RNS Number : 2940B
European Goldfields Ltd
14 August 2008
Immediate Release 14 August 2008
European Goldfields Limited
Interim Consolidated Financial Statements
(Unaudited)
For the Three- and Six-Month Periods Ended
30 June 2008 and 2007
Disclosure of auditor review of interim consolidated financial statements
The interim consolidated financial statements of the Company for the three- and six-month periods ended 30 June 2008 and 2007 have not
been reviewed by the auditors of the Company.
European Goldfields Limited 30 June 31 December
Consolidated Balance Sheets
As at 30 June 2008 and 31 December 2007
(Unaudited - Prepared by Management)
(in thousands of US Dollars, except per share
amounts)
2008 2007
$ $
Assets Note Unaudited Audited
Current assets
Cash and cash equivalents 201,008 218,839
Accounts receivable 25,632 20,408
Prepaid expenses 6,283 7,769
Inventory 4 5,609 2,110
238,532 249,126
Non current assets
Plant and equipment 5 60,129 48,776
Deferred exploration and development costs 6
Greek production stage mineral properties 28,754 29,525
Greek development stage mineral properties 402,710 401,829
431,464 431,354
Romanian development stage mineral properties 42,078 38,285
Turkish exploration stage mineral properties 157 -
473,699 469,639
Investment in associate 7 1,845 -
Restricted investment 8 4,900 4,900
Other Financial Assets 9,087 882
Future tax assets 8,345 8,808
796,537 782,131
Liabilities
Current liabilities
Accounts payable and accrued liabilities 9,879 9,977
Income taxes payable 11,831 12,718
21,710 22,695
Non current liabilities
Future tax liability 9 112,284 109,943
Non-controlling interest 3,662 3,341
Asset retirement obligation 10 6,872 6,805
Deferred revenue 11 66,741 65,344
189,559 185,433
Shareholders' equity
Capital stock 12 538,656 537,275
Contributed surplus 12 6,523 5,997
Accumulated other comprehensive income 43,432 38,295
Deficit (3,343) (7,564)
585,268 574,003
796,537 782,131
The accompanying notes are an integral part of these interim consolidated financial statements.
Approved by the Board of Directors
(s) Timothy Morgan-Wynne (s) Mark Rachovides
Timothy Morgan-Wynne, Director Mark Rachovides, Director
European Goldfields Limited 3 months ended 30 June 6 months ended 30 June
Consolidated Statements of Profit and Loss
For the three-month and six-month periods ended 30 June
2008 and 2007
(Unaudited - Prepared by Management)
(in thousands of US Dollars, except per share amounts)
Note 2008 2007 2008 2007
$ $ $ $
Income
Sales 18,461 24,944 31,169 42,027
Cost of sales (13,647) (9,082) (20,454) (15,253)
Depletion of asset retirement obligation (25) (78) (134) (198)
Depreciation and depletion (1,319) (835) (2,262) (1,488)
Gross profit 3,470 14,949 8,319 25,088
Other income
Hedge contract profit 391 - 391 -
Interest income 1,502 1,116 3,259 1,569
Foreign exchange (loss)/gain (27) (265) 2,647 (417)
1,866 851 6,297 1,152
Expenses
Corporate administrative and overhead expenses 1,301 884 2,565 1,731
Equity-based compensation expense 535 450 1,003 906
Hellas Gold administrative and overhead expenses 1,953 2,320 4,010 4,532
Hellas Gold water treatment expenses 2,091 2,180
(non-operating mines) 1,048 1,078
Accretion of asset retirement obligation 10 33 31 67 60
Amortisation 188 112 339 231
5,058 4,875 10,075 9,640
Share of loss in equity investment (36) - (36) -
Profit for the period before income tax 242 10,925 4,505 16,600
Income taxes
Current taxes 311 (2,082) (441) (3,243)
Future taxes 333 (714) 464 (1,272)
644 (2,796) 23 (4,515)
Profit for the period after income tax 886 8,129 4,528 12,085
Non-controlling interest (74) (2,794) (307) (4,642)
Profit for the period 812 5,335 4,221 7,443
Deficit - Beginning of period (4,155) (28,655) (7,564) (30,763)
Deficit - End of period (3,343) (23,320) (3,343) (23,320)
Earnings per share 21
Basic 0.00 0.04 0.02 0.06
Diluted 0.00 0.04 0.02 0.06
Weighted average number of shares
(in thousands)
Basic 179,446 122,957 179,426 119,426
Diluted 180,981 124,652 181,285 121,105
The accompanying notes are an integral part of these interim consolidated financial statements.
