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EPS
EPS
JSE - Eastern Platinum Limited - Eastern Platinum Limited management`s
discussion and analysis of financial conditions and results of operations for
the three and nine months ended September 30, 2010
EASTERN PLATINUM LIMITED
(Incorporated in Canada)
(Canadian Registration number BC0722783)
(South African Registration number 2007/006318/10)
Share Code TSX: ELR ISIN: CA2768551038
Share Code AIM: ELR ISIN: CA2768551038
Share Code JSE: EPS ISIN: CA2768551038
EASTERN PLATINUM LIMITED MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 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
September 30, 2010 and for the three and nine 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 nine months ended September 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 November 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 September 30, 2010
2.2. Summary of results for the nine months ended September 30, 2010
3. Results of operations for the three and nine months ended September 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. Eastern Limb projects
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 September 30, 2010 ("Q3 2010")
* Eastplats recorded a net profit attributable to equity shareholders of the
Company of $4,039,000 ($0.01 basic earnings per share) in Q3 2010 compared
to $1,839,000 ($0.00 per share) in the third quarter of 2009 ("Q3 2009").
* EBITDA increased 124% to $11,120,000 in Q3 2010 compared to $4,971,000 in
Q3 2009.
* PGM ounces sold increased 26% to a quarterly record of 37,798 ounces in Q3
2010 compared to 29,986 PGM ounces in Q3 2009.
* The U.S. average delivered basket price per PGM ounce increased 25% to $953
in Q3 2010 compared to $765 in Q3 2009.
* The Rand average delivered basket price per PGM ounce increased 17% to
R6,966 in Q3 2010 compared to R5,967 in Q3 2009.
* Rand operating cash costs net of by-product credits were R4,566 per ounce
in Q3 2010, consistent with R4,548 per ounce in Q3 2009. Rand operating cash
costs decreased 12% to R5,212 per ounce in Q3 2010 compared to R5,915 per
ounce in Q3 2009.
* U.S. dollar operating cash costs net of by-product credits increased 7% to
$625 per ounce in Q3 2010 compared to $583 per ounce achieved in Q3 2009.
U.S. dollar operating cash costs decreased 6% to $713 per ounce in Q3 2010
compared to the $758 per ounce in Q3 2009.
* Head grade decreased to 4.0 grams per tonne in Q3 2010 from 4.1 grams per
tonne in Q3 2009.
* Average concentrator recovery improved to 81% in Q3 2010 compared to 78% in
Q3 2009.
* Development meters increased by 14% to 3,299 meters and on-reef development
increased by 15% to 1,797 meters compared to Q3 2009.
* Stoping units increased 40% to 50,892 square meters in Q3 2010 compared to
36,263 square meters in Q3 2009.
* Run-of-mine ore hoisted increased by 48% to 362,042 tonnes in Q3 2010
compared to 244,959 tonnes in Q3 2009.
* Run-of-mine ore processed increased by 27% to 357,219 tonnes in Q3 2010
compared to 280,777 tonnes in Q3 2009.
* The Company`s Lost Time Injury Frequency Rate (LTIFR) was 4.66 in Q3 2010
compared to 1.69 in Q3 2009.
* During the quarter, the Company recorded a one-time adjustment to chrome
revenues that resulted from a change to the timing of chrome revenue
recognition. Under the previous method of chrome revenue recognition, the
Company`s revenues would have been $41,254,000, EBITDA would have been
$12,195,000, and net profit attributable to equity shareholders of the
Company would have been $4,979,000. Further information is included in
section 3.1.
* At September 30, 2010, the Company had a cash position (including cash,
cash equivalents and short term investments) of $20,005,000 (December 31,
2009 - $21,658,000).
2.2 Summary of results for the nine months ended September 30, 2010 ("9M 2010")
* Eastplats recorded a net profit attributable to equity shareholders of the
Company of $8,311,000 ($0.01 per share) in 9M 2010 compared to $5,320,000
($0.01 per share) in the nine months ended September 30, 2009 ("9M 2009").
* EBITDA increased 61% to $29,873,000 in 9M 2010 compared to $18,518,000 in
9M 2009.
* PGM ounces sold increased 3% to 99,149 in 9M 2010 compared to 96,338 PGM
ounces in 9M 2009.
* The U.S. average delivered basket price per PGM ounce increased 44% to $974
in 9M 2010 compared to $675 in 9M 2009.
