RNS Number:2359H
European Goldfields Ltd
08 November 2007
Immediate Release 8 November 2007
European Goldfields Limited
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE- AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2007
The following discussion and analysis, prepared as at 8 November 2007, 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 unaudited consolidated financial
statements for the three- and nine-month periods ended 30 September 2007 and
2006 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 London Stock
Exchange plc and on the Toronto Stock Exchange (TSX) under the symbol "EGU".
Greece - The Company holds a 95% interest in Hellas Gold S.A ("Hellas Gold").
Hellas Gold owns three major gold and base metal deposits in Northern Greece.
The deposits are the polymetallic operation at Stratoni, the Olympias project
which contain gold, zinc, lead and silver, and the Skouries copper/gold porphyry
project. Hellas Gold commenced production at Stratoni in September 2005 and
commenced selling an existing stockpile of gold concentrates from Olympias in
July 2006. Hellas Gold is applying for permits to develop the Skouries and
Olympias projects.
Romania - The Company owns 80% of the Certej gold/silver project in Romania. The
Company submitted in March 2007 a technical feasibility study to the Romanian
government in support of a permit application to develop the project.
Results of operations
The Company's results of operations for the three- and nine-month periods ended
30 September 2007 were comprised primarily of activities related to the results
of operations of the Company's 95%-owned subsidiary Hellas Gold in Greece and
the Company's exploration and development program in Romania. The following
table summarises operational results at Stratoni.
Stratoni Mine (Greece)
--------------------------------------------------
------ ------ ------ ------ ------ -------
Q3 2007 Q2 2007 Q1 2007 Q4 2006 Q3 2006 Q2 2006 Q1 2006
-------------------- -------- ------ ------ ------ ------ ------ -------
Inventory (start of
period)
Ore mined (wet tonnes) 4,603 843 2,499 3,617 12,326 1,155 10,963
Zinc
concentrate (tonnes) 2 3,524 37 1,199 1,562 1,034 95
Lead/silver
concentrate (tonnes) 2,150 1,846 214 1,345 674 308 1,268
Production
Ore mined (wet
tonnes) 56,075 53,088 55,069 47,321 49,652 47,966 31,752
Ore milled
(tonnes) 54,499 48,179 55,258 47,038 56,769 35,810 40,333
- Average
grade: Zinc
(%) 8.42 11.57 11.39 10.73 10.54 9.45 8.89
Lead (%) 7.55 9.14 7.38 6.56 5.78 5.83 7.28
Silver (g/t) 186.35 232.40 179.56 161.73 142.29 146.09 183.45
Zinc
concentrate
(tonnes) 8,506 10,485 11,731 9,263 10,768 6,041 6,222
- Containing:
Zinc (tonnes) 4,194 5,170 5,760 4,619 5,468 3,098 3,229
Lead
concentrate
(tonnes) 5,586 5,955 5,406 3,993 4,368 2,703 3,662
- Containing:
Lead (tonnes) 3,781 4,109 3,744 2,818 2,997 1,881 2,667
Silver (oz) 279,059 328,879 288,023 216,586 227,817 141,809 207,496
Sales
Zinc
concentrate
(tonnes) 5,710 14,007 8,244 10,425 11,130 5,513 5,283
- Containing
payable: Zinc
(tonnes)* 2,364 5,855 3,463 4,418 4,702 2,320 2,335
Lead
concentrate
(tonnes) 5,694 5,651 3,774 5,124 3,696 2,337 4,623
- Containing
payable: Lead
(tonnes)* 3,759 3,636 2,486 3,329 2,418 1,554 3,166
Silver (oz)* 297,321 285,349 190,292 254,881 189,349 121,350 252,559
Cash operating
costs per
tonne milled ($) 144 135 138 147 109 115 90
Inventory (end of
period)
Ore mined (wet
tonnes) 4,868 4,603 843 2,499 3,617 12,326 1,155
Zinc
concentrate
(tonnes) 2,797 2 3,524 37 1,199 1,562 1,034
Lead/silver
concentrate
(tonnes) 2,042 2,150 1,846 214 1,345 674 308
Financial
