| Mon 18 May 2009, 9:50 | | ARQ - Anooraq - Consolidated Interim Financial Statements For The Three Months |
|
ARQ
ARQ
ARQ - Anooraq - Consolidated Interim Financial Statements For The Three Months
Ended March 31, 2009
Anooraq Resources Corporation
(Incorporated in British Columbia, Canada)
(Registration number 10022-2033)
JSE share code: ARQ
TSXV share code: ARQ
NYSE Amex : ANO
ISIN: CA03633E1088
("Anooraq" or "the Company")
CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31,
2009
(Unaudited)
(Expressed in Canadian Dollars, unless otherwise stated)
These financial statements have not been reviewed by the Company`s auditors
Interim Statement of Financial Position
(Unaudited - Expressed in Canadian Dollars)
March 31 December 31
note 2009 2008
(as restated per
note 11)
ASSETS
Non-Current assets
Deferred acquisition costs $ 1,619,114 $ 1,587,959
Equipment 443,003 469,635
Investment in joint venture 6 2,474,083 2,518,971
Mineral property interests 7 4,200,000 4,200,000
8,736,200 8,776,565
Current assets
Accounts receivable 188,579 158,644
Prepaid expenses 51,437 112,910
Cash and cash equivalents 2,046,365 3,850,674
2,286,381 4,122,228
Total Assets $ 11,022,581 $ 12,898,793
EQUITY
Share capital $ 54,948,341 $ 54,948,341
Reserves 17,636,433 17,584,974
Accumulated other comprehensive
income (loss) (27,861) 129,684
Accumulated loss (78,330,475) (76,266,461)
(5,773,562) (3,603,462)
LIABILITIES
Non-current Liabilities
Long term loan 8 13,209,670 12,967,753
Current Liabilities
Balances payable to related
parties 9 622,885 794,072
Accounts payable and accrued
liabilities 711,502 1,004,767
Accrued finance costs 8 2,252,086 1,735,663
3,586,473 3,534,502
Total Liabilities 16,796,143 16,502,255
Nature of operations and going
concern 1,2
Proposed transaction 10
Total Equity and Liabilities $ 11,022,581 $ 12,898,793
The accompanying notes are an integral part of these consolidated financial
Statements.
Approved by the Board of Directors
/s/ Philip Kotze /s/ Iemrahn Hassen
Philip Kotze Iemrahn Hassen
Director Director
Consolidated Interim Statement of Comprehensive Loss
(Unaudited - Expressed in Canadian Dollars)
Three months ended March 31
2009 2008
(as restated per
note 11)
Expenses
Accounting, audit and legal $ 60,590 $ 79,429
Amortization 28,372 7,831
Conference and travel 48,692 52,726
Consulting 62,036 21,982
Exploration 27,192 50,539
Foreign exchange loss 719 1,517
Office and administration 232,757 176,372
Salaries and benefits 798,753 1,015,562
Share-based compensation 51,459 122,318
Shareholders communications 35,673 44,465
Trust and filing 75,093 162,847
Net loss from operating activities 1,421,336 1,735,588
Equity loss from joint venture 106,359 51,645
Interest income (50,277) (94,725)
Finance costs 600,866 414,877
Rental income (14,270) -
Loss for the period 2,064,014 2,107,385
Other comprehensive loss
Foreign exchange loss (gain) on
translation of foreign operation 157,545 (425,918)
Total comprehensive loss $ 2,221,559 $ 1,681,467
Weighted average number of common shares
outstanding 186,640,007 185,217,912
Basic and diluted loss per share $ 0.01 $ 0.01
The accompanying notes are an integral part of these consolidated financial
Statements.
Total comprehensive loss $ 2 221 559 $ 1 681 467
Foreign exchange gain (719) (1 517)
Foreign exchange (gain) loss on translation
of foreign operation (157 545) 425 918
Headline loss 2 063 295 2 105 868
Headline loss per share $ 0.01 $ 0.01
Consolidated Interim Statement of Changes in Equity
(Unaudited - Expressed in Canadian Dollars)
Share capital
Number of shares Amount
Balance at January 1, 2008 185,208,607 $ 51,855,350
Share-based compensation - -
Share options exercised 1,431,400 103,790
Comprehensive income (loss) for the year - -
Balance at March 31, 2008 186,640,007 $ 51,959,140
Balance at January 1, 2009 186,640,007 $ 54,948,341
Share-based compensation - -
Comprehensive loss for the period - -
Balance at March 31, 2009 186,640,007 $ 54,948,341
Reserves Deficit
Balance at January 1, 2008 $ 13,254,905 $ (62,296,365)
Share-based compensation 122,318 -
Share options exercised (40,232) -
Comprehensive income (loss) for the year - (2,107,385)
Balance at March 31, 2008 $ 13,336,991 $ (64,403,750)
Balance at January 1, 2009 $ 17,584,974 $(76,266,461)
Share-based compensation 51,459 -
Comprehensive loss for the period - (2,064,014)
Balance at March 31, 2009 $ 17,636,433 $ (78,330,475)
Translation
reserve Total Equity
Balance at January 1, 2008 $ - $ 2,813,890
Share-based compensation - 122,318
Share options exercised - 63,558
Comprehensive income (loss) for the year 425,918 (1,681,467)
Balance at March 31, 2008 $ 425,918 $ 1,318,299
Balance at January 1, 2009 $ 129,684 $ (3,603,462)
Share-based compensation - 51,459
Comprehensive loss for the period (157,545) (2,221,559)
Balance at March 31, 2009 $ (27,861) $ (5,773,562)
The accompanying notes are an integral part of these consolidated financial
Statements.
Consolidated Interim Statement of Cash Flows
(Unaudited - Expressed in Canadian Dollars)
Three months ended March 31
2009 2008
Operating activities
Net loss for the period $ (2,064,014) $ (2,107,385)
Adjustments for:
Amortization 28,372 7,831
Finance costs 600,866 414,877
Share-based compensation 51,459 122,318
Unrealized foreign exchange gain (7,016) (30,584)
Equity loss from joint venture 106,359 51,645
Interest income (50,277) (94,725)
Interest received 50,277 94,725
Changes in non-cash operating working
capital:
Accounts receivable and prepaid expenses 31,538 (41,866)
Accounts payable and accrued liabilities (293,265) (178,767)
Balances payable to related parties (171,187) 280,424
Cash and cash equivalents used in operating
activities (1,716,888) (1,481,507)
Investing activities
Purchase of equipment (1,740) (207,333)
Deferred acquisition costs (31,155) (338,980)
Cash used in investing activities (32,895) (546,313)
Financing activities
Finance costs paid - (1,777,979)
Common shares issued for cash, net of issue
costs - 63,558
Cash used in financing activities - (1,714,421)
Decrease in cash and equivalents (1,749,783) (3,742,241)
Effect of exchange rate fluctuations on
cash held (54,526) (637,426)
Cash and cash equivalents, beginning of
period 3,850,674 7,131,821
Cash and cash equivalents at end of period $ 2,046,365 $ 2,752,154
The accompanying notes are an integral part of these consolidated financial
Statements.
Notes to Consolidated Interim Financial Statements
For the three months ended March 31, 2009
(Unaudited - Expressed in Canadian Dollars, unless stated otherwise)
1. NATURE OF OPERATIONS
Anooraq Resources Corporation (the "Company" or "Anooraq") is incorporated
under the laws of the Province of British Columbia, Canada, and its principal
business activity is the exploration of mineral properties. The consolidated
interim financial Statements of the Company as at and for the period ended
March 31, 2009 comprise the Company and its subsidiaries and the Company`s
interest in jointly controlled entities. Since 1999, the Company has focused on
mineral property interests located in the Republic of South Africa, with
particular attention on the Bushveld Complex.
The Company is in the process of exploring its mineral property interests and
has not yet determined whether its mineral property interests contain mineral
reserves that are economically recoverable. The Company`s continuing operations
and the underlying value and 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, obtaining the necessary permits to mine, and on future
profitable production or proceeds from the disposition of the mineral property
interests.
2. GOING CONCERN
The consolidated interim 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 10), which would result in
immediate cash flows from operations but requires debt and equity financing to
complete the transaction. As at March 31, 2009, the Company had cash and cash
equivalents of $2,046,365 and a working capital deficit of $1,300,092 and
continues to incur expenditure 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 at which time the Company expects
financing and regulatory, governance and shareholder approval to have been
obtained for the proposed transaction.
Management is confident of completing the proposed transaction and has secured
the required transaction funding (note 10). However, there can be no assurances
on the outcome of the approval process 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.
3. SIGNIFICANT ACCOUNTING POLICIES
(a) Conversion to International Financial Reporting Standards
The consolidated interim financial Statements have been prepared in conformity
with IAS 34,
Interim Financial Reporting, and do not include all the information required
for full annual financial Statements in accordance with International Financial
Reporting Standards ("IFRS") as issued by the International Accounting
Standards Board ("IASB") and interpretations of the International Financial
Reporting Interpretations Committee ("IFRIC").
The Canadian Accounting Standards Board ("AcSB") confirmed in February 2008
that IFRS will replace Canadian generally accepted accounting principles
("GAAP") for publicly accountable enterprises for financial periods beginning
on and after January 1, 2011, with the option available to early adopt IFRS
from periods beginning on or after January 1, 2009 upon receipt of approval
from the Canadian Securities regulatory authorities.
The Company received approval 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 was January 1, 2008 (the "Transition Date") and the
comparative balance sheet as at December 31, 2008 and comparative Statements of
comprehensive loss, statements of changes in equity and cash flows for the
three month period ended March 31, 2008 have been restated in accordance with
IFRS.
The guidance for the first time adoption of IFRS are set out in IFRS 1, First
Time Adoption of International Financial Reporting Standards. IFRS 1 provides
for certain mandatory exceptions and optional exemptions for first time
adopters of IFRS. The Company elected to take the following IFRS 1 optional
exemptions:
- to apply the requirements of IFRS 3, Business Combinations, prospectively
from the Transition Date;
- to apply the requirements of IFRS 2, Share-based payments, only to equity
instruments granted after November 7, 2002 which had not vested as of the
Transition Date; and
- to transfer all foreign currency translation differences, recognized as a
separate component of equity, to accumulated loss as at the Transition Date
including those foreign currency differences which arise on adoption of IFRS.
