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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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European Gold | LSE:EGU | London | Ordinary Share | CA2987741006 | COM SHS NPV |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 807.50 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
RNS Number : 8686H European Goldfields Ltd 11 November 2008 European Goldfields Limited Interim Consolidated Financial Statements (Unaudited) For the Three- and Nine-Month Periods Ended 30 September 2008 and 2007 Disclosure of auditor review of interim consolidated financial statements The interim consolidated financial statements of the Company for the three- and nine-month periods ended 30 September 2008 and 2007 have not been reviewed by the auditors of the Company. Consolidated Balance Sheets As at 30 September 2008 and 31 December 2007 (Unaudited * Prepared by Management) (in thousands of US Dollars, except per share amounts) 30 September 31 December 2008 2007 $ $ Assets Note Unaudited Audited Current assets Cash and cash equivalents 187,556 218,839 Accounts receivable 18,900 20,408 Prepaid expenses 5,549 7,769 Inventory 4 4,995 2,110 217,000 249,126 Non current assets Property, plant and equipment 5 62,434 48,776 Deferred exploration and development costs 6 Greek production stage mineral properties 27,932 29,525 Greek development stage mineral properties 403,177 401,829 431,109 431,354 Romanian development stage mineral properties 43,869 38,285 Turkish exploration stage mineral properties 226 - 475,204 469,639 Investment in associate 7 1,784 - Restricted investment 8 4,900 4,900 Other financial assets 7,220 882 Future tax asset 6,827 8,808 775,369 782,131 Liabilities Current liabilities Accounts payable and accrued liabilities 8,391 9,977 Income taxes payable - 12,718 8,391 22,695 Non current liabilities Future tax liability 9 111,872 109,943 Non-controlling interest 3,394 3,341 Asset retirement obligation 10 6,906 6,805 Deferred revenue 11 65,103 65,344 187,275 185,433 Shareholders* equity Capital stock 12 538,656 537,275 Contributed surplus 12 7,547 5,997 Other comprehensive income 41,886 38,295 Deficit (8,386) (7,564) 579,703 574,003 775,369 782,131 The accompanying notes are an integral part of these interim consolidated financial statements. Approved by the Board of Directors (s) Timothy Morgan-Wynne (s) Jeffrey O'Leary Timothy Morgan-Wynne, Director Jeffrey O'Leary, Director Consolidated Statements of Profit and Loss For the three- and nine-month periods ended 30 September 2008 and 2007 (Unaudited * Prepared by Management) (in thousands of US Dollars, except per share amounts) 3 months ended 30 September 9 months ended 30 September Note 2008$ 2007$ 2008$ 2007$ Income Sales 16,101 21,663 47,270 63,690 Cost of sales (13,065) (8,870) (33,518) (24,123) Depletion of asset retirement (174) (127) (308) (325) obligation Depreciation and depletion (1,469) (1,393) (3,732) (2,881) Gross profit 1,393 11,273 9,712 36,361 Other income Hedge contract profit 1,362 - 1,753 - Interest income 1,306 2,320 4,565 3,889 Foreign exchange (loss)/gain (2,800) 6,494 (153) 6,077 (132) 8,814 6,165 9,966 Expenses Corporate administrative and 1,353 869 3,918 2,600 overhead expenses Equity-based compensation 544 603 1,547 1,509 expense Hellas Gold administrative and 2,192 2,128 6,202 6,660 overhead expenses Hellas Gold water treatment 1,764 1,070 3,855 3,250 expenses(non-operating mines) Accretion of asset retirement 10 35 31 101 91 obligation Amortisation 166 118 506 349 6,054 4,819 16,129 14,459 Share of loss in equity 66 - 102 - investment (Loss)/Profit for the period (4,859) 15,268 (354) 31,868 before income tax Income taxes Current taxes 1,639 (3,829) 1,198 (7,072) Future taxes (2,090) 1,065 (1,626) (207) (451) (2,764) (428) (7,279) (Loss)/Profit for the period (5,310) 12,504 (782) 24,589 after income tax Non-controlling interest 267 (348) (40) (4,990) (Loss)/Profit for the period (5,043) 12,156 (822) 19,599 Deficit * Beginning of period (3,343) (23,320) (7,564) (30,763) Deficit * End of period (8,386) (11,164) (8,386) (11,164) (Loss)/Earnings per share 21 Basic (0.03) 0.07 0.00 0.14 Diluted (0.03) 0.07 0.00 0.14 Weighted average number of shares(in thousands) Basic 179,606 178,860 179,586 137,570 Diluted 179,606 180,444 179,586 139,032 The accompanying notes are an integral part of these interim consolidated financial statements. Consolidated Statements of Equity As at 30 September 2008 and 2007 (Unaudited * Prepared by Management) (in thousands of US Dollars, except per share amounts) Accumulated Deficit Total Other $ $ Comprehensive Capital Contributed Income Stock Surplus $ $ $ Balance - 31 December 2006 246,890 7,135 4,276 (30,763) 227,538 Equity-based compensation cost - 1,940 - - 1,940 Shares issued for equity 130,059 - - - 130,059 financing Shares issued as consideration 161,424 - - - 161,424 for acquisition Share issue costs (7,055) - - - (7,055) Restricted share units vested 850 (850) - - - Share options exercised or 940 (888) - - 52 exchanged Movement in cumulative - - 16,363 - 16,363 translation adjustment Profit for the period - - - 19,599 19,599 286,218 202 16,363 19,599 322,382 Balance 30 September 2007 533,108 7,337 20,639 (11,164) 549,920 Equity-based compensation cost - 548 - - 548 Share issue cost 2,279 - - - 2,279 Restricted share units vested 1,796 (1,796) - - - Share options exercised or 92 (92) - - - exchanged Change in fair value cash flow - - 882 - 882 hedge Movement in cumulative - - 16,774 - 16,774 translation adjustment Profit for the period - - - 3,600 3,600 4,167 (1,340) 17,656 3,600 24,083 Balance - 31 December 2007 537,275 5,997 38,295 (7,564) 574,003 Equity-based compensation cost - 2,888 - - 2,888 Share issue costs (10) - - - (10) Restricted share units vested 1,314 (1,314) - - - Share options exercised or 77 (24) - - 53 exchanged Change in fair value cash flow - - 3,882 - 3,882 hedge Movement in cumulative - - (291) - (291) translation adjustment Loss for the period - - - (822) (822) 1,381 1,550 3,591 (822) 5,700 Balance - 30 September 2008 538,656 7,547 41,886 (8,386) 579,703 The accompanying notes are an integral part of these interim consolidated financial statements. Consolidated Statements of Cash Flows For the three- and