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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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TIDMEGU
RNS Number : 9942V
European Goldfields Ltd
11 November 2010
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-AND NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2010
The following discussion and analysis, prepared as at 11 November 2010, is
intended to assist in the understanding and assessment of the trends and
significant changes in the results of operations and financial conditions of
European Goldfields Limited (the "Company"). The following discussion and
analysis should be read in conjunction with the Company's unaudited consolidated
financial statements for the three- and nine-month periods ended 30 September
2010 and 2009 and accompanying notes (the "Consolidated Financial Statements").
Additional information relating to the Company, including the Company's Annual
Information Form, is available on the Canadian System for Electronic Document
Analysis and Retrieval (SEDAR) at www.sedar.com. Except as otherwise noted, all
dollar amounts in the following discussion and analysis and the Consolidated
Financial Statements are stated in thousands of United States dollars.
Overview
The Company, a company incorporated under the Yukon Business Corporations Act,
is a resource company involved in the acquisition, exploration and development
of mineral properties in Greece, Romania and South-East Europe. The Company's
Common Shares are listed on the AIM Market of London Stock Exchange plc and on
the Toronto Stock Exchange ("TSX") under the symbol "EGU".
European Goldfields is a developer-producer with globally significant gold
reserves located within the European Union. The Company generates cash flow
from its 95% owned Stratoni operation, a high grade lead/zinc/silver mine in
North-Eastern Greece. European Goldfields will evolve into a mid tier producer
through responsible development of its project pipeline of gold and base metal
deposits at Skouries and Olympias in Greece and Certej in Romania. The Company
plans future growth through development of its highly prospective exploration
portfolio in Greece, Romania and Turkey.
Cautionary statement on forward-looking information
Certain statements and information contained in this document, including any
information as to the Company's future financial or operating performance and
other statements that express management's expectations or estimates of future
performance, constitute forward-looking information under provisions of Canadian
provincial securities laws. When used in this document, the words "anticipate",
"expect", "will", "intend", "estimate", "forecast", "planned" and similar
expressions are intended to identify forward-looking statements or information.
Forward-looking statements include, but are not limited to, the estimation of
mineral reserves and mineral resources, the timing and amount of estimated
future production, costs and timing of development of new deposits, permitting
time lines and expectations regarding metal recovery rates. Forward-looking
statements are necessarily based upon a number of estimates and assumptions
that, while considered reasonable by management, are inherently subject to
significant business, economic and competitive uncertainties and contingencies.
The Company cautions the reader that such forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual financial results, performance or achievements of the Company to be
materially different from its estimated future results, performance or
achievements expressed or implied by those forward-looking statements and the
forward-looking statements are not guarantees of future performance. These
risks, uncertainties and other factors include, but are not limited to: changes
in the price of gold, base metals or certain other commodities (such as fuel and
electricity) and currencies; uncertainty of mineral reserves, mineral resources,
grades and recovery estimates; uncertainty of future production, capital
expenditures and other costs; currency fluctuations; financing and additional
capital requirements; the successful and timely permitting of the Company's
Skouries, Olympias and Certej projects; legislative, political, social or
economic developments in the jurisdictions in which the Company carries on
business; operating or technical difficulties in connection with mining or
development activities; the speculative nature of gold and base metals
exploration and development, including the risks of diminishing quantities or
grades of mineral reserves; the risks normally involved in the exploration,
development and mining business; and risks associated with internal control over
financial reporting. For a more detailed discussion of such risks and material
factors or assumptions underlying these forward-looking statements, see
information under the heading "Risk Factors". The Company does not intend, and
does not assume any obligation, to update or revise any forward-looking
statements whether as a result of new information, future events or otherwise,
except as required by law.
RESULTS OF OPERATIONS
The Company's results of operations for the three-and nine-month periods ended
30 September 2010 were comprised primarily of activities related to the results
of operations of the Company's 95%-owned subsidiary Hellas Gold in Greece and
the Company's exploration and development programmes in Romania and Turkey.
GREECE SUMMARY
Final EIS Submitted - The final Environmental Impact Study ("EIS") for the
Company's Project in Halkidiki (the "Project") in North-Eastern Greece was
submitted to the Greek Ministry of Environment, Energy and Climate Change
("MoE").
In late September 2009, the Greek authorities completed the Preliminary
Environmental Assessment and Evaluation based on the Preliminary Environmental
Impact Study ("PEIS") submitted by the Company's 95%-owned subsidiary Hellas
Gold SA, and issued a pre-approval of the construction and operation of the
Project.
The Project consists of:
· The development of mining and processing at the Skouries project
· The next stages of the Olympias project, namely the mining and processing
of ore and metallurgical treatment of the concentrate, in accordance with the
business plan as originally submitted
· Continuation of operations at the Mavres Petres deposit of the Stratoni
Mine
· Development of the port facilities at Stratoni to service the above
projects' operations
The completion and submission of the final EIS is another landmark in European
Goldfields' development of the Project.
The EIS is subject to the final stages of a decision-making process that
conforms to the EU Directive on Environmental Impact Assessment. In summary, the
EIS is being reviewed by the competent authorities and is subject to public
consultation, the requirements for which are set out in this EU Directive and
embodied in Greek law.
EIS Public Consultation Underway - As announced on 8 November 2010, the MOE has
completed its review and delivered the EIS to the local authorities in Halkidiki
and notices were issued in local newspapers thereby initiating the process of
public consultation. The MOE acting through a Special Technical Committee has
reviewed the EIS in detail and provided important guidance to Hellas Gold in
concluding that the EIS conforms to relevant Greek and EU requirements.
Public Consultation will last for 35 days from 30th of October thereby both
allowing local stakeholders and potentially affected communities to offer their
comments and any further views to be communicated to the Special Technical
Committee as part of the conclusion of the environmental permitting process for
the Project.
Olympias project
Hellas Gold has fully depleted the surface stockpile of pyrite gold concentrate
at Olympias. Sales of Olympias gold concentrate will resume once Hellas Gold
receives the permits to process 2.4Mt of stockpiled tailings arising from the
previous operations at Olympias and when plant rehabilitation is completed. The
sales of pyrite concentrates over the past 8 quarters were as follows:
+----------------------+------+------+------+--------+--------+--------+--------+--------+
| Sale of Gold-Bearing Concentrates from Existing Stockpile |
+----------------------------------------------------------------------------------------+
| | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 | 2009 | 2008 |
| | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 |
+----------------------+------+------+------+--------+--------+--------+--------+--------+
| Sales | | | | | | | | |
+----------------------+------+------+------+--------+--------+--------+--------+--------+
| Gold concentrate | Nil | Nil | Nil | 34,182 | 21,734 | 32,134 | 26,832 | 18,566 |
| (dmt) | | | | | | | | |
+----------------------+------+------+------+--------+--------+--------+--------+--------+
| | | | | | | | | |
+----------------------+------+------+------+--------+--------+--------+--------+--------+
Olympias mine and plant rehabilitation in progress - The refurbishment and
enlargement of the mine access decline progressed well during the quarter.
Following a structural survey, repair work to the Concentrator building and
plant is nearing completion in preparation for tailings reprocessing to produce
pyrite gold concentrate. A mechanical and electrical audit has been carried out
and the necessary purchase orders prepared.
The Company is currently working toward optimising and updating the resources
and reserves for Olympias. The original resource model from 1999 rejected
certain mineralised areas as uneconomic at the then prevailing metal prices.
These are being reassessed in a more realistic metal price environment with the
expectation of restoring these mineralised areas into the resource model and
expanding the resource and reserve base. In parallel with this, the mine plan
will be updated and revised.
Stratoni operations
The Company's cash flow positive mining operations at Stratoni continue to
demonstrate European Goldfields' permitting and environmental capabilities and
commitment to the highest levels of social responsibility.
Production - The Company's 95% owned subsidiary Hellas Gold mined a total of
54,093 wet tonnes in Q3 2010 (Q3 2009 - 57,235). Hellas Gold's results from its
operations at Stratoni for the eight most recently completed quarters are
summarised in the following table:
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Operational results |
+------------------------------------------------------------------------------------------------------------+
| | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 | 2009 | 2008 |
| | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Inventory (start of | | | | | | | | |
| period) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Ore mined (wet | 16,392 | 14,089 | 1 | 8,097 | 2,293 | 4,010 | 1,778 | 6,489 |
| tonnes) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Zinc concentrate | 2,663 | 2,839 | 2,817 | 583 | 25 | 621 | 2,975 | 2,078 |
| (tonnes) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Lead/silver | 902 | 1,105 | 824 | 857 | 2,090 | 1,393 | 488 | 1,294 |
| concentrate (tonnes) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Production | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Ore mined (wet | 54,093 | 64,813 | 63,294 | 57,247 | 57,235 | 60,023 | 56,892 | 70,468 |
| tonnes) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Ore milled (tonnes) | 59,938 | 60,663 | 47,701 | 63,345 | 50,167 | 60,287 | 52,984 | 73,320 |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| - Average grade: Zinc | 9.28 | 8.91 | 9.90 | 8.64 | 9.10 | 8.87 | 7.85 | 8.80 |
| (%) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Lead (%) | 6.00 | 5.58 | 6.24 | 5.40 | 5.18 | 5.56 | 6.42 | 6.54 |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Silver (g/t) | 157 | 145 | 159 | 140 | 133 | 141 | 166 | 167 |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Zinc concentrate | 10,298 | 10,103 | 8,852 | 10,572 | 8,495 | 9,975 | 7,932 | 12,106 |
| (tonnes) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| - Containing: | 5,123 | 4,942 | 4,334 | 5,080 | 4,248 | 4,971 | 3,827 | 5,914 |
| Zinc (tonnes) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Lead concentrate | 4,630 | 4,479 | 4,040 | 4,684 | 3,503 | 4,483 | 4,667 | 6,750 |
| (tonnes) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| - Containing: | 3,307 | 3,092 | 2,727 | 3,143 | 2,376 | 3,060 | 3,129 | 4,434 |
| Lead (tonnes) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Silver (oz) | 249,717 | 233,760 | 203,914 | 236,621 | 177,650 | 230,106 | 240,366 | 336,336 |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Sales | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Zinc concentrate | 8,818 | 10,279 | 8,830 | 8,338 | 7,937 | 10,571 | 10,286 | 11,210 |
| (tonnes) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| - Containing payable: | 3,672 | 4,159 | 3,633 | 3,380 | 3,325 | 4,427 | 4,144 | 4,591 |
| Zinc (tonnes)* | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Lead concentrate | 2,691 | 4,682 | 3,759 | 4,717 | 4,736 | 3,786 | 3,762 | 7,556 |
| (tonnes) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| - Containing payable: | 1,798 | 3,071 | 2,385 | 3,030 | 3,042 | 2,448 | 2,347 | 4,775 |
| Lead (tonnes)* | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Silver (oz)* | 135,361 | 232,212 | 178,184 | 227,661 | 228,574 | 183,452 | 183,504 | 363,205 |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Cash operating cost | 153 | 141 | 151 | 173 | 165 | 144 | 156 | 145 |
| per tonne milled ($) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Cash operating cost | 119 | 110 | 110 | 117 | 116 | 106 | 119 | 109 |
| per tonne milled (EUR) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Inventory (end of | | | | | | | | |
| period) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Ore mined (wet | 9,074 | 16,392 | 14,089 | 1 | 8,097 | 2,293 | 4,010 | 1,778 |
| tonnes) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Zinc concentrate | 4,143 | 2,663 | 2,839 | 2,817 | 583 | 25 | 621 | 2,975 |
| (tonnes) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
| Lead/silver | 2,841 | 902 | 1,105 | 824 | 857 | 2,090 | 1,393 | 488 |
| concentrate (tonnes) | | | | | | | | |
+-----------------------+----------+-----------+-----------+---------+---------+---------+---------+---------+
* Net of smelter payable deductions
Production from the underground mine continued to be on schedule for the year.
