholder approval for the proposed
transaction.
Management is confident of completing the proposed transaction. However, there
can be no assurances on the outcome of the approval process, the timing or
availability of additional financial resources required, or the ability of the
Company to achieve profitability or positive cash flows subsequent to the close
of the proposed transaction. If the proposed transaction does not close, the
Company expects that additional debt or equity financing will be required in
order to continue normal operations and the required financing may not be
readily available on acceptable terms. If adequate additional financing is not
obtained, the Company will be required to curtail operations and exploration
activities. Furthermore, failure to continue as a going concern would require
that the Company`s assets and liabilities be restated on a liquidation basis.
2. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles. The consolidated financial statements
include the accounts of the Company and its subsidiaries, all of which are
wholly owned. The Company`s investment in the Ga-Phasha joint venture (note
6(b)) is accounted for using the equity method.
All material intercompany balances and transactions have been eliminated.
3. SIGNIFICANT ACCOUNTING POLICIES
a) Cash and cash equivalents
Cash and cash equivalents consist of cash and highly liquid investments, having
maturity dates of three months or less from the date of purchase, that are
readily convertible to known amounts of cash. Cash and cash equivalents, are
designated as held for trading and recorded at fair value.
b) Accounts receivable
Accounts receivable are accounted for at amortised cost.
c) Equipment
Equipment is carried at cost less accumulated amortization. Amortization is
provided on a declining balance basis at various rates ranging from 15% to 30%
per annum.
d) Deferred acquisition costs
Acquisition costs incurred prior to the finalization and determination of a
major transaction by the Company are capitalized until the transaction to which
they relate is finalized at which time these costs are included in the cost of
acquisition.
e) Mineral property interests
Exploration expenses incurred prior to determination of the feasibility of
mining operations and periodic option payments are expensed as incurred.
Mineral property acquisition costs, and exploration and development
expenditures incurred subsequent to the determination of the feasibility of
mining operations and approval of development by the Company, are capitalized
until the property to which they relate is placed into production, sold,
allowed to lapse or abandoned.
Mineral property acquisition costs include the cash consideration and the fair
market value of common shares and warrants issued for mineral property
interests, pursuant to the terms of the relevant agreements. These costs will
be amortized over the estimated life of the property following commencement of
commercial production, or written off if the property is sold, allowed to lapse
or abandoned, or when impairment in value has been determined to have occurred.
An impairment review of mineral property interests is carried out when there is
an indication that these may be impaired by comparing the carrying amount of
the interest to its estimated recoverable amount. Where the recoverable amount
is less than the carrying amount an impairment charge is included in expenses
in order to reduce the carrying amount of mineral property interest to its fair
value.
f) Investments
Investments in entities over which the Company exercises significant influence
or variable interest entities in which the Company is not the primary
beneficiary are accounted for using the equity method. Investments in joint
ventures which the Company jointly controls and which are not variable interest
entities are accounted for using the proportionate consolidation method.
g) Accounts payable, accrued liabilities and term loan
Accounts payable, accrued liabilities and term loan are accounted for at
amortised cost.
h) Income taxes
The Company uses the asset and liability method of accounting for income taxes.
Under this method, future income tax assets and liabilities are computed based
on differences between the carrying amounts of assets and liabilities on the
balance sheet and their corresponding tax values, using the substantively
enacted or enacted income tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Future income tax assets also result from unused loss carry forwards
and other deductions. Future tax assets are recognized to the extent that they
are considered more likely than not to be realized. The carrying value of
future income tax assets is adjusted, if necessary, by the use of a valuation
allowance to reflect the amount that is considered to be more likely than not
to be realized.
i) Loss per share
Basic loss per share is calculated by dividing the loss available to common
shareholders by the weighted average number of common shares outstanding during
the period. For all years presented, the loss available to common shareholders
equals the reported loss.
Diluted loss per common share is calculated using the treasury stock method.
Under the treasury stock method, the weighted average number of common shares
outstanding used for the calculation of diluted loss per share assumes that the
proceeds to be received on the exercise of dilutive share options and warrants
are used to repurchase common shares at the average market price during the
year.
In the years presented, diluted loss per share is the same as basic loss per
share as the effect of including outstanding options and warrants in the loss
per share calculation would be anti-dilutive.
j) Translation of foreign currencies
The Company`s functional currency is the Canadian dollar. Monetary assets and
liabilities denominated in a foreign currency are translated into Canadian
dollars at exchange rates in effect at the balance sheet date. Non-monetary
assets and liabilities are translated at historical exchange rates unless such
items are carried at fair value, in which case they are translated at the
exchange rates in effect on the balance sheet date.
Revenues and expenses, except amortization, are translated at the average
exchange rates for the year. Amortization is translated at the same exchange
rate as the assets to which it relates. Gains or losses on translation are
recorded in the statement of operations.
k) Use of estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting year. Significant areas requiring the use of management estimates
include the determination of the impairment of mineral property interests,
reclamation obligations, valuation allowances for future income tax assets, and
the assumptions used in determining fair value of non-cash stock-based
compensation. Actual results could differ from these estimates.
l) Stock-based compensation
The Company has a share option plan which is described in note 8(b). The
Company records all stock-based payments granted using the fair value method.
Under the fair value method, stock-based compensation is measured at the fair
value on the grant date and charged to operations over the vesting period with
a corresponding credit to contributed surplus.
Consideration received on the exercise of stock options is recorded as share
capital and the related contributed surplus is transferred to share capital.
m) Asset retirement obligations
The Company recognizes statutory, contractual or other legal obligations
related to the retirement of tangible long-lived assets when such obligations
are incurred, if a reasonable estimate of fair value can be made. These
obligations are measured initially at fair value and the resulting costs are
capitalized to the carrying value of the related asset.
In subsequent periods, the liability is adjusted for any changes in the amount
or timing and for the discounting of the underlying future cash flows. The
capitalized asset retirement cost is amortized to operations over the life of
the asset. To date no asset retirement obligations were required to be
recognized.
n) Variable interest entities
The Company accounts for variable interest entities ("VIE") in accordance with
the Canadian Institute of Chartered Accountants ("CICA") Accounting Guideline
15, "Consolidation of Variable Interest Entities" ("AcG15"). AcG15 prescribes
the application of consolidation principles for entities that meet the
definition of a VIE and for which the Company is considered the primary
beneficiary. VIEs are entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The primary beneficiary is
the party that has exposure to a majority of the expected losses and/or
expected residual returns of the VIE. An enterprise holding other than a voting
interest in a VIE could, subject to certain conditions, be required to
consolidate the VIE if it is considered its primary beneficiary. The Company
has concluded that the Ga-Phasha Project qualifies as a VIE but that the
Company is not the primary beneficiary.
o) Segment disclosures
The Company operates in a single operating segment, being the exploration of
mineral properties in the Republic of South Africa.
p) Comprehensive Income
Comprehensive income is the change in the Company`s shareholder equity that
results from transactions and other events from other than the Company`s
shareholders and includes items that would not normally be included in net
income (loss), such as unrealized gains or losses on available-for-sale
investments. Certain gains and losses that would otherwise be recorded as part
of net income are to be presented in other accumulated comprehensive income
until it is considered appropriate to recognize into net income. Accumulated
other comprehensive income is presented as a new category in shareholders`
equity. As at December 31, 2008, the Company had no accumulated other
comprehensive income and for the year ended December 31, 2008, comprehensive
loss equals net loss.
q) Comparative figures
Certain of the prior years` comparative figures have been reclassified to
conform to the presentation adopted for the current year.
4. CHANGES IN ACCOUNTING POLICY
(a) Newly Adopted Accounting Policies
Effective January 1, 2008, the Company adopted the following new accounting
standards issued by the Canadian Institute of Chartered Accountants ("CICA").
These new standards have been adopted on a prospective basis with no
restatement to prior period financial statements.
(i) Section 1535 - Capital Disclosures
This standard requires disclosure of an entity`s objectives, policies and
processes for managing capital, quantitative data about what the entity regards
as capital and whether the entity has complied with any externally imposed
capital requirements and, if it has not complied, the consequences of such
non-compliance.
The Company`s objective when managing capital is to safeguard the Company`s
ability to continue as a going concern so that it can continue to explore and
develop its projects for the benefit of its shareholders and other
stakeholders. The Company considers the components of shareholders` equity and
term loan, as capital. The Company manages the capital structure and makes
adjustments to it in the light of changes in economic conditions and the risk
characteristics of the underlying assets. The Company may issue new shares
through private placements or incur debt financing in order to maintain or
adjust the capital structure.
The Company is required to spend at least 60% of the proceeds of the term loan
(note 7) to fund expenditure on the Ga-Phasha project. The Company is
currently in compliance with the restriction as of December 31, 2008.
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. There were no changes to the Company`s approach to capital
management during the year ended December 31, 2008. The Company is not subject
to externally imposed capital requirements as at December 31, 2008.
(ii) Financial Instruments - Disclosure (Section 3862) and Presentation
(Section 3863)
These standards replace CICA 3861, Financial Instruments - Disclosure and
Presentation. They increase the disclosures from those previously required to
enable users to evaluate the significance of financial instruments to an
entity`s financial position and performance, including disclosures about fair
value. In addition, disclosure is required of qualitative and quantitative
information about exposure to risks arising from financial instruments,
including specified minimum disclosures about credit risk, liquidity risk and
market risk. The quantitative disclosures must provide information about the
extent to which the entity is exposed to risk, based on information provided
internally to the entity`s key management personnel.
The carrying value of the Company`s cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities and due to related parties,
approximates their fair value due to the ability to immediately liquidate on
their short terms to maturity. The fair value of the term loan is approximately
$ 15.0 million based on the expected future cash flows and current market rates
of interest.
Financial Instrument Risk Exposure and Risk Management
The Company is exposed in varying degrees to a variety of financial instrument
related risk, including credit risk, liquidity risk, foreign exchange risk,
interest risk and commodity price risk.
