RNS Number:5666L
European Goldfields Ltd
27 April 2005
PART 1
Suite 200 Financial Plaza
204 Lambert Street
Whitehorse, Yukon
Canada Y1A 3T2
For Immediate Release 27 April 2005
RESULTS FOR 2004
TRANSFORMING YEAR IN 2004 - PRODUCTION EXPECTED TO COMMENCE IN 2005
European Goldfields Limited (AIM: EGU / TSX: EGU), a resource company involved
in the acquisition, exploration and development of mineral properties in Greece,
Romania and the Balkans, today reported its results for the financial year ended
31 December 2004.
European Goldfields had a transforming year in 2004. During the period, the
company evolved from a junior resource business with a single project in one
country, to a multi-million ounce entity hosting feasibility and mining assets.
In addition, we are now poised to go into production at Stratoni, providing a
springboard for further growth opportunities in South East Europe and the
Balkans.
The Year 2004 was a landmark one for our company during which we achieved the
following significant milestones:
* We acquired a 65% interest in Hellas Gold for a total consideration of
US$150 million, representing approximately US$11 per gold equivalent ounce
of resources.
* The company now holds a majority interest in four gold and base metal
deposits hosting over 24 Moz of resources and 17 Moz of reserves on a gold
equivalent basis. These assets have significant existing mining
infrastructure, represent some of the largest defined deposits in Europe and
two of them have previously been in production.
* Two significant listings have been achieved - firstly the London AIM
listing completed in March 2004 and secondly our graduation to the main
board in Toronto (TSX) in March 2005.
* The market capitalisation of European Goldfields has increased fivefold
during 2004 and now stands in excess of US$215 million.
* Our fund raisings in 2004 have established solid financial foundations
for the future growth of our business. European Goldfields and Hellas Gold
had over US$65 million in cash at year end. With the current cash balance
and expected revenue from Stratoni mining operations and sale of Olympias
surface concentrates, we expect to be self-funded to the end of 2006 and
beyond, covering all corporate and exploration activities in Romania, as
well as the permitting and updated feasibility studies associated with our
major gold and base metal projects in Greece.
* The appointment of Dimitrios Koutras as non-executive Chairman has
consolidated the partnership with Aktor S.A. in Greece. Aktor is the largest
construction company in Greece and was a major contributor in the successful
2004 Olympic Games through their construction activities.
* We recently announced the awarding of environmental permits for our
Stratoni operations - the first such permits granted in Greece for over six
years.
* The first European Goldfields mining project, Stratoni, is about to
commence production. Stratoni has a six year life based on current reserves,
boasts attractive grades of 17-20% combined lead & zinc and 200 g/t silver
and has good potential for expanding the current reserve and resource base.
* The feasibility studies for our major gold and base metal projects of
Olympias and Skouries are currently being updated to yield viable and
permittable development options which are designed to optimise exploitation
of resources, including over 9.3 Moz of gold, 60.1 Moz silver, 1.8 Mt of
combined lead and zinc and over 1 Mt of copper.
* In Romania, we have breathed new life back into our projects with the
recent update of a new, better defined 2.3+ Moz gold equivalent resource at
Certej and the near completion of an in-house pre-feasibility study. A new
licence area, referred to as Cainel, which was awarded in January 2005
against strong competition, is located contiguous with our Certej deposit
and hosts high grade, quartz lode and lower grade disseminated epithermal
mineralisation.
* European Goldfields has commenced the evolution to an operating company
by building a new management team involving the recruitment of a new CEO,
new non-executive directors and a new core technical team with a proven
track record, and finally the expansion and restructuring of teams in
Romania and Greece to support and develop our projects.
Hellas Gold - "an accretive acquisition"
The acquisition of the Hellas Gold assets was part of a long-term strategy
formulated by the board. The strategy was designed to turn European Goldfields
into a major company in Europe with producing mines and the ability to grow
through the acquisition of additional projects and the leveraging of its
partnerships in South East Europe and the Balkans.
In February 2004, we acquired an initial 30% interest in Hellas Gold and in
November 2004 an additional 35%, increasing our total interest to 65% on a fully
diluted basis. The total consideration paid for our 65% interest in Hellas Gold
was US$150 million, representing approximately US$11 per gold equivalent ounce
of measured and indicated resources or approximately US$14 per gold equivalent
ounce of proven and probable reserves.
Some of the largest assets in South East Europe
The Hellas Gold assets are located in Northern Greece and consist of three
near-production deposits within 70-year mining concessions covering a total area
of 317 km(2). The deposits include the polymetallic projects of Stratoni and
Olympias which contain gold, lead, zinc and silver, and the copper-gold porphyry
body referred to as Skouries. All three deposits have been well defined with
over 200,000 metres of drilling and the completion of feasibility studies and
later engineering studies.
The total proven and probable reserves of these assets are 17.0 Moz on a gold
equivalent basis (65% attributable = 11.1 Moz) from a measured and indicated
resource base of 21.8 Moz gold equivalent (65% attributable = 14.2 Moz). These
assets represent some of the largest defined deposits in Europe. The three
deposits are located within a 10 km radius of each other, making this
effectively a gold and base metal centre. Furthermore, both Stratoni and
Olympias were previously in production and have extensive existing mining and
plant infrastructure, making them near-production properties which require new
permits.
Finally, an 8,000 tonne ship loading facility is located at the Stratoni port
next to the mill giving Hellas Gold the ability to ship concentrates offshore
for processing and sale. This is a significant asset for our business as all of
the projects produce concentrate material which is saleable to European markets.
Stockpiles of gold concentrates amounting to 0.2 Moz gold are already located at
surface and can be a potential source of short-term revenue.
The first project to go into production will be the Stratoni deposit. Stratoni
has good underground access and a plant capable of producing 650,000 tonnes ROM
per year. Previous production reached a maximum of 450,000 tonnes per year at
consistent grades of approximately 8-10% lead, 8-11% zinc and 200 g/t silver.
Based on our work on site, we believe that this capacity can be reached or even
exceeded in the future. Current reserves give us a six year life but the deposit
is open in all directions and there is good potential to expand the resource and
reserve base.
Prior to gaining the environmental permits, we have been active at Stratoni
during the last six months refurbishing the previous plant infrastructure,
submitting all our new mining plans to the Greek government and selling existing
surface stockpiles of lead and zinc concentrates to generate revenue of US$3.4
million in the third quarter of 2004.