The processing plant performed well in terms of throughput, recovery and
concentrate quality. Significant amounts of concentrate production remained
unsold at quarter end, resulting in unusually high concentrate inventory levels.
This inventory was shipped in October and will be reflected in Q4 results.
ROMANIA SUMMARY
Final EIS Submitted - The final EIS for the Company's Certej Project in Romania
was submitted during the quarter. This follows the issue of the Zonal
Urbanisation Plan ("PUZ") planning document by local authorities in May 2010,
which included an environmental summary and public consultation, and the
subsequent definitive confirmation of final guidelines for the EIS. The
completion and submission of the final EIS report is another landmark in
European Goldfields' development of the Certej Project.
The EIS is now subject to the final stages of a Romanian decision-making process
that conforms to the EU Directive on Environmental Impact Assessment. In
summary the EIS is being reviewed by the competent authorities and is subject to
public consultation, the requirements for which are set out in this EU Directive
and embodied in Romanian law.
Certej Implementation Strategy Underway - The Certej Project team have finalised
the procurement and implementation strategy for the process plant, which divides
the flow sheet into 3 discrete sections: Comminution and concentration, Albion
oxidation and gold recovery. Invitations to bid have been prepared on this
basis for the provision of the equipment and specialist engineering services to
major international equipment companies who have already been engaged in a
pre-qualification exercise and have confirmed their intention to bid on this
basis.
It is also planned that the civil engineering and earth moving works will be
awarded in no more than two major contracts to cover the initial construction of
the tailings facilities and the preparation of the plant, dump and stockpile
areas. Corresponding engineering design work is approximately 95% complete by
our local contractor Cepromin who have been commissioned to prepare the
Technical Project report which is required under Romanian legislation for the
Construction Permit.
Final geotechnical drilling and associated engineering studies for the process
plant, tailings management facilities and open pits have been completed by the
Company in cooperation with Golder Associates UK.
GROUP EXPLORATION UPDATE
Greece - Work has focused on the Piavitsa prospect, which historic drilling has
shown to be an Olympias look-alike target with high grade polymetallic
mineralisation in massive sulphides. New sampling of previously drilled core is
being carried out in order to confirm historic assays over previously identified
massive sulphide mineralisation and to test new zones of previously unrecognised
mineralisation and alteration. Soil geochemical samples have also been taken
aimed at confirming extensions to the known Piavitsa mineralisation, indicated
by conductive units which were revealed by an airborne geophysical survey.
Results from the sampling are expected in the coming weeks.
Romania - Four exploration boreholes were drilled to test potential gold
mineralisation that is close to, but currently outside the planned Certej open
pit footprint. Significant assay results include 17 m grading 3.40 g/t gold and
3.76 g/t silver west of the open pit and 16m grading 2.24 g/t gold and 2.94 g/t
silver northwest of the pit. Further drilling and trenching is planned in Q4
2010.
A new exploration survey located 12 km northwest of Certej, within the vicinity
of an historic gold mining area, has identified a number of significant
anomalies, supported by soil geochemistry and mapping. The anomalies potentially
represent previously undiscovered extensions to zones of gold mineralisation.
Preparations are currently being made to drill the most significant anomalies in
late Q4 2010 and early 2011.
Turkey - Drill testing of the Ardala porphyry copper gold target and Salinbas
epithermal gold zone, both held in joint venture with Ariana Resources plc,
continued during the quarter. Results of the programme have confirmed
mineralised targets and will be published during Q4 2010.
CORPORATE ACTIVITY
Financing - Work with the Certej project finance banks has progressed, with
facility documentation in an advanced form and technical due diligence
essentially complete. Following the submission of the final EIS in Greece, the
Company has advanced the negotiation of a bank facility for the development of
its Skouries project. It is anticipated that this facility will provide
substantially all the anticipated US$300 million construction capital for the
project. As with Certej, the Company will require that this facility also does
not commit to any hedging of the gold price upside. A term sheet is in final
draft form prior to agreeing mandate terms with the new bank group, and it is
expected that commercial terms will be similar to those already negotiated for
Certej. A further announcement on this is expected shortly.
Euromines Gold Group - We are pleased to announce that Mark Rachovides,
Executive Vice President of the Company, has been appointed as Chairman of the
Euromines Gold Group, a body to which we are pleased to give our full support.
New Appointments - Deborah Paxford has been appointed as Company Secretary.
Before joining European Goldfields, Ms. Paxford was Company Secretary at ZincOx
Resources plc where she was responsible for all company secretarial matters as
well as providing legal advice to management. Ms. Paxford qualified as
solicitor in 1995 and spent eight years working in private practice at two
leading London law firms before moving in-house as legal adviser for an
international software company, where she spent five years advising on corporate
and commercial matters.
SUMMARY OF FINANCIAL RESULTS
Stratoni operations
The Stratoni mine's financial results for the eight most recently completed
quarters are summarised in the following table:
+-----------------------+--------+--------+--------+--------+----------+-------+-----+-----+-----+---------+
| Financial performance |
+----------------------------------------------------------------------------------------------------------+
| (in thousands of US | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 | 2009 | 2008 |
| dollars) | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 |
+-----------------------+--------+--------+--------+--------+----------+-------+-----------+---------------+
| | | | | | | | | |
+-----------------------+--------+--------+--------+--------+----------+-------+-----------+---------------+
| Sales | 9,204 | 12,017 | 11,134 | 13,656 | 11,500 | 9,472 | 4,935 | 8,465 |
+-----------------------+--------+--------+--------+--------+----------+-------+-----------+---------------+
| EBITDA | 1,766 | 2,290 | 3,018 | 2,601 | 1,315 | 305 | (3,025) | (5,233) |
+-----------------------+--------+--------+--------+--------+----------+-------------+-----------+---------+
| Gross profit | 336 | 320 | 1,378 | 1,196 | (449) | (1,561) | (4,345) | (7,060) |
+-----------------------+--------+--------+--------+--------+----------+-------------+-----------+---------+
| Capital expenditure | 1,417 | 1,336 | 287 | 2,053 | 596 | 2,793 | 4,214 | 3,543 |
+-----------------------+--------+--------+--------+--------+----------+-------+-----------+---------------+
| Depreciation and | 1,430 | 1,970 | 1,640 | 1,405 | 1,764 | 1,866 | 1,320 | 1,827 |
| depletion | | | | | | | | |
+-----------------------+--------+--------+--------+--------+----------+-------+-----+-----+-----+---------+
Base metal prices saw a recovery during Q3 2010 after weakness in Q2 2010,
recovering to levels last experienced at the end of 2009. Thus, base metal
revenues and earnings before interest, taxes, depreciation and amortisation
("EBITDA") for the quarter ending 30 September 2010 increased compared to the
same period in 2009 as the result of lower sale volumes.