* The Rand average delivered basket price per PGM ounce increased 24% to
R7,249 in 9M 2010 compared to R5,850 in 9M 2009.
* Rand operating cash costs net of by-product credits increased 17% to R4,896
per ounce in 9M 2010 compared to R4,180 per ounce in 9M 2009. Rand operating
cash costs increased 13% to R5,995 per ounce in 9M 2010 compared to R5,283
per ounce in 9M 2009.
* U.S. dollar operating cash costs net of by-product credits increased 36% to
$658 per ounce in 9M 2010 compared to $485 per ounce achieved in 9M 2009.
Operating cash costs increased 32% to $805 per ounce in 9M 2010 compared to
the $611 per ounce in 9M 2009.
* Head grade remained consistent at 4.1 grams per tonne during 9M 2010 and
2009.
* Average concentrator recovery increased to 80% in 9M 2010 compared to 79%
in 9M 2009.
* Development meters decreased by 21% to 9,313 meters and on-reef development
decreased by 26% to 5,301 meters compared to 9M 2009.
* Stoping units increased by 15% to 153,225 square meters in 9M 2010 compared
to 132,703 square meters in 9M 2009.
* Run-of-mine ore hoisted increased by 6% to 963,537 tonnes in 9M 2010
compared to 908,492 tonnes in 9M 2009.
* Run-of-mine ore processed increased by 4% to 938,101 tonnes in 9M 2010
compared to 903,525 tonnes in 9M 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
Sept 30 June 30 March 31
Revenues $ 38,073 $ 36,612 $ 34,699
Cost of operations (32,735) (32,383) (31,018)
Mine operating earnings (loss) 5,338 4,229 3,681
Expenses (G&A and share-based payment) (2,202) (2,050) (4,935)
Impairment of property, plant and
equipment - - -
Operating profit (loss) 3,136 2,179 (1,254)
Net profit (loss) attributable to equity
shareholders of the Company $ 4,039 $ 3,448 $ 824
Earnings (loss) per share - basic $ 0.01 $ 0.01 $ 0.00
Earnings (loss) per share - diluted $ 0.01 $ 0.00 $ 0.00
Average foreign exchange rates
South African Rand per US dollar 7.31 7.53 7.51
US dollar per Canadian dollar 0.9621 0.9727 0.9608
Period end foreign exchange rates
South African Rand per US dollar 7.00 7.66 7.33
US dollar per Canadian dollar 0.9718 0.9393 0.9844
Selected quarterly data 2009
Dec 31 Sept 30 June 30 March 31
Revenues $ 34,259 $ 27,365 $ 24,838 $ 24,903
Cost of operations (29,294) (26,702) (22,595) (21,402)
Mine operating
earnings (loss) 4,965 663 2,243 3,501
Expenses (G&A and
share-based payment) (3,523) (2,445) (3,374) (1,768)
Impairment of
property, plant and
equipment - - - -
Operating profit
(loss) 1,44 2 (1,782) (1,131) 1,733
Net profit (loss)
attributable to
equity
shareholders of the
Company $ 330 $ 1,839 $ 317 $ 3,164
Earnings (loss) per
share - basic $ 0.00 $ 0.00 $ 0.00 $ 0.00
Earnings (loss) per
share - diluted $ 0.00 $ 0.00 $ 0.00 $ 0.00
Average foreign
exchange rates
South African Rand
per US dollar 7.50 7.80 8.44 9.94
US dollar per
Canadian dollar 0.9459 0.9114 0.8578 0.8038
Period end foreign
exchange rates
South African Rand
per US dollar 7.41 7.53 7.75 9.54
US dollar per
Canadian dollar 0.9515 0.9340 0.8598 0.7928
Selected quarterly data 2008
Dec 31
Revenues $ 345
Cost of operations (19,569)
Mine operating earnings (loss) (19,224)
Expenses (G&A and share-based payment) (6,599)
Impairment of property, plant and equipment (297,285)
Operating profit (loss) (323,108)
Net profit (loss) attributable to equity
shareholders of the Company $ (230,176)
Earnings (loss) per share - basic $ (0.34)
Earnings (loss) per share - diluted $ (0.34)
Average foreign exchange rates
