| Mon 15 Aug 2011, 11:08 | | FMC - Forbes & Manhattan Coal Corp. - Condensed Interim Consolidated |
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FMC
FMC
FMC - Forbes & Manhattan Coal Corp. - Condensed Interim Consolidated
Statements of Financial Position for the three months ended May 31, 2011
Forbes & Manhattan Coal Corp.
(Registration number: 002116278)
(External company registration number: 2011/011661/10)
Share code on the Toronto Stock Exchange: FMC
Share code on the JSE Limited: FMC
ISIN: CA3451171050
Forbes & Manhattan Coal Corp.
Condensed Interim Consolidated Statements of Financial Position
for the three months ended May 31, 2011
(Unaudited - prepared by management)
(Presented in Canadian dollars)
Notes May 31, 2011 February 28, January 1,
2011(Note 27) 2010
(Notes 1 and
27)
ASSETS
Current
Cash and cash $ 19,782,871 $ 15,252,651 $ 52,177
equivalents
Restricted cash 1,812,040 1,736,000 -
Accounts and 9,809,660 12,410,375 600
other receivables
Inventories 15 13,340,637 10,526,681 -
Prepaid expenses 115,905 60,301 7,144
44,861,113 39,986,008 59,921
Property, plant 13 79,203,221 79,316,581 -
and equipment
Mine properties 12 5,955,580 5,911,567 -
Goodwill 8 18,672,014 18,672,014 -
Other assets 14 6,207,009 5,398,825 -
Deferred income 54,827 120,061 -
taxes
Deferred charges - - 735,706
$154,953,764 $149,405,056 $ 795,627
LIABILITIES
Current
Accounts payable 16 $ 6,791,714 $ 7,031,196 $ 32,355
and accrued
liabilities
Acquisition 11 21,142,698 - -
obligation
Other financial 17 1,703,125 2,660,467 -
liabilities
Asset retirement 18 401,272 389,177 -
obligation
Loans payable 19 184,351 261,934 -
30,223,160 10,342,774 32,355
Acquisition 11 - 20,300,925 -
obligation
Asset retirement 18 2,854,154 2,665,329 -
obligation
Other financial 17 10,187,423 11,727,930 -
liabilities
Deferred income 19,004,181 18,654,227 -
taxes
62,268,918 63,691,185 32,355
SHAREHOLDERS`
EQUITY
Issued capital 20 98,792,926 93,672,871 800,160
Share-based 22 10,253,033 8,413,283 -
payment reserves
Deficit (18,439,247) (36,888)
(17,434,614)
Currency 480,605 -
translation (535,198)
reserve
Equity attributable to 91,087,317 84,116,342 763,272
the owners of the company
Non-controlling 8 1,597,529 1,597,529 -
interest
92,684,846 85,713,871 763,272
$154,953,764 $149,405,056 $ 795,627
Commitments and contingencies 1, 8, 25
Subsequent events 26
APPROVED ON BEHALF OF THE BOARD:Signed "Stephan Theron" ,
Director
Signed "David Stein" , Director
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Forbes & Manhattan Coal Corp.
Condensed Interim Consolidated Statements of Operations and Comprehensive
Income (Loss)
(Unaudited - prepared by management)
(Presented in Canadian Dollars)
For the three months ended
Notes May 31, 2011 June 30,
2010
(Notes 1 and
27)
REVENUE $ 19,607,959 $ -
COST OF SALES
Operating expenses 12,494,708 -
Amortization and 2,927,693 -
depletion
15,422,401 -
Gross profit 4,185,558 -
EXPENSES
Consulting and 727,200 170,060
professional fees
General and 761,550 115,573
administration
Directors` fees 45,000 -
Stock based 22 1,839,750 -
compensation
Mineral properties - 58,217
investigation costs
3,373,500 343,850
Net income (loss) before 812,058 (343,850)
other items
OTHER ITEMS
Other income 236,169 -
Business combination (18,534) -
transaction costs
Accretion 11 (537,259) -
Interest income 10 (311,571) -
(expense)
Foreign exchange gain (307,938) (1,263)
(loss)
NET (LOSS) before income (127,075) (345,113)
tax
Income tax expense (877,558) -
NET (LOSS) for the period (1,004,633) (345,113)
Other comprehensive
income items
Unrealized gain on 1,015,803 -
foreign currency
translation
COMPREHENSIVE INCOME $ 11,170 $ (345,113)
(LOSS) for the period
Net loss per share - (0.03) (0.13)
basic and diluted
Weighted average number
of common shares 34,839,636 2,700,000
outstanding - basic and
diluted
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Forbes & Manhattan Coal Corp.
Condensed Interim Consolidated Statements of Cash Flows
(Unaudited - prepared by management)
(Presented in Canadian Dollars)
For the three months ended
May 31, 2011 June 30, 2010
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net loss for the period $ (1,004,633) $ (345,113)
Adjustments:
Amortization and depletion 2,927,693 -
Fair value adjustment on financial (50,048) -
assets
Deferred income taxes (29,903) -
Accretion 564,257 -
Foreign exchange 216,378 -
Stock based compensation 1,839,750 -
4,463,494 (345,113)
Net change in non-cash working capital 110,124 66,561
4,573,618 (278,552)
INVESTING ACTIVITIES
Change in accounts payable attributable - 16,513
to property exploration
Additions to property, plant and (1,673,681) -
equipment
Additional contribution to endowment (310,972) -
policy
Restricted cash (50,000) -
Deferred charges - (3,219,106)
(2,034,653) (3,202,593)
FINANCING ACTIVITIES
Change in accounts payable attributable 292,482 -
to share issue costs
Shares issued for cash 5,460,000 -
Commitment to issue special warrants - 3,194,550
Shares issue costs (632,427) -
Loans payable (3,152,731) -
Bank overdraft - 5,172
1,967,324 3,199,722
Effect of exchange rate change on cash 23,931 -
and cash equivalents
CHANGE IN CASH AND CASH EQUIVALENTS 4,506,289 (281,423)
CASH AND CASH EQUIVALENTS, beginning of 15,252,651 281,423
the period
CASH AND CASH EQUIVALENTS, end of the $ 19,782,871 $ -
period
CASH AND CASH EQUIVALENTS CONSIST OF:
Cash $ 19,782,871 $ -
SUPPLEMENTAL INFORMATION
Interest and dividend income $ (311,571) $ -
Income taxes received (paid) $ 29,903 $ -
Deferred charge payment made by $ - $3,091,500
Aberdeen
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Numb Issued Share-based payment reserves
er capital
of
shar
es
issu
ed
Warrant reserve Special Option
warrant reserve
reserve
Balance $ $ $ $
as at 2,600,000 800,160 - - -
January
1, 2010
Shares
issued 100,000 500,000 - - -
on
private
placemen
ts
Stock-
based - - - - 104,000
compensa
tion
Net loss
for the
three
months
ended
March - - - - -
31, 2010
Balance $ $ $ $
as at 2,700,000 1,300,16 - - 104,000
March 0
31, 2010
Commitme
nt to - - - 3,194,550 -
issue
special
warrants
Net loss
for the
three
months
ended
June
30, 2010 - - - - -
Balance $ $ $ $
at June 2,700,000 1,300,160 - 3,194,550 104,000
30, 2010
Shares
issued 22,972,368 71,797,784 - - -
on
private
placemen
ts
Shares
issued 3,938,965 11,029,102 - - -
on
business
combinat
ion
Shares
issued 1,279,384 4,073,578 - - -
on Nyah
transact
ion
Performa
nce 2,700,000 7,196,100 - - -
shares
issued
into
escrow
Stock-
based - - - - 6,221,996
compensa
tion
Options
issued - - - - 119,684
on Nyah
transact
ion
Shares
issued 75,000 426,000 - - (182,250)
on
exercise
of
options
Broker
warrants - (2,149,853) 2,149,853 - -
granted
on
private
placemen
t
Commitme
nt to (3,194,550)
issue
special
warrants
Other
comprehe
nsive
loss for
the
period
ended
February - - - - -
28, 2011
Net loss
for the
period
ended
February - - - - -
28, 2011
Balance $ $ $ $
as at 33,665,717 93,672,871 2,149,853 - 6,263,430
February
28, 2011
Shares
issued 1,200,000 5,120,055 - - -
on
private
placemen
ts
Stock- 1,839,750
based - - - -
compensa
tion
Other
comprehe
nsive
income
for
the
three - - - - -
months
ended
May 31,
2011
Net loss
for the
three
months
ended
May
31, 2011 - - - - -
Balance $ $ $ $ 8,103,180
as at 34,865,717 98,792,926 2,149,853 -
May 31,
2011
Deficit Curremcy Shareholders`
translatio equity
n reserve
Balance as at January 1, 2010 $ $ $
(36,888) - 763,272
Shares issued on private
placements - - 500,000
Stock-based compensation
- - 104,000
Net loss for the three months
ended
March 31, 2010
(379,169) - (379,169)
Balance as at March 31, 2010 $ $ $
(416,057) - 988,103
Commitment to issue special
warrants - - 3,194,550
Net loss for the three months
ended
June 30, 2010
(345,113) - (345,113)
Balance at June 30, 2010 $ $ $
(761,170) - 3,837,540
Shares issued on private
placements - - 71,797,784
Shares issued on business
combination - - 11,029,102
Shares issued on Nyah
transaction - - 4,073,578
Performance shares issued into
escrow - - 7,196,100
Stock-based compensation
- - 6,221,996
Options issued on Nyah
transaction - - 119,684
Shares issued on exercise of
options - - 243,750
Broker warrants granted on
private placement - - -
Commitment to issue special
warrants (3,194,550)
Other comprehensive loss for
the period ended -
February 28,
2011 - (535,198) (535,198)
Net loss for the period ended
February 28,
2011 (16,673,444) - (16,673,444)
Balance as at February 28, $ $ $
2011 (17,434,614) (535,198) 84,116,342
Shares issued on private
placements - - 5,120,055
Stock-based compensation
- - 1,839,750
Other comprehensive income for
the three months ended May
31, 2011 - 1,015,803 1,015,803
Net loss for the three months
ended
May 31, 2011
(1,004,633) - (1,004,633)
Balance as at May 31, 2011 $ $ $
(18,439,247) 480,605 91,087,317
The accompanying notes are an integral part of the condensed consolidated
financial statements.
1. NATURE OF OPERATIONS
Forbes & Manhattan Coal Corp. (individually, or collectively with its
subsidiaries, as applicable, "Forbes Coal" or the "Company") is a coal mining
company. Forbes Coal is the continuing combined entity following a September
2010 transaction between Forbes & Manhattan (Coal) Inc. and Nyah Resources
Corp. ("Nyah") whereby Nyah, a public company listed on the Toronto Venture
Exchange ("TSX-V"), acquired all of the outstanding shares of the Company in
exchange for common shares of Nyah (the "Transaction"). The Transaction was
accounted for as a purchase of assets with Forbes & Manhattan (Coal) Inc. as
the acquirer and Nyah as the acquiree. As such, these condensed consolidated
financial statements are a continuation of the consolidated financial
statements of Forbes & Manhattan (Coal) Inc. Following the Transaction, the
combined company is now known as Forbes & Manhattan Coal Corp. and is listed
on the TSX. The Company`s head office is located at 65 Queen Street West,
Suite 815, Toronto, Ontario, Canada.
Forbes & Manhattan (Coal) Inc. was incorporated on November 12, 2009. In July
2010, Forbes & Manhattan (Coal) Inc. completed an agreement to acquire Slater
Coal (Pty) Ltd. ("Slater Coal"), a South African company, and its interest in
its coal mines in South Africa ("Slater Coal Properties"), as more fully
described in Note 8. The Slater Coal Properties comprise the operating
Magdalena bituminous mine (the "Magdalena Property") and the Aviemore
anthracite mine (the "Aviemore Property"). Slater Coal is engaged in open-pit
and underground coal mining.