The Olympias deposit is similar to Stratoni in terms of its geology but also has
resource grades of 9.3 g/t gold as well as silver, lead and zinc. Olympias has
good underground infrastructure which includes ramps and a shaft system down to
390 metres below surface, plus a concentrator plant which was capable of
processing 400,000 tonnes ROM per year for the sale of lead and zinc
concentrates. The deposit is well defined with over 91,000 metres of drilling
for a total gold equivalent resource of over 8.7 Moz which includes 4.3 Moz
gold. Traditionally, the mine produced and sold lead and zinc concentrates and
stockpiled the arsenopyrite-pyrite gold concentrate. Feasibility studies
confirmed that good gold recoveries can be achieved by pressure oxidation, which
would require the building of a gold recovery plant. The opportunity exists to
generate early cash flow revenue from the sale of surface sources, with over 0.2
Moz gold present in the form of stockpiles, and 0.2 Moz gold in the form of
tailings.
Olympias also has good upside with both the East and West deposits open at depth
and along strike, and both are linked along the north-south trending Olympias
fault system which extends to the Stratoni deposit and is largely unexplored.
The Skouries deposit is a major copper-gold porphyry pipe. The project is
metallurgically simple with 25-30% of the gold recovered by gravity and the
remainder of the gold and all the copper recovered by flotation, which produces
a concentrate that is readily saleable in European markets. At a US$350/oz gold
price, the reserve exceeds 129 Mt grading 0.9 g/t gold and 0.6% copper. Skouries
is located on a high plateau with no habitation in the immediate vicinity and
has both potential for open pit and subsequent underground exploitation. The
deposit is well drilled for resource definition but is still open to the
southwest.
In addition to the three main deposits, we consider the prospects and
exploration potential on the 317 km2 of mining concessions to be high. We have
good geological models to define where to find further Olympias-Stratoni type
mineralisation and where to drill for more porphyry bodies. Previous exploration
work has already outlined the existence of another Olympias-type deposit at
Piavitsa and a second porphyry at Fisoka. Furthermore, the licence areas have
not been subject to any modern exploration work such as generative studies and
airborne geophysical surveys so we believe the likelihood of further discoveries
to be high.
Unlocking value with strong local partnerships
We believe that the key to success in developing our mineral assets in Greece
and Romania is establishing strong and viable partnerships with local
stakeholders. For example, our acquisition of a controlling interest in Hellas
Gold includes a partnership with Aktor S.A., Greece's largest construction
company, which hold the remaining 35% interest in Hellas Gold.
Aktor has considerable experience in developing projects in Greece, which
includes extensive construction for the 2004 Olympic Games and the completion of
other major projects such as the Athens suburban railway and various tunnel,
mining and quarry excavations. Aktor has a good track record in Greece in
completing major construction projects, including obtaining required permits.
The final step in consolidating our partnership came through the appointment in
November 2004 of Aktor's President & General Manager, Dimitrios Koutras, as
non-executive Chairman. Dimitrios has a passion for building successful projects
and companies and is well informed on the Hellas Gold assets having completed
his Phd on the Skouries deposit.
Our partnership with Aktor and the drive of Dimitrios Koutras have been
instrumental in the successful negotiation of Hellas Gold's contract with the
Greek State. Hellas Gold's contract with the Greek State acknowledges our right
to employ appropriate local persons and does not include historical
environmental or social liabilities. We are already close to fulfilling our
first commitment which is the re-commencement of mining operations at Stratoni.
Furthermore, there are clear timelines for submission of business plans and
granting of permits for the gold and base metal projects of Olympias and
Skouries. This contractual transparency coupled with Aktor's understanding of
community needs and their ability to operate in both the EU and Greece is the
key to unlocking the value in our current projects. So much so that we were
recently awarded by the Greek State all necessary environmental permits for
mining operations at the Stratoni deposit, the first such permits awarded for
over six years.
Finally, we should not forget our partnership in Romania where our 20% partner
is Minvest S.A., a Romanian state-owned mining company. Through the last four
years, we have benefited from Minvest's support in building our portfolio of
assets, and utilising and developing local skills. Minvest have extensive mining
and development skills which we hope to lever into our projects in the future.
Breathing new life back into our projects in Romania
European Goldfields holds five mineral properties located within the "Golden
Quadrilateral" area of Romania, a gold province which historically is estimated
to have produced over 40 Moz. We recently embarked on a resource development and
pre-feasibility programme to underpin the value of our 80%-owned Certej deposit
and surrounding satellite bodies. This work has culminated in a new estimate for
Certej which outlined measured and indicated resources of 31.4 Mt grading 2.1 g/
t gold and 11 g/t silver for 2.3 Moz of gold equivalent (80% attributable = 1.9
Moz). This estimate is based on a new geological model and includes a 11.4 Mt
high grade core to the deposit grading 3.4 g/t at a 2 g/t gold cut-off. This
work has underpinned the fact that Certej can be mined more selectively to
optimise an open pit. An in-house pre-feasibility study is now in progress with
specific focus on generating a higher grade metallurgical concentrate, assessing
the contribution from satellite bodies and defining and sizing appropriate
mining, plant and tailings infrastructure.
In January 2005, we were awarded an additional exploration licence referred to
as Cainel which covers an area of 31.3 km(2) and is located contiguous with our
Certej property. The Cainel deposit includes vein-hosted epithermal, stockwork
and disseminated mineralisation with workings occurring over an area of some
1,000 metres by 250 metres. Historic mining was restricted to below 200 metres
depth from surface and grab sampling by European Goldfields has indicated that
the mineralisation extends to surface. Exploration work continues to define the
mineralised system with a view to either defining a stand-alone project or a
satellite for Certej.
Solid financial foundations
In 2004, we raised over US$120 million by the issue of 49 million common shares
at an average price of #1.30 (C$3.05) per share. European Goldfields and Hellas
Gold had over US$65 million in cash at year end. With this cash balance and a
market capitalisation which now stands in excess of US$215 million (having
increased fivefold during 2004), we have established solid financial foundations
for the future growth of our business.
In March 2004, our common shares commenced trading on the AIM Market of the
London Stock Exchange, followed by a graduation to the Toronto Stock Exchange
(TSX) from the TSX Venture Exchange in March 2005.
The listings and fund raisings have strengthened our shareholder base and
endorsed our growth strategy and the inherent underlying value in the company.