Credit Risk
Credit risk is the risk of potential loss to the Company if a counterparty to a
financial instrument fails to meet its contractual obligations. The Company`s
credit risk is primarily attributable to its liquid financial assets including
cash and cash equivalents and accounts receivable. The Company limits exposure
to credit risk on liquid financial assets, through maintaining its cash and cash
equivalents with high-credit quality financial institutions. The carrying value
of the Company`s cash and cash equivalents and amounts receivable represent the
maximum exposure to credit risk.
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 cash equivalents are invested
in business accounts which are available on demand for the Company`s programs.
The Company operates in South Africa. Like other foreign entities operating
there, the Company is subject to currency exchange controls administered by the
South African Reserve Bank, that country`s central bank. A significant portion
of the Company`s funding structure for its South African operations consists of
advancing loans to its South African incorporated subsidiaries and it is
possible the Company may not be able to acceptably repatriate such funds once
those subsidiaries are able to repay the loans or repatriate other funds such
as operating profits should any develop. The repatriation of cash held in South
Africa is permitted upon the approval of the South African Reserve Bank. Cash
balances in South Africa are the Rand balances disclosed under Foreign Exchange
Risk below.
The following are the contractual maturities of financial liabilities as at
December 31, 2008:
Carrying Contractual 2009
Amount cash flow
Accounts payable & $ 1,004,767 1,004,767 1,004,767
accrued liabilities
Amounts due to related 794,072 794,072 794,072
parties
Amounts due for - 1,471,967 337,117
operating leases
Term loan & interest 14,703,416 18,911,865 4,155,331
payable
2010 2011 2012
Accounts payable & - - -
accrued liabilities
Amounts due to related - - -
parties
Amounts due for 365,468 396,371 373,011
operating leases
Term loan & interest 14,756,534 - -
payable
Contractual payments in terms of routine rental payments are based on rental
costs at the agreed annual escalation of 9% per annum.
Contractual interest payments on the term loan are based on the interest rate
in effect at December 31, 2008 assuming that the rate remains in effect for the
term of the loan.
Foreign Exchange Risk
In the normal course of business, the Company enters into transactions for the
purchase of supplies and services denominated in ZAR. In addition, the Company
has cash and cash equivalents, accounts receivable and certain liabilities
denominated in ZAR. As a result, the Company is subject to foreign exchange
risk from fluctuations in foreign exchange rates. The Company has not entered
into any derivative or other financial instruments to mitigate this foreign
exchange risk.
The exposure of the Company`s cash and cash equivalents and accounts receivable
to foreign exchange risk is as follows:
Currency 2008 2007
South African Rand $ 3,529,715 $ 6,648,832
Other 26,741 37,435
Total Financial Assets $ 3,556,456 $ 6,686,267
The exposure of the Company`s accounts payable and accrued liabilities, amounts
due to related parties, and term loan to foreign exchange risk is as follows:
Currency 2008 2007
South African Rand $ 15,193,991 $ 11,816,622
A 10 percent change of the Canadian dollar against the ZAR at December 31, 2008
would have changed net loss by approximately $1.2 million. This analysis
assumes that all other variables, in particular interest rates, remain
constant.
Interest Rate Risk
The Company has a financing agreement with Anglo American Platinum Corporation
("Anglo Platinum") whereby Anglo Platinum, through its wholly owned subsidiary
Rustenburg Platinum Mines Limited ("RPM"), loaned an amount of ZAR 100 million
to Plateau Resources (Proprietary) Limited ("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.
A 100 basis point change in the prime rate for the year ended December 31,
2008, would have changed net loss by approximately $0.1 million. This analysis
assumes that all other variables, in particular foreign exchange rates, remain
constant.
Commodity Price Risk
While the value of the Company`s resource properties depends on the price of
platinum group metals ("PGM") and their outlook, the Company currently does not
have any operating mines and hence, does not have any hedging or other
commodity based price risks in respect of its operational activities. PGM
prices historically have fluctuated widely and are affected by numerous factors
outside of the Company`s control, including, but not limited to, industrial and
retail demand, forward sales by producers and speculators, levels of worldwide
production, and short-term changes in supply and demand because of hedging
activities.
(b) Accounting Policies Not Yet Adopted
International Financial Reporting Standards ("IFRS")
In 2006, the Canadian Accounting Standards Board ("AcSB") published a new
strategic plan that will significantly affect financial reporting requirements
for Canadian companies. The AcSB strategic plan outlines the convergence of
Canadian Generally Accepted Accounting Principles ("GAAP") with IFRS over an
expected five year transitional period. In February 2008, the AcSB announced
that all publicly-listed companies will be required to use IFRS effective
January 2011 replacing GAAP.
The Company was granted approval by applicable securities regulators on
February 18, 2009 to early adopt IFRS starting January 1, 2009. 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 Audit Committee and the Board of
Directors are regularly updated with the progress of the convergence project
through communication and meetings. The Company`s transition date for
converting to IFRS is January 1, 2008 and comparative periods for 2008 will be
restated under IFRS.
5. EQUIPMENT
December 31, 2008
Accumulated Net book
Cost amortization value
Office $ 540,482 $ 70,847 $ 469,635
Vehicles - - -
$ 540,482 $ 70,847 $ 469,635
December 31, 2007
Accumulated Net book
Cost amortization value
Office $ 66,840 $ 14,575 $ 52,265
Vehicles 116,368 63,139 53,229
$ 183,208 $ 77,714 $ 105,494
6. MINERAL PROPERTY INTERESTS
Year ended Year ended Year ended
December 31, 2008 December 31, 2007 December 31, 2006
Ga-Phasha
Project (note 6(b))
Balance, beginning
of year $ 4,878,714 $ 4,040,751 $ 4,302,000
Equity loss -
exploration expenses (143,069) (920,608) (555,677)
Net investments
during the year - 1,481,571 59,428
Equity gain -
future income
tax recovery 1,000 139,000 121,000
Equity gain -
foreign exchange 57,000 138,000 114,000
Ga-Phasha
Project, end of
year 4,793,645 4,878,714 4,040,751
Platreef
Properties -
acquisition
costs (note 6(a)) 4,200,000 4,200,000 4,200,000
Balance, end
of year $ 8,993,645 $ 9,078,714 $ 8,240,751
(a) Northern Limb of the Bushveld Complex, South Africa
Platreef
The Company completed its acquisition of Plateau during the period October 1999
to November 2003. Plateau holds the Platreef properties located on the Northern
Limb of the Bushveld Complex in South Africa.
On May 23, 2000, the Company added to its mineral rights in the region by
acquiring through Plateau the option to purchase a 100% interest in Portion 2
of the Elandsfontein 766LR farm located contiguous to the pre-existing Platreef
properties. In July 2001, Plateau acquired the right to purchase a 100 percent
interest in the farm Hamburg 737LR (2,126 hectares) and Portion 1 of the farm
Elandsfontein 766LR (428 hectares), located contiguous to the north end of the
pre- existing Platreef properties. The options to purchase the farms lapsed
during the year ended December 31, 2007.
In August 2002, the Company entered into a five year prospecting contract,
expiring August 2007, with an option to extend the agreement for an additional
three years with the South African Department of Mines and Energy ("DME") for
farm Noord Holland 775LR (1,229 hectares) bringing the aggregate land package
of its Platreef Property to approximately 13,400 hectares.
Annual option fees ranging from ZAR 3 per hectare to ZAR 18 per hectare are
payable to the DME. The joint venture partners (Plateau and RPM) have received
conversion to new order prospecting rights.
Rietfontein
On October 10, 2001, the Company completed an agreement with African Minerals
Ltd., now Ivanhoe Nickel and Platinum Ltd. ("Ivanplats"), a private affiliate
of Ivanhoe Capital Corporation, whereby Ivanplats has the right to earn a 50%
interest in the Company`s 2,900 hectare Rietfontein 2KS farm ("Rietfontein").
Under the terms of this agreement, Ivanplats had to incur at least $750,000 in
expenditures pursuant to exploration activities undertaken on Rietfontein in
accordance with an approved program in each of the ensuing two years (of which
the year one program has been completed) to obtain the right to form a 50/50
joint venture with the Company on Rietfontein. There is disagreement over
budgets, compilation and analysis of the exploration results, and the overall
adequacy and completeness of Ivanplats` exploration activities. The Company and
Ivanplats are currently in discussions over these matters, both outside of and
within a formal arbitration process, pursuant to the terms of the earn-in
agreement.
Kwanda
In 2002, the Company completed an agreement with RPM, for the right to acquire
up to an 80% interest in twelve PGM properties located on the Northern Limb of
the Bushveld Complex.
The Company acquired an initial 50% interest in the PGM rights to the twelve
properties and can maintain its interest by incurring exploration expenditure
totaling ZAR 25 million within five years. The Company, spent ZAR 2.5 million
in year one, ZAR 5 million in year two, and was required to spend ZAR 5 million
in each of years three and four and ZAR 7.5 million in year five.
The Company has not completed its exploration expenditure requirement from
year`s three to five, and both parties have mutually agreed to suspend
indefinitely the expenditure requirements for year`s three to five.
The joint venture partners (Plateau and RPM) have received conversion to new
order prospecting rights for the Kwanda North and Kwanda South properties.
If a mineral resource is identified, the Company can earn an additional 30%
interest by bringing the property into commercial production. RPM will retain a
20% interest in the joint venture.
The agreements also include plans to involve local communities in future
development of the properties. Any participation by local and regional
communities will be provided out of RPM`s interest and any participation in the
venture by a Historically Disadvantaged South Africans ("HDSA") partner will be
provided out of the Company`s interest.
On completion of the Lebowa transaction (note 12) this project will be
transferred into a newly incorporated company and Anooraq will own 51% of
the project through Plateau.
Boikgantsho
On November 26, 2003, the Company entered into a joint venture Agreement with
Potgietersrust Platinum Limited ("PPRust"), a wholly owned subsidiary of Anglo
Platinum. The Joint Venture was formed to explore and develop PGMs, gold and
nickel mineralization on the Company`s Drenthe 778LR and Witrivier 777LR farms
and a portion of PPRust`s adjacent Overysel 815LR farm. These farms are located
on the Northern Limb of the Bushveld Complex. Plateau has received new order
prospecting rights on its Witrivier and Drenthe properties.