South African Rand per US dollar 9.92
US dollar per Canadian dollar 0.8252
Period end foreign exchange rates
South African Rand per US dollar 9.29
US dollar per Canadian dollar 0.8210
3. Results of Operations for the three and nine months ended September 30, 2010
The following table sets forth selected consolidated financial information for
the three and nine months ended September 30, 2010 and 2009:
Table 2
Condensed consolidated interim income statements
(Expressed in thousands of U.S. dollars, except per share amounts)
Three months ended
September 30,
2010 2009
Revenue $ 38,073 $ 27,365
Cost of operations
Production costs 26,953 22,394
Depletion and depreciation 5,782 4,308
Mine operating earnings 5,338 663
Expenses
General and administrative 2,186 2,336
Share-based payments 16 109
Operating profit (loss) 3,136 (1,782)
Other income (expense)
Interest income 459 448
Finance costs (392) (332)
Foreign exchange (loss) gain (576) 652
Profit (loss) before income taxes 2,627 (1,014)
Deferred income tax recovery 561 1,645
Net profit for the period $ 3,188 $ 631
Attributable to
Non-controlling interest $ (851) $ (1,208)
Equity shareholders of the Company 4,039 1,839
Net profit for the period $ 3,188 $ 631
Earnings per share
Basic $ 0.01 $ 0.00
$ 0.01 $ 0.00
Diluted
Weighted average number of common share
outstanding
Basic 683,038 680,558
Diluted 693,409 687,018
Condensed consolidated statements of September 30, December 31,
financial position 2010 2009
Total assets $ 748,492 $ 706,850
Total long-term liabilities $ 54,977 $ 53,493
Nine months ended
September 30,
2010 2009
Revenue $ 109,384 $ 77,106
Cost of operations
Production costs 79,511 58,588
Depletion and depreciation 16,625 12,111
Mine operating earnings 13,248 6,407
Expenses
General and administrative 7,419 7,143
Share-based payments 1,768 444
Operating profit (loss) 4,061 (1,180)
Other income (expense)
Interest income 1,252 1,437
Finance costs (1,355) (1,159)
Foreign exchange (loss) gain (344) (795)
Profit (loss) before income taxes 3,614 (1,697)
Deferred income tax recovery 1,657 3,934
Net profit for the period $ 5,271 $ 2,237
Attributable to
Non-controlling interest $ (3,040) $ (3,083)
Equity shareholders of the Company 8,311 5,320
Net profit for the period $ 5,271 $ 2,237
Earnings per share
Basic $ 0.01 $ 0.01
$ 0.01 $ 0.01
Diluted
Weighted average number of common share
outstanding
Basic 682,350 680,541
Diluted 693,754 686,112
Condensed consolidated statements of
financial position
Total assets
Total long-term liabilities
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
Three months ended
2010
September 30 June 30 March 31
Key financial statistics
(dollar amounts stated in U.S. dollars)
Sales - PGM ounces 37,798 30,820 30,531
Average delivered price per ounce (2) $953 $1,015 $959
Average basket price $1,128 $1,200 $1,130
Rand average delivered price per ounce R 6,966 R 7,643 R 7,202
Rand average basket price R 8,246 R 9,036 R 8,486
Cash costs per ounce of PGM (1) $713 $882 $841
Cash costs per ounce of PGM,
net of chrome by-product credits (1) $625 $646 $711
Rand cash costs per ounce of PGM (1) R 5,212 R 6,639 R 6,315
Rand cash costs per ounce of PGM,
net of chrome by-product credits (1) R 4,566 R 4,866 R 5,336
Key production statistics
Run-of-mine ("ROM") rock tonnes processed 357,219 290,028 290,854
Development meters 3,299 3,202 2,812
On-reef development meters 1,797 1,573 1,931
Stoping units (square meters) 50,892 50,573 51,760
Concentrator recovery from ROM ore 81% 80% 78%