With the current cash balance and expected revenue from Stratoni mining
operations and sale of Olympias concentrates, we expect to be self-funded to the
end of 2006 and beyond, covering all corporate and exploration activities in
Romania, as well as the permitting and updated feasibility studies associated
with our major gold and base metal projects in Greece.
A unique opportunity
We believe our company represents a unique mining and exploration opportunity in
Europe with over 16.1 Moz of measured and indicated resources and 11.1 Moz of
proven and probable reserves on a gold equivalent and attributable basis.
Production is about to commence at Stratoni where we have major mining and port
infrastructure, and we believe we have good exploration upside in both Greece
and Romania.
Our attractive mix of viable gold and base metal projects distinguishes us from
our peers in an industry where there is a lack of new quality projects emerging
despite the strong demand for metal production. We are about to enter into
production within a market environment where demand for both zinc and gold is
not able to be matched by the available supply. This environment is further
supported by a strong platform of price sustainability in lead, copper and
silver. We believe that global metal markets are at the beginning of a strong
upward cycle which, according to expert opinion, could be sustainable for over a
decade.
Our attractiveness is also attested to by our blend of local and international
management coupled with strong partnerships and a European approach to problem
solving, company building and environmental issues. We believe we represent the
start of a new dawn for European mining which will be tackled by partnerships
involving national stakeholders and the support of local communities and
institutions.
In summary, we represent a development company with extensive assets and
production capacity which currently sits at the base of the value curve. Our
story is not, as yet, well known. Through the achievement of our milestones in
2005 we hope to redress this imbalance and move European Goldfields into the
tier of producing companies.
Stratoni environmental permits granted - production expected to commence shortly
In April 2005, we announced that Hellas Gold had been awarded by the Greek State
all environmental permits for mining operations at the Stratoni deposit. We have
worked closely with the Greek government and local community to gain these
permits and this represents a major milestone in the development of European
Goldfields' strategy. Final approval to commence mining operations is expected
shortly, to be followed by production launch.
The permits provide for a new mining method involving completion of a 1,900
metre access tunnel (or adit) and thereafter more efficient and mechanised cut
and fill operations designed to excavate from the base of the reserve upwards
with fill being placed on the floor. Previous mining at Stratoni was inefficient
with backfill often affected in the hangwall and gravity was not utilised to
remove ore blocks.
Construction on the new adit is expected to begin shortly to provide improved
access to the Stratoni reserve and allow full scale mining operations to be
effected by the end of Q2 2006. In the meantime, we have cleaned out all the old
access ways and will commence mining from existing infrastructure immediately
after we have need awarded the mining permit.
Production of ore is expected to reach 170,000 tonnes by the end of the first
year of full scale production and increase steadily thereafter.
Stratoni is a high grade base metal project with a six year life based on
current reserves, and there is strong market demand for the lead plus silver and
zinc concentrates which are produced.
In addition to the expected commencement of production at Stratoni, we will also
be initiating aggressive exploration programmes with the objective of extending
the life of mine. The new adit will provide access from the old, mined out,
Madem Lakkos deposit to the new Mavres Petres deposit and will be located within
the hanging wall to and adjacent to the Stratoni fault. This area between the
two deposits remains largely unexplored and there is a good chance of finding
additional resources. Drilling is planned to test this target area and existing
extensions to the current deposit in order to extend the current life of mine.
Outlook - obtaining the gold permits and pursuing new opportunities
We are currently updating the feasibility studies and preparing new business and
environmental plans defining the way forward for Hellas Gold's multi-million
ounce gold and base metal projects of Olympias and Skouries. Preliminary work on
Olympias demonstrates that this is a robust project with strong returns at a
realistic gold price of US$375/oz. The Olympias project is also enhanced by the
discovery that we can segregate the arsenopyrite from pyrite which should
provide for greater flexibility with regard to processing options.
In the case of Skouries, the project economics appear to be positive for a
combined open pit and underground operation with the higher grade zones adding
to mining flexibility.
In Q1 2006, we intend to submit our new business plans to the Greek government
to facilitate the granting of all relevant environmental, mining and development
permits.
In Greece, we will also continue to look for new discoveries through focused
exploration programmes. We have a good exploration model defining where we must
look for further Olympias and Skouries targets and we will be actively testing
these opportunities this year.
In Romania, work at Certej is now directed towards completing an in-house
pre-feasibility study with specific focus on optimising metallurgical recoveries
and defining a practical open pit. We also continue to look at new satellite
targets around the Certej deposit with a view to adding additional incremental
ounces. At Cainel, underground channel sampling continues to define the bigger
mineralised target covering an area of 200 x 1,000 metres. Aggressive drilling
campaigns will be effected during the second half of 2005 to test our geological
model and the potential for a major mineralised system.
A major driving force for European Goldfields in the current year is to achieve
our mission statement of "Resource development, gold and base metal production
in South East Europe through effective national stakeholder partnerships". This
path is expected to commence with Stratoni production and continue with the
development of our major gold and base metal projects in Greece and our Romanian
assets. We also intend to continue growing our portfolio by new exploration
discoveries and the pursuit of accretive, value enhancing acquisitions in Europe
and the Balkans.
For further information please contact:
European Goldfields:
David Reading, Chief Executive Officer
David Grannell, Chief Financial Officer
Office: +44 (0)20 7408 9534 website: www.egoldfields.com
Mobile: +44 (0)7703 190 652 e-mail: info@egoldfields.com
Buchanan Communications:
Bobby Morse / Ben Willey e-mail: bobbym@buchanan.uk.com
Office: +44 (0)20 7466 5000
Mobile: +44 (0)7802 875 227
Reserve and resource parameters
Reserves and resources are classified in accordance with the Canadian Institute
of Mining Metallurgy and Petroleum's "CIM Standards on Mineral Resources and
Reserves, Definitions and Guidelines" as per the requirements of Canadian
Securities Administrator's National Instrument 43-101 (the "Instrument").
Disclosure of mineral resources and reserves for Hellas Gold's Olympias,
Stratoni and Skouries deposits is derived from a prefeasibility study prepared
by independent consultants Behre Dolbear & Company, Inc. in accordance with the
guidelines set out in the Instrument and under the supervision of Richard
Parker, a "qualified person" under the Instrument. The prefeasibility study was
filed on SEDAR at www.sedar.com on 29 October 2004 under the category "Technical
Report".