Reconciliations between the Company`s previously reported balance sheet
and statement of comprehensive loss under GAAP and those reported under IFRS are
presented in note 11.
(b) Basis of preparation
The preparation of interim financial Statements in conformity with IAS 34,
Interim Financial Reporting, requires management to make judgments, estimates
and assumptions that affect the application of policies and reported amounts of
assets and liabilities, income and expenses.
Actual results may differ from these estimates.
These consolidated interim financial Statements have been prepared on the basis
of IFRS standards that are expected to be effective or available for early
adoption by the Company on December 31, 2009, the Company`s first annual
reporting date under IFRS. The Company has made certain assumptions about the
accounting policies expected to be adopted when the first IFRS annual financial
Statements are prepared for the year ended December 31, 2009.
The preparation of these consolidated interim financial Statements resulted in
changes to the accounting policies as compared with the most recent annual
financial Statements prepared under GAAP. The accounting policies set out below
have been applied consistently to all periods presented in these interim
financial Statements. They also have been applied in preparing an opening IFRS
balance sheet at January 1, 2008, as required by IF RS 1. The impact of the
transition from GAAP to IFRS is explained in note 11.
(c) Principles of consolidation
These consolidated interim financial Statements include the financial
Statements of the Company and all its subsidiaries and jointly controlled
entities.
The Company has determined that its investment in Ga-Phasha Platinum Mine
(Proprietary) Limited ("GPM") (formerly Micawber 277 (Proprietary) Limited), a
50:50 joint venture with a wholly-owned subsidiary of Anglo American Platinum
Corporation ("Anglo Platinum") in the Ga-Phasha Project, qualifies as a jointly
controlled entity since the Company has joint control, established by
contractual agreement and requires unanimous consent for strategic financial
and operating decisions.
The Company has elected to apply the equity method to account for its interest
in GPM (note 6).
Inter-company balances and transactions, including any unrealised income and
expenses arising from inter-company transactions, are eliminated in preparing
the consolidated interim financial Statements. Unrealised gains arising from
transactions with equity accounted investees are eliminated against the
investment to the extent of the Company`s interest in the investee.
Unrealised losses are eliminated in the same way as unrealised gains, but only
to the extent that there is no evidence of impairment.
(d) Foreign currency translation
The functional and presentation currency of the Company and its subsidiaries is
the Canadian dollar, except for Plateau Resources (Proprietary) Limited and GMP
which use the South African rand ("ZAR") as their functional currency.
Transactions in foreign currencies are translated to the functional currencies
of the Company and its subsidiaries at exchange rates at the dates of the
transactions. Monetary assets and liabilities denominated in foreign currencies
at the reporting date are translated to the functional currency at the exchange
rate at that date. The foreign currency gain or loss on monetary items is the
difference between amortized cost in the functional currency at the beginning
of the period, adjusted for effective interest and payments during the period,
and the amortized cost in foreign currency translated at the exchange rate at
the end of the period. Such gains and losses are recognized in profit and loss.
The assets and liabilities of foreign operations with functional currencies
other than the Canadian dollar are translated to Canadian dollars at exchange
rates at the reporting date. The income and expenses of foreign operations are
translated to Canadian dollars at exchange rates at the dates of the
transactions. Foreign currency differences resulting from translation of the
accounts of foreign operations are recognised in the foreign currency
translation reserve as a separate component of shareholders equity.
(e) Financial instruments
Non-derivative financial instruments consist of trade and other receivables,
cash and cash equivalents, balance payable to related parties, accounts payable
and accrued liabilities and long-term loans.
Non-derivative financial instruments are recognized initially at fair value
plus, for instruments not recognized at fair value through profit or loss, any
directly attributable transaction costs. Subsequent to initial recognition,
trade and other receivables are classified as loans and receivables and
measured at amortized costs. Accounts payable and accrued liabilities, balances
payable to related parties, and the long-term loans are classified as other
financial liabilities and measured at amortized cost using the effective
interest method.
The Company does not have any derivative financial instruments.
(f) Mineral property interests
The acquisitions of mineral properties are accounted for at initial cost.
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.
Exploration and evaluation costs incurred prior to determination of the
feasibility of mining operations are expensed as incurred.
Mineral property acquisition costs include the cash consideration and the fair
market value of shares 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 an impairment of value has been
determined to have occurred.
(g) Equipment
Equipment is measured at cost less accumulated depreciation and any impairment
losses. Cost includes all costs directly attributable to bringing the assets to
working condition for their intended use.
Cost includes expenditure that is directly attributable to the acquisition of
the asset.
When parts of an item of equipment have different useful lives, they are
accounted for as separate items (major components) of equipment.
Gains and losses on disposal of equipment are determined by comparing the
proceeds from disposal with the carrying amount of equipment, and are
recognized in profit or loss.
Depreciation is charged on a straight-line basis at rates considered
appropriate to reduce the carrying values to estimated residual values of the
assets.
The depreciation rates applicable to each category of asset are as follows:
Motor vehicles 5 years
Office equipment 5 years
Computer equipment 3 years
Expenditure incurred subsequent to initial acquisition of equipment is
capitalized when it is probable that future economic benefits from the use of
the asset will be increased. All other expenditure are recognized as repairs
and maintenance.
(h) 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, which are
readily convertible to known amounts of cash.
(i) Impairment
Non-financial assets
The carrying values of the Company`s non-financial assets are reviewed annually
to assess whether there is any indication of impairment.
The recoverable amount of an asset or cash-generating unit is the greater of
its value in use and its fair value less costs to sell. In assessing value in
use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset.
For the purpose of impairment testing, assets are grouped together into the
smallest group of assets that generates cash inflows from continuing use that
are largely independent of the cash inflows of other assets or groups of assets
(the "cash-generating unit").
An impairment loss is recognized if the carrying amount of an asset or its
cash- generating unit exceeds its estimated recoverable amount. Impairment
losses are recognized in profit and loss. Impairment losses recognized in prior
periods are assessed at each reporting date for any indications that the loss
has decreased or no longer exists. An impairment loss is reversed if there has
been a change in the estimates used to determine the recoverable amount. An
impairment loss is reversed only to the extent that the asset`s carrying amount
does not exceed the carrying amount that would have been determined, net of
depreciation or amortization, if no impairment loss had been recognized.
Financial assets
A financial asset is assessed at each reporting date to determine whether there
is any objective evidence that it is impaired. A financial asset is considered
to be impaired if objective evidence indicates that one or more events have had
a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortized cost
is calculated as the difference between its carrying amount and the present
value of the estimated future cash flows, discounted at the original effective
interest rate.
Individually significant financial assets are tested for impairment on an
individual basis. The remaining financial assets are assessed collectively in
groups that share similar credit risk characteristics.
An impairment loss is reversed if the reversal can be related objectively to an
event occurring after the impairment loss was recognized. For financial assets
measured at amortized cost, this reversal is recognized in profit or loss.
(j) Share capital
Common shares are classified as equity. Transaction costs directly attributable
to the issue of common shares and share options are recognized as a deduction
from equity, net of any tax effects.
(k) Share-based payment transactions
The share option plan allows Company employees and consultants to acquire
shares of the Company. The fair value of options granted is recognized as an
expense with a corresponding increase in equity.
For employees, the fair value is measured at grant date and recognised on a
straight-line basis over the period during which the options vest. The fair
value of the options granted is measured using the Black-Scholes option pricing
model taking into account the terms and conditions upon which the options were
granted. The amount recognised as an expense is adjusted to reflect the actual
number of share options that are expected to vest.
Equity-settled share-based payment transactions with non-employees are measured
at the fair value of the goods or services received. However, if the fair value
cannot be estimated reliably, the share-based payment transaction is measured at
the fair value of the equity instruments granted at the date the Company
receives the goods or the services
(l) Income taxes
Income tax is recognised in profit or loss except to the extent that it relates
to items recognised directly in equity, in which case it is recognised directly
in equity.
Deferred tax is provided using the balance sheet method, providing for
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes.
Deferred taxes are not recognised for temporary differences related to the
initial recognition of assets or liabilities that affect neither accounting nor
taxable profit or investments in subsidiaries and equity investments to the
extent it is probable that they will not reverse in the foreseeable future. The
amount of deferred tax provided is based on the expected manner of realisation
or settlement of the carrying amount of assets and liabilities, using tax rates
enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised.
(m) Decommissioning
An obligation to incur restoration, rehabilitation and environmental costs
arises when environmental disturbance is caused by the exploration, development
or ongoing production of mineral property interests. Such costs arising from
the decommissioning of plant and other site preparation work, discounted to
their net present value, are provided for and capitalized at the start of each
project, as soon as the obligation to incur such costs arises. These costs are
amortized to profit or loss over the life of the related asset. The related
liability is adjusted in each period for the unwinding of the discount cost.
Costs for restoration of subsequent site damage which is created on an ongoing
basis during production are provided for at their net present values and
charged to profit or loss as extraction progresses.
The Company has no material restoration, rehabilitation and environmental costs
as the disturbance to date is minimal.
(n) Earnings (loss) per share
The Company presents basic and diluted loss per share ("LPS") data for its
common shares. Basic LPS is calculated by dividing the loss attributable to
common shareholders of the Company by the weighted average number of common
shares outstanding during the period. Diluted LPS is determined by adjusting
the profit or loss attributable to common shareholders and the weighted average
number of common shares outstanding for the effects of all dilutive potential
common shares.
(o) Segment Reporting
The Company operates in a single reportable operating segment - the
acquisition, exploration and development of mineral properties in the Republic
of South Africa.
(p) Finance costs and income
Finance costs comprise interest payable on borrowings and amortization of
related transaction costs calculated using the effective interest rate method.
Interest income comprises interest earned on funds invested and is recognized
as it accrues in profit or loss.
(q) Measurement uncertainty
The preparation of financial Statements in accordance with IFRS requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial Statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Significant accounts that require estimates as the basis for determining the
stated amounts include mineral property interests, the company`s investment in
GPM, equipment, decommissioning costs and share based payment transactions.