European Goldfields Limited 3 months ended 30 June 6 months ended 30 June
Consolidated Statements of Cash
Flows
For the three- and six-month
periods ended 30 June 2008 and
2007
(Unaudited - Prepared by
Management)
(in thousands of US Dollars,
except per share amounts)
2008 2007 2008 2007
$ $ $ $
Note
Cash flows from operating
activities
Profit for the period 812 5,335 4,221 7,443
Share of loss in equity 36 - 36 -
investment
Foreign exchange loss (255) 290 (2,922) 486
Amortisation 906 651 1,449 1,070
Equity-based compensation 535 450 1,003 906
expense
Accretion of asset retirement 33 31 67 60
obligation
Current taxation (311) 2,083 441 3,244
Future tax asset recognised (333) 713 (464) 1,272
Non-controlling interest 74 2,794 307 4,642
Deferred revenue recognised (1,404) (1,014) (1,758) (1,014)
Depletion of mineral properties 627 373 1,287 846
720 11,706 3,667 18,955
Net changes in non-cash working (1,329) 1,489 (8,108) (3,351)
capital 14
(609) 13,195 (4,441) 15,604
Cash flows from investing
activities
Deferred exploration and (1,092) (1,248) (2,695) (1,944)
development costs - Romania
Plant and equipment - Greece (3,065) (4,673) (10,212) (6,250)
Deferred development costs - (656) (520) (1,425) (941)
Greece
Deferred exploration cost - (50) - (50) -
Turkey
Purchase of equipment (62) (24) (113) (35)
Purchase of land (2,366) - (2,705) -
Restricted cash - 56 - 28
Investment in subsidiary (122) - (122) -
Investment in associate (1,858) - (1,858) -
(9,271) (6,409) (19,180) (9,142)
Cash flows from financing
activities
Proceeds from equity financing - 130,059 - 130,059
Deferred revenue - 57,500 3,563 57,500
Proceeds from exercise of share 54 - 54 -
options
Share issue costs - (7,152) - (7,152)
54 180,407 3,617 180,407
Effect of foreign currency 152 444 2,173 140
translation on cash
Increase in cash and cash (9,674) 187,637 (17,831) 187,009
equivalents
Cash and cash equivalents - 210,682 33,959 218,839 34,587
Beginning of period
Cash and cash equivalents - End 201,008 221,596 201,008 221,596
of period
The accompanying notes are an integral part of these interim consolidated financial statements.
European Goldfields Limited 3 months ended 30 June 6 months ended 30 June
Consolidated Statements of
Comprehensive Income
For the three- and six-month
periods ended 30 June 2008 and
2007
(Unaudited - Prepared by
Management)
(in thousands of US Dollars,
except per share amounts)
2008 2007 2008 2007
$ $ $ $
Profit for the period 812 5,335 4,221 7,443
Other comprehensive income in
the period
Currency translation adjustment 22 3,336 22 1,714
Cash flow hedge adjustment 5,566 - 5,115 -
Comprehensive income 6,400 8,671 9,358 9,157
European Goldfields Limited
Notes to Consolidated Financial Statements
For the three- and six-month periods ended 30 June 2008 and 2007
(Unaudited - Prepared by Management)
(in thousands of US Dollars, except per share amounts)
1. Nature of operations
European Goldfields Limited (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 the London Stock Exchange 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 contains 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. In June 2008, the Company submitted the
Environmental Impact Study to the Romanian environmental authorities to start the assessment of the environmental impact of the Certej
project.
The underlying value of the deferred exploration and development costs for mineral properties is dependent upon the existence and
economic recovery of reserves in the future, and the ability to raise long-term financing to complete the development of the properties.
For the coming year, the Company believes it has adequate funds available to meet its corporate and administrative obligations and its
planned expenditures on its mineral properties.
These consolidated financial statements have been prepared on a going concern basis, which assumes the Company will be able to realise
assets and discharge liabilities in the normal course of business for the foreseeable future. These consolidated financial statements do not
include the adjustments that would be necessary should the Company be unable to continue as a going concern.
2. Significant accounting policies
These interim consolidated financial statements have been prepared on the going concern basis in accordance with accounting principles
generally accepted in Canada ("Canadian GAAP") using the same accounting policies as those disclosed in Note 2 to the Company's audited
consolidated financial statements for the years ended 31 December 2007 and 2006.
These interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial
statements for the years ended 31 December 2007 and 2006.
Basis of preparation and principles of consolidation
Associates - are those entities in which the Company has a material long term interest and in respect of which the group exercises
significant influence over operational and financial policies, normally owning between 20% and 50% of the voting equity, but which it does
not control.
Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The company's
share of its associates post-acquisition profits or losses is recognised in the income statement. Cumulative post-acquisition movements are
adjusted against the carrying amount of the investment. When the company's share of losses in an associate equals or exceeds its interest in
the associate, including any other unsecured receivables, the company does not recognise further losses, unless it has uncured obligations
or made payments on behalf of the associate.
Country of Incorporation Ownership Percentage
Company
Ariana Resources plc United Kingdom 20.67%
Significant changes in accounting policies
Capital Disclosures - Effective 1 January 2008, the Company adopted CICA Handbook, Section 1535, Capital disclosures. The new standard
requires disclosures of qualitative and quantitative information that enables users of financial statements to evaluate the Company's
objectives, policies and processes for managing capital.
