| Wed 11 Aug 2010, 15:12 | | EPS - Eastern Platinum Limited - Eastern Platinum Limited management`s |
|
EPS
EPS
EPS - Eastern Platinum Limited - Eastern Platinum Limited management`s
discussion and analysis of financial conditions and results of operations for
the three and six months ended June 30, 2010
EASTERN PLATINUM LIMITED
(Incorporated in Canada)
(Canadian Registration number BC0722783)
(South African Registration number 2007/006318/10)
Share Code TSX: ELR ISIN: CA 2768551038
Share Code AIM: ELR ISIN: CA 2768551038
Share Code JSE: EPS ISIN: CA 2768551038
EASTERN PLATINUM LIMITED MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
2010
The following Management`s Discussion and Analysis ("MD&A") is intended to
assist the reader to assess material changes in financial condition and results
of operations of Eastern Platinum Limited ("Eastplats" or the "Company") as at
June 30, 2010 and for the three and six months then ended in comparison to the
same period in 2009.
In February 2009, the applicable provincial securities commissions granted the
Company exemptive relief to adopt International Financial Reporting Standards
("IFRS") with an adoption date of January 1, 2009 and a transition date of
January 1, 2008.
This MD&A should be read in conjunction with the condensed consolidated interim
financial statements for the three and six months ended June 30, 2010 and
supporting notes. These condensed consolidated interim financial statements
have been prepared using accounting policies consistent with IFRS and in
accordance with International Accounting Standard 34 ("IAS 34") - Interim
Financial Reporting.
In this MD&A, the Company also reports certain non-IFRS measures such as EBITDA
and cash costs per ounce which are explained in Section 3.2 of this MD&A.
All monetary amounts are in U.S. dollars unless otherwise specified. The
effective date of this MD&A is August 9, 2010. Additional information relating
to the Company is available on SEDAR at www.sedar.com.
Contents of the MD&A
1. Overview
2. Summary of results
2.1. Summary of results for the quarter ended June 30, 2010
2.2. Summary of results for the six months ended June 30, 2010
3. Results of operations for the three and six months ended June 30, 2010
3.1. Mining operations at the Crocodile River Mine ("CRM")
3.2. CRM non-IFRS measures
3.3. Development projects
3.3.1. CRM
3.3.2. Spitzkop and Kennedy`s Vale
3.3.3. Mareesburg
3.4. Corporate and other expenses
4. Liquidity and Capital Resources
4.1. Outlook
4.2. Impairment
4.3. Share capital
4.4. Contractual obligations and commitments
5. Related party transactions
6. Adoption of accounting standards and accounting pronouncements under IFRS
7. Internal control over financial reporting
8. Cautionary statement on forward-looking information
1. Overview
Eastplats is a platinum group metals ("PGM") producer engaged in the mining and
development of PGM deposits with properties located in South Africa. All of the
Company`s properties are situated on the western and eastern limbs of the
Bushveld Complex ("BC"), the geological environment that supports over 75% of
the world`s PGM mine production.
The Company`s primary operating asset is an 87.5% direct and indirect interest
in Barplats Investments Limited ("Barplats"), whose main assets are the PGM
producing Crocodile River Mine ("CRM") located on the western limb of the BC
and the non-producing Kennedy`s Vale Project located on the Eastern Limb of the
BC. The Company also has a 75.5% direct and indirect interest in Mareesburg
Platinum Project ("Mareesburg") and a 93.4% direct and indirect interest in
Spitzkop PGM Project ("Spitzkop"), both located on the Eastern Limb of the BC.
2. Summary of results
2.1 Summary of results for the quarter ended June 30, 2010 ("Q2 2010")
* Eastplats recorded a net profit attributable to equity shareholders of
the Company of $3,448,000 ($0.01 basic earnings per share) compared to
$317,000 ($0.00 per share) in the second quarter of 2009 ("Q2 2009").
* EBITDA was $9,757,000, an increase of 49% compared to $6,529,000 in Q2
2009.
* CRM sold 30,820 PGM ounces, a decrease of 8% compared to 33,383 PGM
ounces in Q2 2009.
* The U.S. average delivered basket price per PGM ounce was $1,015, an
increase of 49% compared to $679 in Q2 2009.
* The Rand average delivered basket price per PGM ounce was R7,643, an
increase of 33% compared to R5,730 in Q2 2009.
* Rand operating cash costs net of by-product credits were R4,866 per
ounce, an increase of 17% compared to R4,169 per ounce in Q2 2009. Rand
operating cash costs were R6,639 per ounce, an increase of 42% compared
to R4,673 per ounce in Q2 2009.
* U.S. dollar operating cash costs net of by-product credits were $646
per ounce, a 31% increase from $494 per ounce achieved in Q2 2009.
Operating cash costs were $882 per ounce, an increase of 59% compared
to the $554 per ounce in Q2 2009.
* Head grade decreased to 4.1 grams per tonne in Q2 2010 from 4.2 grams
per tonne in Q2 2009.
* Average concentrator recovery remained consistent at 80% when compared
to Q2 2009.
* Development meters decreased by 26% to 3,202 meters and on-reef
development decreased by 45% to 1,573 meters compared to Q2 2009.
* Stoping units remained consistent at 50,573 square meters compared to
51,342 square metres in Q2 2009.
* Run-of-mine ore hoisted decreased by 13% to 297,186 tonnes in Q2 2010
compared to 342,368 tonnes in Q2 2009.
* Run-of-mine ore processed decreased by 5% to 290,028 tonnes in Q2 2010
compared to 304,354 tonnes in Q2 2009.
* The Company`s Lost Time Injury Frequency Rate (LTIFR) was 2.78 in Q2
2010 compared to
1.94 in Q2 2009.
* At June 30, 2010, the Company had a cash position (including cash, cash
equivalents and short term investments) of $19,565,000 (December 31,
2009 - $21,658,000).
