| Thu 16 Nov 2006, 8:18 | | Barplats - Eastern Platinum Limited - Managements |
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BPL
BPL
Barplats - Eastern Platinum Limited - Management"s Discussion and Analysis
Barplats Investments Limited
Incorporated in the Republic of South Africa
(Reg. no. 1987/004830/06)
(ISIN: ZAE000028692)
JSE code: BPL
("Barplats" or "the company")
EASTERN PLATINUM LIMITED - Management"s Discussion and Analysis
Three Months ended September 30, 2006
This portion of the Quarterly Report provides Management"s Discussion and
Analysis ("MD&A") of the financial condition and results of operations to
enable the reader to assess material changes in financial condition and
results of operations of Eastern Platinum Limited ("ELR", "Eastplats" or
"the Company") as at, and for the three months ended, September 30, 2006 in
comparison to the previous quarter and corresponding previous year
comparative quarter. Management believes that a comparison to the previous
(two month) quarter from an operating perspective is more meaningful to the
reader, as the Company did not have operational/production results in the
quarter ended September 30, 2005. This MD&A, which has been prepared as of
November 10, 2006, is intended to supplement and complement the unaudited
interim consolidated financial statements and supporting notes prepared in
accordance with Canadian Generally Accepted Accounting Principals
("Canadian GAAP") for interim financial statements for the three months
ended September 30, 2006 (collectively the "Financial Statements") which
are included in this Quarterly Report.
The reader is encouraged to review the Financial Statements in conjunction
with reviewing this MD&A. This MD&A should be read in conjunction with the
June 30, 2006 annual audited consolidated financial statements, the related
MD&A, the Annual Information Form/51-102-F2 on file with the provincial
securities regulatory authorities (as filed on SEDAR on September 18, 2006)
and the Company"s 2006 Annual Report. This MD&A contains forward looking
statements that are subject to risk factors set out in the cautionary note
contained herein. All dollar amounts in this MD&A are expressed in Canadian
dollars unless otherwise specified.
EXECUTIVE OVERVIEW
The Company is a platinum group metal ("PGM") producer engaged in the
acquisition, exploration, development and mining of PGM properties located
in various provinces in South Africa. All of the Company"s properties are
situated on the western and eastern limbs of the Bushveld Igneous Complex
("BIC") the geological environment that supports over 70% of the world"s
PGM supply.
The Company"s strategy is to provide it"s stakeholders with superior
returns from quality assets being developed and exploited within the PGM
mining sector. The Company has a strong balance sheet and has not hedged or
sold forward any of its future PGM production. The Company continues its
process of maximizing the development rate while optimizing stakeholder
value through traditional cost effective mining methods that will continue
to place a premium on a safe work environment witnessed by its fatality
free record.
Three Months ended September 30
2006 2005
Production 6 PGE oz(1) 22,666 -
Realized Basket Price per oz(2) $1,082 $ -
Canadian $ `000"s
Total revenue $25,450 $ -
Total Cash Costs(3) $17,104 $ -
Amortization/ Depreciation(4) $2,976 $ -
Total Production Costs $18,482 $ -
EBITDA(5) $4,548 $(766)
Net Loss for the period $(2,479) $(422)
1 6PGE represent Platinum, Palladium, Rhodium, Ruthenium, Iridium and
Gold
2. Realized Basket Price is the price received under the off-take
agreement.
3. Total Cash Costs is a non-GAAP measure and is used in this MD&A and
represents all costs associated with production and development and
excludes amortization, depreciation and inventory accounting
adjustments.
4. Amortization/Depreciation includes adjustments for environmental
remediation; equipment and asset depreciation (based upon the purchase
price as documented within the Barplats Allocation Report)
5. EBITDA - Earnings Before Interest (income and expense, including
foreign exchange gains and losses) Taxes (income and capital),
Depreciation and Amortization (including depletion) is a non-GAAP
measure. The Company uses EBITDA to evaluate projects and performance
and believes that certain readers when making investment decisions
will use this non-GAAP measure as a cross company, cross industry
comparative.
