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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:4309Q
European Goldfields Ltd
19 March 2008
Immediate Release 19 March 2008
European Goldfields Limited
Consolidated Financial Statements
(Audited)
31 December 2007 and 2006
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 2007 and 2006 and the consolidated statements of profit and
loss, other comprehensive income, 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 2007
and 2006 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, Licensed Public Accountants
Toronto, Canada
18 March 2008
European Goldfields Limited 2007 2006
Consolidated Balance Sheets
As at 31 December 2007 and 2006
(in thousands of US Dollars, except per share
amounts)
Note $ $
Assets
Current assets
Cash and cash equivalents 218,839 34,587
Accounts receivable 6 20,408 14,945
Prepaid expenses 7,769 1,270
Inventory 7 2,110 854
--------- ----------
249,126 51,656
--------- ----------
Non current assets
Plant and equipment 8 48,776 27,007
Deferred exploration and development costs 9
Greek production stage mineral properties 29,525 14,677
Greek exploration stage mineral properties 401,829 182,157
--------- ----------
431,354 196,834
Romanian exploration stage mineral properties 38,285 31,782
--------- ----------
469,639 228,616
--------- ----------
Restricted cash 10 4,900 3,926
Other financial assets 17 882 -
Future tax assets 11 8,808 738
--------- ----------
782,131 311,943
--------- ----------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 12 9,977 9,802
Income taxes payable 12,718 -
--------- ----------
22,695 9,802
--------- ----------
Non current liabilities
Future tax liability 11 109,943 48,150
Non-controlling interest 3,341 20,422
Asset retirement obligation 13 6,805 6,031
Deferred revenue 14 65,344 -
--------- ----------
185,433 74,603
--------- ----------
Shareholders' equity
Capital stock 15 537,275 246,890
Contributed surplus 15 5,997 7,135
Accumulated other comprehensive income 38,295 4,276
Deficit (7,564) (30,763)
--------- ----------
574,003 227,538
--------- ----------
--------- ----------
782,131 311,943
--------- ----------
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
European Goldfields Limited 2007 2006
Consolidated Statements of Profit and Loss
For the years ended 31 December 2007 and 2006
(in thousands of US Dollars, except per share
amounts)
Note $ $
Income
Sales 86,405 52,438
Cost of sales (37,546) (21,961)
Depreciation and depletion (5,072) (3,225)
--------- ---------
Gross profit 43,787 27,252
--------- ---------
Other income
Interest income 6,588 1,445
Foreign exchange gain/(loss) 3,904 (752)
--------- ---------
10,492 693
--------- ---------
Expenses
Corporate administrative and overhead expenses 4,296 2,534
Equity based compensation expense 1,798 2,810
Hellas Gold administrative and overhead expenses 9,827 5,504
Hellas Gold water treatment expenses (non-operating
mines) 4,315 2,698
Hellas Gold non-recurring rehabilitation cost
(Stratoni - 1,630
mine)
Accretion of asset retirement obligation 13 124 111
Amortisation 484 650
--------- ---------
20,844 15,937
--------- ---------
--------- ---------
Profit for the year before income tax 33,435 12,008
--------- ---------
Income taxes 11
Current taxes 7,712 -
Future taxes (2,495) 4,824
--------- ---------
5,217 4,824
--------- ---------
--------- ---------
Profit for the year before non-controlling interest 28,218 7,184
Non-controlling interest (5,019) (4,182)
--------- ---------
Profit for the year 23,199 3,002
Deficit - Beginning of year (30,763) (33,765)
--------- ---------
Deficit - End of year (7,564) (30,763)
--------- ---------
Earnings per share 23 0.16 0.03
Basic 0.15 0.03
Diluted
Weighted average number of shares (in thousands)
Basic 148,245 114,852
Diluted 150,100 115,719
The accompanying notes are an integral part of these consolidated financial
statements.