2.2 Summary of results for the six months ended June 30, 2010 ("6M 2010")
* Eastplats recorded a net profit attributable to equity shareholders of
the Company of $4,272,000 ($0.01 per share) compared to $3,481,000
($0.01 per share) in the six months ended June 30, 2009 ("6M 2009").
* EBITDA was $18,753,000, an increase of 38% compared to $13,547,000 in 6M
2009.
* CRM sold 61,351 PGM ounces, a decrease of 8% compared to 66,352 PGM
ounces in 6M 2009.
* The U.S. average delivered basket price per PGM ounce was $987, an
increase of 55% compared to $635 in 6M 2009.
* The Rand average delivered basket price per PGM ounce was R7,424, an
increase of 28% compared to R5,797 in 6M 2009.
* Rand operating cash costs net of by-product credits were R5,100 per
ounce, an increase of 27% compared to R4,014 per ounce in 6M 2009. Rand
operating cash costs were R6,478 per ounce, an increase of 30% compared
to R4,997 per ounce in 6M 2009.
* U.S. dollar operating cash costs net of by-product credits were $678 per
ounce, a 54% increase from $441 per ounce achieved in 6M 2009. Operating
cash costs were $861 per ounce, an increase of 58% compared to the $545
per ounce in 6M 2009.
* Head grade remained consistent at 4.1 grams per tonne during 6M 2009 and
2010.
* Average concentrator recovery decreased to 79% from 80% when compared to
6M 2009.
* Development meters decreased by 32% to 6,014 meters and on-reef
development decreased by 37% to 3,504 meters compared to 6M 2009.
* Stoping units increased by 6% from 96,440 square meters to 102,333
square meters in 6M 2009.
* Run-of-mine ore hoisted decreased by 9% to 601,495 tonnes in 6M 2010
compared to 663,533 tonnes in 6M 2009.
* Run-of-mine ore processed decreased by 7% to 580,882 tonnes in 6M 2010
compared to 622,748 tonnes in 6M 2009.
The table below sets forth selected results of operations for the Company`s
eight most recently completed quarters (in thousands of U.S. dollars, except
per share amounts) in accordance with IFRS.
Table 1
Selected quarterly data 2010
June 30 March 31
Revenues $ 36,612 $ 34,699
Cost of operations (32,383) (31,018)
Mine operating earnings (loss) 4,229 3,681
Expenses (G&A and share-based payment) (2,050) (4,935)
Impairment of property, plant and equipment - -
Operating profit (loss) 2,179 (1,254)
Net profit (loss) attributable to equity
shareholders of the Company $ 3,448 $ 824
Earnings (loss) per share - basic $ 0.01 $ 0.00
Earnings (loss) per share - diluted $ 0.00 $ 0.00
Average foreign exchange rates
South African Rand per US dollar 7.53 7.51
US dollar per Canadian dollar 0.9727 0.9608
Period end foreign exchange rates
South African Rand per US dollar 7.66 7.33
US dollar per Canadian dollar 0.9393 0.9844
Selected quarterly data 2009
Dec 31 Sept 30
Revenues $ 34,259 $ 27,365 $
Cost of operations (29,294) (26,702)
Mine operating earnings (loss) 4,965 663
Expenses (G&A and share-based payment) (3,523) (2,445)
Impairment of property, plant and equipment - -
Operating profit (loss) 1,442 (1,782)
Net profit (loss) attributable to equity
shareholders of the Company $ 330 $ 1,839
Earnings (loss) per share - basic $ 0.00 $ 0.00
Earnings (loss) per share - diluted $ 0.00 $ 0.00
Average foreign exchange rates
South African Rand per US dollar 7.50 7.80
US dollar per Canadian dollar 0.9459 0.9114
Period end foreign exchange rates
South African Rand per US dollar 7.41 7.53
US dollar per Canadian dollar 0.9515 0.9340
June 30 March 31
Revenues 24,838 $ 24,903
Cost of operations (22,595) (21,402)
Mine operating earnings (loss) 2,243 3,501
Expenses (G&A and share-based payment) (3,374) (1,768)
Impairment of property, plant and equipment - -
Operating profit (loss) (1,131) 1,733
Net profit (loss) attributable to equity
shareholders of the Company $ 317 $ 3,164
Earnings (loss) per share - basic $ 0.00 $ 0.00
Earnings (loss) per share - diluted $ 0.00 $ 0.00
Average foreign exchange rates
South African Rand per US dollar 8.44 9.94
US dollar per Canadian dollar 0.8578 0.8038
Period end foreign exchange rates
South African Rand per US dollar 7.75 9.54
US dollar per Canadian dollar 0.8598 0.7928
Selected quarterly data 2008
Dec 31 Sept 30
Revenues $ 345 $ 9,224
Cost of operations (19,569) (25,372)
Mine operating earnings (loss) (19,224) (16,148)
Expenses (G&A and share-based payment) (6,599) (5,996)
Impairment of property, plant and
equipment (297,285) -
Operating profit (loss) (323,108) (22,144)
Net profit (loss) attributable to equity
shareholders of the Company $ (230,176) $ (10,829)
Earnings (loss) per share - basic $ (0.34) $ (0.02)
Earnings (loss) per share - diluted $ (0.34) $ (0.02)
Average foreign exchange rates
South African Rand per US dollar 9.92 7.78
US dollar per Canadian dollar 0.8252 0.9603
Period end foreign exchange rates
South African Rand per US dollar 9.29 8.35
US dollar per Canadian dollar 0.8210 0.9397
3. Results of Operations for the three and six months ended June 30, 2010
The following table sets forth selected consolidated financial information for
the three and six months ended June 30, 2010 and 2009:
Table 2
Condensed consolidated interim income statements
(Expressed in thousands of U.S. dollars, except per share amounts)
Condensed consolidated interim income statements
(Expressed in thousands of U.S. dollars, except per share amounts)
