RNS Number:5593A
European Goldfields Ltd
29 March 2006
For Immediate Release 29 March 2006
EUROPEAN GOLDFIELDS LTD
RESULTS FOR 2005
COMMENCED PRODUCTION AT STRATONI
INAUGURAL GROSS PROFIT IN GREECE FOR Q4 2005
BUSINESS PLANS COMPLETED FOR OLYMPIAS & SKOURIES
CERTEJ PROJECT MOVING FORWARD
European Goldfields Limited (AIM: EGU / TSX: EGU) ("European Goldfields" or the
"Company") today reports its results for the financial year ended 31 December
2005. Highlights of the year are:
Greece:
* Commenced production at Stratoni in October 2005
* Hellas Gold awarded all environmental and mining permits for its
Stratoni mine; plant commissioned in September 2005, underground mining
commenced in late October, off-take agreements signed in November and first
concentrates shipped in December
* Hellas Gold records inaugural gross profit for Q4 2005; first revenue
booked in December 2005 from sale of Stratoni concentrates
* Work progressing on new Stratoni decline, leading to production ramp-up
in 2007
* Business plans submitted to the Greek government in January 2006, the
first major step in applying for permits to develop major projects of
Skouries and Olympias
* Increased Stratoni reserve by 17%
Romania:
* In-house pre-feasibility study on Certej completed, confirming that a
high-grade gold/silver concentrate can be produced at a gold recovery of >
87% from open-pit mining
* Letters of interest received for sale of Certej gold/silver concentrate
* Environmental Impact Assessments completed
* Promising exploration results on Certej satellites; joint venture signed
for the exploration of a new mining concession in Romania at Magura Tebii
Corporate:
* Management team-building completed with appointments of Neil Hepworth as
VP Operations and Jeff O'Leary as Non-executive Director
* Loss for 2005 down by almost 50% compared to 2004; US$34 million in cash
assets and financial instruments at 31 December 2005; funded through 2007
until permits awarded for Olympias, Skouries and Certej
* Increased analyst coverage; broadened shareholder base and improved
share liquidity; appointed Williams de Broe and RBC Capital Markets as
brokers
Commenting on the results, David Reading, Chief Executive Officer of European
Goldfields, said: "European Goldfields had a successful year in its evolution to
a mid-tier producer by delivering on its promises in 2005: production from our
base metal mine at Stratoni commenced in late October, cash flow has been
secured through off-take agreements for the sale of concentrates produced at
Stratoni, business plans were submitted to the Greek government for the
development of the major gold and base metals projects of Skouries and Olympias,
and the in-house pre-feasibility study on the Certej deposit in Romania was
completed, demonstrating the viability of the project. These events have created
the platform for European Goldfields to become one of Europe's most significant
mining and development companies."
Stratoni underpins the value
The year 2005 was a busy one at the Stratoni mine. Refurbishment of existing
underground, plant and port facilities was completed by mid year and by
September all the necessary environmental and mining permits were received. The
mill and flotation plant was successfully commissioned in the same month and by
late October we were in the position to start underground mining operations.
During the two months to the end of December, the Stratoni plant processed over
16,000 tonnes of ore and a further 11,000 remained on the stockpile. In
December, some 2,500 tonnes of concentrates grading 52% zinc was shipped and
sold. The modest Stratoni figures represent a promising start as over ten
working ends were opened up and the underground infrastructure was repaired and
equipped in order to increase production. This preparatory work has facilitated
a solid platform for production build-up, which saw us move from 300 tonnes per
day (tpd) in December to 400 tpd in January and 500 tpd in March 2006.
Furthermore, the plant was commissioned without any technical problems, and
optimum recoveries of above 90% are now being achieved.
Good progress has also been made on the new decline, which is now 130 metres in,
and through the bad ground associated with the footwall fault zone. The decline
is not necessary for mining in 2006 but becomes critical for the future
production ramp-up involving the deeper portions of the orebody as well as
providing potential exploration upside. The ore production forecast for 2006 is
170,000 tonnes, which is expected to increase steadily thereafter up to a
maximum of 400,000 tonnes per annum.
The Stratoni project underpins the value of the Company. Off-take agreements for
the sale of concentrates have been signed and secure our sales until mid 2008.