Disclosure of mineral resources for European Goldfield's 80%-owned Certej
deposit is derived from a resource estimation prepared by independent
consultants RSG Global Pty Ltd in accordance with the guidelines set out in the
Instrument and under the supervision of Brett Gossage, a "qualified person"
under the Instrument. The resource estimation was filed on SEDAR on 23 March
2005 under the category "Technical Report".
Gold equivalent ounces were calculated using the following metal prices,
representing the average of (i) the average metal prices from 1993 to 2003
(source: LME), and (ii) the average metal prices from 1 January to 30 June 2004
(source: LME): Au: US$369/oz; Ag: US$5.79/oz; Pb: US$0.31/lb; Zn: US$0.47/lb;
Cu: US$1.09/lb. Mining recoveries for reserves have been taken into account.
However, metallurgical and refinery costs have not been considered when
calculating the gold equivalents.
Reserves are estimated using projected process recoveries, operating costs and
mine plans that are unique to each property and include estimated allowances for
dilution and mining recovery.
Normal data verification procedures have been used in collecting, compiling,
interpreting and processing the data used to estimate resources and reserves.
Data verification includes quality assurance and quality control procedures put
in place by European Goldfields in Romania and by the previous owners of the
Hellas Gold assets in Greece, and reviews by independent consultants of drill
hole information on geological sections prepared by European Goldfields and such
previous owners.
Resources (unlike reserves) do not have demonstrated economic viability.
Development of all properties is dependent on successful permitting.
Patrick Forward, General Manager, Exploration of European Goldfields, was the
"qualified person" under the Instrument responsible for reviewing the disclosure
of resource and reserve estimates quoted above.
Forward-looking statements
This news release contains certain forward-looking statements concerning the
Company's future operations, economic performances, financial condition and
financing plans. These statements are based on certain assumptions and analyses
made by the Company in light of the its experience and its perception of
historical trends, current conditions and expected future developments as well
as other factors the Company believes are appropriate in the circumstances.
However, whether actual results and developments will conform to the Company's
expectations and predictions is subject to a number of risks, uncertainties and
assumptions. Consequently, all of the forward-looking statements made in this
news release are qualified by these cautionary statements, and there can be no
assurance that the results or developments anticipated by the Company will be
realised or, even if substantially realised, that they will have the expected
consequences to or effects on the Company and its subsidiaries or their
businesses or operations. The Company undertakes no obligation and do not intend
to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required under
applicable law.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED 31 DECEMBER 2004
The following discussion and analysis, prepared as at 27 April 2005, is intended
to assist in the understanding and assessment of the trends and significant
changes in the results of operations and financial conditions of European
Goldfields Limited (the "Company"). Historical results may not indicate future
performance. Forward-looking statements are subject to a variety of factors that
could cause actual results to differ materially from those contemplated by these
statements. The following discussion and analysis should be read in conjunction
with the Company's audited consolidated financial statements for the years ended
31 December 2004 and 2003 and accompanying notes (the "Consolidated Financial
Statements").
Additional information relating to the Company is available on the Canadian
System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.
Except as otherwise noted, all dollar amounts in the following discussion and
analysis and the Consolidated Financial Statements are stated in United States
dollars.
Overview
The Company, a company incorporated in the Yukon, Canada, is a resource company
involved in the acquisition, exploration and development of mineral properties
in Greece, Romania and the Balkans.
The Company's Common Shares are listed on the AIM Market of the London Stock
Exchange and on the Toronto Stock Exchange (TSX) under the symbol "EGU".
Greece - As at 31 December 2004, the Company held a 65% interest (on a
fully-diluted basis) in Hellas Gold S.A ("Hellas Gold"). Hellas Gold owns assets
in Northern Greece which include 70-year mining concessions over a total area of
317 km2 and three polymetallic near-production deposits, known as Olympias,
Stratoni and Skouries, which contain proven and probable reserves. The Stratoni
and Olympias deposits were previously in production and benefit from significant
infrastructure which includes underground mining development, two plants and a
ship loading facility on the Aegean Sea. Hellas Gold's assets also include
potential revenue generating stockpiles and tailings located on the surface.
Romania - In Romania, the Company holds a 80% interest in Deva Gold S.A. and a
100% interest in European Goldfields (Romania) SRL, which are in the process of
exploring their mineral properties in Romania and have not yet determined
whether those properties contain economic reserves.
Balkans - The Company is currently entertaining certain investments for
exploration and development of mineral properties in the Balkans.
Significant acquisition in 2004
In February 2004, the Company acquired an initial 37.97% interest (30% on a
fully-diluted basis) in Hellas Gold for a total subscription price of Euro18
million ($24.06 million) in cash.
In November 2004, the Company completed the acquisition of additional shares in
Hellas Gold (the "Purchased Shares"), increasing its total interest from 37.97%
to 55.70%, and assumed an obligation to subscribe to additional shares in Hellas
Gold for a subscription price of $23.48 million (the "Subscription Obligation"),
resulting in an interest of 65% on a fully-diluted basis (the "Acquisition").
The total price paid by the Company for the Purchased Shares and for the
assumption of the Subscription Obligation was $125.35 million, satisfied as
follows:
a) $77.43 million by the issue in November 2004 of 30,423,280 common shares
to the vendors at a deemed issue price of #1.75 (C$3.98) per share. This was
accounted for at a price per share of #1.38 (C$3.14), representing the then fair
market value of such shares; and
b) $47.92 million paid in cash to the vendors in December 2004.
Transaction costs of $3.99 million were also accounted for as part of the
Acquisition.
In January 2005, the Company satisfied the Subscription Obligation for a
subscription price of US$23.48 million.
To fund the cash requirements relating to the Acquisition and provide additional
working capital, the Company raised concurrently #40 million ($75.73 million)
(before expenses) by the issue of 29,629,630 common shares at a price of #1.35
(C$3.07) per share (the "Placing"). The balance of the cash consideration
required for the Acquisition was funded by a non-brokered private placement with
Commerzbank A.G. completed in May 2004, where 5,882,000 common shares at a price
of #1.70 (C$4.18) per share were issued, for total subscription proceeds of #10
million ($17.76 million).