Three months ended
June 30,
2010 2009
Revenue $ 36,612 $ 24,838
Cost of operations
Production costs 26,855 18,309
Depletion and depreciation 5,528 4,286
Mine operating earnings 4,229 2,243
Expenses
General and administrative 2,037 3,171
Share-based payments 13 203
Operating profit (loss) 2,179 (1,131)
Other income (expense)
Interest income 421 495
Finance costs (593) (375)
Foreign exchange (loss) gain (36) (1,372)
Profit (loss) before income taxes 1,971 (2,383)
Deferred income tax recovery 548 1,609
Net profit (loss) for the period $ 2,519 $ (774)
Attributable to
Non-controlling interest $ (929) $ (1,091)
Equity shareholders of the Company 3,448 317
Net profit (loss) for the period $ 2,519 $ (774)
Earnings per share
Basic $ 0.01 $ 0.00
Diluted $ 0.00 $ 0.00
Weighted average number of common share
outstanding
Basic 682,792 680,538
Diluted 693,988 687,181
Six months ended
June 30,
2010 2009
Revenue $ 71,311 $ 49,741
Cost of operations
Production costs 52,558 36,194
Depletion and depreciation 10,843 7,803
Mine operating earnings 7,910 5,744
Expenses
General and administrative 5,233 4,807
Share-based payments 1,752 335
Operating profit (loss) 925 602
Other income (expense)
Interest income 793 989
Finance costs (963) (827)
Foreign exchange (loss) gain 232 (1,447)
Profit (loss) before income taxes 987 (683)
Deferred income tax recovery 1,096 2,289
Net profit (loss) for the period $ 2,083 $ 1,606
Attributable to
Non-controlling interest $ (2,189) $ (1,875)
Equity shareholders of the Company 4,272 3,481
Net profit (loss) for the period $ 2,083 $ 1,606
Earnings per share
Basic $ 0.01 $ 0.01
Diluted $ 0.01 $ 0.01
Weighted average number of common share
outstanding
Basic 682,000 680,532
Diluted 693,909 685,597
Condensed consolidated statements of June 30, December 31,
financial position 2010 2009
Total assets $ 687,301 $ 706,850
Total long-term liabilities $ 50,540 $ 53,493
3.1 Mining operations at Crocodile River Mine ("CRM")
The following is a summary of CRM`s operations for the eight most recently
completed quarters:
Table 3
Crocodile River Mine operations
2010
June 30 March 31
Key financial statistics
(dollar amounts stated in U.S. dollars)
Sales - PGM ounces 30,820 30,531
Average delivered price per ounce (2) $1,015 $959
Average basket price $1,200 $1,130
Rand average delivered price per ounce R 7,643 R 7,202
Rand average basket price R 9,036 R 8,486
Cash costs per ounce of PGM (1) $882 $841
Cash costs per ounce of PGM,
net of chrome by-product credits (1) $646 $711
Rand cash costs per ounce of PGM (1) R 6,639 R 6,315
Rand cash costs per ounce of PGM,
net of chrome by-product credits (1) R 4,866 R 5,336
Key production statistics
Total tonnes processed 499,640 423,128
Run-of-mine ("ROM") rock tonnes processed 290,028 290,854
Tailings tonnes processed 209,612 132,274
Development meters 3,202 2,812
On-reef development meters 1,573 1,931
Stoping units (square meters) 50,573 51,760
Concentrator recovery from ROM ore 80% 78%
Chrome sold (tonnes) 76,677 75,846
Metal in concentrate sold (ounces)
Platinum (Pt) 15,433 15,405
Palladium (Pd) 6,769 6,562
Rhodium (Rh) 2,661 2,607
Gold (Au) 108 105
Iridium (Ir) 1,077 1,106
Ruthenium (Ru) 4,772 4,746
Total PGM ounces 30,820 30,531
Three months ended
2009
December 31 September 30
Key financial statistics
(dollar amounts stated in U.S. dollars)
Sales - PGM ounces 34,000 29,986
Average delivered price per ounce (2) $860 $765
Average basket price $1,008 $878
Rand average delivered price per ounce R 6,450 R 5,967
Rand average basket price R 7,560 R 6,848
Cash costs per ounce of PGM (1) $706 $758
Cash costs per ounce of PGM,
net of chrome by-product credits (1) $621 $583
Rand cash costs per ounce of PGM (1) R 5,296 R 5,915
Rand cash costs per ounce of PGM,
net of chrome by-product credits (1) R 4,661 R 4,548
Key production statistics
Total tonnes processed 466,414 471,743
Run-of-mine ("ROM") rock tonnes processed 321,983 280,777
Tailings tonnes processed 144,431 190,966
Development meters 3,254 2,882
On-reef development meters 2,135 1,562
Stoping units (square meters) 55,153 36,263
Concentrator recovery from ROM ore 79% 78%
Chrome sold (tonnes) 85,347 76,900
Metal in concentrate sold (ounces)
Platinum (Pt) 17,012 15,080
Palladium (Pd) 7,444 6,613
Rhodium (Rh) 2,923 2,499
Gold (Au) 121 115
Iridium (Ir) 1,240 1,095
Ruthenium (Ru) 5,260 4,584
Total PGM ounces 34,000 29,986
June 30 March 31
Key financial statistics
(dollar amounts stated in U.S. dollars)
Sales - PGM ounces 33,383 32,969
Average delivered price per ounce (2) $679 $590
Average basket price $779 $676
Rand average delivered price per ounce R 5,730 R 5,865
Rand average basket price R 6,574 R 6,720
Cash costs per ounce of PGM (1) $554 $536
Cash costs per ounce of PGM,
net of chrome by-product credits (1) $494 $388
Rand cash costs per ounce of PGM (1) R 4,673 R 5,326
Rand cash costs per ounce of PGM,
net of chrome by-product credits (1) R 4,169 R 3,857
Key production statistics
Total tonnes processed 440,288 318,394
Run-of-mine ("ROM") rock tonnes processed 304,354 318,394
Tailings tonnes processed 135,934 -
Development meters 4,326 4,573
On-reef development meters 2,860 2,745
Stoping units (square meters) 51,342 45,098
Concentrator recovery from ROM ore 80% 80%
Chrome sold (tonnes) 70,850 84,207
