RNS Number:4308Q
European Goldfields Ltd
19 March 2008
Immediate release 19 March 2008
European Goldfields Limited
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED 31 DECEMBER 2007
The following discussion and analysis, prepared as at 19 March 2008, 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 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 South-East Europe.
The Company's Common Shares are listed on the AIM Market of London Stock
Exchange plc and on the Toronto Stock Exchange (TSX) under the symbol "EGU".
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 year and three-month period ended 31
December 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. Hellas Gold's
operational results for the eight most recently completed quarters are
summarised in the following tables:
----------------------------------------------------
Stratoni Mine (Greece)
------------------ ------ ------ ------ ------ ------ ------ ------ ------
2007 2007 2007 2007 2006 2006 2006 2006
------------------ ------ ------ ------ ------ ------ ------ ------
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Inventory (start of
period)
Ore mined (wet
tonnes) 4,868 4,603 843 2,499 3,617 12,326 1,155 10,963
Zinc
concentrate
(tonnes) 2,797 2 3,524 37 1,199 1,562 1,034 95
Lead/silver
concentrate
(tonnes) 2,042 2,150 1,846 214 1,345 674 308 1,268
Production
Ore mined (wet
tonnes) 50,643 56,075 53,088 55,069 47,321 49,652 47,966 31,752
Ore milled
(tonnes) 53,813 54,499 48,179 55,258 47,038 56,769 35,810 40,333
- Average
grade: Zinc
(%) 9.00 8.42 11.57 11.39 10.73 10.54 9.45 8.89
Lead (%) 8.12 7.55 9.14 7.38 6.56 5.78 5.83 7.28
Silver (g/t) 206 186 232 180 162 142 146 183
Zinc
concentrate
(tonnes) 9,082 8,506 10,485 11,731 9,263 10,768 6,041 6,222
- Containing:
Zinc
(tonnes) 4,425 4,194 5,170 5,760 4,619 5,468 3,098 3,229
Lead
concentrate
(tonnes) 6,012 5,586 5,955 5,406 3,993 4,368 2,703 3,662
- Containing:
Lead
(tonnes) 4,021 3,781 4,109 3,744 2,818 2,997 1,881 2,667
Silver (oz) 316,837 297,059 328,879 288,023 216,586 227,817 141,809 207,496
Sales
Zinc
concentrate
(tonnes) 10,191 5,710 14,007 8,244 10,425 11,130 5,513 5,283
- Containing
payable: Zinc
(tonnes)* 4,209 2,364 5,855 3,463 4,418 4,702 2,320 2,335
Lead
concentrate
(tonnes) 8,004 5,694 5,651 3,774 5,124 3,696 2,337 4,623
- Containing
payable: Lead
(tonnes)* 5,082 3,759 3,636 2,486 3,329 2,418 1,554 3,166
Silver (oz)* 399,272 297,321 285,349 190,292 254,881 189,349 121,350 252,559
Cash operating
cost per tonne
milled ($) 175 144 135 138 147 109 115 90
Inventory (end of
period)
Ore mined (wet
tonnes) - 4,868 4,603 843 2,499 3,617 12,326 1,155
Zinc
concentrate
(tonnes) 1,689 2,797 2 3,524 37 1,199 1,562 1,034
Lead/silver
concentrate
(tonnes) 49 2,042 2,150 1,846 214 1,345 674 308
Financial
information
(in thousands of US
dollars)
Sales ($) 18,483 16,634 22,866 14,215 19,439 14,226 8,274 9,083
Gross profit
($) 6,147 8,425 13,991 8,294 10,477 6,973 4,330 4,295
Capital
expenditure
($) 3,779 12,142 4,673 1,564 4,202 1,487 1,351 526
Amortisation
and depletion
($) 2,000 1,256 837 653 1,119 796 942 456
------------------ ------ ------ ------ ------ ------ ------ ------ ------
* Net of smelter payable deductions
Sale of Gold-Bearing Concentrates from Existing Stockpile at Olympias (Greece)
----------------------------------------------------
------ ------ ------ ------ ------ ------ ------ ------
2007 2007 2007 2007 2006 2006 2006 2006
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
------------------ ------ ------ ------ ------ ------ ------ ------ ------
Sales
Gold
concentrate
(dmt) 21,385 28,393 12,686 17,090 3,299 6,134 1,905 -
Financial
information
(in thousands of US
dollars)
Sales ($) 4,232 5,029 2,078 2,868 431 985 - -
Gross profit
($) 1,279 2,848 958 1,845 192 985 - -
Amortisation
and depletion
($) (134) 265 76 120 - - - -
------------------ ------ ------ ------ ------ ------ ------ ------ ------
In 2007, cash operating costs per tonne milled averaged $150 per tonne (Euro110).