Slater Coal indirectly holds a 70% interest in the Slater Coal Properties
through its 70% interest in Zinoju Coal (Pty) Ltd. ("Zinoju") which holds all
of the mineral rights and prospecting permits with respect to the Slater Coal
Properties. The remaining 30% interest in Zinoju Coal (Pty) Ltd. is held by
the South African Black Economic Empowerment ("BEE") partners. BEE is a
statutory initiative on behalf of the South African government, enacted to
increase African access to the South African economy by increasing African
ownership in new South African enterprises.
The Company changed its year end from December 31 to February 28, effective
for the year ending February 28, 2011. The year end change was made to align
the year end of the Company with that of its subsidiary, Slater Coal. The
change in year end required the Company to have a transition year with a
fourteen month period ending February 28, 2011 with comparatives for the
period from inception (November 12, 2009) to December 31, 2009. As a result,
the unaudited condensed interim consolidated financial statements of the
Company for the three months ended May 31, 2011 are presented with
comparatives for the three months ended June 30, 2010.
The business of mining and exploring for minerals involves a high degree of
risk and there can be no assurance that current operations will result in
profitable mining operations. The recoverability of the carrying value of
property, plant and equipment, intangibles and goodwill and the Company`s
continued existence is dependent upon the preservation of its interests in
the underlying properties, the discovery of economically recoverable
reserves, the achievement of profitable operations, ability to transport and
sell its coal, or the ability of the Company to raise additional financing,
if necessary, or alternatively upon the Company`s ability to dispose of its
interests on an advantageous basis. Changes in future conditions could
require material write-downs to the carrying values. The Company`s assets may
also be subject to increases in taxes and royalties, renegotiation of
contracts, currency exchange fluctuations and restrictions, and political
uncertainty.
Although the Company has taken steps to verify title to the properties on
which it is conducting its exploration, development and mining activities,
these procedures do not guarantee the Company`s title. Property title may be
subject to government licensing requirements or regulations, unregistered
prior agreements, unregistered claims, aboriginal land claims and non-
compliance with regulatory and environmental requirements.
2. BASIS OF PREPARATION
These condensed interim consolidated financial statements of the Company and
its subsidiaries were prepared in accordance with International Financial
Reporting Standards ("IFRS"), as issued by the International Accounting
Standards Board ("IASB"). As these financial statements represent the
Company`s initial presentation of its results and financial position under
IFRS, they were prepared in accordance with International Accounting Standard
("IAS") 34, Interim Financial Reporting and by IFRS 1, First-time Adoption of
IFRS. These condensed consolidated interim financial statements have been
prepared in accordance with the accounting policies the Company expects to
adopt in its February 28, 2012 financial statements. Those accounting
policies are based on the IFRS standards and International Financial
Reporting Interpretations Committee ("IFRIC") interpretations issued and
outstanding as of that time. The policies set out below were consistently
applied to all the periods presented unless otherwise noted below.
2. BASIS OF PREPARATION (Continued)
The Company`s consolidated financial statements were previously prepared in
accordance with Canadian Generally Accepted Accounting Principles ("GAAP").
Canadian GAAP differs in some areas from IFRS. Certain information and
footnote disclosures which are considered material to the understanding of
the Company`s interim financial statements and which are normally included in
annual financial statements prepared in accordance with IFRS are provided in
notes along with reconciliations and descriptions of the effect of the
transition from Canadian GAAP to IFRS on equity, operations, comprehensive
income (loss), and the statements of financial position and cash flows.
These condensed interim consolidated financial statements should be read in
conjunction with the Company`s financial statements for the year ended
February 28, 2011, as prepared in accordance with Canadian Generally Accepted
Accounting Principles ("GAAP").
As these are the Company`s first set of condensed interim consolidated
financial statements in accordance with IFRS, the Company`s disclosures
exceed the minimum requirements under IAS 34. The Company has elected to
exceed the minimum requirements in order to present the Company`s accounting
policies in accordance with IFRS and the additional disclosures required
under IFRS, which also highlight the changes from the Company`s 2011 annual
consolidated financial statements prepared in accordance with Canadian GAAP.
In 2012 interim filings beyond the first quarter of 2012, the Company may not
provide the same amount of disclosure as included in the May 31, 2011
Condensed Interim Consolidated Financial Statements under IFRS. In 2013 and
beyond, the reader will be able to rely on the annual consolidated financial
statements, which will be prepared in accordance with IFRS.
The preparation of condensed interim consolidated financial statements in
accordance with IAS 34 requires the use of certain critical accounting
estimates. It also requires management to exercise judgement in applying the
Company`s accounting policies.
3. FUTURE ACCOUNTING CHANGES
Certain new standards, interpretations, amendments and improvements to
existing standards were issued by the IASB or IFRIC that are mandatory for
accounting periods beginning after March 1, 2011 or later periods. Updates
are not applicable or are not consequential to the Company have been excluded
thereof.
IFRS 9 Financial Instruments ("IFRS 9") was issued in November 2009 and
contained requirements for financial assets. This standard addresses
classification and measurement of financial assets and replaces the multiple
category and measurement models in IAS 39 for debt instruments with a new
mixed measurement model having only two categories: amortized cost and fair
value through profit or loss. IFRS 9 also replaces the models for measuring
equity instruments, and such instruments are either recognized at fair value
through profit or loss or at fair value through other comprehensive income.
This standard is required to be applied for accounting periods beginning on
or after January 1, 2013, with earlier adoption permitted. The Company is
currently assessing the impact of IFRS 9 on its financial statements.
IFRS 7 Financial instruments - Disclosures ("IFRS 7") was amended by the IASB
in October 2010 and provides guidance on identifying transfers of financial
assets and continuing involvement in transferred assets for disclosure
purposes. The amendments introduce new disclosure requirements for transfers
of financial assets including disclosures for financial assets that are not
derecognized in their entirety, and for financial assets that are
derecognized in their entirety but for which continuing involvement is
retained. The amendments to IFRS 7 are effective for annual periods beginning
on or after July 1, 2011. The Company has not yet determined the impact of
the amendments to IFRS 7 on its financial statements.
IFRS 10 Consolidated Financial Statements ("IFRS 10") provides a single model
to be applied in the control analysis for all investees, including entities
that currently are special purpose entities in the scope of SIC 12. In
addition, the consolidation procedures are carried forward substantially
unmodified from IAS 27 Consolidated and Separate Financial Statements. This
standard is effective for annual period annual period beginning on January 1,
2013. Earlier application is permitted. The Company has not yet determined
the impact of the amendments to IFRS 10 on its financial statements.
IFRS 11 Joint Arrangements ("IFRS 11") replaces the guidance in IAS 31
Interests in Joint Ventures. Under IFRS 11, joint arrangements are classified
as either joint operations or joint ventures. IFRS 11 essentially carves out
of previous jointly controlled entities, those arrangements which although
structured through a separate vehicle, such separation is ineffective and the
parties to the arrangement have rights to the assets and obligations for the
liabilities and are accounted for as joint operations in a fashion consistent
with jointly controlled assets/operations under IAS 31. In addition, under
IFRS 11 joint ventures are stripped of the free choice of equity accounting
or proportionate consolidation; these entities must now use the equity
method.
3) FUTURE ACCOUNTING CHANGES (Continued)
Upon application of IFRS 11, entities which had previously accounted for
joint ventures using proportionate consolidation shall collapse the
proportionately consolidated net asset value (including any allocation of
goodwill) into a single investment balance at the beginning of the earliest
period presented. The investment`s opening balance is tested for impairment
in accordance with IAS 28 Investments in Associates and IAS 36 Impairment of
Assets. Any impairment losses are recognized as an adjustment to opening
retained earnings at the beginning of the earliest period presented. The
Company intends to adopt IFRS 11 in its financial statements for the annual
period beginning on January 1, 2013. The Company has not yet determined the
impact of the amendments to IFRS 11 on its financial statements.
IFRS 13 Fair Value Measurement converges IFRS and US GAAP on how to measure
fair value and the related fair value disclosures. The new standard creates a
single source of guidance for fair value measurements, where fair value is
required or permitted under IFRS, by not changing how fair value is used but
how it is measured. The focus will be on an exit price. IFRS 13 is effective
for annual periods beginning on or after January 1, 2013, with early adoption
permitted. The Company has not yet determined the impact of the amendments to
IFRS 13 on its financial statements.
4. PRINCIPLES OF CONSOLIDATION
The condensed interim consolidated financial statements comprise the
financial statements of the Company and its subsidiaries, Slater Coal,
Zinoju, Nyah Resources Inc. and Forbes and Manhattan (Coal) Inc..
Subsidiaries
Subsidiaries are entities over which the Company has control, where control
is defined as the power to govern financial and operating policies of an
entity so as to obtain benefit from its activities. Generally, control is
obtained when the Company has a shareholding of more than one half of the
voting rights in its subsidiaries. The effects of potential voting rights
that are currently exercisable are considered when assessing whether control
exists. Subsidiaries are fully consolidated from the date control is
transferred to the Company, and are de-consolidated from the date control
ceases.
Business Combinations and Goodwill
On the acquisition of a subsidiary, the purchase method of accounting is used
to account for the acquisition as follows:
- cost is measured as the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed at the date of
exchange;
- directly attributable transaction costs are expensed rather than
included in the acquisition purchase price;
- identifiable assets acquired and liabilities assumed are measured at
their fair values at the acquisition date except for non-current assets
that are classified as held for sale in accordance with IFRS 5 `Non-
current Assets Held for Sale and Discontinued Operations`, which are
recognized and measured at fair value less costs to sell;
- the excess of acquisition cost over the fair value of the identifiable
net assets acquired is recorded as goodwill;
- if the acquisition cost is less than the fair value of the net assets
acquired, the difference is recognized directly in profit or loss;
- the interest of non-controlling shareholders in the acquiree is
initially measured at the non-controlling shareholder`s fair value; and
- the measurement of contingent consideration at fair value on the
acquisition date is performed with subsequent changes in the fair value
recorded through the consolidated statement of operations.
All material intercompany transactions are eliminated in consolidation. After
initial recognition, goodwill is measured at cost less any accumulated
impairment losses. Goodwill is not amortized and is tested for impairment
annually. For the purpose of impairment testing, goodwill acquired in a
business combination is, from the acquisition date, allocated to each of the
Company`s cash generating units that are expected to benefit from the
synergies of the combination, irrespective of whether other assets or
liabilities of the acquiree are assigned to those units. The level at which
goodwill is allocated shall represent the lowest level within the entity at
which the goodwill is monitored for internal purposes, but shall not be
larger than an operating segment determined in accordance with IFRS 8
Operating Segments. Where goodwill forms part of a cash-generating unit and
part of the operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in the carrying amount
of the operation when determining the gain or loss on disposal of the
operation. Goodwill disposed of in this circumstance is measured based on the
relative values of the operation disposed of and the portion of the cash-
generating unit retained.
4) PRINCIPLES OF CONSOLIDATION (Continued)
Transactions and non-controlling interests
Transactions with non-controlling interests are treated as transactions with
equity owners of the Company. For purchases from non-controlling interests,
the difference between the consideration paid and the non-controlling share
of the carrying value of net assets acquired is recorded in equity. Gains or
losses on disposals to non-controlling interests are similarly computed and
also recorded in equity.
5. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of these condensed interim consolidated financial statements
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and reported amounts of expenses during the reporting period.
Actual outcomes could differ from these estimates. These condensed interim
consolidated financial statements include estimates, which, by their nature,
are uncertain. The impacts of such estimates are pervasive throughout the
condensed interim consolidated financial statements, and may require
accounting adjustments based on future occurrences. Revisions to accounting
estimates are recognized in the period in which the estimate is revised and
the revision affects both current and future periods.