nine-month periods ended 30 September 2008 and 2007 (Unaudited * Prepared by Management) (in thousands of US Dollars, except per share amounts) 3 months ended 9 months ended 30 September 30 September 2008 2007 2008 2007 $ $ $ $ Note Cash flows from operating activities (Loss)/Profit for the period (5,043) 12,156 (822) 19,599 Share of loss in equity 66 - 102 - investment Foreign exchange (gain)/loss 2,906 (6,563) (16) (6,077) Amortisation 781 545 2,230 1,615 Equity-based compensation expense 544 603 1,547 1,509 Accretion of asset retirement 35 31 102 91 obligation Current taxation (1,639) 3,828 (1,198) 7,072 Future tax asset recognised 2,090 (1,065) 1,626 207 Non-controlling interest (267) 348 40 4,990 Deferred revenue recognised (1,591) (1,151) (3,349) (2,165) Depletion of mineral properties 1,029 1,095 2,316 1,941 Other non-cash items - 565 - - (1,089) 10,392 2,578 28,782 Net changes in non-cash working 14 (5,332) (6,904) (13,440) (12,438) capital (6,421) 3,488 (10,862) 16,344 Cash flows from investing activities Deferred exploration and (1,420) (1,658) (4,115) (3,602) develop.costs - Romania Plant and equipment - Greece (2,971) (12,142) (13,183) (17,827) Deferred development costs - (519) (491) (1,944) (1,432) Greece Deferred exploration cost - (68) - (118) - Turkey Purchase of equipment (52) (26) (165) (61) Purchase of land - - (2,705) Further acquisition in Hellas - (9,003) - (9,003) Gold Restricted cash - - - 28 Investment in subsidiary - - (121) - Investment in associate - - (1,858) - (5,030) (23,320) (24,209) (31,897) Cash flows from financing activities Proceeds from equity financing - - - 130,059 Deferred revenue - - 3,563 59,683 Proceeds from exercise of share - 52 54 52 options Share issue costs - 97 - (7,055) - 149 3,617 182,739 Effect of foreign currency (2,001) 9,658 171 9,798 translation on cash (Decrease)/increase in cash and (13,452) (10,025) (31,283) 176,984 cash equivalents Cash and cash equivalents - 201,008 221,596 218,839 34,587 Beginning of period Cash and cash equivalents - End 187,556 211,571 187,556 211,571 of period The accompanying notes are an integral part of these interim consolidated financial statements. Statement of Comprehensive Income For the three- and nine-month periods ended 30 September 2008 and 2007 (Unaudited * Prepared by Management) (in thousands of US Dollars, except per share amounts) 3 months ended 9 months ended 30 September 30 September 2008 2007 2008 2007 $ $ $ $ (Loss)/Profit for the period (5,043) 12,156 822 19,599 Other comprehensive income in the period Currency translation adjustment (314) 11,312 (291) 16,363 Cash flow hedge adjustment (1,232) - 3,883 - Comprehensive income (6,589) 23,468 4,414 35,962 Notes to Consolidated Financial Statements For the three- and nine-month periods ended 30 September 2008 and 2007 (Unaudited * Prepared by Management) (in thousands of US Dollars, except per share amounts) 1. Nature of operations European Goldfields Limited (the "Company"), a company incorporated under the Yukon Business Corporations Act, is a resource company involved in the acquisition, exploration and development of mineral properties in Greece, Romania and South-East Europe. The Company's common shares are listed on the AIM Market of the London Stock Exchange and on the Toronto Stock Exchange (TSX) under the symbol "EGU". Greece - The Company holds a 95% interest in Hellas Gold S.A ("Hellas Gold"). Hellas Gold owns three major gold and base metal deposits in Northern Greece. The deposits are the polymetallic operation at Stratoni, the Olympias project which contains gold, zinc, lead and silver, and the Skouries copper/gold porphyry project. Hellas Gold commenced production at Stratoni in September 2005 and commenced selling an existing stockpile of gold concentrates from Olympias in July 2006. Hellas Gold is applying for permits to develop the Skouries and Olympias projects. Romania - European Goldfields owns 80% of the Certej gold/silver project in Romania. In July 2008, the National Agency of Mineral Resources approved the technical feasibility study in support of its permit application and issued a new mining permit for the Certej project. The underlying value of the deferred exploration and development costs for mineral properties is dependent upon the existence and economic recovery of reserves in the future, and the ability to raise long-term financing to complete the development of the properties. For the coming year, the Company believes it has adequate funds available to meet its corporate and administrative obligations and its planned expenditures on its mineral properties. These consolidated financial statements have been prepared on a going concern basis, which assumes the Company will be able to realise assets and discharge liabilities in the normal course of business for the foreseeable future. These consolidated financial statements do not include the adjustments that would be necessary should the Company be unable to continue as a going concern. 2. Significant accounting policies These interim consolidated financial statements have been prepared on the going concern basis in accordance with accounting principles generally accepted in Canada ("Canadian GAAP") using the same accounting policies as those disclosed in Note 2 to the Company's audited consolidated financial statements for the years ended 31 December 2007 and 2006. These interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the years ended 31 December 2007 and 2006. Basis of preparation and principles of consolidation Associates - are those entities in which the Company has a material long term interest and in respect of which the group exercises significant influence over operational and financial policies, normally owning between 20% and 50% of the voting equity, but which it does not control. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Company's share of its associates post-acquisition profits or losses is recognised in the income statement. Cumulative post-acquisition movements are adjusted against the carrying amount of investment. When the Company's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Company does not recognise further losses, unless it has uncured obligations or made payments on behalf of the associate. Company Country of Incorporation Ownership Percentage Ariana Resources plc United Kingdom 20.67% Capital Disclosure - Effective 1 January 2008, the Company adopted CICA Handbook, Section 1535, Capital disclosures. The new standard requires disclosures of qualitative and quantitative information that enables users of financial statements to evaluate the Company's objectives, policies and processes for managing capital. Inventories - Effective 1 January 2008, the Company adopted the CICA Handbook Section 3031, Inventories. The new section requires inventories to be measured at the lower of cost and net realisable value and provides guidance on the cost methodology used to assign costs to inventory, disallows the use of last-in-first-out inventory costing methodology and requires that, when circumstances which previously caused inventories to be written down below cost no longer exist, the amount previously written down is to be reversed. Upon adoption, the impact to the financial statements arising was immaterial. Standards of Financial Statement Presentation - Effective 1 January 2008, the Company adopted CICA Handbook Section 1400, General standards of Financial Statement Presentation. This section provides guidance related to management's assessment of the Company's ability to continue as a going concern. The adoption of this standard had no impact on the Company's presentation of its financial position. Financial Instruments Presentation and Disclosures - Effective 1 January 2008, the Company adopted CICA Handbook Sections 3862, Financial instruments - disclosures, and 3863, Financial instruments - Presentation. These new sections represent a revision and enhancement to Section 3861, Financial instrument - Presentation and disclosure. Under the new standards, the Company is required to disclose information about the significance of financial instruments for its financial position and performance and qualitative and quantitative information about its exposure to risks arising from financial instruments, as well as management's objectives, policies and processes for managing such risks. The adoption of these standards did not have an impact on the classification and valuation of financial instruments. The new disclosures resulting from adoption of these standards are included in note 15. Change in functional currency - During the nine - month period ended 30 September 2008, Hellas Gold completed a long term planning exercise on its Stratoni mine. As a stand alone business, Stratoni was shown to generate excess of US dollar revenues over Euro expenses for its life of mine. Hellas Gold also has a series of development projects which will increase the excess of US dollar revenues over Euro denominated cost. Also taken into consideration along with the net cash flows, were the following factors: * All sales are priced in US dollars; * Sales markets are international, rather than domestic to Greece; * Day to day activities are financed by US dollar denominated sales; * Significant amounts of future financing earmarked for the development projects has already been raised in US dollars by European Goldfields Limited, and other financing activities in Hellas Gold, prepaid sales receipts, have all been US dollar denominated; * Labour and materials are predominantly denominated in Euros. Overall, it was deemed that the net exposure to the US dollar was greater than the exposure to the Euro, and that the functional currency of Hellas Gold should change to the US dollar. The change in functional currency is effective 1 January 2008. 3. Business combination - Acquisition of an additional 30% interest in Hellas Gold In June 2007, the Company completed the acquisition of additional shares in Hellas Gold, increasing its total interest from 65% to 95%. The total consideration paid by the Company for the purchased shares was satisfied as follows: (a) The issue of 35,447,246 common shares of the Company; and (b) $8.42 million paid in cash to the vendor. Transaction costs of $1.55 million were also accounted for as part of the acquisition. A summary of the accounting treatment of fair value of net assets acquired and consideration paid is as follows: $ Current assets 31,272 Property, plant and equipment 12,220 Other assets 6,536 Current liabilities (7,050) Other liabilities (20,470) Mineral properties 198,518 Future tax liabilities (49,630) 171,396 Purchase consideration: $ Cash paid 8,418 Shares issued (35,447,246) 161,424 Transaction costs 1,554 Purchase price 171,396 For accounting purposes, the Company has used an average share price based upon 5 days prior and post the announcement of the transaction, to value the share element of the purchase consideration. 4. Inventory This balance comprises the following: 30 September 31 December 2008 2007 $ $ Ore mined 786 - Metal concentrates 2,479 865 Material and supplies 1,730 1,245 4,995 2,110 5. Property, plant and equipment Plant and Vehicles Mine development, land and buildings Total equipment $ $ $ $ Cost - 2008 At 31 December 2007 31,701 1,932 21,523 55,156 Additions 12,507 103 3,442 16,052 Disposals (14) (6) - (20) At 30 September 2008 44,194 2,029 24,965 71,188 Accumulated amortisation - 2008 At 31 December 2007 3,151 1,076 2,153 6,380 Provision for the period 1,233 169 990 2,392 Disposals (11) (7) - (18) At 30 September 2008 4,373 1,238 3,143 8,754 Net book value at 30 September 39,821 791 21,822 62,434 2008 6. Deferred exploration and development costs Greek mineral properties: Stratoni Olympias Skouries Total $ $ $ $ Balance - 31 December 2007 29,525 237,284 164,545 431,354 Deferred development costs 579 318 1,287 2,184 Depletion of mineral properties (2,172) (257) - (2,429) (1,593) 61 1,287 (245) Balance - 30 September 2008 27,932 237,345 165,832 431,109 The Stratoni, Skouries and Olympias properties are held by the Company's 95%-owned subsidiary, Hellas Gold. In September 2005, the Stratoni property commenced production. Romanian mineral properties: Certej$ Baita-Craciunesti$ Voia$ Cainel$ Total$ Balance * 31 December 2007 32,915 3,166 1,167 1,037 38,285 Drilling and assaying 274 11 11 - 296 Geosciences and tech. 1,288 24 34 1 1,347 consulting Samplers, miners and surveying 57 2 9 1 69 Project management 2,234 26 (18) 30 2,272 Project overhead 1,332 32 133 38 1,535 Amortisation 