The assessment of any impairment of mineral property interest, equipment and
the Company`s investment in GPM is dependent upon estimates that take into
account factors such as reserves, economic and market conditions and the useful
lives of assets and mineral properties. Decommissioning costs are recognized in
the period in which they arise and are stated at the fair value of estimated
future costs. These estimates require extensive judgment about the nature, cost
and timing of the work to be completed, and may change with future changes to
costs, environmental laws and regulations and remediation practices.
(r) New standards not yet adopted
Standards and interpretations issued but not yet effective and applicable to
the Company:
- Amendments to IFRS 3, Business Combinations
- Amendments to IFRS 5, Non-current Assets Held for Sale and Discontinued
Operations
- Amendments to IAS 16, Property, Plant and Equipment
- Amendments to IAS 27, Consolidated and Separate Financial Statements
- Amendments to IAS 28, Investments in Associates
- Amendments to IAS 31, Interests in Joint Ventures
The Company is evaluating the impact, if any, that these new standards will
have on the consolidated financial Statements.
4. CAPITAL AND RESERVES
(a) Authorized share capital
At March 31, 2009, the authorized share capital comprised an unlimited number
of common shares. The common shares do not have a par value. All issued shares
are fully paid. Reserves include the accumulated fair value of share options
recognized as share-based compensation.
5. LOSS PER SHARE
The calculation of basic and diluted loss per share at March 31, 2009 was based
on the loss attributable to common shareholders of $0.01 (2008 - $0.01) and a
weighted average number of common shares outstanding of 186,640,007 (2008 -
185,217,912).
6. INVESTMENT IN JOINT VENTURE
Three months Year ended
Investment in Ga-Phasha Joint Venture
ended December 31,
March 31, 2009 2008
Balance, beginning of period $ 2,518,971 $ 2,958,785
Equity loss - exploration expenses (106,359) (235,022)
Foreign currency gain (loss) 61,471 (204,792)
Investment in joint venture, end of period $ 2,474,083 2,518,971
In January 2004, the Company and Pelawan Investments (Proprietary) Limited
("Pelawan"), a private South African Black Economic Empowerment ("BEE")
company, combined their respective Platinum Group Metals ("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 Ga-Phasha Project is a 50/50 joint venture between the Company, through its
subsidiary Plateau Resources (Proprietary) Limited ("Plateau") , and Anglo
Platinum, through its wholly owned subsidiary Rustenburg Platinum Mines Limited
("RPM"), governed by, among other things, a shareholders` agreement relating to
GPM entered into in September 2004. Work on the Ga-Phasha Project is continuing
toward the preparation of a pre-feasibility study
The mineral title relating to the Ga-Phasha Project is held by GPM.
On completion of the Lebowa transaction (note 10) this project will be
transferred into a newly incorporated company and Anooraq will own 51% of the
project through Plateau.
Summary financial information of GPM is as follows:
This summary financial information is not adjusted for the Company`s 50% share
in GPM
For the three months Year ended
ended December 31, 2008
March 31, 2009
Comprehensive loss 212,717 470,044
Total assets 207 205
Total liabilities 6,514,743 6,237,616
7. MINERAL PROPERTY INTEREST
The Company`s mineral property interest consists of various early stage
exploration projects as detailed below.
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 totalling ZAR 25 million within five years.
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 10) 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.
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. 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.
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 10) this project will be
transferred into a wholly newly incorporated company and Anooraq will own 51%
of the project through Plateau
8. LONG-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 closure of the Lebowa transaction.
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 GPM.
9. RELATED PARTY BALANCES AND TRANSACTIONS
A number of key management personnel, or their related parties, hold positions
in other entities that result in them having control or significant influence
over the financial or operating policies of the entities outlined below.
Directors of the company and their immediate relatives have no direct control
of the voting shares of the company. There were no loans to directors for the
period ended March 31, 2009 (2008 - nil).
A number of these entities transacted with the Company in the reporting period.
The terms and conditions of the transactions with key management personnel and
their related parties were no more favourable than those available, or which
might reasonably be expected to be available, on similar transactions with
non-related entities on an arm`s length basis.
The aggregate value of transactions and outstanding balances relating to key
management personnel and entities over which they have control or significant
influence were as follows:
Services rendered by: note Three months Three months
ended March 31, ended March 31,
2009 2008
Hunter Dickinson Services Inc. (a) $ 227,303 $ 334,634
CEC Engineering Ltd. (b) - 4,928
Compensation benefits to key
management (c) 317,742 499,668
Related party balances
(payable) note As at March 31, Year ended
2009 December 31,
2008
Hunter Dickinson Services Inc. (a) $ 622,885 $ 794,072
(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.
(b) CEC Engineering Ltd. is a private company owned by a director of a
subsidiary that provides engineering and project management services to the
Company at market rates.
(c) Compensation benefits to key management personnel consist of executive
directors being paid by a subsidiary in terms of employment contracts.
Compensation benefits: note Three months Three months
ended March 31, ended March 31,
2009 2008
Short-term remuneration $ 317,742 $ 195,168
Incentive bonus - 304,500
$ 317,742 $ 499,668
10. PROPOSED TRANSACTION
On March 28, 2008, Anooraq, through Plateau, entered into acquisition
agreements as amended on May 13,2009,(the "Acquisition Agreements") with Anglo
Platinum and certain of its wholly-owned subsidiaries (collectively, "Anglo
Platinum") to acquire an effective 51% of Lebowa and an additional 1% of the Ga-
Phasha Project, the Boikgantsho Project and the Kwanda Project for an aggregate
cash consideration of ZAR 3.6 billion (the "Lebowa transaction")
On April 14, 2008, detailed commercial terms of the Lebowa transaction were
announced. Since 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 commodity-focused share prices. The deterioration in
credit and equity market conditions has also increased the cost of obtaining
capital and limited the availability of funds. On October 23, 2008, Anglo
Platinum announced that it was reviewing the costing and scheduling of all its
capital projects in light of current metal price levels and uncertainty in
global markets. Anglo Platinum and Anooraq jointly agreed to review the current
Anglo Platinum approved mine plan and capital program at Lebowa. As a result of
these developments, Anglo Platinum and Anooraq (the "Parties") undertook to
review the terms of the Lebowa Transaction.
On May 14, 2009 the Parties announced that in light of these recent
developments, and to ensure the sustainability of the Lebowa Transaction, the
Parties have renegotiated the consideration payable ("Transaction
Consideration") from ZAR 3.6 billion to ZAR 2.6 billion ($500 million to $360
million), with Anglo Platinum agreeing to effectively re-invest a portion of
such consideration in order to share in expected future equity upside. The
Parties have agreed on an outside deadline of June 30, 2009 for the fulfilment
or waiver of the conditions to the Lebowa Transaction.
Pursuant to the terms of the Acquisition Agreements, Anooraq will acquire 51%
of the shares in, and claims on shareholders loan account against, Richtrau No.
179 (Proprietary) Limited ("Holdco"), 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 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 (Anooraq completed its due diligence
in April 2008);
2. the approval of the South African Competition Authorities, which approval
was obtained on July 31,2008 and April 29,2009;
3. the consent of the United Kingdom Treasury for Anglo Platinum to undertake
the transaction;
4. Anooraq and Plateau obtaining sufficient 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
), the JSE Limited, the TSX Venture Exchange ("TSX-V") and the
NYSE AMEX (formerly the American Stock Exchange).
11. EXPLANATIONS OF TRANSITIONS TO IFRS
As stated in note 3(a), these are the Company`s first consolidated interim
financial Statements for the period covered by the first annual consolidated
financial Statements prepared in accordance with IFRS.
The accounting policies in note 3 have been applied in preparing the
consolidated interim financial Statements for the three months ended March 31,
2009, the comparative information for the three months ended March 31, 2008,
the financial Statements for the year ended December 31, 2008 and the
preparation of an opening IFRS Statement of financial position on the
Transition Date.
In preparing the consolidated interim financial Statements for the three months
ended March 31, 2009, comparative information for the three months ended March
31, 2008 and financial Statements for the year ended December 31, 2008, have
been adjusted from amounts reported previously in the financial Statements
prepared in accordance with GAAP.
An explanation of how the transition from GAAP to IFRS has affected the
Company`s balance sheet and Statement of comprehensive loss is set out below.