Inventories - Effective 1 January 2008, the Company adopted the CICA Handbook Section 3031, Inventories. The new section requires
inventories to be measured at the lower of cost and net realisable value and provides guidance on the cost methodology used to assign costs
to inventory, disallows the use of last-in-first-out inventory costing methodology and requires that, when circumstances which previously
caused inventories to be written down below cost no longer exist, the amount previously written down is to be reversed. Upon adoption, the
impact to the financial statements arising was immaterial.
Standards of Financial Statement Presentation - Effective 1 January 2008, the Company adopted CICA Handbook Section 1400, General
Standards of Financial Statement Presentation. This section provides guidance related to management's assessment of the Company's ability to
continue as a going concern. The adoption of this standard had no impact on the Company's presentation of its financial position.
Financial Instruments Presentation and Disclosures - Effective 1 January 2008, the Company adopted CICA Handbook Sections 3862 -
Financial instruments - disclosures, and 3863 - Financial instruments - Presentation. These new Sections are a replacement of and represent
a revision and enhancement to Section 3861 - Financial instruments - Presentation and disclosure. Under the new standards, the Company is
required to disclose information about the significance of financial instruments for its financial position and performance and qualitative
and quantitative information about its exposure to risks arising from financial instruments, as well as management's objectives, policies
and processes for managing such risks. The adoption of these standards did not have an impact on the classification and valuation of
financial instruments. The new disclosures resulting from adoption of these standards are included in note 15.
Change in functional currency - During the six month period ended 30 June 2008, Hellas Gold completed a long term planning exercise on
its Stratoni mine. As a stand alone business, Stratoni was shown to generate excess of US dollar revenues over Euro expenses for its life
of mine. Hellas Gold also has a series of development projects which will increase the excess of US dollar revenues over Euro denominated
costs. Also taken into consideration along with the net cash flows, were the following factors:
* All sales are priced in US dollars;
* Sales markets are international, rather than domestic to Greece;
* Day to day activities are financed by US dollar denominated sales;
* Significant amounts of future financing earmarked for the development projects has already been raised in US dollars by European
Goldfields Limited, and other financing activities in Hellas Gold, prepaid sales receipts, have all been US dollar denominated;
* Labour and materials are predominantly denominated in Euros.
Overall, it was deemed that the net exposure to the US dollar was greater than the exposure to the Euro, and that the functional
currency of Hellas Gold should change to the US dollar. The change in functional currency is effective 1 January 2008.
3. Business combination - Acquisition of additional 30% interest in Hellas Gold
In June 2007, the Company completed the acquisition of additional shares in Hellas Gold increasing its total interest from 65% to 95%.
The total consideration paid by the Company for the purchased shares was satisfied as follows:
(a) The issue of 35,447,246 common shares of the Company; and
(b) $8.42 million paid in cash to the vendor.
Transaction costs of $1.55 million were also accounted for as part of the acquisition.
A summary of the accounting treatment of fair value of net assets acquired and consideration paid is as follows:
$
Current assets 31,272
Property, plant and equipment 12,220
Other assets 6,536
Current liabilities (7,050)
Other liabilities (20,470)
Mineral properties 198,518
Future tax liabilities (49,630)
171,396
Purchase consideration: $
Cash paid 8,418
Shares issued (35,447,246) 161,424
Transaction costs 1,554
Purchase price 171,396
For accounting purposes, the Company has used an average share price based upon 5 days prior and post the announcement of the
transaction, to value the share element of the purchase consideration.
4. Inventory
This balance comprises the following:
30 June 31 December
2008 2007
$ $
Ore mined 120 -
Metal concentrates 3,822 865
Material and supplies 1,667 1,245
5,609 2,110
5. Plant and equipment
Vehicles Mine development Total
Plant and $ land and $
equipment buildings
$ $
Cost - 2008
At 31 December 2007 31,701 1,932 21,523 55,156
Additions 9,329 76 3,626 13,031
Disposals (14) (8) - (22)
At 30 June 2008 41,016 2,000 25,149 68,165
Accumulated amortisation-2008
At 31 December 2007 3,151 1,076 2,153 6,380
Provision for the period 821 465 388 1,674
Disposals (10) (8) - (18)
At 30 June 2008 3,962 1,533 2,541 8,036
Net book value at 30 June 2008 37,054 467 22,608 60,129
6. Deferred exploration and development costs
Greek mineral properties:
Stratoni Olympias Skouries Total
$ $ $ $
Balance - 31 December 2007 29,525 237,284 164,545 431,354
Deferred development costs 467 178 889 1,534
Depletion of mineral properties (1,238) (186) - (1,424)
(771) (8) 889 110
Balance - 30 June 2008 28,754 237,276 165,434 431,464
The Stratoni, Skouries and Olympias properties are held by the Company's 95%-owned subsidiary, Hellas Gold. In September 2005, the
Stratoni property commenced production.
