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EPS
EPS
EPS - Eastern Platinum Limited - Management`s discussion and analysis of
financial conditions and results of operations for the three months ended
March 31, 2011
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 MONTHS ENDED MARCH 31, 2011
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 March 31, 2011 and for the three months then ended in
comparison to the same period in 2010.
This MD&A should be read in conjunction with the unaudited condensed
consolidated interim financial statements for the three months ended March 31,
2011 and supporting notes. These unaudited condensed consolidated interim
financial statements have been prepared using accounting policies consistent
with IFRS and in accordance with International Accounting Standard 34 -
Interim Financial Reporting("IAS 34").
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 May 9, 2011. 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 for the three months ended March 31, 2011
3. Results of operations for the three months ended March 31, 2011
3.1. Mining operations at 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 for the three months ended March 31, 2011
* Eastplats recorded a net loss attributable to equity shareholders of the
Company of $5,633,000 ($0.01 loss per share) in Q1 2011 compared to
earnings of $824,000 ($0.00 per share) in the first quarter of 2010 ("Q1
2010").
* EBITDA decreased 29% to $6,412,000 in Q1 2011 compared to $8,996,000 in Q1
2010.
* PGM ounces sold decreased 17% to 25,387 ounces in Q1 2011 compared to
30,531 PGM ounces in Q1 2010.
* The U.S. average delivered price per PGM ounce increased 18% to $1,136 in
Q1 2011 compared to $959 in Q1 2010.
* The Rand average delivered price per PGM ounce increased 11% to R7,963 in
Q1 2011 compared to R7,202 in Q1 2010.
* Rand operating cash costs net of by-product credits increased 16% to
R6,167
per ounce in Q1 2011 compared to R5,336 per ounce in Q1 2010. Rand
operating cash costs increased 28% to R8,090 per ounce in Q1 2011
compared to R6,315 per ounce in Q1 2010.
* U.S. dollar operating cash costs net of by-product credits increased 24%
to
$880 per ounce in Q1 2011 compared to $711 per ounce achieved in Q1 2010.
U.S. dollar operating cash costs increased 37% to $1,154 per ounce in Q1
2011 compared to $841 per ounce in Q1 2010.
* Head grade decreased to 3.9 grams per tonne in Q1 2011 from 4.1 grams per
tonne in Q1 2010.
* Average concentrator recovery increased to 79% in Q1 2011 compared to 78%
in Q1 2010.
* Development meters increased by 50% to 4,219 meters and on-reef
development
increased by 26% to 2,434 meters compared to Q1 2010.
* Stoping units decreased 14% to 44,674 square meters in Q1 2011 compared to
51,760 square meters in Q1 2010.
* Run-of-mine ore hoisted decreased by 19% to 247,369 tonnes in Q1 2011
compared to 304,309 tonnes in Q1 2010.
* Run-of-mine ore processed decreased by 16% to 245,500 tonnes in Q1 2011
compared to 290,854 tonnes in Q1 2010.
* The Company`s Lost Time Injury Frequency Rate (LTIFR) improved to 1.54 in
Q1 2011 compared to 1.77 in Q1 2010.
* At March 31 2011, the Company had a cash position (including cash, cash
equivalents and short term investments) of $349,719,000 (December 31,
2010 - $350,292,000).