The Company negotiated very favourable terms which included some of the lowest
treatment charges on record. This reflects the fact that Stratoni is the only
new zinc and lead producer to come on stream in 2005 and coincides with a strong
upturn in the prices of these metals.
The fourth-quarter results for our 65% Greek subsidiary, Hellas Gold, reflect
this robustness with the announcement of an inaugural gross profit for the
quarter.
In summary, Stratoni is a robust business with minimal capital investment due
the extensive existing infrastructure and also has well-defined reserves over a
six-year life. The project has exciting exploration upside as the orebody is
open in all directions and the new decline is transgressing the zone between
old, mined-out areas and the current reserve. All these areas will be the
subject to new exploration drilling during the forthcoming year.
Permit process for gold projects commences with submission of business plans
In January 2006, Hellas Gold submitted business plans to the Greek government
for the major gold and base metals projects of Skouries and Olympias,
effectively starting the permitting process for these mines.
The emphasis is on a phased approach for capital and project development, with
priority assigned to full production from the Skouries copper - gold project. At
Olympias, the initial development is designed to utilise existing infrastructure
and focus on the sale of concentrates with production ramp-up and building of a
gold plant occurring in later years.
The phased strategy reflects cognizance of project history, a practical approach
to project building and takes into account the concerns and issues of local
stakeholders. The submission of these plans is a major milestone in the
Company's history involving the collaboration of our Greek and London teams, as
well as extensive input from external consultants.
Skouries is a robust project at copper prices of $1.06/lb and gold at $400/oz.
The project has simple metallurgy and a low strip ratio, with open-pit mining
followed by underground development. Skouries will produce some 750,000 tonnes
of copper metal and 3.6 Moz of gold over a 20-year life. Skouries is located on
an uninhabited, high plateau, but close to roads, power and water
infrastructures. The latest paste production technology has been incorporated in
the tailings management facility to minimise and control active waste areas. The
Skouries project is well researched, and updating the bankable feasibility study
will be straightforward and achievable during 2006. We believe that on receipt
of the permits the project can be built in approximately 18 months.
Olympias has two distinct advantages: existing shaft and underground
infrastructure down to a depth of
400 metres below surface, and stockpiles of gold concentrates (270,000 tonnes
grading +20 g/t gold), which we intend to sell as soon as possible, some in
2006. The business plan is phased with underground production expected to
commence at 250,000 tonnes per annum (tpa) and ramping-up to 900,000 tpa over
eight years. The sale of surface stockpiles will generate early cash flow and
the plan is to continue selling gold and base metal concentrates during the
production ramp-up. In the final phase, a new decline will be used to convey ore
to a plant complex involving concentrator, gold plant and tailings management
facility that will be centralised in the Stratoni valley. The phasing of the
project allows time for optimisation and development of the metallurgical
process for the treatment of auriferous arsenopyrite/pyrite concentrates, as
this is still in the research and development stage.
Submission of the business plans is a significant milestone in the Company's
development as it effectively engages the Greek government and the local
communities in our development plans for the projects, and starts the clock on
countdown to receiving the necessary permits to commence mining.
Turning the corner in Romania
In 2005, the Romanian exploration and feasibility team took great steps towards
project development by understanding the grade, mining potential and metallurgy
of our Certej gold project. A promising in-house pre-feasibility study was
completed showing that Certej could produce a viable return at a gold price of
$425/oz and above by way of open-pit mining and production of high-grade
concentrates, which could be sold commercially or oxidised on site to produce
gold dore.
With this study, the project has now turned the corner. We are now completing a
final feasibility study for submission to the Romanian government in support of
our permit application. We have completed final pit optimisation studies based
on new geotechnical drilling and levels I and II of the Environmental Impact
Assessment have been completed. We have also received letters of interest from
metal traders for the Certej concentrate, which will enable us to file for
project reserves in Q2 2006.
On the exploration front, our teams continue to evaluate satellite targets
surrounding Certej, and encouraging results to date suggest we can probably
supply additional gold ounces to the Certej project. The Company has also
entered into a JV agreement with a local Romanian company to drill-test the
Magura Tebii prospect, an attractive exploration target located 35 km north-west
of Certej.