The increasing trend in US$ dollar operating costs over the year has been driven
mainly by the Euro strengthening against the US dollar. There was an increase in
underlying Q4 2007 costs to $175 (Euro121) per tonne from $144 (Euro105) per tonne in
Q3 2007. This was the result of the following factors: $6 (Euro4) per tonne related
to run-of-mine ("ROM") stockpile movements as brought forward ROM stockpiles
were utilised in Q4 2007; $12 (Euro9) per tonne related to higher mill labour and
tailings haulage costs, plant maintenance and port repairs and $2 (Euro2) per tonne
attributable to a small decrease in mill throughput. The impact of the
strengthening of the Euro against the US dollar from $1.37/Euro in Q3 2007 to $1.45
/Euro in Q4 2007 added $9 per tonne.
Summary of quarterly results
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 2007 2006 2006 2006 2006
except per share Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
amounts)
$ $ $ $ $ $ $ $
------------------ ------ ------ ------ ------ ------ ------ ------ ------
Statement of loss
and deficit
Sales 22,715 21,663 24,944 17,083 19,870 15,211 8,274 9,083
Cost of sales 15,289 10,390 9,995 6,944 9,201 7,253 3,944 4,788
Gross profit 7,426 11,273 14,949 10,139 10,669 7,958 4,330 4,295
Interest income 2,699 2,320 1,116 453 393 485 267 300
Foreign
exchange
gain/(loss) (2,173) 6,494 (265) (152) (903) (67) 202 16
Expenses 6,385 4,819 4,875 4,764 3,543 4,274 4,547 3,574
Profit/(loss)
before income
tax 1,567 15,268 10,925 5,676 6,616 4,102 252 1,037
Profit/(loss)
after income
tax 3,629 12,504 8,129 3,957 4,349 2,984 (311) 161
Non-controlling
interest (29) (348) (2,794) (1,848) (1,973) (1,509) (225) (475)
Profit/(loss)
for the period 3,600 12,156 5,335 2,109 2,376 1,475 (536) (314)
Earnings/(loss)
per share 0.02 0.07 0.04 0.02 0.02 0.01 0.00 0.00
Balance sheet (end
of period)
Working capital 226,431 224,289 211,637 45,201 41,854 39,666 36,453 34,515
Total assets 782,131 744,998 729,774 325,501 311,943 294,719 292,236 274,381
Non current
liabilities 185,433 175,019 170,970 79,183 74,603 70,080 69,018 64,684
Statement of cash
flows
Deferred
exploration
and
development
costs -
Romania 2,133 1,658 1,248 696 856 598 992 848
Plant and
equipment -
Greece 3,779 12,142* 4,673 1,577 4,144 1,268 1,599 568
Deferred
development
costs - Greece 915 491 520 421 2,095 462 999 478
---------------- ------ ------ ------ ------ ------ ------ ------ ------
* 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 for Skouries.
Selected financial information
The Company's financial results for the years ended 31 December 2007, 2006 and
2005, and the three-month periods ended 31 December 2007 and 2006 are summarised
in the following table:
Years ended 31 December Three-months ended 31 December
------------------- ------------------
-------- -------- ---------- ----------
(in thousands of US 2007 2006 2005 2007 2006
dollars)
-------------------
$ $ $ $ $
------------------- -------- -------- -------- ---------- ----------
Statement of loss and
deficit
Sales 86,405 52,438 1,521 22,715 19,870
Cost of sales 42,618 25,186 1,367 15,289 9,201
Gross profit 43,787 27,252 154 7,426 10,669
Interest Income 6,588 1,445 1,263 2,699 393
Foreign exchange gain 3,904 (752) (937) (2,173) (903)
/(loss)
Expenses 20,844 15,937 13,796 6,385 3,543
Profit/(loss) before
income 33,435 12,008 (13,316) 1,567 6,616
tax
Profit/(loss) after
income 28,218 7,184 (11,622) 3,629 4,349
tax
Non-controlling (5,019) (4,182) 1,212 (29) (1,973)
interest
Profit/(loss) for the 23,199 3,002 (10,410) 3,600 2,376
period
Earnings/(loss) per 0.16 0.03 (0.09) 0.02 0.02
share
Balance sheet (end of
period)
Working capital 226,431 41,854 33,765 226,431 41,854
Total assets 782,131 311,943 266,618 782,131 311,943
Non current 185,433 74,603 62,807 185,433 74,603
liabilities
Statement of cash
flows
Deferred exploration
and 5,735 3,294 3,901 2,133 856
development costs -
Romania
Plant and equipment - 21,606* 7,579 7,839 3,779 4,144
Greece
Deferred development
costs - 2,347 4,032 2,840 915 2,095
Greece -------- -------- -------- ---------- ----------
-------------------
* 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 for Skouries.
