TIDMEGU
RNS Number : 9462C
European Goldfields Ltd
15 March 2011
European Goldfields Limited
Consolidated Financial Statements
(Audited)
31 December 2010 and 2009
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 estimates 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 Ernst
and Young LLP, Chartered Accountants, and their report follows.
Martyn Konig Timothy Morgan-Wynne
Executive Chairman Chief Financial Officer
Auditors' Report to the Shareholders of European Goldfields
Limited
Independent Auditors' report
To the Shareholders of European Goldfields Limited:
We have audited the accompanying consolidated financial
statements of European Goldfields Limited, which comprise the
consolidated balance sheets as at 31 December 2010 and 2009, and
the consolidated statements of profit and loss, shareholders'
equity, cash flows and other comprehensive income/(loss) for the
years then ended, and a summary of significant accounting policies
and other explanatory information.
Management's responsibility for the consolidated financial
statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in
accordance with Canadian generally accepted accounting principles,
and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or
error.
Auditors' responsibility
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 comply with ethical
requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are
free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors'
judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due
to fraud or error. In making those risk assessments, the auditors
consider internal control relevant to the entity's preparation and
fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity's internal control. An audit also
includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management,
as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of
European Goldfields Limited as at 31 December 2010 and 2009 and the
results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting
principles.
Ernst & Young LLP
London
March, 2011
Consolidated Balance Sheets
As at 31 December 2010 and 2009
(in thousands of US Dollars, except per share amounts)
2010 2009
Note $ $
--------- ---------
Assets
Current assets
Cash and cash equivalents 57,122 113,642
Accounts receivable 4 26,285 26,813
Current taxes receivable 3,668 3,954
Future tax assets 10 - 119
Prepaid expenses 3,221 13,794
Inventory 5 5,733 4,993
96,029 163,315
Non-current assets
Property, plant and equipment 6 126,341 96,100
Deferred exploration and development costs
Greek production stage mineral properties 21,603 24,051
Greek exploration and development stage
mineral properties 409,896 405,146
--------- ---------
7 431,499 429,197
Romanian exploration and development stage
mineral properties 7 57,312 50,173
Turkish exploration stage mineral properties 7 3,306 1,625
--------- ---------
492,117 480,995
--------- ---------
Investment in associates 8 743 711
Investment other 9 1,975 1,490
Future tax assets 10 1,608 1,489
718,813 744,100
--------- ---------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 11,557 10,784
Derivative financial liability 970 1,064
Deferred revenue 13 3,867 4,549
16,394 16,397
--------- ---------
Non-current liabilities
Future tax liabilities 10 90,372 90,083
Provisions 11 6,557 1,900
Asset retirement obligation 12 7,195 7,068
Deferred revenue 13 45,794 48,412
--------- ---------
149,918 147,463
--------- ---------
Non-controlling interest 2,494 2,930
Shareholders' equity
Capital stock 14 556,771 545,180
Other reserves 14 (3,301) -
Contributed surplus 14 16,662 10,047
Accumulated other comprehensive income 14 36,510 35,911
Deficit (56,635) (13,828)
--------- ---------
550,007 577,310
--------- ---------
718,813 744,100
--------- ---------
The accompanying notes are an integral part of these
consolidated financial statements.
On behalf of the Board of
Directors
Timothy Morgan-Wynne, Director Bruce Burrows, Director
Consolidated Statement of Profit and Loss
As at 31 December 2010 and 2009
(in thousands of US Dollars, except per share amounts)
2010 2009
Note $ $
--------- ---------
Income
Sales 49,855 62,712
Cost of sales (37,577) (44,030)
Depreciation and depletion (7,462) (7,012)
--------- ---------
Gross profit 4,816 11,670
--------- ---------
Other income
Hedge contract profit 577 5,621
Interest income 306 625
Share of profit/(loss) of associate 8 10 (76)
--------- ---------
893 6,170
--------- ---------
Expenses
Corporate administrative and overhead expenses 15,313 7,295
Loss in dilution of interest in associates 8 - 36
Share-based compensation expense 15,907 6,530
Foreign exchange loss 3,321 1,576
Hellas Gold administrative and overhead
expenses 8,294 5,401
Hellas Gold water treatment expenses
(non-operating mines) 3,556 3,390
Accretion of asset retirement obligation 12 127 131
Depreciation 1,221 661
Write-down of mineral property 7 590 1,171
--------- ---------
48,329 26,191
--------- ---------
Loss for the year before income taxes (42,620) (8,351)
Income taxes
Current taxes 52 848
Future taxes 571 2,528
--------- ---------
10 623 3,376
--------- ---------
Loss for the year after income taxes (43,243) (11,727)
--------- ---------
Non-controlling interest 436 (56)
--------- ---------
Loss for the year (42,807) (11,783)
Deficit - Beginning of year (13,828) (2,045)
--------- ---------
Deficit - End of year (56,635) (13,828)
========= =========
Loss per share
Basic 23 (0.23) (0.07)
Diluted (0.23) (0.07)
Weighted average number of shares (in thousands)
Basic 182,754 179,825
Diluted 182,754 179,825
The accompanying notes are an integral part of these
consolidated financial statements.
Consolidated Statement of Shareholders' Equity
As at 31 December 2010 and 2009
(in thousands of US Dollars, except per share amounts)
Accumulated
Capital Contributed Other other
stock surplus reserves comprehensive Deficit Total
$ $ $ income $ $ $
Balance - 31 December
2008 538,316 7,788 - 43,676 (2,045) 587,735
-------- ------------ --------- -------------- --------- ---------
Equity-based
compensation
expense - 6,820 - - - 6,820
Share issue costs (29) - - - - (29)
Restricted share
units vested 3,317 (3,317) - - - -
Share options
exercised
or exchanged 3,576 (1,244) - - - 2,332
Change in fair value
of
cash flow hedge - - - (7,850) - (7,850)
Revaluation of
available for
sale asset - - - 157 - 157
Movement in
cumulative
translation
adjustment - - - (72) - (72)
Loss for the year - - - (11,783) (11,783)
-------- ------------ --------- -------------- --------- ---------
6,864 2,259 - (7,765) (11,783) (10,425)
-------- ------------ --------- -------------- --------- ---------
Balance - 31 December
2009 545,180 10,047 - 35,911 (13,828) 577,310
-------- ------------ --------- -------------- --------- ---------
Equity-based
compensation
expense - 14,593 - - - 14,593
Own shares issued
under joint
ownership equity
plan 3,301 - (3,301) - - -
Restricted share
units vested 4,733 (4,733) - - - -
Share options
exercised
or exchanged 3,557 (3,245) - - - 312
Change in fair value
of
cash flow hedge - - - 93 - 93
Revaluation of
available-for-sale
asset - - - 485 - 485
Movement in
cumulative
translation
adjustment - - - 21 - 21
Loss for the year - - - - (42,807) (42,807)
11,591 6,615 (3,301) 599 (42,807) (27,303)
-------- ------------ --------- -------------- --------- ---------
Balance - 31 December
2010 556,771 16,662 (3,301) 36,510 (56,635) 550,007
-------- ------------ --------- -------------- --------- ---------
The accompanying notes are an integral part of these
consolidated financial statements.
