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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 |
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RNS Number:4753T
European Goldfields Ltd
22 March 2007
Immediate Release 22 March 2007
European Goldfields Limited
Consolidated Financial Statements
(Audited)
31 December 2006 and 2005
Management's Responsibility for Consolidated Financial Statements
The accompanying consolidated financial statements of European Goldfields
Limited are the responsibility of management and have been approved by the Board
of Directors of the Company. The consolidated financial statements include some
amounts that are based on management's best estimate using reasonable judgment.
The consolidated financial statements have been prepared by management in
accordance with Canadian generally accepted accounting principles.
Management maintains an appropriate system of internal controls to provide
reasonable assurance that transactions are authorised, assets safeguarded and
proper records are maintained.
The Audit Committee of the Board of Directors has met with the Company's
external auditors to review the scope and results of the annual audit and to
review the consolidated financial statements and related financial reporting
matters prior to submitting the consolidated financial statements to the Board
of Directors for approval.
The consolidated financial statements have been audited by BDO Dunwoody LLP,
Chartered Accountants, and their report follows.
(s) David Reading (s) Timothy Morgan-Wynne
David Reading Timothy Morgan-Wynne
Chief Executive Officer Chief Financial Officer
Auditors' Report to the Shareholders of European Goldfields Limited
We have audited the consolidated balance sheets of European Goldfields Limited
as at 31 December 2006 and 2005 and the consolidated statements of profit and
loss, equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether these consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in these consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at 31 December 2006
and 2005 and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.
(s) BDO Dunwoody LLP
Chartered Accountants
Toronto, Canada
1 March 2007
Consolidated Balance Sheets
As at 31 December 2006 and 2005
(in thousands of US Dollars, except per share
amounts) 2006 2005
Note $ $
Assets
Current assets
Cash and cash equivalents 34,587 30,536
Accounts receivable 3 14,945 5,186
Prepaid expenses 1,270 129
Inventory 4 854 1,902
51,656 37,753
Non current assets
Plant and equipment 5 27,007 19,374
Deferred exploration and development costs 6
Greek production stage mineral properties 14,677 10,129
Greek development stage mineral properties 182,157 162,738
196,834 172,867
Romanian development stage mineral properties 31,782 27,843
228,616 200,710
Restricted investment 7 3,926 3,543
Future tax asset 8 738 5,238
311,943 266,618
Liabilities
Current liabilities
Accounts payable and accrued liabilities 9 9,802 3,988
Non current liabilities
Future tax liability 8 48,150 43,261
Non-controlling interest 20,422 14,239
Asset retirement obligation 10 6,031 5,307
74,603 62,807
Shareholders' equity
Capital stock 11 246,890 240,234
Contributed surplus 11 7,135 6,197
Cumulative translation adjustment 4,276 (12,843)
Deficit (30,763) (33,765)
227,538 199,823
311,943 266,618
The accompanying notes are an integral part of these consolidated financial
statements.
Approved by the Board of Directors
(s) Timothy Morgan-Wynne (s) Jeffrey O'Leary
Timothy Morgan-Wynne, Director Dr Jeffrey O'Leary, Director
Consolidated Statements of Profit and Loss
For the years ended 31 December 2006 and 2005
(in thousands of US Dollars, except per share
amounts)
2006 2005
Note $ $
Income
Sales 52,438 1,521
Cost of sales (including amortisation and depletion
of $3,225 in 2006) (25,186) (1,367)
--------- ---------
Gross profit 27,252 154
--------- ---------
Other income
--------- ---------
Interest income 1,445 1,263
--------- ---------
Expenses
Corporate administrative and overhead expenses 2,534 3,147
Equity based compensation expense 2,810 1,823
Foreign exchange loss 752 937
Hellas Gold administrative and overhead expenses 5,504 2,113
Hellas Gold water treatment expenses (non-operating
mines) 2,698 3,848
Hellas Gold non-recurring rehabilitation cost
(Stratoni mine) 1,630 -
Accretion of asset retirement obligation 10 111 267
Amortisation 650 236