+-----------------------+-----+---------+-----+--------+-----+---------+----+---------+
| Reconciliation of Stratoni revenues - Q3 2010 |
+-------------------------------------------------------------------------------------+
| (in thousands of US | | | | | | | | |
| dollars unless stated | | Zinc | | Lead | | Silver | | Total |
| otherwise) | | | | | | | | |
+-----------------------+-----+---------+-----+--------+-----+---------+----+---------+
| | | | | | | | | |
+-----------------------+-----+---------+-----+--------+-----+---------+----+---------+
| Payable metal | | 3,673 | | 1,798 | | 135,361 | | n/a |
| | | t | | t | | oz | | |
+-----------------------+-----+---------+-----+--------+-----+---------+----+---------+
| Realised price | | $1,943 | | $2,127 | | $ | | n/a |
| | | t | | t | | 8.11 | | |
| | | | | | | oz | | |
+-----------------------+-----+---------+-----+--------+-----+---------+----+---------+
| | | | | | | | | |
+-----------------------+-----+---------+-----+--------+-----+---------+----+---------+
| Payable metal revenue | | 7,137 | | 3,824 | | 1,098 | | 12,059 |
| | | | | | | | | |
+-----------------------+-----+---------+-----+--------+-----+---------+----+---------+
| TC/RCs | | (2,436) | | (389) | | (108) | | (2,933) |
+-----------------------+-----+---------+-----+--------+-----+---------+----+---------+
| Transport | | 11 | | - | | - | | 11 |
| recoveries/(charges) | | | | | | | | |
+-----------------------+-----+---------+-----+--------+-----+---------+----+---------+
| Net revenue | | 4,712 | | 3,435 | | 990 | | 9,137 |
+-----------------------+-----+---------+-----+--------+-----+---------+----+---------+
| Prior quarter | | 55 | | 23 | | (11) | | 67 |
| adjustments | | | | | | | | |
+-----------------------+-----+---------+-----+--------+-----+---------+----+---------+
| Total revenue | | 4,767 | | 3,458 | | 979 | | 9,204 |
+-----------------------+-----+---------+-----+--------+-----+---------+----+---------+
| | | | | | | | | |
+-----------------------+-----+---------+-----+--------+-----+---------+----+---------+
+-----------------------+-----+---------+-----+--------+-----+------+------+------+----+---------+
| Reconciliation of Stratoni revenues - Q3 2009 |
+------------------------------------------------------------------------------------------------+
| (in thousands of US | | | | | | | | |
| dollars unless stated | | Zinc | | Lead | | Silver | | Total |
| otherwise) | | | | | | | | |
+-----------------------+-----+---------+-----+--------+-----+--------------------+----+---------+
| | | | | | | | | |
+-----------------------+-----+---------+-----+--------+-----+--------------------+----+---------+
| Payable metal | | 3,325 | | 3,042 | | 228,574 oz | | n/a |
| | | t | | t | | | | |
+-----------------------+-----+---------+-----+--------+-----+--------------------+----+---------+
| Realised price | | $1,795 | | $2,106 | | $8.12 oz | | n/a |
| | | t | | t | | | | |
+-----------------------+-----+---------+-----+--------+-----+--------------------+----+---------+
| | | | | | | | | |
+-----------------------+-----+---------+-----+--------+-----+--------------------+----+---------+
| Payable metal revenue | | 5,968 | | 6,406 | | 1,855 | | 14,229 |
| | | | | | | | | |
+-----------------------+-----+---------+-----+--------+-----+--------------------+----+---------+
| TC/RCs | | (2,147) | | (703) | | (192) | | (3,042) |
+-----------------------+-----+---------+-----+--------+-----+--------------------+----+---------+
| Transport | | 14 | | - | | - | | 14 |
| recoveries/(charges) | | | | | | | | |
+-----------------------+-----+---------+-----+--------+-----+--------------------+----+---------+
| Net revenue | | 3,835 | | 5,703 | | 1,663 | | 11,201 |
+-----------------------+-----+---------+-----+--------+-----+--------------------+----+---------+
| Prior quarter | | (41) | | 354 | | (14) | | 299 |
| adjustments | | | | | | | | |
+-----------------------+-----+---------+-----+--------+-----+--------------------+----+---------+
| Total revenue | | 3,794 | | 6,057 | | 1,649 | | 11,500 |
+-----------------------+-----+---------+-----+--------+-----+--------------------+----+---------+
| | | | | | | | | |
+-----------------------+-----+---------+-----+--------+-----+------+------+------+----+---------+
Total quarterly revenues from concentrate sales decreased year on year,
primarily as a result of lower payable metal sales: payable zinc increased 10%,
but payable lead and silver both decreased 41% compared to the prior year
quarter; realised prices for zinc were $1,943 per tonne, up 8%, and for lead
$2,127 per tonne, up 1% compared to Q3 2009. As base metal prices trended
upwards during Q3 2010, prior quarter revenue adjustments yielded a small
positive revenue impact for Q3 2010. Despite the higher realised prices, lower
payable metal compared to the prior year quarter led to a decrease of 15% in
payable base metal revenues.
Olympias project
Hellas Gold completed the final shipments of Olympias gold bearing concentrates
from the surface concentrate stockpile in Q4 2009, thereby depleting the surface
concentrate stockpile reserve. Therefore, no sales were made in Q3 2010,
compared to positive revenues of $5.54 million for the same period in 2009.
+----------------------+------+------+-------+-------+-------+-------+-------+-------+
| Financial performance |
+------------------------------------------------------------------------------------+
| (in thousands of US | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 | 2009 | 2008 |
| dollars) | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 |
+----------------------+------+------+-------+-------+-------+-------+-------+-------+
| | | | | | | | | |
+----------------------+------+------+-------+-------+-------+-------+-------+-------+
| Sales | Nil | (48) | (699) | 5,073 | 5,537 | 6,732 | 5,807 | 4,309 |
+----------------------+------+------+-------+-------+-------+-------+-------+-------+
| Gross profit | Nil | (48) | (699) | 4,067 | 4,012 | 4,747 | 4,003 | 2,995 |
+----------------------+------+------+-------+-------+-------+-------+-------+-------+
| Depreciation and | Nil | Nil | Nil | 196 | 124 | 184 | 153 | 106 |
| depletion | | | | | | | | |
+----------------------+------+------+-------+-------+-------+-------+-------+-------+
Consolidated results
The Company's statements of profit and loss for the eight most recently
completed quarters are summarised in the following table:
+------------------------+---------+----------+---------+---------+---------+---------+---------+----------+
| Financial performance |
+----------------------------------------------------------------------------------------------------------+
| | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 | 2009 | 2008 |
| (in thousands of US | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 |
| dollars, | $ | $ | $ | $ | $ | $ | $ | $ |
| except per share | | | | | | | | |
| amounts) | | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+---------+----------+
| Statement of Profit | | | | | | | | |
| and Loss | | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+---------+----------+
| Sales | 9,204 | 11,969 | 10,435 | 18,729 | 17,037 | 16,204 | 10,742 | 12,774 |
+------------------------+---------+----------+---------+---------+---------+---------+---------+----------+
| Cost of sales | 8,868 | 11,697 | 9,756 | 13,466 | 13,474 | 13,018 | 11,084 | 16,839 |
+------------------------+---------+----------+---------+---------+---------+---------+---------+----------+
| Gross profit | 336 | 272 | 679 | 5,263 | 3,563 | 3,186 | (342) | (4,065) |
+------------------------+---------+----------+---------+---------+---------+---------+---------+----------+
| Interest income | 65 | 35 | 62 | (163) | 147 | 133 | 508 | 1,164 |
+------------------------+---------+----------+---------+---------+---------+---------+---------+----------+
| Foreign exchange | 6,930 | (10,354) | 1,563 | 88 | (501) | 1,719 | (2,882) | (6,253) |
| gain/(loss) | | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+---------+----------+
| Hedge contract profit | 183 | 394 | - | 373 | 1,030 | 1,801 | 2,417 | 3,165 |
+------------------------+---------+----------+---------+---------+---------+---------+---------+----------+
| Share of profit/(loss) | (9) | 39 | - | (3) | (187) | 18 | 60 | (3) |
| in associate | | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+---------+----------+
| Expenses | 10,251 | 10,941 | 8,128 | 11,251 | 5,384 | 4,204 | 3,740 | 5,253 |
+------------------------+---------+----------+---------+---------+---------+---------+---------+----------+
| Profit/(loss) before | (2,746) | (20,555) | (5,824) | (5,693) | (1,332) | 2,653 | (3,979) | (11,245) |
| income taxes | | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+---------+----------+
| Income taxes | 960 | 1,941 | (438) | (991) | (1,847) | (1,078) | 540 | 17,067 |
+------------------------+---------+----------+---------+---------+---------+---------+---------+----------+
| Profit/(loss) after | (1,786) | (18,614) | (6,262) | (6,684) | (3,179) | 1,575 | (3,439) | 5,822 |
| income taxes | | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+---------+----------+
| Non-controlling | 141 | 341 | (77) | (159) | 56 | (136) | 183 | 519 |
| interest | | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+---------+----------+
| Profit/(loss) for the | (1,645) | (18,273) | (6,339) | (6,843) | (3,123) | 1,439 | (3,256) | 6,341 |
| period | | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+---------+----------+
| Earnings/(loss) per | (0.01) | (0.10) | (0.03) | (0.04) | (0.02) | 0.01 | (0.02) | 0.04 |
| share | | | | | | | | |
+------------------------+---------+----------+---------+---------+---------+---------+---------+----------+
The Company recorded a loss before taxes of $29.13 million for the nine-month
period ended 30 September 2010, compared to a loss before taxes of $2.66 million
for the same period of 2009. The Company recorded a net loss (after taxes and
non-controlling interest) of $26.26 million ($0.14 loss per share) for the
nine-month period ended 30 September 2010, compared to a net loss of $4.94
million ($0.03 loss per share) for the same period of 2009.
The Company recorded a loss before taxes of $2.75 million for the three-month
period ended 30 September 2010, compared to a loss before taxes of $1.33 million
for the same period of 2009. The Company recorded a net loss (after taxes and
non-controlling interest) of $1.65 million ($0.01 profit per share) for the
three-month period ended 30 September 2010, compared to a net loss of $3.12
million ($0.02 loss per share) for the same period of 2009.
In more detail, the following factors have contributed to the above:
·Most importantly, with the pyrite stockpile fully depleted, the Companys gold
concentrate business has been suspended until the retreatment of the tailings
dump at Olympias can begin. The sale of gold concentrates has been a more
significant profit driver for the Company than the base metals business for the
past two years. Therefore, in the three and nine-month periods ended 30
September 2010, Hellas Gold sold a total of Nil tonnes of gold bearing pyrite
concentrates from Olympias, compared to 21,734 tonnes and 80,700 tonnes
respectively in the three and nine months to 30 September 2009.
·There was a positive trend for base metal prices in the three-month period
ended 30 September 2010, lead and zinc prices were both higher than lead and
zinc price levels during Q3 2009. In the three-month period ended 30 September
2010, zinc averaged $2,043 per tonne and lead $2,065 per tonne compared to
$1,780 per tonne and $1,942 per tonne respectively for the same period in 2009.
The Stratoni mine was operating at slightly lower mining levels in the third
quarter of 2010 than in the same period of 2009, with mine production decreasing
5%, although mill processing increased 19% respectively. Once again, Stratoni
ended the quarter with a large ROM stockpile which will be processed next
quarter. Sales of payable metal in Q3 2010 were lower than mill production for
the quarter, with payable zinc of 3,672 tonnes, a 10% increase over the same
period in 2009, and payable lead down by 41% to 1,798 tonnes. Following these
changes in realized prices and sales volumes, revenues from payable zinc in Q3
2010 increased 26% compared to Q3 2009, and revenues from payable lead decreased
43% over the same period.
·A more accentuated trend for base metal prices is seen during the first nine
months of 2010 compared to the same period in 2009. In the nine months ended 30
September 2010, zinc averaged $2,134 per tonne and lead $2,092 per tonne
compared to $1,502 per tonne and $1,549 per tonne respectively for the same
period in 2009. The Stratoni mine was operating at higher mining levels for the
first nine months of 2010 than in the same period of 2009, with mine production
increasing 5%, although mill processing only increased 3%. However, concentrate
stockpile increases meant that tonnes of payable zinc sold in the first nine
months of 2010 fell 4% compared to the same period 2009, and tonnes of payable
lead fell 7% over the same period. This price trend was a positive key driver
for payable base metal revenues but overall revenues decreased 28% because of no
gold concentrate sales in the first nine-months of 2010 compared to the same
period in 2009.