The Acquisition was accounted for as a purchase and the results of operations of
Hellas Gold were included in the consolidated statements of loss and deficit
from 30 November 2004, the effective date of the Acquisition. From 6 February
2004 to 30 November 2004, the Company's initial 37.97% interest (30% on a
fully-diluted basis) in Hellas Gold was accounted for as an equity investment
and the Company's share of loss in Hellas Gold was included in the consolidated
statements of loss and deficit.
Results of operations
The Company's results of operations for the three-month period and year ended 31
December 2004 were comprised primarily of activities related to the Company's
regional exploration programs in Romania. The Company continues to incur losses
and until commercial production commences and revenues are generated, the
Company will continue to do so.
The Company's results of operations for the eight most recently completed
quarters are summarised in the following table:
------------------------------------------------------------------------------------------------------------------------
2004 2004 2004 2004 2003 2003 2003 2003
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
$ $ $ $ $ $ $ $
------------------------------------------------------------------------------------------------------------------------
Statement of loss
and deficit
Interest Income 279,277 142,507 60,340 18,079 27,649 16,255 68,512 57,234
Expenses 5,510,145 1,735,977 43,712 4,664,828 1,172,229 2,325 1,619 1,620
(non-cash)
Expenses (total) 9,224,437 2,853,951 1,324,467 6,566,420 1,714,515 293,089 351,847 267,208
Loss 8,133,661 2,189,958 2,055,739 6,803,280 1,686,866 276,834 283,335 209,974
Loss (before
non-
cash expenses) 2,623,516 453,981 2,012,027 2,138,452 514,637 274,509 281,716 208,354
Loss per share 0.17 0.05 0.05 0.24 0.08 0.01 0.01 0.01
Loss per share
(before
non-cash
expenses) 0.05 0.01 0.05 0.07 0.03 0.01 0.01 0.01
Balance sheet
Working capital 63,479,383 29,045,152 31,117,158 14,412,628 5,057,885 5,433,159 6,709,136 7,667,515
Total assets 304,758,330 86,879,327 83,516,659 67,875,357 45,943,009 29,929,347 29,784,760 28,455,250
Non current 71,319,883 - - - - - - -
liabilities
Statement of cash flows
------------------------------------------------------------------------------------------------------------------------
Deferred
exploration
and development
costs 2,462,164 1,171,323 943,157 1,393,927 1,097,467 1,087,776 1,133,743 938,016
------------------------------------------------------------------------------------------------------------------------
The following tables and discussion compare the results of operations for the
years ended 31 December 2004, 2003 and 2002, and the three-month periods ended
31 December 2004 and 2003.
Years ended 31 December Three-month periods
ended
31 December
--------------------------------------------------------------
2004 2003 2002 2004 2003
$ $ $ $ $
------------------------------------------------------------------------------------
Statement of loss
and deficit
Interest Income 500,203 169,650 198,423 279,277 27,649
Expenses (non-cash) 11,954,662 1,177,793 2,654 5,510,145 1,172,229
Expenses (total) 19,969,275 2,626,659 1,341,371 9,224,437 1,714,515
Loss 19,182,638 2,457,009 1,145,602 8,133,661 1,686,866
Loss (before
non-cash
expenses) 7,227,976 1,279,216 1,142,948 2,623,516 514,638
Loss per share 0.39 0.11 0.06 0.17 0.08
Loss per share
(before
non-cash expenses) 0.15 0.06 0.06 0.05 0.03
Balance sheet
Working capital 63,479,383 5,057,885 8,176,685 63,479,383 5,057,885
Total assets 304,758,330 45,943,009 26,481,551 304,758,330 45,943,009
Non current 71,319,883 - - 71,319,883 -
liabilities
Statement of cash
flows
Deferred
exploration and
development costs 5,970,571 4,257,002 5,678,950 2,462,164 1,097,467
------------------------------------------------------------------------------------
Loss before non-cash expenses and loss per share before non-cash expenses
represent the loss before any expenses which are not deemed to be cash expenses.
They are not a generally accepted accounting principle measures. Loss before
non-cash expenses and loss per share before non-cash expenses may not be
comparable to similar measures used by other companies and as a result they are
not reflected in the key financial statements.
The breakdown of deferred exploration and development costs per exploration
concessions for the years ended 31 December 2004, 2003 and 2002, and the
three-month periods ended 31 December 2004 and 2003 is as follows:
Years ended 31 December Three-month periods
ended
31 December
-----------------------------------------------------------
2004 2003 2002 2004 2003
$ (%) $ (%) $ (%) $ (%) $ (%)
----------------------------------------------------------------------------------
Romanian mineral
properties
Certej 4,516,016 2,250,518 2,305,600 1,798,904 877,974
(76%) (53%) (41%) (73%) (80%)
Zlatna 529,930 985,379 1,753,058 266,183 131,696
(9%) (23%) (30%) (11%) (12%)
Voia 181,740 157,532 88,758 73,646 43,899
(3%) (4%) (2%) (3%) (4%)
Baita-Craciunesti 552,715 721,112 164,887 156,963 32,924
(9%) (17%) (3%) (6%) (3%)
Bolcana 190,170 142,461 1,366,647 166,468 10,974
(3%) (3%) (24%) (7%) (1%)
----------------------------------------------------------------------------------
5,970,571 4,257,002 5,678,950 2,462,164 1,097,467
(100%) (100%) (100%) (100%) (100%)
----------------------------------------------------------------------------------
Greek mineral
properties
Stratoni 11,375,542 - - 11,375,542 -
(6%) (6%)
Skouries 110,914,467 - - 110,914,467 -
(57%) (57%)
Olympias 73,517,372 - - 73,517,372 -
(37%) (37%)
----------------------------------------------------------------------------------
195,807,381 - - 195,807,381 -
(100%) (100%)
----------------------------------------------------------------------------------
Total 201,777,952 4,257,002 5,678,950 198,269,545 1,097,467
----------------------------------------------------------------------------------
The Company incurred a loss for the year ended 31 December 2004 of $19,182,638
($0.39 per share), and of $8,133,661 ($0.17 per share) for the three-month
period ended 31 December 2004, compared to $2,457,009 ($0.11 per share) and
$1,686,866 ($0.08 per share), respectively, for the same periods of 2003.
Before non-cash expenses, the Company incurred a loss for the year ended 31
December 2004 of $7,227,976 ($0.15 per share), and of $2,623,516 ($0.05 per
share) for the three-month period ended 31 December 2004, compared to $1,279,216
($0.06 per share) and $514,637 ($0.03 per share), respectively, for the same
periods of 2003.
