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FMC
FMC
FMC - Forbes Coal - Forbes February 2012 Financial year end results
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 Coal" or "the Company")
CONSOLIDATED FINANCIAL STATEMENTS for the periods ended February 29, 2012 and
February 28, 2011 (presented in Canadian dollars)
FORBES & MANHATTAN COAL CORP.
Consolidated Statements of Financial Position
As at,
(Presented in Canadian dollars)
Notes February 29, 2012
ASSETS
Current
Cash $9,481,078
Restricted cash 1,984,890
Accounts and other receivables 12,920,590
Inventories 17 3,443,691
Prepaid expenses 95,613
27,925,862
Property, plant and equipment 15 81,956,437
Intangibles 14 5,414,498
Goodwill 13 17,506,375
Other assets 16 6,958,321
Long-term prepaid expenses 463,033
Deferred income taxes 30 326,754
Deferred charges -
$140,551,280
LIABILITIES
Current
Accounts payable and accrued liabilities 18 $9,233,830
Other financial liabilities 19 3,896,001
Asset retirement obligations 20 1,053,845
Loans payable 21 27,749
14,211,425
Acquisition obligation 12 -
Asset retirement obligations 20 1,981,829
Other financial liabilities 19 20,030,702
Deferred income taxes 30 14,312,877
50,536,833
SHAREHOLDERS` EQUITY
Issued capital 22 98,792,926
Share-based payment reserves 24 11,208,323
Deficit (14,519,284)
Currency translation reserve (6,106,530)
Equity attributable to the owners of the Company 89,375,435
Non-controlling interest 8,9 639,012
90,014,447
$140,551,280
Commitments and contingencies 1,27
Subsequent events 28
February 28, 2011 January 1, 2010
(Note 31) (Notes 1 and 31)
ASSETS
Current
Cash $15,252,651 $52,177
Restricted cash 1,7 36,000 -
Accounts and other receivables 12,410,375 600
Inventories 10,526,681 -
Prepaid expenses 60,301 7,144
39,986,008 59,921
Property, plant and equipment 79,316,581 -
Intangibles 5,911,567 -
Goodwill 18,672,014 -
Other assets 5,398,825 -
Long-term prepaid expenses - -
Deferred income taxes 120,061 -
Deferred charges - 735,706
$149,405,056 $795,627
LIABILITIES
Current
Accounts payable and accrued liabilities $7,031,196 $32,355
Other financial liabilities 2,660,467 -
Asset retirement obligations 389,177 -
Loans payable 261,934 -
10,342,774 32,355
Acquisition obligation 20,300,925 -
Asset retirement obligations 2,665,329 -
Other financial liabilities 11,727,930 -
Deferred income taxes 18,654,227 -
63,691,185 32,355
SHAREHOLDERS` EQUITY
Issued capital 93,672,871 800,160
Share-based payment reserves 8,413,283 -
Deficit (1 7,434,614) (36,888)
Currency translation reserve (535,198) -
Equity attributable to the owners of
the Company 84,116,342 763,272
Non-controlling interest 1,597,529 -
85,713,871 763,272
$149,405,056 $795,627
Commitments and contingencies
Subsequent events
APPROVED ON BEHALF OF THE BOARD:
Signed "Stephan Theron", Director Signed "David Stein", Director
The accompanying notes are an integral part of the consolidated financial
statements.
FORBES & MANHATTAN COAL CORP.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Presented in Canadian Dollars)
For the period ended For the period ended
Notes February 29, 2012 February 28, 2011
(Notes 1 and 31)
REVENUE $104,497,481 $27,677,608
COST OF SALES
Operating expenses 71,061,738 19,925,113
Amortization and
depletion 15,782,660 3,509,727
Stock based
compensation 24 223,000 -
87,067,398 23,434,840
Gross profit 17,430,083 4,242,768
EXPENSES
Consulting and
professional fees 5,034,500 1,885,524
General and
administration 6,226,315 2,729,598
Stock based
compensation 24 2,362,755 13,522,096
Mineral properties
investigation costs 317,008 111,686
13,940,578 18,248,904
Net income (loss)
before other items 3,489,505 (14,006,136)
OTHER ITEMS
Other income 613,316 454,504
Business combination
transaction costs (24,223) (1,340,196)
Accretion 12 316,467 (2,241,896)
Change in estimates on
contingent acquisition
liability 12 425,443 2,724,711
Interest (expense) 11 (722,326) (576,753)
Foreign exchange gain 552,508 630,924
Unrealized gain on
marked-to-market
securities 69,196 -
Loss on share-based
payments pursuant to
BEE transaction 9 (1,461,550) -
Loss on share-based
payments pursuant to
reverse take-over 31 - (2,357,221)
NET INCOME (LOSS)
before income tax 3,258,336 (16,712,063)
Income tax expense 30 (968,389) (685,663)
NET INCOME (LOSS) for
the period 2,289,947 (17,397,726)
Other comprehensive
loss items
Unrealized (loss) on
foreign currency
translation (5,571,332) (535,198)
COMPREHENSIVE (LOSS)
for the period $ (3,281,385) $(17,932,924)
Net income (loss) per
share-basic and
diluted 0.07 (1.23)
Headline earnings per
share-basic and
diluted 0.07 (1.23)
Weighted average
number:
of common shares
outstanding-basic 34,859,160 14,187,763
of common shares
outstanding-diluted 34,863,120 14,187,763
The accompanying notes are an integral part of the consolidated financial
statements.
FORBES & MANHATTAN COAL CORP.
Consolidated Statements of Cash Flows
(Presented in Canadian Dollars)
For the period ended For the period ended
February 29, 2012 February 28, 2011
(Notes 1 and 31)
CASH PROVIDED BY (USED IN):
OPER ATING ACTIVITIES
Net income (loss) for the period $ 2,289,947 $ (17,397,726)
Adjustments:
Amortization and depletion 15,782,660 3,509,727
Fair value adjustment on
financial assets (377,098) (233,584)
Deferred income taxes (3,376,458) (408,503)
Accretion (572,785) 2,241,896
Change in estimates (425,443) (2,724,711)
Foreign exchange (634,851) (677,381)
Unrealized gain on
marked-to-market securities (69,196) -
Stock based compensation 2,585,755 13,522,096
Loss on share-based payments 1,461,550 2,357,221
16,664,081 189,035
Net change in non-cash working
capital 3,271,925 (3,105,739)
19,936,006 (2,916,704)
INVESTING ACTIVITIES
Change in accounts payable
attributable to property
exploration - (8,090)
Business combination (18,494,000) (48,474,470)
Cash acquired on business
combination - 3,832,045
Cash acquired on Nyah
transaction - 968,356
Long-term pre paid expenses (468,924) -
Additions to property, plant
and equipment (20,407,854) (11,582,482)
Additional contribution to
endowment policy (1,342,504) (392,921)
Investment in held for trading
instruments - 2,191,264
Restricted cash (346,850) (1,736,000)
(41,060,132) (55,202,298)
FINANCING ACTIVITIES
Change in accounts payable
attributable to share issue
costs 351,673 (371,673)
Shares issued for cash 5,460,000 75,871,831
Shares issue costs (691,618) (6,153,174)
Loans payable 10,712,572 3,926,622
Payments to BEE partners (123,849) -
15,708,778 73,273,606
Effect of exchange rate change
on cash and cash equivalents (356,225) 45,870
CHANGE IN CASH (5,415,348) 15,154,604
CASH, beginning of the period 15,252,651 52,177
CASH, end of the period $ 9,481,078 $ 15,252,651
The accompanying notes are an integral part of the consolidated financial
statements.
FORBES & MANHATTAN COAL CORP.