Consolidated Statements of Cash Flow
As at 31 December 2010 and 2009
(in thousands of US Dollars, except per share amounts)
2010 2009
Note $ $
--------- ---------
Cash flows from operating activities
Loss for the year (42,807) (11,783)
Foreign exchange loss 3,321 213
Share of loss of associate (10) 76
Loss on change of interest in associates - 36
Depreciation 5,784 4,046
Share-based compensation expense 15,907 6,530
Accretion of asset retirement obligation 127 131
Current taxation 52 848
Future tax asset recognised 571 2,528
Non-controlling interest (436) 56
Deferred revenue recognised (3,300) (5,535)
Depletion of mineral properties 2,899 3,816
Write-down of mineral property 590 1,171
--------- ---------
(17,302) 2,133
Net changes in non-cash working capital 18 11,318 (15,138)
--------- ---------
(5,984) (13,005)
--------- ---------
Cash flows from investing activities
Deferred exploration and development costs
- Romania (5,377) (5,478)
Property, plant and equipment - Greece (27,534) (25,288)
Deferred development costs - Greece (3,426) (2,096)
Deferred exploration costs - Turkey (1,581) (1,084)
Purchase of land (8,301) (88)
Purchase of equipment (1,059) (443)
Prepayments - equipment - (11,865)
Investment in associate - (143)
--------- ---------
(47,278) (46,485)
--------- ---------
Cash flows from financing activities
Proceeds from exercise of share options 312 2,332
312 2,332
--------- ---------
Effect of foreign currency translation on
cash (3,570) 504
--------- ---------
Decrease in cash and cash equivalents (56,520) (56,654)
Cash and cash equivalents - Beginning of
year 113,642 170,296
Cash and cash equivalents - End of year 57,122 113,642
--------- ---------
The accompanying notes are an integral part of these
consolidated financial statements.
Consolidated Statements of Other Comprehensive Income/(Loss)
As at 31 December 2010 and 2009
(in thousands of US Dollars, except per share amounts)
2010 2009
Note $ $
================================================ ====== --------- ---------
Loss for the year (42,807) (11,783)
======================================================== ========= =========
Other comprehensive income/(loss) in the year
================================================ ====== ========= =========
Currency translation adjustment 21 (72)
======================================================== ========= =========
Gains and losses on derivative designated
as cash flow hedges 1,001 (3,377)
======================================================== ========= =========
Income tax benefit/(expense) (330) 1,148
======================================================== ========= =========
Gains and losses on derivative designated
as cash flow hedges in prior periods transferred
to profit in the current year (861) (8,517)
======================================================== ========= =========
Income tax benefit/(expense) 283 2,896
======================================================== ========= =========
Unrealised gain on available-for-sale financial
asset 485 157
======================================================== ========= =========
Comprehensive loss (42,208) (19,548)
======================================================== --------- ---------
The accompanying notes are not part of these consolidated
financial statements.
Notes on Consolidated Financial Statements
As at 31 December 2010 and 2009
(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".
The Company is a developer-producer with globally significant
gold reserves located within the European Union. The Company
generates cash flow from its 95% owned Stratoni operation, a high
grade lead/zinc/silver mine in North-Eastern Greece and the sale of
gold concentrates from Olympias. European Goldfields will evolve
into a mid tier producer through responsible development of its
project pipeline of gold and base metal deposits at Skouries and
Olympias in Greece and Certej in Romania. The Company plans future
growth through development of its highly prospective exploration
portfolio in Greece, Romania and Turkey.
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
fund 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.
The Company has sufficient funding for its needs until all the
permits to construct its new mines are received, at which point
additional capital will be required. The Company intends to achieve
this through a combination of debt and equity funding.
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 England 100% owned
(Services) Limited
European Goldfields Mining Netherlands 100% owned
(Netherlands) B.V.
European Goldfields (Greece) Netherlands 100% owned
B.V.
European Goldfields Deva SRL Romania 100% owned
Macedonian Copper Mines SA Greece 100% owned
Hellas Gold S.A. Greece 95% owned
Deva Gold S.A. Romania 80% owned
Greater Pontides Exploration Netherlands 51% owned
B.V.
Pontid Madencilik San. ve Turkey 51% owned
Ltd
Pontid Altin Madencilik Ltd. Turkey 51% owned
Sti.
Greek Nurseries SA Greece 50% 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 the investment. When the Company's share of
losses in an associate equals or exceeds its interest in the
associate, including any other unsecured receivables, the Company
does not recognise further losses, unless it has unsecured
obligations or made payments on behalf of the associate.
When the group no longer has significant influence over an
associate, accounting for the investment as an associate ceases.
The carrying value of the investment in the associate at the date
it ceases to be an associate is transferred to the new designated
class of financial asset. The investment is then accounted for
under the requirements of the new financial asset designation.
Investments - Available-for-sale financial assets are those
non-derivative financial assets, principally equity securities that
are designated as available-for-sale or are not classified in any
other investment category. After initial recognition available-for
sale financial assets are measured at fair value with gains or
losses being recognised as a separate component of equity until the
investment is derecognised or until the investment is determined to
be impaired, at which time the cumulative gain or loss previously
reported in equity is recognised in profit or loss.
The fair values of investments that are actively traded in
organised financial markets are determined by reference to quoted
market bid prices at the close of business on the reporting
date.
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.
Property, plant and equipment - Property, plant and equipment
are recorded at cost less accumulated depreciation. Depreciation 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. Depreciation 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 capitalisedexploration 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 2010 and
2009, 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 km(2) around its
zinc-lead-silver Stratoni mine as well as for sale of gold pyrite
concentrate in northern Greece. The prepayments, which are
accounted for as deferred revenue, are recognised as sales revenue
on the basis of the proportion of the settlements during the period
expected to the 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 and a restricted share unit plan. The Company accounts for
equity-based compensation granted under such plans using the fair
value method of accounting. Under such method, the cost of
equity-based compensation is estimated at fair value and is
recognised in the profit and loss statement as an expense, or
recognised as deferred exploration and development costs when the
compensation is directly 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 completion or vesting of grants to
non-employees. Any consideration received by the Company on
exercise of share options is credited to share capital.