Generally, this increase in loss can be explained by a significant increase in
the Company's investment and exploration activities in 2004 in both Romania and
the Company's newly acquired subsidiary in Greece, compared to 2003, as well as
by the hiring of new management and technical staff in 2004. In essence, this
amounted to a transformation of the Company in 2004.
In particular, the following factors have contributed to the increase in loss
(before non-cash expenses) for the three-month period and year ended 31 December
2004, compared to the same periods of 2003:
* In 2004, the Company initiated and completed significant investment
activities in Greece and financing at the corporate level, which resulted in
the listing of the Company's shares on the AIM Market of the London Stock
Exchange, the acquisition of a 65% interest in Hellas Gold and year-end cash
balances of $65,252,532 million. To achieve these milestones, new management
and technical staff were hired. The Company also accelerated exploration
activities in Romania. As a result, the Company's administrative and
overhead expenses increased to $1,861,667 for the three-month period ended
31 December 2004, and to $3,939,829 for the year ended 31 December 2004,
compared to $207,844 and $559,357, respectively, for the same periods of
2003.
* In 2004, the Company's audit, accounting, legal and other professional
fees amounted to $80,021 for the three-month period ended 31 December 2004,
and to $1,291,362 for the year ended 31 December 2004, compared to $307,907
and $836,584, respectively, for the same periods of 2003. This increase for
the year is mainly due to the increase in the Company's activities mentioned
above.
* In March 2004, the Company completed the listing of the its common
shares on the AIM Market of the London Stock Exchange for which the Company
recorded an expense of $4,152 for the three-month period ended 31 December
2004, and of $559,733 for the year ended 31 December 2004, compared to $Nil
for the same periods of 2003.
* The Company recorded an expense of $Nil for the three-month period ended
31 December 2004, and of $455,236 for the year ended 31 December 2004,
compared to $Nil and $151,511, respectively, for the same periods of 2003,
with respect to the evaluation of new projects.
* The Company recorded a foreign exchange gain of $1,268,408 for the
three-month period ended 31 December 2004, and of $510,235 for the year
ended 31 December 2004, compared to a gain of $130,581 and $114,574,
respectively, for the same periods of 2003. Effective 1 October 2004, the
Company changed its functional currency from the Canadian dollar to the
United States dollar. The gain was mainly due to the weakening of the United
States dollar against the British pound sterling and the euro over the year
ended 31 December 2004. The majority of the Company's funds were held in
euros and United States dollars.
* In November 2004, the Company completed the acquisition of shares in
Hellas Gold, increasing its total interest from 37.97% to 55.70%, and
assumed an obligation to subscribe to additional shares in Hellas Gold,
resulting in an interest of 65% on a fully-diluted basis. The Acquisition
was accounted for as a purchase and the results of operations of Hellas Gold
were included in the consolidated statements of loss and deficit from 30
November 2004, the effective date of the Acquisition. Hellas Gold's net
operating, general and administrative expenses of $1,768,453 for the period
30 November 2004 to 31 December 2004 was incorporated in the Company's
consolidated statement of loss and deficit.
* The following non-cash expenses have also contributed to the increase in
loss for the three-month period and year ended 31 December 2004, compared to
the same periods of 2003:
* In December 2003, the Company raised $15,089,594 (C$19,528,400) by way
of a brokered private placement of convertible loan notes, for which the
Company recorded a non-cash expense for financing costs of $Nil for the
three-month period ended 31 December 2004, and of $1,121,681 for the year
ended 31 December 2004, compared to $177,738 for the same periods of 2003.
* In January 2005, the Company decided to relinquish its 80%-owned
exploitation licence for the Zlatna perimeter in Romania and a provision of
$4,806,048 for the costs relating to the impairment of this property was
recorded for the three-month period and year ended 31 December 2004,
compared to $Nil for the same periods of 2003.
* During the year ended 31 December 2004, the Company issued the following
number of common shares to senior officers under the Company's Milestone
Share Compensation Plan: 700,000 in July 2004 and 405,000 in November 2004.
As a result, the Company recorded an additional non-cash stock-based
compensation expense of $1,048,835 for the three-month period ended 31
December 2004, and of $2,527,006 for the year ended 31 December 2004,
compared to $Nil for the same periods of 2003. Milestones for which common
shares were issued in the year ended 31 December 2004 include (i) the
listing in March 2004 of the Company's common shares on the AIM Market of
the London Stock Exchange, (ii) the acquisition in February 2004 of an
initial 30% interest in Hellas Gold and related financing, and (iii) the
acquisition in November 2004 of an additional 35% interest in Hellas Gold
and related financing.
* As a result of the introduction of new accounting standards, the Company
recorded a non-cash stock-based compensation expense of $828,111 for the
three-month period ended 31 December 2004, and of $3,893,179 for the year
ended 31 December 2004, compared to $992,451 for the same periods of 2003.
Such increase is consistent with the increase in the number of options
granted in the three-month period and year ended 31 December 2004, compared
to the same periods of 2003. Option grants in 2004 were made mostly to new
management and technical staff hired in the context of the Company's
initiatives to grow the business in Greece and accelerate exploration
activities in Romania.
In February 2004, the Company acquired an initial 37.97% interest (30% on a
fully-diluted basis) in Hellas Gold. From 9 February 2004 to 30 November 2004,
the Company's interest in Hellas Gold was accounted for as an equity investment
and the Company's share of loss in Hellas Gold was included in the consolidated
statements of loss and deficit. The Company's share of the loss in Hellas Gold
was a loss of $254,856 for the three-month period ended 31 December 2004, and a
loss of $729,579 for the year ended 31 December 2004, compared to $Nil for the
same periods of 2003. Hellas Gold's loss for the period from 9 February 2004 to
30 November 2004 includes revenue from the sale of surface concentrates of $Nil
for the three-month period ended 31 December 2004, and of $3,118,404 for the
year ended 31 December 2004, compared to $Nil for the same periods of 2003.
The Company recorded a credit for income taxes of $531,659 for the three-month
period ended 31 December 2004, and of $481,318 for the year ended 31 December
2004, compared to $Nil and $15,989, respectively, for the same periods of 2003.
The credit has arisen mainly due to the Company recognising a future tax asset
for the losses carried forward in Hellas Gold.