European Goldfields: a mining and development company
Many of our longstanding shareholders have remarked that European Goldfields is
a very different company from the one that they knew over two years ago. This
statement is endorsed by the instalment of new management and technical teams,
our project pipeline, the commencement of production and revenue-generation, our
strong cash position and reduction in expenditure, and finally the broadening of
our shareholder base and improvement in share liquidity during the second half
of 2006. All these events have transformed the Company into a mining and
development group that is on track to become a mid-tier producer by the end of
2008.
In addition to Hellas Gold's inaugural gross profit for Q4 2005, we are also
pleased to report that European Goldfields' loss for 2005 was down by almost 50%
compared to 2004, reflecting the Company's increasing control over costs and
better management of assets. The Company also had US$34 million in cash assets
and financial instruments at 31 December 2005, which is expected to provide
funding through 2007, covering the permitting process for Olympias, Skouries and
Certej.
2006 and beyond: a new commodity cycle
The forthcoming year is a very important one for European Goldfields.
Our production team in Greece is focused on mining and processing 170,000 tons
of ore from Stratoni and completing the new decline. Subsequent to submission of
the business plans for the major gold and base metal projects of Skouries and
Olympias, we are now in the permitting process and currently preparing our
Environmental Impact Assessment. In parallel with this work, we will be updating
the Skouries feasibility study and completing our final mining studies for
Olympias. Our view on permitting is that we have successfully completed this
process once for Stratoni, and will be dealing with all of the same government
and local stakeholders again for the Skouries and Olympias projects.
In Romania, considerable progress has been made in the completion of the pit
optimisation and metallurgical studies in order to file for reserves. Work
continues on the forthcoming submission of a final feasibility study to the
government so that we can begin the permitting process on the Certej project.
The Company's project pipeline gives many value-creating opportunities within
the current commodity cycle. These include the ability to sell our stockpile of
gold concentrates at Olympias (270,000 tonnes grading +20 g/t gold) and the
opportunity to immediately monetise a portion of our Stratoni silver reserve. We
are currently aggressively pursuing these opportunities in order to give
ourselves flexibility in the financing of the Skouries and Olympias projects.
In 2006, we will also initiate a focused exploration programme at Stratoni to
define further resources within ore-bearing marble horizons between the two
known deposits and around the peripheries of the existing reserves. In addition
to this, we have also initiated a generative study to outline targets for
follow-up exploration. This work will form a solid platform for brown field
exploration for further major Olympias and Skouries-style deposits in 2007
within our 317 km(2) of highly prospective permits in northern Greece.
In summary, the Company now has a clear strategic direction with a management
team capable of delivering on our promises. It is a great time to be a silver,
zinc and lead producer and the revenue-generation provides a strong platform for
further project development. European Goldfields is now well on the way to
achieving its mission statement and becoming a mid-tier, gold and base metals
producer within South-East Europe by the end of 2008.
For further information please contact:
European Goldfields: e-mail: info@egoldfields.com
David Reading, Chief Executive Officer website: www.egoldfields.com
Office: +44 (0)20 7408 9534 ------------------------------
Buchanan Communications: e-mail: bobbym@buchanan.uk.com
Bobby Morse / Ben Willey
Office: +44 (0)20 7466 5000
Mobile: +44 (0)7802 875 227
The Sherbourne Group: e-mail: forbes@sherbournegroup.ca
Forbes West
Office: +1 416 203 2200
Resources & reserves parameters
For additional information on the resource and reserve estimates quoted in this
news release, please refer to the Company's Resources & Reserves Declaration at
www.egoldfields.com/goldfields/resources.jsp.
Patrick Forward, General Manager, Exploration of the Company, was the Qualified
Person under Canadian National Instrument 43-101 responsible for reviewing the
disclosure of resource and reserve estimates quoted in this news release.
Forward-looking statements
Certain information included in this news release, 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 statements". The words "expect", "will", "intend",
"estimate" and similar expressions identify forward-looking statements.
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 worldwide price of gold, base metals or certain other
commodities (such as fuel and electricity) and currencies; 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 reserves; and the risks normally involved in the
exploration, development and mining business. These factors are discussed in
greater detail in the Company's Annual Information Form for the year ended 31
December 2005, filed on SEDAR at www.sedar.com. The Company disclaims any
intention or obligation to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED 31 DECEMBER 2005
The following discussion and analysis, prepared as at 29 March 2006, 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 2005 and 2004 and accompanying notes (the "Consolidated Financial
Statements").