European Goldfields Capital Contributed Accumulated Deficit Total
Limited Stock Surplus Other
Consolidated Comprehensive
Statements of Equity Income
As at 31 December 2007
and 2006
(in thousands of US
Dollars, except per
share amounts) $ $ $ $ $
-------- -------- ----------- -------- --------
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 or
exchanged 4,585 (2,090) - - 2,495
Movement in
cumulative
translation
adjustment - - 17,119 - 17,119
Profit for the
year - - - 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
-------- -------- ----------- -------- --------
Equity-based
compensation
expense - 2,488 - - 2,488
Shares issued
for equity
financing 130,059 - - - 130,059
Shares issued as
consideration
for acquisition 161,425 - - - 161,425
Share issue
costs (4,777) - - - (4,777)
Restricted share
units vested 2,646 (2,646) - - -
Share options
exercised or
exchanged 1,032 (980) - - 52
Movement in
cumulative
translation
adjustment - - 33,137 - 33,137
Change in fair
value of cash
flow hedge - - 882 - 882
Profit for the
year - - - 23,199 23,199
-------- -------- ----------- -------- --------
290,385 (1,138) 34,019 23,199 346,465
-------- -------- ----------- -------- --------
-------- -------- ----------- -------- --------
Balance - 31
December 2007 537,275 5,997 38,295 (7,564) 574,003
-------- -------- ----------- -------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
European Goldfields Limited 2007 2006
Consolidated Statements of Cash Flows
For the years ended 31 December 2007 and 2006
(in thousands of US Dollars, except per share
amounts)
Note $ $
Cash flows from operating activities
Profit for the year 23,199 3,002
Foreign exchange loss 6,391 568
Amortisation 2,482 2,189
Equity based compensation expense 1,798 2,810
Accretion of asset retirement obligation 13 124 111
Current taxation 7,712 -
Future tax recognised (2,495) 4,823
Non-controlling interest 5,019 4,182
Deferred revenue recognised (3,738) -
Depletion of mineral properties 9 3,075 1,685
--------- ---------
43,567 19,370
Net changes in non-cash working capital 18 (8,247) (3,995)
--------- ---------
35,320 15,375
--------- ---------
Cash flows from investing activities
Deferred exploration and development costs - Romania (5,735) (3,294)
Plant and equipment - Greece (21,606) (7,579)
Deferred development costs - Greece (2,347) (4,032)
Purchase of equipment (127) (166)
Further acquisition in Hellas Gold (9,972) -
Restricted cash (557) 23
--------- ---------
(40,344) (15,048)
--------- ---------
Cash flows from financing activities
Proceeds from equity financing 130,059 -
Deferred revenue 64,389 -
Proceeds from exercise of share options 52 2,495
Share issue costs (7,153) -
--------- ---------
187,347 2,495
--------- ---------
Effect of foreign currency translation on cash 1,929 1,229
--------- ---------
Increase in cash and cash equivalents 184,252 4,051
Cash and cash equivalents - Beginning of year 34,587 30,536
--------- ---------
Cash and cash equivalents - End of year 218,839 34,587
--------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
2007 2006
$ $
Profit for the year 23,199 3,002
Other comprehensive income in the year
Currency translation adjustment 33,137 17,119
Cash flow hedge adjustment 882 -
---------- ---------
Comprehensive income 57,218 20,121
---------- ---------
European Goldfields Limited
Notes to Consolidated Financial Statements
For the years ended 31 December 2007 and 2006
(in thousands of US Dollars, except per share amounts)
1. Nature of operations
European Goldfields Limited (the "Company"), a company incorporated under the
Yukon Business Corporations Act, is a resource company involved in the
acquisition, exploration and development of mineral properties in Greece,
Romania and South-East Europe.
The Company's common shares are listed on the AIM Market of the London Stock
Exchange and on the Toronto Stock Exchange (TSX) under the symbol "EGU".
Greece - The Company holds a 95% (2006-65%) interest in Hellas Gold S.A ("Hellas
Gold"). Hellas Gold owns three major gold and base metal deposits in Northern
Greece. The deposits are the polymetallic operation at Stratoni, the Olympias
project which contain 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 - 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.
2. Basis of Presentation
These 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. These consolidated financial statements do not include the adjustments
that would be necessary should the Company be unable to continue as a going
concern.
3. Significant accounting policies
These consolidated financial statements 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.
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
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
Hellas Gold S.A. Greece 95% owned
The 20% minority interest held in the Company's 80% owned subsidiary, Deva Gold
S.A. ("Deva Gold"), is accounted for in these consolidated financial statements.
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.
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 and 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
and on a weighted average basis.
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.
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 increased over time to reflect an
accretion element considered in the initial measurement at fair value. As at 31
December 2007 and 2006, the Company had an asset retirement obligation relating
to its Stratoni property in Greece.
Deferred revenue - The Company received a prepayment from Silver Wheaton
(Caymans) Ltd. for the sale of all of the silver metal to be produced from ore
extracted during the mine-life within an area of some 7 km(2) around its
zinc-lead-silver Stratoni mine in northern Greece. The prepayment, which is
accounted for as deferred revenue, is recognised as sales revenue on the basis
of proportion of settlements during the period to expected total settlements.
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.
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.
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 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.
Earnings per share ("EPS") - EPS is calculated based on the weighted average
number of common shares issued and outstanding during 2007 being 148,245,297
(2006 - 114,851,482). 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 at the
average market price during the period.
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 actual or 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 component of other comprehensive income. The Company
accounts for Hellas Gold as a self-sustaining foreign subsidiary.
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.
4. Significant changes in accounting policies
Effective 1 January 2007, the Company adopted the revised CICA Section 1506
"Accounting Changes", which requires that: a voluntary change in accounting
principles can be made if, and only if, the changes result in more reliable and
relevant information, changes in accounting policies are accompanied with
disclosures of prior period amounts and justification for the change, and for
changes in estimates, the nature and amount of the change should be disclosed.
The Company has not made any voluntary change in accounting principles since the
adoption of the revised standard. This standard also requires disclosure of
issued but not yet effective standards.
Financial Instruments - Recognition and Measurement, Section 3855 - This
standard prescribes when a financial asset, financial liability, or
non-financial derivative is to be recognised on the balance sheet and whether
fair value or cost-based methods are used to measure the recognised amounts. It
also specifies how financial instrument gains and losses are to be recognised.