Cash settled awards - The Company operates a deferred phantom
unit plan, and accounts for the compensation granted using the
liability method of accounting. The cost of each unit is recognised
at the date of grant and is marked-to-market based on the Company's
share price at the end of every reporting period.
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'sinvestments 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 recorded on the balance sheet at fair value.
Marked-to-market adjustments on these instruments are included in
net profit, unless the instruments are designated as part of a cash
flow hedge relationship.
All other financial instruments are 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.
4. Accounts receivable
This balance comprises the following:
2010 2009
$ $
------- -------
Trade receivables 877 6,712
Value added taxes recoverable 23,087 18,360
Other receivables 2,321 1,741
------- -------
26,285 26,813
------- -------
5. Inventory
This balance comprises the following:
2010 2009
$ $
------ ------
Ore mined 149 102
Metal concentrates 3,181 2,195
Material and supplies 2,403 2,696
------ ------
5,733 4,993
------ ------
The components of cost of sales were as follows:
2010 2009
$ $
------- --------------
Mining cost 24,712 24,907
Direct labour 3,246 4,611
Indirect labour 1,046 520
Other overhead costs 5,234 6,162
Increase in gross inventories (740) (1,311)
Freight charges 4,079 9,141
37,577 44,030
------- --------------
6. Property, plant and equipment
Mine
Plant and development,
equipment Vehicles land and Total
$ $ buildings $ $
---------- --------- ------------- --------
Cost - 2009
At 31 December
2008 46,354 2,062 35,738 84,154
Additions 17,886 143 7,726 25,755
Disposals - (98) - (98)
At 31 December
2009 64,240 2,107 43,464 109,811
---------- --------- ------------- --------
Accumulated
depreciation -
2009
At 31 December
2008 4,668 1,284 3,801 9,753
Provision for the
year 1,601 204 2,251 4,056
Disposals - (98) - (98)
At 31 December
2009 6,269 1,390 6,052 13,711
---------- --------- ------------- --------
Net book value at
31 December
2009 57,971 717 37,412 96,100
---------- --------- ------------- --------
Cost - 2010
At 31 December
2009 64,240 2,107 43,464 109,811
Additions 14,982 380 20,798 36,160
Disposals (20) (5) - (25)
Reclassification (16,060) - 16,060 -
At 31 December
2010 63,142 2,482 80,322 145,946
---------- --------- ------------- --------
Accumulated
depreciation -
2010
At 31 December
2009 6,269 1,390 6,052 13,711
Provision for the
year 1,814 235 3,845 5,894
At 31 December
2010 8,083 1,625 9,897 19,605
---------- --------- ------------- --------
Net book value at
31 December
2010 55,059 857 70,425 126,341
---------- --------- ------------- --------
The net book value amount of property, plant and equipment not
amortised amounted to $88,601 (2009 - $75,499).
7. Deferred exploration and development costs
Greek mineral properties:
Other
Stratoni Olympias Skouries exploration Total
$ $ $ $ $
Balance - 31
December
2008 26,652 237,362 166,292 253 430,559
--------- --------- --------- ------------ --------
Deferred exploration and
development
costs 636 606 1,257 33 2,532
Depletion of
mineral
properties (3,237) (657) - - (3,894)
--------- --------- --------- ------------ --------
(2,601) (51) 1,257 33 (1,362)
--------- --------- --------- ------------ --------
Balance - 31
December
2009 24,051 237,311 167,549 286 429,197
--------- --------- --------- ------------ --------
Deferred exploration and
451 1,482 2,872 396 5,201
development
costs
Depletion of
mineral
properties (2,899) - - - (2,899)
--------- --------- --------- ------------ --------
(2,448) 1,482 2,872 396 2,302
--------- --------- --------- ------------ --------
Balance - 31
December
2010 21,603 238,793 170,421 682 431,499
--------- --------- --------- ------------ --------
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 in certain areas while still
developing the mine to reach commercial production.
Romanian mineral properties:
Other
Certej exploration Total
$ $ $
Balance - 31 December 2008 38,832 6,355 45,187
------- ------------- --------
Project exploration and
development 3,672 547 4,219
Permit acquisition 157 - 157
Write-down of mineral
property - (1,171) (1,171)
Project overhead 1,551 159 1,710
Depreciation 58 13 71
------- ------------- --------
5,438 (452) 4,986
------- ------------- --------
Balance - 31 December 2009 44,270 5,903 50,173
------- ------------- --------
Project exploration and
development 2,031 985 3,016
Permit acquisition 88 - 88
Write-down of mineral
property - (590) (590)
Project overhead 4,208 332 4,540
Depreciation 72 13 85
------- ------------- --------
6,399 740 7,139
------- ------------- --------
Balance - 31 December 2010 50,669 6,643 57,312
------- ------------- --------
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.
The Company acquired the Magura Tebii property in 2008, as part
of a consolidation of exploration ground in the area. The Company
carried out a series of exploration investigations including, soil
surveys, ground geophysical surveys, trenching and diamond core
drilling. These detailed programmes established that the
mineralization located at Magura Teebii was of insufficient tenor
and size to meet the Company's targets as either a satellite to the
Certej project or a stand-alone mine and therefore the decision was
made by the Company not to progress this project and the license
will be allowed to expire. A total of $590 was written down being
historic costs capitalized relating to Magura Tebii.
Since the award of the Cainel Exploration Licence in 2005, the
Company conducted an extensive programme of mapping, surface
sampling, investigation of historic workings and dumps, drilling
and geological interpretation on the property. This work concluded
that the main mineralised structures had been mined out to
practical mining depths and that there were no indications of
significant extensions to the known mineralisation. Permit wide
soil sampling was completed in 2009 which identified no other near
surface resources and therefore the decision was made by the
Company to relinquish the licence. In 2009 a total of $1,171 was
written down being historic costs capitalised relating to
Cainel.
As at the 31 December 2010, the following cost had been incurred
on the remaining Romanian mineral properties:
2010 2009
$ $
------ ------
Baita-Craciunesti 3,325 3,334
Voia 2,030 1,847
Magura Tebii - 181
Exploration projects 1,288 541
6,643 5,903
------ ------
Turkish mineral properties:
Other
Ardala exploration Total
$ $ $
Balance - 31 December 2008 449 7 456
------- ------------- ------
Exploration 225 40 265
Project overhead 695 108 803
Permit acquisition 86 - 86
Depreciation 13 2 15
1,019 150 1,169
------- ------------- ------
Balance - 31 December 2009 1,468 157 1,625
------- ------------- ------
Exploration 535 126 661
Project overhead 558 432 990
Permit acquisition 5 6 11
Depreciation 16 3 19
1,114 567 1,681
------- ------------- ------
Balance - 31 December 2010 2,582 724 3,306
------- ------------- ------
The Turkish licences are held through a Turkish Company, Pontid
Madencilik. Currently the Company has a 51% interest in all the
properties and the Company will fund 100% of all costs related to
the development of these properties. Ownership of the Ardala
property may be increased to 80% by funding to completion of a
Bankable Feasibility Study. All other concessions 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.