The Company"s assets are comprised of direct and indirect investments and
interests in Barplats Investments Limited ("Barplats"), Mareesburg Platinum
JV ("Mareesburg") and Spitzkop PGM Project ("Spitzkop").
The Company is listed on the TSX Exchange in Toronto (TSX symbol ELR) and
on the Alternative Investment Market in London (AIM symbol ELR). (Barplats
Investments Limited is listed on the Johannesburg Stock Exchange (JSE
symbol BPL).)
REVIEW OF FINANCIAL RESULTS
The Company was transformed during April 2006 with the investment in
Barplats, which resulted in the Company acquiring an indirect interest in
operational PGM properties at the Crocodile River Mine ("CRM"). Revenues
and costs directly attributable to Barplats activity have caused the
changes in the financial results when compared to the corresponding
previous year three month period.
For the three months ended September 30, 2006, PGM production/sales were
22,666 ounces (September 30, 2005 - Nil and previous quarter 12,570). Loss
per share reflect 288,585,122 shares issued in the fourth quarter of 2006
as part of the combination of the $150 million equity fund raising (and
issuance of 120,000,000 shares plus related warrants) and as consideration
paid in the acquisition of three BVI companies who collectively owned (as
their sole assets) 69% of Barplats" outstanding shares.
The Net Loss for the period, results predominantly from the Foreign
Exchange Loss for the quarter of $4.2 million.
Currency Exchange Rates
Approximately 90% of the Company"s production and development costs are
denominated in South African Rand ("ZAR") and therefore the Company is
exposed to fluctuations in both Canadian and US exchange rates. With 100%
of our production revenue being US dollar based (on a Canadian dollar,
Canadian GAAP reporting basis), the Company is exposed to exchange rate
fluctuations. As the Company does not hedge any transactions, it is
inherently exposed to the devaluation of both the US dollar and the ZAR
over the reporting quarter (and remains exposed to future fluctuations in
currency exchange rates to the ZAR).
Foreign currency denominated monetary assets and liabilities are translated
at the period-end exchange rate. Gains and losses arising from foreign
currency translation are recognized in the statement of operations and
deficit. The Company operates in two functional currencies, the Canadian
dollar and ZAR. Translation gains or losses on the consolidation of the
financial statements of self-sustaining operations are accumulated in the
currency translation account ("CTA") on the consolidated balance sheet.
Translation adjustments arise as a result of fluctuations in foreign
currency exchange rates. The currency translation adjustment for this
quarter resulting from the 6% weakening of the ZAR to the Canadian dollar,
resulted in an adjustment of $25 million to be recorded in the CTA as a
result of translating the Barplats financial statements.
Acquisition of a 69% indirect interest in Barplats Investments
In April 2006, the Company acquired 100% of the shareholdings of three
private companies whose aggregate and sole assets are shares in Barplats.
The consideration paid by the Company was the issuance of 288,585,122
common shares in the Company, (at a value of $1.33 per share), a cash
payment of $27,708,597 and the commitment to purchase or retire existing
Barplats debt.
This business combination has been accounted for as a purchase transaction
under Canadian GAAP, with the Company identified as the acquirer. The
results of operations of the acquired assets are included in the Company"s
consolidated financial statements from April 28, 2006 (the acquisition
date).
SAFETY RESULTS
Over the first quarter, the CRM property continued to operate fatality free
with one lost time injury reported in the first quarter (previous quarter 3
lost time injuries) resulting in a Lost Time Injury Frequency Rate
("LTIFR") of 0.93 (previous quarter 1.33). This compares against other
platinum producers in South Africa whose average LITFR was above 8.00
according to information compiled by the Bushveld Safety Forum.
OPERATING RESULTS
The Company"s Financial Statements present a measure of historical
information that differentiates between operating and development costs. In
compliance with Canadian GAAP the Company includes all costs associated
with production mining as a period expense in the period incurred. The
Company"s operating results are affected by the fact that the Company is
exposed to exchange rate fluctuations to the ZAR and the US Dollar and
these exchange fluctuations are reflected in the financial results
At CRM there are currently two sections in production: Maroelabult and
Zandfontein. Production is currently being ramped up to a steady-state
rate of 120,000 tonnes per month and this is expected to be achieved during
fiscal 2009.