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 2011
Mar 31
Revenues $ 35,702
Cost of operations (34,409)
Mine operating earnings 1,293
Expenses (G&A and share-based payment) (11,318)
Operating (loss) profit (10,025)
Net (loss) profit attributable to equity
shareholders of the Company $ (5,633)
(Loss) earnings per share - basic $ (0.01)
(Loss) earnings per share - diluted $ (0.01)
Average foreign exchange rates
South African Rand per US dollar 7.01
US dollar per Canadian dollar 1.0141
Period end foreign exchange rates
South African Rand per US dollar 6.75
US dollar per Canadian dollar 1.0314
Selected quarterly data 2010
Dec 31 Sept 30 June 30 March 31
Revenues $ 45,616 $ 38,073 $ 36,612 $ 34,699
Cost of
operations (36,272) (32,735) (32,383) (31,018)
Mine operating
earnings 9,344 5,338 4,229 3,681
Expenses (G&A
and
share-based
payment) (4,382) (2,202) (2,050) (4,935)
Operating
(loss) profit 4,962 3,136 2,179 (1,254)
Net (loss)
profit
attributable
to equity
shareholders
of the Company $ 5,041 $ 4,039 $ 3,448 $ 824
(Loss)
earnings per
share - basic $ 0.01 $ 0.01 $ 0.01 $ 0.00
(Loss)
earnings per
share -
diluted $ 0.01 $ 0.01 $ 0.00 $ 0.00
Average
foreign
exchange rates
South African
Rand per US
dollar 6.91 7.31 7.53 7.51
US dollar per
Canadian
dollar 0.9870 0.9621 0.9727 0.9608
Period end
foreign
exchange rates
South African
Rand per US
dollar 6.59 7.00 7.66 7.33
US dollar per
Canadian
dollar 1.0054 0.9718 0.9393 0.9844
Selected quarterly data 2009
Dec 31 Sept 30 June 30
Revenues $ 34,259 $ 27,365 $ 24,838
Cost of operations (29,294) (26,702) (22,595)
Mine operating earnings 4,965 663 2,243
Expenses (G&A and share-based
payment) (3,523) (2,445) (3,374)
Operating (loss) profit 1,442 (1,782) (1,131)
Net (loss) profit attributable
to equity
shareholders of the Company $ 330 $ 1,839 $ 317
(Loss) earnings per share -
basic $ 0.00 $ 0.00 $ 0.00
(Loss) earnings per share -
diluted $ 0.00 $ 0.00 $ 0.00
Average foreign exchange rates
South African Rand per US
dollar 7.50 7.80 8.44
US dollar per Canadian dollar 0.9459 0.9114 0.8578
Period end foreign exchange
rates
South African Rand per US
dollar 7.41 7.53 7.75
US dollar per Canadian dollar 0.9515 0.9340 0.859
3. Results of Operations for the three months ended March 31, 2011
The following table sets forth selected consolidated financial information for
the three months ended March 31, 2011 and 2010:
Table 2
Condensed consolidated interim income statements
(Expressed in thousands of U.S. dollars, except per share amounts - unaudited)
Three months ended
March 31,
2011 2010
Revenue $ 35 702 $ 34 699
Cost of operations
Production costs 29 290 25 703
Depletion and depreciation 5 119 5 315
Mine operating earnings 1 293 3 681
Expenses
General and administrative 3 095 3 196
Share-based payments 8 223 1 739
Operating loss (10 025) (1 254)
Other income (expense)
Interest income 1,509 372
Finance costs (522) (370)
Foreign exchange gain 1564 268
Loss before income taxes (7474) (984)
Deferred income tax recovery 122 548
Net loss for the period $ (7352) $ (436)
Attributable to
Non-controlling interest $ (1 719) $ (1 260)
Equity shareholders of the Company (5 633) 824
Net loss for the period $ (7 352) $ (436)
(Loss) earnings per share
Basic $ (0.01) $ 0.00
Diluted $ (0.01) $ 0.00
Weighted average number of common share
outstanding
Basic 908 015 681 200
Diluted 908 015 693 830
Condensed consolidated statements of March 31, December 31,
financial position 2011 2010
Total assets $ 1 125 966 $ 1 126 975
Total long-term liabilities $ 53 946 $ 55 576
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
2011
March 31
Key financial statistics
(dollar amounts stated in U.S. dollars)
Sales - PGM ounces 25 387
Average delivered price per ounce (2) $1 136
Average basket price $1 344
Rand average delivered price per ounce R 7 963
Rand average basket price R 9 421
Cash costs per ounce of PGM (1) $1 154
Cash costs per ounce of PGM,
net of chrome by-product credits (1) $880