The objective is to explore and develop a large-scale open pit deposit with the
potential to utilize nearby milling, smelting and refining facilities which
could provide substantial cost advantages to a new mining project. The Company
contributed its rights to the Drenthe 778LR farm on which a large PGM-nickel
resource has been outlined in the Drenthe deposit, and will contribute the
Witrivier 777LR farm if the deposit extends north on to Witrivier 777LR. PPRust
is contributing its rights to the northern portion of the Overysel 815LR farm
which lies south of and contiguous to the Drenthe 778LR farm.
Pursuant to the terms of the Joint Venture Agreement, the Company and PPRust
formed an initial 50/50 joint venture (the "Boikgantsho JV") to explore these
farms for a period of up to five years. During the five year period ended
December 31, 2008, Anooraq operated the exploration programs and spent ZAR
12.35 million. Anooraq now has the option to proceed on a year-by- year basis
and to take the project to a bankable feasibility study ("BFS") level.
On completion of a BFS, the parties, by agreement, may proceed to exploitation
subject to certain regulatory requirements. If both partners decide to proceed,
then a joint management committee will be established to oversee development
and operations. At commencement of exploitation, the joint venture interest
allotted to each of Anooraq and Anglo Platinum will be determined in proportion
to the relative value of the metals contained in each contributed property as
reflected in the BFS. Anooraq and PPRust each have the right to make a cash
payment to the other party or to fund additional capital contributions to
equalize their respective contributions. During development, the Boikgantsho JV
will be seeking a Black Economic Empowerment ("BEE") partner to participate in
the project (which may be Anooraq itself) with the original Boikgantsho JV
partners dividing the remaining interest.
Should the Company choose not to proceed, PPRust has the option of acquiring
the Company`s interest at the aggregate of (i) the net present value of
exploiting the Company`s mineral rights as a standalone mining operation, by
applying an agreed discount rate as determined in the BFS, and (ii) all
exploration expenditures (as defined in the agreement) incurred by the Company
up to the completion of the BFS. Should Anglo Platinum decide not to contribute
to exploitation, its interest will be diluted over time pursuant to a formula
taking into account expenditure on the project by the contributing parties.
Anglo Platinum will remain entitled to a minimum 12.5% non-contributory
interest, adjusted depending on the final PGM royalty to be established under
the South African 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 at the exploitation phase, based on standard commercial
terms, whereby PGM produced from the operation would be treated at Anglo
Platinum`s facilities.
On completion of the Lebowa transaction (note 12) this project will be
transferred into a newly incorporated company and Anooraq will own 51% of the
project through Plateau.
b) Eastern Limb of the Bushveld Complex, South Africa - Ga-Phasha
In January 2004, the Company and Pelawan Investments (Proprietary) Limited
("Pelawan"), a private South African BEE company, combined their respective PGM
assets, comprising the Company`s Northern and Western Limb PGM projects and
Pelawan`s 50% participation interest in the Ga-Phasha PGM Project ("Ga-Phasha")
on the Eastern Limb of the Bushveld Complex in South Africa. The Ga-Phasha
property consists of four farms - Portion 1 of Paschaskraal 466KS, and the
whole of farms Klipfontein 465KS, De Kamp 507KS and Avoca 472KS - covering an
area of approximately 9,700 hectares.
The mineral title relating to the Ga-Phasha Project is held by Micawber 277
(Proprietary) Limited ("Micawber"), a private South African corporation which
was owned 50% by Anglo Platinum and 50% by Pelawan. All the relevant
prospecting right applications for the Ga-Phasha project has been submitted to
the DME and are awaiting approval. On completion of the Lebowa transaction
(note 12) this project will be transferred into a newly incorporated company
And Anooraq will own 51% of the project through Plateau.
Pursuant to the terms of the agreement the Company issued 91.2 million common
shares (the "Consideration Shares") and paid 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 transaction was completed on September 29, 2004 and consequently
Anooraq became a BEE company, by virtue of being majority owned by HDSA`s.
The Ga-Phasha Project is a 50/50 joint venture between Plateau and Anglo
Platinum, governed by, among other things, a shareholders` agreement relating
to Micawber entered into in September 2004. Work on the Ga-Phasha Project is
continuing towards the completion of a pre- feasibility study.
The transaction constituted a "reverse take-over" under the policies of the TSX
Venture Exchange. This transaction was accounted for as an acquisition by
Anooraq of Micawber`s 50% interest in its mineral properties. However, because
neither the fair value of the Anooraq shares issued, nor the fair value of the
mineral property interests acquired could be readily determined, the
acquisition was recorded at the net book value, as determined in accordance
with Canadian generally accepted accounting principles, of Micawber`s net
assets acquired, being a cash payment of $3,055,416 plus related transaction
costs amounting to $ 1,439,329.
The share exchange agreement which gave effect to the combination provided that
if any financings in relation to the Ga-Phasha and Drenthe-Overysel
(subsequently renamed "Boikgantsho") Projects (the "Projects") took place prior
to September 30 2005 (the "Finalization Date") and the shareholder dilution
associated with of 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. This 52% minimum
shareholding allows 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. The share exchange agreement
further provided that, to the extent that if no such dilutive financings had
taken place by the Finalization Date, certain dilutive financings were deemed
to have occurred by that date.
Neither additional financings nor bankable feasibility studies for the Projects
were completed by Anooraq as at September 30, 2005 and, in the absence of an
amending agreement between the parties, a dilutive financing totaling $98.4
million and share issuances (based on the share price at the date of the deemed
dilutive financing) would have been deemed to have taken place as at such date
and the Company would have been obligated to issue to Pelawan that number of
shares which, after notionally giving effect to the Deemed Dilutive Financings,
would have resulted in Pelawan continuing to hold a 52% interest in the
Company. In November 2005, Anooraq and Pelawan agreed to extend the
Finalization Date to December 31, 2006.
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. The Settlement Agreement resulted in the following:
(i) Anooraq issued 36 million common shares ("Adjustment Consideration
Shares") to Pelawan as consideration for the settlement.
(ii) Anooraq issued share purchase warrants to Pelawan for the purchase of 167
million common shares in Anooraq ("BEE Warrants") exercisable until December
31, 2008. The BEE Warrants were exercisable 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 was 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 was
undertaken pursuant to a material transaction ("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 were subject to a lock up arrangement and
Pelawan was not 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 would remain
subject to the original lock up agreement entered into between Pelawan and
Anooraq under the terms of the original acquisition 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 agreed to grant 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 exercised any BEE Warrants, Pelawan would,
in its sole discretion, be entitled to dispose that number of common shares up
to 25% (or such greater amount as was 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 would be applied by Pelawan to support the
financing of the exercise of the BEE Warrants and reasonable expenses related
to such exercise.
On the occurrence of a Concurrent Financing, Pelawan would have been obliged to
exercise the BEE Warrants to ensure that, at a minimum, Anooraq retained 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. The Company entered into an amending agreement (the "Amending
Agreement") with Pelawan to amend the exercise procedure of the BEE Warrants to
allow Pelawan to finance the exercise of the BEE Warrants by way of a Bridge
Loan Facility from Rand Merchant Bank ("RMB"). Pursuant to the Amending
Agreement, on December 20, 2007, Pelawan exercised the BEE Warrants at a price
per common share of $1.35 by depositing an escrowed amount equal to the
aggregate exercise price for the BEE Warrants ($ 225 million or ZAR 1,586
billion) into an interest bearing account with RMB, to be released pursuant to
a Deposit Account Agreement (the "Deposit Agreement") between RMB, Pelawan and
Anooraq upon the satisfaction of certain release conditions.
The release conditions were not satisfied at December 31, 2008 and there was no
close, resulting in the warrant exercise being cancelled. The warrants expired
on December 31, 2008 and the Company did not receive the proceeds of the
exercise nor the interest earned from the deposit account.
c) Impairment
In view of the deterioration of global economic conditions and the significant
weakening of PGM prices, the Company performed impairment assessments on all its
mineral property interests as at December 31, 2008. The impairment review
considered the following:
Carrying value of mineral property interest as at December 31, 2008
Unfavorable changes in the property or project economics
Decline in the market potential for PGM`s
Progress on development activities towards planned principal operations
Significant changes in exploration work programs
Mineral right and prospecting title with respect to lease terms.
The Company concluded that no impairment charge was required to the carrying
value of its mineral property interest.
7. TERM LOAN
In November 2006, the Company, through its wholly owned subsidiary Plateau,
entered into a ZAR 70 million term loan agreement with RPM. On November 30,
2008, the Company reached an agreement with RPM whereby RPM amended the
existing term loan facility by advancing an additional amount of ZAR 30 million
to Anooraq on the same terms and conditions as the existing loan. The loan
bears interest at prime plus two percent, as quoted by the Standard Bank of
South Africa.
Interest payments are due and payable in six month intervals. The loan is
repayable on the maturity date of September 30, 2010. In November 2008, the
terms of the loan was amended whereby payment of accrued interest for 2008 was
deferred until April 30, 2009. Interest amounting to $1,735,663 (ZAR 13,239,
923) was accrued as at December 31, 2008 (2007 - $1,892,197 (ZAR 12,263,772)).
The Company incurred financing fees of $445,917 equal to 4% of the initial loan
principal. The unamortized fees totaled $159,630 (2007-$273,381) as at December
31, 2008.
The Company is required to spend 60% of the loan amount to fund work towards
the preparation and completion of operational expenditures contemplated in a
bankable feasibility study for the Ga-Phasha project. The loan is secured by
the Company`s interest in Micawber.
8. SHARE CAPITAL
(a) Authorized share capital
The Company`s authorized share capital consists of an unlimited number of
common shares without par value.
(b) Share option plan
The Company has a share option plan approved by the shareholders that allows it
to grant options, subject to regulatory terms and approval, to its directors,
employees, officers, and consultants to acquire up to 18,300,000 common shares.
As at December 31, 2008, 8,966,000 options were outstanding and 1,915,400
options remained available to be granted. The exercise price of each option is
set by the Board of Directors at the time of grant but cannot be less than the
market price (less permissible discounts) on the TSX Venture Exchange. Options
have a term of up to a maximum of ten years (however, the Company has
historically granted options for up to a term of five years), and terminate 30
to 90 days following the termination of the optionee`s employment or term of
engagement, except in the case of retirement or death. Vesting of options is at
the discretion of the Board of Directors at the time the options are granted.