Romanian mineral properties:
Baita-Craciunesti
Certej $ Voia Cainel Total
$ $ $ $
Balance - 31 December 2007 32,915 3,166 1,167 1,037 38,285
Drilling and assaying 137 8 11 - 156
Geosciences and tech. 989 21 34 1 1,045
consulting
Samplers, miners and surveying 40 2 9 1 52
Project management 1,388 19 (18) 30 1,419
Project overhead 883 24 135 36 1,078
Amortisation 32 4 2 5 43
3,469 78 173 73 3,793
Balance - 30 June 2008 36,384 3,244 1,340 1,110 42,078
The Certej exploitation licence and the Baita-Craciunesti exploration licence are held by the Company's 80%-owned subsidiary, 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.
Individual property spending commitments for each of the Company's Romanian licences have been met as at 30 June 2008.
Turkish mineral properties:
Total
$
Balance - 31 December 2007 -
Additions 157
157
Balance - 30 June 2008 157
The Turkish licences are held by the Joint Venture company ("JV"), Pontid Madencilik. Currently the Company has a 51% interest in all
the properties within the JV and the Company will fund 100% of all costs related to the development of these properties. Ownership of these
properties may be increased to 80% by funding to completion of a Bankable Feasibility Study. Any new concessions within the joint venture
funded to a Bankable Feasibility Study will be 90% owned by the company. The owner of the remaining 49% of the properties is Ariana
Resources plc.
7. Investment in associate
30 June 31 December
2008 2007
$ $
Balance - Beginning of period - -
Shares acquired 1,858 -
Share of loss (36) -
Cumulative translation adjustment 23 -
Balance - End of period 1,845 -
In April 2008, the Company signed definitive documentation governing a JV with Ariana Resources plc ("Ariana"). The transaction
completed and the JV became effective in May 2008 after the transfer of Ariana's properties was confirmed by the General Directorate of
Mining Affairs in Turkey. The JV involves the development of Ariana's current properties in an Area of Intent (AOI) in the Greater Pontides
region of north-eastern Turkey, which include the Ardala copper-gold porphyry and fifteen other licences covering a total area of 229km2 and
a Strategic Partnership within the AOI to define new opportunities for the JV. Upon completion, European Goldfields subscribed for 20% of
the issued share capital of Ariana through a $1,830 (�929) private placement of shares.
8. Restricted investment
The balance consists of an amount of $4,900 pledged by Hellas Gold 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.
9. Future tax liability
The following table reflects future income tax liabilities:
30 June 31 December
2008 2007
$ $
Mineral properties 104,581 104,752
Plant and equipment 1,059 701
Exploration and development expenditure 3,555 3,003
Accrued expenses - 1,487
Cash flow hedge 3,089 -
112,284 109,943
The tax liability primarily arises as a result of the increase in value placed on the mineral properties held by Hellas Gold on
acquisition by the Company. This future tax liability will reverse as the corresponding mineral properties are amortised.
10. Asset retirement obligation
Management has estimated the total future asset retirement obligation based on the Company's net ownership interest in Hellas Gold the
owner of the Stratoni mines and facilities. This includes all estimated costs to dismantle, remove, reclaim and abandon the facilities where
a liability exists and the estimated time period during which these costs will be incurred in the future. The following table reconciles the
asset retirement obligation as at 30 June 2008 and 31 December 2007:
30 June 31 December
2008 2007
$ $
Asset retirement obligation - Beginning of period 6,805 6,031
Currency translation adjustment - 650
Accretion expense 67 124
Asset retirement obligation - End of period 6,872 6,805
As at 30 June 2008, the undiscounted amount of estimated cash flows required to settle the obligation was $7,946 (31 December 2007 -
$7,421). The estimated cash flow has been discounted using a credit adjusted risk free rate of 5.04% (2007 - 5.04%) The expected period
until settlement is six years.
11. Deferred revenue
In April 2007, Hellas Gold agreed to sell to Silver Wheaton (Caymans) Ltd. ("Silver Wheaton") all of the silver metal to be produced
from ore extracted during the mine-life within an area of some 7 km� around its zinc-lead-silver Stratoni mine in northern Greece (the
"Silver Wheaton Transaction"). The sale was made in consideration of a prepayment to Hellas Gold of $57.5 million in cash, plus a fee per
ounce of payable silver to be delivered to Silver Wheaton of the lesser of $3.90 (subject to an inflationary adjustment beginning after year
three) and the prevailing market price per ounce. The current Stratoni proven and probable silver reserve contains approximately 12 million
ounces of silver.
In April 2007, Hellas Gold entered in an agreement with MRI Trading AG for the sale of 25,000 wet metric tonnes of gold bearing pyrite
concentrate. Hellas Gold received a prepayment of $2.18 million in cash. In September 2007, Hellas Gold entered into an agreement with a
subsidiary of Celtic Resources Holdings Plc for the sale of 50,000 wet metric tonnes of gold bearing pyrite concentrate, for which Hellas
Gold received a prepayment of $4.71 million in cash. In March 2008, Hellas Gold entered in an agreement with MRI Trading AG for the sale of
25,000 wet metric tonnes of gold bearing pyrite concentrate. Hellas Gold received a prepayment of $3.56 million in cash.