Rand cash costs per ounce of PGM (1) R 8 090
Rand cash costs per ounce of PGM,
net of chrome by-product credits (1) R 6 167
Key production statistics
Run-of-mine ("ROM") ore tonnes processed 245 500
Development meters 4 219
On-reef development meters 2 434
Stoping units (square meters) 44 674
Concentrator recovery from ROM ore 79%
Chrome sold (tonnes) 63 578
Metal in concentrate sold (ounces)
Platinum (Pt) 12 790
Palladium (Pd) 5 494
Rhodium (Rh) 2 162
Gold (Au) 97
Iridium (Ir) 919
Ruthenium (Ru) 3 925
Total PGM ounces 25 387
2010
December 31 September 30 June 30 March 31
Key financial statistics
(dollar amounts stated in U.S. dollars)
Sales - PGM ounces 32 752 37 798 30 820 30 531
Average delivered price
per ounce (2) $1 058 $953 $1 015 $959
Average basket price $1 250 $1 128 $1 200 $1 130
Rand average delivered
price per ounce R 7 311 R 6 966 R 7 643 R 7 202
Rand average basket price R 8 638 R 8 246 R 9 036 R 8 486
Cash costs per ounce of
PGM (1) $928 $713 $882 $841
Cash costs per ounce of
PGM,
net of chrome by-product
credits (1) $653 $625 $646 $711
Rand cash costs per
ounce of PGM (1) R 6 412 R 5 212 R 6 639 R 6 315
Rand cash costs per
ounce of PGM,
net of chrome by-product
credits (1) R 4 509 R 4 566 R 4 866 R 5 336
Key production statistics
Run-of-mine ("ROM") ore
tonnes processed 327 872 357 219 290 028 290 854
Development meters 3 501 3 299 3 202 2 812
On-reef development
meters 1 925 1 797 1 573 1 931
Stoping units (square
meters) 53 044 50 892 50 573 51 760
Concentrator recovery
from ROM ore 78% 81% 80% 78%
Chrome sold (tonnes) 89 123 50 148 76 677 75 846
Metal in concentrate
sold (ounces)
Platinum (Pt) 16 526 19 195 15 433 15 405
Palladium (Pd) 7 055 8 129 6 769 6 562
Rhodium (Rh) 2 786 3 216 2 661 2 607
Gold (Au) 117 131 108 105
Iridium (Ir) 1 183 1 323 1 077 1 106
Ruthenium (Ru) 5 085 5 804 4 772 4 746
Total PGM ounces 32 752 37 798 30 820 30 531
2009
December 31 September 30 June 30
Key financial statistics
(dollar amounts stated in U.S. dollars)
Sales - PGM ounces 34 000 29 986 33 383
Average delivered price per ounce (2) $860 $765 $679
Average basket price $1 008 $878 $779
Rand average delivered price per ounce R 6 450 R 5 967 R 5 730
Rand average basket price R 7 560 R 6 848 R 6 574
Cash costs per ounce of PGM (1) $706 $758 $554
Cash costs per ounce of PGM,
net of chrome by-product credits (1) $621 $583 $494
Rand cash costs per ounce of PGM (1) R 5 296 R 5 915 R 4 673
Rand cash costs per ounce of PGM,
net of chrome by-product credits (1) R 4 661 R 4 548 R 4 169
Key production statistics
Run-of-mine ("ROM") ore tonnes
processed 321 983 280 777 304 354
Development meters 3 254 2 882 4 326
On-reef development meters 2 135 1 562 2 860
Stoping units (square meters) 55 153 36 263 51 342
Concentrator recovery from ROM ore 79% 78% 80%
Chrome sold (tonnes) 66 694 76 900 70 850
Metal in concentrate sold (ounces)
Platinum (Pt) 17 012 15 080 16 721
Palladium (Pd) 7 444 6 613 7 406
Rhodium (Rh) 2 923 2 499 2 868
Gold (Au) 121 115 141
Iridium (Ir) 1 240 1 095 1 179
Ruthenium (Ru) 5 260 4 584 5 068
Total PGM ounces 34 000 29 986 33 383
(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 March 31, 2011 compared to the quarter ended March 31, 2010
In Q1 2011, CRM recorded a Lost Time Injury Frequency Rate ("LTIFR") of 1.54
compared to 1.77 in Q1 2010. There were three lost time injuries in both Q1
2011 and Q1 2010. The difference in LTIFR was due to more man hours in Q1 2011
than in Q1 2010.
The Company generated revenue of $35,702,000 in Q1 2011 of which $28,739,000
is PGM revenue and $6,963,000 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 $1,136 per PGM ounce
in Q1 2011, compared to $959 in Q1 2010 and $1,058 in the fourth quarter of
2010 ("Q4 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 $1,273,000 in the three months ended March
31, 2011, compared to positive price adjustments of $2,898,000 in the three
months ended March 31, 2010.