Additional information relating to the Company, including the Company's Annual
Information Form, is available on the Canadian System for Electronic Document
Analysis and Retrieval (SEDAR) at www.sedar.com.
Except as otherwise noted, all dollar amounts in the following discussion and
analysis and the Consolidated Financial Statements are stated in United States
dollars.
Overview
The Company, a company incorporated under the Yukon Business Corporations Act,
is a resource company involved in the acquisition, exploration and development
of mineral properties in Greece, Romania and 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 - The Company holds a 65% interest in Hellas Gold S.A. ("Hellas Gold").
Hellas Gold owns assets in northern Greece which consist of three 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 7.6 Moz gold, 65.8
Moz silver, 0.7 Mt copper,
0.7 Mt lead and 0.9 Mt zinc, from a measured and indicated resource base of 9.4
Moz gold, 74.5 Moz silver, 1.0 Mt copper, 0.8 Mt lead and 1.1 Mt zinc (65%
attributable).
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 metals centre. Furthermore, both Stratoni and
Olympias were previously in production and have extensive existing mining and
plant infrastructure and a ship-loading facility on the Aegean Sea.
Hellas Gold's assets also include potential revenue-generating stockpiles of
gold concentrates.
In September 2005, Hellas Gold resumed production at Stratoni following the
award by the Greek State of all necessary environmental and mining permits.
Hellas Gold is in the process of applying for similar permits for Olympias and
Skouries, having met its first milestone by submitting business plans to the
Greek government in January 2006.
Romania - The Company holds five mineral properties located within the "Golden
Quadrilateral" area of Romania, where it has recently completed an in-house
pre-feasibility study underpinning the value of its
80%-owned Certej deposit. The Certej deposit hosts measured and indicated
resources of 31.4 Mt grading
2.1 g/t gold and 11 g/t silver for 2.2 Moz gold and 11.0 Moz silver (80%
attributable).
Results of operations
The Company's results of operations for the year and three-month period ended 31
December 2005 were comprised primarily of activities related to the results of
operations of the Company's 65%-owned subsidiary Hellas Gold in Greece and the
Company's regional exploration programs in Romania. The Company currently incurs
losses and until significant revenues are generated, the Company will continue
to do so.
In September 2005, Hellas Gold commenced production at its Stratoni mine in
Greece. The following table summarises operational results at Stratoni for the
three-month period ended 31 December 2005.
Stratoni Mine (Greece)
Three-month period ended
31 December 2005
Production
Start of period inventory of ore 13,188
mined (tonnes)
Ore mined (tonnes) 13,800
Ore processed (tonnes) 16,025
- Average grade: Zinc (%) 7.80
Lead (%) 7.10
Silver (g/t) 182
Zinc concentrate (tonnes) 2,385
- Containing: Zinc (tonnes) 1,254
Lead concentrate (tonnes) 1,268
- Containing: Lead (tonnes) 907
Silver (kg) 2,284
End of period inventory of ore 10,963
mined (tonnes)
Sales
Zinc concentrate (tonnes) 2,290
- Containing: Zinc (tonnes)* 1,009
Lead concentrate (tonnes) Nil
- Containing: Lead (tonnes)* Nil
Silver (kg)* Nil
* Net of smelter deductions
The Company's results of operations for the eight most recently completed
quarters are summarised in the following table:
(in thousands of 2005 2005 2005 2005 2004 2004 2004 2004
US dollars,
except per share Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
amounts) $ $ $ $ $ $ $ $
Statement of loss
and deficit
Sales 1,464 - 57 - - - - -
Cost of sales 1,367 - - - - - - -
Gross profit 97 - 57 - - - - -
Interest income 339 272 326 326 279 143 60 18
Expenses 5,079 3,536 2,287 3,831 9,225 2,854 2,848 5,042