8. Investment in associates
2010 2009
$ $
----- --------
Balance - Beginning of year 711 2,075
Shares acquired - 141
Share of profit/(loss) of associate 10 (76)
Cumulative translation adjustment 22 (32)
Share issue cost - (28)
Loss in dilution of interest in
associates - (36)
Reclassification as investment
available-for-sale - (1,333)
----- --------
Balance - End of year 743 711
----- --------
In January 2008, Hellas Gold acquired a 50% share of Greek
Nurseries SA for a consideration of $834 (EUR530), at the date of
acquisition the Company had no net assets.
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 was $132 at the
date of acquisition. This excess represented additional fair value
assigned to mineral properties of Ariana and was to be depleted
upon commencement of mining operations of Ariana.
In January 2009, Ariana performed a share issue which the
Company took part in, however this resulted in a dilution of
ownership as the Company did not subscribe to 20.13% of the new
shares being issued. After the share issue the Company held 19.87%
interest in Ariana. During September 2009 and March 2010 Ariana
carried out further share placements in which the Company did not
subscribe. As at 31 December 2010, the Company held 12.74% of the
issued share capital (2009 - 16.58%). Since October 2009, the
Company no longer has a representative on the board of Ariana and
therefore no longer has significant influence and therefore
accounted for its investment in Ariana as an investment
available-for-sale.
9. Investment other
2010 2009
$ $
------ ------------
Balance - Beginning of year 1,490 -
Reclassification from investment in
associate - 1,333
Fair value adjustment 485 157
------
Balance - End of year 1,975 1,490
------ ------------
The above investment is accounted for as an available-for-sale
asset.
10. 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:
2010 2009
$ $
--------- --------
Income tax rate 33.00% 34.00%
Income taxes at statutory rates (14,064) (2,839)
Tax rate difference from foreign jurisdictions 1,232 323
Permanent differences 5,204 (391)
Under provision prior year - 654
Change in tax rate (60) (60)
Change in valuation allowance 8,311 5,689
---------
623 3,376
--------- --------
The following table reflects future income tax assets:
2010 2009
$ $
--------- ---------
Loss carry forwards 12,605 10,091
Plant and equipment 108 45
Retirement obligation 1,321 1,396
Accruals 97 -
Inventory 34 -
Personal indemnities 49 47
Capital raising costs 451 853
Valuation allowance (13,057) (10,824)
--------- ---------
1,608 1,608
Less: Current portion - (119)
--------- ---------
Future income tax assets recognised 1,608 1,489
--------- ---------
The following table reflects future income tax liabilities:
2010 2009
$ $
------- -------
Mineral properties 84,124 84,491
Plant and equipment 1,901 1,329
Exploration and development expenditure 3,525 3,187
Accrued expenses & other 227 286
Inventory - 10
Retirement obligation 595 780
Future income tax liabilities recognised 90,372 90,083
------- -------
The tax liability relating to the mineral property 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 2010, the Company has available tax losses for
income tax purposes of $44,434 (2009 - $36,258) which may be
carried forward to reduce taxable income derived in future
years.
The non-capital losses expire as follows:
2010
$
-------
2017 13,127
2016 3,909
2015 9,262
2014 722
Non expiring losses 17,414
-------
44,434
-------
In addition, the Company incurred share issue costs and other
deductible temporary differences, which have not yet been claimed
for income tax purposes, totalling as at 31 December 2010 $451
(2009 - $1,357).
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.
11. Provisions
2010 2009
$ $
------ ------
Deferred phantom unit plan 6,557 1,900
6,557 1,900
------ ------
12. 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 2010 and 2009:
2010 2009
$ $
------ ------
Asset retirement obligation - Beginning of year 7,068 6,937
Accretion expense 127 131
------
Asset retirement obligation - End of year 7,195 7,068
------ ------
As at 31 December 2010, the undiscounted amount of estimated
cash flows required to settle the obligation is $7,805 (2009 -
$7,805). The estimated cash flow has been discounted using a credit
adjusted risk free rate of 5.04% (2009 - 5.04%). The expected
period until settlement is four years (2009 - five years).
13. Deferred revenue
In April 2007, Hellas Gold agreed to sell to Silver Wheaton
(Caymans) Ltd. ("Silver Wheaton") all of the silver metal to be
produced from ore extracted during the mine-life within an area of
some 7 km(2) around its zinc-lead-silver Stratoni mine in northern
Greece (the "Silver Wheaton Transaction"), up to 15 million ounces,
or 20 million ounces if additional silver is processed through the
Stratoni mill from areas other than the current producing mine. 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. During the year ended 31
December 2010, Hellas Gold delivered concentrate containing 780,251
ounces (2009 - 772,865 ounces) of silver for credit to Silver
Wheaton.
In September 2007, Hellas Gold entered into an agreement with a
subsidiary of Celtic Resources Holdings Plc ("Celtic") 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.
During the year a total of Nil wmt (2009 - 24,680 wmt) of
concentrate was delivered to Celtic.
The following table reconciles movements on deferred revenue
associated with Celtic and the Silver Wheaton transaction:
2010 2009
$ $
-------- --------
Deferred revenue - Beginning of year 52,961 58,496
Revenue recognised (3,300) (5,535)
49,661 52,961
Less: Current portion (3,867) (4,549)
--------
Deferred revenue: non - current 45,794 48,412
-------- --------
14. 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 Amount
of shares $
------------ --------
Balance - 31 December 2008 179,382,381 538,316
Restricted share units vested 947,925 3,317
Share options exercised or exchanged 1,009,507 3,576
Share issue costs, net of tax - (29)
------------ --------
1,957,432 6,864
------------ --------
Balance - 31 December 2009 181,339,813 545,180
------------ --------
Restricted share units vested 1,061,335 4,733
Share options exercised or exchanged 783,973 3,557
Issued to JOE Plan 500,000 3,301
------------ --------
2,345,308 11,591
------------ --------
Balance - 31 December 2010 183,685,121 556,771
------------ --------
Contributed surplus
2010 2009
$ $
------- -------
Equity-based compensation expense 16,084 9,469
Other 578 578
-------
16,662 10,047
------- -------
Accumulated other comprehensive income
The components of accumulated other comprehensive income were as
follows:
2010 2009
$ $
------- --------
Cumulative translation adjustment 36,839 36,818
Fair value of cash flow hedge (970) (1,064)
Available-for-sale asset 641 157
-------
36,510 35,911
------- --------
Other reserve
2010 2009
$ $
-------- -----
Purchase of treasury shares (3,301) -
(3,301) -
-------- -----
15. 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 share options have a vesting period ranging
between 1 and 3 years and in certain instances vest upon the
achievement of corporate milestones. Upon 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 Share Option Plan shall not exceed 15%
of the common shares issued and outstanding from time to time,
being 27,552,768 shares as at 31 December 2010 (2009 -
27,200,972).