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
March 31,
2011 2010
Revenue before provisional price adjustments $ 34 429 $ 31 801
Provisional price adjusments
Adjustments to revenue upon settlement of prior
periods` sales 1 697 1 702
Mark-to-market adjustment on sales not yet
settled at end of period (424) 1 196
Revenue as reported in the income statement $ 35 702 $ 34 699
PGM ounces sold decreased by 17% in Q1 2011 compared to Q1 2010 due to lower
run-of-mine ore tonnes processed (245,500 tonnes in Q1 2011 compared to
290,854 tonnes in Q1 2010) and lower head grade (3.9 grams per tonne in Q1
2011 compared to 4.1 grams per tonne in Q1 2010), despite higher concentrator
recovery (79% in Q1 2011 compared to 78% in Q1 2010). The decrease in run-of-
mine tonnes processed was the result of a comprehensive internal safety review
that occurred early in the quarter and is in line with new DMR general safety
recommendations on roof support requirements. Following the review, support
methods at CRM were modified, which included the acceleration of the
previously planned progressive introduction of cement grout support packs into
working panels, to further enhance safety standards. This increase in support
standards necessitated the retraining of underground personnel, which
temporarily decreased the number of working panels during the quarter and
impacted production. The decrease in head grade was the result of increased on-
reef development.
Operating cash costs, a non-IFRS measure, are incurred in Rand. Rand operating
cash costs, increased by 28% from R6,315 per ounce in Q1 2010 to R8,090 per
ounce in Q1 2011 due to a 17% decrease in ounces sold, the introduction of the
South African mining royalty and a 7.5% wage increase both effective March 1,
2010, a significant increase in electricity tariffs that came into effect in
Q2 2010, and inflation on other expenses of approximately 7%.
Operating cash costs stated in U.S. dollars increased by 37% from $841 per
ounce in Q1 2010 to $1,154 per ounce in Q1 2011 primarily due to an increase
in actual Rand operating cash costs combined with a 7% appreciation of the
South African Rand relative to the U.S. dollar. The average U.S. dollar-Rand
exchange rate was R7.01:$1.00 in Q1 2011 compared to R7.51:$1.00 in Q1 2010.
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.
Chrome revenues and effect on cash costs per ounce
The Company recorded revenue for 63,578 tonnes of chrome in Q1 2011 (75,846
tonnes in Q1 2010). Net chrome revenue recognized was $110 per tonne ($52 per
tonne in Q1 2010) for a total of $6,963,000 ($3,980,000 in Q1 2010). The net
chrome revenue per tonne received by the Company which increased by 112%
compared to Q1 2010, has been very volatile during the last two years. Global
chrome prices dropped in late 2009 and increased in the latter half of 2010.
Q1 2011 chrome revenues of $6,963,000 reduced operating cash costs from $1,154
to $880 per ounce net of by-product credits and from R8,090 to R6,167 per
ounce net of by-product credits.
Quarter ended March 31, 2011 compared to the quarter ended December 31, 2010
Revenues decreased by 22% compared to Q4 2010 as a result of a 22% decrease in
the ounces produced in the quarter, a 23% decrease in chrome revenues and a
59% decrease in price adjustments, which were slightly offset by a 7% rise in
the average delivered price per ounce. The decrease in chrome revenues was due
to a 29% decrease in tonnes of chrome sold which was partially offset by a 9%
increase in the net price received for chrome. The decrease in ounces produced
was due to a 25% decrease in run-of-mine ore processed (327,872 tonnes in Q4
2010 compared to 245,500 tonnes in Q1 2011) and a decrease in head grade from
4.0 grams per tonne in Q4 2010 to 3.9 grams per tonne in Q1 2011, which were
slightly offset by an increase in concentrator recovery from 78% in Q4 2010 to
79% in Q1 2011. The decrease in run-of-mine ore processed was due to the
change in stope support standards and the retraining of underground personnel
in order to further enhance stope stability. The decrease in head grade was
the result of increased on-reef development, and the increase in concentrator
recovery was the result of improved concentrator utilization and stability.
