TIDMEGU
RNS Number : 1146P
European Goldfields Ltd
19 March 2009
European Goldfields Limited
Financial Statements
(Audited)
31 December 2008 and 2007
Management's Responsibility for Consolidated Financial Statements
The accompanying consolidated financial statements of European Goldfields
Limited are the responsibility of management and have been approved by the Board
of Directors of the Company. The consolidated financial statements include some
amounts that are based on management's best estimate using reasonable judgment.
The consolidated financial statements have been prepared by management in
accordance with Canadian generally accepted accounting principles.
Management maintains an appropriate system of internal controls to provide
reasonable assurance that transactions are authorised, assets safeguarded and
proper records are maintained.
The Audit Committee of the Board of Directors has met with the Company's
external auditors to review the scope and results of the annual audit and to
review the consolidated financial statements and related financial reporting
matters prior to submitting the consolidated financial statements to the Board
of Directors for approval.
The consolidated financial statements have been audited by BDO Dunwoody LLP,
Chartered Accountants, and their report follows.
(s) David Reading(s) Timothy Morgan-Wynne
David ReadingTimothy Morgan-Wynne
Chief Executive OfficerChief Financial Officer
Auditors' Report o the Shareholders of European Goldfields Limited
We have audited the balance sheets of European Goldfields Limited as at 31 8 and
2007 and the statements of profit and loss, other comprehensive income, equity
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether these consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in these consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at 31 2008 and 2007 and the
results of its operations and its cash flows for the years then ended in
accordance with Canadian generally accepted accounting principles.
(s) BDO Dunwoody LLP
Chartered Accountants, Licensed Public Accountants
Toronto, Canada
March 18, 2009
+-----------------------------------------------------------+-------+----------+----------+
| European Goldfields Limited | Note | 2008 | 2007 |
| Consolidated Balance Sheets | | $ | $ |
| As at 31 December 2008 and 2007 | | | |
| (in thousands of US Dollars, except per share amounts) | | | |
| | | | |
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Assets | | | |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Current assets | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Cash and cash equivalents | | 170,296 | 218,839 |
+-----------------------------------------------------------+-------+----------+----------+
| Accounts receivable | 6 | 20,057 | 20,408 |
+-----------------------------------------------------------+-------+----------+----------+
| Hedge contract | 17 | 10,282 | - |
+-----------------------------------------------------------+-------+----------+----------+
| Current taxes receivable | | 3,820 | 4,935 |
+-----------------------------------------------------------+-------+----------+----------+
| Future tax assets | | 2,004 | 2,178 |
+-----------------------------------------------------------+-------+----------+----------+
| Prepaid expenses | | 1,414 | 2,834 |
+-----------------------------------------------------------+-------+----------+----------+
| Inventory | 7 | 3,069 | 2,110 |
+-----------------------------------------------------------+-------+----------+----------+
| | | 210,942 | 251,304 |
+-----------------------------------------------------------+-------+----------+----------+
| Non current assets | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Plant and equipment | 8 | 74,401 | 48,776 |
+-----------------------------------------------------------+-------+----------+----------+
| Deferred exploration and development costs | 9 | | |
+-----------------------------------------------------------+-------+----------+----------+
| Greek production stage mineral properties | | 26,652 | 29,199 |
+-----------------------------------------------------------+-------+----------+----------+
| Greek exploration stage mineral properties | | 403,907 | 402,155 |
+-----------------------------------------------------------+-------+----------+----------+
| | | 430,559 | 431,354 |
+-----------------------------------------------------------+-------+----------+----------+
| Romanian exploration stage mineral properties | | 45,187 | 38,285 |
+-----------------------------------------------------------+-------+----------+----------+
| Turkish exploration stage mineral properties | | 456 | - |
+-----------------------------------------------------------+-------+----------+----------+
| | | 476,202 | 469,639 |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Investment in associates | 10 | 2,075 | - |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Restricted investment | | - | 4,900 |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Other financial assets | 17 | - | 882 |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Future tax assets | 11 | 2,475 | 6,630 |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| | | 766,095 | 782,131 |
+-----------------------------------------------------------+-------+----------+----------+
| Liabilities | | | |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Current liabilities | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Accounts payable and accrued liabilities | 12 | 16,263 | 9,977 |
+-----------------------------------------------------------+-------+----------+----------+
| Current taxes payable | | - | 12,718 |
+-----------------------------------------------------------+-------+----------+----------+
| Future tax liabilities | 11 | 3,496 | - |
+-----------------------------------------------------------+-------+----------+----------+
| | | 19,759 | 22,695 |
+-----------------------------------------------------------+-------+----------+----------+
| Non current liabilities | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Future tax liabilities | 11 | 90,294 | 109,943 |
+-----------------------------------------------------------+-------+----------+----------+
| Asset retirement obligation | 13 | 6,937 | 6,805 |
+-----------------------------------------------------------+-------+----------+----------+
| Deferred revenue | 14 | 58,496 | 65,344 |
+-----------------------------------------------------------+-------+----------+----------+
| | | 155,727 | 182,092 |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Non-controlling interest | | 2,874 | 3,341 |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Shareholders' equity | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Capital stock | 15 | 538,316 | 537,275 |
+-----------------------------------------------------------+-------+----------+----------+
| Contributed surplus | 15 | 7,788 | 5,997 |
+-----------------------------------------------------------+-------+----------+----------+
| Accumulated other comprehensive income | 15 | 43,676 | 38,295 |
+-----------------------------------------------------------+-------+----------+----------+
| Deficit | | (2,045) | (7,564) |
+-----------------------------------------------------------+-------+----------+----------+
| | | 587,735 | 574,003 |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| | | 766,095 | 782,131 |
+-----------------------------------------------------------+-------+----------+----------+
The accompanying notes are an integral part of these consolidated financial
statements.
Approved by the Board of Directors
(s) Timothy Morgan-Wynne(s) Jeffrey O'Leary
Timothy Morgan-Wynne, DirectorDr Jeffrey O'Leary, Director
+-----------------------------------------------------------+-------+----------+----------+
| European Goldfields Limited | | 2008 | 2007 |
| Consolidated Statements of Profit and Loss | | | |
| For the years ended 31 December 2008 and 2007 | | | |
| (in thousands of US Dollars, except per share amounts) | | | |
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| | Note | $ | $ |
+-----------------------------------------------------------+-------+----------+----------+
| Income | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Sales | | 60,044 | 86,405 |
+-----------------------------------------------------------+-------+----------+----------+
| Cost of sales | | (48,424) | (37,546) |
+-----------------------------------------------------------+-------+----------+----------+
| Depletion of asset retirement obligation | | (442) | (526) |
+-----------------------------------------------------------+-------+----------+----------+
| Depreciation and depletion | | (5,531) | (4,546) |
+-----------------------------------------------------------+-------+----------+----------+
| | | 5,647 | 43,787 |
| Gross profit | | | |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Other income | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Hedge contract profit | | 4,918 | - |
+-----------------------------------------------------------+-------+----------+----------+
| Interest income | | 5,729 | 6,588 |
+-----------------------------------------------------------+-------+----------+----------+
| Foreign exchange (loss)/gain | | (6,406) | 3,904 |
+-----------------------------------------------------------+-------+----------+----------+
| Share of loss in equity investment | | (105) | - |
+-----------------------------------------------------------+-------+----------+----------+
| | | 4,136 | 10,492 |
+-----------------------------------------------------------+-------+----------+----------+
| Expenses | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Corporate administrative and overhead | | 4,859 | 4,296 |
| expenses | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Equity-based compensation expense | | 2,900 | 1,798 |
+-----------------------------------------------------------+-------+----------+----------+
| Hellas Gold administrative and overhead | | 7,620 | 9,827 |
| expenses | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Hellas Gold water treatment expenses | | 5,188 | 4,315 |
| (non-operating mines) | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Accretion of asset retirement | 13 | 133 | 124 |
| obligation | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Amortisation | | 682 | 484 |
+-----------------------------------------------------------+-------+----------+----------+
| | | 21,382 | 20,844 |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| (Loss)/Profit for the year before | | (11,599) | 33,435 |
| income taxes | | | |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Income taxes | 11 | | |
+-----------------------------------------------------------+-------+----------+----------+
| Current taxes | | (1,454) | 7,712 |
+-----------------------------------------------------------+-------+----------+----------+
| Future taxes | | (15,185) | (2,495) |
+-----------------------------------------------------------+-------+----------+----------+
| | | (16,639) | 5,217 |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Profit for the year before | | 5,040 | 28,218 |
| non-controlling interest | | | |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Non-controlling interest | | 479 | (5,019) |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Profit for the year | | 5,519 | 23,199 |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Earnings per share | 24 | | |
+-----------------------------------------------------------+-------+----------+----------+
| Basic | | 0.03 | 0.16 |
+-----------------------------------------------------------+-------+----------+----------+
| Diluted | | 0.03 | 0.15 |
+-----------------------------------------------------------+-------+----------+----------+
| | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Weighted average number of shares (in | | | |
| thousands) | | | |
+-----------------------------------------------------------+-------+----------+----------+
| Basic | | 179,566 | 148,245 |
+-----------------------------------------------------------+-------+----------+----------+
| Diluted | | 181,223 | 150,100 |
+-----------------------------------------------------------+-------+----------+----------+
The accompanying notes are an integral part of these consolidated financial
statements.