Liquidity and capital resources
As at 31 December 2004, the Company had cash and cash equivalents and short term
investments of $65.25 million, compared to $18.10 million as at 31 December
2003, and working capital of $63.48 million, compared to $5.06 million as at 31
December 2003.
The increase in cash and cash equivalents and working capital as at 31 December
2004, compared to the balances as at 31 December 2003, resulted from three
private placements described below ($111.57 million), the exercise of warrants
and options during the year ended 31 December 2004 ($9.36 million) and $0.5
million in interest earned, partly offset by capital raising costs ($4.60
million), the payment of the cash portion of the acquisition price for a 65%
interest in Hellas Gold ($61.71 million), operating losses ($6.20 million) and
deferred exploration and development costs ($5.97 million) discussed herein.
In February 2004, the Company raised $18.08 million by way of a non-brokered
private placement of 9,458,750 special warrants at a price of C$2.50 per
warrant. The warrants were exercised in February 2004 into 9,458,750 common
shares of the Company.
In May 2004, the Company completed a non-brokered private placement with
Commerzbank A.G. of 5,882,000 common shares at a price of #1.70 (C$4.18) per
share for total subscription proceeds of #10 million ($17.76 million).
In November 2004, the Company raised $75.73 million by way of a brokered private
placement of 29,629,630 common shares at a price of #1.35 (C$3.07) per share.
During the year ended 31 December 2004, the Company received total proceeds of
$7,428,171 through the exercise of 3,918,970 common share warrants at a price of
C$2.50 per share, and $1,935,581 through the exercise of 1,350,000 common share
options at a weighted average price of C$1.80 per share.
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
-----------------------------------------------------------------------------
Contractual Total Less 1 - 3 4 - 5 After 5
obligations than years years years
1 year
-----------------------------------------------------------------------------
Operating lease
(London office) 1,120,110 186,685 373,370 373,370 186,685
Exploration
licence
spending
commitments (Voia,
Romania) 1,516,900 - 1,516,900 - -
-----------------------------------------------------------------------------
Total contractual
obligations 2,637,010 186,685 1,890,270 373,370 186,685
-----------------------------------------------------------------------------
For the coming year, the Company believes it has adequate funds available to
meet its corporate and administrative obligations (estimated at $3,861,794) and
its planned expenditures on its mineral properties (estimated at $6,281,876 for
Romania and at $13,277,113 for Greece).
Transactions with related parties
As part of the Acquisition described above, the Company acquired from companies
owned by Frank Timis or over which he exercised control or direction, an
obligation to subscribe for a 21% interest (on a fully-diluted basis) in Hellas
Gold for an aggregate subscription price $23.48 million (Euro18 million). Prior to
the Acquisition, Frank Timis owned, or exercised control or direction over,
approximately 9% of the issued and outstanding common shares of the Company.
After completion of the Acquisition and the Placing described above, Frank Timis
owned, or exercised control or direction over, approximately 18.9% of the issued
and outstanding common shares of the Company.
As part of the Acquisition, the Company acquired a 14% (on a fully-diluted
basis) in Hellas Gold from Dimitrios Koutras. Prior to the Acquisition,
Dimitrios Koutras owned, or exercised control or direction over, Nil% of the
issued and outstanding common shares of the Company. After completion of the
Acquisition and the Placing, Dimitrios Koutras owned, or exercised control or
direction over, approximately 12.7% of the issued and outstanding common shares
of the Company.
The Acquisition was approved by the disinterested shareholders of the Company at
a Special Meeting of Shareholders held on 26 November 2004, and was completed
following the rules of the TSX Venture Exchange and the AIM Market of the London
Stock Exchange.
During the financial year ended 31 December 2004, Hellas Gold recorded expenses
of $3,644,605 (2003 - Nil) for management, technical and engineering services
received from a related party, Aktor S.A. As at 31 December 2004, Hellas Gold
had accounts payable of $1,366,095 (2003 - Nil) to Aktor S.A. These expenses
were contracted in the normal course of operations and are recorded at the
exchange amount agreed by the parties.
Change in functional and reporting currency
Effective 1 October 2004, the Company changed its functional currency from the
Canadian dollar to the United States dollar. In general, this change resulted
from a combination of a gradual increase in the operational exposure to the
United States dollar and predominantly United States dollar based asset and
investment base of the Company and from a gradual increase in the overall
proportion of business activities conducted in United States dollars. Concurrent
with this change in functional currency, the Company adopted the United States
dollar as its reporting currency. In accordance with accounting principles
generally accepted in Canada ("Canadian GAAP"), the change was effected by
translating all assets and liabilities, at the end of the prior reporting
periods, at the existing United States/Canadian dollar foreign exchange spot
rate, while income for those periods were translated at the average rate for
each period. Equity transactions have been translated at the historical rates,
with opening equity on 30 June 2000, restated at the rate of exchange on that
date. The resulting net translation adjustment has been credited to the
cumulative translation adjustment account in the equity section of the balance
sheet.
Significant accounting policies
In this document, unless otherwise indicated, all financial data and discussion
is based upon consolidated financial statements prepared on the going concern
basis in accordance with Canadian GAAP and reflect the following significant
accountant policies.
Basis of consolidation - Business acquisitions are accounted for under the
purchase method and the results of operations of these businesses are included
in these consolidated financial statements from the acquisition date.
Investments in affiliated companies over which the Company has significant
influence are accounted for using the equity method. Investments in other
businesses are recorded at cost.
Estimates, risks and uncertainties - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the period. Significant estimates and assumptions include those related to the
recoverability of mineral properties and deferred exploration and development
costs. While management believes that these estimates and assumptions are
reasonable, actual results could vary significantly.
Mineral properties and deferred exploration and development costs - Acquisition
costs of resource properties, together with direct exploration and development
costs incurred thereon, are deferred and capitalised. Upon reaching commercial
production, these capitalised costs are transferred from exploration properties
to producing properties on the consolidated balance sheets and are amortised
into operations using the unit-of-production method over the estimated useful
life of the estimated related ore reserves.
Based on annual impairment reviews made by management, in the event that the
long-term expectation is that the net carrying amount of these capitalised
exploration and development costs will not be recovered such as would be
indicated where:
- Producing properties:
* the carrying amounts of the capitalised costs exceed the related
undiscounted net cash flows of reserves;
- Exploration properties:
* exploration activities have ceased;
* exploration results are not promising such that exploration will not be
planned for the foreseeable future;
* lease ownership rights expire; or
* insufficient funding is available to complete the exploration program;
then the carrying amount is written down accordingly and the write-down amount
charged to operations.