Loss 4,309 2,726 723 2,652 8,134 2,190 3,580 5,279
Loss per share 0.04 0.02 0.01 0.02 0.17 0.05 0.09 0.18
Balance sheet
Working capital 33,765 39,171 49,544 57,285 63,480 29,045 31,117 14,413
Total assets 266,618 295,914 298,948 300,689 305,541 86,879 83,517 67,875
Non current 62,807 70,053 71,056 71,179 72,103 - - -
liabilities
Statement of cash
flows
Deferred 1,081 1,067 893 860 2,462 1,172 943 1,394
exploration and
development costs
- Romania
Plant and 1,298 2,506 2,453 1,582 - - - -
equipment -
Greece
Deferred 1,510 439 891 - - - - -
development costs
- Greece
The Company's results of operations for the years ended 31 December 2005, 2004
and 2003, and the three-month periods ended 31 December 2005 and 2004 are
summarised in the following table:
Years ended 31 December Three-month periods ended
31 December
(in thousands of US 2005 2004 2003 2005 2004
dollars) $ $ $ $ $
-------- -------- -------- ----------- -----------
Statement of loss and
deficit
Sales 1,521 - - 1,464 -
Cost of sales 1,367 - - 1,367 -
Gross profit 154 - - 97 -
Interest Income 1,263 500 170 339 279
Expenses 14,733 19,969 2,627 5,079 9,224
Loss 10,410 19,183 2,457 4,309 8,134
Loss per share 0.09 0.39 0.11 0.04 0.17
Balance sheet
Working capital 33,765 63,480 5,058 33,765 63,480
Total assets 266,618 305,541 45,943 266,618 305,541
Non current liabilities 62,807 72,103 - 62,807 72,103
Statement of cash flows
Deferred exploration and 3,901 5,971 4,257 1,081 2,462
development costs -
Romania
Plant and equipment - 7,839 - - 1,298 -
Greece
Deferred development 2,840 - - 1,510 -
costs - Greece
The breakdown of deferred exploration and development costs per mineral property
for the years ended 31 December 2005, 2004 and 2003, and the three-month periods ended 31 December
2005 and 2004 is as follows:
Years ended 31 December Three-month periods ended
31 December
(in thousands of US 2005 2004 2003 2005 2004
dollars)
$ $ $ $ $
Romanian mineral properties
Certej 2,380(61%) 4,516(76%) 2,251(53%) 724(67%) 1,799(73%)
Cainel 1,014(26%) - (-%) - (-%) 205 (19%) - (-%)
Zlatna - (-%) 530 (9%) 985 (23%) - (-%) 266 (11%)
Voia 78 (2%) 182 (3%) 158 (4%) 11 (1%) 74 (3%)
Baita-Craciunesti 390(10%) 553 (9%) 721 (17%) 130 (12%) 157 (6%)
Bolcana 39 (1%) 190 (3%) 142 (3%) 11 (1%) 166 (7%)
--------------- -------- --------- -------- ----------- -----------
3,901(100%) 5,971(100%)4,257 (100%) 1,081 (100%) 2,462 (100%)
Greek mineral
properties
Stratoni 421 (14%) 11,376 (6%) - 11 (1%) 11,376 (6%)
Skouries 687 (23%) 110,914(57%) - 118 (7%) 110,914 (57%)
Olympias 1,939(63%) 73,517(37%) - 1,588 (92%) 73,517 (37%)
--------------- -------- --------- -------- ----------- -----------
3,047(100%) 195,807(100%) - (-%) 1,717 (100%) 195,807(100%)
--------------- -------- --------- -------- ----------- -----------
Total 6,948(100%) 201,778(100%)4,257(100%) 2,798 (100%) 198,270(100%)
The Company incurred a loss of $10.41 million ($0.09 per share) for the year
ended 31 December 2005, compared to $19.18 million ($0.39 per share) for 2004.
The Company incurred a loss of $4.31 million ($0.04 per share) for the three-month
period ended 31 December 2005, compared to $8.13 million ($0.17 per share) for the
same period of 2004.
The following factors have contributed to this large reduction in loss for the
year and three-month period ended 31 December 2005, compared to the same periods
of 2004:
* Hellas Gold commenced production at its Stratoni mine in September 2005.
As a result, the Company recorded $0.15 million in gross profit on revenues
of $1.52 million in 2005 and $1.46 million in Q4 2005 for the sale of
concentrates by Hellas Gold, compared to $Nil for the same periods of 2004.
Cost of sales of $1.37 million included non-recurring costs relating to the
start-up of operations at Stratoni, fixed costs disproportionate to
production output in a ramp-up phase, and $0.20 million in amortisation and
depletion expenses.