Information about critical judgments and estimates in applying accounting
policies that have the most significant effect on the amounts recognized in
the condensed consolidated financial statements are as follows:
- Asset carrying values and impairment charges
- Estimation of asset lives
- Determination of ore reserve estimates
- Recognition of deferred taxes
- Capitalization of exploration and evaluation costs
- Contingencies
- Acquisitions
- Determination of economic viability of a project
- Valuation of inventory
- Warrants
- Income tax accounts
6. SIGNIFICANT ACCOUNTING POLICIES
a) Presentation currency
The Company`s functional and presentation currency is the Canadian dollar
("$"). The functional currency of Slater Coal and Zinoju is the South African
Rand ("ZAR").These condensed interim consolidated financial statements have
been translated to the Canadian dollar in accordance with IAS 21 The Effects
of Changes in Foreign Exchange Rates. These guidelines require that assets
and liabilities be translated using the exchange rate at period end, and
income, expenses and cash flow items be translated using the rate that
approximates the exchange rates at the dates of the transactions (i.e. the
average rate for the period). All resulting exchange differences on
translation to the presentation currency are included in the currency
translation reserve.
b) Foreign currency translation
In preparing the financial statements of the individual entities,
transactions in currencies other than the entity`s functional currency
(foreign currencies) are recognised at the rates of exchange prevailing at
the dates of the transactions. At the end of each reporting period, monetary
items denominated in foreign currencies are retranslated at the rates
prevailing at that date. Non-monetary items carried at fair value that are
denominated in foreign currencies are retranslated at the rates prevailing at
the date when the fair value was determined.
Exchange differences are recognised in profit or loss in the period in which
they arise except for:
- exchange differences on foreign currency borrowings relating to assets
under construction for future productive use, which are included in the
cost of those assets when they are regarded as an adjustment to interest
costs on those foreign currency borrowings;
- exchange differences on monetary items receivable from or payable to a
foreign operation for which settlement is neither planned nor likely to
occur (therefore forming part of the net investment in the foreign
operation), which are recognised initially in other comprehensive income
and reclassified from equity to profit or loss on disposal or partial
disposal of the net investment.
Foreign exchange gains and losses that relate to borrowings and cash and cash
equivalents are presented in the condensed interim consolidated statement of
operations within "foreign exchange gain (loss)". All other foreign exchange
gains and losses are also presented in the condensed interim consolidated
statement of operations within "foreign exchange gain (loss)".
c) Property, plant and equipment and mineral rights
Property, plant and equipment is stated at historical acquisition cost less
accumulated depreciation and any accumulated impairment losses. Costs
incurred subsequent to initial acquisition are included in the asset`s
carrying amount or recognised as a separate asset, as appropriate, only when
it is probable that future economic benefits associated with the item will
flow to the Company and the cost of the item can be measured reliably. All
other repairs and maintenance are charged to the statement of operations
during the financial period in which they are incurred.
Prospecting rights are recorded at cost. This includes costs incurred to
acquire, explore, sample, drill and perform feasibility tests when incurred
before the research proves the land to be technically feasible and
commercially viable, at which point the costs are reclassified as mining
assets. Expenditures on development of mining operations are capitalized as
mining assets.
Land is not depreciated. Depreciation of mining assets and related
entitlements is calculated using the units-of-production ("UOP") method based
on total saleable tons of coal to be mined per the life-of-mine plan ("LOM").
Depreciation on the remaining assets is calculated using the straight-line
method to allocate their cost or re-valued amounts to their residual values
over their useful lives, as follows:
Item Average useful life
Buildings 20 years
Heavy earth moving equipment and mining equipment 6 to 15 years
Fixtures and fittings 4 years
Motor vehicles 5 years
Office equipment 6 years
Radio equipment 3 years
The assets` residual values, useful lives and depreciation methods are
reviewed, and adjusted prospectively if appropriate, if there is an
indication of a significant change since the last reporting date.
Gains and losses on disposals are determined by comparing the proceeds with
the carrying amount and are recognised within `Other income` in the statement
of operations.
6) SIGNIFICANT ACCOUNTING POLICIES (Continued)
d) Goodwill
Goodwill is an asset representing the future economic benefits arising from
other assets acquired in a business combination that are not individually
identified and separately recognized. Goodwill is allocated to cash
generating units for the purpose of impairment testing. The allocation is
made to the cash generating units that are expected to benefit from the
business combination from which the goodwill arose. Gains and losses on the
disposal of an entity include the carrying amount of goodwill relating to the
entity sold.
e) Impairment of assets
When events or changes in circumstances suggest that the carrying amount of
property, plant and equipment and intangible assets may not be recoverable,
the carrying amounts are reviewed and tested. For impairment purposes, assets
are grouped at the lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities (cash
generating units). If there are indications that impairment may have
occurred, estimates of expected future cash flows for each group of assets
are prepared. The impairment analysis compares the fair value of the cash
generating unit to the carrying amount of the asset, including goodwill, if
any. If the undiscounted cash flows are less than the carrying amount of the
asset, any excess of fair value over carrying value is charged to operations.
Goodwill is not amortized; however it is subject to an annual assessment for
impairment. The carrying amount of goodwill is evaluated to determine whether
current events and circumstances indicate that such carrying amount may no
longer be recoverable. To accomplish this, the estimated fair values of its
cash generating units are compared to their carrying amounts. If the carrying
value of the cash generating unit exceeds its estimated fair value, the
implied fair value of the reporting unit`s goodwill is compared to its
carrying amount, and any excess of the carrying value over the fair value is
charged to operations. The fair value estimates are based on numerous
assumptions and it is possible that actual fair values will be significantly
different from the estimates.
Similarly, at each reporting date, inventories are assessed for impairment by
comparing the carrying amount of each item of inventory (or group of similar
items) with its selling price less costs to complete and sell. If an item of
inventory (or group of similar items) is impaired, its carrying amount is
reduced to selling price less costs to complete and sell, and an impairment
loss is recognised immediately in operations.
Management has assessed as at May 31, 2011 and February 28, 2011 and January
1, 2010 that there are no impairments.
f) Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is
determined by the first in, first out method. The cost of finished goods and
work in progress comprises operating costs which are absorbed into the stock
on hand based on the level of extraction during the period in which such
stock was mined and the costs incurred during such period.
g) Deferred income taxes
Deferred income tax assets and liabilities
A deferred income tax liability is recognized for all taxable temporary
differences. A deferred income tax asset is recognized for all deductible
temporary differences.
Deferred income tax is recognized on temporary differences arising between
the tax basis of assets and liabilities and their carrying amounts in the
condensed consolidated financial statements and on unused tax losses or tax
credits in the Company.
The carrying amount of deferred income tax assets are reviewed at each
reporting date and a valuation allowance is set up against future tax assets
so that the net carrying amount equals the highest amount that is more likely
than not to be recovered based on current or deferred taxable profit.
Deferred income tax assets and liabilities are measured at the tax rates that
are expected to apply to the period when the asset is realized or the
liability is settled, based on tax rates (and tax laws) that have been
enacted or substantively enacted by the reporting period date.
Tax expenses
Tax is recognized in profit or loss, except that a change attributable to an
item of income or expense recognized as other comprehensive income is also
recognized directly in other comprehensive income.
h) Accounts and other receivables
Accounts receivables are primarily comprised of amounts due from customers
for stock sold in the ordinary course of business. If collection is expected
in one year or less (or in the normal operating cycle of the business if
longer), they are classified as current assets. If not, they are presented as
non-current assets.
Accounts and other receivables are recognized initially at fair value and
subsequently measured at amortized cost using the effective interest method,
less provision for impairment. A provision for impairment of trade
receivables is established when there is objective evidence that the Company
will not be able to collect all amounts due according to the original terms
of the receivables. Significant financial difficulties of the debtor,
probability the debtor will enter bankruptcy or financial reorganization, and
default or delinquency payments are considered indicators that the trade
receivable is impaired.
i) Accounts payable
Accounts payable are obligations to pay for goods or services that have been
acquired in the ordinary course of business from suppliers. Accounts payable
are classified as current liabilities if payment is due within one year or
less (or in the normal operating cycle of the business if longer). If not,
they are presented as non-current liabilities.
Accounts payable are recognised initially at fair value and subsequently
measured at amortized cost using the effective interest method.
Short-term employee benefits
The cost of short-term employee benefits, (those payable within 12 months
after the service is rendered, such as paid vacation leave and sick leave,
bonuses, and non-monetary benefits such as medical care), are recognised in
the period in which the service is rendered and are not discounted.
Defined contribution plans
A defined contribution plan is a pension plan under which the Company pays
fixed contributions into a separate entity. The Company has no legal or
constructive obligations to pay further contributions if the fund does not
hold sufficient assets to pay all employees the benefits relating to employee
service in the current and prior periods.
j) Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with
banks, other short-term highly liquid investments with original maturities of
three months or less.
k) Asset retirement obligations
Asset retirement obligations ("ARO`s") are recognised when:
- the Company has an obligation at the reporting period date as a result
of a past event;
- it is probable that the Company will be required to transfer economic
benefits in settlement; and
- the amount of the obligation can be estimated reliably.
ARO`s are not recognized for future operating losses. ARO`s are measured at
the present value of the amount expected to be required to settle the
obligation using a risk-free rate that reflects the rate of interest on
monetary assets that are essentially free of default risk, adjusted for the
effect of an entity`s credit standing.
Future costs to retire an asset including dismantling, remediation and
ongoing treatment and monitoring of the site are recognized and recorded as a
provision for close down rehabilitation costs at fair value in the accounting
period in which the legal obligation arising from the disturbance occurs. The
liability is accreted over time through periodic charges to operations. The
fair value of the costs is capitalized as part of the assets` carrying value
and amortized over the assets` useful lives.
l) Revenue recognition and other income
Revenue from the sale of coal is recognised when all of the following
conditions have been satisfied (generally when delivery has occurred):
- the Company has transferred to the buyer the significant risks and
rewards of ownership of the goods, this is when delivery of the goods
has taken place;
- the Company retains neither continuing managerial involvement to the
degree usually associated with ownership nor effective control over the
goods sold;
- the amount of revenue can be measured reliably;
- it is probable that the economic benefits associated with the
transaction will flow to the Company; and
- the costs incurred or to be incurred in respect of the transaction can
be measured reliably.
Revenue is measured at the fair value of the consideration received or
receivable and represents the amounts receivable for goods and services
provided in the normal course of business, net of trade discounts and volume
rebates, and value added tax.
When the inflow of cash and cash equivalents is deferred, the fair value of
the consideration receivable is the present value of all future receipts
using the imputed rate of interest.
Interest is recognised, in operations, using the effective interest rate
method.
m) Other financial liabilities
Other financial liabilities are recognized initially at the fair value, net
of transaction costs incurred. Other financial liabilities are subsequently
stated at amortized cost. Interest expense is recognized on the basis of the
effective interest method and is included in interest income (expense). Other
financial liabilities are classified as current liabilities unless the
Company has an unconditional right to defer settlement of the liability for
at least 12 months after the reporting date, in which case they are
classified as long-term liabilities.
n) Financial instruments
All financial assets and financial liabilities are measured at fair value on
initial recognition and their subsequent measurement is determined by
classification of each financial asset and liability. Financial assets and
liabilities held for trading are measured at fair value with the changes in
fair value reported in operations. Financial assets held to maturity, loans
and receivables and financial liabilities other than those held for trading
are measured at amortized cost. Available-for-sale financial assets are
measured at fair value with changes in fair value reported in other
comprehensive income until the financial asset is disposed of or becomes
impaired.
o) Leases
A lease is classified as a capital lease if it transfers substantially all
the risks and rewards incidental to ownership. A lease is classified as an
operating lease if it does not transfer substantially all the risks and
rewards incidental to ownership.
Capital leases are recognized as assets and liabilities on the condensed
interim consolidation statements of financial position at amounts equal to
the fair value of the leased property or, if lower, the present value of the
minimum lease payments. The corresponding liability to the lessor is included
on the condensed interim consolidationed statements of financial position as
an other financial liability.