Chrome sold (tonnes) 72,436 76,677 75,846
Metal in concentrate sold (ounces)
Platinum (Pt) 19,195 15,433 15,405
Palladium (Pd) 8,129 6,769 6,562
Rhodium (Rh) 3,216 2,661 2,607
Gold (Au) 131 108 105
Iridium (Ir) 1,323 1,077 1,106
Ruthenium (Ru) 5,804 4,772 4,746
Total PGM ounces 37,798 30,820 30,531
2009
December 31 September 30 June 30 March 31
Key financial statistics
(dollar amounts stated
in U.S. dollars)
Sales - PGM ounces 34,000 29,986 33,383 32,969
Average delivered price
per ounce (2) $860 $765 $679 $590
Average basket price $1,008 $878 $779 $676
Rand average delivered
price per ounce R 6,450 R 5,967 R 5,730 R 5,865
Rand average basket price R 7,560 R 6,848 R 6,574 R 6,720
Cash costs per ounce of
PGM (1) $706 $758 $554 $536
Cash costs per ounce of
PGM,
net of chrome by-product
credits (1) $621 $583 $494 $388
Rand cash costs per
ounce of PGM (1) R 5,296 R 5,915 R 4,673 R 5,326
Rand cash costs per
ounce of PGM,
net of chrome by-product
credits (1) R 4,661 R 4,548 R 4,169 R 3,857
Key production statistics
Run-of-mine ("ROM") rock
tonnes processed 321,983 280,777 304,354 318,394
Development meters 3,254 2,882 4,326 4,573
On-reef development
meters 2,135 1,562 2,860 2,745
Stoping units (square
meters) 55,153 36,263 51,342 45,098
Concentrator recovery
from ROM ore 79% 78% 80% 80%
Chrome sold (tonnes) 85,347 76,900 70,850 84,207
Metal in concentrate
sold (ounces)
Platinum (Pt) 17,012 15,080 16,721 16,499
Palladium (Pd) 7,444 6,613 7,406 7,399
Rhodium (Rh) 2,923 2,499 2,868 2,812
Gold (Au) 121 115 141 135
Iridium (Ir) 1,240 1,095 1,179 1,144
Ruthenium (Ru) 5,260 4,584 5,068 4,980
Total PGM ounces 34,000 29,986 33,383 32,969
2008
December 31
Key financial statistics
(dollar amounts stated in U.S. dollars)
Sales - PGM ounces 29,015
Average delivered price per ounce (2) $550
Average basket price $655
Rand average delivered price per ounce R 5,456
Rand average basket price R 6,496
Cash costs per ounce of PGM (1) $628
Cash costs per ounce of PGM,
net of chrome by-product credits (1) $578
Rand cash costs per ounce of PGM (1) R 6,231
Rand cash costs per ounce of PGM,
net of chrome by-product credits (1) R 5,734
Key production statistics
Run-of-mine ("ROM") rock tonnes processed 298,514
Development meters 4,604
On-reef development meters 2,922
Stoping units (square meters) 46,459
Concentrator recovery from ROM ore 76%
Chrome sold (tonnes) 13,000
Metal in concentrate sold (ounces)
Platinum (Pt) 14,466
Palladium (Pd) 6,690
Rhodium (Rh) 2,451
Gold (Au) 121
Iridium (Ir) 979
Ruthenium (Ru) 4,308
Total PGM ounces 29,015
(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 smelting, refining and marketing costs,
under the Company`s primary off-take agreement.
Quarter ended September 30, 2010 compared to the quarter ended September 30,
2009
In Q3 2010, CRM recorded a Lost Time Injury Frequency Rate ("LTIFR") of 4.66
compared to 1.69 in Q3 2009 as a result of a nine lost time injuries in Q3 2010
compared to five in Q3 2009.
The Company generated revenue of $38,073,000 in Q3 2010 of which $34,732,000 is
PGM revenue and $3,341,000 is chrome revenue. PGM revenues represent the amounts
recorded when PGM concentrates are physically delivered to the buyer, which are
provisionally priced on the date of delivery. The Company settles its PGM sales
three to five months following the physical delivery of the concentrates and
adjustments are made when the prices for the metal sold to the market are
established.