·Cost of sales of $30.32 million in the first nine months of 2010 and $8.87
million in Q3 2010, compared to $37.58 million and $13.47 million, respectively,
for the same periods of 2009, included $5.04 million in depreciation and
depletion expenses in the first nine months of 2010 and $1.43 million in Q3
2010, compared to $5.41 million for the same period of 2009 and $1.89 million in
Q3 2009. In the nine months to 30 September 2010, Stratoni costs of production
fell by $0.29 million driven mainly by lower US dollar unit operating costs, and
transport costs were $4.34 million lower, resulting primarily from no gold
concentrate sales in 2010; amortization and depreciation were $0.37 million
lower due to no gold concentrate sales in the first nine months of 2010 and
increases to inventory decreased costs of sales by $2.26 million. For the
quarter ended 30 September 2010 compared to the same period in 2009, the trends
were: $0.89 million increase in cost of production driven mainly by higher
production, $1.38 million lower transport costs, $0.46 million lower
amortization and depreciation, and a higher transfer of cost to inventory of
$3.77 million.
·As a result, the Company recorded a gross profit of $1.29 million in the first
nine months of 2010 and $0.34 million in Q3 2010, on revenues of $31.61 million
and $9.20 million, respectively, compared to a gross profit of $6.41 million in
the first nine months of 2009 and $3.56 million in Q3 2009 on revenues of $43.98
and $17.04 million, respectively, for the same periods of 2009.
·The Companys corporate administrative and overhead expenses have increased
from $3.20 million in the first nine months of 2009 and $1.14 million in Q3 2009
to $9.40 million and $3.17 million, respectively, for the same periods in 2010.
The main element of this increase relates to consulting and legal fees relating
to the permitting processes in Greece and Romania.
·The Company recorded a non-cash equity-based compensation expense of $8.33
million in the first nine months of 2010 and $3.56 million in Q3 2010, compared
to $2.33 million and $1.37 million, respectively, for the same periods of 2009.
The changes relate to equity compensation which vested in Q3 2010 as a result of
strong share price appreciation, which also increased the amounts expensed
relating to DPUs, increasing the 2010 charges compared to 2009. Equity-based
compensation relates to options, restricted share units ("RSUs") and deferred
phantom units ("DPUs"). Both RSUs and DPUs are valued by direct reference to the
Companys share price, without the need for estimates to calculate the fair
value of these instruments. RSUs are valued using the share price upon issuance,
whilst DPUs are revalued to the Companys closing share price at the end of each
reporting period. Options are valued using option valuation methodologies which
require estimates to determine fair value. The Company continued a practice of
recharging some of its equity-based compensation expense to its operating
subsidiaries, a portion of which is capitalised by such subsidiaries.
·The Company recorded a foreign exchange loss of $1.86 million in the first nine
months of 2010 and a foreign exchange gain of $6.93 million in Q3 2010, compared
to a foreign exchange loss of $1.66 million in the first nine months of 2009 and
a foreign exchange loss of $0.50 million in Q3 2009. These exchange differences
arise as a result of changes in the US dollar values of Euro cash and cash
equivalents held by the Company, as well as Hellas Golds monetary assets or
liabilities. Since Hellas Gold has large monetary asset positions, a
strengthening US dollar tends to generate foreign exchange losses as the net
Euro denominated assets are revalued downwards in US dollar terms; the reverse
is true as US dollar weakens. In addition, as the Euro started to weaken at the
beginning of 2010, the Company began a strategy of moving its cash holdings from
the US dollar into the Euro, particularly with regards to its equity
contribution for the Certej project financing. The Company now holds
approximately EUR40 million compared to 2009 when all cash was held in US dollars,
and as a result in Q3 2010 a strengthening Euro generated a significant foreign
exchange gain.
·Hellas Golds administrative and overhead expenses amounted to $7.70 million in
the first nine months of 2010 and $2.32 million in Q3 2010 compared to $4.67
million and $1.90 million, respectively, for the same periods of 2009, primarily
as a result of once-off costs relating to the reparation of installations and
dwellings, which were damaged due to an extreme rainfall event during the first
nine months of the 2010. An insurance claim has been made and may allow these
costs to be credited at a later date.
·Hellas Gold incurred an expense of $2.89 million in the first nine months of
2010 and $0.86 million in Q3 2010, compared to $2.55 million and $0.78 million,
respectively, for the same periods of 2009, for ongoing water pumping and
treatment at its non-operating mines of Olympias and Madem Lakkos backfilling,
in compliance with Hellas Golds commitment to the environment under its
contract with the Greek State.
·The Company recorded an income taxes credit of $2.46 million in the first nine
months of 2010 and $0.96 million credit in Q3 2010, compared to a charge of
$2.39 million and $1.85 million, respectively, for the same periods of 2009. The
majority of the movements relate to changes in future tax provisions in the
Companys subsidiary Hellas Gold.
·The Company recorded a credit of $0.41 million in the first nine months of 2010
and a credit of $0.14 million in Q3 2010 relating to the non-controlling
shareholders interest in Hellas Golds profit (after tax), compared to a credit
of $0.10 and a charge of $0.04, respectively, for the same periods of 2009.
Financial instruments
Hedging commitments - The Company enters into financial transactions in the
normal course of business and in line with Board guidelines for the purpose of
hedging and managing its expected exposure to commodity prices. There are a
number of financial institutions which offer metal hedging services and the
Company deals with highly rated banks and institutions who have demonstrated
long term commitment to the mining industry. The Company has one counterparty
in respect of its lead and zinc hedge contracts noted below. Market conditions
and prices would affect the fair value of these hedge contracts and in certain
market conditions, where the fair value of the hedge contract is positive to the
Company and the counterparty were unable to honour its obligations under the
hedge contract, the Company would be exposed to the value of the hedge, being
the difference between the hedged price and the then current market price on the
date of the settlement. The hedges below are treated as cash flow hedges in
accordance with CICA 3865: Hedges.
Lead and Zinc hedging contracts - As at 30 September 2010, the Company had
entered into hedging arrangements as illustrated below which, for the amount of
production shown, protect the Company from decreasing prices below the floor
price and limit participation in increasing prices above the cap price. The
period of the hedge is from 1 October 2010 until 31 December 2010 and is cash
settled on a monthly basis between the monthly average of the relevant commodity
price and the cap and floor price, as applicable. As at 30 September 2010,
these contracts had a fair value of $70 (31 December 2009 - ($1,064)),
determined by a third party valuation using the appropriate Black-Scholes
options valuation model, based on the then prevailing market prices including
lead and zinc prices, interest rates and market volatility.
+----------------+------------------------------+------+-------+----------+-------+
| | | | |
| Period October 2010 - December 2010 | Lead | | Zinc |
+------------------------------------------------------+-------+----------+-------+
| | | | | | |
+----------------+------------------------------+------+-------+----------+-------+
| Total Volume | (tonnes) | | 1,500 | | 1,950 |
+----------------+------------------------------+------+-------+----------+-------+
| Monthly Volume | (tonnes) | | 500 | | 650 |
+----------------+------------------------------+------+-------+----------+-------+
| | | | | | |
+----------------+------------------------------+------+-------+----------+-------+
| Floor Price | ($/tonne) | | 2,000 | | 2,000 |
+----------------+------------------------------+------+-------+----------+-------+
| Cap Price | ($/tonne) | | 2,900 | | 2,925 |
+----------------+------------------------------+------+-------+----------+-------+
During the nine- and three-month period ended 30 September 2010, the Company
recorded income relating to its hedging program of $577 (2009 - $5,248) and $183
(2009 - $1,030).
Given the current maturity profile of the hedge, market expectations and
parameters, we expect that the fair value of the existing hedge contracts of $70
will be released to net income within the next 3 months.
Related parties
Aktor S.A ("Aktor") Greece's largest construction Company owns 5% of Hellas Gold
the Company's 95% owned subsidiary. Aktor is a 100% subsidiary of Ellaktor
S.A., which owns 19.4% of the Company's issued share capital. Aktor, which is
deemed a related party, contracts management, technical and engineering services
to Hellas Gold.
During the nine-month period ended 30 September 2010, Hellas Gold incurred costs
of $27,080 (2009 - $24,768) and during the three-month period ended 30 September
2010 Hellas Gold incurred costs $9,753 (2009 - $6,945) which have been
recognised as cost of sales in the statements of profit and loss and capitalised
to property, plant and equipment, for services received from Aktor. As at 30
September 2010, Hellas Gold had accounts payable of $12,702 (2009 - $8,673) to
Aktor. These expenditures were contracted in the normal course of operations
and are recorded at the exchange amount agreed by the parties. The terms of the
payable are 30 days (2009 - 30 days).