Consolidated Statements of Cash Flows
(Presented in Canadian Dollars)
For the period ended For the period ended
February 29, 2012 February 28, 2011
(Notes 1 and 31)
SUPPLEMENTAL INFORMATION
Shares issued on business
combination $- $11,029,102
Shares issued on Nyah
transaction into escrow $- $1,716,357
Performance shares issued
into escrow $- $7,196,100
Broker warrants granted on
private placements $- $2,149,853
Interest and dividend income $(722,326) $(576,753)
Income taxes received (paid) $(6,093,065) $3,268,748
Deferred charge payment made by
Aberdeen $- $3,091,500
Settlement of amount due to
Aberdeen $- $1,091,500
Deferred charges allocated to
purchase price $- $735,706
The accompanying notes are an integral part of the consolidated financial
statements.
FORBES & MANHATTAN COAL CORP.
Consolidated Statements of Changes in Equity
(Presented in Canadian dollars)
Number of Issued
shares capital
issued
Balance as at January 1, 2 010 $2,600,000 $800,160
Shares issued on public offering 23,072,368 72,297,784
Shares issued on business combination 3,938,965 11,029,102
Shares issued on Nyah transaction 1,279,384 4,073,578
Performance shares issued into escrow 2,700,000 7,196,100
Stock-based compensation - -
Options issued on Nyah transaction - -
Shares issued on exercise of options 75,000 426,000
Broker warrants granted on public offering - (2,149,853)
Other comprehensive loss for the period ended
February 28, 2011 - -
Net loss for the period ended
February 28, 2011 - -
Balance as at February 28, 2011 33,665,717 $ 93,672,871
Shares issued on public offering 1,200,000 5,120,055
Stock-based compensation - -
Stock options expired - -
Settlement of BEE option - -
Dividends declared to BEE partners - -
Other comprehensive loss for the year ended
February 29, 2012 - -
Net income for the year ended
February 29, 2012 - -
Balance as at February 29, 2012 34,865,717 $98,792,926
Share-based payment
reserves
Warrant Option BEE option
reserve reserve reserve
Balance as at January 1, 2 010 $- $- $-
Shares issued on public offering - - -
Shares issued on business
combination - - -
Shares issued on Nyah transaction - - -
Performance shares issued into
escrow - - -
Stock-based compensation - 6,3 5,996 -
Options issued on Nyah transaction - 119,684 -
Shares issued on exercise of options - (182,250) -
Broker warrants granted on public
offering 2,149,853 - -
Other comprehensive loss for the
period ended
February 28, 2011 - - -
Net loss for the period ended
February 28, 2011 - - -
Balance as at February 28, 2011 $ 2,149,853 $ 6,263,430 $-
Shares issued on public offering - - -
Stock-based compensation - 2,585,755 -
Stock options expired - (1,036,244) -
Settlement of BEE option - - 1,245,529
Dividends declared to BEE partners - - -
Other comprehensive loss for the
year ended
February 29, 2012 - - -
Net income for the year ended
February 29, 2012 - - -
Balance as at February 29, 2012 $2,149,853 $7,812,941 $1,245,529
Deficit Currency Shareholders`
translation equity
reserve
Balance as at January 1,
2010 $(36,888) $- $763,272
Shares issued on public
offering - - 72,297,784
Shares issued on business
combination - - 11,0 29,102
Shares issued on Nyah
transaction - - 4,073,578
Performance shares issued
into escrow - - 7,1 96,100
Stock-based compensation - - 6,325,996
Options issued on Nyah
transaction - - 119,684
Shares issued on exercise of
options - - 243,750
Broker warrants granted on
public offering - -
Other comprehensive loss for
the period ended
February 28, 2011 - (535,198) (535,198)
Net loss for the period ended
February 28, 2011 (17,397,726) - (17,397,726)
Balance as at February 28,
2011 $(17,434,614) (535,198) $ 84,116,342
Shares issued on public
offering - - 5,120,055
Stock-based compensation - - 2,5 85,755
Stock options expired 1,036,244 - -
Settlement of BEE option (287,012) - 958,517
Dividends declared to BEE
partners (123,849) - (123,849)
Other comprehensive loss for
the year ended
February 29, 2012 - (5,571,332) (5,571,332)
Net income for the year ended
February 29, 2012 2,289,947 - 2,289,947
Balance as at February 29,
2012 $(14,519,284) $ (6,106,530) $ 89,375,435
The accompanying notes are an integral part of the consolidated financial
statements.
FORBES & MANHATTAN COAL CORP.
CONSOLIDATED FINANCIAL STATEMENTS
for the periods ended February 29, 2012 and February 28, 2011
(presented in Canadian dollars)
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 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 and Johannesburg Stock
Exchange ("JSE"). The Company`s head office is located at 65 Queen Street West,
Suite 815, Toronto, Ontario, Canada. These consolidated financial statements
were approved and authorized for issue by the Board of Directors on May 25,
2012.
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 7. 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 audited consolidated
financial statements of the Company for the year ended February 29, 2012 are
presented with comparatives for the fourteen months ended February 28, 2011.
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 annual consolidated financial statements of the Company and its subsidiary
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") 1, Presentation of Financial
Statements and by IFRS 1, First-time Adoption of IFRS. These annual consolidated
financial statements have been prepared in accordance with accounting policies
based on the IFRS standards and International Financial Reporting
Interpretations Committee ("IFRIC") interpretations. 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. The Company has consistently
applied the same accounting policies throughout all periods presented, as if
these policies had always been in effect. Note 31 discloses the impact of the
transition to IFRS on the Company`s consolidated statements of financial
position as at January 1, 2010 and February 28, 2011 and the consolidated
statements of operations and comprehensive loss for the period ended February
28, 2011.
The preparation of financial statements in accordance with IAS 1 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, 2012 or later periods. Updates are not
applicable or are not consequential to the Company have been excluded thereof.
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.
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.
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine ("IFRIC 20")
provides guidance on the accounting for costs related to stripping activity in
the production phase of surface mining. When the stripping activity results in
the benefit of useable ore that can be used to produce inventory, the related
costs are to be accounted for in accordance with IAS 2 Inventories; when the
stripping activity results in the benefit of improved access to ore that will be
mined in future periods, the related costs are to be accounted for in accordance
with IFRIC 20 as additions to non-current assets when specific criteria are met.
IFRIC 20 is effective for annual periods beginning on or after January 1, 2013,
and permits early adoption. The Company is in the process of determining the
impact on its consolidated financial statements.
4) PRINCIPLES OF CONSOLIDATION
The 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.
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 consolidated financial statements in conformity with IFRS
requires the Company`s management to make judgments, estimates and assumptions
about future events that affect the amounts reported in the consolidated
financial statements and related notes to the financial statements. Although
these estimates are based on management`s best knowledge of the amount, event or
actions, actual results may differ from those estimates and these differences
could be material.
The areas which require management to make significant judgments, estimates and
assumptions in determining carrying values include, but are not limited to:
* Assets` carrying values and impairment charges
In the determination of carrying values and impairment charges, management
looks at the higher of recoverable amount or fair value less costs to sell
in the case of assets and at objective evidence, significant or prolonged
decline of fair value on financial assets indicating impairment. These
determinations and their individual assumptions require that management
make a decision based on the best available information at each reporting
period.
* Capitalization of exploration and evaluation costs
Management has determined that exploration and evaluation costs incurred
during the year have future economic benefits and are economically
recoverable. In making this judgement, management has assessed various
sources of information including but not limited to the geologic and
metallurgic information, history of conversion of mineral deposits to
proven and probable mineral reserves, scoping and feasibility studies,
proximity of operating facilities, operating management expertise and
existing permits. See Note X for details of capitalized exploration and
evaluation costs.
* Mineral reserve estimates
The figures for mineral reserves and mineral resources are determined in
accordance with National Instrument 43-101, "Standards of Disclosure for
Mineral Projects", issued by the Canadian Securities Administrators. There
are numerous uncertainties inherent in estimating mineral reserves and
mineral resources, including many factors beyond the Company`s control.