The Company recorded an average delivered basket price of $953 per PGM ounce in
Q3 2010, compared to $765 in Q3 2009 and $1015 in the second quarter of 2010
("Q2 2010"). The delivered price per ounce refers to the PGM prices in effect at
the time the PGM concentrates are delivered to the smelter. As a result of
fluctuations in PGM prices, the Company recorded positive provisional price
adjustments of $239,000 and $2,313,000 in the three and nine months ended
September 30, 2010, respectively, compared to positive price adjustments of
$1,579,000 and $6,490,000 in the three and nine months ended September 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
September 30,
2010 2009
Revenue before provisional price adjustments $ 37,834 $ 25,786
Provisional price adjusments
Adjustments to revenue upon settlement of prior
periods` sales (192) 20
Mark-to-market adjustment on sales not yet settled
at end of period 431 1,559
Revenue as reported in the income statement $ 38,073 $ 27,365
Nine months ended
September 30,
2010 2009
Revenue before provisional price adjustments $ 107,071 $ 48,631
Provisional price adjusments
Adjustments to revenue upon settlement of prior
periods` sales 1,882 4,931
Mark-to-market adjustment on sales not yet settled
at end of period 431 1,559
Revenue as reported in the income statement $ 109,384 $ 55,121
PGM ounces sold increased by 26% in Q3 2010 compared to Q3 2009 as a result of a
number of factors, including an increase in the on-reef development meters
(1,797 meters in Q3 2010 compared to 1,562 meters in Q3 2009), an increase in
the run-of-mine tonnes hoisted (362,042 tonnes in Q3 2010 compared to 244,959
tonnes in Q3 2009) and an increase in run-of-mine rock processed (357,219 tonnes
in Q3 2010 compared to 280,777 tonnes in Q3 2009). Production was also lower in
Q3 2009 as a result of industrial action by two contract mining companies which
significantly interrupted production in the mine in July and August, 2009. The
Q3 2010 increases were slightly offset by a decrease in the grade from 4.1 grams
per tonne to 4.0 grams per tonne in Q3 2010. The focus for the third quarter was
mainly on quality of mining whilst replacing previously terminated contractor
crews. A revised sweeping standard, together with the higher stoping
productivity and on-reef development, contributed positively to the increase of
run-of-mine tonnes hoisted.
Operating cash costs, a non-IFRS measure, are incurred in Rand. Rand operating
cash costs, also a non- IFRS measure, decreased by 12% from R5,915 per ounce in
Q3 2009 to R5,212 per ounce in Q3 2010 due to the recording of chrome inventory
in transit (see discussion on chrome below) and a 26% increase in ounces
produced compared to Q3 2009, which were partially offset by a new South African
mining royalty tax and 7.5% wage increase both effective March 1, 2010 and a
significant increase in electricity tariffs that came into effect in Q2 2010.
Operating cash costs stated in U.S. dollars decreased by 6% from $758 per ounce
in Q3 2009 to $713 per ounce in Q3 2010 primarily due to a decrease in actual
Rand operating cash costs which was offset by a 6% appreciation of the South
African Rand relative to the U.S. dollar. The average U.S. dollar-Rand exchange
rate was R7.31:$1.00 in Q3 2010 compared to R7.80:$1.00 in Q3 2009.
A reconciliation of production costs, as reported in the income statement, to
cash operating costs, is shown in Table 6 under Section 3.2 CRM non-IFRS
measures.
The Company sold 72,436 tonnes of chrome in Q3 2010 (76,900 tonnes in Q3 2009)
of which revenue was recognized for 50,148 tonnes in Q3 2010 and 22,288 tonnes
in Q2 2010. Total chrome revenues recognized were $3,341,000 ($5,255,000 in Q3
2009), reducing operating cash costs to $625 per ounce net of by-product
credits. In Q3 2010, the Company reassessed the timing of its chrome revenue
recognition and determined that it was more appropriate to recognize chrome
revenues at the time the physical chrome crossed the ship`s rail at the port of
shipment. This resulted in the recording of chrome inventory of $2,201,000 at
September 30, 2010 representing 45,752 tonnes of chrome in transit, and a
corresponding one-time adjustment to chrome revenues. Had the Company not
recorded this adjustment in Q3 2010, the Company would have recognized sales of
100,023 tonnes of chrome in Q3 2010, resulting in an increase in total chrome
revenues of $3,181,000 to $6,522,000, an increase in total production costs of
$2,106,000 and an increase in EBITDA of $1,075,000. The table below shows the
effect of the adjustment in the timing of chrome revenue recognition:
Table 5
Crocodile River Mine
Effect of adjustment to the timing of chrome revenue recognition (1)
(stated in thousands of U.S. dollars, except per ounce data)
Three months ended September 30, 2010
Amounts as Adjustments to the
reported under the recognition of
revised method chrome revenues
Revenues $ 3 8,073 $ 3,181
Production costs $ 26,953 $ 2,106(2)
EBITDA $ 11,120 $ 1,075
Net profit for the period $ 3,188 $ 1,075
Non-controlling interest $ (851) $ 135
Net profit attributable to equity
shareholders of the Company $ 4,039 $ 940
Cash costs per ounce sold (3) $ 713 $ 56
Cash costs per ounce sold net of
by-product credits $ 625 $ (28)
Chrome inventory $ 2,201 $ (2,201)(2)
Amounts as would
have been reported
under the previous
method
Revenues $ 41,254
Production costs $ 29,059
EBITDA $ 12,195
Net profit for the period $ 4,263
Non-controlling interest $ (716)
Net profit attributable to equity
shareholders of the Company $ 4,979
Cash costs per ounce sold (3) $ 769
Cash costs per ounce sold net of
by-product credits $ 597
Chrome inventory $ -
(1) The Company determined that the impact of this change on its prior periods`
results of operations and financial position was not material. As a result, this
change has been applied prospectively, as of July 1, 2010.