Impairment of mineral properties - 2,362
--------- ---------
16,689 14,733
--------- ---------
--------- ---------
Profit/(loss) for the year before income tax 12,008 (13,316)
Income taxes 8
Current taxes - -
Future taxes - reduction of future tax asset 4,824 (1,694)
--------- ---------
4,824 (1,694)
--------- ---------
--------- ---------
Profit/(loss) for the year before non-controlling
interest 7,184 (11,622)
Non-controlling interest (4,182) 1,212
--------- ---------
Profit/(loss) for the year 3,002 (10,410)
Deficit - Beginning of year (33,765) (23,355)
--------- ---------
Deficit - End of year (30,763) (33,765)
--------- ---------
Earnings/(loss) per share 17
Basic 0.03 (0.09)
Diluted 0.03 (0.09)
Weighted average number of shares (in thousands)
Basic 113,539 112,098
Diluted 115,719 112,098
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Equity
As at 31 December 2006 and 2005
(in thousands of US Dollars, except per share amounts)
Capital Contributed Cumulative Deficit Total
Stock Surplus Translation $ $
$ $ Adjustment
$
--------- --------- --------- --------- ---------
Balance - 31 December
2004 238,420 5,589 8,964 (23,355) 229,618
--------- --------- --------- --------- ---------
Equity based
compensation expense - 2,265 - - 2,265
Share options
exercised 287 (117) - - 170
or exchanged
Milestone shares
issued 725 (725) - - -
as compensation
Share issue costs (13) - - - (13)
Movement in cumulative
translation adjustment - - (21,807) - (21,807)
Restricted share units
vested 815 (815) - - -
Loss for the period - - - (10,410) (10,410)
--------- --------- --------- --------- ---------
1,814 608 (21,807) (10,410) (29,795)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Balance - 31 December
2005 240,234 6,197 (12,843) (33,765) 199,823
--------- --------- --------- --------- ---------
Equity based
compensation expense - 5,099 - - 5,099
Restricted share units
vested 2,071 (2,071) - - -
Share options
exercised 4,585 (2,090) - - 2,495
or exchanged
Movement in cumulative
translation adjustment - - 17,119 - 17,119
Profit for the period - - - 3,002 3,002
--------- --------- --------- --------- ---------
6,656 938 17,119 3,002 27,715
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Balance - 31 December
2006 246,890 7,135 4,276 (30,763) 227,538
--------- --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Cash Flows
For the years ended 31 December 2006
and 2005(in thousands of US Dollars, except per share amounts)
2006 2005
Note $ $
Cash flows from operating activities
Profit/(loss) for the year 3,002 (10,410)
Foreign exchange loss 568 1,384
Amortisation 2,189 364
Equity based compensation expense 2,810 1,956
Impairment of mineral properties - 2,362
Accretion of asset retirement obligation 10 111 267
Future tax asset recognised 4,823 (1,729)
Non-controlling interest 4,182 (1,212)
Depletion of mineral properties 6 1,685 69
--------- ---------
19,370 (6,949)
Net changes in non-cash working capital 13 (3,995) (4,769)
--------- ---------
15,375 (11,718)
--------- ---------
Cash flows from investing activities
Deferred exploration and development costs - Romania (3,294) (3,901)
Plant and equipment - Greece (7,579) (7,839)
Deferred development costs - Greece (4,032) (2,840)
Proceeds from disposal of equipment - 42
Purchase of equipment (166) (219)
Restricted investment 23 (3,543)
--------- ---------
(15,048) (18,300)
--------- ---------
Cash flows from financing activities
Proceeds from exercise of share options 2,495 170
Share issue costs - (14)
--------- ---------
2,495 156
--------- ---------
Effect of foreign currency translation on cash 1,229 (4,855)
--------- ---------
Increase/(decrease) in cash and cash equivalents 4,051 (34,717)
Cash and cash equivalents - Beginning of year 30,536 65,253
--------- ---------
Cash and cash equivalents - End of year 34,587 30,536
--------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
Notes to Consolidated Financial Statements
For the years ended 31 December 2006 and 2005
(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 65% interest in Hellas Gold S.A ("Hellas Gold").
Hellas Gold owns the three major gold and base metal deposits of Stratoni,
Skouries and Olympias in Northern Greece.
Hellas Gold commenced production at Stratoni in September 2005 and selling an
existing stockpile of Olympias gold concentrates in July 2006. Hellas Gold is
applying for permits to develop the Skouries and Olympias projects.