An option holder 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
settlement optioned - Exercise
common shares price) Current
shares issuable price
on
exercise
of the
Exchanged
Rights
As at 31 December 2010, the following share options were
outstanding:
Number Exercise
of exercisable Number Price
Expiry date options of Options $
---------------- ------------ ---------
2011 50,000 50,000 4.10
2011 17,000 17,000 3.25
2011 600,000 600,000 3.85
2012 250,000 250,000 5.87
2013 - 18,332 6.80
2013 50,000 95,000 5.07
2013 360,000 360,000 3.54
2014 1,300,000 1,300,000 6.00
2014 900,000 900,000 6.03
2015 - 62,500 6.06
2015 37,500 75,000 7.24
2015 - 62,500 11.66
2015 - 2,525,000 13.95
---------------- ------------ ---------
3,564,500 6,315,332 8.87
---------------- ------------ ---------
During the years ended 31 December 2010 and 2009, share options
were granted, exercised, exchanged, forfeited and expired as
follows:
Weighted
average
exercise
Number price
of options C$
Balance - 31 December 2008 3,491,665 4.01
------------ ----------
Options granted 1,350,000 6.04
Options exercised (960,000) 2.72
Options exchanged for shares (125,000) 4.46
Options forfeited (50,000) 6.80
Options expired (300,000) 4.18
Balance - 31 December 2009 3,406,665 5.10
------------ ----------
Options granted 4,325,000 10.76
Options exercised (143,333) 2.29
Options exchanged for shares (1,233,000) 5.90
Options forfeited (40,000) 6.80
Balance - 31 December 2010 6,315,332 8.87
------------ ----------
Of the 6,315,332 (2009 - 3,406,665) share options outstanding as
at 31 December 2010, 3,564,500 (2009 - 1,855,001) were fully vested
and had a weighted average exercise price of C$5.35 (2009 - C$4.57)
per share. The exercise prices of those options exercised and
exchanged during 2010 ranged from C$1.99 to C$7.00 per share (2009
- C$2.00 to C$4.10) and the weighted average exercise price during
2010 was C$5.52 (2009 - C$2.92). The share options outstanding as
at 31 December 2010, had a weighted average remaining contractual
life of 3.80 years (2009 - 3.38 years).
For outstanding share options, including options granted during
the year and those which were not fully vested during the year
ended 31 December 2010, the Company incurred a total equity-based
compensation cost of $7,195 (2009 - $2,039) of which $5,721 (2009 -
$1,901) has been recognised as an expense in the statement of
profit and loss and $1,473 (2009 - $138) capitalised to deferred
exploration and development costs.
The fair value of the share options granted has been estimated
at the date of grant using a Black-Scholes and Parisian option
pricing model with the following assumptions: weighted average risk
free interest rate of 0.5% - 2.64% (2009 - 2.05% to 3.05%);
volatility factor of the expected market price of the Company's
shares of 58.94% - 68.03% (2009 - 32.86% to 89.59%); a weighted
average expected life of the share options of 5 years (2009 - 5
years), maximum term of 5 years and a dividend yield of Nil (2009 -
Nil).
Restricted share unit plan
The Company operates a Restricted Share Unit Plan (the "RSU
Plan") authorising the directors, based on recommendations received
from the Compensation Committee, to grant Restricted Share Units
("RSUs") to designated directors, officers, employees and
consultants. The RSUs are "phantom" shares that rise and fall in
value based on the value of the Company's common shares and are
redeemed for actual common shares on the vesting dates determined
by the Board of Directors when the RSUs are granted. The RSUs vest
on the dates below; however, upon a change of control of the
Company they would typically become 100% vested. The maximum number
of common shares of the Company which may be reserved for issuance
for all purposes under the RSU Plan shall not exceed 2.5% of the
common shares issued and outstanding from time to time, being
4,592,128 shares as at 31 December 2010 (2009 - 4,533,495).
As at 31 December 2010, the following RSUs were outstanding:
Grant date
fair value
of
underlying
Number Shares
of RSU's C$
---------- ------------
31 December 2011 200,000 6.02
31 December 2011 416,664 6.19
31 December 2012 133,336 6.19
25 January 2011 31,250 6.32
25 January 2012 31,250 6.32
1 February 2011 37,500 7.11
1 February 2012 37,500 7.11
15 March 2011 31,250 11.76
15 March 2012 31,250 11.76
31 December 2013 675,000 10.88
31 December 2011 213,527 14.65
1,838,527 9.11
---------- ------------
During the years ended 31 December 2010 and 2009, RSUs were
granted, vested and forfeited as follows:
Weighted
average
grant date
fair value
of underlying
Number price
of RSUs C$
------------ ---------------
Balance - 31 December 2008 205,000 4.09
RSUs granted 2,104,259 4.52
RSUs vested (947,925) 3.86
RSUs forfeited (100,000) 2.74
Balance - 31 December 2009 1,261,334 5.09
------------ ---------------
RSUs granted 1,638,527 9.48
RSUs vested (1,061,334) 4.91
Balance - 31 December 2010 1,838,527 9.11
------------ ---------------
For outstanding RSUs which were not fully vested, including RSUs
granted during the year ended 31 December 2010, the Company
incurred a total equity-based compensation cost of $7,398 (2009 -
$4,781) of which $4,748 (2009 - $3,793) has been recognised as an
expense in the statement of profit and loss and $2,650 (2009 -
$988) 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 eligible Directors. The DPUs are units which give rise
to a right to receive a cash payment on a particular date, being
the date that any Director is no longer employed by the Company or
upon a change of control of the Company. The cash payment should be
the market value of the equivalent number of shares granted at that
date of exercise. A portion of the DPUs vest over a period of time,
ranging from 1 to 3 years and upon achieving certain corporate
milestones. The market value of outstanding DPUs at 31 December
2010 and 2009 has been included in non-current liabilities.
During the years ended 31 December 2010 and 2009, DPUs were
forfeited and outstanding as follows:
Number
of DPUs
----------
Balance - 31 December 2008 406,500
DPUs granted 90,817
DPUs converted to RSUs (145,907)
Balance - 31 December 2009 351,410
----------
DPUs granted 1,758,599
DPUs exercised (147,439)
Balance - 31 December 2010 1,962,570
----------
Of the 1,962,570 (2009 - 351,410) DPUs outstanding as at 31
December 2010, 261,860 (2009 - 351,410) were fully vested and had a
weighted average price of C$13.93 (2009 - C$6.08) per share. A
total of 147,439 DPUs were exercised during the year (2009 - Nil)
at a realised price of C$5.26 (2009 - Nil).