Such estimation is a subjective process, and the accuracy of any mineral
reserve or mineral resource estimate is a function of the quantity and
quality of available data and of the assumptions made and judgments used in
engineering and geological interpretation. Differences between management`s
assumptions including economic assumptions such as metal prices and market
conditions could have a material effect in the future on the Company`s
financial position and results of operation.
* Impairment of mineral interests
While assessing whether any indications of impairment exist for exploration
and evaluation assets, consideration is given to both external and internal
sources of information. Information the Company considers includes changes
in the market, economic and legal environment in which the Company operates
that are not within its control that could affect the recoverable amount of
exploration and evaluation assets. Internal sources of information include
the manner in which exploration and evaluation assets are being used or are
expected to be used and indications of expected economic performance of the
assets. Estimates include but are not limited to estimates of the
discounted future after-tax cash flows expected to be derived from the
Company`s mining properties, costs to sell the properties and the
appropriate discount rate. Reductions in metal price forecasts, increases
in estimated future costs of production, increases in estimated future
capital costs, reductions in the amount of recoverable mineral reserves and
mineral resources and/or adverse current economics can result in a write-
down of the carrying amounts of the Company`s exploration and evaluation
assets.
* Estimation of decommissioning and restoration costs and the timing of
expenditure The cost estimates are updated annually during the life of a mine to
reflect known developments, (e.g. revisions to cost estimates and to the
estimated lives of operations), and are subject to review at regular
intervals. Decommissioning, restoration and similar liabilities are
estimated based on the Company`s interpretation of current regulatory
requirements, constructive obligations and are measured at fair value. Fair
value is determined based on the net present value of estimated future cash
expenditures for the settlement of decommissioning, restoration or similar
liabilities that may occur upon decommissioning of the mine. Such estimates
are subject to change based on changes in laws and regulations and
negotiations with regulatory authorities.
* Income taxes and recoverability of potential deferred tax assets
In assessing the probability of realizing income tax assets recognized,
management makes estimates related to expectations of future taxable
income, applicable tax planning opportunities, expected timing of reversals
of existing temporary differences and the likelihood that tax positions
taken will be sustained upon examination by applicable tax authorities. In
making its assessments, management gives additional weight to positive and
negative evidence that can be objectively verified. Estimates of future
taxable income are based on forecasted cash flows from operations and the
application of existing tax laws in each jurisdiction. The Company
considers whether relevant tax planning opportunities are within the
Company`s control, are feasible, and are within management`s ability to
implement. Examination by applicable tax authorities is supported based on
individual facts and circumstances of the relevant tax position examined in
light of all available evidence. Where applicable tax laws and regulations are
either unclear or subject to on going varying interpretations, it is
reasonably possible that changes in these estimates can occur that
materially affect the amounts of income tax assets recognized. Also, future
changes in tax laws could limit the Company from realizing the tax benefits
from the deferred tax assets. The Company reassesses unrecognized income
tax assets at each reporting period.
* Share-Based Payments
Management determines costs for share-based payments using market-based
valuation techniques. The fair value of the market- based and performance-
based share awards are determined at the date of grant using generally
accepted valuation techniques. Assumptions are made and judgment used in
applying valuation techniques. These assumptions and judgments include
estimating the future volatility of the stock price, expected dividend
yield, future employee turnover rates and future employee stock option
exercise behaviors and corporate performance. Such judgments and
assumptions are inherently uncertain. Changes in these assumptions affect
the fair value estimates.
* Allocation purchase price related to reverse acquisition, asset acquisition
and business combination. The fair value of assets acquired and liabilities
assumed and the resulting goodwill, if any, requires that management make
estimates based on the information provided by the acquiree. Changes to the
provisional values of assets acquired and liabilities assumed, deferred
income taxes and resulting goodwill, if any, will be retrospectively
adjusted when the final measurements are determined (within one year of
acquisition date).
* Contingencies
Refer to Note 27.
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 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 statement of operations 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 consolidated statement of operations within
"foreign exchange gain (loss)". All other foreign exchange gains and losses are
also presented in the 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 expected 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.
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 discounted 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 February 29, 2012, 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
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 (expense) income. 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 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 consolidated
statements of financial position as another 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
under the assumption that 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 February 29, 2012 and
February 28, 2011 only outstanding options and warrants referred to in Note 24
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 W ITH 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 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 $79,260,000) 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 ($18,494,000 paid February 29, 2012).
The Company currently holds 100.00% of the outstanding shares of Slater Coal and
have received shares equivalent to 23.25% of the issued and outstanding shares
after the February 29, 2012 payment had been made.
The payments made on February 24, 2011 and February 29, 2012 were based on
targeted production rates of 781,200 tonnes in 2011 and 782,400 tonnes in 2012
respectively. 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 on February 24, 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 February 29, 2012
payment was initially valued using a probability-weighted approach and an amount
of $18,887,787 was included in the purchase price.
As at December 31, 2010, based on revised estimates related to production
targets (probability of 90%), 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 February 24, 2011 payment was reduced by $3,150,154
and the long term portion of the liability related to the February 29, 2012
payment has been increased by $425,443. These adjustments have resulted in a net
recovery on the estimated fair value of the contingent liability of $2,724,711
being recorded to the consolidated statements of operations, loss, comprehensive
loss and deficit as at February 28, 2011.
As at November 30, 2011, based on revised estimates related to production
targets (probability of 100%), 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 February 29, 2012 payment was increased by
$119,729. This adjustment resulted in an equivalent increase on the estimated
fair value of the contingent liability being recorded to the consolidated
statements of operations, loss, comprehensive loss and deficit as at November
30, 2011.
As at February 29, 2012, based on revised estimates related to production
targets (probability of 0%), 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 February 29, 2012 payment was reduced by
$2,401,578. This adjustment resulted in a net recovery on the estimated fair
value of the contingent liability of $741,910 being recorded to the consolidated
statements of operations, loss, comprehensive loss and deficit as at February
29, 2012.
During the year ended February 29, 2012 Slater Coal did not meet the production
target and subsequently there was no premium added to the final payment.
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 JSE
within 12 months. As a result on July 28, 2011, the Company began trading on the
JSE under the symbol "FMC".
The allocation of the purchase price has been finalized and is as follows:
The total cost of the shares acquired on July 29, 2010, was as follows:
Cash payments ZAR 24 1 million $ 34,122,898
Common shares issued (3,938,965 shares valued at ZAR 79 million) 11,029,102
Estimated fair value of ZAR 280 million (discounted and
probability weighted to payment dates) 37,568,157
Estimated fair value of CN STA ZAR 14 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 for the 2011 comparative period of $27,677,608 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) BEE TRANSACTION
During the twelve-months period ended February 29, 2012, Slater Coal assisted
one of its BEE partners in the buying out of the interest in Zinoju held by its
other BEE partner. To facilitate this buy-out, Slater Coal provided interest-
free financing for the buy-out. The 18% shareholding in Zinoju that was the
subject of the buy-out was valued at ZAR 20,000,000 on the date of the
transaction. The financing is secured by the shareholding in Zinoju and will be
repaid using dividends received from the 18% shareholding in Zinoju. For
accounting purposes, the transaction represents a settlement of the original
call option over the 18% interest in Zinoju with the original BEE partner and
the issuance of a new call option over an 18% interest in Zinoju with the
remaining BEE partner.
The estimated fair value of the option settled and the new option issued are the
same on the settlement date. Key assumptions utilized in the valuation include a
maximum maturity date of 8 years, assumption that financing repayments will be
made solely from dividends declared by Zinoju under the terms of the BEE
agreement within 8 years, volatility of 33% and a risk-free interest rate of
5.20%. The value of the new call option issued on the transaction date was ZAR
9,073,711 ($1,245,529).
The cash payment of ZAR 20,000,000 made by the continuing BEE partner was first
utilized to reduce the vending BEE partner`s outstanding financing due to the
Company as a result of the original BEE transaction (ZAR 9,158,917). The net
cash of ZAR 10,841,083 paid to the vending BEE partner exceeded the original
fair value of the option being settled.