The continuity of share purchase options is as follows:
Contractual weighted
Weighted average average remaining life
exercise price Number of options (years)
Balance,
December 31, 2005 $ 1.47 4,778,200 3.61
Cancelled 1.90 (235,000)
Expired 1.84 (555,000)
Balance,
December 31, 2006 $ 1.39 3,988,200 3.23
Granted 2.99 5,005,000
Exercised 1.36 (988,200)
Cancelled 1.40 (310,000)
Balance,
December 31, 2007 $ 2.43 7,695,000 4.12
Granted 2.86 2,851,000
Exercised 1.42 (1,431,400)
Cancelled 3.22 (148,600)
Balance,
December 31, 2008 $ 2.72 8,966,000 3.72
Options outstanding and exercisable at December 31, 2008 were as follows:
Number of options
Expiry date Option price outstanding
December 17, 2010 $ 1.40 1,285,000
July 1, 2010 $ 2.97 119,000
October 15, 2012 $ 3.27 251,000
October 15, 2012 $ 2.97 4,460,000
June 25, 2013 $2.76 916,000
June 30, 2013 $2.90 1,935,000
Total 8,966,000
Weighted average exercise
price $ 2.72
Number of options Weighted average
Expiry date vested life (years)
December 17, 2010 1,285,000 1.9
July 1, 2010 119,000 1.5
October 15, 2012 251,000 3.8
October 15, 2012 4,332,500 3.8
June 25, 2013 916,000 4.5
June 30, 2013 1,935,000 4.5
Total 8,838,500
Weighted average exercise
price $ 2.40
The exercise prices of all share purchase options granted during the period
were equal to or greater than the market price at the grant date. Using the
Black-Scholes option pricing model with the assumptions noted below, the
estimated fair value of all options granted have been reflected in the
consolidated statement of operations as follows:
Year ended Year ended Year ended
December 31, December 31, December 31,
2008 2007 2006
Stock-based compensation -
Exploration $ - $ 1,491,849 $ 15,209
Stock-based compensation -
Office and administration 5,385,502 7,215,670 9,137
Credited to contributed surplus
during the period 5,385,502 8,707,519 24,346
The fair value of the options granted during the year ended December 31, 2008
was $5,385,502 (2007 - $9,320,262; 2006 - $Nil). The assumptions used to
estimate the fair value of options granted during the period were:
2008 2007 2006
Risk free interest rate 3% 4% -
Expected life 5 years 2.5 - 5 years -
Volatility 73% 71 - 74% -
Expected dividends Nil Nil -
9. RELATED PARTY TRANSACTIONS AND BALANCES
Year ended
Note December 31
Services rendered by ref 2008 2007 2006
Hunter Dickinson
Services Inc. (a) $ 1,302,304 $ 798,330 $ 1,023,633
CEC Engineering Ltd. (b) 4,927 26,589 127,781
December 31 December 31 December 31
Related party balances payable 2008 2007 2006
Hunter Dickinson
Services Inc. (a) $ 794,072 $ 44,042 $ -
CEC Engineering Ltd. (b) - 1,567 6,435
Due to related parties $ 794,072 $ 45,609 $ 6,435
(a) Hunter Dickinson Services Inc. ("HDSI") is a private company owned equally
by several public companies, one of which is the Company. HDSI has certain
directors in common with the Company and provides geological, corporate
development, administrative and management services to, and incurs third party
costs on behalf of, the Company and its subsidiaries on a full cost recovery
basis pursuant to an agreement dated December 31, 1996.
(b) During the year ended December 31, 2008, the Company paid $4,927 (2007 -
$26,589, 2006 - $127,781) to CEC Engineering Ltd ("CEC"), a private company
owned by a former director, for engineering and project management services at
market rates.
10. INCOME TAXES
As at December 31, 2008 and 2007 the tax effect of the significant components
of the Company`s future tax asset (liability) were as follows:
December 31, December 31,
2008 2007
Future income tax assets
Mineral property interests $8,497,000 $ 3,675,000
Loss carry forwards 3,833,000 3,916,000
Equipment - 17,000
Other tax pools 2,347,000 2,330,000
Subtotal 14,677,000 9,938,000
Valuation allowance (14,677,000) (9,938,000)
Net future income tax asset - -
Future income tax liability
Mineral property interests $ 575,000 $ 633,000
Income tax expense differs from the amount that would result from applying the
Canadian federal and provincial tax rates to earnings before income taxes.
These differences result from the following items:
December 31, December 31, December 31,
2008 2007 2006
Combined Canadian federal
and provincial 31.0% 34.12% 34.12%
statutory rate
Income tax at
statutory rates $ (4,181,000) $ (4,972,000) $ (1,578,000)
Stock based compensation 1,669,500 2,971,000 70,000
Other items (2,303,500) 3,097,000 -
Difference in foreign
tax rates (83,000) (1,164,000) (299,000)
Reduction in statutory
tax rates 461,000 415,000 336,000
Effect of unrealized
foreign currency loss/(gain) (303,000) 925,000 (561,000)
Change in valuation
allowance 4,739,000 (1,411,000) 1,911,000
$ (1,000) $ (139,000) $ (121,000)
At December 31, 2008 the Company had losses available for income tax purposes
in Canada totaling approximately $14.5 million (2007- $12.4 million), expiring
in various periods from 2008 to 2028. The Company has losses available for
income tax purposes in South Africa totaling $0.2 million (2007 - $2.0 million)
which can be carried forward indefinitely.
11. SEGMENTED INFORMATION
For the year
ended
Canada Mexico South Africa Total
December 31, 2008
Exploration
expenditures $ - $ - $ 341,943 $ 341,943
Loss for the year (7,641,241) (138) (5,844,288) (13,485,667)
Total assets 1,759,577 26,741 13,387,149 15,173,467
Equipment - - 469,635 469,635
For the year
ended
December 31, 2007 Canada Mexico South Africa Total
Exploration
expenditures $ - $ - $ 852,891 $ 852,891
Loss for the year(10,549,834) (4,839) (3,741,458) (14,296,131)
Total assets 896,740 26,602 16,030,021 16,953,363
Equipment - - 105,494 105,494
For the year
ended
December 31, 2006 Canada Mexico South Africa Total
Exploration
expenditures $ - $ - $ 720,463 $ 720,463
Loss for the year (1,894,272) (726) (2,609,846) (4,504,844)
Total assets 1,252,044 31,441 20,545,437 21,828,922
Equipment - - 73,315 73,315
12. PROPOSED TRANSACTION
On March 28, 2008, Anooraq, through Plateau, entered into 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 DME; and
7. other regulatory approvals including, where necessary, the Exchange Control
department of South African Reserve Bank (which approval was obtained in
August 2008), the JSE Limited, the TSX Venture Exchange ("TSX-V") and the
NYSE Alternext (formerly the American Stock Exchange).
As part of its due diligence for the Lebowa transaction, Anooraq engaged
international mining industry consultants to conduct a technical review of
Lebowa. Since the completion of a technical review and the signing of the
acquisition agreements 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.
In April 2008, the Company and Anglo Platinum agreed on detailed commercial
terms of the Lebowa transaction. These terms included commercial terms
surrounding the development and financing of the Middelpunt Hill UG2 expansion
project ("MPH project") at Lebowa. The MPH project would have been developed by
Anooraq and Anglo Platinum as part of the then current mine plan and capital
development program for Lebowa. 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
participated in the review of the MPH project costing and scheduling. Anglo
Platinum and Anooraq have also agreed to review the current Anglo Platinum
approved mine plan and capital program at Lebowa. As a result of these
developments, Anglo American plc (the majority shareholder of Anglo Platinum),
Anglo Platinum, Anooraq and Pelawan undertook to review the basis of the Lebowa
transaction.
On March 11, 2009, the Company and Anglo Platinum completed the joint technical
review of the mine plan and capital program for Lebowa. Anooraq, Anglo American
plc, Anglo Platinum, and Pelawan are currently negotiating the final terms of
the Lebowa transaction, and its associated financing strategy. However, there is
no guarantee that acceptable financing arrangements will be concluded or that
the acquisition will be completed.
ANOORAQ RESOURCES CORPORATION
YEAR ENDED DECEMBER 31 2008
MANAGEMENT`S DISCUSSION AND ANALYSIS
TABLE OF CONTENTS
1.1 DATE .................................................................... 2
1.2 OVERVIEW ................................................................ 3
1.2.1 LEBOWA TRANSACTION..................................................... 5
1.2.2 GA-PHASHA JV PROJECT ................................................. 10
PLANS FOR 2009 ............................................................. 13
1.2.3.1 BOIKGANTSHO JV PROJECT ............................................. 13
AGREEMENT .................................................................. 13
PROJECT ACTIVITIES ......................................................... 14
PLANS FOR 2009 ............................................................. 15
1.2.4 MARKET TRENDS ........................................................ 15
1.3 SELECTED ANNUAL INFORMATION............................................. 16
1.4 SUMMARY OF QUARTERLY RESULTS ........................................... 17
1.5 RESULTS OF OPERATIONS .................................................. 18
1.7 CAPITAL RESOURCES ...................................................... 20
1.8 OFF-BALANCE SHEET ARRANGEMENTS ......................................... 20
1.9 TRANSACTIONS WITH RELATED PARTIES - .................................... 21
1.10 RESULTS OF OPERATIONS _ ................................... 22
1.11 PROPOSED TRANSACTIONS ................................................. 22
1.12 CRITICAL ACCOUNTING ESTIMATES.......................................... 22
1.13 CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION ............. 24
1.14 FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS............................ 32
1.15 OTHER MD&A REQUIREMENTS ............................................... 32
1.15.1 ADDITIONAL DISCLOSURE FOR VENTURE ISSUERS WITHOUT SIGNIFICANT
REVENUE .................................................................... 32
15.2 DISCLOSURE OF OUTSTANDING SHARE DATA .................................. 33
1.15.4 DISCLOSURE CONTROLS AND PROCEDURES .................................. 34
1.1 Date
This Management`s Discussion and Analysis ("MD&A") should be read in
conjunction with the audited consolidated financial statements of Anooraq
Resources Corporation ("Anooraq", or the "Company") for the years ended
December 31, 2008 and 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 March 27, 2009.