The lease payments are apportioned between interest expense and reduction of
the outstanding liability. The interest expense is allocated to each period
during the lease term so as to produce a constant periodic rate of interest
on the remaining balance of the liability. The property, plant and equipment
acquired under capital leases are depreciated over the estimated useful life
of the asset.
p) Loss per share
Basic loss per common share has been computed by dividing the loss applicable
to common shareholders by the weighted-average number of common shares
outstanding during the representative periods. Diluted loss per common share
is determined using the treasury stock method under which deemed proceeds on
the exercise of stock options and other dilutive instruments are considered
to be used to reacquire common shares at the average price for the period
with the incremental number of shares being included in the denominator of
the diluted loss per share calculation. The diluted loss per share
calculation excludes any potential conversion of options and warrants that
would decrease loss per share. As at May 31, 2011 and June 30, 2010, all
outstanding options and warrants were excluded from the diluted loss per
share calculation as they were anti-dilutive.
q) Stock-based compensation
The Company records compensation cost based on the fair value method of
accounting for stock-based compensation. The fair value of common shares
issued as compensation is based on the most recent private placement value or
the quoted market price. The fair value of stock options and compensation
warrants is determined using the Black-Scholes option-pricing model. The
compensation expense is recognized over the vesting period. When options are
exercised, the proceeds received, together with any related amount in
contributed surplus, will be credited to common stock.
7. TRANSACTION WITH NYAH RESOURCES CORPORATION ("NYAH")
On September 20, 2010, following the receipt of regulatory and shareholder
approval, Forbes & Manhattan (Coal) Inc. and Nyah completed a three-cornered
amalgamation pursuant to which a wholly-owned subsidiary of Nyah amalgamated
with Forbes & Manhattan (Coal) Inc., and all of the holders of common shares
of Forbes & Manhattan (Coal) Inc. received one common share of Nyah (on a
post-consolidation basis) for each one common share of Forbes & Manhattan
(Coal) Inc. held (the "Transaction"). Following the completion of the
Transaction, the newly amalgamated company held all of Forbes & Manhattan
(Coal) Inc.`s assets and is a wholly-owned subsidiary of Forbes & Manhattan
Coal Corp. (formerly, Nyah).
Prior to the effective time of the Transaction, Nyah consolidated its issued
and outstanding common shares on the basis of one new Nyah common share for
each 39.8 existing Nyah common shares (the "Consolidation"). Following the
Consolidation, Nyah had 1,279,384 issued and outstanding common shares on a
non-diluted basis immediately prior to the Transaction. Upon completion of
the Transaction, the number of common shares of Forbes Coal (on a non-diluted
basis) was 25,590,723 with Forbes & Manhattan (Coal) Inc. shareholders owning
approximately 95% of the Company and the Nyah shareholders owning
approximately 5% of the Company.
The Transaction was accounted for as a purchase of assets with Forbes &
Manhattan (Coal) Inc. as the acquirer and Nyah as the acquired. The condensed
consolidated financial statements following the Transaction present a
continuation of Forbes & Manhattan (Coal) Inc. and the acquisition of Nyah by
Forbes & Manhattan (Coal) Inc.
The purchase price was allocated as follows:
Common shares issued $4,073,578
Replacement stock options issued 119,684
$4,193,262
Allocation of purchase price:
Cash and cash equivalents $ 968,356
Amounts receivable 1,015,574
Prepaid expenses 9,738
Current liabilities (157,627)
Loss on share-based payments 2,357,221
$4,193,262
In accordance with IFRS 2, Share-Based Payments, any excess of the fair value
of the shares issued by the Company over the value of the net monetary assets
of Nyah is recognized in the statement of operations and comprehensive loss.
As the estimated fair values of the identified net assets acquired from Nyah
were less than the consideration paid, the difference has been charged to the
statement of operations and comprehensive loss.
Following the completion of the Transaction, the board and management of
Forbes & Manhattan (Coal) Inc. became the board and management of the
combined entity which was renamed Forbes & Manhattan Coal Corp. and began
trading on the TSX under the symbol "FMC" on September 27, 2010.
Nyah and Forbes & Manhattan (Coal) Inc. had certain directors and officers in
common.
8 PURCHASE OF SLATER COAL
a) Purchase of Slater Coal
In November 2009, the Company entered into an agreement to acquire a 100%
interest in Slater Coal. A deposit of $722,500 (ZAR 5,000,000) was made
under the terms of this agreement. Slater Coal is a private South African
coal mining company.
Slater Coal indirectly holds a 70% interest in the Slater Coal Properties
through Zinoju Coal (Pty) Ltd. ("Zinoju") which holds all of the mineral
rights and prospecting permits with respect to the Slater Coal Properties.
The remaining 30% interest in Zinoju is held by South African Black Economic
Empowerment ("BEE") partners. BEE is a statutory initiative on behalf of the
South African government, enacted to increase African access to the South
African economy by increasing African ownership in new South African
enterprises.
The funding the BEE received to purchase the shares was sourced from Slater
Coal. For accounting purposes BEE holds an option to acquire its 30% interest
in Zinoju, and a non-controlling interest has been recorded to reflect this
option related to BEE`s interest upon repayment of the loan utilized to
acquire the interest in Zinoju. The loan is being repaid from dividends
issued by Zinoju.
On April 13, 2010, the Company and the shareholders of Slater Coal agreed on
the terms for the acquisition of all of the issued and outstanding common
shares of Slater Coal. Pursuant to the finalized terms of the agreement the
Company is required to pay ZAR 600,000,000 (approximately $85,260,000) in
cash and common stock to Slater Coal shareholders over a two year period:
- ZAR 5,000,000 deposit ($722,500 paid on November 25, 2009);
- ZAR 22,500,000 ($3,091,500 paid on June 29, 2010);
- ZAR 213,750,000 ($30,006,792 paid on July 23, 2010);
- Issue common shares of the Company with a value of ZAR 78,750,000
($11,029,102) based on $2.80 per share (issued on July 30, 2010);
- Cash payment of ZAR 119,000,000 ($16,457,000 paid February 24, 2011);
and
- Cash payment of ZAR 140,000,000 (approximately $19,894,000) payable by
March 1, 2012.
The Company currently holds 76.75% of the outstanding shares of Slater Coal
and will receive shares equivalent to 23.25% of the issued and outstanding
shares after the March 1, 2012 payment has been made. The March 2011 and 2012
payments are based on targeted production rates of 781,200 tonnes in 2011 and
782,400 tonnes in 2012.
A variance of greater than 10% from such production targets shall either
increase or decrease the amount payable by a corresponding percentage,
subject to a maximum increase or decrease in payment of 15%. Cash payment of
ZAR 119,000,000 was made before March 1, 2011 and was based on the greater
than 10% variance from 781,200 tonnes production target and it was reduced by
15% from ZAR 140,000,000 to ZAR 119,000,000. The consideration for March 1,
2012 payment was valued using a probability-weighted approach and an amount
of $18,887,787 has been included in the purchase price. The resulting
liability related to this consideration has been recorded on the condensed
interim consolidated statements of financial position.
As at December 31, 2010, based on revised estimates related to production
targets, the Company has adjusted the estimated fair value of the contingent
consideration related to the payments. The current portion of the liability
related to the March 1, 2011 payment was reduced by $3,150,154 and the long
term portion of the liability related to the March 1, 2012 was increased by
$425,443. These adjustments resulted in a net recovery on the estimated fair
value of the contingent liability of $2,724,711 being recorded to the
condensed consolidated statements of operations, loss, comprehensive income
(loss) and deficit for the period ended December 31, 2010.
The purchase price is also subject to an adjustment pursuant to variations on
the consolidated net short term assets ("CNSTA") of the Company to the extent
that they exceed or fall short of ZAR14.9 million. An amount of $2,062,437
was included in the purchase price and included in accounts payable related
to the CNSTA adjustment. This amount has been paid on February 24, 2011.
Given the fact that the final amount of the March 1, 2011 and March 1, 2012
payments are subject to Slater Coal meeting certain production targets, the
incumbent management team and a majority of the board of directors of Slater
Coal have been given a certain amount of autonomy to be able to reach these
targets.
The March 1, 2012 payment of ZAR 140 million has been recorded on the
condensed interim consolidated statements of financial position as a current
acquisition obligation (Note 11).
The Company received approval from the South African Reserve Bank ("SARB")
for the acquisition by Forbes Coal of all of the issued and outstanding
shares of Slater Coal (Pty) Ltd. ("Slater Coal"). As part of granting the
approval, Forbes Coal has agreed to undertake to list the common shares of
the Company on the Johannesburg Stock Exchange within 12 months of the date
hereof (Note 26).
The allocation of the purchase price has been substantially finalized,
however management is in the process of concluding the fair values of
identifiable assets acquired and liabilities assumed and measuring the
associated future income tax assets and liabilities. A provisional allocation
of the purchase price is as follows:
The total cost of the shares acquired on July 29,
2010, was as follows:
Cash payments ZAR241 million $ 34,122,898
Common shares issued (3,938,965 shares valued at ZAR 11,029,102
79 million)
Estimated fair value of ZAR280 million (discounted 37,568,157
and probability weighted to payment dates)
Estimated fair value of CNSTA ZAR14 million 2,062,437
$ 84,782,594
Fair value of net assets acquired was allocated as
follows:
Cash and cash equivalents $ 3,832,045
Other current assets 8,208,408
Inventories 6,341,912
Property, plant and equipment 73,341,190
Mine properties 6,042,044
Other long-term assets 6,726,162
Goodwill on acquisition 18,672,014
Current liabilities (8,250,646)
Other long-term liabilities (7,647,196)
Asset retirement obligation (1,693,283)
Deferred income taxes (19,192,527)
Non-controlling interest (1,597,529)
$ 84,782,594
b) Slater Coal financial results
Reported revenue of $27,677,608 (Note 27 (v)) and related operating expense
and amortization and depletion are for the period from the date of
acquisition (July 29, 2010) to February 28, 2011, being an approximate seven
month period.
9. OPERATING SEGMENTS
Current Mine Other non- Total assets
assets Propertie properties current
s, plant assets
and
equipment
January 1,
2010
Canada $ $ $ $ $ 795,627
59,921 - - 735,706
South -
Africa - - - -
$ $ $ $ $ 795,627
59,921 - - 735,706
February
28, 2011
Canada $ $ $ $ $ 14,794,690
14,794,690 - - -
South 134,610,366
Africa 25,191,318 79,316,58 5,911,567 24,190,900
1
$ $ $ $ $149,405,056
39,986,008 79,316,58 5,911,567 24,190,900
1
May 31,
2011
Canada $ $ $ $ $ 15,581,779
15,581,779 - - -
South 139,371,985
Africa 29,279,334 79,203,22 5,955,580 24,933,850
1
$ $ $ $ $154,953,764
44,861,113 79,203,22 5,955,580 24,933,850
1
The Company operates in Canada and South Africa. The Company`s revenue from
external customers and information about its non-current assets by
geographical location are detailed below.
All of the Company`s coal revenues are earned from production in South
Africa.
10 INTEREST INCOME (EXPENSE)
Three months ended
May 31, 2011 June 30, 2010
Interest bearing borrowings $ 360,106 $ -
Unwinding discount on rehabilitation provision 26,921 -
Interest expense 387,027 -
Cash and cash equivalents 51,072 -
Restricted cash 24,384 -
Interest income 75,456 -
Net interest income (expense) $ (311,571) $ -
11. ACQUISITION OBLIGATION
Current Long-term
Balance as at February 28, 2011 $ - $20,300,925
Effect of foreign currency exchange difference - 304,514
Reclassification due to current maturity in March 20,605,439 (20,605,439)
2012
Accretion 537,259 -
Balance as at May 31, 2011 $21,142,698 $ -
See Note 8 (a) for details of the acquisition obligation.