information
(in thousands of US
dollars)
Sales ($) 16,634 22,866 14,215 19,439 14,226 8,274 9,083
Gross profit ($) 8,425 13,991 8,294 10,477 6,973 4,330 4,295
Capital
expenditure ($) 12,142 4,673 1,564 4,202 1,487 1,351 526
Amortisation
and depletion ($) 1,256 837 653 1,119 796 942 456
-------------------- -------- ------ ------ ------ ------ ------ -------
* Net of smelter payable deductions
Sale of Gold-Bearing Concentrates from Existing Stockpile at Olympias (Greece)
-------------------------------------------------- ---
------ ------ ------ ------ ------ -------
Q3 2007 Q2 2007 Q1 2007 Q4 2006 Q3 2006 Q2 2006 Q1 2006
-------------------- -------- ------ ------ ------ ------ ------ -------
Sales
Gold
concentrate
(dmt) 28,393 12,686 17,090 3,299 6,134 1,905 -
Financial
information
(in thousands of US
dollars)
Sales ($) 5,029 2,078 2,868 431 985 - -
Gross profit ($) 2,848 958 1,845 192 985 - -
Amortisation
and depletion ($) 265 76 120 - - - -
-------------------- -------- ------ ------ ------ ------ ------ -------
Cash operating cost per tonne of ore milled increased from $135 (Euro100) per tonne
in the second quarter of 2007 to $144 (Euro105) per tonne in the third quarter of
2007. Of the increase, $9 (Euro7) was the result of the second quarter benefiting
from a one off credit relating to operating development. The appreciation of the
Euro against the US dollar in the third quarter of 2007 added a further $2 per
tonne, offset by higher throughput levels at the mill.
As at 30 September 2007, concentrate inventory levels represented approximately
one shipment each of lead and zinc concentrates.
The Company's financial results for the eight most recently completed quarters
are summarised in the following table:
------------------ ------ ------ ------ ------ ------ ------ ------ ------
(in thousands
of US dollars, 2007 2007 2007 2006 2006 2006 2006 2005
except per share Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
amounts)
$ $ $ $ $ $ $ $
------------------ ------ ------ ------ ------ ------ ------ ------ ------
Statement of loss
and deficit
Sales 21,663 24,944 17,083 19,870 15,211 8,274 9,083 1,464
Cost of sales 10,390 9,995 6,944 9,201 7,253 3,944 4,788 1,367
Gross profit 11,273 14,949 10,139 10,669 7,958 4,330 4,295 97
Interest
income 2,320 1,116 453 393 485 267 300 339
Foreign
exchange
gain/(loss) 6,494 (265) (152) (903) (67) 202 16 (36)
Expenses 4,819 4,875 4,764 3,543 4,274 4,547 3,574 5,043
Profit/(loss)
before income
tax 15,268 10,925 5,676 6,616 4,102 252 1,037 (4,643)
Profit/(loss)
after income
tax 12,504 8,129 3,957 4,349 2,984 (311) 161 (4,251)
Non-controllin
g interest (348) (2,794) (1,848) (1,973) (1,509) (225) (475) (58)
Profit/(loss)
for the period 12,156 5,335 2,109 2,376 1,475 (536) (314) (4,309)
Earnings/(loss
) per share 0.07 0.04 0.02 0.02 0.01 0.00 0.00 (0.04)
Balance sheet (end
of period)
Working
capital 224,289 211,637 45,201 41,854 39,666 36,453 34,515 33,765
Total assets 744,998 729,774 325,501 311,943 294,719 292,236 274,381 266,618
Non current
liabilities 175,019 170,970 79,183 74,603 70,080 69,018 64,684 62,807
Statement of cash
flows
Deferred
exploration
and
development
costs -
Romania 1,658 1,248 696 856 598 992 848 1,081
Plant and
equipment -
Greece 12,142* 4,673 1,577 4,144 1,268 1,599 568 1,298
Deferred
development
costs - Greece 491 520 421 2,095 462 999 478 1,510
---------------- ------ ------ ------ ------ ------ ------ ------ ------
* Includes a deposit of Euro6.25 million ($8.90 million) paid in July 2007 to
Outotec Minerals OY for the purchase of over Euro30 million worth of mill and plant
equipment.