The settlement of the original call option with the vending BEE partner
represents the settlement of an equity-settled share-based payment transaction
and is accounted for as a repurchase of an equity interest. `Non-controlling
interest` was debited for the original fair value of the option that was settled
in the amount of $958,517. The difference between the cash paid on settlement
and the original fair value of the original option of ZAR 1,767,372 ($242,603)
represents additional BEE expense and is recognized in `loss on share-based
payments` in fiscal 2012.
The issuance of the new call option to the continuing BEE partner represents the
issuance of an equity-settled share-based payment. The value of the new call
option on the date of issue of ZAR 9,073,711 ($1,245,529) was reflected as an
expense in the statement of comprehensive income in fiscal 2012 as part of `loss
on share based payments` and as a credit in the statement of changes in equity
in the `share-based payment reserves`.
10) OPERATING SEGMENTS
The Company operates in Canada and South Africa. The Company`s revenue from
external customers and information about its assets by geographical location are
detailed below:
Current Properties,
assets plant and Intangibles
equipment
January 1, 2010
Canada $ 59,921 $ - $ -
South Africa - - -
$ 59,921 $ - $ -
February 28, 2011
Canada $ 14,794,690 $ - $ -
South Africa 25,191,318 79,316,581 5,911,567
$ 39,986,008 $ 79,316,581 $ 5,911,567
February 29, 2012
Canada $ 6,018,392 $ - $ - $
South Africa 21,907,470 81,956,437 5,414,498
$ 27,925,862 $ 81,956,437 $ 5,414,498
Other non- Total
current assets assets
January 1, 2010
Canada $ 735,706 $ 795,627
South Africa - -
$ 735,706 $ 795,627
February 28, 2011
Canada $ - $ 14,794,690
South Africa 24,190,900 134,610,366
$ 24,190,900 $ 149,405,056
February 29, 2012
Canada 745,681 $ 6,764,073
South Africa 24,508,802 133,787,207
$ 25,254,483 $ 140,551,280
All of the Company`s coal revenues are earned from production in South Africa.
11) INTEREST (EXPENSE)
Period ended
February 29, 2012 February 28, 2011
Interest bearing borrowings $ 1,924,964 $ 730,798
Unwinding discount on
rehabilitation provision 28,317 96,962
Other 32 44
Interest expense 1,953,313 827,804
Dividend income - 44,817
Cash and cash equivalents 876,595 97,562
Restricted cash 101,546 -
Unwinding discount on
rehabilitation provision 252,846 -
Other - 108,672
Interest income 1,230,987 251,051
Net interest (expense) $ (722,326) $ (576,753)
12) ACQUISITION OBLIGATION
Current Long-term
Balance as at January 1, 2010 $- $ -
Slater Coal acquisition obligation 18,680,370 18,887,787
Effect of foreign currency exchange difference (371,473) (375,598)
Accretion 1,076,875 1,165,021
Change in estimates (3,150,154) 425,443
Effect of foreign currency exchange difference
on accretion and change in estimates 221,382 198,272
Payment made on Slater Coal acquisition (16,457,000) -
Balance as at February 28, 2011 $- $20,300,925
Reclassification due to current maturity 20,3 00,925 (20,300,925)
Effect of foreign currency exchange difference (1,145,552) -
Accretion (316,467) -
Change in estimates (425,443) -
Effect of foreign currency exchange difference
on accretion and change in estimates 80,537 -
Final payment made on Slater Coal acquisition (18,494,000) -
Balance as at February 29, 2012 $- $-
See Note 8 (a) for details of Slater Coal acquisition.
13) GOODWILL
Balance as at January 1, 2010 $-
Goodwill on Slater Coal acquisition 18,672,014
Balance as at February 28, 2011 $18,672,014
Effect of foreign currency exchange difference (1,165,639)
Balance as at February 29, 2012 $17,506,375
14) INTANGIBLES
Richards Bay Mineral and
Coal Terminal prospecting
entitlements rights Total
Cost as at January 1, 2010 $- $- $-
Additions through Slater Coal
acquisition 4,983,794 1,058,250 6,042,044
Effect of foreign currency
exchange difference (38,854) (8,250) (47,104)
Cost as at February 28, 2011 4,944,940 1,050,000 5,994,940
Effect of foreign currency
exchange difference (279,036) (59,250) (338,286)
Cost as at February 29, 2012 $4,665,904 $990,750 $5,656,654
Accumulated depreciation,
depletion and impairment as at
January 1, 2010 -$ $- $-
Charge for the period (79,913) (3,460) (83,373)
Depreciation, depletion and
impairment as at February 28,
2011 (79,913) (3,460) (83,373)
Effect of foreign currency
exchange difference 4,509 195 4,704
Charge for the period (1 57,772) (5,715) (163,487)
Depreciation, depletion and
impairment as at February 29,
2012 $(2 33,176) $(8,980) $(242,156)
Net book value as at January 1,
2010 $- $- $-
Net book value as at February 28,
2011 $4,865,027 $1,046,540 $5,911,567
Net book value as at February 29,
2012 $4,432,728 $981,770 $5,414,498
15) PROPERTY, PLANT AND EQUIPMENT
Mining Office
assets equipment,
radio
equipment,
fixtures and Land and
fittings buildings
Cost as at January 1, 2010 $- $- $-
Additions through Slater Coal
acquisition 29,066,801 186,770 497,032
Effect of foreign currency
exchange difference (226,601) (1,456) (3,875)
Additions 8,817,437 14,540 57,425
Change in rehabilitation
provision 1,471,197 - -
Disposals (72,331) - -
Cost as at February 28, 2011 39,056,503 199,854 550,582
Effect of foreign currency
exchange difference (2,203,903) (11,277) (31,069)
Additions 15,240,964 256,503 336,707
Change in rehabilitation
provision 404,683 - -
Cost as at February 29, 2012 $ 52,498,247 $445,080 $856,220
Accumulated depreciation,
depletion and
impairment as at January 1, 2010 $- $- $-
Charge for the period (4,238,477) (49,126) (19,595)
Depreciation and depletion as at
February 28, 2011 (4,238,477) (49,126) (19,595)
Effect of foreign currency
exchange difference 239,171 2,772 1,106
Charge for the period (8,428,223) (87,978) (47,316)
Depreciation and depletion as at
February 29, 2012 $ (12,427,529) $(134,332) $(65,805)
Net book value as at January 1,
2010 $- $- $-
Net book value as at February
28, 2011 $34,818,026 $150,728 $530,987
Net book value as at February
29, 2012 $ 40,070,718 $310,748 $790,415
Development Mining rights Total
costs
Cost as at January 1, 2010 $- $- $-
Additions through Slater Coal
acquisition 43,590,587 73,341,190
Effect of foreign currency
exchange difference (3,875) (339,827) (571,759)
Additions 2,433,150 - 11,322,552
Change in rehabilitation
provision - - 1,471,197
Disposals - - (72,331)
Cost as at February 28, 2011 2,433,150 43,250,760 85,490,849
Effect of foreign currency
exchange difference (137,299) (2,440,579) (4,824,127)
Additions 4,160,454 - 19,994,628
Change in rehabilitation
provision - - 404,683
Cost as at February 29, 2012 $ 6,456,305 $ 40,810,181 $ 101,066,033
Accumulated depreciation,
depletion and
impairment as at January 1,
2010 $- $- $-
Charge for the period - (1,867,070) (6,174,268)
Depreciation and depletion as
at February 28, 2011 - (1,867,070) (6,174,268)
Effect of foreign currency
exchange difference - 105,356 348,405
Charge for the period (226,334) (4,493,882) (13,283,733)
Depreciation and depletion as
at February 29, 2012 $(226,334) $(6,255,596) $(19,109,596)
Net book value as at January
1, 2010 $- $ - $-
Net book value as at February
28, 2011 $ 2,433,150 $41,383,690 $79,316,581
Net book value as at February
29, 2012 $ 6,229,971 $34,554,585 $81,956,437
Land and building includes a net book value balance of approximately $92,000 for
a property that is not used in production and operations. Mining assets include
a net book value balance of approximately $40,000 for a vehicle that is not used
in production and mine operations.