For outstanding DPUs including DPUs granted during the year and
those which were not fully vested during the year ended 31 December
2010, the Company incurred a total compensation cost of $5,437
(2009 - $836) which has been recognised as an expense in the
statement of profit and loss.
16. Financial instruments and financial risk management
Financial exposures, in varying degrees, arise in the normal
course of the Company's consolidated operations and include
commodity price risk, foreign exchange risk, interest rate risk,
liquidity risk and credit risk associated with trade and financial
counterparties. These exposures are monitored by Senior Management
and are assessed and mitigated in accordance with the Group Risk
Management Policy.
The Company's financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable, accrued
liabilities, available-for-sale asset 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 carrying amounts of the financial instruments and their fair
values as at 31 December 2010 and 2009 are as follows:
Carrying amount Fair value
2010 2009 2010 2009
-------- -------- ------- --------
Financial assets
Cash and cash equivalents 57,122 113,642 57,122 113,642
Accounts receivable 26,285 26,813 26,285 26,813
Available-for-sale asset 1,975 1,490 1,975 1,490
Financial liabilities
Accounts payable and accrued
liabilities 11,557 10,784 11,557 10,784
Derivative financial liability 970 1,064 970 1,064
Fair value Fair value
2010 2009
Fair value valuation Fair value valuation
2010 technique 2009 technique
quoted market quoted market
market observation market observation
price inputs price inputs
(Level (Level (Level (Level
1) 2) 1) 2)
----------- ------------- ----------- -------------
Financial assets
Available-for-sale
asset 1,975 - 1,490 -
Financial liabilities
Derivative financial
liability - 970 - 1,064
Quoted market price represents the fair value determined based
on quoted prices on active markets as at the reporting date without
any deduction for transaction costs. The fair value of the listed
equity investments are based on quoted market prices.
For financial instruments not quoted in active markets, the
Company used valuation techniques such as present value and Black -
Scholes option valuation techniques, comparison to similar
instruments for which market observable prices exist and other
relevant models used by market participants. These valuation
techniques use both observable and unobservable market inputs.
Commodity price risk - The Company's net profit and value of the
mineral resource properties are related to the prices of gold,
silver, copper, zinc and lead and the 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 market participants, levels of worldwide
production, macro-economic and political variables and certain
other factors related specifically to gold. Silver and, in
particular, base metal prices have historically tended to be driven
more by the demand and supply fundamentals for each metal, however,
they are also influenced by speculative activity, macro-economic
and political variables and certain other factors related
specifically to silver and base metals.
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.
Hedging 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 and the
Company deals with highly rated banks and institutions who have
demonstrated long term commitment to the mining industry. The
Company has one counterparty in respect of its lead and zinc hedge
contracts noted below. Market conditions and prices would affect
the fair value of these hedge contracts and in certain market
conditions, where the fair value of the hedge contract is positive
to the Company, if this counterparty were unable to honour its
obligations under the hedge contract, the Company would be exposed
to the value of the hedge and the difference between the hedged
price and the then current market price on the date of the
settlement. The hedges below are treated as cash flow hedges in
accordance with CICA 3865: Hedges.
Lead and Zinc hedging contracts - As at 31 December 2010, the
Company had entered into hedging arrangements as illustrated below
which, for the amount of production shown, protect the Company from
decreasing prices below the floor price and limit participation in
increasing prices above the cap price. The period of the hedge is
from 1 January 2011 until 31 December 2011 and is cash settled on a
monthly basis between the monthly average of the relevant commodity
price and the cap and floor price, as applicable. As at 31 December
2010, these contracts had a fair value of ($970) (2009 - ($1,064)),
determined by a 3rd party valuation using the appropriate
Black-Scholes options valuation model, based on the then prevailing
market prices including lead and zinc prices, interest rates and
market volatility.
Period January 2011 - December 2011 Lead Zinc
------
Total Volume (tonne) 6,000 7,800
Monthly Volume (tonne) 500 650
Floor Price ($/tonne) 2,000 2,000
Cap Price ($/tonne) 2,900 2,800
During the year ended 31 December 2010, the Company recorded
income relating to its hedging program of $577 (2009 - $5,621).
Given the current maturity profile of the hedge, market
expectations and parameters, we expect that the fair value of the
existing hedge contracts ($970) will be released to net income
within the next 12 months.
Currency risk - The Company is exposed to currency risk on
accounts receivable, accounts payable and cash holdings that are
denominated in currencies other than the functional currencies of
the operating entities in the group. As at the 31 December 2010,
the Company held the equivalent of $41,591 (2009 - $16,133) in net
assets denominated in foreign currencies. These balances are
primarily made up of Euro and, to a lesser extent, Pound
Sterling.
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 Euro denominated assets and
liabilities in its foreign operations.
For the year ended 31 December 2010 the Company recorded a
foreign exchange loss of $3,321 (2009 - $1,576), mainly due to the
translation of Euro balances in its subsidiaries.
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 that there is
sufficient capital to meet working capital, short and long term
business requirements after taking into account cash flows from
operations and holdings of cash and cash equivalents. Senior
management is 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 financial derivatives. As at 31 December 2010, the
Company's trade payables and accrued liabilities amounted to
$11,557 (2009 - $10,784), all of which fall due for payment within
12 months of the balance sheet date. The average credit period
achieved during the year ended 31 December 2010 was 30 days (2009 -
30 days).
As at 31 December 2010, cash and cash equivalents comprises the
following:
2010 2009
$ $
------- --------
Interest bearing bank accounts 29,003 102,686
Short-term deposits 28,119 10,956
------- --------
57,122 113,642
------- --------
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 2010, 3 (2009 -
4) customers represented 99% (2009 - 84%) of the total. The Company
does not anticipate any loss for non-performance.
For a breakdown of accounts receivable as at 31 December 2010
refer to note 4.
As at 31 December 2010, the Company considers its accounts
receivable excluding Value Added Taxes recoverable and other
accounts receivable to be aged as follows:
2010 2009
Ageing $ $
----- ------
Current 856 4,139
Past due (1-30 days) - 2,283
Past due (31-60 days) - 233
Past due (more than 60 days) 21 57
----- ------
877 6,712
----- ------
No provision has been made for accounts receivable past due and
full receipt is expected.
Interest rate risk - The Company is exposed to interest rate
risk arising from fluctuations in interest rates on its cash
equivalents. The Company does not have any borrowings or debt
facilities and 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
liquid funds are maintained to meet day to day requirements and to
place any amounts which are considered in excess of this on
short-term deposits with the Company's banks to earn interest. 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 2010 the company earned interest income of $306 (2009 -
$625) on cash and cash equivalents, based on rates of returns up to
3.5% (2009 - up to 3.5%).