The breakdown of deferred exploration and development costs by property for the
years ended
31 December 2007, 2006 and 2005, and the three-month periods ended 31 December
2007 and 2006 is as follows:
Years ended 31 December Three-months ended 31 December
----------------------- ------------------
--------- --------- ---------- ----------
(in thousands
of US dollars) 2007 2006 2005 2007 2006
---------------
$ $ $ $ $
--------------- -------- --------- --------- ---------- ----------
Greek properties
Stratoni 1,006 (43%) 64 (2%) 398 (14%) 766 (84%) 67 (3%)
Skouries 1,173 (50%) 2,806 (70%) 653 (23%) 58 (6%) 1,720 (82%)
Olympias 168 (7%) 1,162 (28%) 1,789 (63%) 91 (10%) 308 (15%)
--------------- -------- --------- --------- ---------- ----------
2,347 (100%) 4,032 (100%) 2,840 (100%) 915 (100%) 2,095 (100%)
--------------- -------- --------- --------- ---------- ----------
Romanian
properties
Certej 5,305 (92%) 2,965 (90%) 2,380 (61%) 1,935 (91%) 785 (92%)
Cainel 13 (1%) 27 (1%) 1,014 (26%) - (-%) 4 (-%)
Voia 322 (6%) 246 (7%) 78 (2%) 161 (7%) 53 (6%)
Baita-Craciune
sti 95 (2%) 56 (2%) 390 (10%) 37 (2%) 14 (2%)
Bolcana - (-%) - (-%) 39 (1%) - (-%) - (-%)
--------------- -------- --------- --------- ---------- ----------
5,735 (100%) 3,294 (100%) 3,901 (100%) 2,133 (100%) 856 (100%)
--------------- -------- --------- --------- ---------- ----------
Total 8,082 (100%) 7,326 (100%) 6,741 (100%) 3,048 (100%) 2,951 (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. 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 $33.44 million for the year ended
31 December 2007, compared to a profit (before tax) of $12.01 million for the
year ended 31 December 2006. The Company recorded a net profit (after tax and
non-controlling interest) of $23.20 million ($0.16 per share) for the year ended
31 December 2007, compared to a net profit of $3.00 million ($0.03 per share)
for the year ended 31 December 2006.
The Company recorded a profit (before tax) of $1.57 million for the three-month
period ended 31 December 2007, compared to a profit (before tax) of $6.62
million for the three month period ended 31 December 2006. The Company recorded
a net profit (after tax and non-controlling interest) of $3.60 million ($0.02
per share) for the three-month period ended 31 December 2007, compared to a net
profit of $2.38 million ($0.02 per share) for the three-month period ended 31
December 2006.
The following factors have contributed to the above:
* In 2007, Hellas Gold's Stratoni mine operated at substantially higher
levels than in 2006. Mine ore production increased by 22% and mill
throughput increased by 18% in 2007 over 2006. This, combined with 27%
higher processed lead grades in 2007, translated into increased concentrate
tonnages sold of 18% for zinc and 46% for lead. In addition, in 2007, Hellas
Gold sold 79,553 tonnes of gold-bearing pyrite concentrates from Olympias,
compared to 11,338 tonnes in 2006. These increased activity levels combined
with higher metal prices yielded significantly increased revenues and
profitability for the year ended 31 December 2007 compared to 2006. In Q4
2007, ore production was 7% higher than in Q4 2006. Sales in Q4 2007 were at
similar levels for zinc concentrate, but 56% higher for lead concentrate and
five times higher for pyrite concentrates compared to Q4 2006.
* As a result, the Company recorded a gross profit of $43.79 million in
2007 and $7.43 million in Q4 2007, on revenues of $86.41 million and $22.72
million, respectively, compared to a gross profit of $27.25 million in 2006
and $10.67 million in Q4 2006, on revenues of $52.44 million and $19.87
million, respectively. Cost of sales of $42.62 million in 2007 and $15.29
million in Q4 2007, compared to $25.19 million and $9.20 million,
respectively, for the same periods of 2006, reflect the higher mine activity
levels, the impact of a stronger Euro against the US dollar and included
$5.07 million in amortisation and depletion expenses in 2007, compared to
$3.23 million in 2006, reflecting higher throughput levels in 2007.