Effective 1 January 2007, the Company's cash and cash equivalents, temporary
investments and investments in marketable securities have been classified as
available-for-sale and are recorded at fair value on the balance sheet. Fair
values are determined directly by reference to published price quotations in an
active market. Changes in the fair value of these instruments are reflected in
other comprehensive income and included in shareholders' equity on the balance
sheet.
All derivatives are to be recorded on the balance sheet at fair value.
Mark-to-market adjustments on these instruments will be included in net profit,
unless the instruments are designated as part of a cash flow hedge relationship.
In accordance with the standard's transitional provisions, the Company realised
as separate assets and liabilities only embedded derivatives acquired or
substantively modified on or after 1 January 2003.
All other financial instruments will be recorded at cost or amortised cost,
subject to impairment reviews. The criteria for assessing other than temporary
impairment remain unchanged. Transaction costs incurred to acquire financial
instruments are included in the underlying balance. The Company has determined
that the adoption of Section 3855 had no material effect on these financial
statements.
Cash and cash equivalents - Cash and cash equivalents include cash and deposits
with original maturities of three months or less.
Hedges, Section 3865 - This standard is applicable when a company chooses to
designate a hedging relationship for accounting purposes. It builds on the
previous AcG-13 "Hedging Relationships" and Section 1650 "Foreign Currency
Translation", by specifying how hedge accounting is applied and what disclosures
are necessary when it is applied. The Company uses derivative and non-derivative
financial instruments to manage changes in commodity prices. Hedge accounting is
optional and it requires the Company to document the hedging relationship and
test the hedging item's effectiveness in offsetting changes in fair values or
cash flows of the underlying hedged item on an ongoing basis.
The Company uses cash flow hedges to manage base metal commodity prices. The
effective portion of the change in fair value of a cash flow hedging instrument
is recorded in other comprehensive income and is reclassified to earnings when
the hedge item impacts profit. Any ineffectiveness is recorded in net profit.
If a derivative instrument designated as a cash flow hedge ceases to be
effective or is terminated, hedge accounting is discontinued and the gain or
loss at that date is deferred in other comprehensive income and recognised
concurrently with the settlement of the related transaction. If a hedged
anticipated transaction is no longer probable, the gain or loss is recognised
immediately in profit. Subsequent gains and losses from ineffective derivative
instruments are recognised in profit in the period they occur.
Comprehensive Income, Section 1530 & 3251 - Effective 1 January 2007, the
Company adopted sections 1530 and 3251. These standards require the presentation
of a statement of comprehensive income and its components. Comprehensive income
includes both net profit and other comprehensive income. Other comprehensive
income includes holding gains and losses on available-for-sale investments,
gains and losses on certain derivative instruments and foreign currency gains
and losses relating to self-sustaining foreign operations, all of which are not
included in the calculation of net earnings until realised.
Foreign currency translation, Section 1651 - Effective 1 January 2007, the
Company adopted section 1651 this had no effect on the financial statements.
5. Business combination - Acquisition of an additional 30% interest in Hellas
Gold
In June 2007, the Company completed the acquisition of additional shares in
Hellas Gold, increasing its total interest from 65% to 95%. The total
consideration paid by the Company for the purchased shares was satisfied as
follows:
(a) The issue of 35,447,246 common shares of the Company (currently held in
Escrow); and
(b) $8.42 million paid in cash to the vendor.
Transaction costs of $1.55 million were also accounted for as part of the
acquisition.
A summary of the accounting treatment of fair value of net assets acquired and
consideration paid is as follows:
$
-----------
Current assets 31,272
Property, plant and equipment 12,220
Other assets 6,536
Current liabilities (7,050)
Other liabilities (20,470)
Mineral properties 198,518
Future tax liabilities (49,630)
-----------
171,396
-----------
Purchase consideration: $
-----------
-----------
Cash paid 8,418
Shares issued (35,447,246 common shares) 161,424
Transaction costs 1,554
-----------
Purchase price 171,396
-----------
For accounting purposes, the Company has used an average share price based upon
5 days prior and post the announcement of the transaction, to value the share
element of the purchase consideration.