16) OTHER ASSETS
FORBES & MANHATTAN COAL CORP.
Notes to the Annual Consolidated Financial Statements
February 29, 2012 and February 28, 2011
(Presented in Canadian dollars)
February 29, 2 012 February 28, 2011 January 1, 2010
Endowment policy $4,967,278 $3,478,609 $-
Security
investments 569,196 - -
Long-term
investments 790,919 838,219 -
Long-term
receivables 630,928 1,081,997 -
$6,958,321 $5,398,825 $-
The other assets consist of an endowment policy held by the Company to fund
payment requirements associated with its instalment 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.
The table below sets forth the summary of changes in the endowment policy for
the period ended February 29, 2012:
Balance as at January 1, 2010 $ -
$2,892,627
Acquired as part of Slater transaction
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 (196,292)
Current year contributions 1,321,410
Fair value adjustment 369,502
Policies matured (5,951)
Balance as at February 29, 2012 $4,967,278
17) INVENTORIES
February 29, 2012 February 28, 2011 January 1, 2010
Consumables $332,536 $267,631 $-
Work in progress 358,917 154,899 -
Finished goods 2,752,238 10,104,151 -
$3,443,691 $10,526,681 $ -
As at February 29, 2012 and February 28, 2011 all inventories were presented at
cost.
18) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
February 29, 2012 February 28, 2011 January 1, 2010
Trade payables $5,291,967 $5,129,462 $-
Payroll and other
statutory
liabilities 667,381 389,042 -
Current tax
payable 711,369 - -
Other payables
and accruals 2,56 3,113 1,512,692 32,355
$9,233,830 $7,031,196 $32,355
19) OTHER FINANCIAL LIABILITIES
February 29, 2012 February 28, 2011 January 1, 2010
Capital lease
agreements (*) $ - $97,579 $-
Instalment sale
agreements(*) 3,435,165 13,590,838 -
Third party
institutional
loans (**) 20,491,538 699,980 -
Total interest
bearing borrowings 23,926,703 14,388,397 -
Less:
Current portion
of capital lease
agreements - (97,579) -
Current portion
of instalments
sale agreements (556,513) (2,460,583) -
Current portion
of third party
institutional
loans (3,339,488) (102,305) -
Total current
portion of interest
bearing borrowings (3,896,001) (2,660,467) -
Total long-term
portion of
interest bearing
borrowings $20,030,702 $11,727,930 $-
(*) The lease and instalment sale agreements related liabilities are payable
over periods from three to five years, at interest rates linked to prime.
Instalment sale related liabilities are secured by mining assets and an
endowment policy with a book value of approximately $3,600,000.
(**) The loans are repayable in monthly instalments over period of approximately
five years. Investec loan of $20,280,178 (ZAR 153,521,404) issued under the
following terms:
Facilities
First ranking Security over the assets of the Borrower, including but not
limited to mortgage bonds over the Borrower`s immovable property and special and
general notarial bonds over the Borrower`s movable property; (Slater Coal assets
only).
Subordination of all claims by the Affiliates of the Borrower and the
Shareholder against the Borrower;
Negative pledge over assets of the Borrower.
Cession in Security
Secured property consists of bank account, insurances, trade receivables and
related rights to the preceding.
Mortgage bond
Secured bond over the property (land and buildings) within Slater Coal. (Coal
Fields)
General bond
* Secured bond over the property (movable) within Slater Coal, including:
a. all the plant, equipment, machinery, office furniture, fixtures and
fittings, inventory and motor vehicles;
b. every claim and indebtedness of whatever kind or nature;
c. all the rights to quotas, permits, licenses and the like;
d. all the contractual rights, including without limitation, rights in respect
of insurance policies taken out by or in favor of the Mortgagor, franchise
rights and rights under agency agreements or other agreements of a like
nature and rights as lessee or lessor;
e. all the goodwill of the business of the Mortgagor and all its rights to
trademarks and trade names,
Special bond
* Secured bond over the property (movable) within Slater Coal, that is
currently used as security over the finance lease agreements.
The Company had two drawdowns in the period ended February 29, 2012. In January
2012, the Company made a drawdown for ZAR 11,140,000 (approximately $1,470,000)
and in February 2012 for ZAR 153,140,000 (approximately $20,230,000). Also as at
February 29, 2012, the Company had available for drawdown facility of ZAR
76,860,000 (approximately $10,150,000).
Under terms of the loan the Company is paying a commitment fee for the available
drawdown facility in the amount of ZAR 300,000 (approximately $40,000) on a
quarterly basis starting March 2012.
This loan is a subject to a Net Debt/EBIDA, EBITDA/Net Interest and Debt/Equity
covenants, which were in full compliance as at February 29, 2012.
The other financial liabilities are repayable as follows:
Year Amount
2013 $3,896,001
2014 7,059,455
2015 4,395,261
2016 4,287,215
2017 4,288,771
$23,926,703
The interest rate exposure of borrowings of the Company was as follows:
Instalment sale agreements at floating rates $3,435,165
Investec loan at rates of 8.5 8% and 8.60% 20,280,178
Interest free loan 211,360
$23,926,703
20) 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 (172,361)
Accretion recovery (220,006)
Net additional provision 373,535
Balance as at February 29, 2012 $3,035,674
The provision 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 consolidated statements of financial position date and is
expected to be paid out over 5 to 10 years. South African mining companies are
required by law to undertake rehabilitation works as part of their ongoing
operations. These environmental rehabilitation costs are funded by contributions
into endowment policies.
The expected timing of the cash outflows in respect of the provision is on the
closure of the various mining operations. However, certain current
rehabilitation costs are charged to this provision as and when incurred. The
provision is calculated using the following rates:
February 29, 2012 February 28, 2011 January 1, 2010
Discount rate 9.00% 9.50% -
Inflation rate 5.10% 4.30% -
While the ultimate amount of rehabilitation costs to be incurred in the future
is uncertain, management has estimated that, based on current environmental and
regulatory requirements, the total cost for the mines, in current monetary
terms, is approximately $5,200,000 (ZAR 39,400,000) (February 28, 2011 -
$5,500,000 (ZAR 39,400,000)).
21) LOANS PAYABLE
February 29, 2012 February 28, 2011 January 1, 2010
Slater Coal related
parties $ 27,749 $260,297 $-
Other - 1 ,637 -
$27,749 $261,934 $-
Loans are unsecured, non interest bearing, with no fixed terms of repayment.
22) 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
Public offering (vii) 8,000,000 36,400,000
Issue costs - (8,674,699)
Shares issued on business combination (iv) 3,938,965 11,029,102
Shares issued on Nyah transaction (ii and v) 1,279,384 4,073,578
Performance shares issued into escrow (vi) 2,700,000 7,196,100
Options exercised 75,000 243,750
Options exercised-valuation re allocation - 182,250
Balance as at February 28, 2011 33,665,717 93,672,871
Public offering (vii) 1,200,000 5,460,000
Issue costs - (339,945)
Balance as at February 29, 2012 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 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 26 Related Party Disclosure).
(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 26 Related Party Disclosure).
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 Nyah transaction.
(iv) In July 2010, the Company completed the next instalment 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 Note 26 Related Party Disclosure).
(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.
(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.