The breakdown of deferred exploration and development costs per mineral property
for the three- and
nine-month periods ended 30 September 2007 and 2006 is as follows:
Nine-month periods ended 30 Sept. Three-month periods ended 30 Sept.
-------------------- ------------------
----------- -----------
(in thousands of
US dollars) 2007 2006 2007 2006
$ (%) $ (%) $ (%) $ (%)
---------------- ----------- ----------- ----------- -----------
Romanian mineral
properties
Certej 3,367 (94%) 2,131 (87%) 1,476 (89%) 495 (83%)
Cainel 16 (1%) 21 (1%) 34 (2%) 2 (1%)
Voia 161 (4%) 217 (9%) 131 (8%) 72 (11%)
Baita-Craciunesti 58 (1%) 69 (3%) 17 (1%) 29 (5%)
---------------- ----------- ----------- ----------- -----------
3,602 (100%) 2,438 (100%) 1,658 (100%) 598 (100%)
---------------- ----------- ----------- ----------- -----------
Greek mineral
properties
Stratoni 240 (17 %) - (-%) 126 (26%) - (-%)
Skouries 1,115 (78 %) 1,140 (59%) 605 (123%) 273 (59%)
Olympias 77 (5 %) 797 (41%) (240) (-49%) 189 (41%)
---------------- ----------- ----------- ----------- -----------
1,432 (100%) 1,937 (100%) 491 (100%) 462 (100%)
---------------- ----------- ----------- ----------- -----------
Total 5,034 (100%) 4,375 (100%) 2,149 (100%) 1,060 (100%)
---------------- ----------- ----------- ----------- -----------
The Certej exploitation licence and the Baita-Craciunesti exploration licence
are held by the Company's
80%-owned subsidiary, Deva Gold S.A. ("Deva Gold"). Minvest S.A. (a Romanian
state owned mining company), together with three private Romanian companies,
hold the remaining 20% interest in Deva Gold and the Company holds the
pre-emptive right to acquire such 20% interest. The Company is required to fund
100% of all costs related to the exploration and development of these
properties. As a result, the Company is entitled to the refund of such costs
(plus interest) out of future cash flows generated by Deva Gold, prior to any
dividends being distributed to shareholders. The Voia and Cainel exploration
licences are held by the Company's wholly-owned subsidiary, European Goldfields
Deva SRL.
The Company recorded a profit (before tax) of $31.87 million for the nine-month
period ended 30 September 2007, compared to a profit (before tax) of $5.39
million for the same period of 2006. The Company recorded a net profit (after
tax and non-controlling interest) of $19.60 million ($0.14 per share) for the
nine-month period ended 30 September 2007, compared to a net profit of $0.63
million ($0.01 per share) for the same period of 2006.
The Company recorded a profit (before tax) of $15.27 million for the three-month
period ended 30 September 2007, compared to a profit (before tax) of $4.10
million for the same period of 2006. The Company recorded a net profit (after
tax and non-controlling interest) of $12.16 million ($0.07 per share) for the
three-month period ended 30 September 2007, compared to a net profit of $1.48
million ($0.01 per share) for the same period of 2006.
The following factors have contributed to the above:
* In the first nine months of 2007, Hellas Gold's Stratoni mine was
operating at substantially higher levels than in the same period of 2006.
Mine ore production increased 27% and mill throughput increased by 19% in
the first nine months of 2007 over the same period in 2006. This translated
into increased concentrate tonnages sold of 28% for zinc and 42% for lead.