* The Company's interest income has increased to $1.26 million in 2005 and
$0.34 million in Q4 2005, from $0.50 million and $0.23 million,
respectively, for the same periods of 2004, primarily as a result of the
Company holding significantly higher cash balances during 2005 following the
completion of private placements during 2004.
* On 9 February 2004, the Company acquired an initial 37.97% interest 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. On 30
November 2004, the Company completed the acquisition of additional shares in
Hellas Gold, increasing its total interest from 37.97% to 55.70% (65% on a
fully-diluted basis). The acquisition was accounted for as a purchase and
the operating expenses of Hellas Gold were included in the consolidated
statements of loss and deficit from 30 November 2004, the effective date of
the acquisition.
In 2005, Hellas Gold's administrative and overhead expenses amounted to $2.11
million, compared to the Company's share of loss in equity investment of $0.73
million from 9 February to
30 November 2004 and Hellas Gold's administrative and overhead expenses of $0.30
million for the remainder of 2004. Hellas Gold's administrative and overhead
expenses in 2005 and 2004 are mostly attributable to the various costs involved
in preparing the commencement of production at Stratoni in September 2005, and
preparing studies and business plans for Hellas Gold's projects of Skouries and
Olympias.
In 2005, Hellas Gold incurred an expense of $3.85 million, compared to $1.47
million from 30 November to 31 December 2004, for ongoing water pumping and
treatment at its non-operating mines of Olympias and Stratoni (Madem Lakkos)
(including non-recurring costs in 2005 of approximately $2.0 million associated
with the refurbishment of pumps and pipes), in compliance with Hellas Gold's
commitment to the environment under its contract with the Greek State.
* The Company's corporate administrative and overhead expenses have
decreased significantly from $6.25 million in 2004 and $1.95 million in Q4
2004, to $3.15 million and $1.06 million, respectively, for the same periods
of 2005, primarily as a result of the Company's newly adopted practice of
recharging costs and overheads to its operating subsidiaries in 2005, a
portion of which is capitalised by such subsidiaries.
* Effective 31 December 2005, the Company relinquished its 80%-owned
exploitation license for the Bolcana perimeter in Romania and an impairment
cost of $2.36 million was recorded for the year and three-month period ended
31 December 2005, compared to a greater impairment cost of $4.81 million for
the same periods of 2004 relating to the relinquishment of the Zlatna
perimeter in Romania effective 31 December 2004.
* The Company recorded a non-cash equity-based compensation expense of
$1.82 million in 2005 and
$1.06 million in Q4 2005, compared to $6.42 million and $1.88 million,
respectively, for the same periods of 2004. This decrease in 2005 reflects
the fact that fewer share options and shares were granted as compensation in
that period compared to the same periods of 2004, and that the cost of share
options granted in 2005 has been amortised according to the vesting periods
of such share options, in contrast with the share options granted in 2004
which, for the most part, vested immediately upon grant. Also, in 2005, the
Company adopted a practice of recharging some of its equity-based
compensation expense to its operating subsidiaries, a portion of which is
capitalised by such subsidiaries.
* Effective 1 October 2004, the Company changed its functional currency
from the Canadian dollar to the United States dollar. Despite this, during
2005, the Company retained significant cash balances in Euro in order to
meet a Euro subscription obligation in Hellas Gold in Q1 2005. Hellas Gold
also retained significant cash balances in Euro in order to meet operating,
administrative and overhead expenses. Consequently, the Company recorded a
foreign exchange loss of $0.94 million and $0.04 million in 2005 and Q4
2005, respectively. The loss resulted primarily from a strengthening of the
United States dollar against the Euro as at 31 December 2005 compared to 31
December 2004. In contrast, the Company had realised a foreign exchange gain
of $0.51 million and $1.27 million in 2004 and Q4 2004, respectively.
* The Company's amortisation expense has increased to $0.24 million in
2005 from $0.09 million in 2004, primarily as a result of the Company
acquiring significant assets through the acquisition of a
65% interest in Hellas Gold in November 2004.
* In December 2003, the Company raised $15.09 million by way of a brokered
private placement of convertible loan notes, for which the Company recorded
a non-cash expense for financing costs of $1.12 million in 2004 and $Nil in
Q4 2004, compared to $Nil for the same periods of 2005.