The following table reconciles movements on deferred revenue associated with the MRI and Celtic Resources prepayments, and the Silver
Wheaton Transaction:
31 31 December
30 June
2008 2007
$ $
Deferred revenue - Beginning of period 65,344 -
Additions 3,563 64,389
Revenue recognised (2,166) (3,738)
Foreign currency translation adjustment - 4,693
Deferred revenue - End of period 66,741 65,344
For the six months period ended 30 June 2008, Hellas Gold delivered concentrate containing 1,388,903 ounces (Year to 31 December 2007 -
952,729 ounces) of silver for credit to Silver Wheaton.
12. Capital stock
Authorised:
- Unlimited number of common shares, without par value
- Unlimited number of preferred shares, issuable in series, without par value
Issued and outstanding (common shares - all fully paid):
Number of Amount
Shares $
Balance - 31 December 2007 179,162,381 537,275
Restricted share units vested 195,000 1,314
Share options exercised 25,000 77
Share issue costs - (10)
220,000 1,381
Balance - 30 June 2008 179,382,381 538,656
As at 30 June 2008, the Company had 35,447,246 (2007- 35,447,246) common shares held in escrow or in respect of which trading
restrictions applied.
Contributed surplus:
30 June 31 December
2008 2007
$ $
Equity-based compensation expense 5,945 5,419
Broker warrants 578 578
6,523 5,997
13. Share options and restricted share units
Share Option Plan
The Company operates a Share Option Plan (together with its predecessor, the "Share Option Plan") authorising the directors to grant
options with a maximum term of 5 years, to acquire common shares of the Company to the directors, officers, employees and consultants of the
Company and its subsidiaries, on terms that the Board of Directors may determine, within the limitations of the Share Option Plan. The
maximum number of common shares of the company which may be reserved for issuance for all purposes under the Share Option Plan shall not
exceed 15% of the common shares issued and outstanding from time to time (26,907,357 shares as at 30 June 2008).
An optionee under the Share Option Plan may elect to dispose of its rights under all or part of its options (the "Exchanged Rights") in
exchange for the following number of common shares of the Company (or at the Company's option for cash) in settlement thereof (the
"Settlement Common Shares"):
Number of Settlement Common = Number of Optioned Shares X (Current Price -
Shares issuable on exercise of the Exercise Price)
Exchanged Rights Current Price
As at 30 June 2008, the following share options were outstanding:
Number of Exercise
Options price
C$
Expiry date
2009 250,000 2.80
2009 250,000 4.20
2009 360,000 3.07
2009 75,000 3.15
2010 359,999 2.00
2010 150,000 2.40
2011 66,666 3.25
2011 600,000 3.85
2011 200,000 4.10
2012 250,000 5.66
2012 150,000 5.71
2012 270,000 5.87
2013 50,000 4.70
2013 385,000 5.07
2013 165,000 6.80
3,581,665 4.10
During the six-month period ended 30 June 2008, share options were granted, exercised and cancelled as follows:
Number of Weighted
Options average
exercise
price
C$
Balance - 31 December 2007 3,006,665 3.80
Options granted 600,000 5.51
Options exercised (25,000) 2.11
Options forfeited - -
Balance - 30 June 2008 3,581,665 4.10
Of the 3,581,665 (2007 - 3,306,999) share options outstanding as at 30 June 2008 2,378,332 (2007 - 2,581,999 were fully vested and had a
weighted average exercise price of C$3.39 (2007 - C$3.02) per share. The share options outstanding as at 30 June 2008, had a weighted
average remaining contractual life of 3.10 years (2007 - 3.43 years).
The weighted average grant date fair value of the 600,000 share options granted during the six-month period ended 30 June 2008 (2007 -
325,000) was C$5.51 (2007 - C$5.62). For outstanding share options which were not fully vested during the six-month period ended 30 June
2008, the Company incurred a total equity-based compensation cost of $656 (2007 - $532) of which $554 (2007 - $431) has been recognised as
an expense in the income statement and $102 (2007 - $100) has been capitalised to deferred exploration and development costs.
Restricted Share Unit Plan
The Company operates a Restricted Share Unit Plan (the "RSU Plan") authorising the directors, based on recommendations received from the
Compensation Committee, to grant Restricted Share Units ("RSUs") to designated directors, officers, employees and consultants. The RSUs are
"phantom" shares that rise and fall in value based on the value of the Company's common shares and are redeemed for actual common shares on
the vesting dates determined by the Board of Directors when the RSUs are granted. The RSUs vest on the dates below however upon a change of
control of the Company they would typically become 100% vested. The maximum number of common shares of the Company which may be reserved for
issuance for all purposes under the RSU Plan shall not exceed 2.5% of the common shares issued and outstanding from time to time (4,484,560
shares as at 30 June 2008).
As at 30 June 2008, the following RSUs were outstanding:
Vesting date Number of Grant date
RSUs fair value
of
underlying
shares
C$
31 December 2008 50,000 6.22
31 December 2008 * 100,000 6.77
30 June 2009 30,000 5.74
180,000 6.45
* Or earlier if certain operational milestones are achieved. Vesting conditional upon such milestones being achieved by 31 December
2008.