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
complete its financing strategy on relative favorable terms ; and the Ga-Phasha
and Platreef Project exploration results will continue to be positive. Forward
looking statements however, are not guarantees of future performance and actual
results or developments may differ materially from those in forward looking
statements. Factors that could cause actual results to differ materially from
those in forward looking statements include market prices, exploitation and
exploration successes, changes in and the effect of government policies with
respect to mining and natural resource exploration and exploitation and
continued availability of capital and financing, and general economic, market
or business conditions. Investors are cautioned that any such statements are
not guarantees of future performance and those actual results or developments
may differ materially from those projected in the forward looking statements.
Cautionary Note to Investors Concerning Estimates of Measured and Indicated
Resources This 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 do not recognize them. Investors are cautioned not to assume that
any part or all of mineral deposits in these categories will ever be converted
into reserves. Investors should refer to our Annual Report on 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 do not recognize it. "Inferred resources"
have a great amount of uncertainty as to their existence, and as to their
economic and legal feasibility. It cannot be assumed that all or any part of a
mineral resource will ever be upgraded to a higher category. Under Canadian
rules, estimates of Inferred Mineral Resources may not form the basis of
economic studies, except in rare cases. Investors are cautioned not to assume
that any part or all of an inferred resource exists, or is economically or
legally mineable. Investors should refer to our Annual Report on 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 or their issue imminent 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
(Proprietary) 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 Limited ("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 agreements for the Lebowa Transaction in late March 2008.
Subsequent to the end of the third quarter of 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 had sufficient working capital, the Company
reached an agreement with Anglo Platinum in November 2008 whereby Anglo
Platinum amended the existing term loan facility by advancing an additional
amount of 30 million South African rand ("ZAR") to Anooraq, repayable on
implementation and closing of the Lebowa Transaction. Interest payments on the
term loan have also been deferred until closure of the Lebowa transaction.
In other corporate developments, a number of key appointments were made during
the year ended December 31, 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 year ended December 31, 2008;
Ms Anu Dhir was appointed to the Board and to the Audit Committee and as
Chairperson of the Compensation 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 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 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 would 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 would be renamed Bokoni Platinum Holdings (Proprietary)
Limited following completion of the Lebowa Transaction and which would be the
holding company ("Holdco") through which Anooraq and Anglo Platinum would hold
their interests in Lebowa. The joint venture agreements in respect of the
Ga-Phasha Project, Boikgantsho Project and Kwanda Project would be terminated
and these projects will be transferred into separate project companies,
established as wholly-owned subsidiaries of Holdco. Anglo Platinum has provided
Anooraq with 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 (which approval was obtained in
August 2008), the JSE Limited, the TSX Venture Exchange ("TSX-V") and the
NYSE Amex (formerly the American Stock Exchange).
Lebowa Transaction update
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 2008, the Company 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
financing arrangements necessary to complete the Lebowa Transaction.
On April 14, 2008, detailed commercial terms of the Lebowa transaction were
announced. The announcements included commercial terms surrounding the
development and financing of the Middelpunt Hill UG2 expansion project ("MPH
project") at Lebowa. The MPH project would have been 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 PGM 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
participated in the review of the costing and production scheduling of the MPH
project. Anglo Platinum and Anooraq also 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") undertook to review the terms of the
Lebowa transaction.
Anooraq announced on March 11, 2009 that the joint technical review of the
current Anglo Platinum-approved mine plan and capital program for Lebowa,
referred to in the cautionary announcement dated 14 November 2008, is currently
being finalized. As a result the Company expects to file an updated technical
report on Lebowa in compliance with National Instrument 43- 101 in April, 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 would not be affecting a general
public offering of new Anooraq shares.
Anooraq entered into an amending agreement (the "Amending Agreement") with the
Pelawan Trust to amend the exercise procedure of 167,000,000 common share
purchase warrants ("BEE Warrants") to allow Pelawan to finance the exercise of
the BEE Warrants by way of a bridge loan from Rand Merchant Bank ("RMB") to be
released pursuant to a deposit account agreement between RMB, Pelawan and
Anooraq upon the satisfaction of certain release conditions by December 31,
2008. Pelawan conditionally exercised the BEE Warrants in December 2007, by
depositing an escrowed amount equal to the aggregate exercise price for the BEE
Warrants ($225 million or ZAR 1.6 billion) into an interest bearing account
with RMB. The Common Shares underlying the BEE Warrants would 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.
As a result of the significant deterioration in the Anooraq share price during
the second half of 2008 the release conditions were not satisfied by December
31, 2008 and Anooraq did not receive the exercise proceeds of the BEE Warrants
by December 31, 2008. As a result, the BEE Warrants expired and have been
cancelled and Anooraq did not issue 167 million Anooraq Common Shares to
Pelawan as contemplated.
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. Anooraq`s mandate with SCB expired on
November 30, 2008. The mandate with SCB is currently under review and it is
anticipated to be extended. SCB is currently reviewing the terms and conditions
of the proposed senior debt funding facility and is expected to provide a
revised term sheet to Anooraq for consideration in the second quarter of 2009.
In view of current global economic conditions the Company and Anglo Platinum
are reviewing the financing strategy of the Lebowa transaction and which is
expected to be completed early in the second quarter of 2009.
Other Commercial Terms of the Lebowa Transaction
In terms of the transaction agreement, Anglo Platinum 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.
Lebowa entered into a five year concentrate off-take agreement with Anglo
Platinum for the sale of Lebowa concentrates at competitive market rates,
renewable at Plateau`s election for a further five years (provided that Plateau
is at the time at least a 51% shareholder in Holdco). Anglo Platinum will
extend to Anooraq the option to acquire an ownership interest in Anglo
Platinum`s Polokwane Smelter, which will calculated be relative to Anooraq`s
group concentrate feed into the Polokwane Smelter from time to time and subject
to certain conditions.
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 will have 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 provided certain undertakings to Anglo Platinum in relation to the
maintenance of its status as a company controlled by Historically Disadvantaged
South Africans ("HDSA"), as envisaged in the South African Mineral and
Petroleum Resources Development Act ("MPRDA") and the Mining Charter. The
effect of these undertakings is that HDSAs must maintain "effective" or "the
equivalent" beneficial ownership of at least 26% in the assets of Holdco for
approximately six years ("Initial Term"). These undertakings include that
Pelawan, the HDSA controlling shareholder of Anooraq, will not allow either its
own level of HDSA shareholding or its shareholding in Anooraq to fall below 51%
HDSA 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 HDSA It
is important from Anglo Platinum`s perspective that the Anooraq group retain
its current HDSA 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 will also grant 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.
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 to be established for the benefit of eligible Lebowa
employees to which Anglo Platinum will contribute an amount of approximately
ZAR 40 million. A portion of this funding will be retained by the ESOP Trust to
facilitate annual cash payments to beneficiaries with the balance used to
subscribe for Common Shares in Anooraq. The final amount of funding to be
contributed to the ESOP Ownership Trust will vary from time to time according
to movements in the Anglo Platinum share price and the number of eligible
beneficiaries at the time of implementation; and
(ii) The Anooraq Community Participation Trust (the "Community Trust") to be
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 103.8 million. A portion of this funding will be retained by
the Community Trust to facilitate annual cash payments to the communities with
the balance used to subscribe for Common Shares in Anooraq.
The purpose of the ESOP and the Community Trust is to provide the employees of
Holdco and the members of the communities affected by Anooraq`s operations,
respectively, with the opportunity to participate in, and benefit from,
Anooraq`s future success.
As a result of the subscription by the ESOP and Community Trust, Anooraq will
receive proceeds of approximately ZAR 120 million.
The ESOP and Community Trust will subscribe for the Common Shares in Anooraq,
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 Community Trust will hold the Common Shares, 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 ESOP of
Common Shares is subject to regulatory approvals.
Lebowa Technical Information
Lebowa is an operating mine located on the northeastern 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. On May 12, 2008, the DME granted a conversion of the "old order"
mining rights related to Lebowa to "new order" mining rights.
Lebowa consists of a vertical shaft and a number of decline shaft systems 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 50,000 tonnes per month ("tpm") and from the UG2 Reef is 40,000 tpm.
According to the Anglo Platinum 2008 Annual Report, production at Lebowa in
2008 was approximately 74,200 equivalent refined ounces of platinum.
Previous technical studies conducted by Anglo Platinum indicate that Lebowa`s
maximum value is achieved 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, expected
to increase production to approximately 375,000 tpm. The initial plan was to
increase existing mining operations at Lebowa 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.
Anglo Platinum continues to progress with the Brakfontein project towards
producing 120,000 tpm of Merensky Reef. Production has commenced on two levels.
The 45,000 tpm replacement project at Middelpunt Hill is also progressing well.
These development and replacement projects are expected to increase the total
production of Lebowa to reach 160,000 tpm in the short term, which will utilize
current mill capacity.
An initial technical review of Lebowa was completed in April 2008 and a
technical report compiled by Snowden Mining Industry Consultants was filed.
Towards the latter part of 2008 a joint technical review of the current Anglo
Platinum-approved mine plan and capital program for Lebowa was initiated. The
Company expects to file an updated technical report in compliance with National
Instrument NI 43-101.
Anooraq engaged Deloitte Mining and Advisory Services to update the NI 43-101
technical report.
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 Micawber 277 (Proprietary) Limited (which changed its name to 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 ("RPM") and 50% by Anooraq through Plateau. Anglo
Platinum is currently the project operator.
Anooraq-Pelawan Agreement
In January 2004, the Company entered into an agreement with Pelawan, a private
South African BEE company, pursuant to which the Company and Pelawan combined
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).
The 50/50 joint venture between Plateau and RPM 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 project
company, established as wholly-owned subsidiary of Holdco. Anooraq will hold an
effective 51% control interest in GPM.