The average total mining rate during the first quarter of fiscal 2007 was
64,800 tonnes per month (last quarter fiscal 2006 rate of 58,000 tonnes per
month) at an average PGM grade of 4.02 g/t (4PGE). Ore transport from
underground is being transformed from truck haulage with the commissioning
of an underground conveyor system at Zandfontein. There will be an
increase in ore production as a result of this, with a corresponding
reduction of overhead support costs. Underground development doubled to
2,351metres during the quarter which is a significant step in generating
additional mineable reserves which in turn allows for a production build
up. The Company stockpiled 200,584 tonnes of Merensky ore at the quarter
end (compared to NIL in the previous quarter) as it managed the processing
cycles for various grades of ore.
The Company is compiling a feasibility study on its Mareesburg project
following the completion of the drilling program. There was no revenue
generated on this property during the quarter.
During the quarter the Company signed a Letter of Intent ("LOI") with
Sylvania Resources Ltd. ("Sylvania") on the Company"s Mareesburg property
and Sylvania"s Everest North project respectively ("the properties") that
comprise a contiguous PGM deposit on the eastern limb of the BIC.
The Company and Sylvania are currently reviewing each others data.
DEVELOPMENT ACTIVITY
Management continues to evaluate development priorities and in the first
quarter continued with its development of approved activities.
CRM
A total of 637 metres (8 holes) of shallow confirmatory drilling was
completed during the quarter on Crocette (northwest of Zandfontein) and an
underground mining section is being designed.
Management has committed to an estimated $1.5 million drilling program on
the previously drilled Kareespruit section (east of Zandfontein and west of
Maroelabult) and this work has been placed out for tender.
Kennedy"s Vale
Drilling on the De Goedeverwachting farm commenced in August 2006 and
through the end of the quarter 3,904 metres (which represents approximately
36% of the planned drilling program) have been drilled in twelve holes
yielding 16 reef intersections. Samples have been submitted for assay and
results are awaited. The seismic data which exists over portions of
Kennedy"s Vale and Spitzkop is being re-processed.
Mareesburg
There was no additional exploration work at Mareesburg during the period
under review.
Spitzkop
During the quarter 10,997 meters were drilled in 37 holes, with 129 reef
intersections.
Eastern Platinum Limited Summary of Mineral
Resources
Mineral Resource
- UG2
Crocodile River Tonnes 3PGE+Au 3PGE+Au
Mine (`000) (g/t) (000oz)
Measured 6,894 4.19 928
Indicated 30,324 4.41 4,303
Inferred 52,482 4.41 7,449
Total 89,700 4.40 12,680
Kennedy"s Vale Tonnes 5PGE+Au 5PGE+Au
(`000) (g/t) (000oz)
Indicated 152,100 5.41 26,475
Inferred 70,000 6.17 13,880
Total 222,100 5.65 40,355
Spitzkop Project Tonnes 5PGE+Au 5PGE+Au
(`000) (g/t) (000oz)
Measured 37,460 7.70 9,270
Total 37,460 7.70 9,270
Mareesburg Tonnes 5PGE+Au 5PGE+Au
Project (`000) (g/t) (000oz)
Measured 8,940 5.26 1,510
Indicated 6,950 2.19 490
Total 15,890 3.92 2,000
Mineral Resource
- Merensky
Kennedy"s Vale Tonnes 5PGE+Au 5PGE+Au
(`000) (g/t) (000oz)
Indicated 96,500 3.88 12,038
Inferred 67,300 3.44 7,443
Total 163,800 3.70 19,481
Spitzkop Project Tonnes 5PGE+Au 5PGE+Au
(`000) (g/t) (000oz)
Indicated 47,380 2.43 3,710
Total 47,380 2.43 3,710
INVESTING ACTIVITY
Subsequent to the Barplats acquisition, the Company retired the Nedbank
Capital loan of $16,660,000 on August 1, 2006
On August 1, 2006, the Company also purchased $9,500,000 of Gubevu
Consortium Holdings (Pty) Limited ("Gubevu") debt from Nedbank Capital.
(Gubevu is the Barplats BEE partner.)