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| European Goldfields Limited | Capital | Contributed | Accumulated | Deficit | Total |
| Consolidated Statements of | Stock | Surplus | Other | $ | $ |
| Equity | $ | $ | Comprehensive | | |
| As at | | | Income | | |
| 31 December 2008 and 2007 | | | $ | | |
| (in thousands of US Dollars, | | | | | |
| except per share amounts) | | | | | |
| | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Balance | 246,890 | 7,135 | 4,276 | (30,763) | 227,538 |
| - 31 | | | | | |
| December | | | | | |
| 2006 | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Equity-based | - | 2,488 | - | - | 2,488 |
| compensation | | | | | |
| expense | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Shares | 130,059 | - | - | - | 130,059 |
| issued | | | | | |
| for | | | | | |
| equity | | | | | |
| financing | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Shares | 161,425 | - | - | - | 161,425 |
| issued | | | | | |
| as | | | | | |
| consideration | | | | | |
| for | | | | | |
| acquisition | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Share | (4,777) | - | - | - | (4,777) |
| issue | | | | | |
| costs | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Restricted | 2,646 | (2,646) | - | - | - |
| share | | | | | |
| units | | | | | |
| vested | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Share | 1,032 | (980) | - | - | 52 |
| options | | | | | |
| exercised | | | | | |
| or | | | | | |
| exchanged | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Movement | - | - | 33,137 | - | 33,137 |
| in | | | | | |
| cumulative | | | | | |
| translation | | | | | |
| adjustment | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Change | - | - | 882 | - | 882 |
| in fair | | | | | |
| value | | | | | |
| of cash | | | | | |
| flow | | | | | |
| hedge | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Profit | - | - | - | 23,199 | 23,199 |
| for the | | | | | |
| year | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| | 290,385 | (1,138) | 34,019 | 23,199 | 346,465 |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Balance | 537,275 | 5,997 | 38,295 | (7,564) | 574,003 |
| - 31 | | | | | |
| December | | | | | |
| 2007 | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Equity-based | - | 2,788 | - | - | 2,788 |
| compensation | | | | | |
| expense | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Share | (10) | - | - | - | (10) |
| issue | | | | | |
| costs | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Restricted | 973 | (973) | - | - | - |
| share | | | | | |
| units | | | | | |
| vested | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Share | 78 | (24) | - | - | 54 |
| options | | | | | |
| exercised | | | | | |
| or | | | | | |
| exchanged | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Change | - | - | 5,904 | - | 5,904 |
| in fair | | | | | |
| value | | | | | |
| of cash | | | | | |
| flow | | | | | |
| hedge | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Movement | - | - | (523) | - | (523) |
| in | | | | | |
| cumulative | | | | | |
| translation | | | | | |
| adjustment | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Profit | - | - | - | 5,519 | 5,519 |
| for the | | | | | |
| year | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| | 1,041 | 1,791 | 5,381 | 5,519 | 13,732 |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| Balance | 538,316 | 7,788 | 43,676 | (2,045) | 587,735 |
| - 31 | | | | | |
| December | | | | | |
| 2008 | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
| | | | | | |
+-------------------------------------+-----------+-------------+---------------+-----------+---------+
The accompanying notes are an integral part of these consolidated financial
statements.
+--------------------------------------------------------------+------+----------+---------------+
| European Goldfields Limited | | 2008 | 2007 |
| Consolidated Statements of Cash Flows | | | |
| For the years ended 31 December 2008 and 2007 | | | |
| (in thousands of US Dollars, except per share amounts) | | | |
| | | | |
| | | | |
+--------------------------------------------------------------+------+----------+---------------+
| | Note | $ | $ |
+--------------------------------------------------------------+------+----------+---------------+
| Cash flows from operating activities | | | |
+--------------------------------------------------------------+------+----------+---------------+
| Profit for the year | | 5,519 | 23,199 |
+--------------------------------------------------------------+------+----------+---------------+
| Share of loss in equity investment | | 105 | - |
+--------------------------------------------------------------+------+----------+---------------+
| Foreign exchange loss | | 6,368 | 6,391 |
+--------------------------------------------------------------+------+----------+---------------+
| Amortisation | | 3,336 | 2,482 |
+--------------------------------------------------------------+------+----------+---------------+
| Equity-based compensation expense | | 3,001 | 1,798 |
+--------------------------------------------------------------+------+----------+---------------+
| Accretion of asset retirement obligation | 13 | 133 | 124 |
+--------------------------------------------------------------+------+----------+---------------+
| Current taxation | | (1,454) | 7,712 |
+--------------------------------------------------------------+------+----------+---------------+
| Future taxes | | (15,185) | (2,495) |
+--------------------------------------------------------------+------+----------+---------------+
| Non-controlling interest | | (479) | 5,019 |
+--------------------------------------------------------------+------+----------+---------------+
| Deferred revenue recognised | | (6,399) | (3,738) |
+--------------------------------------------------------------+------+----------+---------------+
| Depletion of mineral properties | | 3,398 | 3,075 |
+--------------------------------------------------------------+------+----------+---------------+
| | | (1,657) | 43,567 |
+--------------------------------------------------------------+------+----------+---------------+
| | | | |
+--------------------------------------------------------------+------+----------+---------------+
| Net changes in non-cash working capital | 19 | 2,004 | (8,247) |
+--------------------------------------------------------------+------+----------+---------------+
| Taxation paid | | (10,326) | - |
+--------------------------------------------------------------+------+----------+---------------+
| | | (9,979) | 35,320 |
+--------------------------------------------------------------+------+----------+---------------+
| | | | |
+--------------------------------------------------------------+------+----------+---------------+
| Cash flows from investing activities | | | |
+--------------------------------------------------------------+------+----------+---------------+
| Deferred exploration and development costs - Romania | | (6,096) | (5,735) |
+--------------------------------------------------------------+------+----------+---------------+
| Plant and equipment - Greece | | (26,181) | (21,606) |
+--------------------------------------------------------------+------+----------+---------------+
| Deferred development costs - Greece | | (2,489) | (2,347) |
+--------------------------------------------------------------+------+----------+---------------+
| Deferred development costs - Turkey | | (429) | - |
+--------------------------------------------------------------+------+----------+---------------+
| Investment in subsidiary | | (14) | - |
+--------------------------------------------------------------+------+----------+---------------+
| Purchase of land | | (2,705) | - |
+--------------------------------------------------------------+------+----------+---------------+
| Purchase of equipment | | (173) | (127) |
+--------------------------------------------------------------+------+----------+---------------+
| Further acquisition in Hellas Gold | | - | (9,972) |
+--------------------------------------------------------------+------+----------+---------------+
| Restricted investment | | 4,900 | (557) |
+--------------------------------------------------------------+------+----------+---------------+
| Investment in associates | | (2,694) | - |
+--------------------------------------------------------------+------+----------+---------------+
| | | (35,881) | (40,344) |
+--------------------------------------------------------------+------+----------+---------------+
| | | | |
+--------------------------------------------------------------+------+----------+---------------+
| Cash flows from financing activities | | | |
+--------------------------------------------------------------+------+----------+---------------+
| Proceeds from equity financing | | - | 130,059 |
+--------------------------------------------------------------+------+----------+---------------+
| Deferred revenue | | 3,563 | 64,389 |
+--------------------------------------------------------------+------+----------+---------------+
| Proceeds from exercise of share options | | 54 | 52 |
+--------------------------------------------------------------+------+----------+---------------+
| Share issue costs | | (10) | (7,153) |
+--------------------------------------------------------------+------+----------+---------------+
| | | 3,607 | 187,347 |
+--------------------------------------------------------------+------+----------+---------------+
| | | | |
+--------------------------------------------------------------+------+----------+---------------+
| Effect of foreign currency translation on cash | | (6,290) | 1,929 |
+--------------------------------------------------------------+------+----------+---------------+
| | | | |
+--------------------------------------------------------------+------+----------+---------------+
| (Decrease)/Increase in cash and cash equivalents | | (48,543) | 184,252 |
+--------------------------------------------------------------+------+----------+---------------+
| | | | |
+--------------------------------------------------------------+------+----------+---------------+
| Cash and cash equivalents - Beginning of year | | 218,839 | 34,587 |
+--------------------------------------------------------------+------+----------+---------------+
| | | | |
+--------------------------------------------------------------+------+----------+---------------+
| Cash and cash equivalents - End of year | | 170,296 | 218,839 |
+--------------------------------------------------------------+------+----------+---------------+
The accompanying notes are an integral part of these consolidated financial
statements.
+------------------------------------------------------------------+-----------+----------+
| | 2008 | 2007 |
| | $ | $ |
+------------------------------------------------------------------+-----------+----------+
| | | |
+------------------------------------------------------------------+-----------+----------+
| Profit for the year | 5,519 | 23,199 |
+------------------------------------------------------------------+-----------+----------+
| | | |
+------------------------------------------------------------------+-----------+----------+
| Other comprehensive income in the year | | |
+------------------------------------------------------------------+-----------+----------+
| Currency translation adjustment | (523) | 33,137 |
+------------------------------------------------------------------+-----------+----------+
| Change in fair value of cash flow hedge | 5,904 | 882 |
+------------------------------------------------------------------+-----------+----------+
| Comprehensive income | 10,900 | 57,218 |
+------------------------------------------------------------------+-----------+----------+
| | | |
+------------------------------------------------------------------+-----------+----------+
European Goldfields Limited
Notes to Consolidated Financial Statements
For the years ended 31 December 2008 and 2007
(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 - European Goldfields owns 80% of the Certej gold/silver project in
Romania. In July 2008, the National Agency of Mineral Resources approved the
technical feasibility study in support of its permit application and issued a
new mining permit for 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.
2. Basis of Presentation
These 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. These consolidated financial statements do not include the adjustments
that would be necessary should the Company be unable to continue as a going
concern.
3. Significant accounting policies
These consolidated financial statements reflect the following significant
accounting policies.
Basis of consolidation - Business acquisitions are accounted for under the
purchase method and the results of operations of these businesses are included
in these consolidated financial statements from the acquisition date.
Investments in associates over which the Company has significant influence are
accounted for using the equity method.
