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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
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 |
TIDMEGU RNS Number : 1145P European Goldfields Ltd 19 March 2009 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED 31 DECEMBER 2008 The following discussion and analysis, prepared as at 19 March 2009, is intended to assist in the understanding and assessment of the trends and significant changes in the results of operations and financial conditions of European Goldfields Limited (the "Company"). Historical results may not indicate future performance. Forward-looking statements are subject to a variety of factors that could cause actual results to differ materially from those contemplated by these statements. The following discussion and analysis should be read in conjunction with the Company's audited consolidated financial statements for the years ended 31 December 2008 and 2007 and accompanying notes (the "Consolidated Financial Statements"). Additional information relating to the Company, including the Company's Annual Information Form, is available on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com. Except as otherwise noted, all dollar amounts in the following discussion and analysis and the Consolidated Financial Statements are stated in United States dollars. Overview 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 London Stock Exchange plc and on the Toronto Stock Exchange (TSX) under the symbol "EGU". Greece - European Goldfields holds a 95% interest in Hellas Gold S.A. 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. Results of operations The Company's results of operations for the year and three-month period ended 31 December 2008 were comprised primarily of activities related to the results of operations of the Company's 95%-owned subsidiary Hellas Gold in Greece and the Company's exploration and development program in Romania. Hellas Gold's operational results for the eight most recently completed quarters are summarised in the following tables: +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Stratoni Mine (Greece) | +----------------------------------------------------------------------------------------------------------+ | | 2008 | 2008 | 2008 | 2008 | 2007 | 2007 | 2007 | 2007 | | | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Inventory (start of | | | | | | | | | | period) | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Ore mined (wet tonnes) | 6,489 | 1,003 | 2,816 | - | 4,868 | 4,603 | 843 | 2,499 | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Zinc concentrate | 2,078 | 5,660 | 2,745 | 1,689 | 2,797 | 2 | 3,524 | 37 | | (tonnes) | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Lead/silver concentrate | 1,294 | 1,238 | 2,213 | 49 | 2,042 | 2,150 | 1,846 | 214 | | (tonnes) | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Production | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Ore mined (wet tonnes) | 70,468 | 69,847 | 73,137 | 58,208 | 50,643 | 56,075 | 53,088 | 55,069 | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Ore milled (tonnes) | 73,320 | 63,040 | 73,280 | 53,675 | 53,813 | 54,499 | 48,179 | 55,258 | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | - Average grade: Zinc | 8.80 | 8.82 | 10.37 | 9.37 | 9.00 | 8.42 | 11.57 | 11.39 | | (%) | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Lead (%) | 6.54 | 6.40 | 6.21 | 5.35 | 8.12 | 7.55 | 9.14 | 7.38 | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Silver (g/t) | 167 | 160 | 155 | 134 | 206 | 186 | 232 | 180 | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Zinc concentrate | 12,106 | 10,451 | 14,139 | 9,427 | 9,082 | 8,506 | 10,485 | 11,731 | | (tonnes) | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | - Containing: Zinc | 5,914 | 5,132 | 7,004 | 4,644 | 4,425 | 4,194 | 5,170 | 5,760 | | (tonnes) | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Lead concentrate | 6,750 | 5,531 | 6,443 | 4,035 | 6,012 | 5,586 | 5,955 | 5,406 | | (tonnes) | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | - Containing: Lead | 4,434 | 3,726 | 4,201 | 2,653 | 4,021 | 3,781 | 4,109 | 3,744 | | (tonnes) | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Silver (oz) | 336,336 | 280,305 | 316,354 | 207,215 | 316,837 | 297,059 | 328,879 | 288,023 | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Sales | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Zinc concentrate | 11,210 | 14,033 | 11,224 | 8,371 | 10,191 | 5,710 | 14,007 | 8,244 | | (tonnes) | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | - Containing payable: | 4,591 | 5,818 | 4,633 | 3,454 | 4,209 | 2,364 | 5,855 | 3,463 | | Zinc (tonnes)* | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Lead concentrate | 7,556 | 5,475 | 7,418 | 1,872 | 8,004 | 5,694 | 5,651 | 3,774 | | (tonnes) | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | - Containing payable: | 4,775 | 3,495 | 4,628 | 1,188 | 5,082 | 3,759 | 3,636 | 2,486 | | Lead (tonnes)* | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Silver (oz)* | 363,205 | 263,464 | 355,298 | 95,582 | 399,272 | 297,321 | 285,349 | 190,292 | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Cash operating cost per | 145 | 164 | 161 | 164 | 175 | 144 | 135 | 138 | | tonne milled ($) | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Cash