Romania - The Company owns 80% of the Certej gold/silver project in Romania. The
Company submitted in March 2007 a technical feasibility study to the Romanian
government, in support of a permit application to develop the 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 consolidated financial statements have been prepared on the going concern
basis in accordance with accounting principles generally accepted in Canada
("Canadian GAAP") and reflect the following significant accounting policies.
Basis of consolidation
Business acquisitions are accounted for under the purchase method and the
results of operations of these businesses are included in these consolidated
financial statements from the acquisition date. Investments in affiliated
companies over which the Company has significant influence are accounted for
using the equity method. Investments in other businesses are recorded at cost.
These consolidated financial statements include the accounts of the Company and
the following subsidiaries:
Company Country of Ownership
incorporation
European Goldfields (Services) Limited England 100% owned
Deva Gold (Barbados) Ltd Barbados 100% owned
Castle Europa Ltd * Barbados 100% owned
Deva Gold S.A. Romania 80% owned
European Goldfields Deva SRL Romania 100% owned
European Goldfields Mining (Netherlands) B.V. Netherlands 100% owned
European Goldfields (Greece) B.V. Netherlands 100% owned
Global Mineral Resources Limited * Barbados 100% owned
Global Mineral Resources Holdings S.a.r.l.** Luxembourg 100% owned
Global Mineral Resources S.a.r.l.** Luxembourg 100% owned
Hellas Gold S.A. Greece 65% owned
* Dissolved during the financial year ended 31 December 2005.
** Dissolved during the financial year ended 31 December 2006.
The 20% minority interest held in the Company's 80% owned subsidiary, Deva Gold
S.A. ("Deva Gold"), is not accounted for in these consolidated financial
statements. The basis for this treatment is that the Company is required to fund
100% of all costs related to the exploration and development of the mineral
properties held by Deva Gold. 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.
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 and development costs for mineral properties.
While management believes that these estimates and assumptions are reasonable,
actual results could vary significantly.
Income taxes
Income taxes are calculated using the asset and liability method of tax
accounting. Under this method, current income taxes are recognised for the
estimated income taxes payable for the current period.
Future income tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities, and are
measured using the substantially enacted tax rates and laws that will be in
effect when the differences are expected to reverse. The benefit of the
temporary differences is not recognised to the extent the recoverability of
future income tax assets is not considered more likely than not.
Plant and equipment
Plant and equipment are recorded at cost less accumulated amortisation.
Amortisation is calculated on a straight-line basis based on a useful life of
three years for office equipment, six years for vehicles, ten years for
leasehold improvements, at rates varying between three and five years for
exploration equipment and at rates varying between four and 20 years for
buildings. Amortisation for equipment used for exploration and development are
capitalised to mineral properties.
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.
Foreign currency translation
The Company's functional currency is the United States dollar. Monetary assets
and liabilities denominated in foreign currencies are translated at the exchange
rate in effect at the balance sheet date. Non-monetary assets and liabilities
and revenue and expenses arising from foreign currency transactions are
translated at the exchange rate in effect at the date of the transaction.
Exchange gains or losses arising from the translation are included in
operations.
Integrated foreign subsidiaries are accounted for under the temporal method.
Under this method, monetary assets and liabilities are translated at the
exchange rate in effect at the balance sheet date. Non-monetary assets and
liabilities are translated at historical rates. Revenue and expenses are
translated at average rates for the period. Exchange gains or losses arising
from the translation are included in operations except for those related to
mineral properties which are capitalised. The Company accounts for all
subsidiaries except Hellas Gold as integrated foreign subsidiaries.
Self-sustaining foreign subsidiaries are accounted for under the current rate
method. Under this method, all assets and liabilities are translated at the
exchange rate in effect at the balance sheet date. Revenue and expenses are
translated at actual or average rates for the period. Exchange gains or losses
arising from the translation are recorded in equity in the cumulative
translation adjustment account. The Company accounts for Hellas Gold as a
self-sustaining foreign subsidiary.
Revenue recognition
Revenues from the sale of concentrates are recognised and are recorded at market
prices when title transfers and 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, if material, 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.