6. Accounts receivable, prepaid expenses and supplies
This balance comprises the following:
2007 2006
$ $
--------- ---------
Value added taxes recoverable 17,996 8,079
Accounts receivable 2,412 6,866
--------- ---------
20,408 14,945
--------- ---------
7. Inventory
This balance comprises the following:
2007 2006
$ $
--------- ---------
Ore mined - 225
Metal concentrates 865 154
Material and supplies 1,245 475
--------- ---------
2,110 854
--------- ---------
8. Plant and equipment
-------- -------- ---------- ---------- -------
Plant and Vehicles Mine Leasehold Total
equipment development, improvements
land and
buildings
$ $ $ $ $
-------- -------- ---------- ---------- -------
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
2006 11,539 547 14,724 197 27,007
-------- -------- ---------- ---------- -------
Cost - 2007
At 31 December 2006 13,220 1,236 15,608 256 30,320
Additions 17,154 599 3,926 55 21,734
Disposals (34) (8) - - (42)
Currency translation 1,361 105 1,678 - 3,144
adjustment
-------- -------- ---------- ---------- -------
At 31 December 2007 31,701 1,932 21,212 311 55,156
-------- -------- ---------- ---------- -------
Accumulated amortisation -
2007
At 31 December 2006 1,681 685 888 58 3,312
Provision for the year 1,261 318 1,000 27 2,606
Disposals (24) (8) - - (32)
Currency translation 233 81 180 - 494
adjustment
-------- -------- ---------- ---------- -------
At 31 December 2007 3,151 1,076 2,068 85 6,380
-------- -------- ---------- ---------- -------
-------- -------- ---------- ---------- -------
Net book value at 31 28,550 856 19,144 226 48,776
December 2007 -------- -------- ---------- ---------- -------
9. Deferred exploration and development costs
Greek mineral properties:
Stratoni Olympias Skouries Total
$ $ $ $
---------- ---------- ----------- ---------
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
---------- ---------- ----------- ---------
Acquisition of mineral 14,239 109,037 75,242 198,518
properties
Deferred development costs 1,095 183 1,277 2,555
Depletion of mineral properties (2,749) (334) - (3,083)
Currency translation adjustment 2,263 20,320 13,947 36,530
---------- ---------- ----------- ---------
14,848 129,206 90,466 234,520
---------- ---------- ----------- ---------
Balance - 31 December 2007 29,525 237,284 164,545 431,354
---------- ---------- ----------- ---------
The Stratoni, Skouries and Olympias properties are held by the Company's 95% -
owned (2006 - 65%) subsidiary, Hellas Gold. In September 2005, the Stratoni
property commenced production.
Romanian mineral properties:
Certej Baita- Voia Cainel Total
Craciunesti
$ $ $ $ $
-------- -------- --------- --------- ---------
Balance - 31 December
2005 23,400 2,948 513 982 27,843
-------- -------- --------- --------- ---------
Drilling and assaying 802 9 109 2 922
Geosciences and tech.
consulting 685 38 70 7 800
Samplers, miners and
surveying 55 5 5 - 65
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
-------- -------- --------- --------- ---------
Drilling and assaying 878 2 65 6 951
Geosciences and tech. 2,065 49 57 - 2,171
consulting
Samplers, miners and 67 5 - - 72
surveying
Project management 1,682 13 28 1 1,724
Project overhead 1,300 26 172 7 1,505
Amortisation 61 7 1 11 80
-------- -------- --------- --------- ---------
6,053 102 323 25 6,503
-------- -------- --------- --------- ---------
Balance - 31 December
2007 32,915 3,166 1,167 1,037 38,285
-------- -------- --------- --------- ---------
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. The Company is required
to fund 100% of all costs related to the exploration and development of these
properties. As a result, the Company is entitled to the refund of such costs
(plus interest) out of future cash flows generated by Deva Gold, prior to any
dividends being distributed to shareholders. The Voia and Cainel exploration
licences are held by the Company's wholly-owned subsidiary, European Goldfields
Deva SRL.
Individual property spending commitments for each of the Company's Romanian
licences have been met as at 31 December 2007.
10. Restricted cash
The balance consists of an amount of $4,900 (Euro3,365 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 cash bears a
rate of interest of Euribor plus 0.8% per annum.
11. 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:
2007 2006
$ $
--------- ----------
Income tax rate 37.12% 37.12%
Income taxes at statutory rates 12,411 4,457
Tax rate difference from foreign jurisdictions (2,573) (1,399)
Permanent differences (3,031) 1,004
Change in tax rate (258) 603
Change in valuation allowance (1,332) 159
--------- ----------
5,217 4,824
--------- ----------
The following table reflects future income tax assets:
2007 2006
$ $
--------- ---------
Loss carry forwards 7,426 6,620
Intangibles 10 -
Plant and equipment - 17
Retirement obligation 1,700 251
Inventory 1,265 -
Personal indemnities 37 26
Accruals 1,241 444
Capital raising costs 2,376 -
Valuation allowance (5,247) (6,620)
--------- ---------
Future income tax recognised 8,808 738
--------- ---------
The following table reflects future income tax liabilities:
2007 2006
$ $
--------- ---------
Mineral properties 104,752 45,674
Plant and equipment 701 244
Exploration and development expenditure 3,003 2,232
Accrued expenses & other 1,487 -
--------- ---------
109,943 48,150
--------- ---------
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 2007, the Company has available tax losses for income tax
purposes of approximately $30,461 (2006 - $14,545) which may be carried forward
to reduce taxable income derived in future years. The non-capital losses expire
as follows:
2007
$
---------
2015 1,828
2016 4,486
Non expiring losses 24,147
---------
30,461
In addition, the Company incurred share issue costs and other deductible
temporary differences, which have not yet been claimed for income tax purposes,
totaling approximately $3,112 as at 31 December 2007 (2006 - $3,117). Subject to
certain restrictions, exploration and development expenditures available to
reduce taxable income in Romania was $33,629 as at 31 December 2007 (2006 -
$27,343).