(2) Production costs are calculated using the Q3 average foreign exchange rate
of R7.31:$1.00. Chrome inventory is calculated using the period end foreign
exchange rate of R7.00:$1.00.
(3) The calculation of cash cost per PGM ounce sold and cash costs net of by-
product credits include production costs for both PGM and chrome.
Quarter ended September 30, 2010 compared to the quarter ended June 30, 2010
Revenues increased by 4% compared to Q2 2010 as a result of a 23% rise in ounces
produced during the quarter, which was offset by a 6% decrease in the average
delivered basket price per ounce in the quarter. The rise in ounces produced was
due to a 23% increase in run-of-mine ore processed from 290,028 tonnes in Q2
2010 to 357,219 tonnes in Q3 2010. This and other operating measures, such as
run-of-mine tonnes hoisted and on-reef development meters, increased compared to
Q2 2010 due to the build-up and training of new crews in July.
Rand operating cash costs decreased by 21% from R6,639 per ounce in Q2 2010 to
R5,212 per ounce in Q3 2010 primarily as a result of a 23% increase in ounces
produced and the recording of chrome inventory in transit, offset by increases
in variable costs (production bonuses, fuel and lubricants, and steel balls) as
a result of the higher production level. Operating cash costs stated in U.S.
dollars decreased by 19% from $882 per ounce in Q2 2010 to $713 per ounce in Q3
2010 due to decreases in actual Rand operating cash costs which were offset by a
3% appreciation of the South African Rand relative to the U.S. dollar. The
average U.S. dollar-Rand exchange rate was R7.31:$1.00 in Q3 2010 compared to
R7.53:$1.00 in Q2 2010.
Nine months ended September 30, 2010 compared to the nine months ended September
30, 2009
In 9M 2010, the Company sold 99,149 PGM ounces, an increase of 3% compared to 9M
2009, primarily as a result of higher run-of-mine volumes processed in 2010
(938,101 tonnes processed in 9M 2010 compared to 903,525 tonnes processed in 9M
2009). On-reef development decreased to 5,301 meters in 9M 2010 compared to
7,167 meters in 9M 2009.
The average delivered basket price per ounce increased from $675 in 9M 2009 to
$974 in 9M 2010. PGM prices have generally experienced a rising trend since
January 2009.
Operating cash costs of $805 per ounce was achieved in 9M 2010, compared to $611
per ounce during the same period in 2009 due to a 3% increase in the number of
ounces produced in 9M 2010 compared to 9M 2009, a 15% weakening in the value of
the U.S. dollar relative to the Rand, and a 17% increase in total Rand operating
cash costs. Total Rand operating cash costs were 17% higher in 9M 2010 compared
to the same period in 9M 2009 due to two significant increases in electricity
tariffs that came into effect in Q3 2009 and Q2 2010, inflation, a 7.5% wage
increase effective March 1, 2010, an increase in variable costs due to an
increase in the number of ounces produced and a new South African mining royalty
tax effective March 1, 2010. These increases were offset by the recording of
chrome ore inventory in Q3 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 6
Crocodile River Mine non-IFRS measures
(Expressed in thousands of U.S. dollars, except ounce and per ounce data)
Three months ended
September 30,
2010 2009
Mine operating earnings (1) $ 5,338 $ 663
Depletion and depreciation 5,782 $ 4,308
EBITDA (2) 11,120 4,971
Production costs as reported 26,953 22,394
Adjustments for miscellaneous costs (3) (3) 335
Cash operating costs 26,950 22,729
Less by-product credits - chrome revenues and
adjustments (3,341) (5,255)
Cash operating costs net of by-product credits 23,609 17,474
Ounces sold 37,798 29,986
Cash cost per ounce sold $ 713 $ 758
Cash cost per ounce sold net of by-product
credits $ 625 $ 583
Nine months ended
September 30,
2010 2009
Mine operating earnings (1) $ 13,248 $ 6,407
Depletion and depreciation 16,625 12,111
EBITDA (2) 29,873 18,518
Production costs as reported 79,511 58,588
Adjustments for miscellaneous costs (3) 286 306
Cash operating costs 79,797 58,894
Less by-product credits - chrome revenues and
adjustments (14,578) (12,144)
Cash operating costs net of by-product credits 65,219 46,750
Ounces sold 99,149 96,338
Cash cost per ounce sold $ 805 $ 611
Cash cost per ounce sold net of by-product
credits $ 658 $ 485
(1) During Q3 2010 an adjustment was made to the timing of chrome revenue
recognition. Had the adjustment not been made, mine operating earnings and
EBITDA would have been $6,413,000 and $12,195,000 respectively.