Earnings per share ("EPS")
EPS is calculated based on the weighted average number of common shares issued
and outstanding during 2006 being 113,538,772 (2005 - 112,098,010). Diluted per
share amounts are calculated using the treasury stock method whereby proceeds
deemed to be received on the exercise or exchange of share options and warrants
and on the granting of restricted share units in the per share calculation are
applied to reacquire common shares.
Financial instruments
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, restricted investments, future income tax assets and
liabilities, accounts payable and accrued liabilities.
Unless otherwise noted, it is management's opinion that the Company is not
exposed to significant interest or credit risks arising from these financial
instruments. The fair values of these financial instruments approximate their
carrying values unless otherwise noted.
The Company's operations expose it to significant fluctuations in foreign
exchange rates. The Company has monetary assets and liabilities denominated in
British pounds sterling, Romanian lei, euros and Canadian dollars, which are,
therefore, subject to exchange variations against the reporting currency, the
United States dollar. Included in cash and cash equivalents is approximately
$2,859 denominated in euros.
The Company does not currently have any hedging policies or practices in place.
Equity-based compensation
The Company operates a share option plan and a restricted share 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 amortised over the relevant vesting period for grants to directors, officers
and employees, and recorded in full on the date of grant for grants to
non-employees. Any consideration received by the Company on exercise of share
options is credited to share capital.
Cash and cash equivalents
Cash and cash equivalents include cash and deposits with original maturities of
three months or less.
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 increased over time to reflect an accretion element considered
in the initial measurement at fair value. As at 31 December 2006, the Company
had an asset retirement obligation relating to its Stratoni property in Greece.
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.
Inventory
Inventories of ore mined and metal concentrates are valued at the lower of
combined production cost and net realisable value. Production costs include the
costs directly related to bringing the inventory to its current condition and
location, such as materials, labour, mine site overheads, related depreciation
of mining and processing facilities, related depletion of mineral properties and
deferred exploration and development costs. Exploration materials and supplies
are valued at the lower of cost and net realisable value.
3. Accounts receivable, prepaid expenses and supplies
This balance comprises the following:
2006 2005
$ $
Value added taxes recoverable 8,079 2,950
Accounts receivable 6,866 2,236
--------- ---------
14,945 5,186
--------- ---------
4. Inventory
This balance comprises the following:
2006 2005
$ $
Ore mined 225 583
Metal concentrates 154 1,274
Material and supplies 475 45
--------- ---------
854 1,902
--------- ---------
5. Plant and equipment
Exploration / Vehicles Land and Leasehold Total
office buildings Improvements
equipment
$ $ $ $ $
Cost - 2005
At 31 December
2004 1,389 1,121 11,379 219 14,108
Additions 4,318 190 3,546 4 8,058
Disposals - (42) - - (42)
Currency
translation
adjustment (148) (135) (1,523) - (1,806)
-------- -------- -------- ---------- --------
At 31 December
2005 5,559 1,134 13,402 223 20,318
-------- -------- -------- ---------- --------
Accumulated
amortisation -
2005
At 31 December
2004 132 262 16 11 421
Provision for
the year 321 150 134 22 627
Disposals - - - - -
Currency
translation
adjustment (33) (40) (31) - (104)
-------- -------- -------- ---------- --------
At 31 December
2005 420 372 119 33 944
-------- -------- -------- ---------- --------
-------- -------- -------- ---------- --------
Net book value
at 31 December
2005 5,139 762 13,283 190 19,374
-------- -------- -------- ---------- --------
Cost - 2006
At 31 December 2005 5,559 1,134 13,402 223 20,318
Additions 7,059 - 653 33 7,745
Disposals (2) - - - (2)
Currency translation adjustment 604 102 1,554 - 2,260
-------- -------- -------- ---------- --------
At 31 December 2006 13,220 1,236 15,609 256 30,321
-------- -------- -------- ---------- --------
Accumulated amortisation - 2006
At 31 December 2005 420 372 119 33 944
Provision for the year 1,170 265 699 26 2,160