* The Company recorded a credit for income taxes of $1.70 million in 2005
and $0.39 million in Q4 2005, compared to a lesser credit of $0.48 million
and $0.53 million, respectively, for the same periods of 2004. The credits
have arisen due to the Company recognising a future tax asset for the losses
carried forward in Hellas Gold. The credits for 2005 have increased compared
to 2004 due to the increase in losses in Hellas Gold.
Liquidity and capital resources
As at 31 December 2005, the Company had cash and cash equivalents of $30.54
million, compared to
$65.25 million as at 31 December 2004, and working capital of $33.77 million,
compared to $63.48 million as at 31 December 2004.
The decrease in cash and cash equivalents as at 31 December 2005, compared to
the balances as at
31 December 2004, resulted primarily from operating losses ($8.21 million),
capital expenditure in Greece
($7.84 million), the effects of foreign currency translation on cash ($4.86
million), deferred exploration and development costs in Romania ($3.90 million),
funds pledged as collateral to guarantee environmental commitments at Stratoni
($3.54 million), a net increase in accounts receivable vs. accounts payable
($3.14 million), deferred development costs in Greece ($2.84 million), an
increase in inventory ($1.63 million), purchase of equipment ($0.22 million) and
capital raising costs ($0.01 million), offset by interest earned
($1.26 million) and the exercise of options ($0.17 million).
In September 2005, Hellas Gold pledged $3.54 million (Euro3.00 million) to the
National Bank of Greece as collateral for a Letter of Guarantee issued by the
National Bank of Greece to the Greek Ministry of Development to guarantee Hellas
Gold's environmental commitments under its mining permit at Stratoni. The Letter
of Guarantee expires on 31 December 2010. The investment bears a rate of
interest of Euribor plus 0.8% per annum.
The following table sets forth the Company's contractual obligations including
payments due for each of the next five years and thereafter:
+----------------------------------------------------------------------------------+
| Payments due by period |
|(in thousands of US dollars) |
+----------------------+----------+------------+-----------+-----------+-----------+
|Contractual | Total | Less than 1|1 - 3 years|4 - 5 years| After 5|
|obligations | | year| | | years|
| | | | | | |
+----------------------+----------+------------+-----------+-----------+-----------+
|Operating lease | 933 | 187 | 373 | 373 | - |
|(London office) | | | | | |
+----------------------+----------+------------+-----------+-----------+-----------+
|Exploration licence | 1,459 | - | 1,459 | - | - |
|spending commitments | | | | | |
|(Voia, Romania) | | | | | |
+----------------------+----------+------------+-----------+-----------+-----------+
|Total contractual | 2,392 | 187 | 1,832 | 373 | - |
|obligations | | | | | - |
+----------------------+----------+------------+-----------+-----------+-----------+
In 2006, the Company expects to spend (i) $12.80 million in capital expenditures
to fund the development of its projects of Stratoni ($11.05 million), Olympias
($1.75 million), Skouries ($Nil) and Certej ($Nil),
(ii) $6.63 million in exploration and development costs for Greece ($4.05
million) and Romania ($2.58 million), and (iii) $3.39 million on corporate admin
istrative and overhead expenses. The Company expects to fund such costs from
existing cash balances and operating cash flow generated at Stratoni.
Transactions with related parties
During the financial year ended 31 December 2005, Hellas Gold incurred costs of
$9.66 million (2004 - $3.65 million) for management, technical and engineering
services received from a related party, Aktor S.A., a 35% shareholder in Hellas
Gold. As at 31 December 2005, Hellas Gold had accounts payable of $1.47 million
(2004 - $1.37 million) 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.
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 $23.48 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 9 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.
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 deferred exploration and development costs for mineral
properties. While management believes that these estimates and assumptions are
reasonable, actual results could vary significantly.
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. The Company accounts for Deva Gold and
European Goldfields Deva SRL as integrated foreign subsidiaries.
Self-sustaining foreign subsidiaries are accounted for under the current rate
method. Under this method, all assets and liabilities are translated at the
exchange rate in effect at the balance sheet date. Revenue and expenses are
translated at average rates for the period. Exchange gains or losses arising
from the translation are recorded in equity in the cumulative translation
adjustment account. The Company accounts for Hellas Gold as a self-sustaining
foreign subsidiary.
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
$12.15 million denominated in euros.
The Company does not currently have any hedging policies or practices in place.