Reconciliation of Assets, Liabilities and Equity
As at January 1, 2008
note Effect of
GAAP Transition IFRS
to IFRS
ASSETS
Non-current assets
Deferred acquisition costs $ 368,146 $ - $ 368,146
Equipment 105,494 - 105,494
Investment in
joint venture 11(b)(d) 4,878,714 (1,919,929) 2,958,785
Mineral property
interests 4,200,000 - 4,200,000
Total
non-current assets 9,552,354 ( 1,919,929) 7,632,425
Current assets
Accounts receivable 167,779 - 167,779
Receivable from
related parties - - -
Prepaid expenses 101,409 - 101,409
Cash and cash
equivalents 7,131,821 - 7,131,821
Total current assets 7,401,009 - 7,401,009
Total Assets 16,953,363 (1,919,929) 15,033,434
As at March 31, 2008
Effect of
GAAP Transition IFRS
to IFRS
ASSETS
Non-current assets
Deferred acquisition costs $ 707,126 $ - $ 707,126
Equipment 304,996 - 304,996
Investment in joint venture 5,036,897 (2,408,364) 2,628,533
Mineral property interests 4,200,000 - 4,200,000
Total non-current assets 10,249,019 (2,408,364) 7,804,655
Current assets
Accounts receivable 249,552 - 249,552
Receivable from related parties 6,275 - 6,275
Prepaid expenses 61,502 - 61,502
Cash and cash equivalents 2,752,154 - 2,752,154
Total current assets 3,069,483 - 3,069,483
Total Assets 13,318,502 (2,408,364) 10,910,138
As at December 31, 2008
Effect of
GAAP Transition IFRS
to IFRS
ASSETS
Non-current assets
Deferred acquisition costs $1,587,959 $ - $ 1,587,959
Equipment 469,635 - 469,635
Investment in joint venture 4,793,645 (2,274,674) 2,518,971
Mineral property interests 4,200,000 - 4,200,000
Total non-current assets 11,051,239 (2,274,674) 8,776,565
Current assets
Accounts receivable 158,644 158,644
Receivable from related parties - - -
Prepaid expenses 112,910 - 112,910
Cash and cash equivalents 3,850,674 - 3,850,674
Total current assets 4,122,228 - 4,122,128
Total Assets 15,173,467 (2,274,674) 12,898,793
As at January 1, 2008
Effect of IFRS
GAAP Transition to
note IFRS
SHAREHOLDERS` EQUITY
Share capital 51,855,350 - 51,855,350
Reserves 13,254,905 - 13,254,905
Translation reserve 11(b) - - -
Accumulated loss (60,376,436) (1,919,929) (62,296,365)
Total Equity 4,733,819 (1,919,929) 2,813,890
LIABILITIES
Non-Current
Liabilities
Long-term loan 9,806,636 - 9,806,636
Current Liabilities
Balances payable to 45,609 - 45,609
related parties
Accounts payable and 475,102 - 475,102
accrued liabilities
Accrued finance costs 1,892,197 - 1,892,197
2,412,908 - 2,412,908
Total Liabilities 12,219,544 - 12,219,544
Total Equity and Liabilities 16,953,363 (1,919,929) 15,033,434
As at March 31, 2008
Effect of IFRS
GAAP Transition to
IFRS
SHAREHOLDERS` EQUITY
Share capital 51,959,140 - 51,959,140
Reserves 13,336,991 - 13,336,991
Translation reserve 11(b) - 425,918 425,918
Accumulated loss (61,569,468) (2,834,282) (64,403,750)
Total Equity 3,726,663 (2,408,364) 1,318,299
LIABILITIES
Non-Current Liabilities
Term loan 8,615,301 - 8,615,301
Current Liabilities
Balances payable to 332,308 - 332,308
related parties
Accounts payable and 296,335 - 296,335
accrued liabilities
Accrued finance costs 347,895 - 347,895
976,538 - 976,538
Total Liabilities 9,591,839 - 9,591,839
Total Equity and Liabilities 13,318,502 (2,408,364) 10,910,138
As at December 31, 2008
Effect of IFRS
GAAP Transition to
IFRS
SHAREHOLDERS` EQUITY
Share capital 54,948,341 - 54,948,341
Reserves 17,584,974 - 17,584,974
Translation reserve 11(b) - 129,684 129,684
Accumulated loss (73,862,103) (2,404,358) (76,266,461)
Total Equity (1,328,788) (2,274,674) (3,603,462)
LIABILITIES
Non-Current Liabilities
Long -term loan 12,967,753 - 12,967,753
Current Liabilities
Balances payable to 794,072 - 794,072
related parties
Accounts payable and 1,004,767 - 1,004,767
accrued liabilities
Accrued finance costs 1,735,663 - 1,735,663
3,534,502 - 3,534,502
Total Liabilities 16,502,255 - 16,502,255
Total Equity and Liabilities 15,173,467 (2,274,674) 12,898,793
Reconciliation of Net Loss and Comprehensive Loss
Three months ended March 31, 2008
GAAP Effect of
Transition to
note IFRS IFRS
Expenses
Accounting, audit
and legal $ 79,429 $ - $ 79,429
Amortization 7,831 - 7,831
Conference and travel 52,726 - 52,726
Consulting 21,982 - 21,982
Exploration 11(a) 50,539 - 50,539
Foreign exchange
loss (gain) 11(b) (911,836) 913,353 1,517
Gain on disposal of
fixed assets - - -
Office and administration 176,372 - 176,372
Salaries and benefits 1,015,562 - 1,015,562
Share based compensation 122,318 - 122,318
Shareholders 44,465 - 44,465
communications
Trust and filing 162,847 - 162,847
Net loss from
operating activities 822,235 913,353 1,735,588
Equity loss on
joint venture 11(a) - 51,645 51,645
Interest income (94,725) - (94,725)
Finance costs 11(a) 466,522 (51,645) 414,877
Net loss before taxes 1,194,032 913,353 2,107,385
Future income tax
recovery 11(d) (1,000) 1,000 -
Loss for the period 1,193,032 914,353 2,107,385
Foreign exchange
(gain) loss 11(b) - (425,918) (425,918)
on translation of
foreign operation
Total comprehensive loss $ 1,193,032 $ 488,435 $ 1,681,467
Year Ended December 31, 2008
GAAP Effect of
Transition to
IFRS IFRS
Expenses
Accounting, audit and legal $ 576,330 $ - $ 576,330
Amortization 61,140 - 61,140
Conference and travel 421,469 - 421,469
Consulting 309,377 - 309,377
Exploration 341,943 (9,172) 332,771
Foreign exchange loss (gain) (426,785) 483,429 56,644
Gain on disposal of fixed
assets (5,779) - (5,779)
Office and administration 905,877 - 905,877
Salaries and benefits 3,626,962 - 3,626,962
Share based compensation 5,385,502 - 5,385,502
Shareholders 212,015 - 212,015
communications
Trust and filing 183,311 - 183,311
Net loss from operating
activities 11,591,362 474,257 12,065,619
Equity loss on joint venture - 235,022 235,022
Interest income (179,119) - (179,119)
Finance costs 2,074,424 (225,850) 1,848,574
Net loss before taxes 13,486,667 483,429 13,970,096
Future income tax recovery (1,000) 1,000 -
Loss for the period 13,485,667 484,429 13,970,096
Foreign exchange (gain) loss - (129,684) (129,684)
on translation of foreign
operation
Total comprehensive loss $13,485,667 $ 354,745 $ 13,840,412
Notes to Reconciliations
(a) Basis of Consolidation
Under GAAP, the Company accounted for its 50% interest in GPM as a variable
interest entity. However, the Company is not considered the primary beneficiary
and therefore accounted 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
transition to IFRS, the Company has determined that GPM is not a SPE and that
the Company has joint control of GPM. Accordingly, under IFRS, the Company can
elect to use either the equity method or proportionate consolidation method to
account for its interest in GPM.
The Company has elected to continue using the equity method of accounting for
Anooraq`s interest in GPM. Therefore, other than an adjustment related to
foreign currency discussed below, there was no impact on the opening balance
sheet at the Transition Date or on the consolidated balance sheet at December
31, 2008 other than the effect of the foreign currency translation adjustment
noted below. The Company`s equity investment in joint venture is now presented
separately on the balance sheet rather than included in mineral property
interests.
(b) Functional Currency
Under GAAP, all the Company`s subsidiaries were integrated foreign operations.
Therefore monetary items were translated at period end rates and non-monetary
items were translated at average rates with all foreign currency gains and
losses recognized in profit or loss. IFRS requires that the functional currency
of each subsidiary of the Company be determined separately.
It was deter mined that as at the Transition Date, the Canadian dollar was the
functional currency of all subsidiaries except Plateau and GPM, 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 shareholder`s
equity, to deficit on the Transition Date.
(c)Share-based Payment
Under GAAP, the Company measured share-based compensation related to share
options at the fair value of the options granted using the Black-Scholes option
pricing formula and recognized this expense over the vesting period of the
options. For the purpose of accounting for share-based payment transactions, an
individual was classified as an employee when the individual was consistently
represented to be an employee under law. The fair value of the options granted
to employees was measured on the date of grant. The fair value of options
granted to contractors and consultants (non- employee) were measured on the
date the services were completed. Forfeitures were recognized as they occurred.
IFRS 2, similar to GAAP, requires the Company to measure share-based payment
transactions related to share 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 share-based compensation be measured at the fair value of the
services received unless the fair value 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 previously
applied by the Company and resulted in certain contractors and consultants
being classified as employees under IFRS. However, the Company has determined
that no adjustments was required at the Transition Date on March 31, 2008 or
for the year ended December 31, 2008.
(d) Deferred tax on mineral properties
Under GAAP, in determination of the net loss from its interest in GPM, the
Company recognized future income taxes on temporary differences arising on the
initial recognition of the GPM mineral property interest (where the fair value
of the asset acquired exceeded its tax basis) in a transaction which was not a
business combination and affected neither accounting profit (loss) nor taxable
profit (loss). IAS 12, Income Taxes ("IAS 12"), does not permit the recognition
of deferred taxes on such transactions.
As of the Transition Date, March 31, 2008, and December 31, 2008, the Company
has derecognized the impacts of all deferred taxes which had previously been
recognized on the initial acquisition of the mineral properties through
transactions deemed not to be business combinations and affecting neither
accounting profit (loss) nor taxable profit (loss).
(e) Presentation
Certain amounts on the balance sheet, Statement of comprehensive loss and
Statement of cash flows have been reclassified to conform to the presentation
adopted under IFRS.
MANAGEMENT`S DISCUSSION AND ANALYSIS
TABLE OF CONTENTS
1.1 DATE......................................................................2
1.2 OVERVIEW .................................................................3
1.3 SELECTED ANNUAL INFORMATION..............................................16
1.4 SUMMARY OF QUARTERLY RESULTS ............................................17
1.5 RESULTS OF OPERATIONS ...................................................18
1.6 LIQUIDITY ...............................................................19
1.7 CAPITAL RESOURCES .......................................................20
1.8 OFF-BALANCE SHEET ARRANGEMENTS...........................................20
1.9 TRANSACTIONS WITH RELATED PARTIES .......................................21
1.10 FOURTH QUARTER .........................................................21
1.12 CRITICAL ACCOUNTING ESTIMATES...........................................21
1.13 CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION ..............23
1.14.FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS 27
1.15. OTHER MD&A REQUIREMENTS 28
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 year ended December
31, 2008 and the unaudited condensed interim consolidated financial Statements
for the three months ended March 31, 2009, and are publicly available on SEDAR
at www.sedar.com.
As of January 1, 2009, the Company adopted International Financial Reporting
Standards ("IFRS") and the following disclosure, and associated condensed
interim financial Statements, are presented in accordance with the
International Accounting Standard 34, Interim Financial Reporting. The
comparative periods for fiscal 2008 have been restated in accordance with IFRS.
This MD&A is prepared as of May 14, 2009. All dollar figures stated herein are
expressed in Canadian dollars, unless otherwise specified.