In addition, in the nine months of 2007, Hellas Gold sold 58,169 tonnes of
gold-bearing pyrite concentrates from Olympias, compared to
8,039 tonnes in the same period of 2006. These increased activity levels
combined with higher metal prices yielded significantly increased revenues
and profitability for the first nine months of 2007 compared to the same
period of 2006.
* As a result, the Company recorded a gross profit of $36.36 million in
the first nine months of 2007 and $11.27 million in Q3 2007, on revenues of
$63.69 million and $21.66 million, respectively, compared to a gross profit
of $16.58 million in the first nine months of 2006 and $7.96 million in Q3
2006, on revenues of $32.57 million and $15.21 million, respectively. Cost
of sales of $27.33 million in the first nine months of 2007 and $10.39
million in Q3 2007, compared to $15.99 million and $7.25 million,
respectively, for the same periods of 2006, reflect the higher mine activity
levels and included
$3.21 million in amortisation and depletion expenses in the first nine
months of 2007, compared to $1.92 million for the same period of 2006.
* The Company's corporate administrative and overhead expenses have
increased from $1.65 million in the first nine months of 2006 and $0.64
million in Q3 2006, to $2.60 million and $0.87 million, respectively, for
the same periods of 2007. This reflects higher general levels of corporate
activity compared to the prior period.
* The Company recorded a non-cash equity-based compensation expense of
$1.51 million in the first nine months of 2007 and $0.60 million in Q3 2007,
compared to $2.10 million and $0.67 million, respectively, for the same
periods of 2006. Whilst a higher number of restricted share units were
outstanding in the first nine months of 2007, the lower levels of charges
reflect the increased level of development activities by corporate
personnel. In the first nine months of 2007, the Company continued a
practice of recharging some of its equity-based compensation expense to its
operating subsidiaries, a portion of which is capitalised by such
subsidiaries.
* The Company recorded a foreign exchange gain of $6.1 million in the
first nine months of 2007 and
$6.5 million in Q3 2007. This gain resulted primarily from unrealised gains
on translation into US dollars of funds held in various other currencies, in
a weakening US dollar environment. The Company realised a foreign exchange
gain of $0.15 million in the first nine months of 2006 and a loss of $0.07
million in Q3 2006.
* Hellas Gold's administrative and overhead expenses amounted to $6.66
million in the first nine months of 2007 and $2.13 million in Q3 2007,
compared to $3.54 million and $1.74 million, respectively, for the same
periods of 2006. Hellas Gold's administrative and overhead expenses are
mostly attributable to operations related to the Stratoni mine and plant,
and have increased significantly in the first nine months of 2007 compared
to the same period of 2006 due to continued higher levels of community and
local activities. The Company is involved in several local projects
including refurbishment of local buildings and amenities.
* Hellas Gold incurred an expense of $3.25 million in the first nine
months of 2007 and $1.07 million in
Q3 2007, compared to $2.14 million and $0.76 million, respectively, for the
same periods of 2006, for ongoing water pumping and treatment at its
non-operating mines of Olympias and Stratoni (Madem Lakkos), in compliance
with Hellas Gold's commitment to the environment under its contract with the
Greek State. At Madem Lakkos, in particular, a significantly higher amount
of backfilling of underground voids took place in the first nine months of
2007 compared to the same period of 2006. Additional costs were also
incurred making underground areas safe for backfilling activities.
* Hellas Gold incurred an expense of $Nil in the first nine months of 2007
and $Nil in Q3 2007, compared to a non-recurring expense of $2.30 million
and $0.27 million, respectively, for the same periods of 2006, for the
maintenance of old adits and equipment at Stratoni.