Disposals (1) - - - (1)
Currency translation adjustment 92 52 67 - 211
-------- -------- -------- ---------- --------
At 31 December 2006 1,681 689 885 59 3,314
-------- -------- -------- ---------- --------
-------- -------- -------- ---------- --------
Net book value at 31 December 11,539 547 14,724 197 27,007
2006 -------- -------- -------- ---------- --------
6. Deferred exploration and development costs
Greek mineral properties:
Stratoni Olympias Skouries Total
$ $ $ $
---------- ---------- ----------- ---------
Balance - 31 December 2004 16,108 108,068 71,631 195,807
---------- ---------- ----------- ---------
Deferred development costs 421 1,939 687 3,047
Depletion of mineral properties (168) - - (168)
Currency translation adjustment (1,500) (14,625) (9,694) (25,819)
---------- ---------- ----------- ---------
(1,247) (12,686) (9,007) 22,940
---------- ---------- ----------- ---------
Balance - 31 December 2005 14,861 95,382 62,624 172,867
---------- ---------- ----------- ---------
Deferred development costs 167 1,531 4,069 5,767
Depletion of mineral properties (1,527) (81) - (1,608)
Currency translation adjustment 1,176 11,246 7,386 19,808
---------- ---------- ----------- ---------
(184) 12,696 11,455 23,967
---------- ---------- ----------- ---------
Balance - 31 December 2006 14,677 108,078 74,079 196,834
---------- ---------- ----------- ---------
The Stratoni, Skouries and Olympias properties are held by the Company's
65%-owned subsidiary, Hellas Gold. In September 2005, the Stratoni property
commenced production.
Romanian mineral properties:
Certej Bolcana Baita-Craciunes Voia Cainel Total
ti
$ $ $ $ $ $
-------- -------- -------- -------- -------- --------
Balance - 31
December 2004 21,031 2,279 2,567 455 - 26,332
-------- -------- -------- -------- -------- --------
Drilling and
assaying 487 10 157 1 396 1,051
Geosciences and
tech.
consulting 429 20 48 25 189 711
Samplers,
miners and
surveying 89 8 6 - 153 256
Project
management 269 1 (8) 24 78 364
Project
overhead 995 31 165 7 161 1,359
Amortisation 100 13 13 1 5 132
Impairment of
mineral
properties - (2,362) - - - (2,362)
-------- -------- -------- -------- -------- --------
2,369 (2,279) 381 58 982 1,511
-------- -------- -------- -------- -------- --------
Balance - 31
December 2005 23,400 - 2,948 513 982 27,843
-------- -------- -------- -------- -------- --------
Drilling and assaying 802 - 9 109 2 922
Geosciences and tech. 685 - 38 70 7 800
consulting
Samplers, miners and 55 - 5 5 - 65
surveying
Project management 266 - 6 28 - 300
Project overhead 1,581 - 50 118 11 1,760
Amortisation 73 - 8 1 10 92
-------- -------- -------- -------- -------- --------
3,462 - 116 331 30 3,939
-------- -------- -------- -------- -------- --------
Balance - 31 December 2006 26,862 - 3,064 844 1,012 31,782
-------- -------- -------- -------- -------- --------
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.
Effective 31 December 2005, the Company relinquished its exploitation license
for the Bolcana perimeter in Romania and a provision for the costs of this
property was recorded.
Individual property spending commitments for each of the Company's Romanian
licences have been met as at 31 December 2006.
7. Restricted investment
The balance consists of an amount of $3,926 (Euro3 million) 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.
8. Income taxes
The following table reconciles the expected income tax recovery at the Canadian
statutory income tax rate to the amounts recognised in the consolidated
statements of profit and loss:
2006 2005
$ $
--------- ---------
Income tax rate 37.12% 36.12%
Income taxes at statutory rates 4,457 (4,373)
Tax rate difference from foreign jurisdictions (1,399) 501
Permanent differences 1,004 757
Change in tax rate 603 (64)
Currency translation adjustment - -
Change in valuation allowance 159 1,451
Large corporations tax - 9
Other - 25
--------- ---------
4,824 (1,694)
--------- ---------
The following table reflects future income tax assets:
2006 2005
$ $
Loss carry forwards 6,620 10,280
Retirement obligation 251 1,388
Plant and equipment 17 22
Inventory - 9
Personal indemnities 26 -
Accruals 444 -
Valuation allowance (6,620) (6,461)
--------- ---------
Future income tax recognised 738 5,238
--------- ---------
The following table reflects future income tax liabilities:
2006 2005
$ $
--------- ---------
Mineral properties 45,674 41,213
Plant and equipment 244 1,276
Exploration and development expenditure 2,232 772
--------- ---------
48,150 43,261
--------- ---------
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.