These consolidated financial statements include the accounts of the Company
and the following subsidiaries:
+--------------------------------------+--------------------+----------------------+
| Company | Country of | Ownership |
| | incorporation | |
+--------------------------------------+--------------------+----------------------+
| | | |
+--------------------------------------+--------------------+----------------------+
| Deva Gold (Barbados) Ltd | Barbados | 100% owned |
+--------------------------------------+--------------------+----------------------+
| European Goldfields (Services) | England | 100% owned |
| Limited | | |
+--------------------------------------+--------------------+----------------------+
| European Goldfields Mining | Netherlands | 100% owned |
| (Netherlands) B.V. | | |
+--------------------------------------+--------------------+----------------------+
| European Goldfields (Greece) B.V. | Netherlands | 100% owned |
+--------------------------------------+--------------------+----------------------+
| Hellas Gold B.V. | Netherlands | 100% owned |
+--------------------------------------+--------------------+----------------------+
| European Goldfields Deva SRL | Romania | 100% owned |
+--------------------------------------+--------------------+----------------------+
| Hellas Gold S.A. | Greece | 95% owned |
+--------------------------------------+--------------------+----------------------+
| Deva Gold S.A. | Romania | 80% owned |
+--------------------------------------+--------------------+----------------------+
| Greater Pontides Exploration B.V. | Netherlands | 51% owned |
+--------------------------------------+--------------------+----------------------+
| Pontid Madencilik San. ve Ltd | Turkey | 60.86% owned |
+--------------------------------------+--------------------+----------------------+
| Greek Nurseries SA | Greece | 50% owned |
+--------------------------------------+--------------------+----------------------+
| Macedonian Copper Mines SA | Greece | 100% owned |
+--------------------------------------+--------------------+----------------------+
The 20% minority interest held in the Company's 80% owned subsidiary, Deva Gold
S.A. ("Deva Gold"), is accounted for in these consolidated financial statements.
The Company is required to fund 100% of all costs related to the exploration and
development of the mineral properties held by Deva Gold. 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.
Associates - 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 statement of
profit and loss. Cumulative post-acquisition movements are adjusted against the
carrying amount of 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 unsecured obligations or made payments on behalf of the associate.
Inventory - Inventories of ore mined and metal concentrates are valued at the
lower of combined production cost and net realisable value. Production costs
include the costs directly related to bringing the inventory to its current
condition and location, such as materials, labour, mine site overheads, related
depreciation of mining and processing facilities and related depletion of
mineral properties and deferred exploration and development costs. Exploration
materials and supplies are valued at the lower of cost and net realisable value
and on a weighted average basis.
Plant and equipment - Plant and equipment are recorded at cost less accumulated
amortisation. Amortisation is calculated on a straight-line basis based on a
useful life of 3 years for office equipment, 6 years for vehicles, 10 years for
leasehold improvements, at rates varying between 3 and 5 years for exploration
equipment and at rates varying between 4 and 20 years for buildings.
Amortisation for equipment used for exploration and development are capitalised
to mineral properties.
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 adjusted over time to reflect an
accretion element considered in the initial measurement at fair value and
revisions to the timing or amount of original estimates and for drawdowns as
asset retirement expenditures are incurred. As at 31 December 2008 and 2007,
the Company had an asset retirement obligation relating to its Stratoni property
in Greece.
Deferred revenue - The Company receives prepayments for the sale of all of the
silver metal to be produced from ore extracted during the mine-life within an
area of some 7 km² around its zinc-lead-silver Stratoni mine as well as for sale
of gold pyrite concentrate in northern Greece. The prepayment, which is
accounted for as deferred revenue, is recognised as sales revenue on the basis
of proportion of settlements during the period to expected total settlements.
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.
Income taxes - Income taxes are calculated using the asset and liability method
of tax accounting. Under this method, current income taxes are recognised for
the estimated income taxes payable for the current period. Future income tax
assets and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities, and are measured using the
substantially enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The benefit of the temporary differences is
not recognised to the extent the recoverability of future income tax assets is
not considered more likely than not.
Equity-based compensation - The Company operates a share option plan, a
restricted share unit plan and a deferred phantom 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 recognised to deferred exploration and development
costs when the compensation can be attributed to mineral properties. This cost
is recognised over the relevant vesting period for grants to directors, officers
and employees, and measured 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.
Earnings per share ("EPS") - EPS is calculated based on the weighted average
number of common shares issued and outstanding.Diluted per share amounts are
calculated using the treasury stock method whereby proceeds deemed to be
received on the exercise or exchange of share options and warrants and on the
granting of restricted share units in the per share calculation are applied to
reacquire common shares at the average market price during the period.
Foreign currency translation - The Company's functional currency is the United
States dollar. Monetary assets and liabilities denominated in foreign currencies
are translated at the exchange rate in effect at the balance sheet date.
Non-monetary assets and liabilities and revenue and expenses arising from
foreign currency transactions are translated at the exchange rate in effect at
the date of the transaction. Exchange gains or losses arising from the
translation are included in operations.
Integrated foreign subsidiaries and associates are accounted for under the
temporal method. Under this method, monetary assets and liabilities are
translated at the exchange rate in effect at the balance sheet date.
Non-monetary assets and liabilities are translated at historical rates. Revenue
and expenses are translated at actual or average rates for the period. Exchange
gains or losses arising from the translation are included in operations except
for those related to mineral properties which are capitalised.
Self-sustaining foreign subsidiaries and associates are accounted for under the
current rate method. Under this method, all assets and liabilities are
translated at the exchange rate in effect at the balance sheet date. Revenue and
expenses are translated at actual or average rates for the period. Exchange
gains or losses arising from the translation are recorded in equity in the
cumulative translation adjustment component of other comprehensive income.
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.
Financial Instruments - The Company's cash and cash equivalents have been
classified as held for trading, 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.
All other financial instruments will be recorded at cost or amortised cost,
subject to impairment reviews. Transaction costs incurred to acquire financial
instruments are included in the underlying balance.
Cash and cash equivalents - Cash and cash equivalents include cash and deposits
with original maturities of three months or less.
Hedges - 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 base metal 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 - 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.
4Significant changes in accounting policies
Capital Disclosure - 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
additional requirement requires management to make an assessment of the
Company's ability to continue as a going concern and to disclose any material
uncertainties related to events or conditions that may cast significant doubt
upon the entity'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
represent a revision and enhancement to Section 3861, Financial instrument -
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 17.
Change in functional currency - 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 cost. 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 and applied prospectively.
5. Business combination - Acquisition of an 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 common shares) | 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.
6.Accounts receivable
This balance comprises the following:
+-------------------------------------------------------------+----------+----------+
| | 2008 | 2007 |
+-------------------------------------------------------------+----------+----------+
| | $ | $ |
+-------------------------------------------------------------+----------+----------+
| | | |
+-------------------------------------------------------------+----------+----------+
| Value added taxes recoverable | 11,780 | 17,996 |
+-------------------------------------------------------------+----------+----------+
| Accounts receivable | 8,277 | 2,412 |
+-------------------------------------------------------------+----------+----------+
| | 20,057 | 20,408 |
+-------------------------------------------------------------+----------+----------+
7.Inventory
This balance comprises the following:
+-------------------------------------------------------------+----------+----------+
| | 2008 | 2007 |
+-------------------------------------------------------------+----------+----------+
| | $ | $ |
+-------------------------------------------------------------+----------+----------+
| | | |
+-------------------------------------------------------------+----------+----------+
| Ore mined | 397 | - |
+-------------------------------------------------------------+----------+----------+
| Metal concentrates | 767 | 865 |
+-------------------------------------------------------------+----------+----------+
| Material and supplies | 1,905 | 1,245 |
+-------------------------------------------------------------+----------+----------+
| | 3,069 | 2,110 |
+-------------------------------------------------------------+----------+----------+
At as 31 December 2008, the value of total inventory carried at net realisable
value amounted to $767 (2007 - Nil), which includes a write-down of $953 (2007 -
Nil).