* The Company's corporate administrative and overhead expenses have
increased from $2.53 million in 2006 and $0.89 million in Q4 2006, to $4.30
million and $1.70 million, respectively, for the same periods of 2007. This
reflects higher general levels of corporate activity and higher personnel
costs compared to the prior period. Also, the increase in Q4 2007 over Q4
2006, is due to higher levels of employer costs resulting from the vesting
of equity based compensation.
* The Company recorded a non-cash equity-based compensation expense of
$1.80 million in 2007 and $0.29 million in Q4 2007, compared to $2.81
million and $0.71 million, respectively, for the same periods of 2006.
Whilst a higher number of share options and restricted share units were
outstanding in 2007, the lower levels of charges reflect the increased level
of development activities by corporate personnel. In 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 $3.90 million in 2007
and a loss of $2.17 million in Q4 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 loss of $0.75 million in 2006 and $0.9 million in Q4
2006.
* Hellas Gold's administrative and overhead expenses amounted to $9.83
million in 2007 and $3.17 million in Q4 2007, compared to $5.50 million and
$1.96 million, respectively, for the same periods of 2006. Hellas Gold's
administrative and overhead expenses have increased significantly in 2007
compared to 2006 due to higher levels of community and local activities
where the Company is involved in several local projects in the vicinity of
the mine, including the refurbishment of local buildings and amenities. In
addition, Hellas Gold incurred higher levels of public relation and finance
costs.
* Hellas Gold incurred an expense of $4.32 million in 2007 and $1.07
million in Q4 2007, compared to $2.70 million and $0.56 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 2007 compared to 2006. Additional costs were also incurred in 2007,
making underground areas in the old Madem Lakkos mine safe for backfilling
activities.
* Hellas Gold incurred an expense of $Nil in 2007 and $Nil in Q4 2007,
compared to a non-recurring expense of $1.63 million and $0.67 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 $5.22 million in 2007
and a credit of $2.06 million in Q4 2007, compared to charges of $4.82
million and $2.27 million, respectively, for the same periods of 2006. The
charge in 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 charges in 2006 had arisen due to the Company reducing its
future tax asset relating to the reduction of losses carried forward in
Hellas Gold. In Q4 2007, the Company was able to recognise a tax asset as
confidence increased that brought forward tax losses would be utilised.
* The Company recorded a charge of $5.02 million in 2007 and $0.03 million
in Q4 2007 relating to the non-controlling shareholder's 5% interest (35%
prior to 28 June 2007) in Hellas Gold's profit (after tax) for these
periods, compared to $4.18 million and $1.97 million, respectively, for the
same periods of 2006. In general, the increase in 2007 reflects the
substantial increase in profits at Hellas Gold being attributable to the
non-controlling shareholder. However, at the end of Q2 2007, the
non-controlling shareholder's investment in Hellas Gold fell from 35% to 5%
and therefore there was a large reduction in Q3 and Q4 2007's
non-controlling shareholder's interest relating to this change in ownership
structure.
Liquidity and capital resources
As at 31 December 2007, the Company had cash and cash equivalents of $218.84
million, compared to $34.59 million as at 31 December 2006, and working capital
of $226.43 million, compared to $41.85 million as at 31 December 2006.
The increase in cash and cash equivalents as at 31 December 2007, compared to
the balances as at 31 December 2006, resulted primarily from the net proceeds of
an equity financing ($122.91 million), advanced sales proceeds from offtakers
($64.39 million), operating cash flow ($43.57 million) and the effect of foreign
currency translation on cash ($1.93 million), offset by capital expenditure in
Greece ($21.61 million), cash paid as partial consideration for the acquisition
by the Company of an additional 30% interest in Hellas Gold in June 2007
(including costs) ($9.97 million), a net increase in accounts receivable vs.