As at 31 December 2006, the Company has available tax losses for income tax
purposes of approximately $14,545 (2005 - $32,158) which may be carried forward
to reduce taxable income derived in future years. The non-capital losses will
expire as follows:
2006
$
---------
2009 793
2010 1,943
2014 6,428
2015 2,598
Non expiring losses 2,783
---------
14,545
---------
In addition, the Company incurred share issue costs and other deductible
temporary differences, which have not yet been claimed for income tax purposes,
totalling approximately $3,117 as at 31 December 2006 (2005 - $5,050). Subject
to certain restrictions, exploration and development expenditures available to
reduce taxable income in Romania was $27,343 as at 31 December 2006 (2005 -
$23,405).
A valuation allowance has been provided as a portion of the potential income tax
benefits of these carry-forward non-capital losses and deductible temporary
differences and the realisation thereof is not considered more likely than not.
9. Accounts payable and accrued liabilities
The balance principally comprises amounts outstanding for normal operations and
ongoing costs. The average credit period taken during the financial year ended
31 December 2006 was 30 days
(2005 - 30 days).
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 to dismantle, remove,
reclaim and abandon the facilities at the Stratoni property, and the estimated
time period during which these costs will be incurred in the future. The
following table reconciles the asset retirement obligation for the financial
years ended 31 December 2006 and 2005:
2006 2005
$ $
--------- ---------
Asset retirement obligation - Beginning of year 5,307 5,811
Currency translation adjustment 613 (771)
Accretion expense 111 267
--------- ---------
Asset retirement obligation - End of year 6,031 5,307
--------- ---------
As at 31 December 2006, the undiscounted amount of estimated cash flows required
to settle the obligation is $6,639 (2005 - $5,970). The estimated cash flow has
been discounted using a credit adjusted risk free rate of 5.04%. The expected
period until settlement is six years.
11. 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 2004 111,748,708 238,420
--------- ---------
Restricted share units vested 425,000 815
Milestone shares issued as compensation 350,000 725
Share options exercised 75,000 287
Share issue costs - (13)
--------- ---------
850,000 1,814
--------- ---------
--------- ---------
Balance - 31 December 2005 112,598,708 240,234
--------- ---------
Restricted share units vested 830,000 2,071
Share options exercised or exchanged 1,373,140 4,585
Share issue costs - -
--------- ---------
2,203,140 6,656
--------- ---------
--------- ---------
Balance - 31 December 2006 114,801,848 246,890
--------- ---------
As at 31 December 2006, the Company had Nil common shares held in escrow or in
respect of which trading restrictions applied.
Contributed surplus:
2006 2005
$ $
Equity based compensation expense 6,557 5,619
Broker warrants 578 578
--------- ---------
7,135 6,197
--------- ---------
12. Share options, restricted share units and milestone shares
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 (17,220,277 shares as
at 31 December 2006)
An optionee under the 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
Common exercise of the
Shares Exchanged Rights
Current Price
As at 31 December 2006, the following share options were outstanding:
Number of Exercise
Options price
C$
Expiry date
2007 50,000 2.50
2009 325,000 2.80
2009 120,000 3.20
2009 250,000 4.20
2009 535,000 3.07
2009 125,000 3.15
2010 708,665 2.00
2010 50,000 2.11
2010 150,000 2.40
2011 100,000 3.25
2011 600,000 3.85
2011 200,000 4.10
--------- ---------
3,213,665 3.06
--------- ---------
During the financial years ended 31 December 2006 and 2005, share options were
granted, exercised, exchanged and cancelled as follows:
Number of Weighted
Options average
exercise
price
C$
--------- ---------
Balance - 31 December 2004 4,015,000 2.85
--------- ---------
Options granted 1,626,000 2.04
Options exercised (75,000) 2.80
Options cancelled (881,667) 2.78
--------- ---------
Balance - 31 December 2005 4,684,333 2.58
--------- ---------
Options granted 900,000 3.84
Options exercised (1,109,168) 2.53
Options exchanged for shares (592,334) 2.56
Options cancelled (669,166) 2.43
--------- ---------
Balance - 31 December 2006 3,213,665 3.06
--------- ---------
Of the 3,213,665 share options outstanding as at 31 December 2006, 2,346,999
were fully vested and had a weighted average exercise price of C$2.90 per share.