OTHER COSTS & EXPENSES
Amortization
The significant increase in depreciation and amortization is due to the
Barplats transaction whereby the Company has acquired operating plant and
equipment. Current period expense of $2,972,000 (previous corresponding
quarter $NIL and previous quarter $2,328,000) based upon the fair value
allocation to these assets.
Non-Controlling Interest
Non-controlling during the quarter has increased to $710,000 over the
previous corresponding quarter ($NIL) due to the Barplats transaction.
Corporate Administration
The significant increase in general and administrative expenses over the
previous year arises from the Company"s consolidation of Barplats
operations for the full quarter of $3,752,000 (previous corresponding
quarter $NIL and previous quarter $4,662,000). Included within these
balances are costs associated with managing the South African operations.
Interest Income
Interest income recorded during the current quarter totaled $1,899,000
(previous corresponding quarter $347,000 and previous quarter $1,336,000).
Interest continued to accrue on bank and short-term investment balances
while Barplats" interest income increased during the current quarter as a
result of $242,000 in call interest earned on short term funds (previous
quarter $NIL).
Interest Expenses
Interest expense arises through the Company"s investment in Barplats.
During the quarter the Company paid and accrued interest on debt to third
party lenders. This debt was outstanding at the acquisition date and
portions of this debt continue to be outstanding at the end of the quarter.
SUMMARY OF QUARTERLY RESULTS
The table below presents selected financial data for the Company"s eight
most recently completed quarters:
Sept 30, June Mar 31, Dec 31, Sept June Mar 31, Dec
2006 30, 2006 2005 30, 30, 2005 31,
2006 2005 2005 2004
In `000"s $ $ $ $ $ $ $ $
Financial
results
Revenue 25,450 14,082 - - - - - -
Net income (2,479) (3,184) (1,083) 30 (422) (1,160) (174) (712)
(loss) for
period
Basic (0.00) (0.02) (0.01) 0.01 (0.01) (0.06) (0.01) (0.03)
(loss)
income per
Share
Expendi- 6,083 6,444 352 241 405 386 - -
tures on
mineral
properties
Balance
sheet data
Cash and 91,649 134,184 24,808 24,590 22,837 23,599 1,565 1,692
short term
deposits
Deferred - - 53 - 36,113 36,113 - -
acquisi-
tion costs
Property, 588,021 600,739 100,540 100,188 26,554 34,840 382 382
plant and
equipment
LIQUIDITY AND CAPITAL RESOURCES
As at September 30, 2006, the Company"s working capital position was
$79,423,000 as compared with $105,612,000 as at June 30, 2006 and its cash
and cash equivalents and short-term investments totalled $91,649,000 (June
30, 2006 - $134,184,000). The decrease in the cash balances from previous
quarter is due in part to the following financing and operating activities:
Incurring exploration expenditures including associated property, plant and
equipment totalling $11,343,000
Incurring operating expenditures (adjusted for non-cash items) totalling
$3,527,000
Retiring loans owned by Barplats ($16,660,000) and the purchase of the
Gubevu loan ($9,500,000) from Nedbank Capital on August 1, 2006.
STOCK-BASED COMPENSATION
In the first quarter associated with the Barplats operations, the Company
expensed $56,000. (In the previous corresponding quarter the Company
recorded $18,799 and in the previous quarter $5,207,000 relating to
Eastplats). The value of the options has been calculated using the Black-
Scholes option-pricing model.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
During the first quarter the Company incurred capital obligations for
capital projects as follows:
Barplats Operating Capital $ 7,280,000
Barplats Development Capital $ 2,480,000
The Company has commitments in the current fiscal year for capital
expenditures as follows:
Barplats Operating Capital $19,500,000
Barplats Development Capital $ 9,750,000
HEDGING
The Company does not currently have any commodity or foreign exchange
hedging or other derivative instruments and there are currently no plans to
enter into any such contracts. The Company has not forward sold any of its
production. The Company has not factored any of its trade receivable
balances.
EDITDA
Earnings (Loss) before interest (income and expense, foreign exchange gains
and losses), taxes (income and capital), depreciation and amortization
(including depletion) ("EBITDA") is a non-GAAP measure, was $4,548,000
during the first quarter ($(766,000) previous year and $(4,500,000)
previous quarter).