Metal in concentrate sold (ounces)
Platinum (Pt) 16,721 16,499
Palladium (Pd) 7,406 7,399
Rhodium (Rh) 2,868 2,812
Gold (Au) 141 135
Iridium (Ir) 1,179 1,144
Ruthenium (Ru) 5,068 4,980
Total PGM ounces 33,383 32,969
2008
December 31 September 30
Key financial statistics
(dollar amounts stated in U.S. dollars)
Sales - PGM ounces 29,015 30,758
Average delivered price per ounce (2) $550 $1,193
Average basket price $655 $1,438
Rand average delivered price per ounce R 5,456 R 9,285
Rand average basket price R 6,496 R 11,191
Cash costs per ounce of PGM (1) $628 $672
Cash costs per ounce of PGM,
net of chrome by-product credits (1) $578 $521
Rand cash costs per ounce of PGM (1) R 6,231 R 5,233
Rand cash costs per ounce of PGM,
net of chrome by-product credits (1) R 5,734 R 4,055
Key production statistics
Total tonnes processed 298,514 317,602
Run-of-mine ("ROM") rock tonnes processed 298,514 305,490
Tailings tonnes processed - 12,112
Development meters 4,604 5,599
On-reef development meters 2,922 3,556
Stoping units (square meters) 46,459 39,652
Concentrator recovery from ROM ore 76% 78%
Chrome sold (tonnes) 13,000 44,079
Metal in concentrate sold (ounces)
Platinum (Pt) 14,466 15,393
Palladium (Pd) 6,690 6,973
Rhodium (Rh) 2,451 2,581
Gold (Au) 121 123
Iridium (Ir) 979 1,083
Ruthenium (Ru) 4,308 4,605
Total PGM ounces 29,015 30,758
(1) These are non-IFRS measures as described in Section 3.2
(2) Average delivered price is the average basket price at the time of delivery
of PGM concentrates, net of associated smelter costs, under the Company`s
primary off-take agreement.
Quarter ended June 30, 2010 compared to the quarter ended June 30, 2009
In Q2 2010, CRM recorded a Lost Time Injury Frequency Rate ("LTIFR") of 2.78
compared to 1.94 in Q2 2009.
The Company generated revenue of $36,612,000 in Q2 2010 which represents
amounts recorded when PGM concentrates are physically delivered to the buyer,
and adjustments made when final prices for these concentrates are settled. The
Company settles its PGM sales three to five months following the physical
delivery of the concentrates which are provisionally priced on the date of
delivery.
The Company recorded an average delivered basket price of $1,015 per PGM ounce
in Q2 2010, compared to $679 in Q2 2009 and $959 in the first quarter of 2010
("Q1 2010"). The delivered price per ounce refers to the PGM prices in effect
at the time the PGM concentrates are delivered. As a result of fluctuations in
PGM prices, the Company recorded negative provisional price adjustments of
$824,000 and positive provisional price adjustments of $2,074,000 in the three
and six months ended June 30, 2010, respectively, compared to positive price
adjustments of $2,853,000 and $4,911,000 in the three and six months ended June
30, 2009, respectively.
The following table shows a reconciliation of revenue and provisional price
adjustments.
Table 4
Crocodile River Mine
Effect of provisional price adjustments on revenues
(stated in thousands of U.S. dollars)
Three months ended
June 30,
2010 2009
Revenue before provisional price
adjustments $ 37,436 $ 21,985
Provisional price adjusments
Adjustments to revenue upon settlement of
prior periods` sales 1,053 1,060
Mark-to-market adjustment on sales not yet
settled at end of period (1,877) 1,793
Revenue as reported in the income statement $ 36,612 $ 24,838
Six months ended
June 30,
2010 2009
Revenue before provisional price adjustments $ 69,237 $ 44,830
Provisional price adjusments
Adjustments to revenue upon settlement of
prior periods` sales 3,951 3,118
Mark-to-market adjustment on sales not yet
settled at end of period (1,877) 1,793
Revenue as reported in the income statement $ 71,311 $ 49,741
PGM ounces sold were down by 8% in Q2 2010 compared to Q2 2009 as a result of a
decrease in the on- reef development meters (1,573 meters in Q2 2010 compared
to 2,860 meters in Q2 2009), a decrease in the run-of-mine tonnes hoisted
(297,186 tonnes in Q2 2010 compared to 342,368 tonnes in Q2 2009), which
resulted in a decrease in run-of-mine rock tonnes processed (290,028 tonnes in
Q2 2010 compared to 304,354 tonnes in Q2 2009), and a decrease in grade to 4.1
from 4.2 in Q2 2009. The decrease in on- reef development meters and
run-of-mine tonnes hoisted was due to the dismissal of 15 contract stoping
crews (out of a total of 58 crews) in May, and the corresponding build-up and
training of new crews. The contract crews were dismissed due to management`s
concerns over their safety procedures. Full replacement of the crews was
completed in July 2010 and the Company expects that on-reef development and
production will increase once the new crews have been properly inducted and
trained.
Operating cash costs, a non-IFRS measure, are incurred primarily in Rand. Rand
operating cash costs, also a non-IFRS measure, increased by 42% from R4,673 per
ounce in Q2 2009 to R6,639 per ounce in Q2 2010 due to an 8% decrease in ounces
produced compared to Q2 2009, a new South African mining royalty tax effective
March 1, 2010, a 7.5% wage increase effective March 1, 2010, and two
significant increases in electricity tariffs that came into effect in Q3 2009
and again in Q2 2010. Repairs to underground vehicles in Q2 2010 also
contributed to the increase in Rand cash operating costs.