* The Company recorded a charge for income taxes of $7.28 million in the
first nine months of 2007 and $2.76 million in Q3 2007, compared to $2.56
million and $1.12 million, respectively, for the same periods of 2006. The
charge in the first nine months of 2007 has arisen due to the Company
providing for current tax on Hellas Gold profits and a residual future tax
liability resulting from the elimination of the future tax asset based on
losses carried forward in Hellas Gold. The charge in the first nine months
of 2006 had arisen due to the Company reducing its future tax asset relating
to the reduction of losses carried forward in Hellas Gold.
* The Company recorded a charge of $4.99 million in the first nine months
of 2007 and $0.35 million in Q3 2007 relating to the non-controlling
shareholder's 35% interest (5% since 28 June 2007) in Hellas Gold's profit
(after tax) for this period, compared to $2.21 million and $1.51 million,
respectively, for the same periods of 2006. In general, the increase in 2007
reflects higher profits in Hellas Gold being attributable to outside
shareholders. However, at the end of Q2, Aktor's investment in Hellas Gold
fell from 35% to 5% and therefore there was a large reduction in Q3's
outside shareholder's interest relating to this change in ownership
structure.
Liquidity and capital resources
As at 30 September 2007, the Company had cash and cash equivalents of $211.57
million, compared to
$34.59 million as at 31 December 2006, and working capital of $224.29 million,
compared to $41.85 million as at 31 December 2006.
The increase in cash and cash equivalents as at 30 September 2007, compared to
the balances as at
31 December 2006, resulted primarily from the net proceeds of an equity
financing ($130.06 million), deferred revenue ($59.68 million) and operating
cash flow ($28.78 million) and the effect of foreign currency translation on
cash ($9.80 million), offset by a net increase in accounts receivable vs.
accounts payable($8.78 million), cash paid to Aktor in July 2007 as partial
consideration for the acquisition by the Company of an additional 30% interest
in Hellas Gold in June 2007 (incl costs) ($9.00 million), share issue costs
($7.06 million), capital expenditure in Greece ($17.83 million), deferred
exploration and development costs in Romania ($3.60 million), an increase in
inventory ($3.66 million) and deferred development costs in Greece ($1.43
million).
The following table sets forth the Company's contractual obligations including
payments due for each of the next five years and thereafter:
(in thousands of US dollars) Payments due by period
Contractual Total Less than 1 1 - 3 years 4 - 5 years After 5 years
obligations -------- year --------- --------- ---------
---------------- ----------
Operating
lease (London
office) 655 187 373 95 -
Exploration
licence
spending
commitments
(Voia,
Romania) 970 - 970 - -
---------------- -------- ---------- --------- --------- ---------
Total
contractual
obligations 1,625 187 1,343 95 -
---------------- -------- ---------- --------- --------- ---------
In 2007, the Company expects to spend a total of $30.44 million in capital
expenditures to fund the development of its project portfolio. This amount
comprises $10.53 million at its existing operation at Stratoni, $1.64 million at
Olympias, in order to start the refurbishment of the mine, and $12.52 million at
Skouries, as the Company puts in orders for the long lead time equipment items
and site preparation. At Certej, the Company expects to spend $5.75 million as
it finalises its bankable feasibility study and increases exploration on its
inferred resources and potential satellite orebodies close to Certej. In
addition to its capital expenditure programme, the Company expects to spend
$1.00 million in exploration over the wider licence area in Greece, $13.21
million on Hellas Gold administrative and overhead and water treatment expenses
and $3.50 million on corporate administrative and overhead expenses. The Company
expects to fund all such costs from existing cash balances and operating cash
flow generated at Stratoni.
Outstanding share data
The following represents all equity shares outstanding and the numbers of common
shares into which all securities are convertible, exercisable or exchangeable:
Common shares: 178,503,057
Common share options: 3,171,665
Restricted share units: 840,000
Common shares (fully-diluted): 182,514,722
Preferred shares: Nil
Outlook
Reference is made to the Company's news release dated 8 November 2007 which
accompanies this Management's Discussion and Analysis.
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 2006, filed on SEDAR at www.sedar.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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