Rand operating cash costs increased by 26% from R6,412 per ounce in Q4 2010 to
R8,090 per ounce in Q1 2011 primarily as a result of a 22% decrease in ounces
produced. Operating cash costs stated in U.S. dollars increased by 24% from
$928 per ounce in Q4 2010 to $1,154 per ounce in Q1 2011 due to increases in
actual Rand operating cash costs, which was slightly offset by a 1%
depreciation of the South African Rand relative to the U.S. dollar. The
average U.S. dollar-Rand exchange rate was R7.01:$1.00 in Q1 2011 compared to
R6.91:$1.00 in Q4 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
March 31,
2011 2010
Mine operating earnings $ 1 293 $ 3 681
Depletion and depreciation 5 119 $ 5 315
EBITDA (1) 6 412 8 996
Production costs as reported 29 290 25,703
Adjustments for miscellaneous costs (2) 7 (29)
Cash operating costs 29 297 25,674
Less by-product credits - chrome revenues
and adjustments (6 963) (3 980)
Cash operating costs net of by-product
credits 22 334 21 694
Ounces sold 25 387 30 531
Cash cost per ounce sold $ 1 154 $ 841
Cash cost per ounce sold net of by-product
credits $ 880 $ 711
(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 March 31, 2011, the Company spent approximately
$14,306,000 at CRM on underground mine development, underground electrical
upgrades, and ongoing underground works at the Zandfontein vertical shaft,
including the development of a decline for a conveyor and chairlift system
that will move ore and workers to and from the new stopes being developed
below 4-level.
As a result of the higher trend in PGM prices, mine development at the shallow
Crocette ore body recommenced on April 4, 2010. The Company expects Crocette
to reach full production by the first quarter of 2013, at which time Crocette
is planned to deliver up to 40,000 tonnes of ore per month. Combined with the
mining at Zandfontein and Maroelabult, this will enable CRM to achieve its
production target of approximately 175,000 tonnes of ore per month with 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 was put on hold in
December 2008 but rising PGM prices and the receipt of New Order Mining Rights
for both Spitzkop and Mareesburg (received in October 2009 and September 2010
respectively) have allowed the Company to move forward in Q4 2010 with the
development plans for these projects. During the three months ended March 31,
2011, expenditures at these projects were comprised of care and maintenance
costs as well as costs for the restart of engineering and construction
planning for an open-pit mine at Mareesburg and an associated 90,000 tonne-per-
month (tpm) concentrator. The Company expects expenditures to increase
commencing in the second quarter of 2011 as development activities ramp up.
The Mareesburg open-pit mine, when operating at full capacity, could result in
an increase in the Company`s annual PGM production to approximately 325,000
ounces by 2014, when combined with CRM. Under the current development plan, a
90,000 tpm concentrator would be located on the Kennedy`s Vale site and the
planned rapid production build-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 tpm processing stream and appropriate tailings facility
infrastructure to process up to 180,000 tonnes per month of ore.
Mareesburg will 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 will be adequate to run administration and
workshop/maintenance facilities with any further power requirements to be
provided by on-site diesel power generators.
Design for the mine and concentrator are progressing, and long lead items such
as mills and mining equipment have been purchased or ordered. The mill terrace
is complete. A project management/construction management contract has been
awarded to a qualified South African company and construction work on site is
expected to begin in the second quarter of 2011 with operations planned in the
fourth quarter of 2012.
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 which is
planned to be developed after the Mareesburg open-pit mine comes on stream,
the Company has applied for 40 MVA of installed capacity, of which 20MVA would
be required for the initial 90,000 tpm 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 3% from $3,196,000 in Q1 2010 to $3,095,000 in Q1 2011 due to
a $514,000 decrease in G&A at the Company`s South African subsidiary, Barplats
Investments Limited, which was partially offset by the appreciation of the
South African Rand relative to the U.S. dollar. The average U.S. dollar-Rand
exchange rate was R7.01:$1.00 in Q1 2011 compared to R7.51:$1.00 in Q1 2010.
G&A decreased by 34% from $4,698,000 in Q4 2010 to $3,095,000 in Q1 2011
mainly due to the payment of $1,471,000 in bonuses to executive officers and
directors of the Company in Q4 2010.
Interest income recorded during the three months ended March 31, 2011 was
$1,509,000 compared with $372,000 during the same period in 2010. The increase
in interest income was mainly due to an increase in cash balances at head
office as a result of the Company`s December 30, 2010 equity financing.