Operating cash costs stated in U.S. dollars increased by 59% from $554 per
ounce in Q2 2009 to $882 per ounce in Q2 2010 primarily due to increases in
actual Rand operating cash costs and an 11% appreciation of the South African
Rand relative to the U.S. dollar. The average U.S. dollar-Rand exchange rate
was R7.53:$1.00 in Q2 2010 compared to R8.44:$1.00 in Q2 2009.
A reconciliation of production costs, as reported in the income statement, to
cash operating costs, is shown in Table 5 under Section 3.2 CRM non-IFRS
measures.
The Company sold 76,677 tonnes (70,850 tonnes in Q2 2009) of chrome in Q2 2010.
Total chrome revenues were $7,257,000 ($1,994,000 in Q2 2009), reducing
operating cash costs net of by-product credits to $646 per ounce. The net
realized price per tonne of chrome in Q2 2010 increased by 250% compared to Q2
2009.
Quarter ended June 30, 2010 compared to the quarter ended March 31, 2010
PGM revenues increased by 6% compared to Q1 2010 as a result of a 6% rise in
the average delivered basket price per ounce and a 1% increase in ounces
produced during the quarter. However, run-of-mine ore processed, which was
expected to increase in Q2 2010 as the Q1 mine start-up after the December
holiday season was slower than anticipated, remained consistent at
approximately 290,000 tonnes in Q1 and Q2 2010. This and other operating
measures, such as run-of-mine tonnes hoisted and on-reef development meters,
underperformed compared to Q1 2010 due to the dismissal of 15 contract stoping
crews (out of a total of 58 crews) in May and the resulting build-up and
training of new crews. The Company expects that on-reef development and
production will increase once the new crews have been properly inducted and
trained.
Rand operating cash costs increased by 5% from R6,315 per ounce in Q1 2010 to
R6,639 per ounce in Q2 2010 primarily as a result of a new South African mining
royalty tax effective March 1, 2010, a 7.5% wage increase effective March 1,
2010, and a 26% increase in electricity tariffs effective in Q2 2010.
Operating cash costs stated in U.S. dollars also increased by 5% from $841 per
ounce in Q1 2010 to $882 per ounce in Q2 2010. The U.S. dollar remained
consistent at approximately R7.50:$1.00 in both Q1 and Q2 2010.
Six months ended June 30, 2010 compared to the six months ended June 30, 2009
In 6M 2010, the Company sold 61,351 PGM ounces, a decrease of 8% compared to 6M
2009, primarily as a result of lower run-of-mine volumes processed in 2010
(580,882 tonnes processed in 6M 2010 compared to 622,748 tonnes processed in 6M
2009), and lower recovery rates (79% in 6M 2010 compared to 80% in 6M 2009).
On-reef development decreased to 3,504 meters in 6M 2010 compared to 5,605
meters in 6M 2009.
The average delivered basket price per ounce increased from $635 in 6M 2009 to
$987 in 6M 2010. PGM prices have gradually increased between January 2009 and
June 2010.
Operating cash costs of $861 per ounce were achieved in 6M 2010, compared to
$545 per ounce during the same period in 2009 due to an 8% decrease in the
number of ounces produced in 6M 2010 compared to 6M 2009, an 18% weakening in
the value of the U.S. dollar relative to the Rand between 6M 2009 and 6M 2010,
and a 20% increase in total Rand operating cash costs. Total Rand operating
cash costs were 20% higher in 6M 2010 compared to the same period in 6M 2009
due to a new South African mining royalty tax effective March 1, 2010, a 7.5%
wage increase effective March 1, 2010, a 26% increase in electricity effective
in Q2 2010, repairs to underground vehicles in Q2 2010, repairs to the primary
and tertiary crushers in Q1 2010, and the implementation of a key skills
management retention plan in Q1 2010.
3.2 CRM non-IFRS measures
The following table provides a reconciliation of EBITDA and cash operating
costs per PGM ounce to mine operating earnings and production costs,
respectively:
Table 5
Crocodile River Mine non-IFRS measures
(Expressed in thousands of U.S. dollars, except ounce and per ounce data)
Three months ended
June 30,
2010 2009
Mine operating earnings $ 4,229 $ 2,243
Depletion and depreciation 5,528 $ 4,286
EBITDA (1) 9,757 6,529
Production costs as reported 26,855 18,309
Adjustments for miscellaneous costs (2) 318 185
Cash operating costs 27,173 18,494
Less by-product credits - chrome revenues and
adjustments (7,257) (1,994)
Cash operating costs net of by-product credits 19,916 16,500
Ounces sold 30,820 33,383
Cash cost per ounce sold $ 882 $ 554
Cash cost per ounce sold net of by-product
credits $ 646 $ 494
Six months ended
June 30,
2010 2009
Mine operating earnings $ 7,910 $ 5,744
Depletion and depreciation 10,843 7,803
EBITDA (1) 18,753 13,547
Production costs as reported 52,558 36,194
Adjustments for miscellaneous costs (2) 289 (29)
Cash operating costs 52,847 36,165
Less by-product credits - chrome
revenues and adjustments (11,237) (6,889)
Cash operating costs net of by-product
credits 41,610 29,276
Ounces sold 61,351 66,352
Cash cost per ounce sold $ 861 $ 545
Cash cost per ounce sold net of
by-product credits $ 678 $ 441
(1) EBITDA includes provisional price adjustments, chrome revenues, chrome
penalties, and foreign exchange adjustments to sales.
(2) Miscellaneous costs include costs such as housing, technical services and
planning.