operating cost per | 109 | 109 | 103 | 110 | 121 | 105 | 100 | 104 | | tonne milled (EUR) | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Inventory (end of | | | | | | | | | | period) | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Ore mined (wet tonnes) | 1,778 | 6,489 | 1,003 | 2,816 | - | 4,868 | 4,603 | 843 | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Zinc concentrate | 2,975 | 2,078 | 5,660 | 2,745 | 1,689 | 2,797 | 2 | 3,524 | | (tonnes) | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Lead/silver concentrate | 488 | 1,294 | 1,238 | 2,213 | 49 | 2,042 | 2,150 | 1,846 | | (tonnes) | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Financial information | | | | | | | | | | (in thousands of US | | | | | | | | | | dollars) | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Sales ($) | 8,465 | 13,250 | 13,000 | 10,097 | 18,483 | 16,634 | 22,866 | 14,215 | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Gross profit ($) | (7,060) | 171 | (198) | 3,060 | 6,147 | 8,425 | 13,991 | 8,294 | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Capital expenditure ($) | 3,543 | 2,496 | 2,086 | 3,111 | 3,779 | 12,142 | 4,673 | 1,564 | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ | Amortisation and | 1,827 | 1,571 | 1,215 | 997 | 2,000 | 1,256 | 837 | 653 | | depletion ($) | | | | | | | | | +--------------------------+---------+---------+---------+---------+---------+---------+---------+---------+ * Net of smelter payable deductions +--------------------------+--------+--------+--------+-------+---------+--------+--------+--------+ | Sale of Gold-Bearing Concentrates from Existing Stockpile at Olympias (Greece) | +--------------------------------------------------------------------------------------------------+ | | 2008 | 2008 | 2008 | 2008 | 2007 | 2007 | 2007 | 2007 | | | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | +--------------------------+--------+--------+--------+-------+---------+--------+--------+--------+ | Sales | | | | | | | | | +--------------------------+--------+--------+--------+-------+---------+--------+--------+--------+ | Gold concentrate (dmt) | 18,566 | 12,710 | 22,479 | 9,778 | 21,385 | 28,393 | 12,686 | 17,090 | +--------------------------+--------+--------+--------+-------+---------+--------+--------+--------+ | | | | | | | | | | +--------------------------+--------+--------+--------+-------+---------+--------+--------+--------+ | Financial information | | | | | | | | | | (in thousands of US | | | | | | | | | | dollars) | | | | | | | | | +--------------------------+--------+--------+--------+-------+---------+--------+--------+--------+ | Sales ($) | 4,309 | 2,851 | 5,461 | 2,611 | 4,232 | 5,029 | 2,078 | 2,868 | +--------------------------+--------+--------+--------+-------+---------+--------+--------+--------+ | Gross profit ($) | 2,995 | 1,222 | 3,668 | 1,789 | 1,279 | 2,848 | 958 | 1,845 | +--------------------------+--------+--------+--------+-------+---------+--------+--------+--------+ | Amortisation and | 106 | 72 | 129 | 56 | (134) | 265 | 76 | 120 | | depletion ($) | | | | | | | | | +--------------------------+--------+--------+--------+-------+---------+--------+--------+--------+ Lead and zinc prices troughed in Q4 2008, and Q4 base metal revenues were impacted accordingly. In addition, $1.6 million of prior quarter pricing adjustments were made, further depressing base metal revenues.Revenues from the sale of Olympias gold concentrates benefitted from higher tonnages sold compared to Q3. Q4 unit operating costs of EUR109 per tonne remained the same as Q3. Benefits of the increase in throughput over Q3 were offset by higher repairs and maintenance costs incurred in the quarter. In dollar terms, the weakening euro reduced Q4 dollar costs by $19 to $145 per tonne from $164 per tonne in Q3. Summary of quarterly results The Company's financial results for the eight most recently completed quarters are summarised in the following table: +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | (in thousands of US | 2008 | 2008 | 2008 | 2008 | 2007 | 2007 | 2007 | 2007 | | dollars, | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | | except per share | $ | $ | $ | $ | $ | $ | $ | $ | | amounts) | | | | | | | | | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Statement of profit and | | | | | | | | | | loss | | | | | | | | | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Sales | 12,774 | 16,101 | 18,461 | 12,708 | 22,715 | 21,663 | 24,944 | 17,083 | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Cost of sales | 16,839 | 14,708 | 14,991 | 7,859 | 15,289 | 10,390 | 9,995 | 6,944 | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Gross profit | (4,065) | 1,393 | 3,470 | 4,849 | 7,426 | 11,273 | 14,949 | 10,139 | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Interest income | 1,164 | 1,306 | 1,502 | 1,757 | 2,699 | 2,320 | 1,116 | 453 | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Foreign | (6,253) | (2,800) | (27) | 2,674 | (2,173) | 6,494 | (265) | (152) | | exchange | | | | | | | | | | gain/(loss) | | | | | | | | | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Hedge | 3,165 | 1,362 | 391 | - | - | - | - | - | | contract | | | | | | | | | | profit | | | | | | | | | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Share of | (3) | (66) | (36) | - | - | - | - | - | | loss in | | | | | | | | | | equity | | | | | | | | | | investment | | | | | | | | | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Expenses | 5,253 | 6,054 | 5,058 | 5,017 | 6,385 | 4,819 | 4,875 | 4,764 | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Profit/(loss) | (11,245) | (4,859) | 242 | 4,263 | 1,567 | 15,268 | 10,925 | 5,676 | | before income | | | | | | | | | | tax | | | | | | | | | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Income | 17,067 | (451) | 644 | (621) | 2,062 | (2,764) | (2,796) | (1,719) | | taxes | | | | | | | | | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Profit/(loss) | 5,822 | (5,310) | 886 | 3,642 | 3,629 | 12,504 | 8,129 | 3,957 | | after income | | | | | | | | | | tax | | | | | | | | | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Non-controlling | 519 | 267 | (74) | (233) | (29) | (348) | (2,794) | (1,848) | | interest | | | | | | | | | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Profit/(loss) for the | 6,341 | (5,043) | 812 | 3,409 | 3,600 | 12,156 | 5,335 | 2,109 | | period | | | | | | | | | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Earnings/(loss) per | 0.04 | (0.03) | 0.00 | 0.02 | 0.02 | 0.07 | 0.04 | 0.02 | | share | | | | | | | | | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Balance sheet (end of | | | | | | | | | | period) | | | | | | | | | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Working capital | 192,675 | 208,609 | 216,822 | 225,673 | 226,431 | 224,289 | 211,637 | 45,201 | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Total assets | 766,095 | 775,369 | 796,537 | 794,911 | 782,131 | 744,998 | 729,774 | 325,501 | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Non current liabilities | 155,727 | 183,881 | 185,897 | 184,635 | 182,092 | 168,170 | 165,125 | 56,671 | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Statement of cash flows | | | | | | | | | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Deferred exploration and | 1,981 | 1,420 | 1,092 | 1,603 | 2,133 | 1,658 | 1,248 | 696 | | development costs - | | | | | | | | | | Romania | | | | | | | | | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Plant and equipment - | 12,998 | 2,971 | 3,065 | 7,147 | 3,779 | 12,142 | 4,673 | 1,577 | | Greece | | | | | | | | | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ | Deferred development | 545 | 519 | 656 | 769 | 915 | 491 | 520 | 421 | | costs - Greece | | | | | | | | | +-------------------------------+----------+---------+---------+---------+---------+---------+---------+---------+ Selected financial information The Company's financial results for the years ended 31 December 2008, 2007 and 2006, and the three-month periods ended 31 December 2008 and 2007 are summarised in the following table: +-------------------------------+----------+----------+----------+-------------+-------------+ | Years ended 31 December | Three-months ended 31 | | | December | +-----------------------------------------------------+------------------------+ | (in thousands of US | 2008 | 2007 | 2006 | 2008 | 2007 | | dollars) | $ | $ | $ | $ | $ | +-------------------------------+----------+----------+----------+-------------+-------------+ | Statement of profit and | | | | | | | loss | | | | | | +-------------------------------+----------+----------+----------+-------------+-------------+ | Sales | 60,044 | 86,405 | 52,438 | 12,774 | 22,715 | +-------------------------------+----------+----------+----------+-------------+-------------+ | Cost of sales | 54,397 | 42,618 | 25,186 | 16,839 | 15,289 | +-------------------------------+----------+----------+----------+-------------+-------------+ | Gross profit | 5,647 | 43,787 | 27,252 | (4,065) | 7,426 | +-------------------------------+----------+----------+----------+-------------+-------------+ | Interest Income | 5,729 | 6,588 | 1,445 | 1,164 | 2,699 | +-------------------------------+----------+----------+----------+-------------+-------------+ | Hedge | 4,918 | - | - | 3,165 | - | | contract | | | | | | | profit | | | | | | +-------------------------------+----------+----------+----------+-------------+-------------+ | Foreign | (6,406) | 3,904 | (752) | (6,253) | (2,173) | | exchange | | | | | | | gain/(loss) | | | | | | +-------------------------------+----------+----------+----------+-------------+-------------+ | Share of | 105 | - | - | 3 | - | | loss in | | | | | | | equity | | | | | | | investment | | | | | | +-------------------------------+----------+----------+----------+-------------+-------------+ | Expenses | 21,382 | 20,844 | 15,937 | 5,253 | 6,385 | +-------------------------------+----------+----------+----------+-------------+-------------+ | Profit/(loss) | (11,599) | 33,435 | 12,008 | (11,245) | 1,567 | | before income | | | | | | | tax | | | | | | +-------------------------------+----------+----------+----------+-------------+-------------+ | Income taxes | 16,639 | (5,217) | (4,824) | 17,067 | 2,062 | +-------------------------------+----------+----------+----------+-------------+-------------+ | Profit/(loss) | 5,040 | 28,218 | 7,184 | 5,822 | 3,629 | | after income | | | | | | | tax | | | | | | +-------------------------------+----------+----------+----------+-------------+-------------+ | Non-controlling | 479 | (5,019) | (4,182) | 519 | (29) | | interest | | | | | | +-------------------------------+----------+----------+----------+-------------+-------------+ | Profit for the period | 5,519 | 23,199 | 3,002 | 6,341 | 3,600 | +-------------------------------+----------+----------+----------+-------------+-------------+ | Earnings per share | 0.03 | 0.16 | 0.03 | 0.04 | 0.02 | +-------------------------------+----------+----------+----------+-------------+-------------+ | Balance sheet (end of | | | | | | | period) | | | | | | +-------------------------------+----------+----------+----------+-------------+-------------+ | Working capital | 192,675 | 226,431 | 41,854 | 192,675 | 226,431 | +-------------------------------+----------+----------+----------+-------------+-------------+ | Total assets | 766,095 | 782,131 | 311,943 | 766,095 | 782,131 | +-------------------------------+----------+----------+----------+-------------+-------------+ | Non current liabilities | 155,727 | 182,092 | 54,181 | 155,727 | 182,092 | +-------------------------------+----------+----------+----------+-------------+-------------+ | Statement of cash flows | | | | | | +-------------------------------+----------+----------+----------+-------------+-------------+ | Deferred exploration and | 6,096 | 5,735 | 3,294 | 1,981 | 2,133 | | development costs - | | | | | | | Romania | | | | | | +-------------------------------+----------+----------+----------+-------------+-------------+ | Plant and | 26,181 | 21,606 | 7,579 | 12,998 | 3,779 | | equipment - | | | | | | | Greece | | | | | | +-------------------------------+----------+----------+----------+-------------+-------------+ | Deferred | 2,489 | 2,347 | 4,032 | 545 | 915 | | development | | | | | | | costs - | | | | | | | Greece | | | | | | +-------------------------------+----------+----------+----------+-------------+-------------+ | | | | | | | +-------------------------------+----------+----------+----------+-------------+-------------+ The breakdown of deferred exploration and development costs per mineral property for the years ended 31 December 2008, 2007 and 2006, and the three-month periods ended 31 December 2008 and 2007 is as follows: +------------------------+-------+-----+-------+------+-------+-----+-------+-----+-------+-----+ | | Years ended 31 December |Three-month periods ended | | | | 31 December | | | | | +------------------------+------------------------------------------+---------------------------+ | | 2008 | 2007 | 2006 | 2008 | 2007 | +------------------------+-------------+--------------+-------------+-------------+-------------+ | (in thousands of US | $ | % | $ | % | $ | % | $ | % | $ | % | | dollars) | | | | | | | | | | | +------------------------+-------+-----+-------+------+-------+-----+-------+-----+-------+-----+ | Romanian mineral | | | | | | | | | | | | properties | | | | | | | | | | | +------------------------+-------+-----+-------+------+-------+-----+-------+-----+-------+-----+ | Certej | 5,674 | 93 | 5,305 | 92 | 2,965 | 90 | 1,806 | 91 | 1,935 | 91 | +------------------------+-------+-----+-------+------+-------+-----+-------+-----+-------+-----+ | Other | 422 | 7 | 430 | 8 | 329 | 10 | 175 | 9 | 198 | 9 | +------------------------+-------+-----+-------+------+-------+-----+-------+-----+-------+-----+ | | 6,096 | 100 | 5,735 | 100 | 3,294 | 100 | 1,981 | 100 | 2,133 | 100 | +------------------------+-------+-----+-------+------+-------+-----+-------+-----+-------+-----+ | Greek mineral | | | | | | | | | | | | properties | | | | | | | | | | | +------------------------+-------+-----+-------+------+-------+-----+-------+-----+-------+-----+ | Stratoni | 492 | 20 | 1,006 | 43 | 64 | 2 | (22) | (4) | 766 | 84 | +------------------------+-------+-----+-------+------+-------+-----+-------+-----+-------+-----+ | Skouries | 1,541 | 62 | 1,173 | 50 | 2,806 | 70 | 396 | 73 | 58 | 6 | +------------------------+-------+-----+-------+------+-------+-----+-------+-----+-------+-----+ | Olympias | 362 | 14 | 168 | 7 | 1,162 | 28 | 77 | 14 | 91 | 10 | +------------------------+-------+-----+-------+------+-------+-----+-------+-----+-------+-----+ | Other | 94 | 4 | - | - | - | - | 94 | 17 | - | - | +------------------------+-------+-----+-------+------+-------+-----+-------+-----+-------+-----+ | | 2,489 | 100 | 2,347 | 100 | 4,032 | 100 | 545 | 100 | 915 | 100 | +------------------------+-------+-----+-------+------+-------+-----+-------+-----+-------+-----+ | Total | 8,585 | | 8,082 | | 7,326 | | 2,526 | | 3,048 | | +------------------------+-------+-----+-------+------+-------+-----+-------+-----+-------+-----+ | | | | | | | | | | | | +------------------------+-------+-----+-------+------+-------+-----+-------+-----+-------+-----+ | | | | | | | | | | | | +------------------------+-------+-----+-------+------+-------+-----+-------+-----+-------+-----+ The Certej exploitation licence and the Baita-Craciunesti exploration licence are held by the Company's 80%-owned subsidiary, Deva Gold S.A. ("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. 