During the nine-month period ended 30 September 2010, the Company loaned three
of its directors a total of $97 (GBP61), in relation to employee withholding
taxes paid by the Company on behalf of the directors. These loans, which were
taken out in the context of the Company's long term incentive plan to increase
directors' equity investment in the Company, are interest free and repayable by
mutual agreement.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet and cash flows for the eight most recently completed
quarters are summarised in the following table:
+---------------------+----------+----------+----------+----------+----------+------+----------+----------+----------+------+
| | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 | 2009 | 2008 |
| (in thousands of US | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 |
| dollars, | $ | $ | $ | $ | $ | $ | $ | $ |
| except per share | | | | | | | | |
| amounts) | | | | | | | | |
+---------------------+----------+----------+----------+----------+----------+-----------------+---------------------+------+
| Balance sheet (end | | | | | | | | |
| of period) | | | | | | | | |
+---------------------+----------+----------+----------+----------+----------+------+---------------------+-----------------+
| Cash | 82,768 | 84,978 | 101,836 | 113,642 | 124,112 | 142,728 | 153,995 | 170,296 |
+---------------------+----------+----------+----------+----------+----------+-----------------+----------+-----------------+
| Working capital | 97,359 | 105,796 | 129,143 | 144,899 | 146,158 | 171,185 | 176,319 | 192,675 |
+---------------------+----------+----------+----------+----------+----------+-----------------+----------+-----------------+
| Total assets | 734,252 | 724,581 | 737,871 | 744,100 | 749,870 | 753,196 | 757,206 | 766,095 |
+---------------------+----------+----------+----------+----------+----------+-----------------+----------+-----------------+
| Non current | 144,512 | 143,971 | 145,520 | 145,563 | 153,882 | 153,544 | 154,882 | 155,727 |
| liabilities | | | | | | | | |
+---------------------+----------+----------+----------+----------+----------+-----------------+----------+-----------------+
| Statement of cash | | | | | | | | |
| flows | | | | | | | | |
+---------------------+----------+----------+----------+----------+----------+------+---------------------+-----------------+
| Cash flows from | (941) | (4,320) | (4,275) | (4,589) | 2,865 | (7,733) | (2,923) | 883 |
| operating | | | | | | | | |
| activities | | | | | | | | |
+---------------------+----------+----------+----------+----------+----------+-----------------+----------+-----------------+
| Investing | (7,329) | (7,737) | (4,251) | (6,851) | (22,793) | (6,167) | (10,674) | (11,672) |
| activities | | | | | | | | |
+---------------------+----------+----------+----------+----------+----------+-----------------+----------+-----------------+
| - Plant and | (3,702) | (4,996) | (2,513) | (4,101) | (20,649) | (3,450) | (8,953) | (12,998) |
| equipment | | | | | | | | |
+---------------------+----------+----------+----------+----------+----------+-----------------+----------+-----------------+
| - Deferred | (2,783) | | | | | | | |
| exploration and | | (2,741) | (1,738) | (2,440) | (2,137) | (2,600) | (1,481) | (2,837) |
| development costs | | | | | | | | |
+---------------------+----------+----------+----------+----------+----------+-----------------+----------+-----------------+
| - Other | (844) | - | - | (310) | (7) | (117) | (240) | 4,163 |
+---------------------+----------+----------+----------+----------+----------+-----------------+----------+-----------------+
| Financing | 199 | 113 | - | 1,692 | - | 80 | 558 | (10) |
| activities | | | | | | | | |
+---------------------+----------+----------+----------+----------+----------+-----------------+----------+-----------------+
| Effect of foreign | 5,861 | (4,914) | (3,280) | (722) | 1,312 | 2,553 | (3,262) | (6,229) |
| exchange on cash | | | | | | | | |
+---------------------+----------+----------+----------+----------+----------+-----------------+----------+-----------------+
| Total movement in | (2,210) | (16,858) | (11,806) | (10,470) | (18,616) | (11,267) | (16,301) | (17,028) |
| cash | | | | | | | | |
+---------------------+----------+----------+----------+----------+----------+-----------------+----------+-----------------+
| | | | | | | | | | | |
+---------------------+----------+----------+----------+----------+----------+------+----------+----------+----------+------+
As at 30 September 2010, the Company had cash and cash equivalents of $82.77
million, compared to
$113.64 million as at 31 December 2009, and working
capital of $97.36 million, compared to $144.90 million as at 31 December 2009.
The Company has sufficient capital for its needs until all the permits to
construct its new mines are received, at which point additional development
capital will be required. The Company is confident that the bank debt and
capital markets have sufficient liquidity to provide any additional capital it
may require to bring its project portfolio into production.
The decrease in cash and cash equivalents as at 30 September 2010, compared to
the balances as at
31 December 2009, resulted primarily from changes in
operating cash flow before net changes in non-cash working capital ($14.46
million), capital expenditure Greece ($9.90 million), deferred exploration and
development costs in Romania ($4.25 million), the effect of foreign currency
translation on cash ($2.33 million), capital land and equipment expenditure
($2.15 million), deferred exploration and development costs in Greece ($1.96
million and deferred exploration costs in Turkey ($1.05 million), offset by
operating cash flow $4.92 million and proceeds from exercise of share options
$0.31 million.
The following table sets forth the Company's contractual obligations including
payments due for each of the next five years and thereafter:
+---------------------+----------+------------+----------+----------+----------+
| | Payments due by period |
+---------------------+--------------------------------------------------------+
| | (in thousands of US dollars) |
+---------------------+--------------------------------------------------------+
| Contractual | Total | Less than | 2 - 3 | 4 - 5 | After 5 |
| obligations | | 1 year | years | years | years |
| | | | | | |
+---------------------+----------+------------+----------+----------+----------+
| Operating lease | 1,214 | 245 | 668 | 301 | - |
| (London office) | | | | | |
+---------------------+----------+------------+----------+----------+----------+
| Operating lease | 815 | 141 | 284 | 284 | 106 |
| (Athens office) | | | | | |
+---------------------+----------+------------+----------+----------+----------+
| Outotec OT - | 467 | 467 | - | - | - |
| Processing Plant | | | | | |
+---------------------+----------+------------+----------+----------+----------+
| Total contractual | 2,496 | 853 | 952 | 585 | 106 |
| obligations | | | | | |
+---------------------+----------+------------+----------+----------+----------+
The Company's contractual obligation with Outotec relates to the contract to
supply the large technology services for its Skouries project.
In 2010, the Company expects to spend a total of $39 million in capital
expenditures to fund the development of its project portfolio. This amount
comprises $4 million at its existing operation at Stratoni to upgrade the mill
and mining equipment, $10 million at Olympias as part of the refurbishment of
the mine and process plant, and $5 million at Skouries as the Company expects to
continue to spend on engineering studies. At Certej, the Company expects to
spend $20 million as it progresses through the final stages of environmental
permitting, and advances through the basic and detailed engineering phases. In
addition to its capital expenditure programme, the Company expects to spend $5
million in exploration over the wider licence areas in Greece, Romania and
Turkey, $14 million on Hellas Gold administrative and overhead and water
treatment expenses, and $14 million on corporate administrative and overhead
expenses. The Company expects to fund all such costs from existing cash
balances and operating cash flow generated from its Hellas Gold operations.
OUTSTANDING SHARE DATA
The following represents all equity shares outstanding and the numbers of common
shares into which all securities are convertible, exercisable or exchangeable:
Common shares:
183,142,301
Common share options:
4,573,665
Restricted share units:
1,695,102
Less:
Issued to JOE plan
(500,000)
Common shares (fully-diluted):
188,242,812
Preferred shares:
Nil
NON GAAP PERFORMANCE MEASURES
The Company uses certain performance measures in its analysis. Some of these
performance measures have no meaning within Canadian GAAP and, therefore,
amounts presented may not be comparable to similar data presented by other
mining companies. The data is intended to provide additional information and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with Canadian GAAP.
Cash operating cost per tonne milled is a Non-GAAP measure which the Company
uses as a key performance indicator, which reflects the fact that it is a key
performance measure that Stratoni mine management uses to monitor operating
performance. The Stratoni ore body produces three saleable products, being zinc
lead and silver. Using a measure which focuses on actual cost of the production
process rather than a measurement of cost per product eliminates distortions
resulting from grade mined or realised metal prices, and provides a real
indication of cost management compared to tonnage processed. Management uses
these statistics to assess how well the Company's producing mine is performing
compared to plan and to assess overall efficiency and effectiveness of the
mining operation.
The Company provides this cash cost information as it is a key performance
indicator required by users of the Company's financial information in order to
assess the Company's profit potential and performance relative to its peers.
The cash cost figure represents the total of all cash costs directly
attributable to the related mining and processing operations without the
deduction of any credits in respect of by-product sales. Cash cost is not a
GAAP measure and, although it is calculated according to accepted industry
practice, the Company's disclosed cash costs may not be directly comparable to
other base metal producers. Cash operating cost per tonne milled is a measure
denominated in Euros, and therefore, when stated in US dollars, will be affected
by changes in the Euro - US dollar exchange rate.
The following table reconciles cash operating cost per tonne to cost of sales as
disclosed in our income statement for the most recent 8 quarters:
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| (in thousands of US | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 | 2009 | 2008 |
| dollars) | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 |
| | $ | $ | $ | $ | $ | $ | $ | $ |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| | | | | | | | | |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| Milled production | 59,938 | 60,663 | 47,701 | 63,345 | 50,167 | 60,287 | 52,984 | 73,320 |
| (dmt) | | | | | | | | |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| | | | | | | | | |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| Cash operating cost | 119 | 110 | 110 | 117 | 116 | 106 | 119 | 109 |
| per tonne milled | | | | | | | | |
| (EUR) | | | | | | | | |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| Cash operating cost | 153 | 141 | 151 | 173 | 165 | 144 | 156 | 145 |
| per tonne milled | | | | | | | | |
| ($) | | | | | | | | |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| | | | | | | | | |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| Cash cost of | 9,181 | 8,553 | 7,221 | 10,948 | 8,288 | 8,687 | 8,278 | 10,609 |
| production | | | | | | | | |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| | | | | | | | | |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| Movement in | (2,692) | 157 | (109) | (916) | 1,080 | (175) | (1,300) | 368 |
| concentrate | | | | | | | | |
| inventory | | | | | | | | |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| | | | | | | | | |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| Cash cost of sales | 6,489 | 8,710 | 7,112 | 10,032 | 9,368 | 8,512 | 6,978 | 10,977 |
| - Stratoni | | | | | | | | |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| | | | | | | | | |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| Amortisation and | 1,429 | 1,970 | 1,640 | 1,601 | 1,888 | 2,050 | 1,473 | 1,933 |
| depletion | | | | | | | | |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| Concentrate | 840 | 1,126 | 1,004 | 1,833 | 2,218 | 2,666 | 2,423 | 2,977 |
| transport costs | | | | | | | | |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| Inventory | 110 | (109 ) | - | - | - | (210) | 210 | 952 |
| write-down/adjustments | | | | | | | | |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| | | | | | | | | |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| Cost of sales | 8,868 | 11,697 | 9,756 | 13,466 | 13,474 | 13,018 | 11,084 | 16,839 |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
| | | | | | | | | |
+------------------------+---------+--------+--------+--------+--------+--------+---------+--------+
Earnings before interest, tax, depreciation and amortisation ("EBITDA") is a
Non-GAAP measure which the Company uses as an indicator of the cash generation.
For each operation, it is calculated as gross profit adjusted for all
depreciation, depletion and amortisation charges as presented under Canadian
GAAP.
CRITICAL ACCOUNTING ESTIMATES
The consolidated financial statements have been prepared on a going concern
basis in accordance with accounting principles generally accepted in Canada
("Canadian GAAP"), which assumes the Company will be able to realise assets and
discharge liabilities in the normal course of business for the foreseeable
future. The consolidated financial statements do not include the adjustments
that would be necessary should the Company be unable to continue as a going
concern and reflect the following critical accounting estimates.
Deferred exploration and development costs - Acquisition costs of resource
properties, together with direct exploration and development costs incurred
thereon, are deferred and capitalised. Upon reaching commercial production,
these capitalised costs are transferred from exploration properties to producing
properties on the consolidated balance sheets and are amortised into operations
using the unit-of-production method over the estimated useful life of the
estimated related ore reserves.