The Company is of the opinion that conventional measures of performance
prepared in accordance with IFRS do not meaningfully demonstrate the ability of
its operations to generate cash flow. Therefore, the Company has included
certain non-IFRS measures in this MD&A to supplement its financial statements
which are prepared in accordance with IFRS. These non-IFRS measures do not have
any standardized meaning prescribed under IFRS, and therefore they may not be
comparable to similar measures employed by other companies.
In this MD&A, the Company has reported its share of earnings before interest,
depletion, depreciation, amortization and tax ("EBITDA") for CRM. This is a
liquidity non-IFRS measure which the Company believes is used by certain
investors to determine the Company`s ability to generate cash flows for
investing and other activities. The Company also reports cash operating costs
per ounce of PGM produced, another non-IFRS measure which is a common
performance measure used in the precious metals industry.
3.3 Development projects
3.3.1 CRM
During the three months ended June 30, 2010, the Company spent approximately
$6,376,000 at CRM, primarily on continuing underground mine development,
concentrator upgrades, underground electrical upgrades, and ongoing surface and
underground works at the Zandfontein vertical shaft, including conveyor belts
for the transport of ore from the vertical shaft to the surface crusher and
construction of dams for underground water control. The shaft hoisting capacity
will be 100,000 tonnes of ore per month plus associated waste. The shaft, along
with additional decline development, will allow access into the deeper parts of
the ore body.
As a result of the higher trend in PGM prices, mine development at the shallow
Crocette ore body recommenced on April 4, 2010. At full production, Crocette is
planned to deliver up to 40,000 tons of ore per month, which will enable CRM to
achieve its production target of 175,000 tons of ore per month.
Infill drilling has confirmed the continuity of the UG2 reef at Crocette to a
depth of 600m with a dip of 18, a reef width of 1.2m and an estimated head
grade of 4.1 g/t (5PGE+Au). A commitment to provide construction power for the
project has been received from Eskom, the South African public utility company,
but alternative supplies are also being evaluated by the Company.
3.3.2 Spitzkop/Kennedy`s Vale
Development of Spitzkop and Kennedy`s Vale has been on hold since December
2008. During the three and six months ended June 30, 2010, the expenditures at
Spitzkop/Kennedy`s Vale related to care and maintenance costs.
Spitzkop is planned as a decline mining operation that will access high-grade
PGM resources in the UG2 reef at shallow depth without the requirement for high
capital cost shaft infrastructure. Spitzkop is situated up dip of, and adjacent
to, the Kennedy`s Vale project. Kennedy`s Vale and the deeper sections of both
properties could utilize the existing twin vertical shafts. This infrastructure
would provide a significant reduction in capital costs for the development of
the deeper sections of both properties.
The new order mining right for Spitzkop was executed in October 2009. With the
higher trend in PGM prices, the Company has evaluated development alternatives
for the Spitzkop Project in conjunction with the Mareesburg Project and the
Company`s four-phased development plan for the Eastern Limb was announced on
June 3, 2010. Phase 1 is the development of the Mareesburg open-pit mine and
the construction of a processing plant at Kennedy`s Vale. Phase 2 is the
development of the Spitzkop mine to supplement and eventually replace the
Mareesburg open-pit production. Phase 3 is the development of the underground
mines at Mareesburg and DGV. Phase 4 is the development of the Kennedy`s Vale
mine.
3.3.3 Mareesburg
Work on the Mareesburg project has been on hold since December 2008. A new
order mining right application was submitted in December 2007 which supports
the Company`s intention to commence mining. It is expected that Mareesburg
would be developed as part of the Company`s four-phased development plan for
the Eastern Limb as discussed above.
3.4 Corporate and other expenses
General and administrative expenses ("G&A") are costs associated with the
Company`s corporate head office in Vancouver and the Johannesburg
administrative office, and costs associated with care and maintenance at the
Company`s Eastern Limb projects, Spitzkop, Kennedy`s Vale and Mareesburg.
Corporate office costs include legal and accounting, regulatory, executive
management fees, investor relations, travel and consulting fees. G&A decreased
by 36% from $3,171,000 in Q2 2009 to $2,037,000 in Q2 2010 due to (1) the
settlement of two long-standing legal proceedings at a cost of $1,407,000 in Q2
2009, and (2) a weakening of the U.S. dollar relative to the South African
Rand. For the six months ended June 30, G&A increased by 9% from $4,807,000 in
2009 to $5,233,000 in 2010 mainly due to a weakening of the U.S. dollar
relative to the South African Rand and the introduction in Q1 2010 of a key
skills retention plan for the Company`s senior employees in South Africa.
G&A decreased by 36% from $3,196,000 in Q1 2010 to $2,037,000 in Q2 2010,
mainly due to the key skills retention plan which was expensed in Q1 2010.
Interest income recorded during the three and six months ended June 30, 2010
was $421,000 and $793,000 compared with $495,000 and $989,000 during the same
period in 2009. The decrease in interest income for the comparable six month
periods was mainly due to significantly lower average cash balances in Q1 2010
compared to Q1 2009, and lower interest rates during the six months ended June
30, 2010 compared to the same period in 2009.
During the three and six months ended June 30, 2010 the Company recorded a
deferred income tax recovery of $548,000 and $1,096,000. The deferred income
tax recovery was based on changes in the Company`s net assets. The consolidated
statement of financial position reflects total deferred tax liabilities of
$40,041,000 which arose primarily as a result of the step-up to fair value of
the net assets acquired on the Barplats and Gubevu business acquisitions during
the years ended June 30, 2006, June 30, 2007, and December 31, 2008.
4. Liquidity and Capital Resources
At June 30, 2010, the Company had working capital of $33,997,000 (December 31,
2009 - $31,776,000) and cash and cash equivalents and short-term investments of
$19,565,000 (December 31, 2009 - $21,658,000) in highly liquid, fully
guaranteed, bank sponsored instruments.