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. The Company recorded a loss (before tax) of $11.60 million for the year ended 31 December 2008, compared to a profit (before tax) of $33.44 million for the year ended 31 December 2007. The Company recorded a net profit (after tax and non-controlling interest) of $5.52 million ($0.03 per share) for the year ended 31 December 2008, compared to a net profit of $23.20 million ($0.16 per share) for the year ended 31 December 2007. The Company recorded a loss (before tax) of $11.25 million for the three-month period ended 31 December 2008, compared to a profit (before tax) of $1.57 million for the three-month period ended 31 December 2007. The Company recorded a net profit (after tax and non-controlling interest) of $6.34 million ($0.04 per share) for the three-month period ended 31 December 2008, compared to a net profit of $3.60 million ($0.02 per share) for the three-month period ended 31 December 2007. The following factors have contributed to the above: * The key revenue drivers have been commodity prices, lead grades and sale of gold concentrate: during 2008, the price of zinc which is the primary sales product from the Stratoni mine, averaged approximately $1,900 per tonne. This was substantially lower than in 2007 during which the zinc price averaged almost $3,250 per tonne. Quarter on quarter, the change was even more extreme: the zinc price averaged $1,360 per tonne for the three months ended 31 December 2008, compared to $2,720 for the comparable period in 2007. The lead price suffered the same trend: the lead price averaged approximately $2,094 per tonne in 2008 compared to $2,570 per tonne in 2007. However the quarterly change was even more severe than the trend in zinc: the lead price averaged $1,420 per tonne for the three months ended 31 December 2008, compared to $3,220 for the comparable period in 2007. In Q4 2008, revenues were also reduced by $1.6 million as a result of price adjustments to prior quarter sales. Hellas Gold's Stratoni mine was operating at substantially higher levels during 2008 than in 2007, with mine ore production increasing 26% and mill throughput increasing 25%. However, lower grades for lead in 2008 meant that lead concentrate production and sales were at similar levels to 2007, but with lower levels of profitability. In 2008, Hellas Gold sold 63,533 tonnes of gold bearing pyrite concentrates from Olympias, a reduction of 20% compared to the same period of 2007 but higher gold prices more than offset this fall in volumes and resulted in higher gold revenues. In Q4 2008, sales of gold concentrate were only down 13% compared to the same period in 2007. However, higher gold prices contributed to an increase of 2% in gold revenues. Overall, lower base metal prices and grades outweighed any benefits from the higher gold prices, with the result that revenues and profitability declined during 2008 and in Q4 2008 compared to the same periods of 2007. * As a result, the Company recorded a gross profit of $5.65 million in 2008 and a gross loss of $4.07 million in Q4 2008, on revenues of $60.04 million and $12.77 million, respectively, compared to a gross profit of $43.79 million in 2007 and $7.43 million in Q4 2007, on revenues of $86.41 million and $22.72 million, respectively. Cost of sales of $54.40 million in 2008 and $16.84 million in Q4 2008, compared to $42.62 million and $15.29 million, respectively, for the same periods of 2007, reflect the higher tonnages mined and processed, and include approximately $0.90 million write down of concentrate stockpiles to net realisable value. Cost of sales in 2008 also included $5.97 million in amortisation and depletion expenses, compared to $5.07 million for the same period of 2007. * The Company's corporate administrative and overhead expenses have increased from $4.30 million in 2007 and decreased from $1.70 million in Q4 2007, to $4.86 million and $0.94 million, respectively, for the same periods of 2008.Year on year this reflects higher general levels of corporate activity and higher wage costs compared to the prior period, although Q4 2008 was affected by the reversal of unutilised provisions at the year end, whilst Q4 2007 had been increased by the employer's tax liability on RSUs which vested in that quarter. * The Company recorded a non-cash equity-based compensation expense of $2.90 million in 2008 and $1.35 million in Q4 2008, compared to $1.80 million and $0.29 million, respectively, for the same periods of 2007.In 2008, the Company continued a practice of recharging some of its equity-based compensation expense to its operating subsidiaries, a portion of which is capitalised by such subsidiaries. In Q4 2008, the company issued DPUs to its non-executive directors which resulted in the related expense being recognised in the same quarter. * The Company recorded a foreign exchange loss of $6.41 million in 2008 and a foreign exchange loss of $6.25 million in Q4 2008. The Q4 loss resulted from the translation of Euro working capital balances held by Hellas Gold into a US dollar functional currency, and occurred mainly from the end of Q3 2008 and throughout Q4 2008 during a period of rapid Euro weakness against the US dollar. In contrast, the Company realised a foreign exchange gain of $3.90 million in 2007, and a loss of $2.17 million in Q4 2007 as the Company gained from holding a basket of Sterling, Canadian dollars and Euros compared to its reporting currency of the US dollar. * Hellas Gold's administrative and overhead expenses amounted to $7.62 million in 2008 and $1.42 million in Q4 2008, compared to $9.83 million and $3.17 million, respectively, for the same periods of 2007. Hellas Gold's administrative and overhead expenses include the costs of