52 6 2 5 65 5,237 101 171 75 5,584 Balance * 30 September 2008 38,152 3,267 1,338 1,112 43,869 The Certej exploitation licence and the Baita-Craciunesti exploration licence are held by the Company's 80%-owned subsidiary, Deva Gold. Minvest S.A. (a Romanian state owned mining company), together with three private Romanian companies, hold the remaining 20% interest in Deva Gold and the Company holds the pre-emptive right to acquire such 20% interest. The Company is required to fund 100% of all costs related to the exploration and development of these properties. As a result, the Company is entitled to the refund of such costs (plus interest) out of future cash flows generated by Deva Gold, prior to any dividends being distributed to shareholders. The Voia and Cainel exploration licences are held by the Company's wholly-owned subsidiary, European Goldfields Deva SRL. Individual property spending commitments for each of the Company's Romanian licences have been met as at 30 September 2008. Turkish mineral properties: Total $ Balance - 31 December 2007 - Additions 226 226 Balance - September 2008 226 The Turkish licenses are held by the Joint Venture Company ("JV"), Pontid Madencilik. Currently the Company has a 51% interest in all the properties within the JV and the Company will fund 100% of all costs related to the development of these properties. Ownership of these properties maybe increased to 80% by funding to completion of a Bankable Feasibility Study. Any new concessions within the joint venture funded to a Bankable Feasibility Study will be 90% owned by the Company. The owner of the remaining 49% of the properties is Ariana Resources plc. 7. Investment in associate 30 September 31 December 2008 2007 $ $ Balance - Beginning of period - - Shares acquired 1,858 - Share of loss (102) - Cumulative translation adjustment 28 - - Balance - End of period 1,784 - In April 2008, the Company signed definitive documentation governing a JV with Ariana Resources plc ("Ariana"). The transaction completed and the JV became effective in May 2008 after the transfer of Ariana's properties was confirmed by the General Directorate of Mining Affairs in Turkey. The JV involves the development of Ariana's current properties in an Area of Intent ("AOI") in the Greater Pontides region of north-eastern Turkey, which include the Ardala copper-gold porphyry and fifteen other licences covering a total area of 229kmē, and a Strategic Partnership within the AOI to define new opportunities for the JV. Upon completion, European Goldfields subscribed for 20% of the issue share capital of Ariana through a $1,830 (Ģ929) private placement of shares. 8. Restricted investment The balance consists of an amount of $4,900 pledged by Hellas Gold to the National Bank of Greece as collateral for a letter of guarantee issued by the National Bank of Greece to the Greek Ministry of Development to guarantee Hellas Gold's environmental commitments under its mining permit at Stratoni. The letter of guarantee expires on 31 December 2010. The investment bears a rate of interest of Euribor plus 0.8% per annum. 9. Future tax liability The following table reflects future income tax liabilities: 30 September 31 December 2008 2007 $ $ Mineral properties 104,182 104,752 Plant and equipment 1,077 701 Exploration and development expenditure 3,354 3,003 Accrued expenses 804 1,487 Cash flow hedge 2,455 - 111,872 109,943 The tax liability arises as a result of the increase in value placed on the mineral properties held by Hellas Gold on acquisition by the Company. This future tax liability will reverse as the corresponding mineral properties are amortised. 10. Asset retirement obligation Management has estimated the total future asset retirement obligation based on the Company's net ownership interest in the Olympias, Skouries and Stratoni mines and facilities. This includes all estimated costs relating to the Company's obligation to dismantle, remove, reclaim and abandon the facilities and the estimated time period during which these costs will be incurred in the future. The following table reconciles the asset retirement obligations as at 30 September 2008 and 31 December 2007: 30 September 31 December 2008 2007 $ $ Asset retirement obligation - Beginning of period 6,805 6,031 Currency translation adjustment - 650 Accretion expense 101 124 Asset retirement obligation - End of period 6,906 6,805 As at 30 September 2008, the undiscounted amount of estimated cash flows required to settle the obligation was $7,360 (31 December 2007 - $7,421). The estimated cash flow has been discounted using a credit adjusted risk free rate of 5.04% (2008 - 5.04%). The expected period until settlement is six years. 11. Deferred revenue In April 2007, Hellas Gold agreed to sell to Silver Wheaton (Caymans) Ltd. ("Silver Wheaton") all of the silver metal to be produced from ore extracted during the mine-life within an area of some 7 kmē around its zinc-lead-silver Stratoni mine in northern Greece (the "Silver Wheaton Transaction"). The sale was made in consideration of a prepayment to Hellas Gold of US$57.5 million in cash, plus a fee per ounce of payable silver to be delivered to Silver Wheaton of the lesser of US$3.90 (subject to an inflationary adjustment beginning after year three) and the prevailing market price per ounce. The current Stratoni proven and probable silver reserve contains approximately 12 million ounces of silver. In April 2007, Hellas Gold entered in an agreement with MRI Trading AG of Switzerland for the sale of 25,000 wet metric tonnes of gold bearing pyrite concentrate. Hellas Gold received a prepayment of US$2.18 million in cash. In September 2007, Hellas Gold entered into an agreement with a subsidiary of Celtic Resources Holdings Plc for the sale of 50,000 wet metric tonnes of gold bearing pyrite concentrate, for which Hellas Gold received a prepayment of $4.71 million in cash. In March 2008, Hellas Gold entered in an agreement with MRI Trading AG for the sale of 25,000 wet metric tonnes of gold bearing pyrite concentrate Hellas Gold received a prepayment of $3.56 million in cash. The following table reconciles movements on deferred revenue associated with the MRI prepayment and the Silver Wheaton Transaction: 30 September 31 December 2008 2007 $ $ Deferred revenue - Beginning of period 65,344 - Additions 3,563 64,389 Revenue recognised (3,804) (3,738) Foreign currency translation adjustment - 4,693 Deferred revenue - End of period 65,103 65,344 During the nine-month period ended 30 September 2008, Hellas Gold delivered concentrate containing 601,752 ounces (Year to 31 December 2007 - 952,729) ounces of silver for credit to Silver Wheaton. 