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 recognised 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 mineralised 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 mineralised 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 Igneous Complex of the Republic of South
Africa. The Bushveld Complex hosts numerous PGM mines and prospects, mainly
within the UG2 Reef, the Merensky Reef and the Platreef mineralised horizons.
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"), 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,
which was subsequently amended on May 13,2009 as described below.
Subsequent to the end of the third quarter of 2008, the deterioration of global
economic conditions 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.
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 ("the Parties") also reviewed the final terms
of the Lebowa Transaction, and its associated financing strategy. The revised
terms were announced on May 14, 2009. Implementation is subject to several
conditions precedent. The Parties have agreed on an outside date of June 30,
2009 for the fulfilment or waiver of the conditions to the Lebowa Transaction.
1.2.1 Lebowa Transaction
On March 28, 2008, Anooraq, through Plateau, entered into acquisition
agreements, as amended on May 13, 2009 (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.
On April 14, 2008, detailed commercial terms of the Lebowa transaction were
announced. Since 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 commodity-focused share prices. The deterioration in
credit and equity market conditions has also increased the cost of obtaining
capital and limited the availability of funds. On October 23, 2008, Anglo
Platinum announced that it was reviewing the costing and scheduling of all its
capital projects in light of current metal price levels and uncertainty in
global markets. Anglo Platinum and Anooraq jointly agreed to review the current
Anglo Platinum approved mine plan and capital program at Lebowa. As a result of
these developments, the Parties undertook to review the terms of the Lebowa
Transaction.
On May 14, 2009 the Parties announced that in light of these recent
developments, and to ensure the sustainability of the Lebowa Transaction, the
Parties have renegotiated the consideration payable ("Transaction
Consideration") from ZAR 3.6 billion to ZAR 2.6 billion ($500 million to $360
million), with Anglo Platinum agreeing to effectively re-invest a portion of
such consideration in order to share in expected future equity upside. The
parties have agreed on an outside deadline of June 30, 2009 for the fulfilment
or waiver of the conditions to the Lebowa Transaction.
Pursuant to the terms of the Acquisition Agreements, Anooraq will acquire 51% of
the shares in, and claims on shareholders loan account against, Richtrau No. 179
(Proprietary) Limited, a private company incorporated under the laws of South
Africa, 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 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 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 (Anooraq completed its due diligence in
April 2008);
2. the approval of the South African Competition Authorities, which approval
was obtained on July 31, 2008 and April 29, 2009;
3. the consent of the United Kingdom Treasury for Anglo Platinum to undertake
the transaction;
4. Anooraq and Plateau obtaining sufficient financing to fund the Lebowa
Transaction purchase price;
5. the approval of the shareholders of Anooraq of the Lebowa Transaction and
related transactions;
6. approval of the Lebowa Transaction and of certain transfers of mineral
title relating to the Ga-Phasha, Boikgantsho and Kwanda Projects by the South
African Department of Minerals and Energy ("DME"); and
7. other regulatory approvals including, where necessary, the Exchange Control
department of South African Reserve Bank, the JSE Limited, the TSX Venture
Exchange ("TSX-V") and the NYSE Amex (formerly the American Stock Exchange).
Lebowa Transaction Funding
Plateau has agreed to financing terms with Standard Chartered Bank plc ("SCB")
to provide ZAR 750 million ($104 million) of senior debt funding for the Lebowa
Transaction, of which ZAR 500 million ($69.1 million) will be immediately
available for drawdown to settle a portion of the Transaction Consideration
("SCB Debt Facility") and the balance will be utilised during the first 3-years,
wherein no capital and/or interest repayments are due ("3-years Capital
Holiday").
Pursuant to a term sheet dated May 13, 2009, Anglo Platinum has agreed to
provide vendor financing for the balance of the Transaction Consideration. This
vendor finance facility consists of a ZAR 1.219 billion cash component and the
ZAR 1.1 billion Share Settled Financing, as follows:
Fixed component: Plateau will raise ZAR 1.219 billion ($170 million) through the
issue of cumulative redeemable "A" preference shares ("A" Prefs") to Rustenburg
Platinum Mines Limited ("RPM", a wholly owned subsidiary of Anglo Platinum) in
terms of the "A" Preference Share Facility; and
Variable component: Plateau will raise ZAR 1.1 billion ($150 million) through
the issue of cumulative convertible "B" preference shares ("B" Prefs"), through
a wholly owned subsidiary of Pelawan, to RPM in terms of the "B" Preference
Share Facility.
Anooraq will also raise ZAR 115.8 million ($16 million) pursuant to an equity
subscription by the ESOP Trust and the Communities Trust (as described below).
Cash proceeds received by Plateau will be used to settle transaction costs, fund
Anooraq working capital and settle the Transaction Consideration. In addition,
in order to ensure the sustainability of Anooraq and Lebowa Holdco, Anglo
Platinum will make two further facilities available to Plateau:
- an operating cash flow shortfall facility ("OCSF") of up to a maximum of
ZAR 750 million ($104 million), which Plateau may utilise to fund its share of
any operating cash flow shortfall that may arise in HoldCo for the first three
years post closing of the Transaction ("Closing Date"); and
- a standby facility up to a maximum of 29/49 of RPM`s attributable share of
the free cash flows from HoldCo, which Plateau may utilise to fund any cash flow
shortfall that may arise in funding any accrued and capitalised interest and
scheduled capital payments on the SCB Debt Facility for the term of the SCB Debt
Facility.
The overall impact of these measures is that Anooraq has fully secured financing
for the Transaction, while maintaining its historically disadvantaged South
African ("HDSA") controlled status.
Other Commercial Terms 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.
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 Trust ("ESOP
Trust") is a share ownership trust, to be established for the benefit of
eligible Lebowa employees, to which Anglo Platinum will contribute an amount of
approximately ZAR 45.6 million (6.3 million). A portion of this funding will be
retained by the ESOP Trust to facilitate annual cash payments to beneficiaries
with approximately ZAR 36.5 million ($5 million) to be used to subscribe for
Common Shares in Anooraq. The final amount of funding to be contributed to the
ESOP Trust will vary 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 ($14.3 million). A portion of this funding will
be retained by the Community Trust to facilitate annual cash payments to the
communities with ZAR 79.3 million ($11 million) to be used to subscribe for
Common Shares in Anooraq.
The purpose of the ESOP Trust 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 Trust and Community Trust, Anooraq
will receive proceeds of approximately ZAR 115.8 million ($16.0 million).
The ESOP Trust and Community Trust will subscribe for the Common Shares in
Anooraq, at a subscription price of $1.11, 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 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 its beneficiaries in accordance with
its governing trust deed. The issuance to or purchase by the ESOP Trust of
Common Shares is subject to regulatory approvals.
Lebowa Technical Information
Overview
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. The Lebowa Transaction will result in the Company
controlling refined production of 147,600 platinum+palladium+rhodium+gold ("4E")
ounces (based on 2008 production at Lebowa from 1.1 million tonnes of ore
milled) and a significant resource base of approximately 200 million PGM ounces,
the third largest PGM resource base in South Africa.
Anooraq and Anglo Platinum are of the view that current production levels at
Lebowa should be increased on a phased basis in recognition of the quality and
size of the significant Lebowa resource. In light of the joint review
undertaken in respect of Lebowa, Anooraq and Anglo Platinum have determined to
implement an initial approach at Lebowa by:
extending current Merensky production at the Vertical shaft and UM2 incline
shaft, at the same time as the Merensky production profile at the new
Brakfontein decline shaft system ramps up to steady state production of
approximately 120,000 tpm. Once the Brakfontein Merensky production is at
steady state, production from the Vertical and UM2 shafts will be phased out to
completion; and
retaining the existing UG2 production levels at Middelpunt Hill (approximately
45,000 tpm) and deferring the Middelpunt Hill Delta 80 expansion project ("MPH
Delta 80 project").
Once the initial phase has been implemented, the parties intend to increase the
existing UG2 production profile to approximately 125,000 tpm at steady state
through the implementation of the MPH Delta 80 project commencing in 2016, and
thereby increasing Lebowa production to 245,000 tpm at steady state by 2019.
The revised plan will be reviewed by Anglo Platinum and Anooraq on a regular
basis in terms of current and estimated future market conditions.
Initial Technical Review - reported in April 2008
Anooraq commissioned an initial technical review of Lebowa by Snowden Mining
Industry Consultants ("Snowden") in 2008 that supported an investment by Anooraq
in Lebowa. A technical report on the initial review by Snowden was filed on
www.sedar.com in April 2008.
Update based on Joint Technical Review - reported May 2009
Based on the changing economic conditions and metal price environment, Anooraq
and Anglo Platinum undertook the joint technical review of Lebowa in which the
Anglo Platinum-approved mine plan and capital program for Lebowa was re-assessed
and a revised plan developed.
Anooraq engaged Deloitte Mining Advisory Services ("Deloitte") to update April
2008 technical review based on this new work and revised plan.
Deloitte`s May 2009 Technical Report ("TR") has been filed on www.sedar.com.
The technical review confirmed the following Mineral Reserves and Resources,
published by Anglo Platinum in their 2008 annual report and tabulated below,
subject to certain qualifications as detailed in the TR.
December 2008 Mineral Reserves
Category Tonnage 4E grade 4E
(Mt) (g/t) contained
metal
(Moz)
Merensky Proven 21.71 4.34 3.03
Reef
Probable 5.43 4.16 0.73
Total 27.14 4.31 3.76
Reserve
UG2 Reef Proven 32.10 5.43 5.60
Probable 9.10 5.17 1.50
Total 41.20 5.37 7.10
Reserve
Notes: The Mineral Reserves stated are for 100% of Lebowa. Anooraq`s
interest would be 51% of the above Mineral Reserves once the transaction is
completed.
Mineral Reserves are exclusive of Mineral Resources. Tonnes and ounces have been
rounded and this may have resulted in minor discrepancies.
The 4E elements are the sum of platinum (Pt), palladium (Pd), rhodium (Rh) and
gold (Au).
Only Measured and Indicated Resources have been converted to Mineral Reserves.
Mineral Reserve grade is based on the hoisted ore grade.
The Mine Call Factors used in the estimations of Proven and Probable Reserves
are 97% and 98%, respectively.