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.
12. 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 2007 was 30 days
(2006 - 30 days).
13. Asset retirement obligation
Management has estimated the total future asset retirement obligation based on
the Company's ownership interest in the 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 2007 and
2006:
2007 2006
$ $
---------- ----------
Asset retirement obligation - Beginning of year 6,031 5,307
Currency translation adjustment 650 613
Accretion expense 124 111
---------- ----------
Asset retirement obligation - End of year 6,805 6,031
---------- ----------
As at 31 December 2007, the undiscounted amount of estimated cash flows required
to settle the obligation is $7,421 (2006 - $6,639). The estimated cash flow has
been discounted using a credit adjusted risk free rate of 5.04% (2006 - 5.04%).
The expected period until settlement is six years.
14. Deferred revenue
In April 2007, Hellas Gold agreed to sell to Silver Wheaton (Caymans) Ltd. ("
Silver Wheaton") all of the silver metal to be produced from ore extracted
during the mine-life within an area of some 7 km(2) around its zinc-lead-silver
Stratoni mine in northern Greece (the "Silver Wheaton Transaction"). The sale
was made in consideration of a prepayment to Hellas Gold of $57.5 million in
cash, plus a fee per ounce of payable silver to be delivered to Silver Wheaton
of the lesser of $3.90 (subject to an inflationary adjustment beginning after
year three) and the prevailing market price per ounce. The current Stratoni
proven and probable silver reserve contains approximately 12 million ounces of
silver.
In April 2007, Hellas Gold entered in an agreement with MRI Trading AG for the
sale of 25,000 wet metric tones of gold bearing pyrite concentrate. Hellas Gold
received a prepayment of $2.18 million in cash. In September 2007, Hellas Gold
entered into an agreement with a subsidiary of Celtic Resources Holdings Plc for
the sale of 50,000 wet metric tonnes of gold bearing pyrite concentrate, for
which Hellas Gold received a prepayment of $4.71 million in cash.
The following table reconciles movements on deferred revenue associated with the
MRI and Celtic Resources prepayments, and the Silver Wheaton Transaction:
2007 2006
$ $
---------- ----------
Deferred revenue - Beginning of period - -
Additions 64,389 -
Revenue recognised (3,738) -
Foreign currency translation adjustment 4,693 -
---------- ----------
Deferred revenue - End of period 65,344 -
---------- ----------
During the year ended 31 December 2007, Hellas Gold delivered concentrate
containing 952,729 ounces (2006 - Nil) of silver for credit to Silver Wheaton.
15. 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 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
--------- ---------
Restricted share units vested 840,000 2,646
Share options exercised or exchanged 473,287 1,032
Shares issued for equity financing 27,600,000 130,059
Shares issued as consideration for acquisition 35,447,246 161,425
Share issue costs, net of tax - (4,777)
--------- ---------
64,360,533 290,385
--------- ---------
--------- ---------
Balance - 31 December 2007 179,162,381 537,275
--------- ---------
As at 31 December 2007, the Company had 35,447,246 common shares held in escrow
or in respect of which trading restrictions applied.
Contributed surplus:
2007 2006
$ $
--------- ---------
Equity based compensation expense 5,419 6,557
Broker warrants 578 578
--------- ---------
5,997 7,135
--------- ---------
16. Share options and restricted share units
Share Option Plan
The Company operates a Share Option Plan (together with its predecessor, the
"Share Option Plan") authorising the directors to grant options with a maximum
term of 5 years, to acquire common shares of the Company to the directors,
officers, employees and consultants of the Company and its subsidiaries, on
terms that the Board of Directors may determine, within the limitations of the
Share Option Plan. The maximum number of common shares of the Company which may
be reserved for issuance for all purposes under the Share Option Plan shall not
exceed 15% of the common shares issued and outstanding from time to time
(26,874,357 shares as at 31 December 2007).
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 Shares issuable on X (Current Price -
Settlement Common exercise of the Exchanged Rights Exercise Price)
Shares
Current Price
As at 31 December 2007, the following share options were outstanding:
--------- ---------
Expiry date Number of Exercise
Options price
C$
--------- ---------
2009 250,000 2.80
2009 250,000 4.20
2009 360,000 3.07
2009 75,000 3.15
2010 359,999 2.00
2010 25,000 2.11
2010 150,000 2.40
2011 200,000 4.10
2011 600,000 3.85
2011 66,666 3.25
2012 250,000 5.66
2012 150,000 5.71
2012 270,000 5.87
--------- ---------
3,006,665 3.80
--------- ---------
During the years ended 31 December 2007 and 2006, share options were granted,
exercised, exchanged and cancelled as follows:
Number of Weighted
Options average
exercise
price
C$
--------- ---------
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 forfeited (129,166) 2.15
Options expired (540,000) 2.43
--------- ---------
Balance - 31 December 2006 3,213,665 3.06
--------- ---------
Options granted 745,000 5.73
Options exercised (25,000) 2.11
Options exchanged for shares (802,000) 2.61
Option forfeited (75,000) 5.47
Options expired (50,000) 2.50
--------- ---------
Balance - 31 December 2007 3,006,665 3.80
--------- ---------
Of the 3,006,665 (2006 - 3,213,665) share options outstanding as at 31 December
2007, 2,269,999 (2006 - 2,346,999) were fully vested and had a weighted average
exercise price of C$3.24 (2006 - C$2.90) per share. The share options
outstanding as at 31 December 2007, had a weighted average remaining contractual
life of 2.97 years (2006 - 3.41 years).