12. Capital stock Authorised: - Unlimited number of common shares, without par value - Unlimited number of preferred shares, issuable in series, without par value Issued and outstanding (common shares - all fully paid): Number of Amount Shares $ Balance - 31 December 2007 179,162,381 537,275 Restricted share units vested 195,000 1,314 Share options exercised 25,000 77 Share issue costs - (10) 220,000 1,381 Balance - 30 September 2008 179,382,381 538,656 As at 30 September 2008, the Company had 35,447,246 (2007 - 35,447,246) common shares in respect of which trading restrictions applied. Contributed surplus: 30 September 31 December 2008 2007 $ $ Equity-based compensation expense 6,969 5,419 Broker warrants 578 578 7,547 5,997 13. Share options and restricted share units Share Option Plan The Company operates a Share Option Plan (together with its predecessor, the "Share Option Plan") authorising the directors to grant options to acquire common shares of the Company to the directors, officers, employees and consultants of the Company and its subsidiaries, on terms that the Board of Directors may determine, within the limitations of the Share Option Plan. The maximum number of common shares of the Company which may be reserved for issuance for all purposes under the Share Option Plan shall not exceed 15% of the common shares issued and outstanding from time to time (26,907,357 shares as at 30 September 2008). An option under he Share Option Plan may elect to dispose of its rights under all or part of its options (the "Exchanged Rights") in exchange for the following number of common shares of the Company (or at the Company's option for cash) in settlement thereof (the "Settlement Common Shares"): Number of Number of Optioned X (Current Price - Exercise Price) Settlement Shares issuable on Current Price Common exercise of the Shares Exchanged Rights As at 30 September 2008, the following share options were outstanding: Number of Exercise Options price C$ Expiry date 2009 250,000 2.80 2009 250,000 4.20 2009 360,000 3.07 2009 75,000 3.15 2010 359,999 2.00 2010 150,000 2.40 2011 66,666 3.25 2011 600,000 3.85 2011 200,000 4.10 2012 250,000 5.66 2012 150,000 5.71 2012 270,000 5.87 2013 360,000 3.54 2013 50,000 4.73 2013 385,000 5.07 2013 165,000 6.80 3,941,665 4.05 During the nine-month period ended 30 September 2008, share options were granted, exercised and cancelled as follows: Weighted average exercise price Number of options Balance - 31 December 2007 3,006,665 3.80 Options granted 960,000 4.78 Options exercised (25,000) 2.11 Options forfeited - - Balance - 30 September 2008 3,941,665 4.05 Of the 3,941,665 (2007 - 3,171,665) share options outstanding as at 30 September 2008, 2,621,669 (2007 - 2,059,999) were fully vested and had a weighted average exercise price of C$3.48 (2007 - C$3.10) per share. The share options outstanding as at 30 September 2008, had weighted average remaining contractual life of 3.27 years (2007 - 2.89 years). The fair value of the share options granted has been estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions: weighted average risk free interest rate at 2.35% (2007 - 3.35%); volatility factor of the expected market price of the Company's shares of 32.68% to 50.50% to (2007 - 57.80% to 58.81%); a weighted average expected life of the share options of 5 years (2007 - 5 years), maximum term of 5 years and a dividend yield of Nil (2007 - Nil). The weighted average grant date fair value of the 960,000 share options granted during the nine-month period ended 30 September 2008 (2007 - 745,000) was C$4.78 (2007 - C$5.73). For outstanding share options which were not fully vested during the nine-month period ended 30 September 2008, the Company incurred a total equity-based compensation cost of $1,204 (2007 - $960) of which $957 (2007 - $806) has been recognised as an expense in the income statement and $248 (2007 - $154) has been capitalised to deferred exploration and development costs. Restricted Share Unit Plan The Company operates a Restricted Share Unit Plan (the "RSU Plan") authorising the directors, based on recommendations received from the Compensation Committee, to grant Restricted Share Units ("RSUs") to designated directors, officers, employees and consultants. The RSUs are "phantom" shares that rise and fall in value based on the value of the Company's common shares and are redeemed for actual common shares on the vesting dates determined by the Board of Directors when the RSUs are granted. The RSUs vest on the dates below however upon a change of control of the Company they would typically become 100% vested. The maximum number of common shares of the Company which may be reserved for issuance for all purposes under the RSU Plan shall not exceed 2.5% of the common shares issued and outstanding from time to time (4,484,560 shares as at 30 September 2008). As at 30 September 2008, the following RSUs were outstanding: Vesting date Number of Grant date RSUs fair value of underlying shares C$ 31 December 2008 50,000 6.22 31 December 2008* 100,000 6.77 30 June 2008 30,000 5.74 31 May 2008 175,000 3.30 355,000 3.39 * or earlier if certain milestones are achieved. Vesting conditional upon such milestones being achieved by 31 December 2008 During the nine-month period ended 30 September 2008, RSUs were granted, vested and cancelled as follows: Weighted average grant date fair value of underlying shares C$ Number of RSUs Balance - 31 December 2007 185,000 4.86 RSUs granted 365,000 5.26 RSUs vested (195,000) 5.08 RSU's forfeited - - Balance - 30 September 2008 355,000 5.14 The weighted average grant date fair value of underlying shares of the 365,000 RSUs granted during the nine-month period ended 30 September 2008 (2007 - 290,000 ) was C$5.26 (2007 - C$5.50). For outstanding RSUs which were not fully vested during the nine-month period ended 30 September 2008, the Company incurred a total equity-based compensation cost of $1,683 (2007 - $988) of which $590 (2007 - $703) has been recognised as an expense in the income statement and $1,092 (2007 - $285) has been capitalised to deferred exploration and development costs. 