The Company had no long-term debt at June 30, 2010, other than a provision for
environmental rehabilitation relating to CRM and Spitzkop, and finance lease
obligations relating to mining vehicles with lease terms of five years and
options to purchase for a nominal amount at the conclusion of the lease.
See Contractual Obligations under Section 4.4 below.
4.1 Outlook
As a consequence of the global economic uncertainty and market volatility since
2008, the Company`s near-term goal has been, and continues to be, to preserve
its cash balances to the greatest extent possible, by finding ways to increase
production and minimize operating costs without compromising safety, health and
environmental standards, and by curtailing capital expenditures which would not
result in short-term increases in production ounces. As a result, the Company
has primarily focused its resources on improving operations at its CRM property
over the past two years, while putting development projects on hold until a
sustained recovery of PGM prices materialized.
PGM prices in U.S. dollar terms have recovered since the beginning of 2009, but
this has been partially negated by the strength of the Rand against the U.S.
dollar. While the realized basket prices that the Company is receiving have
improved since the December 2008 lows, these prices (in Rand terms) are still
more than 40% below those recorded in June 2008 when basket prices reached
their peak. The Company anticipates that PGM prices and the Rand-U.S. dollar
exchange rate will remain volatile in the short term.
With the rising trend in PGM prices, the Company resumed mine development at
the Crocette section at CRM on April 4, 2010 and is currently assessing the
status of its three primary Eastern Limb development projects at Spitzkop,
Kennedy`s Vale and Mareesburg, with a view to determining an appropriate
development schedule given the market conditions, the Company`s current cash
balances, its ability to generate sufficient cash flows, and its ability to
obtain additional funding in the current market environment. Additional funding
will be required and may include external debt financing, joint venture or
other third party participation in one or more of the projects, or the public
or private sales of equity or debt securities of the Company.
If the volatility and uncertainty in the current market persist for an extended
time and PGM production and/or prices remain at present levels or lower, then
the cash flows from CRM and current cash balances will be insufficient to
advance any or all of the Company`s development projects to commercial
production. This, along with credit markets that may tighten and result in
higher financing costs, could negatively affect the Company`s ability to obtain
equity financing, external debt financing or third party participation. There
can be no assurance that additional funding will be available to the Company
or, if available, that this funding will be on acceptable terms. If adequate
funds are not available, the Company may be required to further delay or reduce
the scope of any or all of its development projects.
4.2 Impairment
At June 30, 2010, the Company determined that there was no indication of
impairment for the carrying values of its mineral properties. Should market
conditions and commodity prices deteriorate or improve in the future, an
impairment or reversal of impairment of the Company`s mineral properties may be
required.
4.3 Share Capital
During the three months ended June 30, 2010, the Company did not grant any
stock options. Total share- based payment expense for the quarter was $13,000,
which takes into account the vesting of options.
During Q2 2010, 258,334 options were forfeited at a weighted average exercise
price of Cdn$1.30 and 1,892,163 options were exercised at a weighted average
exercise price of Cdn$0.33.
During the six months ended June 30, 2010, the Company granted 2,231,000 stock
options at an exercise price of Cdn$1.30. The grant date fair value was
Cdn$0.80 per share, which resulted in share-based payment expense of $1,705,000
upon issuance. Total share-based payment expense for the six months was
$1,752,000, which also takes into account the vesting of options. During the
six months ended June 30, 2010, 666,668 options were forfeited at a weighted
average exercise price of Cdn$1.74 and 2,412,994 options were exercised at a
weighted average exercise price of Cdn$0.33.
As at August 9, 2010, the Company had:
* 683,030,752 common shares outstanding; and
* 58,617,172 stock options outstanding, which are exercisable at prices
ranging from Cdn$0.32 to Cdn$3.38 and expire between 2011 and 2018.
4.4 Contractual Obligations and Commitments
The Company`s major contractual obligations and commitments at June 30, 2010
were as follows:
Table 6
(in thousands of U.S. dollars)
Total Less than 1
year
Provision for environmental rehabilitation $ 8,219 $ -
Capital expenditure and purchase commitments
contracted
at June 30, 2010 but not recognized on the
consolidated
statement of financial position 5,230 5,230
Finance lease obligations 3,534 1,169
$ 16,983 $ 6,399
1-5 years More than 5
years
Provision for environmental rehabilitation$ - $ 8,219
Capital expenditure and purchase
commitments contracted
at June 30, 2010 but not recognized on
the consolidated
statement of financial position - -
Finance lease obligations 2,365 -
$ 2,365 $ 8,219
5. Related Party Transactions
(Expressed in thousands of U.S. dollars, except per share amounts)
Three months ended
June 30,
2010 2009
Trading transactions
Management and consulting fees $ 349 $ 283
Reimbursements of expenses 42 19
Total trading transactions $ 391 $ 302
Compensation of key management personnel
Salaries and directors` fees $ 568 $ 506
Share-based payments - 93
Total compensation of key management personnel $ 568 $ 599
Six months ended
June 30,
2010 2009
Trading transactions
Management and consulting fees $ 685 $ 549
Reimbursements of expenses 62 19
Total trading transactions $ 747 $ 568
Compensation of key management personnel
Salaries and directors` fees $ 1,116 $ 980
Share-based payments 1,627 93
Total compensation of key management personnel $ 2,743 $ 1,073
A number of the Company`s executive officers are engaged under contract with
those officers` personal services companies. Other executive officers are paid
directly via salary and directors` fees. All share options are issued to the
Company`s officers and directors, and not to their companies.
Management and consulting fees increased during the three and six months ended
June 30, 2010 mainly due to the strengthening of the Canadian dollar during the
past twelve months. During the same periods, reimbursements of expenses were
higher due to increased travel to South Africa by the Company`s head office
staff. Salaries and directors` fees increased during the three and six months
ended June 30, 2010 due to the strengthening of the Canadian dollar.