the Athens based office, environmental, water treatment and other expenses not directly attributable to the Stratoni operation. The change in these costs relate primarily to reduction in cost of various projects in communities around the mine. * Hellas Gold incurred an expense of $5.19 million in 2008 and $1.33 million in Q4 2008, compared to $4.32 million and $1.07 million, respectively, for the same periods of 2007, for ongoing water pumping and treatment at its non-operating mines of Olympias and Stratoni (Madem Lakkos), in compliance with Hellas Gold's commitment to the environment under its contract with the Greek State. The increase in 2008 relates to higher costs incurred accessing old voids at Madem Lakkos to allow backfilling activities to continue. * The Company recorded a credit for income taxes of $16.64 million in 2008 and $17.07 million in Q4 2008, compared to a charge of $5.22 million and a credit of $2.06 million, respectively, for the same periods of 2007. Recent legislation phasing a reduction in the Greek corporate tax rate from 25% to 20% in 2014 has required the Company to restate its future tax liability relating to its Greek Mineral Properties using the new lower future tax rates. This resulted in a reduction in the future tax liability of $17.6 million which was credited against the tax provision in the income statement in Q4 2008. In addition losses in 2008 meant that Hellas Gold recorded a further credit against current tax for the year. Higher metal prices and profitability in the prior years led to higher charges for taxation. The credit in Q4 2007 arose as a result of the company recognising a tax asset as confidence increased that brought forward tax losses would be utilised. * The Company recorded a credit of $0.48 million in 2008 and a credit of $0.52 million in Q4 2008 relating to the non-controlling shareholder's interest in Hellas Gold's loss (after tax), compared to charges of $5.02 million and $0.03 million, respectively, for the same periods of 2007, reflecting the change in profitability at Hellas Gold resulting from the decline in base metal prices during 2008. Liquidity and capital resources As at 31 December 2008, the Company had cash and cash equivalents of $170.30 million, compared to $218.84 million as at 31 December 2007, and working capital of $192.68 million, compared to $226.43 million as at 31 December 2007. The decrease in cash and cash equivalents as at 31 December 2008, compared to the balances as at 31 December 2007, resulted primarily from capital expenditure in Greece ($26.18 million), payment of taxation ($10.33 million), the effect of foreign currency translation on cash ($6.29 million), deferred exploration and development costs in Romania ($6.1 million), the purchase of land ($2.71 million), investment in an associate ($2.69 million), operating cash flow ($1.66 million) and deferred development costs in Greece ($2.49 million), offset by changes in working capital balances ($2.00 million), advanced sales proceeds from offtakers ($3.56 million) and release of restricted investment ($4.90 million). The following table sets forth the Company's contractual obligations including payments due for each of the next five years and thereafter: +----------------------------+-----------+-------------+------------+------------+------------+ | Payments due by period | +--------------------------------------------------------------------------------+ | (in thousands of US dollars) | +--------------------------------------------------------------------------------+ | Contractual | Total | Less than 1 | 2 - 3 | 4 - 5 | After 5 | | obligations | | year | years | years | years | | | | | | | | +----------------------------+-----------+-------------+------------+------------+------------+ | Operating lease | 945 | 180 | 360 | 360 | 45 | | (London office) | | | | | | +----------------------------+-----------+-------------+------------+------------+------------+ | Operating | 1,157 | 145 | 289 | 289 | 434 | | lease | | | | | | | (Athens | | | | | | | office) | | | | | | +----------------------------+-----------+-------------+------------+------------+------------+ | Outotec | 32,722 | 32,722 | - | - | - | | OT - | | | | | | | Processing | | | | | | | Plant | | | | | | +----------------------------+-----------+-------------+------------+------------+------------+ | Total contractual | 34,824 | 33,047 | 649 | 649 | 479 | | obligations | | | | | | +----------------------------+-----------+-------------+------------+------------+------------+ In 2009, the Company expects to spend a total of $51 million in capital expenditures to fund the development of its project portfolio. This amount comprises $5 million at its existing operation at Stratoni to complete the expansion of the internal underground infrastructure at Mavres Petres and upgrade the mill, $10 million at Olympias as part of the refurbishment of the mine and process plant, and $30 million at Skouries as the Company expects to continue to spend on long lead time equipment and engineering studies. At Certej, the Company expects to spend $6 million as it progresses through the final stages of environmental permitting, advances through the basic and detailed engineering phases and continues exploration around Certej. In addition to its capital expenditure programme, the Company expects to spend $3 