12. MINE PROPERTIES
Richards Bay Coal Mineral and Total
Terminal prospecting
entitlements rights
Cost as at January 1, 2010 $ - $ - $ -
Additions through Slater Coal 4,983,794 1,058,250
acquisition 6,042,044
Effect of foreign currency (38,854) (8,250)
exchange difference (47,104)
Cost as at February 28, 2011 4,944,940 1,050,000
5,994,940
Effect of foreign currency 74,174 15,750
exchange difference 89,924
Cost as at May 31, 2011 $5,019,114 $1,065,750
$6,084,864
Accumulated depreciation, $ - $ - $ -
depletion and impairment as at
January 1, 2010
Charge for the period (79,912) (3,460)
(83,373)
Depreciation, depletion and (79,912) (3,460)
impairment as at February 28, (83,373)
2011
Effect of foreign currency (1,199) (52)
exchange difference (1,251)
Charge for the period (43,289) (1,371)
(44,660)
Depreciation, depletion and $ (124,400) $ (4,883) $
impairment as at May 31, 2011 (129,284)
Net book value as at January 1, $ - $ - $ -
2010
Net book value as at February 28, $4,865,028 $1,046,540
2011 $5,911,567
Net book value as at May 31, 2011 $4,894,714 $1,060,867
$5,955,580
13. PROPERTY, PLANT AND EQUIPMENT
Mining Office Land and
assets equipment, buildings
radio
equipment,
fixtures
and
fittings
Cost as at January 1, 2010 $ $ $ -
- -
Additions through Slater Coal 497,032
acquisition 29,066,801 186,770
Effect of foreign currency (3,875)
exchange difference (226,601) (1,456)
Additions 57,425
8,817,437 14,540
Change in rehabilitation provision -
1,471,197 -
Disposals -
(72,331) -
Cost as at February 28, 2011 550,582
39,056,503 199,854
Effect of foreign currency 8,259
exchange difference 585,848 2,998
Additions 63,720
1,520,242 93,833
Change in rehabilitation provision -
128,037 -
Cost as at May 31, 2011 $ $ $ 622,561
41,290,630 296,685
Accumulated depreciation, $ $ $ -
deplition and impairment as at - -
January 1, 2010
Charge for the period (19,595)
(4,238,477) (49,126)
Depreciation and depletion as at (19,595)
February 28, 2011 (4,238,477) (49,126)
Effect of foreign currency (294)
exchange difference (63,577) (737)
Charge for the period (10,638)
(2,154,688) (15,429)
Depriciation and deplition as at $ $ $ (30,527)
May 31, 2011 (6,456,742) (65,292)
Net book value as at January 1, $ $ $ -
2010 - -
Net book value as at February 28, $ $ $ 530,987
2011 34,818,026 150,728
Net book value as at May 31, 2011 $ $ $ 592,034
34,833,888 231,393
Development Mining rights Total
costs
Cost as at January 1, 2010 $ $ $ -
- -
Additions through Slater Coal 73,341,190
acquisition - 43,590,587
Effect of foreign currency (571,759)
exchange difference - (339,827)
Additions 11,322,552
2,433,150 -
Change in rehabilitation 1,471,197
provision - -
Disposals (72,331)
- -
Cost as at February 28, 2011 85,490,849
2,433,150 43,250,760
Effect of foreign currency 1,282,363
exchange difference 36,497 648,761
Additions 1,677,795
- -
Change in rehabilitation 128,037
provision - -
Cost as at May 31, 2011 $ $ $88,579,044
2,469,647 43,899,521
Accumulated depreciation, $ $ $ -
deplition and impairment as at - -
January 1, 2010
Charge for the period (6,174,268)
- (1,867,070)
Depreciation and depletion as (6,174,268)
at February 28, 2011 - (1,867,070)
Effect of foreign currency (92,614)
exchange difference - (28,006)
Charge for the period (3,108,941)
- (928,186)
Depriciation and deplition as $ $ $(9,375,823)
at May 31, 2011 - (2,823,262)
Net book value as at January 1, $ $ $ -
2010 - -
Net book value as at February $ $ $79,316,581
28, 2011 2,433,150 41,383,690
Net book value as at May 31, $ $ $79,203,221
2011 2,469,647 41,076,259
Land and building includes a net book value balance of $ 97,555 for a
property that is not used in production and mine operations.
14. OTHER ASSETS
May 31, 2011 February 28, 2011 January 1, 2010
Endowment policy $ 3,892,696 $ 3,478,609 $ -
Long term investments 850,793 838,219 -
Long term receivables 1,463,520 1,081,997 -
$ 6,207,009 $ 5,398,825 $ -
The other assets consist of an endowment policy held by the Company to fund
payment requirements associated with its installment sale agreement
obligations. The total endowment policy consists of various individual
policies managed in various investment funds. The investment in this
financial asset is classified as level 3 on the fair value hierarchy as the
inputs required to determine fair value of the investment are actuarially
determined and not supported by market activity.
14 OTHER ASSETS (Continued)
The table below sets forth the summary of changes in the endowment policy for
the period ended May 31, 2011:
Balance as at January 1, 2010 $ -
Acquired as part of Slater transaction 2,892,627
Effect of exchange rate change (22,551)
Current year contributions 861,498
Fair value adjustment 226,883
Policies matured (479,848)
Balance as at February 28, 2011 $ 3,478,609
Effect of exchange rate change 52,179
Current year contributions 311,737
Fair value adjustment 50,171
Balance as at May 31, 2011 $ 3,892,696
Changes in fair values of financial assets held for trading are recorded in
"operating expenses" in the statement of operations.
15. INVENTORIES
May 31, 2011 February 28, 2011 January 1, 2010
Consumables $ 265,872 $ 267,631 $ -
Work in progress 370,916 154,899 -
Finished goods 12,703,849 10,104,151 -
$13,340,637 $ 10,526,681 $ -
As at May 31, 2011, all inventories were presented at cost.
16. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
May 31, 2011 February 28, 2011 January 1, 2010
Trade payables $4,638,679 $ 5,129,462 $ -
Payroll and other 660,332 389,042 -
statutory liabilities
Current tax payable 203,017 - -
Other payables and 1,289,686 1,512,692 32,355
accruals
$6,791,714 $ 7,031,196 $ 32,355
17. OTHER FINANCIAL LIABILITIES
May 31, 2011 February 28, January 1,
2011 2010
Capital lease agreements (*) $ 99,042 $ $
97,579 -
Installment sale agreements(*) 11,343,831
13,590,838 -
Third party institutional loans 447,675
(**) 699,980 -
Total interest bearing borrowings 11,890,548
14,388,397 -
Less:
Current portion of capital lease (99,042)
agreements (97,579) -
Current portion of instalment (1,462,357)
sale agreements (2,460,583) -
Current portion of third party (141,726)
institutional loans (102,305) -
Total current portion of interest (1,703,125)
bearing borrowings (2,660,467) -
Total long-term portion of $10,187,423 $ $
interest bearing borrowings 11,727,930 -
(*) The lease related liabilities are payable over periods from three to five
years, at interest rates linked to prime. Both the capital lease and the
installment sale related liabilities are secured by mining assets and an
endowment policy with a book value of approximately $13,900,000.
(**) The loans are repayable in monthly/yearly installments over periods from
one to five years. Both are unsecured.
The other financial liabilities are repayable as follows:
Year Amount
2012 $ 1,703,125
2013 8,788,905
2014 1,348,546
2015 49,972
$11,890,548
The interest rate exposure of borrowings of the Company was as follows:
Year Amount
Leases at floating rates $11,442,873
Loan at rates of 8.9% 447,675
$11,890,548
18. ASSET RETIREMENT OBLIGATION
Balance as at January 1, 2010 $ -
Additions through Slater Coal acquisition 1,693,283
Effect of foreign currency exchange difference
(13,201)
Accretion expense 94,180
Net additional provision 1,280,244
Balance as at February 28, 2011 $ 3,054,506
Effect of foreign currency exchange difference 45,818
Accretion expense 27,065
Net additional provision 128,037
Balance as at May 31, 2011 $ 3,255,426
Total asset retirement obligation at May 31, 2011 is comprised of:
3 $ 401,272
Long-term portion 2,854,154
$ 3,255,426
The asset retirement obligation for close down rehabilitation costs reflects
the net present value of the estimated cost of restoring the environmental
disturbance that has occurred up to the condensed interim consolidated
statements of financial position date and is expected to be paid out over 1
to 10 years using a 9.5% discount rate.
19. LOANS PAYABLE
May 31, February 28, January 1,
2011 2011 2010
Directors and officers of $ 182,689 $ $ -
Slater Coal 260,297
Other 1,662 -
1,637
$ 184,351 $ $ -
261,934
Loans are unsecured, non interest bearing, with no fixed terms of repayment.
20. ISSUED CAPITAL
Authorized unlimited number of common shares without par value:
Issued Number of shares Stated value
Balance as at January 1, 2010 2,600,000 $ 800,160
Private placement (i) 100,000 500,000
Private placement (iii) 14,972,368 41,922,630
Private placement (vii) 8,000,000 36,400,000
Issue costs - (8,674,699)
Shares issued on business 3,938,965 11,029,102
combination (iv)
Shares issued on Nyah transaction 1,279,384 4,073,578
(v)
Performance shares issued into 2,700,000 7,196,100
escrow (vi)
Options exercised 75,000 243,750
Options exercised - valuation - 182,250
reallocation
Balance as at February 28, 2011 33,665,717 93,672,871
Private placement (vii) 1,200,000 5,460,000
Issue costs - (339,945)
Balance as at May 31, 2011 34,865,717 $98,792,926
On July 16, 2010 the Company consolidated its share capital on the basis of
ten existing common shares of the Company for one new common share of the
Company. The number of outstanding common shares has been retroactively
restated throughout these condensed consolidated financial statements to
reflect the consolidation.
(i) On March 15, 2010 the Company completed a private placement financing
issuing 100,000 common shares of the Company at a price of $5.00 per
share for gross proceeds of $500,000. The sole subscriber of this
issuance was Aberdeen International Inc ("Aberdeen") (see Note 24
Related Party Transactions).
(ii) Effective July 16, 2010, and in connection with the transaction with
Nyah, the Company amended its articles to effect consolidation of its
issued and outstanding common shares on the basis of ten existing common
shares of the Company for one new common share of the Company.
(iii) In July and August, 2010, the Company completed an offering of
special warrants ("Special Warrants") at a price of $2.80 per Special
Warrant for gross proceeds of $41,922,630. Each Special Warrant
converted automatically and without any further action on the part of
the holder into one common share of the Company (each an "Underlying
Share") on September 21, 2010 immediately prior to the completion of the
acquisition of all of the issued and outstanding shares of the Company
by Nyah (see Note 24 Related Party Transactions).
As compensation for its services rendered in connection with the Forbes
Coal financing, the underwriters were paid a cash commission equal to 6%
of the gross proceeds of the brokered portion of the Forbes Coal
financing and were issued 763,887 broker warrants exercisable to acquire
the same number of common shares of the Company at a price of $2.80 per
common share for a period of 18 months following the closing of the
Slater Coal acquisition.
20) ISSUED CAPITAL (Continued)
(iv) In July 2010, the Company completed the next installment for the
acquisition of Slater Coal by making a cash payment of ZAR 213,750,000
($30,006,792) and issuing 3,938,965 common shares of the Company at
$2.80 per share valued at ZAR 78,750,000 ($11,029,102).
(v) On September 21, 2010 1,279,384 common shares were issued upon the
completion of the Transaction with Nyah. The common shares were assigned
a value of $4,073,578 ($3.18 per share). (See Notes 7 and 24).
(vi) On September 21, 2010 2,700,000 common shares were issued and put into
escrow upon the completion of the transaction with Nyah. The common
shares were assigned a value of $7,196,100 ($2.67 per share). The value
was recorded in stock based compensation expense for the period. (See
Notes 7, 22 and 25).
(vii) On February 22, 2011, the Company closed a bought deal offering
(the "Offering") of 8,000,000 common shares (the "Offered Shares") of
the Company at a price of $4.55 per Offered Share for aggregate gross
proceeds of $36,400,000. A syndicate of underwriters have also been
granted an over-allotment option to purchase up to an additional
1,200,000 common shares of the Company at a price of $4.55 per common
share which was exercised on March 3, 2011.