OPERATIONAL RISKS
Management is aware that the government has proposed a 3% royalty based
upon gross mining revenues. This proposal is currently under industry
review with comments due back to government early in calendar 2007.
Management is working with other mining companies active in South Africa to
draft an objection to the proposed royalty.
MINERAL TENURE - DEPARTMENT OF MINERALS AND ENERGY
An additional prospecting right, over the three farms Kennedy"s Vale,
Belvedere and Tweefontein comprising a total of 3,972 hectares has been
approved and an additional one granted at CRM during the quarter. This
brings the total number of prospecting rights issued to 11 (out of 18
applications filed) at CRM and 2 (out of 3 applications filed) at KV. The
Company has been notified that our mining rights conversion application for
CRM has been successful and we will be issued the new order rights before
the end of the second quarter.
The old order prospecting permit for the Mareesburg property was approved
for conversion into a new order prospecting right on November 9, 2006.
At CRM the application for the conversion of the mining right over portions
157, 159 and 160 of De Kroon has been made to the DME and continues to
impact on mining of the eastern portion of Maroelabult. Barplats has been
verbally informed that Barplats Social and Labour Plan has been approved
and management believes that the right will be granted during the second
quarter
PROPERTY, PLANT AND EQUIPMENT
The Company evaluates all costs associated with its acquisition,
exploration and development activities and determines the appropriateness
for capitalization to the mineral property. If economically recoverable
ore reserves are developed, capitalized costs of the related property are
reclassified as mining assets and amortized using the unit of production
method. When a property is abandoned, all related costs are written off to
operations. If, after management review, it is determined that the
carrying amount of a mineral property is impaired, that property is written
down to its estimated net realizable value. A mineral property is reviewed
for impairment on an annual basis or whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable.
The amounts shown within these Financial Statements for mineral properties
do not necessarily represent present or future values. The recoverability
of these minerals are dependent upon the discovery of economically
recoverable reserves, the ability of the Company to obtain the necessary
financing; to complete planned development; the profitable production;
and receipts from product sales.
ASSET RETIREMENT OBLIGATIONS AND REMEDIATION
The Company recognizes liabilities for statutory, contractual or legal
obligations associated with the retirement of property, plant and
equipment, when those obligations result from the acquisition,
construction, development or normal operation of the assets. Initially,
the fair value of the liability for an asset retirement obligation is
recognized in the period incurred. The net present value is added to the
carrying amount of the associated asset and amortized over the asset"s
useful life. On an annual basis the liability is evaluated for
reasonableness and the properties and assets are evaluated as to
remediation costs.
The Company"s estimates of reclamation and remediation costs could change
as a result of changes in regulatory requirements and assumptions regarding
the amount and timing of the future expenditures. A change in estimated
discount rates is reviewed annually or as new information becomes
available. Expenditures relating to ongoing environmental programs are
charged against operations as incurred or capitalized and amortized
depending on their relationship to future earnings. Funding of the
obligation is managed through insurance coverages and cash contributions to
a remediation fund.
RELATED PARTY TRANSACTIONS
a) The Company incurred the following expenses, on a cost recovery basis,
with companies and individuals related by way of directors and/or
officers in common:
Three Months ended September 30
2006 2005
Consulting fees $100,000 $60,000
Director"s fees 58,000 30,000
Management fees 187,000 30,000
Severance 400,000 -
Rent 18,000 18,000
(b) Amounts due to related parties are unsecured, non-interest bearing and
due on demand. Accounts payable at September 30, 2006 included
$41,664 (June 30, 2006 - $5,000) which were due to directors and
$400,000 due to an ex-officer and director of the Company. .
CRITICAL ACCOUNTING POLICIES AND PROCEDURES
Management has discussed and disclosed the development and selection of the
Company"s critical accounting estimates with the Audit Committee of the
Board of Directors and the Audit committee with the guidance of our
external and internal auditors (through Barplats) has reviewed the
disclosure relating to these Financial Statements and this MD&A. The
accounting policies and methods the Company utilizes determine how we
report the Company"s financial condition and results of operations, and
they may require management to make estimates about matters that are
inherently uncertain. In this MD&A management has provided an update for
any changes in accounting policies and critical accounting estimates from
our 2006 Annual MD&A and 2006 Annual Report.