million in exploration over the wider licence area in Greece and Turkey, $9 million on Hellas Gold administrative and overhead and water treatment expenses, and $5 million on corporate administrative and overhead expenses. The Company expects to fund all such costs from existing cash balances and operating cash flow generated from its Hellas Gold operations. Transactions with related parties During the year ended 31 December 2008, Hellas Gold incurred costs of $41.85 million (2007 - $27.89 million) for management, technical and engineering services received from a related party, Aktor S.A., a 5% shareholder in Hellas Gold. As at 31 December 2008, Hellas Gold had accounts payable of $3.63 million (2007 - $2.13 million) to Aktor S.A. These expenditures were contracted in the normal course of operations and are recorded at the exchange amount agreed by the parties. Critical accounting estimates The consolidated financial statements have been prepared on a going concern basis in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"), which assumes the Company will be able to realise assets and discharge liabilities in the normal course of business for the foreseeable future. The consolidated financial statements do not include the adjustments that would be necessary should the Company be unable to continue as a going concern and reflect the following critical accounting estimates. Deferred exploration and development costs - Acquisition costs of resource properties, together with direct exploration and development costs incurred thereon, are deferred and capitalised. Upon reaching commercial production, these capitalised costs are transferred from exploration properties to producing properties on the consolidated balance sheets and are amortised into operations using the unit-of-production method over the estimated useful life of the estimated related ore reserves. Based on annual impairment reviews made by management, in the event that the long-term expectation is that the net carrying amount of these capitalised exploration and development costs will not be recovered such as would be indicated where: - Producing properties: * the carrying amounts of the capitalised costs exceed the related undiscounted net cash flows of reserves; - Exploration properties: * exploration activities have ceased; * exploration results are not promising such that exploration will not be planned for the foreseeable future; * lease ownership rights expire; or * insufficient funding is available to complete the exploration program; then the carrying amount is written down to fair value accordingly and the write-down amount charged to operations. Impairment of long-lived assets - All long-lived assets and intangibles held and used by the Company are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If changes in circumstances indicate that the carrying amount of an asset that an entity expects to hold and use may not be recoverable, future cash flows expected to result from the use of the asset and its disposition must be estimated. If the undiscounted value of the future cash flows is less than the carrying amount of the asset, impairment is recognised based on the fair value of the assets. Asset retirement obligation - The fair value of the liability of an asset retirement obligation is recorded when it is legally incurred and the corresponding increase to the mineral property is depreciated over the life of the mineral property. The liability is adjusted over time to reflect an accretion element considered in the initial measurement at fair value and revisions to the timing or amount of original estimates and drawdowns as asset retirement expenditures are incurred. As at 31 December 2008 and 2007, the Company had an asset retirement obligation relating to its Stratoni property in Greece. Revenue recognition - Revenues from the sale of concentrates are recognised and are measured at market prices when the rights and obligations of ownership pass to the customer. A number of the Company's concentrate products are sold under pricing arrangements where final prices are determined by quoted market prices in a period subsequent to the date of sale. These concentrates are provisionally priced at the time of sale based on forward prices for the expected date of the final settlement. The terms of the contracts result in non-hedge derivatives that do not qualify for hedge accounting treatment, because of the difference between the provisional price and the final settlement price. These embedded derivatives are adjusted to fair value through revenue each period until the date of final price determination. Subsequent variations in the price are recognised as revenue adjustments as they occur until the price is finalised. Equity-based compensation - The Company operates a share option plan, a restricted share unit plan and a deferred phantom unit plan. The Company accounts for equity-based compensation granted under such plans using the fair value method of accounting. Under such method, the cost of equity-based compensation is estimated at fair value and is recognised in the profit and loss statement as an expense, or capitalised to deferred exploration and development costs when the compensation can be attributed to mineral properties. This cost is recognised over the relevant vesting period for grants to directors, officers