Revenue recognition - Revenues from the sale of concentrates are recognised and
are recorded at market prices when title transfers and the rights and
obligations of ownership pass to the customer. A number of the Company's
concentrate products are sold under pricing arrangements where final prices are
determined by quoted market prices in a period subsequent to the date of sale.
These concentrates are provisionally priced at the time of sale based on forward
prices for the expected date of the final settlement. The terms of the contracts
result in non-hedge derivatives that do not qualify for hedge accounting
treatment, because of the difference between the provisional price and the final
settlement price. These embedded derivatives, if material, are adjusted to fair
value through revenue each period until the date of final price determination.
Subsequent variations in the price are recognised as revenue adjustments as they
occur until the price is finalised.
Equity-based compensation - The Company operates a share option plan and a
restricted share unit plan, which are described in Note 14. 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 income statement as an
expense, or capitalised to deferred exploration and development costs when the
compensation can be attributed to mineral properties. This cost is amortised
over the relevant vesting period for grants to directors, officers and
employees, and recorded in full on the date of grant for grants to
non-employees. Any consideration received by the Company on exercise of share
options is credited to share capital.
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 2005, the Company had
an asset retirement obligation relating to 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 relinquished its 80%-owned exploitation
license for the Zlatna perimeter in Romania and a provision for the costs of
this property has been recorded. Effective 31 December 2005, the Company
relinquished its 80%-owned exploitation license for the Bolcana perimeter in
Romania and a provision for the costs of this property has been recorded.
Inventory - Inventories of ore mined and metal concentrates are valued at the
lower of combined production cost and net realisable value. Production costs
include the costs directly related to bringing the inventory to its current
condition and location, such as materials, labour, mine site overheads and
related depreciation of mining and processing facilities, related depletion of
mineral properties and deferred exploration and development costs. Exploration
supplies are valued at the lower of cost and net realisable value.
Disclosure controls and procedures & internal control over financial reporting
The Chief Executive Officer and the Chief Financial Officer of the Company (the
"Certifying Officers") have established and maintained in the year ended 31
December 2005 disclosure controls and procedures and internal control over
financial reporting for the Company.
The Certifying Officers have caused disclosure controls and procedures 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
disclosure controls and procedures as at 31 December 2005 and have concluded
that such procedures are adequate to meet the objectives for which they were
established. The Certifying Officers believe that "cost effective" disclosure
controls and procedures and internal control systems can only provide reasonable
assurance, and not absolute assurance, that such objectives are met.
The Certifying Officers have caused internal control over financial reporting 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.
During the year ended 31 December 2005, 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.
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:
Common shares: 112,688,708
Common share options: 4,017,667
Restricted share units: 850,000
Common shares (fully-diluted): 117,556,375
Preferred shares: Nil
Outlook
Greece - In September 2005, Hellas Gold resumed production at Stratoni following
the award by the Greek State of all necessary environmental and mining permits.
Production of ore is expected to reach
170,000 tonnes by the end of the first year of production, steadily increasing
to 400,000 tonnes per annum by year five.
In January 2006, Hellas Gold submitted business plans to the Greek government
for its major gold and base metals projects of Skouries and Olympias. This
submission represents a significant milestone in obtaining the necessary
environmental and mining permits to develop the projects.
The Company also continues to look for new discoveries through focused
exploration programmes.
Romania - In July 2005, the Company completed an in-house pre-feasibility study
on its 80%-owned Certej project. The study confirms that a gold/silver flotation
concentrate can be produced with high grades and recoveries.
In addition, the Company is pursuing a metallurgical testwork programme
investigating the feasibility of producing gold dore on site by a cost effective
process design.
Environmental Impact Assessments (EIA Levels I and II) were completed in
December 2005. The next stage will be to complete an Environmental Impact Study
(EIS) in order to progress to full feasibility study, permit application and
project development.
Finally, the Company continues to conduct focused exploration programmes to
expand the resource base in Romania.
Risks and uncertainties
The risks and uncertainties affecting the Company, its subsidiaries and their
business are discussed in the Company's Annual Information Form for the year
ended 31 December 2005, filed on SEDAR at www.sedar.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR VVLFLQXBFBBZ
European Gold (LSE:EGU)
Historical Stock Chart
From Jun 2024 to Jul 2024
European Gold (LSE:EGU)
Historical Stock Chart
From Jul 2023 to Jul 2024