December 2008 Mineral Resources
Category Tonnage 4E 4E Pt Pd Rh Au
(Mt) grade contained grade Grade grade grade
(g/t) metal (g/t) (g/t) (g/t) (g/t)
(Moz)
Merensky Reef
Measured 25.92 5.64 4.71 3.63 1.5 0.21 0.30
Indicated 27.39 5.51 4.85 3.46 1.52 0.20 0.33
Measured and 53.31 5.58 9.56 3.54 1.51 0.20 0.32
Indicated
Inferred 102.9 5.30 17.53 3.34 1.45 0.20 0.31
UG2 Reef
Measured 108.5 6.60 23.03 2.70 3.23 0.55 0.12
Indicated 71.91 6.56 15.18 2.70 3.20 0.53 0.13
Measured and 180.38 6.58 38.21 2.70 3.22 0.54 0.12
Indicated
Inferred 145.00 6.61 30.82 2.72 3.23 0.53 0.13
Notes: The Mineral Resources stated are for 100% of Lebowa. Anooraq`s
interest would be 51% of the above Mineral Resources once the transaction is
completed.
Mineral Resources are exclusive of Mineral Reserves.
Tonnes and ounces have been rounded and this may have resulted in minor
discrepancies.
The 4E elements are platinum (Pt), palladium (Pd), rhodium (Rh) and gold (Au).
A measured and indicated resource cutoff grade was applied as follows: UG2 1.06
g/t 4E; Merensky: 0.98 g/t 4E.
The UG2 Resources include areas of bifurcated UG2 reef.
Approach to the technical review and report
The technical report ("TR"), written in compliance with National Instrument 43-
101 and the Canadian Institute and Mining and Metallurgy ("CIM") Definition
Standards, describes the Lebowa mineral exploration, development and mining
production. The TR is based on Deloitte`s detailed technical review of work
performed by others. The TR was completed by the following independent
qualified persons, who have reviewed the contents of this release: J.
Schweitzer, Pr.Sci.Nat., FSAIMM and S. de Waal, Pr.Sci.Nat., (geology,
mineralization and mineral resources), G. Guler, PrEng, FSAIMM, MAusIMM
(mineral reserves and mine planning), T. Naidoo, Pr.Sci.Nat. (exploration,
drilling, sampling and data verification), and P. Kramers, PrEng., FSAIMM
(mineral processing and metallurgical testing).
Both the 2007 and 2008 Mineral Resource and Reserve estimates were compiled by
Anglo Platinum personnel, who have stated that the estimates are in accordance
with the Australasian Code for the Reporting of Mineral Resources and Mineral
Reserves ("JORC 2004") and with the South African Code for Reporting of Mineral
Resources and Mineral Reserves ("SAMREC 2007"). In the opinion of Deloitte,
there would not be a material difference in the estimations if done under CIM
2005.
Deloitte has accepted Anglo Platinum`s Mineral Resource and Reserve estimates,
subject to certain qualifications as detailed in the TR. In the qualified
persons` opinions, these qualifications will not have a material effect on
future mineral resource estimates, as indicated in the TR.
Results of the technical review - Economic analysis
The economic analysis undertaken for the technical review used South African
Rand ("ZAR") as the base currency and takes into consideration relevant taxes
and royalties. The technical review used projected metal prices based on analyst
consensus estimates to 2012 resulting in the following average price forecast
over the next five years:
Metal Prices 2009 2010 2011 2012 Trend
(Real
2008)
Platinum Nominal 1052 1237 1369 1398 1339
(US$/oz)
Palladium Nominal 235 293 349 363 378
(US$/oz)
Rhodium Nominal 2831 3421 4049 4436 3700
(US$/oz)
Nickel Nominal 5.6 6.7 7.5 7.9 7.2
(US$/lb)
Copper Nominal 1.9 2.3 2.7 2.6 1.9
(US$/lb)
Following is the weighted unit revenue for the 4E basket of metals for the first
four years of production.
2009 2010 2011 2012 LOM
(34
years)
4E basket US$/oz nominal 753 888 999 1035
real 753 868 950 956 967
Exchange ZAR/US$ nominal 9.67 9.42 9.43 9.81
rate
real 9.67 9.21 9.02 9.17 9.60
4E basket ZAR/kg nominal 234,238 268,718 302,764 326,336
real 234,238 256,901 275,404 281,904 297,371
SA CPI 0.0% 4.6% 5.1% 5.3%
US CPI 0.0% 2.3% 2.8% 2.9%
Tax and Royalties
The current South African Income Tax regime for companies applies to Lebowa and
the Discounted Cash Flow ("DCF") model therefore includes the following tax
regime:
Company income tax rate of 28 % on taxable income.
Secondary tax on companies, a tax on dividends declared, of 10 %.
A withholding tax of 10 % for dividends payable to non-residents.
The South African mining sector enjoys immediate tax relief on capital
expenditure i.e. capital expenditure can be off-set against gross profit in the
year it is incurred (or can be carried forward to create a tax shield) i.e.
capital expenditure is not depreciated or amortised for tax purposes.
The South Africa Royalty Act, which has been deferred for a year, was used as a
basis for calculating estimated Royalties. The DCF uses the third and final
draft average rate to calculate royalties payable to the State, which is based
on gross sales less allowable beneficiation related expenses and transport
expenses between the seller and buyer of the final product. The effective
royalty rate over the Lebowa Life of Mine ("LOM") is 5.6%.
Certain additional mineral resources, that had been the subject of
prefeasibility-level studies and hence could be considered mineral reserves but
not included in "approved mine plans" by Anglo Platinum, have been used for the
economic analysis. This includes 25.7 million tonnes at an average 4E grade of
5.39 g/t from the Brakfontein UG2 Project.
The table below shows the real term financial indicators of the revised plan
over the expected first 34 years of the LOM at Lebowa.
Units Total Units Total
Material Treated Tonnes 92,740,000 Tonnes 92,740,000
Grade (4E head grade) 4E g/t 5.06 4E g/t 5.06
PGM produced 4E oz 13,684,167 4E oz 13,684,167
Revenue ZAR 126,749 CAD 17,507
millions millions
Gross revenue ZAR 134,226 CAD 18,540
millions millions
Royalties ZAR -7,477 CAD -1,033
millions millions
Operating cost ZAR 64,067 CAD 8,849
millions millions
Unit operating cost ZAR/t 703.34 CAD/t 97.15
Gross profit ZAR 62,682 CAD 8,658
millions millions
Capital Cost (CAPEX) ZAR 12,468 CAD 1,722
millions millions
Real term tax ZAR 14,937 CAD 2,063
millions millions
Effective tax rate % 22.00 % 22.00
Working CAPEX ZAR 1,303 CAD 180
millions millions
Net profit (after ZAR 33,974 CAD 4,693
working CAPEX) millions millions
Margin % 24.70 % 24.70
Cashflow, Net Present Value and Sensitivities
Based on the assumptions stipulated above, the DCF analysis at Lebowa for the
first 34 years of mine plan, yields Net Present Values ("NPV") at a 7.5%
discount rate of ZAR 9,290 million (C$1,283 million).
Sensitivities were calculated in the DCF model for revenue, operating costs and
working costs. The valuation is most sensitive to a change in revenue. A 10.0%
decrease in revenue results in a 28% decrease in value in the case of NPV at a
discount rate of 7.5%. The valuation is not particularly sensitive to capital
expenditure. An increase in capital of 10 % decreases the value by just 4.0% in
the case of NPV at a discount rate of 7.5%. The valuation is sensitive to a
variance in operating costs. An increase of 10.0 % decreases the NPV by 14.1% in
the case of NPV at a discount rate of 7.5%.
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.
The Ga-Phasha Project has PGM mineral resources outlined in the Merensky and
UG2 reef deposits. Prior to the involvement of Anooraq, Anglo Platinum (and
others) carried out extensive drilling as well as preliminary engineering and
mine planning studies on the Ga- Phasha Project. This work has continued since
Anooraq acquired its interest in 2004.
Anooraq and Anglo Platinum undertook a program review between April and October
2006. Several approaches were considered to optimize mining of the deposits at
the Ga-Phasha Project. The review confirmed that the UG2 deposit would remain
the primary focus for development, and the Merensky deposit warrants further
study through additional drilling. Engineering and other work directed toward
completion of a pre-feasibility was initiated in late 2006. Since that time,
studies on mining method and infrastructure have been underway. Socio- economic
and environmental studies have also been done.
Once the Lebowa Transaction is complete, the potential for synergies between
the Ga-Phasha Project and Lebowa as well as other opportunities to maximize
efficiencies will be assessed prior to completion of the pre-feasibility study.
1.2.3 Platreef Project, Northern Limb
Anooraq holds interests in mineral rights (or "farms") over 37,000 hectares
that make up the Boikgantsho and Kwanda JV Projects, and the Rietfontein and
Central Block properties. Collectively, these properties are known as the
Platreef Project.
1.2.4 Boikgantsho Joint Venture 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 ($3.9 million), comprising 49%
of the total exploration expenditure incurred by Anooraq at the Boikgantsho
Project to date.
Project Activities
The objective of the Boikgantsho Project is to explore and develop PGM
deposits. Drilling in 2004 under the JV expanded the Drenthe deposit and
resulted in the discovery of the Overysel North deposit.
In March 2005, Anooraq completed a preliminary economic assessment of a
potential open pit development on the Drenthe and Overysel North deposits. The
preliminary assessment indicates favorable financial results for an open pit
and conventional mill operation. Further details are provided in a technical
report filed at www.sedar.com. As the preliminary assessment is based, in part,
on inferred resources that are geologically speculative, there is no certainty
that the economic considerations or results will be realized.
Anooraq completed an additional 24,000 meters of drilling on the Drenthe
deposit in 2005. The program tested the entire area within the provisional open
pit design for the Drenthe deposit that was used for the March 2005 preliminary
assessment. The program confirmed the continuity of the PGM mineralization
within the Drenthe deposit. A pre-feasibility study was initiated in 2005 but
work on the study has since been deferred as the Company focused on the
Ga-Phasha Project and the Lebowa Transaction.
Planning is underway to resume work on the Boikgantsho Project technical
program and studies.