The proven and probable reserves are determined based on a professional
evaluation using accepted international standards for the assessment of mineral
reserves. The assessment involved the study geological, geophysical and
economic data and the reliance on a number of financial and technical
assumptions. The estimates of the reserves may be subject to change based on
new information gained subsequent to the initial assessment. This may include
additional information available from continuing exploration, results from the
reconciliation of actual mining and plant production data against the original
reserve estimates, or the impact of economic factors such as changes in metal
prices, exchange rates or the cost of components of production. A total of
$1,569 for the period to 30 September 2010 (2009 - $2,431) and $415 Q3 2010
(2009 - $762) was charged to the income statement in relation to depletion of
mineral properties, which were subject to these estimates. If actual reserves
prove to be significantly different from current estimates, a material change to
amounts charged to earnings could occur. A total of $488,295 (31 December 2009
- $480,995) mineral properties, was stated on the balance sheet that are subject
to these estimates now and in the future.
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. Under Canadian GAAP, a fall in metal prices is one of a
number of factors in whether long-lived assets are subject to impairment. In
such circumstances, management would prepare future cash flow forecasts to
establish whether any actual impairment had occurred. These estimates are based
on future expectations, and a number of assumptions and judgments made by
management, the same as those required for the estimation of reserves. Current
metal prices do not suggest there has been any impairment on any of the
Company's long-lived assets. If such an impairment were to occur, this could
result in a material charge to earnings. A total of $488,295, (31 December 2009
- $480,995) of mineral properties was stated on the balance sheet that are
subject to this estimation process.
Long-lived assets are depreciated against operations using the
unit-of-production method over the estimated useful life of the estimated
related ore reserves. As stated above, the determination of reserves is
dependent upon the reliance on a number of financial and technical assumptions,
which may be subject to change. If actual reserves prove to be significantly
different from current estimates, a material change to amounts charged to
earnings could occur.
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 future costs of retirement obligations are estimated
by management based upon knowledge of the cost of these activities and a number
of assumptions and judgments are made by management in their determination.
These estimates are regularly reviewed for reasonableness and any changes to the
original cost estimate reflected in the asset retirement obligation liability.
The liability is adjusted over time to reflect an accretion element considered
in the initial measurement at fair value and revisions to the timing or amount
of original estimates and drawdowns as asset retirement expenditures are
incurred. As at 30 September 2010, the Company had an asset retirement
obligation relating to its Stratoni property in Greece amounting to $7,163 (31
December 2009 - $7,068) subject to these estimates. A total of $95 for the
period to 30 September 2010 (2009 - $96) and Q3 2010 $31 (2009 - $34) was
charged to the income statement in relation to asset retirement obligation,
which were subject to these estimates. A significant change to either the
estimated future costs or to reserves could result in a material change to
amounts charged to earnings.
Equity-based compensation - The Company operates a share option plan, an RSU
plan and a DPU 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. The Company uses the Black-Scholes and
Parisian option pricing model to estimate fair values of share options granted,
and uses the market price of common shares to determine fair value of RSUs
granted and DPUs issued. This cost is recognised over the relevant vesting
period for grants to directors, officers and employees, and measured in full at
the earlier of performance completed or vesting for grants to non-employees.
Any consideration received by the Company on exercise of share options is
credited to share capital. In relation to DPUs, the trend of cost charged or
credited to income statement relates directly to the fluctuation in the
Company's share price. A total of $8,325 for the period to 30 September 2010
(2009 - $2,332) and Q3 2010 $3,562 (Q2 2009 - $1,371) was charged to the income
statement in relation to equity-based compensation, which were subject to these
estimates.
Future taxes - The Company uses the asset and liability method of accounting for
future income taxes. Under this method, current income taxes are recognised for
the estimated income taxes payable for the current year. Future income tax
assets and liabilities are recognised for temporary differences between the tax
and accounting bases of assets and liabilities, calculated using the currently
enacted or substantively enacted tax rates anticipated to apply in the period
that the temporary differences are expected to reverse. Future income tax
inflows and outflows are subject to estimation in terms of both timing and
amount of future taxable earnings, which are subject to assumptions on the
future tax rates and recoverability of any tax losses. Should these estimates
change, the carrying value of income tax assets or liabilities may change, and
consequently the charge or credit to the income statement. A total credit of
$2,463 for the period to 30 September 2010 (2009 - $1,554 charge) and Q3 2010 a
credit of $960 (2009 - $1,110 charge) to the income statement in relation to
future income taxes, which were subject to these estimates.
SIGNIFICANT CHANGES IN ACCOUNTING POLICIES
International Financial Reporting Standards ("IFRS") - In February 2008, the
Canadian Accounting Standards Board ("AcSB") confirmed that IFRS will replace
Canadian GAAP for publicly listed companies, for interim and annual financial
statements relating to fiscal years beginning on or after 1 January 2011,
including comparative figures for the prior years.
The Company intends to transition to IFRS on 1 January 2011, and will file its
first interim financials under IFRS for the quarter ended 31 March 2011. The
IFRS compliant financial statements will include opening balance sheet and
equity reconciliations for the quarter as well as reconciliations as at the 1
January 2010 transition date. The Company has identified four phases to its
conversion process:
* Design and planning
* Detailed assessment and quantification of differences under IFRS
* Implementation
* Post implementation.
Design and planning
During the design and planning phase, the Company focused on ensuring that the
correct skills were available and on the longer term planning to ensure the
smooth transition to IFRS. This commenced in Q2 2008, when the Company
established a project management team which included members of the finance
function at the subsidiary level, who were already experienced in the
preparation of IFRS accounts. Other team members were provided with IFRS
training. In addition, the Company's finance function already had some IFRS
experience from reporting under IFRS on a quarterly basis for its major
shareholder. This reporting process included accounting adjustments for all
material differences between IFRS and Canadian GAAP, with the exception of IFRS
1. During Q3 2008, the Company also undertook a preliminary IFRS diagnostic
report which included an initial assessment of key accounting areas where IFRS
differs to Canadian GAAP and which could possibly have a significant impact on
the financial statements. The report also outlined the key systems and processes
which would be affected by the conversion process, namely internal control over
financial reporting as well as disclosure controls and procedures. Concluding
the planning and design phase, the Company also established a preliminary
timeline for key milestones and deliverables to be reported to the audit
committee on an ongoing basis.
Detailed assessment and quantification of differences under IFRS
In Q4 2008, the Company moved to the next phase of its IFRS conversion process,
by initiating an appropriate review and assessment of all accounting differences
under IFRS standards, with particular focus on IFRS 1. This included a detailed
assessment of all fixed assets throughout the Group to identify assets where a
different treatment is required under IFRS. This assessment also identified the
following areas where there are potential differences between IFRS and Canadian
GAAP which may affect the Company, as described below:
* Business combinations
Date of acquisition
Under IFRS, when shares of the acquirer are issued to the seller as payment of
the purchase price, the fair value will be based on the share price on the date
that control of the subsidiary was acquired. Canadian GAAP requires the fair
value to be based on the announcement date share price.
Acquisition related costs
Under IFRS, transaction costs are fully expensed on acquisition whereas Canadian
GAAP allows certain transaction costs to be recognised as part of the
acquisition.
Minority Interest
Under IFRS, a non controlling interest may be recorded according to its share of
the fair value of assets and liabilities of the acquired entity. Under Canadian
GAAP, minority interest is recorded at the historical carrying value of the
assets and liabilities of the acquired entity.
* Consolidations
Under IFRS, changes in ownership in interests, after control is obtained and do
not result in a loss of control are accounted for as equity transactions, while
under Canadian GAAP these changes are accounted for as step acquisitions using
purchase accounting.
* Exploration for and evaluation of mineral resources
IFRS provides a specialised statement with regards to extractive industry in
respect of the exploration for and evaluation of mineral resources, which
separately identifies and accounts for pre-exploration, exploration and
evaluation and development expenditure and are classified as either tangible or
intangible assets according to their nature. Canadian GAAP does not have a
single accounting standard for exploration and evaluation activities and there
is no requirement either to separately identify and account for pre-exploration,
exploration and evaluation and development expenditure, or to separate between
tangible and intangible assets.
* Property, plant and equipment
Under IFRS, where a component of property, plant and equipment has a significant
cost in relation to the cost of the item as a whole, it must be separately
depreciated. This policy applies in Canadian GAAP but in practice a higher
threshold of materiality is applied.
* Foreign currency translation
Under IFRS, the functional currency concept is used to determine the measurement
of foreign currency translation. This is based on the currency of the primary
economic environment in which the entity operates. In determining foreign
currency translations, Canadian GAAP makes use of self-sustaining and integrated
operations with a different hierarchy of indicators.
* Impairment of definite life long-lived assets
Under IFRS, a one-step approach for both testing and measuring impairment, in
which the recoverable amount is compared to the carrying values of the assets.
Canadian GAAP requires a two-step approach for impairment testing in which the
Company must first compare undiscounted cash flows to the carrying value and
determine whether an impairment exists. If the cash flows are below carrying
values, the Company would be required to compare the fair value to the carrying
value to determine the impairment.
* Rehabilitation provisions
Under IFRS, rehabilitation provisions include both legal and constructive
obligations. Canadian GAAP only requires recognition of the liability only once
legally bound. The accretion expense under IFRS is presented as an interest
expense, whereas Canadian GAAP does not prescribe any presentation for asset
retirement obligation accretion. The discount rate under Canadian GAAP is based
on the current credit-adjusted, risk free rate for any upward adjustments, and
the original credit adjusted risk free rate for downward adjustments. IFRS
requires the use of a current pre-tax discount rate which must be updated at the
end of reporting period.
* Share-Based payments
In certain circumstances, Canadian GAAP permits that the fair value of
share-based awards with graded vesting be recognised on a straight-line basis
over the entire vesting period. Under IFRS, each tranche of an award is
considered a separate grant with separate vesting dates and each are accounted
for separately.
* Income taxes
Under IFRS, a deferred tax asset or liability is recognised for exchange loss or
gains relating to foreign non-monetary assets and liabilities that are
re-measured into functional currency using historical rates. There is no such
requirement under Canadian GAAP.
This assessment took place during Q1 2009 and was further developed during the
rest of 2009 along with additional in-depth training to members of the project
management team as well as attendance of seminars relating to IFRS changeover.