23) SHARES IN ESCROW
On July 20, 2010, the shareholders of Forbes Coal 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. During the
period ended February 29, 2012 the US$22,000,000 in EBITDA from Slater Coal
Properties was achieved and the above mentioned Escrowed Shares were released;
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 the 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%
24) SHARE-BASED PAYMENT RESERVES
No. of Weighted Value of No. of
options average options warrants
exercise vested
price
Balance as at
January 1, 2010 - $ - $ - -
Granted 2,435,000 3.20 6,325,996 1,243,887
Issued on Nyah
transaction 122,798 8.99 119,684 -
Grant of special
performance warrants - - - 2,700,000
Conversion of special
performance warrants - - - (2,700,000)
Exercised (75,000) 3.25 (182,250) -
Balance as at
February 28, 2011 2,482,798 $3.49 $ 6,263,430 1,243,887
Granted and vested 1,475,000 3.27 2,585,755 -
Settlement of BEE
option (Note 9) - - 1,245,529 -
Expired (478,106) 4.86 (1,036,244) -
Balance as at
February 29, 2012 3,479,692 $ 3.20 $9,058,470 1,243,887
Weighted Value of Total value
average warrants
exercise vested
price
Balance as at January 1, 2010 $ - $ - $ -
Granted 3.48 2,149,853 8,475,849
Issued on Nyah transaction - - 119,684
Grant of special performance warrants 2.80 7,196,100 7,196,100
Conversion of special performance
warrants 2.80 (7,196,100) (7,196,100)
Exercised - - (182,250)
Balance as at February 28, 2011 $ 3.48 $2,149,853 $8,413,283
Granted and vested - - 2,585,755
Settlement of BEE option (Note 9) - - 1,245,529
Expired - - (1,036,244)
Balance as at February 29, 2012 $3.48 $2,149,853 $11,208,323
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 a t any time from the date of vesting to the date of their
expiry.
During the period ended February 29, 2012, 1,475,000 (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 $2,624,25 0 (period ended February 28, 2011 - $8,475,849), comprised of
various option grants that vest immediately, over 4 quarters and over 8
quarters.
The options expire five years from the date of issue, or 30 days after the
resignation of the director, officer, employee or consultant.
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
8,260 8,260 20-Sep-10 4-Jan-13 $ 7.96
235,000 235,000 15-Mar-10 15-Mar-15 $ 2.80
1,825,000 1,825,000 13-Oct-10 13-Oct-15 $ 3.25
725,000 725,000 24-Mar-11 24-Mar-16 $ 4.10
100,000 37,500 6-Jun-11 6-Jun-16 $ 3.00
150,000 112,500 13-Jun-11 13-Jun-16 $ 2.77
400,000 400,000 25-Jan-12 25-Jan-17 $ 1.80
3,479,692 3,379,692 $ 3.20
Grant date Expected Expected Expected Risk-free
estimated volatility life dividend interest
fair value years yield rate
vested
$ 65,512 100% 1.70 0.00% 1.54%
$ 9,249 100% 2.29 0.00% 1.54%
$ 940,674 100% 5.00 0.00% 2.39%
$ 4,434,750 100% 5.00 0.00% 1.74%
$ 1,616,750 63% 5.00 0.00% 2.15%
$ 124,131 61% 5.00 0.00% 2.23%
$ 217,875 61% 5.00 0.00% 2.24%
$ 404,000 67% 5.00 0.00% 1.36%
$ 7,812,941 4.96
For the twelve months ended February 29, 2012, the diluted weighted average
number of common shares outstanding excluded 2,943,260 options, as they were
anti-dilutive.
Settlement of BEE option
Details of the transactions are provided in Note 9 - BEE Transaction.
Broker warrants
Number of Grant Expiration Exercise Grant date
warrants date date price estimated
outstanding fair value
exercisable
763,887 23-Jul-10 20-Mar-12 $ 2.80 $ 993,053
480,000 22-Feb-11 22-Feb-13 $ 4.55 $ 1,156,800
1,243,887 $ 3.48 $ 2,149,853
Expected Expected Expected Risk-free
volatility life dividend interest
years yield rate
100% 1.66 0.00% 1.53%
100% 2.00 0.00% 1.79%
1.79
For the twelve months ended February 29, 2012, the diluted weighted average
number of common shares outstanding excluded 1,243,887 warrants, as they were
anti-dilutive.
Please refer to the Note 28 on warrants expiration subsequent to the February
29, 2012.
25) 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 of these consolidated financial
statements.
The Company`s financial assets and financial liabilities as at February 29,
2012, February 28, 2011 and January 1, 2010 were as follows:
Assets / (liabilities)
Cash, loans and at fair value through
receivables profit
January 1, 2010
Cash $ 52,177 $ -
Accounts and other receivables 600 -
Accounts payable and accrued liabilities $ - $ -
February 28, 2011
Cash $ 15,252,651 $ -
Restricted cash 1,736,000 -
Accounts and other receivables 12,410,375 -
Other assets 1,081,997 4,316,828
Accounts payable and accrued liabilities - -
Acquisition obligation - -
Other financial liabilities - current - -
Other financial liabilities - long term - -
Loan payable $ - $ -
February 29, 2012
Cash $ 9,481,078 $ -
Restricted cash 1,984,890 -
Accounts and other receivables 12,920,590 -
Other assets 630,928 6,327,393
Accounts payable and accrued liabilities - -
Other financial liabilities - current - -
Other financial liabilities - long term - -
Loan payable $ - $ -
Other financial
assets/(liabilities) Total
January 1, 2010
Cash $ - $ 52,177
Accounts and other receivables - 600
Accounts payable and accrued liabilities $ 32,355 $ 32,355
February 28, 2011
Cash $ - $ 15,252,651
Restricted cash - 1,736,000
Accounts and other receivables - 12,410,375
Other assets - 5,398,825
Accounts payable and accrued liabilities (7,031,196) (7,031,196)
Acquisition obligation (20,300,925) (20,300,925)
Other financial liabilities - current (2,660,467) (2,660,467)
Other financial liabilities - long term (11,727,930) (11,727,930)
Loan payable $ (261,934) $ (261,934)
February 29, 2012
Cash $ - $ 9,481,078
Restricted cash - 1,984,890
Accounts and other receivables - 12,920,590
Other assets - 6,958,321
Accounts payable and accrued liabilities (9,233,830) (9,233,830)
Other financial liabilities - current (3,896,001) (3,896,001)
Other financial liabilities - long term (20,030,702) (20,030,702)
Loan payable $ (27,749) $ (27,749)
At February 29, 2012, there are no significant concentrations of credit risk for
loans and receivables designated at fair value through the 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.
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 with
the exception as discussed in Note 19.
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 significant changes in the risks, objectives,
policies and procedures in fiscal 2012 or 2011, except for the Investec loan as
discussed in Note 19.
As at February 29, 2012, the capital structure of the Company consists of equity
attributable to the owners, share based payment reserves attributable to
directors, officers, employees and consultants of the company totalling
$89,375,435 and an interest bearing loan of $20,280,178 (February 28, 2011 -
$84,116,342 and $nil).
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 minimize 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 (decrease) in the annual average foreign exchange rate between
the South African rand and the Company`s functional currency, the Canadian
dollar, would have increased (decreased) the Company`s income by approximately
$900,000 for the period ended February 29, 2012. A 10% increase in the annual
average foreign exchange rate between the United States dollar and Slater Coal`s
functional currency, the South African rand, would have increased (decreased)
the Company`s income by approximately $7,500,000 for the period ended February
29, 2012.
A 10% change in the value of the Canadian dollar relative to the US dollar and
South African rand would have an impact on net income of approximately $230,000
based on the net assets of the Company at February 29, 2012.
The Company does not currently use derivative financial instruments such as
forward exchange contracts to hedge currency risk exposures.