1.2.5 Market Trends
The average ZAR: Canadian Dollar exchange rate for the three months ended March
31, 2009 was ZAR 7.56 with the closing rate at three months end at ZAR 7.99. 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 three months to
December 31, 2008 was US$1583/oz and platinum closed at US$899/oz on December
31, 2008. The average price to March 27, 2009 was 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 due to consumers
substituting palladium for platinum. The average price in the three months to
December 31, 2008 was US$355/oz, closing on US$184/oz at three months end. The
average price to March 27, 2009 was US$198/oz.
Gold prices have been on an uptrend for the past 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, 2008.
Prices have been more volatile but generally stronger than most other
commodities since that time and have averaged US$879/oz for the three months
ended December 31, 2008. The average price to March 27, 2009 was US$907/oz.
1.3 Selected Annual Information
For the year ended December 31, 2008, the consolidated financial Statements
have been restated in accordance with IFRS. The consolidated financial
Statements for the two prior years have been prepared in accordance with
Canadian generally accepted accounting principles ("Canadian GAAP"). All
figures are expressed in Canadian dollars, except per share amounts.
Restated as per As per Canadian GAAP
IFRS
As at As at As at
December 31 December 31 December 31
2008 2007 2006
Other assets $ 2,057,594 $ 105,494 $ 411,167
Mineral property interests 4,200,000 9,078,714 8,240,751
Investment in joint venture 2,518,971 - -
Current assets 4,122, 228 7,769,155 13,177,004
Total assets 12,898,793 16,953,363 21,828,922
Shareholders` (deficiency)
equity (3,603,462) 4,733,819 8,976,101
Long term liabilities 12,967,753 9,806,636 11,818,677
Current liabilities 3,534,502 2,412,908 1,034,144
Total liabilities and
shareholders` equity $ 12,898,793 $ 16,953,363 $ 21,828,922
Working Capital
Expenses
Legal, accounting and audit $ 576,330 $ 416,745 $ 690,132
Accretion on term loan - 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 332,771 852,891 720,463
Foreign exchange 56,644 (588,115) (34,817)
Gain on disposal of equipment (5,779) - (41,291)
Interest expense 1,848,574 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
Shareholders communications 212,015 258,882 289,824
Trust and filing 183,311 269,503 415,440
Subtotal 8,349,572 5,727,612 4,601,498
Stock based compensation 5,385,502 8,707,519 24,346
Equity loss on joint venture 235,022 - -
Future income tax recovery - (139,000) (121,000)
Loss for the year $ 13,970,096 $ 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.
In Accordance with IFRS
Mar 31 Dec 31 Sep 30 Jun 30 Mar 31
2009 2008 2008 2008 2008
Current assets 2,286 4,122 1,445 1,518 3,070
Mineral properties 4,200 4,200 4,200 6,836 4,200
Investment in joint
venture 2.474 2,518 2,836 2,636 2,932
Other assets 2,062 2,058 2,031 1,739 1,012
Total assets 11,022 12,898 10,512 10,093 11,214
Current liabilities 3,586 3,534 2,191 1,418 977
Long term
liabilities 13,209 12,968 8,722 8,930 8,615
Shareholders`
(deficit) equity (5,773) (3,604) (761) (255) 1,622
Total liabilities
and shareholders`
equity 11,022 12,898 10,512 10,093 11,214
Working Capital (1,300) 588 (746) 100 2,093
Expenses
Exploration 27 216 15 60 50
Amortization 28 29 14 10 8
Conference and travel 49 51 128 188 53
Consulting 62 118 62 107 22
Foreign exchange
loss (gain) 1 51 3 - 2
Interest on term loan 601 605 518 485 415
Interest expense
(income) (50) (31) (12) (41) (94)
Accounting, audit
and legal 61 95 368 35 79
Gain on disposal of
fixed asset - - - (6) -
Rent received (14) - - - -
Office and
administration 233 237 204 288 176
Salaries and
benefits 798 1,126 797 690 1,016
Shareholder
communications 36 51 63 54 44
Trust and filing 75 (19) 14 26 162
Subtotal 1,907 2,529 2,174 1,896 1933
Equity loss from
joint venture 106 112 119 158 51
Stock-based
compensation -
office and
administration 51 74 78 5,111 122
Foreign currency
translation loss (gain) 157 316 (90) 181 (425)
Future income tax
expense (recovery) - - - - -
Loss for the period 2,221 3,031 2,281 7,346 1,681
Basic and diluted
loss per share 0.01 0.01 0.01 0.04 0.01
Weighted average
number of common
shares outstanding
(thousands) 186,640 185,775 185,978 185,254 185,218
As per Canadian GAAP
Dec 31 Sep 30 Jun 30
2007 2007 2007
Current assets 7,769 9,296 10,462
Mineral properties 9,079 9,078 8,333
Investment in joint venture - - -
Other assets 106 103 72
Total assets 16,954 18,478 18,867
Current liabilities 2,413 2,934 1,285
Long term liabilities 9,807 8,574 10,246
Shareholders` (deficit) equity 4,734 6,967 7,335
Total liabilities and
shareholders` equity 16,954 18,478 18,867
Working Capital 5,356 6,362 9,177
Expenses
Exploration 764 16 45
Amortization 9 6 4
Conference and travel 341 29 19
Consulting 62 30 7
Foreign exchange loss (gain) (69) (192) (65)
Interest on term loan 648 465 542
Interest expense (income) (234) (103) (212)
Accounting, audit and legal 229 47 37
Gain on disposal of fixed asset - - -
Rent received - - -
Office and administration 172 78 111
Salaries and benefits 566 488 634
Shareholder communications 66 60 74
Trust and filing 39 31 57
Subtotal 2,593 955 1,253
Equity loss from joint venture - - -
Stock-based compensation -
office and administration 8,707 - -
Foreign currency translation loss (gain)
Future income tax expense (recovery) (137) - (1)
Loss for the period 11,163 955 1,252
Basic and diluted loss per share 0.06 0.01 0.01
Weighted average number of
common shares outstanding (thousands) 184,823 184,770 154,822
1.5 Results of Operations
Three months ended March 31, 2009
The company incurred a net loss of $2,064,014 for the three months ended March
31, 2009 compared to a loss of $2,107,385 for the three months ended March 31,
2008. The decrease in the loss for the three months resulted primarily from a
lower share based compensation charge of $51,459 as compared to $122,318 in the
same period in 2008 due to fewer share options issued and a reduction in
exploration costs and lower personnel costs of $798,753 for the three months
ended March 31, 2009 as compared to $1,015,562 in the previous year. The
reduction in the loss was partially offset by and an increase in office and
administration costs mainly due to rental of premises relating to the South
African operation and an increase in finance costs.
Exploration expenditures decreased in the three months ended March 31, 2009 to
$27,192 as compared to $50,539 incurred for the three months ended March 31,
2008. 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 March 31, 2009 amounted to
$60,590 in comparison to $79,429 for the same period in 2008 mainly due to
lower cost incurred as all advisory fees and costs incurred relating to the
Lebowa transaction are capitalised. Legal and advisory fees for the three
months ended March 31,2009, of approximately $31,155 relating to the Lebowa
transaction has been capitalised to deferred acquisition costs as they will be
included in the cost of acquisition when the transaction completes. The delay
in implementation of the transaction also impacted these expenses as
documentation was updated in conjunction with the revision and postponement of
the closing dates of the transaction.
Office and administration for the three months ended March 31, 2009 amounted to
$232,757 in comparison to $176, 372 spent for the three months ended March 31,
2008. 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 $48,692 were incurred
during the three months ended March 31, 2009 in comparison to the $52,726
incurred during for the same period of fiscal 2008 largely due to reduced
overseas travelling by management and a decrease in attendance at industry
conferences.
Consulting costs for the three months ended March 31, 2009 increased to $62,036
in comparison to $21,982 spent for the same period of fiscal 2008 largely due
to tax related consulting expenses associated with revised reporting
requirements in the United States. Salaries and benefits amounted to $798,753
in the three months ended March 31, 2009 in comparison to $1,015,562 for the
three months ended March 31, 2008. The decrease is due to the decrease in staff
and the partial payment of the incentive bonuses associated with the Lebowa
transaction during the three months ended March 31, 2008.
Trust and filing for the three months ended March 31, 2009 decreased to $75,093
in comparison to $162,847 incurred for the three months ended March 31, 2008
primarily as a result of decreased expenditure relating to the Company`s
various stock exchange listings.
The Company recorded finance costs of $600,866 for the three months ended March
31, 2009 in comparison to $414,877 incurred for the same period of fiscal 2008.
The interest expense is mainly due to accrued interest on the Company`s term
loan with Rustenburg Platinum Mines Limited, which was increased in November
2008. The decreased prime overdraft rate of 13% was partially offset by the
strengthening of the South African rand against the Canadian dollar.
Prime overdraft interest rates declined to 13% in the first quarter of 2009 and
are expected to decrease further in the coming months.
Interest income amounted to $50,277 for the three months ended March 31, 2009,
in comparison to $94,725 for the same period of fiscal 2008 as a result of
lower cash balances.
1.6 Liquidity
At March 31 2009, working capital was a deficit of $1,300,092 compared to a
deficit of $587,726 as at December 31, 2008 inclusive of the current portion of
the RPM loan. Working capital excluding the current portion of the RPM loan was
$951, 994 compared to $2,323,389 at December 31, 2008.
The Company reached 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.
The Company is currently in the process of completing the proposed Lebowa
transaction whereby it will acquire an operating mine which would result in
immediate cash flows 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 7.56 the closing rate in effect on March 31, 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 18.6M 3.6M 15M
Operating lease obligations 1.45M 0.25M 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 March 31, 2009.
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 March 31, 2009.
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 three months ended
March 31, 2009 services rendered by HDSI were $227,303 as compared to $334,634
for the three months ended March 31, 2008.
During the three months ended March 31, 2009, the Company paid or accrued $nil
(three months ended March 31, 2008 - $4,928) to CEC Engineering Ltd, a private
company owned by a former director, for engineering and project management
services at market rates.
1.10 Fourth Quarter
Not applicable.