As compensation for its services rendered in connection with the Forbes
Coal Offering, the underwriters were paid a cash commission equal to 6%
of the gross proceeds and were issued 480,000 broker warrants
exercisable to acquire the same number of common shares of the Company
at a price of $4.55 per common share for a period of 24 months following
the closing of the Slater Coal acquisition.
21. SHARES IN ESCROW
On July 20, 2010, the shareholders of Forbes Coal on that date were
issued 2,700,000 performance special warrants (the "Performance Special
Warrants"). Each Performance Special Warrant was automatically exercised
into one common share of Forbes Coal (each "Performance Share" and,
collectively, the "Performance Shares") for no additional consideration
immediately prior to the completion of the Nyah acquisition, provided
that such Performance Shares shall be deposited in escrow with an escrow
agent (the "Escrowed Shares"), to be released as follows:
i) 50% of the Escrowed Shares (the "First Tranche Escrowed Shares") will be
released once the Company achieves US$22,000,000 in EBITDA from the
Slater Coal Properties over a 12 consecutive month period by July 20,
2013. In the event of not achieving US$22,000,000 in EBITDA from Slater
Coal Properties, the above mentioned Escrowed Shares will be cancelled;
ii) The remaining Escrowed Shares will be released once the Company achieves
US$35,000,000 in EBITDA from the Slater Coal Properties over a 12
consecutive month period within a three year period following the
release of the First Tranche Escrowed Shares. For further clarity,
EBITDA generated from the Slater Coal Properties will exclude any gains
or losses generated by the combined company from the disposition of the
Slater Coal Properties. In the event of not achieving US$35,000,000 in
EBITDA from Slater Coal Properties, the above mentioned Escrowed Shares
will be cancelled. (EBITDA is a non-IFRS measure and defined as earnings
before interest, taxes, depreciation and amortization).
The model used to fair value the Performance Special Warrants applies
standard Monte Carlo simulation techniques and is based on correlated one-
factor geometric Brownian motions. The key inputs used in the model include:
ZAR/USD FX: 7.3194
ZAR/CAD FX: 7.0897
Equity value of a comparable company: 3.45
API4 Coal Price: 91.81
ZAR/USD FX Volatility: 11.6%
ZAR/CAD FX Volatility: 8.1%
Volatility of a comparable company: 64.3%
22. SHARE-BASED PAYMENT RESERVES
No. of Weighted Value of No. of warrants
options average options
exercise
price
Balance as at - $ - $ - -
January 1, 2010
Granted 2,435,000 1,243,887
3.20 6,325,996
Issued on Nyah 122,798 -
transaction 8.99 119,684
Grant of special - - 2,700,000
performance -
warrants
Conversion of - - (2,700,000)
special -
performance
warrants
Exercised (75,000) -
3.25 (182,250)
Balance as at 2,482,798 $ $ 1,243,887
February 28, 2011 3.49 6,263,430
Granted 825,000 -
4.10 1,839,750
Balance as at May 3,307,798 $ $ 1,243,887
31, 2011 2.62 8,103,180
Weighted Value of Total value
average warrants
exercise
price
Balance as at January 1, 2010 $ - $ $ -
-
Granted 3.48 8,475,849
2,149,853
Issued on Nyah transaction - 119,684
-
Grant of special performance 2.80 7,196,100
warrants 7,196,100
Conversion of special performance 2.80
warrants (7,196,100) (7,196,100)
Exercised -
- (182,250)
Balance as at February 28, 2011 $ 3.48 $ $ 8,413,283
2,149,853
Granted - 1,839,750
-
Balance as at May 31, 2011 $ 3.48 $ $ 10,253,033
2,149,853
Employee share options plan
The Company has an ownership-based compensation scheme, to be administered by
the board of directors of the Company, for directors, officers, employees and
consultants. The plan provides for the issuance of share options to acquire
up to 10% of the Company`s issued and outstanding capital. The number of
shares reserved for issuance pursuant to the grant of share options will
increase as the Company`s issued and outstanding share capital increases. In
accordance with the terms of the plan, as approved by shareholders at a
previous annual general meeting, directors, officers, employees and
consultants of the Company may be granted options to purchase common shares
at an exercise price determined by the board of directors, but which shall
not be lower than the market price of the underlying common shares at the
time of grant.
Each employee share option converts into one common share of the Company on
exercise. No amounts are paid or payable by the recipient on receipt of the
option. The options carry neither rights to dividends nor voting rights.
Options may be exercised at any time from the date of vesting to the date of
their expiry.
During the three months ended May 31, 2011, 825,000 (period ended February
28, 2011 - 2,435,000) share options were granted to directors, officers,
employees and consultants of the Company. These options had a grant date
estimated fair value of $1,839,750 (period ended February 28, 2011 -
$8,475,849) and are to vest immediately. The options expire five years from
the date of issue, or 30 days after the resignation of the director, officer,
employee or consultant.
The following share-based payment arrangements were in existence as at May
31, 2011:
Share options
Number of Number of Grant Expiration Exercise
options options date date price
outstanding exercisable
36,432 36,432 20-Sep-10 31-May-12 $ 2.39
260,000 260,000 15-Mar-10 15-Mar-15 $ 2.80
2,100,000 2,100,000 13-Oct-10 13-Oct-15 $ 3.25
825,000 825,000 24-Mar-11 24-Mar-16 $ 4.10
17,662 17,662 20-Sep-10 27-Feb-12 $ 7.96
2,405 2,405 20-Sep-10 27-Feb-12 $ 7.96
11,023 11,023 20-Sep-10 4-Jan-13 $ 7.96
55,276 55,276 20-Sep-10 31-May-12 $ 13.93
3,307,798 3,307,798 $ 3.64
Grant date Expected Expected Expected Risk-free
estimated volatility life dividend interest
fair value years yield rate
$ 65,512 100% 1.70 0.00% 1.54%
$ 1,040,746 100% 5.00 0.00% 2.39%
$ 5,103,000 100% 5.00 0.00% 1.74%
$ 1,839,750 63% 5.00 0.00% 2.15%
$ 12,579 100% 1.44 0.00% 1.54%
$ 1,713 100% 1.44 0.00% 1.54%
$ 12,343 100% 2.29 0.00% 1.54%
$ 27,537 100% 1.70 0.00% 1.54%
$ 8,103,180 4.88
22) SHARE-BASED PAYMENT RESERVES (Continued)
Broker warrants
Number of Number of Grant Expiration Exercise
warrants warrants date date price
outstanding exercisable
763,887 763,887 23-Jul-10 23-Jan-12 $ 2.80
480,000 480,000 22-Feb-11 22-Feb-13 $ 4.55
1,243,887 1,243,887 $ 3.48
Grant date Expected Expected Expected Risk-free
estimated volatility life dividend interest
fair value years yield rate
$ 993,053 100% 1.50 0.00% 1.53%
$ 1,156,800 100% 2.00 0.00% 1.79%
$ 2,149,853 1.70
23. FINANCIAL INSTRUMENTS
Details of the significant accounting policies and methods adopted (including
the criteria for recognition, the bases of measurement, and the bases for
recognition of income and expenses) for each class of financial asset and
financial liability are disclosed in Note 6.
The Company`s financial assets and financial liabilities as at March 31,
2011, December 31, 2010 and January 1, 2010 were as follows:
Cash, loans Assets /
and (liabilities) at
receivables fair value through
profit
January 1, 2010
Cash $ $ -
52,177
Receivables -
600
Accounts payable and $ - $ -
accrued liabilities
February 28, 2011
Cash $ $ -
15,252,651
Restricted cash -
1,736,000
Receivables -
12,410,375
Other financial assets non- 4,316,828
current 1,081,997
Accounts payable and - -
accrued liabilities
Acquisition obligation - -
Other financial - -
liabilities - current
Other financial - -
liabilities - long term
Loan payable $ - $ -
May 31, 2011
Cash $ $ -
19,782,871
Restricted cash -
1,812,040
Receivables -
9,809,660
Other financial assets non- 4,743,489
current 1,463,520
Accounts payable and - -
accrued liabilities
Acquisition obligation - -
Other financial - -
liabilities - current
Other financial - -
liabilities - long term
Loan payable $ - $ -
Available Other financial Total
for sale assets/
(liabilities)
January 1, 2010
Cash $ - $ - $ 52,177
Receivables - - 600
Accounts payable and $ - $ 32,355 $ 32,355
accrued liabilities
February 28, 2011
Cash $ - $ - $15,252,651
Restricted cash - - 1,736,000
Receivables - - 12,410,375
Other financial assets non- - - 5,398,825
current
Accounts payable and - 7,031,196 7,031,196
accrued liabilities
Acquisition obligation - 20,300,925 20,300,925
Other financial - 2,660,467
liabilities - current 2,660,467
Other financial - 11,727,930
liabilities - long term 11,727,930
Loan payable $ - $ 261,934 $ 261,934
May 31, 2011
Cash $ - $ - $19,782,871
Restricted cash - - 1,812,040
Receivables - - 9,809,660
Other financial assets non- - - 6,207,009
current
Accounts payable and - 6,791,714 6,791,714
accrued liabilities
Acquisition obligation - 21,142,698 21,142,698
Other financial - 1,703,125
liabilities - current 1,703,125
Other financial - 10,187,423
liabilities - long term 10,187,423
Loan payable $ - $ 184,351 $ 184,351
At May 31, 2011, there are no significant concentrations of credit risk for
loans and receivables designated at fair value through the condensed interim
consolidated statement of operations and comprehensive income (loss). The
carrying amount reflected above represents the Company`s maximum exposure to
credit risk for such loans and receivables.
23) FINANCIAL INSTRUMENTS (Continued)
CAPITAL MANAGEMENT
The capital of the Company consists of common shares, warrants and options.
The Company manages and adjusts its capital structure based on available
funds in order to support the acquisition, exploration and development of
mining properties. The Company manages its capital structure and makes
adjustments to it in light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or adjust its
capital structure, the Company may issue new shares, seek debt financing, or
acquire or dispose of assets. The Board of Directors does not establish
quantitative return on capital criteria for management, but rather relies on
the expertise of the Company`s management to sustain future development of
the business.
The Company is not subject to any externally imposed capital requirements.
Management reviews its capital management approach on an on-going basis and
believes that this approach, given the relative size of the Company, is
reasonable. There have been no changes in the risks, objectives, policies and
procedures in 2010 or 2011.
As at May 31, 2011, the capital structure of the Company consists of
shareholders` equity totaling $91,087,317 (February 28, 2011 - $84,116,342).
FINANCIAL RISK FACTORS
The Company is exposed to a variety of financial risks.
The Company`s overall management programme focuses on the unpredictability of
financial markets and seeks to minimise potential adverse effects on the
Company`s financial performance. The Company does not use derivative
financial instruments, such as forward exchange contracts, to hedge certain
exposures.
(a) Market risk
i. Foreign exchange risk
The Company`s functional currency is the Canadian dollar. The Company
operates internationally and is exposed to foreign exchange risk arising from
various currency exposures, primarily with respect to the South African Rand
("Rand") and the US dollar. Foreign exchange risk arises from future
commercial transactions and recognized assets and liabilities. The Company
purchased its South African Company in Rand and is required to make future
payments in Rand. In addition, coal is priced on international markets in
United States dollars and converted to Rand to support operations in South
Africa.
Management has set up a policy to require its companies to manage their
foreign exchange risk against their functional currency. Foreign exchange
risk arises when future commercial transactions or recognised assets or
liabilities are denominated in a currency that is not the entity`s functional
currency.
A 10% increase in the Rand against the Company`s functional currency, the
Canadian dollar would have increased (decreased) the Company`s income by
approximately ($200,000). A 10% increase in the United States dollar would
have increased (decreased) the Company`s income by $900,000.
The Company does not currently use derivative financial instruments such as
forward exchange contracts to hedge currency risk exposures.