The following assets and liabilities are presented in Canadian dollar values and
denominated in different currencies as at February 29, 2012, February 28, 2011
and January 1, 2010:
Forbes Coal parent company balances (*)
denominated in
CAD USD ZAR
Cash $ 52,177 $ - $ -
Accounts and other receivables 600 - -
Prepaid expenses 7,144 - -
Deferred charges 735,706 - -
Accounts payable and accrued
liabilities (23,553) (8,802) -
Net balance sheet as at
January 1, 2010 $ 772,074 $ (8,802) $ -
Cash 13,786,713 10,530 104,387
Restricted cash - - 1,736,000
Accounts and other receivables 905,161 37,852 31,938
Inventories - - -
Prepaid expenses 54,434 - 5,867
Property, plant and equipment - - -
Intangibles - - -
Good will - - -
Other assets - - -
Deferred income taxes - - -
Accounts payable and accrued
liabilities (789,749) (162,521) (496,204)
Acquisition obligation - - (20,300,925)
Other financial liabilities - current - - -
Other financial liabilities -
long term - - -
Asset retirement obligation - current - - -
Asset retirement obligation -
long term - - -
Loans payable - - -
Deferred income taxes - - -
Net balance sheet as at
February 28, 2011 $ 13,956,559 $ (114,139) $(18,918,937)
Cash 5,160,970 240 874,732
Restricted cash 50,000 296,850 1,638,040
Accounts and other receivables 420,939 - 32,672
Inventories - - -
Prepaid expenses 89,393 - 6,220
Property, plant and equipment - - -
Intangibles - - -
Good will - - -
Other assets 569,196 - -
Long-term pre paid expenses 176,485 - 286,548
Deferred income taxes - - -
Accounts payable and accrued
liabilities (484,725) (1,237) (765,460)
Other financial liabilities - current - - -
Other financial liabilities -
long term - - -
Asset retirement obligation - current - - -
Asset retirement obligation -
long term - - -
Loans payable - - -
Deferred income taxes - - -
Net balance sheet as at
February 29, 2012 $ 5,982,258 $ 295,853 $ 2,072,752
Slater Coal balances (**)
denominated in Total
ZAR USD
Cash $ - $ - $ 52,177
Accounts and other receivables - - 600
Prepaid expenses - - 7,144
Deferred charges - - 735,706
Accounts payable and accrued liabilities - - (32,355)
Net balance sheet as at
January 1, 2010 $ - $ - $ 763,272
Cash 1,351,021 - 15,252,651
Restricted cash - - 1,736,000
Accounts and other receivables 5,735,016 5,700,408 12,410,375
Inventories 10,526,681 - 10,526,681
Prepaid expenses - - 60,301
Property, plant and equipment 79,316,581 - 79,316,581
Intangibles 5,911,567 - 5,911,567
Good will 18,672,014 - 18,672,014
Other assets 5,398,825 - 5,398,825
Deferred income taxes 120,061 - 120,061
Accounts payable and accrued
liabilities (5,582,722) - (7,031,196)
Acquisition obligation - - (20,300,925)
Other financial liabilities -
current (2,660,467) - (2,660,467)
Other financial liabilities -
long term (11,727,930) - (11,727,930)
Asset retirement obligation -
current (389,177) - (389,177)
Asset retirement obligation -
long term (2,665,329) - (2,665,329)
Loans payable (261,934) - (261,934)
Deferred income taxes (18,654,227) - (18,654,227)
Net balance sheet as at
February 28, 2011 $ 85,089,980 $ 5,700,408 $ 85,713,871
Cash 3,445,136 - 9,481,078
Restricted cash - - 1,984,890
Accounts and other receivables 8,675,692 3,791,287 12,920,590
Inventories 3,443,691 - 3,443,691
Prepaid expenses - - 95,613
Property, plant and equipment 81,956,437 - 81,956,437
Intangibles 5,414,498 - 5,414,498
Good will 17,506,375 - 17,506,375
Other assets 6,389,125 - 6,958,321
Long-term pre paid expenses - - 463,033
Deferred income taxes 326,754 - 326,754
Accounts payable and accrued
liabilities (7,982,408) - (9,233,830)
Other financial liabilities -
current (3,896,001) - (3,896,001)
Other financial liabilities -
long term (20,030,702) - (20,030,702)
Asset retirement obligation -
current (1,053,845) - (1,053,845)
Asset retirement obligation -
long term (1,981,829) - (1,981,829)
Loans payable (27,749) - (27,749)
Deferred income taxes (14,312,877) - (14,312,877)
Net balance sheet as at
February 29, 2012 $ 77,872,297 $ 3,791,287 $ 90,014,447
(*) Functional currency of Forbes Coal parent company is Canadian dollar
(**) Functional currency of Slater Coal is South African rand
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
expense of approximately $4,000 per month.
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 $10,450,000 for the period ended February 29, 2012.
(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 totalling $1,984,890 was primarily on deposit with the First
National Bank, to be released to a supplier if payments are not made to them, in
GIC investment with Royal Bank of Canada held as collateral against credit card
limits used by the Company and in a lawyer`s trust account.
(c) Liquidity risk
As February 29, 2012, the Company had net working capital of $13,714,437
(February 28, 2011 - $29,643,234) which included cash and restricted cash of
$11,465,968 (February 28, 2011 - $16,988,651), accounts receivable and other
receivables of $12,920,590 (February 28, 2011 - $12,410,375), and inventories of
$3,443,691 (February 28, 2011 - $10,526,681), offset by current liabilities of
$14,211,425 (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).
As at February 29, 2012, 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 Instrument s within the fair- value hierarchy as at February
29, 2012, February 28, 2011 and January 1, 2010:
February 29, 2012
Level 1 Level 2 Level 3
Endowment policy and investments $ 569,196 $ - $ 5,758,197
February 28, 2011
Level 1 Level 2 Level 3
Endowment policy and investments $ - $ - $ 4,316,828
January 1, 2010
Level 1 Level 2 Level 3
Endowment policy and investments $ - $ - $ -
26) RELATED PARTY DISCLOSURE
In March 2010, a company with common directors solely participated in two
private placements of common shares of the Company (Note 22 (i)).
The Transaction with Nyah 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 21 (iii)) certain directors, officers
and a company with common directors subscribed to Special Warrants, which
subsequently were converted into common shares of the Company.
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 and in July
2011 and February 2012 the second payment of $500,000 was received in two parts
in form of the shares of 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.
During the period, the Company entered into the following transactions in the
ordinary course of business with related parties:
Sales of goods and service s for period ended
February 29, 2012 February 28, 2011
22 279 29 Ontario Inc. $ - $ -
Forbes & Manhattan Inc $ - $ -
Slater Coal related parties $ 2,207,410 $ 852,000
Purchase of goods and services for period ended
February 29, 2012 February 28, 2011
22 279 29 Ontario Inc. $ 576,865 $ 341,581
Forbes & Manhattan Inc $ 322,050 $ 84,750
Slater Coal related parties $ 8,723,084 $ 2,458,000
The Company shares office space with other companies who may have officers or
directors in common with the Company. The costs associated with this space are
administered by 2227929 Ontario Inc.
Mr. Stan Bharti, a director of the Company, is the Executive Chairman of Forbes
& Manhattan, Inc. An administration fee of $15,000 per month was previously
charged by Forbes & Manhattan, Inc. pursuant to a consulting agreement.
Effective September 1, 2011, the contract with Forbes & Manhattan, Inc. was
increased to $30,000 per month.
As a result of Slater Coal acquisition, business relationships with certain
related parties were inherited
The following balances were outstanding at the end of the reporting period:
Amounts owed by related parties as at
February 29,2012 February 28, 2011
22 279 29 Ontario Inc. $ 41,584 $ -
Slater Coal related parties $ 42,572 $ 708,288
Amounts owed to related parties as at
February 29, 2012 February 28, 2011
22 279 29 Ontario Inc. $ - $ 33,718
Slater Coal related parties $ 27,7 49 $ 260,297
Also as a result of Slater Coal acquisition, Forbes Coal acquired receivables
and payables owed from the former Slater Coal shareholders and their related
parties to the Company.
These amounts are unsecured, non-interest bearing with no fixed terms of
repayment. 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.