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 shareholding in order to comply with BEE
equity requirements under South African mineral legislation and a requirement
of the South African Reserve Bank for approving the transaction. The original
Finalization Date of December 31, 2005, 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 capitalization 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 were 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.
Neither the additional financings nor bankable feasibility studies for the
Projects were completed at the Finalization Date and as a result 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. In terms
thereof the Company would have been obliged 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 BEE Warrants to Pelawan for the purchase of 167 million
common shares in Anooraq exercisable until December 31, 2008. The exercise
price was set 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 was
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 was 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, the Adjustment Consideration Shares are subject
to a lock up arrangement pursuant to which Pelawan is not 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 would remain subject to the original lock up agreement
entered into between Pelawan and Anooraq under the terms of the original RTO
agreements ("the BEE LockUp") 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 to facilitate
financing of the exercise of the BEE Warrants. In the event that Pelawan
exercises the BEE Warrants, it would 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 aggregate common
shares issued to Pelawan pursuant to such exercise, provided that all of the
proceeds received by Pelawan from such disposal would be applied to support the
financing of the exercise of the BEE Warrants and reasonable expenses related
thereto.
(v) Pelawan were obliged to exercise the BEE Warrants to ensure that, at a
minimum, Anooraq retained its status as a 52% controlled BEE Company, in
compliance with various undertakings given by Pelawan.
On December 20, 2007, the Company entered into an amending agreement (the
"Amending Agreement") with the Pelawan Trust to amend the exercise procedure of
the BEE Warrants (to allow Pelawan to finance the exercise by way of a bridge
loan "from Rand Merchant Bank ("RMB"). Pursuant to the Amending Agreement, the
Pelawan Trust conditionally exercised the BEE Warrants on December 20 2007, by
depositing an escrowed amount equal to the aggregate exercise price for the BEE
Warrants ($225 million or ZAR 1.6 billion) into an interest bearing account
(the "Deposit Account") RMB, to be released upon the satisfaction of certain
release conditions. The common shares underlying the BEE Warrants were to be
issued to Pelawan upon receipt by the Company of the exercise price per common
share, plus the interest accrued thereon up to the date of release.
During the second half of 2008, the Anooraq share price declined to well below
the BEE Warrant exercise price of $1.35. Accordingly, at the expiry date
Pelawan was unable to secure funding and could not satisfy the release
conditions.
The release conditions were not satisfied by Pelawan at December 31, 2008 and
Anooraq did not receive the proceeds of the exercise of the BEE Warrants. As a
result, the BEE Warrants expired and have been cancelled and Anooraq did not
issue the 167 million shares to Pelawan as contemplated in the Settlement
Agreement.
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.
Plans for 2009
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 project 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.
Plans for 2009
Planning is underway to resume work on the Boikgantsho Project technical
program and studies.
1.2.4 Market Trends
The average ZAR: Canadian Dollar exchange rate for the year ended December 31,
2008 was ZAR 7.69 with the closing rate at year end at ZAR 7.63. It is expected
that the ZAR will weaken further during 2009.
Platinum prices have increased over the past three years, averaging, 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 2008. The average price in the year to December 31,
2008 was US$1583/oz and platinum closed at US$899/oz on 31 December 2008. The
average price in 2009 to March 27 is US$1018/oz.
Palladium prices averaged approximately 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 December
31, 2008 was US$355/oz, closing on US$184/oz at year end. The average price in
2009 to March 27 is US$198/oz.
Gold prices have been on an uptrend for several years. The gold price averaged
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$879/oz for the year to December 31, 2008. The
average price in 2009 to March 27 is US$907/oz.
1.3 Selected Annual Information
December 31 December 31 December 31
2008 2007 2006
Current assets $ 4,122, 228 $ 7,401,009 $ 13,177,004
Other assets 2,057,594 473,640 411,167
Mineral property interests 8,993,645 9,078,714 8,240,751
Total assets 15,173,467 16,953,363 21,828,922
Current liabilities 3,534,502 2,412,908 1,034,144
Long term liabilities 12,967,753 9,806,636 11,818,677
Shareholders` equity
(deficit) (1,328,788) 4,733,819 8,976,101
Total liabilities and
shareholders`
equity $ 15,173,467 $ 16,953,363 $ 21,828,922
Year ended Year ended Year ended
Dec 31, 2008 Dec 31, 2007 Dec 31, 2006
Expenses
Accretion on term loan $ 88,771 $ 112,459 $ 13,879
Conference and travel 421,469 492,106 360,959
Consulting 309,377 177,809 154,578
Amortization 61,140 24,009 30,862
Exploration 341,943 852,891 720,463
Foreign exchange (426,785) (588,115) (34,817)
Gain on disposal of equipment (5,779) - (41,291)
Interest expense 1,985,653 2,042,711 399,062
Interest income (179,119) (799,985) (263,820)
Legal, accounting and audit 576,330 416,745 690,132
Office and administration 905,877 451,908 354,353
Salaries and benefits 3,626,962 2,016,689 1,511,874
Shareholders communications 212,015 258,882 289,824
Trust and filing 183,311 269,503 415,440
Subtotal 8,101,165 5,727,612 4,601,498
Stock based compensation 5,385,502 8,707,519 24,346
Future income tax recovery (1,000) (139,000) (121,000)
Loss for the year $ 13,485,667 $ 14,296,131 $ 4,504,844
Loss per share $ 0.07 $ 0.08 $ 0.03
Weighted average number of
common shares
outstanding (thousands) 185,775 168,378 148,220
1.4 Summary of Quarterly Results
Expressed in thousands of dollars, except per-share amounts. Small differences
are due to rounding.
Dec 31 Sep 30 Jun 30 Mar 31
2008 2008 2008 2008
Current assets 4,122 1,445 1,518 3,070
Mineral properties 8,993 9,053 9,127 9,237
Other assets 2,058 2,031 1,739 1,012
Total assets 15,173 12,529 12,384 13,319
Current liabilities 3,534 2,192 1,418 977
Long term liabilities 12,968 8,722 8,931 8,615
Shareholders` (deficit) equity (1,329) 1,615 2,035 3,727
Total liabilities and
shareholders`
equity 15,173 12,529 12,384 13,319
Working Capital 588 (747) 101 2,093
Expenses
Exploration 184 46 60 50
Amortization 29 14 10 8
Accretion on term loan 21 22 21 24
Conference and travel 51 128 188 53
Consulting 118 62 107 22
Foreign exchange loss (gain) 465 (278) 299 (911)
Interest on term loan 584 496 464 444
Interest expense (income) (31) (12) (41) (94)
Accounting, audit and legal 95 367 35 79
Gain on disposal of fixed asset - - (6) -
Office and administration 237 204 288 176
Salaries and benefits 1,126 796 690 1,016
Shareholder communications 51 63 54 45
Trust and filing (19) 14 26 165
Subtotal 2,911 1.922 2,195 1,073
Stock-based compensation -
exploration - - - -
Stock-based compensation -
office and administration 74 78 5,111 122
Future income tax expense
(recovery) 1 (1) - (1)
Loss for the period $ 2,986 1,999 7,306 1,194
Basic and diluted loss per share 0.01 0.01 0.04 0.01
Weighted average number of
common shares outstanding 185,775 185,978 185,254 185,218
(thousands)
Dec 31 Sep 30 Jun 30 Mar 31
2007 2007 2007 2007
Current assets 7,401 9,296 10,462 11,326
Mineral properties 9,079 9,078 8,333 8,399
Other assets 474 103 72 387
Total assets 16,954 18,478 18,867 20,112
Current liabilities 2,413 2,934 1,285 238
Long term liabilities 9,807 8,574 10,246 11,703
Shareholders` (deficit) equity 4,734 6,969 7,336 8,171
Total liabilities and shareholders`
equity(deficit) 16,954 18,477 18,867 20,112
Working Capital 4,988 6,362 9,177 11,088
Expenses
Exploration 749 16 45 28
Amortization 9 6 4 5
Accretion on term loan 36 - - -
Conference and travel 341 29 19 103
Consulting 62 30 7 79
Foreign exchange loss (gain) (69) (192) (65) (262)
Interest on term loan 612 465 542 416
Interest expense (income) (234) (103) (212) (167)
Accounting, audit and legal 229 47 37 103
Gain on disposal of fixed asset - - - -
Office and administration 172 78 111 91
Salaries and benefits 566 488 634 330
Shareholder communications 66 60 74 58
Trust and filing 39 31 57 142
Subtotal 2,578 955 1,253 926
Stock-based compensation -
exploration 1,491 - - -
Stock-based compensation -
office and administration 7,216 - - 1
Future income tax expense
(recovery) (137) - (1) (1)
Loss for the period 11,148 955 1,252 926
Basic and diluted loss per share 0.06 0.01 0.01 0.01
Weighted average number of
common shares outstanding 184,82 184,77 154,82 148,22
(thousands) 3 0 2 8
1.5 Results of Operations
Year to December 2008
The company incurred a loss of $13,485,667 for the year ended December 31, 2008
compared to a loss of $14,296,131 for the year ended December 31, 2007. The
decrease in the loss for the year resulted primarily from a lower share based
compensation charge of $5,385,502 as compared to $8,707,519 in the previous
year due to fewer share options issued and a reduction in exploration costs.
The reduction in the loss was partially offset by an increase in personnel
costs of $1,610,273 and an increase in office and administration costs mainly
due to rental of premises relating to the South African operations.
Exploration expenditures decreased in the year ended December 31, 2008 to
$341,943 as compared to $852,891 incurred for the year ended December 31, 2007.
The cost is primarily due to payments related to preserving the prospecting
rights and meeting joint venture costs on the Ga-Phasha Project as no
significant costs were incurred on PGM exploration activities.
Legal, accounting and audit for the period ended December 31, 2008 increased to
$576,330 in comparison to $416,745 for the previous year mainly due to
increased legal and advisory fees and costs incurred relating to the Lebowa
transaction. The delay in implementation of the transaction also impacted this
increase as documentation was updated in conjunction with the revision and
postponement of the closing dates of the transaction.
Office and administration for the year ended December 31, 2008 amounted to
$905,877 in comparison to $451,908 spent for the year ended December 31, 2007.