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 expose the Company to credit risk
consist of cash and cash equivalents, accounts receivable and in
certain market conditions, hedging contracts. Cash equivalents
consist mainly of short-term investments, such as money market
deposits. The Company does not invest in asset-backed commercial
paper and has deposited the cash equivalents only with the largest
banks within a particular region or with top rated
institutions.
The Company's concentrate offtake arrangements also expose it to
credit risk which would result should the Company's offtakers
default under these arrangements, as a result of which the Company
would not realise its trade receivable amount. The Company manages
this exposure through assessing the offtaker's credit risk before
entering the offtake agreement, the structure of the offtake
contract and sells to a number of different offtakers which
diversifies this risk.
Included in the Company's accounts receivable is an amount of
$22,509 (2009 - $18,095) relating to value added taxes recoverable
which is subject to Greek government credit risk.
Sensitivity analysis - The Company has completed a sensitivity
analysis to estimate the impact on net (loss)/profit of a 5% change
in foreign exchange rates, a 1% change in interest rates and a 10%
change in base metal prices, excluding the effect of hedging,
during the years ended 31 December 2010 and 2009. The results of
the sensitivity analysis can be seen in the following table:
2010 2009
Impact on net (loss)/profit (+/-) $ $
-------- --------
Change of -5% US$: EUR foreign exchange rate (1,492) (1,676)
Change of +5% US$: EUR foreign exchange rate 1,491 1,674
Change of +/-1% in interest rates 545 890
Change of +/-10% in commodities prices 2,198 8,281
Limitations of sensitivity analysis - The above table
demonstrates the effect of each sensitivity in isolation. In
reality, there may be a correlation between a combination of any of
these sensitivities. Additionally, the financial position of the
Company may vary at the time any of these factors occurs, causing
the impact on the Company's results to differ from that shown
above.
17. Capital risk management
The Company's objectives when managing its capital are to
maintain financial flexibility to achieve its long term business
development plan, whilst managing its costs, optimizing its access
to capital markets and preserving capital value. Further, it
ensures that there is sufficient liquidity available to meet day to
day operating requirements.
The Company currently has no debt and considers its
Shareholders' Equity and cash and cash equivalents as components of
its capital structure.
The Company's Board of Directors continually assesses the
Company's capital through its short-term budgets and long-term
development plan, meeting regularly through quarterly board
meetings and regular communication with Officers and senior
management to assess the requirements, changes to Company's set of
assumptions and capital market conditions.
Going forward, as part of its capital management, the Company
expects to raise a level of debt based on the forecast cashflows of
its projects. As a result, the Company may need to comply with
certain financial covenants and financial restrictions
accordingly.
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, maturity and
counterparties, selected with regards to the expected timing of
expenditures from continuing operations and counterparty risk.
The Company expects its current capital resources and
anticipated debt raising will be sufficient to carry out its plans
and operations through its current operating period based on its
current price assumptions, technical life of mine models and
forecast budget, which outline cash requirements for each of its
projects.
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 2010.
Capital under management was as follows:
2010 2009
$ $
--------- ---------
Capital stock 556,771 545,180
Other reserves (3,301) -
Contributed surplus 16,662 10,047
Accumulated other comprehensive income 36,510 35,911
Deficit (56,635) (13,828)
--------- ---------
550,007 577,310
--------- ---------
18. Supplementary cash flow information
2010 2009
$ $
=================================================== -------- ---------
Changes in non-cash working capital:
=================================================== ======== =========
(Increase)/decrease in accounts receivable
and prepaid expenses 11,101 (8,877)
=================================================== ======== =========
(Increase)/decrease in inventory (504) (1,845)
=================================================== ======== =========
Increase/(decrease) in accounts payable and
accrued liabilities 721 (4,416)
=================================================== -------- ---------
11,318 (15,138)
=================================================== -------- ---------
Supplemental disclosure of non-cash transactions:
=================================================== ======== =========
Non-cash share based compensation cost 14,593 6,820
=================================================== ======== =========
Exercise or exchange of share options --
Transfer from contributed surplus to share
capital (3,245) (1,244)
=================================================== ======== =========
Vesting of restricted share units (4,733) (3,317)
=================================================== ======== =========
19. Commitments
The Company has spending commitments of $435 (2009 - $236) per
year (plus service charges and value added tax) for a term of five
years under the lease for its office in London, England, which
commenced in November 2009.
Hellas Gold has spending commitments of $156 (2009 - $150) per
year for a term of 9 years under the lease for its office in
Athens, Greece, which commenced in December 2007. After the second
anniversary, the rent escalates annually at a rate of consumer
price index +1%. Hellas Gold's commitment through the lease
agreement is extended to payment of all rental taxes, utilities,
proportion of common charges as well as proportion of municipal
taxes.
Deva Gold has spending commitments of $155 (2009 - Nil) per
year, with the Local Council of Certejul de Sus commune, for a term
of 20 years, for forested land situated in Hondol village, Romania.
The lease commenced in November 2010 and has the option of being
extended for a period equal with a maximum of half of the initial
period and by mutual agreement.
As at 31 December 2010, Hellas Gold had entered into off-take
agreements pursuant to which Hellas Gold agreed to sell 21,381 dmt
of zinc concentrates, 13,154 dmt of lead/silver concentrates and
20,869 dmt of gold concentrates until the financial year ending
2011.
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 $43,749 which is to be paid in full by the
end of March 2011. As at 31 December 2010, $43,292 of the
commitment had been paid. The Company has pledged $342 in support
of a letter of credit issued on behalf of Outotec Minerals OY
through Nordea Bank of Finland.
2010 2009
$ $
------ ------
Within one year 550 323
After one year but not more than five years 2,010 982
More than five years 2,437 1,163
------ ------
4,997 2,468
------ ------
20. Transactions with related parties
Aktor S.A ("Aktor") Greece's largest construction Company owns
5% of Hellas Gold the Company's 95% owned subsidiary. Aktor is a
100% subsidiary of Ellaktor S.A., which owns 19.3% of the Company's
issued share capital. Aktor, which is deemed a related party,
contracts management, technical and engineering services to Hellas
Gold.
During the year ended 31 December 2010, Hellas Gold incurred
costs of $36,213 (2009 - $33,566) which have been recognised as
cost of sales in the statements of profit and loss and capitalised
to property, plant and equipment, for services received from Aktor.
As at 31 December 2010, Hellas Gold had accounts payable of $3,866
(2009 - $3,881) to Aktor. These expenditures were contracted in the
normal course of operations and are recorded at the exchange amount
agreed by the parties. The terms of the payable is 30 days (2009 -
30 days).