The components of cost of sales were as follows:
+-------------------------------------------------------------+----------+----------+
| | 2008 | 2007 |
+-------------------------------------------------------------+----------+----------+
| | $ | $ |
+-------------------------------------------------------------+----------+----------+
| | | |
+-------------------------------------------------------------+----------+----------+
| Mining cost | 28,313 | 20,219 |
+-------------------------------------------------------------+----------+----------+
| Direct labour | 4,991 | 4,064 |
+-------------------------------------------------------------+----------+----------+
| Indirect labour | 964 | 711 |
+-------------------------------------------------------------+----------+----------+
| Other overhead costs | 7,259 | 6,507 |
+-------------------------------------------------------------+----------+----------+
| Increase in gross inventories | (1,100) | (314) |
+-------------------------------------------------------------+----------+----------+
| Freight charges | 7,044 | 6,359 |
+-------------------------------------------------------------+----------+----------+
| Write down of inventory to net realisable value | 953 | - |
+-------------------------------------------------------------+----------+----------+
| | 48,424 | 37,546 |
+-------------------------------------------------------------+----------+----------+
8.Plant and equipment
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| | Plant | Vehicles | Mine | Leasehold | Total |
| | and | $ | development | improvements | $ |
| | equipment | | land and | $ | |
| | $ | | buildings | | |
| | | | $ | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| Cost | | | | | |
| - | | | | | |
| 2007 | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| At | 13,220 | 1,236 | 15,608 | 256 | 30,320 |
| 31 | | | | | |
| December | | | | | |
| 2006 | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| Additions | 17,154 | 599 | 3,926 | 55 | 21,734 |
| | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| Disposals | (34) | (8) | - | - | (42) |
| | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| Currency | 1,361 | 105 | 1,678 | - | 3,144 |
| translation | | | | | |
| adjustment | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| At | 31,701 | 1,932 | 21,212 | 311 | 55,156 |
| 31 | | | | | |
| December | | | | | |
| 2007 | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| Accumulated | | | | | |
| amortisation | | | | | |
| - 2007 | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| At | 1,681 | 685 | 888 | 58 | 3,312 |
| 31 | | | | | |
| December | | | | | |
| 2006 | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| Provision | 1,261 | 318 | 1,000 | 27 | 2,606 |
| for the | | | | | |
| year | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| Disposals | (24) | (8) | - | - | (32) |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| Currency | 233 | 81 | 180 | - | 494 |
| translation | | | | | |
| adjustment | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| At | 3,151 | 1,076 | 2,068 | 85 | 6,380 |
| 31 | | | | | |
| December | | | | | |
| 2007 | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
| Net | 28,550 | 856 | 19,144 | 226 | 48,776 |
| book | | | | | |
| value | | | | | |
| at 31 | | | | | |
| December | | | | | |
| 2007 | | | | | |
+---------------------------------------------------------+-----------+----------+-------------+--------------+----------+
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| Cost | | | | | |
| - | | | | | |
| 2008 | | | | | |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| | | | | | |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| At | 31,701 | 1,932 | 21,212 | 311 | 55,156 |
| 31 | | | | | |
| December | | | | | |
| 2007 | | | | | |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| | | | | | |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| Additions | 14,674 | 138 | 14,210 | 5 | 29,027 |
| | | | | | |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| Disposals | (21) | (8) | - | - | (29) |
| | | | | | |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| At | 46,354 | 2,062 | 35,422 | 316 | 84,154 |
| 31 | | | | | |
| December | | | | | |
| 2008 | | | | | |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| | | | | | |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| Accumulated | | | | | |
| amortisation | | | | | |
| - 2008 | | | | | |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| | | | | | |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| At | 3,151 | 1,076 | 2,068 | 85 | 6,380 |
| 31 | | | | | |
| December | | | | | |
| 2007 | | | | | |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| | | | | | |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| Provision | 1,527 | 215 | 1,616 | 32 | 3,390 |
| for the | | | | | |
| year | | | | | |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| Disposals | (10) | (7) | - | - | (17) |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| At | 4,668 | 1,284 | 3,684 | 117 | 9,753 |
| 31 | | | | | |
| December | | | | | |
| 2008 | | | | | |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| | | | | | |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| Net | 41,686 | 778 | 31,738 | 199 | 74,401 |
| book | | | | | |
| value | | | | | |
| at 31 | | | | | |
| December | | | | | |
| 2008 | | | | | |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
| | | | | | |
+---------------------------------------------------------+----------+----------+------------+-------------+----------+
During 2008, the net book value amount of plant and equipment not amortised
amounted to $43,098 (2007 - $30,984)
9.Deferred exploration and development costs
Greek mineral properties:
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
| | Stratoni | Olympias | Skouries | Other | Total |
| | $ | $ | $ | exploration | $ |
| | | | | $ | |
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
| Balance | 14,677 | 108,078 | 74,079 | - | 196,834 |
| - 31 | | | | | |
| December | | | | | |
| 2006 | | | | | |
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
| | | | | | |
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
| Acquisition | 14,239 | 109,037 | 75,242 | - | 198,518 |
| of mineral | | | | | |
| properties | | | | | |
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
| Deferred | 769 | 255 | 1,373 | 158 | 2,555 |
| development | | | | | |
| costs | | | | | |
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
| Depletion | (2,749) | (334) | - | - | (3,083) |
| of | | | | | |
| mineral | | | | | |
| properties | | | | | |
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
| Currency | 2,263 | 20,320 | 13,947 | - | 36,530 |
| translation | | | | | |
| adjustment | | | | | |
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
| | 14,522 | 129,278 | 90,562 | 158 | 234,520 |
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
| | | | | | |
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
| Balance | 29,199 | 237,356 | 164,641 | 158 | 431,354 |
| - 31 | | | | | |
| December | | | | | |
| 2007 | | | | | |
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
| | | | | | |
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
| Acquisition | - | - | 78 | - | 78 |
| of mineral | | | | | |
| properties | | | | | |
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
| Deferred | 502 | 369 | 1,573 | 95 | 2,539 |
| development | | | | | |
| costs | | | | | |
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
| Depletion | (3,049) | (363) | - | - | (3,412) |
| of | | | | | |
| mineral | | | | | |
| properties | | | | | |
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
| | (2,547) | 6 | 1,651 | 95 | (795) |
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
| | | | | | |
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
| Balance | 26,652 | 237,362 | 166,292 | 253 | 430,559 |
| - 31 | | | | | |
| December | | | | | |
| 2008 | | | | | |
+--------------------------------------------------------+----------+----------+----------+-------------+----------+
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:
+-------------------------------------------------------------------------------+----------+-------------+----------+
| | Certej | Other | Total |
| | $ | exploration | $ |
| | | $ | |
+-------------------------------------------------------------------------------+----------+-------------+----------+
| Balance | 26,862 | 4,920 | 31,782 |
| - 31 | | | |
| December | | | |
| 2006 | | | |
+-------------------------------------------------------------------------------+----------+-------------+----------+
| | | | |
+-------------------------------------------------------------------------------+----------+-------------+----------+
| Exploration | 3,010 | 184 | 3,194 |
| | | | |
+-------------------------------------------------------------------------------+----------+-------------+----------+
| Project | 1,682 | 42 | 1,724 |
| management | | | |
+-------------------------------------------------------------------------------+----------+-------------+----------+
| Project | 1,300 | 205 | 1,505 |
| overhead | | | |
+-------------------------------------------------------------------------------+----------+-------------+----------+
| Amortisation | 61 | 19 | 80 |
+-------------------------------------------------------------------------------+----------+-------------+----------+
| | 6,053 | 450 | 6,503 |
+-------------------------------------------------------------------------------+----------+-------------+----------+
| | | | |
+-------------------------------------------------------------------------------+----------+-------------+----------+
| Balance | 32,915 | 5,370 | 38,285 |
| - 31 | | | |
| December | | | |
| 2007 | | | |
+-------------------------------------------------------------------------------+----------+-------------+----------+
+-------------------------------------------------------------------------------+----------+-----------+----------+
| Exploration | 2,158 | 420 | 2,578 |
+-------------------------------------------------------------------------------+----------+-----------+----------+
| Project | 1,894 | 376 | 2,270 |
| management | | | |
+-------------------------------------------------------------------------------+----------+-----------+----------+
| Project | 1,795 | 170 | 1,965 |
| overhead | | | |
+-------------------------------------------------------------------------------+----------+-----------+----------+
| Amortisation | 70 | 19 | 89 |
+-------------------------------------------------------------------------------+----------+-----------+----------+
| | 5,917 | 985 | 6,902 |
+-------------------------------------------------------------------------------+----------+-----------+----------+
| | | | |
+-------------------------------------------------------------------------------+----------+-----------+----------+
| Balance | 38,832 | 6,355 | 45,187 |
| - 31 | | | |
| December | | | |
| 2008 | | | |
+-------------------------------------------------------------------------------+----------+-----------+----------+
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. 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.
As at the 31 December 2008, the following cost had been incurred on the
remaining Romanian mineral properties:
+------------------------------------------------------------+-----------+----------+
| | 2008 | 2007 |
| | $ | $ |
+------------------------------------------------------------+-----------+----------+
| | | |
+------------------------------------------------------------+-----------+----------+
| Baita- Craciunesti | 3,312 | 3,166 |
+------------------------------------------------------------+-----------+----------+
| Voia | 1,741 | 1,167 |
+------------------------------------------------------------+-----------+----------+
| Magura Tebii | 136 | - |
+------------------------------------------------------------+-----------+----------+
| Cainel | 1,166 | 1,037 |
+------------------------------------------------------------+-----------+----------+
| | 6,355 | 5,370 |
+------------------------------------------------------------+-----------+----------+
Turkish Mineral Properties
+--------------------------------------------------+-----------+-------------+----------+
| | Ardala | Other | Total |
| | $ | exploration | $ |
| | | $ | |
+--------------------------------------------------+-----------+-------------+----------+
| Balance - 31 December 2007 | - | - | - |
+--------------------------------------------------+-----------+-------------+----------+
+-------------------------------------------------------------------------------+-----------+-----------+----------+
| Exploration | 30 | 2 | 32 |
| | | | |
+-------------------------------------------------------------------------------+-----------+-----------+----------+
| Project | 402 | 5 | 407 |
| overhead | | | |
+-------------------------------------------------------------------------------+-----------+-----------+----------+
| Permit | 6 | - | 6 |
| acquisition | | | |
+-------------------------------------------------------------------------------+-----------+-----------+----------+
| Amortisation | 11 | - | 11 |
+-------------------------------------------------------------------------------+-----------+-----------+----------+
| | 449 | 7 | 456 |
+-------------------------------------------------------------------------------+-----------+-----------+----------+
| | | | |
+-------------------------------------------------------------------------------+-----------+-----------+----------+
| Balance | 449 | 7 | 456 |
| - 31 | | | |
| December | | | |
| 2008 | | | |
+-------------------------------------------------------------------------------+-----------+-----------+----------+
In April 2008, the Company entered into a Joint Venture ("JV") with Ariana
Resources plc ("Ariana") which 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.
The Turkish licences are held by the JV through a Turkish Company 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 JV 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.
10.Investment in associates
+--------------------------------------------------------------+---------+-+----------+
| | 2008 | 2007 |
| | $ | $ |
+--------------------------------------------------------------+-----------+----------+
| | | |
+--------------------------------------------------------------+-----------+----------+
| Balance - Beginning of period | - | - |
+--------------------------------------------------------------+-----------+----------+
| Shares acquired | 2,692 | - |
+--------------------------------------------------------------+-----------+----------+
| Share of loss | (105) | - |
+--------------------------------------------------------------+---------+------------+
| Cumulative translation adjustment | (517) | - |
+--------------------------------------------------------------+---------+------------+
| Equity-based compensation expense | 5 | - |
+--------------------------------------------------------------+-----------+----------+
| Balance - End of period | 2,075 | - |
+--------------------------------------------------------------+---------+-+----------+
In January 2008, Hellas Gold acquired a 50% share of Greek Nurseries SA for a
consideration of $834 (EUR530).
In May 2008, the Company subscribed for 20.13% of the issued share capital of
Ariana through a $1,858 (GBP929) private placement of shares. The difference
between the cost of the investment of $1,830 and the underlying net book value
of Ariana is $132 at the date of acquisition. This excess represents additional
fair value assigned to mineral properties of Ariana and will be depleted upon
commencement of mining operations of Ariana.