The weighted average grant date fair value cost of the 745,000 share options
granted during the financial year ended 31 December 2007 (2006 - 900,000) was
$2,088 (2006 - $1,597). For outstanding share options which were not fully
vested during the year ended 31 December 2007, the Company incurred a total
equity-based compensation cost of $1,209 (2006 - $1,538) of which $1,057 (2006 -
$1,156) has been recognised as an expense in the statement of profit and loss
and $151 (2006 - $382) has been capitalised to deferred exploration and
development costs.
The fair value of the share options granted has been estimated at the date of
grant using a Black-Scholes option pricing model with the following assumptions:
weighted average risk free interest rate of 3.23%
(2006 - 2.75%); volatility factor of the expected market price of the Company's
shares of 58% to 59%
(2006 - 52% to 59%); a weighted average expected life of the share options of 5
years
(2006 - 5 years), maximum term of 5 years and a dividend yield of Nil (2006 -
Nil).
Restricted Share Unit Plan
The Company operates a Restricted Share Unit Plan (the "RSU Plan") authorising
the directors, based on recommendations received from the Compensation
Committee, to grant Restricted Share Units ("RSUs") to designated directors,
officers, employees and consultants. The RSUs are "phantom" shares that rise and
fall in value based on the value of the Company's common shares and are redeemed
for actual common shares on the vesting dates determined by the Board of
Directors when the RSUs are granted. The RSUs vest on the dates below however
upon a change of control of the Company they would typically become 100% vested.
The maximum number of common shares of the Company which may be reserved for
issuance for all purposes under the RSU Plan shall not exceed 2.5% of the common
shares issued and outstanding from time to time (4,479,059 shares as at 31
December 2007).
As at 31 December 2007, the following RSUs were outstanding:
--------- ---------
Vesting date Number of Grant date
RSUs fair value
of
Underlying
shares
C$
--------- ---------
31 May 2008 75,000 3.24
30 June 2008 30,000 5.74
31 December 2008 * 50,000 6.22
30 June 2009 30,000 5.74
--------- ---------
185,000 4.86
--------- ---------
* Or earlier if certain operational milestones are achieved. Vesting
conditional upon such milestones being achieved by 31 December 2008.
During the years ended 31 December 2007 and 2006, RSUs were granted, vested and
cancelled as follows:
--------- ---------
Number of Weighted
RSUs average
grant date
fair value of
underlying
shares
C$
--------- ---------
Balance - 31 December 2005 750,000 2.19
RSUs granted 1,335,000 3.75
RSUs vested (830,000) 2.94
RSUs forfeited (150,000) 4.04
--------- ---------
Balance - 31 December 2006 1,105,000 3.26
--------- ---------
RSUs granted 390,000 5.69
RSUs vested (840,000) 3.47
RSUs forfeited (470,000) 4.26
--------- ---------
Balance - 31 December 2007 185,000 4.86
--------- ---------
The weighted average grant date fair value cost of underlying shares of the
390,000 RSUs granted during the financial year ended 31 December 2007 (2006 -
1,335,000) was $2,065 (2006 - $4,412). For outstanding RSUs which were not fully
vested during the year ended 31 December 2007, the Company incurred a total
equity-based compensation cost of $1,279 (2006 - $3,561) of which $741 (2006 -
$1,654) has been recognised as an expense in the statement of profit and loss
and $538 (2006 - $1,907) has been capitalised to deferred exploration and
development costs.
17. Financial instruments and financial risk management
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, restricted cash accounts payable, accrued liabilities and
hedge contracts.
Short-term financial assets are amounts that are expected to be settled within
one year. The carrying amounts in the consolidated balance sheets approximate
fair value because of the short term nature of these instruments.
As disclosed in Note 3, the embedded derivatives are classified as a short term
financial asset.
Credit risk - Financial instruments that potentially subject the Company to
concentration of credit risk consist of cash and cash equivalents, accounts
receivable and hedging contracts. The cash equivalents consist mainly of
short-term investments, such as money market deposits. The Company has deposited
the cash equivalents only with the largest banks within a particular region or
with top rated institutions, from which management believes the risk of loss to
be remote. The Company has accounts receivable from trading counterparties to
whom concentrate products are sold. Where traders are chosen as counterparties,
only the larger and most financially secure metal trading groups are dealt with.
The Company may also transact agreements with trading groups who have direct
interests in smelting capacity, or direct to the smelters themselves. For the
year ended 31 December 2007, two base metal concentrate customers represented
79% of total sales. Of the total accounts receivable as at 31 December 2007,
two customers represented 86% of the total. The Company does not anticipate any
loss for non-performance. There are a number of financial institutions which
offer metal hedging services. As with cash deposits, the Company deals with
highly rated banks and in addition, those institutions who have demonstrated
long term commitment to the mining sector.