The increase is due to an increase in property costs 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 $421,469 were incurred
during the year ended December 31, 2008 in comparison to the $492,106 incurred
during for the same period of fiscal 2007 largely due to reduced overseas
travelling by management and a decrease in attendance at industry conferences.
Consulting costs for the year ended December 31, 2008 increased to $309,377 in
comparison to $177,809 spent for the same period of fiscal 2007 largely due to
tax related consulting expenses associated with revised reporting requirements
in the US. Salaries and benefits amounted to $3,626,962 in the year ended
December 31, 2008 in comparison to $2,016,689 for the same period in the prior
year. The increased staff expenditure is due to the increase in staff and the
payment of agreed performance bonuses relating to the Lebowa Transaction.
Trust and filing for the year ended December 31, 2008 decreased to $183,111 in
comparison to the $269,503 incurred for the year ended December 31, 2007
primarily as a result of decreased expenditure relating to the Company`s
various stock exchange listings. The accounting charge relating to share based
compensation decreased to $5,385,502 for the year ended December 31, 2008,
compared to $8,707,519 incurred for same period in fiscal 2007. This is due to
fewer share options being awarded in the 2008 year as compared to the year
ended December 31, 2007.
The Company recorded interest expense of $1,985,653 for the year ended December
31, 2008 in comparison to $2,042,711 incurred for the same period of fiscal
2007. The increased prime overdraft rate of 15.5% was partially offset by the
strengthening of the Canadian dollar against the South African rand. Prime
overdraft interest rates declined to 14.5% in the first quarter of 2009 and are
expected to decrease further in the coming months.
Interest income amounted to $179,119 for the year ended December 31, 2008, in
comparison to $799,985 for the same period of fiscal 2007 as a result of lower
cash balances.
The Company recorded a foreign exchange gain of $426,785 for the year ended
December 31, 2008 in comparison to a gain of $588,115 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 year ended December 31,
2008. A significant amount of the Company`s liabilities including the Term loan
are denominated in South African Rand.
1.6 Liquidity
At December 31, 2008, working capital was $587,726 compared to $4,988,101 at
December 31, 2007 inclusive of the current portion of the RPM loan. Working
capital excluding the current portion of the RPM loan was $2,323,389 compared
to $6,880,298 at December 31, 2007.
The cash position at December 31, 2008 was approximately $3.8 million (Mainly
ZAR 28.8 million) resulted from the RPM loan advance. The Company reached an
agreement with Anglo Platinum on November 23, 2008, whereby Anglo Platinum
agreed to provide an additional ZAR 30 million to the Company by increasing the
existing loan to Plateau, from ZAR 70 million to ZAR 100 million and agreed to
defer interest payments owing in terms of the existing loan to the final
closing of the Lebowa transaction.
During the year under review the Company had a cash inflow of $2 million
resulting from the exercise of share options.
The Company is currently in the process of completing a proposed transaction to
acquire the Lebowa operating mine which would result in immediate cash flows
from operations but requires debt and equity financing to complete the
transaction. Management recognizes that the Company will need to generate
additional financial resources in order to meet its planned business
objectives. The Company has adequate cash resources to fund identified
expenditure requirements until June 2009 by which the Company expects
regulatory, governance and shareholder approval to be received for the proposed
transaction.
Management is confident of completing the proposed transaction. However, there
can be no assurances on the outcome of the approval process, the timing or
availability of additional financial resources required, or the ability of the
Company to achieve profitability or positive cash flows subsequent to the close
of the proposed transaction. If the proposed transaction does not close, the
Company expects that additional debt or equity financing will be required in
order to continue normal operations and the required financing may not be
readily available at acceptable terms. If adequate additional financing is not
obtained, the Company will be required to curtail operations and exploration
activities. Furthermore, failure to continue as a going concern would require
that the Company`s assets and liabilities be restated on a liquidation basis.
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 7.63 the closing rate in effect on December 31, 2008.
Since then, the South African Rand has further weakened to 1 Canadian dollar =
ZAR 8.05 by mid March 2009.
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 18.9M 4.2M 14.7M
Operating lease obligations 1.5M 0.3M 1.2M
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 December 31, 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. The Company is presently in
discussion with a number of parties to secure sustainable long term funding in
order that it complete the Lebowa transaction and obtain funding to meet its
operating obligations. 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 resulting in significant delays in exploration programs and
substantial curtailment of operations.
The Company has no commitments for capital expenditures as of December 31,
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 year ended December 31, 2008 HDSI billed Anooraq $1,302,304 as
compared to $798, 330 for fiscal 2007, for such services and cost
reimbursements.
During the year ended December 31, 2008, the Company paid or accrued $4,927
(year ended December 31, 2007 - $26,589) to CEC Engineering Ltd, a private
company owned by a former director, for engineering and project management
services at market rates.
1.10 Results of Operations
Quarter ended December 2008
The company incurred a loss for the quarter ended December 31, 2008 of
$2,985,846 compared to a loss of $11,148,105 for the quarter ended December 31,
2007. The decrease in the loss resulted primarily from the lower share based
payment charge to the accounts offset by an increase in personnel costs and an
increase in office costs mainly due to the increased in rental of premises in
South Africa.
Exploration expenditures decreased in the quarter to December 31, 2008 to
$183,985 compared $749,383 due to no significant PGM exploration costs being
incurred in the final period of 2008. Legal, accounting and audit costs for the
period ended December 31, 2008 decreased to $94,769 as compared to $229,227 for
the previous year mainly due to lower legal and advisory fees and the
capitalization of transaction costs relating to the Lebowa Transaction.
Office and administration for the quarter ended December 31, 2008 amounted to
$237,065 in comparison to $171,950 spent for the comparable period in 2007. The
increase is due to the Company moving to larger premises in South Africa in
January 2008 in anticipation of the completion of the Lebowa Transaction.
Conference and travel costs of $51,085 were incurred during the quarter ended
December 31, 2008 in comparison to the $340,826 incurred during for the same
period of fiscal 2007 largely due to less overseas travelling in the current
quarter as compared to the previous year and a decrease in investor meetings
and industry conferences.
Consulting costs for the quarter ended December 31, 2008 increased to $117,997
in comparison to $62,179 spent for the same period of fiscal 2007 largely due
to tax related consulting expenses and advisory costs. Salaries and benefits
amounted to $1,126,166 for the quarter ended December 31, 2008 in comparison to
$565,713 for the same quarter in the prior year. The increased staff
expenditure is due to the increase in executive staff and the cost associated
with initiatives to reduce overheads resulting in four administration personnel
being offered voluntary separation in October 2008 based on length of services
and payments in lieu of notice. The positive cost impact of this voluntary
separation will only be realized in the new fiscal year.
Trust and filing for the quarter ended December 31, 2008 decreased to a credit
of $19,387 in comparison to $39,013 incurred for the quarter ended December 31,
2007 primarily as a result of weaker ZAR compared to the Canadian dollar. The
charge relating to stock based compensation decreased to $74,398 for the
quarter ended December 31, 2008, compared to $8,706,074 charged for the same
period in fiscal 2007 as substantial share options were issued in the previous
year
The Company recorded interest expense of $584,056 for the quarter ended
December 31, 2008 in comparison to $611,545 incurred for the same period of
fiscal 2007. The increased cost resulting from the increase in the prime
overdraft rate to 15.5% which was partially offset by the strengthening of the
Canadian dollar against the South African rand .The average ZAR: Canadian
dollar rate was R7.63 in the quarter ended December 31, 2008 compared to R 7.01
in the quarter ended December 31, 2007.
Interest income amounted to $31,658 for the quarter ended December 31, 2008, in
comparison to $233,795 for the same period of fiscal 2007 due to lower cash
balances.
The Company recorded a foreign exchange loss of $464,957 for the quarter ended
December 31, 2008 in comparison to a gain of $68,607 for the same period of
fiscal 2007. The loss is due to the weakening of the South African Rand during
the quarter ended December 31, 2008.
A significant amount of the Company`s liabilities are denominated in South
African
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 audited
consolidated financial statements and changes to those policies are described
in note 4 of the consolidated financial statements for the year ended December
31, 2008, which have been publicly filed on SEDAR at www.sedar.com and as
presented in Changes in Accounting Policies item 1.13. The preparation of
consolidated financial statements in accordance with Canadian generally
accepted accounting principles requires management to select accounting
policies and make estimates. Such estimates may have a significant impact on
the financial statements. These estimates include:
mineral resources and reserves,
the carrying values of property, plant and equipment,
restoration costs following completion of the mining activities, and
The valuation of stock-based compensation expense.
Actual amounts could differ from the estimates used and, accordingly, affect
the results of operation.
Mineral resources and reserves, and the valuation of 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.
The following indicators were considered for impairment;
Decline in the market potential for PGMs
A broad decline in mineral prices would significantly affect the economics for
most mineral properties but, in itself, would not indicate the need for an
impairment test for a property with a predominant mineral for which there had
not been a significant market decline.
Despite the recent decrease in PGM prices in Q4 2008 and the recovery
thereafter, the prices of PGMs still remain above those when the capitalized
costs were incurred for Ga-Phasha and Platreef.
Availability of Financing
A significant adverse change in the business climate may impact a mining
exploration enterprise`s ability to raise financing necessary to continue
exploration or to develop a property.
Anooraq is currently in process of completing a financing and acquisition
transaction with Anglo Platinum for the Lebowa Mine. The transaction will
provide Anooraq with financing sources to fund additional exploration
activities on both Ga-Phasha and Platreef. Furthermore, there are no
significant commitments in place with regard to either of the properties and
Anooraq has the option to delay any exploration decisions if necessary until
the business climate has improved.
Drop in Share Price
A significant decline in the business climate is often accompanied by a decline
in a mining exploration enterprise`s share price. However, to always require an
impairment write-down when an enterprise`s market value is less than its book
value would be inconsistent with the impairment process in Section 3063.
Despite the significant decrease in Anooraq`s share price, management believes
that the decline in share price is a greater factor of the overall economic
climate and credit crisis as opposed to the underlying market value of the
properties. Furthermore, the market value of Anooraq is still greater than its
book value in spite of the decline in the share price.