11. Income taxes
The following table reconciles the expected income tax recovery at the Canadian
statutory income tax rate to the amounts recognised in the consolidated
statements of profit and loss:
+------------------------------------------------------------+-----------+----------+
| | 2008 | 2007 |
+------------------------------------------------------------+-----------+----------+
| | $ | $ |
+------------------------------------------------------------+-----------+----------+
| | | |
+------------------------------------------------------------+-----------+----------+
| Income tax rate | 34.50% | 37.12% |
+------------------------------------------------------------+-----------+----------+
| Income taxes at statutory rates | 4,002 | 12,411 |
+------------------------------------------------------------+-----------+----------+
| Tax rate difference from foreign | 1,205 | (2,573) |
| jurisdictions | | |
+------------------------------------------------------------+-----------+----------+
| Permanent differences | 3,149 | (3,031) |
+------------------------------------------------------------+-----------+----------+
| Change in tax rate | (18,434) | (258) |
+------------------------------------------------------------+-----------+----------+
| Change in valuation allowance | 1,443 | (1,332) |
+------------------------------------------------------------+-----------+----------+
| | (16,639) | 5,217 |
+------------------------------------------------------------+-----------+----------+
The following table reflects future income tax assets:
+------------------------------------------------------------+-----------+----------+
| | 2008 | 2007 |
+------------------------------------------------------------+-----------+----------+
| | $ | $ |
+------------------------------------------------------------+-----------+----------+
| | | |
+------------------------------------------------------------+-----------+----------+
| Loss carry forwards | 8,693 | 7,426 |
+------------------------------------------------------------+-----------+----------+
| Intangibles | 2 | 10 |
+------------------------------------------------------------+-----------+----------+
| Retirement obligation | 1,323 | 1,700 |
+------------------------------------------------------------+-----------+----------+
| Inventory | 3 | 1,265 |
+------------------------------------------------------------+-----------+----------+
| Personal indemnities | 39 | 37 |
+------------------------------------------------------------+-----------+----------+
| Accruals | - | 1,241 |
+------------------------------------------------------------+-----------+----------+
| Capital raising costs | 1,108 | 2,376 |
+------------------------------------------------------------+-----------+----------+
| Valuation allowance | (6,689) | (5,247) |
+------------------------------------------------------------+-----------+----------+
| | 4,479 | 8,808 |
+------------------------------------------------------------+-----------+----------+
| Less: Current portion | (2,004) | (2,178) |
+------------------------------------------------------------+-----------+----------+
| Future income tax assets recognised | 2,475 | 6,630 |
+------------------------------------------------------------+-----------+----------+
The following table reflects future income tax liabilities:
+-------------------------------------------------------------+----------+---------+
| | 2008 | 2007 |
+-------------------------------------------------------------+----------+---------+
| | $ | $ |
+-------------------------------------------------------------+----------+---------+
| | | |
+-------------------------------------------------------------+----------+---------+
| Mineral properties | 85,167 | 104,752 |
+-------------------------------------------------------------+----------+---------+
| Plant and equipment | 882 | 701 |
+-------------------------------------------------------------+----------+---------+
| Exploration and development expenditure | 2,709 | 3,003 |
+-------------------------------------------------------------+----------+---------+
| Accrued expenses & other | - | 1,487 |
+-------------------------------------------------------------+----------+---------+
| Retirement obligation | 873 | - |
+-------------------------------------------------------------+----------+---------+
| Hedge contract | 3,496 | - |
+-------------------------------------------------------------+----------+---------+
| Foreign exchange | 663 | - |
+-------------------------------------------------------------+----------+---------+
| | 93,790 | 109,943 |
+-------------------------------------------------------------+----------+---------+
| Less: Current portion | (3,496) | - |
+-------------------------------------------------------------+----------+---------+
| Future income tax liabilities recognised | 90,294 | 109,943 |
+-------------------------------------------------------------+----------+---------+
The tax liability 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.
As at 31 December 2008, the Company has available tax losses for income tax
purposes of approximately $29,656 (2007 -$30,461) which may be carried forward
to reduce taxable income derived in future years.
The non-capital losses expire as follows:
+-----------------------------------------------------------------------+---------+
| | 2008 |
+-----------------------------------------------------------------------+---------+
| | $ |
+-----------------------------------------------------------------------+---------+
| | |
+-----------------------------------------------------------------------+---------+
| 2009 | 2,206 |
+-----------------------------------------------------------------------+---------+
| 2016 | 2,742 |
+-----------------------------------------------------------------------+---------+
| Non expiring losses | 24,708 |
+-----------------------------------------------------------------------+---------+
| | 29,656 |
+-----------------------------------------------------------------------+---------+
In addition, the Company incurred share issue costs and other deductible
temporary differences, which have not yet been claimed for income tax purposes,
totalling approximately as at 31 December 2008 was $2,828 (2007 - $3,112).
Subject to certain restrictions, exploration and development expenditures
available to reduce taxable income in Romania as at 31 December 2008 was $45,189
(2007 - $33,629).
A valuation allowance has been provided as a portion of the potential income tax
benefits of these carry-forward non-capital losses and deductible temporary
differences and the realisation thereof is not considered more likely than not.
12.Accounts payable and accrued liabilities
The balance principally comprises amounts outstanding for normal
operations and ongoing costs. The average credit
period taken
during the financial year ended 31 December 2008 was 30 days (2007 - 30 days).
13. Asset retirement obligation
Management has estimated the total future asset retirement obligation based on
the Company's ownership interest in the Stratoni mines and facilities. This
includes all estimated costs to dismantle, remove, reclaim and abandon the
facilities at the Stratoni property, and the estimated time period during which
these costs will be incurred in the future. The following table reconciles the
asset retirement obligation for the financial years ended 31 December 2008 and
2007:
+-------------------------------------------------------------+----------+----------+
| | 2008 | 2007 |
+-------------------------------------------------------------+----------+----------+
| | $ | $ |
+-------------------------------------------------------------+----------+----------+
| | | |
+-------------------------------------------------------------+----------+----------+
| Asset retirement obligation - Beginning of | 6,805 | 6,031 |
| year | | |
+-------------------------------------------------------------+----------+----------+
| Currency translation adjustment | - | 650 |
+-------------------------------------------------------------+----------+----------+
| Accretion expense | 132 | 124 |
+-------------------------------------------------------------+----------+----------+
| Asset retirement obligation - End of year | 6,937 | 6,805 |
+-------------------------------------------------------------+----------+----------+
As at 31 December 2008, the undiscounted amount of estimated cash flows required
to settle the obligation is $7,805 (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.
14. 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 km² 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. A further agreement with MRI
Trading AG was entered into in March 2008, for the sale of a further 23,372 dry
metric tonnes, for which Hellas Gold received a prepayment of $3.56 million in
cash. The remaining balances relating to MRI prepayments were transferred to
current liabilities reflecting the repayment of these amounts to MRI in February
2009. 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.
The following table reconciles movements on deferred revenue associated with the
MRI and Celtic Resources prepayments, and the Silver Wheaton Transaction:
+-------------------------------------------------------------+----------+----------+
| | 2008 | 2007 |
+-------------------------------------------------------------+----------+----------+
| | $ | $ |
+-------------------------------------------------------------+----------+----------+
| | | |
+-------------------------------------------------------------+----------+----------+
| Deferred revenue - Beginning of period | 65,344 | - |
+-------------------------------------------------------------+----------+----------+
| Additions | 3,564 | 64,389 |
+-------------------------------------------------------------+----------+----------+
| Revenue recognised | (6,399) | (3,738) |
+-------------------------------------------------------------+----------+----------+
| Foreign currency translation adjustment | - | 4,693 |
+-------------------------------------------------------------+----------+----------+
| Transferred to current liabilities | (4,013) | - |
+-------------------------------------------------------------+----------+----------+
| Deferred revenue - End of period | 58,496 | 65,344 |
+-------------------------------------------------------------+----------+----------+
During the year ended 31 December 2008, Hellas Gold delivered concentrate
containing ounces 1,038,762 (2007 - 952,729 ounces) of silver for credit to
Silver Wheaton.