Further details on the equity financing have been included within Section 4.
During the three months ended March 31, 2011, the Company recorded current tax
expense of $377,000 and a deferred income tax recovery of $499,000 for a net
deferred tax recovery of $122,000. The current tax expense was the result of
income earned for non-mining activities. The Company`s mining loss carry-
forwards could not be applied against this income as the income was non-mining
based. 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 $45,049,000 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 March 31, 2011, the Company had working capital of $360,356,000 (December
31, 2010 - $362,691,000) and cash and cash equivalents and short-term
investments of $349,719,000 (December 31, 2010 - $350,292,000) in highly
liquid, fully guaranteed, bank sponsored instruments.
The Company`s strong working capital and cash position was achieved through
the completion of an equity financing on December 30, 2010. The Company raised
Cdn$348 million through a public offering which consisted of 224,250,000
common shares, of which 195,361,476 common shares were issued at a price of
Cdn$1.55 and 28,888,524 common shares were issued at a price of GBP0.9568.
The Company had no long-term debt at March 31, 2011, other than a provision
for environmental rehabilitation relating to CRM, Kennedy`s Vale and Spitzkop.
In January, 2011 the Company received formal letters of commitment to
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 over three years 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 significantly
below those recorded in June 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 commenced planning for Phase 1
of the development of its Eastern Limb projects in late 2010. Phase 1 includes
the development of an open-pit mine at Mareesburg and the construction of a
90,000 tpm concentrator located on the Kennedy`s Vale site. Concurrently with
the planning for Crocette and for Phase 1, the Company sought to raise
financing to fund these development projects.
On December 30, 2010, the Company completed a Cdn$348 million public offering,
which primary purpose was to finance the development of Phase 1. In January
2011, the Company received formal letters of commitment to 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. The Company
expects to complete the final legal documentation for the debt facility during
the second quarter of 2011. Upon the closing of the debt facility, the Company
will have approximately U.S.$450 million in cash, short-term investments and
undrawn credit facilities available for the development of the Mareesburg open-
pit mine and the associated concentrator, for the Crocette development, and
for general corporate purposes.
To bring the rest of the Eastern Limb projects, which includes Spitzkop and
Kennedy`s Vale, into production additional funding will be required and may
include joint venture or other third party participation in one or more of
these 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, including funds
generated from producing operations, the Company may be required to delay or
reduce the scope of these development projects.
4.2 Impairment
At March 31, 2011, 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 March 31, 2011, the Company granted 9,875,000
stock options at an exercise price of Cdn$1.55. Total share-based payment
expense with regards to stock options for the quarter was $8,186,000, which
takes into account the vesting of options and the reversal of share-based
payment expense previously recognized for unvested options that were forfeited
in the period. During Q1 2011, 30,000 options were forfeited at a weighted
average exercise price of Cdn$0.32 and 590,000 options were exercised at a
weighted average exercise price of Cdn$0.32.
In 2010, the Company`s South African subsidiary, Barplats Investments Limited
("BIL"), implemented a key skills retention plan for its senior employees in
South Africa, in response to the growing skills shortage in the country. The
purpose of the plan is to retain key employees, attract new employees as the
need arises and remain competitive with other South African mining companies.
The plan operates through a trust ("the Trust") which purchases shares of the
Company on behalf of the employees. These shares then vest to the employees
over time. During the 3 months ended March 31, 2011, the Trust purchased
198,563 shares pursuant to the plan which resulted in a share-based payment
expense of $37,000 and a share-based payment liability of $15,000.