The weighted average grant date fair value of the 900,000 share options granted
during the financial year ended 31 December 2006 (2005 - 1,626,000) was C$3.84
(2005 - C$2.04). For outstanding share options which were not fully vested
during the financial year ended 31 December 2006, the Company incurred a total
equity-based compensation cost of $1,538 (2005 - $940) of which $1,156 (2005 -
$498) has been recognised as an expense in the income statement and $382 (2005 -
$442) has been capitalised to deferred exploration and development costs.
The fair value of the share options granted has been estimated at the date of
grant using a Black-Scholes option pricing model with the following assumptions:
weighted average risk free interest rate of 2.75%
(2005 - 2.25%); volatility factor of the expected market price of the Company's
shares of 52% to 59%
(2005 - 53.98% to 60.60%); and a weighted average expected life of the share
options of five years
(2005 - 5 years).
Restricted Share Unit Plan
The Company operates a Restricted Share Unit Plan (the "RSU Plan") authorising
the directors, based on recommendations received from the Compensation
Committee, to grant Restricted Share Units ("RSUs") to designated directors,
officers, employees and consultants. The RSUs are "phantom" shares that rise and
fall in value based on the value of the Company's common shares and are redeemed
for actual common shares on the vesting dates determined by the Board of
Directors when the RSUs are granted. The RSUs vest on the dates below however
upon a change of control of the Company they would typically become 100% vested.
The maximum number of common shares of the Company which may be reserved for
issuance for all purposes under the RSU Plan shall not exceed 2.5% of the common
shares issued and outstanding from time to time (2,870,046 shares as at 31
December 2006).
As at 31 December 2006, the following RSUs were outstanding:
Vesting date Number of Grant date
RSUs fair value of
underlying
shares
C$
31 May 2007 75,000 3.24
30 June 2007 60,000 3.24
1 July 2007 * 250,000 4.04
31 December 2007 350,000 2.19
31 December 2007 235,000 4.04
31 December 2007 ** 60,000 3.24
31 May 2008 75,000 3.24
--------- ---------
1,105,000 3.26
--------- ---------
* Or earlier if certain operational milestones are achieved. Vesting conditional
upon such milestones being achieved by 1 July 2007.
** Provided certain operational milestones are achieved by 1 July 2007.
During the financial years ended 31 December 2006 and 2005, RSUs were granted,
vested and cancelled as follows:
---------
Number of Weighted
RSUs average
grant date
fair value of
underlying
shares
C$
--------- ---------
Balance - 31 December 2004 - -
--------- ---------
RSUs granted 1,175,000 2.20
RSUs vested (425,000) 2.22
RSUs cancelled - -
--------- ---------
Balance - 31 December 2005 750,000 2.19
--------- ---------
RSUs granted 1,335,000 3.75
RSUs vested (830,000) 2.94
RSUs cancelled (150,000) 4.04
--------- ---------
Balance - 31 December 2006 1,105,000 3.26
--------- ---------
The weighted average grant date fair value of underlying shares of the 1,335,000
RSUs granted during the financial year ended 31 December 2006 (2005 - 1,175,000)
was C$3.75 (2005 - $2.20). For outstanding RSUs which were not fully vested
during the financial year ended 31 December 2006, the Company incurred a total
equity-based compensation cost of $3,561 (2005 - $1,324) of which $1,654 (2005 -
$324) has been recognised as an expense in the income statement and $1,907 (2005
- $Nil) has been capitalised to deferred exploration and development costs.