Foreign currency translation - The Company's functional currency is the United
States dollar. Monetary assets and liabilities denominated in foreign currencies
are translated at the exchange rate in effect at the balance sheet date.
Non-monetary assets and liabilities and revenue and expenses arising from
foreign currency transactions are translated at the exchange rate in effect at
the date of the transaction. Exchange gains or losses arising from the
translation are included in operations.
Integrated foreign subsidiaries are accounted for under the temporal method.
Under this method, monetary assets and liabilities are translated at the
exchange rate in effect at the balance sheet date. Non-monetary assets and
liabilities are translated at historical rates. Revenue and expenses are
translated at average rates for the period. Exchange gains or losses arising
from the translation are included in operations except for those related to
mineral properties which are capitalised.
Financial instruments - The Company's financial instruments consist of cash and
cash equivalents, accounts receivable and accounts payable and accrued
liabilities. Unless otherwise noted, it is management's opinion that the Company
is not exposed to significant interest or credit risks arising from these
financial instruments. The fair values of these financial instruments
approximate their carrying values unless otherwise noted.
The Company's operations expose it to significant fluctuations in foreign
exchange rates. The Company has monetary assets and liabilities denominated in
British pounds sterling, Romanian lei, euros and Canadian dollars, which are,
therefore, subject to exchange variations against the reporting currency, the
United States dollar. Included in cash and cash equivalents is approximately $38
million denominated in euros.
The Company does not currently have any hedging policies or practices in place.
Share options - The Company operates a share option plan. Effective 1 January
2003, the Company chose to adopt the accounting standard of the Canadian
Institute of Chartered Accountants with respect to the accounting for
stock-based compensation and adopted the fair value method of accounting for
share options granted to directors, officers and employees on a prospective
basis whereby the weighted average fair value of options granted is recorded as
a compensation expense in the financial statements. Compensation expense on
share options granted to non-employees is recorded as an expense at the earlier
of the date the options are vested or the performance is complete, using the
fair value method. Any consideration paid by directors, officers, employees and
consultants on exercise of share options or purchases of shares is credited to
share capital.
Asset retirement obligation - Effective 1 January 2004, the Company adopted the
CICA Handbook Section 3110 "Asset Retirement Obligations", which established
standards for asset retirement obligations and the associated retirement costs
related to reclamation and abandonment. The fair value of the liability of an
asset retirement obligation is recorded when it is incurred and the
corresponding increase to the asset is depreciated over the life of the asset.
The liability is increased over time to reflect an accretion element considered
in the initial measurement at fair value. At 31 December 2004, the Company had
an asset retirement obligation relating to the development of its mineral
properties in Greece.
Impairment of long-lived assets - Effective 1 January 2004, the Company adopted
the new recommendations of CICA Handbook Section 3063 "Impairment of Long-lived
Assets" on a prospective basis. Section 3063 requires that long-lived assets and
intangibles to be held and used by the Company be 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. Effective 31 December 2004,
the Company decided to relinquish its 80%-owned exploitation license for the
Zlatna perimeter in Romania and a provision for the costs of this property has
been recorded.
Outstanding share data
The following represents all equity shares outstanding and the number of common
shares into which all securities are convertible, exercisable or exchangeable:
Preferred shares: Nil
Common shares: 112,173,708
Common share options: 3,720,000
Common share broker warrants: 415,498
-----------
Common shares 116,309,206
(fully-diluted):
Outlook
In Greece, the Company is currently updating the feasibility studies and
preparing new business and environmental plans defining the way forward for
Hellas Gold's gold and base metal projects of Olympias and Skouries. The Company
will also continue to look for new discoveries through focused exploration
programmes.
In Romania, work at Certej is now directed towards completing an in-house
pre-feasibility study with specific focus on optimising metallurgical recoveries
and defining a practical open pit. The Company also continues to look at new
satellite targets around the Certej deposit with a view to adding additional
incremental ounces. At Cainel, underground channel sampling continues to define
the bigger mineralised target covering an area of 200 x 1,000 metres. Aggressive
drilling campaigns will be effected during the second half of 2005 to test the
Company's geological model and the potential for a major mineralised system.
The Company also intends to continue growing its portfolio by new exploration
discoveries and the pursuit of accretive, value enhancing acquisitions in Europe
and the Balkans.
Risks and uncertainties
Foreign country risk -Any changes in regulations in Greece and Romania 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 Romania and Greece
of earnings to foreign entities. However, there can be no assurance that
restrictions on repatriation of earnings from Romania and Greece will not be
imposed in the future.
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.
At present, none of the Company's properties in Romania have proven or probable
reserves and the resource and reserve estimates relating to the Company's
properties in Greece are historic. 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.
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 resources, grades, stripping ratios
or recovery rates may affect the economic viability of projects.
The Company's operations may be disrupted by a variety of risks and hazards
which are beyond the Company's control, including fires, power outages, labour
disruptions, flooding, explosions, cave-ins, land slides and the inability to
obtain suitable or adequate machinery, equipment or labour and other risks
involved in the operation of mines and the conduct of exploration programmes. It
is not always possible to fully insure against such risks and hazards as a
result of high premiums or other reasons. Should such liabilities arise, they
could reduce or eliminate any future profitability and result in increased
costs, have a material adverse effect on the Company's results.
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.
Mineral prices - The mineral exploration and development industry in general is
intensely competitive and there is no assurance that, even if commercial
quantities of proven and probable reserves are discovered, a profitable market
may exist for the sale of the same. Factors beyond the Company's control may
affect the marketability of any substances discovered. Mineral prices have
fluctuated widely, particularly in recent years. Depending on the price of gold
or other minerals produced, the Company may determine that it is impractical to
commence or continue commercial production.
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.
Exploration, development, mining and other licences - The Company's exploration,
development and mining activities are dependent upon the grant of appropriate
licences, concessions, leases, permits and regulatory consents
("Authorisations") which may not be granted or may be withdrawn or made subject
to limitations. There can be no assurance that such Authorisations will be
renewed following expiry or granted (as the case may be) or as to the terms of
such grants or renewals.
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 is 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.
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 expect 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 fulfill 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.
This information is provided by RNS
The company news service from the London Stock Exchange
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