This process was extended to the finance departments of the group, in particular
looking at the possibilities of converting local accounts and reporting to IFRS.
The project team also identified and made an initial assessment of the various
elections the Company is required to make with regards to IFRS 1 in Q3 2009
which was presented to the group auditors BDO Dunwoody LLP.
During Q4 2009, the Company changed its group auditors to Ernst & Young LLP
("E&Y"), and a new IFRS implementation plan was drawn up. This new plan was
designed to allow the Company to finalise its required elections under FRS 1
after the 2009 audit under Canadian GAAP had been completed. In addition, E&Y
would perform its own independent work to confirm the Company's assessment
process.
During Q1 2010, the Company continued with its plan in order to meet the
objective of establishing opening IFRS balances as at 1 January 2010, which
would act as the opening position for the 2010 comparatives to the 2011
financial year for which IFRS reporting.
During Q2, the Company was involved in a roll forward and an impact assessment
based on what had been carried out by the Company to date, with the aim of
ensuring that all current IFRS updates would be included. This included the
quantification of differences. The Company was further involved in training
sessions with team members from its subsidiaries as well as meetings with its
auditors to provide updates on issues relating to the impact assessment, IFRS 1
choices and exemptions and financial statement disclosures.
During Q3, the Company finalised its IFRS impact assessment exercise. The
Company continued with its IFRS technical papers outlining the differences
between GAAPs and the various elections to be made. The Company also updated
skeleton IFRS financial statements in preparation for an audit of IFRS opening
balances prior to the end of Q4 2010.
The following is a summary timetable with regards to the remainder of 2010:
· Completion of all technical papers prepared by the Company as well as on
IFRS 1 choices and exemptions, including additional financial statement
disclosures, during Q4 2010.
· Completion of skeleton IFRS financial statements during Q4 2010.
· A special audit committee meeting is scheduled to be held in Q4 2010, to
discuss and approve the impact of adopting IFRS and to approve the changes to
the accounting policies.
· Completion of ongoing work relating to Group reporting pack modification,
as well as IFRS implementation by subsidiaries that have elected to implement
IFRS in their jurisdictions.
· Completion of all IFRS work relating to IT and systems by the end of Q4
2010.
The audit committee will continue to be reported to on a timely basis on
progress of the implementation process and achievement of the timetable as set
out above.
RISKS AND UNCERTAINTIES
Current Global Conditions - Current global financial conditions have been
subject to increased volatility and numerous financial institutions have either
gone into bankruptcy or have had to be rescued by governmental authorities.
Access to public financing has been negatively impacted by both sub-prime
mortgages and the liquidity crisis affecting the asset-backed commercial paper
market. These factors may impact the ability of the Company to obtain equity or
debt financing in the future and, if obtained, on terms favourable to the
Company. If these increased levels of volatility and market turmoil continue,
the Company's operations could be adversely impacted and the value and the price
of the Company's Common Shares could be adversely affected.
Market price volatility - The trading price of the Common Shares may be subject
to large fluctuations. The trading price of the Common Shares may increase or
decrease in response to a number of events and factors, some of which are
directly related to the Company's success and some of which are not directly
related to the Company's success and are therefore not within the Company's
control. Such events and factors include: the price of gold and other metals,
the Company's operating performance and the performance of competitors and other
similar companies, the public's reaction to the Company's press releases, other
public announcements and the Company's filings with the various securities
regulatory authorities, changes in earnings estimates or recommendations by
research analysts who track the Common Shares or the shares of other companies
in the mineral resource sector, changes in general economic conditions, the
number of the Common Shares to be publicly traded after an offering, the breadth
of the public market for the Common Shares, the arrival or departure of key
personnel, acquisitions, strategic alliances or joint ventures involving the
Company or its competitors, developments that affect the market for all mineral
resource sector shares, and the attractiveness of alternative investments.
The effect of these and other factors on the market price of the Common Shares
on the exchanges in which the Company trades has historically made the Company's
share price volatile and suggests that the Company's share price will continue
to be volatile in the future. A decline in the market prices of the Company's
securities could also impair the Company's ability to raise additional capital.
In the past, following periods of volatility in the market price of a company's
securities, shareholders have often instituted class action securities
litigation against those companies. Such litigation, if instituted against the
Company, could result in substantial costs and diversion of management attention
and resources, which could significantly harm the Company's profitability and
reputation.
Dilution - The Company may require additional funds to fund exploration and
development programs and potential acquisitions. The Company cannot predict the
size of future issuances of Common Shares or the issuance of debt instruments or
other securities convertible into shares or the effect, if any, that future
issuances and sales of the Company's securities will have on the market price of
the Common Shares. If it raises additional funding by issuing additional equity
securities, such financing may substantially dilute the interests of existing
shareholders. Sales of substantial amounts of Common Shares, or the
availability of such Common Shares for sale, could adversely affect the
prevailing market prices for the Company's securities.
No dividends - The Company has never paid cash dividends on the Common Shares.
It currently intends to retain future earnings, if any, to fund the development
and growth of its business, and may not pay any cash dividends on the Common
Shares for the foreseeable future. Furthermore, the Company may in the future
become subject to contractual restrictions on, or prohibitions against, the
payment of dividends. As a result, investors will have to rely on capital
appreciation, if any, to earn a return on their investment in Common Shares in
the foreseeable future. The payment of future dividends, if any, will be
reviewed periodically by the Company's board of directors and will depend upon,
among other things, conditions then existing including earnings, financial
condition and capital requirements, restrictions in financing agreements,
business opportunities and conditions and other factors.
Foreign country risk - Any changes in regulations in Greece, Romania or Turkey,
or shifts in political attitudes are beyond the Company's control and may
adversely affect its business. Exploration and development of any one or more
of the Company's mineral properties may be affected in varying degrees by
government regulations or policies with respect to restrictions on future
exploitation and production, labour, environmental protection, price controls,
royalties, export controls, foreign exchange controls, income taxes,
expropriation of property, environmental legislation and mine and/or site
safety.
Currently there are no restrictions on the repatriation from Greece, Romania or
Turkey of earnings to foreign entities. However, there can be no assurance that
restrictions on repatriation of earnings from Romania, Greece or Turkey will not
be imposed in the future.
Current economic and fiscal difficulties involving Greece could result in a
sovereign debt default and could negatively impact economic, political and
social stability. This situation is still uncertain but the IMF and Eurozone
member states have finalised a financial support mechanism for Greece. The
Company still believes this situation is not specifically or directly relevant
to its assets in the country, however it may deteriorate and thus negatively
impact the Company.
Exploration and mining risks - The business of exploring for minerals and mining
involves a high degree of risk. Only a small proportion of the properties that
are explored are ultimately developed into producing mines. Although substantial
benefits may be derived from the discovery of a major mineralised deposit, no
assurance can be given that minerals will be discovered in sufficient quantities
or having sufficient grade to justify commercial operations. The economics of
developing gold and other mineral properties is affected by many factors
including the cost of operations, variations of the grade of ore mined,
fluctuations in the price of gold or other minerals produced, costs of
processing equipment and such other factors as government regulations.
Unless otherwise indicated, mineral resource and mineral reserve figures
presented herein are based upon estimates made by company personnel and
independent geologists. These estimates are imprecise and depend upon
geological interpretation and statistical inferences drawn from drilling and
sampling analysis, which may prove to be inaccurate. There can be no assurance
that: these estimates will be accurate, mineral reserves, mineral resources or
other mineralisation figures will be accurate, or this mineralisation could be
mined or processed profitably.
Mineralisation estimates for the Company's properties may require adjustments or
downward revisions based upon further exploration or development work or actual
production experience. In addition, the grade of ore ultimately mined, if any,
may differ from that indicated by drilling results. There can be no assurance
that minerals recovered in small scale tests will be duplicated in large scale
tests under on-site conditions or in production scale.
The mineral reserve and mineral resource estimates contained herein have been
determined and valued based on assumed future prices, cut-off grades and
operating costs that may prove to be inaccurate. Extended declines in market
prices for gold and silver may render portions of the Company's mineralisation
uneconomic and result in reduced reported mineralisation. Any material
reductions in estimates of mineralisation, or of the Company's ability to
extract this mineralisation, could have a material adverse effect on the
Company's results of operations or financial condition.
The grade of mineralisation ultimately mined may differ from that indicated by
drilling results and such differences could be material. There can be no
assurance that minerals recovered in small scale laboratory tests will be
duplicated in large scale tests under on-site conditions or in production scale
operations. Material changes in geological mineral resources, grades, stripping
ratios or recovery rates may affect the economic viability of projects.
Mining involves various types of risks and hazards, including: environmental
hazards, industrial accidents, metallurgical and other processing problems,
unusual or unexpected rock formations, structural cave-ins or slides, seismic
activity, flooding, fires, periodic interruptions due to inclement or hazardous
weather conditions, variations in grade, deposit size, density and other
geological problems, mechanical equipment performance problems, unavailability
of materials and equipment including fuel, labour force disruptions,
unanticipated or significant changes in the costs of supplies including, but not
limited to, petroleum, and unanticipated transportation costs.
These risks could result in damage to, or destruction of, mineral properties,
production facilities or other properties, personal injury or death, loss of key
employees, environmental damage, delays in mining, increased production costs,
monetary losses and possible legal liability.
Where considered practical to do so, the Company maintains insurance against
risks in the operation of its business in amounts which it believes to be
reasonable. Such insurance, however, contains exclusions and limitations on
coverage. There can be no assurance that such insurance will continue to be
available, will be available at economically acceptable premiums or will be
adequate to cover any resulting liability. Insurance against certain
environmental risks, including potential liability for pollution or other
hazards as a result of the disposal of waste products occurring from production,
is not generally available to the Company or to other companies within the
mining industry. The Company may suffer a material adverse effect on its
business if it incurs losses related to any significant events that are not
covered by its insurance policies. Payment of such liabilities would reduce
funds available for acquisition of mineral prospects or exploration and
development and would have a material adverse affect on the financial position
of the Company.
Capital and Operating Cost risks - The Company's forecasts, feasibility studies
and technical reports are based on a set of assumptions current as at the date
of completion of these forecasts and studies. The realised operating and
capital costs achieved by the Company may differ substantially owing to factors
outside the control of the Company, including currency fluctuations, supply and
demand factors for the equipment and supplies, global commodity prices,
transport and logistics costs and competition for human resources. Though the
Company incorporates a level of contingency in its assumptions, these may not be
adequate depending on market conditions.