accounts payable ($7.08 million), deferred exploration and development costs in
Romania ($5.74 million), deferred development costs in Greece ($2.35 million) ,
an increase in inventory ($1.16 million) and an increase in restricted cash
($0.56 million)
The following table sets forth the Company's contractual obligations including
payments due for each of the next five years and thereafter:
Payments due by period
(in thousands of US dollars)
-------------------------------------
-------- ---------- --------- --------- ---------
Contractual Total Less than 1 1 - 3 years 4 - 5 years After 5 years
obligations -------- year --------- --------- ---------
---------------- ----------
Operating
lease (London
office) 1,209 193 387 387 242
Exploration
licence
spending
commitments
(Voia,
Romania) 806 - 806 - -
Outotec OT -
Processing
Plant 43,526 19,576 23,950 - -
---------------- -------- ---------- --------- --------- ---------
Total
contractual
obligations 45,541 19,769 25,143 387 242
---------------- -------- ---------- --------- --------- ---------
In 2008, the Company expects to spend a total of $60 million in capital
expenditures to fund the development of its project portfolio. This amount
comprises $12 million at its existing operation at Stratoni to complete and
expand the internal underground infrastructure at Mavres Petres and upgrade the
mill, $10 million at Olympias in order to start the refurbishment of the mine
and process plant, and $25 million at Skouries as the Company expects to
continue to spend on long lead time equipment and commence site preparation. At
Certej, the Company expects to spend $13 million as it finalises its bankable
feasibility study and increases exploration on potential satellite orebodies
close to Certej. In addition to its capital expenditure programme, the Company
expects to spend $2 million in exploration over the wider licence area in
Greece, $13 million on Hellas Gold administrative and overhead and water
treatment expenses, and $4 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.
Transactions with related parties
During the year ended 31 December 2007, Hellas Gold incurred costs of $27.89
million (2006 - $18.05 million) for management, technical and engineering
services received from a related party, Aktor S.A., a 5% shareholder in Hellas
Gold. As at 31 December 2007, Hellas Gold had accounts payable of $2.13 million
(2006 - $4.18 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.
Critical accounting estimates
The consolidated financial statements have been prepared on a going concern
basis in accordance with accounting principles generally accepted in Canada
("Canadian GAAP"), which assumes the Company will be able to realise assets and
discharge liabilities in the normal course of business for the foreseeable
future. The consolidated financial statements do not include the adjustments
that would be necessary should the Company be unable to continue as a going
concern and reflect the following critical accounting estimates.
Deferred exploration and development costs - Acquisition costs of resource
properties, together with direct exploration and development costs incurred
thereon, are deferred and capitalised. Upon reaching commercial production,
these capitalised costs are transferred from exploration properties to producing
properties on the consolidated balance sheets and are amortised into operations
using the unit-of-production method over the estimated useful life of the
estimated related ore reserves.
Based on annual impairment reviews made by management, in the event that the
long-term expectation is that the net carrying amount of these capitalised
exploration and development costs will not be recovered such as would be
indicated where:
- Producing properties:
* the carrying amounts of the capitalised costs exceed the related
undiscounted net cash flows of reserves;
- Exploration properties:
* exploration activities have ceased;
* exploration results are not promising such that exploration will not be
planned for the foreseeable future;
* lease ownership rights expire; or
* insufficient funding is available to complete the exploration program;
then the carrying amount is written down to fair value accordingly and the
write-down amount charged to operations.
Impairment of long-lived assets - All long-lived assets and intangibles held and
used by the Company are reviewed for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If changes in circumstances indicate that the carrying amount of
an asset that an entity expects to hold and use may not be recoverable, future
cash flows expected to result from the use of the asset and its disposition must
be estimated. If the undiscounted value of the future cash flows is less than
the carrying amount of the asset, impairment is recognised based on the fair
value of the assets.
Asset retirement obligation - The fair value of the liability of an asset
retirement obligation is recorded when it is legally incurred and the
corresponding increase to the mineral property is depreciated over the life of
the mineral property. The liability is increased over time to reflect an
accretion element considered in the initial measurement at fair value. As at 31
December 2007 and 2006, the Company had an asset retirement obligation relating
to its Stratoni property in Greece.
Revenue recognition - Revenues from the sale of concentrates are recognised and
are measured at market prices when the rights and obligations of ownership pass
to the customer. A number of the Company's concentrate products are sold under
pricing arrangements where final prices are determined by quoted market prices
in a period subsequent to the date of sale. These concentrates are provisionally
priced at the time of sale based on forward prices for the expected date of the
final settlement. The terms of the contracts result in non-hedge derivatives
that do not qualify for hedge accounting treatment, because of the difference
between the provisional price and the final settlement price. These embedded
derivatives are adjusted to fair value through revenue each period until the
date of final price determination. Subsequent variations in the price are
recognised as revenue adjustments as they occur until the price is finalised.