During the six-month period ended 30 June 2008, RSUs were granted, vested and cancelled as follows:
Weighted
Number of average
RSUs grant date
fair value
of
underlying
shares
C$
Balance - 31 December 2007 185,000 4.86
RSUs granted 190,000 6.60
RSUs vested (195,000) 5.08
RSUs cancelled - -
Balance - 30 June 2008 180,000 6.45
The weighted average grant date fair value of underlying shares of the 190,000 RSUs granted during the six-month period ended 30 June
2008 (2007 - 180,000) was C$6.60 (2007 - C$5.36). For outstanding RSUs which were not fully vested during the six-month period ended 30 June
2008, the Company incurred a total equity-based compensation cost of $1,207 (2007 - $1,736) of which $448 (2007 - $475) has been recognised
as an expense in the income statement and $759 (2007 - $1,262) has been capitalised to deferred exploration and development costs.
14. Supplementary cash flow information
3 months ended 30 June 6 months ended 30 June
2008 2007 2008 2007
$ $ $ $
Changes in non-cash operating
accounts:
Accounts receivable, prepaid 5,862 1,593 (3,733) (3,245)
expenses and supplies
Accounts payable (5,947) (993) 121 1,638
Taxation (1,396) - (1,396) -
Inventory 152 889 (3,100) (1,744)
(1,329) 1,489 (8,108) (3,351)
Supplemental disclosure of
non-cash transactions:
Share options and restricted 879 916 1,864 2,261
share units issued for
non-cash consideration
Exercise of share options -
Transfer from contributed (24) (13) (24) (181)
surplus to share capital
Vesting of restricted share (974) (618) (1,314) (850)
units
15. Financial instruments and financial risk management
The Company's financial instruments consist of cash and cash equivalents, accounts receivable, restricted cash, accounts payable,
accrued liabilities, embedded derivatives and hedge contracts.
Short-term financial assets are amounts that are expected to be settled within one year. The carrying amounts in the consolidated
balance sheets approximate fair value because of the short term nature of these instruments.
The embedded derivatives are classified as a short term financial asset.
The carrying amounts for the financial instruments as at 30 June 2008 are as follows:
30 31 December
June 2007
2008 $
$
Financial Assets:
Held-for-trading, measured at fair value
Cash and cash equivalents 201,008 218,839
Restricted cash 4,900 4,900
205,908 223,739
Loans and receivables, measured at amortised cost
Accounts receivable 29,959 20,408
Prepaid expenses 1,956 7,769
31,915 28,177
Financial Liabilities
Current liabilities, measured at amortised costs
Accounts payable and accrued liabilities 21,710 22,695
21,710 22,695
Derivative Financial instruments - measured at fair
value
Designated as cash flow hedges
Lead hedging contracts 9,087 882
9,087 882
Credit risk - Credit risk represents the financial loss the Company would suffer if the Company's counterparties to a financial
instrument, in owing an amount to the Company, fail to meet or discharge their obligation to the Company.
Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents,
accounts receivable and hedging contracts. The cash equivalents consist mainly of short-term investments, such as money market deposits. The
Company has deposited the cash equivalents only with the largest banks within a particular region or with top rated institutions, from which
management believes the risk of loss to be remote and does not invest in asset-backed commercial papers.
As at 30 June 2008, the cash and restricted cash comprises the following:
30 June 31 December
2008 2007
$ $
Interest bearing bank accounts 127,971 216,569
Short-term deposits 77,937 7,170
205,908 223,739
The Company has accounts receivable from trading counterparties to whom concentrate products are sold. Where traders are chosen as
counterparties, only the larger and most financially secure metal trading groups are dealt with. The Company may also transact agreements
with trading groups who have direct interests in smelting capacity, or direct to the smelters themselves.
Of the total trade receivable as at 30 June 2008, three customers represented 99% of the total. The Company does not anticipate any loss
for non-performance.
As at 30 June 2008, the accounts receivable comprises the following:
30 31
June Decemb
2008 er
$ 2007
$
Trade receivables 5,096 2,412
Value added taxes recoverable 17,074 17,996
Other accounts receivable 3,462 -
25,632 20,408
As at the 30 June 2008, the Company considers its accounts receivable excluding Value Added Taxes recoverable and other accounts
receivable to be aged as follows:
30
June
2008
$
Ageing
Current 4,378
Past due (1-30 days) 709
Past due (31-60 days) -
Past due (more than 60 days) 9
5,096
Interest rate risk - The Company is exposed to interest rate risk arising from fluctuations in interest rates on its cash equivalents.
The Company seeks to maximise returns on cash equivalents, without risking capital values. The Company's objectives of managing its cash and
cash equivalents are to ensure sufficient funds are maintained on hand at all times to meet day to day requirements and to place any amounts
which are considered in excess of day to day requirements on short-term deposits with the Company's banks so they earn interest. Upon
placing amounts of cash and cash equivalents on short-term deposits, the Company uses top rated institutions and ensures that access to the
amounts can be gained at short notice. During the six-month period ended 30 June 2008 interest income of $3,258 and $1,501 for three month
period on cash and cash equivalents, based on rates of returns between 1.25% and 4.26%
Currency risk - The Company is exposed to currency risk on sales, purchases and cash holdings that are denominated in a currency other
than the functional currencies of the individual entities in the group. As at the 30 June 2008, the Company held the equivalent of $11,908
in foreign currencies. These balances are primarily made up of Euro and to a lesser extent Pound Sterling.