Interest rate risk - The Company is exposed to interest rate risk arising from
fluctuations in interest rates on its cash equivalents. The Company seeks to
maximise returns on cash equivalents, without risking capital values.
Currency risk - The Company is exposed to currency risk on sales, purchases and
cash holdings that are denominated in a currency other than the functional
currencies of the individual entities in the group. As at the 31 December 2007,
the Company held the equivalent of $36,107 (2006- $4,664) in foreign currencies.
These balances are primarily made up of Euro.
The Company publishes its consolidated financial statements in US dollars and as
a result, it is also subject to foreign exchange translation risk in respect of
results and underlying net assets of its foreign operations.
Hedging and specific commitments - The Company enters into financial
transactions in the normal course of business and in line with Board guidelines
for the purpose of hedging and managing its expected exposure to commodity
prices. The hedges below are treated as cash flow hedges in accordance with CICA
3865: Hedges.
Lead hedging contracts - As at 31 December 2007, the Company had entered into
forward hedging arrangements over 6,600 tonnes of lead, using options to provide
a minimum : maximum price exposure. The hedging contracts are put/call option
collar contracts with maturity dates between 4 March 2008 and 5 January 2009 and
strike prices as shown in the table below. The fair value of these contracts as
at 31 December 2007 amounted to $882 (2006 - Nil) established by reference to
market prices for lead.
2008 Total
Lead tonnes 6,600 6,600
US dollar price ($/tonne) - Put 2,375 2,375
US dollar contract amount ($'000) - Put 15,675 15,675
US dollar price ($/tonne) - Call 3,275 3,275
US dollar contract amount ($'000) - Call 21,615 21,615
18. Supplementary cash flow information
2007 2006
$ $
--------- ---------
Changes in non-cash working capital:
Accounts receivable and prepaid expenses (11,962) (10,863)
Inventory (1,164) 1,055
Accounts payable and accrued liabilities 4,879 5,813
--------- ---------
(8,247) (3,995)
--------- ---------
Supplemental disclosure of non-cash transactions:
Share capital issued for business combination 161,424 -
Share options and restricted share units issued for
non-cash consideration 2,488 5,099
Exercise or exchange of share options - Transfer from
contributed surplus (980) (2,090)
to share capital
Vesting of restricted share units (2,646) (2,071)
19. Commitments
As at 31 December 2007, the Company had remaining spending commitments of $806
(2006 - $1,129) over the remaining term of its Voia exploration licence in
Romania which expires in March 2010.
The Company has spending commitments of $193 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 2007, Hellas Gold had entered into off-take agreements
pursuant to which Hellas Gold agreed to sell 40,199 dmt of zinc concentrates,
34,012 dmt of lead/silver concentrates and 200,382 dmt of gold concentrates
until the financial year's ending 2011.
During the year, the Company entered into purchase agreements with Outotec
Minerals OY for long-lead -time equipment for the Skouries project with a cost
of $52,645 (Euro36,057) of which is to be paid over three years beginning 2007. As
at 31 December 2007, $9,119 (Euro6,245) of the commitment had been paid. Hellas
Gold has pledged $25,722 (Euro17,617) in support of a letter of credit issued on
behalf of Outotec Minerals OY through Nordea Bank of Finland.
20. Transactions with related parties
During the year ended 31 December 2007, Hellas Gold incurred costs of $27,885
(2006 - $18,045) for management, technical and engineering services received
from a related party, Aktor S.A.,
a 5% shareholder in Hellas Gold. As at 31 December 2007, Hellas Gold had
accounts payable of $2,125 (2006 - $4,181) 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.
21. 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:
2007 2006
$ $
--------- ---------
Sales
Canada - -
Greece 86,405 52,438
Romania - -
United Kingdom - -
--------- ---------
86,405 52,438
--------- ---------
Plant and equipment and deferred exploration and
development costs
Canada - -
Greece 479,656 223,286
Romania 38,418 32,010
United Kingdom 341 327
--------- ---------
518,415 255,623
--------- ---------
Operating liabilities
Canada 832 226
Greece 20,037 7,625
Romania 659 304
United Kingdom 1,167 1,647
--------- ---------
22,695 9,802
--------- ---------
22. Pension plans and other post-retirement benefits
The Company's subsidiary, European Goldfields (Services) Limited, maintains a
defined contribution pension plan for its employees. The defined contribution
pension plan provides pension benefits based on accumulated employee and Company
contributions. Company contributions to these plans are a set percentage of
employees' annual income and may be subject to certain vesting requirements. The
cost of defined contribution benefits is expensed as earned by employees.