Compensation of key management personnel
The remuneration of directors and other members of key management personnel
during the period were as follows:
Period ended
February 29, 2012 February 28, 2 011
Short-term benefits 1,787,633 $ 2,347,167
Share-based payments 1,699,300 5,355,410
$ 3,486,933 $ 7,702,577
27) COMMITMENTS AND CONTINGENCIES
Management contracts
The Company is party to certain management contracts. These contracts require
that additional payments of approximately $2,400,000 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
consolidated financial statements. Minimum commitments remaining under these
contracts were approximately $420,000 all due within one year.
Instalment sale agreements payment obligations
The Company is committed to minimum amounts under instalment sale agreements for
plant and equipment. Minimum commitments remaining under these leases were
$3,435,165 over the following years:
Year Amount
2013 $ 556,513
2014 2,771,423
2015 107,229
$ 3,435,165
Environmental contingency
The Company`s mining and exploration activities are subject to various federal,
provincial and international laws and regulations governing 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 Company 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
consolidated financial statements.
Investec loan facility
Please refer to Notes 19 and 29.
28) SUBSEQUENT EVENTS
On March 26, 2012 the Company announced that Mrs. Sarah Williams is joining the
Company as Vice President Finance, effective April 1, 2012. Mrs. Williams is a
Chartered Accountant (SA) with nine years experience in the corporate finance
industry. Prior to joining Forbes Coal, Mrs. Williams was with Sasfin Bank, a
South African bank listed on the Johannesburg Stock Exchange. Upon entering into
the contract with Mrs. Williams the Company disclosed additional contingent
liabilities under the Management contracts as discussed in Note 27.
Subsequent to the February 29, 2012, 763,887 broker warrants expired
unexercised.
29) INVESTEC LOAN FACILITY
The Company, through its subsidiary Slater Coal, has secured a ZAR 230 million
(approximately $30 million) loan facility from Investec Limited ("Investec").
The loan facility consists of a five year senior secured amortizing term loan
facility of up to ZAR 200 million (approximately $26 million) and a revolving
loan facility of up to ZAR 30 million (approximately $4 million). Both
facilities are flexible in terms of drawdowns and repayments. The facilities are
secured against the assets of Slater Coal and bear interest at the 3 month JIBAR
rate, plus 3%, compounded quarterly. The interest rate will increase by 1% if
the earnings before interest, taxes, depreciation and amortization of Slater
Coal falls below ZAR 100 million annually (approximately $13 million). As at
February 29, 2012, an amount of $20,280,178 (ZAR 153,521,404) has been recorded
as owed under this facility.
The Investec loan liability is repayable as follows:
Year Amount
$ 20133,128,128
2014 4,288,032
2015 4,288,032
2016 4,287,215
2017 4,288,771
$ 20,280,178
The major items causing the Company`s income tax expense to differ from the
Canadian statutory rate of approximately 28% (2011 - 31%) were:
2012 2011
Income (loss) before income taxes $ 3,258,336 $ (16,712,063)
Expected income tax (recovery) at
statutory rates 912,334 (5,180,740)
Adjustments resulting from:
Benefits of tax losses not recognized 3,987,332 7,982,290
Perm anent differences (23,396) (25,013)
Foreign exchange (921,533) -
Other temporary differencies (3,027,237) (2,134,590)
Secondary tax on companies 40,890 43,716
Income tax expense $ 968,389 $ 685,663
Income tax expense is comprised as follows:
2012 2011
$ 4,884,784 $ 1,477,480
Current tax on profits - South Africa
Deferred taxes - South Africa (3,916,395) (791,817)
Income tax expense $ 968,389 $ 685,663
b) Deferred income tax balances
The tax effect of temporary differences that give rise to deferred income tax
assets and liabilities at February 29, 2012, February 28, 2011 and January 1,
2010 are as follows:
2012 2011 2010
Property, plant and equipment and
other long-term assets $ (14,557,801) $ (18,771,114) $ -
Other 571,678 236,948 -
Deferred income tax (liability) $ (13,986,123) $ (18,534,166) $ -
All recognized tax assets and liabilities arise from the Company`s South Africa
subsidiaries.
c) The Company has approximately $9,700,000 of Canadian non-capital operating
losses as at February 29, 2012 which under certain circumstances can be used to
reduce the taxable income of future years. The Canadian non-operating losses
have expiry dates between 2026 and 2032.
31) TRANSITION TO IFRS
These consolidated financial statements for the year ending February 29, 2012
are the first annual financial statements that comply with IFRS and were
prepared as described in Note 2, including the application of IFRS 1.
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. 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.
(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 consolidated
statements of financial position and consolidated statements of comprehensive
income (loss) have resulted in reclassifications of various amounts on the
statements of cash flows. However, as there have been no changes to the net cash
flows, no reconciliations have been presented.
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. Please refer to the Note 6 of these consolidated financial statements
for a complete description of the accounting policies used.
(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 (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 (loss).
Impact on Consolidated Statements of Financial Position and Statements of
Operations
February 28, 2011 January 1, 2010
Share capital $ 2,537,221 $ -
Loss on share-based payments $ (2,537,221) $ -
(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 consolidated statements of financial position as at
February 28, 2011;
(ii) Reconciliation of the consolidated statements of operations and
comprehensive (loss) for the period ended February 28, 2011;
(iii) Reconciliation of the statements of financial position as at January 1,
2010;
(i) Reconciliation of the consolidated statements of financial position as at
February 28, 2011
Canadian GAAP Canadian IFRS IFRS
accounts Note 31 GAAP 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
Good will 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 liabilities $ 7,031,196 $ - $ 7,031,196
Other financial liabilities 2,660,467 - 2,660,467
Deferred income taxes c 2,200,000 - 2,200,000
Asset retirement obligation 389,177 - 389,177
Loans payable 261,934 - 261,934
12,542,774 - 12,542,774
Acquisition obligation 20,300,925 - 20,300,925
Asset retirement obligation 2,665,329 - 2,665,329
Other financial liabilities 11,727,930 - 11,727,930
Deferred income taxes 16,454,227 - 16,454,227
63,691,185 - 63,691,185
SHAREHOLDERS` EQUITY
Share capital b 91,315,650 2,357,221 93,672,871
Warrants 2,149,853 - 2,149,853
Contributed surplus 6,263,430 - 6,263,430
Deficit b (15,077,393) (2,357,221) (17,434,614)
Currency translation
reserve (535,198) - (535,198)
Equity attribuable 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
(ii) Reconciliation of the consolidated statements of operations and
comprehensive (loss) for the period ended February 28, 2011
Canadian GAAP Canadian IFRS IFRS
accounts Note 31 GAAP balances adjustments balances
REVENUE $ 27,677,608 $ - $ 27,677,608
COST OF SALES
Operating expense 19,925,113 - 19,925,113
Amortization 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 1,885,524 - 1,885,524
General and administration 2,729,598 - 2,729,598
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 liability 2,724,711 - 2,724,711
Interest (expense) (576,753) - (576,753)
Foreign exchange
(loss) 630,924 - 630,924
Loss on share-based
payments b - (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
Unrealized gain 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
(iii) Reconciliation of the statement of financial position as at January 1,
2010
Canadian IFRS IFRS
Canadian GAAP accounts Note 31 GAAP balances adjustments balances
ASSETS
Current
Cash and cash equivalents $ 52,177 $ - $ 5 2,177
Accounts and other receivables 600 - 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 liabilities $ 32,355 $ - $ 32,355
32,355 - 32,355
SHAREHOLDERS` EQUITY
Share capital 800 ,160 - 800,160
Deficit (36,888) - (36,888)
763,272 - 763,272
$ 795,627 $ - $ 795,627
Shareholders are advised that the Management`s Discussion and Analysis report
are available on the SEDAR profile of the Company at www.sedar.com. Additional
information is available at www.forbescoal.com.
Johannesburg
30 May 2012
Sponsor
Sasfin Capital (a division of Sasfin Bank Limited)
Date: 30/05/2012 15:58:02 Produced by the JSE SENS Department.
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