14. Supplementary cash flow information 3 months ended 9 months ended 30 September 30 September 2008 2007 2008 2007 $ $ $ $ Changes in non-cash operating accounts: Accounts receivable, prepaid 7,462 (8,354) 3,729 (11,599) expenses and supplies Accounts payable (1,487) 3,367 (1,366) 2,822 Taxation (11,831) - (13,227) - Inventory 524 (1,917) (2,576) (3,661) (5,332) (6,904) (13,440) (12,438) Supplementary disclosure of non-cash transactions: Share options and restricted share 1,024 (321) 2,888 1,940 units issued for non-cash consideration Exercise of share options - - (707) (24) (888) Transfer from contributed surplus to share capital Vesting of restricted share units - (232) (1,314) (850) 15. Financial instruments and financial risk management The Company's financial instruments consist of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, accrued liabilities, embedded derivatives and hedge contracts. Short-term financial assets are amounts that are expected to be settled within one year. The carrying amounts in the consolidated balance sheets approximate fair value because of the short term nature of these instruments. The embedded derivatives are classified as a short term financial asset. The carrying amounts for the financial instruments as at 30 September 2008 are as follows: 30 September 2008 31 December 2007 $ $ Financial Assets: Held-for-trading, measured at fair value Cash and cash equivalents 187,556 218,839 Restricted cash 4,900 4,900 192,456 223,739 Loans and receivables, measured at amortised cost Accounts receivable 18,900 20,408 Prepaid expenses 5,549 7,769 24,449 28,177 Financial Liabilities Current liabilities, measured at amortised costs Accounts payable and accrued liabilities 8,391 22,695 8,391 22,695 Derivative Financial instruments - measured at fair value Designated as cash flow hedge Lead hedging contracts 7,220 882 7,220 882 Credit risk - Credit risk represents the financial loss the Company would suffer if the Company's counterparties to a financial instrument, in owing an amount to the Company, fail to meet or discharge their obligation to the Company. Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents, accounts receivable and hedging contracts. The cash equivalents consist mainly of short-term investments, such as money market deposits. The Company has deposited the cash equivalents only with the largest banks within a particular region or with top rated institutions, from which management believes the risk of loss to be remote and does not invest in asset-backed commercial papers. As at 30 September 2008, the cash and restricted cash comprises the following: 30 September 2008 31 December 2007 $ $ Interest bearing bank accounts 131,793 216,569 Short-term deposits 60,663 7,170 192,456 223,739 The Company has accounts receivable from trading counterparties to whom concentrate products are sold. Where traders are chosen as counterparties, only the larger and most financially secure metal trading groups are dealt with. The company may also transact agreements with trading groups who have direct interests in smelting capacity, or direct to the smelters themselves. Of the total trade receivable as at 30 September 2008, four customers represented 97% of the total. The Company does not anticipate any loss for non-performance. As at 30 September 2008, the accounts receivable comprises the following: 30 September 2008 31 December 2007 $ $ Trade receivables 6,408 2,412 Valued added taxes recoverable 9,445 17,996 Other accounts receivable 3,047 - 18,900 20,408 As at the 30 September 2008, the Company considers its accounts receivable excluding Value Added Taxes recoverable and other accounts receivable to be aged as follows: 30 September 2008 $ Ageing Current 5,526 Past due (1-30 days) 864 Past due (31-60 days) - Past due (more than 60 days) 18 6,408 Interest rate risk - The Company is exposed to interest rate risk arising from fluctuations in interest rates on its cash equivalents. The Company seeks to maximise returns on cash equivalents, without risking capital values. The Company's objectives of managing its cash and cash equivalents are to ensure sufficient funds are maintained on hand at all times to meet day to day requirements and to place any amounts which are considered in excess of day to day requirements on short-term deposits with the Company's banks so they earn interest. Upon placing amounts of cash and cash equivalents on short-term deposits, the Company uses top rated institutions and ensures that access to the amounts can be gained at short notice. During the nine-month period ended 30 September 2008 interest income of $4,565 and $1,306 for three - month period on cash and cash equivalents, based on rates of returns between 1.25% and 4.00% Currency risk - The Company is exposed to currency risk on sales, purchases and cash holdings that are denominated in a currency other than the functional currencies of the individual entities in the group. As at the 30 September 2008, the Company held the equivalent of $51,429 in foreign currencies. These balances are primarily made up of Euro and to a lesser extent Pound Sterling. For the nine-month period ended 30 September 2008 the Company recorded a foreign exchange loss of $153 and a loss of $2,800 for the three-month period, mainly due to the translation of its Euro balances in Hellas Gold. The Company publishes its consolidated financial statements in US dollars and as a result, it is also subject to foreign exchange translation risk in respect of assets and liabilities nominated in Euros in its foreign operations. Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations when they become due. The Company manages its liquidity risk by ensuring there is sufficient capital to meet short and long term business requirements after taking into account cash flows from operations and holdings of cash and cash equivalents. The Company believes that these sources will be sufficient to cover the likely short to medium term requirements. Senior management is also actively involved in the review and approval of planned expenditures by regularly monitoring cash flows from operations and anticipated investing and financing activities. The Company does not have any borrowing or debt facilities and settles its obligations out of cash and cash equivalents. The ability to do this relies on the Company collecting its accounts receivable in a timely manner and maintaining cash on hand. Financial liabilities consist of trade payables, accrued liabilities and income taxes payable. As at 30 September 2008, the Company's trade payables and accrued liabilities amounted to $8,391 (31 December 2007- $9,977), all which fall due for payment within 12 months of the balance sheet date. The average credit period taken during the nine-month period ended 30 September 2008 was 30 days,(30 days - 2007). Commodity Price Risk The value of the Company's mineral resource properties is related to the prices of gold, copper, zinc, lead and silver and outlook for these commodities. Gold prices historically have fluctuated widely and are affected by numerous factors outside of the company's control, including, but not limited to, industrial and retail demand, central bank lending, forward sales by producers and speculators, levels of worldwide production, short-term changes in supply and demand because of speculative investing activities, macro-economic and political variables, and certain other factors related specifically to gold. Base metal prices have historically tended to be driven more by the demand and supply fundamentals for each metal. However, levels of speculative activity in the base metals market have increased in recent years. The profitability of the Company's operations is highly correlated to the market price of its commodities in particular gold. To the extent that these prices increase, asset values increase and cash flows improve; conversely, declines in metal prices directly impact value and cash flows. A protracted period of depressed prices could impair the Company's operations and development opportunities, and significantly erode shareholder value. The Company has completed a sensitivity analysis to estimate the impact on net profit of a 5% change in foreign exchange rates or a 1% change in interest rates during the period ended 30 September 2008. The results of the sensitivity analysis can be seen in the following table: 3 months ended 30 September 2008 9 months ended $ 30 September 2008 $ Impact on Net Profit (+/-) Change of +/- 5 % US$: EUR 1,762 3,277 foreign exchange rate Change of +/- 1% in interest 515 1,030 rates Limitations of sensitivity analysis The above table demonstrates the effect of either a change in foreign exchange rates or interest rates in isolation. In reality, there is a correlation between the two factors. Additionally, the financial position of the Company may vary at the time that a change in either of these factors occurs, causing the impact on the Company's results to differ from that shown above. Hedging and specific commitments - The Company enters into financial transactions in the normal course of business and in line with Board guidelines for the purpose of hedging and managing its expected exposure to commodity prices. There are a number of financial institutions which offer metal hedging services. As with cash deposits, the Company deals with highly rated banks and in addition, those institutions who have demonstrated long term commitment to the mining sector. The hedges below are treated as cash flow hedges in accordance with CICA 3865: Hedges. Lead hedging contracts - As at 30 September 2008, the Company had entered into forward hedging arrangements over 12,600 tonnes of lead, using options to provide a minimum: maximum price exposure. The hedging contracts are put/call option collar contracts with maturity dates between 2 October 2008 and 31 December 2009 and strike prices as shown in the table below. The fair value of these contracts as 30 September 2008 amounted to $7,220 established by reference to market prices for lead. 30 September 2008 $ Lead Tonnes 9,900 US dollar price ($/tonne) - Put 2,477 US dollar contract amount ($'000) - Put 24,525 US dollar price ($/tonne) - Call 3,459 US dollar contract amount ($'000) - Call 34,245 16. Capital Risk Management The Company's objectives when managing capital is to maintain its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to ensure sufficient resources are available to meet day to day operating requirements. The Company's Board of Directors takes full responsibility for managing the Company's capital and does so through quarterly board meetings, review of financial information, and regular communication with Officers and senior management. In order to maximize ongoing development efforts, the company does not pay out dividends. The Company's investment policy is to invest its cash in high-grade investment securities with varying terms and maturity, selected with regards to the expected timing of expenditures from continuing operations. The Company expects it's current capital resources will be sufficient to carry out its plans and operations through its current operating period. The Company is not subject to externally imposed capital requirements and there has been no change in the overall capital risk management strategy during the thee-month period ended 30 September 2008. 17. Commitments As at 30 September 2008, the Company had remaining spending commitments of $634 (2007 - $970) over the remaining term of its Voia exploration licence in Romania which expires in March 2010. The Company has spending commitments of $190 per year (plus service charges and value added tax) for a term of ten years under the lease for its office in London, England, which commenced in April 2004. The rent will be reviewed on the fifth anniversary of the commencement of the term to reflect any increase in rents in the market. As at 30 September 2008, Hellas Gold had entered into off-take agreements pursuant to which Hellas Gold agreed to sell 22,455 dmt of zinc concentrates, and 8,146 dmt of lead/silver concentrates until the end of 2008 and 433,415 dmt of gold concentrates until the financial year's ending 2011. As at 30 September 2008, 33,628 dmt of zinc concentrates, 14,765 dmt of lead/silver concentrates and 41,707 dmt of gold concentrates had been sold on account of the commitments. During 2007 the Company entered into purchase agreements with Outotec Minerals OY for long-lead-time equipment and services for the Skouries project with a cost of $51,573 (EUR36,057) of which is to be paid over three years beginning 2007. As at 30 September 2008, $12,824 (EUR8,966) of the commitment had been paid. Hellas Gold has pledged $18,000 in support of a letter of credit issued on behalf of Outotec Minerals OY through Nordea Bank of Finland. 