(2) EBITDA includes provisional price adjustments, chrome revenues, chrome
penalties, and foreign exchange adjustments to sales.
(3) 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 September 30, 2010, the Company spent
approximately $9,681,000 at CRM, on underground mine development, underground
electrical upgrades, and ongoing underground works at the Zandfontein vertical
shaft, including the construction of dams for underground water control.
The shaft hoisting capacity is 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 tonnes of ore per month, which will enable CRM
to achieve its production target of approximately 175,000 tonnes 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). Construction power for the project is being provided
by Eskom, the South African public utility company and the Company is in
discussions with Eskom for the supply of permanent power.
3.3.2 Eastern Limb projects
Development of Mareesburg, Spitzkop and Kennedy`s Vale has been on hold since
December 2008. During the three and nine months ended September 30, 2010, the
expenditures at these three projects related to care and maintenance costs.
The Company has been granted new order mining rights for both the Mareesburg and
Spitzkop projects which will allow the Company to move forward with the
development of these projects. The planned development of the Mareesburg open-
pit mine could result in an increase in the Company`s annual production to
approximately 325,000 ounces in 2013. Under this plan, a 90,000 tonnes of ore
per month concentrator would be located on the Kennedy`s Vale site and the
planned rapid production ramp-up at Mareesburg would allow the concentrator to
ramp up quickly to full capacity immediately upon commissioning. To accommodate
future capacity increases, the plant at Kennedy`s Vale would include the civil
and other surface infrastructure work required for an additional 90,000 tonne
per month processing stream and appropriate tailings facility infrastructure to
process up to 180,000 tonnes per month of ore.
Mareesburg would initially be an open-pit mining operation and consequently
require little power. A power line currently provides 800 KVA across the
Mareesburg property and this would be adequate to run administration and
workshop/maintenance facilities with any further power requirements to be
provided by on site diesel power generators.
The Company has already secured 3MVA of power for the construction phase for the
concentrator at the Kennedy`s Vale site. With respect to permanent operating
power for the concentrator and for the Spitzkop mine, the Company has applied
for 40 MVA of installed capacity, of which 20MVA would be required for the
initial 90,000 tonnes per month plant. The Company has paid the necessary fees
to initiate the acquisition of power and Eskom has commenced the engineering
work.
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 6% from $2,336,000 in Q3
2009 to $2,186,000 as a result of certain measures taken to reduce G&A. For the
nine months ended September 30, G&A increased by 4% from $7,143,000 in 2009 to
$7,419,000 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.
Interest income recorded during the three and nine months ended September 30,
2010 was $459,000 and $1,252,000 compared with $448,000 and $1,437,000 during
the same periods in 2009. The decrease in interest income for the comparable
nine 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 nine months ended September 30, 2010 the Company recorded a
deferred income tax recovery of $561,000 and $1,657,000. 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
$43,255,000 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 September 30, 2010, the Company had working capital of $36,041,000 (December
31, 2009 - $31,776,000) and cash and cash equivalents and short-term investments
of $20,005,000 (December 31, 2009 - $21,658,000) in highly liquid, fully
guaranteed, bank sponsored instruments.
The Company had no long-term debt at September 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.
On October 28, 2010, the Company signed a mandate letter with two financial
institutions to arrange and underwrite a US$100 million corporate debt facility
through Eastplats International Inc., a subsidiary of the Company. The mandated
lead arrangers are UniCredit Bank AG, London Branch and The Standard Bank of
South Africa Limited.