1.11 Proposed Transaction
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 condensed consolidated interim financial Statements for the
three months ended March 31, 2009, 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 the condensed interim financial Statements in accordance with
International Accounting Standard 34, Interim Financial Reporting ("IAS 34"),
using accounting policies consistent with International Financial Reporting
Standards ("IFRS") and Interpretations of the International Financial Reporting
Interpretations Committee ("IFRIC"), requires management to make judgments,
estimates and assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. These estimates
include:
- mineral resources and reserves,
- carrying value of the investment in the Pebble Partnership;
- property, plant and equipment (including depreciation);
- impairment testing;
- the calculation of share based payments; and
- asset retirement obligations;
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 recognised 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 capitalised
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 due principally to 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 a 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.
Decommissioning
Upon the completion of any mining activities, the Company will ordinarily be
required to undertake environmental reclamation activities in accordance with
local and/or industry standards. The estimated costs of these reclamation
activities are dependent on labour costs, the environmental impacts of the
Company`s operations, the effectiveness of the chosen reclamation techniques,
and applicable government environmental standards. Changes in any of these
factors could cause a significant change in the reclamation expense charged in
a period.
Share-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 share-based compensation
expense charged in a period.
1.13 Changes in Accounting Policies including Initial Adoption
Transition to and Initial Adoption of International Financial Reporting
Standards ("IFRS") Effective January 1, 2009 the Company early adopted IFRS
following the exemption received from the applicable Canadian Securities
Administrators under National Instrument 52-107, Acceptable Accounting
Principles, Auditing Standards and Reporting Currency ("NI 52-107") on March 2,
2009.
The consolidated interim financial Statements for the three months ended March
31, 2009 have been prepared in accordance with IAS 34, Interim Financial
Reporting, using accounting policies consistent with IFRS and as issued by the
International Accounting Standards Board ("IASB") and interpretations of IFRIC.
These are the Company`s first IFRS consolidated interim financial Statements
for part of the period covered by the first IFRS consolidated annual financial
Statements to be presented in accordance with IFRS for the year ending December
31, 2009. Previously, the Company prepared its consolidated annual and
consolidated interim financial Statements in accordance with Canadian generally
accepted accounting principles ("GAAP"). The preparation of these
consolidated interim financial Statements resulted in changes to the accounting
policies as compared with the most recent annual financial Statements prepared
under GAAP.
The accounting policies as set out in Note 2 of the consolidated interim
financial Statements have been applied consistently to all periods presented in
these financial Statements. Comparative information for the three months ended
March 31, 2008 and financial Statements for the year ended December 31, 2008,
have also been adjusted from amounts previously reported under GAAP.
Impact of IFRS on Our Organization
The conversion to IFRS impacts the way the Company presents its financial
results. The Company has fully prepared and trained its employees and directors
to ensure an appropriate understanding of IFRS during the transition process.
The impact of the conversion to IFRS on the Company`s accounting systems has
been minimal as the Company is still in the exploration phase. The Company`s
internal and disclosure control processes, as currently designed, have not
required significant modifications as a result of its conversion to IFRS. The
Company has assessed the impacts of adopting IFRS on our contractual
arrangements, and has not identified any material compliance issues. The
Company has considered the impacts that the transition will have on our
internal planning process and compensation arrangements and has not identified
any significant impacts.
First Time Adoption of IFRS
The guidance for the first time adoption of IFRS is set out in IFRS 1, First
Time Adoption of International Financial Reporting Standards. IFRS 1 provides
for certain mandatory exceptions and optional exemptions for first time
adopters of IFRS. The Company elected to take the following IFRS 1 optional
exemptions:
- to apply the requirements of IFRS 3, Business Combinations, prospectively
from January 1, 2008, the "Transition Date";
- to apply the requirements of IFRS 2, Share-based payments, only to equity
instruments granted after November 7, 2002 which had not vested as of the
Transition Date; and
- to transfer all foreign currency translation differences, recognised as a
separate component of equity, to deficit as at the Transition Date including
those foreign currency differences which arise on adoption of IFRS.
An explanation of how the transition from previous Canadian GAAP to IFRS has
affected the Company`s financial position, financial performance and cash flows
is set out in Note 11 of the consolidated interim financial Statements and also
discussed below:
Basis of Preparation
The consolidated interim financial Statements have been prepared on a
historical cost basis except for financial instruments classified as available
for sale, which are stated at their fair value.
The preparation of interim financial Statements in conformity with IAS 34,
Interim Financial Reporting, requires management to make judgments, estimates
and assumptions that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. Actual results may differ from
these estimates. These consolidated interim financial Statements do not include
all of the information required for full annual financial Statements.
These consolidated interim financial Statements have been prepared on the basis
of IFRS standards that are effective or available for early adoption by the
Company on December 31, 2009, the Company`s first annual reporting date. The
Company has made certain assumptions about the accounting policies expected to
be adopted when the first IFRS annual financia Statements are prepared for the
three months-ended December 31, 2009.
The preparation of these consolidated interim financial Statements resulted in
changes to the accounting policies as compared with the most recent annual
financial Statements prepared under Canadian GAAP. The accounting policies set
out below have been applied consistently to all periods presented in these
interim financial Statements. They also have been applied in preparing an
opening IFRS balance sheet at January 1, 2008 for the purposes of the
transition to IFRS, as required by IFRS 1. The impact of the transition from
GAAP to IFRS is explained in note 11.
Basis of Consolidation
Under GAAP, the Company accounted for its 50% interest in GPM as a variable
interest entity. However, the Company is not considered the primary beneficiary
and therefore accounted 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 GPM is not a SPE and that
the Company has joint control of GPM. Accordingly, under IFRS, the Company can
elect to use either the equity method or proportionate consolidation method to
account for its interest in GPM.
The Company has elected to continue using the equity method of accounting for
Anooraq`s interest in GPM. Except for the impact of foreign exchange as
discussed below, there was no impact on the opening balance sheet at the
Transition Date or on the consolidated balance sheet at December 31, 2008.
Functional Currency
Under GAAP all of the Company`s subsidiaries were integrated. Therefore all
monetary items were translated at period end rates and non-monetary items were
translated at historical rates with all foreign currency gains and losses
recognised in profit and loss. IFRS requires that the functional currency of
each entity of the Company be determined separately.
It was determined that as at the Transition Date, the Canadian dollar was the
functional currency of all entities in the Company except Plateau and GPM 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, recognised as a separate component of equity to
accumulated loss on the Transition Date.
Share-based Payments
Under GAAP, the Company measured share-based compensation related to
share options at the fair value of the options granted using the Black-Scholes
option pricing formula and recognized this expense over the vesting period of
the options. For the purpose of accounting for share based payment
transactions, an individual was classified as an employee when the individual
consistently represented to be an employee under law. The fair values of the
options granted to employees are measured on the date of grant. The fair value
of options granted to contractors and consultants are measured on the date the
services are completed. Forfeitures are recognized as they occur.
IFRS 2, similar to the GAAP, requires the Company to measure share-based
compensation related to share 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 share-based compensation be measured at the fair value of the
services received unless the fair value 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 previously
applied by the Company and resulted in certain contractors and consultants
being classified as employees under IFRS. However, the Company has determined
that no adjustment was required at the
Transition Date or at March 31, 2009 or for the year ended December 31, 2008.
Deferred Tax on Mineral Properties
Under GAAP, in determination of the net loss from its interest in GPM, the
Company recognised future income taxes on temporary differences arising on the
initial recognition of the GPM mineral property interest (where the fair value
of the asset acquired exceeded its tax basis) in a transaction which was not a
business combination and affected neither accounting profit (loss) nor taxable
profit (loss). IAS 12, Income Taxes ("IAS 12"), does not permit the recognition
of deferred taxes on such transactions.
As of the Transition Date and December 31, 2008, the Company has derecognised
the impacts of all deferred taxes which had previously been recognised on the
initial acquisition of the mineral properties through transactions deemed not
to be business combinations and affecting neither accounting profit (loss) or
taxable profit (loss).
New Standards Not Yet Adopted
Standards and interpretations issued but not yet effective applicable to the
Company:
- Amendments to IFRS 3, Business Combinations
- Amendments to IFRS 5, Non-current Assets Held for Sale and Discontinued
Operations
- Amendments to IAS 16, Property, Plant and Equipment
- Amendments to IAS 27, Consolidated and Separate Financial Statements
- Amendments to IAS 27, Investments in Associates
- Amendments to IAS 31, Interests in Joint Ventures
The Company is evaluating the impact that these standards will have on the
consolidated financial Statements.
1.14 Financial Instruments and Other Instruments
The Company is exposed in varying degrees to a variety of financial instruments
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 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 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.
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 May 14, 2009. These
figures may be subject to minor accounting adjustments prior to presentation in
future consolidated financial Statements.
Exercise
Expiry date price Number Number
Common shares 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 1,410,000 8,061,000
1.15.3 Internal Controls over Financial Reporting Procedures
The Company`s management is responsible for establishing and maintaining
adequate internal controls over financial reporting. Any system of internal
controls over financial reporting, no matter how well designed, has inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial Statement
preparation and presentation.
As of January 1, 2009, the Company early adopted IFRS as its standard for
financial reporting. In connection with the adoption of IFRS, the Company
updated its internal controls over financial reporting, as necessary, to
facilitate the respective IFRS convergence and transition activities performed.
Other than the adoption of IFRS, no other significant changes in internal
controls over financial reporting occurred during the period ended March 31,
2009 that could have materially affected or are reasonably likely to materially
affect the Company`s internal control over financial reporting.
1.15.4 Disclosure Controls and Procedures
The Company has disclosure controls and procedures in place to provide
reasonable assurance that any information required to be disclosed by the
Company under securities legislation is recorded, processed, summarised and
reported within the applicable time periods and to ensure that required
information is gathered and communicated to the Company`s management so that
decisions can be made about timely disclosure of that information.
There have been no significant changes in the Company`s disclosure controls and
procedures during the period ended March 31, 2009 that could significantly
affect disclosure controls and procedures subsequent to the date the Company
carried out its evaluation.
Sandton
18 May 2009
Sponsor: QuestCo Sponsors
Date: 18/05/2009 09:50:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