Financing risks - Exploration and development of one or more of the Company's
properties will be dependent upon the Company's ability to obtain financing
through joint ventures, equity or debt financing or other means, and although
the Company has been successful in the past in obtaining financing through the
sale of equity securities, there can be no assurance that the Company will be
able to obtain adequate financing in the future or that the terms of such
financing will be favourable. Failure to obtain such additional financing could
result in delay or indefinite postponement of further exploration and
development of the Company's projects with the possible loss of such properties.
Market Prices
· Mineral and Commodity prices - The Company's profitability and long-term
viability depend, in large part, upon the market price of gold and other metals
and minerals produced from the Company's properties. The market price of gold
and other metals is volatile and is impacted by numerous factors beyond the
Company's control, including: expectations with respect to the rate of
inflation, the relative strength of the U.S. dollar and certain other
currencies, interest rates, global or regional political or economic conditions,
supply and demand for jewellery and industrial products containing metals, costs
of substitutes, changes in global or regional investment or consumption
patterns, and sales by central banks and other holders, speculators and
producers of gold and other metals in response to any of the above factors.
There can be no assurance that the market price of gold and other metals will
remain at current levels or that such prices will improve. A decrease in the
market price of gold, silver and other metals could adversely affect the
profitability of the Company's existing mines, which would have a material
adverse effect on the Company's financial condition and results of operations.
A decline in the market price of gold, silver, or other metals, may also require
the Company to write-down its mineral reserves which would have a material and
adverse affect on its earnings and profitability.
· Currency fluctuations - Gold and other metals are sold throughout the
world principally in United States dollars. Further, the capital markets in
which the Company would have access to for financing (debt and equity), are
predominantly denominated in United States Dollars. The Company's capital and
operating costs for its European projects are incurred principally in Euros. As
a result, any significant and sustained appreciation of the Euro against the
U.S. dollar may materially increase the Company's costs and reduce revenues.
The Company does not currently use any derivative products to manage or mitigate
any foreign exchange exposure.
· Interest Rate Fluctuations - The Company currently has no debt, but as
part of its strategy going forward may incur project debt to complete the
development of certain of the Company's assets. This would introduce interest
rate risk to the Company as its borrowing cost will fluctuate with interest
rates over which the Company has no control.
· Counterparty Credit Risk - The Company's credit risk is primarily
attributable to trade receivables from concentrate sales to our offtakers and on
cash balances and short term investments with the Company's bankers. Though the
Company is selects its offtakers considering their credit standing and
diversifies this risk by selling to a number of different offtakers, however,
there is a risk that should these offtakers not perform the Company will not
realise its trade receivables. The majority of the Company's cash and cash
equivalents are on deposit with banks or money market participants with a
Standard and Poors rating of at least A.
Exploration, development, mining and other licences - The Company's current
operations, including further exploration, development and mining activities,
require certain licenses, concessions, leases, permits and regulatory consents
(the "Authorisations") from various levels of governmental authorities. The
Company may also be required to obtain certain property rights to access, or
use, certain of its properties in order to proceed to development. There can be
no assurance that all Authorisations which the Company requires for the conduct
of mining operations will be obtainable on reasonable terms or in a timely
manner, or at all, that such terms may not be adversely changed, that required
extension will be granted, or that the issuance of such Authorisations will not
be challenged by third parties. Delays in obtaining or a failure to obtain such
Authorisations or extension thereto, challenges to the issuance of such
Authorisations, whether successful or unsuccessful, changes to the terms of such
Authorisations, or a failure to comply with the terms of any such Authorisations
that the Company has obtained, could have a material adverse impact on the
Company.
Title matters - While the Company has diligently investigated title to all
mineral concessions and, to the best of the Company's knowledge, title to all of
its properties are in good standing, this should not be construed as a guarantee
of title. Title to the properties may be affected by undisclosed and undetected
defects.
Environmental and other regulatory requirements - The Company's activities are
subject to environmental regulations promulgated by government agencies from
time to time. Environmental legislation generally provides for restrictions and
prohibitions on spills, releases or emissions of various substances produced in
association with certain mining industry operations, such as seepage from
tailings disposal areas, which would result in environmental pollution. A
breach of such legislation may result in imposition of fines and penalties. In
addition, certain types of operations require the submission and approval of
environmental impact assessments. Environmental legislation is evolving in a
manner which means stricter standards, and enforcement, fines and penalties for
non-compliance are more stringent. Environmental assessments of proposed
projects carry a heightened degree of responsibility for companies and their
directors, officers and employees. The cost of compliance with changes in
governmental regulations has a potential to reduce the profitability of
operations.
The Company's current exploration and development activities require permits
from various governmental authorities and such operations are and will be
governed by laws and regulations governing prospecting, labour standards,
occupational health, waste disposal, toxic substances, land use, environmental
protection, safety and other matters. Companies engaged in exploration and
development activities generally experience increased costs and delays as a
result of the need to comply with applicable laws, regulations and permits.
There can be no assurance that all permits which the Company may require for
exploration and development will be obtainable on reasonable terms or on a
timely basis, or that such laws and regulations would not have an adverse effect
on any project that the Company may undertake. The Company believes it is in
substantial compliance with all material laws and regulations which currently
apply to the Company's activities. However, there may be unforeseen
environmental liabilities resulting from exploration, development and/or mining
activities and these may be costly to remedy.
Amendments to current laws, regulations and permits governing operations and
activities of exploration and development companies, or more stringent
implementation thereof, could have a material adverse impact on the Company and
cause increases in expenditures and costs, or require abandonment, or cause
delays in developing new mining properties.
Tax matters - The Company believes that it is, and intends to take all necessary
steps to remain, resident solely in Canada for income tax purposes. The
Company's tax residency is, however, affected by a number of factors, some of
which are outside of its control, including the application and interpretation
of the relevant tax laws and treaties. If ever the Company were to cease to be
tax resident in Canada, it would be liable to pay additional Canadian taxes,
including, but not limited to, capital gains tax based on the difference between
the fair market value and tax cost of its assets at the relevant time. If such
taxes were to become payable, this could have a material adverse effect on the
Company's business, financial condition and results of operations. Further, the
income tax consequences to holders of Common Shares would be different from
those applicable if the Company were resident in Canada.
Dependence on management - The Company's development to date has largely
depended and in the future will continue to depend on the efforts of key
management. Loss of any of these people could have a material adverse effect on
the Company and its business. The Company has not taken out and does not intend
to take out key man insurance in respect of any directors, officer or other
employees.
Joint ventures - The Company holds (and expects to hold in the future) interests
in joint ventures. Joint ventures may involve special risks associated with the
possibility that the joint venture partners may (i) have economic or business
interests or targets that are inconsistent with ours; (ii) take action contrary
to the Company's policies or objectives with respect to their investments, for
instance by veto of proposals in respect of joint venture operations; (iii) be
unable or unwilling to fulfil their obligations under the joint venture or other
agreements; or (iv) experience financial or other difficulties. Any of the
foregoing may have a material adverse effect on the Company's results of
operations or financial condition. In addition, the termination of certain of
these joint venture agreements, if not replaced on similar terms, could have a
material adverse effect on the Company's results of operations or financial
condition.
Competition - The international mining industry is highly competitive. The
Company's ability to acquire properties and add mineral reserves in the future
will depend not only on its ability to develop its present properties, but also
on its ability to select and acquire suitable producing properties or prospects
for mineral exploration. The Company may be at a competitive disadvantage in
acquiring additional mining properties because it must compete with other
individuals and companies, many of which have greater financial resources,
operational experience and technical capabilities than the Company. The Company
may also encounter competition from other mining companies in its efforts to
hire experienced mining professionals. Competition could adversely affect the
Company's ability to attract necessary capital funding or acquire suitable
producing properties or prospects for mineral exploration in the future.
Competition for services and equipment could cause project costs to increase
materially, resulting in delays if services or equipment cannot be obtained in a
timely manner due to inadequate availability, and increase potential scheduling
difficulties and cost increases due to the need to coordinate the availability
of services or equipment, any of which could materially increase project
exploration, development or construction costs, result in project delays or
both.
Conflicts of Interest - Certain directors of the Company are, and may continue
to be, involved in the mining and mineral exploration industry through their
direct and indirect participation in corporations, partnership or joint ventures
which are potential competitors of the Company. Situations may arise in
connection with potential acquisitions in investments where the other interests
of these directors may conflict with the interests of the Company. Directors of
the Company with conflicts of interest will be subject to and will follow the
procedures set out in applicable corporate and securities legislation,
regulations, rules and policies.
Legal Proceedings - the Company is a party to the legal proceedings described
under the heading "Legal Proceedings". If decided adversely to the Company,
these legal proceedings, or others that could be brought against the Company in
the future which are not now known, for example, litigation based on its
business activities, environmental laws, volatility in its stock price or
failure to comply with its disclosure obligations, could have a material adverse
effect on the Company's financial condition or operations.
DISCLOSURE CONTROLS & PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
The Executive Chairman and the Chief Financial Officer of the Company (the
"Certifying Officers") have established and maintained in the period ended 30
September 2010 disclosure controls and procedures ("DC&P") and internal control
over financial reporting ("IFCR") for the Company.
The Certifying Officers have caused DC&P, as defined in National Instrument
52-109 ("NI 52-109"), to be designed under their supervision, to provide
reasonable assurance that material information relating to the Company and its
subsidiaries is made known to the Certifying Officers by others within those
entities, as appropriate, to allow decisions regarding required disclosure
within the time periods specified by legislation, particularly during the period
in which interim and annual filings are being prepared.
The Certifying Officers have evaluated the effectiveness of the Company's DC&P
as at 30 September 2010. Based upon that evaluation, the Certifying Officers
have concluded that the DC&P are adequate and effective for the period ended 30
September 2010.
The Certifying Officers have caused internal control over financial reporting,
as defined in NI 52-109, to be designed under their supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
Canadian GAAP.
As of 30 September 2010 the Certifying Officers assessed the effectiveness of
the Company's internal control over financial reporting. Based upon that
evaluation, the Certifying Officers concluded that the internal controls and
procedures are adequate and effective for the period ended 30 September 2010.
During the period ended 30 September 2010, there has been no change in the
Company's internal control over financial reporting that have materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
The Certifying Officers believe that disclosure controls and procedures and
internal control systems can only provide reasonable assurance, and not absolute
assurance, that such objectives are met.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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