Mineral right and prospecting title with respect to lease terms
A significant adverse change in the mineral right and prospecting title may
adversely impact mining exploration enterprise`s ability to continue
exploration or to develop a property.
Anooraq has considered its mineral right and prospecting title in terms of
current legislation and concluded there is no adverse impact on its mineral
property title and prospecting rights.
Unfavorable changes in the property or project economics
A significant adverse change in the business climate may impact the project
economics or a mining exploration enterprise`s ability to continue exploration
or to develop a property.
Despite the recent decrease in PGM prices in Q4 2008 and the recovery
thereafter, the prices of PGMs still remain above those when the property and
project economics were considered for Ga-Phasha and Platreef.
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 labor 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 externally imposed
capital requirements and, if it has not complied, the consequences of such
non-compliance.
The Company`s objective when managing capital is to safeguard the Company`s
ability to continue as a going concern so that it can continue to explore and
develop its projects for the benefit of its shareholders and other
stakeholders. The Company considers the components of shareholders` equity and
term loan, as capital. The Company manages the capital structure and makes
adjustments to it in the light of changes in economic conditions and the risk
characteristics of the underlying assets. The Company may issue new shares
through private placements or incur debt financing in order to maintain or
adjust the capital structure
The Company is required to spend at least 60% of the proceeds of the term loan
(note 7) to fund expenditure on the Ga-Phasha project). The Company is
currently in compliance with the restriction.
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. There were no changes to the Company`s approach to capital
management during the year ended December 31, 2008. The Company is not subject
to externally imposed capital requirements as at December 31, 2008.
(ii) Financial Instruments - Disclosure (Section 3862) and Presentation
(Section 3863)
These standards replace CICA 3861, Financial Instruments - Disclosure and
Presentation. They increase the disclosures previously required which will
enable users to evaluate the significance of financial instruments to 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 cash equivalents, accounts receivable. The Company limits exposure to
credit risk on liquid financial assets through maintaining its cash and cash
equivalents with high-credit quality financial institutions. The carrying value
of the Company`s cash and cash equivalents and accounts receivable 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 RPM loaned an amount of ZAR 70 million (subsequently
increased to ZAR 100 million) to Plateau. The loan bears interest at prime, as
quoted by the Standard Bank of South Africa, plus two percent 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.
International Financial Reporting Standards ("IFRS")
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.
On February 18, 2009, the Company received an exemption from the applicable
Canadian Securities Administrators under National Instrument 52-107, Acceptable
Accounting Principles, Auditing Standards and Reporting Currency ("NI 52-107")
to early adopt IFRS starting January 1, 2009.
The Company`s transition date for converting to IFRS is January 1, 2008 and
comparative periods for fiscal 2008 will 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 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 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 occur 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 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 has identified a number of differences
which are discussed under the heading "Impact of Adoption of IFRS on Financial
Reporting" 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 2008
financial statements for annual and interim periods to be in accordance with
IFRS. In addition, the Company will reconcile equity and net earnings from the
previously reported fiscal 2008 GAAP amounts to the restated 2008 IFRS amounts.
IFRS 1 generally requires that first-time adopters retrospectively apply all
IFRS standards and interpretations in effect at January 1, 2009. IFRS 1 also
provides for certain optional exemptions and certain mandatory exceptions to
this general principle.
The Company elected to take the following IFRS 1 optional exemptions:
1. Apply the requirements of IFRS 3 Business Combinations prospectively from
the transition date of January 1, 2008.
2. Apply the requirements of IFRS 2, Share-based payments ("IFRS 2") only to
equity instruments granted after November 7, 2002 which had not vested at
the transition date of January 1, 2008.
3. Transfer all foreign currency translation differences recognized as a
separate component of equity to retained earnings on the transition date of
January 1, 2008 including those foreign currency differences which arise on
application of IFRS (see functional currency analysis below).
Changes to estimates previously made are not permitted. The estimates
previously made by the Company under 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 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 GAAP, the Company accounts for its 50% interest in Micawber as a variable
interest. However, the Company is not considered the primary beneficiary and
therefore 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. On
application of IFRS, the Company has determined that Micawber is not a SPE and
that the Company 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.
The Company has elected to continue using the equity method of accounting for
Anooraq`s interest in Micawber. Therefore, there will be no impact on the
opening balance sheet at the transition date or on the consolidated balance
sheet at December 31, 2008.
2. Share-based Payments (IFRS 2)
The Company currently 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 under 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 classified as employees under IFRS.
However, the Company has determined that no adjustments will be required at the
transition date of January 1, 2008 or for the annual period ended December 31,
2008.
3. Deferred Tax on Mineral Properties
Currently the Company, in the determination of the net earnings (loss) from its
interest in Micawber, recognizes the impacts 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 and December 31, 2008, the Company derecognized the
impacts 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).
As a result, for the year ended December 31, 2008, Mineral property interests
will be reduced by $802,312 with a corresponding increase to deficit. In
addition, foreign currency exchange gain and future tax recovery will be
reduced by $57,000 and $1, 000 respectively.
4. Impairment of Non-Financial Assets
Under 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 performed impairment assessments as of the transition date to
determine whether an impairment charge would be recognized under IFRS on the
transition date and has concluded that there is no impairment charge under IFRS
as of the transition date and December 31, 2008.
5. Functional Currency
Under GAAP, the functional currency of the Company is the Canadian dollar and
all subsidiaries are treated as integrated operations. IFRS requires that the
functional currency of each entity in the consolidated Group be determined
separately.
It has been determined that as at the transition date of January 1, 2008, the
Canadian dollar was the functional currency of all entities in the Group except
Plateau and Micawber which have ZAR as their functional currency. In accordance
with the IFRS 1 optional exemptions, the Company has elected to transfer the
foreign currency translation differences, recognized as a separate component of
equity to retained earnings at the transition date. As a result, Mineral
property interest will be reduced by $1,177,617 at the transition date with a
corresponding increase in deficit. In addition, at December 31, 2008, the
deficit will be increased by $1,604,046 due to a cumulative translation reserve
gain of $129,684 and a decrease in mineral property interest of $1,474,362.
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 have been prepared using IFRS and are set out below. No
material impacts are expected in relation to the statements of cash flows.
While these reconciliations do not represent an official adoption of IFRS, they
provide 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.
December 31 January 1
2008 2008
Total Assets per GAAP $ 15,173,467 $ 16,953,363
Decrease in Mineral property interests
due to deferred tax adjustments (800,312) (742,312)
Functional currency adjustment to Mineral
property interest (1,474,362) (1,177,617)
Total assets per IFRS 12,898,793 15,033,434
Total Liabilities per GAAP 16,502,255 12,219,544
Adjustments - -
Total liabilities per IFRS $ 16,502,255 $ 12,219,544
Total Shareholders` Equity per GAAP $ (1,328,788 ) $ 4,733,819
Deferred tax adjustments to deficit (800,312) (742,312)
Functional currency adjustments to deficit (1,604,046) (1,177,617)
Cumulative translation reserve 129,684 -
Total Shareholders` Equity per IFRS $ (3,603,462) $ 2,813,890
Total Liabilities and Shareholders`
Equity per IFRS $ 12,898,793 $ 15,033,434
Net Loss per GAAP $ 13,485,667
Deferred tax adjustments
(Foreign exchange gain) 57,000
Deferred tax adjustment
(Future income tax recovery) 1,000
Functional currency adjustment
(Foreign exchange gain) 426,429
Net Loss per IFRS 13,970,096
Other Comprehensive Income
Change in accumulated translation reserve (129,684)
Comprehensive loss per IFRS 13,840,412
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 GAAP financial statements to IFRS.
Further, our finance personnel include employees who have prepared financial
statements under IFRS previously.
The Company believes that the impact of the conversion on its accounting
systems is minimal since it is still in the exploration stage. 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 the conversion to IFRS.
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.
15.2 Disclosure of Outstanding Share Data
The following details the share capital structure as at March 27, 2009. These
figures may be subject to minor accounting adjustments prior to presentation in
future consolidated financial statements.
Exercise
price Number Number
Expiry date
Common shares 186,640,007
Share purchase options December 17, 2010 $1.40 1,285,000
July 1, 2010 $2.97 119,000
October 15, 2012 $2.97 4,205,000
October 15, 2012 $3.27 126,000
June 25, 2013 $2.76 916,000
June 30, 2013 $2.90 1,935,000 8,586,000
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. The Company`s internal
control system was designed to provide reasonable assurance to the Company`s
management and the board of directors regarding the preparation and fair
presentation of published financial statements. Internal control over financial
reporting includes those policies and procedures that: (1) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and dispositions of the assets of the Company, (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that receipts
and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company, and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company`s assets that could have a
material effect on the financial statements. All internal control systems, no
matter how well designed, have inherent limitations. Therefore, even those
systems determined effective can provide only reasonable assurance with respect
to financial statement preparation and presentation.
The Company`s management, with the participation of the Chief Executive Officer
and the Chief Financial Officer, has evaluated the effectiveness of internal
control over financial reporting based on the framework and criteria
established in Internal Control - Integrated Framework, issued by the Committee
of Sponsoring Organizations of the Tread way Commission. Based on this
evaluation, our management has concluded that internal control over financial
reporting was effective as of December 31, 2008 to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements in accordance with GAAP.
There have been no significant changes in internal controls over financial
reporting during the fiscal year ended December 31, 2008 that could have
materially affected or are reasonably likely to materially affect the Company`s
internal control over financial reporting.
1.15.4 Disclosure Controls and Procedures
Disclosure controls and procedures are those controls and procedures that are
designed to ensure that the information required to be disclosed in the filings
under applicable securities regulations is recorded, processed, summarized and
reported within the time periods specified. As at December 31, 2008, under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of
the effectiveness of the design and operation of the Company`s disclosure
controls and procedures. Based on this evaluation, the Chief Executive Officer
and the Chief Financial Officer have concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures were
effective.
There have been no significant changes in the Company`s disclosure controls and
procedures during the fiscal year ended December 31, 2008 that could have
materially affected or are reasonably likely to materially affect the Company`s
disclosure controls and procedures.
Date: 01/04/2009 10:12:01 Produced by the JSE SENS Department.
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