As at 31 December 2007, the Company recognised the following costs:
2007 2006
$ $
--------- ---------
Defined contribution plans 227 174
23. 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:
2007 2006
$ $
--------- ---------
Profit for the year 23,199 3,002
Effect of dilutive potential common shares - -
--------- ---------
Diluted earnings 23,199 3,002
--------- ---------
Weighted average number of common shares for the purpose
of basic earnings per share 148,245 114,852
Incremental shares - Share options 1,855 867
--------- ---------
Weighted average number of common shares for the purpose
of diluted earnings per share 150,100 115,719
--------- ---------
24. Reclassification of comparative figures
Certain comparative figures have been reclassified to conform to the current
year's presentation.
25. Legal proceedings
In June 2005, certain residents of Stratoniki village submitted a request for
the annulment of the Greek government's joint ministerial decision approving the
environmental impact study for the Stratoni mine (the "JMD Approval"). In
November 2005, the same petitioners submitted a request for the annulment of the
decision of the Minister of Development approving the Technical Study for the
exploitation of the Mavres Petres mine that forms part of the Stratoni complex
(the "MOD Approval"). The JMD Approval and the MOD Approval are necessary for
the continued operation of the Stratoni mine. In both cases the petitioners
alleged a lack of legal basis for the approvals and potential harm to the
environment and their properties. The Greek government, supported by the
Company, the Association of Extractive Companies, and two workers' unions, has
taken a position that the approvals are valid. In December 2005 the
petitioners requested an injunction to stop work on the Stratoni project pending
the hearing of the requests for annulment, but the court rejected the request.
A hearing on both requests for annulment will be held shortly. The management
of the Company believes that both requests for annulment are unfounded and
unlikely to succeed.
26. Post balance sheet event
Since 31 December 2007, the Company granted 150,000 restricted share units under
the Company's Restricted Share Unit Plan.
Since 31 December 2007, the Company granted 165,000 share options under the
Company's Share Option Plan.
In February 2008, the Company signed a Heads of Agreement with Ariana Resources
plc ("Ariana"), for the joint development of Ariana's properties in
North-eastern Turkey, which includes the Ardala copper-gold porphyry and eleven
other licences covering a total area of 168km2.
Under the agreement, the Company will initially own 51% of the properties
transferred by Ariana into the joint venture. The Company will then fund all
development costs of these initial properties and any future properties located
within a defined area in North-eastern Turkey until completion of a Bankable
Feasibility Study, at which time the Company's interest in each relevant project
will increase to between 80% and 90%, respectively.
In addition, the Company has agreed to subscribe for new shares in Ariana at 5
pence per share in a private placement, resulting in the Company owning 20% of
the outstanding shares in Ariana following the placement, for a total
consideration of approximately £890,000.
In February 2008, the Company entered into additional forward hedging
arrangements over 1,800 and 7,200 tonnes of lead, representing 300 tonnes per
month from July to December 2008 and 600 tonnes per month in 2009, respectively.
The hedging contracts are put/call option collar contracts, with a put price of
$2,500 and a call price of $3,500.
27. Recently issued accounting standards
Capital Disclosures - In 2008, the Company will be required to adopt the "CICA"
Handbook Section - 1535 - Capital disclosures. Under the requirements of new
standard, the Company will disclose information about its objectives policies
and processes for managing capital, quantitative information about what the
Company regards as capital and information regarding its compliance with any
externally imposed capital requirements and the consequences of any
non-compliance. The Company anticipates that the main impact to its financial
statements will be additional disclosures.
Financial Instruments Presentation and Disclosures - In 2008, the Company will
be required to adopt the 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, adopted by the Company in
the current year. Under the requirements of the new standards, the Company will
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 and management's
objectives, policies and processes for managing such risks. The Company
anticipates that the main impact to its financial statements will be additional
disclosures.
Going Concern - In 2008, the Company will be required to adopt the additional
requirements of the CICA Handbook Section 1400 - General Standards of Financial
Statements. 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 Company does
not anticipate any impact to its financial statements arising from the
accounting pronouncement.
Inventories - On 1 January 2008, the Company adopted the CICA Handbook Section
3031 - Inventories. The new Section is a replacement of the CICA Handbook
Section 3030. Under the requirements of the new standard, inventories will be
measured at the lower of cost and net realizable value, cost of inventories that
are not ordinarily interchangeable and goods or services produced and segregated
for specific projects will be assigned by using a specific identification of
their individual costs, consistent use of either first-in, first out or weighted
average cost is prescribed for other inventories and the reversal of previous
write-downs to net realizable value when there is a subsequent increase in the
value of the inventories. The Company does not anticipate any material impact to
its financial statements arising from the accounting pronouncement.
Goodwill and intangible assets - In February 2008, the Canadian Institute of
Chartered Accountants ("CICA") issued Section 3064 Goodwill and intangible
assets, replacing Section 3062, Goodwill and other intangible assets. The new
Section will be applicable to financial statements relating to fiscal years
beginning on or after October 1,2008. Accordingly, the Company will adopt the
new standards for its fiscal year beginning 1 January 2009. It establishes
standards for the recognition, measurement, presentation and disclosure of
goodwill subsequent to its initial recognition and of intangible assets by
profit-oriented enterprises. Standards concerning goodwill are unchanged from
the standards included in the previous Section 3062. The Company is currently
evaluating the impact of the adoption of this new Section on its consolidated
financial statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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