13. Supplementary cash flow information
2006 2005
$ $
--------- ---------
Changes in non-cash operating accounts:
Accounts receivable and prepaid expenses (10,863) (3,305)
Inventory 1,055 (1,633)
Accounts payable and accrued liabilities 5,813 169
--------- ---------
(3,995) (4,769)
--------- ---------
Supplemental cash flow information:
Income taxes paid - 34
Supplemental disclosure of non-cash transactions:
Share options issued for non-cash consideration 5,099 -
Milestone shares issued as compensation - (725)
Exercise or exchange of share options - Transfer from
contributed surplus (2,090) (117)
to share capital
Vesting of restricted share units (2,071) (815)
14. Commitments
As at 31 December 2006, the Company had remaining spending commitments of $1,129
(2005 - $1,459) over the remaining term of its Voia exploration licence in
Romania which expires in March 2007.
The Company has spending commitments of $187 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 31 December 2006, Hellas Gold had entered into off-take agreements
pursuant to which Hellas Gold agreed to sell the following quantities of metal
concentrates during the financial years ending
31 December 2006, 2007 and 2008:
2006 2007 2008
(dry metric tonnes)
-----------------------
--------- ---------
Zinc concentrates (Stratoni) 42,700 51,000 15,000
Lead/silver concentrates (Stratoni) 25,000 26,000 20,000
Gold concentrates (Olympias) 15,940 43,000 -
--------- --------- ---------
83,640 120,000 35,000
--------- --------- ---------
As at 31 December 2006, 34,649 dmt of zinc concentrates, 15,735 dmt of lead/
silver concentrates and 15,546 dmt of gold concentrates had been sold on account
of the 2006 commitments.
15. Transactions with related parties
During the financial year ended 31 December 2006, Hellas Gold incurred costs of
$18,045 (2005 - $9,657) for management, technical and engineering services
received from a related party, Aktor S.A.,
a 35% shareholder in Hellas Gold. As at 31 December 2006, Hellas Gold had
accounts payable of $4,181 (2005 - $1,466) 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.
16. 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:
2006 2005
$ $
--------- ---------
Revenue
Canada - -
Greece 52,438 1,521
Romania - -
United Kingdom - -
--------- ---------
52,438 1,521
--------- ---------
Plant and equipment and deferred exploration and development
costs
Canada - -
Greece 223,286 191,659
Romania 32,010 28,081
United Kingdom 325 344
--------- ---------
255,621 220,084
--------- ---------
Operating liabilities
Canada 226 214
Greece 7,625 3,144
Romania 304 310
United Kingdom 1,647 320
--------- ---------
9,802 3,988
--------- ---------
17. 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:
2006 2005
$ $
--------- ---------
Earnings 3,002 (10,410)
Effect of dilutive potential common shares - -
--------- ---------
Diluted earnings 3,002 (10,410)
--------- ---------
Weighted average number of common shares for the purpose
of basic earnings per share 113,539 112,098
Incremental shares - share options 867 -
Incremental shares - restricted share units 1,313 -
--------- ---------
Weighted average number of common shares for the purpose
of diluted earnings per share 115,719 112,098
--------- ---------
18. Reclassification of comparative figures
Certain comparative figures have been reclassified to conform to the current
year's presentation.
19. Legal proceedings
The Company, from time to time, is involved in various claims, legal proceedings
and complaints arising in the ordinary course of business, including with
respect to its licences and permits. Such legal proceedings are, in the opinion
of management, either unfounded (in fact or in law) or would not have a material
adverse effect on the consolidated financial condition or future results of the
Company. There are no such proceedings known to the Company to be contemplated.
20. Post balance sheet event
Since 31 December 2006, the Company granted 180,000 restricted share units under
the Company's Restricted Share Unit Plan.
Since 31 December 2006, the Company issued 44,747 common shares pursuant to the
exchange
of 92,000 outstanding share options under the Company's Share Option Plan.
In February 2007, Hellas Gold entered into an off-take agreement with Golden
China Resources Corporation for the sale of 100,000 tonnes of gold bearing
pyrite concentrates previously produced at the Olympias mine in Greece. This
concentrate will be treated over a three year period on an equal profit share
basis at Golden China's new dedicated bacterial oxidation plant in Shandong,
China, which is expected to be commissioned in September 2007. In May 2006,
Hellas Gold signed an initial contract for the sale of 18,000 tonnes of
concentrates by April 2007 for processing at Golden China's existing bacterial
oxidation plant in Shandong. This initial contract has also been extended for
the sale of an additional 30,000 tonnes of concentrates between May 2007 and 31
December 2008.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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