Equity-based compensation - The Company operates a share option plan and a
restricted share unit plan. The Company accounts for equity-based compensation
granted under such plans using the fair value method of accounting. Under such
method, the cost of equity-based compensation is estimated at fair value and is
recognised in the profit and loss statement as an expense, or capitalised to
deferred exploration and development costs when the compensation can be
attributed to mineral properties. This cost is amortised over the relevant
vesting period for grants to directors, officers and employees, and recorded in
full at the earlier of performance completed or vesting for grants to
non-employees. Any consideration received by the Company on exercise of share
options is credited to share capital.
Estimates, risks and uncertainties - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the period. Significant estimates and assumptions include those related to the
recoverability of deferred exploration, development costs for mineral
properties, asset retirement obligations and equity based compensation. While
management believes that these estimates and assumptions are reasonable, actual
results could vary significantly.
Significant changes in accounting policies
Effective 1 January 2007, the Company adopted the revised CICA Section 1506
"Accounting Changes", which requires that: a voluntary change in accounting
principles can be made if, and only if, the changes result in more reliable and
relevant information, changes in accounting policies are accompanied with
disclosures of prior period amounts and justification for the change, and for
changes in estimates, the nature and amount of the change should be disclosed.
The Company has not made any voluntary change in accounting principles since the
adoption of the revised standard.
Financial Instruments - Recognition and Measurement, Section 3855 - This
standard prescribes when a financial asset, financial liability, or
non-financial derivative is to be recognised on the balance sheet and whether
fair value or cost-based methods are used to measure the recognised amounts. It
also specifies how financial instrument gains and losses are to be recognised.
Effective 1 January 2007, the Company's cash and cash equivalents, temporary
investments and investments in marketable securities have been classified as
available-for-sale and are recorded at fair value on the balance sheet. Fair
values are determined directly by reference to published price quotations in an
active market. Changes in the fair value of these instruments are reflected in
other comprehensive income and included in shareholders' equity on the balance
sheet.
All derivatives are to be recorded on the balance sheet at fair value.
Mark-to-market adjustments on these instruments will be included in net profit,
unless the instruments are designated as part of a cash flow hedge relationship.
In accordance with the standard's transitional provisions, the Company realised
as separate assets and liabilities only embedded derivatives acquired or
substantively modified on or after 1 January 2003.
All other financial instruments will be recorded at cost or amortised cost,
subject to impairment reviews. The criteria for assessing other than temporary
impairment remain unchanged. Transaction costs incurred to acquire financial
instruments are included in the underlying balance. The Company has determined
that the adoption of Section 3855 had no material effect on these financial
statements.
Hedges, Section 3865 - This standard is applicable when a company chooses to
designate a hedging relationship for accounting purposes. It builds on the
previous AcG-13 "Hedging Relationships" and Section 1650 "Foreign Currency
Translation", by specifying how hedge accounting is applied and what disclosures
are necessary when it is applied. The Company uses derivative and non-derivative
financial instruments to manage changes in commodity prices. Hedge accounting is
optional and it requires the Company to document the hedging relationship and
test the hedging item's effectiveness in offsetting changes in fair values or
cash flows of the underlying hedged item on an ongoing basis.
The Company uses cash flow hedges to manage commodity prices. The effective
portion of the change in fair value of a cash flow hedging instrument is
recorded in other comprehensive income and is reclassified to earnings when the
hedge item impacts profit. Any ineffectiveness is recorded in net profit.
If a derivative instrument designated as a cash flow hedge ceases to be
effective or is terminated, hedge accounting is discontinued and the gain or
loss at that date is deferred in other comprehensive income and recognised
concurrently with the settlement of the related transaction. If a hedged
anticipated transaction is no longer probable, the gain or loss is recognised
immediately in profit. Subsequent gains and losses from ineffective derivative
instruments are recognised in profit in the period they occur.
Comprehensive Income, Section 1530 & 3251 - Effective 1 January 2007, the
Company adopted sections 1530 and 3251. These standards require the presentation
of a statement of comprehensive income and its components. Comprehensive income
includes both net profit and other comprehensive income. Other comprehensive
income includes holding gains and losses on available-for-sale investments,
gains and losses on certain derivative instruments and foreign currency gains
and losses relating to self-sustaining foreign operations, all of which are not
included in the calculation of net earnings until realised.
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 2007 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 2007 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 2007, 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: 179,162,381
Common share options: 3,171,665
Restricted share units: 335,000
Common shares (fully-diluted): 182,669,046
Preferred shares: Nil
Outlook
Reference is made to the Company's news release dated 19 March 2008 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 2007, 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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