During the year ended 31 December 2010, the Company loaned three
of its directors a total of $95 (GBP61), (2009 - nil) in relation
to employee withholding taxes paid by the Company on behalf of the
directors. These loans, which were taken out in the context of the
Company's long term incentive plan to increase directors' equity
investment in the Company, are interest free and repayable by
mutual agreement.
21. Segmented report
During 2010, the Company had four reporting segments. The
Company has identified its operating segments based on internal
reports prepared by management. Management has identified the
operating segments based on the location of its activities. The
Company's operations are managed on a regional basis. The Greek
reporting segment includes the production activities of the
Stratoni mine and development activities of Olympias and Skouries.
The Romanian reporting segment includes the exploration and
development activities of the Certej project. The Turkish reporting
segment includes the exploration activities of the Ardala project.
The other reporting segment includes the operation of the Company's
corporate office. The accounting policy used by the Company in
reporting segments are in accordance with the measurement
principles of Canadian GAAP.
2010
Greece Romania Turkey Corporate Total
--------- -------- ------- ---------- ---------
Assets
Production stage mineral
properties 21,603 - - - 21,603
Development stage
mineral properties 409,896 57,312 - - 467,208
Exploration stage
mineral properties - - 3,306 - 3,306
Property, plant and
equipment 114,076 11,395 45 825 126,341
Cash 3,978 1,070 410 51,664 57,122
Accounts receivable 25,126 225 437 496 26,284
Other assets 11,741 1,291 44 3,873 16,949
Segment assets 586,420 71,293 4,242 56,858 718,813
--------- -------- ------- ---------- ---------
Income
Sales to external
customers:
Concentrate sales 50,572 - - - 50,572
Gold pyrite sales (717) - - - (717)
Other income:
Income from associate - - - 10 10
Interest income 16 - - 290 306
Total segment income 49,871 - - 300 50,171
--------- -------- ------- ---------- ---------
Result
Depreciation (5,840) 290 (4) (230) (5,784)
Depletion (2,899) - - - (2,899)
Segment result before
hedge contract
profit and equity based
compensation (10,853) (590) (58) (15,789) (27,290)
Hedge contract profit - - - 577 577
Share compensation - - - (15,907) (15,907)
Total segment result
before income taxes (10,853) (590) (58) (31,119) (42,620)
Income taxes
(expense)/benefit (989) - - 366 (623)
--------- -------- ------- ---------- ---------
Total segment result (11,842) (590) (58) (30,753) (43,243)
========= ======== ======= ========== =========
Of total revenue in the period, 4 customers each accounted for
greater than 10% of the total.
2009
Greece Romania Turkey Corporate Total
-------- -------- ------- ---------- ---------
Assets
Production stage mineral
properties 24,051 - - - 24,051
Development stage mineral
properties 405,146 50,173 - - 455,319
Exploration stage mineral
properties - - 1,625 - 1,625
Property, plant and
equipment 92,711 3,102 53 234 96,100
Cash 7,170 882 135 105,455 113,642
Accounts receivable 25,293 120 194 1,205 26,812
Other assets 23,581 325 33 2,612 26,551
Segment assets 577,952 54,602 2,040 109,506 744,100
-------- -------- ------- ---------- ---------
Income
Sales to external
customers:
Concentrate sales 39,563 - - - 39,563
Gold pyrite sales 23,149 - - - 23,149
Other income:
Income from associate - - - (76) (76)
Interest income 428 - 1 196 625
Total segment income 63,140 - 1 120 63,261
-------- -------- ------- ---------- ---------
Result
Depreciation (3,870) (4) (3) (94) (3,971)
Depletion (3,216) - - - (3,216)
Segment result excluding
hedge contract
profit and equity based
compensation 1,940 (1,171) (82) (8,129) (7,442)
Hedge contract profit - - - 5,621 5,621
Share based compensation - - - (6,530) (6,530)
Total segment result
before income taxes 1,940 (1,171) (82) (9,038) (8,351)
Income taxes
(expense)/benefit (2,007) - - (1,369) (3,376)
-------- -------- ------- ---------- ---------
Total segment result (67) (1,171) (82) (10,407) (11,727)
======== ======== ======= ========== =========
Of total revenue in the period, 4 customers each accounted for
greater than 10% of the total.
22. 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 2010 and 2009, the Company recognised the
following costs:
2010 2009
$ $
----- -----
Defined contribution plans 255 641
----- -----
23. Loss 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:
2010 2009
$ $
============================================== --------- ---------
Loss for the year (42,807) (11,783)
============================================== ========= =========
Effect of dilutive potential common shares - -
============================================== ========= =========
Diluted earnings (42,807) (11,783)
============================================== ========= =========
Weighted average number of common shares for
the purpose of basic earnings per share 182,754 179,825
============================================== ========= =========
Incremental shares -- Share options - -
============================================== ========= =========
Weighted average number of common shares for
the purpose of diluted earnings per share 182,754 179,825
============================================== --------- ---------
24. Comparative figures
Certain prior year amounts have been reclassified from
statements previously presented to conform to the presentation of
2010 Consolidated Financial Statements.
25. Post balance sheet event
The Company has noted a decision announced by a press release of
the European Commission of 23 February 2011. The press release
states that the European Commission has concluded that the sale of
the Kassandra Mines in 2003 by the Greek State to Hellas Gold was
carried out below its real market value and, therefore, involved
indirect subsidies in breach of EU state aid rules. The subsidy was
calculated by the European Commission at $18.7 million (EUR14
million), such amount representing the difference between its own
interpretation of the value of the mines as $33.4 million (EUR25
million) from a report commissioned for the Company shortly after
the sale and the purchase price of $14.7 million (EUR11 million)
paid by Hellas Gold. The European Commission also asserts that the
Company did not pay transaction taxes amounting to $1.79 million
(EUR1.34 million); therefore, the total amount to be recovered from
the Company to the Greek State is $20.4 million (EUR15.3 million),
plus interest.
Based on what has been publically stated the Company and/or
Hellas Gold would seek to contest the decision on the basis that
the report on which the European Commission based its decision
clearly states that the value of the Kassandra Mines was negative
$2.59 million (EUR1.94 million) rather than the aforementioned
$33.4 (EUR25 million). The Company has not yet seen a copy of the
European Commission's decision. When the decision is released, the
Company will have the opportunity to review all the legal, economic
and factual elements relied upon by the European Commission in
making its finding of state aid in favour of Hellas Gold and will
use all means at its disposal to ensure that the decision
accurately reflects the entire circumstances and issues surrounding
the December 2003 acquisition. The Company has received legal
advice that it has reasonable grounds to contest this ruling.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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