23) FINANCIAL INSTRUMENTS (Continued)
FINANCIAL RISK FACTORS (continued)
(a) Market risk (continued)
The following assets and liabilities were denominated in different currencies
as at May 31, 2011, February 28, 2011 and January 1, 2010:
Denominated in
CAD ZAR AUD
Cash and cash equivalents 52,177 - -
Amounts receivable 600 - -
Prepaid expenses 7,144 - -
Deferred charges 735,706 - -
Accounts payable and accrued (23,553) - -
liabilties
Net balance sheet exposure as at $ 772,074 $ - $ -
January 1, 2010
Cash and cash equivalents 13,786,713 1,455,408 -
Restricted cash - 1,736,000 -
Amounts receivable 905,161 5,766,954 -
Inventories - 10,526,681 -
Prepaid expenses 54,434 5,867 -
Property, plant and equipment - 79,316,581 -
Mine properties - 5,911,567 -
Goodwill 18,672,014 - -
Other assets - 5,398,825 -
Deferred income taxes - 120,061 -
Accounts payable and accrued (789,749) (6,078,926) -
liabilties
Acquisition obligation - (20,300,925) -
Other financial liabilities - - (2,660,467) -
current
Other financial liabilities - long - (11,727,930) -
term
Asset retirement obligation - - (389,177) -
current
Asset retirement obligation - long - (2,665,329) -
term
Loans payable - (261,934) -
Deferred income taxes 1,289,802 (19,944,029) -
Net balance sheet exposure as at $33,918,375 $46,209,227 $ -
February 28, 2011
Cash and cash equivalents 14,395,057 5,380,947 -
Restricted cash 50,000 1,762,040 -
Amounts receivable 994,608 4,602,466 -
Inventories - 13,340,637 -
Prepaid expenses 97,503 18,402 -
Property, plant and equipment - 79,203,221 -
Mine properties - 5,955,580 -
Goodwill 18,672,014 - -
Other assets - 6,207,009 -
Deferred income taxes - 54,827 -
Accounts payable and accrued (344,817) (6,320,553) (3,948)
liabilties
Acquisition obligation - (21,142,698) -
Other financial liabilities - - (1,703,125) -
current
Other financial liabilities - long - (10,187,423) -
term
Asset retirement obligation - - (401,272) -
current
Asset retirement obligation - long - (2,854,154) -
term
Loans payable - (184,351) -
Deferred income taxes 1,289,802 (20,293,983) -
Net balance sheet exposure as at May $35,154,167 $53,437,570 $(3,948)
31, 2011
Total
USD
Cash and cash equivalents - 52,177
Amounts receivable - 600
Prepaid expenses - 7,144
Deferred charges - 735,706
Accounts payable and accrued (8,802) (32,355)
liabilties
Net balance sheet exposure as at $ (8,802) $ 763,272
January 1, 2010
Cash and cash equivalents 10,530 15,252,651
Restricted cash - 1,736,000
Amounts receivable 5,738,260 12,410,375
Inventories - 10,526,681
Prepaid expenses - 60,301
Property, plant and equipment - 79,316,581
Mine properties - 5,911,567
Goodwill - 18,672,014
Other assets - 5,398,825
Deferred income taxes - 120,061
Accounts payable and accrued (162,521) (7,031,196)
liabilties
Acquisition obligation - (20,300,925)
Other financial liabilities - - (2,660,467)
current
Other financial liabilities - long - (11,727,930)
term
Asset retirement obligation - - (389,177)
current
Asset retirement obligation - long - (2,665,329)
term
Loans payable - (261,934)
Deferred income taxes - (18,654,227)
Net balance sheet exposure as at $ 5,586,269 $85,713,871
February 28, 2011
Cash and cash equivalents 6,867 19,782,871
Restricted cash - 1,812,040
Amounts receivable 4,212,586 9,809,660
Inventories - 13,340,637
Prepaid expenses - 115,905
Property, plant and equipment - 79,203,221
Mine properties - 5,955,580
Goodwill - 18,672,014
Other assets - 6,207,009
Deferred income taxes - 54,827
Accounts payable and accrued (122,396) (6,791,714)
liabilties
Acquisition obligation - (21,142,698)
Other financial liabilities - - (1,703,125)
current
Other financial liabilities - long - (10,187,423)
term
Asset retirement obligation - - (401,272)
current
Asset retirement obligation - long - (2,854,154)
term
Loans payable - (184,351)
Deferred income taxes - (19,004,181)
Net balance sheet exposure as at May $ 4,097,057 $92,684,846
31, 2011
ii Interest rate risk
The Company`s interest rate risk arises from deposits held with banks and
interest-bearing liabilities. Borrowings issued at variable rates expose the
Company to cash flow interest rate risk which is partially offset by cash
held at variable rates. A 1% increase in interest rates would create
additional income of approximately $36,000.
A Market risk (continued)
iii Price risk
The Company is exposed to price risk with respect to commodity prices.
Commodity prices fluctuate on a daily basis and are affected by numerous
factors beyond the Company`s control. The supply and demand for commodities,
the level of interest rates, the rate of inflation, investment decisions by
large holders of commodities including governmental reserves and stability of
exchange rates can all cause significant fluctuations in commodities prices.
Such external economic factors are in turn influenced by changes in
international investment patterns and monetary systems and political
developments. A 10% change in the market price of coal would have resulted in
a corresponding change in revenues of approximately $2,000,000.
(b) Credit risk
The Company`s credit risk is primarily attributable to cash and cash
equivalents and accounts and other receivables. Cash equivalents consist of
guaranteed investment certificates and bankers acceptances, which have been
invested with reputable financial institutions, from which management
believes the risk of loss to be remote. Other receivables primarily consist
of goods and services tax due from the Federal Government of Canada and
amounts owing from coal sales. Management believes that the credit risks
concentration with respect to these amounts receivables are remote.
Restricted cash totaling $1,812,040 was primarily on deposit with the First
National Bank, to be released to a supplier if payments are not made to them
and in GIC investment with Royal Bank of Canada held as collateral against
credit card limits used by the Company.
(c) Liquidity risk
As May 31, 2011, the Company had net working capital of $14,637,953 (February
28, 2011 - $29,643,234) which included cash and cash equivalents and
restricted cash of $21,594,911 (February 28, 2011 - $16,988,651), accounts
receivable and other receivables of $9,809,660 (February 28, 2011 -
$12,410,375), and inventories of $13,340,637 (February 28, 2011 -
$10,526,681), offset by current liabilities of $30,223,160 (February 28, 2011
- $10,342,774).
Prudent liquidity risk management implies maintaining sufficient cash and the
availability of funding through credit facilities. The Company aims to
maintain flexibility in funding by keeping committed credit lines available
in its operating entities Undrawn committed borrowing are available at all
times so that the Company does not breach borrowing limits or covenants
(where applicable) on any of its borrowing facilities.
(d) Fair value of financial instruments
The Company has designated its cash equivalents, investments and certain
other assets as held-for-trading, measured at fair value. Accounts
receivable, other receivables, restricted cash and cash are classified as
loans and receivables, which are measured at amortized cost. Accounts payable
and accrued liabilities, acquisition obligation, loans payable and other
financial liabilities are classified as other financial liabilities, which
are measured at amortized cost.
The three levels of the fair value hierarchy are as follows:
Level 1 - Unadjusted quoted prices in active markets for identical
assets or liabilities;
Level 2 - Inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
Level 3 - Inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
23) FINANCIAL INSTRUMENTS (Continued)
FINANCIAL RISK FACTORS (continued)
(d) Fair value of financial instruments (continued)
As at May 31, 2011, the carrying and fair value amounts of the Company`s
financial instruments are approximately the same due to the limited term of
these instruments. The following table illustrates the classification of the
Company`s Financial Instruments within the fair-value hierarchy as at May 31,
2011 and February 28, 2011:
May 31, 2011
Level 1 Level 2 Level 3
Endowment policy and investments$ - $ - $4,743,489
February 28, 2011
Level 1 Level 2 Level 3
Endowment policy and investments$ - $ - $4,316,828
24. RELATED PARTY DISCLOSURE
In March 2010, a company with common directors solely participated in two
private placements of common shares of the Company (Note 20 (i)).
The Transaction with Nyah (Note 7) was a related party transaction because at
the time of the Transaction certain directors and officers of the Company
were also directors, officers and shareholders of Nyah.
During the Special Warrants offering (Note 20 (iii)) certain directors,
officers and a company with common directors subscribed to Special Warrants,
which subsequently were converted into common shares of the Company.
The Company shares its premises with other companies that have common
directors and officers and the Company reimburses the related companies for
its proportional share of the expenses. At May 31, 2011 an amount of $nil
(February 28, 2011 - $nil) was prepaid and $31,123 (February 28, 2011 -
$33,718) was payable in relation to these expenses. These amounts are
unsecured, non-interest bearing with no fixed terms of repayment.
As a result of the Nyah transaction, Forbes Coal acquired a receivable of
$1,015,574 which consisted primarily of a receivable from Valencia Ventures
Inc. ("Valencia") in the amount of $1,000,000 for the sale of the Agnew Lake
Project. In October 2010, $500,000 of this amount was received from Valencia.
Mr. Stan Bharti is a director of Valencia. Valencia and the Company have
certain directors and or officers in common. Also as a result of the Nyah
transaction Forbes Coal acquired a payable in the amount of $100,000 payable
to Forbes & Manhattan Inc., a company of which Stan Bharti is an officer and
director, which was paid in full as at February 28, 2011.
As a result of Slater Coal acquisition, Forbes Coal acquired receivables and
payables in the net amount of $121,394 owed from the former Slater Coal
shareholders and their related parties to the Company. As at the date of
these condensed consolidated financial statements an amount of $182,689 in
loans payable to directors and officers of Slater Coal was recorded. Also an
amount of $791,118 in loans receivable from directors and officers of Slater
Coal was recorded.
Also as a result of Slater Coal acquisition, business relationships with
certain related parties were inherited which resulted in total transactions
for three months being for services purchased being $1,209,000 and for sales
of goods being $852,000.
The related party transactions are in the normal course of operations and are
measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.
24) RELATED PARTY DISCLOSURE (Continued)
Compensation of key management personnel
The remuneration of directors and other members of key management personnel
during the period were as follows:
Three months ended
May 31, 2011 June 30, 2010
Short-term benefits $ 314,973 $ 133,933
Share-based payments 1,617,000 -
$1,931,973 $ 133,933
25. COMMITMENTS AND CONTINGENCIES
Management contracts
The Corporation is party to certain management contracts. These contracts
require that additional payments of approximately $2,390,000 be made upon the
occurrence of a change of control. As the likelihood of these events taking
place is not determinable, the contingent payments have not been reflected in
these condensed consolidated financial statements. Minimum commitments
remaining under these contracts were approximately $475,000 all due within
one year.
Lease and installment payment obligations
The Company is committed to minimum amounts under long-term capital lease and
installment payment agreements for plant and equipment. Minimum commitments
remaining under these leases were $11,442,873 over the following years:
Year Amount
2012 $ 1,561,399
2013 8,647,179
2014 1,206,820
2015 27,475
$ 11,442,873
Environmental contingency
The Company`s mining and exploration activities are subject to various
federal, provincial and international laws and regulations governing of the
environment. These laws and regulations are continually changing and
generally becoming more restrictive. The Company believes its operations are
materially in compliance with all applicable laws and regulations. The
Company has made, and expects to make in the future, expenditures to comply
with such laws and regulations.
Throughput, transportation and sales contracts
The Corporation is party to certain throughput, transportation and sales
contracts. As the likelihood of full non-performance by the Company on these
contracts is not determinable, the contingent payments have not been
reflected in these condensed consolidated financial statements.
Stock exchange listing
As part of the South African regulatory approval process in connection with
the purchase of Slater Coal (Note 8), the Company agreed to complete a
listing of the Company`s common shares on the Johannesburg Stock Exchange
("JSE") by August 2011 (Note 26).
26. SUBSEQUENT EVENTS
Subsequently to the May 31, 201,1 the Company granted 137,500 common stock
options to certain officers and consultants.