18. Transactions with related parties During the nine-month period ended 30 September 2008, Hellas Gold incurred costs of $28,651 (2007 - $20,884) for management, technical and engineering services received from a related party, Aktor S.A., a 5% shareholder in Hellas Gold. As at 30 September 2008, Hellas Gold had accounts payable of $4,216 (2007 - $8,836) to Aktor S.A. These expenses were contracted in the normal course of operations and are recorded at the exchange amount agreed by the parties. 19. Segmented information The Company has one operating segment: the acquisition, exploration and development of precious and base metal mineral resources properties located in Greece and Romania. Geographic segmentation of plant and equipment and deferred exploration and development costs and operating liabilities is as follows: 30 September 31 December 2008 2007 $ $ Revenue Canada - - Greece 47,270 86,405 Romania - - Turkey - - United Kingdom - - 47,270 86,405 Plant and equipment and deferred exploration and development costs Canada - - Greece 490,356 479,656 Romania 46,703 38,418 Turkey 265 - United Kingdom 314 341 537,638 518,415 Operating liabilities Canada 156 832 Greece 6,942 20,037 Romania 213 659 Turkey 110 - United Kingdom 970 1,167 8,391 22,695 20. Pension plans and other post-retirement benefits The company's subsidiary, European Goldfields (Services) Limited, maintains a defined contribution pension plan for its employees. The defined contribution pension plan provides pension benefits based on accumulated employee and Company contributions. Company contributions to these plans are a set percentage of employees' annual income and may be subject to certain vesting requirements. The cost of defined contribution benefits is expensed as earned by employees. As at 30 September 2008, the company recognised the following costs: 3 months ended 9 months ended 30 September 30 September 2008 2007 2008 2007 $ $ $ $ Defined contribution plans 65 58 190 161 21. Earnings per share The calculation of the basic and diluted earnings per share attributable to holders of the Company's common shares is based as follows: 3 months ended 9 months ended 30 September 30 September 2008 2007 2008 2007 $ $ $ $ (Loss)/Earnings (822) 12,156 (5,043) 19,599 Effect of dilutive potential common shares - - - - Diluted (loss)/earnings (822) 12,156 (5,043) 19,599 Weighted average number of common shares for the purpose of 179,606 178,860 179,586 137,570 basic earnings per share Incremental shares - Share options - 1,584 - 1,462 Weighted average number of common shares for the purpose of 179,606 180,444 179,586 139,032 diluted earnings per share 22. Reclassification of comparative figures Certain comparative figures have been reclassified to conform to the current year's presentation. 23. Legal proceedings In June 2005, certain residents of Stratoniki village submitted a request for the annulment of the Greek government's joint ministerial decision approving the environmental impact study for the Stratoni mine (the "JMD Approval"). In November 2005, the same petitioners submitted a request for the annulment of the decision of the Minister of Development approving the Technical Study for the exploitation of the Mavres Petres mine that forms part of the Stratoni complex (the "MOD Approval"). The JMD Approval and the MOD Approval are necessary for the continued operation of the Stratoni mine. In both cases the petitioners alleged a lack of legal basis for the approvals and potential harm to the environment and their properties. The Greek government, supported by the Company, the Association of Extractive Companies, and two workers' unions, has taken a position that the approvals are valid. In December 2005 the petitioners requested an injunction to stop work on the Stratoni project pending the hearing of the requests for annulment, but the court rejected the request. A hearing on both requests for annulment will be held shortly. The management of the Company believes that both requests for annulment are unfounded and unlikely to succeed. 24. New accounting pronouncements Goodwill and intangible assets - In February 2008, the Canadian Institute of Chartered Accountants issued Section 3064 Goodwill and intangible assets, replacing Section 3062, Goodwill and other intangible assets. The new Section will be applicable to financial statements relating to fiscal years beginning on or after 1 October 2008. Accordingly, the Company will adopt the new standards for its fiscal year beginning 1 January 2009. It establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062.The Company is currently evaluating the impact of the adoption of this new Section on its consolidated financial statements. International Financial Reporting Standards ("IFRS) - In 2006, the Canadian Accounting Standards Board ("AcSB") published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008, the AcSB confirmed that publicly listed companies will be required to adopt IFRS for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011, and in April 2008, the AcSB issued for comment its Omnibus Exposure Draft, Adopting IFRS in Canada. Early adoption may be permitted, however it will require exemptive relief on a case by case basis from the Canadian Securities Administrators. The Company has begun assessing the adoption of IFRS and is in the process of completing its overall conversion plan. The plan assesses the possible benefits of early adoption, the key differences between IFRS and Canadian GAAP including disclosures as well as a timeline for implementation. This information is provided by RNS The company news service from the London Stock Exchange END QRTURVWRWORAAAA
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