ACCOUNTING POLICY CHANGES
The Company has made no changes in its accounting policies or processes
since those disclosed within the 2006 Financial Statements, 2006 Annual
Report and accompanying 2006 MD&A. The reader is encouraged to reference
these to determine the impact to comparative previous period. Management
does not believe that there are any material effects from the changes
reflected through previous reports.
INTERNAL CONTROL
Management continues to evaluate the effectiveness of our disclosure
controls and procedures. Management has concluded, that based upon our
evaluation that the Company"s control environment is sufficiently effective
to provide reasonable assurance that material information relating to the
Company and its consolidated subsidiaries is made known to management and
disclosed in accordance with applicable securities regulations.
OFF BALANCE SHEET ARRANGEMENTS
The Company has not entered into any off-balance sheet arrangements.
OUTSTANDING SHARE DATA
As at November 10, 2006 there were 516,228,985 common shares issued and
outstanding. There were also 17,050,000 stock options outstanding to
directors and consultants with exercise prices ranging between $0.56 and
$1.70 per share. 16,116,667 of the outstanding options have vested. There
were also 87,999,370 warrants outstanding which expire between March 18,
2007 and March 28, 2009 with exercise prices ranging between $1.50 and
$2.40 per share. Refer to Note 7 of the September 30, 2006 interim
consolidated financial statements for more details on these outstanding
securities.
CAUTIONARY STATEMENT ON FORWARD LOOKING INFORMATION
Management references certain information contained or incorporated by
reference in this First Quarter Report 2007, including any information as
to our future financial or operating performance constitute "forward
looking statements". All statements, other than statements of historical
fact, are forward looking statements. The words "believe", "expect",
"anticipate", "contemplate", "target", "plan", "intends", "continue",
"budget", "estimate", "may", "will", "schedule" and similar expressions
identify forward-looking statements. Forward-looking statements are
necessarily based upon a number of estimates and assumptions that, while
considered reasonable by us, are inherently subject to significant
business, economic and competitive uncertainties and contingencies. Known
and unknown factors could cause actual results to differ materially from
those projected in the forward-looking statements. Such factors include,
but are not limited to: fluctuations in the currency markets (such as
Canadian dollar, ZAR and US dollar); fluctuations in the PGM basket prices
or certain commodities (such as copper, diesel fuel and electricity); to
changes in national and local government legislation, taxation, controls,
regulations and political or economic developments in Canada, the United
States, South Africa, Russia or Barbados or other countries in which we do
or may carry on business in the future and/or whose participation in the
PGM sector may affect the industry"s supply volumes; business opportunities
that may be presented to or pursued by us; our ability to successfully
integrate acquisitions, including our recent investment in Barplats
Investments Limited; operating or technical difficulties in connection with
mining or development activities; employee relations; the speculative
nature of exploration and development, including the risk of obtaining
necessary licenses and permits; diminishing quantities or grades of
reserves; adverse changes in our credit rating; and contest over title to
properties, particularly title to undeveloped properties. In addition,
there are risks and hazards associated with the business of PGM
exploration, development and mining, including environmental hazards,
industrial accidents, unusual or unexpected formations, pressures, cave-
ins, flooding, staff and equipment availability. Many of these
uncertainties and contingencies can affect our actual results and could
cause actual results to differ materially from those expressed or implied
in any forward-looking statements made by, or on behalf of us. Readers are
cautioned that forward-looking statements are not guarantees of future
performance. All of the forward-looking statements made in this First
Quarter Report 2007 are qualified by these cautionary statements. Specific
reference is made to the Company"s most recent Form 40-F/Annual Information
Form on file with Canadian provincial securities regulatory authorities for
a discussion of some of the factors underlying forward-looking statements.
We disclaim any intention or obligation to update or revise any forward-
looking statements whether as a result of new information, future events or
otherwise, except to the extent required by applicable laws.
Date: 16/11/2006 08:18:15 AM Produced by the JSE SENS Department