On July 11, 2011, the Company announced that its common shares have received
approval for secondary trading on the Johannesburg Stock Exchange under the
symbol "FMC" effective July 28, 2011.
27. TRANSITION TO IFRS
The Company`s financial statements for the year ending February 28, 2012 will
be the first annual financial statements that comply with IFRS and these
condensed interim financial statements were prepared as described in Note 2,
including the application of IFRS 1. IFRS 1 requires an entity to adopt IFRS
in its first annual financial statements prepared under IFRS by making an
explicit and unreserved statement in those financial statements of compliance
with IFRS. The Company will make this statement when it issues its 2012
annual financial statements.
IFRS 1 also requires that comparative financial information be provided. As a
result, the first date at which the Company has applied IFRS was January 1,
2010 (the "Transition Date"). IFRS 1 requires first-time adopters to
retrospectively apply all effective IFRS standards as of the reporting date,
which for the Company will be February 28, 2012. However, it also provides
for certain optional exemptions and certain mandatory exceptions for first
time IFRS adopters.
Initial elections upon adoption
Set forth below are the IFRS 1 applicable exemptions and exceptions applied
in the conversion from Canadian GAAP to IFRS.
IFRS Exemption Applied
a) Share-based payments - IFRS 2, Share-based Payments, encourages
application of its provisions to equity instruments granted on or before
November 7, 2002, but permits the application only to equity instruments
granted after November 7, 2002 that had not vested by the Transition Date.
The Company elected to avail itself of the exemption provided under IFRS 1
and applied IFRS 2 for all equity instruments granted after November 7, 2002
that had not vested by its Transition Date
b) Business combinations and Consolidated and Separate Financial
Statements, IFRS 1 provides the option to apply IFRS 3, Business
Combinations, retrospectively or prospectively from the Transition Date. The
Company has elected to apply IFRS 3 prospectively. The Company did not apply
IFRS 3 retrospectively to business combinations that occurred prior to its
Transition Date and such business combinations have not been restated. In
accordance with IFRS 1, if a Company elects to apply IFRS 3 Business
Combinations retrospectively, IAS 27 Consolidated and Separate Financial
Statements must also be applied retrospectively. As the Company elected to
apply IFRS 3 prospectively, the Company has also elected to apply IAS 27
prospectively.
IFRS Mandatory Exceptions
Estimates - Hindsight is not used to create or revise estimates. The
estimates previously made by the Company under Canadian GAAP were not revised
for application of IFRS except where necessary to reflect any difference in
accounting policies.
Reconciliations of Canadian GAAP to IFRS
IFRS 1 requires an entity to reconcile its equity, comprehensive income
(loss) and cash flows for prior periods. The changes made to the condensed
interim consolidated statements of financial position and condensed interim
consolidated statements of comprehensive income (loss) have resulted in
reclassifications of various amounts on the statements of cash flows.
27) TRANSITION TO IFRS (Continued)
Adjustments on transition to IFRS:
In addition to the exemptions and exceptions discussed above, the following
narratives explain the significant differences between the previous
historical Canadian GAAP accounting policies and the current IFRS policies
applied by the Company.
a) Share-based compensation - Forfeitures
Canadian GAAP - Forfeitures of awards are recognized as they occur.
IFRS - An estimate is required of the number of awards expected to vest,
which is revised if subsequent information indicates that actual forfeitures
are likely to differ from the estimate. No adjustments were required.
b) Reverse Acquisition
Canadian GAAP - The reverse acquisition was treated as a capital transaction
with the cost of the transaction measured at the fair value of the
consideration given or the assets acquired, whichever is more reliably
measured. As the valuation of the consideration is calculated using the Black-
Scholes option pricing model which requires assumptions to be used, the
Company measured the transaction based on the fair value of the net assets
acquired, which was in a deficit position and therefore, recorded the
transaction directly into deficit.
IFRS - The substance of the transaction is a reverse acquisition of a non-
operating company which does not constitute a business combination as Nyah
does not meet the definition of a business. The transaction is accounted for
as a capital transaction with the consideration paid by the Company measured
with the excess over the fair value of the assets being recognized in the
statement of operations and comprehensive income (loss). As the purchase
price paid exceeded the fair value of the identified net assets acquired, the
difference was recorded in the statement of operations and comprehensive
income (loss).
Impact on Condensed Interim Consolidated Statements of Financial Position and
Statements of Operations
February 28, 2011 June 30, 2010
Increase in share capital $ 2,537,221 $ -
Loss on share-based (2,537,221) -
payments
c) Deferred Income Taxes
Canadian GAAP - Future income tax liabilities are presented as either current
or long term
IFRS - Deferred income tax liabilities are presented as long-term.
Transitional reconciliations
The reconciliations between the previously reported financial results under
Canadian GAAP and the current reported financial results under IFRS are
provided as follows:
(i) Reconciliation of the condensed interim statement of financial position
and equity as at January 1, 2010;
(ii) Reconciliation of the condensed interim statement of financial position
and equity as at June 30, 2010;
(iii) Reconciliation of the condensed interim statement of operations for the
three months ended June 30, 2010;
(iv) Reconciliation of the condensed interim consolidated statement of
financial position and equity as at February 28, 2011 and
(v) Reconciliation of the condensed interim consolidated statement of
operations for the fourteen months ended February 28, 2011
27) TRANSITION TO IFRS (Continued)
i) Reconciliation of the condensed interim statement of financial position
and equity as at January 1, 2010
Canadian GAAP Note Canadian GAAP balances IFRS IFRS
accounts 27 adjustments balances
Assets
Current
Cash and cash equivalents $ 52,177 $ $
- 52,177
Accounts and other 600
receivables 600
Prepaid expenses 7,144
7,144
59,921
59,921
Deferred charges 735,706
735,706
$ 795,627 $
795,627
Liabilities
Current
Accounts payable and accrued $ 32,355 $
liabilities 32,355
$ 32,355 $
32,355
Shareholders
Share capital 800,160
800,160
Deficit (36,888)
(36,888)
763,272
763,272
$ 795,627 $
795,627
27) TRANSITION TO IFRS (Continued)
ii) Reconciliation of the condensed interim statement of financial position
and equity as at June 30, 2010
Canadian GAAP accounts Note Canadian GAAP IFRS IFRS
27 balances adjustmen balances
ts
Assets
Current
Accounts and other receivables 57,862
57,862
Prepaid expenses 79,862
79,862
137,724
137,724
Deferred charges 3,954,812
3,954,812
$ $ 4,092,536
4,092,536
Liabilities
Current
Accounts payable and accrued $ $ 249,824
liabilities 249,824
Bank overdraft 5,172
5,172
$ $ 254,996
254,996
Shareholders Equity
Share capital 1,300,160
1,300,160
Commitments to issue special 3,194,550
warrants 3,194,550
Contributed surplus 104,000
104,000
Deficit
(761,170) (761,170)
3,837,540
3,837,540
$ $ 4,092,536
4,092,536
27) TRANSITION TO IFRS (Continued)
iii) Reconciliation of the condensed interim statement of operations for the
three months ended June 30, 2010
Canadian GAAP Note Canadian IFRS IFRS balances
accounts 27 GAAP adjustmen
balances ts
Expenses
Consulting and 170,060
professional fees 170,060 -
General and 115,573
administration 115,573 -
Mineral properties 58,217
investigation costs 58,217 -
343,850
343,850 -
Nets loss before (343,850)
other items (343,850) -
Other items
Foreign exchange gain (1,263)
(loss) (1,263) -
NET LOSS before (345,113)
income tax (345,113) -
Income tax expenses -
- -
NET LOSS for the (345,113)
period (345,113) -
Other comprehensive
income items
Unrealised gain on foreign
currency translation - - -
COMPREHENSIVE LOSS (345,113)
for the period (345,113) -
Net loss per share - basic (0.13)
and diluted (0.13)
Weighted average
number
of common shares outstanding 2,700,000
- basic and diluted 2,700,000 2,700,000
27) TRANSITION TO IFRS (Continued)
iv) Reconciliation of the condensed interim consolidated statement of
financial position and equity as at February 28, 2011
Canadian GAAP accounts Note 27 Canadian GAAP IFRS IFRS
balances adjustments balances
ASSETS
Current
Cash and cash equivalents -
15,252,651 15,252,651
Restricted cash -
1,736,000 1,736,000
Accounts and other -
receivables 12,410,375 12,410,375
Inventories -
10,526,681 10,526,681
Prepaid expenses -
60,301 60,301
-
39,986,008 39,986,008
Property, plant and -
equipment 79,316,581 79,316,581
Intangibles -
5,911,567 5,911,567
Goodwill -
18,672,014 18,672,014
Other assets -
5,398,825 5,398,825
Deferred income taxes -
120,061 120,061
-
149,405,056 149,405,056
LIABILITIES
Current
Accounts payable and -
accrued liabilties 7,031,196 7,031,196
Other financial -
liabilties 2,660,467 2,660,467
Deferred income taxes
2,200,000 (2,200,000.00) -
Asset retirement -
obligation 389,177 389,177
Loans payable -
261,934 261,934
12,542,774 (2,200,000) 10,342,774
Acquisition obligation -
20,300,925 20,300,925
Asset retirement -
obligation 2,665,329 2,665,329
Other financial -
liabilties 11,727,930 11,727,930
Deferred income taxes 2,200,000
16,454,227 18,654,227
-
63,691,185 63,691,185
SHAREHOLDERS` EQUITY
Share capital 2,357,221
91,315,650 93,672,871
Warrants
2,149,853 2,149,853
Contributed surplus
6,263,430 6,263,430
Deficit
(15,077,393) (2,357,221) (17,434,614
)
Currency transaltion
reserve (535,198) (535,198)
Equity attributable to the owners
of the company 84,116,342 84,116,342
Non-controlling interest
1,597,529 1,597,529
-
85,713,871 85,713,871
-
149,405,056 149,405,056
27) TRANSITION TO IFRS (Continued)
v) Reconciliation of the condensed interim consolidated statement of
operations for the fourteen months ended February 28, 2011
Canadian GAAP accounts Note 27 Canadian IFRS IFRS
GAAP adjustments balances
balances
REVENUE 27,677,608
27,677,608 -
COST OF SALES
Operating expense
19,925,113 - 19,925,113
Amortisation and depletion
3,509,727 - 3,509,727
23,434,840 - 23,434,840
Gross profit
4,242,768 - 4,242,768
EXPENSES
Consulting and
professional fees 1,813,024 - 1,813,024
General and administration
2,729,598 - 2,729,598
Director`s fees
72,500 - 72,500
Stock based compensation
13,522,096 - 13,522,096
Mineral properties
investigation costs 111,686 - 111,686
18,248,904 - 18,248,904
Net loss before other
items (14,006,136) (14,006,136)
OTHER ITEMS
Other income
454,504 - 454,504
Business combination
transaction costs (1,340,196) - (1,340,196)
Accretion
(2,241,896) - (2,241,896)
Change of estimates on -
contingent acquisition 2,724,711 2,724,711
liabiltiy
Interest income (expense) -
(576,753) (576,753)
Foreign exchange gain -
(loss) 630,924 630,924
Loss on share-based
payments - (2,357,221) (2,357,221)
NET LOSS before income tax
(14,354,842) (2,357,221) (16,712,063)
Income tax expense -
(685,663) (685,663)
NET LOSS for the period
(15,040,505) (2,357,221) (17,397,726)
Other comprehensive income
items
Unrealised loss on foreign -
currency translation (535,198) (535,198)
COMPREHENSIVE LOSS for the
period (15,575,703) (2,357,221) (17,932,924)
Net loss per share - basic and
diluted (1.06) (0.17) (1.23)
Weighted average number
of common shares outstanding -
basic and diluted 14,187,763 14,187,763 14,187,763
Date: August 12, 2011
Sponsor: Sasfin Capital, a division of Sasfin Bank Limited
Date: 15/08/2011 11:08:01 Produced by the JSE SENS Department.
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