15.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 2006 | 114,801,848 | 246,890 |
+-----------------------------------------------------------+-------------+----------+
| | | |
+-----------------------------------------------------------+-------------+----------+
| Restricted share units vested | 840,000 | 2,646 |
+-----------------------------------------------------------+-------------+----------+
| Share options exercised or exchanged | 473,287 | 1,032 |
+-----------------------------------------------------------+-------------+----------+
| Shares issued for equity financing | 27,600,000 | 130,059 |
+-----------------------------------------------------------+-------------+----------+
| Shares issued as consideration for | 35,447,246 | 161,425 |
| acquisition | | |
+-----------------------------------------------------------+-------------+----------+
| Share issue costs, net of tax | - | (4,777) |
+-----------------------------------------------------------+-------------+----------+
| | 64,360,533 | 290,385 |
+-----------------------------------------------------------+-------------+----------+
| | | |
+-----------------------------------------------------------+-------------+----------+
| Balance - 31 December 2007 | 179,162,381 | 537,275 |
+-----------------------------------------------------------+-------------+----------+
+-----------------------------------------------------------+-------------+----------+
| Restricted share units vested | 195,000 | 973 |
+-----------------------------------------------------------+-------------+----------+
| Share options exercised or exchanged | 25,000 | 77 |
+-----------------------------------------------------------+-------------+----------+
| Share issue costs, net of tax | - | (9) |
+-----------------------------------------------------------+-------------+----------+
| | 220,000 | 1,041 |
+-----------------------------------------------------------+-------------+----------+
| | | |
+-----------------------------------------------------------+-------------+----------+
| Balance - 31 December 2008 | 179,382,381 | 538,316 |
+-----------------------------------------------------------+-------------+----------+
Contributed surplus:
+----------------------------------------------------------+-----------+------------+
| | 2008 | 2007 |
+----------------------------------------------------------+-----------+------------+
| | $ | $ |
+----------------------------------------------------------+-----------+------------+
| | | |
+----------------------------------------------------------+-----------+------------+
| Equity-based compensation expense | 7,210 | 5,419 |
+----------------------------------------------------------+-----------+------------+
| Broker warrants | 578 | 578 |
+----------------------------------------------------------+-----------+------------+
| | 7,788 | 5,997 |
+----------------------------------------------------------+-----------+------------+
Accumulated other comprehensive income
The components of accumulated other comprehensive income were as follows:
+----------------------------------------------------------+-----------+------------+
| | 2008 | 2007 |
+----------------------------------------------------------+-----------+------------+
| | $ | $ |
+----------------------------------------------------------+-----------+------------+
| | | |
+----------------------------------------------------------+-----------+------------+
| Cumulative translation adjustment | 36,890 | 37,413 |
+----------------------------------------------------------+-----------+------------+
| Fair value of cash flow hedge (net of tax) | 6,786 | 882 |
+----------------------------------------------------------+-----------+------------+
| | 43,676 | 38,295 |
+----------------------------------------------------------+-----------+------------+
16.Share options, restricted share units and deferred phantom 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 31 December 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 |= | Number of | X | (Current Price - Exercise |
| Settlement | | Optioned Shares | | Price) |
| Common Shares | | issuable on | | Current Price |
| | | exercise of the | | |
| | | Exchanged Rights | | |
+----------------+---+-----------------------------+----+------------------------------+
As at 31 December 2008, the following share options were outstanding:
+----------------------------------------------------------+-----------+------------+
| Expiry date | Number of | Exercise |
| | Options | price |
| | | C$ |
+----------------------------------------------------------+-----------+------------+
| 2009 | 250,000 | 2.80 |
+----------------------------------------------------------+-----------+------------+
| 2009 | 360,000 | 3.07 |
+----------------------------------------------------------+-----------+------------+
| 2009 | 75,000 | 3.15 |
+----------------------------------------------------------+-----------+------------+
| 2009 | 250,000 | 4.20 |
+----------------------------------------------------------+-----------+------------+
| 2010 | 359,999 | 2.00 |
+----------------------------------------------------------+-----------+------------+
| 2011 | 66,666 | 3.25 |
+----------------------------------------------------------+-----------+------------+
| 2011 | 600,000 | 3.85 |
+----------------------------------------------------------+-----------+------------+
| 2011 | 150,000 | 4.10 |
+----------------------------------------------------------+-----------+------------+
| 2012 | 250,000 | 5.66 |
+----------------------------------------------------------+-----------+------------+
| 2012 | 150,000 | 5.71 |
+----------------------------------------------------------+-----------+------------+
| 2012 | 270,000 | 5.87 |
+----------------------------------------------------------+-----------+------------+
| 2013 | 50,000 | 1.99 |
+----------------------------------------------------------+-----------+------------+
| 2013 | 360,000 | 3.54 |
+----------------------------------------------------------+-----------+------------+
| 2013 | 135,000 | 5.07 |
+----------------------------------------------------------+-----------+------------+
| 2013 | 165,000 | 6.80 |
+----------------------------------------------------------+-----------+------------+
| | 3,491,665 | 4.01 |
+----------------------------------------------------------+-----------+------------+
During the years ended 31 December 2008 and 2007, share options were granted,
exercised, exchanged and forfeited as follows:
+----------------------------------------------------------+-----------+----------------+
| | Number of | Weighted |
| | Options | average |
| | | exercise price |
| | | C$ |
+----------------------------------------------------------+-----------+----------------+
| Balance - 31 December 2006 | 3,213,665 | 3.06 |
+----------------------------------------------------------+-----------+----------------+
| | | |
+----------------------------------------------------------+-----------+----------------+
| Options granted | 745,000 | 5.73 |
+----------------------------------------------------------+-----------+----------------+
| Options exercised | (25,000) | 2.11 |
+----------------------------------------------------------+-----------+----------------+
| Options exchanged for shares | (802,000) | 2.61 |
+----------------------------------------------------------+-----------+----------------+
| Options forfeited | (75,000) | 5.47 |
+----------------------------------------------------------+-----------+----------------+
| Options expired | (50,000) | 2.50 |
+----------------------------------------------------------+-----------+----------------+
| Balance - 31 December 2007 | 3,006,665 | 3.80 |
+----------------------------------------------------------+-----------+----------------+
+----------------------------------------------------------+-----------+------------+
| Options granted | 1,010,000 | 4.64 |
+----------------------------------------------------------+-----------+------------+
| Options exercised | (25,000) | 2.11 |
+----------------------------------------------------------+-----------+------------+
| Options exchanged for shares | - | - |
+----------------------------------------------------------+-----------+------------+
| Option forfeited | (500,000) | 4.14 |
+----------------------------------------------------------+-----------+------------+
| Options expired | - | - |
+----------------------------------------------------------+-----------+------------+
| Balance - 31 December 2008 | 3,491,665 | 4.01 |
+----------------------------------------------------------+-----------+------------+
Of the 3,491,665 (2007 - 3,006,665) share options outstanding as at 31 December
2008, 2,421,667 (2007 - 2,269,999) were fully vested and had a weighted average
exercise price of C$3.53 (2007 - C$3.24) per share. The share options
outstanding as at 31 December 2008, had a weighted average remaining contractual
life of 3.18 years (2007 - 2.97 years).
The weighted average grant date fair value cost of the 1,010,000 share options
granted during the financial year ended 31 December 2008 (2007 - 745,000) was
$1,659 (2007 - $2,088). For outstanding share options, including options granted
during the year and those which were not fully vested during the year ended 31
December 2008, the Company incurred a total equity-based compensation cost of
$1,384 (2007 - $1,209) of which $1,057 (2007 - $1,057) has been recognised as an
expense in the statement of profit and loss and $327 (2007 - $151) has been
capitalised to deferred exploration and development costs.
The fair value of the share options granted has been estimated at the date of
grant using a Black-Scholes option pricing model with the following assumptions:
weighted average risk free interest rate of 2.05% to 3.05% (2007 - 3.23%);
volatility factor of the expected market price of the Company's shares of 32.86%
to 89.59% (2007 - 58% to 59%); a weighted average expected life of the share
options of 5 years
(2007 - 5 years), maximum term of 5 years and a dividend
yield of Nil (2007 - Nil).
In 2008, 500,000 options forfeited during the year represent options cancelled
and were replaced with DPUs. These have been accounted for as a stock
modification.
Restricted Share Unit Plan
The Company operates a Restricted Share Unit Plan (the "RSU Plan") authorising
the directors, based on recommendations received from the Compensation
Committee, to grant Restricted Share Units ("RSUs") to designated directors,
officers, employees and consultants. The RSUs are "phantom" shares that rise and
fall in value based on the value of the Company's common shares and are redeemed
for actual common shares on the vesting dates determined by the Board of
Directors when the RSUs are granted. The RSUs vest on the dates below however
upon a change of control of the Company they would typically become 100% vested.
The maximum number of common shares of the Company which may be reserved for
issuance for all purposes under the RSU Plan shall not exceed 2.5% of the common
shares issued and outstanding from time to time (4,484,560 shares as at 31
December 2008).
As at 31 December 2008, the following RSUs were outstanding:
+---------------------------------------------------+-------------+----------------+
| Vesting date | Number of | Grant date |
| | RSUs | fair value of |
| | | underlying |
| | | shares |
| | | C$ |
+---------------------------------------------------+-------------+----------------+
| | | |
+---------------------------------------------------+-------------+----------------+
| 1 January 2009 | 175,000 | 3.81 |
+---------------------------------------------------+-------------+----------------+
| 30 June 2009 | 30,000 | 5.74 |
+---------------------------------------------------+-------------+----------------+
| | 205,000 | 4.09 |
+---------------------------------------------------+-------------+----------------+
During the years ended 31 December 2008 and 2007, RSUs were granted, vested and
forfeited as follows:
+---------------------------------------------------+-------------+------------------+
| | Number of | Weighted average |
| | RSUs | grant date fair |
| | | value |
| | | of underlying |
| | | shares |
| | | C$ |
+---------------------------------------------------+-------------+------------------+
| Balance - 31 December 2006 | 1,105,000 | 3.26 |
+---------------------------------------------------+-------------+------------------+
| | | |
+---------------------------------------------------+-------------+------------------+
| RSUs granted | 390,000 | 5.69 |
+---------------------------------------------------+-------------+------------------+
| RSUs vested | (840,000) | 3.47 |
+---------------------------------------------------+-------------+------------------+
| RSUs forfeited | (470,000) | 4.26 |
+---------------------------------------------------+-------------+------------------+
| Balance - 31 December 2007 | 185,000 | 4.86 |
+---------------------------------------------------+-------------+------------------+
+---------------------------------------------------+-------------+----------------+
| RSUs granted | 365,000 | 5.26 |
+---------------------------------------------------+-------------+----------------+
| RSUs vested | (195,000) | 5.08 |
+---------------------------------------------------+-------------+----------------+
| RSUs forfeited | (150,000) | 6.59 |
+---------------------------------------------------+-------------+----------------+
| Balance - 31 December 2008 | 205,000 | 4.09 |
+---------------------------------------------------+-------------+----------------+
The weighted average grant date fair value cost of underlying shares of the
365,000 RSUs granted during the financial year ended 31 December 2008 (2007 -
390,000) was $1,888 (2007 - $2,065). For outstanding RSUs which were not fully
vested, including RSU's granted during the year ended 31 December 2008, the
Company incurred a total equity-based compensation cost of $1,399 (2007 -
$1,279) of which $889 (2007 - $741) has been recognised as an expense in the
statement of profit and loss and $510 (2007 - $538) has been capitalised to
deferred exploration and development costs.
Deferred Phantom Unit Plan
The company operates a Deferred Phantom Unit plan (the "DPU Plan") authorising
the directors based on recommendation by the Human Capital Management Committee
to grant Deferred Phantom Units ("DPUs") to independent eligible directors.The
DPU are units which gives rise to a right to receive a cash payment the value of
which, on a particular date should be the market value of the equivalent number
of shares at that date. The market value at December 31, 2008 has been included
in current liabilities.
As at 31 December 2008, the following DPUs were outstanding:
+---------------------------------------------------------+------------+------------+
| Grant date | Number of | Grant date |
| | DPUs | Fair Value |
| | | of |
| | | DPUs |
| | | C$ |
+---------------------------------------------------------+------------+------------+
| | | |
+---------------------------------------------------------+------------+------------+
| 5 December 2008 | 406,500 | 1.86 |
+---------------------------------------------------------+------------+------------+
| | 406,500 | 1.86 |
+---------------------------------------------------------+------------+------------+
During the years ended 31 December 2008 and 2007, DPUs were granted and
forfeited as follows:
+---------------------------------------------------------+------------+------------+
| | Number of | Fair Value |
| | DPUs | of DPUs |
| | | C$ |
+---------------------------------------------------------+------------+------------+
| Balance - 31 December 2006 | - | - |
+---------------------------------------------------------+------------+------------+
| | | |
+---------------------------------------------------------+------------+------------+
| DPUs granted | - | - |
+---------------------------------------------------------+------------+------------+
| DPUs redeemed | - | - |
+---------------------------------------------------------+------------+------------+
| DPUs forfeited | - | - |
+---------------------------------------------------------+------------+------------+
| Balance - 31 December 2007 | - | - |
+---------------------------------------------------------+------------+------------+
| | | |
+---------------------------------------------------------+------------+------------+
| DPUs granted and vested | 406,500 | 3.24 |
+---------------------------------------------------------+------------+------------+
| DPUs forfeited | - | - |
+---------------------------------------------------------+------------+------------+
| Balance - 31 December 2008 | 406,500 | 3.24 |
+---------------------------------------------------------+------------+------------+
Of the 406,500 (2007 - Nil) DPU's granted during the year, 406,500 (2007 - Nil)
were fully vested.