For the six-month period ended 30 June 2008 the Company recorded a foreign exchange gain of $2,647 and a loss of $27 for the three-month
period, mainly due to the translation of its Euro balances in Hellas Gold.
The Company publishes its consolidated financial statements in US dollars and as a result, it is also subject to foreign exchange
translation risk in respect of assets and liabilities nominated in Euros in its foreign operations.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations when they become due.
The Company manages its liquidity risk by ensuring there is sufficient capital to meet short and long term business requirements after
taking into account cash flows from operations and holdings of cash and cash equivalents. The Company believes that these sources will be
sufficient to cover the likely short to medium term requirements. Senior management is also actively involved in the review and approval of
planned expenditures by regularly monitoring cash flows from operations and anticipated investing and financing activities.
The Company does not have any borrowing or debt facilities and settles its obligations out of cash and cash equivalents. The ability to
do this relies on the Company collecting its accounts receivable in a timely manner and maintaining cash on hand.
Financial liabilities consist of trade payables, accrued liabilities and income taxes payable. As at 30 June 2008, the Company's trade
payables and accrued liabilities amounted to $15,810 all which fall due for payment within 12 months of the balance sheet date. The average
credit period taken during the six-month period ended 30 June 2008 was 30 days.
Commodity Price Risk
The value of the Company's mineral resource properties is related to the prices of gold, copper, zinc, lead and silver and outlook for
these commodities.
Gold prices historically have fluctuated widely and are affected by numerous factor outside of the company's control, including, but not
limited to, industrial and retail demand, central bank lending, forward sales by producers and speculators, levels of worldwide production,
short-term changes in supply and demand because of speculative investing activities, macro-economic and political variables, and certain
other factors related specifically to gold. Base metal prices have historically tended to be driven more by the demand and supply
fundamentals for each metal. However, levels of speculative activity in the base metals market have increased in recent years
The profitability of the Company's operations is highly correlated to the market price of its commodities in particular gold. To the
extent that these prices increase, asset values increase and cash flows improve; conversely, declines in metal prices directly impact value
and cash flows. A protracted period of depressed prices could impair the Company's operations and development opportunities, and
significantly erode shareholder value.
The Company has completed a sensitivity analysis to estimate the impact on net profit of a 5% change in foreign exchange rates or a 1%
change in interest rates during the period ended 30 June 2008.
The results of the sensitivity analysis can be seen in the following table:
3 months 6 months
ended ended
30 June 30 June
2008 2008
$ $
Impact on Net Profit (+/-)
Change of +/- 5 % US$: EUR foreign exchange rate 758 1,515
Change of +/- 1% in interest rates 515 1,030
Limitations of sensitivity analysis
The above table demonstrates the effect of either a change in foreign exchange rates or interest rates in isolation. In reality, there
is a correlation between the two factors. Additionally, the financial position of the Company may vary at the time that a change in either
of these factors occurs, causing the impact on the Company's results to differ from that shown above.
Hedging and specific commitments - The Company enters into financial transactions in the normal course of business and in line with
Board guidelines for the purpose of hedging and managing its expected exposure to commodity prices. There are a number of financial
institutions which offer metal hedging services. As with cash deposits, the Company deals with highly rated banks and in addition, those
institutions who have demonstrated long term commitment to the mining sector. The hedges below are treated as cash flow hedges in accordance
with CICA 3865: Hedges.
Lead hedging contracts - As at 30 June 2008, the Company had entered into forward hedging arrangements over 12,600 tonnes of lead, using
options to provide a minimum: maximum price exposure. The hedging contracts are put/call option collar contracts with maturity dates between
2 July 2008 and 31 December 2009 and strike prices as shown in the table below. The fair value of these contracts as 30 June 2008 amounted
to $9,087 established by reference to market prices for lead.
30
June
2008
Lead tonnes 12,600
US dollar price ($/tonne) - Put 2,464
US dollar contract amount ($'000) - Put 31,050
US dollar price ($/tonne) - Call 3,436
US dollar contract amount ($'000) - Call 43,290
16. Capital Risk Management
The Company includes cash and cash equivalents and equity, comprising share capital, contributed surplus and accumulated deficit.
The Company's objectives when managing capital is to maintain its ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders and to ensure sufficient resources are available to meet day to day operating requirement.
The Company's Board of Directors takes full responsibility for managing the Company's capital and does so through quarterly board
meetings, review of financial information, and regular communication with Officers and senior management.
In order to maximize ongoing development efforts, the Company does not pay out dividends.
The Company's investment policy is to invest its cash in high-grade investment securities with varying terms to maturity, selected with
regards to the expected timing of expenditures from continuing operations.