4.1 Outlook
The PGM industry has experienced a two-year period of global economic
uncertainty and market volatility. Although PGM prices in U.S. dollar terms have
recovered since the beginning of 2009, this has been significantly negated by
the strength of the Rand against the U.S. dollar. The U.S. dollar realized
basket prices that the Company is receiving have improved since the December
2008 lows, but these prices, in Rand terms, are still 25% below those recorded
in September 2008 when basket prices reached their peak. The Company anticipates
that PGM prices will remain volatile and the Rand will remain strong against the
U.S. dollar in the short term, which impacts the income and cash flows generated
by the Company as it has U.S. dollar-based revenues and a Rand-based operating
cost structure. As a result, the Company continues to seek ways to improve its
operating efficiency and thereby minimize its operating costs, without
compromising safety, health and environmental standards.
With the rising trend in PGM prices, the Company resumed mine development at the
Crocette section at CRM in April 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.
On October 28, 2010, the Company signed a mandate letter with two financial
institutions to arrange and underwrite a US$100 million corporate debt facility
through Eastplats International Inc., a subsidiary of the Company. The mandated
lead arrangers ("MLAs") are UniCredit Bank AG, London Branch and The Standard
Bank of South Africa Limited. The MLAs` commitments to arrange and underwrite
the debt facilities are subject to final due diligence, execution of acceptable
documentation and obtaining final internal credit approvals. There is no
definitive assurance that the underwriting arrangement will be approved and
completed in the time frame contemplated by all parties.
To bring all of the Eastern Limb projects into production, additional funding
will be required and may include 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. 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 September 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 September 30, 2010, the Company did not grant any
stock options. Total share-based payment expense for the quarter was $16,000,
which takes into account the vesting of options. During Q3 2010, 105,000 options
were forfeited at a weighted average exercise price of Cdn$1.84 and 81,666
options were exercised at a weighted average exercise price of Cdn$0.38.
During the nine months ended September 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 nine months was
$1,768,000, which also takes into account the vesting of options. During the
nine months ended September 30, 2010, 771,668 options were forfeited at a
weighted average exercise price of Cdn$1.76 and 2,494,660 options were exercised
at a weighted average exercise price of Cdn$0.33.
As at November 9, 2010, the Company had:
* 683,179,033 common shares outstanding; and
* 58,386,838 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 September 30,
2010 were as follows:
Table 7
(in thousands of U.S. dollars)
Less than 1
Total year
Provision for environmental rehabilitation $ 9,180 $ -
Capital expenditure and purchase commitments
contracted
at September 30, 2010 but not recognized on the
consolidated statement of financial position 6,877 6,877
Finance lease obligations 3,850 1,267
$ 19,907 $ 8,144
More than 5
1-5 years years
Provision for environmental rehabilitation $ 1,516 $ 7, 664
Capital expenditure and purchase commitments
contracted
at September 30, 2010 but not recognized on the
consolidated statement of financial position - -
Finance lease obligations 2,583 -
$ 4,099 $ 7, 664
5. Related Party Transactions
Table 8
(Expressed in thousands of U.S. dollars, except per share amounts)
Three months ended
September 30,
2010 2009
Trading transactions
Management and consulting fees $ 333 $ 280
Reimbursements of expenses 29 26
Total trading transactions $ 362 $ 306
Compensation of key management personnel
Salaries and directors` fees $ 583 $ 530
Share-based payments - -
Total compensation of key management personnel $ 583 $ 530
Nine months ended
September 30,
2010 2009
Trading transactions
Management and consulting fees $ 1,018 $ 829
Reimbursements of expenses 91 45
Total trading transactions $ 1,109 $ 874
Compensation of key management personnel
Salaries and directors` fees $ 1,699 $ 1,510
Share-based payments 1,627 93
Total compensation of key management personnel $ 3,326 $ 1,603
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 nine months ended
September 30, 2010 due to additional consulting work in Q3 2010 and a stronger
Canadian dollar in 9M 2010 than 9M 2009. During the nine months ended September
30, 2009, reimbursements of expenses were higher due to increased travel to
South Africa in 2010 as the Company prepares for the development of its Eastern
Limb projects. Salaries and directors` fees increased during the three and nine
months ended September 30, 2010 due to additional consulting work in Q3 2010 and
a stronger Canadian dollar in 9M 2010 than 9M 2009. Share-based payments
increased from $93,000 during the nine months ended September 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 September 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 September 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 September 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
September 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.
November 9, 2010
Ian Rozier
Date: 15/11/2010 16:46:01 Produced by the JSE SENS Department.
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