As at May 9, 2011, the Company had:
* 908,187,807 common shares outstanding; and
* 67,070,503 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 March 31, 2011
were as follows:
Table 6
(in thousands of U.S. dollars)
Less than 1
Total year
Provision for environmental rehabilitation $ 31 896 $ -
Capital expenditure and purchase commitments
contracted
at March 31, 2011 but not recognized on the
unaudited
condensed consolidated interim statement of
financial
position 23 065 23 065
Finance lease obligations 3 322 3 322
$ 58 283 $ 26 387
More than 5
1-5 years years
Provision for environmental rehabilitation $ - $ 31 896
Capital expenditure and purchase commitments
contracted
at March 31, 2011 but not recognized on the
unaudited
condensed consolidated interim statement of
financial
position - -
Finance lease obligations - -
$ - $ 31 896
5. Related Party Transactions
Table 7
(Expressed in thousands of U.S. dollars, except per share amounts)
Three months ended
March 31,
2011 2010
Trading transactions
Management and consulting fees $ 392 $ 336
Reimbursements of expenses 18 20
Total trading transactions $ 410 $ 356
Compensation of key management personnel
Salaries and directors` fees $ 647 $ 548
Share-based payments 7 996 1 627
Total compensation of key management personnel $ 8 643 $ 2 175
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 months ended March
31, 2011 mainly due to an appreciation of the Canadian dollar relative to the
U.S. dollar. The average U.S. dollar-Canadian dollar exchange rate was
U.S.$1.0141:Cdn$1.00 in Q1 2011 compared to U.S.$0.9608:Cdn$1.00 in Q1 2010.
Salaries and directors` fees increased during the three months ended March 31,
2011 as a result of increases to annual fees granted to certain officers and
directors during the quarter. Share-based payments increased from $1,627,000
during the three months ended March 31, 2010 to $7,996,000 during the same
period in 2011 mainly due to the issuance of 3.4 times as many stock options
in Q1 2011 compared to 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 Accounting Pronouncements under IFRS
Effective January 1, 2011, the Company adopted new and revised International
Financial Reporting Standards ("IFRSs") that were issued by the International
Accounting Standards Board ("IASB"). The application of these new and revised
IFRSs has not had any material impact on the amounts reported for the current
and prior years but may affect the accounting for future transactions or
arrangements.
(a) Amendment to IAS 32 Financial Instruments: Presentation
Rights, options or warrants to acquire a fixed number of the Company`s equity
instruments for a fixed amount of any currency will be allowed to be
classified as equity instruments so long as the Company offers the rights,
options or warrants pro rata to all of the Company`s existing owners of the
same class of the Company`s non-derivative equity instruments.
(b) Amendments to IFRS 3 Business Combinations
Clarification that the contingent consideration arising in a business
combination previously accounted for in accordance with IFRS 3 that is
outstanding at the adoption date continues to be accounted for in accordance
with IFRS 3.
Limiting the accounting policy choice to measure non-controlling interests
upon initial recognition at fair value or at the non-controlling interest`s
proportionate share of the acquiree`s identifiable net assets to instruments
that give rise to a present ownership interest and that currently entitle the
holder to a share of net assets in the event of liquidation.
Expansion of the guidance with regards to the attribution of the market-based
measure of an acquirer`s share-based payment awards issued in exchange for
acquiree awards.
(c ) Amendments to IAS 27 Consolidated and Separate Financial Statements
Clarification that the amendments to IAS 21 The Effects of Changes in Foreign
Exchange Rates, IAS 28 Investments in Associates, and IAS 31 Interests in
Joint Ventures resulting from IAS 27 should be applied prospectively, except
for amendments resulting from renumbering.
(d) Amendments to IFRS 7 Financial Instruments: Disclosures
Amendment to disclosure requirements, specifically, ensuring qualitative
disclosures are made in close proximity to quantitative disclosures in order
to better enable financial statement users to evaluate an entity`s exposure to
risks arising from financial instruments.
(e ) Amendments to IAS 1 Presentation of Financial Statements
Clarification that the breakdown of changes in equity resulting from
transactions recognized in other comprehensive income is required to be
presented in the statement of changes in equity or in the notes to the
financial statements.
(f ) Amendments to IAS 24 Related Party Disclosures
Amendment of the definition for related parties.
(g) Amendments to IAS 34 Interim Financial Reporting
Addition of further examples of events or transactions that require disclosure
and removal of references to materiality when discussing other minimum
disclosures.
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 three months ended March 31, 2011 and 2010, 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 March 31, 2011 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"). Since
2009, the Company has used the services of 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 March
31, 2011.
The scope of the Company`s design of DCP and ICFR excluded Gubevu Consortium
Investment 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 three months ended
March 31, 2011 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.
May 9, 2011
Ian Rozier
Date: 12/05/2011 13:51:01 Produced by the JSE SENS Department.
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