The weighted average grant date fair value cost of the 406,500 DPU's granted
during the financial year ended 31 December 2008 (2007 - Nil) was $760 (2007 -
Nil). The weighted average fair value cost of the 406,500 DPU's as at the 31
December 2008, based on the year end share price, amounted to $1,054 (2007 -
Nil).
17.Financial instruments and financial risk management
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, restricted investment, 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 31 December 2008 and
2007, are as follows:
+--------------------------------------------------------------+----------+----------+
| | 2008 | 2007 |
| | $ | $ |
+--------------------------------------------------------------+----------+----------+
| Financial Assets: | | |
+--------------------------------------------------------------+----------+----------+
| | | |
+--------------------------------------------------------------+----------+----------+
| Held for trading, measured at fair value | | |
+--------------------------------------------------------------+----------+----------+
| | | |
+--------------------------------------------------------------+----------+----------+
| Cash and cash equivalents | 170,296 | 218,839 |
+--------------------------------------------------------------+----------+----------+
| Restricted investment | - | 4,900 |
+--------------------------------------------------------------+----------+----------+
| | 170,296 | 223,739 |
+--------------------------------------------------------------+----------+----------+
| | | |
+--------------------------------------------------------------+----------+----------+
| Loans and receivables, measured at amortised cost | | |
+--------------------------------------------------------------+----------+----------+
| | | |
+--------------------------------------------------------------+----------+----------+
| Accounts receivable | 20,057 | 20,408 |
+--------------------------------------------------------------+----------+----------+
| | | |
+--------------------------------------------------------------+----------+----------+
| Financial Liabilities | | |
+--------------------------------------------------------------+----------+----------+
| | | |
+--------------------------------------------------------------+----------+----------+
| Other liabilities, measured at amortised costs | | |
+--------------------------------------------------------------+----------+----------+
| | | |
+--------------------------------------------------------------+----------+----------+
| Accounts payable, accrued liabilities and income taxes | 16,263 | 22,695 |
| payable | | |
+--------------------------------------------------------------+----------+----------+
| | | |
+--------------------------------------------------------------+----------+----------+
| Derivative Financial instruments, measured at fair value | | |
+--------------------------------------------------------------+----------+----------+
| Designated as cash flow hedge | | |
+--------------------------------------------------------------+----------+----------+
| Hedge contract | 10,282 | 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 does not invest in
asset-backed commercial papers and has deposited the cash equivalents only with
the largest banks within a particular region or with top rated institutions.
As at 31 December 2008, cash and cash equivalent comprises the following:
+--------------------------------------------------------------+----------+----------+
| | 2008 | 2007 |
| | $ | $ |
+--------------------------------------------------------------+----------+----------+
| | | |
+--------------------------------------------------------------+----------+----------+
| Interest bearing bank accounts | 123,297 | 216,569 |
+--------------------------------------------------------------+----------+----------+
| Term deposits | 46,999 | 7,170 |
+--------------------------------------------------------------+----------+----------+
| | 170,296 | 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 31 December 2008, 3 (2007 - 4) customers
represented 90% (2007 - 95%) of the total. The Company does not anticipate any
loss for non-performance.
As at 31 December 2008, the accounts receivable comprises the following:
+--------------------------------------------------------------+---------+---------+
| | 2008 | 2007 |
| | $ | $ |
+--------------------------------------------------------------+---------+---------+
| | | |
+--------------------------------------------------------------+---------+---------+
| Trade receivables | 4,986 | 1,964 |
+--------------------------------------------------------------+---------+---------+
| Valued added taxes recoverable | 11,780 | 17,996 |
+--------------------------------------------------------------+---------+---------+
| Other accounts receivable | 3,291 | 448 |
+--------------------------------------------------------------+---------+---------+
| | 20,057 | 20,408 |
+--------------------------------------------------------------+---------+---------+
| | | |
+--------------------------------------------------------------+---------+---------+
As at 31 December 2008, the Company considers its accounts receivable excluding
Value Added Taxes recoverable and other accounts receivable to be aged as
follows:
+-----------------------------------------------------------------+----------+----------+
| Ageing | 2008 | 2007 |
| | $ | $ |
+-----------------------------------------------------------------+----------+----------+
| | | |
+-----------------------------------------------------------------+----------+----------+
| Current | 1,807 | 1,793 |
+-----------------------------------------------------------------+----------+----------+
| Past due (1-30 days) | 2,632 | 92 |
+-----------------------------------------------------------------+----------+----------+
| Past due (31-60 days) | 417 | - |
+-----------------------------------------------------------------+----------+----------+
| Past due (more than 60 days) | 130 | 79 |
+-----------------------------------------------------------------+----------+----------+
| | 4,986 | 1,964 |
+-----------------------------------------------------------------+----------+----------+
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 year ended 31 December 2008
the company earned interest income of $5,729 (2007 - $6,588) on cash and cash
equivalents, based on rates of returns between 0.50% and 4.40% (2007 - 2.75% and
7.10%)
Currency risk - The Company is exposed to currency risk on accounts receivable,
accounts payable and cash holdings that are denominated in a currency other than
the functional currencies of the individual entities in the group. As at the 31
December 2008, the Company held the equivalent of $30,246 (2007 - $44,676) in
net assets denominated foreign currencies. These balances are primarily made up
of Euro and to a lesser extent Pound Sterling.
For the year ended 31 December 2008 the Company recorded a foreign exchange loss
of $6,406 (and a gain of $3,904 in 2007), mainly due to the translation of its
Euro balances in its subsidiaries, with the Euro weakening against the US Dollar
the gain in 2007 had arisen due to the Company holding a basket of various
currency's with a weakening US Dollar.
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 31 December 2008, the Company's trade payables and accrued
liabilities amounted to $16,263 (2007- $9,977), all which fall due for payment
within 12 months of the balance sheet date. The average credit period taken
during the year ended 31 December 2008 was 30 days (30 days - 2007).
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
factors 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 long term profitability of the Company's operations is highly correlated to
the market price of its commodities and 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, a 1% change in interest rates
and a 10% change in commodity prices during the years ended 31 December 2008 and
2007. The results of the sensitivity analysis can be seen in the following
table:
+----------------------------------------------------------+-----------+---------+
| Impact on Net Profit (+/-) | 2008 | 2007 |
| | $ | $ |
+----------------------------------------------------------+-----------+---------+
| | | |
+----------------------------------------------------------+-----------+---------+
| Change of - 5 % US$: EUR foreign exchange rate | (460) | (3,256) |
+----------------------------------------------------------+-----------+---------+
| Change of + 5 % US$: EUR foreign exchange rate | 564 | 2,924 |
+----------------------------------------------------------+-----------+---------+
| Change of +/- 1% in interest rates | 1,321 | 986 |
+----------------------------------------------------------+-----------+---------+
| Change of +/- 10% in commodities prices | 5,417 | 5,964 |
+----------------------------------------------------------+-----------+---------+
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 Company has one counterparty relating to the remaining
lead hedge contracts. If this counterparty were unable to honour its
obligations under the hedge contracts, the Company would be exposed up to the
entire value of the hedge stated in the accounts and would be exposed to the
difference between the hedge and the then current market price at the date of
the settlement of the hedged item. The hedges below are treated as cash flow
hedges in accordance with CICA 3865: Hedges.
Lead hedging contracts - As at 31 December 2008, the Company had entered into
forward hedging arrangements over 7,200 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 January 2009 and 5 January 2010
where the fair value amounted to $10,282 (2007 - $882), established by reference
to market prices for lead.
+----------------------------------------------------------------------+---------+
| | 2009 |
| | $ |
+----------------------------------------------------------------------+---------+
| | |
+----------------------------------------------------------------------+---------+
| Lead Tonnes | 7,200 |
+----------------------------------------------------------------------+---------+
| | |
+----------------------------------------------------------------------+---------+
| US dollar price ($/tonne) - Put | 2,500 |
+----------------------------------------------------------------------+---------+
| US dollar contract amount ($'000) - Put | 18,000 |
+----------------------------------------------------------------------+---------+
| | |
+----------------------------------------------------------------------+---------+
| US dollar price ($/tonne) - Call | 3,500 |
+----------------------------------------------------------------------+---------+
| US dollar contract amount ($'000) - Call | 25,200 |
+----------------------------------------------------------------------+---------+
| | |
+----------------------------------------------------------------------+---------+
18. Capital Risk Management
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 requirements.
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 maximise 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 and 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
out 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 as at 31 December
2008.