and employees, and measured in full at the earlier of performance completed or vesting for grants to non-employees. Any consideration received by the Company on exercise of share options is credited to share capital. Estimates, risks and uncertainties - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Significant estimates and assumptions include those related to the recoverability of deferred exploration, development costs for mineral properties, asset retirement obligations and equity based compensation. While management believes that these estimates and assumptions are reasonable, actual results could vary significantly. Significant changes in accounting policies Capital Disclosures - 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 additional requirement requires management to make an assessment of the Company's ability to continue as a going concern and to disclose any material uncertainties related to events or conditions that may cast significant doubt upon the entity'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 are a replacement of and represent a revision and enhancement to Section 3861 - Financial instruments - 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. Change in functional currency - 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 costs. 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 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 was effective 1 January 2008 and applied prospectively. 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. As part of the plan, the Company has appointed a team within the group finance function to assess and implement the conversion process, and key personnel have received IFRS training. The Company benefits from having members of the finance function at the subsidiary level who are already experienced in the preparation of IFRS accounts. The team has already identified the material differences between IFRS and Canadian GAAP, and the process of identifying other areas of potential differences is near completion. The Company has already been preparing a detailed reporting pack under IFRS on a quarterly basis. This IFRS pack includes accounting adjustments for all material differences between IFRS and Canadian GAAP, with the exception of IFRS 1. During 2009, the team will focus on preparation for the implementation of IFRS 1, and the increased level of IFRS disclosure compared to Canadian GAAP. Disclosure controls and procedures & internal control over financial reporting The Chief Executive Officer and the Chief Financial Officer of the Company (the "Certifying Officers") have established and maintained in the year ended 31 December 2008 disclosure controls and procedures ("DC&P") and internal control over financial reporting ("IFCR") for the Company. The Certifying Officers have caused DC&P, as defined in National Instrument 52-109 ("NI 52-109"), to be designed under their supervision, to provide reasonable assurance that material information relating to the Company and its subsidiaries is made known to the Certifying Officers by others within those entities, as appropriate to allow decisions regarding required disclosure within the time periods specified by legislation, particularly during the period in which interim and annual filings are being prepared. The Certifying Officers have evaluated the effectiveness of the Company's DC&P as at 31 December 2008. Based upon that evaluation, the Certifying Officers have concluded that the DC&P are adequate and effective for the year ended 31 December 2008. The Certifying Officers have caused internal control over financial reporting, as defined in NI 52-109, to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. As of December 31, 2008 the Certifying Officers assessed the effectiveness of the Company's internal control over financial reporting using the criteria contained in the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon that evaluation, the Certifying Officers concluded that the internal controls and procedures are adequate and effective for the year ended 31 December 2008. During the year ended 31 December 2008, there has been no change in the Company's internal control over financial reporting that have materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. The Certifying Officers believe that disclosure controls and procedures and internal control systems can only provide reasonable assurance, and not absolute assurance, that such objectives are met. Outstanding share data The following represents all equity shares outstanding and the numbers of common shares into which all securities are convertible, exercisable or exchangeable as at 18 March 2009: Common shares:179,807,381 Common share options:3,241,665 Restricted share units: 614,779 Common shares (fully-diluted):183,663,825 Preferred shares: Nil Outlook Reference is made to the Company's news release dated 19 March 2009 which accompanies this Management's Discussion and Analysis. Risks and uncertainties The risks and uncertainties affecting the Company, its subsidiaries and their business are discussed in the Company's Annual Information Form for the year ended 31 December 2008, filed on SEDAR at www.sedar.com. This information is provided by RNS The company news service from the London Stock Exchange END FR KGGMFKLVGLZG
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