Share-based payment decreased from $93,000 in Q2 2009 to Nil in Q2 2010 as
there were no stock options issued to directors during Q2 2010. Share-based
payments increased from $93,000 during the six months ended June 30, 2009 to
$1,627,000 during the same period in 2010 due to the issuance of stock options
in Q1 2010.
All related party transactions were recorded at the amounts agreed upon between
the parties. Any balances payable are payable on demand without interest.
6. Adoption of Accounting Standards and Pronouncements under IFRS
In February 2009, the Commissions granted the Company exemptive relief to adopt
International Financial Reporting Standards ("IFRS") with an adoption date of
January 1, 2009 and a transition date of January 1, 2008. The Company`s first
audited financial statements prepared in accordance with IFRS were the
financial statements for the year ended December 31, 2009. Full disclosure of
the Company`s accounting policies in accordance with IFRS can be found in Note
3 to those financial statements. Those financial statements also include
reconciliations of the previously disclosed comparative periods financial
statements prepared in accordance with Canadian generally accepted accounting
principles ("GAAP") to IFRS as set out in Note 25.
Effective January 1, 2010, the Company adopted a new accounting standard (IFRS
8 Operating Segments) that was issued by the International Accounting Standards
Board ("IASB"). IFRS 8 was revised and now requires disclosure of information
about segment assets. This accounting policy change was adopted on a
prospective basis with no restatement of prior period financial statements.
7. Internal Control over Financial Reporting
The Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO") of
the Company, together with the Company`s management, are responsible for the
information disclosed in this MD&A and in the Company`s other external
disclosure documents. For the quarters ended June 30, 2010 and 2009, the CEO
and the CFO have designed, or caused to be designed under their supervision,
the Company`s disclosure controls and procedures ("DCP") to provide reasonable
assurance that material information relating to the Company and its
consolidated subsidiaries has been disclosed in accordance with regulatory
requirements and good business practices and that the Company`s DCP will enable
the Company to meet its ongoing disclosure requirements.
The CEO and CFO have evaluated the effectiveness of the Company`s disclosure
controls and procedures and have concluded that the design and operation of the
Company`s DCP were effective as of June 30, 2010 and that the Company has the
appropriate DCP to ensure that information used internally by management and
disclosed externally is, in all material respects, complete and reliable.
The CEO and the CFO are also responsible for the design of the internal
controls over financial reporting ("ICFR") within the Company in order to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with International Financial Reporting Standards ("IFRS"). During 2009, the
Company engaged an international accounting firm to act as the Company`s
internal auditors for its South African operations.
Under the supervision, and with the participation, of the CEO and the CFO,
management conducted an evaluation of the effectiveness of the Company`s ICFR
based on the framework in the Internal Control - Integrated Framework developed
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on that evaluation, the CEO and the CFO concluded that the design and
operation of the Company`s ICFR were effective as at June 30, 2010.
The scope of the Company`s design of DCP and ICFR excluded Gubevu Consortium
Holdings (Pty) Ltd., a subsidiary which is accounted for as a special purpose
entity under IFRS. During the design and evaluation of the Company`s ICFR,
management identified certain non-material deficiencies, a number of which have
been addressed or are in the process of being addressed in order to enhance the
Company`s processes and controls. The Company employs entity level and
compensating controls to mitigate any deficiencies that may exist in its
process controls. Management intends to continue to further enhance the
Company`s ICFR.
The Company`s management, including its CEO and CFO, believe that any DCP and
ICFR, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems,
they cannot provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been prevented or detected. These
inherent limitations include the realities that judgments in decision making
can be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of
some persons, by collusion of two or more people, or by unauthorized override
to the future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Accordingly, because of the inherent limitations in a cost effective control
system, misstatements due to error or fraud may occur and not be detected.
There have been no changes in the Company`s ICFR during the quarter ended June
30, 2010 that have materially affected, or are reasonably likely to materially
affect, the Company`s ICFR.
8. Cautionary Statement on Forward-Looking Information
This MD&A, which contains certain forward-looking statements, is intended to
provide readers with a reasonable basis for assessing the financial performance
of the Company. All statements, other than statements of historical fact, are
forward-looking statements. The words "believe", "expect", "anticipate",
"contemplate", "target", "plan", "intends", "continue", "budget", "estimate",
"may", "will", "schedule" and similar expressions identify forward looking
statements. Forward-looking statements are necessarily based upon a number of
estimates and assumptions that, while considered reasonable by the Company, are
inherently subject to significant business, economic and competitive
uncertainties and contingencies. Known and unknown factors could cause actual
results to differ materially from those projected in the forward-looking
statements. Such factors include, but are not limited to, fluctuations in the
currency markets such as Canadian dollar, South African Rand and U.S. dollar,
fluctuations in the prices of PGM and other commodities, changes in government
legislation, taxation, controls, regulations and political or economic
developments in Canada, the United States, South Africa, or Barbados or other
countries in which the Company carries or may carry on business in the future,
risks associated with mining or development activities, the speculative nature
of exploration and development, including the risk of obtaining necessary
licenses and permits, and quantities or grades of reserves. Many of these
uncertainties and contingencies can affect the Company`s actual results and
could cause actual results to differ materially from those expressed or implied
in any forward-looking statements made by, or on behalf of, the Company.
Readers are cautioned that forward-looking statements are not guarantees of
future performance. There can be no assurance that such statements will prove
to be accurate and actual results and future events could differ materially
from those acknowledged in such statements. Specific reference is made to the
Company`s most recent Annual Information Form on file with Canadian provincial
securities regulatory authorities for a discussion of some of the factors
underlying forward-looking statements.
The Company disclaims any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future
events or otherwise, except to the extent required by applicable laws.
August 9, 2010
Ian Rozier
Date: 11/08/2010 15:12:03 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.