The Company expects its current capital resources will be sufficient to carry its plans and operations through its current operating
period.
The Company is not subject to externally imposed capital requirements and there has been no change in the overall capital risk
management strategy during the three-month period ended 30 June 2008.
17. Commitments
As at 30 June 2008, the Company had remaining spending commitments of $635 (2007 -$1,080) over the remaining term of its Voia
exploration licence in Romania which expires in March 2010.
The Company has spending commitments of $193 per year (plus service charges and value added tax) for a term of ten years under the lease
for its office in London, England, which commenced in April 2004. The rent will be reviewed on the fifth anniversary of the commencement of
the term to reflect any increase in rents in the market.
As at 30 June 2008, Hellas Gold had entered into off-take agreements pursuant to which Hellas Gold agreed to sell 43,595 dmt of zinc
concentrates, and 27,290 dmt of lead/silver concentrates until the end of 2008 and 281,439 dmt of gold concentrates until the financial
year's ending 2011. As at 30 June 2008, 19,595 dmt of zinc concentrates, 9,290 dmt of lead/silver concentrates and 32,257 dmt of gold
concentrates had been sold on account of the commitments.
During 2007 the Company entered into purchase agreements with Outotec Minerals OY for long-lead -time equipment and services for the
Skouries project with a cost of $56,840 (EUR36,057) of which is to be paid over three years beginning 2007. As at 30 June 2008, $14,133
$(EUR8,966) of the commitment had been paid. Hellas Gold has pledged $18,000 in support of a letter of credit issued on behalf of Outotec
Minerals OY through Nordea Bank of Finland.
18. Transactions with related parties
During the six-month period ended 30 June 2008, Hellas Gold incurred costs of $17,633 (2007 -$13,856) for management, technical and
engineering services received from a related party, Aktor S.A.,
a 5% shareholder in Hellas Gold. As at 30 June 2008, Hellas Gold had accounts payable of $4,152 (2007 -$4,053) 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.
19. Segmented information
The Company has one operating segment: the acquisition, exploration and development of precious and base metal mineral resources
properties located in Greece and Romania.
Geographic segmentation of plant and equipment and deferred exploration and development costs and operating liabilities is as follows:
30 June 31 December
2008 2007
$ $
Revenue
Canada - -
Greece 31,169 86,405
Romania - -
Turkey - -
United Kingdom - -
31,169 86,405
Plant and equipment and deferred exploration and
development costs
Canada - -
Greece 488,411 479,656
Romania 44,935 38,418
Turkey 157 -
United Kingdom 325 341
533,828 518,415
Operating liabilities
Canada 301 832
Greece 20,019 20,037
Romania 294 659
Turkey 78 -
United Kingdom 1,018 1,167
21,710 22,695
20. Pension plans and other post-retirement benefits
The Company's subsidiary, European Goldfields (Services) Limited, maintains a defined contribution pension plan for its employees. The
defined contribution pension plan provides pension benefits based on accumulated employee and Company contributions. Company contributions
to these plans are a set percentage of employees' annual income and may be subject to certain vesting requirements. The cost of defined
contribution benefits is expensed as earned by employees.
As at 30 June 2008, the Company recognised the following costs:
3 months ended 30 June 6 months ended 30 June
2008 2007 2008 2007
$ $ $ $
Defined contribution plans 52 52 124 103
21. Earnings per share
The calculation of the basic and diluted earnings per share attributable to holders of the Company's common shares is based as follows:
3 months ended 30 June 6 months ended 30 June
2008 2007 2008 2007
$ $ $ $
Earnings 812 5,335 4,221 7,443
Effect of dilutive potential common - - - -
shares
Diluted earnings 812 5,335 4,221 7,443
Weighted average number of common shares
for the purpose of 179,446 122,957 179,426 119,426
basic earnings per
share
Incremental shares - Share options 1,535 1,695 1,859 1,679
Weighted average number of common shares
for the purpose of 180,981 124,652 181,285 121,105
diluted earnings per
share
22. Reclassification of comparative figures
Certain comparative figures have been reclassified to conform to the current year's presentation.
23. Legal proceedings
In June 2005, certain residents of Stratoniki village submitted a request for the annulment of the Greek government's joint ministerial
decision approving the environmental impact study for the Stratoni mine (the "JMD Approval"). In November 2005, the same petitioners
submitted a request for the annulment of the decision of the Minister of Development approving the Technical Study for the exploitation of
the Mavres Petres mine that forms part of the Stratoni complex (the "MOD Approval"). The JMD Approval and the MOD Approval are necessary
for the continued operation of the Stratoni mine. In both cases the petitioners alleged a lack of legal basis for the approvals and
potential harm to the environment and their properties. The Greek government, supported by the Company, the Association of Extractive
Companies, and two workers' unions, has taken a position that the approvals are valid. In December 2005 the petitioners requested an
injunction to stop work on the Stratoni project pending the hearing of the requests for annulment, but the court rejected the request. A hearing on both requests for annulment will be held shortly. The
management of the Company believes that both requests for annulment are unfounded and unlikely to succeed.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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