Capital under management was as follows:
+-----------------------------------------------------------+----------+-----------+
| | 2008 | 2007 |
+-----------------------------------------------------------+----------+-----------+
| | $ | $ |
+-----------------------------------------------------------+----------+-----------+
| | | |
+-----------------------------------------------------------+----------+-----------+
| Capital stock | 538,316 | 537,275 |
+-----------------------------------------------------------+----------+-----------+
| Contributed surplus | 7,788 | 5,997 |
+-----------------------------------------------------------+----------+-----------+
| Accumulated other comprehensive income | 43,676 | 38,295 |
+-----------------------------------------------------------+----------+-----------+
| Deficit | (2,045) | (7,564) |
+-----------------------------------------------------------+----------+-----------+
| | 587,735 | 574,003 |
+-----------------------------------------------------------+----------+-----------+
19.Supplementary cash flow information
+-----------------------------------------------------------+----------+-----------+
| | 2008 | 2007 |
+-----------------------------------------------------------+----------+-----------+
| | $ | $ |
+-----------------------------------------------------------+----------+-----------+
| Changes in non-cash working capital: | | |
+-----------------------------------------------------------+----------+-----------+
| Accounts receivable and prepaid expenses | (2,242) | (11,962) |
+-----------------------------------------------------------+----------+-----------+
| Inventory | (943) | (1,164) |
+-----------------------------------------------------------+----------+-----------+
| Accounts payable and accrued liabilities | 5,189 | 4,879 |
+-----------------------------------------------------------+----------+-----------+
| | 2,004 | (8,247) |
+-----------------------------------------------------------+----------+-----------+
| | | |
+-----------------------------------------------------------+----------+-----------+
| Supplemental disclosure of non-cash transactions: | | |
+-----------------------------------------------------------+----------+-----------+
| | | |
+-----------------------------------------------------------+----------+-----------+
| Share capital issued for business combination | - | 161,424 |
+-----------------------------------------------------------+----------+-----------+
| Share options and restricted share units issued for | 2,788 | 2,488 |
| non-cash consideration | | |
+-----------------------------------------------------------+----------+-----------+
| Exercise or exchange of share | (24) | (980) |
| options - Transfer from | | |
| contributed surplus | | |
| to share capital | | |
+-----------------------------------------------------------+----------+-----------+
| Vesting of restricted share units | (973) | (2,646) |
+-----------------------------------------------------------+----------+-----------+
20.Commitments
The Company has spending commitments of $180 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.
Hellas Gold has spending commitments of $145 (EUR104) per year for a term of 9
years under the lease for its office in Athens, Greece, which commenced
in December 2007. The rent will be reviewed on the second anniversary of the
commencement of the term to reflect any increase in rents in the market.
As at 31 December 2008, Hellas Gold had entered into off-take agreements
pursuant to which Hellas Gold agreed to sell 44,838 dmt of zinc concentrates,
22,321 dmt of lead/silver concentrates and 60,273 dmt of gold concentrates until
the financial year's ending 2012.
During 2007, Hellas Gold entered into purchase agreements with Outotec Minerals
OY for long-lead time equipment for the Skouries project with a cost of $50,181
(EUR36,057) which is to be paid by the end of 2009. As at 31 December 2008,
$17,459 (EUR12,515) of the commitment had been paid. Hellas Gold has pledged
$24,056 (EUR17,285) in support of a letter of credit issued on behalf of Outotec
Minerals OY through Nordea Bank of Finland.
21. Transactions with related parties
During the year ended 31 December 2008, Hellas Gold incurred costs of
$41,852 (2007 - $27,885) for management, technical and engineering services
received from a related party, Aktor S.A., a 5% shareholder in Hellas Gold. As
at 31 December 2008, Hellas Gold had accounts payable of $3,637 (2007 - $2,125)
to Aktor S.A. These expenditures were contracted in the normal course of
operations and are recorded at the exchange amount agreed by the parties.
22.Segmented information
The Company has one operating segment: the acquisition, exploration and
development of precious and base metal mineral resources properties located in
Greece, Romania and Turkey.
Geographic segmentation of plant and equipment and deferred exploration and
development costs and operating liabilities is as follows:
+----------------------------------------------------------+-----------+-----------+
| | 2008 | 2007 |
+----------------------------------------------------------+-----------+-----------+
| | $ | $ |
+----------------------------------------------------------+-----------+-----------+
| Sales | | |
+----------------------------------------------------------+-----------+-----------+
| Canada | - | - |
+----------------------------------------------------------+-----------+-----------+
| Greece | 60,044 | 86,405 |
+----------------------------------------------------------+-----------+-----------+
| Romania | - | - |
+----------------------------------------------------------+-----------+-----------+
| Turkey | - | - |
+----------------------------------------------------------+-----------+-----------+
| United Kingdom | - | - |
+----------------------------------------------------------+-----------+-----------+
| | 60,044 | 86,405 |
+----------------------------------------------------------+-----------+-----------+
| | | |
+----------------------------------------------------------+-----------+-----------+
| Plant and equipment and deferred exploration and | | |
| development costs | | |
+----------------------------------------------------------+-----------+-----------+
| Canada | - | - |
+----------------------------------------------------------+-----------+-----------+
| Greece | 501,852 | 479,656 |
+----------------------------------------------------------+-----------+-----------+
| Romania | 47,946 | 38,418 |
+----------------------------------------------------------+-----------+-----------+
| Turkey | 496 | - |
+----------------------------------------------------------+-----------+-----------+
| United Kingdom | 309 | 341 |
+----------------------------------------------------------+-----------+-----------+
| | 550,603 | 518,415 |
+----------------------------------------------------------+-----------+-----------+
| | | |
+----------------------------------------------------------+-----------+-----------+
| Operating liabilities | | |
+----------------------------------------------------------+-----------+-----------+
| Canada | 1,503 | 832 |
+----------------------------------------------------------+-----------+-----------+
| Greece | 14,084 | 20,037 |
+----------------------------------------------------------+-----------+-----------+
| Romania | 252 | 659 |
+----------------------------------------------------------+-----------+-----------+
| Turkey | 80 | - |
+----------------------------------------------------------+-----------+-----------+
| United Kingdom | 344 | 1,167 |
+----------------------------------------------------------+-----------+-----------+
| | 16,263 | 22,695 |
+----------------------------------------------------------+-----------+-----------+
23.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 31 December 2008 and 2007, the Company recognised the following costs:
+----------------------------------------------------------+-----------+-----------+
| | 2008 | 2007 |
+----------------------------------------------------------+-----------+-----------+
| | $ | $ |
+----------------------------------------------------------+-----------+-----------+
| | | |
+----------------------------------------------------------+-----------+-----------+
| Defined contribution plans | 261 | 227 |
+----------------------------------------------------------+-----------+-----------+
24.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:
+-----------------------------------------------------------+----------+-----------+
| | 2008 | 2007 |
+-----------------------------------------------------------+----------+-----------+
| | $ | $ |
+-----------------------------------------------------------+----------+-----------+
| | | |
+-----------------------------------------------------------+----------+-----------+
| Profit for the year | 5,519 | 23,199 |
+-----------------------------------------------------------+----------+-----------+
| Effect of dilutive | - | - |
| potential common | | |
| shares | | |
+-----------------------------------------------------------+----------+-----------+
| Diluted earnings | 5,519 | 23,199 |
+-----------------------------------------------------------+----------+-----------+
| | | |
+-----------------------------------------------------------+----------+-----------+
| Weighted average number of common shares | 179,566 | 148,245 |
| for the purpose of basic earnings per share | | |
+-----------------------------------------------------------+----------+-----------+
| Incremental shares - | 1,657 | 1,855 |
| Share options | | |
+-----------------------------------------------------------+----------+-----------+
| Weighted average number of common shares | 181,223 | 150,100 |
| for the purpose of diluted earnings per | | |
| share | | |
+-----------------------------------------------------------+----------+-----------+
In 2008, the weighted average number of options excluded from the computation of
diluted earnings per share because their effect was not dilutive, was 1,220
(2007 - 670).
25.Comparative figures
The prior year amounts have been reclassified from statements previously
presented to conform to the presentation of 2008 Consolidated Financial
Statements.
26. 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.
27. Post balance sheet event
Since 31 December 2008, the Company granted 584,779 restricted share units under
the Company's Restricted Share Unit Plan.
In February 2009, the Company subscribed for an additional 9,700,000 ordinary
shares in Ariana Resources plc for a total consideration of $140 (GBP97).
28.Recently issued accounting standards
Goodwill and intangible assets - In February 2008, the Canadian Institute of
Chartered Accountants ("CICA") issued Section 3064 Goodwill and intangible
assets, replacing Section 3062, Goodwill and other intangible assets. The new
Section will be applicable to financial statements relating to fiscal years
beginning on or after October 1, 2008. Accordingly, the Company will adopt the
new standards for its fiscal year beginning 1 January 2009. It establishes
standards for the recognition, measurement, presentation and disclosure of
goodwill subsequent to its initial recognition and of intangible assets by
profit-oriented enterprises. Standards concerning goodwill are unchanged from
the standards included in the previous Section 3062. The Company is currently
evaluating the impact of the adoption of this new Section on its consolidated
financial statements.
Business Combination, Consolidated Financial Statements and non controlling
interest - In January 2009, the CICA issued Handbook Sections 1582 - Business
Combinations, 1601 - Consolidated Financial Statements and 1602 -
Non-controlling Interests which replace CICA Handbook Sections 1581 - Business
Combinations and 1600 - Consolidated Financial Statements. Section 1582
establishes standards for the accounting for business combinations that is
equivalent to the business combination accounting standard under International
Financial Reporting Standards. Section 1582 is applicable for the Company's
business combinations with acquisition dates on or after January 1, 2011. Early
adoption of this Section is permitted. Section 1601 together with Section 1602
establishes standards for the preparation of consolidated financial statements.
Section 1601 is applicable for the Company's interim and annual consolidated
financial statements for its fiscal year beginning January 1, 2011. Early
adoption of this Section is permitted. If the Company chooses to early adopt any
one of these Sections, the other two sections must also be adopted at the same
time.
International Financial Reporting Standards - ("IFRS) - In 2006, the Canadian
Accounting Standards Board ("AcSB") published a new strategic plan that will
significantly affect financial reporting requirements for Canadian companies.
The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over
an expected five year transitional period. In February 2008, the AcSB confirmed
that publicly listed companies will be required to adopt IFRS for interim and
annual financial statements relating to fiscal years beginning on or after
January 1, 2011, and in April 2008, the AcSB issued for comment it's Omnibus
Exposure Draft, Adopting IFRS in Canada. Early adoption may be permitted,
however it will require exemptive relief on a case by case basis from the
Canadian Securities Administrators.
The Company has begun assessing the adoption of IFRS and is in the process of
completing its overall conversion plan. The plan assesses the possible benefits
of early adoption, the key differences between IFRS and Canadian GAAP including
disclosures as well as a timeline for implementation.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR CKCKDABKKDND
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